Start me up

Chris: Well, here we go with the Ag View Pitch. We're starting a new week and, uh, you got Chris and Dwayne here again. And, uh, Dwayne, good to chat with you again. It's been a few days here. How's things going with you?

Duane: Going pretty good. We're getting ready for another week of uncertainty and a lot of new information is going to be given to us this week. But no matter what we get from USDA, we're still going to be uncertain how long that information will still be valid.

Chris: I think so. So we sent out a SurveyMonkey here earlier on Sunday, early in the day, and got back a pretty good chunk of responses. But the interesting thing to me on the prevent plant thing at least in our section of the world, it looked to me like a lot of the growers actually opted to plant a little bit more than what they thought. It looks like, you know, some of the larger growers really put in some significant acres, although there were also areas where guys couldn't turn a wheel still yet. So whether that impacts the prevented planted acres and maybe reduces that amount. What's your thoughts on that? You think we're going to see a, the possibility of a reduction in some of those acres or not?

Duane: Well, let's put it this way. I think the perception of what the planted prevent plant acres, uh, were going to be a week ago is different than the perception of what it is today. The problem is getting to a point where you're confident in what that figure is, is difficult. I think the prevent plant acreage ideas are probably somewhere between 6 and 9 million acres.. And if you happen to be in the camp that your particular area, you got some corn acres planted that you were worried a week before you might have to take prevent plant, you're probably thinking that acreage is smaller. If you happen to be in an area that got put out of the field by another rain event before you had a chance to do that, you're probably thinking those prevent plant acres are still on the higher side. And if you're in, in South Dakota, you might view it differently than Illinois.

So I'm finding it very difficult to know exactly where we're at. I think it's important to point out that, you know, a week ago, we still had 30 million acres to plant roughly. And we'd only been planting, you know, 10 or 15 million acres a week, or 10 or 15% per week. So that's slightly over 10 million acres per week. And this last week, we definitely made some progress in the east, but On a national level, you had other areas that, uh, were kind of done planting. So, you know, how much did we actually get planted in the east, you know, because that was just a small area. If you're in Indiana and Ohio, you probably didn't have as good of luck getting planting done as you did in parts of Illinois, and not everybody in Illinois got it done. So I'm finding it difficult to really have a clear and concise and confident opinion on what those prevent plant acres are.

I'm trying to look at it from a conservative standpoint and say it's probably 6 million acres. But you can go through calculations and even use 3 billion, which would be less than we've had for an all-time record of prevent plant. And to me, this year seems like it's going to be a record. It's not going to be less than an all-time record. But there's easily— you can easily go through mathematical calculations that still make this to be a very historic year regardless of what you pick for that prevent plant acreage figure. Who does know?

Chris: I mean, does anybody? I mean, right now, I mean, even if you had the best satellite imagery, you can't figure anything out at this point yet anyway. And so these estimates are basically educated guesses from a whole bunch of different people averaged up. And so we really don't have a clear picture probably for another couple of weeks yet. When some of the satellite imagery starts showing what's growing there, but it could be weeds growing there too.

Duane: So yeah, nobody knows, and we're just trying to figure out a logical range is kind of where we're at, right?

Chris: Um, another question while we're on prevent plant and, and reduced production, I guess that, that is what the market's trading right now, or the perception of, of lower production numbers. And I kind of talked with you offline a little bit about this, Dwayne, but So I kind of gave you a hint this was coming. So, but, you know, if we take, you know, say a week ago or whatever it was, a little more than a week ago, we were talking and there was like 30 million acres of corn not planted yet at that point. And so obviously, yeah, a bunch of those acres got planted since then, but they were all planted in one of two conditions and maybe both conditions. They were mudded in, in some conditions, maybe not all of them, but, but they were also planted late. All of them were planted later than the optimal.

