Sunday night market outlook 12/15/2019

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.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and we're starting a new week and we've got Chris Barron and Duane Lowry here to talk markets and some of the trends that are probably going to be coming our way as producers in the next week. How's things going, Duane?

Duane

Lowry: Good, Chris. We have got a little, a few things to talk about, a little bit optimistically. There's— some skeptics that go along with some of the things we'll talk about today, but I think that there are reasons to be, you know, more confidently encouraged about the next few months than there may have been a few weeks ago.

Chris

Barron: That's a good deal. And I think harvest continues for a lot of the growers in the north and is wrapped up for some kind of in the middle of the areas and basis has kind of slowly been improving. I'm sure we'll get to that here a little later in the conversation. But why don't we start out, you know, with the US trade talks and kind of what's going on there? You made some predictions and kind of talked about that in a previous podcast. Talk to us a little bit about what's going on there with US and China trade talks.

Duane

Lowry: Well, I would say that the first thing is they got a deal. Okay, they're calling it a Phase 1 deal, but agriculture is a big benefit part of that. And I think if you're involved in agriculture, you probably care less about what happens here forward in terms of Phase 2 than you do about Phase 1. For much of agriculture, Phase 1 is kind of the end of this thing. Now, I say that with the asterisk attached to it, that China has to follow through And I think the fact that there is still a phase 2 ahead, that the fact that is the— there are discussions that begin now and will continue all the way probably through until the next election for phase 2, and the fact that some tariffs remain, which I think if you're in agriculture you should look at the tariffs remaining that U.S.

has placed on Chinese goods, is pretty good leverage that China is going to follow through on some of their commitments regarding agriculture. The fact that they've suggested Phase 2 is going to continue and extend past the next election suggests that this leverage hanging over China with the remaining tariffs on some goods that they ship to the U.S. that will remain in place and then taken out in phases and steps implies that we still have leverage. And so if you're in agriculture and, and it appears that some of this agriculture business is going to be up front, then you got to feel good about the chances that China will live up to their agricultural purchase commitments, at least for the first year. After that, who knows. And I understand that there's a history with China of, you know, trying to find ways to circumvent deals legally, or else just plain ignoring them.

I understand that history exists, but there's one thing that's happened that China's dealt with in the last 12 months, and they're dealing with now, and they're going to deal with for X amount of time later that they've never dealt with before. And that was a president, like him or not, that held their feet to the fire, put tariffs on them. That's never happened before. And they— this battle went on long enough to the point that I would suggest that China has moved significantly towards President Trump's demands on this particular Phase 1 agreement. And, uh, so I think that bodes well for agriculture getting the benefit that they're supposed to get out of this Phase 1 and the fact that China will live up to it. There are a lot of discrepancies. There are a lot of unknowns about the details of it. I grant you that, But I think this is a big plus for agriculture.

Chris

Barron: That sounds like a good deal. So what do you think, you know, how's that bode for corn, soybeans, and wheat and some of these commodities? I mean, you know, we've been talking about getting some of that things that some of that stuff fixed and what that's going to do for strength. I mean, talk a little about that.

Duane

Lowry: Well, if you, uh, um, look at the totals that are kicked around, um, it's their commitment per year is somewhere between $40 and $50 billion according to U.S. sources. According to Chinese sources, they don't necessarily want to put a figure on it, but in some respects I can understand that, and I think that most everybody could. If, for example, if you're a, you know, if you're going to an auction, equipment auction, and you're a large farmer in the area, and if you show up and you have an interest in buying something, it means something, okay. So China's basically the largest importer of agricultural goods, and they don't want it known exactly what they're going to buy and exactly when they're going to buy it. That'd be giving up an awful lot of advantage to them. But from the understanding that we're being presented on the U.S.

