Sunday night market outlook 11-17-2019

Narrator: Thanks again for listening, everyone. If you would like to hear more content from Ag View Solutions, listen to our other podcasts such as Dad's Wisdom or our Current Harvest series. Ag View Solutions works as an integral part of operations like yours, side by side for farm profit management, business collaboration and structuring, facilitating industry-leading peer groups, and coaching and consulting tailored to your farm's unique needs. We know that no two farms are the same, and we are here to help make your farm be the best it can be. You can learn more at AgViewSolutions.com, email us at AgViewPitch@gmail.com, or call Chris Barron at 319-533-5703. We really look forward to talking with you.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and we're starting a new marketing week. And so we want to have a little conversation here today with Dwayne Lowery and Chris Barron. And how's it going, Dwayne?

Duane

Lowery: Good, Chris. How are you doing?

Chris

Barron: Well, we're hanging in there. Harvest is progressing. I guess it's, uh, been one of those long hauls. This has been a major marathon this year for sure.

Duane

Lowery: It's been that way almost every region for every producer and facing difficult, you know, and unusual circumstances from, from planting all the way to harvest and LP shortage and, and wide variant moisture. And it's, it's, it's been quite a year for sure.

Chris

Barron: Yeah, and some deep snow and all kinds of fun stuff. But we can get into that fun stuff a little later. Maybe we'll have a little conversation here towards the end of the podcast on some margin target expectations and that kind of stuff. Before we do that though, Duane, I kind of want to throw a curveball to you on the front end on demand. It seems like, you know, the market's sort of in the just kind of a really tight range now possibly, and it just doesn't seem like there's a lot of interest and it's kind of dull. Anything, you know, do you think it's a demand thing? What's, you know, let's start there and then let's work into some of the technical and fundamental things as well.

Duane

Lowery: Well, in your response to your question, is it a demand thing? I assume that in response to why is the markets soft, why are they in the doldrums? Why are they not doing something, you know, better than where they're at? And the demand is the excuse everybody tosses out. If we look at export demand, it is off from what it was a year ago. The expectation is that it will be off from last year. Some people point to a reduction in ethanol demand. I don't believe that's actually an accurate assessment. Certainly, I don't think it's an accurate assessment when we look at where we'll be at the end of this marketing year in terms of ethanol usage. And I think if you look back over the last several years, the amount of change from one year to the next in the ethanol usage is not a big enough thing to be able to label any prolonged market move or lack of move and blame it on demand.

The only place you can point to demand that's really off is in the export arena. And off the top of my head, I would say roughly 14-15% of the corn we produce is used for the export channels. I find it very difficult to think that the 15% of our usage that is off a certain amount is the real driving force. I think it is an often used excuse. I don't buy into the argument that it's the driving— real driving factor. We had— we have a cash basis that's been strong since May. We have had the cash basis that's been strong through harvest. We've had buyers trying to build a long basis position. They've used enticements of all types, ranging from, you know, reduced storage rates or reduced DP rates or favorable moisture discount schedules, whatever, to try to get producers to turn over physical ownership over to the, to the commercial entity.

And I don't recall a year where we've had quite as dramatic of short-term push and bids to try to capture supply, whether it was a large quantity offered or not so large quantity offered. And to me, if we really had a demand problem, I don't think the cash market would react the way it is. So despite the fact that everybody wants to point to that as being the driving force, I don't buy into buy into that argument at all. And if you do buy into that argument, then how do you explain the fact that the, the corn market after having its tumble from the summer highs, why would it even rally at all from September to October? Why do we have that 50-cent rally? So I just don't buy into that argument. But it is an argument, it's the default setting. And if you want to look at export arena, the demand is off.

But there again, that's the demand for US origin is off, but not global demand for corn in general. So you have a valid point. And it's a great excuse when the market is down. But when the market's trying to perform in the other direction, all of a sudden that argument doesn't seem to carry quite as much weight.

Chris

Barron: Yeah, it just seems like all the other— or all the commentators, all the market analysts and stuff, it's, It just seems that that's where the conversation goes and kind of why I wanted to start with that and kind of get your take on there. And it sounds like you're still consistently in the camp of—

Duane

Lowery: It's not the most important thing in the price discovery process. But when people need to have an excuse or offer an explanation for why it's down, that's the go-to response. And nobody's going to question that response. So it's an easy, easy response to give. I give an answer that's different. I'll get, you know, 10 questions. Somebody throws out we're down on demand, they'll get zero questions. So that's the reason that we go with the demand. I mean, it's the easy answer to give.

