Spirit in the sky

Shay

Foulk: Well, we're going to go ahead and get going here tonight with the Ag View Pitch, and here we are again with Chris Barrett. Aaron and Dwayne Lowry. How's it going tonight, Dwayne?

Dwayne

Lowry: Good, Chris. How are you?

Shay

Foulk: Good, good. I think, I think we want to have a little conversation here with the market opening again here tonight and a new marketing week ahead of us. What do you think we got in store? We started out a little spirit in the sky, and I think that might be where the, where the knowns are at, I guess, at this point. What's your thought kind of possibly some wild stuff coming our way maybe, or what do you think?

Dwayne

Lowry: Well, we're still dealing with weather. And I think there will be mixed interpretations for tonight's opening depending on what perspective somebody is coming to the market from. I want to go back before we talk on the weather and tonight's opening, I want to go back a little bit to Friday. Friday, the markets were down. And I think I'm not sure how to get— how much weighting to give to each of these things. But the market was down partly because of President Trump's tweet about putting a 5% tariff on Mexican goods. And the fear that that was going to spill over into them boycotting agricultural products, escalating trade wars. Global stock markets were down on that, and all driven not so much by the 5% tariff, as the fact or the fear that we're just escalating trade problems. And I think that, I think it definitely weighed on the grain trade.

It wasn't the only thing, but it definitely weighed on the grain trade. Mexico's response to that tweet over the weekend has been very subdued. They went out of their way to say that they do not plan to retaliate against U.S. agriculture or agricultural products. They're sending a delegation to the US for discussions on Monday— or excuse me, Wednesday. And I think Mexico is optimistic that they will either be able to delay or halt the— any tariff on Mexican goods. And so they're optimistic about a good meeting. So to whatever extent that weighed on the trade Friday, I think that's a supportive feature. The US-China trade thing that people have kind of forgot about it and quit trading it because to be honest with you, nobody knows what to expect. We don't know if the issue is really about trade or whether it's now about national security, or maybe it was always about national security.

So nobody really knows. But to the extent that global trade disruptions was in the markets on Friday and global equities and that spilled over into the grain trade, The weekend developments in US-China seem to be a desire for dialogue coming from both China and the US and the possibility that Treasury Secretary Mnuchin was going to meet with Chinese officials while he was on a trip to Japan. So to the extent that that's an influence, that's a little bit supportive. To the extent that weather is the main driver here, You have areas that over the weekend that got rain that didn't think they were going to get rain or got it earlier or got heavier amounts than expected. If you're in Indiana and Ohio or Michigan, you're probably not feeling very good about the moisture you've got. And you look at the forecast and you're concerned that you don't have much of a planning window.

If you're in parts of Illinois, you made progress over the weekend. If you're in parts of Iowa, you made progress over the weekend. And, uh, if you, you probably feel like you have an opportunity to continue to make progress until sometime Tuesday or Tuesday night or Wednesday at the latest. And then another moisture system comes in, and if you want to count raindrops from that moisture system moving forward, I would say that forecast actually looks wetter than what we had on Friday. So when you break it all down, you got some areas probably getting an extra day or two of planting opportunities that they didn't think they'd have on Friday. And the market did go home Friday expecting, you know, 1 to 2 days of field work opportunity in parts of Iowa, parts of Illinois, and they probably expected it in Indiana and Ohio as well. But that doesn't look like it's going to materialize very well.

So some people will call the market slower tonight because we've got planters in the field. The problem with that scenario is the most optimistic expectations for planting progress in tomorrow's report is like 75%. And the last 2 weeks, the planting progress has proved to be less than expected. I'm not so sure it won't be that way again. And bean planting progress, the most optimistic view is about 45% planted, and could be less. And then if you subscribe to the idea that farmers that have both corn and beans to plant are focused on corn corn right now, your bean planting progress will be slow, uh, into Tuesday or whenever that next system arrives. And that, that ends up being more broad and, and kind of reduces the planting opportunities for many locations for several days.

