Macro and micro economic market movers

Mark

Welch: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one. Full count, here comes the play at the plate, and it's the Ag View Pitch!

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and today we're going to have a conversation on the grain markets from a macro and micro perspective. And we've got our guest here today Mark Welch with Texas A&M, who is the grain marketing economist at Texas A&M. How's it going, Mark?

Mark

Welch: Very good, Chris. Good to be with you today.

Chris

Barron: Great. It's good to have a conversation and talk a little bit about kind of what's going on in the market. There's a lot of big-ticket items that we don't often talk about in the markets. You know, we focus a lot on things at the farm gate. We focus a little bit on what we hear on the radio and what we hear analysts talking about and that type of thing. And so what we want to do today first is just kind of have you go into a little bit of the things that are impacting the market or maybe in the future impacting the market as we look at some of the macroeconomic impacts. So do you want to go ahead and kind of start talking to us a little bit about what you're watching with the macro side of things?

Mark

Welch: Again, I think a lot of times we don't put that connection between a lot of things that we hear more on the macroeconomic level to the impact and the influence it has of what we see at the farm level. But I think there are a couple of things I'd like to point to starting off that really highlight that relationship. One is if you go back and look at U.S. net farm income, going back to the mid-1960s, and look what happened to net farm income during recessions. And many times we feel like, well, maybe, you know, what happens at the farm level economy is kind of separate from the general economy. Well, that's not really the case. If you look at net farm income over the last 7 recessions, net farm income goes down during a recession.

And so watching those economic factors that would lead an economy or cause an economy to dip into recession, and then again those factors that would pull us out matter a lot to net farm income numbers when you look at the U.S. And then a little more broadly speaking, one I think of the most dynamic and interesting relationships that I've seen between influencing grain consumption globally, if you go back over the last 20 years, and look at the relationship between global per capita grain consumption. And when I create this chart, when I talk about grains, I'm talking about food grains and feed grains, and I even throw soybeans in there because it's such an important part of the, the U.S. agricultural production mix.

So you take grain use per capita globally, so how much we consume per person on an annual basis, and look at the growth of that And that's been on a steep rise since the early 2000s. And so trying to find something that would support or explain that relationship, there's a strong correlation between global— an increase in global per capita grain consumption and increases in average incomes, particularly if you look at the emerging and developing economies around the world. So look at growth in average incomes in places like Brazil, Russia, India, China, Mexico, and then a cluster of Southeast Asian nations, and I pull in Indonesia, Vietnam, Philippines, Thailand, and Malaysia. And in the late '90s and early 2000s, you saw those economies begin to grow very, very rapidly. You saw incomes begin to grow on a per capita basis in those countries. The middle class began to expand.

They had increases in the disposable income. And as those economies expand and as people had more money to spend, we saw that money being directed to things like feed and food and fuel and fiber, things that are really, really important to U.S. agriculture. And you think, well, why? What was that pivot point that occurred in the late '90s and early 2000s? And I think we can think about how the global labor picture And technology picture began to change.

If you think about the technology adaptation from the late '90s to the early 2000s, and just think about that cell phone that you've got on your hip, personal computers, the internet, so much that explosion and technological capacity and capability, combine that with workforces that at that time had relatively low wage rates and people that were willing to work really, really hard,, and you saw productivity increase, GDP went up, and then that translated to average income increases in that part of the world. So we can look at some of those broader measures of economic activity like GDP, and it matters a lot at the farm level when you look at how it's driven global grain consumption.

Chris

Barron: You're creating a whole bunch of questions from me here, I guess. I don't know where to start with the questions, I guess, but, um, You know, when you look at the uncertainty that we have right now because of COVID essentially worldwide, and kind of a big deal obviously here right now in the U.S., and that uncertainty that, that creates, and you hear people talking about inflation. And so I'm throwing a bunch of different things out here, I guess, but let's start with the uncertainty component first. I mean, If there's a direct correlation, you're saying, you know, a lot of times we hear people talk about, well, the farm economy is the opposite of the general economy, and you're kind of disputing that.

