Sunday market outlook: new week, new month, new president?

Grant

Shimek: And it all comes down to this. 2 on, 2 out, bottom of the 9th. The Farmers lead by 1. Full count, here comes the play at the plate, and it's the Ag View Pitch!

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and today we are looking at a new week. We're actually heading into a new month of November and, and not only a new week, a new month, but possibly a new president. We've got Grant Schiemek with us and he's with Black Oak Financial. Grant, how's it going?

Grant

Shimek: Good, good.

Chris

Barron: Yeah. So in my introduction, you know, new week, new month. Uh, what do you think about this? Got any, any hot predictions or any thought process on the, on the election coming up this week?

Grant

Shimek: I don't know about hot or unique predictions, but I assume it's probably a Trump victory, but it might be a few weeks before we know that for sure. I mean, I think if anything, it could be a contested election result, and it might, you know, that might be the twist to it all.

Chris

Barron: Yeah, so you're leaning, your bet's on Trump, it sounds like, then, getting in again. Yeah. Okay, well, that's interesting. It's going to be very interesting to see, like you said, that night and what all happens. And any, uh, any correlation there, uh, from, uh, President Trump to Biden on, on the markets? Any thought process there one way or another if that has any, any impact on the markets, either commodity or, or the—

Grant

Shimek: hard to gauge for me on, on the commodities we deal with, on the ag commodities, exactly the the twist that'll bring stock market. I would guess the ultimate course is probably the same. Uh, could be down initially, more down if Biden wins than up, but less up than if Trump wins. Trump wins. Uh, yeah, there might be a little bit of shakedown because I do think there'll be unrest, uh, from more leftist side, the political spectrum, but then ultimately stock market would go up more so. And, you know, hard to say where we'd be 6, 8 months out, but I think that'd be the initial knee-jerk reaction. And, you know, we'll just have to see. Mm-hmm.

Chris

Barron: Yep, that's right. Well, I guess we're all gonna have some entertainment. I guess we pop some popcorn and grab a beer and sit down with the TV in the late, early afternoon or late, late evening and see what happens, I guess. So some of us are— yeah, and some of us are still harvesting. Um, I know you got some to go yet. We're in our operation, we've got a ways to go, probably another 5 to maybe 10 days. It looks like the weather looks really good though for, for harvest for most areas. What are you hearing on harvest progress and, and anything, any news there?

Grant

Shimek: Obviously the weather this year, and we've seen a pretty fast harvest in the western Corn Belt. I think eastern Corn Belt is probably at a more normal time frame, and a lot of guys out in the Ohio, Indiana area, and they're finished up with beans and are Some guys just getting started with corn in the last week and some guys, you know, maybe a third into it. I'd be the typical thing. They had quite a bit of moisture in some areas. So that was the difference between east versus west. But I think we'll be definitely in the eastern Corn Belt, really in an intense full swing this week and we'll probably see a pretty rapid finish to everything over the next couple weeks.

Chris

Barron: Yeah, what do you, what do you think about, uh, basis? You know, there's obviously in some areas there's probably basis being impacted a little bit by harvest, but on the same token, this basis has been really amazing as far as how strong it's been in the need for corn in the majority of the areas. Is that kind of what you're seeing too, and kind of what's your thought on that?

Grant

Shimek: Yeah, it's been strong everywhere and given the export program it's hard to believe that would, it would just fall apart on us seasonally when you get from pretty much around that historically anyway. Well, it's been fairly rapid harvest but get to this 10th of November into say December 10th, that is historically a time of strengthening basis. So, we've already been very strong. Maybe the worst-case scenario is that we're just not going to see more improvement than we normally would and we're just going to stay firm. Otherwise, we should expect a little bit of improvement going into those first 2 weeks of December. With the export program and, you know, Brazil somewhat behind, a couple weeks behind on planting, that just means another couple weeks more of an export program that we might not have seen otherwise until they're in their harvest down the road.

So it wouldn't seem that we'd have any reason right now for that to fall apart. The U.S. is the one with the relatively large excess grain stocks to export, so why would our basis get poor. To say, to put a number on it, you know, when we began, when beginning of this year, my clients in Eastern Corn Belt had some really strong basis. They had come into fall in lots of areas of Indiana, Ohio with some real strong basis. We got into that January time frame and it was even better. And I remember clients telling me, yeah, this stuff is strong and my e-plant buyer and merchandiser saying it's just going to get better into summer. And then within a few weeks we know what happened with COVID Not to say that they should have known that, it's just that when the emotion gets that extreme, it can only get so good.

So from, uh, going forward, I do— I don't see any reason for it to roll, but once we get past that early December, I'm not going to assume that it only stays strong. So I mean, I would— I'll be looking to lock down some basis risk then because Personally, I think it's more likely that if we're going to be that strong, we're going to see it expressed in futures price, and I don't think the basis will be doing the heavy lifting after that timeframe.