Chris

Barron: Makes sense. But okay, well, and then, and then that ties into basis. I mean, you know, we were talking offline. And again, this isn't scripted. This is just us having a conversation here for perspective for the listener. But You know, from as a farmer and for our clients, producers, and from the producer angle, the basis is really, you know, in some areas softened a little bit and it's gotten a lot stronger in some areas as guys to the south and as we work north and people are starting to wrap things up, we're starting to see some basis improvement already. We've seen it for sure in the soybean side of things, starting to see it again in the corn. You know, what's your thought on basis?

I mean, how, how strong could it get if, you know, if the market's not quite telling us the truth, or there's just not the money coming to drive the, you know, the Board of Trade numbers up because there's just not the volume or whatever the cause is there, or lack of interest, wherever it is, but basis continues to rise. Where do you think that could go? Or what's your thoughts on basis, generally speaking?

Duane

Lowery: Well, corn and bean basis is both firm. Soybeans has been the, the most recent one to become firm. Both are likely to remain firm into the foreseeable future through at least the winter months, and the only thing that's going to prevent basis from getting stronger, other than some, you know, really obscure thing that we, we can't think of at the present time, under normal conditions, the only thing that's going to cause basis not to strengthen will be a futures market rally a significant magnitude. And the only thing that probably is going to cause a futures market rally of significant magnitude is still going to be something that's probably led by the cash market and the cash basis is the, the first thing that goes and drives this thing. And so I don't see a scenario where basis doesn't stay firm through the winter months, whether— and that's true about both corn and soybeans.

Once the crop has been put away, there'll be very minimal hedged inventory for processors to grab into and call their local elevator and try to get 100,000 bushels of corn because they know they're sitting on a large hedged inventory. I think there'll be very, very little of that. The cash pipeline will have to be fed mostly from the farm community. And I think that's going to be a difficult task. So I think the basis stays firm. I think the spread should stay firm. I think the spread should experience something like what they experienced in the summer months where the front end was all the rage and the Dec '20 was the weakest link. I think that will occur again. We certainly can find times in history where those spreads of say, you know, March-May corn versus Dec '20 in this particular case, they can move a significant amount.

I mean, not measured in pennies or nickels or dimes, but measured in, you in quarters or even, you know, 50-cent pieces or even dollars. And I think that's the type of situation we're dealing with, whether it's right or it's wrong. The marketplace thinks there'll be a much larger acreage number for 2020. And that's going to put a lid on 2020 futures. Now that lid has been even through the summer, it was largely $4.20. And the bottom side was largely $3.90 and it's been in a narrow range for much of that period of time. So maybe that ceiling on Dec '20 is, you know, $4.30 or $4.40 or $4.20 to $4.40 might be a more accurate depiction of where that ceiling might come into play. But that ceiling in Dec '20 has little impact on where a ceiling might be in March or May or even July of '20 futures that are reflecting old crop.

And the last thing we have to contend with We still have a final production number coming in January from USDA. We've seen USDA hardly change their production numbers the last 3 months, and they have lowered it slightly the last couple of months. But I really don't feel like they've fully addressed the full results of what the combines have said. But that's just a personal opinion. I think we've seen times before where that January number can move relatively significantly. And I would, I would caution people to go back to what we had in— was it October where USDA lowered last year's soybean production by 1 bushel an acre? Well, 1 bushel an acre divided by, you know, 50 bushel an acre roughly, that's about the same as 4 bushels to corn.

So If a year later USDA can adjust our soybean crop from more than a year ago by what would be the equivalent percentage of nearly a 4-bushel-an-acre drop in corn, I don't know why it's difficult to believe that they might still adjust this crop fairly sizably with the January report. You know, so far they have not, but that doesn't mean that that may not change. So there's still potential for surprises to occur there. But there again, that would be an impact on basis and it wouldn't cause basis to weaken. And it does again paint the picture that spreads could be a fairly dynamic move, with the nearby months being forced to respond and try to entice farmers to let go of inventory to satisfy the cash market and the new crop being the one that sort of has the ceiling to it. And I think that's kind of going to be kind of a dominant theme of what we see over the next 3 or 4 months.