And so if we continue to see pressure on the ag economy because of the general economy, but let's say inflation starts to kick in, isn't Isn't there a reason why maybe we have some hope that maybe we do diverge from the general economy, or do you think that it still runs hand in hand?

Mark

Welch: I think what we would, we would look for, even though there may be some short-term divergence around maybe costs or prices, that overall those things would tend to support one another. Let's take inflation for example. Inflation over the last gosh, 10 years has been very muted. It just hasn't been a major factor in an economic discussion. And I can remember the '70s and '80s when inflation rates were running well above 10% and interest rates were 18%, 18%, wild runaway inflation. And now we have a generation that can't even imagine such things. And so how does that impact us moving forward? Well, certainly there are some positive aspects to very low inflation, you know, in terms of the pressure on borrowing costs, and maybe it holds down some of our input costs.

And we're seeing the Federal Reserve move in the current environment to drop interest rates to virtually zero from the borrowing that takes place between banks that the Federal Reserve manages. And then of course that translates then to lower interest rates, whether you're operating loan or an equipment loan or whatever, mortgage loan, whatever it works to the general economy. So that lowers that interest rate and you would think that's good for economic activity and that would be true. But the problem is we need a little inflation now and the Fed has just announced that they're going to be a little more lax in their interpretation of their inflation guidelines. Uh, uh, Chair, uh, President Jerome Powell has just announced that while 2% is kind of the long-run, uh, target for inflation in the U.S. economy, they're looking now, rather than 2% as a hard line, maybe a 2% average over time.

So if we've been below 2% for a period of time, they might let inflation run up higher than that in order to create some and stimulate some economic activity. And you think, well, how does that work to stimulate activity? Well, the interest rate is tied to other aspects of the economy in that when we can charge higher interest rates, it means there's more economic activity going on. Higher interest rates also provide some incentive for savings. When interest rates are virtually zero, that hurts many sectors of our economy. When you have an interest rate that's a little bit higher, it gives the Fed more tools that if there is an economic problem, well, they can then lower those rates back down to provide some stimulus for the economy. So, and just a specific feature of that, take gasoline prices. For many of us, we think cheap gas is a good thing.

But gasoline can also be a barometer of economic activity. When we're using gas and we're burning oil, we're usually doing stuff and making stuff, and that's tied directly to economic activity, economic growth, and economic expansion. And so yes, low prices for fuel, that's a good thing for a while, but if it continues, it reflects that there's not a lot of other things going on in the economy that are going to support the demand side of what we do in agriculture. Maybe it keeps our input costs down, but we need something on the demand side, on the consumer side, on our customer side to increase their desires and ability to pay and have that demand for our products. So it's all tied together. So a little inflation is a good thing in terms of it reflects then a resurgence of economic activity.

And so that's, I think, what the Fed is announcing, that, you know, if we see their other tools start to work, if the economy does start to pick up, that inflation getting to 2%, they're not necessarily going to try to put a lid on it right now. They may let that run. And that's not a bad thing for agriculture if we were to see that kind of pressure. So that would be one of the factors moving forward that would be positive. For the agricultural sector, you know, a little bit of inflation would, would help us at the farm gate.

Chris

Barron: Plus keeping the interest rates low for land values and that type of thing is an additional added value there too, right?

Mark

Welch: There you go. Again, for a period of time. If it extends too long, or even if conditions were to get to the point that we see deflation in the economy, uh, then, then that becomes a, a serious economic problem because then there's no incentive for people to buy now. Why should I spend money today if it's going to be cheaper tomorrow? And, and then that tends to drag down the entire economic picture. Yeah, that land is perhaps more affordable because your interest rates are low, but what are you going to sell what you produce off that land for? Where is it going to go? What's the final product that land, what value is it really generating? Yeah, you got it at a good price and at a low interest rate, but it still has to generate some kind of income and economic activity, and very, very low interest rates are not conducive to that over the long term.

