New year's marketing resolution - weekly market outlook: Dec. 30 - Jan. 3rd

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. We are heading into a new week, finishing up a year and starting a new year, and we're lucky enough to have with us today Jeff Fichtelman. Jeff, how's it going?

Jeff

Fichtelman: Going well. Yeah, thanks for having me.

Chris

Barron: Yeah, you bet. So you get to finish up 2024 and begin 2025. So you're kind of— you're, you're finishing your last guest and the first guest all, all in one, one shot here. So, um, I guess what I want to do, and I kind of mentioned to you offline a little bit, what I'd like to do is pick your brain a little bit specifically on everything you learned in 2024 to start with. You know, doesn't have to be everything, I guess. There's lots of things we learn, but What are kind of some of the key things that you learned in your marketing career last year that maybe could be some things we could apply to '25?

Jeff

Fichtelman: You know, I think the most notable thing, which is a pretty recurring thing that I learned and I think a lot of people learn, is we got to be careful not to march with the herd. Coming into '24, the most popular position to be in was heavily long corn in the bin, unsold. Waiting for better values, because essentially, with every passing week, the market— I mean, there was a brief rally there. But for the most part, we kept hitting new lows, and nobody wanted to sell out. And one thing I talked to the farmers I get to work with often is we have to think contrarian. Now, contrarian isn't always right. But we have to be careful when everybody is on one side of the boat. Because the market just somehow sniffs that out and takes advantage in the wrong way. And obviously being long at $23 corn, most people had to liquidate in August.

Just so happened to be this year the lows were in August. So I would say that's probably the most definitive lesson. Also, I warn a lot of guys to not look at the most recent year as humans were built with this idea of recency bias, which means what happened to us recently feels like it's going to happen again. So we can't say, okay, well, now everything I did in '23 or '24, really, I'm going to do the opposite in '25. I'm going to be a huge Ford seller early. I'm going to make sure I don't carry any corn into the summertime. And what I find is again and again, it's like when the big herd kind of flips to the other side of the boat, that probably is the wrong way to go again.

So I think there's two outcomes you could take away, which is one, to always be contrarian and be willing to adjust as the herd goes one way, or maybe more preferably, to have a plan that's disciplined, focuses on profitability, and just stick to it whether it works perfectly or not. And you're going to get tried during certain years where maybe you say, hey, I'm going to sell half of my crop in the middle of summer, or a seasonal window that makes sense, or if I could get this kind of margin, I'm going to lock it in. And if it goes up a dollar and I missed out, yeah, I might curse myself, but I'm not really going to change how I market my crop. So it's, it's so easy to get kind of swung to one side of the boat or the other based on what happened recently.

So yeah, those would be probably the two most notable and And I would say a subtle one that I've noticed is the USDA, I actually think, is being more of an open book and willing to adjust things. I follow the tendency of the USDA a lot. They're very predictable. They hardly ever make adjustments in December, for example, because they know January is right around the corner. They hardly ever go up in yield and then back down in yield and harvest because it kind of makes them look bad. Well, this year they've really started to just almost say what they think. And, and so I think a lot of people love to immediately discredit whatever the USDA tells us, but I would actually say, at least in my view, they seem more willing to adjust quickly to what maybe the market— the data should say.

And, and therefore you'll get a little more funky outcomes on some USDA reports, which could provide some good opportunities if the market's not expecting it. So Kind of went a few different directions there, Chris.

Chris

Barron: No, I took notes on kind of the 4 lessons. You tell me if I, if I took okay notes here. So be consistent, you know, whatever you do, continue to do the same thing. Don't, don't get smart from the prior year. Do kind of, kind of the whatever, however you do your marketing, stay consistent. That's one. The other one is kind of do your own thing. You know, don't get too, too enamored by the herd and what they're doing. Still pay attention to your situation and your opportunities. And I take that as meaning basis and everything. Focus on your specific situation. I just said that. So that was two. And then the other one is watch the USDA closer moving forward because there's a shift in how they are being a little bit maybe more transparent than they have been in the past. So those are kind of the three key takeaways I just got from you. Did I take okay notes?