Chris

Barron: Let's stay on corn for a minute. Since we've kind of been leaning that direction, and from a farmer's perspective, you know, you were kind of giving us some technical ranges and stuff. But as far as, you know, corn goes, assuming farmers need cash flow and some of those other things and basis gives us some opportunities, are there any things that as farmers we need to be thinking about that we should be doing to protect or to leave the upside opened up? Or, you know, or any, anything you can think of that you want to throw out there that, that we should be thinking about as farmers as we try to merchandise this, this crop moving forward on, on corn first?

Duane

Lowery: Every year the farmer needs to evaluate all of this information on the basis of their own operation, but it's probably never more true than it is this year because there's a wide-ranging, uh, different set of circumstances. You could have in the same, uh, relatively small footprint, uh, geographic footprint, producers that are having yields, you know, near, uh, last year's, and you could have people 20 bushels an acre below last year. You can go over a couple of more footprints away and you find people 30 or 40 bushels below last year, and then you find another patch that might be closer to last year. You forgot areas in the east that have, you know, significant, uh, premiums in their basis structure plus They have— it's easy to find pushes to their bids.

You got places in the West where harvest is still going on, that maybe they can't quite, quite get that maybe today, but 2, 3 weeks from now, they might be able to get the same situation. All of this says that there's a wide variance between what, for example, you know, $3.80 December futures, $3.70, $3.90, What that means to every producer is, is a completely different story. It's not like everybody has that same benchmark. And so the first thing I want to say is people need to calculate their own bushels, their own physical bushels, factor in their own cash price, their own costs, whether that's increased drying costs or whether they didn't have increased drying costs, whatever that may be, and find out where the revenue's at. Find out where that gross revenue is. And the— you also have the, the government payments that you got to factor into that.

And I think all of that is the most important starting point for a farmer to have. All the other price targets that somebody like myself talks about, or your neighbor talks about, they're really irrelevant to your own operation, because there's such a wide variance between operations within the same geographic footprint. So that's the first and foremost thing. I would say that most people when they do the calculations, assuming they're, they're having yields on operational levels, maybe not field by field, but for an entire operation, they are probably— many are well below last year, and well below meaning double-digit yield declines from last year. And you factor all this in, people probably need a larger price than they can currently get. And I think that's one of the factors that will cause the farmer to be a very tight holder once this bin door is shut.

You know, there are periods in time that he needs to raise cash, that he wants to raise cash. But that period of time is not now. This is still the finishing up of harvest and those calendar dates that are going to force his sale are farther, far enough into the future that the cash buyer and the pigs that eat and the chickens and the beef that need those, need that corn, that's going to— their urgency to bid up is going to be much greater than that farmer's urgency is to open that bin door. And that's probably going to remain the case for at least 3 months. But the first thing is for each farmer to evaluate their own situation. And then in terms of a technical level, if we're able to get to $4.30 area futures on a spot month, $4.50. That's going to become a tough technical area. I'm not saying it couldn't go higher than that.

But we need to find a new narrative, a new part of our fundamental storyline to get that to happen. And when I, when I'm saying new, what does that mean? That might mean a smaller production number from USDA. It might mean a new increase in demand such as China happens to buy corn. They happen to come in for ethanol. Something that changes the, the overall outlook and the narrative. All, any or all of those things are possible. But we need to see something like that to happen to, to give any legs to the idea. But just on tightening of basis and lack of movement, and maybe a little bit of help from USDA in terms of production size, and maybe a little bit of help on the demand side. Which I think is possible.

Chris

Barron: I didn't—

Duane

Lowery: another reason I didn't touch into it, but a lot of this global demand that has taken away U.S. market share over the last several months has been very front-end loaded when you look at it from a historical standpoint about how much some of these countries tend to export over a 12-month period. A lot of these companies have— or countries have set records for some of their June, July, August shipments. And at the end of the day, they can't maintain that pace. And that, I think, and I hope opens up a good opportunity for the US to capture a greater share of export business that might be available over the next 3 or 4 months that they maybe couldn't capture early on, as some of these competing supplies dwindle down and will remain so until their new crop becomes available. So I think that you know, there is, it is possible our demand outlook can improve.

