Super Bowl of USDA reports coming soon! Weekly market outlook Jan. 9-13

Chris: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com. Welcome everybody to another episode of the Ag View Pitch. We're heading into the first full week of 2023, so you got to Remember, it's not 2022 anymore, I guess. January 9th through the 13th. We've got a lot of stuff to talk about here today, and we have our special guest with us, Ryan Moe, Regional Director at StoneX in Minneapolis. Ryan, how's it going?

Ryan

Moe: It's going pretty good. It's going pretty good. Hey, happy New Year to you, Chris. I appreciate the opportunity to be here.

Chris: Yeah, it's awesome having you on. We haven't, haven't had you on here for a while. I think it was time, man. We gotta, we gotta find out what's going on here. I know you guys have done a lot of— do a lot of research and you're kind of all over the place, know a lot of things that are going on. So we're excited to have you on. And with that said, I think we will get right to business here. I want to ask you, first of all, what are some of the— and we'll get to USDA upcoming report and all that stuff here in a minute— but I want to first ask you, what are some of the threats you're watching? Because, and maybe I'm just a scaredy-cat farmer here, but I'm worried about the unsold 22 bushels, and I'm worried about the most expensive crop we've ever put in and the risk that's on the table right now. What are you guys watching?

What are some things that you guys think that farmers need to be paying attention to?

Ryan

Moe: Uh, well, everybody needs to pay attention to basics to statistics. And when you are dealing with $3.50 corn, you naturally have far less risk than you do if you have $6.50 corn. But that's just not how the human brain works for some reason. To see $2 of downside potential in a $6.50 corn environment, yeah, you can make that work. But can you see $2 worth of downside potential in $3.50 corn. No. So I mean, so that's, that's the first and easiest way to look at the dilemma that people have in their minds of what do I need to do for downside protection, because truthfully there's way more downside risk in a $6.50 market than there is in a $3.50 market.

And so just making sure that people have a plan for those bushels, because this is one thing that we ran into a lot in the month of November while the market was going down is we asked when originators would call around and say, uh, you interested in selling corn? The answer would be no. Uh, they'd sold as much $7 corn, cash corn, as they'd wanted in, in an example. And then you just asked them, well, what was your What's your next target price? And there would be no answer except, I don't know, I just want more. And so I think what we saw here in the last, easily the last half of December, was there was a lot of farmers that have come to grips and have just shooed away the dream of $9 and $10 corn. And they were major sellers on that rally coming into the new year.

Chris: So let me ask a specific question then on both corn and soybeans here, on old crop, on '22 crop, maybe wheat for that matter too, or any of these commodities. What's the reason for holding on to the old crop stuff? What is— is there a reason, I guess?

Ryan

Moe: Pride. Um, And then there's also a strong desire to play in that late summer market because of some of the explosive things that we've seen with basis in the last couple of years in the late summer markets. Now, and this is totally regional because that's a basis play, right? More so than it is a board play. And there's a lot that goes into that, and you guys do a fantastic job of educating your customers on the numbers as to what, what it actually is going to cost a producer to hold that corn into July simply to bet on whether or not a hog producer has enough corn to get them through to new crop harvest, right? So it's a It's a high-risk bet and everybody's numbers are going to be different because frankly, every state, every county, every township has a massively different supply and demand economic picture this year.

Chris: Mm-hmm. Are you guys— shifting the conversation forward a little bit— are you guys watching what outside factors or fundamentals are you watching? You know, you've got the energy market, you've got crude, you know, there's been kind of like a decoupling of that, or I don't know if there is or isn't, you can answer that question with what energy's doing, you know, you got Argentina weather, you've got the Ukraine war, I mean, there's a list of a whole bunch of stuff. Is there anything that warrants the most attention, like maybe Argentina weather or anything like right now that you would say pay, pay really close attention to?

Ryan

Moe: Well, I think, so let's start with the US here and let's start with energy prices. I'm looking at a $73.70 crude oil print. We're looking at diesel fuel there that is down substantially. It's not down substantially, but it's down and that is just one volatile beast right there. RBOB gasoline, I know we don't run any of our high-end equipment on gasoline, but those prices are way down at the pump. And so when you start looking at what is, you know, what some of the things are that a person can do to shore up their operation, looking at energy prices seems like a pretty average crude oil price right now. You know, I know we're not average as far as the diesel fuel prices by any means, but Start looking at some of that. Is there some upside risk there? I believe there is. But when you— so let's look at energy.

