Sunday market outlook: are you rewarding the market rally?

Chris: And it all comes down to this. Two on, two out, bottom of the ninth.

Jarod

Creed: The Farmers lead by one. Full count, here comes the play at the plate, and it's the Ag View Pitch!

Chris: Welcome everybody to another episode of the Ag View Pitch. We are heading into a new week and a new week of markets, and I do want to, uh, at the beginning here is just make a little comment on The idea that with the podcast now, we're gonna take a little different turn and do a little bit more with a variety of analysts. And we wanna thank Duane for all of the consistency and being there week after week. But I think at this point, we're gonna move forward and bring in a number of different analysts each week and try to bring you the best perspective we can and continue to do that. And if anybody has anything that you'd like to hear or anything you'd like different that we are doing, please let us know and we'll try to continue to bring the best, uh, content that we can. And so with that said, let's get into this new week.

We've got Jared Creed here with JC Marketing Services as the owner of that in Hudson, Iowa. And how's it going, Jared?

Jarod

Creed: It's going really well, Chris. I appreciate you inviting me on.

Chris: Yeah, you bet. It's great to have you here. And, and so like I said, you know, we're heading into a new marketing week here now. Harvest is under full swing pretty much across the entire Corn Belt now at this point, it looks like. And we're seeing some crazy things. I mean, you talk about a counter-seasonal rally, and let's start with corn first. What's your take? What are you seeing on harvest, and what do you think about these prices?

Jarod

Creed: Well, I do think that harvest seemed to get off like a herd of turtles. Uh, it certainly seemed like with the weather that we had at the tail end of the summer, we were going to be looking at a very, very early corn harvest. Uh, it seemed like that got pushed off a little bit, but for the most part, uh, throughout the entire Midwest, it does appear that the corn is a touch drier than what we've seen the last couple years. Guys are making good progress. A lot of variability in yields, certainly regional dependent. You know, just kind of going in a counterclockwise circle. Minnesota yields from producers I talk with up there consistently are very, very strong. North Dakota, so-so. South Dakota kind of got dinged by a frost, a frost event here 30, 45 days ago.

Nebraska is obviously very variable from irrigated standpoint, performing incredibly strong given the fact that the producer was able to control the environment with this summer's weather. And then dry land was obviously impacted by significant dryness areas. And then obviously Iowa is Iowa. My personal take is I think the Iowa corn crop certainly has its problematic areas from drought and obviously from the storm damage. But all in all, I do think the Iowa corn crop is performing rather well. And to me, it seems like Illinois and Indiana have been pretty darn quiet on corn yields. Which is a little concerning to the fact that they might be sitting on a monster over there. Obviously a whole bunch of different things in motion here in the corn market as well. And I don't think any of them really have much of a, much of a tie to what our corn yields are.

Obviously on Friday's report, we saw a significant surprise from a million-acre cut in harvested area. Keep in mind that's on top of the 300,000 to 400,000 cuts that we had the month before. So you just zapped out in excess of 1.5 million acres of corn in the last 60 days. That's a big, big deal to a market that is experiencing a significant ramp up in demand after the significant setback that we had during the onslaught of COVID Behind the scenes of all this as well, uh, when I mentioned COVID, I think that there's still probably some underlying concern in the ethanol industry. How are we able to keep that market healthy throughout the winter months when, um, I guess it just depends on what you read, what you believe, but there's plenty of concern out there that you could see a resurgence in coronavirus, which will obviously create a slowdown in driving.

We know that our miles driven is still significantly lower in years past. Our ethanol usage is significantly lower than years past. Uh, we just need to stop the bleeding in that market and allow some of these other positive demand factors that we have in the corn market to continue to lead the way. Uh, and I guess the only other thing to mention there from a demand perspective, there's plenty of confusion around the recent purchases of corn from China from the U.S. Uh, China has a quota for corn imports. Currently they have more purchased from the U.S. than what their quota would, I guess for lack of a better word, allow. USDA has been slow to adjust our balance sheet to reflect the amount of purchases that China has made. I think it's a good reminder that export sales versus export shipments You know, we can sell it, but we still got to ship it.

And this almost 9 million ton corn that we have sold to China might not all get shipped within the USDA marketing year, which started September 1st, will end this next August. A lot of pieces at play, a lot of participation from outside money, but it is certainly nice to see a market that is in generally providing a pretty decent opportunity for the producer for this year's crop, uh, and even to a certain extent next year's crop to, uh, you know, take a step, a positive step forward in agriculture.

