Sunday market outlook: will demand continue to drive the corn and soybean markets higher?

Clark

Neighbors: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one. 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're gonna be heading into a new week, and you've got Chris Barron and Clark Nabors with BIS Commodities in Cedar Rapids, Iowa. How's it going, Clark?

Clark

Neighbors: I'm doing very well, Chris. How are you?

Chris

Barron: Oh, we're hanging in there. You know, we're chugging away on harvest in our operation. And I know there's a lot of producers listening here that are probably listening from the combine or out in the field running around trying to either wrap up harvest or keep cruising on harvest. So what are you hearing in the countryside?

Clark

Neighbors: Like you said, it's a busy time of year for most people. In general, you know, Midwest-wide, talking to our client base, you know, generally winding down or done with beans in most cases. As far as corn harvest, in the brunt of it in majority of areas, but over the hump in others. And yields have been all over the place. I kind of call it erratically consistent. In other words, there's a lot of erratic yields everywhere, but there seems to be some consistency of it, if that makes any sense. Moisture-wise, as a general rule, pretty dry as we get in this last half of corn harvest, if you will, in most areas of the Midwest. I think it'll be interesting as harvest moves in the northern area of the Midwest, the Minnesotas, the Wisconsin, the Dakotas of the world.

Where crop conditions have been generally really good all year, see what the yields are like as we progress in those areas and also moisture, you know, as we progress. So, but no, all in all, pretty consistent. I would say if anything, not to nitpick, but I would assume the yield number could slowly back down a touch. I think the market's trading that to some degree. You know, the last USDA number I think was 178.4. I think the market's trading more of a 175, 176, which I sure couldn't argue with from what I'm hearing from areas of Illinois and obviously a tremendous amount of variability here in Iowa between the derecho and the drought.

Chris

Barron: Right. What are you hearing on soybeans?

Clark

Neighbors: Kind of the same thing. You know, if anything, I would say soybeans could slightly be lowered off the USDA number going forward. Uh, pretty much everybody's wrapped up. Pretty consistent yields generally, but you didn't see those really, really solid yields we've seen like back in 2018 or even maybe some cases a year ago, um, which probably takes the top end bloom off this crop, it sounds like. But generally beans were We're good. The only other thing I would add, I know talking to some elevators I work with in Illinois and places like that, their bean— their bean intake, or what they took across the scale, seemed to be in line with their expectations more than corn. Some of that, from what they're telling me, is they think they miscalculated on what bean acres were in their particular trade territory, which I thought was interesting.

So Maybe that's not a nationwide thing, but I'm hearing that from some locations that actually bean acres were larger than a year ago and a little larger than expectation as far as budgeting what they thought they would take in for the crop year.

Chris

Barron: Okay, so kind of a little bit of a conversation on what we're seeing for, for bushels on the production side. Let's take a shift here for the kind of the rest of the conversation toward the demand side of things and, and kind of what we're seeing First off, I'll just say that, you know, unless you knew of somebody that knew we would see such a counter-seasonal rally here, this thing has just been crazy. There's a lot of people out here, and I said this last week to our guest last week, that I think there's some emotion out there, you know, some sales regrets and things like that. And just, you know, bewilderment, I guess. I'm trying to think of a good word here that, you know, the market has given us the strength that it has.

And so having said that, talk a little bit about, you know, where this came from and a little bit about how this ties into what we're seeing, you know, the front month. You know, it's almost like, you know, we've— there's no carry. It doesn't even make sense to hardly store corn anymore. And for a while there, it looked like it did. And now You know, we've got a whole new dynamic to deal with as producers. So talk a little bit about, about what's changed here now and some things that we need to be paying attention to.

Clark

Neighbors: Yeah, excellent points. I've been doing this quite a while and the rally the last couple of months is something I've never seen and I don't think most people have. It's very unprecedented. As you mentioned, the timing or the counter-seasonal time, etc., etc. Yeah, it surprised everybody, but the ingredients— and maybe it ties in with the goofiness of 2020, if you will— I think several things kind of tied into this. Number one, and the driver, I guess, in my estimation, is a demand-led rally. As we started seeing the Chinese demand really pick up in August, especially on soybeans, had these daily announcements and they just kept coming. You throw in the fact that, you know, August was fairly dry in a lot of the Midwest, you throw in the derecho, you had a little supply boost.