And by the end of this week, we'll probably still only have 50% of your beans planted, and we'll be dealing with the June 8th on the calendar date. I think that's troubling.. And I think that no matter how you slice it, you're going to have a large, you know, for this calendar date, a large amount of corn acres not planted. Prevent Plant ideas are all over the map. I would say what used to be conservative at 3 or 4 million now is 6 million conservative. And what used to be on the high end at 15 million is probably now something in the 10 to 15 million acres of Prevent Plant. The other thing that has thrown into the mix over the weekend is the idea about what's going to happen with this prevent plant acres is it appears that Congress is going to vote on a disaster relief bill.

And in that previ— on Tuesday, and in that bill, there is supposed to be language that may increase the prevent plant payment rate from 55% to something higher than that, with 70 to 75% being kicked around. And then also going back to last Friday, you had, uh, Ag Secretary Perdue, um, hinting or suggesting that they're thinking about making the trade tariff, uh, relief aid, uh, eligible also for acres that don't get planted. So both of those things could easily tip the scale towards farmers choosing to prevent plant. And then, you know, in, in the areas in the east, June 5th, that planting date shows up here on, on Wednesday. And so basically, if corn isn't— whatever corn is not planted by that time the rains arrive on Tuesday night, a case can be made that you're not going to get a lot more acres planted after that. So there's a lot of things to look at.

And I think the For some, the knee-jerk reaction is to expect the markets to be down tonight. And we certainly could be. But I don't— I think that's a narrow view. And I think the bigger view is we have still a lot, large number of acres that could go into prevent plant. And we have all the acres planted in the last 2 weeks have been planted under conditions that are less than ideal. And so then the overall planting date, we still have a situation where it looks like we are going to be dealing with a corn market that needs to ration usage in the months ahead. And so we might be lower tonight, but I think the markets would be well supported if they are. And it would not surprise me if we found a way sometime in the first couple of days this week to trade, trade the markets above last week's high.

Shay

Foulk: So if you, if you're thinking that, what, what's the, uh, what's the idea of the trade? I mean, I asked this question last week, but you know, do you think that there's enough in the trade yet that, you know, they've gotten out of the shorts pretty much? Um, you know, you made a comment maybe a week ago or maybe longer than that, that, um, they won't only get out of their shorts, they'll go long.

Dwayne

Lowry: So I believe, I believe that's correct. And I think that you, you might as well say that as of Friday, they're, they're basically out of their short positions. I think they're willing to go long. I think that's the, the thing we, we should expect. And, uh, I think everything that was indicated in the Commitment of Traders report would lead me to believe that that is probably what's going to happen. So I think they're, they'll be there to buy weakness. And I'm not so sure that they won't come at it a little more aggressive than, than the— some of the people's expectations are for tonight's trade. I'm not so sure that between now and Tuesday, the market— I'm not so sure that the specs won't come after this market.

Shay

Foulk: What about— this is kind of a question off the cuff just a little bit here. But in talking to a couple of growers here in Illinois and a little bit in Iowa, where some guys have been able to kind of get going here and asking the question, you know, hey, should I be planting corn here where I was maybe going to plant beans? I think I can make a little more money with corn. Some of these guys up until Wednesday, well, in Iowa they're not there, but in Illinois into the east, those guys got till the 5th of June. So, you know, looking at maybe planting a little bit extra corn while they're in there in the field and picking different fields too, because you kind of got to go where it's dry.

I don't know that that's going to change the acres, but just, just to throw that out there, Dwayne, I'm hearing some of that kind of stuff going on too, but I don't know that that's really going to change any, any total amount of acres unless, unless you have some thoughts on that.

Dwayne

Lowry: I would imagine some people are looking to make some tweaks there, but I don't think it's a statistically significant impact on the national acreage discussion. I think it's more significant about the prevent plant decisions and how that plays out. And the planting dates in general, but I think it's possible some people could be making that decision. For many people, they could make more money planting corn anyway. And the price changes that we've seen here recently and the level of optimism that's returned to farmers about corn price potential, I, I'm not surprised that some people would choose to plant more corn acres, and, and I wouldn't, certainly wouldn't want to argue against that. But I do believe that when a guy makes that decision, part of it is based on an optimism on corn, and part of it is based on a still, you know, discouraged outlook about soybean price potential.

