Reports, pineapple corn, and a strong market close

Narrator: Hey podcast, tonight Chris and Duane discuss the USDA report from today. If you enjoy the information and value that Duane brings to the conversation, you may be interested in his daily newsletter. First Look is a phenomenal resource for market investigation, analysis, conversation with a real producer-centered perspective. If you're interested in receiving a 10-day offering of the service to see what you think, just email 10-day trial to Duane at duane@duane.com. duanel@netins.net. There's never been a better moment for timely perspective delivered right to your inbox. Enjoy the podcast.

Chris

Barron: Hi everybody, and welcome to the Ag View Pitch. Today you've got Chris Barron and Duane Lowry, and, uh, we're Thursday late afternoon going into the evening here. Just gonna have a little conversation about the report from today and kind of what it might mean forward. How's it going, Duane?

Duane

Lowry: Good, Chris. About the reports, well, um, there's a couple different— well, there's probably multiple different ways we can look at it, but let's go back in time just a little bit to the hours before the report and even the days before today's report. And it's important to recognize that going into today's report, the trade was leaning towards some level of bearishness. They expected bearish headline numbers. They, they expected USDA to use the June acreage numbers. They didn't expect a lot of change in yields, and that was going to translate into some higher carryout numbers. And so whether people were leaning that way because they were outright bearish, or whether they were bracing themselves for a possible negative reaction. It's hard to say, but we were definitely leaning in that direction. And then you— so it's important to look at it from that perspective.

And so the report that we got today, in the case of corn, definitely had the headline negative, uh, numbers. They projected, uh, the new crop, uh, balance sheet carryout at, at just over 2 billion bushels. And if that were to be true, if that were to be believed as the factual conditions that we're dealing with, an argument could be made that we really don't have much of a fundamental foundation for a bull corn market, or a bullish market, or even to be able to sustain the prices that we are at. So once we got this number, minutes before the report came out, the market weakened quite a bit. Report came out, we rallied up a little bit, then we sold off again. And by the time the day was over, we had finished up about 8 to 9 cents in corn. We'd had about an 18-cent trading range.

And so at the end of the day, that looks like a pretty good performance considering the trade sentiment was kind of negative going into the report. But I got to tell you, in real time, during the noon hour in that timeframe, you know, we were trading only a couple of cents higher in corn.. And you know, you weren't really sure whether you're going to finish higher, where you— whether you're going to finish with selling. And with the numbers, even though I don't believe the numbers are accurate in terms of what it's going to be like in the end, and I think there are probably a lot of other people that feel the same way, you do have to respect what USDA offered. And there was a lot of concern, in my opinion, for during the noon hour and late in the session that, you know, the market may not perform well and we may have to deal with some liquidation pressures.

But that's not how it turned out. We finished well. So the price action was very good on the soybean side. The numbers came in a little bit less on yield than what the trade expected, a little bit less on carryout than what the trade expected. It's still a plentiful supply for new crop at 795 million bushels. Um, but all these things at face value might look kind of negative, but then you got to start, uh, factoring in some other things. Number one, most people, uh, feel that the acreage is probably high, at least in corn, maybe in beans. We don't feel like we've got a good handle on prevent plant. We know USDA is recalculating their acreage and going to give us a more up-to-date and more accurate number in August. But that's now a month away. So a lot can happen in that month.

And so, you know, if you take 2 million less corn acres, which is very conservative, I would say, you take 5 bushels less yield, which is certainly plausible, maybe conservative, all of a sudden, you've got to carry out down to the low, you know, billion bushel mark. And that type of level does justify current prices. And you throw in some weather concerns, it could be less than that. You do the same exercise with beans, take off a million or two acres, drop the bushels, a few bushels an acre, which is very plausible given planting dates. And all of a sudden, you've got half the carryout or less than what we thought we had at the beginning of the season. So it's a— we're walking a real fine line between taking USDA at face value and then or whether we factor in other things that the regards to acreage and then the uncertainty of weather.

And I think it's also in the same context that we're talking about the report, you need to throw in out a discussion of this afternoon's National Weather Service 6 to 10 and 8 to 14 day forecast. I think this has been an everyday event since about Friday or Saturday of last week, where these forecasts have showed some, you know, very high above normal to much above normal temperatures in much of the Midwest during both the 6 to 10 and the 14-day, 8 to 14-day maps. The precip outlook has been more varied from day to day. Today's forecast shows a below-normal precip for the central, western, southwestern parts of the Midwest. It still shows some above precip in the 8 to 14 day for the eastern part of the Midwest.