side, this commitment by them of somewhere between $40 and $50 billion of agricultural goods per year is supposed to be purchased somewhat evenly within each quarter, and I'm sure it won't be exactly even, and the wording that, that the U.S. side gave on some of that implies that they're going to use that, that as a gauge about whether or not China is living up to their agreements. So if you were to imagine that you have the Phase 1 agreed upon, and you're immediately starting Phase 2, and if in the first quarter or the first 6 months of next year, if China has not lived up to their agricultural commitments in the eyes of the US, all of a sudden, that's, that's going to make it very difficult for them to get a phase 2. So I still think that's, that's a huge plus. People say that it's not possible for them to buy that much agricultural goods. Well, from the U.S.

in prior to this trade war, they were importing about $27 billion worth of goods, agricultural goods from the U.S. If you took the highest import in each agricultural, um, group and in the last, let's just say the last 7 or 8 years, and took the highest one from each of those years and added it up for each category, you would reach, um, a little over $30 billion, okay, or no, excuse me, you would reach $37 billion, about $10 billion more than what they were doing before. Okay, none of those had any sizable amounts of ethanol in it, and so I think there's still a chance that we get a big boost out of ethanol here. Um, it's also possible that China wants to be somewhat quiet on this because they got to navigate other trade agreements they made with other, uh, countries.

Um, it's also true that at least in the first year they're probably going to be importing a larger quantity of meat than they've ever imported before. So if history says that they could get to $37 billion theoretically if they had to buy their peak levels of each of those agricultural commodities, all of a sudden the $40 or $50 billion is not, it's not unreasonable, it's not impossible, and it certainly is a target. I think it's also, I want to go backwards a little bit, I probably should have said this at the beginning, But I've just laid out a groundwork here where I'm suggesting China has moved significantly towards Trump to get this Phase 1 deal. This was not a meeting of the— in the middle. This was significant movement on China towards Trump to get it. And at minimum, the first proof of that is the fact that all US tariffs were not removed.

And on China's press conference, they indicated this is going to be removed in stages and steps. Well, if that's the case, there's certain criteria that's going to have to be met for that to happen. Otherwise, the U.S. side is going to balk. And again, whether or not they buy agricultural products is going to be a certain significant part of that. The other thing that's important to point out is China's press conference occurred at 9 o'clock Central Time in the U.S. 9 o'clock Central Time in the U.S. is 11 PM on a Friday night in Beijing. Okay, if you wanted to, if you thought you had made a great big deal and this was going to be greatly beneficial to China and the U.S. had to give up a lot to get it, they're going to put that out for domestic consumption and get some benefit out of it.

If they felt that they had to give up a lot and they quote lost, lost some face to get to this deal, I think the best time for them to have that press conference is probably on a Friday night at 11 o'clock. When they'll have the least domestic consumption out of that. So everything points to the fact that to get this deal, China had to give up a lot. And we can talk about economic reasons why they may have done that. But if I want to focus just on agriculture, uh, and I've said it many times before in podcasts, I don't believe any purchase China has made of agricultural goods from the time this trade war started to present, I don't think a single one of them were done with an olive branch or a purchase of goodwill. I think every single one of them was purchased because they absolutely needed them.

And that's in despite the fact that they tried to buy as much South American products as they could, to try to buy as much agricultural products from anywhere else as they possibly could. They went to efforts to get what I would say is symbolic agreements with Russia to buy Russian beans. Russia doesn't grow enough beans to even make it part of the conversation. So I'm convinced they bought it because they had to. That's, I think, a big part of why they moved to Trump to get Phase 1. And I think there's an underlying story there that is very clear, but just absolutely not printed or not spoken. And that is China's need for these agricultural products. We understand that they need pork. We understand that they need meat because of swine fever, but we, we have been taught and told that they really don't need U.S. grain or soy, soy products. And statistically speaking, that's just not true.

They do need it. Okay. And so I think this all looks very good. And I'm, I think that, uh, uh, it will take some time for maybe us to realize that. But in the same token, I'm guessing by the end of March, we're going to have a good handle on whether or not China is living up to the agricultural purchase commitments. Because I think there's probably some level of commitment there that they have to make. And the fact that China doesn't want to state it, I think, like I said before, is very clear. What— you don't want to walk in the room and before you arrive there, have every— everybody know that you have to buy this stuff.

Chris

Barron: So how much do you think the trade buys into all this though? I mean, I, I agree.

