Red to green on the screen; what does it all mean?

Chris

Barron: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one. Full count, here comes the play at the plate, and it's the Ag View Pitch! Welcome everybody to another episode of the Ag View Pitch. We're finally closing up an interesting week with the markets. We've had a lot of calls this week on what the heck is going on with the markets, and so you've got Chris Barron and Duane Lowery here to have a little conversation a little perspective. And so, Dwayne, how's it going? Been a kind of a bumpy ride this week, but looks like we finished up with some green on the screen here.

Duane

Lowry: It's been a bumpy week. In fact, I think I was probably one of those guys that called you and wanted to know what the heck was going on. So I'm sure everybody has taken a lot of those kind of calls. It's been a strange week.— and a volatile week and a disappointing week, and with that, some level of either a surprise or frustration or confusing aspects to it along the way. We did finish a little bit on the positive side on Friday. We'll get to that. I think it's important that when we evaluate this week, we take a step back and try to get a big picture of what we had happen this week. We had— we came in Sunday night with some level of supportive features in terms of a forecast that didn't have a lot of precip in it, at least some of the models. Some of the models did have a little bit better precip in it.

There were also some rains on the radar Sunday night when the traders arrived in Iowa, and some of those were pretty decent showers. Others were scattered and, you know, less than 3 or 4 tenths. And some places just missed it completely. But from the traders' standpoint, when they looked at that, you know, some were kind of negative on that Sunday night, but there was other aspects of the forecast that was more friendly. And Monday, we ended up, you know, having an up day, corn was finished up a couple of cents, beans were up, I think, 3 cents or so on Monday. And then Monday afternoon, we get a crop condition report that, The conditions themselves were not that much of a change. Corn improved 1%, which a lot of people questioned, but that's what it was. Beans were unchanged.

But more significant, I think, in those reports on Monday afternoon was the— how far we were behind on, on silking in corn, how far we were behind on setting pods in beans, and it created an entire narrative. About all these acres that had yet to tassel, had yet to pollinate, and, uh, were probably going to not pollinate till the 10th of August. And a lot of question about whether those acres were going to be able to get a full finish before the season came to an end. And that also brought up the discussion about temperatures, and, you know, do we want a warmer outlook to kind of speed the crop along, or are we concerned about a lack of moisture, and we want a drier or want a cooler outlook. And so there's a lot of uncertainty in regards to all that.

But yet, despite how that Crop Condition Weekly Progress Report looked so concerning about crop development, you know, we had corn finish that day down 6 and beans down 7.5. And then Wednesday and Thursday was, you know, even more gut-wrenching, like double those losses. And And at that point in time, it was just panic had set in and margin call related selling pressures and, you know, liquidation activity. And by the time we got to yesterday's close, you know, the market had been, you know, 20 cents down in corn or maybe a little bit more than that. Beans had been down 35 cents, maybe a little bit more than that. And The, the good part about that is the market is quick to get to that cleansing state and quick to hit that liquidation state under those kind of pressures. There's also an elevated increase to, uh, per on pressures to get out associated with the last day of the month.

The clearing firms are pretty tough on margin calls. They want everything cleaned up. You got the last day of the week, you had all these things combining, and then on top of that Yesterday, during the session, President Trump puts out a tweet talking about 10% more tariff on Chinese goods. And that was just the emotional straw that most people probably couldn't stomach. And that further added to liquidation pressures. But the good news again, and all that is, maybe we've got those liquidation pressures out of the way. I would certainly think so. Every chart point that people have been using for a stop, they were triggered. Any monetary values that people would have been using more than likely got triggered.

And I think that when we walked in this morning, there were some people very concerned that this trade war situation was going to expand to Europe and it was going to be, you know, a very bad thing. And it was a bad sign of worse things to come. And there was a lot of negativity around that. They thought the overnight trade was nothing but a dead cat bounce. And as it turns out, we ended up performing quite well today. So I, I find that encouraging. And the last thing I want to say about recap in this week's trade is throughout the entire week we had large areas from at least the eastern third of Iowa into most of Illinois, but specifically western Illinois, a lot of Indiana that have been experiencing dry conditions with minimal precip, and a lot of those areas may have had less than 2 inches during the month of July, some less than 1. and crop stress has been unfolding.

