Market update: what's up with corn and soybeans this week?

Narrator: 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 it's been a little while since we've been chatting markets, and so we figured we better get at it. We kind of missed Sunday, then we missed Monday, then we missed Tuesday. I don't even know what day it is now. We're getting a little further into the week, so sitting here right across the table from Dwayne, and we're gonna have a little conversation on what's been going on in the markets. And so, how's it going, Dwayne? And, uh, let's kind of get the conversation started here. Uh, little delayed from Sunday night, but better late than never, right?

Duane: Yeah, we're a little bit like the markets. We're trying to get our footing again, and I think that's probably what it is. But that's pretty much what the market's been doing here since, uh, we had kind of the, uh, debacle from the report, and then the market takes time to recover and recoup and gain its legs and stabilize. And I think there are signs that are encouraging, and I think we've done that. Just to highlight one thing, I'm sure we'll talk about it more a little bit later, but corn market just yesterday had, you know, the highest settlement of the last 6 or 7 days, and it's not such a a big statement about how great a performance that was in corn. It's more a statement about how little of downside momentum the market was able to build despite having very negative sentiment, China trade concerns, just a lot of things weighing on price.

And yet the market did kind of chew lower a fraction at a time, but it only— it was still in a relatively tight range. So despite absorbing all this selling from multiple sectors of the trade, It took one day's positive price action to kind of eclipse all that trade, and now the tables have turned, and all those sellers actually have losing positions. So now we'll see if the market's able to build on that from here. So I guess that's kind of what we've been doing, is we've been trying to stabilize and, and try to get a handle on what's going on here too. So that's kind of where we're at.

Chris

Barron: There's a— as I've been traveling around this week, and that might be partially me being guilty for not being available for keeping the podcast up earlier in the week, and And I just keep continue to hear the frustration of what that report said. People really doubting it, really looking at the yields of Pro Farmer numbers came out and obviously they reduced the yields quite a bit from where USDA was at, but they didn't, it didn't seem to move the market. And you know, so like you said, we're kind of stabilizing here, however you call it. But, you know, what do you say to these, the people that are still frustrated and watching this market? You know, especially when we look at basis, we'll get into basis here in a minute, but you know, what do you, what do you say to that sentiment? And do we just forget about it and move on?

And what should we be watching as we move forward here in the next week or two as we get closer to harvest?

Duane: The frustration related to the USDA reports, I think, is completely understandable. That being said, it reaches a point where you kind of have to move on. In the case of the USDA reports, I think you break it down into two things. The frustration associated with the acres— it's difficult to wrap your mind around how the acres came out the way they, they indicated. There are some legitimate explanations for it, and most of you have probably heard some of those already, but the acres are what they are. They're not going to change. If there's any change coming there, it'll be very minor. But the, the one area that is still very much capable of being changed is the yield and the harvested acres. And I think there's a general belief and acceptance that harvested acres in corn could easily come down a couple million acres from what the USDA has projected.

And I think the yield is completely up in the air, more so than other years, because This is the first year that USDA did not have any objective yield data from field plots that they used in the August report. So September is going to be our first chance to see that. And the Pro Farmer tour, one thing about them, they're very methodical, they're consistent on their, their strategy and their formula for establishing yield. And then the last day they have to incorporate the entire U.S., not just the areas that they they sampled, but you could see a trend in their samples, a trend in the comments from the growers on the report, on the tour, that there, uh, it's very plausible and if not probable that yields will come down from the last USDA August estimate on yield. And then it becomes a question about degree.

As I've traveled and looked at fields in the last week or so I noticed the kernel size seems to be a little bit small. Part of that may be that we're a little bit behind on schedule from normal, but as I've listened to some recent meetings with some Pioneer agronomists and others, there is, I sense, kind of a growing concern about the length of the growing season, the quality of the fill period. And there's concerns about the fact that this year's crop may not finish under optimum conditions like we have maybe the last couple years, and that can make quite a big difference on yield. So I think that more, more so than other years, we are still very much up in the air.

It's still a very fluid situation as to what this yield is going to be, and you have some very intelligent, well-grounded, reasonable people with a lot of years experience that are— have a very wide range of what these yields might be on this year on the corn. So I, I think that the story is not yet fully written.