Duane

Lowry: How much they buy into what I said? Or how much?

Chris

Barron: Yeah, what you, what you've said, you know, because, you know, I've heard some talking about, well, the, the hog herd in China is down 45 or whatever percent. And so their, their meal consumption and needs are significantly lower. And so that continues to impact things. But on the other hand, And you probably know this better than me, but I know, and I saw some data, I can't remember exactly what it was showing, but that we've used, or we've delivered way more soybeans to China that you were just talking about than what was earlier projected, especially by a lot of the bears in the market saying, well, you know, they're going to buy nothing, and they've been buying way more than what was projected by many people. And then at the same time, you know, there's a lot of people, as I said, you know, talking about the hog herd being half the size.

And so, you know, that's going to be a big impact on it. So if the trade is listening, or is the trade listening to the bears talking about it from that angle, or are they listening more along the angle you're talking to? And then if they're listening to, to both sides, is there some strength in the market for us as producers to, to be hopeful for or to expect or to think that, yeah, there could be some strength here? Because of all everything you've said, and that discounts some of what we're hearing others talk about as far as, you know, their demand still being half as much because of the hog herd being so much lower.

Duane

Lowry: There is no doubt that the marketplace has been dominated by bears and the influence they've had and, and the bearish thinking. There's no question about that. There's also no question that the biggest fundamental item that the bears would point to or suggest for why they are bears was all demand related, absolutely all demand related. As far as what, what the market is believing in terms of, of this bearish idea, that mindset that demand is poor versus what I am laying out now. Let's just put it this way. If I walked into a room that already had 99 agricultural people involved, I would say once I arrived in that room, there would be 1% of the people that believed what I just told you, okay. By the time we get to March 31st, you're going to have a significantly larger percentage that will buy into what I am, am saying in this podcast.

We're going to see proof of agricultural purchases evolve during this first quarter. And I think also it isn't only important what does China do. There's another huge story here about— I'm more interested in what the rest of the global buyers are doing. Okay. The users, the international user, they have been bearish. They have been hand-to-mouth. They have not been worried about upside. They've not been worried about ownership. All of a sudden, they have got to come to grips with the fact that the, the world's largest importer of agricultural goods has suddenly got in a situation where not only can they buy U.S. agricultural products without the punitive tariffs, they've got in a situation where they have to realize that that buyer has made an agreement that in essence he must buy. Those U.S. agricultural goods. I think that changes the landscape significantly.

And one other thing I want to point out about demand, um, the numbers of what people said demand would be down in China, like you said, were overstated. Their demand and imports were— ended up being higher than what people had said. And the other thing that goes unmentioned, some of these other Southeast Asian countries that import a lot of feed and, and have processing units there. Their imports were up significantly since this trade tariff, trade tariff issue, implying or suggesting that maybe some of that stuff eventually found its way into China, even though they didn't have to pay a tariff on it, understand? And so I think that there are a lot of different ways to look at this, but the global user is very uncovered and a big buyer has just been released to go buy US products again without the tariffs.

And I would argue that along with the word released to do it, I— there's a component here that they're mandated to do it. So the rest of the users are going to have to stand up and take notice and be concerned about supplies. On a domestic side, if you really looked at it closely, I think we saw that happen Friday here in the US. We had corn basis, and in some cases bean basis, but mostly corn basis that increased on this week, despite the futures having a rally. And they finished the week with a strong basis level. So I think you have users in the US that always thought it was going to be tough are now all of a sudden worried, Jeepers, now we might have to compete with the export market. And so it'll be interesting to see if basis values that are tributary to the export channels start to move up and which commodities they start to move up.

But you already saw signs of that, that the reaction in the cash markets even with futures up, we're actually strengthening basis. So I think there's a serious underlying factual part of this trade agreement that's being lost and caught up in the skepticism of it. And I think that the skeptics will be proven wrong here over the next 3 to 6 months.

