Pre-report discussion 06/28/19

Chris: Welcome to the Ag View Pitch, everyone. You've got Chris Baird and Duane Lowry here on Friday morning in front of the report. Morning, Duane. And what, what, what do you think some of the trade guesses are as we move towards the report here this morning?

Duane

Lowry: Good morning, Chris. Yeah, let's just kind of go over what the estimates are. On the newswires, you've got trade estimates on— planted corn acreage at just over 87 million acres. That's down about 5.8 million from the March intentions report. Soybeans, our average guess is 84.5 million. That's very near, only down about 100,000 acres from what the planting intentions were in March. And quarterly stocks, They're expected to be 5.3 billion in corn. Last year, they were about the same. Soybean stocks are at 1.85 billion. Last year, they were 1.2. That's kind of how we got to that 1 billion carryout. But I think the trade estimates go a little bit beyond just these numbers.

The trade is trying to figure out not only what are these numbers going to be, but there's also uncertainty about whether USDA is taking a, you know, more of an up-to-date view of what these— the acreage outlook is, or whether they're going to stop with what they thought the conditions were as of a specific date in June, you know, maybe a couple of weeks ago. And there's a certain amount of uncertainty there. I think traders expect that USDA will only give us a report as of, say, the 15th of June. Um, but I think that, uh, USDA has suggested and hinted, uh, before in the last, uh, year or two that they are more likely to take more of an up-to-date view on these type of situations because they take the view that why give out a report that isn't, you know, more accurate.

When they normally give out a report that's as of a certain date earlier in the month, it's— that's okay when there's not anything big going on that has changed, but there is quite an evolving and fluid story here. So I'm suspicious that USDA will give us a more up-to-date view. So then you have the traders that are looking at what they expect USDA to offer, but then there's an also behind-the-scenes view that they might offer this, but we really think the number is something different. And so it's very difficult to know exactly what the traders are anticipating. But I would say if the report came out exactly as what traders said it was going to be or anticipated it would be, that would probably get a bearish reaction. So in order to get a bullish reaction, you probably have to have corn acres, uh, 85 million or less, uh, which is a couple million below the average guess.

You probably have to have beans, you know, uh, 83 million or less to get a bullish reaction. Um, so the, the average trade guess, if, if that's what it is, would probably get a bearish reaction. The quarterly stocks data is expected to be bearish, uh, but that's pretty much dialed in. And considering cash corn basis is, you know, 50 over in the eastern Midwest, do we really care what the stocks are? You know, I don't think that's the most important story, some data on a plot graph when the cash market is, you know, extremely firm. And that's the case with new crop cash bids too. So I don't think the stocks report is worth more than a headline. And I'm not sure that there's going to—

Chris: Kind of cutting out there. That last part there, Dwayne.

Duane

Lowry: Yeah, I just think that the marketplace needs to see numbers lower than the average trade guess in order to get a bullish response. I think it's very possible that we can do that. But the question is, will USDA be aggressive basically in this approach by looking at things in a very current format? Or will they be— point us in a direction but give us a number that seems like 2 or 3 weeks old and doesn't take into account the latest decisions by farmers, the latest forecast, the latest precepts and, and things of this nature? And that we don't know. My personal opinion is that USDA will be fairly up to date on this report. And that to me means they will be probably aggressive. And I think that The odds are that they will come in with a lower acreage number than what the marketplace is looking for.

Uh, one other thing is not really report related, but just to point out in case anybody missed it, at 8 o'clock this morning, USDA did announce a sale of 544,000 tons of U.S. beans to China for old crop positions. And that was not at all expected. We really haven't got much of a market reaction to it. But it was certainly unexpected. And I don't know anybody in the trade circles that, that was talking about that as a possibility. And it's kind of interesting going into President Trump and President Xi meeting tomorrow. So we do have that on the horizon too. But in terms of the USDA report, that's kind of what the average guesses are. My viewpoint is that we will probably get supportive numbers from USDA in terms of acreage. But the expectations are all over the map and the confidence in any expectation seems to be relatively low.

And I would summarize trade sentiment going into this report as more fearful of the downside than they are optimistic of the upside. So the element of surprise here probably favors the bull.

Chris: Gotcha. And I was going to ask you the question what you expect, but you kind of explained that. And let me ask you real quick, Just a couple of minutes left here and we'll wrap this up. Keep it short. But the— any approach or anything, you know, that, that the producer should be doing. Obviously, we don't have a lot of time in front of the report, but now or, or any, any specific approach or anything that guys should be thinking or doing, any action items, I guess.

Duane

Lowry: Well, in a simple and simplistic view, I would say that if a producer feels that they need to take protection and they want to protect downside, And that opinion is arrived by the fact that maybe they have little or nothing sold for new crop, or maybe it— they feel they don't have enough sold, or maybe they just like the price and they don't want to let it get away. My thought process here would be to be— to make those sales to get that price protection only in the form of options. And I would take a simple approach of just buy and put options. That's kind of expensive, and you're not giving a full protection at the current price offered, but it does give you some level of protection, and it still leaves you in the, in the game for what may happen later in the growing season, and it allows you to get a better handle of what the prevent plant acres were as well.

So I still would be under the opinion that any price protective stance right now probably would be best used in options. So you're getting some level of protection, you're taking on a little bit of risk yet, but you're maintaining your upside potential. And that's kind of where I want to be.

Chris: Gotcha. Well, and again, for everybody listening, that's, you know, again, we're not prescribing anything, just kind of trying to make sure we get some perspective out there and helping guys kind of think through what might be coming their way and what's happening. And I guess, you know, Duane, we'll be following up on this here. This afternoon here, later in the day on Friday, just to kind of discuss how things kind of— how the dust settled after the report and kind of go from there. Any final thoughts? We got about another minute here yet, and that's about it, and we'll wrap things up.

Duane

Lowry: Well, number one, we, we never know what they're going to be, and there's always a large amount of uncertainty. But one thing I always look for in these reports, I always try to get a gauge and come to an understanding. Is the market significantly long and anticipating a bullish report? Is it significantly short anticipating a bearish report? Where's the element of surprise? And despite the fact that we've had a sizable rally and we've had basically two corrective events since the first part of May, and one of them we're in the middle of or at the end of one right now, The market does not feel to me like the— is loaded with longs. It does not feel like it's vulnerable to massive liquidation pressures. It feels to me like the marketplace is more concerned about downside risk, more respectful of downside risk.

And therefore, my sense is the trade is not real vulnerable to getting a bearish report. But You know, that's always elements of prices, very subjective, but marketplace seems to me to be not overwhelmed with bullish positions.

Chris: Okay, Duane, I think we're going to wrap things up here. Appreciate the conversation here in front of the report, and we'll get back in touch here late this afternoon. And thanks, everybody. Everybody for joining us on the Ag View Pitch, and we will catch you guys next time.