Quarterly stocks rock markets: weekly market outlook, Oct. 2-6

Narrator: 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.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. We're heading into a new marketing week, actually the first week of October. And I just want to remind everybody before we get going here too, our 19 Minutes is out. It was just out on the 29th. We're going to have a bonus episode here this week and it'll be out again on the 9th. So if you're out in the field and rolling and want some other good information to listen to, make sure you check out our 19 Minutes episodes. With that said, I've got Clark Neuber with us today, BSI Commodities in Cedar Rapids, Iowa. Clark, how's it going?

Clark

Neighbor: Good morning, Chris.

Chris

Barron: Doing well. Good, good. So first week October, man, harvest is going to be underway. Have you heard much September harvest or, or is everybody going to really hammer down this week?

Clark

Neighbor: Weather looks good this week. Uh, and talking to people around the Midwest, I would say harvest activity thus far, I guess we'll get a report on Monday from the USDA on progress, but is generally pretty limited in most areas. I know some areas in Illinois and some commercial elevators I talked to, they're maybe pushing 40-50% done on corn, 30 on beans, but that is the exception. Most areas or regions I would say are 10% or less, 20% or less, and numbers of that nature. But like you mentioned, with the weather the way it looks, it should be a big week of bean harvest coming up is,— that seems to be the focus.

Chris

Barron: Mm-hmm. Yeah.

Clark

Neighbor: Yeah.

Chris

Barron: We've, in our area, we're in that— if you look at the drought monitor, we're in that red zone.

Clark

Neighbor: Yeah.

Chris

Barron: So we, you know, there's operations in our area that are probably a little further along. We— I was telling you before we started recording, we have, I don't know, a fair amount of corn done. We're probably 20% done with corn anyway, at least. And, and you're going to be wrapping up the soybeans. Bean yields are better than we thought in our area., and corn yields are off the pace pretty significantly off APH. I mean, anywhere depending on the field and, and how much, you know, if you have some sandy soils, anything like that, boy, it, it, that dry weather really, really nailed stuff and made a lot of variability too. The other interesting thing is we're, as, as corn comes into the, to the grain, grain bins, you know, it's not uncommon to have a load that's 27% and then have a load that's, 19%. Back to back, you know, and going across the field.

It's just so variable that person's really got to get going. The stock quality's not very good where those, where those plants died early and, and cannibalized the stock. But hopefully everybody's being safe out there and, and, um, this, this harvest thing's gonna really get rolling soon, I'm pretty sure. So question for you. Last Friday we had, um, the quarterly grain stocks report and We closed the market on Friday down pretty, pretty strong. I mean, that makes some people happy that are in the insurance business this year instead of the production business. But for the people that are in the production business that don't have much sold, talk a little bit about what, what that report said and what it might mean in the next few weeks.

Clark

Neighbor: Sure. So again, the highlights in the stocks report is the stocks as of SEP 1. So it's in essence, the ending stocks of last year's, uh, crop year. And corn came in at 1.36 billion bushels, which was below the average trade guess by roughly 60 million bushels. It was below the last USDA estimate of 1.45. So on its own merit, the corn number was to some degree supportive. And I'll get a little more detail on that in a second. The beans came in at $2.68. Um, trade was looking for $2.42, so a little bigger number than the average trade guess. We saw pretty good pressure in the bean market because of that. Interestingly enough, the corn stocks number for '22-'23 are real similar to what they were for, uh, '21-'22. Both within 15 bushel— or excuse me, 15 million bushel of each other, for what it's worth.

Wheat stocks came in, uh, pretty much in line, but keep in mind we also had a small grains production report yesterday on wheat. Uh, the all-wheat number came in at 1.81 billion bushel. Trade was looking for 1.73. That compares to last year, 1.65. So that larger wheat production number I think was somewhat the driver yesterday with wheat being down, pushing 40 cents on the day and 40 cents on the week. The bean number again slightly bigger gives us a little more cushion on this carryout scenario on beans. I think added pressure to soybeans taking out recent lows. And now, and corn, in essence, even though corn was down fairly hard yesterday,— in, uh, in tandem with the beans and the wheat. But unchanged on the week. Um, you know, it's just that time of year where the market's trying to navigate this whole supply scenario.

