March madness: weekly market outlook March 13-17th

Chris: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com. Hey everybody, before we get going on this Weekly Market Outlook podcast with Jared Creed, I want to remind you about our new podcast called 19 Minutes. It's a subscriber-only podcast that comes out on the 9th, the 19th, and the 29th for $30 a month. You can check it out on Spotify. Look up 19 Minutes, or we'll have a link to the show notes. This is a pretty awesome opportunity for you. We will kick out information, as I said, on the 9th, 19th, and 29th on all kinds of different topics, executive-level information. Conversations, detailed information and conversations on actionable items that you can take away for your farm business.

We already have, uh, 3 in there as of right now, and some people already subscribing. The data management is a topic that's in there now. We also have one on crop insurance details, and we have one in there on transition turmoil and techniques and the processes for handling a successful transition. So with that said, take a look, check it out, $30 a month. Look forward to having you on 19 Minutes With Us and enjoy today's podcast with Jared Creed. Welcome everybody to another episode of the Ag View Pitch. We are heading into a new marketing week. We are in the middle of March and we are joined by Jared Creed, JC Marketing. Jared, how's it going?

Jarod

Creed: I'm doing good, Chris. Appreciate the invitation as always.

Chris: Yeah. Yeah. So, How are things going? Haven't talked to you for a little while here.

Jarod

Creed: Oh, been a little hectic, as you can imagine. Busy time of the year. A lot of important decisions to be made in the first couple weeks of March and getting through the end of February.

Chris: Yeah, you, you work with a lot of guys on insurance decisions and stuff, kind of like we do, and kind of, you know, help them see the risk and understand the challenges and things that may lay ahead. And like we were just talking offline there a minute ago when when things seem to or appear to be going really good, sometimes we sit on our hands and we've seen some pretty drastic changes here lately. How are the risk management conversations going on, on, uh, insurance and, and those kind of things?

Jarod

Creed: I think they're going very, very well. I mean, I think a tagline that continues to stay around, and we talked about this at your, uh, Ag View Solutions Conference in, uh, Florida as well, that we've got a lot of opportunities to remove some bad risks so we can actually afford to take some good risks. Now, granted, within a good risk, it still might not work out that way. Pretty obvious market can humble you very, very quickly. But based upon what has been done, what insurance policies can be elected, I think everybody can still breathe a little sigh of relief. And at the same time, you know, there's certain insurance programs out there that the market really doesn't have to drop that much further before the farmer's revenue flatlines, and it starts to go back up the lower the market goes.

So I'm still, you know, bigger concern when you talk about risk management and attitude in the market. You know, 2023 is, is obviously the highlight in front of most producers right now. 2024 is what worries me. I mean, 2024 has just been on a precipitous decline for the last better part of 6 months. I mean, referencing the corn market, we saw $6 futures in 2024 at one point, and now we're clear back down to $5.30. Granted, nearby corn for new crop is at $5.60. But that $0.30 difference in a situation that most U.S. Corn Belt producers are probably looking at $200 an acre or more of net margin reduction year on year. Last year we were climbing at this time of the year. This year we're obviously taking a step backwards. And we know that input costs are obviously higher year on year. So as a whole, 2023, like I said, it's a worry.

But it's nowhere near the worry of what I think 2024 has in place. And, you know, in a perfect world, Chris, I would love for an opportunity just to see 2024 corn get closer to $6 and get November '24 beans closer to $14. And at that point, I think we got a few buttons we can push to guarantee ourselves a whole nother year of prosperity.

Chris: I think there's a lot of hope in the air right now. As far as, you know, you see the, the market, especially, you know, in corn recently doing what it's doing, and it wakes people up. What do you— what are some action items that they can do? You know, I guess one of the things, and I'll throw it out there and then have you discuss that a little bit, but, you know, one of the things that I think what is pretty good thing to consider is to maybe look at, okay, what I wish I would have made sales at, or what made sense that I didn't make sales, because a lot of times people won't make sales when the market's going down. But they will make sales when a market's going up. So maybe putting some targets back in there at those levels that bring your average to that place where it meets those margin objectives. Talk a little bit about that.