But from a technical standpoint, if we can get nearby futures to $4.30, $4.40, that'll be a technical point of difficulty. And as producers evaluate their own cash flow position based on their own production, the cash bids, I wouldn't be surprised they need, you know, 20, 30, 40 cents more than what they can currently get before they're going to have much of a desire to make a sale.

Chris

Barron: If the basis gives us strength, and there's a little bit of strength in price, let's say for the next 3 weeks or 4, you know, over the next period of time, I'm just sitting here wondering, you know, between December and March, even out to May, you look at the carry in that and you figure, you know, it costs about 2.5 cents a month to carry that corn. The— it looks to me like the smart thing is going to be just to, to move that stuff whenever the basis is, you know, unless all of a sudden there's this big carry thrown in here because there's not really enough. It's only, you know, all the way from December to May, it's only, you know, by the time you factor the cost of the money there's only a couple of cents in there. So, you know, you're talking about that.

Duane

Lowery: You're talking about from their posted bids, correct?

Chris

Barron: Right. From, you know, from December, you know, through May, you know, rather than hanging on to it when the price gives us some strength, if the basis is good, doesn't it make sense to move the physical sooner rather than later?

Duane

Lowery: Well, there's virtually never a time that their posted bids offer you the return for your basis, uh, uh, in their posted bids. But there are many times—

Chris

Barron: well, I'm talking just the, just the Board of Trade price.

Duane

Lowery: I'm talking just, just if you look at these, the Board of Trade price is almost irrelevant, okay? And, uh, the, the posted cash bid is almost irrelevant for the deferred shipment because No buyer out there is expected to buy anything for— on their posted bid. That deferred bid, the cash buyer, is, is also used as something to entice nearby movement. If they're trying to get you to sell something up front, the last thing they're going to do is elevate their bid for 90 days because that's going to encourage you not to sell it. So they're going to end up lowering that price. Okay. And so I'm not sure these posted bids in that calculation really mean anything. I think when it comes to— I'm like, in the current situation, when a farmer is making a decision on basis, is it a good basis or not? Yes, current bids are a good basis.

But when you look at the landscape, you have to make a determination. It might be a good basis, but could it get better? And I think the answer to that is yes, it could get better, and it probably will get better. And I think that's what causes people to still want to hang on to that physical inventory. And as soon as you go ahead and sell that physical inventory and turn it into paper, whether it's through a contract derived by the processor or your local elevator, or whether you put on your own new futures position to replace that sale, once you've given up the physical ownership, you've given up every bit of leverage you had. I mean, the pig got to eat it, the the chicken got to eat it, the cow got to eat it, so the processor got to process it. Their, their urgency now to bid up has just been reduced by whatever quantity of physical bushels you just gave them.

And so when the, when the whole industry does that, it makes quite a difference. And I think that as the farmer puts this crop under lock and key, it's going to be much more difficult to bring this out until at least we get after the first year. And probably not until we get into February will the farmer get very motivated to be making sales. And so even though I understand your interest calculation about why maybe a guy should just make the basis sale, if that was the approach that you used, you would miss a lot of basis moves over the years in this post-harvest time frame because the marketplace will never show you what it, what it ultimately ends up providing for basis appreciation and the value for actually holding on to it. So sometimes you just have to hold on to it out of faith and expectation that you've analyzed the cash market landscape correctly.

And I would say, like, for reasons I've already mentioned, the cash basis landscape right now is one that it's tight and it's probably going to remain tight. And once the harvest is over, the buyer will be forced to become more aggressive with their bid. So I don't think that interest calculation is something that really becomes a part of the discussion right now. That might be a discussion 60 days from now, but I'm not sure it is right now.

Chris

Barron: Mm-hmm. So I want to touch on something to kind of echo something you said a little bit earlier, and we'll stick with corn here for a minute. As far as, you know, margin targets, we've talked about that in previous podcasts, and it's what we focus on a lot at Ag View Solutions with our clients, just to analyze at what price level do you sell, you know. You know, you've said it as well too, you know, you know, you need to know your cost of production, you need to know where you're at, and that's your starting point. And then that determines when you pull the trigger, you know, Nobody, no super smart person hits the high, nor do they hit the low. You try to hit your target. And for example, and I'm going to use some of my, my own numbers, I actually, in our, our operation, just as an example, but we've got some averages starting to come in that we're starting to see a trend.