Jeff

Fichtelman: Yeah. And honestly, on that last piece, I mean, what does that mean in reality? Take the November USDA report where they lowered both corn and bean yields. The market did not initially trade higher for corn. It was kind of a, oh, well, that's just a minor adjustment, no big deal. But it was such a historic move. I mean, they almost never adjust in November, especially when they've actually gone up a little bit. So that downtick was somewhat telling and the market did not initially respond to it. And yet for about the next 2 months, we've just grinded higher in corn. And another lesson that isn't necessarily tied specifically to 2024, but I mean, it's just my favorite setup in the market is when everybody talks one way. Like right now, I feel like there's very few people that are truly bull up corn. There might be some optimists, but they're always optimistic.

I feel like most people say, oh yeah, this is great rally, let's sell it. This is as good as it's going to get. And I think a lot of it is because we've witnessed such a big 3-year decline that a minor rally, we want to be quick to sell because we don't want to make the same mistake again, to watch that little rally fail and go back into new lows. So I feel like we're at this moment where suddenly everybody shifted to the let's be quick sellers of corn. But yet we've rallied roughly $0.60 despite what feels like we've thrown a lot of bearish news. I mean, the tariffs perceived better than expected corn yields. The USDA, even though they've lowered yields, they're still telling us 183. That's shocking, really. And yes, we've had strong demand, but basis spreads, they've been telling a story that's far more optimistic corn prices.

The other thing I've noticed too is bankers, the need to pay bills this year. I mean, the simple math, the arithmetic that says you have to have more bushels to pay the same bills. I mean, it— I just don't think there's gonna be much corn held to the summer and kind of that herd shifting back from everyone holding it into the summer of '24. And I don't think very many people at all will hold into summer '25. And I think it'll be interesting to see kind of how both basis and futures react. Personally, I'm probably the most bullish I've been in corn for a long time, which is kind of a weird feeling right now. I feel like I've been bearish for a while.

Chris

Barron: We've kind of been in the dumps too. So, you know, hopefully we can not stay there forever. I got another question for you. So when you think of, you know, all of the unsold bushels yet, I mean, we had that, you know, talk about the lessons from last year. We've got all these unsold bushels that are sitting there that got to be priced yet, which is theoretically should put a wet blanket over what kind of levels we can go to. Where— what makes you comfortable for putting targets in? So because kind of what I'm listening, hearing you say is one of the lessons from last year is being disciplined and doing what you need to do. And so, you know, cash flow rent payments, all of these things. And a lot of people are going to be thinking the same thing at the same time, which could put, you know, a kind of a ceiling on where these prices could go.

If you're, you know, and you don't have to give exact numbers, but kind of what ranges are you looking at to maybe have those offers in to try to get, you know, to liquidate the balance of this '24 crop? I think corn, wheat, you can throw all three.

Jeff

Fichtelman: To be fair, I'm most bullish corn because I think the story is really there. To be fair, my first two lessons can be somewhat conflicting, which is to be a true contrarian means to do what no other farmers are doing. And yes, that's a generalization. There's always going to be farmers holding corn into the summer. But broadly speaking, I feel like two things have come about. One, the farmers we get to work with are calling us to sell corn. They're saying this is a fantastic price instead of us. Like, I felt like for the last 3 years every phone call has been like, we need to sell. And they're like, eh, I'd rather wait. I'd rather wait. That phone call is just completely flipped to now. I feel like, hey, I don't mind waiting, but they're like, please, no, I really want to sell. This is a good level. Now I'm of course selling it for them, maybe in different ways.

Maybe it's sell a little bit less, or if it's profitable, there's nothing wrong with that. But maybe there's ways to reown the board. So I think there's far less corn available. I'm also— and all the grain companies I talked to, I keep hearing the same thing, which is obviously there's corn, there's corn moving out there. But especially during the last half, last half of harvest, the folks at all the big grain companies kept saying, where the heck is all the corn at? Because the price was going up, basis was extremely good out east. And yet where the heck is the corn? So it's just, I love those kind of subtle little storylines that go against the general mentality. And what you said, Chris, is spot on in that I think everybody has the same mentality today. There's a ceiling on corn. It's right around $4.50. And I think it's because a lot of farmers love selling $4.50.