But I think it's important to also point out that if we're honest in the— these forecasts in the last couple of weeks at least have projected more moisture than what we've actually got. And if this trend continues, and we get the arrival of this heat, and you happen to be in an area that you miss out on these rains, Even in areas that have been very wet, I don't think the crops are going to handle that very well. They're going to appear to be under a lot of stress. And I think the emotion levels from a market perspective are going to elevate in the days in front of us. This tropical moisture, people have been putting on a lot of hopes for that, that was going to produce rains in the eastern Midwest from basically next week through the middle of next week, that type of thing.. And that's kind of been— there's been differing viewpoints on that.

But there's been a lot of hope that that would deliver rain. And I would say right now, the forecast from just that tropical moisture event probably keeps the rains farther south, maybe farther east than what it has been looking like for the last few days. So that has a little bit of a favorable slant as well. So the combination of positive price action despite a more concerned outlook or a negative-leaning outlook going into that report. The weather forecasts would still show the heat, some question about the moisture and the fact that there's probably going to be areas in both western and eastern areas that miss out a precip. You know, this thing looks pretty friendly here again this afternoon.

So, you know, the report might say one thing, but the price action and market reaction says that the marketplace is looking beyond the report and maybe more concerned about weather from here forward.

Chris

Barron: You said earlier in the week you didn't think the report would do much. And it kind of had the, had a bearish tone with a positive outcome. So sounds like you were right again on that.

Duane

Lowry: Well, I would never use the word again in that sentence. But it does, the market did kind of shake off something that could have been, you know, kind of disastrous. And so from that standpoint, it's a good thing. A few other things that I want to mention, I've talked about it, I think, in our—

Chris

Barron: some—

Duane

Lowry: a couple of our last podcasts. And I know I've also written about it in my daily comments. But I just want to give you a little insight into my thought process. I mentioned to you that during the noon hour, we're only up a couple of cents in corn and If you were talking to me in real time during the noon hour, I was uncomfortable because, you know, the report was pretty negative if you take it at face value. And even though I don't believe it, I've been around long enough to know there are times that sometimes that, that is not a safe place to be, to be out there on your own, not believing USDA and, and not trusting that figure only to find out the market ends up trading it. So during that noon hour, I was uncomfortable. I wasn't sure how this was going to finish up.

But part of that was driven— and this is kind of my point going backwards in time— part of that was driven that I felt for several days now that we were seeing intermarket spread activity that was going to cause traders to focus more bullishness on beans, more bullishness on wheat, less bullishness on corn. And this report setup, you know, appeared to create an opportunity for them to kind of press this corn market if that's how they wanted to do it. The last few days we've seen wheat stabilize to corn, we've seen beans gain on corn. And so I was very concerned about that. So given, you know, how— what I was concerned about for a few days going into this report, that makes me feel even better. And the wheat market, I should mention that I kind of skipped over the report.

Report didn't really have a lot in that, in terms of for wheat, in terms of being bullish, but it did show a reduction in global supply, global carryout. And if you break down U.S. hard red winter and soft red winter wheat, you know, you have a smaller carryout projected than you've had for the last few years. So that's still somewhat encouraging. We still have what I would consider a plentiful supply. But the wheat market has been very depressed. And wheat market finished up about 18 cents. And I've been kind of expecting wheat to gain on corn. I think Kansas City wheat will gain on Chicago. And it kind of looks like that's the direction that we're moving in. And that still gives me a little bit of pause about how this corn market is going to perform.

But as long as we can keep a weather market in front of us here with some uncertainty to kind of fuel the situation that we have right now, which I think is more bullish than what USDA said today. We might have a situation where the markets are going to actually be firm all the way going into that August report, if we can maintain some level of concern about weather. But I will caution somewhere down the road, maybe it's a month from now when we get to that August report, I am concerned about how well the corn market will be able to sustain a rally, assuming we get a wet weather rally from here forward. So it's probably too early to talk about that too much. But it is a bit of concern of mine looking ahead. So I just kind of wanted to throw that out.

Chris

Barron: And some of that's going to have to do with how severe the weather is. Or not. I mean, it too, it's kind of like you said, and we're driving right now back from Ohio, went through Indiana and areas that were wet just 4 days ago. In some of those areas are irrigated areas. All those— well, not all of them, but the majority of those pivots were on in the areas that were wet just 3 or 4 days ago. And now the pivots are running in the dryland fields. We're looking— a lot of the corn was looking pretty pineappled and it's it's delayed. Obviously, it's, it's really late. The majority of the corn over in the east here is, you know, probably 3 to 5 weeks behind.

So, you know, that concern that you're speaking to, I guess if they get out and look at stuff with their own two eyes, like you've said before, um, should give us some strength, I would think, because it's quite obvious that when this crop starts to turn, it does go really— it changes really fast from from just within a couple of days.

