Sunday night outlook: expectations, rumors, and conviction

Narrator: Hey podcast, thanks for joining us today. Be sure to listen in as Chris and Duane talk about market expectations, China rumors, soybean potential, and price action convention. Be sure to get started on the right outlook this week so you know what's ahead. Enjoy.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. Today we're going to have a little conversation about the new week ahead. You've got Chris Barron and Duane Lowry. How was your weekend, Duane, and what's things looking like as we go into a new week?

Duane

Lowry: Hi, Chris. It looks like it's going to be an interesting week with an interesting start to the Sunday night trade and interesting in this case, I'm going to use the definition of uncertain. Um, there are a lot of different ways that people are going to enter the Sunday night trade and the expectation for it. First of all, everybody's going to look at weather, and they're going to see what appeared to be kind of an active radar at different locations. Some places had a nice shower, a lot of places had less than a half an inch, and if you look at a 48-hour precip map from, say, noon on Friday till noon on, on today, there's a lot of real estate that either missed rains in the east, or had, you know, half-inch or less totals in western areas.

And if you put that against the backdrop of knowing that we were experiencing crop stress due to moisture, already in areas before this, it seems a little bit concerning. On the other hand, you have people that will come in and say, well, we don't have a lot of heat in the forecast. With a little sidebar on that, I would say that there are some aspects of the next 10-day forecast that's slightly warmer than it maybe was on Thursday or Friday of last week, but the same token, I would agree that does not appear very threatening in terms of temperature outlook. But, you know, a lot of times, you know, when we make those comments that the forecast looks non-threatening, and from a temperature standpoint, and there was some rains around, and that would— could get a— arguably could get a bearish spin on weather tonight.

We're looking through the lens of a normal year, and I'm not sure that's the correct way that we should interpret that. I mean, the crops this year whether you're in the east or the west, everybody is able to drive a short distance and see crops that were under stress at a quicker point than they would have normally been in a given year. And this is due to the excessive soil moisture and the, the root development and all the storyline that goes with that, which we've talked about many times before. So we know that the crop has been under stress that it normal— in a normal year would not have been given the same set of of recent near-term weather conditions. And the latest planted acres were the ones showing the most stress.

And if, you know, we have a situation where, you know, about half of your beans are planted after the 1st of June and a sizable chunk of your corn crops planted after the 1st of June. And so the all of a sudden the impact on delayed planting acres is, is certainly noteworthy. So I think the weather gets a mixed spin, and people will show their, you know, bias, whether they are bullish bias or bearish bias, based on how they interpret weather. And I think there's an argument on both sides. But since I look at the crop condition this year being something completely not normal. I would have to say that I view the weather developments as being bullish with my focus on the areas that didn't get rain over the weekend or got, you know, only like a half inch or less. And I look at a 10-day forecast that doesn't have a lot of precip in it.

And I would say the amount of raindrops in the current forecast for this week is probably less than would have been yesterday or on Friday. So that to me is a little bit friendly on a weather spin. And the other thing, two factors that people are going to try to use to determine tonight's outlook will be price action from Friday. And Friday's strength was a complete surprise to most people and certainly a complete surprise to anybody that had a bearish slant last week. And just to put into perspective, beans settled Friday at a price level that November beans— there's only 2 days since June 28th that settled higher than Friday's settlement. So somebody that was bearish all of last week or bearish on Thursday of last week, you know, that table turned suddenly and abruptly and significantly from Thursday's settlement to Friday's settlement.

And in terms of where they've been for the last 3.5 weeks, that's a big move. And suddenly the pressure's on the, the bearer to get some relief from Friday's price action, or else he's going to have to contemplate exiting his position. The other item that's important is the China rumors that were around on Friday. And, um, from Friday afternoon till now, uh, the developments there that I would say that give those rumors some credibility would be that I was able to find a couple of slots in the US domestic bean basis area that showed 15 to 20 cent improvements on their basis bids from Thursday to Friday. And that gives some credibility that either somebody is expecting to do business or somebody is trying to position just in case China is interested.

