May to Sep: what's changed?

Shay: Welcome back, everyone, to another episode of the Ag View Pitch. On the second week of September Sunday Market Outlook, we have Garret Brown with Kodak Risk Advisory. Garret, I sent you a message here the other day and I said, here's the podcast we did in May. I just listened to it again. Why don't we do a follow-up? And I think we're almost— let's see, that was May 10th and we're recording on September 5th. So we've had time to see how the growing season has developed. I would open the floor to you here initially to say, what's your thoughts on 2025? What have we seen growing season? And maybe how has your mindset shifted or has it shifted at all since we were talking back in May?

Garret

Brown: Yeah, I mean, it's been an interesting growing season. I mean, we— I remember listening to that, uh, interview or podcast here again last night and basically saying I don't know that I want to bet on these long-term forecasts because you just never know how accurate they're going to be. And now looking back with this growing season, I mean, in general it was a pretty dry June. Uh, we started to see temperatures creep up and then we, we saw the faucet turn on We had a wet July, introduction of disease kind of all over the place. Took a long time for the market to start kind of talking about it. And then largely things have dried out again in August. And it looks like we'll kind of finish out that way. A little showers here and there perhaps, but in general, very dry to finish out the season.

Shay: Yeah, and, you know, we were wondering, are we going to see 95 million-plus acres of corn planted? They're calling it what, 97 now. So I think came as a surprise to a lot of people. What's your thoughts on where we ended up there? And maybe the impact that that's had on what we're seeing today?

Garret

Brown: Yeah, I mean, I've always been one that looks at, you know, price ratios a little bit differently. So obviously, this year, we ended up with 97 million acres. And some would say, well, look at the insurance and the ratio price. And I mean, that was— you should have seen it coming, et cetera, et cetera. And it's like, You know, I'm more on the lines of let's look at yield ratios when you factor that in, because it's very different looking at price ratio, say, in Illinois here, where maybe you're going to yield, you know, 80 bushel beans and you're looking at $250 corn, um, versus say, like, you know, we work with a lot of clients in North Dakota. I mean, you have guys that— I mean, a lot of people might start with 38 bushel beans, but they might be using 165 bushel corn. So your ratio for corn is so much higher.

So in those fringe areas, such as North Dakota, you could see kind of a skew towards more beneficial for them to plant those corn acres in relative to beans. So I don't necessarily think— I think it's dynamic. I don't think it's just a static linear decision across the belt as far as apples to apples. Yeah.

Shay: No, I would say, you know, the backside of that too is you know, on the basis side, I mean, basis is just godawful right now for soybeans in the Dakotas and anything headed Pacific Northwest direction. That factors into it. You know, a lot of guys don't like soybeans. We're looking at potential for early frost. I don't know if North or South Dakota caught any of that frost here the other night, if it ended up dinging anything.

Garret

Brown: But I heard some. I don't know how severe it was, how widespread it was. Dr. Oliver Branch was up there this morning. He said it got down to 37 degrees, but he hadn't heard of any And he said the forecast is 42, but it got down to 37. So we'll see. There were some reports that some of the crop got dinged. I just don't know at this point how severe it was. So I'm guessing it's not, but it might take a few days. But it sounds like the forecast coming over this weekend is going to be cooler, is cooler.

Shay: Yeah. And we're, you know, we're sitting here recording on the 5th, looking at corn going to be probably closing in that $4.20 area, soybeans $10.20 to $10.30 there. You know, if I had asked you 4 months ago to put a price prediction out there based on the season, based on where we were at from planting conditions, do you think that— would you have thought that this is where we would be?

Garret

Brown: It's hard. It's hard to say. I was on the side of thinking that fewer corn acres. I thought that given how many acres were left to be planted, and this report came out after the discussion that we had. But with the way that corn was trending, that maybe the corn acres wouldn't be quite as high. And then we've got FSA data come out and stuff and suggest the higher acres. So I mean, it is what it is. But looking back, one of the things in that, in that last discussion we had is USDA was estimating carryout just over 1.4 billion bushels for corn for the current year. And I said, well, I honestly, I think we're— I think they're underestimating exports. I think it's going to over— like, the increase in exports that we see are going to end up more than compensating for the feed residual usage. And now we still have some time left to see what that is with the stocks report.