And so that's why in kind of the macro picture, that maybe that short-term gain is nice to take advantage of, but if it continues for a longer period of time, uh, it paints a more negative picture for the agricultural sector and what we're doing with that land rather than positive over the longer term.

Chris

Barron: So not to ask you to necessarily prognosticate here, but, um, on the same token, if we look at interest rates going up at a certain point, what can the government afford in terms of interest rates when you look at the trillions of dollars that we have spent and that we are likely to spend yet How much, what level of interest rate can the country afford?

Mark

Welch: You know, and that's a really, I think, a vital question. Again, we've talked about low inflation, and until just recently, coming out of the Great Recession of 2007, '08, and '09, where interest rates were starting to creep back up a little bit, interest rates were very, very low for a period of 5, 6, 7 years. And of course, now we're back to very, very low interest rates again. And you think of the positive aspect of government spending in that we are now, as you're mentioning, a lot of government assistance, government bailout programs in response to the coronavirus, some emergency allocations that are made to many sectors in the economy. Well, now's a good time to do that from the standpoint of it's cheap to do. If we're borrowing the money to do it, which we are, we're borrowing it at very, very low interest rates.

The problem becomes if we were to see then the cost of borrowing for the U.S. economy to increase, and those interest rate charges as part of the federal budget and contributing to the national deficit, if those start to escalate, certainly a sharp rise in interest rates would be, you know, very negatively impact the budget situation of the government. And so, you know, if we're going to do it, you know, now's the time to do it when interest rates are cheap. But as we see the economy improve, as we see interest rates perhaps start to creep up, you then recognize we need to unwind these programs and start to pay down that debt that we accumulated in that crisis period. And I would argue this is exactly the right thing we need to be doing.

We need to be that influx of cash in the people's pockets in this economy, or it could be very, very serious economic consequences, that we need to unwind those programs as we see some, some growth of economic activity. And at this point, I think we will see some continued growth toward the end of this year and into 2021. But particularly if you look at the advanced economies of the world, the U.S., Japan, Europe, The expectations are that we will grow considerably next year. Won't make up all the ground we've lost this year, but yet be on that path back to perhaps restoring many aspects of our economy. But we have large segments of our economy that are going to struggle for likely to be significant, extended period of time, a significant period of difficult economic headwinds ahead of us. We've recovered a lot of jobs that we lost in March and April. The U.S.

economy, we lost about 25 million jobs. Well, we've gotten about 14 million of them back. So that last 10, 12 million to get us back where we were, those are likely to be the hardest ones to get back into the economy. We think of the hospitality sector, how many people are still struggling to make a living, the hotel industry, the travel industry. Recreational activities, events, any kind of, you know, the economic impact of those kinds of activities. We've got a long way to go. So, you know, there's all these factors, I think, overlay one another, but I think the headwinds for the economy are significant. I think we will continue to make progress for economic growth for the rest of this year and into next year, but that doesn't mean that we'll see a full recovery of the US economy in 6 months or perhaps even a year. But I think we are moving in that direction.

And that's when we start having those policy discussions of unwinding and repaying those programs. We're going to have to pay for it at some point. We got to spend it today, but recognizing that it does have implications down the road.

Chris

Barron: Right. And then you're getting to— you're talking about the pay part. And I'm sitting here thinking as you were explaining or answering that question, and I asked, you know, about the government's ability to be able to afford interest rate increases. And I actually probably should have asked, um, how much can taxpayers afford, right? You know, because, because the government is, is the taxpayers, you know. And, and so if we, if we have to repay that, or we need to work towards that, you know, and you're talking 6 months to a year for some level of recovery. We're probably looking at a lot longer period of time and a kind of a long stretch possibly ahead.