You know, that could be something to start negotiating with your supplier on, on those terms because there is an inverse in that market. So checking out what spring and fall gallons would be worth, probably something good to take a look at here. As far as the other big bogey that's out there, interest rates. Interest rates, interest rates. Farmers need to understand what higher interest rates— and just so that everybody knows, we are not even at average interest rates yet, but we are sure as heck off the bottom on interest rates— and understanding what those mean to your operation. Some of the best farmers that I know, they look at interest costs no differently than they look at corn and soy being no cost for their feedlot, right? I mean, they, they see it as an operating expense and an expense that needs to be managed.

So farmers need to get smart on that, and farmers need to have bankers that are willing to get smart with them on that. So, and now just a little bit of an outlook. We were at FarmCon here this week, and we had our interest rates expert Josh Cannington there with us. And interestingly enough, the company that actually trades interest rate swaps, i.e., Sonex, was the least bullish on interest rates of all of the analysts that were there. So we have an outlook that we believe that rates should be flattening out here in 2023. We see the measures that the Fed has taken so far as working. I mean, we are certainly seeing the economy not weakening, but the heat is coming off of it for sure. I mean, just look at the residential real estate market. So, these moves that the Fed has made in the interest rate space have been working.

We would just like to see the Fed take their foot off of the accelerator and just let these higher interest rates work their way through so they don't overdo it to the upside and then crashes back down to the downside. But that's something that young producers and old producers alike need to familiarize themselves with the tools that are available out there to manage interest rate risk. Because if they do overcorrect to the upside, and then the Fed has to crash rates to the downside, we could be looking at another generational opportunity to lock in long-term debt on some things at very, very low rates. And we don't want to be caught with our pants down a decade from now. Right. So there's some things that they really need to focus on. As far as Argentina weather, um, I think now I'm going to go ahead and get on my capitalist bandwagon here.

Uh, I think Mother Nature is far less of a risk than those socialist-ass clowns that they have running the government there. Uh, pretty well known that I'm a, I'm a very passionate capitalist. And communism and socialism is something that I just absolutely hate. Uh, Argentina's got a major problem, not just this year with weather, which the weather's bad down there, but those farmers have a much, much bigger problem with the leadership of their country. And when we look at the advantages of being in the capitalist United States here, there's phenomenal— there's a phenomenally better story. Because yes, our inputs are expensive. And like you said, just here a few minutes ago, this is the most expensive crop we've ever put in history. But the truth is, is we can afford it, and we've got the credit facilities to be able to afford it. The Argentinian farmer, they don't.

And so the suppliers down there for inputs are looking at what is all going on down there. And they're saying, I'm going to sell more inputs to my best customers first. And then if I run out, I guess that's too bad. But that's— the best customers are going to be the US and Brazil. So everything that we're going to lose in Brazil or in Argentina this year, I think Brazil is going to more than make up for. So that's a significantly bigger story on the bearish side than the just bad situation taking place in Argentina.

Chris: Another question that kind of spins off of your comments there are the, the big money, the funds.

Ryan

Moe: What are—

Chris: how are they looking at that? Because, you know, as a farmer, we need the— we need their participation to give us price strength and all that stuff too. And when they step out, out of the, the game, it makes it really tough to, to go anywhere. And, and— as much as we don't like volatility, we like volatility because we want to see the markets move so we have opportunities. What's the take that you guys see? You guys have a pretty good pulse on what big money's doing. What do you see there?

Ryan

Moe: Well, I mean, it's a great question, and we have an absolute poster child of a market in the last 3 weeks for what what big money coming into the market can do and what big money coming out of the market can do. Coming into New Year, I mean, that was a new money driven rally. There was enthusiasm from the funds to come in here and buy it up, buy it up, buy it up. And you saw a rally from the mid-$6.30s in March corn all the way up to over $6.80. It was all new money driven. And then after the first of the year, I don't know, somebody woke up on the wrong side of the bed at New Year's after their big New Year's Eve party and they just beat the crap out of this thing last week. That's the power of the funds.

You can't, you gotta love them when they're there to be loved, but you also can't hate them when they're selling off because they have the deepest pockets yet the shallowest commitment to this market.