Chris

Barron: Well, and to transition over to what you just said, too, I think You know, you mentioned basis improvement while at the same time we had some price improvement this last week. And the basis continued to get better. Well, I think there's a lot of producers out there that when we sit down and really look at what that cost of production was at for the 2019 season are starting to realize we need to have a significantly better price even on a rally, it's still not sufficient to cover the expenses that we've got for this year. So we got to, we got to do some things in terms of, you know, you know, maybe locking in some of that basis at some point. But you know, the price is a long ways away from being where we need it to be is the thing.

Duane

Lowry: Well, you bring up a lot of different things we could branch off on in what you just said. Producers are facing realities. And this is true for every single producer, Their costs this year were higher, especially in corn with drying. But there are a lot of factors associated with weather that caused their overall crop costs to be higher this year. The production is down for many, many people across the Midwest, not just one small region. Many areas have seen production yields decline from a year ago. And that means total bushels available for sale are down from a year ago. And it varies from location to location, how much of a decline with some cases that experienced the worst of the weather in the east, you know, down the largest in terms of bushels per acre. But everybody is feeling the pinch that these bushels just don't dollar up fast enough.

And, you know, we've got people that are experiencing different, difficult, or different levels of financial stress. And this is not something that happened just this year. It's something that's been ongoing basically since about 2014. 2014, '15, just kind of a steady erosion of working capital or difficult environment to build working capital. And when you've had a year where your yields are off, you know, like this year, this is really causing some serious issues. People have a lot of work to do over the winter months here to get their, their financing lined up for '19. A lot of that has to do with, you know, really being on top of their financial records and their projections for 2020. And, uh, so there, there's a lot of things to do, but in terms of this particular discussion, we'll get back to this other stuff in a minute, I'm sure.

But in this particular discussion, with basis values strengthening and in many areas now getting back to the, some of the best levels that they had in corn, um, say from, um, just before harvest to the first couple weeks of harvest, there was some good basis premiums for nearby shipment. Some of the basis values now are getting back up to that level. And they're historically pretty good. And if people are forced to move physical commodities because they need the cash, then they need to do that. I mean, getting the cash is the most important, and they can feel good about making those sales because basis levels have gotten good. Uh, bean basis has improved significantly from before harvest or early harvest or mid-harvest to where it is now.

So if you have to make sales, I think you can feel good about doing it, but I would be inclined to encourage you to look for ways to still participate in a futures market rally, whether that's options or futures. You know, we can talk about possibilities, but in general terms, I think there's still some money left on the table if you can find a way to still reown that. But I think that the important part of this this discussion, or one of the offshoots, is the financial planning of it and trying to navigate the banker. And I say the word banker, but the banker's being pushed by the regulators. So it's not just the banker that suddenly come up with some of these ideas to tighten down, but they're being pushed on, on the regulators. And these are the conditions that we're forced to live with. So I'm going to throw the question back to you, Chris.

What can a producer do to, uh, if they're in a position where their working capital is declined and it's declined to a point that they're facing the possibility that their operation has to change significantly in order to be in position to farm in 2020, or they may even be facing a situation where their existing bank may have told them that you're not going to farm in, in 2020. What is available to them because you work with producers to try to, to manage these types of decisions. So I want to ask you, what can they do or what should they be doing? And how important is it, at the kind of at the top of the question is, how important is it for them to get someone from the outside, meaning outside their operation, outside their banker world, to help them evaluate and come up with a plan? How important is that?

Chris

Barron: Well, I think it's huge. I mean, part of it is, first thing I guess I'll say is, bankers will like this comment, but it's really not the banker's job to help us figure out what we need to do because a lot of times they don't— with all due respect, the lenders are there to lend money and their job is to get paid back. And their biggest concern when the money is lent out is just cash flow. You know, cash flow is the, is the main thing. And obviously what you said is very true. Working capital erosion has been the common theme among operations. Even the, the operations, say, 5 years ago that were the most strong have had, you know, erosion too. Even some of the operations that have had pretty decent cash flow have eroded working capital to some degree.