We're getting lots of answers day to day, so that part of the equation is kind of done as far as how this market trudges forward. But the bigger wheat number, the slightly larger soybean number, And then the corn stocks, even though they were down 80, 90 million bushels, the trade attitude is as long as corn carryout stays above 2 billion bushels for this upcoming year, it's a comfortable amount, whether it's 2.0, 2.1, 2.2. We tend to be in that number. And, uh, just, you know, you've seen the market the last 30 days, Chris, just kind of grinds and chops and grinds and chops. Yesterday's kind of the first breakout to the downside we've seen in beans and wheat in a while, but they've also kind of slowly edged lower. You, uh, yesterday was also the end of the quarter, um, so that I think sometimes creates some trading, uh, evening positions by the funds.

And, uh, the Commitment of Traders report that also came out Friday evening, uh, The funds added to their net short on corn. They're short 168,000 contracts of corn, uh, still short almost 100,000 wheat contracts, and still slightly long beans, but took that long position away here in the last week. So I think that's a key thing to keep in mind is, A, do the funds reverse their positions on wheat and corn at some point, and/or do they continue to bleed through some of this length in the bean complex going forward.

Chris

Barron: How much technical damage is done between the three sisters, the wheat, corn, soybeans? I mean, did we break through any technical issues that we're going to have to fight some more here? Downside pressure potentially.

Clark

Neighbor: We, obviously had some technical pressure. I just glanced this morning, a year ago at this time wheat was well over $9. So, and here we are at $5, $5.50 to $6 depending on what futures crop you want to look at. So beans, we did some technical damage yesterday, took out those recent lows. You know, basically that $12.80 area was kind of an area that was trying to hold the front end of the November beans. So, and corn's very much in a range-bound mode here of late. We didn't take out recent lows here in the last couple weeks, uh, yesterday or this week. But, you know, as you, as you go through press— through harvest, we may see a little harvest pressure. But I think the thing that's kind of the headwind of this market is the demand scenario going forward, and that's a little concerning as we speak today.

Chris

Barron: So I guess we can go that angle for a bit. Actually, before we do that, I want to ask you another question along the lines of what we're talking about. Is, you know, there's a lot of unsold bushels out there. There's a lot of people that like to sell off the combine, the soybeans. There's a lot of soybeans not yet harvested, a lot of them have been, some have been people rolling. What do you tell the producers? I mean, do you, do you go ahead and let it go off the combine at this price and look at some kind of reownership strategy, calls? I mean, what, what do you tell these guys that, you know, that's kind of their cash crop and, and they're moving them? Any, any thoughts there?

Clark

Neighbor: You know, it's, it's kind of a tough decision right now off— a combine, especially if a person doesn't have on-farm space. Um, and the reason I say that, if you have on-farm space, if you look at the structure of the futures market, it's giving a lot of carry in the market that we haven't seen in 3 or 4 years plus. Uh, so I think a person's really got to watch that carry in the board, especially ones that are using futures, using hedges, or using hedge-to-arise, and how to handle those rolls. And then just wait for better basis down the road. And as far as stuff coming off the combine, it's tough. It depends on where you're at. I mean, you have super weak basis. Anything tributary to the river right now because of the river issues, because of the demand situation. An example, and I always like to use St. Louis as the basing point in the river.

Because it doesn't close in the winter and so on. Right now, the St. Louis bid from October to January, so those 3 months, the cash carry on the bid structure is almost $1 on soybeans and $0.50 on corn. So that is a structure that's saying we don't need the bushels today, we may need them tomorrow. And if a person has to move into that kind of market environment, it's tough, you know, because the basis is so weak right now. And to capture some of that basis improvement, you have to put it in commercial storage and hope it offsets the storage cost. Or you just got to close your eyes and hope it's right. Now, cash carry in places like Cedar Rapids or Decatur are more of a processing uh, type market. I think it's roughly about 20 cents on corn, 15 to 20 on corn, and 30 to 50 cents on beans. Still pretty big number on the beans.

So the bean market in— well, both the corn and beans in essence is saying to some degree, unless you have this quick ship bids that I think people really need to watch, especially in the corn, if they can take advantage of that If you have an end user that's still trying to capture that day-to-day grind, there may be some opportunities right out of the field. But as far as longer-term opportunities, guys got to measure storage costs if he does it commercially, which more times than not in a commercial space, 20 cents to get to January 1st and then so much a month thereafter. And the other factor that, um, I'm sure you talk to your folks about, but I think needs emphasized is the interest rates and the cost of whole grain, which approximately right now is about 3 cents a month on corn, 8 or 9 cents a month on soybeans. So the cost to hold these products has become more expensive.

