October sales opportunities?

Chris: Welcome everybody to another episode of the Ag View Pitch. Today we are going to talk markets, but before we get going on that with Jim McCormick at AgMarket.net, I want to remind everybody about the Ag View Executive Business Conference, January, in Fort Lauderdale, Florida. It's January 22nd through the 26th. We've got a lot of people signed up, but Alyssa wants me to remind you, if you are not signed up and you want to go, we are limiting it to 150 participants. And so if you're not signed up and want to be, make sure you get it done or reach out to Alyssa and get stuff lined up. Um, just check us out on the, um, on the website, on the Ag View Solutions website, and click on there and get registered. So With that said, Jim, we need to talk markets. We're going into a new week, the 7th through the 11th of October.

We're already in the kind of heading towards the middle of the month already. Crazy how fast time flies, isn't it?

Jim

McCormick: Oh, it is hard to believe. Yes. I mean, as we come into this week, we're a week out from that October WASDE report. And I swear, Chris, it just seems like we just had that September yield revision and it's going to be a big one. You know, harvest. I don't know where you're at around here in northern Illinois. It is really progressing fast at the moment. And, you know, so when the government goes out and does its surveys, they're going to actually have some pretty good numbers to make these yield adjustments at the end of the week. So we'll get a bit more clarity of how big this crop really is.

Chris: Yeah, I think it's a big one. Just the reports I'm getting from clients and kind of what we're seeing even in our area, we were late planting. We're still, you know, as we head into this week of the 7th, we've got corn still that's kind of wet yet just because of the late planting. But it doesn't look like that late planting. We've nosed into some of it and it still looks super, really good. And I think this is a big crop. Soybeans, same thing. We've just been hearing, you know, big yields. I mean, obviously there's some pockets where it was super dry in Ohio and a few places in Indiana and some other areas. And then obviously the areas that got deluged with water early on, pretty sad, some sad stories there. But hopefully crop insurance will kind of save the day in some of those some of those situations for sure. Anything else you're hearing on harvest progress?

Jim

McCormick: I mean, other than it's fast and furious, you know, I would say it's fast and furious. I would, I would agree that in general, the yields we are hearing that we've been calculating are running at or better than a year ago. For the most part, there are those pockets that are a problem. But, you know, the one, the one thing, Chris, is going to be interesting over the next couple of weeks is, you know, everyone kept assuming, hey, the latter, stuff's going to be worse. Well, you know, we're getting to the part of the beans where we're getting to the latter part of beans in a lot of areas, and they haven't tailed off like some people expected. So like I said, you know, I, you know, I think a lot of people are going to be looking for a steady to maybe a little bit bigger crop here. And, you know, that's, you know, plain and simple. That's the old axiom: big crops get bigger.

So I'm in that camp that it's going to be stable, a little bit bigger on Friday.

Chris: Interesting. So let's talk a little bit about a couple of things. And I want to get your perspective on this. You know, we talk about how harvest is going, big yields and all that, but we have seen, you know, in the last couple of weeks, we've seen some pretty good strength in the market. Talk a little bit about that. I mean, is there ever going to be like a harvest pressure? I mean, usually in the month of October, the conspiracy theorists are out saying, well, the price is going to go up because of crop insurance and stuff. Talk a little bit about what's maybe driving or has driven the past, some of the strength we've seen going into October.

Jim

McCormick: Okay. Well, we got to step back a little bit and where we started, what, 6, you know, 6, 7 weeks ago when this corn market was trading at $3.85 on the Dec corn, you know, beans were around that $9.50 zone. I think there's something that changed dramatically that it was more on the macro picture than anything else. And what was that, Chris? That was the Fed switching its narrative of we're done fighting inflation, the inflation war. I know we can say it's won, but at least it's, you know, we've, we've done what we needed to do. And we started getting that talk of, hey, we're going to cut interest rates at least a quarter point. Then it ramped up to a half point.

And I think when you saw that, that triggered the fund, not necessarily the day trading— I trade in the crop getting bigger or smaller— but that macro fund that just was short commodities and grain specific as a hedge on the Fed, in essence, trying to snuff out inflation. Because if you look at where we're at historically, as soon as the Fed started talking about raising interest rates, it switched the whole dynamic of the market and the, you know, and the funds got bearish the grains. So they started this rally up, I think, driven on— it was more the macro 10,000-foot view. They started getting out. Then you had people talking of the dry August we had in the US, talking maybe the bean yields weren't going to be there.