And then I'll get your take on this, Dwayne. But, um, so for example, last year, and, and sticking on corn, We averaged 244 bushels an acre on corn. Average selling price at $3.75 when it was all said and done. So, you know, cash on farm price, that gave us $915 an acre gross revenue. And that's kind of what, you know, I talk about that, that margin target. You can back into that number and say, okay, what price do we need then to achieve that gross income, or, you know, to, to give us that margin, that profit margin that we need. And for our operation, that kind of matches that gross per acre number is right in that $900 to $915 number. This year we're coming in probably somewhere around that 210 bushel, and we got probably another week and a half of harvest to go yet.

And so the reason I'm using our operation as an example is hopefully the listeners listening to this whether they're done with corn harvest or not, to start to think about, you know, where is that price level that you make sales, and you can chime in after I'm done here, Duane, and pick it apart. But, you know, at 210 bushel, if you use $4, that's $840 an acre. So we're $60 shy from last year, and $60 shy of what our margin target is on a gross income per acre basis. So the $4 is not going to cut it now. On our farm operation. If we end up at $210, I think we're going to be maybe a little better than that, but I'm using $210 as of right now. That means we need $435 to achieve that $915 an acre gross revenue.

So, you know, I just would encourage the listeners to, you know, whether you're done with harvest or you got a long ways to go or somewhere in between, to start looking at that number and figuring out, you know, where are you at maybe in compared to last year, but also because that's your most recent memory, but then also more importantly, where does that fall in your margin target for that price objective? Because, you know, back to what I was saying, when I look at that basis, you know, I don't really care where the border trade price is at. If the basis is enough that I'm getting my margin target, I'm going to execute that sale and I'm going to I'm going to take my profit and I'm going to run. Because I, I can't predict where that market's going to go. So, you know, that $4.35 on farm, a lot of that's probably going to have to come from basis, and maybe we won't get there.

I don't know. I mean, some, some years we don't get to those targets. But if you don't have them, you don't ever pull the trigger on them. The other challenge that I see right now is the drying cost increase. In our operation, it's it's over last year, so it's going to shake out somewhere between $15 and $20 an acre. But I've talked to growers just in the last week that it's somewhere between $20 and $50 an acre more in some instances. I mean, like an extreme cost increase just from the drying and handling. A little bit of that's handling too. But one last thing I would say, and you mentioned it, Duane, but you talked about the the Market Facilitation Program, that does give us, you know, on average, the average farm is going to get somewhere around $60. You know, some is more, some is less. But, you know, I said that $8.40, you know, $2.10 at $4 was $8.40. I was $60 short.

Well, if we get all of the MFP payment, that gets us back to that margin target. So maybe our price objective needs to have that partially into the equation so that we manage our margins and that we don't give up, or don't, don't pass up, I should say, pass up an opportunity to lock in a profit and then think of some kind of strategy with a call option or something to open the top side up to a degree. My concern is always just making sure that we manage these margins and don't get too aggressive and try to do something that maybe isn't quite achievable. And make sure we stay whole so we can live to fight another day, I guess, so to speak. So, but one last comment, Duane, and then I'll shut up and you can, you can pick, pick this apart a little bit.

But the last comment I'll make is, is we're seeing a lot of operations that, you know, are, are coming in a little lower than what we were thinking on corn. I was pretty reserved in the last two podcasts to make any comments on corn But my trend that I've seen here lately is, is the corn yields, as more and more harvest gets done, is off the pace a little bit in our quote-unquote cross-section of the world. Our operation, we're going to be somewhere between 13% and 15% off of last year in terms of yields. And I'm not quite seeing it that extreme in areas, but I'm seeing some, some operations, you know, 20%, 25%, 30% off of last year, and some maybe 10 or so above. But if I average the growers I've been talking to that are getting enough information, I'd say this crop's definitely trending lower, not higher on the corn side.