So, and having said that, selling cash, maybe looking at some calls as reownership or something of that nature. I think we're in a market structure right now that you don't have to get aggressive in that manner as far as buying calls just from a seasonal standpoint. But between now and maybe later in October, Thanksgiving, that may not be a bad thing to look at as you approach the growing season in Brazil and see what that— if that brings any opportunities down the road. But kind of, kind of in a tough spot right now. I think the other thing producers need to watch because of the time of year and the momentum created with yesterday's market, be kind of cautious and don't assume there's not any downside in this market from current levels too. We may find some good support in these areas, we'll see. But this demand structure, I think, is a little concerning.

And sometimes the market needs to go to values to find demand, and I'm not sure what those values yet.

Chris

Barron: Mm-hmm. Well, that's, that's fun news. I'm just— yeah. So, hey, hey, you know, you brought up something that I think is really important too that I just want to tag on, and then we'll go to some demand discussion here. But you talked about the importance of just calculating your interest cost, your what we call the cost to carry. You know, but there's a, there's really an algebra calculation that needs to be done now based on what you're saying there. You know, we need to, we need to look at the carry opportunity. What is that price difference out there for March or July or whatever you're looking at, whether it's corn or soybeans? What, what is that opportunity? Then you need to take advantage of it, right? You need to actually take action and capture it, do it the correct way.

There's, You know, there's ways to do that if you're rolling a hedge or a, you know, or HTA or whatever. But then it's like, you know, what are your— what's your interest rate? What's the basis, potential basis opportunity? Because you don't know what it is. You're going to hope it's better, you know. And then what is the current price relative to your cost of production? And if it's negative and, you know, you really got to do that math. And then the final one, and you mentioned it offline and you didn't say it now, and I want to bring it up, is cash flow. You know, I think a lot of us, and I can say this because I'm a farmer too, I think a lot of us when, um, we are sitting on some cash, sometimes it makes us less aggressive to make sales. It makes us more comfortable maybe than we should be, and we need to be paying attention to this stuff. And so I'm not preaching to anybody.

I live this too. And, um, and it, and it's a psychological thing that affects us, you know, when, when we feel comfortable. I've got cash, you know, the last 2 years the market's come to us, why wouldn't it come to us again, you know? And, and our calibration is totally screwed up from the last 2 years, and, and we're back into that normal, you know, 8 out of 10 years, you, you know, it, it just It's proven over the years, 8 out of 10 years, managing those margins in advance pay the bills. What really screws us up is when 2 years in a row, if we'd have done nothing, we'd have been super smart. And so I think we have to, to now recalibrate again to the, the reality of what we are in now and where we are at and, and crunch the numbers and do the algebra and then just make the decisions and move on.

Clark

Neighbor: Sure. No, I think that makes sense, Chris. And the one thing I guess I would use as a, a sample, and I work with a lot of commercial elevators on hedge placement, so if a person has hedges on or HTAs, the spread right now from December to March corn on the board is about a little over 15 cents. So if the interest costs 3 cents a month, that's 3 cents to get or excuse me, 3 months to get to March, it's basically $0.09 of interest cost. So the market's paying a guy more than interest cost to hold on to those bushels on the board as far as moving those hedges out down the road. As you move to the May and the July, those carries aren't quite as good on the board right now, but I think that's a good measuring stick. Any time your interest rates are higher, it's worth looking at moving out to lock in that interest cost.

I think we're in a structure in the market right now because of the demand situation. These spreads might even widen a little more, and the wider those are, the more advantageous it is to hold on to those hedges a little longer in the front end. We saw a huge increase in the carries in beans yesterday based on that bearish report. Um, you know, the, the November-January moved out, the November-March moved out. So it's the market telling us to hold these positions and look for better, better opportunities down the road. And that's where it, you know, like you were talking about, kind of tests patience a little bit. But those are on situations where the market, or you have an HTA or a hedge locked in, being unpriced, you still have it locked in that parameter yet to take advantage of those carries, if that makes sense.