Chris: Yeah, you mentioned several kind of issues there that are kind of watch-outs, I guess I would call them. At the same time, I mean, what, what do producers do here, or, or should they be thinking about? I mean, Obviously, we, with the Ag View Pitch, we want perspective here. We don't necessarily, um, looking for advice, quote unquote. But on the same token, um, you know, what things should guys be looking at? I mean, we're talking, uh, basis levels that are really strong right now, even on corn, and there's carry there. But, you know, the funds, you mentioned the funds, the funds are pretty long on corn. I mean, what, what does some of this stuff potentially mean. I mean, uh, some of these guys look at sales they've made and kind of are frustrated with themselves.

You know, maybe we made some sales that we shouldn't have, but on the same token, you probably don't want to stop making sales either, do you?

Jarod

Creed: It's that time of year, uh, not the traditional time of year, where emotions get the best of anybody in this industry. And I applaud you— we've had plenty of these conversations— that we want to focus on revenue per acre. Right. And if you take a 30,000-foot view from a simple perspective of what's my yield, what kind of prices do I have locked in already, what can I sell the balance of the crop for, what does my crop generate on a per-acre basis, do I have any other outside money depending on where I'm at from an insurance payment or from a hail payment, wind payment, and then we can't forget, um, the onslaught of funding that has been coming from the government. I don't necessarily know what the right words are to use there, but the funding that we've received from the government is going to be in excess when you consider PLC from last year.

Those funds have just been paid out in the last 48 to 72 hours. You consider CFAP 2.0, All these funds, you know, it's tacking on another $50 to $100 an acre depending on where the producer is located. And when the dust settles, if a producer is going to raise somewhere around their APH, which is maybe viewed as a little bit disappointing given how blessed the majority of U.S. producers have been the last 2 to 3 years with yields. I generally operate on the premise that I-80 corridor up to I-90 corridor covering a large swath of area, a producer needs to be generating somewhere between $700 to $900 an acre in their corn crop to be taking a step forward, depending on where they're at. And when you stack all the chips together here, you mentioned strong basis. Basis is every bit of 20 or 40 cents better than where we were in peak COVID market concerns. That is significant dollars per acre.

In fact, the, the, uh, producer that I'm helping out in western Iowa here the last couple days, you know, just to put, put, put it on paper, they're going to raise 1 million bushels of corn and the 75% of the crop or so is sold with about 15% of that having basis locked in. And we've experienced already a $0.35 boost in basis in the last couple of months. That's $350,000 to that farm on a million bushel production. That's the difference between having a— yeah, wasn't a very good year, gotta look forward to next year— to all of a sudden making it a pretty darn good year, right? Uh, generally speaking, $4 corn works for the producer, and that's regionalized, you know, $3.50 corn perhaps in, in the Dakotas, uh, $3.75 corn in, you know, Kansas and Nebraska. But $4 corn in Iowa, Minnesota, over $4 in Illinois, Indiana, you know, that's— it's hard to turn a blind eye to that.

So to your point, I don't think that the emotions— the emotions are going to be there, but they need to be blocked out. We need to be focusing on the fact that we're looking at generating a revenue per acre that is pretty salty good. And the decisions that the farm makes here in the next 90 days They need to take in consideration what's their cost of interest over the next 90 days, uh, what is their risk from handling that crop twice, uh, where at all possible trying to push bushels to town, uh, and not just go to a bin site just to use it just because it's there. A lot of variables at play there, but I do think the average producer still probably is overly dependent on storage on the farm for logistical purposes.

The carry is somewhat okay at this point, but in different regional circumstances, I think there's plenty of reason to continue to move a lot of corn to town here as fast as you can in the next 90 days. And you can always explore different type of reownership opportunities if that is what you're looking for. But don't overlook seasonal, a very strong seasonal basis.

Chris: Yeah, this is a counter-seasonal opportunity, but it is an opportunity, and And, and to your point, and I see it on Profit Manager consistently, that these numbers work. And just like you said, you, you figure in CFAP and you figure in some of the, you know, 1 and 2, and you figure in the PLC or ARC payments for some of the guys, and just some other assistance that has come out with PPP and some other things. This is not probably for most producers gonna gonna be a bad year. It's probably gonna be a pretty decent year from what we're seeing so far. And just because, to your point, just because the bins, uh, aren't full or, you know, or are sitting there doesn't mean you have to fill them.