So if you take, let's say a conservative number, let's take 25% off of that, you know, or do you have some numbers you're looking at there for yield loss on that planting date? Well, percentage or—

Duane: There again, there's a lot of different things, ways you can look at that. But, you know, University of Illinois has a study out that this June 1st type planning date, from there to June 10th, you're, you're ranging from 13 to over 20% of a yield loss reduction potential.

Chris: Okay, so, so maybe my 25% is a little strong then, I don't know. But if you use— but, but you know, if you consider not being planted in good conditions and stuff, you take, take that 30 million acres, you take 25%, or what are you going to use, a different percentage on me? Well, no, go ahead, go ahead. Okay, so if you use, if you use 30 million acres and take 25% off of that and you use the yield, the preseason yield, right, which was 176 to start with. So if you use just some basic logic and you take 30 million acres times 176, but you pull 44 bushel off that, that's 25% off of just those 30 million acres. I'm not touching or screwing around with any other acres, just just those acres, okay, that gives us a yield of 132 on 30 million acres. How many bushels does that take out of the equation?

Duane: Well, that takes, that takes out about 1.3 billion bushels out of the equation from what would have been seen as a preseason estimate.

Chris: So that's a bigger impact than the prevent plant.

Duane: It would be unless you had 9 million acres, but at 6 million acres prevent plant, this, this calculation is more important than prevent plant.

Chris: Right. And so, and I understand the market probably isn't even calculating this stuff yet that we're talking about here right now, but these are real, real probabilities. I mean, you know, you don't have to drive too far to look around and you don't see a lot of crop yet. There are areas where stuff's starting to perk up and look a little better, and we're finally getting some GDUs and stuff, but the consequences of a yield reduction are there and they're real, um, they're a real scenario. So, um, you know, that's one way, I guess, in my opinion, to throw some numbers out there that just show how historic this is. Whether or not the market trades, it's a whole nother question, though, right?

Duane: Yeah, the marketplace may trade this, they may, may not trade this. But I think it's important to take a step back view and realize the corn market had about a 90-cent rally. Current prices are about 20-25 cents off the peak of that 90-cent rally from May 10th. And in relative terms, that's a pretty good performance and a relatively small correction. And I don't think we have a situation where the market participants are all lined up on one side. I don't, I don't think everybody's a raging bull. I think there's a lot of skepticism here, both on the farm level and in the trader level. And it wasn't until this last week that large specs finally got out of short positions and became net long. The producer on the, on the Commitment of Traders report under the producer merchant segment, which basically is a, is a loose estimate of farmer sales activity.

They're the ones that have been the seller of this. So I don't think the marketplace is, is heavily loaded up on the long side. I think there's a lot of differing viewpoints. And so the marketplace needs to find a reason to break. We don't, we're not going to break just because too many people are long. Uh, we got to have another reason other than that. And I look on the horizon, I'm not sure I see that reason showing up yet. We got potential for new inputs from USDA, um, tomorrow afternoon in, uh, planning progress. Also, first crop condition ratings of the season will be out tomorrow. And then on Tuesday, you got the monthly supply and demand report. And, uh, in general, the trade estimates that, uh, USDA will be slow to address loss of acreage and they'll be slow to address yield loss.

I think that his history is probably on the side of having that viewpoint, that USDA will be slow to make those adjustments. But occasionally, uh, when we have things that are truly kind of historic, USDA has stepped up and been more aggressive on some of those initial calculations. So I personally am expecting USDA to be fairly aggressive, or at least more aggressive in, uh, factoring in less acres and less yield than what the marketplace currently expects them to be.

Chris: Well, and as we go through the growing season, if we had a perfect world and things shook out and went back up closer to whatever number they come out with tomorrow, the market's never, ever, ever gonna believe that we ever have an issue, right?

Duane: Well, sometimes it feels that way.

