Market madness: weekly market outlook April 1-5th

Chris: Hey everybody, before we get going with this week's Market Outlook with Joe Vaclovic, just want to give you an update on the Ag View Executive Business Conference for 2025. We're super excited. We would like you to mark the dates on the calendar. So save these dates: January 22nd, 23rd, 24th, and 25th. Again, January 22nd through the 25th. The event this year or in 2025 is going to be in Fort Lauderdale, Florida, at Hollywood Beach at Margaritaville. And we've got that stuff lined up. There's going to be a lot more information we'll be getting out to you. But the main reason for this update is to make sure that you mark your calendar, save the dates, and then as things develop and Lisa gets more things put together, we will be keeping you updated. But we're super excited to announce the official dates for the Ag View Executive Business Conference, January 22nd through the 25th.

Thanks. Welcome everybody to another episode of the Ag View Pitch. We are heading into a new marketing week, April 1st through the 5th. So it's the first part of spring, actually. I think a lot of planners are going to get rolling here in the next week or two. And with us today, we have Joe Vaklovic. How's it going, Joe?

Joe

Vaclovic: I'm good. We're taping on Friday morning. I was up late watching basketball last night. But we're here.

Chris: Yeah. Yeah. Well, we're going to kick this out on the normal Sunday afternoon. So there'll be a— actually, I was on vacation last week. I was just telling you online here, I, I went to bed at 3:00 and we're up here recording at 7:00 in the morning. So hopefully we can.

Joe

Vaclovic: So if we say something stupid, you just got to excuse it because, because of tiredness, right?

Chris: Exactly. Something like that. So, you know, No, I think what we want to hit on first, Joe, is obviously we got some news on last Thursday on kind of what the USDA thinks or kind of what's going on. Talk a little bit about the report and what are the notable things that we need to be really paying attention to because we finished up last week really strong.

Joe

Vaclovic: The surprise was in the acreage numbers for two reasons. So the first one, when you look at the initial headline, was that corn acres came in well below expectations, right? The trade thought USDA was going to print a prospective plantings number for corn at like 91.8. It came in at 90 million even. So that's a pretty substantial deviation from what the trade had expected and the market rallied on that. That was the first surprise, was the corn acreage number. The second surprise as it relates to acreage is just principal crop acreage in general. Which declined 6.3 million from last year, which is one of the largest declines that we've ever seen. It's not the largest, but it's one of the largest. So it begs the question, begs a number of questions. Is this report real? Will USDA make upward revisions to the corn acreage number in June or beyond that?

Those are the questions that we're left with. But the market and the corn market in particular, had a nice positive reaction Thursday and hopefully we can carry some of that into this coming week.

Chris: Gotcha. So talk about like what, how long does this carry out? You know, what's, what should people be thinking about? What, you know, should we be holding on now? I mean, there's a lot of people still sitting here with a ton of '23 crop. There's a lot, you know, and we're talking corn specifically here first. 23 crop, there's hardly any '24 sold yet. What, you know, what should guys be paying attention to?

Joe

Vaclovic: This doesn't—

Chris: just let it go.

Joe

Vaclovic: It doesn't turn the situation from bearish to bullish immediately. It doesn't do that. What it does, I think, is it inspires— it may inspire some additional short covering. Maybe these big fund traders who have been short for months and months and months maybe they'll look at this and they'll say, you know what, if we run into a weather problem this spring or summer, this is just not a market that I want to be short anymore. Maybe I've made enough money being short the market, whatever. So I think that there's potential that you'll see some additional short covering as a result of this report. What I did after the report was I took the, I took USDA's Ag Outlook Forum numbers or their balance sheet numbers for new crop because that's the only thing we have right now for new crop. It's all just guesses.

And I punched in the acreage numbers and it still spits you out like a 2.3 billion bushel carry. Out for corn, which is not friendly. But that's assuming, that's assuming a 181 yield this year, Chris. And that's, that's something that we've never achieved. You start peeling that yield number back even to like a modest, call it 175, and you get a little bit tighter. So I think that what the report does, at least for the time being, is that it gives you a chance. It gives you a chance at a situation that isn't super bearish if you ran into even a, a modest weather problem. So The question for me, I guess, is, is that going to be enough to inspire these large money managers to cover their shorts? And when and if that happens, how much farmer selling is going to pressure the market? So I don't know.

