Sunday night market update

Narrator: 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.

Duane

Lowery: And it's the Ag View Pitch!

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. And we're back here, finished up last week in the markets, and we're getting ready to have a little conversation about where we might be going with the markets here going into a new week. And we've got Dwayne Lowery here with us. How's it going? Today, Dwayne?

Duane

Lowery: Good, Chris.

Chris

Barron: Good, good. So, um, guess let's just kind of get rolling here, um, kind of get talking about the markets as we finished last week. Dec corn in that, uh, you know, at $3.55 range and soybeans in that $4.57, Nov beans. Uh, what are you thinking about these markets? We're, we're kind of on the low side of things here. Um, talk to me a little bit about where, what we might be seeing this week.

Duane

Lowery: Well, the most important thing that people are looking at this week is USGA's report on Thursday the 12th. As far as price action is concerned, first of all, we got to go back to August 12th. You know, the, in the trading world, whether it was grounded in fact or fiction, whether you believe it or you don't believe it, The market reacted to the USDA's report. And from that particular perspective, the world changed after the August 12th USDA report. And to a large extent, even last week, it's still spillover, flushing, get me out, throw in the towel, give up type selling discouragement Frustration. All of this weakness is all driven by that. You can't point to anything else and say the weakness in the last week, the last 3 days, the last 3 weeks. You can't point to anything else as a factor. You know, people will try to say demand is poor or demand is down.

You have to separate that. Even demand in general, in terms of usage domestically or usage globally, is not poor, it's very good. Demand for US has been down because they've been able to get it from abundant supplies from other sources, Brazil, Argentina, Ukraine, etc. So you can— our exports are down, and the demand from that perspective is down. But all of that was known even before August, or even before July or June or May. That was known even last winter, that was a narrative. So I don't believe there's anything that's new that's happened in the last several days, last 3 weeks that you can point for, for the corn market being down other than USDA's report, and the flush that occurs and the liquidation that was caused by that. And everything we've experienced here, even last week, is all associated with that.

And typically, these type of moves are the type of things that occur at the end of moves. These are not the beginning of new trend lower. They're typically not the beginnings of a middle part of a, a trending pattern. They are typically culmination events. And as far as I'm concerned, everything that's happened since that August USGA report is all at the core, at its root, uh, driven by this washout event that we had. So that, that's how, what I want to say first about that in terms of the corn. And that is definitely more true about corn than it is in beans. And in many respects, I'd say all that, those statements I just made are only true about corn and they're really not true about soybeans.

Chris

Barron: Well, let's ask you another question then specifically on corn, and then we can go to beans on just kind of where do we go from here type of a question, you know, where's the, you know, is there a floor, you know, on the bottom side, on the hope side for, you know, you know, we're going into a report. So, you know, what, what do you guys do, you know, to kind of protect that downside, or should they be worried about that? And then, you know, where are we at from a technical perspective either way on corn? I'll just kind of leave it at that and let you kind of go from there.

Duane

Lowery: Well, let's do deal with the protections aspect of your question in regards to a farmer. Prices are below the spring insurance price. So if you're a grower, and you're dealing with a production that puts you into your insurance payout, or you think you might be in that payout, you know, there's virtually no incentive to make a sale here. And in terms of the producer, I don't care what the producer does when he wakes up in the morning, he has risk. And no matter what he does, he's got some level of risk. The question is, where do you want that risk? Right now you have a choice of, of making a sale. And I don't necessarily think that puts you in any less risk than you would be if you, if you didn't make a sale.

So prices, as far as I'm concerned, are cheap enough from a recent historical perspective that if you look at you look at carryout levels, where they are projected to be now versus what we've had for the last 4 years, and you look at prices where they are now, where they've been for the last 4 years, there is nothing about current prices that, that in my mind makes a sale here today, puts you in, in a less risk position than you are if you just sit on your hands and do nothing. In the last few years, it's not been a good move to make sales in late August or September based on price weakness, or based on negative trade sentiment. The sentiment during that August-September timeframe has each year been more negative than what it proved to be in price action from September, September through January. So I think the producer has to sit on his hands.