And the market could get no traction off of that because it was caught up in the middle of a panic liquidation mode. As we get here to Friday, we still have the same thing. Crop stress is occurring. Those areas have not got any rain. We do not have any rain in their forecast, at least confidently in the next 5 or 6 days. And then after that, um, it depends on which forecast you want to lean on. But the ones that have been the wetter forecasts have taken away some of that moisture. The ones that have been the drier part of the forecast have kept that dry theme in that forecast through much of the next 2 weeks. So the dry, dryness that we've had all week that seemed like a legitimate storyline that market could have gained traction on it was completely railroaded by the liquidation pressures.

If those liquidation pressures are over, which which I would say is a strong likelihood they are, then Sunday night we walk in here, we're going to be focused on weather. If the weather forecast is the same as we have today, I think that you're going to see the markets be higher and they will not have to contend with those liquidation pressures that we had to contend with all this week. So I think that we should look forward to Sunday night and next week's trade with some level of optimism that we're going to see some price recovery. And then we also got that August 12th report that will only be a week away by the time we get to early next week. And, you know, that might cause the bears to do a little short covering or some new buying to come into the trade there as well.

So I think things look like we finished up in a manner that I hate to say there's anything good about this week, but Friday gives the impression that maybe this panic liquidation pressures are over and the weather forecast is still troubling. And throughout the week, I heard increasing reports both in scope and concern levels about dryness. And I think that's going to be our theme here next week.

Chris

Barron: So I wrote down 5 things you mentioned that were pressuring the market this week: forecast favorable temperatures that were occurring during that, panic selling, liquidation. I mean, the calls I was getting, oh, my stops were hit on my brought up, you know, we were just trending lower and that just kind of fed on itself. And, uh, the last one there too, like you said, you know, at the end of the month that kind of puts some pressure on things a lot of times too with just squaring up positions. And so with all that said, I mean, where With the amount we dropped, have we broke through? I mean, obviously, we broke through some technical levels here. I mean, what's it going to take from a technical perspective to move back through? And what are those levels?

I mean, what, what numbers do we need to get to next week if we were to try to climb back out of the hole we just created this week? Where do we need to— what do we need to get to on, on both corn and soybeans? You want to hit both of them?

Duane

Lowry: Well, uh, there's quite a bit packaged in there. Let's say, let's put it this way, um, there's a, uh, the way you worded that question about the technicals, there's a certain, uh, assessment or belief that once the market breaks below certain levels, that those levels are going to be difficult to ever get back above. And there's a certain type of technical analysis that that would be correct. And I'm not going to argue with that. I just want to point out that we did top out in June above $4.70 Dec corn, we did get there. And it's important to remember that in May, the trade was concerned about all this quote unquote technical resistance at $4, then $4.10, then $4.20, then $4.40, and we went all the way to $4.70. Okay, So it's not like just because they have technical points, they can't be violated.

Now that we had this washout here, the resistance levels are gonna probably, probably the main one that's gonna surface is probably that 440 because that's kind of had been the top side of parameters during the last 4 years. That's the one main one that they're gonna look at. Some of the first ones on the chart points are probably gonna be in that 425, 430 area. And, uh, people may have a mindset now that they got to sell those levels, and maybe they do. But, um, I don't want to sound like I'm discarding technical analysis because the truth be known, I'm largely driven by that.

I'm just wanting to point out that, um, if you have a fundamental storyline, a weather storyline that is still here next week after having liquidated the length out of the market and the market is now more cleansed, these technical resistance points that we think are resistance points may prove to be almost meaningless. And maybe it'll take some surprise from USDA in the August report. I don't know, but I'm not that caught up on the resistance points being resistance points. But in terms of the technical points that are needed to probably create stability. You know, I suppose you'll find stabilization if you can get back above 430 DSCORN. But if the people that want to look at the technicals from that perspective, they're going to be wanting to sell this market at 420, 430, and 440.