And I've reserved making that comment in the last couple podcasts, if you remember. And I'm, I'm now starting for the record to say I'm seeing some trends with that yield going a little lower. And I hadn't told you that offline either, I'm just telling you that now. So Any comments on any of the stuff I said, throw them at me, Dwayne, and, and then we could hit beans before we wrap things up.

Duane

Lowery: Well, based on going back to what you had offered for your own operation and, and the dollars and the revenue and whatever, the government payment would get you close to the revenue that you wanted if you could get $4 cash for, for your bushels from you know, from here and $4 cash. I don't know what your cash on the farm, but that's got to be—

Chris

Barron: We're 25 cents away from that right now. I mean, with our basis, with our local basis, they're about $3.70 cash right now.

Duane

Lowery: Yeah, I figured you had to— almost, almost 30 cents away from that. Uh, that's, um, to capture that. The other thing is your— your drying costs of $15 to $20 an acre more, and, and some people varied more than that. If you lumped it together and said that you're somewhere between 10 and 20 cents more per bushel, just to match your extra drying costs, I don't think we'd be too far away on an average basis. And so we get your current cash bid, it's probably 30 cents away from getting to your target level. I'm not sure, I don't even think that factors in the extra 10 or 20 cents more that you need from your drying aspect of it.

So, um, it would seem to me that, uh, we're looking at, um, being about 40 cents more than current values to get farmers to a level that is an acceptable profit margin for them compared to where they wanted to be maybe at the beginning of the year and things of this nature. And that would be if somebody's approximately 14% down off of yields off of last year. I think the 14% off of last year is not too far off of what I think the average is when you, when you listen to a lot of people talk about their, their yields, etc. And, you know, if, if you're, uh, compare that to where USDA's at, you know, they're off by like 5%. So there's a huge discrepancy here between what We think it averages out when we listen to all the people from all the different areas. And, um, uh, I don't know if that will ever come together or not.

And, um, maybe not, maybe USDA will never change it, or maybe they'll raise it for all we know in January. Uh, I'm finding it difficult to have any confidence at all in what USDA will do. And I don't mean that as a negative against USDA. I'm just trying to find— I'm just finding it very difficult to to see any correlation between USDA's numbers and what we get for perception from the industry through the, through our contacts and things of this nature. And, and between one of us, one of us is wrong. That's what I'm confident, I'm confident about that statement, one of us is wrong. And who knows who it is. But if USDA is the judge, jury, and the executioner, even if we're not wrong, we're not going to win.

So, but getting back to your point on this revenue, it tells me that at minimum, the cash market has 40 cents that it needs to improve before we get more large-scale selling from the producer. Now, will the market give you the 40 cents? I don't know. I think that your best shot at getting it is over the next 3 months, maybe the next 4 months. Once we get past February, the opportunity for buyers to have gotten satisfied somehow, some way, or for South American corn to become more available or something else, or for the market's focus to be all on new crop acreage and abundance and less on old crop, all of that becomes might become a more dominant influence on the overall price structure other than spreads for the, the cash market. So I think the farmer has a 3 to 4 month window in front of us that it is possible he can get positive news on demand in terms of better, uh, U.S.

market share of global import demand that occurs over the next 4 months. I think it's possible, if not probable, that we're going to get a China trade deal that might involve some corn or ethanol or something that will help with that narrative. And I think that the harvest will be over, the bin doors will be locked, the farm will be reluctant to sell. And the cash buyers might have a little bit of a frenzy where they compete against each other that causes that market to bubble. You know, right now we're, We're fearful of, or we're respectful of the fact that we might be facing the holiday doldrums. But we also know that after the first of the year, there might be a change in how money is invested and where it wants to be invested. And so there are, there are things on the horizon that can make this look better.

And from a short-term perspective, with the markets having been in a correction process in corn since October 14th, beans in a correction process since the 22nd of October. I'm hoping that the short-term technicals are poised and ready for some improvement. And as we get this improvement, all of a sudden, some of these things we've been talking about that haven't been able to get traction, when the market action improves, they might be able to get traction. One of the things I wanted to point out, it may not be appropriate for this segment, but it's on my mind. So I'm going to throw it out there. Soybean meal has been a dog for quite a while. But Friday was the highest settlement we've had there for almost a month. And if you look at the Commitment of Traders report, the large funds have covered 38% of their shorts here recently.