And I'm not sure I'm not sure that that will stay the case. We are— we have the planning date scenario with beans. Who knows whether planting— prevent planting situation will develop in beans or not. I have no idea. That's still quite a ways down in the— on the calendar. But I will say this, that if you look at the corn prices and the desire for the corn market to buy acres for next year and the less soybean acres, for next year, and then possibility of some production threat along the way that yet this summer affecting beans. Who knows what that price outlook is going to be? My guess is it's— it has a better than 50% chance of being much better outlook than what most believe now than to be equal or worse than what most believe now. So I think the surprise in the months ahead might be how well the soybean price performs.

Shay

Foulk: Yeah, and I think it's going to need to though, Duane. I mean, too, when you look at a lot of the agronomic data and stuff on soybeans, I mean, you get past the optimal date for soybeans in any of these areas and you pull about 2 bushels a week statistically off of the yield. And, and, um, relative to corn, the penalty, you know, at least to this window, isn't quite as steep as the penalty is going to be on soybeans. And so you know, with the price outlook maybe being potentially a little better for corn. But, but as you say, we don't get a little ways to go yet to, to kind of see what, what happens and what materializes with weather.

As we've been sitting here talking, had the TV on, and as, as you were talking, interesting, um, you know, some of the national news is showing, uh, and coincidentally I just saw that here now, they're showing significantly wetter for the whole month of, of June, and they were just talking about the rivers and all the flooding, and they're showing guys standing in front of a whole bunch of water. So there's some areas that are really, really in tough shape.

Dwayne

Lowry: And, and, uh, I think we had some, uh, new acres that got flooded over the weekend from levees breaking and what have you. So, you know, those kind of situations are pretty bad. And one last comment on the beans, um, It's very premature to talk about what a national bean average is going to— yield is going to be. I get that. But when you look at the planting date and the amount still remaining to be planted, that greater than 50%, the odds of getting anything close to last year would be— seem to be quite remote. And if you start applying just a little bit of conservative realism about how much the yields could could back off. It doesn't take much of a reduction here, and all of a sudden your soybean carryout, which is massive, is cut in half. And the marketplace is, is not prepared mentally for that yet. So I don't think we really traded that yet.

So I, I wonder if beans don't have some, some sort of a more bullish reaction coming in the near future. But we'll find out. I'm not trying to make a long-lasting case there. I think it's still too early. We don't, we don't really know enough. Then the difference in corn is, I think we have some things that we know that are, that have been cemented in concrete and are not going to change. And I think that's going to provide a good floor to the corn market. And markets bob and weave and they ebb and flow and they don't always perform logically and And so it's possible we can experience some setbacks here. But my experience over the years on these type of markets where you get a massive change in that fundamental backdrop, and especially during the growing season, they have a tendency to be well supported and climb a wall of worry.

And the— everybody's prediction of the demise of the bull market usually ends up being very premature.

Shay

Foulk: Yeah, well, and we can probably count on, on top of all that, quite a bit of volatility here in the near term as well.

Dwayne

Lowry: Absolutely. And then after having said that, I still think it's important that farmers take a realistic view of their production, their situation, the prices offered versus what they thought they were going to get 3 or 4 weeks ago. And, you know, rewarding the market, taking risk off the table, securing some profits, is always a good move. So, but at the same time, I do want to say again, like I've said before on some different podcasts, I think in the next 12 months that physical ownership of the, of the physical commodity is going to be a very valuable asset that's going to pay you dividends. Every time you go to sell it, you're going to have more than one buyer that's probably willing to pay a premium for it. You might find a livestock feeder that's going to need it.

There's a lot of opportunities in maintaining that physical market, cash market, futures market both will continue to take away any carry. They'll have premiums and inverted markets for nearby shipment. And anything you do that in price protection strategies that allows you to maintain the physical ownership of that crop and allows you the flexibility of which buyer is going to get that those bushels until the, till the day you're ready to actually let them go. I think that's a good approach to have.

