About This Episode
Acres, not yield, moved the September 12 report, and they moved further and in the opposite direction from what FSA data had implied. Creed's own reaction was surprise, then recognition that a spring where acres shifted daily under weather swings from the northwest Corn Belt to the Delta should have produced exactly that. Only planted acres were revised. Harvested acres still have to come down for silage and zeros, mostly in Kansas, Nebraska and parts of South Dakota.
The September yield leaned on ear counts and a five-year average ear weight, and backing into Iowa's 200 bushels required 2021 ear weights in a season that was nothing like 2021. Beans needed near-record pod weight. So more production cuts are likely, but carryout has little room left, because you cannot use what you do not have. Every supply cut just revises demand down to match. Corn open interest showed nobody willing to build a position and hold it either way.
From harvest through January the cash market has to pull grain out of a farmer who is cash flush with empty bins, which is not easy. That cuts both ways. A sharp rally triggers a wave of farmer selling, and in the inverted markets of the past two years that wave wrecked basis because there was nowhere to put the grain. Corn spreads were reflecting 2012-type stocks-to-use, tight enough to snap quickly. Anyone hedged against December with fall shipment should review those plans now.
“You don't recreate demand as fast as you kill it.”
— Jarod Creed
Key Takeaways
Acres, not yield, drove the September 12 report, and the revisions ran opposite to what recent FSA data had suggested.
Backing into Iowa's 200 bushel yield with the published ear counts requires 2021 ear weights, so more production cuts are likely.
Carryout has little room left to fall, because every supply cut just revises demand down to what is actually available.
A big rally is a risk, not only a gift. Farmer selling waves in inverted markets have wrecked basis, and corn spreads were already pricing 2012-type stocks-to-use.
Take your contracts, your storage and your shipment plan to your merchandiser and work the calendar together.
Demand was not strong, only good enough for the supply on hand, and you do not recreate demand as fast as you kill it.
Full Transcript
Jarod
Creed: 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. Welcome everybody to another episode of the Ag View Pitch. We are doing a midweek Market Update, and we have Jared Creed with us, JC Marketing. And first off though, I would like to apologize for Sunday not getting the podcast out. For like the first time in 4 years, we had some technical difficulties. So if you were looking for that, sorry about that. And we had Mark Welch on there, it was a great conversation, but nobody got to hear it. So we'll get Mark back on again here soon. But for right now, Jared, I've got you sitting right across from me.
We had a report this week, and now we've got a little time since the report, a little bit of time to reflect and let the dust settle, talk a little bit about, you know, what is important now as we move forward that as producers we need to pay attention to.
Chris
Barron: I think for a moment, let's rewind the calendar just a touch. Typically at this time of year, the market is a little bit more certain on what kind of production we have coming our way. We're a little bit less worried about supply at this time of year. Since the August production report, we've had a tremendous amount of change in crop production potential, and a lot of that was seen with Boots on the Ground tours, private estimates, so on and so on. So the expectation going into this report was most definitely see some revisions on yield, but yield really got the show stolen from it. From a huge revision in acres. The acre revision on both corn and soybeans was way greater than expectations and also moved in opposite direction of expectations.
A lot of the FSA data that has been published recently suggested that we can maybe see 100,000 to 200,000 acre increase in soybeans and perhaps 100,000 to 200,000, maybe even 300,000 acre reduction in corn acres. For a second, I suppose it probably makes sense to go back to this spring and just remember how volatile things were, both on weather and markets. I think acres were moving daily. We've talked about that on your podcast plenty of times. And obviously we had tremendous weather swings from the Northwest Corn Belt down into the Delta and anything in between. Some perfect conditions, some awful conditions. So I'm guilty myself for looking at yesterday's report and saying, oh my gosh, so surprised. Yeah, it's still a big, big number and different than maybe the expectations, quite, quite, uh, different. But remembering all that volatility we had, it kind of makes sense now.
I mean, to go into that with the expectation that we're just not going to see much move is probably an error on my part and others. Now, with all that said, the acres stole the show, but we're not done with crop production reports here in the future. The acreage changes that they made was just planted acres. The next updates that we'll see will be using actual ear weights, and maybe in October or perhaps later, we'll start valuing acres that are not going to be harvested and start to see a reduction in harvested acres from silage or just flat out zeros that did not get harvested. Um, in those cases, you probably have risk of 100,000 to 200,000 acres of corn reducing on harvested acres. It could be more than that, but a lot of that's going to come from Kansas and Nebraska primarily and parts of South Dakota.
But when you get back to the process of understanding yield, and this is kind of pertinent on both corn and soybeans, the August report farmer survey— we talked about that plenty of times— the September report farmer survey and enumerator data based upon plants per acre, or now on corn, ears per acre. And then they used a 5-year average ear weight, an implied ear weight, uh, could have been 3, could have been 5. I'm going to go along the lines that it was 5. So with a 5-year average ear weight and backing into some of these states' yields, the common belief would be that we still have downward yield revisions to make. Iowa is a great example. If you back into the yield that they used at 200 bushel an acre and the ear counts that were published, uh, that would suggest that we got to have basically 2021 ear weights, which are tremendous.
