Tensions are high

Shay

Foulk: Hey podcast, thanks for tuning in to another episode of the Ag View Pitch. Hope you all are having a beautiful weekend and a good week ahead. Just this morning I was out looking at some fields, having to make some difficult decisions on replant, and thought that it might be helpful to pass along some information. So attached in the podcast description, there's a link to a Purdue University Extension paper looking at replant and soybeans. I'm also going to put one in there for corn if you need any additional resources for making those decisions. Along with that, we do have a prevent plant tool completely free. It's just to help you assess whether it makes economical sense for you to go ahead and, you know, do that replant decision. And hopefully it can help some of you out there. Remember, we are coming up on some of the prevent plant dates here.

If you need any help in working through some of this information, please feel free to give Chris or myself a call. Hope you enjoy today's podcast.

Chris

Barron: Welcome everybody to another episode of the Ag U Pitch, and we are going into another week in— or actually the first week of June, and it's a full week, and you've got Chris Barron and Duane Lowry What's cooking, Dwayne?

Duane

Lowry: Hi, Chris. Nothing cooking right at the present time. Temperatures are supposed to warm up. Maybe that'll be— maybe that'll cook something.

Chris

Barron: Yeah, it might. I think, I think some areas are going to get quite warm this week the way the weather sounds, and that'll probably be good for, for the crop where it's planted, and maybe some, some of the rest of the soybeans that need to get put in. And there's a few pockets of areas where some corn corn needs to be planted yet too, that some of these guys can get wrapped up.

Duane

Lowry: Yeah, it's, uh, some warmth now is going to be welcome in most areas, I think.

Chris

Barron: That's for sure. So hey, I want to start out with a question for you. Last week, I think I was sitting in a meeting with my family at our farm operation, and my brother-in-law right in the middle of the meeting said, hey, corn's up 8 cents. What? How come? What's going on? You know, and so it kind of, kind of sparked a little bit of hope all of a sudden, at least briefly. What, what do you think some of what's going on there this week? And we did have some of that. Can you talk a little bit about that?

Duane

Lowry: Well, I think you probably got to go back to last Monday night. We had a short weekend due to the holiday. And the trade came into the new week like normal, the default setting, and that was expecting some level of weakness. And markets performed better than expected on Tuesday. I think that was largely driven by short covering. And then we came into the trade Thursday, and we had another strong performance led— by corn, and so the market got to the highest levels that we'd seen corn at on a closing basis since the early part of April, and that caused, I think it was, 8-cent gain on Thursday.

The market gave back about 2 cents of that on Friday, but the problem is, you know, as we talked about over the last several weeks, basis couldn't really handle the strength in the futures very much, and, you know, you had some places gave up a greater portion of the day's gains in basis losses. You had other locations that maybe hadn't been the strongest, maybe didn't give up quite as much, but some basis gave that up. But I think largely that was driven by short covering, more so than anything else. I think there was a weather component. Looking at 6 to 10 and 8 to 14 day maps, we've probably had at least a week, probably more than a week's worth of 6 to 10 and 8 to 14 day maps that on a daily consistent basis have maintained, you know, large swath of areas of below normal precip and above normal temperatures.

But at the same time, we've had near-term moisture that It makes it difficult to talk about drought while it's, you know, you got the umbrella out. But I think those are the factors that were— gave us some strength last week. And then by the time we get to Friday, we're concerned about US-China trade tensions, or just tensions in general. And I don't want to imply that that suddenly became a factor on Thursday or Friday. It's— that's something that's been active on the airwaves for a few weeks, and even last weekend, that was probably the most widely talked about thing, his concerns about that, and yet the market was up Tuesday anyway. But Friday afternoon, or at 1 o'clock specifically, and then President Trump was actually a little bit later, but he had a special conference, or press conference, to talk about China.

And I think about the only thing we really need to know out of this is the fact that for this press conference that had been talked about for 24 hours, and given billing as being about China, the very first thing he announced was that the U.S. was backing out of the WHO. And from there on, it sounded a lot like tough words and some statements about pulling back special preferences for the city of Hong Kong and suspending entry into the U.S. by some Chinese nationals and some travel restrictions and some monetary restrictions, but nothing of great substance, certainly nothing directly tied to Phase 1.