Also, Bloomberg had some articles talking that in essence gave merit to the idea that China was interested in, in purchasing some US agricultural products in the near term, and also gave implications that this was not going to be a state-sponsored purchase, was what was going to be more broad-based coming from individual buyers out of China. And they were lobbying to try to get a quota system and from the central government that they could import X amount of U.S. goods and not have to pay a tariff. And I don't know exactly how that plays out, but I think it's very, very important to point out that if China is in the process of buying U.S.

agricultural products right now, the last thing that we should see which the last, the last way in which we should look at this is to think that it's some sort of an olive branch or trade-related or it's some sort of a negotiating tactic on the part of the Chinese. I would say the correct way to look at it is there's absolutely no tie-in to an olive branch or a trade negotiation tactic. It is completely based on a combination of two things. They either need U.S. agricultural products and the need, it could be caused by the fact that they've been unable to buy US agricultural products for an extended period of time, and the trade problems have lingered longer than they expected. So they either need it, or they strongly want to buy it because they're looking at the same fundamental conditions that the rest of us are, and they're coming to a conclusion that there might be upside risk here.

So to me, the, the China development is, uh, is an important development from Friday. I think there's been merit that's been given to it since Friday, and to me that's a bullish input. And, and it causes me to, uh, say that if weather is bearish— and I'm not saying it is, but if it is— and if the market were to trade lower tonight or early this week based on a bearish interpretation of weather, I would argue it's not going anywhere to the downside. It won't build any momentum and it will find plenty of buying that interest that I would say is probably going to be building under the market. I'm inclined to think that we'll be higher tonight and higher early this week. And I'm leaning on the China storyline that I described.

And I'm also leaning on a weather forecast that I think is going to cause plenty of people to talk about crop conditions that are not doing what they'd like it to be doing at this time of year. So I'm leaning towards better here tonight.

Chris

Barron: Yeah, I was just looking at the calendar here, Dwayne. We are about, what, 15 days away from a pretty important report as they, you know, reanalyze and survey everything from various angles or whatever. And so You know, it sounds to me like, you know, the volatility just continues. You labeled and listed— I don't know, I was counting here— about 7 different factors that pull the market one way or the other depending on the news. Do you think we just kind of stay in that range we've been in? I mean, there's really nothing to take us outside of the upper end of that range. So tell us again, for those who might be asking that question, the top end of that range, the bottom end of that range on corn and also soybeans. Between now and August 12th report?

Duane

Lowry: Well, in the case of the soybeans, in the case of the soybeans, uh, for the last, uh, month or maybe even 6 weeks, you've basically been an $8.80, $8.90 on the bottom side of November beans and a, a $9.30 to $9.45 upper part of that range. That's where most of that's been. That's been relatively small range, and we've had, you know, fairly, uh, notable swings within that range that, that one minute it looks like the bulls in control, and the next minute it looks like the, the bears in control. And, uh, Thursday people would have assessed all of this and assessed the charts and assessed price action and said it was in trouble. And it was a threat. And there was a— the charts appeared like they were vulnerable to weakness. And along comes Friday, and suddenly that table is completely turned.

So the burden of proof on the bull and the bear in the bean market right now, I'd say, is the bear must prove that they're correct. And if time goes by that they're not able to erase Friday's gains, and I do not think they will be able to, but if time is able to roll by that they can't erase it, I think the next thing that happens is you're going to see buying increase in the bean complex, and this China storyline kind of helps fuel that. So right at the moment, the, the beans are not that far from the upper part of the recent trading range, and it doesn't take much of an imagination to see the chart start to build some upside momentum. But like every charting thing, it's, it's a, you know, it's an art form. It's not necessarily always a science. In the case of the corn, you know, we're more on the bottom side of the parameters that we've had over the last 6 weeks to 2 months.