And so with meal at its high level, they've covered almost 40% of their shorts to date. Are we poised for another push to the upside there? And what— like soybeans had been in a correction process since October 27th. Soybean oil peaked on November 5th. So they continued to push oil higher even while beans were correcting. And the soybean oil very quickly in the last 8 trading days has had the largest correction it's had since the peak in mid-September. And when that market peaked, then its correction was short-lived, lasting only 8 days, which happens to match how far we are off the highs, uh, with Friday's trade. So I think there are things that are pointing here that suggest on a short-term basis this technical correction process we've been in might be coming very mature and hopefully is poised for some imminent turn.

So sorry to, to, uh, slide off track there, but, uh, I, I know you're off onto that.

Chris

Barron: Well, no, you're pretty good at reading my mind because I was going to go to beans next anyway, and you're pretty good at answering a question about the time I'm going to ask it. So let's continue on beans. Is there anything else on beans? Because that's— you're going in the direction I was going to head next anyway. Any other comments on soybeans as we go into the new week?

Duane

Lowery: Oh, I probably got a ton of comments, but we got more comments than we have time. But cash basis on beans has been firm, has lots of room for it to improve. But before we even go down that road, I just want to point out and remind people that we currently have a carryout projection for beans that is less than half of what it was expected to be for the last year and a half, and probably less than half of what was expected to be all the way until just a few months ago. And We have China buying beans despite the fact that trade talks are still ongoing. And, and one minute you have, you know, happy talk from the headlines, and the next minute you got, you know, oh my, the world's falling apart from comments from the headlines. And throughout all of that, China has been a kind of a steady buyer here. And one of the reasons that our bean sales to date are actually ahead of last year.

And so, you know, I still point out to the same thing I've said for months, China buys not as a measure of goodwill, they buy because they need our product, end of story. They wouldn't buy it if they didn't need it. And so I find that encouraging. And when you look at it from a historical basis, corn, bean, or excuse me, soybean basis is still on the cheap side. And we are entering the timeframe from here forward, where typically bean basis can improve a lot. Prior to last year, or maybe the last 2 years, without thinking about it too hard, for a long, long, long, long time, there was solid returns expected if you were a country elevator and you hedged inventory of your purchases during the harvest season and beans, and you just sat on them almost regardless of what the basis level was.

There was a long historical precedence that you would make some pretty good money with your hedged inventory and then feed it out to the processors during the winter as they were forced to bid up or the river when they were forced to bid up on the river opening. That was just kind of a consistent trade, maybe even more consistent than corn. But the last year or so because of abundant supplies, that hasn't been the case. But with this year's supply, less than half of that, and quite possibly by just tweaking a few things from here forward, maybe even could be reduced by another 40 or 50% from what is projected at now, bean basis could improve quite a bit. And that might also lead to a strength in the board market futures price as well. So I think the outlook on the beans here is actually quite good.

And I come to that conclusion even though, even though South American growing season is off to an okay, acceptable, favorable, non-threatening type of a start. You know, we have the calendar in front of us yet that the most important part of their growing season is still ahead. And who knows whether or not there's going to be some sort of a market scare there. But I— and then the last thing I would say about the beans that I find is interesting, soybean market The funds never covered their short during the— all that went on in the summer in June and July in the US. But for probably going back, I don't know, 8 or 9 weeks ago, they spent about 5 weeks in a row covering short positions before they got long beans in the large fund position. And we've now had, I believe, 3 weeks of corrective activity in beans.

And they have given up some of their longs off the top of my head, I'll say slightly more than half of their longs. But prices are only back to the level where they're at. They actually started to get long the market, and yet they are still long right now. And since the prices have come back to the point where they started to get long, I'm suspicious they have no desires of liquidating their long positions. And despite the fact that we've had a correction, which in the last 3 weeks and some liquidation of their positions, I think the odds are very strong that they're going to actually sponsor a rally. They're going to want to build that long position again. And for one of the things that I would point to that, that is the case is one, they are still long soybean oil in a fairly large way. They have been adding to oil length even during the correction process.