Mark

Welch: You know, I think that's exactly right, and I hope that as the economy does begin to recover, that we will have the political will to address that, recognizing that there were some heroic monetary and fiscal measures that took place because of the sudden and dramatic impact of this pandemic, but then recognize that out of that, there will come a time, yes, for the financial reckoning that will follow. Now, economic growth and activity, that will absorb a good portion of that. And so you think, do we grow out of that debt and that deficit? To some degree. But yet there are likely to be some other consequences as well in terms of reducing that level of debt and the deficit. Certainly that's borne by the government.

Because again, if we don't address those things, some of the impacts then start to hurt us in other areas as well, such as borrowing costs to maintain the payments on those accounts. So if it costs more for the U.S. to fund that debt, that just exacerbates the problem. So moving forward, as we've seen a lot of political cooperation of providing the stimulus and the assistance, the financial assistance we've seen over the last several months, well, starting back the last spring, that's been fantastic. Now we need to see that same political cooperation and will as we unwind those as we move beyond this current situation. It's not gonna happen tomorrow. But, but again, I think that would be the discussion that will be appropriate as we see some of the economic activity and the healing that could take place.

Chris

Barron: Gotcha. So a couple other questions on the macro side of things here before we start talking about, you know, what do we do about all this. But on the ethanol side of things, and I'm going to tie in China, and I know they're two different things, but You know, we were hoping that, you know, we could be sending a lot of ethanol to China. We were hoping that, you know, China would meet this Trade One agreement. There's a lot of people that don't believe that we get there. We've— they've bought a huge amount from us. Talk a little bit about where you see that going with, with China, and is there any opportunities on the ethanol side of things there? Because it looks like, you know, driving at least for the next year is probably going to be a lot lower. And so that's going to impact the ethanol side of things, which obviously has a direct impact on corn.

So I'll let you dive into that however you want to.

Mark

Welch: Yeah, and, and, uh, again, we talked about gasoline prices just a minute ago and how that reflects economic activity. I think U.S. gasoline demand is a great example of measuring, uh, the economic recovery from the coronavirus in the US. And of course, it's tied directly then to ethanol production and, and then the bushels of grain that go to produce that ethanol. If you look at the, the big dip that we saw in gasoline demand in this country that started in, in March and through about the, the middle of April, we cut gasoline demand in this country by about 50%. And then we started to recover. And with the report that just came out actually today, from the Energy Information Administration, if gasoline demand in this country has recovered back to about where we were in February.

Now, February is midwinter, and normally you would expect in July and August, that's the summer driving season. So that we came back to where we were in February is fantastic. We're still 10% below where we ought to be, uh, in a normal kind of year., in, in terms of, you know, normal driving that we would do in the summer months. So a significant recovery, but we're not all the way back where we ought to be. Now, if the economy continues to improve, will we gradually get back there? Yes, I think so. And so in terms of ethanol demand, that's following the exact same pattern. We've cut bushels of corn devoted to make ethanol by about 10%. In the, uh, the 2019-20 marketing year compared to previously. Uh, you know, we're talking about, uh, you know, hundreds of millions of bushels. Uh, will that come back next year? Not all the way. Can we come back 200 or 300 million bushels? Most likely.

And, and so that's again, that's kind of an element of that recovery. So it's, it's certainly not just a V-shaped recovery, but if you can get in your mind for much of this discussion, take a square root symbol and flip it around backwards. So you got that flat line and then you take a big V dip, but the next flat line doesn't come back up to where the previous flat line was right away. I think we'll get back there over time, but that's the one that's going to take a longer period of time to get there. And I think that'll apply to gasoline demand. It's going to apply to employment in this country. It's going to apply to a lot of our economic indicators. And then, of course, ethanol will follow along.