But currently, it was up the August report. Now that estimate is in the low 1.3s. Like, it's just about 1.3 billion bushel carryout. And yet price hasn't exactly responded the way one maybe would have expected. And there's lots of reasons for that. Maybe You know, maybe the number is really not there. Maybe there's more bushels out there because USDA doesn't necessarily know. It's just an estimate. And like we said back then too, I still don't know anybody, I don't think, who's ever filled out a stocks report, you know, survey. So, um, and, you know, interestingly too, as we think about demand moving forward, you know, with the increase in acres, in that huge increase in yield.

USDA basically went out there and kind of solved for X, I think, to kind of find a carryout number that would fit because there's, you know, early-ish to middle part of the growing season, we don't know where the state's going to finish up. But now the mantra, I think, is, well, because they increased demand so much, if we start reducing yield, we're going to also see a decrease in demand. And that may or may not happen. Corn prices are cheap. Global demand growth still is not at what I would consider the 16-year average for year-over-year growth. We have the second highest next year sales on the books here with 3 days left to report in the marketing year for corn. Shipments were like 1.4 million tons last week. I mean, things are really going well. The PNW is going to get off to a hot start because we don't have a PNW program.

So, I mean, depending on where test weight is, we could, you know, we had really high conversion rates this past year, um, to convert corn bushels to ethanol. You know, if it's not as high, I mean, let's just say that we're down 5% and we just maintain overall ethanol demand, doesn't that mean that we see an increase in the corn grain of, you know, maybe 4 or 5%? I mean, that could be, you know, 150 million bushels right there of increased demand. So I think the jury's out. We'll see where yield is, you know, where we're sitting. Harvest is just getting rolling here. I handshelled my corn. It was like 28.5 here yesterday. You know, time will tell, I guess.

Shay: 28.5, you ought to be getting in the field then tomorrow is what it sounds like.

Garret

Brown: I'm just a small farmer. I can, I can take my time.

Shay: You know, I think your comment there on test weights interesting. I've seen some early numbers coming out here, guys with some pretty terrible test weight. And I think with the widespread impact of Southern Rust and tar spot in some areas, as well as lack of moisture to finish, you know, Indiana, Ohio, and then the disease I'm referring to in Iowa, Illinois, you know, we may, we may see that, and, and that might be drastically different from last year. Now, how it impacts things, I'm not 100% sure, but it's definitely going to hurt some feelings when it comes to yields that are coming out of the field. And do we see, you know, the follow-up question to that is, do we see this mid-harvest report that comes out and says, oh, things aren't as good as we thought that they were going to be? You know, what are your feelings on that as we head into harvest kicking off here in September?

Garret

Brown: Remember last May when I just made the comment that it feels a lot like last year? Last year was like, man, you know, we're at a 178 yield. This looks bullish. Like, this is tight. Demand is better than what, what I think people are giving credit for. Because there's this idea that once there is just a huge crop, it's not— it's insurmountable, you know. That obviously wasn't the case, because I think USDA's estimated yield came down to 179.6 for last season. And we saw spot corn rally from like $3.60 and a half or something to $5. It was actually $5.04, I think. That doesn't happen because the market accurately pegged this. And I'm not saying that this year's gonna be the exact same way, not saying that. Because we had, you know, last year we saw basis start to appreciate and it basically went all the way through harvest, June 30th of last year.

And then again, I think it was on July 15th, we saw the July SEP spread for the following summer bottom. And so we started to get some indications about a month before the futures bottomed. But we are starting to see the spreads do some of that bottoming. We've seen some basis appreciation out where we have some clients in Kentucky with some of this early harvest. Hearing some, some talk of some really great corn and some also some that's really disappointing. So there's also a lot of variability. But I think that the jury's out. When I want to, you know, I don't want to name any names of services or things, but We got to be kind of careful, I think, with these objective yield analysis services. And there's a lot of them out there. What I have found is that big crops are hard to guess. And oftentimes, we go too far.

What I find is that, and this is looking at data, I'm not— this is just what I'm looking at. When we have issues, it seems like we're better at estimating those issues on crops that have had— that have been dinged than crops that we, that we think are just massive. And that I've seen it over the last 5 years in particular. Yeah, let that lie. Now, since about 2016, there's been 3 crops where USDA from August to October went out and just went right to the moon on those estimates. It was 2018, it was 2020, and 2024. Now if I scroll back here, let's look at 2018. So in, um, let's see here, where's my yield? So 2018, in August, yield went from a 174 July to 174 in August., and then they increased it again in September to 181.3. Any idea what the report said in February?