I, I love that comment because, um, you know, opportunities are not always there by just putting it in the corn and shutting— or putting the corn in the bin, shutting the door is not always a solution. But, um, but having said that, let's, um Shift over to soybeans for a minute here, and kind of the same thing. We see no carry in the soybean market. What do you think going into this new week? We've seen some pretty massive strength on soybeans. Does this continue, or how do people need to be looking at this bean market?

Jarod

Creed: Well, soybeans is certainly impacting corn in two different ways. I feel that the corn market is somewhat sympathetically following along with the bean market. And at the same time, corn basis is also an overwhelming beneficiary of the soybean export program that we have on. Last couple years, we didn't have a home to ship any soybeans. The commercial grain system was plumb full of beans. We had good bean crops. Now we're seeing an enormous bean program and quite the impressive shipment pace It's freeing up all this elevator space that eventually, you know, the commercial is going to want to fill that with corn. They're not going to want to have their space empty. And that's why I think my comment on the bins is just make sure you don't let the bins turn into a cost.

But I think the bean market is providing something that we haven't had the last 3 years and in the form of cash flow. I see most producers this year are going to have the best cash flow going into January 1st that they've had for many years. And that is sometimes positive cash flow can actually— it might not look all that profitable off the get-go, but down the road that positive cash flow basically stops the bleeding when it comes to costs. You know, interest is real, cost to carry is real. All these factors that I think is leading a producer to turn more beans into cash at a faster pace this fall. I do scratch my head at the folks that are putting beans in the bin, especially in the Western Corn Belt, and especially if they're not sold. You know, one of the first individuals I worked with in the ag industry pretty much taught me, you know, by Valentine's Day you got two jobs.

You better get your significant other a gift and you better make sure you don't have any basis exposure on your soybeans. And what I mean by that is we will probably see substantial shift of export business back to South America like we have traditionally seen. I don't think there's any reason to think that that won't happen. That does not mean that the market necessarily has to sell off after that timeframe, but I do think that there's probably basis risk between now and then. And at the same time, just a quick comment on South America. Obviously, the headlines have been plentiful about Argentina and Brazil being quite dry. Devil in the details, there is historical evidence to show that the Brazilian bean crop can actually be a net benefit to a little bit later planting from a yield perspective.

But they try to get these beans in as early as they possibly can so they can go generate that 60-65% of their total corn crop as a second corn crop. It's a premium crop. And they'll run into frost risk if they can't get this bean crop planted timely. And, you know, the bean crop estimates out of South America right now, albeit it's not even planted, are, are monstrous. You know, potential 135 million ton bean crop. That's, that's 400 million bushels too much. That world balance sheet can have the risk— not suggesting we're there right now— it can have the risk of settling this bean market down quite quickly. Stocks-to-use important? A lot of discussion on that here the last couple days. Stocks-to-use in the U.S. probably not near as important as stocks-to-use within the world soybean complex.

And end of the day, if we can continue to see China on the buying pace that they're in on soybeans, regardless of who they're coming from, the bean market will be okay. The, the flip side to that is what if, what if China is just in a restocking phase. If they're in a restocking phase, their buying patterns will slow down, and obviously our market runs on ebbs and flows of buying patterns.

Chris: All good points. Uh, you bring a question to my mind on new crop a little bit on both corn and soybeans. When you talk about South America and you talk a little bit about the shift in things, and beans have probably, like you said, carried corn along a little bit. What, what does a person, or what you think people should be looking at with that 2021? I mean, as we've done financials and looked at cost of production and rolled those numbers over from '20 to '21, we don't see a big change. Rent, cash rents have pretty much stayed pretty similar to what they were last year, and fertilizer and some of those things have been actually a little less. Um, any, any thoughts there for 2021?

Jarod

Creed: I'm a little perplexed on it. Let's just say that we've got $4 December '21 corn futures and $9.70 November '21 beans, even $9.80. That doesn't scream to me a reason for the Corn Belt producer to go make a massive shift. Just doesn't to me. Now, however, I think there's been plenty of operations that have been heavy on corn I think that the drought year that we're experiencing here is probably aiding the idea of shifting to some more soybeans. But all in all, I don't think that there's a certain price signal being sent to the U.S. producer right now. And the bean market is going to be challenging to get new crop beans sold at similar levels to where we're at this year until the, you know, the November-November spread In essence, Nov '21 beans at one point were darn near a dollar higher than Nov '20, right shortly after the report on Friday.