Chris: Yeah, interesting. I think that's just one of those things we obviously got to pay attention to. Um, let's shift gears here and keep this moving. So, um, we have a USDA report, WASDE, coming up, um, Thursday this week. And, um, so if people are listening to this on Friday, I guess they'll see how smart you are, um, and Now, you guys had some estimates out, StoneX. What are you guys anticipating or what are you looking at?

Ryan

Moe: Well, so I'll tell you this. If I get it right, due to my position as lower-level middle regional management in the company, I will of course take credit. That's what an average leader would do. But then if I get these wrong, I'm going to go ahead and blame all of the estimators.

Chris: There you go.

Ryan

Moe: So, yep. Yeah, so there, this, we're trying to position this as a win-win situation for Ryan personally, right? Yep, that works. I'm sure Tom Brady is just, just really, really loving what he hears there, right? Yeah, he's a listener of yours, right?

Chris: Uh, yeah, I think so. You know, he's, he's got some farmland, you know, so he needs to be if he's not.

Ryan

Moe: That's great. Well, we'll see him in Tampa there. He'll be at your show, right?

Chris: He might be busy yet doing football stuff, but we'll see.

Ryan

Moe: Okay, okay. But if he happens to be off, he'll be showing up, right? Yeah, hopefully. He'll give the leadership seminar. There you go. Perfect. But no, so estimates here. Now I understand estimates are all just, they're just estimates. But I really do like where StoneX is at on this because I'm a believer that this corn crop from last year is growing a little bit. 30 out of the last 30 years, the farmer has outperformed all of what the analysts thought that they could do. And so, when you look at how bad the conditions were in parts of the Western Corn Belt, and you see what the farmers were able to get done out there, it's pretty magnificent, the ability in that sector. And so I do think that the crop is getting a little bit bigger. So last month, the corn— the corn yield was estimated to be 172.3. This week, the average estimate coming in is 172.5. Our estimate is up there at 173.

I do like our estimate because I do like how we do the survey methodology. And I think that I I think that we're pretty close there. Beans, you know, that's just such a crapshoot. Everything is really tight right in there. I'll just put it this way, we're somewhere between 50 and 51 bushels an acre on the bean crop. I just— it's dialed in. If— I don't think we should see any drama if it's within that range. Carryouts are— carryouts are shrinking a little bit, but I mean, it's kind of interesting to see how much demand from the livestock sector that we've had pulled forward. I mean, they're trying to, they're trying to eat as much as they possibly can. The production estimates in Brazil and Argentina are going to be very, very closely watched. Our team down in Brazil just did their first, their first estimate here, or maybe it's their second one.

I can't remember where they're at, but I was, you know, on my little soapbox and thinking that we had 155 million metric ton crop out of Brazil because I just think the, the great areas in Brazil are going to be so strong because of the amount of rainfall that they've been getting that the great is going to outweigh anything that is, that's weak in the south. But our, our estimate came out at 153.8 and I got a lot of faith and their men and women in our market intelligence and the broker group down there. I'm going to say I like that. And so we are, we are coming into this as estimators, I guess you'd say we're bearish because our US corn estimates are bigger and our Brazilian corn and soybean estimates are bigger than the average market expectation.

Chris: So coming in with all the things you're saying, one thing I missed too, you did you guys have a number on the corn?

Ryan

Moe: I caught the soybean one, but I didn't write down Oh yeah, our corn estimate is 173 bushels an acre.

Chris: Okay, so you're coming in slightly bearish here on, you know, on big picture.

Ryan

Moe: It's— when you say slightly, let's make sure we capitalize slightly, right?

Chris: Right. So capitalizing slightly bearish, what— let's say that you guys are right and we come in there. It's not always what the report says, it's the reaction to the report that, you know, is always kind of the big deal. I mean, sometimes you get a bearish report and you get the markets go up, and it's like, what the hell, why is this, you know? So, you know, as we head into the next, you know, couple of months here, you know, are there some other things, you know, that this, this report, you know, is kind of the big deal of all reports? It seems like it's kind of like the Super Bowl of reports or whatever. Do you, do you see it having the power to move things if it's slightly bearish? Do you think it's going to have a pretty negative, profound effect? Or, or, you know, and that's, that's your crystal ball and, you know, yeah, the Friday quarterback.

