South American weather market: weekly market outlook, Nov. 27 - Dec. 1st

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 week, actually the last week of November, November 27th through December 1st, actually. So as we wrap up this month, we're lucky enough to have with us today Pete Meyer. Pete, how's it going?

Pete

Meyer: It's going well, Chris. Thank you very much. And it's nice to be with you again.

Chris

Barron: Yeah, it's good to have you on. We're coming off of the Thanksgiving holiday. We're in that holiday season heading towards Christmas. It seems like the, the trade gets a little bit lighter. There's not quite as much activity going on there. Guys are getting harvest wrapped up. Few things I want to touch on with you here. And I think what I want to start out with is the volatility that we've seen in the soybean market. It's not been extreme, but it's been pretty volatile inside the range that it's in. Talk a little bit about soybeans and if guys have some old crop beans yet, should they be getting some of that stuff out of the bins and out of here? And also new crop a little bit on soybeans. What are you watching there?

Pete

Meyer: Well, I think soybeans have two factors. They have meal and then you have, and then you have the weather in South America. Now, you know, nobody in his right mind thinks that the current USDA estimates for Brazilian production will hold up. But maybe we lose 10 million, maybe we lose 15 million metric tons. But really, A big thing behind it has been this, this meal market has been absolutely explosive. I mean, if you just look back to early October, we were trading at $365 a ton or something like that. And then we're trading now about $100 higher than that. And that has certainly added to it. There's a lot of, a lot of moving parts in the meal market. A, the commercial was short meal for some reason. I really don't know. Why they were short meal. The funds were long meal. The funds have won that battle.

But the, you know, behind that is this new regime being elected in Argentina, which is a far-right regime. And that gentleman, that new president now has talked about getting rid of the peso. And, you know, there's— and what does that mean if he gets rid of the peso, gets rid of the central bank? I certainly understand that those are very, very extreme views. But there are views that he was elected on. So, you know, we have to, we have to kind of see. To me, you get rid of the peso, you get rid of all the nonsense that goes on down there in ag, you may end up with quite a few sellers in the meal market just because of Argentina's presence in the, in the, in the global meal market. So, you know, I think the beans have two things. A, like I said, they had the commercial short got caught. There, which was very painful for them. And also, you know, the weather in Brazil.

And the weather in Brazil is, you know, God, we could spend an hour talking about the weather in Brazil and the long-term ramifications, right? Okay, well, the soybeans all died. Okay, I'm going to plant cotton. Oh my God, the soybeans went in late. Oh, that means I'm not going to plant corn. I'm not going to plant safrinha corn behind it. Oh, well, wait a minute now. My soybeans died. So now that means I'm going to be able to plant my corn behind it in time unless I planted cotton. I mean, really, it makes your head spin to think of what, what can happen there. But as far as the volatility is concerned, it's going to be a little bit— it's going to be dull here because the December WASDE will bring us nothing. And we're basically waiting until January. But here we are again, Chris, as we were this summer where we're trading a production market.

And I don't like, I don't like production markets. I just don't like them. You know, the demand side of the equation is not great. And once again, we're trading a production market.

Chris

Barron: Well, a lot of people are saying, you know, well, soybeans are the thing or the area that has an opportunity versus corn and wheat and stuff. And but, but on the same token, like you say, this is a weather market, right? And so typically weather markets are meant to be sold, not a recommendation, but just saying that You know, I think we got to watch this really careful. And I've actually been watching this pretty close on the new crop, too. You know, $13 to, you know, say $13.20, somewhere in there. Is that a bad place to maybe pull the trigger and get started on some new crop sales or what?

Pete

Meyer: Certainly not. I mean, we're trading around $13, $13.02, $13.03. Certainly if you get a $0.20 rally here, in, in '24, you have to, you know, you have to reward it. Now, the only other thing that, you know, guys are talking about is that, and I saw it at the USDA's long-term estimates, showed more soy, a lot more soybean acres for next year and less corn acres. And the economics of it don't point that way to me. I mean, you're really going to have to, have to get December '24, or I'm sorry, November '24 beans way up there before you buy before you buy any acres, in my opinion. Because corn, let's be honest, corn is still over $5— corn, December '24 corn is still around the $5.15 level versus beans at $13. You know, it still makes sense to plant corn. So I would think that, you know, you want to let some go maybe at $13.25.