So again, I think $4 to $4.40 December '21 corn futures is wildly more profitable than $9.50 to $10.50 November '21 beans. Wildly more profitable. Mm-hmm. With all that said, I think Mother Nature is going to have a little bit of say. If we stay dry all winter, I think there's going to be plenty of nervous folks. So I don't think that there's going to be that much fall fertilizer application because of the dry conditions. And that certainly leaves the door open to see some more bean acres next year. But it goes back to focusing about revenue per acre. You know, if a guy is pulling away good yields this year and he's looking at corn on corn, you know, the APHs are going to be going up. We got between now and February that if you forward contract anything before that insurance price, financially you're setting your own insurance price in essence on your contract. Right.

So, you know, above last 4 years, we've had what, $4.396 twice and then $3.88 this last year. If we're above $4 corn futures for a spring price and the costs, like you said, are steady, I got a really hard time seeing a dramatic shift. And I think that's a sign that the producer need to be aware that the U.S. farmer is pretty damn good at raising a lot of bushels. And just be cognizant of it, building a base. You don't have to get overly aggressive, but if you got a goal to make $100 an acre and you're comfortable selling 50% of your crop, well, identify what that worst-case price is on the other 50% that you have to sell at to still achieve that $100 profit an acre. And write down a plan and get going. You're long agriculture. And don't let the emotions that we're fighting on this year's crop carry over into next year and turn two good things into potential two bad things.

Chris: That is great advice, that's for sure. As we head into this next week, what haven't I asked? What should growers be thinking about during harvest and as they bring this, bring this crop in? Any key things going into this next week that they should be thinking and looking at?

Jarod

Creed: I guess in a snapshot of time, the door for the managed money space to get out of their positions is going to be very small whenever that does happen. So, you know, escalator up, elevator down. There is certainly risk of that happening. Personal opinion here, Chris, I don't know what to make of the election. And our Chinese, our relationship on trade with China. If President-elect Biden would win, what is the Democratic state of mind when it comes to trade with China? Are they going to identify that President Trump did heavy lifting, or are they going to look at it as unnecessary? Are they going to let China just kind of off the hook and, "No, you don't have to buy all these dollars of products from us"? Or has China been hedging the idea that President Trump will be reelected? That's the biggest scare for me right now. You have the budding demand base.

We still have coronavirus lingering. Currencies in South America have been a problem for a couple of years now. Here we are. U.S. farmers still have an opportunity. I really am a little concerned of what the next 30 to 45 days brings. With an election policy change around trade, you know, the trade agreements that we've been working on in the last couple years aside from China, that makes me scratch my head a little bit.

Chris: So I'm taking the advice to keep one eye on the corn row, but also keep one eye on the markets and don't let some opportunities get away.

Jarod

Creed: Yeah, and you know, some of the smartest people I know in the industry Granted, they don't live and breathe agriculture like the farmer does on a daily basis. They keep telling me, tell the farmer to sell their grain and buy a call and be done with it. Yeah, sell the grain, buy a call, get done with it. Yeah, take, take advantage of your historical basis. Even myself, I find myself unwilling to push the needle that hard on just selling it all and buying a call. Yeah, um, and some of that might just be from a little bit of lack of clear, convicted understanding of the mechanics of how that all works for the farm. Yeah, for the actual producer.

Chris: Yeah, the reownership side of it. And then also the thing I like about that concept or that idea is it allows you to kind of clear your mind a little bit, and then you can start looking at 2021 without carrying that emotional, uh, actually over, like you said. So hey, I think this was a, a Great conversation and really appreciate your time today. And if people want to get a hold of you, what's the best way to reach you, Jared?

Jarod

Creed: Sure. Telephone number is 402-680-1744. Shoot me a text or a phone call there and we can go from there if you have any interest in talking.

Chris: That'd be great. I'm sure you'll probably get some questions and I think you're out in the field today and I'm kind of doing the same thing. We've been trying to catch each other here, and I think we, we finally did that. I appreciate your time today. And again, we've got Jared Creed with JC Marketing Services, and again, thanks a lot, Jared.

Jarod

Creed: Absolutely, thank you, Chris. Have a good one.

Chris: You bet. And thanks everybody for joining us again on the Ag View Pitch, and we will catch you next time.