Chris

Barron: So taking that into consideration, if we think about moving forward into, into harvest and both— and let's talk about kind of corn and soybeans maybe together here even. And as we look at basis, what should farmers have, uh, top of mind right now as they look at basis. And if they know they're going to need to be moving some grain as we get closer to harvest, maybe some yet to price, whether it's old or new crop or whatever, they're going to have to move some grain to get everything in the bins in a lot of areas. And so what, what should be top of mind in those areas, you know, as far as managing basis? Do they move corn? Do they move soybeans? And how do they manage basis, or do they do anything with it at this point? That's That's like 6 questions all in one, but I've gotten used to you, you, Chris, so I treat it like 2 questions.

Duane: Yeah, but, uh, seriously, uh, let's separate it for just a second. On the corn basis side, um, it's probable because our basis is still quite good, even the new crop, uh, gut slot harvest is better than normal, and it's probable that at some point in time just prior to harvest or in the first days of harvest, the buyers will, the cash markets will try to weaken that basis. The question isn't whether that will happen, the question is how long will they be able to maintain a weaker basis. Based on the pattern we've seen this summer that most people have a very difficult time trying to explain why basis has been strong, I'm thinking that it's possible that the amount of time that we spend with basis values weakened from where they are currently at might be less than what may— maybe people expect. And I think there are a couple of caveats to that.

If the futures market were to stabilize, stagnate in a narrow range from, you know, 5 or 10 cents lower than where we are right now to 10 or 15 cents higher than where we are right now, if that were to be the range, I don't think basis would be able to weaken for very much or for very long. Because I don't think the farmer is interested in making sales here. I think a lot of farmers had sales on even from last winter for new crop, and I think that in some cases where people had made sales early, it was only— it was later when they found out their production was going to be down from what they expected. All of a sudden they have a larger percentage sold than what they expected, and so my guess is a farmer will be a reluctant seller on anything new. And so I think the basis levels will probably tend to firm up as harvest progresses or not weaken as much.

The one thing that could cause that statement to be wrong is if the futures market staged a rally greater than the 30 cents. And so if we find out that the crop size is either smaller, either by actual yield reports from farmers when harvest begins or from either the September or October USDA reports, and if the futures market stages a rally, under that scenario basis values could weaken. So if you could picture and, and imagine a scenario where the futures market rallies 30 or 50 cents, that's going to be difficult for the basis to strengthen, number one. It might be difficult for basis to maintain current levels even in that new crop period. So I think the futures price level is going to have a lot to do with it, and right now it might seem a little odd or wishful thinking to talk about a 30 or 50 cent rally in the corn market, but it's not at all unreasonable.

It wouldn't shock me to get 25 or 30 cents before we even started harvest, just on corrective activity. The market's absorbed a lot of selling, and if the market starts to firm up a little bit, you know, there's we trade money and the shorts, the next thing, they'll be the ones looking to get to the sidelines. So there's a lot of things that can happen. There's a lot of fluidness in this market, and I wouldn't rule those kind of things out. So the basis is going to be tricky, but it's going to be very much flat price oriented, and probably under no scenario do I see basis weakening to values say we had last year.

Chris

Barron: So Think about soybeans for a minute then, as far as basis there. I mean, what, what's your thoughts there? So, um, you know, 25 cents up in corn, maybe between now and harvest, that might soften the basis a little bit. That doesn't sound like very much. What about soybeans?

Duane: I am very optimistic soybean basis. And, uh, if people think back to what basis was like last year in beans, you know, we had a dollar basis, dollar and a half, maybe $2 basis if you were in the far western part of the growing region of the Midwest. Or maybe you couldn't even get a bid. I think this year it's going to be at the other end of the spectrum, and I, I'll give you the list of fundamental reasons why I think that is the case. First of all, China has been actively buying Brazilian supplies of soybeans, so much so that on a domestic side, if you're a domestic user in Brazil, you're wondering, do you have enough supplies saved back for me, or am I going to have to be facing a tight market?