Chris

Barron: On the demand side of the equation, so basis strong, production in some areas is a little less than what people thought they were going to see, people saying, you know, little lower than expected or whatever, but, you know, really a demand market always gives you a lot more strength and stability and longevity. What's your thought on the demand side of the, of the picture with China and, and that, that category of, of thought process? What are you thinking there?

Grant

Shimek: Given there's no— we're not thrown for a loop with some other event happening, and I don't know what that would be, you would— I would expect them to continue to need to import. Interestingly enough, this last week in the Three Gorges Dam, which is the one everybody has been worried about since, say, July due to flooding, it reached its highest level that it had since this all began. And I'm not sure why that's the case, but it was up to its— I don't want to think it's like 500 174 meters, it's, uh, 175 meters, 574 feet is its capacity, and it reached that. So the point is, it doesn't seem like the flooding is stopping and the issues they're dealing with. So, you know, then the Yangtze River Valley, that's where 70% of China's rice production is. I think that the impact to their food production was— we'll never know, they're never going to say.

But they, they have a food crisis on their hands. And I think if you look at the overall and the general media, the last 3 weeks especially, there's been lots of articles talking about regional famines and problems. And COVID in and of itself has created supply problems because it's wrecked the supply chains in certain cases. So those impacts are going to be ongoing. So there sure doesn't appear to be any reason to say that we're going to swing back to easily flowing supply chains that are well supplied anytime soon. So it's going to have to be something that's going to have to come out of left field to derail that right now. Otherwise, yeah, I think it's going to be a strong demand market until we get some good crops under our belt.

Chris

Barron: Yeah, and I think there's been some conversation around the idea, depending on who the president is, might have some impact one way or the other. But on the same token, if China needs it, they're probably going to buy it. If they, they don't need it, they're sure not going to give us anything extra, right?

Grant

Shimek: Right. I mean, my personal opinion on the the trade negotiations or conflict that the U.S. had with China. Yes, China ended up buying a lot, but I don't think that was because they were trying to fulfill their obligations. I just think they were forced to by the sheer force of what they were dealing with, with the flooding and locusts and, you know, certain parts of the country had droughts this year. That's why they ended up buying as much for ag commodities because they bought it from everybody. Mm-hmm. Not just, not just the US. Yeah.

Chris

Barron: Okay, so the next area I want to hit with you, Grant, is, you know, we've been in this quote-unquote counter-seasonal rally here that no one— I don't think anybody on the planet could have predicted— that kind of created this perfect storm. We, we get this rally at, you know, the most unlikely time. People make sales going into it. And then the rally continues, and then they look back and say, okay, what's my average price? Am I, am I okay where I'm at? In most cases, from what we see with our clients, people are fine. You know, yeah, you would like to have sold some of these, done some of these contracts a little higher or whatever, but on the same token, with the government aid and the way things have shaken out, either insurance or sufficient yields pretty much everybody we're looking at anyway, and there's a lot more of that to do.

But as we've begun to look at some financials, I think people are going to, going to make out okay. What are some of the things that producers need to be thinking about on, on these unpriced bushels that they yet have? That there's some— in a lot of cases, people are thinking, well, I need a better price now just to get my average back, you know. So, so what's What's some things that growers need to be thinking about with these unpriced bushels, you know, both in timing and, and some perspective there, if you could?

Grant

Shimek: Well, number one, it's a matter of degree. So if you're right, if you're 30% sold compared to 60%, the answers and the strategy end up changing. If you're on the lighter side of it and you've taken contracts, government payments, so forth, and you are in many cases I see that people have with good basis and good yields that they're having, you know, they're looking at $900 gross an acre on corn and $600 on beans. And if you're in that camp and you're not 50% sold, in the, definitely in the last 6 years that's been a mistake.— and there are times I've seen this happen with clients, they're at those levels, maybe it was just due to yield, maybe it was due to a combination of things, and they didn't take that action.

It's— you really got to look at the ROIs and say, "I'm just doing it at those levels." Anything can happen, but you just can't look at that stuff Those are defendable decisions as far as making sales based on ROIs like that. What's not defendable is the, well, it looked like it was going to go higher. Because I, every, having done this for a number of years, I still can't tell you what looks like looks like. Now, if you, if you have a lot of sales on, you're, you're going to go, it's going to be the other direction where I do think we'll see a pull, pullback into November. It's what I've been expecting for a long time. I didn't expect the magnitude of the rally we've got. I thought we'd get to $10.60 on beans, but I thought that was going to be more like late January, February. So it's well advanced past whatever, what I thought it would do magnitude-wise.