And they probably will not— if that's the case, if that's the attitude that people take on the technicals, they will not feel wrong about selling it until it gets above $450. So if you want to look at it from that standpoint, the price level that it will take to turn the market bullish in the, in the eyes of a lot of technicians is probably something back above $450. In the meantime, the guy that's a pure technician is probably going to be willing to sell this market on strength, and he will abandon that approach once we get to $450. So depends on exactly what you wanted for an answer in terms of what, what answer I should have given you. But I think the pure technician will be a seller on this, any, on a rally here that we might get. I don't agree with that approach, but I think that's where the pure technician is going to be.

Chris

Barron: Talk to us a little bit about soybeans then. You know, we've seen the pressure there obviously as well, especially with the tweet Talk to us a little bit about soybeans and kind of what you think's going on there.

Duane

Lowry: Well, you did some technical damage in, in beans, but I don't think the technical damage in beans is quite as pronounced as the corn because we never had quite as big of a rally. So there wasn't quite as big of a bet placed in the bean bull market as there had been in the corn. And so the damage may not be as severe. Plus, current bean prices, even after this sell-off, are still at the very bottom side of parameters for the last 10 or 12 years. In the case of corn, this sell-off, you're still at, you know, about $4.10 as we speak in Dec corn. Well, $4.10 in Dec corn for the last 4 years is considered a good sale. So the technical makeup is a little bit different there. And the other thing I would say about that is I've been talking about soybean oil as maybe being the upside leader if there's a bull market ahead of us in beans.

And I've been quite optimistic about the price action and the chart and the technical setup in the soybean oil. And soybean oil today— we'll back up a minute— the soybean oil hasn't participated as much in any of the bean bullishness that we've had in the last 60 days. It has been more noncommittal, has been more in an overall range, didn't participate a lot in the up, didn't participate a lot in the sell-off. And so it's been much more confined. But I think that's the place where some of the, for lack of a better word, some of the smarter money is placing their bets is in the soybean oil. And I think it's interesting to point out that as of today's settlement, soybean oil is only 31 points below the highest settlement we've had since June 24th. So if people have been long oil, they don't feel like they've been hurt that much on that market.

So if that's where the, the main players are trying to focus some length here in the bean complex is in soybean oil, that chart, that technical setup has not broken down at all. Said another way, today's settlement is only 50 points off the highest highest settlement we've seen in December bean oil since April 22nd. That doesn't sound like a market that has suffered that much, but it's also important to remember that the soybean market is a market that the funds never got net long. They covered some shorts, but they never got completely out of shorts. So there was a bearish bias there. That makes it more difficult for that market to have, you know, a full washout because of two reasons. One, we're too close to the bottom side of parameters over the last 10 years. And the second thing is, you didn't have near as much length built up there as you did in the corn market.

In terms of the technicals, maybe people will sell beans for technical reasons on a recovery. And if they do, they're probably hoping to sell that at $9. That's basically 30 cents higher in November beans than where they settled today. And in order for that market to trade at a level that the technician maybe would no longer want to sell it or feel uncomfortable with stuff they already sold, you probably have to get, you know, up to about $9.25. So that's like 50, 55 cents higher than where we're at. I'm not convinced that the technician is all that anxious to sell beans on a rally. I do think he's willing to sell corn on a rally. But I'm not sure that that's how they're going to line up a lot in the case of beans.

Chris

Barron: Aren't they? Aren't they still pretty short on soybeans, though? Or did I hear you right on that?

Duane

Lowry: Well, they've never gotten— the funds had never gotten out of a net short position in beans. And I haven't seen this afternoon's Commitment of Traders report yet. So I can't speak to that. But with this week's price action, you know, it's a fair and safe assumption that they added to their shorts. So I think before this summer is out, those shorts will be completely reversed, and the funds will build a long position. But That remains to be seen. A lot of people feel that that's never going to happen, but I think it will before we're done.

Chris

Barron: What's it going to take in your opinion? So obviously we talked to farmers a lot. We, we see what's really going on out there. We did the 16-state crop report, and if any of you haven't listened to it, I encourage you to take a listen. You know, we kind of summarize that the, the biggest watch out out there, the feedback we get from our clients and from farmers across the country is that the soybeans are probably the biggest concern in terms of crop conditions. And you got the crop condition rating, which is, I guess, all that they have to trade right now. But the producers really understand what the crop conditions are in soybeans. The prospects don't look so good, generally speaking. There's some good areas.

