About This Episode
Matt Bennett of AgMarket.Net makes his method plain: he sells corn at the moment he commits the cost. Buying fertilizer for a crop is the trigger to hedge that crop, which is how his averages across several years ended up defensible even when individual hedges looked poor at the time. The discipline is not a price forecast. It is a rule that ties risk management to the calendar of spending rather than to conviction about where the market goes next.
The centerpiece of the conversation is a size comparison. Funds are carrying a short of roughly 260,000 to 300,000 contracts, something like a billion and a half bushels, against an estimated nine to ten billion bushels still in farmer hands. Short covering will support the board, Bennett says, but he expects only half to two thirds of any rally to reach the cash bid, with the rest surrendered to widening basis as elevators throttle the volume coming to town.
For 2024 he wants buy up coverage purchased as subsidized protection and then actually used, pairing insured bushels with a marketing plan, which he calls the lesson producers should carry out of the prior year. He would cut overhead and family living before touching anything that protects yield. And in a carry market he would run farm bins the way an elevator runs its own: sell the deferred futures, own the carry, and wait for basis to come to you.
“Sometimes ignoring the facts doesn't mean that they're not still facts.”
— Matt Bennett
Key Takeaways
Pair the sale with the spend. Lock in price when you commit to fertilizer, rent or seed so risk management follows your cost commitments.
Size the fund short against farmer held bushels before assuming short covering delivers a rally worth waiting for.
Expect only half to two thirds of a board rally to reach cash; the rest is taken back in basis when elevators cannot handle the volume.
Buy up crop insurance creates insured bushels, and the point of insured bushels is to market against them rather than sit on them.
Cut overhead and living expense before cutting inputs that protect yield, because bushels are what give you something to market well.
In a carry market, run your bins like an elevator does: sell the deferred futures, capture the carry, and let basis come to you.
Full Transcript
Matt
Bennett: 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.
Chris
Barron: Welcome everybody to another episode of the Ag View Pitch. We're heading into a new marketing week and we're getting into the middle part of February here with the price discovery period, and we're lucky enough to have with us today Matt Bennett. Matt, how's it going?
Matt
Bennett: Going good. How are you doing?
Chris
Barron: I'm doing okay, actually. As we record this today, I've been working on our year-end financials, trying to get all that done. Our year-end is January 31st, so I was kind of trying to get all that, all those numbers together. '23, at least for us, looks pretty decent, but I don't know, when you start putting cash flows together for 2024, it doesn't look very rosy. What do you, what are you seeing?
Matt
Bennett: Yeah, I mean, it looks pretty rough, especially if you don't have much in the way of hedges on, you know, I think the '24 looks tough as can be. The thing is, and I know you and I have talked about this before, you know, I hedged quite a bit of my corn whenever I bought fertilizer for the '23 crop back in the fall of '22. You know, I did the same thing actually in '21. Some of those hedges didn't look as good. But whenever you look at the hedges for '21, '22, '23, those falls you know, for the years '23, '22 through '24, I feel pretty good about where my averages sit. So I think staying consistent and, you know, whenever you're outlaying the money, whenever you're agreeing to cash rents, whatever it might be, and you kind of know, hey, this is what I need to do as far as locking down some of my risk management, putting profitable situations in place for myself.
You know, that's a really good time to step in there and sell corn. And I know some folks didn't want to this year because fertilizer dropped so much and they felt like they had some time. But, you know, I kept reminding people last fall, it doesn't mean that corn can't go down another dollar. And here we are, you know, pretty, pretty, just pretty tough sailing over the last several weeks.
Chris
Barron: Yeah, last week we continue to not get any good news and we continue to pile, you know, kind of bearish news on top of everything here. Anything that you're kind of watching this next week or two as we kind of cruise through this price discovery period on the crop insurance. Anything you guys are watching at your shop?
Matt
Bennett: Yeah, I mean, you know, funds are actually quite short already. But the thing is, is that, you know, on Friday CMA came out and lowered margin requirements. And so I'm not so sure that some of these bigger funds might say, hey, we're not even going to have to put any more money on the table. We'll go ahead and sell, you know, another tranche of contracts. And I'm not trying to make light of it. It stinks. I'm right there with you. I farm, you farm. You know, we do a lot of this stuff on the side, or, you know, it was on the side. Now it's probably a little bit more than just on the side, but we farm. So, you know, we don't want the prices to move lower. But, you know, sometimes ignoring the facts doesn't mean that they're not still facts. So I feel like they're probably going to end up selling some more.