Chris

Barron: But we love $5.50 better. But, you know, just saying.

Jeff

Fichtelman: Yeah, of course.

Chris

Barron: Yeah.

Jeff

Fichtelman: But I mean, $4.50 after seeing $3.80 looks amazing. And especially if basis is decent, or even great for this time of year, which I think in many locations it is. So like the cash price, and that's where like, I want to say these are conflicting views. Priority number one is a farm is running, or farmers running a business, you got to make more money than it costs to grow the crop. So therefore, like, who cares about market opinion of a talking head on, on a video or a podcast. Like, you got to pay the bills. So, but in terms of like the last 20%, the last 30%, or, or the last X percent after bills are paid, maybe someone's in a better position. Honestly, I, I think it's less a price point, more a time window.

I think late spring and summer for old crop specifically, I think we'll see a pretty big inversion where July will probably be a premium to new crop these because yes, we might buy corn acres. Yes, we'll probably have a lot of corn acres next year. But that doesn't solve for summertime corn for ethanol and feed. So I could see July get back to $5 to $5.25 personally. And I think beans, I don't know, I think old beans in the world, or there is plenty of them. China is going to continue to buy from Brazil. I think beans are going to struggle in the $10.50 range. I think we'll continue to see corn grind up and beans just kind of grind sideways. I think the lows are in beans personally. Wheat, I wish I had more of an opinion on wheat. I really— it's a tough one because fundamentally We should not be this low.

There's a linchpin that Russia, every time the market seemingly goes up, they sell more, even though they say internally their wheat crop's not that good. Just like China, they're probably going to lie to manipulate the market to try and send it up and then sell more out. Wheat's a tough one. I think obviously, if we can get back to $6, we have to seriously entertain it. There isn't a seasonal tendency for wheat to rally early spring. So like we come out of the winter thaw and everybody panics. Not quite this consistency of the seasonal pattern in corn in that spring summer. But I just like this past year, I felt like we forced guys to get rid of corn early and still they held all the way through the summer. And this year like, maybe a third of the corn is going to be left in the summer versus last year. And maybe even less than that.

A lot of our guys are almost borderline sold out of corn. So it's just such a vastly different picture than where we were last year. So the thing that I've noticed is a lot of times there's not some big glaring road sign that says, hey, these are the reasons corn is going to go up. It's a series of small little events. That somehow collectively add up, because if there's a big glaring road sign, everybody would know about it. And, uh, I think a lot of that would be priced in.

Chris

Barron: Okay, so we've been talking about lessons learned from last year, from 2024. We've been talking about some of the fundamentals, some of the, you know, things to be watching, and some action items to consider for, you know, cleaning up and finishing up, wrapping up you know, this '24 crop, which I like to wrap things up sooner than later. Usually if I err on the side of anything personally, I err on the side of getting rid of things too quick. But I think part of what's driving that to, to a couple of the things you were saying is, is the need for cash flow. I think there's just less cash out there right now. And when you're getting these phone calls and people are like, I'm ready to sell, it's because they need money. And, you know, and that's always not always the best reason. I mean, to sell either is when you need money.

I mean, sometimes that's telling you that maybe there's going to be a better opportunity later on because everybody's needing the money at the same time. So, um, I think everything you've been saying makes a lot of sense. What I'd like to do now though is transition over to 2025 and looking ahead, um, as we think about next steps for 2025, if in fact some of the things you're talking about would happen to come to fruition in terms of corn, you know, working its way up a little bit, beans sliding sideways, that makes an acre shift of a lot of corn acres. It limits soybean acres probably, and wheat and cotton and a whole bunch of other stuff because corn seems to be the king currently. I mean, we'll see. I mean, when the planters roll, that's, that's what tells the tale.

Talk a little bit about some of the things that you think growers need to be paying attention to going into 2025, you know, putting targets in, you know, what are some of the things and what are some of the ranges on sort of the three sisters that people need to be thinking about maybe getting these targets in?