And the corn market is still feeling the disappointment from a week ago when we walked in here on a Sunday night looking at hot dry forecasts in the foreseeable future, a threat to pollination, and I— and the charts that were poised for some sort of an upside breakout, only to find out that within, you know, 12 to 18 hours after that Sunday night expectation, the market had reversed and was looking horrible. And people were running for the exit door. And that dominated the corn sentiment all week until Friday. And even after Friday's gains, you know, the bear in the corn probably still feels like he's in full control. And, you know, has everything going for him. And I wouldn't necessarily completely disagree with that assessment.

So, you know, with the corn market on the bottom side of these parameters, the bull has to find something to add to Friday's gains and try to wrestle some control and momentum away from the bear. The bear in the corn feels that the weather is on their side. The bull probably feels the opposite. The China storyline doesn't seem to be impacting corn directly in any of the news articles. And so the corn market is going to be left to perform on its own with crop conditions, discussions and any, any sort of MeToo follow-through momentum that may, may be obtained in the bean market. But again, the corn traders want to look at corn at this time on the calendar and the weather and say it's non-threatening and say that the path of least resistance is down. And in most years, that would probably be a wise statement. This year, I believe it's different for reasons I've discussed.

So the corn market is very much in question. As I've mentioned here for several days or a couple weeks, I am very— I want to say concerned, but I'm not sure that's the right word. But I'm very torn between how to look at the corn market when I feel strongly that the intermarket spreads suggest that beans are going to gain on corn and may gain significantly on corn. And so consequently, that gives me some pause to think Maybe the corn market does stay down here and churn for a little bit, even if I think the bean market is going up. On the other hand—

Chris

Barron: What are those levels again, Dwayne, on to the downside? Throw those numbers out just for those who want to jot those down.

Duane

Lowry: Well, the bottom side, the bottom side on the December corn chart, basically since late May has been the around the $4.20 zone. And there was a chart point around $4.30 zone that was violated on Friday. And when that was violated, I'm sure that triggered some stops, it triggered some hedgers to step in and make some sales. And it triggered, you know, advisory firms to make sales recommendations in new crop corn for on the producer level. And so the chart has already weakened enough to cause those things to happen, cause stops to be triggered, cause people to sell on weakness and things of this nature. And if they really wanted to further that, uh, agenda and encourage more of that activity, the next area they'd have to take out or go down and challenge would be $4.20, and that's about 15 cents lower than where we finished on Friday.

So if you're thinking that way, you think you you're thinking there's got to be a reason to get corn to go down 15 cents. I can understand why some people would look at weather and say that's enough of a reason for corn to weaken another 15 cents. And they would say that the price action is soft, and they don't have quite the same amount of abrupt change in price action on Friday in corn that they had in beans. And so I'm sure there are people out here that are talking about the corn market going down to that level, like I said, about 15 cents lower than where it is now. And I certainly wouldn't want to rule that out as a possibility. But my overall view, uh, which would be more technical and fundamental combined, both, uh, would argue that even if that did happen, I would not personally be expecting the market to be able to sustain that weakness or to be able to build momentum.

I think it would probably be a trap.. And I think it would be a bear trap. And whether or not that we get to that, I'm not sure. But I'm just saying, I'm sure that people are expecting that. As far as the topside parameters, it's basically, you know, $4.70 to $4.75 basis December corn, that's now 40 cents away, that seems like a long ways away. It seems much more difficult to make that corn chart look positive than it will to make the bean chart looks positive. I think that the China story is enough of a story that it could create that bean chart to look positive and make a good trade. It's a little more difficult to make that same statement about corn. And so it's probably— you're probably going to find a lot of people that will feel that the corn market will languish here going into that August crop report, and that's an understandable conclusion.

I don't necessarily agree with it, but it is an understandable conclusion. I think that there's going to be an awful lot of pressure to bear on trade participants going into that August report to be afraid that USDA is going to give some bullish information in that report. And I think that the strength in the cash corn basis that just doesn't seem to go away, and the possibility that China's out here looking for either US pork or beans or wheat or any of the above combination. I think that's going to put the pressure a little bit on the bear to sustain values. And I'm not sure that we have the conditions that allow that bear to take corn down 15 cents. But I'm pretty sure there are some that expect that to happen.

