Quarterly grain stock reports: uncertainty, surprise, and volatility

Garret

Brown: And it all comes down to this.

Shay

Foulk: 2 on, 2 out, bottom of the 9th.

Garret

Brown: The Farmers lead by 1. Full count, here comes the play at the plate, and it's the Ag View Pitch!

Shay

Foulk: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Garret Brown of Kodak Risk Advisory. And Garret, we got a lot going on here today, uh, with the report. And I guess initially what I was hoping we could get started with is taking a recap of the week from Sunday until today before the report came out. What had we seen so far into the week before we actually dive into some of the details of the report here?

Garret

Brown: Well, early this week we saw some pretty flat price action. You know, funds I think were fairly even on the week from an estimated buying and selling standpoint. Beans, you know, a little more negative and a little more mixed on wheat here too. You know, likely position flipping and evening up here as we head into not only the end of the month but the end of the quarter.

Shay

Foulk: So, and then all of a sudden this report came out and kind of a whirlwind or a tornado, I think is how you described it here offline, of a day. Just kind of interesting seeing how things played out and taking a little bit just to sit back and observe what that price action did. So let's talk, if you could hit on some of the key points from the report and what you see moving forward with that.

Garret

Brown: Sure. Well, just at a high level, you know, the average analyst estimate came in around 2.25 billion bushels, which is, you know, pretty, pretty rock solid on what USDA had been estimating prior. And we had estimates anywhere from, you know, like a 2.12 to a 2.574. And basically the market was shocked. We came in at, you know, just below 2 billion bushels. So we're kind of, you know, I don't know exactly what we'd consider pipeline stocks these days. That's really with all the extra steel that have gone up, but a 255 million bushel miss on the estimates, and not only a miss on the average, but a fairly substantial 125 million bushel miss on the low end of the estimates. Um, and that obviously prompted corn to trade sharply higher here today. On the soybean front, the final number came in at 523 million bushels.

That was within the range of estimates, uh, between 490 and 608, but it was a 53 million bushel miss in terms of an average. And then for wheat, kind of the same deal, it was on the very low end of estimates, but it came in, I think, roughly 84 million bushels below those estimates. So going into the report today, you know, beans, corn were lower overnight, wheat was a little higher. You know, saw a lot of talk on the dryness in the Black Sea region and harvest pressure in corn and soybeans. And Essentially, coming into the report, corn was kind of more even to a little bit lower, I would say. Beans were starting to gather a little bit of momentum, kind of following wheat. And obviously the rest is history. We pushed corn, I think, up around 16 cents, settled up around 14, pushed beans up around 40, still had a pretty decent settle there too, and had pretty good settles in wheat.

Shay

Foulk: So now I think one thing that a lot of producers are maybe scratching their heads and asking themselves is, uh, why, you know, how are these, uh, estimates that far off? What are some of the factors that lead into that? And a lot of analysts are maybe asking that same question, but what's, um, what's some perspective on that?

Garret

Brown: Sure. Well, um, you know, it's a good question here, and I think a lot of the analysts— you just hit it— we're all kind of wondering, you know, what, uh, you know, how could they be that far off? 392 million bushels between all three segments, corn, soybeans, and wheat. And just to kind of, before we touch into that, I want to look at the corn stocks changes. So I'm looking at some charts here. So if you look back over the, say, the last 20 years, the times that we've had basically changes, let's just say 50 million bushels or greater, just ballpark in the last 20 years. And by changes, I just mean discrepancies between the September WASDE number and the quarterly stocks number was 2 times prior to today. And so we set a, I believe, a new record here in, let's just say, for the last 20 years. And on soybeans, that was 5 times coming into today.

When, though this wasn't a record, it came in around second place. So what we saw today was not, I'm going to say, not necessarily normal. And, you know, prices reflected that here today. So going to a couple things you're asking, like you know, what changed. So USDA gave us a fairly high disappearance number, and actually I'm trying to kind of pull that report up here right now again. And essentially they made some changes on yield. They actually revised corn yield higher, which is something that I wasn't necessarily expecting. And then on that disappearance number, I think it came in around 3.02 billion according to USDA. Now I think that's kind of striking because that was in, obviously, the usage in Q3. And, you know, we were trying to recover from COVID at that point. We're still not supposedly grinding as much corn, obviously, as we did last year. We're significantly lower.

And to still see usage that high, I guess that to me was kind of the big one that jumped out.