Jeff

Fichtelman: Yeah, I mean, that's the key conversation. I feel like all those farmers who are almost begging to sell '24 crop are also talking about if I can get back to $4.50, I'd sell a lot. And that tells me obviously there's going to be a big wall up against $450. That's why you're seeing March continue to rally. But these just get stuck every time we get into the $440s. So I do think there's merit in making sure that we have at least some protected in this kind of $440 to $450 range at 10%, 20%, 25%. I mean, one thing I'm telling all our guys, and I know the few times I've been on here and with you and your partner Joe, it's like Ag View Solutions, you guys do a great job of calculating costs, but I feel like, gosh, 1 in 7, maybe 1 in 10 farmers really know their cost.

So having that exact number as best as you can make it, I know it's hard at this time of year, there's still a lot of unknowns. But just do your best to forecast that cost. Because that will give so much more peace of mind to sell in a very difficult year because It's just, if you know, and you're like, hey, my cost per acre is $900, and create a range of yields, like conservative, APH, or expected, and maybe optimistic, and then it creates 3 breakevens per bushel. And then as we hopefully get above those levels, especially the conservative estimate, you have conservative yield, which is the highest breakeven, you have to be a big forward seller, because I think right now, I mean, too many guys don't know their costs, therefore they freeze up and assume it doesn't work. I think a lot of them with storage, the ability to capture, carry a little better basis can make money here.

Now what that tells me though, because everybody's talking about putting more corn acres in, is assuming nothing changes dramatically with the bean market between now and February, is we're gonna see a lot of corn acres. So this will probably be another year where Ford's selling corn through the month of April is probably going to work pretty well, barring some kind of crazy weather event this summer. And that again goes to this idea of like, I think there's two types of farmers, the ones who could care less about the ups and downs of the market, they're not trying to time it. Stick with rotation to maximize yield, understand your cost, and sell when you get profitable levels, and just maintain that discipline year after year. But then there's the other side, which is the farmers who maybe are willing to kind of ebb and flow and be strategic. I would say we do have some of them.

And I actually challenge them in a weird way to be somewhat contrarian and maybe even consider planting beans. And now you don't need to make that decision yet. But I look back over the last 20 years, and there's been a handful of times where the market swung dramatically to the corn acreage side.. And almost like clockwork, what happened after about 3.5 months post-planting, the corn market went down, the bean market went up. And beans ended up penciling far better than corn. And almost always, at least in the time I've been in this market, that I saw those big swings to corn acres, very few farmers were big forward sellers of corn for the reasons they made those decisions. So it's like they decided to plant more corn because it was $4.50 and beans were $10. But they didn't sell it. Corn eventually goes down, beans go up, but they didn't have enough beans to take advantage of that.

So I'd say far more preferred just to stick with discipline. But if you're going to swing to corn acres, you got to be thinking about forward selling at the levels that give you reason to do that. I think old crop corn in the bin is a far different fundamental story than new crop. I'm quite optimistic the '24 crop come summertime. I think $25 is going to be tough to sustain any kind of major rallies, maybe about $4.75.

Chris

Barron: Yeah, it'd be tough for a lot of guys to hold out till midsummer on the $24 too, just from a cash flow standpoint. And, and to your point, and I think, you know, maybe this crop, maybe this '24 crop's a touch smaller than USDA thought maybe, or thinks maybe. But I think it's regional too, though, because I mean, there's pockets where these yields were just unbelievably good and there's a lot of corn in some pockets. So I think it's a basis play to a large extent. One thing I wanted to mention, you know, you had commented on and get your take on this, but one area where I see, you know, when we— when producers are thinking about rotation and doing the marketing, one rule of thumb is— get your take on this first, then this other half of it— is if you shift acres over to more beans or more corn, you sure as hell better make some sales.

Otherwise you're making a shift and then the market goes the opposite direction and you just screwed yourself over because you didn't, you know, you didn't— you're— because you're using a calculation off of a variable that can change, you know.

Jeff

Fichtelman: So agree, 100% agree. Yeah, especially if it's something that seems like everybody's looking at that same calculation. Even more reason you have to be a big Ford seller, at least more than comfortable. It doesn't mean go 60 or 80%. But if your comfort zone by planting window is 10% or 15%, you should probably be 30. Well, yeah, push yourself.