Chris

Barron: Well, and it's plausible we're going to stay in that range. That was kind of why I was wanting you to kind of, you know, draw a picture of kind of where that range is. You know, not that we're making any predictions, obviously. Again, the whole point of the podcast is for perspective.

But if we lay out those parameters, you know, because we have kind of been inside that, that range, and, and, you know, the 7 or 8 things you laid out that are variables, and then when you consider things, if you're a trader and you're sitting here looking at this there's just enough unknowns and there's really not any, any grand news, particularly on the corn side of things, you know, really one way or the other that like you say, you know, that the bear can hang their hat on or the bull can hang their hat on really, when you look at it, a lot of confusion on top of it, because, you know, and I just want to throw out there, and Dwayne, you know this, but for the listeners, we, we're going to be traveling to Wisconsin tomorrow morning. And so when we get there, I'm going to do a 3-state update just based on what we've seen.

But just as a little preview, I mean, and you and I have talked about this, Dwayne, there's 3 corn crops out there. There's a third that was planted in April, there's a third that was planted in May, and there's a third that was planted in June. And that's a gross way of putting it, or it's kind of an average way of saying it, but there's so much variability out there in maturity. And, you know, the long-range forecast I was telling you I saw over the weekend, I don't know if you get a chance to look at it, but some of the forecasts I was looking at was showing that week of the middle part of August on into September is when really the heat gets turned on. And so between now and then, there could be a lot of nothing couldn't there realistically?

I mean, we stay inside this range, but, you know, there's just— there's— is there anything out there that you can think of other than what we've talked that could bump that thing? That's a black swan one way or the other.

Duane

Lowry: I'm not sure if I can think of anything or define that one thing other than things we've talked about with China. And but I do think it's very important to realize that the market is very susceptible to momentum. And right now, there's wide interest and wide awareness of all that we're dealing with. But conviction, while all this interest might be miles wide, the conviction is about a quarter of an inch deep. So in other words, if somebody is bearish today, and the market's up, they are suddenly no longer bearish. I mean, they're gonna be whipped around by price action. And that's why Friday's price action— The fear kicks in quick. Yes, because there's no conviction. They don't have the conviction in there whether they're a bull or a bear. They do not have depth to their conviction.

And part of that is they don't— can't develop depth because of all the things that you mentioned, that there's too much unknown out here to develop that depth in their conviction. But yet people will trade that, try to trade that, and that, that can lead to some whipsawing around. But that's why Friday's price action is so important. The conviction sentiment was pretty bearish last week from Monday morning on, and so Friday was a big abrupt change. And if I'm just trying to take a snapshot view of what's going on from, say, Thursday night to right now, you get the Friday's price action that some will be quick to poo-poo and say, well, by the time we get in here Monday morning, we'll have had rain, that we won't have a lot of threatening forecasts, and who knows whether there'll be anything behind the China rumors.

Well, fast forward to Sunday night, the, the rain totals offered some level of disappointment both in coverage and precip totals, but yet the temperatures are mild. But the China storyline to me appears to have some legs to it, has to— appears to be having some traction. And since the burden is now on the bear because of Friday's sharp gains and the momentum there, and this— since their conviction level, in my opinion, is, is a quarter inch deep, I'm inclined to think if the bear can't immediately get some negative traction on their interpretation of what weather looks like, fast forward this thing to, uh, 11 o'clock tomorrow morning, and I think the bears are going to be forced upon— they're looking for the exit door. So whether that's— whether we get strength or not tonight, like I said, there are different viewpoints on that.

I'm kind of inclined to think that we will, and so I'm kind of inclined to think that, that the bear is going to be chasing for the exit door relatively quickly, led by beans. But that remains to be seen. And so when I throw all this together it's probably easy to think corn stays in this range that we defined. But I don't think it's a given because the people that are bearish corn, if they're trying to put a weather spin on it, they will point— they will recognize that weekend precip totals were not what they had hoped for. And they did not get the coverage that they had hoped for. And they will recognize that some of the precip that was expected for this week no longer exists in that forecast. But they will hang their hope and expectation on the fact that the second week of the two-week outlook does offer opportunities for moisture. And so that's, that's their level of conviction.

