Are the harvest highs in? Sunday market outlook

Narrator: And it all comes down to this. 2 on, 2 out, bottom of the 9th.

Chris

Barron: The Farmers lead by 1.

Narrator: Full count, here comes the play at the plate, and it's the Ag View Pitch! Welcome everybody to another episode of Ag View Pitch, and heading into a new market week, we've got Chris Barron and Dwayne Lowery. What's cooking, Dwayne?

Chris

Barron: Not much. Chris, harvest advancing. Everybody is happy that we got a lot better weather than we had a year ago for harvest activity. And for the most part, only minor disruptions will be seen over the next 2 weeks.

Narrator: Yeah. What are you hearing? Are you getting some yield data back and some information from some people? What are you hearing? Good, bad, and different, or any general themes?

Chris

Barron: I would say a general theme on soybeans is quite good, and areas that were stressed due to dryness, they're getting better than expected, but they know they lost some of what they could have had. Areas outside of dry areas, for example, outside of the state of Iowa, I'd say for the most part are very, very good. Seem to be on track to meet or exceed USDA's yield projections, is kind of how I would describe it. In the case of the corn, yield reports are all over the map, even within the same geographic footprint. I think you're seeing different soil types manifest, but you're also seeing areas that were short of moisture that had spotty rainfall where you might have got it and 5 miles away you didn't get it. I think you're seeing some of that as a cause for the variability.

But I would say the general theme that's coming out of here so far would be a lack of the truly exceptional yields that a lot of times we get, and I think a certain level of disappointment that the producers are But the argument against that theme is to say that it's still relatively early and some of the perceived to be, expected to be best bushels, best acres, best yields we have not yet harvested. So I find it difficult to know whether we're on track to meet USDA's current yield estimate or whether we're going to fall short of that. The marketplace at the present time is leaning towards an expectation that yields in this upcoming Friday's USDA projection will be lowered, as they think they might also be lowered in the reports that follow.

Part of that is being driven by the spillover narrative, concern created by the stocks report from last week, which lowered corn stocks, uh, therefore carry-in for the '21 2021 balance sheet and tightens up the ending stocks estimate, therefore making whatever the final yield was for 2020 all that more important. And I think all of that is combining to get traders to brace for a smaller number from USDA on Friday. Whether that's what we're going to get or not, I don't know, but that's how the marketplace is lining up.

Narrator: Okay, we'll get to a little bit more on the report in a second. One thing I want to ask you about Going back to the yield information and what you're finding, one of the things that I'm seeing and hearing from a few folks, and we're seeing it like in Cedar Rapids, for example, in Iowa, is a stronger, quite a bit stronger basis than what I think any of us really thought we might see. Is it, and like in our area, you think more so because of the derecho, or, but, you know, I'm hearing it in some other areas too. Any thoughts on why basis has still some pretty decent strength in a lot of areas? Not 100%, but in a lot of areas it's pretty strong yet.

Chris

Barron: Well, not trying to rank it in any order, I think one factor is we have a much stronger export program, and I think therefore you have another sector of the trade that's maybe more aggressive to bid for. Wants to, to build some inventory, so I think that's part of it. The derecho in the state of Iowa is a big part of it, um, and I think, um, the last part of why basis is strong— probably two more components. Number one, basis bid structure during the summer got out to on the wider side of recent history, and therefore they're at a wide point, so they have plenty of room to strengthen And lastly, the soybean market has been so firm that producers have leaned towards more soybean sales as a way to satisfy cash flow needs than what they anticipated they would, and therefore there's less of a need on the producer side to, to make corn sales for cash flow needs.

And a lot of producers made some sales during the summer that don't look all that great right now, and I think that that causes producers to, you know, kind of reel back a little bit, not want to make the sales now. And all of this stuff I think is tending to firm basis, and if you look at the bid structure after the gutslawt of harvest, basis values are fairly firm out there, and I think that there's plenty of room for basis to probably improve some more.