The hidden thing to some degree behind it, we've seen a lot of investment money come into commodities and more specifically the ags over that same timeframe. Where the funds went from net short all the ags to now as long as they've been in several years. We've seen investment money or index money come in the market. A trader buddy of mine in Chicago said he's seen some of that money come into the market for the first time in 8 to 10 years. So, you throw that all together, get the ingredients going, and then the September stocks report kinda added a little adrenaline boost to this market with the, tighter stocks numbers, if you will, and throw together kind of a trifecta. And, you know, you rally beans, what the term I like to use is $2, 2 months. And so it's kind of caught everybody a little off guard. Yeah, there was probably some sales made early, as you mentioned, sale regrets.

I think those are larger in the bean —right— side of the equation than corn. Because if you look back, Chris, to early August, all of August, you know, as you're preparing for harvest, how do I market this crop at that time? And it has almost the entire time since then. And you mentioned this, was Mark was saying sell beans and whole corn because you had dwindling carrying charges in the beans and you had decent carrying charges in the corn.

Now what's interesting, if you go back to early August, I think the market from a spread point of view, if you looked at new crop and you said, all right, am I gonna hold corn or beans, you looked at beans and I believe in early August the spread between the November, the front month of the new crop, and the carrying charge the market was giving was a 22-cent premium to July, which equated at that time to maybe 2.5 to 2.75 cents per bushel per month return to storage. That's a good way I like to look at it. Obviously, obviously today that's zero, so that return to storage has even gotten tighter since then. And on that same timeframe, the carry from the front month of new crop corn, which is December to July, was a 25-cent premium July, which was about about 3.5 cents a month return to storage. So at that time, as you mentioned, the market was saying, sell your beans, hold your corn.

So now that carrying on corn is about a half cent a bushel a month, so now there's really not incentive to do either to some degree, and that's where the perplexity comes of how to market this crop going forward. But I don't know if I've seen going into harvest with, you know, we talked about maybe the crop's a little bit smaller, but still it's the second biggest corn crop ever according to numbers right now, and a big bean crop. Seen a situation where you've A, rallied, B, had the spreads come in this dramatically, C, But in general, in most cases, base is holding very strong for this time of year all at the same time. And so, it's an interesting situation. I think it's going to be hard to gravitate or going forward to some degree, and we can get into that a little bit more on maybe some demand dynamics with China and so on.

You know, as far as beans that were sold early, the regret side, I mean, the one good thing to keep in mind, I'm sure there's more corn to sell, I'm sure there's more bean to sell, and you know this better than I do. I'm assuming that going forward, whether it's this crop year or the '21 crop, you're now looking at potential above breakeven or profitable type levels to at least make marketing plans.

Chris

Barron: Right. Yeah. And that, that definitely is the case. I mean, with the strength that we've seen, I think it still leads me to a question. And you just mentioned it, you know, you talked about the rally, the spreads and the basis strength all in concert. The basis is interesting to me locally. And I'll have you talk about what you're seeing, you know, in a large area. But like you look at basis in our area, it's extremely strong, and I think maybe it has to do with the derecho locally because the, the processors just can't get corn. Part of it is, you know, soybean harvest was wrapping up, but they still are struggling and looking for corn. What are you seeing in other parts of the country?

Clark

Neighbors: That's an excellent point. And, um, so let's back up. You know, we talked about You know, the market was saying sell beans. The farmer participated. If you're running a commercial grain elevator, it's also saying to move your beans, and obviously again, this is a demand-led market where we have a tremendous amount of beans to be exported. Got an export program between now and late January, early February it looks like that we've never seen before. So the execution of this is going to be really key. The focus right now, between now and, you know, January, February, is this bean program. After that, the corn program will be the focus, but— so you got this massive bean export program going on. You've got all these bushels being moved. The producers probably moved it.

Now the commercial's trying to move it into the marketplace, and everything's going to be executed almost perfectly, so the elevator's got to move it via rail or to a barge facility. Then you have to have the barge freight to— or the rail to move it to the port. The vessels have to line up correctly. I mean, all that's got to come into place in good shape. So it's a huge challenge. So, as you mentioned, Chris, the side note of that is this: the focus is on moving beans everywhere. Everywhere. So what occurs then is, um, we still got corn harvest going on. I think the producers hold on to corn pretty tight. Space is not a huge issue in most areas. Probably going to get put in the bin. And so now the processor, the ethanol plant, uh, who doesn't have much of a book on right now, and talking to several of them, is going to have to chase corn from time to time.