To answer your question on what do we do from here, I mean, I'm not saying anything that 90% of the operations listening don't already know, is that we've been burning working capital since, you know, probably 2013 or 2014 for sure. So that's probably historically probably one of the longest stretches of burning working capital that a lot of operations have had. You know, the '80s was really bad. I always relate the '80s to— an analogy is the '80s was kind of like a frying pan because interest rates were so high and everything was happening so fast. So, you know, the farm financials were being cooked in a frying pan. And what's been happening with the farm financials since 2013 or 2014, in our analysis, has been— it's been in a crockpot. It's like a slow cook.

You know, we've been slowly cooking, and burning up cash every year to some degree, and some, to some degrees, in some operations more than others. I think the thing that's, that saved a lot of operations in the last few years has been really good yields. I mean, I think financially, when we sit down and we look at the cash flow going into a new year, especially when we went into '17 and '18, our cash flow numbers looked looked really scary going into both of those years. But we, we bushelled out of potential catastrophe from a financial standpoint, we had the bushels to market, even though the prices were really kind of crappy. And so I guess to answer your question, where do we go from here? Having said all that, I think the first thing is a strategic written plan of, you know, what are you going to do?

'Cause if we keep doing the same stuff, we're going to get the same damn results, to put it bluntly. And that's really one of the things we got to do is figure out what are we doing and what of the things that we're doing isn't working and what of the things we're doing is working. The other thing I would say is in a lot of operations, there are usually multiple profit centers, whether it's livestock, trucking, custom work, you know, the list goes on and on, seed sales, whatever it is. You have these outside profit centers. A lot of times one or two of those profit centers are the moneymakers, and one or two of them are the, are the cost centers, or maybe they're a cost reduction center that's actually not generating any revenue and maybe needs to go. So it's figuring out where's the money coming from and, and do that, and maybe not so much of the other thing.

The other thing I would say too is a lot of the farm operations that have struggled, maybe need to see or look at, are there other ways to generate additional revenue off farm to bring back in? You know, a lot of times we see, you know, sole proprietors where one of the spouses is working off the farm and healthcare is being paid by an off-farm source. And that's one of the things that even our own— my own family operation struggles with is if you look at the cost of healthcare, if you don't have that coming in from some other source, that's a massive draw on every operation that we see that doesn't have some source of income in that realm. And so, and that's something that I think is probably a bigger issue.

And then I think there's, there's some external things we can't control, but we need to be aware of on the front end and have a plan with the lender of, you know, what are we going to do? What's the best case scenario? What's the most likely case scenario? And what is the stress test of, you know, if this doesn't work, what are we going to do? And what's the plan going into the following year if this year's plan doesn't work? Just to make sure that the lender's on board, I think, is a real key thing. We're going to probably follow up with some podcasts where we're going to be talking specifically to some lenders on these topics. But that's a long answer to— but you always give me long answers too, so I got to give you a long answer here once in a while as well. But So that's, that's kind of the direction I guess I would say we go.

The very last thing I think you asked is, you know, do you need outside help there? I think it depends on the operation. I mean, if you've got enough talent inside the operation to accomplish that, I think that's fine. You know, if you, if you feel like the decisions you've been making are working, then yeah, I think that's great. If you think there's some challenges or some gaps or some holes in the decision-making or the analysis or whatever, I think it always helps to have somebody from the outside looking in. It's just another set of eyes on it. And I think you just, you find somebody that you trust and somebody that has some experience in that area to, to work with you on just kind of looking at, you know, what, again, like I said, what, what are you doing different? What do you need to do different and what's working, what's not working? And then just design a plan.

And sometimes it helps to have an outside person help design that plan. I'm not sure it's the lender's job. To help build that plan. And I think a lot of us as producers, you know, lean on the lender, and they can only do so much. They really can't give us advice legally in a lot of cases in a lot of areas. And so, you know, it's nice to get some independent viewpoints on maybe some decisions that need to be made in the operation. And sometimes those decisions aren't very fun and they aren't easy. But, you know, the discipline of those things are what's going to keep us in business moving forward in these kind of challenging times. So that's the answer to my question. Is that sufficient or do you need more?

Duane

Lowry: Well, I probably always like to drill down into more, but let me, let me put it this way. This week I think we did, AgPitch has done one or did our 100th podcast episode, correct?