But if we end up with low area again, like I expect, because, you know, once— but that's granted, that's 3, 4 months away. You you want to leave some space to sell it at the current levels, which are around $13.50. So I would certainly think the $13.25 to $13.50 are good sales.

Chris

Barron: Mm-hmm. Yeah. Okay. Next area of conversation, you mentioned the funds and exports a little bit. Talk about the correlation between crude oil and corn right now. Corn's under pressure. There's all kinds of other overlying issues. Is corn dead in the water? Is it not going anywhere, or is there anything that, that can't allow it to? Because, you know, with crude being where it's at and the correlation there, talk a little bit about that.

Pete

Meyer: Yeah, crude this morning is still hovering around $75, $76. We have, you know, the gasoline products are pretty cheap. We're, we're on the cusp here of another OPEC meeting where they're supposed to be cutting production again. But this would be the third, fourth, or fifth cut. There's only so much you can cut. Before these countries— these countries have to have this money rolling in to keep their economy afloat. So, you know, I think the market is kind of sniffing that around, you know. So crude oil, I think, is probably a sideways trade at this point. Certainly if we got below $70, it would be a buy. And you could probably buy the products in correlation if you wanted to buy some diesel or some heating oil for your needs for next year. I would certainly think that would be in play. But yeah, the low prices now, I mean, our Bob was down to $2.10 or something like that.

We haven't broken the $2.10 level yet, but that's kind of weighing on your ethanol, you know, production, your ethanol profitability. So I think that if I think that oil is moving sideways and I think that exports are also kind of moving sideways, there's no reason for me to think that corn is not going to move sideways. Right. Okay, maybe we touch $4.50. Certainly the last time we spoke, we were both talking about selling corn above $5. And it turned out, as with most, most things in life, it's better to be lucky than good. And here we are now, back down to like $4.70. It certainly seems to have a bit of a price magnet near that $4.75. I know Dec is going to, going to, going to run off here pretty soon, but well, this week.

But you know what, that seems to be— yeah, if it's comfortable at $4.75, you certainly would not be out of the realm of thinking to think that the range is going to be $4.50 to $5. But I don't— you know, I— yeah, I— it's another way of saying it's a sideways move for me.

Chris

Barron: So with that said, let's dive into another question I had, and I've had a couple of conversations with growers on this. Is, you know, the December to March. You know, Dec is going to come off here, uh, this week, uh, first part of the week. And, you know, if guys have to roll, they need to get it done here probably Monday, Tuesday as they're listening to this. And so here's my question: if you've got, uh, you know, enough carry, I mean, to the March, and guys think they want to sell some, you know, you're gonna you're going to maybe roll it, but it depends on the cost of the roll and, and what your interest rates are, line of credit and all that stuff.

But what I want to ask you on is more so if a person wants to make some sales and some additional sales on old crop corn, what's that look like if, you know, if a guy goes ahead and makes some sales on March to take advantage of that price and then not set basis and then sit on that for a little bit? And I know that's going to be different from one area to the next, but is there, you know, what are the holes in that, in that plan or what?

Pete

Meyer: Well, we, you know, I mean, the de-smart is around $0.19, right? So can the de-smart go to $0.25? I mean, it would be, it would be astounding, but it can. And but that being said, what's going to happen there is that the de-smart is going to go down and the March is going to stay the same. This is just my— just stay flat. This is just my opinion. Okay. And the reason for that is, as you suggest, we have heard from, from, you know, commercials in various parts of the country that they have no idea what to do with this stuff. They are having logistical issues. They can't find any place to store it. So that suggests to me that the diesel, as we go into delivery, is probably going to get pretty cheap. So that spread can widen out. But the March is going to, the March is going to stay kind of flat. So just, just my opinion, the Dec March can, can widen from here.