Shay

Foulk: Yeah, you're talking my language when you're saying take a little risk off the table too, because I know it's, it's really tough for some of these guys. But now that the planters are rolling again, I think some of those guys, as some acres go in, we need to be looking at the, you know, at the cost production, realistic yield, having those numbers in front of us and making sure that we have some kind of strategy, you know, either with some option strategies and/or You know, trickle in a little bit of sales out there's probably, you know, the best thing that you could have happen would be to make a sale here at current prices.

Dwayne

Lowry: And then 6 months from now, say, man, that was a stupid sale. I mean, that wouldn't that be the best thing to happen?

Shay

Foulk: Exactly. Because it's too easy. I've seen it over and over and over again, with the exception of 2012. You know, we let sometimes these opportunities slip by because it's going up and we have this price increase resistance and we don't want to sell. But I think incremental sales, you know, small percentages and watching this thing and plugging some sales in and taking the risk off the table, in my opinion, is prudent and intelligent business.

Dwayne

Lowry: At the end of the day, it's about trying to grow it for profit. And, you know, everybody needs to be honest and know you're not going to sell the top. You know, and it's also be honest to know it's a lot easier to sell a little bit at a time on the way up than it is to try to get caught up once the market turns. You're always gonna be wanting to go back and get what you missed. And that's usually the trap and the pitfall. I don't think we're close to that point, but that's the point. We never know. And so it's always wise to be looking at profitable levels and trying to, capture those. And current prices are, are at the basically the upper parameters of where we've been in the last 4 years.

Shay

Foulk: Is there any particular strategy that you think is better than another? Is that something for a whole nother topic of discussion?

Dwayne

Lowry: Another for a whole topic for another discussion, other than the fact that I like the broad concept of maintaining that physical commodity. Yeah, and physical flexibility. So that means that basically leaves futures, options, something like that.

Shay

Foulk: Right. Okay, Dwayne, any last things you want to mention, and we can kind of wrap things up here for, for Sunday and into Monday morning here, and, and any other last comments?

Dwayne

Lowry: Well, keep in mind there's two places to keep focus on. One, we can focus on delayed plannings, loss of yield potential, possible probable loss of acreage. But we also need to be realistic and say that the market is very close to reaching a price level that the marketplace could choose to stop looking at those factors. And they could start looking about, well, how do the— forget the fact that we lost this amount of acres, forget the fact that we've cut our carryout down significantly. Let's just talk about how is the crop that's in the ground and how's the weather treating that crop? And that crop might look fairly good over the next 3 weeks. And so there is a possibility that the marketplace will make a transition and shift away from the bullish fundamentals that we think we know have been cemented. And then they'll start to focus on, well, how's the remaining crop doing?

And that will probably create some sort of a bearish spin. So if we get, you know, the calls for early tonight are mixed. But if between now and Wednesday, we get the planning progress report, we get another— continue to look at the weather forecast. And if in this next 3 days, we get some price strength that's above last week's high, start to mentally prepare yourself that that might be short-lived, despite however much emotion might come with it. And then we might transition to focus on, on the crop that's grown in the field.

Shay

Foulk: Sounds good. And let's, let's plan, Dwayne, on having a conversation. So Monday after the planning progress report comes out, let's plan on having another chat. We can get that out to everybody and probably be a little smarter at that point too. We'll have a little bit more information on what's, what's going on, where things are happening. That sounds right with you?

Dwayne

Lowry: Sounds great.

Shay

Foulk: Okay, well, again, for Dwayne Lowery and myself, Dwayne, how can they reach you again real quick?

Dwayne

Lowry: Go to my website for my contact information. That's cropproductionscience.com. Otherwise, my email address and my phone number is all available on that website.

Shay

Foulk: All right, thanks a lot, Dwayne, and, and thanks everybody for listening. For Dwayne Lowery and Chris Barron, this is the Ag View Pitch, and we'll catch you on the next one. Thank you.