And then on top of it, you had a lot of rhetoric of the dry September, the dry, hot dry September in Brazil, and that gave this bean market one heck of a rally over a— and that helped pull the corn up, I believe, roughly a little over $0.50. Now, if you look at what the funds were doing against it as they were getting out of— commercials were selling into it a week ago on the CFTC report, the funds bought like 45,000 contracts of beans and the commercials sold almost the exact same amount. Kind of capped the rally. But now going into, you know, coming out of this week, the estimates are that the funds are virtually flat in the corn and bean market. Now I'm questioning, are they going to be willing to go long at this point in time?

Because remember, the Fed essentially said they're done fighting inflation, but they're not— they're at a situation right now where I don't think you're going to see a lot of speculators come in and say, I need to get long because inflation's back. So if the funds aren't there covering that hedge pressure you're talking about, I think it's going to start to show up over here the next couple of weeks. And if that starts to show up and there's no one left to buy it, I think that is when you could see this market start to move back down again and you could actually get that counter-seasonal move that most people are thinking. Because like you said, the common thought is the market rallies in October to essentially mitigate the crop insurance payment. This year it may be the other way and we actually break going into October potentially.

Chris: Yeah, it'll be interesting to see what happens because you would just— you would sure think also that the harvest pressure, there's still a lot of bushels unsold that are probably going to still need to find a home from a physical standpoint. I'm not sure a lot of people can really justify storage, paying for storage. You look at interest rates, you look at the cost of money, all that kind of stuff. I think it's— yeah, this next couple of weeks is going to be pretty interesting. I want to hit on also on basis. What are you hearing there. It's getting kind of ugly in a few areas. And I think it bodes for what we talked about even with you a few weeks ago, you know, about, you know, getting that basis locked in and having some of that stuff set. What do you guys do yet with those extra bushels that they still don't have sold and in basis?

You know, any, any words of wisdom there or things that people should be thinking about?

Jim

McCormick: Well, I mean, right now the problem is it's, you know, you've had a pretty good move in the board. Unfortunately, a lot of that big move was taken away by the basis. You really are in between a rock and a hard place. But I fear, Chris, that in general, this is going to get weaker. And in a worst-case scenario, the basis and the board will get weaker because the storage, I think, is going to be a huge problem. There's a lot of grain. It's amazing how much grain is still sitting on farm from last year. I think there are still quite a few bushels. The elevators we deal with and our cohorts at JSA deal with say that they're— they've got customers that are bringing them grain that they normally don't in the fall because they're full. So the elevators are getting full of this bean harvest that's coming at a rapid pace.

Now, when you look at the forecast the next 2 weeks, there's just not a lot of rain in the forecast. They're now worried about what's going to happen when we start moving into corn harvest because they can't get rid of the beans quick enough. And we now are hearing essentially elevators preparing for, quote unquote, as they call it, emergency piles. And when you start getting those emergency files, you know, Chris, that's just not good for your cash price. And it's, you know, and I think that's a legit problem we're going to have. And I know a lot of people, Chris, are out there going, well, we've already seen the follow, haven't we? That's the million-dollar question everyone's asking. Now, 2014 was the analog year that a lot of the traders were following this year because it followed it pretty well. It's kind of derailed from it.

But we don't have to go very far to kind of be a little bit spooked at what could happen is what happened last year. Last year, December corn bottomed right there on September 19th. It rallied $0.413 to October 20th. This year we rallied about $0.495 here on this last rally. But between October 20th and November 29th, we fell, we sold off, we took out the what was the fall low by about $0.2034. So we essentially made a new fall low going into November. The beans rallied $1.13 from October 11th to November 15th on the January contract. So they rallied about $1.28. And then between that high and the end of January, the bean market sold off, broke $1.92, and essentially took out the quote unquote fall low on the January contract. By $0.62.

And I think that could be, unfortunately, what could be déjà vu this year as the weather patterns change in Brazil and the hot, dry story of Brazil moves to, hey, normal rainfall. We find out that we did not have a tail off in the bean crop and the corn crop, and it's there. And then lastly, you just got a lot of grain coming to market. The combination of it all could be pretty ugly. And unfortunately, there, I think there is a risk that we could get one more downdraft.

Chris: Yeah, that's, that's the risk and the threat. And that's excellent perspective, I think, for people because we— there's a lot of decisions are going to have to be made, I think, here, you know, as we get deeper in and solidify the fact that for many people listening, the crop is bigger than probably they even expect, you know, in terms of managing the, you know, managing everything. You talked to— I want to back up just a little bit. You mentioned the funds. Where are they at? What are they doing? What do we need to know about the funds? I mean, is there anything there that we need to be concerned about or watching with what they're up to?