Well, depends which way you want to look at it, but, uh, widen from here maybe to minus 25 cents or something like that. But it's only, it's only going to be on the Dec side just because the, um, the material handlers are having very, uh, great difficulty moving it, especially in the East where the crop was pretty good.

Chris

Barron: Okay, so that leads me to another question then, or an issue, and this is on the corn side. And when the, when the farmers start making sales, um, there is a, there's a shitload of corn out there, let's put it that way. Yeah, yeah. And, and it's when it starts going to market, you know, and, and the funds are like nowhere to be found it feels like anyway, on, on the commodities. And so, I mean, what's to stop this thing from going down a bunch if, if all of a sudden grain starts, starts moving? Because there is so much of it that's going to have to be sold. And a lot of people wait until January hoping for a rally in January because of tax reasons and all kinds of other reasons. And then they got to start making, you you know, everything from land payments to, you know, to, to seed and cam and all that stuff.

Pete

Meyer: Well, the issue there is, I mean, your March corn is trading today or closed on, on Wednesday. We're talking on Friday morning at $4.87 or something like that, $4.87.5. To me, again, the same thing as Dec, that's a sale at $5 and it may trade down to $4.50 as you suggest. I mean, it's just we're kind of in that, in that zone. If you want to hold on until the January WASDE hoping that yields are going to go down, I would say no. Because— and the reason for that is that, you know, we were down around 173 in the corn yield. All of a sudden the USDA comes back at 174 or whatever, whatever their number was. That should be a surprise to no one because everybody said the crop was better than they thought, right? I mean, I came off a crop tour this year thinking it was the same size as last year, which would have been $173.3. I think I told our clients at the time, like $174.

They went in at $173. There was no reason for me to change. But now, you know, can we get to $175? Maybe. Is— but a lot of things are going to happen between now and January in Brazil as well. So, you know, really, you're really at the mercy of a weather market that's just worried about production. And You know, it's, it's a hard call for me, and that's why I would stay in the same kind of zone there, that $4.50 to $4, uh, to $5, and we're basically 12 cents, uh, yeah, we're 12 cents above the midpoint. So I think you have to look at it. But you know, the other thing too is that you look at the carry from these to March, from March to May, from these to May or whatever. Yeah, it looks, it looks tasty, right? It looks good. The problem there is that you have to look at a few different things. A, what are you paying on your, on your operating loan? You're paying 9%. Okay.

You got to take that into consideration. What could you make if you sold your crop now and put the money in a CD or any sort of interest-bearing account and get 5, 5, 5 or 6% out of it? You know, all of a sudden, all of a sudden now you're saying to yourself, well, wait, you know, it's like, it's like people that have credit cards out at 18% and say, well, you know, I'll pay that, I'll pay that off. Next month, even though I have this X amount of money. You can't do that anymore. Not in this high interest rate environment. You just can't do it. There's a, there's a 3.5 point spread. Let's say, let's say you can get 5.5% on your money, which is certainly very, very doable at the moment. Everybody's begging for your money at 5.5%. Okay. And your operating loans at 9%. There's a 3.5% spread there.

You better be making a hell of a lot more than 3.5% on your carry on your local, on your local basis.

Chris

Barron: Well, and, and with basis consideration, that's going to be different in every area too, because there's some areas that did have a huge crop. There's areas like where I'm at, the crop wasn't as good. If the flat price is going down, the further down it goes, probably the better the basis is going to get because farmers are reluctant to sell then. Right. And having those, and having those sales done maybe a little earlier, again, not a recommendation, just a theory or a thought I have is getting, getting some more of these bushels priced on the March or the May might make sense. And, you know, take advantage of some basis down the road if the price does continue to go lower. If the price goes up, that's great. You know, sell some more, right?

Pete

Meyer: But I think you have to, you have to reward— you have— you'd be doing yourself an injustice if you were not rewarding these rallies. I mean, I mean, look at where— make, make horns, $5 for all intents and purposes, right? Right. $4.98 and change. But again, how much is it going to cost you to carry your loan for another 6 or 7 months versus that, versus that carry? Right. That's— there we are.