On corn, everything's, you know, what we found in that, in that tour, that everything was anywhere from, you know, 5, 10 days on the early end behind to as much as 6 weeks behind. And so there's probably going to be some quality concerns and obviously some big-time production concerns. What's it going to take for that to really mean anything? Is it still just gonna only be temperature in the forecast and lack of rain, and we're going to need to see the building of that continue to worsen to get something to move? Or what's it going to take, Dwayne, to, um, recognize what's really going on out there? Because obviously right now, I guess in my opinion, or my question probably rather instead should be Do we have any risk premium at all in the market right now? And what's it take to build that risk premium in?

Duane

Lowry: Well, whatever risk premium we did have built in, after you have a price flushing like you've had this week that occurred contrary to what fundamental assessments in real time would have suggested, such, such as the drier forecast, such as the lack of precip, such as the weekly progress report that showed all this late development, and yet the market still flushed lower, and then capped off with the emotion of President Trump issuing a tweet about additional tariffs on China. All the liquidation that goes— comes about because of those things happening that are contrary to immediate, you know, fundamental assessments, that creates a very rapid liquidation and cleansing period. And so to whatever extent we did have a price premium built in, the what-if premium built in, I would feel pretty comfortable that you have minimal what-if premium built into prices right now.

I would say very minimal. And if somebody says, well, you still are above the lows that we made in the spring, okay, that's, that's all true. But if you think that the amount of prevent plant acres the lateness of the planting dates in corn and beans and the scope of the amount of acres that were, were late, and the challenges found since that time, if that isn't enough to warrant prices being above where we bottomed in May, then, then you got to be a really big bear that I just can't seem to embrace for any reason to think that that's the case. I think we have already cemented in conditions and losses that are significantly different than what our potential was before the season began. So I don't think there's very much risk premium built into current prices at all.

Chris

Barron: Another observation too, and I think you and I talked kind of offline or whatever yesterday, And when you were stealing sweet corn from my sweet corn patch, or I guess you weren't stealing it, I gave it to you. We got a whole bunch more here for you as well. Anyway, for all this good information. And I guess what I'm wondering is on basis, you know, we talked a little bit about that and we were kind of looking at our local basis and I would encourage the listeners to look at theirs and kind of see where is it relative to normal. And, you know, what we were noticing, Duane, is we're about 30 cents above where normal would be. And that carries all the way from right now, all the way into the new crop, all the way into through December, all the way up to January, at least where there's that, that basis premium is there at that same level. So is that telling us something?

Or what, what does that mean, in your opinion, Duane? What's that? Is that telling us anything?

Duane

Lowry: Well, the basis conversation could take quite a few different turns. But let's just say that, yes, I think the basis storyline that we've witnessed and experienced is telling us something. And at minimum, it's telling us that the powerhouses in the cash grain world are very concerned about availability of supply with the 2019 production. If they were not concerned about availability of supply, they would be willing to be short new crop basis, and they'd be willing to sell to the feeders that want to buy it. That doesn't seem to be the way— the case.

In terms of what recently over the last couple weeks, we did experience some weakness in old crop basis, and in some cases, if they— it was, you know, 10 or 20 cents, in some cases it was less, in some cases along a river exports, uh, channels, it might have been a more significant basis weakness and it may have stayed weak, but I don't really think they're the driving force here and they're, they're not the largest places where cash bushels are working into its pipeline. It is also true that ethanol plants got to the point where they either couldn't buy any more grain or they don't want to buy any more grain and they were able to weaken their basis. But the one thing we did see this week is we saw this Southeast feeder return to the train market in the East, and they were anxiously looking for offers.

And so all of a sudden that basis values picked up from the, the weakest it had been over the last couple of weeks, and we found a buyer, we found a bid. And then the other thing that needs to be pointed out, throughout all this period of time the last couple weeks where there was some locations that did experience basis weakness, most of the places the new crop basis didn't change much at all and held pretty much unchanged. And these, like as you said, are at levels kind of lofty for new crop levels. So that tells me that there continues to be a lack of confidence about new crop supply, at least to the point that nobody's willing to take a short position into that basis thing. It also might be a statement that even if we have, you know, a decent crop that's in line with current estimates, um, it's a situation storage is not going to be a problem.