And the soybean meal market, which is something they've been short for a long time, Like I said, just in this relatively last short period of time, they've covered almost 40% of their short position. That does not look like something that is— has a long, prolonged bear market in the soy complex ahead of us. So I think the soy complex probably for a period of time in front of us, and I don't know what that period of time is measured in, but it's probably measured in several weeks or a couple of months, probably will still be the upside leader if you want to compare it versus corn. And I think that also goes back towards, you know, kind of a theme that I've talked about here for several months, and that is beans are, have been historically very cheap versus corn.

And I think that is still the case to some extent, which is another backdrop, fundamental foundational reason why the bean complex might lead us to something better here over the next few months. And I think some of this commitment of traders data kind of suggests that the funds might very well be committed to maintaining a long bias towards the bean complex and might provide some more fuel and buying energy there than what maybe the marketplace has given them credit for. So I think the outlook is pretty good. But on a cash basis should remain firm. And I think there's more opportunity there than what most people are really thinking about right now.

Chris

Barron: Well, that's good news, because I think there's a lot of people that are hoping that the ownership of these beans is going to pay off. And, and we got a good strong outlook there, it sounds like. So Duane, any final comments as we wrap up? Going into a new week?

Duane

Lowery: Well, we go into a new week, but we're also going into a, you know, we're just at the beginning part of a new marketing year. And maybe more so this year than maybe some, some years. While we're looking forward to what might happen over the next few months, we better be keeping a very mindful look at what's going on with new crop 2020, and how we're going to make a profit and how you're going to make your margin targets on those. And I think a guy needs to get very up to speed very quickly on what his costs are going to be there, what his expected revenue might be, and how crop insurance might work into that, and how he might use that as a marketing tool as well. But the last thing I want to say is, you know, I've said quite a few optimistic things here recently, including today, as well as some previous broadcasts for sure.

Um, but in the same token, um, everything I've discussed in terms of optimism could easily play out in the next 3 or 4 months. So if you move the calendar ahead 3 or 4 months, you're into February or March, okay? It might be a situation that we could get some positive, um, traction in the marketplace. We could get some positive storylines to develop. I've mentioned a few possible ones. But that's only February and March. And I think that if that were to happen to be the high of the year, the best marketing opportunity we would get, one, that would be abnormally early. Two, it would not be expected. And the trap would be to get to February, March, and then think it's going to get even better or might get better into the summer. So the one thing I would caution people is this could have this could be a good year for the price peaks, both in the old crop, possibly in the new crops as well.

They might occur much earlier than what we think. So I think a guy's got to be— stay on top of this thing and set price targets that are realistic and achievable. And I think some of the numbers we've thrown out, in my mind, are very realistic, very achievable. And put— everybody needs to get in that frame of mind that if those price targets are met, which happened to coincide with kind of the math that you laid out to get people up to, you know, a livable, workable net revenue things. And I extrapolated the numbers you gave and tried to extrapolate it into the averages that I sense is out there for yield reductions of, you know, 13-15% off of last year. And we looked at the government payments and yield reduction, whatever. And those price targets would accomplish that. If we can get that done in that February-March timeframe, I think people have to give that a very serious look.

And I think that's something that we better be remembering, you know, every week from here forward, that this might be a good year for price highs to occur earlier, not later.

Chris

Barron: Good comments, Duane. I think this was very informational and a lot of content in this podcast. So thanks for your time today, Duane, and we'll look forward to more conversations. And as usual, if some news breaks out or whatever during the week, we'll come back with more conversation. So thanks a lot for your time, Duane. It was a good conversation.

Duane

Lowery: Thanks, Chris. And I think when I look at the clock and how long we've been on here, I think I need to thank listeners for their persistence in listening.

Chris

Barron: Yeah, if you're still here, we know that it was important. And, and again, if people have questions or ideas or other comments, things they want to talk about, make sure they let us know too.

Duane

Lowery: All right, thanks, Chris.

Chris

Barron: All right, yep, thank you, Duane, and thanks everybody for listening. And we will catch you again next time on the Ag View Pitch.

Narrator: The Ag View Pitch is created by Ag View Solutions to provide value to its clients and farmers like you. We'd like to welcome our new listeners today and encourage you to check out our other podcasts on The Ag View Pitch, which can be found on Apple Podcasts, Anchor, and Podbean. You can also find us on Facebook at Ag View Solutions and online at agviewsolutions.com. Enjoy.