Pricing headwinds: weekly market outlook Nov. 13-17th

Chris

Barron: 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 heading into a new week, November 13th through the 17th. We've got Jared Creed, JC Ag Financial. Jared, how's it going? How's it going?

Jarod

Creed: Good as always, Chris. I appreciate the invitation.

Chris

Barron: Yeah, it's awesome having you on. I'm interested in a whole bunch of things with you this week. We haven't talked, I think you said it was like October 6th. It's been about a month since, or a little over since we had you on. And so excited to have a conversation here. First off though, and I, and I mentioned this to you ahead of time, but I think a lot of guys are wrapping up harvest in pretty much a lot of the areas. However, there's still some guys that I've talked to in the East and the North a little bit, and there's some pockets where guys have still challenged with 25, 26, 27% corn. And, and, and I was talking to a guy the other day around the Chicago area and then east of there, there's a fair amount of soybeans to go yet. But most people are getting wrapped up. Any, anything you're hearing and seeing from your clients or—

Jarod

Creed: Well, pretty much the same. Yeah, I would agree. Kind of South Dakota, North Dakota got a ways to go. Illinois, Indiana, Ohio, plenty of areas still to go. Not only is the corn wet, but it's really, really good in all those areas, including South Dakota, North Dakota. Space is very, very tight. The incentive to go get it in a fast speed, such as what we've seen in the state of Iowa and Nebraska, is maybe not as enticing. But nonetheless, the areas that are left to go are certainly appearing to be some big, big bushel areas. We don't have anybody that's not done with beans. I was a little surprised to hear you say that. But I suppose that'll get wrapped up pretty quickly. But I bet in the next— let's see, by November 20th, I think we'll have everybody done that we work with., on corn harvest. Basically next weekend.

Chris

Barron: Yeah, I, I think there'll be some guys yet still chugging away where those yields are really high and the corn's really wet. It takes a while to get things through the system and, you know, and in our area stuff went pretty fast because there wasn't as many bushels and it was drier, you know.

Jarod

Creed: So the nice piece is looking at the forecast, whether the guy has crop in the field still or has field work to do, it looked really, really good. Eventually we like to get some moisture, obviously, but certainly seems like we're going to continue to have a wide open window here for a while.

Chris

Barron: Yeah. Also, before we get to some of the main topics, the other thing we, we wrapped up with crop insurance numbers at the end of October. Any comments on that? I mean, you're, you're quite involved and look at that kind of stuff. A lot and pay close attention. Any, any comments or things that, that guys should be doing or thinking about? Because I know, um, like in our area, we were, we were off the pace quite a bit. I met with our insurance adjuster, um, got him all of our information and everything. Um, any comments on that for other people too?

Jarod

Creed: Uh, yeah, I mean, quite the roller coaster, especially in corn. Uh, we started the month on Sunday night at a low of like $4.79, I think, but we instantly traded up into the 4— upper $4.80s into the low $4.90s, uh, by that first day of full average. And in essence, what happened was kind of a, a worst-case fear that we were going to come in on the low side, we were going to rally, and then we were going to come back lower and move lower post the insurance average. Not necessarily what's happened in soybean space, definitely what has happened in the corn space. You know, in all reality, we, we, our insurance average on corn, $4.88, and the low that we have recently seen in the corn market all growing season was right around $4.70. So coming in 18 cents off the low for the Tin Foil Hatters, Hey, not, not too bad.

Certainly could have been a lot worse if our average would have been closer to 5 and then we moved the price all the way down to where we're at. But at the end of the day, I do feel that the US producer— Chris, if you're a 94 million acre corn grower just yourself, you probably don't have a lot of insurance money. Trend yield around 180, final yield around 175. 80% insurance policy on average across all that. Not a lot of money to go around from the insurance space. So that creates a little bit of a fear of a total revenue picture for the farmer that I think there still was. We've talked about it numerous times, maybe a little bit of false sense of security in insurance. Got— it has me— insurance has me covered, insurance has me covered. Uh, talk with several of your listeners actually, I think after we Might have discussed this in September, the beginning of October.