Chris

Barron: Yeah, if you're shifting 10% of your acres over to more corn, you probably should have a good chunk of that 10% priced then because it's the decision you're making off of that, off of that variable. Another thing that I see too, just, you know, we're in 22 states seeing you know, all kinds of crops, but corn and soybeans and wheat in particular, those three, what we'll see is, is the, the correlation to more corn has a direct correlation, at least from what we see, to the higher land cost, higher rents, and higher APH levels because they can insure a higher dollar amount. But then as you get further outside of what you would call maybe that Corn Belt, that sweet spot of the corn, As you get further out of that, then all of a sudden, you know, the math gets a little fuzzier.

The math is a little easier, you know, and you get in that center part of the I-states and follow through there in that, in that zone, you know, higher rents, just, I mean, more consistent yields, um, even in soybeans though too. So you do, you do have to do the math because some of those guys, central Illinois, certain parts of Iowa, Indiana, even parts of Ohio where you guys, you know, guys can grow 80, 90 bushel soybeans every year. It makes the math a little easier than if you get up to North Dakota and you run the math and it's like, well, one year we're 25 and the next year we're 47 and the next year we're 58 and the next year we're 31. I mean, it's all over the board, so it makes the math really hard. Any comments on just navigating those variables from a marketing perspective?

Jeff

Fichtelman: I think it's a really good point, and What's interesting is I got a few guys in Michigan, got quite a few in Ohio, Kentucky, and even down to Louisiana. So I got a fair amount in the fringe states. Indiana maybe isn't so much. But what's interesting to me is over the last 2 years specifically, a lot of them have felt good to really good about their corn yield. It's kind of like corn is so consistently good and more resilient to these weather patterns. I can't tell you how many times I've had guys say, quote, I hate planting beans, because the yields never seem to finish well. And obviously this, this year's August weather didn't help. There's, there's no doubt some areas where bean yields were good, in that 80 or 90 range. But of the growers we had, I would say well over half saw below APH yields for beans this year.

So I, I think there is— you made a good argument that the economics don't quite pencil as much, but I just feel like the technology and corn yields in those fringe states have improved. I feel like I remember starting back in late '07, '08, and the I states could grow 200 to 210 corn pretty consistently. You go to Michigan, they're happy at 150. And what I've seen now, like in the last 3 years working with Michigan guys, they're consistently 200 to 215. And the I states maybe are 220 to 230. So in other words, the I states went up 15, but Michigan went up 50. And it's like the relative technology has actually really benefited the fringe states. Yeah. And, uh, so yeah, I, I don't know. I, I, I think there's no doubt those fringe areas, especially with the cost of money and the economics not looking great, they may go the lower cost route and plant beans.

But I tell you, we got a farm down in Louisiana that is a slightly larger farm, and they're like, beans don't make sense for them either. A lot of rents down there. I can't speak to North Dakota, but down there at least have drifted up to $215, $220. And beans at $10, it's hard to pencil unless you can get a 65 to 80 bushel type yield. With high confidence.

Chris

Barron: Yeah, on the cost production side of things, what we— we're seeing the same thing in the north, just as what— and in the south, you know, all those sort of fringe areas or whatever you want to call them. I mean, they've caught up on yields, but they've also caught up on, on land cost and rents and all the other expenses too, you know, the seed cost and all that, and, and crop protection. All those things come along and correlate to the expected margin of the producer. As you know, the regional pricing just happens, and that's kind of what we see. I mean, we're all kind of in that same boat.

Jeff

Fichtelman: Um, I get you, Chris, if you don't mind me asking. I mean, yeah, seeing some of the cost side, what do you— if you had to pick an average cost to grow corn in, in the main growing areas, what would you say that cost per acre is going to be for '25, and maybe a similar number for beans?

Chris

Barron: Well, right now I don't have it right exactly. I do have it in front of me that we actually right now where we're at is I think $4.65, it's $4.64. Yep, $4.64 corn. That's with everything. That's $4.64 is with return to management and everything. And that is showing an average yield of 218 expected right now. So it's come off the pace quite a bit. That number is probably going to continue to go up, though, I would imagine, as we get more data. We're a little limited on data right now. We probably got about 35% of the data that we need. And so we'll be a lot smarter at the end of, you know, at the end of probably February, we'll be a lot smarter for sure by the end of March. Then we, then we've got all the data in. As of right now on soybeans, we're at 1176.