Jarod

Creed: Well, the couple last words you said there is key. Margin objectives. Don't get the focus on the price. You know, starting on beans, I don't know what that margin objective needs to be, Chris, because Everybody's margins suck. Yeah, I mean, again, we got it. We got to have a good yield. You know, I was just going through some budgets for producers in southern Minnesota and over $900 an acre cost. Their numbers that they put together, not even me when I get a lot of flak sometimes saying no way the farmer's spending that much money. Now, 65 bushel APH, $900 an acre cost, land cost in check. What do you do there? I mean, right now it's kind of like, okay, pie in the sky, we need $15 beans. But we know that we're gonna play a little damage control on the way to that level. So when you talk about that margin objective, it might not even be a positive margin.

But it's more so thinking about the entire farm's margin of what we're trying to accomplish. So starting with beans, I think it's just a defensive type of a strategy still, that on any type of a rally from, you know, for most listeners is probably just that $14 to $15 range. I can imagine that being somewhere around a third sold after a move like that will at least keep them afloat on the bean space. And it'll actually let them make some decent money with a good yield. But flip it over to corn. When you start talking about those targets, I don't know if it's really came off center from needing that $6+ area on the board on 30 to 40% of a crop will keep a farm afloat no matter what. And a lot of that's just because of where insurance prices ended up being established. Obviously, the producer has a couple more days to finalize their insurance decision.

I certainly hope that we're not shortchanging ourselves there. 99% of the US saw cheaper premiums because of lower volatility year on year. So hopefully we're not trying to save our saves, save our way to prosperity there. But maybe the key takeaway on corn is You know, we've basically just went from that $6.30 to $6.20 to $6.10, spent a tremendous amount of time right around the $5.90 to $6 area on new crop corn. And then we took a step back. But let's consider something here for a second. I mean, we didn't even really drop the market 5% from where we were at the end of the February insurance averaging period. So, you know, front month corn has taken a step back of almost 10%. New crop corn is taking a setback of 5%. And the reason I bring that up is that's really not that much in the big picture.

It hurts to the bottom line on the margin, but that's a rather small move in the corn market given we have $6.50 to $7 corn. Our volatility remains very low. Um, and I think you just got to consider 10% moves in the market after spending all the time that we did at the levels we were at, it's really not that much of a surprise. And some of that is just mass fund liquidation without a lot of rhyme or reason to it. And then on the soybean front, you know, we're just continuing to stick around there. So sorry, I got into a little bit of a ramble there, Chris. But, you know, just setting your targets is great, but make sure that it's, you know, make sure that they're realistic at this point in time too.

Chris: Well, and those target adjustments depend a lot on what you did previously too, because, you know, I'm sure you see the same thing. There's growers out there with nothing sold and there's growers out there that are 70% and there's everything in between. And if a person's sitting there at 30%, that individual, as an example, probably wants to be, you know, has a little bit more of a target area versus, you know, somebody that's 70% or 80% is probably feeling pretty good. Versus the person that has nothing sold and then that aggressiveness has to be intensified there anyway, right?

Jarod

Creed: I'd say the one who has the toughest decision is not the one who has nothing sold to the one who has 70% sold. But, you know, somewhere in between. Yeah, those individuals, because it's awfully hard to sell something cheaper than the last price you sold.

Chris: Yeah, but you got to look at that average price, right? Correct. You got to—

Jarod

Creed: yep. You got to look at the all-in average. We spend a lot of time talking about that mark-to-market valuation. You're looking at your bank account at an exact amount. You're not looking at your bank account as an estimate of $1,000 to $5,000. You're looking at the exact amount. And that's what we got to look at on the grain, right? That if I got 30% sold at X price combination of multiple sales, I still got to bring it all together. What happens if I sell the balance of the crop at today's levels? And what does that mean for my bottom line?

Chris: Yeah, because if people started selling it at $6.75, I think was the high or $6.7 somewhere in there, $6.71, $6.75 on that Dec '23. Every sale you've made since then would have been lower. But if you're still averaging above 6, who cares?

Jarod

Creed: So if that's your target. Yeah, that's the tricky piece for somebody says, oh yeah, I'm 30% sold at 670. Okay, cool. What's the overall average today then? Yeah, right. You can knock $0.70 off that.