I know where I was today. I was on a combine and multiple phone calls coming in. Hey, should we be buying something to protect the insurance move? I said, no, we're going to spend any money. Let's protect something just to keep the floor under bushels for the long haul and take it for what it is during the month of October. A guy might have been able to make a little bit of money in that period if he was really, really on top of his execution. From the buy and the sell side of protecting that insurance price. But in all reality, it was such a short-lived rally again, um, that now we're moving into new lows. So nothing really to speak of too much on the insurance base. You know, beans a dollar lower than the spring price, close to it.

I would say in our group of producers, outside of margin protection on corn, uh, the lion's share of money was coming on beans, and unfortunately it still wasn't even enough to make any money.

Chris

Barron: Interesting. So, um, with that said, let's, let's move on to the next topic unless you have other comments there. Uh, last week we had a WASDE report. USDA did a little bit of a surprise for us because typically that report doesn't do much or have much in it to really move the market. And we had corn yields go up a bunch, beans kind of the same response. Talk a little bit about the report, what you take from it, what, what we should as farmers be thinking about. To me, and I told you offline before we started recording, I'm not surprised at the yields. And I think we've been saying, I've been saying, I've been all summer, the crops have looked really good. When you travel all over the place and look around, you could kind of see the yields looked really, really good. You know, the prospects looked like they were probably gonna be pretty good everywhere.

And if, if there's anything that, you know, you and I and my area and to the north and a little bit to the east of my area, we're in that hole where the Drought Monitor showed really deep red, and we still had pretty darn good yields. And we had as dry of conditions this year in our farm operation as we— as really as we did in 2012. And we had, you know, about 50 bushel better yields than we did in 2012. And so, you know, we obviously can grow a crop with super dry conditions. Talk a little bit about that report and about what we need to be thinking about from that?

Jarod

Creed: Sure. Across our, across our clientele, once again, our yields, we did have a few areas in kind of north central west. I don't want to call it west central, but kind of a northern third of Iowa with the exception of Waterloo, Cedar Falls area north, that drought area that you were referencing. We had a lot, actually a fair amount of individuals make new records on both corn and beans. And if you go back and look at the rainfall all summer, that's just the areas that didn't stop raining. Nobody else really set records, but a lot of folks on both corn and beans in the good growing areas have ridiculously good crops yet. So from a WASDE perspective, yeah, I would agree with you that the expectation was that at least corn wasn't going to go down. It did have room to go up.

You know, I would say that if an individual was surprised on WASDE, We just need to remember that we had a lot of question marks on the crop through the growing season, and maybe we still do. But when you have those question marks going into the November report, it does open the door for more movements. Typically, when we don't have any of those question marks, crop has been well produced throughout the entire year. You just don't have a lot of movement in the month of November. I would tell you that I was surprised by the soybean move. I'm not arguing the yield increase. I understand why, especially with some of the yields that are being pulled in soybeans east of the Mississippi. But I think that the market was caught off guard from a yield increase in the fashion that they did. You know, 1.9 up in corn being close to 175 yield, fair, still possibly could go higher into January.

I highly doubt it goes lower. On the soybean side, I guess I'm just gonna say 50 bushel, call it, but then a half a bushel either side, which is pretty important from the overall balance sheet perspective. But here's the most important piece. Let's not lose sight that the biggest question mark of the WASDE is, are we actually going to see the demand come to fruition that the USDA put in? Because make no mistake about it, corn got a lifeline by increasing the demand side how we did. Now, with that said, Econ 101, you got more supply, you're going to use more. Less supply, you're going to use less. However, you know, USDA marketing year, September 1st to the end of August, we're so early in the marketing year yet that they probably can't start ratcheting down that demand. So an increase in exports, good luck. An increase in ethanol, Mm, maybe.

Feed and residual bucket, a lot of question marks that'll get resolved over every quarter as we advance towards quarterly stocks reports. So the January report, or the month of January, I should say, of final production and a quarterly grain stocks report is a real possibility of starting to shine light on what our real demand situation looks like long term. Soybean demand, it's fine. It ain't going to be able to get much better. It's not going to be able to get a lot worse. Our supply is tight. It's near pipeline supply. Hence why we're $13, $14 beans. No argument. Corn, just— I probably said this before, but just take a step back and think about it for a second. If we end up with a 2.3 billion bushel carryout, which I think is probably closer to reality, based upon some nicks and bruises to come on a demand segment.