And, you know, the— we all wish we could have gone back and made more sales during the peaks of June or even the mid-July peak. But in real time, when people were making those decisions at that time, a lot of people looked at the planting dates, they looked at the— what they were seeing in their own field, and they were contemplating what their yields were. And then they were looking at their cost of production and using those types of yields. And they were being conservative and somewhat fearful on those yields. And even those prices that they had at that time weren't creating the type of return that made it an easy and a confident sale. If those growers were in an area where maybe their crop was on the better part of the country versus others, that may have been different and they may have been more willing to make a sale.

Otherwise, it was, it was a difficult decision to make at that time. Looking at the inputs in real time. We were also dealing with a situation where many smart people using many different forms of expectations thought we were going to have, you know, 9, 10, maybe 11 million prevent plant acres in corn. Turns out we had, you know, what was it, 11, 11.5 million prevent plant acres in corn. But yet somehow we still managed to plant all that we expected to be before any of this developed. And so, you know, you can look back and wish that you would have, but in real time, I think if everybody's honest, it was a difficult decision to make at that time. And there's nothing you can do about it now to go back to that. You can't go back and do anything, you have to look at everything from here forward.

And based on recent history, just over the last 4 years, and even taking USDA's numbers at face value and the pre-trade estimates at face value for Thursday's report, carryout levels and prices where they're at now do not strike me as being anything close to an attractive sales price. So I don't think that a sale here reduces risk at all.

Chris

Barron: What about, you know, what's, what's the resistance to the upside if, say, you know, and we'll talk about the report here in a minute. But let's say the report is friendly to the market, and we do get a bump up in corn. What's the technical resistance levels? And if a grower has to make some sales either for cash flow and/or space, talk to me a bit about that.

Duane

Lowery: All right, I'm going to get— I was hoping this was going to be a short podcast, but this is going to develop into a longer podcast. But let me just say that—

Chris

Barron: you don't have to give us a long answer, just give us a short one.

Duane

Lowery: I can't. You put a quarter in me and you're going to get a dollar's worth. But the The problem here is when you ask me a question like that about the technicals, where is the resistance?

Chris

Barron: It's a— at what time, right?

Duane

Lowery: All of this occurs against a backdrop where I think the market has been flushed out, it's going to be very, very clean. It's also occurring against a backdrop that we really don't know what our fundamental situation is. We have the August USDA report. So maybe we think that's what it is. But they never walked in a field. Okay, there was no objective data taken. And even if they would have gone in the field based on the how late the season was, it may not have been opportunity to get an accurate data anyway. But we have no objective field data from USDA at all. And yet we have farmers, crop scouts, agronomists, seed companies, the list is endless of people who are supposed to have a handle on what is normal and compare this year versus normal. About what we're dealing with.

And almost without exception, those entities come back at us and tell us that the crop is not at last year's levels, and they feel it's not at USDA's August projection levels. So I feel like we're still dealing with a situation that this is fluid. This is still unknown, despite the fact that it's the 8th of September. So we So when you asked me where the resistance is, you know, that any resistance point that you want to throw out here on chart point can be obliterated by a fundamental adjustment from USDA or combine yield reports that, that throw everything into question as well. So I want to say that—

Chris

Barron: You almost know that the early harvest results are going to probably be the best ones too, because they're going to be harvesting that April-planted stuff. And until you get into the May and June stuff, that's when the yields are going to go down. And they won't see that for a while either.

Duane

Lowery: Well, I think there's logic to that. But at the same time, you know, I've heard some yield reports out of far southern Illinois, out of Kentucky, out of Arkansas. And they've all had a flavor of being below expectations.

Chris

Barron: That's too early. Those are coming out of some of the dry areas too, right?

Duane

Lowery: Well, yes, but not all of those, no. I mean, like, not all of those were suffering from dryness, no. And it's not large enough to develop a trend by any means. But I'm not comfortable saying for sure that the, the best yields will be early. They might be, but I'm not sure of that. Okay. Okay. But getting back to your question about where's the technical resistance in terms of the December corn technical conditions where they're at right now, we could get a typical reasonable corrective rally in corn that would take Dec corn into $3.90 to $4, something like that. And so that is, is $0.35 to $0.45 higher than where it is right now. And so you could get to that type of a level. And that would meet technical resistance. We had nothing else going on or no big significant change in the storyline. I would say that's your resistance somewhere between $3.95 and $4.05 basis December corn.