And people might be thinking that once this crop is put away, the farmers are going to be tough to let it go. I also know from firsthand knowledge that talking to guys in the east, some co-op elevators that are heavy into the livestock feeding, they are committed to being full in their facilities regardless of what they have to pay for that corn basis-wise, because they would, um, are confident they're going to have the demand out the door for the feeder. So they want to make sure they have the supply. So guys like that, you know, they're not willing to weaken up a basis. They're willing to be— they want to be the top bid in the area. And I think there's quite a bit of mentality like that. And so I think the basis is telling us something positive. Now, maybe if their basis could weaken in front of us here for what I would say is two main, three main reasons.

One, we could get, you know, some shockingly bearish thing out of the USDA on August 12th that somehow completely alters our view about supply availability. Number two, the second thing that could happen is we could have the nearby cash bids get kind of covered and then the focus is on new crop and the buyers are less willing to push up for new crop because they're going to take a chance and see if they can't get something cheaper when harvest finally arrives. And the third thing that could cause basis to weaken would be if we had a very sharp futures rally and that could be— that could come from weather, that could come from USDA on their August 12th meeting or report. But if we had a sharp futures rally and by sharp I mean something that took out the June highs, I'm not sure new crop basis could stay well supported in that environment. I think there would be selling.

I think that we would find more people willing to trade new crop basis. And I think that might suffer. Now under the first two scenarios, I think we'd have a situation where if we experienced some weakness in new crop basis over the next 30 or 60 days, it would probably be something that would be temporary. And by the time we got past the first 10 or 15% of harvest, we would probably find that corn is going into storage and basis is going to weaken. But the last scenario where the futures market has a big rally, that might be a different story.

So as farmers are looking ahead, if we see something that comes— it probably wouldn't happen until after the August 12th report— but if we got a weather thing started next week, and then we had a USDA report on August 12th that gave the bull market another shot in the arm, at that point in time, I would be very concerned that basis values could weaken. And so maybe at that point in time, the guy that knows he either has to or strongly desires to move some bushels at harvest, he might be looking for a way to get that basis captured, you know, shortly after that report comes out.

Chris

Barron: That's, that's good. That's one of the things I was kind of leading toward is it kind of looked— and I know you and I talked about that, or I was kind of explaining that to you yesterday. It looks to me like there's a lot of our clients, when you look at their cost production and the margin targets that a lot of them have, that November, December delivery timeframe, the basis is really strong yet in those areas.

And so if we could get that basis captured And I'm not saying, you know, again, this is just perspective, but really watch that basis super close during that timeframe and be able to capture if we would happen to see a rally and it was going to, you know, put that basis at danger in that those two delivery time slots, that's when a lot of operations are going to kind of need to finish up cash flow, balance up the, the income for the year and a few things like that and line of credit pay down and, and buy in some new inputs for the '20 season. I think those are some things we really want to watch close. I appreciate you pointing that out because I think that's an area that I've been watching that I think is an opportunity for us if we'd happen to see that rally and could capture both that good basis and some price improvement.

Duane

Lowry: Yeah, I think it's going to be an important thing to watch. And it— this whole storyline that we're talking about right now depends a lot on the individual producer and where he stands for production potential on his own crop. But if he happens to be in a situation where he feels, you know, pretty comfortable about what his production potential is going to be, and we get that August 12th report, and we have a little bit of a weather story going and the market is bubbling up to some degree. And we get a post-report reaction where the futures market looks like it's going to, you know, take some upside leadership. I think a strong case then becomes made that, that we are vulnerable to seeing some new crop basis values weaken.

Now, it's maybe it's a situation that the weakness in that new crop basis position would be temporary, and maybe after harvest, it will go right back to a firmer basis. That's possible. But if you know that you need to or strongly desire to make some sales in that, in that, you know, harvest window or immediately right after harvest type window, I think there's merit in, in being ready to lock in some basis if you get those right combination of events.