And I think we're in a different growing season than last year. And similar thoughts on beans. You got to have near record pod weight to accomplish the same type of, you know, to accomplish the yield that they currently have penciled in. But you got to remember, it's a process. That's one more report from a supply and demand and production standpoint. We'll get another in October that'll have actual ear weights. I think the expectation is that we're going to continue to see production dropped. But I can already imagine, you know, what your next question is. Well, what does that mean for the market? So sorry to just jump in front of you.
Jarod
Creed: No, that's good.
Chris
Barron: When you're looking at a supply and demand report, what you're, you know, trying to focus on is stocks to use and then carryout. We are very likely done seeing our carryout go much lower, and a lot of that is you just can't use what you don't have. There's possibilities that we could see a downward revision, or upward revision for that matter, on corn and soybean stocks at the end of September. Quarterly stocks report, different than your monthly WASDEs. If we actually see a reduction of stocks there, perhaps now you could start talking about a corn carryout below a billion and a bean carryout below 200 million. I have my doubts. I don't think we can go much lower. We're just going to cut demand for every production cut we have. And it's— cutting demand is probably not a fair way to say it. You're just— you're not cutting demand that you can't have in the first place, right?
It's just revising your demand lower, uh, to use what you actually have. So over the next 60 days, I think the market's going to have to grapple with still some question marks around total supply. But the cash market will lead the way from here forward, in my opinion. Uh, the, the futures market, yeah, it obviously continues to have reaction to USDA reports, most definitely more so on beans yesterday than corn. Um, maybe beans with the dependency on Brazil this next spring have a little bit more wiggle room to have outside money influence, but right now in a corn market Open interest would suggest that nobody's interested in trading corn higher or lower. They're just not interested in establishing a big position and sticking to it. So cash market's going to have to grapple with our overall production.
Farmer movement at this point in time, you would think at least on the corn side, it's going to be relatively muted because of just a cash flush farmer and Bends empty, less acres, less yield. It's going to be a little bit tougher to get grain to move on a normal scale.
Jarod
Creed: Mm-hmm. With that said, you know, we come off of a report like this, there's always the perception of what it said or what it means or whatever. And, and it gave us, you know, some, some support, right, from where we're at, and with some upside loft a little bit. What do you tell producers to be concerned about or to manage though between now and, and some guys are already harvesting, you know, in some of the areas where stuff's not as good. But what do you tell producers to be managing? Obviously margins, but what do you tell producers to be watching and managing now knowing what we know at this point?
Chris
Barron: The main takeaway from maybe yesterday's report and future expectation of production cuts is that's not the end-all be-all in the markets, right? You get past yesterday and all of a sudden this morning we're recording this on— what is today, Tuesday?
Jarod
Creed: Tuesday. Tuesday. I gotta think too.
Chris
Barron: And you have a CPI report that comes out with blazing inflation numbers and it rocks the equity market. You know, as we're doing this, the equity market's 170 points off its highs from this morning. So that obviously can spill over into other commodity markets with the expectation of interest rates are just going to be forced to go higher. And then it can be, you know, a trickle-down effect on all kinds of different markets. I think right now corn, soybeans, and wheat have to determine on their own if they're recession-proof. Maybe recession-proof isn't the word to use, uh, but we have to determine if those commodities are in tight enough supply that the users that need them have the margins to continue to need them and don't care about other outside influences. Simple supply and demand versus the potential ramifications of very weak financial markets and how that can spill over.
So back to your question on what does a farmer manage, you know, it's not a slam dunk that, oh, markets are going to stay at these prices or we're going to go higher just because of supply being so tight. Other outside influences can still be there. That's going to be a to-be-determined situation. But from a standpoint of starting harvest through perhaps the end of January, the cash market's going to have to do the job to get grain from the farmer. Anybody that has a significant exposure of hedges versus the December contract right now and planning on shipment September, October, November, December, uh, better be reviewing those plans. If you have excess sales that you don't plan on shipping at that time frame, You better be thinking about what your plans are after the first of the year in relation to timing of shipment of those actual sales.
I would say that, as you know, from a farmer standpoint, as good as it is to have high prices, you better be aware of some of the intangible risks of tight supply markets. Any type of a big rally in the market very quickly can obviously create a wave of farmer selling. And if you trigger a wave of farmers selling like we've seen in the last 2 years in basically inverted markets, we see the cash market just absolutely get destroyed. Mm-hmm. Basis weakens. We don't have a place to put all the grain the farmers buying or selling in a short amount of time. And when you still consider Russia and Ukraine, inflation, recession, and a long list— and production— a long list of, uh, variables here It's, it's no, it's not impossible to all of a sudden see a huge surge in price that is great for the bottom line but puts your existing plan at risk.