Narrator: Yeah, and speaking of price and its relationship to basis, if you look at the— and I'll have you touch on this— on the gift we got last week, at least for a short period of time from that report, where are you at, or what are you seeing with your clients, or what are some options that you think are good things to consider as we move forward here with where the pricing is at? I know you were, you You've been always, you know, in the last couple of podcasts leaning towards heavy sales. Are you still there? What's your thought on things if guys aren't caught up to the sales levels they need to be or want to be at?

Chris

Barron: In the case of soybeans, I don't think there was anything in that stocks report last week, despite the market getting a positive reaction. I don't think there was anything in that stocks report that was all that significant that can't be trumped by getting a larger production number from USDA either this coming Friday or in subsequent reports that follow based on yield reports. And I think we still are dealing with a plentiful supply for the U.S. balance sheets. The only threat to that supply will be South American production. And so I think a very aggressive pricing stance on beans seems warranted. Probably not all that anxious to make 2021 soybean sales, willing to make some sales, but not a, not a real aggressive stance. In the case of corn, I still favor a very aggressive price protection stance both old crop and the 2021 crop.

I think basis values can improve, therefore bushels that are stored on the farm, I think the best way to take a protective stance is to HTAs or putting your hedges on the contract, you know, like the July of '21. I try to capture the spreads tightening, try to capture some basis improvement, and then once you get those combination of factors that meet your liking and we get past some of the gut slot basis bids that we find now, I think that's when you'll complete your sales. But at the present time, I think that from last week's highs, there could be 5 to 15 cents higher levels in corn to be attained. From Friday's settlement, that's basically 10 or 15 cents up, and I think that's probably on the upper end of where we'll see corn prices despite the stocks report being lesser numbers. I think a lot's going to have to do with how the USDA finalizes yields.

The argument against what I just said would be that the USDA would substantially lower national yield ideas. I don't I don't think that the yield report themes that I'm hearing would suggest that, but I think it's a toss-up whether we get a reduction in yield or we get a similar yield. The marketplace is already pricing in a reduction in yield, so if we were to get an unchanged yield from USDA on Friday, the marketplace would view that as a disappointment. As far as '21 sales, I think there's a lot of good pricing opportunities out there and I think that we still have to deal with the situation over the next 5 months. We're going to hear projections based on trendline yields and if we keep yields, or excuse me, keep acreage unchanged in '21 versus what we had in '20, we're going to have a rising carryout situation.

We have several million acres that we have to expect will be planted in 2021 that were in the prevent plant program in 2020. That tends to, to put a lid on what new crop prices can do. South American weather, of course, will be very important because it'll determine how much pressure there is on U.S. farmers to increase soybean acres. At the current price relationship, I think you have some producers planning on maybe planting more beans in '21, but I think those final decisions will be made by what happens or don't does not happen from South America. So I think for the time being we have values that are getting close to maybe high enough for the 2021 crop, and I think that will be the case until or unless we get a production problem in South America.

Narrator: Yeah, I know there's a lot of people that would probably consider selling some $4 Dec corn, but unless you have targets in that opportunity, if it arises, might be for about 10 seconds, right? So probably maybe a good idea to— if a person does want to make some sales into that 2021, or maybe even, you know, going back to the 2020 crop, just having some targets in there, I— from my perspective anyway, looks like a smart move, you know, if these levels aren't quite where you want. But like you said, if there's 10, 12 15 cents, you know, a lot of times those rallies last for about 10 seconds, and so you almost have to have some targets in there, otherwise you never get those sales made.

Chris

Barron: Yes, I agree with that. I think it's reasonable to say that we are at price levels that it's, it's reasonable to have offers in within a dime of where we're at, and I think it's reasonable to think that you have a chance at getting those offers hit, but again, they might be short-lived just like you say. The marketplace, by the time we get to Friday's report, the marketplace will have a lot of bullish anticipation built into the, into corn prices wherever they may be, and if you get a bullish reaction, a bullish number, we might find the reaction to be relatively short-lived and while producers have been reluctant to make corn sales so far, I don't know exactly where that line is, where, where they will be willing to make those sales.