I do think the correction that I expect into November, you know, that second, third week of November would be my best guesstimate. You get into levels there, you got to go with what you're comfortable with. I— some kind of option strategy, I'd go out to May or July expirations, and in some cases it may not have to take that long, but I think that's, that's the direction I would go. And some people are going to want to be willing to buy futures. You just still got to define your risk and how much you're going to do with that. And I do think the volatility can be, can be extreme. And when we look at what the money managers have done, and yes, it's been, it's been a counter-seasonal move, interestingly enough, in all the major grains. I believe that we are at the highest net longs for this time of year that we've seen since 2012.

So every year from 2012, including 2012 forward, this is the largest net long position. So the tree can get shook pretty hard. But all that being said, and in the context of the demand situation we see, I think we'll reassert ourselves coming out of November, early December, and, and get to better prices. So now, if you're heavily sold at and you don't like your averages because of the yields you have and the levels you sold it at, you're not take some kind of action over the next 3-4 weeks.

Chris

Barron: Does that hold true for both corn and soybeans? Or, you know, I think, I think people are better off on soy or feel like they're better off on soybeans than on corn, but is that true for both, both crops?

Grant

Shimek: I, I'd say it's true unless you're ha— if you're happy with the number you have, then, then don't risk, don't risk going backwards, right, by putting capital at risk on it. By no means. I've had guys say, well, you know, I've pulled off a 70-bushel bean average and I've got like $645 an acre gross. Well then, who cares? I mean, if you don't, if you don't want to go backwards on that, then don't.

Chris

Barron: But, uh, well, from a, from a technical perspective, you're probably, of, of many, many people that we talk to with Ag View, you're probably one of the most technically focused people that I know. Are you willing to— I mean, give us a bit of a range, kind of, you know, some perspective, I guess. Not holding you to it, but give us a little bit of a range of kind of what you're thinking in terms of some price targets on, on both corn and soybeans. Of, you know, if somebody's looking for some sort of a reownership strategy, what's that look like on soybeans?

Grant

Shimek: Price targets to take action, I'd tell you it's somewhere between $9.80, it's about $10.20 at a minimum. I don't think we hit it last week, so it should get in that $10.20s to down to $9.80. I think that's the zone of taking action. So probably for myself, I think it's going to be $9.80 to $10.10 front month beans are there. I'll probably do something. Now that, that means that the the May or July are going to be slightly below that. Maybe there'll be, you know, 10.05 down to, down to 9, mid-970s. I'd take action there, and with an outside chance that it's much deeper. If— I don't think anything would be dramatically derailed even if we took this thing down into the 9,920 to 9,950 zone, as long as we didn't spend too much time there.

Now if your next question is what would possibly cause that, my answer is going to be I don't know because with what we see, why would we go down that low? I mean if you have the U.S. with the one with the exportable grain stocks, the excess grain stocks for sale, then it's probably not going to happen, but that's how the market gives you a twist you didn't expect and that's where You buy real futures, sure you can do that, but you know, the market has a way of taking you to the edge of the cliff and making you look at it before it truly gives you what you expected or wanted. Yeah. On the corn side, the numbers, you know, we got down to the $3.93 area this week on the Dec. I think we're on the front month, we're probably going to be somewhere in that mid-370s, like 374 to 382.

And then I would be going out looking at, you know, May or July time slots for taking action, with an outside chance that if he did ever crack 370, since he spent so much time trading around that the last few years, that it could be something more extreme. And then I wouldn't rule out to, you know, $347 to $357. But that's one of those things, what would cause that? I don't know. I wouldn't be waiting for those numbers to take action, but I think that's the extreme level where blank happens, whatever that is, and we get a nasty shakedown. And those things you have to keep an open mind for as we go through November, because with the money managers this long and the world the way it is, you have to expect to be taken to the edge of that cliff. And that's to me the nature of this right now.

Chris

Barron: If we pick on corn for a second, you know, you're, you're talking settling, you know, possibly settling back to that $3.74, $3.82 range, maybe as low as $3.47. What, what strategy— I mean, obviously it's individual, but what strategy between options and just buying some of it back. I mean, if you're buying that stuff back, you better have a pretty strong stomach then, it sounds like, because of the potential for this thing to actually go lower than what people are thinking. Is that what I'm hearing, or am I hearing it wrong?

Grant

Shimek: That's my bias. I mean, I've never been afraid to do futures by any means. But what I've seen the last 2 years especially is that people can be bull— and right now are fairly bullish and willing to do things, but we easily flip to being scared and assuming the worst and then blowing out of positions and taking losses. Or, you know, that's— I really want to avoid that, so I would prefer an option strategy myself. And, you know, it doesn't have to necessarily be just buying calls outright. You can do some spreads or sell some puts to fund them at levels that you're definitely comfortable being long futures at.