I mean, you know what, if you're sitting on old crop, depending on how much, these next 3 months coming up, I mean, are very often some of your best months of the year in terms of price action. I mean, your spring summer rallies, when did they happen? They happened in April, May, June. Sometimes into like 4th of July weekend. But in the vast majority of years, from a seasonal standpoint, you want to be done with old crop by the time that like first or second week of June rolls around. And you probably want to be pretty aggressively forward sold depending on your financial situation when it comes to new crop.

Chris: Yeah. You know, we've got the government, you know, initial acres and that kind of thing. What's your, what's your thought? I'll give you mine so I don't throw you right on the spot. But, you know, I, I think this could, could very easily happen because I, you know, there's— but it's, it's two sides of the story depending on who you listen to. Some people, you know, don't buy this and still think we're gonna, we're gonna get the corn acres because quote-unquote farmers like to plant corn. And if we get in early, there's a lot of anhydrous on, all that kind of stuff that's going to bode well for more corn acres on the, on the opposite side of things, guys are planting soybeans first in a lot of areas. And so if they do get rolling early and things are going good and they can throw in a couple more, a few more acres of soybeans, maybe they do, maybe they don't, I don't know.

But my thought is, is, you know, I, I wouldn't be surprised if we get back up to that 91 or more on the corn from what I see because of the profitability prospects. And I still in my heart of hearts believe that farmers make decisions based off of profitability, not just what's more fun to do. So do you have any, you know, any perspective on that or any opinion one way or the other? Are you pretty much—

Joe

Vaclovic: No. So after doing a little bit more, uh, of a dive into principal crop, like where did the acres go, that sort of conversation, right? Principal crop acres last year were really high. Uh, total principal crop acres last year were 319.6 So this year the projection is that we're going to drop to 313.3. But guess what? 313.3 is still higher than it was in 2022. 2022, we were 310.9. It's, it's only 3 million below where we were in '21. It's actually above where we were in '19 and '20. Some of it will have to do with weather. Maybe some of it has to do with price. I mean, I don't know that there has to be an increase in principal crop from that 313.3 because that's a level that would be fairly normal-ish versus the last 4 or 5 years. Really, the only year, the only 2 years that we were better than that were '21 and then '23 in terms of principal crop.

So maybe, maybe the lack of profitability in just in general agricultural production has resulted in a reduction in acreage. Maybe you could make that argument. I do think weather will have something to do with it. But when you look at this, I'm looking at this chart on my screen right now of principal crop the last back to 2015. And this number is not, it's not like an ultra low number. It's probably more of a normal-ish number given where we're at right now. So I don't think like a whole bunch of acreage necessarily has to come back. I wouldn't be shocked if it did. My personal bias would be that corn acreage probably comes up. And actually, from a historical standpoint, if you look at the changes in corn acreage from this March report to June, the acreage number has a tendency to go higher much more often so than go lower.

Chris: Expand on the weather component here because, you know, we are— I mean, I'm, I am in that red zone in Iowa where it's super, super dry. Although I like it that way, I think a lot of people do because we can get our work done. And if it does rain, I don't think it matters much. But is there any, anything that the market would look at? And at what point do you think weather could or would maybe potentially be something that could give us a little strength.

Joe

Vaclovic: I said on TV, uh, over the weekend that the drought is bearish until third week in May or maybe even third week in June. And that's not, that's not like an opinion. I'm basing that on what happened last year when we had a drought and what happened in 2012. When we had a drought last year, the market didn't start— corn futures didn't start to rally till third week in May. So I think that the way that the, the board, the way that the traders view weather and dry conditions during the spring, is through a lens of, hey, quick planting, maybe more acreage, that sort of thing. In 2012, the market didn't start— corn futures didn't start to rally until the third week in June. It really took a long time.

So based on history, if this recent history, if this drought is to worsen, become more severe, I don't think the market begins to pay attention, or I don't think the market begins to view it as being a friendly item or something that threatens production until you get into that, call it half, second half of May. I don't know, maybe even into June depending on the situation.

Chris: I don't know.

Joe

Vaclovic: That's what history tells us.

Chris: Mm-hmm.

Joe

Vaclovic: Shifting gears. Which is not, I understand that that's not a popular thing to say, but that's the fact of the matter.

Chris: Mm-hmm. Shifting gears a little bit here, Joe, with the general economy. You have Jim Urio on your subscriber-only video, what, I think last Tuesday. If people aren't listening to your subscriber video, they need to be because it's— there's just a ton of really good stuff on there. And you and Jim had some really good conversations and have had the last few weeks you've had him on. You guys talk a lot about the outside markets and some of the things that are going on. Is there anything there, um, with respect to currency, energies, anything that is kind of a watch out that producers need to be paying attention to on the outside market side.