Chris: You know, I mean, the farmers, we're all eternal optimists. And I think that's why, you know, when I, when I look at those who could plant, there's obviously a bunch of them who still couldn't yet. But those who could plant, even when the numbers were really close as to, you know, which direction should you go, and even I would argue there were some some acres planted, probably without a doubt that prevent plant was, was the prevailing economic benefit, but the decision was probably still made, uh, we're going to plant corn because that's what we do, you know. And so I think that's personally just on the survey we did, it looks to me like, you know, that tended to be more of the decision where guys are like, you know, um, it's fit, we're out here field cultivating, killing weeds let's, let's put some corn in the ground.

And I think, I think it's gonna, it's gonna really trim back these prevented planted acres. How much? I don't know. But I just, I still come back to the economics of that, though. You know, if we produce enough corn this year, that the market is satisfied with what we produce, this will be interesting on the other side of the thing, on the other side of the spectrum.

Duane: Yeah, getting back to your comment about prevent plant acres, I think you accurately described what unfolded in the last week or 10 days, and that was that the farmer made the decision that a window opened up that he could make some planting, and he decided that he would do that. Now, every producer didn't do that, but there was a tendency for some of that to happen where they could. Yes, but the question is, at what point did that start? In other words, should, should we have 2 weeks ago, the prevent plant, uh, estimates for prevent plant acres at that time, people weren't in the field yet. They still had some rains in the forecast and legitimate scientific approaches to determine what that figure would be from respected people was around 14 or 15 million acres.

Now it could have been stated at the time that that was, you know, kind of high or kind of, um, maybe an out-there type of thing, but yet they were calculated by scientific methods from respectable people, and they came up with 14 or 15 million acres. So if that reduction that you're pointing to occurred, which I believe it did, did it occur from 14 or 15 million acres of potential, and so we are still back into that range that may not be too far below 9 million, or did it occur from an area that we never were really at risk of having more than 10 million acres?

Chris: Plant?

Duane: I don't know the answer to that, but, uh, um, it still is probably somewhere in that 6 to 9 million.

Chris: So that, that uncertainty then, in your professional opinion, does that throw— continue to throw pretty good volatility into the market yet, you know? And, and, you know, what's, what's your thoughts for the upside yet for those growers out there that are sitting there thinking, you know, okay, we did plant, and maybe it did go in in okay conditions. Do I, do I start taking— I mean, I asked you this question a couple weeks ago, when do, when do these, some of these guys start taking some risk off the table?

You know, we've settled back from a 90-cent rally, 25 cents, you know, and, and the proverbial answer is going to be, you know, everybody, it depends on everybody's own situation and their economics, but From a, you know, and not to put you on the spot, but like from a probability standpoint, I think a lot of these guys decided to plant partially too because they thought, well, this market could go up pretty significantly, and if I don't have corn, I don't get to participate in that market. So I think that had a little bit to do with some of these decisions too. How right is that thought process? I mean, are— if you look at the odds, the probability of if we, if we get the right weather, and by the right weather I mean hot, um, miss a few rains because we, you know, we go, seem to go from one extreme to the other.

So we've been wet as heck, now all of a sudden, you know, if we get some areas that are dry, I mean, we've got areas in North Dakota where we work with clients up there that they would, they would pay about anything for rain. I mean, they're, they're in a drought situation in some spots. So, you know, what's your thought on, on what the, how, how explosive can this market get this summer?

Duane: Well, first of all, I spent most of the last of my 40 years always being on the spot, so never feel bad about putting me on the spot. I'm kind of like— I'm quite comfortable there. I get my mail delivered to there.

Chris: Good.

Duane: I'll put you on the spot then. But I would say this, uh, yes, it's true that every producer is going to have a slightly different look to that, but if you happen to be a producer that got a large amount of your acres planted in April, didn't have the super wet conditions, you're feeling semi-comfortable about your yield, you know, you might be tempted to take some risk off the table and there might be merit in that. If however you're on the other end of the spectrum where you have a larger percentage of your acres that you didn't get in early, you're a little concerned about what that potential is just based on planting date alone, especially if you're a producer that planted in the last 10 days. I think that producer has to be very honest and realistic with this estimate. I think there's no way those acres are going to get the acre— the yields they had the last 2 years.