Chris

Barron: Yep.

Grant

Shimek: Um, so that's how I would go in both of them. Yeah, and you're probably looking at something— call options on beans in that $10.60 to $11.20 zone. On the long side of the, of it. And on the corn, I'd like to be in that, uh, depending on the month, of $4, $4.10 on the low end to maybe $4.30, $4.40 on the high end, depending on the individual, what they want to, want to, how much capital they want to risk and what their needs are.

Chris

Barron: My bias, see what you think to this, but is on corn, the threat to the downside seems more prevalent than soybeans just from the standpoint of COVID you know, and ethanol, and who knows what crazy stuff can happen yet, you know, depending on the election and a few other things. But, you know, it just seems like— is that— is there some validity to that, or, or what's your thought there?

Grant

Shimek: I think there's validity to that. It's, uh, probably a— it's a more industrial product than soybeans are relatively. And yeah, that definitely can happen. I mean, the way we were running ethanol demand was not— it was potentially going to be taking a hit from the price structure that we had. Now yeah, there's rumors of China that there has been a ship that sailed that's taken ethanol to China. It is my understanding whether they'll buy in size or not That's possible. And even though we'll probably even see grain being exported and maybe even ethanol to Brazil. So I mean, there can be— yeah, the COVID thing is bad. And like, with the UK locking down for a month, that was kind of announced this weekend. Well, you're gonna see volatility definitely in the world financial markets. Yeah, it's gonna bleed through to some degree, right?

Chris

Barron: So if we tighten this up a little bit and look at just this, this week, any, anything to be watching for this week or anything people should be paying attention to in this, just this next week?

Grant

Shimek: Well, I would, I definitely would think this through now this week as far as the price objectives. And if you're serious about doing some reownership don't put it off. It's easy to not want to— you want to deal with this once everything's in the shed and put away. But I think over the next 3 weeks is the time there's going to have to be some kind of action taken, especially if we jam this— these markets to the downside. And it could always be right back to the upside, and the opportunity or the, the lower risk trade will be gone fast if you don't have some objectives in. Doesn't mean you've got to put the whole thing on whatever you're— you want to reown, but I would have some orders in and have some kind of strategy in place.

Chris

Barron: Okay, soon. That sounds good. Uh, one— my last question, second to last question I guess, is, uh, 2021, anything there that you would be paying attention to, or you wait for this— are you waiting a while?

Grant

Shimek: I'll give you a prognostication and You know, we'll see how this works, but my attitude would be that we'd run up into late January, February is one timeframe for significant highs, in my opinion, and then probably April. And if you're ramping hard into those, I don't care how bullish the narrative is, I'd be an aggressive protector of those prices.

Chris

Barron: You're less of a seller right now than you prognosticate for probably that January, February, or April time frame is what you're saying.

Grant

Shimek: I hear that. Yeah, for the 2021 crop.

Chris

Barron: Yeah, okay.

Grant

Shimek: Especially with soybeans. When we look at like the Nov '21 bean contract in this $9.70 area where we settled Friday, we're not going to buy acres in North America. We're with that. I think we need to see a 10, low 10s, like 10.20, 10.40 to get acres, which would, you know, to me mean that we're gonna probably see low 4s, at least on the '21 corn. So I don't really want to do anything now, but you start ramping in those time frames, yeah, I would, it's going to be time to look out. I do think we're entering in a multi-year bullish phase. But that doesn't mean that you're not going to have some horrendous swings. Just like in the 2006-2012 timeframe, boy, it was bullish. But remember, there were some horrendous breakdowns, and the pendulum swung back and forth pretty wildly.

And so even though I'm very optimistic out into as late as 2026-2028 for this whole thing, it's not going to be a one-way trip by any means.

Chris

Barron: Yeah, great. Hey, this has been a great conversation, Grant. Is there anything I haven't asked, anything that you wanted to wrap up with, or did we get everything pretty well covered that you wanted to hit?

Grant

Shimek: Oh, I think we've got it.

Chris

Barron: Yep. Good, good deal. Well, you can, you can get back at harvest. I can get back at harvest. Those who have some left to do can get at it, and hopefully we can get this thing put away and, and get ready for, for the next round of activity for all of us. And again, thanks a lot, Grant. Really appreciate your time.

Grant

Shimek: No problem.

Chris

Barron: Thanks, Chris. Yeah, you bet. And so that's Grant Schiemink with Black Oak Financial. I hope everybody has a great week. Make sure you get out and vote, and we look forward to seeing how this turned out next week. Make sure you tune in and we'll have a little wrap-up on that. And look forward to talking to everybody again. Thanks for listening. Catch you next time on the Ag View Pitch.