Ryan

Moe: Yeah. And so, so like, you just can't outguess it, and so you have to just kind of follow like what, what trends you are on and Market news is an odd beast. So you have to— your market news, and you have to just look at the market psychology when reacting to the news. Right now, I feel like we are in a market, and this is just after the last week, right? Because coming into Christmas break, folks, I mean, the market psychology around headlines was if the market— if the news was bearish, that is neutral. If the news was neutral, that was bullish. If the news was bullish, that was very bullish. After this last week, I don't feel that we are in the same market psychology news cycle, right? I feel we are in a— if the market news is bearish, it will be bearish. If we see a neutral number I feel the market will be bearish. If we see a bullish number, I expect a neutral reaction.

And now when I say bearish to bearish, I don't think we're— I, I honestly don't believe we'll see like multiple limit down moves. I mean, there's just too much uncertainty with all the other international conflicts that are going out there for that. But I mean, to see things continue like what we saw in that November trend type market. That is, that is what I would worry about more on Thursday than anything else.

Chris: Yeah, that's what concerns me is the potential for a slow drain here, you know, and how much money we have vested in, in both crops, really the '22 and the '20. I mean, the '22 is unknown, so, and that's why I asked the question, you know, what are the reasons for— I can't find a reason for holding on to '22 other than, you know, we have a drought and you look really smart sitting on it, I guess, if we have $8 corn in the middle of the summer because we have a massive drought or something. But the odds of, you know, nobody knows that. Nobody knows any of, any of, any of those things. But I guess what I want to wrap up with, and appreciate your, your candor there and kind of what, what your thoughts are there, because it's— that's a— that puts you on the spot there, you know. I don't want to throw you under the bus here for the—

Ryan

Moe: no, you're not going to throw me under the bus. Remember, I'm blaming the estimator.

Chris: Yeah, right, exactly.

Ryan

Moe: All the credit if I'm right. I blame all the estimates if we're wrong, right?

Chris: Yeah, yeah, yeah.

Ryan

Moe: It's an I or a we type of scenario. Yeah, you'll know, you'll know by, uh, Thursday at noon which position I'm in.

Chris: That's why you're so smart, I guess, right?

Ryan

Moe: That's just, that's a good way to, good way to handle it. So my GPA at Iowa State would probably disagree.

Chris: So, so my last question is, is on 2023. Um, right, we said it at the beginning, we're gonna say it at the end, and people are getting sick of me saying it probably. Most spent— most expensive crop we've ever put in. We got to manage this risk. What do we do between now and crop insurance time frame if we're sitting there, you know, our average client currently right now is at like 22% sold on corn and about the same on soybeans. We've got some people that are 100% covered between, you know, puts and HTAs and, and some sales. And we've got some people with nothing sold. What are you doing between now and crop insurance discovery period in February?

Ryan

Moe: I have a fortunate opportunity to work with a group of clients that are far smarter than me, um, and this is, this is on all levels of production, whether it's soy crush, whether it's on-farm production, whether it's hog producers, I have a group of people that, you know, I listen to. And when they speak with their position, I listen to them. I also got done with a present— I just got done with a week at FarmCon, which is a good experience. And one of the guys that I disagreed with a lot of the stuff that he had said, but one of the things that he had brought up is get really familiar with how to do option strategies because he was very worried about some of the potential explosive volatility that could be coming our way.

And people with big futures positions on, all of a sudden, on one side or the other, we're not saying one— we're not saying that.— and that can put people into a cash crunch. Volatility has been pretty moderate. And so understanding what a put option can do for your 2023 crop. Now, just because you buy the '20— is it these '23? Let me look at my screen here. We're looking at a The 590 call, this is kind of magical, Chris, I don't know why it is, it costs 50 cents. The put for the 590 put costs you 49 cents. Do you have to carry that put until November 24th, 2023? No, you don't, right? You can carry that thing until 1st of June and then sell it back and trade out of it. But really use these option markets that are in a relatively low volatility position right now and just protect yourself. Because if you can tell me— so I look at—

Chris: I mean, what about short-dated options between now and What's your thought on that between now and—

Ryan

Moe: Right, I mean, pick your— yeah, I mean, then it comes up to pick your date and pick your issue, right? I mean, which do you want, right? I mean, and so it's a— and I mean, there's so many different strikes on those that I'm not gonna sit here and advise you which one to go ahead and buy. But if you're looking at a 540 worst case scenario, price scenario for you? Because then you're, you know, these 23.590 puts cost me, you know, $0.4950, right? Are you profitable at that point?