If you remove Ukraine and Russia and you remove the inflation story and you look at world corn stocks and you look at US corn stocks, tell me why corn is $5. In years past, that's a $3.50 to $4 commodity. I'm not suggesting we're going to $3.50 to $4. But don't lose sight that a 2.3 billion bushel carryout historically is certainly not worth $6. And arguably, it's not worth $5 either. So the cash market, the user and the farmer are like in a standoff right now. And also don't lose sight of why is basis as good as it is in places. It's not because the supply isn't there. It's because the farmer's very, very slow at selling. And the problem with that is you can go to these users that will pay well above their posted values, the tradable values above what you see on their websites. Challenge is you can't sell them significant volume.

They only want to buy what it takes for them to get from point A to point B. And they will outweigh the farmer. And we know who wins that battle. Something else can happen in the marketplace to take corn higher. But it isn't going to be in the demand sector as of now in the US.

Chris

Barron: So when you hear, you know, a flash sale, and you hear, you know, or you see these little bumps in the market, what do you— what, what should the producer be reading from that stuff? And what should the producer be doing?

Jarod

Creed: Nothing. Flash sales. Until you start seeing some flash sales in the corn space to somebody beyond Mexico, it's a lot of noise. We need to sell corn to Mexico and we need to sell more corn to Mexico and we need to start selling corn to China. However, the only— not the only way, the most plausible way to make that happen is we need to get cheaper. Or we need South America to get more expensive. And you can throw in Ukraine in that picture as well. But right now we're just not competitive. And it certainly didn't help the last 30 to 60 days, the issues on the river as well. Barge freight ridiculously high, making it tough for a world corn importer to have a competitive price to buy from the US. And that also goes within the PNW. And, you know, think about, we know the Gulf has had an issue. We can't get corn down there, river issues, not competitive.

At the same time, we should be shipping a lot of corn out of PNW eventually, Nebraska, South Dakota, North Dakota, Western Minnesota, to a certain extent Northwest Iowa. Well, just look at those bids. First off, ethanol is really not letting it leave. But at the same time, cash corn sub-$4 at your processors in North Dakota now. And for that matter, a lot of South Dakota too. And I'm talking your big processors, your Poets, your Valeros. Cash corn is sub-$4. We talk about we need to get cheaper. As of today, it certainly doesn't appear that we're cheap enough because you're not seeing these big flash sales to destinations outside of Mexico. You're not seeing big export announcements to, say, China. And maybe it's not because we're not competitive, maybe because the world user A, has enough, or B, just flat out doesn't need it.

Chris

Barron: So to look at something that could be on the bright side, or maybe it isn't, but as we record this in the middle part of November, South American weather, anything there for hope? Not really.

Jarod

Creed: Yeah, you can certainly have hope. I gotta— I sound like on a soapbox here, but we get so tied up with all these damn maps throughout the growing season in the US. Look at this area that hasn't got rain. Look at these temperatures. Look at this too much water. Look at this forecast of no rain. On and on and on and on. Put this in context for a second for all your listeners. Brazil is forecasted right now to grow a 6 billion bushel bean crop. And the US ended up raising— I'm not sure what our final production was— call it 4.2. Well, think about the geographical footprint from, say, North Dakota to Virginia and from Maryland to western Nebraska of how much area that takes to grow 4.2 billion bushels of beans. Now add 1.8 billion bushel production to that and think about the geographical area with a similar yield in Brazil that it takes to grow those beans.

Meaning we know that when all the dust settles, areas can have a poor yield or poor weather, and other areas can have a really good growing season, and they offset each other. So what we just experienced here in the US, right?

Chris

Barron: Mm-hmm.