Shay

Foulk: Right. With, you know, with that being said, I think there's a lot of frustration at the farmer level, at the producer level, and even at the trader level of some of the inaccuracy with some of these. Is this a product of what we saw with the 2019 production season and maybe not fully understanding the implications that that had moving into 2020? Or why is this so abnormal? You know, you mentioned in 20 years this has happened very few times and to this extent. Maybe not ever in the last 20 years. So why, why are these discrepancies so large, and how does this get corrected as we move forward through 2020 and into 2021?

Garret

Brown: That's a really good question, and I think if a lot of us knew the answer to that, boy, wouldn't that be the ticket. However, you know, as far as the production season, I'm taking that as far as what production was last year. Yeah, whole crop corn I think was revised a tenth of a bushel higher, 167.5. Again, like I said, that's not something I was expecting. And if I was thinking of some major change from last year in terms of, you know, what would have thrown the market off, I guess personally that would have, that would have been it. You know, on beans, I think they left yield unchanged, so it kind of came back down to more demand and more disappearance than normal. So yeah, it, you know, I think it's one of those deals that, you know, the market was caught off guard. I don't think we can sit around and ponder it too much.

You know, it's not an exact science necessarily, and the USDA, even though we're all skeptical how they get their numbers sometimes, there's a lot of people that are taking a lot of time to put these numbers together. And, uh, you know, we're all human, so it's, it's virtually impossible to do the task that they're trying to do. So it's one of those things that sometimes we just have to maybe grant them a little grace and, uh, do the same to ourselves as we don't necessarily understand necessarily where all these numbers are coming from.

Shay

Foulk: Right. And I think there are some opportunities that have presented themselves as a result of, uh, what we saw here today and potentially what we'll see through the end of the week. So Always a reminder that, you know, nothing that we're talking about here is offering advice or recommendations necessarily, just here to provide some perspective and value to the producers. Really interesting report that we saw today. Any last comments on the report itself or some considerations as we move into the end of the week here, Garret?

Garret

Brown: Sure. Well, you know, the big thing, like I said, is we just got to figure out, okay, what's done is done. If we made sales, you know, I think we got to just say, okay, well, Did we feel like that was the right thing to do at the time and then kind of move on? Because hindsight's 20/20. Like we said, the market itself was obviously surprised. There's a lot of really smart people out there. If we're at the farm level and, you know, we don't have access to all the best information necessarily, or, you know, we don't have millions of dollars to do this. So we, again, we just got to give ourselves, kind of let ourselves go a little bit. But on the flip side here, What do we, what can we do with what we have left? What can we do with next year's crop?

Let's go out there, let's get those costs nailed down, let's look and see what kind of margins we have and just remember, okay, that, you know, today if we take this report at face value, the game has changed. So what are we going to do here going forward? So like I said, kind of trying to figure out what are our targets, what is there for maybe a historical precedent with some of these stocks, the uses that we've had historically. And remember that, okay, we're talking about La Niña now, and what kind of an impact is that going to have in the Black Sea region, which is already dry? What kind of an impact is that going to have in Brazil and Argentina? Because they'll be the, the next big round of producers here that are on the export front. So, you know, that continues to get worse, you know, it's very possible we could see prices rise.

If we start to see rains in those areas, we could start to see a little bit of pressure. But I guess for now we just have to kind of see where this, where this market takes us here through the rest of the week.

Shay

Foulk: Yeah, I love that advice. I love that perspective. You know, I appreciate you joining us here today, Garret. Now, on a closing note, you know, you brought up a really good point of we have to look back and ask ourselves, did we make the best decision that we thought possible with the information that we had at the time? And there's a lot of leadership speakers, people that have had good experience in difficult situations that talk about that decision-making process. And there's a theory that if you wait to have more and more information, it becomes harder and harder to make a decision even as you get more and better information. At some point you have to go ahead and pull that trigger. And so for producers that are maybe feeling down about opportunities that they have missed maybe some price opportunities that they were not able to take advantage of here.

I think what you said there, the perspective that you provided of, hey, let's move past that, let's look at the opportunities that we have moving forward, and let's take advantage of the rest of the 2020 growing season and then also into 2021. So I really appreciate bringing that up. Garret Brown of Kodak Risk Advisory, thank you very much for joining us here today on the Ag View Pitch. I really appreciate it.

Garret

Brown: Thank you.

Shay

Foulk: And thank you everyone for joining us for another episode, and we will catch you next time.