There's just nothing to get the funds excited about covering positions right now. You know, they seem to still be flowing into equities. This is a very long run of equities winning over commodities. And I think that will turn at some point. When it does, obviously it'll be a little more enjoyable. But for the time being, I'll tell you what, the path of least resistance sure seems lower to me without major weather issues for the spring crop, you know, which we'll find out in the next 8 to 10 weeks, you know, without major issues there. Boy, I really struggle, you know, to think that we're going to rally much. I'm not saying we'll fall out of bed completely, but I'm concerned about it, especially for your cash grain holders. Now, the other thing would be fall corn. Uh, oh boy, I think you'll get a rally of some sort. I don't know how much it'll be, probably won't be enough for most people.
But what I'm concerned about, Chris, is where does prices sit, you know, the 1st of October this next fall? Boy, I would, I would say significantly lower, certainly a possibility, if not a likelihood if we have 91 or 92 million acres of U.S. corn planted, because man, without a supreme crop failure, you're looking at some massive carryouts, both world and U.S.
Chris
Barron: Um, I'm gonna circle back to a comment you made on the short positions of the funds, and probably adding to that, if they step away and the farmer sells against that really hard, I mean, is it pretty likely that's going to be one of the huge limiting factors then, probably, right? To where we don't see as much, you know, where the short covering gives us a rally. It's really probably going to be pretty limited, won't it?
Matt
Bennett: Or what's your thought? Yeah, I mean, you know, the funds have been carrying 260,000 to 300,000 short here over the last couple weeks. You know, essentially, uh, that is a billion and a half bushels or less, a little bit less, you know. And so the farmers holding on to probably I'm just going to estimate somewhere between 9 and 10 billion bushels of corn just to give you an idea. And so I know folks think once the funds cover, that has to mean a rally. And by all means, it will definitely be supportive in nature. I think you could see a rally on the board because I don't think everybody's going to sell corn all at once. But what you'll see is a significant amount of hedge pressure. So let's say we rally the same 20, 30 cents. Yeah, I don't think there's any snowball's chance, you know what. That we're going to get all of that as far as a cash price goes.
So as a producer, you got to kind of understand how that's going to work. I'm assuming, you know, you get anywhere from half to two-thirds of it, but the rest of it will be in basis widening. Elevator systems won't be able to handle this next harvest, so to speak, because there'll be a lot of bushels going to town. And that's how they control how much is coming to town is, you know, they got to widen the basis out if they can't handle it all.
Chris
Barron: Mm-hmm. Yeah, because when we look at these cash flows, almost every conversation has led to, with the exception of a few, but a lot of them have led to, we're going to have to yield our way out of this. Well, if we all yield our way out of this, it just continually puts that much more pressure on, on prices. To your point, by the time we get to that, that point, my, my next thing I wanted to hit on is, you know, we're I said this a couple of times, we're in that price discovery period during the month of February, even though it doesn't look like we're going to have anything anywhere near where we were last year. Let's say the number comes in $4.70. Just on— we'll just use corn as an example. Is there anything that would say— I mean, in your crystal ball, could you see $3.70 corn in the fall?
Matt
Bennett: Yeah, easily.
Chris
Barron: That's a dollar drop. I mean, if we're at 85%, let's just say basic 85 RP, you have a dollar drop, you yield your APH, you're in an indemnity claim again, just like last year. It's just that we're dealing with lower rates.
Matt
Bennett: Right. And does a guy want to buy up in this situation potentially? You know, I know some folks are talking going 90, 95%, you know, because their margins are so thin. They're thinking, well, worst case scenario is I hold my money together, you know, and that's not the end of the world. Now, some folks aren't even going to come close to holding their money together. When you look, for instance, at the Farm Doc article talking about cash rent growers in north central Illinois, we're going to be looking at your average cash rent grower at current levels as far as inputs go and prices of corn and beans are underwater. And so this will be the first year in a long time, Chris, that most producers are not going to guarantee anything other than the lack of disaster. So you won't be able to guarantee profitable, profitable situations for most.