Chris: Right, exactly. So no, that's all, that's all good stuff. I mean, it's things that I think each individual producer's really got to dial in that, their individual margin objective like we talked about. So one thing I wanted to hit on for a second, you mentioned the funds. You know, when, when we see a retracement like this and we're heading into spring, you know, and this is more of an opinion question than anything, but I think there's a lot of people— I said there's hope in the air, and I think there's a lot of people hoping that we see some sort of a spring rally off of this decline. Thoughts on that?

Jarod

Creed: Well, for a long time we've had to be careful on what we wish for on getting fund engagement to pick back up. Uh, we had to be careful that it was not a short bet from that community and hopefully a long bet. And obviously here recently it's been a short bet. Now I'll tell you, uh, I don't think that this would impact the markets I don't think it would change what's happened in the last couple weeks, but it's worthwhile noting that we're still 30 days delayed on receiving Commitment of Traders reports. Uh, you know, back in middle of January is when a clearing firm was hacked and it impacted the ability to get data to the Commitment of Traders report. So we've been flying in the dark from a fund perspective. And I just gotta laugh that earlier this week, the Commitment of Traders report we got dating back to like January— so I can't remember what it was, call it February 1st.

I think it was older than that, but it showed that, okay, funds bought 25,000 contracts of corn. That was on Wednesday, but 45 days old data. Then we get another report on Friday as they try to catch up, and it says, oh, funds sold 25,000 contracts of corn. So all of a sudden we're working with data that a month and a half ago the funds were, you know, managed money was short— or excuse me, long 150,000 contracts of corn. What are they now? We don't know. We don't know what the commercial position is. We don't know what the index position is. We don't know what the managed money position is. And I can make a case that the three of those looking at each other can change decisions made in the market that have the ability to move the market in significant ways. So again, we're flying in the dark a little bit.

I am not claiming that our markets would look wildly different if we had active commitment of traders reports. But I just had to find it here. February. Okay, we're up to February 21st. We're catching up, which would have been at that point it said funds were long 133,000 contracts and massively short wheat and still hanging around the same level on beans. So, you know, back to your question of what can we do for a rally off of this setback, it goes back to what are we going to entice the funds to do? Do if they've gone short corn. For what reason, we don't necessarily know. But what can change that? I would like to say, Chris, that they've pressed their luck in the wheat market and corn will go in the direction of wheat, and beans are going to stick out there in la-la land and continue to do their own thing, you know, focus on Argentina and Brazil on beans and whatever acres the U.S.

farmer wants to plant. But March 31st, March 31st is a very important date, obviously. Planning Intentions Report, Quarterly Stocks Report. It's more of a fundamental view. March 18th, arguably more important. That's our cutoff date for extending the Ukraine-Russia grain deal. I shouldn't say cutoff date necessarily. It is if nobody objects to it, it'll just move forward. But there has been plenty of chatter here in the last week about Russia not being so pleased with how it's working to this point. So, you know, we got a lot of things out there, Chris, that can obviously spark a rally, uh, but it's still going to be most likely driven to what's going to entice outside money to be a buyer of ag commodities. And quite frankly, if I was still sitting at a bank and had a ton of money trading commodities, I think I would go spend my time on a beach and not touch this volatile market.

Just wouldn't. I mean, that's what they've done for the last 6, 9 months. Maybe I said this before, but I got to give our buddy Pete Meyer a little hard time. You know, his, his accent. They just don't care. They don't care. In New Jersey accent, the funds don't care at the moment. Now they have in the last couple of weeks, but for months they haven't. And I think that we might go back into a situation with rising interest rates and better places to park money without no risk. Why they want to jack around in the commodity market. So that can be good and bad. Supplies are still tight. Uh, I just got to find a reason to entice them to be long.

Chris: Um, also talk about, you know, we've got U.S. demand and South American weather. There's a couple of other hurdles or challenges or things going on. Talk a little bit about, um, about that in concert? Because I mean, China is going to do everything they can with South America instead of us. And you got, you know, that kind of bleeds in the Ukraine-Russia conflict or war or whatever too. But you can kind of, you know, connect some of those dots if you would.

Jarod

Creed: Yeah. So the story's obviously been Argentina for several months now and their estimates just continue to get cut. You can make that, you know, the SNAIC comment about it's a race to the bottom. But I think there is some legitimacy to the idea of a soybean crop being sub-30 million ton, if not closer to 25 million ton, you know, half of what they would normally raise. No secret that the Brazil soybean crop is going to be good. Matter of just how big of a record, I suppose. Call it 152, right in between ranges right now, 152 million ton bean crop. So some of those Brazilian beans will make their way into Argentina to fill the void in the Argentine crush market. But we're still going to have a little bit of issues there because we're cutting so much production out of Argentina that Brazil is not able to absorb all of it.