Joe

Vaclovic: Without putting words into his mouth, Jim's opinion largely is that, and this is a pretty popular, like, not even opinion, this is something that probably happens. The Fed's probably going to cut rates later this year, this, this summer, June or July is when the first rate cut could happen. And Jim seems to think for, for a number of different reasons, and I won't get into it, but that there's going to be some, some easing and that there may be some bank issues. They've got issues with this reverse repo facility, which is a, a long, long conversation that I'm not going to get into. But he actually thinks that this is, positive for asset prices in a number of ways. And when we're talking assets, we're talking probably more so like the stock market and things along those lines.

In terms of like soft commodities, is that our, our large money manager's going to come in and buy corn because we've got like some additional inflation? I don't know, unless it's like a 2022 type inflation or '21 into '22 type inflation where it's really rampant. I don't know if I see that, but it's a possibility. Federal Reserve's in a tough spot. They had big operating losses last year because they're paying out too much interest. There are some things that lead me to believe that you could see a reinflation event, which isn't negative corn and soybean prices. I just don't know if it has to be positive. The one thing that it is positive is input prices. So it could be a shitty situation if the commodity markets don't rally, but you see an uptick in inputs because you see upticks in wages and that sort of stuff. Like, it could go a lot of different ways.

Chris: Yeah, we're seeing that like right now in hydrous relative to, you know, corn price and everything is really out of whack. There's, there's definitely the input side of things is still is a huge concern actually from what, what we're seeing. Yeah, seeing a lot of, a lot of red ink.

Joe

Vaclovic: So I think that there is a, I think there's risk of, of some sort of reinflation event. And also one of the things Jim mentioned is he thinks that the Fed has kind of quietly shifted its target for inflation. Like they were talking 2%, 2%, and now he's thinking, you know, maybe it's like 2.7, 2.8% is going to be their target because the, these, these high interest rates are, are a detriment to the currency, to the Fed, because of the interest that they're paying out on, on the debt and everything else. So a lot of, there's a lot of things behind the scenes going on there.

Chris: We talked at the beginning of the conversation here, you know, a lot about the production side of things. You know, just talk, talk a little bit about the demand side of the equation. Any hope there? You know, it seems like that's been the bleak zone of, of everything with not much to— not much hope there. But it usually seems like at least, you know, I've been through about 4 cycles, you know, like major cycles and since I've been doing, you know, working with clients and looking at numbers and things. And it always seems like, you know, we do build some demand in those really downturn times. It just is like a long process. It takes a while and new stuff comes along. I mean, you know, we've got, you know, the sustainable aviation fuel, all these kind of things building up in the background.

But is there anything, you know, that you see on the demand side that comes quicker than the SAF or anything like that that has a meaningful impact on us maybe in the next 12 months or so?

Joe

Vaclovic: No. Well, maybe. I think it's going to be dependent on weather. So to go back to those Ag Outlook Forum numbers—

Chris: So it's not a demand to— we go back to the production side is the hope. Is that it possibly?

Joe

Vaclovic: I think that, yeah, I think you have a much better shot at a rally through a production or weather issue than you do through a big demand spike. Just to give you one example of something I'm looking at. So I mentioned those Ag Outlook Forum numbers. If you look at the soybean numbers and what USDA had penciled for, for '24-'25, they're projecting that soybean demand is going to increase by like 6%, which is 256 million bushels. That's the, the estimate from this year to the next marketing year. In those Ag Outlook Forum numbers. That's going to be really tough to do. $100 million of that is soybean crush, and I believe that to be true. That's going to happen. We're expanding crush. The problem is that they're talking like another 150 million bushels in exports on top of what we did this year, which is going to be tough to do.

You're probably going to need a crop issue in Brazil is what you're going to need to see. And this situation with South America versus the United States has just been a big problem. The, the export demand just has not been there. So yeah, we're gonna expand crush for sure in soybeans, but the export piece is very much a problem. There had been all this talk that, you know, we're expanding crush, we need more soybean acres, more soybean acres. I just, I don't see that right now. We can afford to use a lot more soybeans domestically because the export piece of it has been so weak. So I think that you could see better demand, but in the case of beans, probably needs to be weather. And corn, I don't know, looks like Brazil is going to have a big corn crop. They could be there. We're kind of running neck and neck with them in terms of competitiveness on the export market.

So I don't know, corn demand is actually pretty good. It's just the crop was so damn big last year.