And that as far as the downside is concerned, if you do not get a new wave of negativity from this Thursday's USDA report in corn, and if whatever we get is, is seen as factored into the market, then I don't think you have much for downside potential here in the corn market at all. And if you were to get a spike down and some new narrative on corn, I'm not sure what that would take. And I'm not even going to throw out a number for a scenario that, that I really don't anticipate. But if you had to throw something out, I'm sure other people are going to answer that question by saying $3.30 would be the price. Okay, I don't share that. But that's probably what other people would say to that. Yeah.

Chris

Barron: Let me ask another quick question on corn before we go to beans too. So let's say that, that, that we do see a bit of a rally, whatever the number is, $3.90, for whatever, but we see a rally, assuming that, that we know we're going to have to deliver some corn and we want to sell on that rally, it's likely that the basis would, you know, take a bunch of that away or some of that away going into harvest. I know we talked about this before, but just real quick on basis, should, if somebody knows they need to be delivering some corn during harvest, You know, should, should a person be doing some of that on a basis contract now while the basis is pretty strong in a lot of areas?

Duane

Lowery: I think the argument for doing it is probably fairly strong. And so I would agree with what you're describing. I would also say that the cash buyers might be willing to push for some if they can get a commitment from you for a delivery period for new crop bushels, because right now, there's not a lot of farmers selling or a lot of farmer interest. And I think the cash buyers are still, even though harvest is just ahead of us, they still seem to be anxious to buy corn and willing to push their bids. And they're still dealing with a spot bid that's worth more than, than harvest time. So that tells you that you might get a decent price if you offered a basis contract out for October shipment right now. And so When you look at it from a historical perspective, it probably gives you reasons to think that's a good idea.

I'm inclined to think that it's a good enough idea that if whatever amount of bushels, you know, you either have to or strongly desire to sell at harvest, I'd be willing to put offers out to the cash buyers right now for a third of that quantity and try to get that basis locked in for all the reasons you said. And then if you did get a futures rally, basis would tend to weaken. But after, after saying that, I think it's also important to point out in context that we've just gone through a period of time from, well, let's just say the 1st of June forward, where basis has been not only strong, you have to almost use the word record strong in some locations in the East. And it's been, it's maintained this strength into a period that typically has weakness in August and early September. Through this tin can harvest that we normally get. And that was a complete non-event, it didn't occur.

You couldn't go anywhere and find lines in the corn, at corn places, corn delivery points. The roads were not full of corn trucks. You know, you just did not have that type of movement. And you had each multiple times in the last 3 weeks, cash buyers would put out a special bid for the weekend delivery or nearby the next 3 days type shipment. And then a big discount for the next week only to find out by Tuesday of the next week, they were paying more for that than they paid for the weekend bid. And that's happened at different times over the last few weeks. And so, you know, you have an unusual situation here where basis has been stronger than normal. And I'm not sure that that will be altered a lot just because we have harvest ahead of us. You know, if we fast forward and it's harvest tomorrow, and we have these prices, I'm not sure the farmer is an aggressive seller of corn here.

And if it happens to be that his yields are less than— well, let's put it this way. If the yields are what he fears, which is, you know, on the lower side of the marketplace's expectations, I think that makes him a very tight holder. And all of a sudden, this cash basis that's been very strong, you know, it might continue to be stronger than normal. And a sale now at a discount to the nearby might look attractive, but will it remain attractive in October? I don't know the answer to that question. I'm just saying this is not a slam dunk and it doesn't make it easy. The only thing that I would say confidently that would make basis weak is if we got a futures market that staged an impressive rally that was caused by, you know, disappointing yields that was actually confirmed by the combine. And I'm not making that as a prediction.

I'm just saying that's the only thing that I can feel confident about happening that could cause basis to confidently be weaker. Otherwise, I'm looking over my shoulder and wondering if the cash basis strength theme that we've had all summer long won't continue even after we get into harvest. That's all I'm saying.

Chris

Barron: And some of that's going to be regional to the grower paying attention to what's going on in their general area too for access to grain for whatever, you know, processor they're going to or whatever as well, I would imagine.

Duane

Lowery: Yes, but I don't think any region of the country has a larger quantity of corn in storage than they had a year ago. And some of them are notably less than a year ago. And so I don't think there's going to be a lot of forced sales due to space during the early part of harvest. The movement during the early part of harvest is going to be something that's already been contracted, or the guy that's doing, like we just talked about now, that he knows he's got to make some sales. And he's thinking that he's going to try to do it early. Okay, other than that, I'm not sure there's going to be a lot of selling activity here.