Chris

Barron: Right. Yep. 100, 103 or something.

Duane

Lowry: And right. And I don't think that in any of those you or I, either one of us have talked about a lot about what we do and where our revenue streams come from. And, and we've not done the podcast necessarily for, you know, a tie-in to business. We haven't promoted our business. We haven't done any of that. And at the risk of starting that, which I don't feel I am, but I just want to point it out. That's not been our track record. I want to point out the fact that some of this stuff is right up your alley. This is what you do as a company, that you, you help people through these types of situations, and you help people before they get to that situation in hopes that they don't get to this situation, and you try to help find a way to get them out of that.

And I just want to say that when an operation are facing some of the times that we're facing in agriculture now, stress levels are extremely high, okay, and they're high for the operation, they're high for the person at the top of the chain of that operation, their, their stress levels are very high on the family and all the dynamics that go with that. And based on my experience with stress, you cannot think and you cannot function when you're under that kind of stress. And sometimes you need that help from outside, you need that outside guidance. You were talking about gaps and holes and things of this nature. I think you used that phrase when you were talking about people that may not need that outside guidance. But, you know, it's the gaps and the holes that we can't see that may exist, but we can't see. And sometimes we don't see them because we literally can't see them.

And sometimes we don't see them because we don't want to see them. And I think the benefit of the outside help and guidance is very, very important. And I would just put a plug in for what you're doing in terms of the empathy and the grace in which you do it and the benefit and the commitment that you have and the strong desire to help people get through difficult times. And so while we are now facing some of those difficult times, and I would argue that more and more growers are finding themselves to that point or getting close enough to that point that they're certainly under a tremendous amount of stress, I would encourage them to maybe consider finding some of that outside guidance. Many times there are other plans available than the one that you're currently doing.

There may be plans that maybe you can't work through it with your current lender, but you might be able to put your financial books, planning, and your loan portfolio into a state that would work. With a, a different lender. So, um, you know, I think there's always possibilities. And so I would, uh, cast high praise on you for the job that you do and the manner in which you do it. And, uh, but that's not really the purpose of this podcast by any means, but I am trying to point out the fact that I think that outside guidance, uh, could be very beneficial to a lot of people. So I just want to get that out there.

Chris

Barron: Well, that's a really good plug.

Duane

Lowry: Thank you. But yeah, but these are difficult times, and I cannot stress enough how important it is to recognize that the stress that someone's going through, number one, it's not all your fault. And does it mean that there aren't some things that, you know, maybe you could have made a different decision? Yes, but we all make bad decisions, or we all could look back and find decisions that we could have done or would have done differently. But, you know, that's just life. But when things get tough like this, you know, take, take a step back, try to get all your team members on board, look for some help from outside guidance, and see if there's something that you can do differently. Think outside of the box that you normally are in. And go at it positively.

If you're in agriculture and you're production agriculture and you're a farmer, there's a certain amount of optimism that, that occurs every single year. If you were to take any operation out here, and if the people outside of agriculture were ever to get an understanding about how much money it takes to have the equipment to put the crop in the ground, and how much money you're laying out there, in March, April, and May, and you don't get any return until October, November, and there's no guarantee you're going to get enough of a return to cover your costs. I think most people out outside of agriculture would just absolutely, uh, have their mind blown to hear some of those numbers. So I say that—

Chris

Barron: that's why only 1% of the population is in production agriculture too, you know. Mm-hmm.

Duane

Lowry: Probably something to that. But I guess I point that out to say that, you know, it's quite a burden to carry when things get kind of tough in the agricultural community because it's not just a business. It's, it's, uh, it's, uh, your, your family's business, your, your family. It's, it's a way of life. Your family is fully entwined in the business and, uh, it, it has a unique type of stress given to farm people that may not occur in other industries or in other lines of work. So, I just want to point out that, that there, there may be a workable plan, but it may require some outside guidance, and it may require some thinking differently. But these are the times where, you know, you may have to face those decisions.