Chris

Barron: Yeah. Yeah. You got to, you got to do the algebra. There's no, no question about it.

Pete

Meyer: There's no, there's no question. There's no question about it. But you cannot also you can't just look at the spread versus what your operating loan costs. You have to look at the spread versus what your operating loan costs and what you could get for the money today, what you could make on those 6 months. Maybe you could make 2.5% or 3% on the 6 months. You'd still have to pay, let's say, you know, 4.5% on your operating loan for that 6-month period or whatever, or it could be higher than that. So you have to take all the math into consideration and, and especially you have to be cognizant of the fact of what you can make on your money if you put your money in the bank. I— the tax ramifications, I'm not the guy to talk to about your tax ramifications. But, you know, certainly people will wait until January like you, like you suggest.

But, you know, well, between now and then, it's a, it's a sideways market for me.

Chris

Barron: Yeah, there is a logistical consideration to whether it's moving the bushels now or moving the bushels in January., you know, it's talking to the, you know, to wherever you sell your grain, to the elevator or to the processor, whatever, and having a plan and working with them has a big impact too, as to from a logistical standpoint and basis and all that, for sure. So I want to wrap up the conversation. We'll keep this one a little shorter, but I kind of want to wrap up with just the general economy, you have a pretty good pulse on what's going on with interest rates, what's going on with, with the dollar, with energies, you know, probably some opinion on the geopolitical stuff. And, and, you know, we've seen inflation, you know, some people still are talking about, you know, going into a recession.

What are some of the things that, of all of those things, apply to the commodities market most directly, including like the stock market and stuff in the funds? What, what things do you think the farmer that we need to be paying attention to as we wrap up 2023 that could affect our prices and our opportunities?

Pete

Meyer: There seems to be a movement in the world to more hard right. We saw that in Argentina. Now that the, you know, once, once that, and I'm sorry, I forget the guy's name. But anyway, you know, that's, that's No, that's a far-right candidate. That there you have a major producer, a major crusher in the world. What's that ramification going to be? In the Netherlands, they just elected Geert Wilders, who's another guy who's so far right. These guys are so far right, the conservative nature. Now, why do we care about the Netherlands? Well, you do a lot of crushing in Rotterdam and there's a lot of stuff going on there. He has not made any sort of He's anti-everybody but the Dutch. So that, you know, what that means to agriculture is probably not. But I think globally what we're seeing is this push now to the hard right. We'll see.

I mean, you know, even in this country, you know, you look at, I mean, amazingly, a guy with 9 indictments against him or however many it has is leading the incumbent in the US. There seems to be this push. This becomes very parochial, very protective of the country in general. You don't know what that means to free trade. Well, to trade, not to free trade. To trade. I think you have to pay attention to that. Interest rates, the market is certainly betting that this is it, that there'll be no more hikes. And if anything, we're going to start to see reductions starting in '24. You have to be very, very careful with that because, you know, the Fed came under a lot of criticism for raising rates too quickly. And they will come under— if they start cutting, they will come under criticism for cutting them too quickly. You need to see some stabilization.

I think that Jay Powell needs to see some stabilization. Is there any off chance that we get another hike here? You know, yeah, the market is certainly telling you that there's no chance it's going to happen and that by Q1 we're going to see a quarter point reduction. I think it's going to, you know, they're probably going to wait. I would, I would think that I certainly will agree with the market. There'll be no hike coming in the near future. But as far as '24 is concerned, I think they may stretch it out a little bit to make sure everything comes under, under control. As far as consumer confidence is concerned, here we are, Chris, we're talking on Black Friday, one of the biggest sales days. And then, and then by the time this gets out, it'll be Cyber Monday and there'll be sales as well. Those numbers are going to start to trickle in the market here pretty quick.