But as harvest progresses and the price moves up, even if it's a relatively small amount, you know, those lines might intersect and all of a sudden you might find some producers selling of corn too, even though they've been relatively tight-fisted so far. So any strength that we get above last week's highs here over the next several days, whether it's just in front of or just after Friday's reports, I think it's possible that strength will be short-lived. I mean, it is harvest time.

Narrator: And, and with the beans, like we've talked all along, there's just no carry there. I mean, selling stuff off the combine just really makes sense. And looking at the 2021, when you look at that the, the corn to bean ratio, the, you know, the beans have a little ways to go on that from that perspective as well. And I guess we keep an eye on that one, huh?

Chris

Barron: Yes, I would agree with that.

Narrator: So, uh, last thing I wanted to ask you about, and you mentioned it a little earlier in the podcast here, just we've got this report coming up Friday. Any, any final comments on what to be preparing for, anything we need to watch out for there?

Chris

Barron: Well, the marketplace and traders are expecting USDA to lower their yield numbers, lower the carryout numbers. The carryout will be lowered largely because of the stocks report last week. The caution that I would throw out to getting too bullish here based on the stocks report is the fact that the demand numbers are already rather robust, and maybe it'll be difficult to sustain that. Not sure. The export program is already pretty optimistic. As far as production, you know, how do we know? But I think the concern would be that the marketplace will anticipate a drop from USDA, and USDA may choose to take more of a punt approach and may choose to leave the yield projection, not that much change from the previous month, so I think there's caution there.

In the case of the beans, if people are honest with themselves, yield numbers that we hear are just pretty darn good, and I think it will be difficult to get a bullish production number from USDA. And we're at the point where so much Chinese demand has already been announced and built in, and we know that South American values for Feb forward are at a discount to U.S. values. There's just an awful lot of warnings out here that says soybean prices can't probably be maintained here unless you have a South American weather problem, and at the early part of October, even though we have people in the marketplace talking about South American weather, and it is drier down there than desired, and in some cases holding off planning because of that, it's still difficult to, and a little worrisome to get, try to fold up on weather on South America in early October.

I mean, we're 30, if not 60 days ahead of where we should be in terms of being concerned about weather. At least that's my opinion. It seems like it's a lot easier to rain down in South America and it gets easier from a seasonal perspective in front of us, so I just find it difficult to want to embrace dryness concerns on early October.

Narrator: Gotcha. Hey, Dwayne, I think we covered a lot of stuff. Is there anything I didn't ask or anything we didn't hit on?

Chris

Barron: No, I don't think so, but I would want to hammer home one more theme that I've tried to stress before, And that is try to remember where you were at all summer, much of the spring, and all the uncertainty and all the concern and the terrible prices, and compare that to what your revenue dollars are now. Tack in the government payments, and if this works for you on 2020, you know, seriously consider putting a ribbon on 2020 and walking away. At least walking away for a while. You don't want to get caught in a situation where a guy gets too bullish at this time on a rally during harvest and then have to sit through all winter and wondering if you're going to get a chance to sell it again where you had an opportunity to sell in September and October. I don't think that's a pleasant place to be, and I think that's a very real risk that might be in front of us.

Narrator: Yeah, I think so. I think in, in early August this would have been considered an early Christmas gift for sure. Yeah, yeah. Hey, Dwayne, I think this was a good conversation. I think we covered a lot of things. If anybody has any questions, they can sure reach out to you, can't they?

Chris

Barron: Yeah, they can give me a call, 563-419-1300, and that'd be great.

Narrator: All right, that sounds good. Hey, Dwayne, thanks for the conversation, and thanks everybody for listening, and we will catch you catch you again next time on the Ag View Pitch.