Chris

Barron: Gotcha. Let's just switch over to beans here and then we'll get to a quick discussion on the report. But on soybeans, you know, going into the week, starting out, no beans in that $8.57 range. Some of the similar questions with a, with a maybe a shorter question then, basically, what's your thoughts?

Duane

Lowery: Well, soybean market has performed I would say relatively well. But I say that not from the standpoint it's rallied a lot, but just from the standpoint that it hasn't really broken much. And there's arguments that could have been made that weather that we've had may have been more friendly towards soybean development than it may have been towards corn. And I think that there are people who are more comfortable with the soybean estimate, yield estimate, than they might be with USDA estimate or on the corn estimate. And I say that, but knowing that there's a wide range of estimates, period. And so it's difficult to label everything as a group. It's just a wide range of estimates. But in relationship to where the soybean market was in early May, you know, we're still probably more than 50 or about 50 cents off those lows.

And compare that to corn, where we're actually below the point where this rally started in May. So from that perspective, beans have not performed too badly. And in relationship to the August report, they've not performed too badly either. So the support points on the corn, on the soybeans, I would say that the likelihood of going back to the May lows where this all started would be— seem to be very slim. And the technical support probably comes into play at about $8.35, which is about 20 cents lower than where it is right now. And, and that's the type of support that I would say you'd have if you got some sort of a bearish report. If you don't get a bearish report, you know, we've got a support shelf here that's been in place since the early days of July before we even had the August report.

And we've been able to hold, you know, hover at those levels or just above those levels for the last month. And so in that way of looking at it, the price you're at right now is already at what I would say is a short-term support level. 20 cents lower is some support level, I would say if you had you know, if you suddenly found a reason for the bean market to take out the lows it's had in the last month. And I'm not sure that we have that particular reason. As far as resistance is concerned, if the, if the soybean market is able to go back to the levels it was around the August 12th report, which was just under $9 in November beans, which is about 40 cents away from where it is right now, if that the market was able to get back to or above that level, I think you're probably talking about a resistance that won't be found until you get towards $9.50.

That's like 90 cents away from where it is right now. And I don't think the technical resistance that we have at those August highs or anywhere from here where we're at now up to those August highs, I don't think it's very stiff resistance at all. I think it could be easily eclipsed. So, we're back to the situation again, focusing on the report that in order to get a move to the downside, we're going to have to get some new negativity out of these reports. If we don't get new negativity out of these reports, I don't think you're going to build any momentum at all to the downside. And I think the natural reaction to anything that's labeled as neutral out of that is probably going to be some sort of corrective rally.

Chris

Barron: Okay, so let's move on and we'll talk to me about the report. What are some of the expectations where you think that might go? And then we'll kind of wrap things up here.

Duane

Lowery: Well, the average trade guesses, let me just go give you that. The corn, it's 13.67 for production. That's a yield of 167.2. And comparing it to last month from USDA, that's down slightly more than 2 bushels an acre. Last month they were at 169.5. As far as beans are concerned, they're looking at a crop size of 3.57 for an average crop size and yield of 47.2. That compares to last month's USDA yield of 48.5. So they're looking for about a 1-bushel decline in beans and about a 2-bushel decline in, in corn. But I think it's important, especially in the corn, to realize that the range between the low and the high on the production is a full billion bushels, anywhere from 13 billion to 14 billion. That's the range. So there's a very wide range of ideas in terms of yield that translates to a 163 to 171.5 range in the estimates.

And I think that it's important to realize that the environment that this report is going to be delivered in is an environment where nobody has any confidence in what you're— they're going to get from USDA. People might have a confident opinion that the crop is smaller, that the, the production is going to be less than what the market thinks. People might be confident about that opinion. But they're not confident enough to have a position on because of it. They're not confident enough to, you know, not worry about what USDA will say. People are, are either frustrated or just so uncertain and lacking any confidence about anything that would be positive to prices. They're just not willing to be able to, to be positive prices with any confidence.

So even if they actually believe it, that they say they think the yield is going to be at the bottom of the range, 1.63%, I can talk to people that might be confident about that. But they have zero confidence that they're going to get a number from that, like that, from USDA. And part of that is driven maybe by a cynical attitude, and part of it is driven by the idea that even if USDA gets out in the field and has some objective survey, a lot of these ears won't be developed to the point where they actually go anything based off of weight. And if you do the numbers, you know, a lot of people that feel the yield isn't going to be there. It's not as much associated with the, the not enough kernels out there.