Now then, taking that discussion globally, there is some indication that many of our trading partners, particularly in Asia, are expected to see a more rapid economic recovery than here in the United States. Uh, the, uh, the expectation for economic growth in those emerging and developing economies I was talking about earlier We talk about it in like the US and in Europe, we're talking about an 8% economic decline in 2020, and then a 5% rebound in 2021. So not getting us back where we were. In those emerging economies, the current forecast is for a 3% decline in 2020, and a 6% increase in 2021. So they're on a path to get back where they were much more quickly. And that's good for people that we sell stuff to. And so, uh, will China meet their Phase 1 purchasing obligations, you know, in the short term? I don't know.

As you mentioned, they've made some rather dramatic purchases, particularly if you look at corn and wheat, uh, compared to what we've seen in the last several years. They're, they're right at the top of the top, uh, buyers, uh, in terms of the export market when you look at the corn and wheat markets, which they have not been the last several years. And so again, I think it will be tied to the rate at which those economies grow relative even to our own. And so if their economic activity can pick up a little faster and more broadly, that's going to be good for all the things that we produce. And whether it's corn directly or ethanol and DDGs and some of these other products more indirectly, it does support that export picture from the U.S. The other piece of that is if you look at their ability to afford our stuff, and that gets back to the value of the dollar.

With low interest rates, that is one of the factors that pressures the value of the dollar lower relative to other currencies. We see expectations that Europe is likely to grow more fast, or their economy respond more quickly than the U.S., so faster rate of growth in Europe. If China is growing more quickly relative to some other economic recovery in other parts of the world, their currency strengthens relative to the U.S. dollar. And so not only do we have the product to sell, now with a weaker dollar relative to those other currencies, our stuff gets cheaper. So it's more affordable to those economies that are seeing strength in their currencies. So again, when we meet the— all the targets of the Phase One agreement, I don't know. It doesn't appear likely within the timeframe that was laid out originally.

But are we moving in that direction and seeing some substantial opportunities that I think will continue into the rest of this year and into the next marketing year? We look at our grain crops. Yes, I think that would support some of those export projections. Again, maybe short-term not reaching those targets, but a generally more favorable export picture begins to emerge, if we can maintain the relations and, and the, the ability then to, to have those positive trading opportunities, keeping the conversation open, keeping the relationship positive is absolutely critical in that environment.

Chris

Barron: So as you put all of those things together that we've talked about, and we haven't really hit on what you kind of just did. We need to keep these relationships strong, right, for communication and just everybody getting along and try to enhance those exports. Assuming that we do all that, and in light of everything you've described, what's your outlook? What do you see that you can tell the listeners or the farmers that make you optimistic that you know, maybe we can see the light at the end of the tunnel after, you know, since 2013 we've had a lot of price pressure. Do we have hope for, for more strength than what we've seen in the last number of years here, or do we need to really be watching close for these opportunities when the market gets us above our breakevens?

Mark

Welch: Yes. And yeah, yeah, I think you just touched on so many key points right there, Chris. Yes, I think there are some things that we can be optimistic about. Out and some things that creating some opportunities now, particularly on the cost side where we are continuing in this period of relatively low inflation and low interest rates. What can we do to capitalize on that? If you look at what your input cost would be then if we start to build those budgets for 2021, it would be my anticipation that those expenses for fuel, chemicals, interest rates, uh, you know, the other inputs, I think there's some downward pressure on those prices.

And perhaps, uh, with farmers might have some negotiating, uh, power to try to limit any increases in those costs if we couldn't in fact absolutely do something to, uh, to get those a little cheaper, uh, next year compared to, uh, you know, recent history. So what I think the cost picture looks to be very under control in the short term. If we can take advantage of this opportunity we have now, perhaps to, to lock some of those in. So that's on the cost side. On the price side, uh, as some things we've mentioned, I think particularly in terms of exports, I think that puts us, uh, in, in a better place moving into the next marketing year for 2021.

