Strategic planning discussion: weekly market outlook

Chris: Welcome everybody to the Ag View Pitch. This is Chris Barron and Dwayne Lowery again here with an episode on Sunday afternoon. So Dwayne, how's things going for you over the weekend?

Duane

Lowery: Good, uh, happy Father's Day to you and, uh, all the fathers out there today. Hope everybody's having a great day.

Chris: That's right, we hope so. So let's, uh, spend a minute here and talk a little bit about what some expectations are as we go into the overnight, and then obviously tomorrow is going to probably be an exciting day with some news coming out with some of the information on how planting progress is going and some of that stuff and crop condition ratings and some of that stuff. So tell us, tell us some of your thoughts.

Duane

Lowery: Well, there's, uh, things are kind of developing into a point where, you know, —people that maybe have been poo-pooing the planting season problems in 2019, or have been focused on large supplies or things of other nature, or have been expecting a small amount of prevent plant acres, or anything that— any part of the storyline that we've had. There's been some people that have been trying to downplay that and talk about demand rationing or whatever their— the angle that they wanted to choose. But I think what you have developing now is you've got a change in attitude coming, and you have a developing chorus where everybody now sees the problem. And in some cases, people are just kind of awakening to the problem and/or awakening to the seriousness of the problem.

And so I think people's— as they drove around the countryside in the last week or so, maybe over the weekend, as they've looked at the current forecast and sees a lot of rain that combined with the date on the calendar. The reality is that the 2019 planting season is rapidly coming to a close. And it's going to come to a close quicker than people maybe expected on beans. And I wouldn't be surprised the beans is the part of the trade that, you know, tonight or this week or early this week is going to be the most surprise and have the most emotion and have the biggest reaction because prior to maybe Thursday or Friday of last week, people really wanted to downplay the prevent plant storyline in beans. They thought that the acreage would be small. And you also had people that felt that producers had planted more beans and less corn. So a lot of different variances to the planting storyline.

But I think by the time you get to Friday, and now here on Sunday, there's a realization that, hey, this weather forecast is not going to give people a chance to plant before their prevent plant date. And there's a, there's a realization that some people have largely had enough, and they may opt to just take the prevent plant in the case of the beans. So Suddenly you got people looking at the high end of estimates on the prevent plant in beans. And also that's probably true in corn as well. So I think all of that combines to create a certain level of emotion in tonight's trade as you got more and more people starting to get bullish or to get more emotional about the bullishness. And I think that considering the amount of the price strength we've already seen, that means that we're going to be getting into price levels that are attractive to producers..

And maybe it's time to be looking to take some money off the table, take some risk off the table. And that's kind of, kind of what I think we ought to be focused on right now and start talking about that.

Chris: On the bean side of things too, I think, you know, just listening to some of the traders talk and, and, you know, I think a lot of them thought, you know, well, if it's prevent plant corn, or if they're not going to plant corn, maybe they would plant soybeans instead. Some of those acres, but the math doesn't work, the price is so far out of line. That's not really going to come to fruition, that won't really happen anyway. So, you know, I think that's probably part of what they're realizing too. Or do you think that's any part of the factor?

Duane

Lowery: Well, I think it's part of the factor. But I think it was just a belief that, you know, let's go back a week ago, the thought that June 20th, we wouldn't have an opportunity to get all the beans planted that we wanted to get planted by June 20th, just seemed so hard to imagine, you know, I mean, it was just, you know, yes, there was a forecast out there that had moisture in it. And yes, the fields were wet. But still, there's just, it's just hard to believe that, you know, there wouldn't be a good enough of a planting window that we could get everything planted that we wanted to. And so people just had a hard time coming to grips with that. But now that the calendar is June 16th, and you got several days of rain in front of us, and still wet soils, you know, it's now become a reality.

Chris: Well, and when you look at both corn and soybeans that are up, and then you think about how far behind this stuff is, it's just unreal. I mean, we're, you know, sitting here in Iowa, where supposedly we have, you know, the garden spot or the good conditions. But if you look at where this crop's at relative to where it's been, or where it would be normally, where it was last year, for example, we're a month behind. You know, I mean, this is— there's a lot to digest in this market, you know, for a long time here, don't you think?

Duane

Lowery: Yeah, I think that's true. And, you know, we still have— while we have a lot to digest about that already happened, you know, there's also a certain amount of reality in front of us that we still got the entire growing season ahead of us. We still have you know, the potential for to trade a hot and dry scenario. And now we're worried about cool and wet, you know, it's— there's a lot of time for almost anything to happen. So it's still a fluid situation. But now's the time where you take a step back view and you evaluate the prices offered, your own situation, your own outlook for your own crop, and start putting on some numbers and what current prices mean to your operation. Factor in your insurance and how that kicks in and how that protects you if prices go up or what it means to you if the prices go down.

A lot of different scenarios, but it's time to be proactive and do some planning and, and establish some sort of a marketing plan. Maybe it's a scale-up, maybe it's placing some resting orders. I like the idea of placing orders in above the market or allowing them to work so that you don't run the temptation of doing nothing when they get there.