And so I think that there's— it's very possible that As the season goes along, uh, Brazil will become less of a player, and, and from a competitive standpoint for exports, and I think that same thing will be true in Argentina. And because China has captured so much of their exportable supplies, that means the rest of the world buyers are coming to the U.S. The U.S. farmer is not likely to sell beans at current prices because he doesn't like the price. The cash merchandiser is going to look at the landscape and say, what am I going to put into company-owned storage? Where's my safest bet? Where can I make the most money on company-owned inventory? And prior to the last year or two, soybeans has always been a good opportunity for elevators to make money on stored inventory and try to get basis gain. There's been a lot of history and a lot of regularity in that being a good thing.

And I think that this year you're going to find out that with the farmer not selling, the futures market having not full carry or anything of this nature, but in comparison to what they can find in other markets, the commercial elevator is going to be willing to, with probably a strong desire, to own the physical soybeans, hedge it in the far deferreds, try to capture some spread movement, try to capture some basis movement, keep those bushels off the market At the same time, the farmer is not going to be wanting to keep them off the market. So even if the farmer does sell, the country elevator, the co-op is going to stop it and store it, and the commercial down the line, they're going to want to stop it and store it and maintain a long cash. And I think this all happens as the U.S.

picks up a much greater share of the global soybean trade as we get, you know, through our harvest season and into the winter timeframe. I think South America will become less of a competitor, and I think this all is going to happen even if we don't get a trade deal with China. If we happen to get a trade deal with China, I think that intensifies what I'm describing. So I think bean basis is going to be firming from all the way from harvest all the way into at least January, maybe even into February. And so I think if producers have an opportunity to store beans, I think it will be a good store just from the basis and the spread standpoint. And I happen to think beans have a lot of upside potential based on flat price. Part of that is driven by the idea that I think the U.S.

yields are going to be lower than what we had from USDA, and part of it is driven by what I think is going to be a good demand base with China having captured already a large portion of that South American crop and those buyers then having to come to the U.S. So I think the bean outlook is actually pretty pretty good here.

Chris

Barron: So you're saying maybe store, use that space for the beans instead of the corn and send the corn down the road if you have to send something down the road, or what are you saying?

Duane: I would try to store as much of all of it as I could from— but if you can't store something, if I can't store something, I'm thinking it's possible that you might make more cents per bushel with that space with beans than you might with corn. Now there may be other options, other strategies to look forward in corn too, We won't talk about those here, but there are other things that producer could do. But in terms of actual storage, where— how are they going to get the most cents per bushel for that space? I'm guessing it's going to be beans that are going to return more to them.

Chris

Barron: Okay, so you don't think if— I mean, if the basis is sufficient on soybeans, delivering them on— like, in our area, the basis is pretty normal on beans. I mean, it's way high on corn and pretty normal on soybeans, back to almost normal in our area. So you're saying, or let me ask it this way, what would be wrong with selling those beans and, and buying them back on the board and just taking that basis?

Duane: Well, I think basis is a little— I think basis is a little wider than normal, what I would call normal. And I think we may find a situation where we're going to find the cash basis market go to an inverse. So I think there's a lot of potential for that soybean basis to improve, and I think owning the physical might be a better reward than turning that into paper ownership, whether you did it with options or futures, either one. I think the physical cash might be the best ownership, and I think that when you look at the spreads, you're able to even if you don't want the flat price risk and you just want to store them and hedge in the deferred, there's enough carry there and I believe enough basis appreciation potential that I think you're going to get more cents per bushel of space with beans than you would with corn.

And I'm not— so I'm not making that statement absent of a flat price opinion. I'm just looking at it from a spreads and basis position. You know, there's In reality, everybody always has to enter into some sort of a flat price opinion as well, right? But I'm just looking at— when I make that statement, I'm referring just to basis.

Chris

Barron: And so this is probably a conversation we're going to continue to have a little bit as we get closer to harvest too, because this decision can be made at the last minute as well if something changes.

Duane: Correct. And I also think it's a discussion that we really should have in some depth, maybe a more than one podcast, to talk about some specific strategies and some pros and cons based off of this basis and spread outlook. Because, you know, sometimes in life and markets and other things as well, when things are down and people are depressed and discouraged and we just want to throw in the towel, we're tired of thinking about it, which that atmosphere was created a little bit by the last USDA report just out of frustration and the price decline that went. A lot of times the fallout of that creates new opportunities. And sometimes you need to step back and see if we can't find those opportunities.

And what I'm describing here just briefly now, I think there are some good opportunities for just pure basic marketing decisions that can be made to really enhance a producer's bottom line here.