So there's going to be windows where, you know, you could probably see a good little push in corn basis or watch, watch your windows into the processor. I've had a couple elevators I work with in Illinois tell me that they have more beans sold between now and January into the river market than they probably can execute or deliver without working 6 or 7 days a week with trucks. So it's, it's going to be interesting how this all plays out. So, yeah, it's a great question. And because of that, basis levels are pretty firm. Now, I think locally, depending where you're at, you know, here in Eastern Iowa, you know, Cedar Rapids and/or the river market until the river closes, but, you know, if you're tied into Illinois River, it's going strong again. Or if you're in the Northwest, there's going to be a lot of movement on rail to the West Coast. You need to kind of look at your local basis.

In a lot of cases, there's pretty good cash carry as far as what the bid structure is to November, December on both corn and beans. And, you know, if that works in your logistics to move it, you know, 30 days from now, 60 days from now to pay, I think that's the thing you want to do right now, assuming you have some bushels you want to move in the next 60 days.

Chris

Barron: Right. One other big thing before I get to some perspective and things growers need to be thinking about going into this next week is, you mentioned China as well. What do you see there? I mean, as, you know, talking on the demand side again here, and I understand it's not just China, but, you know, do we see this demand strength continuing, do you think? And does that continue? Because you need the demand side to drive strength into the market. And so I guess my question is, where do you see that going? Do you see that continuing, that strength?

Clark

Neighbors: Kind of feels like it to some degree. So first you look at beans, and I think year to date China's at about 24 million metric ton booked right now for this year. Uh, that's about 4 times more than it was a year ago at this time. If you look at total beans and tied into bushels. We have about 1.6 billion bushels of beans on the books right now. Keep in mind the USDA's got 2.2 billion plugged in, so we're, you know, vast percentage of that's already been booked. And again, that number's about 2.5 times bigger than a year ago. The corn, I think, is what's gonna catch the— so the bean thing's, I don't wanna say it's winding down, but we've had the majority of the story told. We'll see some more Chinese business. But we're kind of winding down on that. The spotlight going forward is corn, to some degree sorghum, probably some wheat.

The way it looks, they bought 80 million bushels of sorghum here in the last few weeks. But corn, you know, year-to-date the U.S. has booked about 1 billion bushels of corn. At this time of year, it goes like 400 million. Keep in mind the export number for the USDA last time was 2.325. I think you could slightly see that number grow. To date, China's bought about 10 million metric tons of corn. Now put it in bushel conversion, that's about 400 million bushels. The USDA has them in their account plugged in at 7 right now. So the question going forward on China is, you know, do they do some more reserve-type purchases with their TRQs? And that could— some in the business are saying could get up to 20 million metric tons total. Nobody knows the number, but there's some pretty good confidence that number's going to get bigger than 10 million metric tons.

Supposedly, rumor over last week that Ukraine defaulted on some corn sales to China. That could be enticing to some additional U.S. business. We are very competitive in the world market right now, all the way through January. Keep in mind, a lot of this Chinese business, especially as we mentioned, Chris, will probably be once you kind of wind down on this massive bean program, the corn program will kick in. So late winter through probably May is going to be a busy time on corn exports as far as the execution of all these bushels.

Chris

Barron: Interesting. So as we move into this new week and think about the next several weeks as we wrap up harvest, we may have some excess bushels that aren't priced. Just a lot of things to think about on the farm as we're busy and tired and everything is going on yet for a lot of producers. What should be top of mind? What should they— what should we be thinking about on the farm from the marketing perspective as we move into the next week or two?

Clark

Neighbors: Yeah, obviously everybody has their different needs depending on on-farm space and how much needs to move to town. I would say this, I would assume most of the— in most cases decisions have been made on soybeans at this point, either sold, put in the bin, maybe selling some of this cash carry we talked about earlier. If you look at what the values are in say November, December in some areas before the river closes in the northern Mississippi. Look at that on beans, you know, person wants some reownership, you know, he could always look at some calls, but I'd be real cautious on, in most cases, looking at commercial storage right now unless it's the last resort based on the fact you don't have any carry in the market, you're paying storage for something that has zero carry, you know, the intent to hold beans is not good.

Corn on the other side, extra bushels that might need to be marketed, moved, et cetera. Again, I think you look at those cash carries, you know, if there's some commercial storage and you need just a little extra to get 30, 60 days down the road, I think that's okay. And I think you gotta be careful. There's two things moving right now. Board perspective, there's probably some upside potential on corn, assuming we continue to see Chinese announcements, okay? Mm-hmm. Having said that, If there's not any Chinese announcements, I think the downside is fairly limited. So, not to say we can't see some corrections, and that's always healthy in a bullish market, but I think on corn you need to kind of just look at your particular areas.