It's more that a concern that the weight and the density of the kernel will be less than it normally would be or less than it's been for the last couple years where it's have been historically some of the better heavier weight type ears. And people are feeling this year it may be at the other end of that spectrum. So the, in terms of Thursday's report, there's just No confidence out here at all about what that report is going to be.

Chris

Barron: Well, it's a pretty big range. So 163 to 171 on corn. What's the range on soybeans?

Duane

Lowery: It's not as big, but the range there is 46 to 49. So at the high end, that is a half a bushel higher than last month, and at the low end is 2.5 bushels below last month. And here again, A lot of agronomists, a lot of seed test plot days and customer appreciation days, and they bring in the speakers and they look at the plants and farmers go out and count these plants. They find a distinct difference in the number of nodes if it was planted in April, May, or June and a declining number of nodes. They find a declining number of pods based on the planting date. And, uh, it's important again to remember 60% of the U.S. bean crop is planted after the 1st of June. And, uh, it is going to be remarkable if we achieve what USDA had pegged in August. It really will be remarkable.

And, uh, anything's possible, but, uh, it's really hard to, uh, be confident in what this yield is going to be when you're looking at such a strange year of, of, uh, historically late planting dates and on such a large scope of acres.

Chris

Barron: Yeah, well, we could sit here and debate about what it might say and, and everything, but we got these averages in here, and I think let's plan on following up on Thursday afternoon. We can do a podcast, you know, kind of at that point and talk a little bit about what, what the, report said and what that might mean moving forward from there, unless something crazy or exciting happens in the meantime. That sounds all right with you, Dwayne?

Duane

Lowery: Sounds good.

Chris

Barron: Okay, any last comments or anything that I didn't ask that you think we needed to hit on?

Duane

Lowery: Well, I think there are other things that are important, but this podcast is already getting pretty long, but I'm just going to throw out a couple of them. In the case of the beans and the soy complex, I think it's important to realize that the bean market has not collapsed as much as the corn. It has not done that. And some will argue that that may yet be to come. But we have soybean oil at quite firm levels, or veg oil at quite firm levels globally. And we have supplies tightening there. We have China that's reduced their crush, which makes them more aggressive to buy veg oil. We have a situation where it— the US, or let me back up. China has earmarked a large percentage of Brazil's soybean supplies. And the rest of the world appears to be uncovered with not a lot of forward purchases on.

And based on the current global price structure, a lot of this demand, if not all the demand from here forward is going to come to US shores. So it's still a very viable possibility that the cash soybean market in the US is going to be tight during harvest and into the winter months. And you got Argentina facing financial uncertainty and turmoil, their currency has been weak and volatile. And if you're an Argentine grower, and you're sitting on soybeans, that's a hedge against that. And they're going to be slow to market those bushels at these prices and with their volatility. So you have factors in the, in the soybean world globally, that could make prices firm, even though we have a US harvest. The biggest hurdle that we got to get past is avoiding some negative report from USDA Thursday.

If we can get something that's even neutral, the natural reaction is going to be some sort of price strength. It's not going to be price weakness. If we can get anything that appears to be a little bit of a surprise, we may end up with a stronger performance out of beans than what we think is logical with harvest just ahead of us. And I think the same thing is true about the corn. The corn market just needs to get past Thursday without a new level of bearish sentiment and a new bearish narrative. If we don't have that, the natural thing that will occur next is a tech-based corrective rally. And then the wild card will be, you know, could we get any, you know, bullish— actually get a bullish surprise? And I would say right now in the trade, there is an extremely low expectation of anything bullish from USDA on Thursday.

Chris

Barron: Okay. Well, I think we've done good. We didn't go super long and I think we have some good information covered there. But if anybody has any questions, Dewayne, they can give you an email as well too, or comments or things they want us to talk about as well.

Duane

Lowery: Sure, that'd be great.

Chris

Barron: Sounds good. So, well, I think that, that was a good conversation, Dewayne. I appreciate your time, and we will be back to everybody after the report on Thursday, and we will catch you again next time on the Ag View Pitch. Thanks a lot.

Narrator: Thanks for joining us on today's episode of the EggView Pitch. As always, you can reach out to us at cbarron@agviewsolutions.com or duanel@netins.net. We'll catch you next time on the EggView Pitch.