Jim

McCormick: Okay. As we record this, we haven't got the freshest CFTC report. But, you know, coming into Friday, the best estimate of the industry for both the corn and the beans, they're putting the funds virtually flat to maybe short 20,000 contracts. So what you're seeing in general, Chris, the funds got out of that massive record short. Position they were carrying into summertime. So they're now flat for all intents and purposes. So now the million-dollar question is, are they going to go long again and be the ones that propel the market to that next level up like everyone in the grain industry is hoping for? Or are they going to essentially say, hey, we trade the market, we short-covered at the end of the third quarter, we're now moving into the fourth quarter, we've got a record crop, the competition in Brazil is going to get worse, not better, because their crop's getting planted.

The demand for China, Chris, that China spent massive amounts of money last week trying to stimulate their economy. We hope it works because if it doesn't work, that's going to be very negative for commodities. And if you get like a negative Chinese economy, this didn't work. The risk is plain and simple. The funds just start building that short position right back on again. And like I said, you know, I don't know if the inflationary funds will be back in the market,. But just your trend trading funds, they may just jump back in and sell it. So there is some downward risk. So if I'm a producer and I can't store grain on farm, I would probably be looking to move it, do the calculations. But most calculation is going to suggest moving it is going to be a better economic risk than paying commercial storage.

And if we do get one more leg down, you may come in here and then try to reown it, Chris, as a way of seeing how the weather plays out. Because let's face it, we really don't know what the weather is going to be from January to March. If it turns off bad, the bean crop fails in Brazil. This market's going to explode. What we're watching, Chris, on the beans specifically is they're planting right now. They're planting on time. But if it gets delayed a little bit, then you harvest the Brazilian crop a little bit late. Then what happens is they plant that safrinha crop a little bit late. If the safrinha crop goes in late, the risk is we move from the wet season to the dry season too quick. And then that corn crop shuts off. And, you know, it's like each week you, you're shut off early, it's up like 10 million metric ton potential loss.

So the world balance sheet is tightening up a little bit on the corn. So I would think it's worthwhile reowning some grain options maybe into latter part of spring, just never knowing how that weather is going to play. So, okay.

Chris: Mm-hmm. What As far as, you know, things that you're looking at in terms of ranges, I want to back up a little bit to that as well. Last week we had Brian Splitt on and, you know, he's, he's the tech guru, you know, and, and, you know, he kind of gave us some ranges. Do you think there's anything different than kind of what he was talking about? Are you guys seeing anything different or do you kind of lean towards that? There's, there's, there's some threat in the air now here of going the other way.

Jim

McCormick: Well, you know, I know he was looking at some of the technical objectives we've taken above the 100-day moving average. Bridging the technical objectives to the upside. You know, there's a lot of chart patterns, a head and shoulder pattern, bottoms on the— some of these markets like the meal market and some of the other markets, you know. So the charts are looking a little bit more friendly now. I think we did a little bit of damage today on the corn. We're back below the 100-day moving average today. Meal did some damage to the charts. I think on a raw fundamental basis, at this point, I'm going to argue $4.25 ish on the high end and $3.75 on the low end is kind of your economic model at the moment. And I would argue beans right now, Chris, $10.50 old crop beans, $11 January, November or July delivery beans, those could be fantastic prices because here's the reality of it.

Our carryout, even if that crop— let's say the bean crop tails off just a little bit. Remember, the demand is raised 150 million year on year. For demand from this year to last year. Our sales pace has picked up. We're very close to where we were a year ago, but we're below where we need to be. But the real wild card is Brazil, and I keep bringing it back to that. But if Brazil has a trendline yield, okay, where you're at, Chris, is your world projected ending stocks will be at the highest ever, ever. And, you know, since we started growing beans in the world, your stocks to use will be the second highest ever. So I think if they— if the market gets confidence that that Brazil bean crop is there, you know, economically, as a, you know, as an ag econ, ag business management major, I just can't justify $10.50, $11 beans in my brain.

I think the reality is you probably ought to go a little closer to $9.50 to $9. And mind you, we're at $9 cash beans just a few weeks ago when the market wasn't worried about the South America crop. So if they get confidence that that South America crop's there, economically, low nines, unfortunately, could be in the books because the market will essentially say we got to go low enough to stimulate demand or go low enough to essentially say don't plant beans, U.S., plant more corn.