Chris: So basically what you're saying is we need a supply issue somewhere along the lines. Typically when you have a supply market versus a demand market, they don't last long, right? That's the, that's the adage of, you know, this, you know, if it's a if the opportunity is there, it might be quick.

Joe

Vaclovic: So with that in mind, with those assumptions, crop scare events are made to be sold in the majority of instances. So you get— and we saw it last year as a perfect example, but there's a ton of other examples where you'll get your corn rally in May or June. Keep this in mind, that the U— as far as the corn market goes, and, and cash corn market in the U.S., corn futures traded on the CME, the United States growing season is, is by far the, the quickest and easiest way to, to get the market to shift course because we're the biggest corn grower on the planet. When it comes to corn, we use most of our corn domestically. We only export 15% of our corn, ballpark. So if you get into a weather issue, all things, it can change really, really fast and in a very short period of time.

It's, it's the best opportunity if you run into that weather issue, whether it's real or imagined or just a dry forecast. The market is incredibly, incredibly sensitive to US weather. It's still the, it's still the biggest deal out there. It's bigger than anything that's macroeconomic or going on in South America. I mean, the US growing season is the deal for the corn market. It's, it's the deal. And that's why, you know, last year you were able to rally corn from, you know, new crop corn from sub-$5 to $6.30 in the course of what, 2 or 3 weeks? I mean, it can happen and it can happen very quickly. But I think the producer needs to be aware that in the majority of instances, these crop scare events are just that— they're crop scare events and that they're usually marketing opportunities. You'll get your rare situation like in 2012 where you rally to $7, $8 and stay there for a while.

But that's the exception.

Chris: Yeah. And we're starting pretty low. So a big move up, still not going to get people to probably numbers we had last year, you know, unless we have this major catastrophe. I mean, who knows. But so with all that said, you know, the 2023 crop, there's still a lot of it out there. But I'm also seeing and have been, you know, spending a lot of time on farms and getting kind of wrapped up. We have a few more to do here this next week, and we're pretty much going to have all the, what we call the, the winter and spring cash flows ready to roll, you know, wrapped up '23, looking at '24 and trying to put all the focus on '24.

It always seems to me like if there's a lot of '23 left to sell and you're trying to figure out how to sell '24, a lot of times the people don't— at least this is an observation— people don't do as good a job of getting the pre-sales in, getting those offers in, getting that stuff done on the, on the new crop when they still are sitting on a bunch of old crop. I think there's also some producers out there that are still sitting on cash, so they feel okay, they feel strong. And I think probably from a perspective standpoint, we probably need to step away. And, you know, if you are sitting on cash, you know, there's opportunity cost there. And we talked about that last week, Jared Creed and I did. You know, you can take that money and put it in Vanguard and get 5.27 currently right now. I mean, there's ways to have that money generating, you know, giving you some return.

Any final thoughts on the '23 versus '24 cleaning house? I mean, I've, like I said, I've seen some guys really get down to where there's like hardly anything left at '23, but it sounds like there's still a lot of corn out there. Any, any thoughts on that?

Joe

Vaclovic: I think a lot of corn was sold when those March basis contracts went off in late February. And I think that's what put the bottom in the corn market, at least the bottom as we know it right now. We could have another bottom. There's another basis contract period coming up in, in a month. So that, that could be something. I don't know. I mean, you know, my fear, I guess, with old crop bushels is that even if you get a weather issue, you might have to wait a while for it. And in that time, if you're somebody who's like sitting on all of last year's crop or say more than half, and you've been paying interest and storage or whatever all this time, you may have to do it for another 2, 3 months until it pays off, if it pays off at all. There's no guarantee that you're going to have a weather issue. I mean, there's really not.

So it's holding old crop ever since harvest has been an uphill battle. The board's trended lower. You've been paying interest. It's, it's, it's a diff— there's carry in the markets. It's a difficult market to be long. That being said, it, it, the story. Nor guys could get paid if you run into the right or wrong weather situation. They could, but that's just a, it's just a maybe.

Chris: Last thing I want to hit you on is 2024 corn, soybeans, wheat. Anything you're watching there on the grain side of things that, you know, just give you the last word here on '24, what guys need to be thinking about, um, moving forward here.