And that's going to give you a huge indication of what, of what consumer sentiment is. And that may be a boost that, that's probably going to drive what Jay Powell and the Fed think, what Chairman Powell and the Fed think after the first of the year. So you've got, you've got that moving. The oil market, don't really know exactly what's, what's, what's going to happen there. As I say, the, the, these countries have cut, cut, cut, cut production and we just don't see the demand. We see a spike after they cut production and then we come back down. I think that's going to be a stable market, market as well. As far as the stock market is concerned, boy, we certainly have had a, um, to use Alan Greenspan's term, maybe a bit of unbridled exuberance, uh, in the stock market where we're trading, uh, seems like the last month or so, every day higher. You know, what can stop that?

Uh, probably just the consumer sentiment that I talked about earlier with the with the sales here on Black Friday and Cyber Monday. And those— it'll take some time for those numbers to get in, but certainly the press will be all over that, and that'll give you a bit of an indication. So, um, and the dollar— yeah, the dollar is a tough one. I mean, a dollar— I would expect the dollar can weaken a little bit, which should help your exports somewhat. But, you know, I don't know. I don't— the dollar is a tough call here. The dollar, because of the interest rates. So if interest rates start to get cut in early '24, well, yeah, then the dollar is heading south in a hurry. But we'll see, because I would think that if we do, if the Fed does cut rates in early '24, we'll be the leader globally. And that will that will take some, that will take some time to digest in the, in the currency markets.

I don't know. Does that answer your question, Chris?

Chris

Barron: Yeah, that's really good. You know, I, when you were talking there, one other thing that occurred to me was, you know, I've been traveling a little bit here this last week or so and the airports are jam-packed. And I said this like last summer and, and last winter even, you know, it seems like everybody must have a ton of money. Because there's so much activity, there's so much spending going on. Is there any— anything going on there or anything that could— there could be a consequence of that, or does everybody just have that much money?

Pete

Meyer: Well, you're— it's crazy. You're assuming— and you know what happens when we assume— you're assuming that they're— that they're— that they're paying cash for this stuff. But when you look at consumer debt and the rates being so high, consumer debt is extremely high in this country. And people are paying more for car loans and credit card or whatever. I mean, if you want to go price out a car, I was looking at some stuff just the other day, some analysis on it. I mean, even a car, you know, if you want to lease a car, let's say an average, an average-sized car, it probably costs— and you would have leased that same car a year ago just on interest, or I'm sorry, 3 years ago before your lease ran out. You know, you're probably paying $100 more a month. Okay, that may not seem like much, but it's a lot.

You know, it's $1,200 more a year for the same exact vehicle based on your, your interest rate costs. So I— yeah, I do get it that people are out moving around. It seems like a lot of people were driving this week according to AAA. They had some record numbers as far as people driving for Thanksgiving, which makes sense. Gasoline is, is $0.60 or $0.70 cheaper than it was last year at this time. Regarding the airfare, certainly they've said that there is going to be record travel this year. Certainly that's part of the price deal. But, you know, as far as their spending is concerned, I do— that's where consumer sentiment is going to make a big difference here within the next month or so because, you know, are people really going to want to— if they did travel, are they really going to load up their credit card? For Christmas purchases. Boy, I don't know. It's a fine line there.

But I think that— I think it's not— it's really not— it's not real to suggest that people are, you know, loaded with cash and that's why they're traveling. Because I think that, you know, the fact of the matter is that I think they're still loading up some of their debt. And that worries me. Especially at these rates. You know, you have, you have credit card rates at 20% for some of these people. I mean, it's just, it's, it's, it's tough. I think that the farmer is probably a little bit more flush with, with cash than the average American. I'll say that. Yeah.

Chris

Barron: Last question then. What does that affect on commodities or does it have an effect if we get into some kind of a major debt trouble? Is that good or bad? Because if you're, if you're dropping the dollar, that's supposed to be good for commodities.