Shay: 176.

Garret

Brown: 176.4. Yeah. Walked the whole thing basically back. Let's talk about 2020 and all— there's going to be comments here that say, well, Garret, the ratio, the ratio. Well, I'm sorry, let's do the math. And I don't think that Iowa lost the nation basically 10 bushels an acre, you know, but July 178.5, August 181.8, September 178.5, and by next October, it was 171.4. Yep. Test weight had a major, you know, played a major role in that, I think, as well. So let's go back to last season, 181 in July, August, September, October, by then we were 183.8. And by January, that yield got pulled back down to 179.3. So if you basically every time we see a big increase, it's got pulled back.

Shay: Yeah. And I guess the numbers that are out there that people are familiar with is you had USDA print 188.8. You know, Pro Farmer Crop Tour came back 183.5, I think it was. You know, maybe there's some ground truthing that's going on there and probably will continue to go on over the next few months. So I definitely don't disagree with what you're saying. But you had also said offline before we started recording here is whatever the mental model you have towards pricing is doesn't mean that it has to play out that way, you know, and certainly not in your timeframe that you're expecting. Yeah, well, you know, I would say 2020 is an example of that because we didn't necessarily have a massive push into 2021 there, at least not again in that timeframe you're referring to, to say here's the impact that that had.

Garret

Brown: Yeah, well, and the difference I would say between last year and this year is, I mean, and some, you know, somebody is going to come in condescendingly say, well, we had opportunities this year, you should have just sold it. It's like, yeah, because we're all going to sell at a, you know, at a loss real early on, whatever. But in 2024, I felt like we have better opportunities. So we came in having sold enough that, you know, we didn't make any, any recommendations to clients probably from around the middle of May until we got to the middle of November because we felt like we had enough sold.

So I felt like we had an opportunity to know that, okay, we got a lot of bushels covered from a harvest standpoint, we can afford to kind of wait this thing out and see what happens and And thankfully we started to feel better because again, I was talking about basis and talking about spreads, like we had things kind of going on. This year we haven't necessarily had that. I mean, basis was strong in the East, that's great, but we haven't had the same type of spread action giving us the cues that we did back then. So confidence is less, but also across the belt, I'm going to say that sales are lower, so it's a lot harder to kind of get to the other side. And so as we look out you know, into the future, it's like, do we have enough signals? Do we have enough signs?

Do we have enough sold so we can, you know, or is there another barrier that's going to force us to make a decision before we're ready? Um, and unfortunately, I think that's— this is one of those years where it may do that. But at the same time, you know, last time I looked here, uh, Corn was up and then trading well today. You know, the next logical objective that I see is the gap on the chart right around $4.33. I think we're going to continue to probably see some more farmer sales ticking up here as we move into those price areas. But again, making a decision here may not be based on the long-term opinion, but it's what happens if we get into harvest. And regardless of what the outcome is, we see bushels have to hit the pit. Just, you know, maybe it's North Dakota where there's a lot of storage that was destroyed.

Obviously North Dakota is not going to be the one that, that depresses the market per se, but, you know, just natural sales pressure.

Shay: I want to, I want to hit briefly on your thoughts on 2026. I sold some May '27 two days ago at $480, and then looking at Dec '26, we're sitting right around $460 here as of this morning, and it's spent about 30% of its time above that $460 mark over the course of the last year. I, I don't disagree from the standpoint of saying we want to make sure that we're not— or a lot of people aren't going to say, yeah, let's sell at a loss. But you also have the factor on the back end of fertilizer prepay, really high input prices. And if you're going to be doing that prepay, you should probably maybe secure some of that variable expense or protect it in some sense. And 460 isn't super ugly for doing that on 2026. What are your thoughts, sir?

Garret

Brown: No, I agree. I kind of have two schools of thought on that. One is, you know, I would say over the last 8 years since I left the commercial side of the business, ethanol side of the business, selling beans, for example, like between that September to November slot has actually been some of the better sales opportunities that we've seen in these types of years like we've seen, they're kind of funky. And that's because we've seen this transition of soybean pricing power, or risk, or whatever premium move towards when the Brazilians are planting their crop, right? Because their crop is bigger than ours, and therefore it would make sense. Because I think they have more risk, they have more volatility. So right now, it's like, hey, this isn't necessarily the time you want to be pricing corn. But if you can make that work, you know, you know, I'm gonna give an example.