I think they will struggle to get APH. So the price that, that you have today, it is considerably better than what they expected preseason that they might be dealing with. But preseason, when they were— before they knew what they were going to plant and what the year was going to be, they had a certain figure in for what they thought their yield was going to be. A realistic approach to that is that yield figure is quite a bit less today. So today's price might seem good, but when you do a revenue calculation of a realistic yield goal, you might find that the, the revenue is not significantly higher than where you were before season. Thus, maybe your, your total revenue on current prices may not be all that attractive.

I still think that for the most part, producers can be somewhat patient and be somewhat, uh, remain uneasy about their production and what that price outlook potential is, and have what I would consider to be controllable downside risk between now and until we get into a forecast that can reach into that pollination period. And I, I think the pollination is going to be a big window, but it's going to be— a lot of it's going to be late July, early August, So until we get to the 10th or 15th of July, where we can get a look into that, what that pollination window forecast might be, I don't think the market's going to break down a whole lot here. In fact, you know, we still have a lot of unknowns yet to deal with. And I don't think the marketplace at all is dealing with the combination of prevent plant acreage losses and the reduction of potential in the yield.

Chris: Yeah. Yeah, and basically that, that whatever that percent is, and we use 25%, you go ahead and use 10%, but there's a, there's a pretty sizable reduction on a sizable amount of acres.

Duane: It's a sizable enough calculation that it no longer requires virtually any imagination at all to have a new crop balance sheet that requires price rationing. And so the marketplace has not yet come to grips with that, I'll even go so far to say that a lot of producers, advisory services, traders, you have to realize that they had to transition from being negative, having near record short positions by the large speculator trader on the 10th of May, in between, in basically a month's time, they had to transition from that mindset to something where the fundamental foundation has been, has changed. We have less acres, we have significant later planting dates, we have a loss of yield potential be it based on that marketplace had to transition that. I don't think the marketplace did a good job of transitioning.

I don't think they have fully transitioned to embrace that the reality of the changes that have actually occurred, you know, the boots on the ground here. And so consequently, you have advisory services that had producers make sales at Dec corn, probably at $4, $4.05, maybe even less. And all of a sudden, prices are 30 cents higher than that. And when people, whether you're a market analyst or you're a trader, you write market commentary like myself, we're all human beings. And if we get wrong, the defendant, the default setting is kind of protect that decision. And so, I think that a lot of people are questioning whether the market can really go up or wondering if it won't sell off some more. But A lot of those people are coming from the perspective that they missed this rally.

They were not bullish during the rally, they were caught short, or they sold into the rally and now the market went through them by 30 cents. And so I don't think the marketplace and the participants in the marketplace have fully transitioned over to what I think is a reality. But my, in my definition of reality right now is we have, uh, 6 million acres of prevent plant, and it could be more. But conservatively, I think we have 6 million acres. We have— that translates to roughly a billion bushels of lost production.

Chris: That's trimming from, you know, we were talking, you know, a lot of the experts were saying 10 million, you're saying 6 now. So you're conceding to me that we probably have come back, or acres got planted, I guess.

Duane: I'm— yeah, I am definitely conceding to you that acres got planted that a week prior probably were ready to go prevent plant, right? What I don't know is whether that concession and those acres that have been planted— I don't know if that should be subtracted from a 14 million acre prevent plant starting point, or whether we should subtract that from 10 million acres for prevent plant. I do not know that. I don't even have an opinion. Okay, I'm only using 6 million, not that I'm saying I firmly believe it's 6 million. I'm just using 6 million saying That's conservatively, and I think I'm— I think that's at least 6 million. That's where I'm— I kind of guess I'm at.