And the right combination of events that I'm referring to here is a post-report USDA August 12th report, post-report market reaction that that has a bullish flavor to it, some degree of a weather market in progress, and your own farm's operation, you feel pretty confident about your, your production potential, whatever that is, whether that's APH and higher or whether it's something close to APH, whatever it is, if you're confident in it, then I think a guy's going to have to do some serious consideration to to protecting that, those basis values. I don't know that basis is likely to weaken before that August 12th report because I don't think anybody really feels confident about what we're dealing with. And everybody's going to want to see what that looks like. But if it's friendly, I think basis could weaken.

Chris

Barron: Any other things? I mean, that, that, you know, as we wrap up the week, which is really the purpose of this podcast edition, uh, anything, um, we haven't touched on that I should ask? Um, good question. Oh, that's my best question.

Duane

Lowry: Good question, but I, I guess not really. Things when we arrive Sunday night and the early next week is going to be what's the weather outlook. And now that the liquidation process, I think, is over, and that focus is over, then the marketplace is going to be willing to look at these weather forecasts that they ignored all week. But they will look at them this week with the liquidation over. And if we still have the eastern part of Iowa, much of Illinois, Indiana, especially western Illinois, that doesn't have a legitimate rain event in their forecast. I think we're going to trade that, and I think that it still remains very plausible that we could have the market rallying quite firmly into this August report.

It's interesting to point out that while we don't— while nobody knows what this August report is going to be, and everybody's scared to death of it because we don't know, we don't have any conviction, it is interesting to point out that You had Rich Feltus, a longtime fundamental icon in the grain business, very well and deeply connected to major players in the cash grain trading world that came out with the acreage estimate that was 7 million below USDA. And I think he did came out with that on, on Thursday morning that the market completely ignored. And then its harvested acres was down 7.5 million. Then within 24 hours, you had the CFO of ADM, come out and imply that they're looking for numbers that are basically very similar to what Rich Feltus came out with.

Well, if that's the case, then, you know, you're talking about numbers that are not going to be negative coming from USDA on August 12th. And those are pretty major players that are making some bold statements to talk about acreage being down 7, 7.5 million when 2 or 3 weeks ago after the, the June acreage report was released by USDA, you had people wanting to ratchet up the planting acreage number on corn all the way up to 95 or 100 million. I never believed that, but that's the kind of sentiment that you had. And so I think it is important, uh, that major players like that, that are well connected and should have good access to good information, are talking about something that looks more reasonable with what the farmers' boots on the ground are talking about.

And both of them talked about yield numbers that are below what the last USDA— and also worth mentioning that when USDA lowered their yield projection in June by 10 bushels an acre, that caught people by surprise. That was largely due to planting dates, and it was part of their formula that the planting dates generated that type of a drawdown down in yield potential. There's also an aspect to that formula that has to do with July temperatures and July and precip. And July temperatures for a couple weeks were very warm, and July precip in some locations have been very light. So, you know, there might be pressure on USDA to lower some of those yields, even though we don't know exactly what we're going to have in the end. But I could see where there might be some pressure on them to do that.

So I think that after getting a sell-off like we've had this week, um, it's going to make it more difficult to get a bearish reaction from that USDA report because your longs have already been liquidated. And it's the liquidation of longs that caused most of these post-report action to be negative, more so than just the report itself. And it seems to me like that process is over. So the good thing about what's happened this week is Maybe that lessens the chance of a negative reaction to the August 12th report.

Chris

Barron: You bet. Well, thank you, Dwayne. I think we've kind of probably covered enough of the information for now. But what I would do is encourage the listeners, if, if you've got questions or thoughts or ideas or things that you would like Dwayne or I or Shay to cover or to talk through, please let us know. And I guess that should be everything. Duane, thanks a lot.

Duane

Lowry: Thanks, Chris. Our contact information will be on that email and that people are got when they, when they get this podcast, so they can contact us there if they, if they would like to.

Chris

Barron: That'd be great. So appreciate that, Duane, and thanks everybody for listening. And we will probably be back sometime around Sunday and we'll catch you again on the next Ag View Pitch.

Duane

Lowry: Thanks a lot.

Chris

Barron: Thanks for joining us on today's episode of the Ag View Pitch. As always, you can reach out to us at cbarron@agviewsolutions.com or duanel@netins.net.

Duane

Lowry: We'll catch you next time on the Ag View Pitch.