But we all know that weather forecasts can change in a heartbeat. And I'm not sure how much conviction there is the weather forecaster has in their things either. So if we move ahead, a day or two in, in down this week, and we find out that, that moisture opportunities in the second week of the two-week outlook start to look less optimistic or less certain, all of a sudden that, that momentum quickly changes. And this is a little bit on the humor side, but for those that get my written comments, I'll send it out probably as soon as I'm done with this podcast. But I put a screenshot in of my local weather forecast, a 15-day forecast, and I thought it was so humorous. They, you know, we all know that weather forecaster, just like the market forecaster, has a difficult time trying to figure out what's going to happen in the next 15 minutes, let alone the next 15 days.

So this weather forecast that on my local 15-day didn't really have a lot of precip in it, and it had benign temperatures and had some rain chances but not a lot of precip totals. But lo and behold, on Wednesday, July 31st, this forecaster clearly thought they had the world totally by the tail, completely knew exactly what was going to happen on Wednesday, July 31st. Wasn't sure about tonight, but they knew exactly what was going to happen 10 days from now, because in their preset— in their outlook, rather than saying something like sunny and cool, scattered showers, or anything else, or light showers or anything like what would be a traditional weather comment. This screenshot says for Maynard, Iowa on Wednesday, July 31st, it says tons of rain. That was their expectation.

So 10 days from now, I'm going to be building an ark out here because there's going to be tons of rain and there's obvious clear conviction on that. I just found that very, very humorous.

Chris

Barron: It sounds like a drunk like a Trump tweet.

Duane

Lowry: Yeah, it's a little bit of a sidetrack, but I just couldn't help it. I had to mention that. I just thought it was so bizarre.

Chris

Barron: Well, I went back there, found some conviction. There's conviction for Wednesday, July 31st.

Duane

Lowry: Yes, but now here comes the asterisk, or as Paul Harvey would say, the rest of the story. The, uh, there's conviction there, but I, I was so confident that conviction might not last that I took a screenshot because I wasn't sure I'd be able to go back to it later and get it. And if I go to that forecast right now, that phrase 'tons of rain,' that's gone. Okay, now they just have rain chances or whatever else they have. So that is so one— even that conviction that was so convicted to use a phrase such as 'tons of rain' for 10 days out, now that conviction is gone. So my point is made again, this conviction, whether it's the weather guy or the trader, is about a quarter inch deep.

Chris

Barron: I've got a screenshot from last year I should send you. I'll have to dig it out and look at it, but I sent it to all my farm partners here at our operation. It was a local forecast and it was a 7-day forecast and it had the middle of the week, they had the temperatures all in the 80s across, you know, it was during the growing season and there was snow forecasted for the middle of the week. So I definitely took a screenshot of that, but about a half hour later, it was— the snow went away.

Duane

Lowry: So yeah, today's technology and digital world, there isn't anything we can say or write that doesn't seem to come back and haunt us forever.

Chris

Barron: Well, sometimes those are the glitches too, though, you know, aren't they, Duane? You know, we've got all these algorithms and the computers that are that are doing the trading as opposed to the, you know, as opposed to being in the pit. And, you know, and it's— there's a lot of human emotion removed, I guess, is my point.

Duane

Lowry: Well, that's possible. So in other words, you're saying that that weather forecast you took a snapshot in, since it had snow in it, that was kind of a computer glitch, correct? That's what we're saying.

Chris

Barron: Yeah. Yeah. And why that happens and can happen in the markets.

Duane

Lowry: I don't know, but just to put in perspective, like my comment before that you can't, uh, write or, uh, put anything out there in the digital world without it coming back to haunt you. Just, just for clarity, in case everything I've said in this podcast was completely wrong and proven that way within hours of now or even days from now, I just want everybody to know this is clearly a complete computer glitch and, and this isn't even my real voice.