Uh, the weak dollar certainly supports that, improving demand from our, some of our, uh, foreign buyers and their economic sectors and, and and the, their ability to grow their economies relative to the rest of the world, the recovery generally from COVID-19, particularly if we were to see an effective vaccine that gets wide adaptation, that's going to boost, of course, you know, the economic response to that. So I think price-wise, we could see something moderately higher than we're seeing this year. But again, I go back to that reverse square root. If that— if you draw that line at $4 corn and then drop us down on the December contract, then drop that down to $3.20, and now we bounce back up to about $3.60. Are we gonna get all the way back to $4? I don't know.

I think a lot will depend on what soybeans do and how many acres we plant next year and all those kinds of calculus involved with all that. But we're getting back— if we get back to $3.80, $3.90, Is that something we need to be looking at? You bet, particularly if we're able to do something on the cost. And then of course the other piece of all of that is, what are you doing on the production side? Are we taking advantage of the yield trial data, the latest technologies, the advancements that we have in, on the productivity side of the farm income equation to squeeze all the yield capacity that we can for the inputs that we are applying. And just broadly speaking, uh, Danny Klinefelter, the founder of TPAP, uh, talks about the 5% rule. And, uh, and I think this comes into play at any time, but particularly in a challenging situation like we have in agriculture today.

And the 5% rule— think about how you can apply that to your farm. Is there any way in the world you can cut the cost of your operation by 5%? Variable cost, total cost, I don't care. Can you limit your cost and control your cost by 5% this year, next year compared to this year? Is there anything you could do to increase your productivity by 5%? Whether it's new technology in terms of the tillage practices, whether it's the variety selection, whatever it is. Can you boost your production 5%? And then can you be a 5% better marketer, taking advantage of those, you know, those challenges, those opportunities we have in the market? They can be challenging at times, but there's also opportunity around a price increase or a bump or a spike that we see. Can you be a 5% marketer?

So if you can cut costs 5%, increase your production 5%, be a 5% better marketer, On a 200-bushel corn crop, you're talking about $100 an acre that you could add to your operation. 5% cost, 5% production, and 5% price. You can drop a breakeven to grow a bushel of corn from $3.90 a bushel to $3.50, just using kind of general Extension budgets to get all those numbers. So that's a significant impact by using moderate, modest improvements in the key factors around the operation of your farm. And does the current macro environment create that opportunity? I believe it does. I believe we're in an environment that we can control our cost. I believe we're in an environment in where we will have some pricing opportunities.

I believe we are in an environment that we, with the technology advancements that we've seen in the yield capability of the crops that we grow today, you bet that that 5% is attainable. So I think that's kind of the management mindset that needs to permeate our decision-making is have our everyone involved in your farm and that management team devoted to focusing on those 3 key areas. And I think, I think the opportunities are there. Do that next year and the year after that and the year after that and the year after that. And I think that's how we meet the challenges of farming in today's environment.

Chris

Barron: I really like that. And as you were talking through it, It's a strategy that I think really adds to the bottom line. Like you said, $100 an acre, or takes you from $390 to $350 on the corn side of things. To make that work, I guess throw my two cents in there, is discipline, management. So it starts out with the plan, right, is putting that plan together with using those variables would be quite powerful, but then it's executing the plan. So it's actually like putting the targets in and actually making the sales, actually, you know, managing those cost numbers in the manner that you just described, depending on what line items they are to manage.

But the question I have is you can plan and you can execute, but there needs to be accountability there because sometimes we see— and I'm guilty of this as a producer too— sometimes we have a plan and then we don't stick to it, or we, you know, maybe look at it a little bit differently. How do we keep ourselves accountable to that plan and not just, you know, execute and be accountable?

Mark

Welch: You bet. And I think you're exactly right. One of those key points is that accountability piece. And that's why I think whatever that plan looks like, we took the time to build that plan and hopefully we voted some discipline around executing that plan and we need to communicate that plan. And that's for the folks that drew that plan together. It's, it's not just in our heads, it's written down, right? And we— and things change and evolve, but we can then revisit that plan. And let's say we're here at corn at $3.60 a bushel and we said we were going to sell at $3.50. Well, how much have we sold? Have we, have we done that?