Chris

Barron: And, and to your point, I think one last comment, then I got a couple of quick questions for you, and we kind of get things wrapped up. But I want to make a comment too that You know, in 2012, what we were doing, trying to help people with financials, really nobody wanted to talk to us. It was like crickets because all we had to do was wake up and we were making money. And so, you know, when things get tough, times get tough, you know, that's when we all kind of start, you know, naturally as humans start looking around and saying, okay, maybe we should be focused on this. The good part of that to me and the really refreshing part of that is, is we don't become better business people when, you know, all the commodity prices are really high and everything's really good. That does not make us better business people.

What makes us better business people is when we have challenging times and we got to make tough decisions, because then if we can learn during those times, we do a lot better. And, you know, and not picking on the next generation or anything, but a lot of times You know, unless you've experienced something or lived through something, you truly don't have a complete understanding of it. You know, you can hear people talk about it, but when you live it, you believe it. And so really, that's all I got to say on that topic. One last thing, though, before we wrap up, Duane, I do, you know, since we're, we're supposed to be talking about the, you know, what's, what's coming up in the next week in markets, why don't we wrap up with, you know, you kind of giving us a little outlook here going into this next week.

Short term, and then I think we'll follow up with some more conversation along these lines. So I think there's a lot of operations out there that, like you said, are pretty optimistic moving forward. I think we got some price opportunities ahead of us, hopefully, that are going to be good. And, and, and as we head towards a new year, I think there's a lot to be optimistic about too. But what's your thoughts going into a new— into this week?

Duane

Lowry: To wrap up, I think the week will start out looking at Commitment of Traders report that was released on Friday and that showed that the funds that had sold a record amount of new short positions, established a record amount of new short positions over a week window, increased their short level positions again by almost 10%. The corn short, they increased as well. And I think that sets us up for a position that we come in here Sunday night and this week where you have a lot of shorts that are in trouble or close to being in trouble, the momentum is working against them a little bit, the fundamental storyline is working against them a little bit, and I think there's a possibility that we will get some short covering and I think that will tend to pump up prices to some degree.

As far as a look ahead I'm going to go, I'm going to be a little bit bold and say the most important thing to, from looking forward is to say that as of right now, I think there's a high probability that we've got our bottoms in, in the beans. We got our bottoms in, in the corn. Um, we are going to see some seasonal improvement in prices. And I think that we have got, uh, the market caught completely off guard with these, uh, very, very large short positions by the funds. I think they're going to be forced to the exit door, which means higher prices. I think the basis levels could be harmed by that. We'll see. That's what's going to be what everybody suspects. My suspicion is the basis levels, if they are weakened, that won't last very long and they'll probably get better. In terms of an outlook, I'll give kind of the same outlook I've given before.

I think we're going above the October highs in corn. We're probably going above the October highs in beans. From where we're at right now, that implies, you know, another 20 to 30 cents minimum in corn. And I won't offer a bean price just right at this moment because it would be too, too radical, I think. I want to make the— I want to make one general point. I've made it multiple times before, but I'm going to press it again. Beans are historically very, very cheap in relationship to other commodities. And I'm going to look at corn as an example. From the 1st of May of '19, just several months ago until now, beans have gained about 90 cents on corn. Okay, people are like, okay, well, that's a big gain. And that's probably enough.

That 90-cent gain put— that brought us to our relationship where beans are now versus corn is still in the bottom 15% of the— where it's been in the last 12 years or 13 years. Okay, so they're still cheap even here. And to bring it closer to history a little bit closer, if you want to get back to the levels that we were at in the spring of '18 before the trade war with China started to impact prices, that would mean corn would stay steady and beans would have to go up $1.30. So again, I'm trying to point out the relationship. Why am I saying that? Well, I'm piggyback— I'm going back to the last conversation we had. If you're in a position where you need to raise cash, and you have to sell corn or beans, okay, right now, I think there's a better opportunity that your inventory of beans may outperform your inventory of corn in terms of cents per bushel.