Accumulators are really popular tool to use. It's tougher right now because implied volatility in options is cheaper. So you're not getting as much premium as you'd like to have. But while there's OTC, over-the-counter products, you can trade like that to kind of get that premium you're looking for to help cover some of that. Again, not a recommendation, but right now today I was looking and selling the strangle where it's like a $4.90 call and a $4 put. Add that premium back in. It was $4.97 here right before we jumped on this call. Would you sell $4.97 corn knowing that you had, you know, you still had flexibility to do that adjustment if you needed to? Uh, whether you need to, you know, board collapse, you decided to buy your $4.90 call back, or the board rally, you decided to buy that $4 put back.

In that situation, the board collapses and goes to $3.60, you at least have 97 cents of value that you could have, and I think to help provide that protection maybe reduce your margin exposure a little bit there because that's going to be a— that could be a headache. I mean, last thing you want to do is lock up something thinking it's a great sale and then all of a sudden, like feeders, it rips and you go from the equivalent of like $12 corn to $15, $30 corn. That's what we're seeing in the feeder market. And I kind of wonder, like, obviously there's, there's physical things going on, cash things going on in that market, um, with that screwworm and things that we don't— we don't market a lot of cattle, but you can hedge something that feels really great and have all the reason to do it and just get annihilated.

I mean, I think to a degree this market has been blowing people out of hedges, more than likely, and that's helped to fuel cattle prices. Yeah. So I don't know, it's just you got to be really clear on what you're hedging for. And like I've said in the past during previous discussions we've had, you know, be willing to grant yourself a little grace that you know, here's why I made this decision. Because, you know, what happened, like, if we go out there and hedge $4.97 corn in this way today, what happens if corn rallies another buck here like it did a year ago? You know, you hedge 50,000 bushels that way, you're going to be, you know, $60 grand in the margin or something, or you could pretty easy. Yeah.

Shay: So, well, I think the last thing I kind of wanted to touch on, you know, I was pretty optimistic when we recorded in May. I shouldn't say optimistic. I had stated that I felt that there was more upside potential in beans if we had some sort of market mover. If we had weather issues, we had lower acres. If we ended up getting a tariff trade deal done, none of that happened. And so beans have continued to look ugly, ugly, ugly in a lot of areas from—

Garret

Brown: but not that much different, right? No, I would say November 9th, '61, late November last year, the high price we saw this year was $10.75 and a half. We were just like $10.50 to $10.60 futures, right? So the way we looked at it is like, hey, $10.45 when we got this initial bounce back, that's like 73% of the available range this year. If you, if you take pride in being a top third marketer, there it is.

Shay: We're still sitting, you know, even today we're still sitting in that top 30% of what we've seen. But no, no rip to the upside and still well below cost of production for most, you know, I guess we call it I-states. I don't— what I was driving at there is I don't feel any optimism on actually getting anything done from a trade deal. Obviously, the Japan announcement just came out here on some, you know, $8 billion worth of products with a few billion of that being dedicated towards agricultural outlook. I think China's going to buy when they decide that the prices are cheap and when they need to. I don't think they have any reason to necessarily strike a deal right now. At least that's my sentiment towards that. So do you, you know, you just try to not get burned on bean basis, store it for a while, capture some carry, turn it into cash and move on with it?

Or what are your thoughts?

Garret

Brown: That's, that's kind of where my thoughts are. I mean, in the P&W markets, we've kind of— I don't want to say we saw this coming, but we saw some fairly friendly corn basis relative. I mean, bean basis is already like pre-COVID garbage, honestly. So like, also, I could have locked up a 95 under something. And now it's a buck 50. Like, one that long, like last year within it, like, I remember seeing basis was like 80, 85 under at one facility by September 24th, locked in some 5500 basis. That's just last year. Right. I just, you know, the bean situation is interesting, because I actually think there's still some opportunities here. You know, exports, I think, for old crop here still have potential to be revised higher, even though, you know, obviously that's just kind of an underwhelming thing compared to the loss of China. But we'll see.