So because the, the yields on, on the yield expectations that guys are willing to put in budgets relative to corn don't match up. That's the other challenge too, is if you can yield your way out of it on soybeans if you happen to have a great year. The problem is, is a lot of these guys have been stung, and so they're really reluctant to put in a budget a number on the soybeans, you know. And we see the same thing with wheat too. Wheat kind of bounces around, and it kind of depends on what region you're in. Kind of the same thing with wheat though, too. And, and, you know, so that's kind of what we're seeing for now. But we're seeing a big range, too. I mean, let's see the high in there, $5.43 cost of production and the low $3.39. That's a range.

Jeff

Fichtelman: So that's $3.39, certainly a gift.

Chris

Barron: Yeah. Well, when you don't have any debt, all of a sudden, you know, your cost of production is different. That's why everybody really has to do their own thing, have to do their own numbers. What you said in the beginning, I think, is really a key thing. And I want to, I want to hit those again and then end up with a final question for you. You know, your lessons you said that you learned, you know, because we want to go into 2025 with some, with some takeaways and some things that we can do. You said consistency, you know, doing your own thing, staying focused and dialing those numbers in. Exactly. And then watching the USDA as, as they are becoming a little bit more transparent and realistic, transparent and realistic with their numbers. So with those lessons, what's your takeaway for 2025?

What are the things, you know, the 2, 3 key things that guys— and I'll give you the last word here— 2, 3 things guys need to make sure that they're doing and can take to the, to the farm to help the bottom line.

Jeff

Fichtelman: Yeah, I mean, I do think that the deepest, darkest pessimism is behind us. I think '25 will be better than what most people think. And I would definitely warrant be careful not to follow the herd, focus in on the profitability and be realistic with yields too. I like looking at high, medium, low breakevens. To your point, Chris, you brought up $4.64 a bushel, but show best case and worst case as well. So guys really have a, a more realistic understanding of the range of breakevens, especially on beans, to your point. 5 bushels is a big swing and breakeven. So just focusing on profitability, knowing that when we get there, we got to act. And that's not time to get greedy. But I, I think we'll actually be able to get through '25. All right. I think the darkest moments behind us for sure. And, but maintain discipline, understand profitability and be smart about things.

Chris

Barron: Gotcha. Yeah, I was just going to change real quick from 218. If you drop the, you know, if you take your yield down, that average is 464 right now. So if you take it down to 200 bushel, all of a sudden that changes your cost of production to 502. Yeah, so that's, you know, to your point, I think that's, that's the math people need to do. And that's just looking at the average on Profit Manager, and that's where I mean, I'm a broken record on that. I mean, you got to know your numbers to the penny. Then that way when we get— when we call Jeff up and say, okay, here's my cost of production, and I love what you're saying, you know, at this level, this level, and this level.

So $5.02 is my worst case scenario then, if that's where the insurance— and when we get smarter too by the end of February, because we kind of know where that spring price falls into, and then that does help us with our marketing too, so that we can be aggressive in those, in those points when we need to be.

Jeff

Fichtelman: So yeah, I agree.

Chris

Barron: Anyway. All right. Well, hey, this has been a great conversation as usual. I love your— the way you think about some of this stuff is, is, is really good. I think it brings a lot of value to people and we're definitely going to keep bugging you to come on here again more often.

Jeff

Fichtelman: So I appreciate that.

Chris

Barron: Yeah, appreciate it too. And well, again, thanks for all the advice for, for last year., and the lessons and, and recapping those and also looking forward to a new year and some profitability and some things that we can do to control what's, what's coming our way. With that said, Jeff, thanks a lot.

Jeff

Fichtelman: Take care, Chris.

Chris

Barron: All right, you too. And also everybody else, Happy New Year. If you guys need anything, want anything, want us to be hitting anything on the Ag View Pitch or 19 Minutes, We've got a lot of really good topics on 19 Minutes as well. You can check that out on Spotify. With that said, we'll catch you again next time on the Agri-Pitch.