Jarod

Creed: Just grew a 50-bushel bean crop with a lot of troublesome weather in a lot of places. Imagine for both the corn and beans, if you look at our ear counts on corn, you know, once you get into September, or excuse me, October, USDA WASDE reports on production starts showing you ear weights, start showing you ear counts. We set a record on ear count. So was that an emergence deal? Probably. Stand count? Yes. Now just imagine if we had one or two more widespread 1 to 2-inch rain events in a lot more areas? What would that yield possibly been? So taking it back to South America, the bigger question mark is in the areas that actually need some rain today to get the crop planted timely. Soybeans, that is, to follow it up with a corn crop. Here this next summer. If we don't get all that done timely, maybe you got your hat to hang on, on something.

But that's not really— the corn market's obviously not worried about it yet. So listen to what the market's telling us. And on the bean side, yeah, we've definitely had a fair amount of excitement that, you know, you rally beans post-harvest by a buck. Some concerns on South America weather, and you had the funds have a small short position, so had just the right combination to spur a decent rally. But outside of that, you know, first 2 weeks of November, nah, I'm, uh, I'm not willing to buy into any of the hype around South America weather at this point.

Chris

Barron: Okay, so that's, that's check on that one. Let me, let me ask you another area of consideration, the funds and seasonals. Eventually, you know, when you look at going in, you know, wrapping up the year, going into the new year, what do you see ahead there? What are the funds thinking? Or what, in your opinion, it takes money to move the market around also. And so, you know, what are the, in general, in your opinion, what are the funds thinking? And what, is there any opportunity there for some money flow?

Jarod

Creed: From an economic reason for the funds to be involved in commodities, that story's just not there like it was a year ago. Um, and what we have seen is general open interest from that community, both your index funds, more of your passive investor, uh, and your speculative hedge funds per se, uh, their involvement has dwindled quite drastically over the last couple years. Some of that might have to do with 9% interest, just the, uh, the amount of money that it takes to be involved. And at the same time, other opportunities where they're able to park capital that is assigned to them to generate a return. Can they do it in places outside of the commodity market? The answer is yes. With a lot of safer, uh, guaranteed returns per se. So at this point, we don't really have a catalyst for them to be a big mover one way or the other.

I would add in that, that, that's probably more prevalent in soybeans. On the corn side, as you build this bigger carry than what we've been accustomed to. It's letting it— it's getting easier and easier and easier day by day for a speculative short position to maintain their short position and get paid by rolling forward. Dec corn, 15-ish cents, might go to 17 to 18. In today's environment, it probably should. Doesn't mean it will. December, December corn probably going to go closer to $50. Doesn't mean it will, but it probably should. Don't lose sight of the fact that years ago in the scenarios of $2.50 to $3.50 corn, a calendar year spread, December '23 to December '24 per se, has been almost a dollar a bushel carry.

So if you're a big short position and you're rolling forward into the market, no different than a farmer with a hedge rolling into a carry, it becomes easier to maintain a short price because you're increasing your short price in the market. And quite frankly, it looks like— it looks like corn is on a warpath to $4.50 front month futures, and The— I don't want to say problem. The scary piece about that is what if it's not December corn that does it? What if it's March? That's another 30 cents of downside from where we are today. And that gets pretty easy to roll a short position from these to March and wait for another 30-cent drop in March corn.

Chris

Barron: At a certain point, if the market goes low enough, people will start selling. Some will.

Jarod

Creed: Yeah. I mean, You know, on the soybean side, I think we got to be realistic with ourselves too, that we're not the kingpin in the market anymore. The US soybean crop is somewhat an afterthought to the Brazilian crop. Not an afterthought, but you have probably removed the seasonals in the bean market that we've been accustomed to for years. Started to remove them. On corn, yeah, you can still say we have some seasonals. But I'll go back to saying that the seasonals went out in a supply and demand fundamental situation that we have today. And I would argue no. And the speculative positions in the marketplace today are almost going toe to toe with the US farmer, saying, we know you are way undersold, and we know you have about 6 months to sell equivalent of about 5 billion bushels of corn, maybe even more.

And that's a lot of selling pressure in the market that has to find that next willing buyer at a certain price. It doesn't mean that the buyer can't ramp up the price to get the farmer to sell, but that's not the environment we are in today.