So that's the first thing I would consider. If you are in a position that you have to sell virtually everything and turn it into cash, at least basis levels are treating you fairly well right now. And then at that point in time, you know, you can look to own futures. And that would be, you know, there's a lot of things we could talk about there, but I'm just giving you an overview that I think there's still value in maintaining some ownership here. And if you have to sell cash, do it., and then look for that futures or option strategy to get it replaced. And as far as upside potential, um, I think upside potential in beans here is, uh, uh, at, at least a dollar. And that's given just to get from the, uh, price relationship perspective. And if I give an honest answer for what I think upside potential is in beans, I think it's probably more like $2. And I know that sounds absurd right now.

But when you look at history, it's not absurd. It's very real, and we're going to see whether we get the demand to back it up. South America is doing pretty good. They've had some periods of dryness. They have, they have a pattern that suggests that we may see dryness in parts of Argentina throughout the growing season. We'll see how that develops. I also thought it was interesting, some other things I saw this week, I've mentioned before Brazil and Argentina's corn exports have been very front-loaded, much more aggressive in the first part of their marketing year than, than normal, and I argue that they have very little stuff left to sell. I've seen commercial, international commercial traders say that Brazil has exported so much corn that they have domestic users that are looking to maybe import from Argentina because they're concerned about their supply.

So there's a lot of different things here at work. But without putting any upside targets on, I think people should just feel good that we've got a groundwork laid and that we can build upon. And we've got the, the funds caught the wrong way that can provide a lot of upside energy if indeed they really want to go get out of their shorts. And I think they're going to be forced out. And the last point I want to make out is, and I've mentioned at different times before, the US dollar has weakened up quite a bit. And once we get a trade deal with China, that's going to cause that dollar to get more weak. And we now have got the dollar at the weakest levels it's been in several months. And the chart looks somewhat ominous.

And as that dollar gets weaker, if it develops into a trending lower pattern, and I think it will, that's going to cause investment capital to move out of stocks and into dollar-denominated products.

Chris

Barron: Okay.

Duane

Lowry: And that will be supportive to agricultural goods. And, um, we also had the Fed this week indicate that they, uh, were not going to be raising interest rates anytime in 2020. And they indicated that they want to see inflation levels go up, whether we're under the 2% target that they want to be. We've been under that 2% target for a long time. Now they seem to be committed to wanting that to expand. If they want to get it above 2%, they're not going to let interest rates get to 2.1% and immediately put the brakes on it. They're going to allow this interest— or this inflation to elevate for a longer period of time measured in months and quarters, not short period of time. If that unfolds, that's another macro underlying condition that is going to develop from here forward that will be supportive to agricultural commodities just in a price structure and drawing in investment capital.

And I think these are very clear signals, and yet the funds are short record position— not record, very large positions with short positions. And I think that there's, again, those are two more reasons I point to why prices can get a lot better than what people may think. And it may not necessarily have anything to do with any underlying fundamental condition. And then, then also, I finish with a little bit of an exclamation point on this US-China trade deal Phase 1. I think it's a big benefit to agriculture. And I think despite what the skeptics are saying or suggesting is probably going to happen, I think we're going to find that over the next 6 months at minimum, and maybe over the next 12 months or more, we're going to see the benefits to agriculture unfold.

Chris

Barron: Well, that sounds like a good way to kind of wrap things up, and that kind of ties things together from kind of how we started the conversation and kind of wrapping things up here. And, and, you know, if people have individual questions, as you kind of said in the middle of the of the, uh, podcast here. People can reach out to us and, and, you know, ask some questions individually too. And they know how to get a hold of you and then get a hold of me if they've got some, some questions or some things that they'd like us to be talking about. It's really hard to talk strategy, be, you know, specific strategy, because everybody's operation is so unique and different. But, um, thanks Dwayne for today's, um, commentary and information.

You've really brought a lot to the table today with with the China talks and basis and just kind of where this market's most likely to be going, hopefully, and a lot of optimism in a lot of that content. So thanks a lot, Duane. Appreciate it.

Duane

Lowry: All right. Thanks, Chris.

Chris

Barron: You bet. And thanks, everybody, for listening. And hope you have a good week and we will catch you again next time on the Ag View Pitch.

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. 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.