Chris: I don't know if it's 6 or 10, either one of them is really going to support the market.

Duane: Yeah, either one, even, you know, even the 6 million, right? Then on the rest of it, you got 30 million acres that, you know, you went through a calculation of 25% loss. Even if you, uh, you know, you said it was half of that amount, you're still talking almost $700 million loss of production there, a billion bushels loss on, on a conservative estimate of prevent plant, you're up to 1.7 billion. And then you still have— we haven't even addressed the other, you know, whatever that would be, 50-some million acres of production that we haven't addressed anything. And you probably got to take off at least several bushels an acre on that. And all of a sudden, that's approaching 500 million bushels of production too. So it's very easy because all these numbers added up together ends up with a carryout at virtually zero. Compared to what USDA had projected on May 10th.

Now some people will argue that we're already rationing demand. I don't agree with that at all. I don't think any demand, any user that's looking forward to the— over the next 12 or 18 months, I don't think they've done one iota to reduce consumption. So I don't think current prices have done anything to reduce demand. Other people will talk about, well, you got South America production that is, is going to have all kinds of supplies and that'll take care of it. We don't— they don't need U.S. corn. Well, I had a discussion with a farmer a couple days ago about that, and I went and did some calculations, and I pointed out to him that in, in the last several years, Argentina and Brazil combined have had a carryout level about 15 to 18 million metric ton, and this year USDA pegged them combined to have about 16 million metric tons. That's slightly over 600 million bushels.

So if, if those two countries, which people are using as a crutch, they're going to take over the supply that we lose in the US, right? If their total carryout from what USDA had them pegged in May, they had, they already had all their exports calculated and everything. And they said they had 600-some million left bushels unspoken for, and that's a traditional normal carryout for them. Last several years. Okay, we've just gone through a calculation where we've shaved off basically 2 billion bushels between the yield loss, prevent plant, etc., varying degrees on the 30 million that were planted really late. And the rest of it, you know, we're shaving a couple billion bushels off of demand. And combined, they only had 600 million of carryover. So where's the rest of that get made up? The reality is, in the world marketplace, in world terms, we are the corn market.

Okay, we are the corn market, and we're the residual supplier. And, uh, so if we've lost this amount, I don't think that's going to be made up anywhere. It's going to have to be rationed, that usage, and I don't think we've done that yet. So, uh, there's a lot of things that can happen yet, and that makes for volatility. And I don't think the marketplace has fully dealt with this yet. Uh, we'll find out, uh, tomorrow and, uh, Tuesday from USDA how much they're willing to deal with these calculations.

Chris: So if I digest your, your response correctly, it's basically telling me that, you know, the upside potential is absolutely there. It's just going to be how this thing shakes out and what these numbers actually are, and we're going to have to ration, which means basically higher prices.

Duane: Well, I think upside potential is there, but at minimum, I'm comfortable saying that for a while downside risks seem pretty limited, pretty limited, or manageable or controllable. And I think there's a certain mindset that, that developed in the marketplace, partly for the reasons I described, where people had a mindset where they were off, caught off base, they weren't long for this rally, they were caught short in it. So they viewed things slightly differently. But in the last several days, there has been this sense that, okay, we've planted more corn than we thought. And maybe some acres, like you described, didn't go prevent plant, but they've actually been planted. But with that, there's been this mindset, oh, Okay, a big sigh of relief, we're getting this corn planted, as if that's it, crops made. But the reality is that's not just getting planted. Yeah.

And we have agronomic soil condition that are facts right now that are typically troubling. When you have wet soils like this planted in poor conditions, you have poor root development. And those tend to be things that can haunt you all year long. So it's going to be very dependent on some of those acres that they get into rain every week. And they avoid the heat. And on the other hand, we want the heat right now too to get caught up on some, uh, GDUs. But it's going to be a fine line navigating that all season long to have the crop planted late, have your, uh, key pollination period moved back into what historically is at greater risk of heat stress or even dryness stress, that we have to navigate all that without getting any problems out there. And in days of old, that was worth a premium in the marketplace for a what-if premium.