Chris

Barron: Yeah. Yeah, there's a lot of headwinds obviously here we're talking about. So what I'd like to do as we get closer to wrapping up, and unless you have some things I haven't quizzed you on yet, but we've talked about with a lot of people on this podcast over the course of the last few months about the equation of navigating unsold bushels. So in that equation you have basis, in that equation you have storage cost, you have interest rates, you have potential continued inflation, you have carry in the market. Yet there's a lot of things to do the math on and you have your cash flow, you have your payments, your line of credit, you know, those types of things, you know, your prepays that are going to be coming up and all those kind of things. That go into the equation of making some decisions.

And then there's, there's those out there, to your point, that have a lot of unsold bushels. There's those with some and there's those with not as much. But almost everybody has something that's, that's sitting behind them like you see behind me here with, with a lot of grain to move yet with a fair amount of it yet unpriced. What, what are some of the things that producers need to be thinking about as they do those equations and, and think through the algebra?

Jarod

Creed: Sure. So just this last week, a lot of notices were sent out to U.S. producers from various banks of notice of another rate increase on their operating money. I don't know, I'm sure several of your listeners got them, with a lot of it being 9% to 9.5% now. And we, we have plenty of operators who are 10+ too, just depending on the bank that they work with. So let's just say 5,000 bushels of corn at $5, $25,000, right? So on a monthly interest perspective right now, we're talking about, um, 4 cents a month in essence. Of just interest. So let's just work with that number for a second and avoid, like he said in the picture behind you, that bin site is not free to run. It still costs money to keep something in there, electric, whatever, maintaining quality of grain, so on and so on. So let's just work with $0.04 a month for a second.

So let's just say I'm going to pay interest on money November, December, Jan, Feb, March, April, May, June, because that's your biggest carry on the board right now off of the July contract, 30-some cents. So I'm going to store corn for 8 months at a 4-cent cost a month. I'm up to 32 cents of interest that I'm going to spend. And it might not be interest tied to the crop that you just finished harvested or finishing harvesting right now, but it might be interest that you start to accrue on next year's crop to boot. So now I'm starting to think about, well, what's my cash carry in the market today? If I can sell— let's just— I'm going to pull up a Western Iowa facility, Denison, Iowa, location we work a lot with. They are bid today. Go figure. As soon as I try to load it, my internet is not working fast, but I'm almost positive their basis today is $5 under.

And I'm almost positive that their bid out into June, July is $15 under the July. So that makes cash corn today in essence $4.60, and that makes June, July corn, uh, $4.80. All right, so you got a 20-cent board carry. So we— excuse me, 20-cent cash carry. So we know right off the bat It's going to cost me $0.25 to get to June. And in that cash market, I'm only getting a $0.20 cash carry. That is an inverted market to the farmer right there, knowing that it's going to take me more money to get to the later date than what I can receive today. Now we start considering what do I need the market to actually do to make some additional money? I need basis to improve out in June, July to the extent of $0.10 to $0.15, if not even more, just to break even. So am I willing to make that bet that June, July delivery corn in a Western Iowa market will be $0.20 over? Will it be $0.30 over?

The odds are probably yes, Chris, but it's not a get-rich type of a strategy waiting till then either. Especially if an individual is not going to sell the carry. You might see basis improve for June, July, but if you don't sell it to start, the board can still come lower and now you're really swimming uphill. So we're telling guys right now that it costs you 6 to 7 cents a month to hold corn and we're going to be empty on corn by March 1st. We have a significant amount of volume that is moving in the next 90 days. A lot of guys will be empty by the end of the year. I do feel that basis can have a similar path to what it experienced last year. And last year we were in an inverted board. This year we're in a carry board. Last year we didn't have 9% interest. This year we do.

I think in the next 90 days will be your best opportunities on basis relative to what that cash value is with the board carry or inverse. And last year it basically peaked out right about now by Thanksgiving. The best cash basis values relative to the board carries or inverse was right now, and it got nothing but worse throughout the balance of the year.