Chris

Barron: So yeah, it's a little bit easier if it's already hedged or HTA., and then that makes it a lot easier. Um, if I have a quick question, and it's probably a dumb one, I should know, but like in December, um, so like we roll that December to March, um, that say you got an HTA, you, you roll that, um, a lot of times you can be delivering in December anyway if you decided you wanted to on that March, you know. So I think a lot of times people are thinking month, and I just want to make that clear that, you know, if you roll that out to March, you could— you still may be able to deliver those bushels in December, especially if it's an HTA, you know, if the processor needs it or the elevator or whatever.

Clark

Neighbor: Yep, correct. Anytime you have those carries locked in, you can deliver anytime, uh, with HTA or a hedge, and right, just lift the hedge or buy back the futures as you go.

Chris

Barron: So, yep, yep, yeah, there's There's definitely some opportunities there that we have not seen for years, it feels like.

Clark

Neighbor: So correct.

Chris

Barron: Yeah. All right. So now let's get to one of the last things I want to hit you on, which is demand, or I should say the lack of demand. What can we hope for? I mean, there is a ton of headwinds there. You know, you talked about the river. Issue. You know, China seems to not like us very much. They have not liked us. They don't want to buy from us. Mexico is, is kind of a bright spot. South America just continues to produce more and more and more. Talk a little bit about these headwinds. What are you watching? What are some key things? Because there's so much noise out there. What are like a couple of key things that us as producers kind of need to pay attention to on the demand front?

Clark

Neighbor: Sure, you know, and most of the focus on the negative side of demand tends to be the exports right now. And keep in mind, exports in soybeans is a big percentage of our total demand, you know, pushing 50% most years. Uh, corn, on the other hand, your percent of demand on exports, even though it's about the same amount of bushels as beans, is, you know, 15%, maybe 20% of total demand. So put that in perspective, you know, the ethanol, the ethanol story should be solid. Ethanol margins are really good. Uh, but at the same point, that, that whole industry is kind of stabilized. We kind of know what that number is going to be, give or take, every week, every month, every year. So the swing factor is, is the feed side. And, you know, animals, animal numbers are down a little bit, especially in the cattle industry as we went through this strong cycle and those numbers are down.

So the feed side's probably consistent, especially on the poultry side is good. But then it gets you to this export story, and we're well behind last year in corn exports, um, well behind in beans. It's early in the year, so it's not worth hitting the panic button. And I don't think you're going to see the USDA change estimates or numbers too aggressively just yet because we're earlier in the year, but I think it's a function of several things. One, Brazil had a really big crop this past year, and the world market's still feeding off of that. Um, two, and this is more of a bean story than corn right now, our bean window or bean export program typically is now through February or March. Um, because of the river situation, uh, and the low waters, etc., and higher barge freight, um, that's causing a transportation issue.

And then lastly, we don't have as many Brazilian beans on the books— I mean, Chinese beans on the books as we did a year ago. Right now we're about 50% of what they were a year ago. I think that stems from the big Brazilian crop. Um, China can be kind of particular where they want to buy corn. Because there's other avenues. Beans, they just got to buy where they're available. So the political side of beans aren't quite as, uh, uh, concerning as wheat or corn or some of the other products, but we're kind of behind pace. We're behind schedule. The river's an issue. And logistically, we're going to probably move quite a few beans off the West Coast. So anybody in the Northwest part of the Corn Belt needs to keep that in mind. There might be some good rail, uh, basis numbers going to the West Coast.

And then lastly, and maybe the thing driving it to some degree, is US dollars at the highest level in about 12 months. So it's more expensive for the overseas buyer from a dollar perspective. The Fed continues to be hawkish. The dollar is still the place where the world wants to invest, or the the US, I should say. So you throw those things all together. And we have some headwinds. But hopefully, I think what you'll have to watch in the next 3 to 4 months is how does the Brazilian crop progress? Are they off to a good start? Do they have any weather premium or weather issues? If they do, and that's the big if, you could see some— some better numbers, especially on the soybean market going forward, and you may also see that impact the demand scenario as China has to be a little more progressive as far as buying U.S. beans or products elsewhere.

One last thing on exports too, we have seen, the way it sounds, some Brazilian beans get sold into China for November, December, and/or some switches out of the Gulf to Brazil because of the river issues. And the Brazilian real, or their currency, has dropped a lot in the last 30 days, which has created a lot more Brazilian producer selling and has cheapened up their bean price. So now Brazil is actually competitive with the U.S. kind of in that November, December time frame. Which very rarely happens. Normally that's our window to ship beans, but I think it's a function of A, they got a big crop, and B, our transportation costs right now are making us less competitive. As far as corn, China is off to a really slow start on corn sales from the U.S. As you mentioned, Mexico is a bright spot, but that's always a consistent, consistent buyer.