And I think this year that what-if premium is going to be expressed by a marketplace that will be reluctant to weaken very much from here. One last thing I want to add in terms of that. I had a conversation with a grain merchandiser in Illinois, a very good friend of mine, and I've known him for 20-some years. Very level-headed straight shooter. And he was telling me how they had made a cash sale to a end user. And they ended up getting about a 10-cent push over the prevailing market for this quantity of old crop grain. And that user also wanted to buy new crop production and get a basis locked in as the user, he wanted to buy the basis, he wanted to own it. Well, the elevator guy wouldn't sell it to him. And the, the, the user confessed at the end of the conversation, he can't find anybody selling new crop. So those guys, they see something real.

And this was not a small independent farmer. This was a large conglomerate. They see something real out there, and they're scrambling to get their hands on the physical commodity, both old crop and trying to get a new long basis position on new crop, and they can't get it done.

Chris: And that's information that's not out there in the general public.

Duane: It's not out there in the general public. But yet it's real. It's happening. And I think that you could have— you could just look at your own cash bids in your own area. The basis has gotten stronger. The basis has gotten stronger. And I want you to honestly ask yourself, if 30 days ago, if somebody told you corn market was going to rally, just say 75 cents, would you expect basis to have weakened or to strengthen? You'd have all expected it to weaken. But what happened was— to whatever extent there was a period of a day or two in there where it may have weakened, that's all been erased. There's a real demand out there. There's an entity out there that wants these physical bushels. And I think they are motivated by what they see in numbers we've just kind of gone through here where it looks like supply is a real threat.

Chris: Yeah, it's a subtle concern. So we got a fire or something going on.

Duane: Some National Weather Service— so that, that was not, uh, the timing wasn't such that that was a warning in the marketplace.

Chris: That, that makes it real.

Duane: You know, I always kid around that, uh, you know, the marketplace never just posts a neon sign in your yard that says buy it now or sell it here, but maybe that was it. I don't have to check my phone.

Chris: Uh-oh, look out. So, all right, well, um, so we got a crop condition rating coming up. We've got We're getting ready to wrap up here, but we've got this crop condition rating coming up. We also have the acres planted, acreage report, which normally that would have been long done by now, and they're thinking 88%, probably in that range.

Duane: I'd say the 88% is on the high side of estimates. It's probably average is somewhere around 85%, maybe.

Chris: Okay, so we'll—

Duane: that's difficult.

Chris: We'll see what that shakes out and have conversations, you know, here in the next day or two. And But we kind of wanted to get the week going. Yeah, one last thing you want to comment on?

Duane: Yeah, one last thing is the crop condition ratings. We get first of the year tomorrow from USDA. And I hadn't really mentioned that too much about that in this podcast yet. But the trade seems to be expecting around 63-65% good and excellent. And in the last several years, the worst it's been has been around 63 or 64%, something like that. But I think it's interesting to point out that last week, the state-by-state Progress gave the first condition rating for the state of Iowa, and they rated, rated Iowa last week at 51% good to excellent. Well, in all the discussions about talking about 2019 corn production and outlook, I don't think Iowa is seen as the, the worst state, uh, facing the worst conditions. So if they're 51%, uh, I think Missouri was in the low 20% for that. I'm struggling to find out how we're ever going to get a 63 or 65% good to excellent rating.

So it looks to me like the marketplace is very, very passive about the situation here overall. They're expecting USDA to be slow to make these adjustments, and they're expecting these crop condition ratings to be what seems unrealistically high to me. But, you know, it won't take long. In 24 hours, we're going to see what—

Chris: yeah, we're going to be— we'll be really smart So, well, hey, uh, everybody, thanks a lot for joining us here today with the Ag View Pitch, and we will catch you next time. Thanks a lot.