Chris: Well, it's your floor, and, and that's where, you know, what we look at with everybody is, you know, dial that cost of production in, get it accurate with your APH, with what you actually are going to produce on average and where your insurance level theoretically should be. And then match those things up. And, you know, and this is not advice. I mean, I'm going to say that right now. We're not giving advice. We're just talking about scenarios and options and things that I think that—

Ryan

Moe: Well, I want somebody to tell me what's wrong with that.

Chris: Yeah.

Ryan

Moe: And that's one thing that we haven't seen out of producers is we haven't seen a really good argument for why not. Right. Right. Because they're like, well, it's the upfront cost of the option. You don't have to carry this thing till November 24th. If you're a set it and forget it type farmer, you need a better strategy, right? But if it's a management position, yeah, then this is a great way to secure yourself in case there's some really, really weird stuff happening. And if you lose money on option premium for a short period of time—

Chris: You're gaining on the other end is the thing.

Ryan

Moe: Bingo, bingo, bingo, bingo. And you're gaining far more then you're risking.

Chris: Yep. Well, you know, like I said, we're not— I, I just want to make sure everybody knows the whole purpose of the, the podcast always is for perspective. And the perspective that I've been trying to get across for the last lot, for a long time here now, is, is how much our inputs have gone up, where our cost of production's at. And this, this market always seems to eventually, at least in 27 years doing this, finds its way back to that number. And so that's where, you know, and maybe it's— maybe that doesn't happen for 5 years, maybe it happens in 5 days. I don't have any clue. All I know is, is pay attention because there's a lot of risk on the table. There's a lot of dollars at stake, more so than I've ever seen in, in 27 years doing this as far as the risk goes. So it's just a, just a warning call and, and some perspective and And any final comments you have?

I know you got some— you need to be watching your time. Any final comments you have and we'll get her wrapped up.

Ryan

Moe: Everything you said is spot on there. And the smart money and the smart clients that I have the fortunate opportunity to work with, the smartest people in the industry are looking at the opportunity to manage this risk away. And they're working diligently at that to position themselves. And yeah, they're using option strategies because of the potential upside, which could be great. But they are looking very carefully at what happens if the bottom does drop out of this thing. We don't know what could cause that. We don't know why that would happen, should it happen. Probably not, but what if it does? And you're, you're right, it, it does have a tendency to gravitate back towards the mean, and prices right now are far above the mean. So let's work at managing that. You don't have to take all of the risk away, you should be looking at carefully managing that.

Chris: Yeah, for sure. So if, um, Ryan, if somebody wants to get a hold of you, what's the best way to find you? If they wanna have just even a conversation with you on the phone, ask you some questions and kinda get some perspective for you one-on-one, what's the best way?

Ryan

Moe: Yeah, I'm on and off the trade desk all the time, so the phone numbers are just kind of a challenge for me because I kinda have to set stuff up by appointment. And so email is gonna be the best way for me. It's ryan.mo@stonex.com. Go ahead and reach out. We'll get you put on our midday thoughts. That's a goofy little thing that we put together each day that we get a lot of great feedback on that. Um, but yeah, ryan.mo— M-O-E— @stonex.com.

Chris: All right, ryan.mo@stonex.com if they want to get a hold of you. That's awesome. Uh, Ryan, really appreciate— I know you need to get going, and I really appreciate your time today. And, um, we will see what this USDA report has to say, and, uh, we'll be going from there, and we'll get you back again real soon. Thank you very much.

Ryan

Moe: Thank you. Hey, great being here. Happy New Year once again. And, uh, yeah, big week, so everybody get prepared.

Chris: Yeah, yeah. Oh yeah, and you're going to be at our conference too, which is full, by the way, but January 25th through the 27th. We're excited to have you there and probably have you helping do some of the guest hosting for the reports from the conference. So look forward to seeing you there too.

Ryan

Moe: Yep. Really looking forward to it. We've got about 195 inches of snow up here in Minnesota right now, so any opportunity I can have to get out of this, I'm really looking forward to it. It's a great conference. It's a really great collection of some really good minds, and I'm excited to get back down there and see some of the folks we met from last year.

Chris: Yep. Looking forward to having you. And again, thank you, Ryan, and Thank everybody. Thank you, everybody, for listening, and we will catch you again next time on the Ag U-Pitch.