But China supposedly has bought 10 to 12 cargoes of Ukrainian corn in the last week. That's to be seen because ensuring these vessels going through the Black Sea are still kind of a question. But considering the whole situation over there, Russia's not controlling the Black Sea as they'd hope. So Ukraine's still having the ability to move product out the way it sounds. Whether it's wheat or corn. So, and then lastly, the wheat market, which in some degrees are still not competitive in the world market in wheat. Um, so again, this market may need to go to values to find that demand. Maybe we're there, maybe we need to go a little cheaper, we'll see. But that's usually a good stability point once you find that demand and find some stability.

And I think that's what market's trying to determine right now in the next 2 to 3 months with Brazilian growing season and crop situation, probably the, uh, the number one moving point in that whole scenario over the next 3 to 4 months.

Chris

Barron: Sounds to me like rallies are going to be meant to be sold, um, which is kind of an obvious thing usually with markets, but You know, it's more important than ever, I think, when guys do get wrapped up with harvest this year is figuring out, okay, here's my cost production with all of the knowns and really have those numbers dialed in and be ready to roll, have targets in, and, you know, try to remove the emotion on the remaining bushels, whether you still gotta sell 70% or 17%. Right. I think a person's gonna have to, sit down and do some math the minute you're done with harvest. Figure out, you know, if you're— if it's an insurance indemnity or if it's a big crop with not as high a percent sold as you thought you had. Gonna take some math here. Any, any final thoughts? And the export thing is kind of a sad, sad deal right now.

And, and as far as, you know, getting things moving again, kind of like what we need. Any, any final comments on any of that stuff?

Clark

Neighbor: Well, the market will figure out how to get product moved. I mean, it'll go off the West Coast. It may cause some issues out of the Gulf for a while. Hopefully that doesn't continue. And I think the export thing, even though it's kind of a tough story right now, it probably doesn't get worse, hopefully. Maybe we find some stability.

Chris

Barron: We're looking for some good news here, Clark. Yeah. Is there any good news that we can tell anybody?

Clark

Neighbor: Well, and I, I think this may be kind of glass half full, half empty. Um, you know, go back and look at markets from 2013 to 2019, and I know, I know prices have changed, production costs have changed, etc., but that's especially looking at the corn market right now. That's kind of that scenario with stocks to use at 15%. That was about a 5 or 6-year window where we went through market kind of like it looks like we're talking about right now, which is honestly, like you said, probably a little more normal, you know, long term if you stretch it out over the year. So the key thing I would say is those of you that have the opportunity, you know, the picture in your backdrop there, the grain bins, I mean, know how to use your space, know what, what their value is. Don't use them as a bank account.

Use them as a way of, of adding to your return on your, on your crops via, you know, knowing the cost of money, knowing the interest rate, and knowing, you know, how much cash carry in these markets and how to take advantage of it. And I think we're in one of these markets from a basis standpoint, you got to be patient on stuff that's locked in. Bushels that aren't locked in is a little harder call right now because the board's— the board isn't where we want it to be. I get it. But at the same point, I think we've got to be realistic with what's going on. And so it never hurts to space sales out too as you go.

Chris

Barron: So, you know, it comes right back to doing that algebra calculation. You know, it's— when you're in high school, you probably wonder, when am I ever going to use this? But, you know, this is a prime example. Tell your kids, you know, it's like that this is time to, to do the math and, and figure kind of out where things are at. So, well, Clark, I think unless you have anything else, I think we covered a lot of, a lot of ground today.

Clark

Neighbor: No, thank you. Wish everyone a safe harvest. Be careful out there. Long hours and be smart, you know.

Chris

Barron: Yep. That's right. Everybody, Be careful out there, like Clark said, and if anybody has any questions or anything else you'd like to see us covering, whether it's on 19 Minutes or any topics or anything on the Aggie Pitch that you'd like to see us getting out there. And I guess with that said, again, Clark, thank you very much.

Clark

Neighbor: Thank you, Chris.

Chris

Barron: You bet. And thanks everybody for listening, and we will catch you again next time on the Aggie Pitch.