Chris: And don't take them off when they get within 2 cents of the price.

Duane

Lowery: Yeah, you know, a cancel-if-close order isn't a very productive order if you're trying to actually accomplish, you know, a profitable sale.

Chris: Yeah, and get something done. Um, can I tack on to that and then have you respond? But, you know, you're— we set some targets, but to me it still always comes back to, you know, when we do Profit Manager with growers, we're looking at margin targets rather than price targets. And I like that term way better. Because, you know, a margin target means that you've already calculated your cost of production based on whatever yield you anticipate. And I know that's a fluid number. So you, you know, sometimes you get kicked back on that, but based on whatever that number is at the time when you're doing the math, then come in and the next step to me, and I've encouraged a few people to do this, and we've done it in our own operation where you go in and you look at your gross revenue, from your average.

So you look at your 5-year gross revenue average, and for those of the growers that I've worked with in the past know what I'm talking about. But you know, let's say for example it's on— and we'll use corn as a specific example, Dwayne, I'll get your take on this— but if you have 200 bushel corn, take that times $3.50, that gives you a gross revenue of $700 an acre, right, for corn. So let's say that, that's your, that's your average yield. So now, um, you anticipate 150 bushel corn, and you take that times $4.35. Let's say that's a cash price that's achievable wherever you're at, and it may or may not be, but let's just use that number. So you take 100, 150 bushel acre corn times $4.35, that's $6.52. So you're not there quite okay. Well, what's it take? Well, raise your yield 5 bushel to $155, take that times 440, now you're at $704, so you're there.

So what is it in the combination of price and yield as an objective that you need to get to for your farm for gross revenue that is an achievable number, or may not be an achievable number yet, but that's why you set those targets in place because those targets may hit but they only might be there for like 10 seconds. When the market is bouncing around and half the time it does that stuff at night. So I'm just tacking on to what you're saying. I, I'm wholeheartedly in on that, you know, get these targets in place and be disciplined and do the math up front and then just know what that gross revenue needs to be. And obviously, you know, we all have to tweak those, those yields, but you know, we got the MFP payment that will be tacked on to those numbers. You may have an insurance indemnity if you get down into that $150, $155 number that you tack back onto that.

Which may then again lower the price that you need to achieve, might be even lower than you thought. So you have to calculate all that stuff in. And again, you know, the, those of everybody that's listening that uses Profit Manager has those tools in front of them. But, um, that's just my soapbox, Dwayne.

Duane

Lowery: Sorry, go ahead. That's all right. Um, so we kind of started off the, this whole, uh, podcast talking about the merit of looking for a price that works and looking at marketing from the standpoint of not necessarily where do we think it can go and how high could prices go, but rather than doing it that way to have a focus on, you know, what does current prices offer? How much is, as the operations bottom line improved from where it was before the season started to where it is now? How many bushels do you expect to get for a yield now versus before? And how does your overall revenue look? And so that's kind of where we started. So now I want to divert attention a little bit and go back and talk about, you know, price outlook and where might we go.

And the first thing that I want to say is, I think it's almost impossible to know where you're going to go this year in terms of price, because we are going to have a lot of acres that didn't get planted. We are going to have a yield reduction based on planting dates alone. We don't know what the growing season holds in front of us. We don't know what current prices will have impact on rationing demand or whether it will take even higher prices to ration demand. And we don't know if the, if the marketplace is in the process of becoming too pessimistic about 2019 yield potential on the acres that are planted. And so there's still a lot of things that are unknown. It's not difficult to look at a chart and imagine, you know, more difficult problems ahead and say, you know what, corn could go to $5.50 or could even go to $6 futures.

And if somebody said that, I wouldn't want to argue with them a lot. I'd say, of course it could. It's a possibility. But in the same token, you know, you've got nearby futures right now in the mid-$4.50s, you got December in the mid-$4.60s. Let's say the market could put on another 10 or 15 or 20 cents this week. All of a sudden, you're getting up to levels that, you know, we're already at levels higher than we've been at any time in the last 4 years. And we know we are factoring in a lot of problems with these current prices. And we know that we're probably going to get some emotional buying here early this week. As I mentioned earlier before, these are the types of ingredients that tend to create at least a temporary top. And I think that right now, I look at the technical condition of the market, and then I could see, I could see 30 more cents onto this market.

But does even if that is correct, does that mean that you should wait and not make any sales here? I think that's probably more difficult. Difficult of a case to make that you should wait. We've already waited a long time in terms of before, before we talked about, you know, getting more aggressive on some sales or even starting sales in some cases. But right now, I think that the focus needs to be, it's time to advance sales, especially if you haven't made any new crop sales, or especially if you're sitting on a lot of old crop corn, or you, it's time to— you know, to advance them a little bit if you've already made some sales. It's just time to, to have a different mindset and, and try to avoid the trap of focusing on only how high things could go, uh, and instead focus on your own operation and what those dollars means. And that, that's kind of the purpose of tonight's podcast.