Maybe if you own your ground, it's paid for. But this is going to be a different type situation. So by all means, I think if crop insurance comes in at $4.70, I'm a big proponent of you buying all of it you can get subsidized put essentially. But the other thing I would remind folks of is now you've got insured bushels. And when you've got insured bushels, you can use your marketing plan in tandem with your crop insurance. Use it for what, in my opinion, it's purchased for. Partially, and that is to give you the opportunity once again to really take advantage whenever it comes to marketing.
Chris
Barron: Absolutely. Because I think that's, that was the lesson from '23, right? There was a lot of insurance bought and not a lot of activity on the marketing side in conjunction with that. So I think that was probably a lesson learned and probably something that we can adjust our behavior in this upcoming year. Anything on soybeans you guys are watching? It's pretty ugly on that, that front too, or anything South America, any, anything you guys are paying attention to, if there's any hope on anything?
Matt
Bennett: Right. So the USDA report, you know, you drop exports 35 million bushels, that's warranted. Whenever you look at freight on board values for the US, Brazil, and Argentina, we're essentially at least $50 a metric ton out of the market right now. We're just too high. And so we're gonna have a really hard time getting exports, you know, at this particular time. It was very interesting that the USDA you know, is essentially the largest estimate for both Brazilian corn and soybeans. Their bean estimate at 156 was dropped a million tons. CONAB's 149. The USDA has done themselves well in the past by slowly lowering their estimates. This particular year, with extreme as what the weather's been, you know, Derek Snodgrass and I talk quite a bit. He lends me a slide here and there. We kind of share each other's presentations.
And, you know, he's talking about how excessively dry it was, like October 1st through December 31st, you know, in some of those areas, the driest it's been since 1979. So, you know, with that being the case, you know, the production is going to be lower. But even so, Chris, the problem is that Brazil's crop could be drastically cut, yields could be down significantly. And when you plant 3% more acres, it gives you a buffer. First of all, second of all, Argentina is going to raise twice as big a crop as they did a year ago because they had a drought. So South American production is very unlikely to be down year on year. And so it's not particularly rosy there either. Last thing I'll say on beans, it concerns me a little bit. No, it doesn't concern me. We knew it was going to happen, but it concerns a lot of folks, you know, that you're seeing beans shipped into the Southeast Coast.
You know what, global arbitrage is going to happen if you get into a tight situation in the US, which is what we've had the last couple, 3 years, when the rest of the world isn't necessarily tight. So a multinational company is going to source beans or bean meal or bean oil wherever it can get it the cheapest. And that's just the way it's going to work. And so, you know, we all have to kind of understand how that's going to, how that's going to progress moving forward.
Chris
Barron: Last thing I want to hit on is, you You know, low prices typically are what we need to produce demand, and demand is usually what makes markets sustainable or better or whatever. And we're going through the pain period now. And, and, you know, you go back and look after 2012, we had a pain period of about 5 years realistically. What are some practical things that, you know, and not to put you on the spot, but like some practical things that you're looking at as a producer that guys need to be thinking about, you know, short-term but also long-term? I mean, there's just some things that we probably need to be shoring up. Um, kind of a big wide open question there, but in the meantime, demand is being created, you know, whether, you know, sustainable aviation fuel or whatever it is.
There's a, you know, the good, the good side of it is we got to pay attention to that, we got to get in survival mode, but It's kind of a wide open question to wrap up with here, but just kind of get your two cents.
Matt
Bennett: Yeah, so renewable fuels, you know, we need renewable fuels. We're losing global, you know, dominance. For instance, Brazil is your number one corn and soybean exporter globally. We're going to continue to lose market share due to the fact that they're growing every year and we're not growing every year. In fact, we're losing acreage every year. So, you know, I think we have to understand right now is not a good time. We can't make a lot of mistakes in a year like this. We have to tighten our belt, in my opinion, back off a little bit on anything where we're spending money. And I mean, that includes, you know, family living expense. You know, a person has to understand if you do get in a 4 or 5 year window, there's a lot of folks that drastically cut into their equity situation and in some cases had to get pretty creative just to stay in business. In that timeframe.
And so I don't know that it's going to last that long. But 2024 certainly doesn't look like any picnic by any means. And second of all, I think the next couple, 3 years could look tough. Once you start looking at what a balance sheets look like, you know, again, at 92, 93 million acres of corn or 87 million acres of beans, because, you know, both those situations, you're looking at strong carryouts, the corn carryout right now at a 217, That's the largest it's been since clear back in 2018. So that's a while. The bean carryout, if it comes to pass, you know, at this $3.10, $3.15 level, that's going to be the largest we've seen since 2019. So you're looking at bigger stocks, you're looking at stocks at times whenever we were really struggling to make ends meet, the farmer was, you know, kind of in a quandary. And I think that we're going to be in a little bit of a quandary this year.