We didn't really have that great a finish here on beans. Crush margins, board crush margins have been, you know, decent. We've added a couple plants that I'm aware of. I know other plants that have not been running., you know, near full capacity over the past, I don't know, 8, 9 months at least. At least that's what I've been hearing anyway. Um, so I think there's some upside to crush potentially. It was nice to see the latest round, I think it was in July, that they increased it. But, um, if we— that acreage thing was a big deal for beans just because of the lower production per acre, etc. If we end up losing a little bit of carryout in 20— in the— from the, from the old crop side here, yeah, it ratchets things down a little bit further.

And I want to be careful about drawing conclusions from static rating levels, but the good to excellent rating on this bean crop right now out of USDA is 65% good to excellent. That's in line with last year. We saw another 2-point decline by the end of the season, and when I go back and I look at the average soybean yield since, I don't know, let's just say, let's even include 2016 when they were 52 bushels an acre, just so we try to avoid any bias. The last 9 years, the average has been 50.32 bushels per acre. And in 20, let's see here, last year was 50.7. Versus USDA's 53.6. You know, I'm sure we're going to lose some efficiency in bean usage somewhere in the world because it's, it's, you know, there's barriers and there's things that are not optimal. But, you know, there's incentive for China to come get US beans. But like I said, I agree with you.

That's the one, maybe second bargaining chip they have is the president's base. With, with the farmers and stuff. Personally, I hate even to bring this up. I think he's probably got the farmers' back on this. Just, that's just what we've seen historically. But they're not, you know, they're probably going to wait at this point. But that doesn't mean they can't come here and beast jam.

Shay: So I got two final questions. They're not fair. And you can throw something at me later. So the first question I got for you is, what's your corn going to yield in the field that tested 28.5%?

Garret

Brown: My test weight was 54.2. I've only had one corn crop come off that field. I don't know, I may be a little bit more optimistic because the test weight was better. I've heard some variability. You've probably heard more locally. I will just maybe say 240. I think if you're within 5— if you're within—

Shay: yeah, if you're within 5 bushels, I'll buy you a beer. Second question that I have is if you had to pick a number today, USDA printed 188.8 or whatever it was. StoneX just lowered to 186.9, I think. And then, you know, Pro Farmer came in at 183. If we record here again in January, 4 months from now, if we record in January ahead of— or 5 months from now, ahead of the final report, where do you think we end up on national yield on corn?

Garret

Brown: You know, last year I think we were 176, 178. And that comes from— I think we actually ran and looked state by state and just, you know, armchaired this thing like most of us are doing. I tend to be kind of a mean reversionist and just thinking that you tend to, you know, it's never as bad as what you think. It's never as good as what you think. If I can have a 3-bushel range, I think I'm probably not 182 to 184.

Shay: Yeah.

Garret

Brown: You know, I think it's, I don't know, some of these objective yield analysis things that I've seen places a very, very stark difference between USDA on the state of Illinois and their own estimates. And yet they're coming out with some of the, you know, estimates nationally that might be— I got to be really careful, like I said, I don't want to give any proprietary information away— but maybe aren't that much different. Um, how can that be? I just think that where things are maybe appear to be good, they could, could be mistaken. Um, I think it's, I think it's personally going to come down, and it just comes down to what does USDA think in the short run. It might take some time, and we might see it more reflected in the cash market before we actually start to see it on paper.

And one thing I think we want to be mindful of too is this, the, the Southwest looks like it's got a pretty decent crop. You know, are they going to need to import a lot of corn? Probably not. And that could kind of put a little bit of a lid on things. Yeah.

Shay: No, good comments there. Any final thoughts as we wrap up, Garret?

Garret

Brown: No, I think we covered quite a bit.

Shay: Well, thank you for hopping on. Sorry, those last two questions were unfair. But this way, when I go back and listen to it in 4 months, I got something to pick on you about.

Garret

Brown: Well, like I said, I was trying to shove some of that other stuff in there about the carryout for the current year and the exports and stuff. Like I said, at the time, we thought 2.7 looked too conservative. I think honestly, exports for corn for '24 crop are probably going to be— what are they, 282 right now? I think we had jumped a little bit. We just had census data came out, gave us a little bit more. We got one more month of that. We got 3 more days of shipments. Yeah, we'll see where we're at, I guess, here in January.

Shay: Sounds good. Garret Brown, Kodak Risk Advisory. Thanks for your time today.

Garret

Brown: Yeah, thanks, Jay.

Shay: And thank you everyone for listening to another Sunday Market Outlook on the Ag View Pitch. We will catch you next time.