So on the corn front, or let me, let me go back to beans real quick. You know, beans have been a— on the price action, it's, it's— I don't know how much clearer it could show that we have an issue. We've been at $15+ beans for months and we just refuse to spend much time below that. Now, at the same time, we refuse to go blow out to a higher price. Market has a way of figuring itself out. Like we talked about Brazil beans going in, Argentina crusher is full. US soybeans are already tight. We're darn near pipeline supply is basically zero. So we necessarily can't come in and do anything. I would make the argument that the story on beans eventually transitions to be more of a new crop deal than old crop.

And I mean both new crop for US production this year and looking forward to 2000, winter 2024 production of Brazilian beans because we know we're going to be running on fumes up until October. So on the corn side, WASDE, you know, it's been a long time coming. We had to continue to cut our exports. And maybe we've taken them down to a point that we don't need to change them anymore. We haven't adjusted our feed, we didn't adjust our ethanol. You know, our carryout has gone up to 1.34. In all reality, 1.1, maybe 1.2 is actually just zero. It's a, it's a pipeline supply. So we can't be overly upset about seeing our carryout jump up just a touch. You know, like I mentioned, I think I think, well, let me back up. Argentina, one more comment on Argentina, just 30 seconds.

Argentina GDP is heavily dependent on farmer selling of commodities, and they obviously don't have anywhere near the same volume of commodities that they've had in the past. And don't be surprised if their government has already relaxed export taxes. But don't be surprised if the Argentine government just basically comes to the farmers to sell your grain now. We need to generate US dollars, because Argentina is on the verge of becoming the next Venezuela as it is. So you got a financial crisis happening in Argentina as well, which that will be interesting to see how that plays out in the agriculture picture long term. But real quick on the corn side, Chris, I said US balance sheet, ding, because of exports. The, the story on corn at this point is Mato Grosso is mostly planted on corn in Brazil, their safrinha corn crop. All eyes now on Rio Grande do Sul, Mato Grosso do Sul, and Parana.

Those three areas account for about 40% of Brazil's safrinha corn production. You know, Mato Grosso being half, but those three areas are struggling getting the crop planted and, and they do actually have some extended moisture in the forecast right now slowing up their bean harvest. So we got an issue to watch there.

Chris: Hmm. A lot of stuff to pay attention to there. I guess what I want to do is, as we wrap up here, is we started out kind of on the granular side of things of the farmers, what to do, thinking about opportunities and challenges and, and just some action items. I want to start out a little wide and we'll narrow it down here as we wrap up. But on acres, you know, what's your thought? I mean, what's your, what's your crystal ball say for the March planning intentions? What do guys need to be paying attention to between now and then? And with that said, just to tack on to that question a little bit from a granular perspective is, you know, Do you think any farmers that you work with are going to change much? And then I'll answer from my end, from what I'm seeing. But do you think, do you think guys are going to shift anything around much?

Because it still looks like from our perspective that corn still wins the, the game by a significant amount, even with where prices are at currently.

Jarod

Creed: Yeah. So like you said, that's a wide question. Let's start on the tail end there, though. In our producer deck, remember, we are heavily users of margin protection. So absolutely not. We're not going to be seeing any switches from corn back back to beans. But from what I have heard, yes, I think there is a little bit of switching taking place from corn on corn to beans. I was a little surprised. In the last couple of weeks, Iowa State updated their cost of production for 2023. Corn on corn, 204 yield was like an estimate of $1,160 an acre with no family living. That's higher than all the estimates that we've been talking about for months and months and months. And it gave me a little bit of a panic attack, to be honest with you. But take a step back and to your original question about national acres. Last year we were trending higher, both corn and beans.

We were almost $15 futures in beans and we were $6.50 futures in corn and we're a buck lower than that in corn now and a dollar and a half lower than that in beans. I have a hard time first saying we're going to plant any more corn or beans than what we did last year. I have a hard time thinking we have any reason in the world to blow up our corn acres any more than last year, especially when you consider price differences year on year. And you also consider the cost differences year on year, revenues flat, or excuse me, insurance revenues flat, because the same insurance price, but our prices are grossly different. So, you know, look, I think we got to split 179 million acres, and I'll call it 90 corn and 89 beans right now with probably a million downside to each one of So I think we got our work cut out for us to get this crop planted too.