Chris

Barron: Yep, yep, yeah, we're not really talking, we're just talking.

Duane

Lowry: So yeah, yeah, so we, we'll all, we all have excuses for when we're wrong for sure.

Chris

Barron: Yeah, and that I think again is, is just, you know, you and I realistically having a conversation about what's out there. And I mean, there's a lot of uncertainty, a lot of un, you know, unclear, um, weather forecasts, and we've got 3 different crops of corn and 2 or 3 different crops of soybeans out there and a whole bunch of people that don't have a clue, you know, what, what's going on with the crop conditions. And that leads me to my final question because we're getting up against time here, Dwayne, but is, you know, the crop condition rating, um, you know, if that starts to move, how much weight does that carry in and of itself? In the market very much? Or is there, you know, is that just one of the pieces?

Duane

Lowry: Well, let's put it this way. Last year's crop condition ratings, as they were lived and reacted to in real time, didn't seem to bear out to coincide with the final yield projections, number one. Number two, this year, the crop condition ratings feel like something that we will all quickly embrace if it happens to coincide with our preconceived notions. And we will quickly, all quickly dismiss it if it doesn't fit our own personal narrative. So the expectations on these crop condition ratings, you know, tomorrow are pretty minimal changes from last week, and probably something like unchanged and maybe some people will expect the corn to improve a percentage point. That's probably the general thing.

Uh, but in terms of trust or confidence in those crop ratings, in terms of, of how closely do they reflect on what the trend is in, in the yield potential in the field, I think, um, people's trust in that has been really harmed a lot. And I think they, to the point where, it's quickly becoming something that people don't trust. And I don't mean that in a critical way, I just mean it as a matter of fact. People just are finding it difficult to trust it. And the other factor that is relative to this year, but not another year, is the fact that, people aren't sure if the crop condition ratings, might reflect— for example, okay, the, the crop's growing, it's green, so therefore it's good, when the, the true crop condition rating should take into effect, you know, the planting date and some other factors behind it.

And people don't— either don't know if it— that is happening, or they don't know how to interpret it. And so I think there's very little confidence in trusting the weekly crop condition ratings for anything more than maybe trying to get a handle on perceptions of one week versus the next. But I'm not sure there's a lot of raw confidence in what that actually means to data. And like I say, I don't, I don't mean this to be critical of the USDA reports at all. I just mean, mean it in the context that people aren't sure how to respond to them.

Chris

Barron: Okay, well, I guess that's probably all we really need to kind of go over. And one of these times, Dwayne, too, I keep thinking we need to do this. We need to have a conversation about kind of back to the who's who at Ag View, and you being one of the primary contributors of kind of how you got started in the business and your kind of whole story, which I got to hear the other day. So we'll just kind of put a little teaser out there that one of these times here we're going to do a little podcast on, on where you came from and, and where you've been and where you're going. So, um, be prepared, I guess.

Duane

Lowry: Okay, when you bring all that up, the word that quickly came to my mind was the word glitch. So that might be a good all-encompassing word that describe that.

Chris

Barron: Okay, well, we will attack that the next time. And I think from here on, we'll probably get going here and, and call it a— call it a podcast. And thanks everybody for being on here today, and we will be back probably tomorrow. And I'll try to be back here tomorrow also with a quick update on kind of what we, what we saw in Minnesota and northern Iowa, and then we'll be going up through northern Iowa and into Wisconsin. And so we will be back tomorrow, and then we'll probably hook up with you, Duane, if not tomorrow, Tuesday or something, and just kind of see how the market's doing, kind of depending on what's going on. So thanks a lot, Duane, for everything here today.

Duane

Lowry: Sounds good.

Chris

Barron: Thanks. All right, thanks everybody for joining us. Today on the Ag View Pitch, and we will catch you next time.

Narrator: Thanks for listening, podcast. As always, we love sharing the perspective. Hopefully it's bringing you some good value. If you have any comments or questions, please reach out to us through email or phone, and we'd love to talk with you. We'll catch you next time on the Ag View Pitch.