Chris

Barron: A lot of that, isn't it partially location too, though? Because I was just looking, for example, in Iowa, Cedar Rapids, Iowa is posting on average about 15 over, and Eddyville, which is the other big Cargill location in central, south central Iowa, of 25 under. And so, you know, last week I know our drivers that were hauling corn for us to Cedar Rapids were saying You know, there's, there's trucks showing up that we've never seen before, you know, and that, that's how basis gets, gets taken care of is, is, is the grain moves from one region to another and kind of, you know, kind of evens out that basis a little bit. It's kind of, kind of something to think about too.

Jarod

Creed: Well, think about this too, from crop size and basis like you're referring to. If you look at Valero, their east to west footprint, there is a dollar a bushel difference in basis value from Ohio to western Iowa. Tells you all you need to know right there.

Chris

Barron: Right, right.

Jarod

Creed: Local areas, but a dollar a bushel difference. And, you know, just looking at another big monster, Columbus, Nebraska, one of your largest ethanol plants in all the US. They have a cash bid today that is the exact same value as May corn. They have a cash bid today that is worth $0.15 more than January. So every day or week or month that goes by that I pass up on being able to ship corn today, I know that I'm incurring additional money of expense. And if I'm at a 15-cent inverse from today until January and I store it for 2 months, there's another 8 cents. I lose theoretically 23 cents a bushel waiting until then. Doesn't mean that January bid can't get better, and I'm referring to just strictly basis here, but the point of, point of talking about this is right now for I would definitely say west of the Mississippi, this is prevalent, that the market's asking for your corn today.

And as the average farmer walks away from the market, we need to be running to it. If the average farmer comes running to the market, we need to be walking away from it to a certain extent. And just don't lose sight of the value of cash in hand going into next year. And certainly don't lose sight on what you are thinking about your final result is going to be into the end of the year from a working capital perspective that is starting to sneak up on us. Chris, I've got a handful of balance sheets this last week that— here's an interesting one— operation that doesn't spend money erroneously. I would just kind of say at a run-of-the-mill 3,500-acre corn farm, very little beans on the operation. They ended up coming away with 190 bushel corn yield, 230 bushel APH. So obviously short there. They're 90-some percent sold, if not a little bit higher than that on that 190 bushel yield.

And when you calculate all their grain sales and/or hedges, their insurance, the gross equivalent of a $7.10 a bushel price on that 190 bushel corn. And their working capital on the year after grossing $1,350 an acre only went up $70. That right there in itself, that's scary. Flashing red lights.

Chris

Barron: Yeah.

Jarod

Creed: If you didn't have a good insurance program and you didn't have great, great yields and you didn't have a lot of forward sales, grossing $1,350 an acre and only moving forward by $70 an acre. There will be guys that will be losing $200, $300, $400 an acre working capital this year. We're going to give up everything we just earned. So don't lose sight of what that end result on the balance sheet needs to be versus getting tied up in USDA says this, the weather in South America is that, cash price isn't high enough relative to what. Now take all that away and take a glance with the bank and say, where do I need to be in 60 days?

Chris

Barron: Mm-hmm.

Jarod

Creed: What do I want this to end up being? And even take that to a step further for next year that I'm gonna give all of us a hard time here for a second. Let's just say we're talking about marketing of next year's crops. Don't care what the commodity is. Typically the easiest thing for the producer to do is start by putting, by starting putting in offers. I wanna sell this price, I wanna sell this price, I wanna sell this price. That's great. That's proactive. But what about in addition to that, making that first sale now versus waiting for that first sale? Because the piece where I'm giving us a hard time, we're a little bit hypocritical in this, that, well, the market didn't rally to get to my first offer, it came lower. So now I'm going to take my first offer and lower it right back down to the same price we started at today, and I'm going to chase it.

And you never get a fill and you're constantly walking your offers down where you could have just sold day one, got some coverage in place. Because I, from what I've seen so far, costs for next year, they're going to be lower year on year, maybe not as much as what we would hope to see. Nitrogen's really made a big, big comeback here in the last 90 days, you know, and Hydrus is darn near twice the price that it was beginning of August. So when you look forward to next year and you couple up with what my working capital is going to look like at the end of this year, we just got to walk carefully and focus on the big picture, not the, not the noise.