Well, if we have not, either based on price or what the calendar date that was built into our plan— they want so much price by the time we get to the middle of September or whatever your triggers might be, we have those discussions of, okay, why did we or why didn't we? And I think just that transparent conversation around this is what we were said we were going to do, this is where we are on that plan, and having that conversation of why we did or why we didn't. And there may be a perfectly good reason why we didn't, But let's have that conversation rather than just assuming or didn't want to talk about it or got busy. No, someone needs to have that accountability around that. This is what we said we were going to do. Why haven't we done that? Or we did it. Was that the right thing to do? That will start shaping our plan for next year. That's great.

Well, and so again, I think that accountability piece is absolutely critical, right?

Chris

Barron: And the accountability part of that's taking ownership in the decision-making too, you know, as we speak here recording this podcast, we've seen a pretty big rally in soybeans. And I've heard a number of people make comments, well, geez, if I would have waited, or if I wouldn't have sold when I did, you know, woulda, coulda, shoulda, if I would have this, that, and the other thing. Part of that accountability is, is understanding why you made the decision when you made it, right?

Mark

Welch: And of course, what were the circumstances at that time? And, and let's say you, so you priced those, those beans for, yeah, the highest prices that we've seen going back to January, which is fantastic. And let's say you've committed all the 2020 beans that you feel like you can at this point into that rally. Well, is this creating some opportunities for you for 2021? Exactly. I bet you've got a crop next year that you could sell. Yep. And maybe the one after that, right? Because unless things change drastically, you're going to grow some beans next year too. Exactly. And so perhaps we can't reward the rally with more 2020 sales. I get that. Well, what are you doing about next year? It's not too early to be looking at the opportunities this is creating for that seed we're going to plant next spring. And so we're always— as a farmer, you're always long the market.

You always got something to sell. Maybe not on the November '20 contract, but, but you can start looking further down the road at the opportunities this is creating beyond the crop that we're growing right now.

Chris

Barron: Exactly. So one other thing I want to go back to when we were talking about some of the bigger ticket items, and I, I failed to ask this question and I want to get this in quick here on South American competition is a real factor now in today's world. Can you just touch on that for a minute and, and sort of the timing that their production sort of impacts our markets and what as producers we should be looking at in terms of timing of pricing and at least being able to pay attention to what's going on with their growing season and how that affects or could affect the market as we, as we move into 2021.

Mark

Welch: You bet. And of course, that has been a major change in the marketing landscape over the last, you know, 20, 30 years as South America, particularly in the soybean complex, It's touching corn as well, but not nearly as much as it has in soybeans. And in that, you know, where the U.S. is still— we're the number one producer, we're the number one user, we're the number exporter of corn. You know, we don't have that dominant role when it comes to soybeans, given the role of South America today. And of course, what it's done is with the South American production schedule, now we have, you know, a major influence of production on the market at 2 times of the year as our crop is coming off in October, November, and then as the South American crop is coming off in February and March.

And so perhaps that mutes some, you know, market rallies that we might be able to take advantage of otherwise, or some increased export competition, as we would typically see that be a period of time when, when the U.S. market might rally. Well, if the exports are coming out from South America, that then maybe puts cold water on that particular rally or whatever might be going on. I think that's why we need to keep that in mind, given the value of currencies in South America, production practices and capacities and transportation capabilities. All those things matter and they matter a lot in today's world. I think that now is good to have that conversation.— we're seeing soybeans rally like they have here in the short term.