So I think now and moving forward the next 3 or 4 years, diversification is going to be very strong recommendation for me to give to people on the farm. First of all, you know, is there a way that we can figure out a way to make our farms more profitable, lower our costs, for instance? You know, anything that we can do to put ourselves in a position where, you know, we're going to have a little more meat on the bone at the end of the year, because it's going to be tough sailing, I'm afraid.
Chris
Barron: Mm-hmm. Yeah. You just, as you were talking there, I was just looking. We're at $102 an acre on average for what we call return to management, which is overhead expenses. And so that's a pretty big number considering like 3 years ago it was in the $60 range. Some of that's inflation, not avoidable, and some of it's increased spending. It's hard to back away from that. So it's easy to say, you know, hey, we need to cut back on that. But it's, it's hard to, it's hard to tell your spouse, well, we're not going to do that vacation now, you know, Those are things that are tough. And then, you know, the equipment, I think, you know, people can navigate that one. I mean, you can run something an extra year or two and do some fixing and things. And then the land rents is about a 3-year deal and we're entering year 2.
So we might have some tough sledding yet for another year in 2025 trying to get land rents down. Just absolutely the quote unquote neighbor would pay that or whatever conversation that— that occurs. But yield, yield, yield, I think is the big thing. The message I'm getting from you. And the other thing too is don't cut on the things that either enhance or protect yield either, because that's really not a yield.
Matt
Bennett: So yeah, you don't want to start cutting costs, you know, because you're trying to save a little bit of money. You're still going to have to raise the bushels. That gives you the chance to market them well, put them in the bin. Maybe you're in a carry market. It's a totally different market. We've seen the last 2 or 3 years where it was inverted. You know, you may have to make those bins work this time around. So this year is kind of a tough year given the carryout we're going to have to chew through. But I do think as we move forward, handling your bins like the elevator handles theirs, hedging the carry in the market and then waiting on basis to come to you, that's probably going to be a better bet for most of us that have the ability to go ahead and put that stuff in the bin. But yeah, it's going to be a different ballgame than what we've been playing. Mm-hmm.
Chris
Barron: Yeah, for sure. Hey, that brought— made me think of one thing and then I swear to God, I'll let you go. The last thing you had mentioned, carry in the market. There's carry in the market for this. You know, you look out to July right now, there's a whole bunch of people listening to this sitting on bushels that they're like, I wish these were gone and I wish I had gotten $5 or better for them. And not recommendation, but if you look out there and you look at the carry out to the July, we start seeing some strength. Does it make sense just to sell that July and then chase the basis or Or is there a different thought in your mind?
Matt
Bennett: Yeah, I mean, the carry to July right now is okay. It's not phenomenal. But at one time when Dec was going off the board, you were pushing over $0.35 from Dec to July. And that was a pretty incredible deal. So we were trying to tell folks, hey, go ahead and sell the July, wait on basis to come to you. Basis may not be all that rosy this year because we do have to get a lot of corn to town, but it's going to improve at some point. Typically that's what we see happen. And so, yes, absolutely. If you get a rally in there and it's on your bin on the farm, they're going to pay you to go ahead and hold on to it a couple extra, 3 or 4 extra months. I'd go ahead and take them up on that because, uh, uh, nickels and dimes are going to show up, uh, in my opinion, uh, to really help, help folks.
Whereas, uh, you know, we were giving away quarters and 50-cent pieces the last couple, 3 years and still making money. It's not going to happen this time.
Chris
Barron: Yeah. Yeah. It's going to take some navigating. It's take a little algebra here in the process too, but I'm going to let you go. Cause I think as we record this, you're in the midst of, uh, watching something very important and I don't want to I don't want to keep you away from, from that.
Matt
Bennett: It's important to me. My wife doesn't think it's all that important, but that's a topic for a different time.
Chris
Barron: So, yep, yep, yep. So, all right. Hey, Matt, thanks a lot. Really appreciate your expertise today, and we'll get you back again soon.
Matt
Bennett: Absolutely. Have a good one, bud.
Chris
Barron: Yeah, will do. All right, everybody, thanks for listening. We'll catch you again next time on the Ag View Pitch.