Joe

Vaclovic: Just selling at prices that make money. I mean, If I had to guess, and, and I hope I'm wrong about this, this is, this could be a year that mirrors a 2014 through 2019 type timeframe more so than a '21 or '22 type timeframe. Meaning that, yeah, you may get a couple chances to sell at prices that make money, but the days of clearing a dollar above cost in corn are probably gone for a little bit, barring some sort of fantastic shift in weather or the supply or demand situation, whatever. Anything's possible. Anything and everything's possible in markets. But just the way the balance sheet's set up, the way, the way things look right now, I mean, if you get to a point where you've got some positive margin to the tune of, I don't know, 10-ish percent, you probably need to be pretty aggressively forward sold prior to harvest.

I mean, and when I say aggressive, that's relative to your farm and financial situation and that sort of thing. But I mean, last year, what would've been the best strategy? The best strategy would've been sell up to your insurance guarantee by mid-June, you know,, and is that going to be the strategy this year? I don't know, but you can make an argument that that could be— it could be similar.

Chris: At least when I go back and look, the people that have had the best luck in marketing over the last— you know, I did a 12-year, uh, went back and looked over the last 12 years, and there was out of the 12, there was 2 that you were better off to do nothing, and the other 10 you were better off to be proactive and know your cost of production, including all of your overhead costs and everything, and then just taking advantage of that, you know, out of—

Joe

Vaclovic: A lot of it's mental. So on the one hand, you've got the fear of missing out, which is what prevents grain sales in the vast majority of situations, the fear of missing out on something better. But at the same time, so that can present an element of stress mentally. But at the same time, I think having nothing sold would be far more stressful for me personally, just like sitting and watching the prices fall every day. Oh my gosh, I didn't sell anything. Like, there's— you're going to be stressed out no matter what happens. This is not— this is not easy. It's not— it's not mentally easy to do. It's just— it's just extremely difficult in general. Grain marketing is extremely difficult. So I would— I would personally rather know where I stand if I can make some money and, you know, have those forward sales. And if I miss out on something, I miss out on something, you know?

Chris: Yeah. Okay. People want to get a hold of you, check out your stuff. If there's anybody listening on here still that doesn't know who you are or what you have going there, they need to know. So real quick, just give us, give us your real quick spiel on your, on your subscriber-only videos because they're, they're phenomenal. The content you're putting out, I would first say congratulations on what you're doing because you're bringing a great service to people. I mean, we have a ton of listeners on, on our podcast and, and you're just doing a great job with the videos. And so real quick, anybody that's not subscribed, what's the best thing or what can they do to get your content?

Joe

Vaclovic: So if you want to, if you want to just see everything that we do, just go to my website. It's standardgrain.com and the free stuff's on there too. So what we do is every morning I wake up at 4:00 and we put together our podcast and YouTube video and that's free. So you can listen to that stuff. It's a news show that we do every single day. We upload it by 6:00 AM Central every day. It's out the door and done and uploaded on YouTube and on all the podcast apps, Apple, Google, and Spotify. It's called Grain Markets and Other Stuff. That's free. Check that out. Put all the links to that are on standardgrain.com. And then if you want to see the premium stuff, the premium stuff is more analysis. We have people like you on, we talk about production. I talk about grain marketing in depth. What have I advised in regard to cash sales? I try to really kind of simplify.

The grain marketing process. We have all sorts of other guests that come on. It's become super popular. It's a $50 per month subscription. We don't charge any other fee of any other sort. We don't do any sort of upsell or anything. Once you sign up, you'll never hear from us ever again unless you want to. But people seem to love the videos and I think people are, I think farmers are in need of information and that's why we're doing what we're doing and we're doing it with no strings attached other than Hey, pay the subscription fee and that's it. So I mean, it's out there. Check it out.

Chris: Yeah, I like what you do too, Joe, because it's, that's the theme of Keep It Simple.

Joe

Vaclovic: Yes, everything I do, I try to keep it simple.

Chris: Yeah, because I just did a 19-minute podcast that's actually out on the, on Friday the 29th. We kick those out the 9th, the 19th, and the 29th. And I just did kind of a rant on— it's just me talking for 19 minutes on importance of keeping your marketing simple, because I think sometimes the noise, all the information that's out there can be overwhelming. And I think if we can, you know, funnel it down to keeping it simple, I think we'll all be better off. But with that said, Joe, really appreciate your time and we'll get you back here another time.

Joe

Vaclovic: Yep. See you next time.

Chris: Yeah, we will. All right, everybody, really appreciate you listening. And if you need anything else or content that you would like us to get out, this spring when you guys are out in the field, uh, rolling with equipment and stuff. We'll get some more business content out on the Ag View Pitch. With that said, thanks everybody. We'll catch you next time.