I think tomorrow we're planning on doing another one. I think we'll probably do it after we see the, uh, weekly crop progress and the crop conditions. The crop progress and will give us an idea of what that prevent plant figure might be. It'll also allow us an opportunity to take those numbers and extrapolate a, a, some S&D and, and some carryout levels and, and talk about demand rationing. And so we'll probably get into a little bit more detail on that tomorrow. But today, I just want to draw everybody's attention to the, your job right now is to focus on current prices and a reasonable near-term strength of what that might look like. If we get some strength tonight, tomorrow, get some emotional run-up here. And I don't think it has to be a whole lot more additional strength that warrants sales. So it's, it's just a time to start looking at things and looking for opportunities.

I'm not sure I'm real comfortable with beans in terms of getting very aggressive with sales on beans. Current bean prices just aren't that attractive. And you've got until you get into the, the August timeframe and the weather, I think you got reasons to think that the market's not going to break a lot. You still got China that we've already priced in that they're not doing— going to do any business with us. The only place we could see improvement there is, is that they actually do purchase something or they make a trade deal. So I'm less concerned about what a producer does with the soybean prices and soybean production. But in the case of corn, You know, this is getting to a point where we need to seriously consider some price protection strategies.

Chris: Agree 100%. I think that's all good comments, Dwayne. And, you know, that just kind of tags on to, you know, what you've been saying. I mean, we've gone up, what, a buck in corn, you know, how high can we go, you know, and without rewarding this, and I know some growers have made some sales along the way. And, and sometimes we all have a tendency to have a price increase resistance where the price goes up after you've made a sale, and then you don't— you think that was a bad deal, and you— and sometimes it causes you to get paralyzed. But I think, I think your information is real good.

And I think tomorrow afternoon we might try to get Grant Schiemek, who is a broker that we work with as well, and we'll get him to tangle with you a little bit, Duane, and have a little conversation on, you know, what we've seen, you know, where we've been, where we're at, and, and then from a strategic standpoint, maybe where, where some of the growers can be going as we move forward. And we'll be a little smarter tomorrow, I imagine.

Duane

Lowery: Well, we always hope we're always smarter, a little smarter the next day. It doesn't always work out that way, but we— that's always our goal. One other thing that comes to mind here, everything we've talked about has been kind of producer marketing. But, you know, sometimes you listen to a radio broadcast, or you hear something on TV, and, and you feel like they're talking directly to you. Well, right now, I am hoping to connect with a few people that might fall into that category. I am quite confident that there are people out there right now listening to this podcast that not only have old crop corn in the bin, they have new crop that's not been priced. And they probably have paper ownership in futures and/or options. And I want to specifically talk to those kind of people that have— that are long and bullish in every possible category they could imagine.

And you can't hold all those positions till the bitter end otherwise, because you don't know when that end is going to come and you might only get the bitter part of it rather than the better part of it. And so if you happen to be speculatively long the futures and/or options market,. And you might have all the reasons in the world to do that. And it's been very good to you, made some good money and got some profits in those positions. And you might also be long some old crop inventory, and maybe you haven't priced much at all of the new crop inventory. This is the time after this type of a price move when everybody else starts to get on board. And everybody starts to pat you on the back and you sense that everybody's rooting on the same team. This is the time where you got to take some profits off the table.

You got to lock in those profits, you got to take some risk off the table, you got to lighten your positions. And maybe, maybe you're still not comfortable about making new crop sales, or maybe you don't want to part with your old crop bushels. But out of everything that you might have in that position I described, there's got to be something that you can take off the table. And I think in the current environment, since the farmer has been pretty close to what's going on out there in the country, I think a lot of people have done some speculative things, and, and now is the time to be looking to reduce some of that risk exposure. Otherwise, the trap is that when you feel that everybody else is getting excited, all of a sudden you get excited, and then we stop thinking and we start becoming emotional. So I kind of want to make a direct call out to people that might be in that position.

Chris: Awesome, that's great, Duane. Really appreciate the comments. I think those are gonna be well received by a lot of people because I think, I think you're speaking to the majority. So any last comments and I think we'll wrap things up. All right, was that— I don't— last comment anyway.

Duane

Lowery: Yeah, no, no real comments, but, uh, don't be surprised if there's some emotions tonight and tomorrow. Don't be surprised if that emotion manifests itself mostly in beans, but try to take a step back view and see the emotion and the any price strength that we have early this week from Friday's levels, see it as an opportunity to advance some sales, to take some profits off the table. Try to avoid the trap of you yourself getting caught up in that emotion and becoming more emotional and recognize that there are people now coming onto the bullish scene that only just have arrived. And this is usually the time where, you know, it's time to give up a few seats at the table and let them have them if they really want them that badly. And it's time for you to take your profits.

And if you have to step— spend some time on the sidelines and not have a position, there's nothing wrong with that.

Chris: Yep, sounds good. That's great advice, Dwayne. Thanks a lot. Um, that should be it, wrapping things up here now, uh, for the Ag View Pitch for tonight. And we will catch you again tomorrow. Thanks a lot, Dwayne, and Happy Father's Day to everybody.