Chris: Interesting. That's really good perspective. Things to think about. Last question I want to get to and then we'll wrap this up. We've seen some rally here. We talked about there's potential threats here that we're cognizant of. Think about '25 for a minute. Is this an opportunity to be pulling the trigger on some of the '25 or not? I asked you that, I think, the last time you were on, and I talked about the cost of production. I don't know that we're on average that we're still even quite there. We're pretty darn close, probably about right there. Is there a warrant for thinking about pulling the trigger on a little bit of the '25 here? What's your thoughts?

Jim

McCormick: I think you should. We— our company's made a recommendation to start hedging in 2025. I know not every service out there is doing it. We do think we should. We do think there's a lot of economic risk. I mean, when you look at just where we were last time, we're in this kind of doldrums, 2012, you know, we came out of that 2012 drought. We got in from 2014. We kind of had a sideways market for about 5 years. And like I said, it all comes down to weather. But the fact of the matter is, if we have good weather, here, follow up with good weather in South America, the odds are very high that we're going to oversupply the world with grain and that'll cycle the market back down to the low end of the range. That's just how the economic models tend to work.

So, you know, we've had a pretty nice— an unexpected rally, I would argue, here going into the heart of fall or, you know, heart of harvest. If you can start laying off some risk and you can sell some new crop corn around $4.50, you know, and we're, you know, new crop beans, even though it may not be close to breakeven, if that's your worst sale, congratulations, Chris, that means you got one heck of a year. And if it's your best sale, then I guess we should have sold more. But right now, when you look at the risk that we're at in the world, a lot of uncertainty with China, we have a presidential election that's coming up, that is for the most part is a push, you don't know who's going to win.

We do know President Trump has said he wants to instigate a lot more harder tariffs on China, and we know last time we did that, we know China had moved away from us and it really hit the bean market hard, drove it down toward $8. Now, even if he doesn't get elected and, you know, Kamala Harris gets elected, it's not like they've been going easy on China either. I mean, they hit them with more tariffs, they've hit them more tariffs of EV So you can see the Chinese continue to— it's just going to continue to shift away from us. I mean, when you look at the economic modeling of what we're seeing on the sales, China is buying beans from us, Chris, but they're also buying a lot of beans right now from Brazil, even though Brazil technically is more expensive, which tells me that the Chinese are more buying this as a hedge.

And I fear that, you know, if they— if we get into a political scrub and Brazil's got a big crop, let's face it, They've done it before. They're going to do it again. They're probably going to cancel some sales.

Chris: Mm-hmm. Yeah. A lot of things to pay attention to both in this crop. And we got a lot to think about as we think about 2025. And I think paying attention is going to be a real key. This, this week is going to be interesting. Like you said, report coming up and more harvest information. We'll get a little smarter each week as time goes on with this harvest too. So any, any last comments you want to wrap up? Last word for you.

Jim

McCormick: I mean, last word I'm going to say, Chris, is, you know, we've had a heck of a rally. Get aggressive on trying to figure out what you're going to do with these bushels you can't store. You know, the default tends to be just put in commercial storage. That's what I tend to do. That's what historically you do. I think you got to do the math. Some of these dump charges are pretty steep. Carry charges are pretty steep. You can look out, you can sell the grain, you can call a broker, and you can usually go out and bring on a call or call strategy like a bull call spread for a lot less cost than what you may pay for commercial storage, storing grain into next spring, and you mitigate the risk to the cost of that option. You know, that is what I'm going to recommend guys consider there.

You know, we've had a heck of a rally, but the risk is still probably just as immense as it was 60, you know, 45 days ago before the rally started.

Chris: Yeah, for sure. That's for sure. People want to get a hold of you. I can see AgMarket.net right behind you there. But is there any good way if people got questions, want to reach out, just go through the internet or what?

Jim

McCormick: I think the best place is go through the website. If you got questions, we got a list. You can contact us right there. That's probably the easiest way to do it. If you're interested in getting some of our research, also kind of take a free look at our app. Just go to AgMarket.net.

Chris: Awesome. Hey, Jim, really appreciate your wisdom again today. We'll get you back again real soon and, and we'll talk more markets.

Jim

McCormick: I appreciate the opportunity and have a safe harvest.

Chris: Yeah, will do. And again, everybody, thank you for listening. But I want to also remind you, as I did at the beginning of the, of the conversation here, the Ag View Executive Business Conference, January 22nd through the 24th in Fort Lauderdale, Florida. It will be nicer there than it's going to be in the Midwest. That's one thing I can guarantee you. And the education is going to be pretty awesome. We got a whole, uh, great group of educators, all education all the time, and a little fun along the way. With that said, um, be safe out there, keep things rolling, but get some rest and be safe. With that said, thanks to Jim, thanks everybody, and we'll catch you again next time. On the iView pitch.