Duane

Lowry: Yes, I agree with that. And if the price action, you know, looks good, then the marketplace will feel more comfortable about focusing on those kinds of things. And in all honesty, the marketplace probably hasn't done a good job of responding to these types of concerns that the farmer sees and the people that get out here and look at the crops to see. But if we do have a weather concern that seems to elevate this thing in the days ahead, which it certainly looks like we could be in for that type of situation, we could see the Chicago futures market play some catch-up here to where they've been reluctant to participate or reluctant to embrace these concerns. We could see a little bit of elevation in, in their embrace of that.

And maybe that's what we saw in the last, you know, 10 minutes of trade today where we went from just being up a few cents to finishing, you know, 8 or 9 cents higher.

Chris

Barron: So is that a selling opportunity for another chunk of sales for those who actually have a crop, or is that something that, you know, probably we wait on, or what's your thought there?

Duane

Lowry: Well, um, I'm inclined to think that, uh, Let me put it to you this way. I don't think there's a strong push to make a sale today at the price we finished at today. But if there's a— if the market happens to tip over and takes away today's low and negates all of the gains from that we had experienced today and trades below today's bottom of today's range, that would be a problem. And I would would consider that a sign to get maybe some price protection, get more aggressive with sales. I hope we don't see that kind of a reversal type action. I don't think we're going to see that. But until we see that, I would be slow to make the sale. I would be respecting the weather forecast that we see. I'd be respecting the conditions that you saw along your drive.. And even though I might have a good crop in my own backyard, I might feel good about that.

I'd probably be reluctant to make those sales. Now, however, if you move the calendar ahead 2, 3, 4 weeks, we've had a weather market, we've gotten the market up into some of these target zones, resistance zones that I mentioned here in the last podcast, which is basically $4.80 and above. Spot futures, which is, you know, basically 30-some, 40 cents higher than where we finished today, that's a different story. Then I'm, I'm more interested in getting some price protection stance on. And if the weather market continues at that point in time, maybe that would impact what type of strategy and what type of price protection I wanted, whether it was options, futures, cash forward sales, HTAs, you know, that might impact that. But if the corn market performs well going into August, and we get a weather rally, I'm not going to be so comfortable not being protected.

I will be much more aggressive in wanting to be priced at that time. I can't say that I'm all that anxious to price it here today. I just see too much right in front of my own two eyes in terms of crop condition, too much acreage uncertainty, and a weather forecast that appears threatening to me. And we're not going to know anything about the acreage for a month. And if the marketplace shrugged off today's bearish numbers and gets a little more weather to talk about, it seems to me like they might be able to run this thing to the upside a little bit.

Chris

Barron: Gotcha. Well, sounds like we probably need to stay stay in touch here, probably tomorrow. And then as we go into next week, as the weather develops and all these things, so we'll kind of stay in touch. Any, any last thoughts or ideas, comments that you think is important as we go into Friday's?

Duane

Lowry: I guess the last thought I have on the beans would be that we might see a— Chris, are you there?

Chris

Barron: Yeah, I'm here.

Duane

Lowry: Okay, kind of lost the connection there for a minute. I think that I spent all this time talking about corn and really didn't say anything about beans. I'm suspicious that if the weather concerns develop over the next several days, like it looks like it could, I think it's possible beans could be the upside leader here. And that hasn't been on people's radars too much. But we might see something occur there. Uh, and you are correct that we have to watch this thing almost on a daily basis, uh, because in order to keep corn at these levels or to push them higher, it appears to me that we're going to have to have new weather concerns from here forward. The old concerns, the old realities about acres and delayed plantings and things of this nature, they're not going to be able to carry the market a whole lot farther than what we've already been.

But if we can get new weather concerns, it's very possible we still have more upside to go.

Chris

Barron: You bet. And I, and like we just both said here, I think we'll kind of watch this market trade here on Friday. And we'll kind of watch how things close. And we'll have a little discussion there going into the weekend to kind of think about and then we'll hook up again going into Sunday night. And Dwayne, thanks for the conversation. We're still in the process of driving back from Ohio and in Illinois right now and still seeing a lot of, a lot of spotty sketchy areas where there's not much planted. So it'll be interesting once they get this prevent plant and resurveyed and get some answers so we can kind of know a little bit of what we're dealing with. So yeah, anyway, well, thanks, Dwayne. And thanks everybody for joining us on the Ag View Pitch, and we will catch you next time. Thanks.

Narrator: Thanks for listening, everyone. And as always, we just wanted to remind everyone out there that what we're trying to do here with the Ag View Pitch is really provide perspective to you, the producers and the growers and the clients that we work with. We really value your input. We value everything that you bring to the table, and we hope that you're getting the same from us. None of this is marketing advice. None of this is direct actionable advice. But if you would like more perspective, always, always, always feel free to reach out to us. We'll catch you next time on the Ag View Pitch.