Pete

Meyer: It's supposed to be good for commodities, but I'm not necessarily sure that the funds are going to be interested. You're going to need the funds in here on the other side of this trade because demand is kind of so-so. Demand is flat, right? It's not really— it's not awful, it's not great, whatever. But, you know, so are the funds going to be interested in buying this stuff, buying any commodity in a, you know, not a recessionary market, but almost in a deflationary market. I don't know. I don't think they are. It seems to me like the funds have kind of said, all right, we'll pick this up in the spring sometime. That's good. We had a good summer. But here we are now. Like we said earlier, we're trading production, we're trading yields. And as our friend Joe Vaklovic always says, June, July, maybe August is when you trade yields. After that, you shouldn't be trading yields.

You should be trading demand. So here we are now. It's November. So let's say it's May, May in Brazil. So in December and January and early February, we're going to be starting— we're going to trade, we're going to trade yield out of, out of South America. And then by, by the end of March, we're going to start trading, you know, acreage intentions. So, you know, it's, it's one of those, it's one of those things, but I certainly would be a proponent based on what we see on the demand side, I would be a proponent of rewarding rallies that are production-based. I'll put it that way.

Chris

Barron: Yeah. Now I think we just got to keep our heads on straight, do the algebra, do the math, and look at our own individual operation and try to make some good, sound business decisions for our, for our own businesses, for sure.

Pete

Meyer: So certainly, certainly I think we're in an environment now where the younger farmer has not seen, you know, these, these sort of interest rates, and these, you know, on their operating loans. And that's, you know, I start to hear, I start to hear about some of these, some of these banks that are out there trying to, trying to widen their portfolio, they're looking for really, really solid businesses that, you know, rewarded rally, sold it, that are cash positive, that added income, added value to their operation in 2023. And, you know, if they come looking for you, make sure you, make sure you get a little bit of a reduction on your interest rate, because what they're trying to do is they're trying to add value to their overall portfolio. That's what I'm hearing.

Chris

Barron: Anyone? Yeah. Interesting. Well, what do you want to leave the producers with? And we'll wrap it up. Anything we didn't hit on, or are you good?

Pete

Meyer: Yeah, I think we're okay. I think we're kind of in a, in a bit of a, in a bit of a doldrum here between now and and January. And like I said, we're just— we're trading, we're trading weather. But just be careful of all the, all the social media posts about, you know, how bad the Brazilian crop looks. It looks bad in some areas. It looks a lot better in other areas. But once again, as usual, you know, the squeaky, the squeaky wheel gets the grease, right? So everybody— nobody in Brazil is posting pictures of a good crop. So you can't make that general assumption that the entire crop looks bad, because you may end up in the same boat that you were this year, where we ended up with, you know, okay, we had a bad growing season, we produced 174.

I looked at the— if you look at the USDA numbers on their stock, especially in corn now, on their stock count and what happened there, if we had had a good year weather-wise this year, we would have been well above 180, well above it.

Chris

Barron: Right. Yeah, sounds to me like, again, not a recommendation, but some of these little rallies are probably some pretty big opportunities to kind of keep plugging some sales in along the way on both new and, and old crop both. So with that said, Pete, really appreciate your time today.

Pete

Meyer: Yeah, my pleasure. And I wish everybody, if I don't talk to anybody, I mean, I hope you had a nice Thanksgiving and I wish you the best for the rest of the holiday season.

Chris

Barron: Yeah, that's right. Maybe we'll get you back for a Christmas present conversation or something, you know, or—

Pete

Meyer: well, we probably should have— we should have a conversation before the January WASDE. I think that would probably be the right time to have a conversation.

Chris

Barron: Yep. Yep, for sure. All right. Again, thank you, Peter. And I want to thank everybody for listening. Hope you had a great Thanksgiving. Have a great holiday season. It's going to get busy with family and all that kind of stuff and just I hope everybody that got harvest wrapped up is gonna get a chance to catch up on some rest. And with that said, let us know if there's anything that you'd like us to be doing, hitting on either on our subscriber-only podcast that we do on 19 Minutes. If there's any topics there you'd like us to be hitting on and anything you'd like us to be hitting on here on the, on the regular Ag View Pitch. With that said, hope you guys have Have a great rest of the week and we will talk to you again next time on the IQ Pitch.