If you're located near a processor market, be very, you know, watchful, I should say, on what their bid structure is, and they may run into a situation where they need corn quickly. You know, once harvest is done, it's easy to execute that. Right now it's not. But I think post-harvest you could see some opportunities that way. And then just look at the bid structure and see what matches up you need to do. Because in most cases, you know, sales look better in the next 60 days than they do waiting till March, April, May, et cetera, just because of the lack of carrying charge we've talked about in the market that's really taken place in the corn this week.

Chris

Barron: Right, last question. 2021, we just talked about inverted markets, and you look at where those prices are at, and in, in some instances with our client base, we see where some of those numbers out there do work. There's some where they still don't work though. What's a person think about with the 2021, or, you know, if we continue to get some strength in the corn, like you said, a possibility that'll obviously move that 2021 some, but it still doesn't look like it's where it should be from an angle of where we're at looking at, you know, current prices. So, so what's a producer think about 2021?

Clark

Neighbors: It's really good to keep that in perspective and keep a watchful eye on it. You know, if you look at December corn of next fall of '21 or of '22, And I'm not trying to promote going this far out, obviously, or '23, they're all basically at $3.95, $3.96, they're all the same price. So, to me, Chicago, the marketplace isn't really paying much attention to that right now. All the money that's coming in the market's on the front end, that's where the funds go. And anytime you got an inverted market, the lead months are going to lead. So I guess the answer to that is, Once we get past January 1st, get into the new year, have a little more focus on, all right, what do we need for acres? What do we need? You know, there's a lot of analysts that I listen to that are looking further out and say that there's definitely a drive for additional bean acres next year.

Now, I think a lot of that depends on how the South American crop comes out, etc., etc. But I guess to answer your question, anytime that new crop starts you know, marching north of $4, it probably doesn't hurt to lock a little bit in and just do some small segments. I wouldn't get carried away with it at this point because to me, when you get in demand-led market like this, Chris, they tend to hold together better than a supply rally. And so because of that, assuming this Chinese demand stays good into the spring and we have to execute on it, I think the downside of the corn market is fairly limited over the next 3, 6 months, and then obviously as you get in the growing season, things could get different. But, so because of that, I don't think there's a lot of, as I sit here today, I don't wanna think there's a lot of risk on that falling out of bed in the near future.

So, I think there's time to wait, but at the same point, it doesn't hurt to make incremental sales into those timeframes, depending on, you know, working with what you do, and on returns and profitability and all that, I think. Finally, you can make some decisions in that regard versus just trying to guess what is a decent level to sell.

Chris

Barron: Yeah, it's going to be kind of nice if, if this price strength can, can continue. It's awesome that it's demand-driven instead of production-driven because, you know, you're still talking about, you know, not record yields but very strong yields across the board and in general anyway. And a demand market, like you said, is a lot stronger, longer than than one that's tied to the just the production only, because we got to be able to sell this stuff and move it. So any, any final comments, anything I didn't ask as we wrap up here?

Clark

Neighbors: No, I've enjoyed the conversation, Chris. Um, I think, uh, you know, we got a little brighter light today than we did 2 months ago, 6 months ago, for sure. And, and that's That's it. But at the same point, we can't get complacent about it too. So, uh, opportunities are better now and hopefully going forward.

Chris

Barron: Yep, that's right. Hey, uh, thanks a lot, Clark. If anybody wants to reach out to you or to check you out, uh, what's the best way to look you up or to get a hold of you if somebody wanted to have, have a talk with you?

Clark

Neighbors: Yeah, so our phone number here in the office in Cedar Rapids is, uh, 800 373-2525, or we have a website, biscommodities.com. Awesome. Hey, thanks a lot.

Chris

Barron: We'll have you back again sometime if you're willing to do that.

Clark

Neighbors: I'd appreciate it, Chris, and enjoy the conversation.

Chris

Barron: Yeah, this was a great, great talk. Really appreciate it. Again, Clark Neighbors with BIS Commodities in Cedar Rapids, Iowa, and Chris Barron, and we really appreciate everybody listening. If anybody has any comments, questions, or suggestions, please reach out to Shea or I and let us know anything we can be doing better to get information out to you on markets and other things that are going on in the business side of the operations. And so everybody be safe out there, and thanks a lot for listening, and we will catch you next time on the Ag View Pitch.