Chris

Barron: All right, right. Well, as we, uh wrap up here. You know, a lot of headwinds, a lot of challenges. I like what you're saying is, is, you know, paying attention, doing the math, making some sales. It's going to depend a lot for a lot of people how much they already have sold. It's harder for— it's easier for those that have already a bunch sold to make some more sales and look at that average price and be content. I think it's going to be a real tough one. For some of these guys, you know, if there's somebody listening here that's got a lot of unsold bushels, that's a tough, tough pill to swallow. But I think to your point, at some point you have to be proactive and you have to take action.

The numbers you're rattling off, I mean, you're talking— you talked about that $70 an acre, you know, of working capital gain if you look at it the other way, you know, your 4 cents or 7 cents, I come up usually with about 5 cents. You know, the last time we did the math, Jay and I, we were at about 5 cents a month. You, you're talking, you know, $10 an acre per month. If you wait all the way out to that June timeframe, there's your $70 out the window. You know, so, you know, you gotta kind of look at some of this math from several different perspectives too. To enhance you or to entice you to take action. Last question I have for you.

Jarod

Creed: Can I interrupt you on one piece? Yep. The real quick thing on a farmer moving grain as well. It's easy to make that sale and know that, okay, I got 45 days to ship it. A lot of sales right now are being sold for shipment through the end of the year. That says, well, I got this other stuff that I need to get done. Understandably so. But don't drag your feet on that delivery because if the market provides an opportunity to do something even better, you don't want to have your hands tied with the contractual obligation that you haven't executed on yet.

Chris

Barron: Mm-hmm.

Jarod

Creed: So if you're thinking of doing something and before the end of the year, don't make that one sale when you know you need to make four sales to move all the grain. Possibly, and get yourself behind the 8-ball that I can't sell more because I physically can't execute on it right now. And then all of a sudden the market gets away from us. So it's kind of a little bit of a game plan from logistics and the challenges that we all have with labor and such of if I can do something now, I need to execute on it now. And while I'm doing that execution, I'm looking ahead at the same time to what's my next sale? What's my next window of opportunity that I have? And that's why I'm hopeful we have— starting, starting this Monday, I mean, we'll be moving a substantial amount of corn on a daily basis.

And knock on wood, the guys who need to— we, like I said before, we will be out of corn by the end of December. And the market's telling us to do that.

Chris

Barron: Yeah. No, I— that's hard to argue with. I would echo the sentiment. Last thing, and then we need to keep rolling here. But last thing on 2024, you know, when we look at cost of production and we're going to get a lot smarter on that here in the next, you know, couple of months as we sit down with guys and really crunch the numbers on '24. But the initial numbers we looked at and where the market's been, you know, there's been some pretty good pricing opportunities. To take advantage of reasonably decent margins, you know, maybe not as good as we've seen in the past few years, not, not even close, but yet profitable levels to at least, you know, plug in some sales. Any, any thoughts on the '24 stuff that guys need to watch here quickly as we wrap up?

Jarod

Creed: Uh, yeah, just basically going back to first week of July, we see next year's foreign trade between more or less $5.10 to $5.30, and you can maybe even tighten that up a little bit, say $5.10 to $5.20. Just be careful not to get lulled to sleep waiting for that next level to try to sell, which could still come around at a later date. But most guys are gonna have a lot of bullets to sell some later. That if I— if my gut is right, that we go to a $4.50 front month commodity, spreads can only go so wide most likely. And let's just say it's a $0.50 spread between Dec '23 and Dec '24. And if we're at $4.50, that means '24 is at $5. And if that spread doesn't want to widen anymore and corn wants to continue to go lower, that means both of them are going to move lower. It's going to be tough.

Unless you got a really, really sharp pencil, if we drop corn another 30 cents before even the February insurance average, there's another advantage of being able to make some marketing decisions for next year now, ahead of the insurance average, kind of setting your own revenue floor on your own. You know, I'm not a big fan of just advocating these wide open strategies, Chris, but something that we're going to employ here very soon is just buying $5 puts, selling $5.50 calls, and selling $4.50 puts. It— and it's going to expire the end of June versus next year's corn futures. What do I have? I have protection from $5 down to $4.50, and I got upside from $5 to $5.50. And I know that from $5 to $5.50, I'm going to live to fight another day. If we go to $6, so be it. I'm going to have more bullets to sell.