Chris

Barron: Let me put you on the spot, and we got about 3 minutes because we're going to stay under 20 minutes here on this one from some feedback we're getting. So we're, we're, um, You know, I'm gonna put you on the spot, like I said. So, you know, a lot of growers are out there sitting there looking at corn, they're looking at soybeans over the next few weeks as we get closer to harvest. Let's say they've got some old crop, maybe they need to move yet, or they're wondering, should we be selling anything on a rally? So let's say we get a rally. Number one, how much do you think potentially is there? I mean, are you a bull? I mean, obviously you're bullish if you think we got 25 cents between now and harvest on corn, and you didn't really say a price between here now and soybeans, so I'm asking that as well.

So putting you on the spot, what do you, where do you think we can squeeze out of this market in front of harvest between now and then?

Duane: I think it's very possible between now and early harvest corn could get a 30-cent recovery, and if that were to happen, then I would probably be inclined to take the approach that, okay, if you got something that you know you want to, need to, or should sell, in this harvest window for cash flow, storage space, whatever it is, I would be looking at that early type of harvest, pre-harvest rally. I'd consider that a selling opportunity and then there may well be strategies that would follow up with that after that fact. But I think from just on those bushels that you have to get marketed or you really strongly desire to, I would look at that type of a rally as probably a selling opportunity.

Chris

Barron: What about cash flow? You need more, you know, you need to sell a little more for cash flow, would you'd be pulling the trigger on those bushels then too?

Duane: If I had to sell something for cash flow and/or space where I had no alternative and I knew at some time prior to the end of harvest I was going to make those sales, then I would probably be a little more aggressive on that rally. I'm assuming that if I got more aggressive because of my viewpoint on the crop size of the crop, I probably wouldn't get more aggressive until I saw the September USDA USDA report. So if I got that 30-cent rally, we did not yet have that September USDA report, I would probably do some, but I probably wouldn't do all that I expected. And then if we got that September USDA report and we got another bounce from that, then I probably would be more, I would view that rally as an opportunity to make those sales.

Chris

Barron: What about soybeans?

Duane: I think—

Chris

Barron: same thing, and you got about a minute and a half.

Duane: I think the beans in a relatively short window of pre-harvest or into an early harvest window based on technical considerations and based on what I think is probably going to be a tightening global market, I think beans could rally 60 cents.

Chris

Barron: Okay, sounds good. That was great. We did that in 20 minutes, and there's a lot more to talk about. I realize that, and, and we'll be back again with a bunch more information. And Dwayne, thanks a lot, and If anybody has questions or things you want us to discuss, again, this week with the fallout from last week's, uh, I guess, what would you call that, Dwayne? Just kind of a rebalancing and kind of, you know, getting their feet under the market again here. There wasn't really a lot going on the front part of this week, and we just wanted to make sure we brought you some good information. Again, perspective. These are not market absolute market predictions or trying to tell you what somebody should do, but again, it's just trying to bring you some good perspective, and it's Duane and I, you and I, just having a conversation, wouldn't you say?

Duane: I would say that. I would say that after all the market has been through, between a USDA report shocker, the disappointment, the liquidation of speculative positions, the pressure that goes with that, the blowup in the U.S.-China trade talks, and the tweets, and the the panic that set in with that. Market's gone a long way to being— I don't know if I want to use the word sold out, but I think there's a better word— but the market's gone a long way to being fully cleansed. And I think it's going to be very difficult for the market to find a reason to continue to trend lower from where we're at. So at minimum, I think the good positive thing that I would say is we're probably not going materially lower from where we're at. In a worst-case scenario, I think it's reasonable to assume some sort of stabilization, which should be a worst-case scenario.

Chris

Barron: Gotcha. Well, thanks a lot, Duane. And I— and if anything happens or there's any excitement in the market, we'll certainly be having that conversation. And again, if anybody has questions, please let us know and we will try to have a conversation about them. So again, everybody, thanks for joining us, and we will catch you next time on the Ag View Pitch.

Narrator: Thanks for joining us on today's episode of the EggView Pitch. As always, you can reach out to us at cbarron@agviewsolutions.com or duanel@netins.net. We'll catch you next time on the EggView Pitch.