It's— I'm not trying to say Mother Nature is going to throw a curveball here, but I mean, I get it that it was dry last fall. But when you get north of, say, Highway 20 in Iowa, up into Minnesota, all the way over into South Dakota, North Dakota, we got a lot of acres that have a lot of water sitting on them right now. Not water, but snow. With some continued concern about moisture coming our way. So, you know, to get to that 179 million acre number takes a lot of work, and it'll take some, some good luck from Mother Nature as well.

Chris: Definitely. So as we wrap up, final, final question. What are the one or two key things producers do right now as they're wrapping up the, the winter office season? What are, what are the one or two things that you think, you know, make sure you do this in the office before you're, you're totally focused on getting the planter in the field? I didn't forewarn you on this question either.

Jarod

Creed: No, that's a good question. I guess what I'm gonna say is that hopefully they've done a fair amount of legwork to get to this point before you know, we're off to the races and spring planting. Hopefully they're going into spring planting with a legitimate goal, or maybe a couple different goals. Before that first seed is put in the ground, what do I want to accomplish? Because that's when the clock starts ticking. Seed goes in the ground, it's now guaranteed from insurance. You have the opportunity to reprice that grain prior to October when harvest insurance comes around. You got guaranteed revenue, guaranteed bushels versus your expenses, you're able to start honing in on that goal with, with 100% accuracy. If you're going out there with no goal, good luck.

Chris: Mm-hmm.

Jarod

Creed: I mean, that's all I can say. I don't mean that disrespectfully, but just going out there to see what happens is a very, very dangerous mindset in the environment that we have. And it's not advocating for lower prices. It's not advocating for higher prices. It's advocating reality that we could get knocked around on just significantly $100, $200, $300 an acre working capital gone in a heartbeat just this year if we're not careful. Yeah.

Chris: Well, and that's where I think, you know, kind of what you're saying is make, make sure you've— your numbers are accurate. And then depending on if you're that person that's 0, 30%, 40%, or 80% sold, you know, do you, you know, don't, don't do, do the big picture, but do you figure out what your numbers need to be and get those targets in? Because a lot of times the best time to make a sale is when you're under the planter and your hands are greasy. And, you know, if you're still in the office, just map out the plan, you know, for what needs to be done as you go into spring, because we get busy and then we don't focus on the markets like we need to. And a lot of times that's when the opportunity is there is when we're not paying attention. Yep.

Jarod

Creed: And I think like we talked about a couple of times now too, those targets, that plan, mapping out where you need to be, it's, it's making sure you're understanding what your next step is after the plan that you put in place. Certainly reword that. Having a target in a certain price is all fine and dandy, but what does that mean versus your overall breakeven? What does that mean versus your overall profit goal? And what is the follow-up step to that afterwards? I think there's— it's pretty easy, Chris, to get that first target in. All of a sudden it fills and the market's rallying and says, oh my gosh, I sold that grain and now I get frozen. So planning it out several steps and having the goal in mind is critical. So yeah, I mean, in general, Chris, I know I kind of rambled on here a little bit today.

I really don't think there's a heck of a lot to talk about more than what we have talked about because we're right on the brink of starting the show. Yeah, we've had the opener for the last 3 months and now we're going to the main show and it's time to get the crop in the ground. And once we get that crop in the ground, we can completely change this conversation around talking about to the penny type of revenue situations and what that means to a profitability analysis. Awesome.

Chris: Well, in other words, stay tuned because there's going to be a lot to come. Going to be an interesting year. Yes, sir. All right. Well, hey, Jared, really appreciate your time today. Thanks a lot for your wisdom as usual.

Jarod

Creed: You bet.

Chris: Thanks, Chris. All right. And, uh, thanks everybody. And again, just a reminder, um, check out 19 Minutes. Um, we'll be having Jared on there and, and we'll be diving into some more specific details and information on 19 Minutes. So again, check that out as well. So with that said, everybody, thanks a a lot, and we'll catch you again next time on the Ag View Pitch.