But if we go down to $4.50, at least I got my $0.50 gain from $5 to $4.50, and I can start mathematically considering where my revenue stops bleeding from insurance programs below $4.50. And then I'm thinking about everything as a whole. I have a third of my crop sold or 40, 50% of the crop sold. And I've got an insurance floor $0.50 lower than the market, I can create a little bit of a bulletproof situation that's borderline the same math that we walked through at your winter meeting last year of the farmer needing to find where they need to have protection for their operation before their insurance kicks in to keep them whole. Right. And boy, did that ring true this year.

Chris

Barron: Oh, yeah. Yeah. Well, we'll get you back here in a couple, couple of weeks. And we'll talk a little bit more about 2024. Think in the meantime, I like your sentiment of paying attention, trying to get a figure, get a plan to stick a fork in 2023, because it does get hard to try to market multiple years at the same time. You know, when, when you're distracted by the '23, you might be giving up opportunities on the, on the '24 because you're working all the math and logistics and all this other stuff. And sometimes it's it causes you to miss an opportunity that otherwise would have been a good one to take.

Jarod

Creed: I'm going to ask you one question, Chris, and then I'll promise I'll shut up. You look out at even 2025 and 2026, there's probably operators in your group that you can put a pretty good estimate together of what type of cost ranges they could see, they could see their cost movement over the next 24 to 36 months. A lot of those variables would probably be chemical and fertilizer and land would be the 3 pieces that can move the needle in a big amount. Well, if a guy owns some ground, knows what his expenses on that annually, and then rents ground, you're going to do a blended average. Well, what does that cost you if my rent ground goes up $100 an acre across the next 24 months? Well, I'm going to bring that together. What happens if fertilizer goes 50% higher or even double?

My point being is it seems like the market in general is trying to get the producer to say you need to know how to make money growing $5 corn. And if it's less than that, it's going to be a little bit tougher. With the exception of a cost reduction. So it is a little bit of an assumption and a speculation, but it's an educated guess on what my expense exposure is going to be in the next 24 months. And looking at '25 and '26 corn, it's been hanging its head above $5 futures for quite a while here now. And we're just kind of methodically every week sell a little bit every week, sell a little bit every week, sell a little bit. Then we go back to a $4 market, you end up with 25% of the crop sold at $5. Well, that's going to make a big difference to the bottom line.

And you might be just fine, you might be really good if inputs go lower with it, and really not a care in the world if corn would go to $6. Because selling that first chunk at $5 and being able to sell the balance at $6 is a lot better for the endgame then it's a lot better to miss out on a high than it is to miss out on being able to hedge something at these current values and end up with closer to 4.

Chris

Barron: Yeah, exactly. No, I'm, I'm with you 100% there. One other line item I would throw in there, which is typically the second largest line item expense that is— you're able to calculate that out in multiple years— is machinery and equipment. People have been able to, you know, in the last few years have really updated a lot of stuff. So there's a lot of life in, in that line item expense, which tends to be the second largest. And so I think, yeah, we can get the math pretty good out, you know, out quite a ways and have some good information to make decisions with for sure. So anyway, hey, I think this was a good conversation. We went went out here quite a ways. But I think there's just a ton of stuff to think about. There's some headwinds, but I also think there's opportunities here for guys to still have a good year.

But we got to make some decisions and we got to decide what the definition of a good year is. You know, it's, it's not pie in the sky, probably it's, it's figuring out, you know, what is your individual math? What's your basis? What's the algebra for your farm? With that said, Jared, I really appreciate you being on here. We're gonna get you back again here in a couple of weeks and, uh, we'll kind of try to put a bow on some of this stuff here and, and figure out, um, what's, what's going on with this market here. We'll be a little smarter in a few weeks too.

Jarod

Creed: Perfect.

Chris

Barron: All right. Well, thank you. Really appreciate it.

Jarod

Creed: You bet, Chris.

Chris

Barron: All Alrighty, right. and thanks everybody for listening, and we will catch you again next time on the Ag View Pitch.