What would your expectation be for this significant rally in soybeans in terms of an influence on South American soybean acres that are going to be going into the ground here very shortly? That again needs to be in our thinking. One thing about high prices is that normally you get more of what you're paying for. And so is that going to be creating increased incentive, uh, for, uh, for soybean production in other parts of the world? Uh, and so then that— then how does that then overlay that on your expectations for, for demand and, and other aspects of that down the road when, when there's time for us to start planting soybeans? And then some, uh, you know, marketing factors that we may be facing, you know, next year. Uh, looking right now at the corn to soybean ratio in the U.S. for 2021. Would that right now point to an increase in soybean acres in the U.S. next year relative to corn?

I think we're gonna— it does to me, right? And again, so looking at all those kind of relationships, but particularly with South America, they're going to respond to those prices not in April and May with their planning decisions. They're going to do it in October, November. And so we need to be paying attention to that.

Chris

Barron: You bet. Exactly. Appreciate those comments. And then as we get close to the end here, I just want to ask, is there anything that I haven't asked either on the— first on the macro perspective, and then kind of have you wrap up with anything that you think is pertinent that as producers, as we head into harvest, what should we have on the top of our mind? What are some of the key things we need to be looking for?

Mark

Welch: You know, I think just in the general overall macroeconomic discussion, you know, we talk about measures watching, you know, we watch employment and inflation and interest rate, the value of the dollar, GDP. Those are all, you know, big numbers that most of us can, can quote pretty quickly or at least know which direction they're going.

Chris

Barron: Right.

Mark

Welch: But I think another factor that's going to influence the growth of the U.S. and global economy over the next 6 months and even in the next year that matter a lot are other economic measures that we don't really have a strong handle on. And I'd put those under the classification of, in the current coronavirus COVID situation that we're in right now, in the just because we can doesn't mean we will category. And some of those parts of the economy are to come back more slowly. I can go out and eat in a restaurant right now, maybe some are limited in capacity. I can go get on an airplane and I can fly anywhere in the country right now. But am I? Just because I can doesn't mean I will, right? Or at least to the level that we were before.

And so I think the confidence of the US consumer and participants in the economy to then have— go out and do the things that now we can do, will we do those things? And so I think that's going to be a slower process. And so I think that will slow down much of the economic growth as we recover. And as, yes, we get this virus tamped down and under control and move forward, it'll come. But I think that confidence piece is one that we need to factor in moving forward. And then again, when we get back, I think then all that boils down on the farm side. Just to reiterate, I think your basic comments, Chris, all of these things, it takes time. Somebody's got to pay attention the time it takes to implement a lot of the things that we've talked about and incorporate those into our management tools and strategies and the things that we're going to do. It takes time to do that.

It takes discipline then to carry out those plans that we talked about, and it takes communication and relationships to share those with our management team, to share that with our key input suppliers, to share our goals and our challenges with our key customers, because how can we add value to what our customer is doing? And will that create some opportunity for that nickel or a dime on the basis that gives me that 5% higher price that I really need to achieve my farming goals for next year? Again, those relationships and how can I add value? What do my customers need that I can perhaps provide in a way that I haven't been doing in the past? So time, discipline, relationships, and communication, I think, are absolutely key.

Chris

Barron: All excellent advice and comments. And Mark, really appreciate your comments and your time today, and definitely want to do this again if you're up for that.

Mark

Welch: You bet. It'd be great to check back in some of the things that we've talked about here. How are we doing on those, those indicators and factors? And especially as we start to shape and make plans for 2021. In a lot of ways, it's going to be good to get 2020 behind us. Yeah. And certainly I think there are some things— there's going to be challenges ahead, but certainly I think there's going to be some opportunity as well. And if we can be positioned and ready for that, I think that we'll be rewarded as we move into next year.

Chris

Barron: You bet. You bet. Well, look forward to the next time. And Mark, thanks a lot again for this conversation. Really appreciate it.

Mark

Welch: Absolutely, Chris. Good to be with you.

Chris

Barron: So that's, uh, Mark Welch, Texas A&M grain marketing economist. And everybody, thank you for listening to the Ag View Pitch, and we will catch you next time.