So you just need to be looking at what do I have sold? Is it a cash sale? Is it basis? Is it HTA? Regardless of what it is, just making sure you have a plan. I'll tell you right now, as we get into the cusp of harvest, the plan with most producers is we're going to deliver as much as we possibly can by end of January. And that's kind of a twofold deal. I think that there's probably enough money on the table given the elevated basis level opportunities that we still have for that time frame. But I want to focus on cash selling after that time frame, just simple blocking and tackling. If I'm going to sell something, it's for delivery the next 30 days, staying current. And then the perspective— we just talked about CPI and what do interest rates do.
I think that conversation just building on itself that we're We want as little to no interest exposure on a working capital side into next spring as possible.
Jarod
Creed: Right. The message, my takeaway from what you're saying, and then you can expand on this if I'm catching this wrong, but is manage that basis because there could be some threats there. And I've heard you comment before to the tune of where these prices are at, the basis relative to the overall price is kind of peanuts compared to the flat price, right? Or what we can get locked in and have as a known instead of an unknown.
Chris
Barron: I want to preface this by this— I don't know, third time I've been on with you, I suppose, in the last 6 weeks it feels like. But the message a couple weeks ago was we could see $7 cash values come around to the farm, but it would likely be a combination of the board and basis. We've got there. Right. We're there. Is it enough for the farmer to do something? Well, hopefully if you need to catch up on marketing, it's an awesome opportunity, right? But just, you know, what makes up a cash contract? Futures and basis. Each one of them hold their own risk. The board can hurt you from a spread perspective of relation to one contract to the next just as fast as basis can. So without getting into the weeds in this conversation, it's probably just a deal. Make sure you're picking up the phone and talking to your merchandiser or grain originator. Here's my contracts.
Yeah, here's what I can store. Here's kind of my game plan. How can we work together? You know, nobody needs to be an enemy of each other, right? And then you'll probably just discover what your potential risk is from a certain calendar day to the next calendar day.
Jarod
Creed: Yeah.
Chris
Barron: And, and the reason that's being mentioned is the tight stocks that we have. Your corn spreads in the market are like reflecting 2012 type of supply, or not supply necessarily, but stocks to use. The spreads are so tight that that elevates a little bit more risk for the farmer. Can be good or bad risk, but it elevates the risk that those things can snap in a hurry and put yourself in a worse financial situation than what you thought you were getting into it.
Jarod
Creed: Yeah. Um, as we wrap up, just kind of one final thing. We've been talking pretty heavy on corn. Any comments on the soybean side of the equation that, uh, you know, people should be paying attention to on, on that crop in particular?
Chris
Barron: The bean yield and bean acres were a surprise, obviously, yesterday, dropping the acres that they did and moving yield down. Uh, it's still a great yield from a historical perspective, but it definitely put a bid under the bean market. There's so much dependency on Brazil right now. Any sniff of a problem in Brazil You make a guess. $15, $17, $18, $20. I don't know. You have a big enough cut in Brazil, we're gonna have to do our best work in a hurry to ration demand.
Jarod
Creed: And the demand side's apparently pretty strong too.
Chris
Barron: Well, I'm not going to necessarily say that it's strong. I just think the best way to word it right now, that it's good enough for the supply that we have.
Jarod
Creed: Okay.
Chris
Barron: We don't have great supply, we don't have great demand. But the two of them married together, the cash market's doing a job. The last user to the table runs the risk of maybe not having production that they need to use. But we're gonna have to find a way. Let's just put it this way, a coin flip. If Brazil has a problem, we're likely going to see fireworks in the soybean market this next, this winter and spring. If they don't have a problem, then, you know, maybe, maybe that's actually what we need, to be dead honest with you. Farmer might not like to hear that, but if you can have a decent crop in Brazil, that'll make a worldwide end user healthy, and that will rebuild our soybean demand a little bit going into 2023.
Jarod
Creed: Because demand is the key, right?
Chris
Barron: Oh, you gotta have somebody there to buy your products. Exactly. And it's not like they just buy it one day and quit the next day and come back the next day. It's right, it's you know, it's a longer-term play out like that. You don't recreate demand as fast as you kill it.
Jarod
Creed: Right. Awesome. Hey, this was a great conversation. The whole goal here was just to kind of recap the dust settling and we'll get you back another time here and kind of see how things are looking as we move forward. But really appreciate you being here. Thanks a lot.
Chris
Barron: Thanks.
Jarod
Creed: Again, Jared Creed, JC Marketing. Thanks everybody for this midweek market update. And we will catch you again next time on the Ag View Pitch.
Chris
Barron: Did you see any action? Did you make any friends?