And then we waited for the weekend to get the response from China., and so far there hasn't been anything all that direct for a response, and what has been offered up has been strictly nothing but words, so I don't know how to analyze that other than to say we don't have an important storyline to start the Sunday night trade regarding that. And some people might look at that as being bullish, like we dodged a bullet, and there might be some truth to that. But the same token, we don't have a very positive feeling to US-China relations when we look at the amount of business that China's doing with us. We have nothing but disappointment so far regarding their effort to buy Phase 1. There's been some purchases of— of U.S.

products along the way, even as recently as last week, but all small in size, and they continue to buy large amounts of Brazilian soybeans, and some would argue that they're paying a higher price for those than what they could have bought from the U.S., so that's not encouraging, and so I think we will start out this week somewhat on the defensive, maybe. Weather still has this warm, dry pattern out in front of us, but in this— in the immediate impact on the crop, warm and dry would be favorable and beneficial, and crops will flourish off of that. And so it's difficult to get a lot started there after having had a rally last week The market's job now has to somewhat— it has to defend that, and I'm not sure it's going to be real easy to defend that.

I'm a little bit concerned that we're going to see some weakness to start out the week, and my concern is that without a real reason to generate strength here, I wouldn't be surprised we unravel back towards the bottom side of the range yet again. So I'm a little concerned about the outlook for this week's trade, to be honest with you.

Chris

Barron: Yeah, well, I know there was a lot of folks last week when we did see some strength, and then, you know, you mentioned it, that on the basis— we talked offline— just in our local area here in northeast Iowa, we saw sort of the 80/20 rule. The market went up and they took 80% of the gain away on basis. So, you know, we, we didn't, didn't really see much of a price increase at the farm gate, you know, a couple cents on an 8-cent rally or whatever. What, as we, as we move forward here, you know, there's obviously a lot of hope for people needing or wanting maybe another 20, 30-cent rally to— you know, maybe finish up this old crop.

Is there much hope for that, or, you know, I don't want to throw you under the bus, but what, you know, is it going to take weather, or is it going to take actually China buying some stuff, or is it going to take a little of both just to get even that much?

Duane

Lowry: Well, I think there's always hope, and it is only the, you know, 31st day of May, and there is opportunities for some weather scares. I mean, I don't want to completely gloss over the fact that it's warm, dry forecast has been a consistent daily theme in these longer-range forecasts, and it's possible that that, you know, could spell trouble or concern, at least to the point where the market might trade that at some point in time. I'm just not sure that that's going to be our initial outlook here on Sunday night's trade. I think that the initial focus is going to be on U.S.-China relations, which aren't going to be seen as good. And while the President came short of saying anything in reality all that detrimental to China, nothing has transpired to suddenly cause China to want to aggressively be a purchaser of U.S.

grains here either, and they might also have reasons to not— let's say that China does want to buy a lot of grain, let's just say that they do. I'm not sure that they want to do it right now this week. That would seem to be kind of weak, I would imagine, in their eyes to have Trump come out with a special press conference on China, supposed to be a tough tone against China, and then China would immediately turn around and be a big buyer of U.S. grains. That's probably not likely. So that's my concern for this week, is we have to defend what little bit of strength we did have last week, and I'm afraid it might be a little bit tough. Yes, the weather has a warm, dry theme, uh, but we have ample moisture at the present time. The crops will initially find this, uh, warmer, drier, uh, pattern to be very supportive to crop development, and I'm concerned that that portends some weakness.

But in getting back to your question, is there hope? Well, move the calendar ahead a week, and if this dry pattern continues to be in the forecast, yes, it can be a problem. Even if we have a record crop, we've seen time and time before you can have weather rallies on your way towards a a record production. So yes, there is hope, but with that hope is some level of concern that, you know, we have clicked by some time here without being able to get a rally, and as soon as we get a little bit of a rally, they take it away in basis. And I think there's still a very good chance we will get a rally that exceeds last week's highs and maybe exceeds it by 20 cents or more in corn. But at the present time, I don't think that's part of the agenda for expectations for this week's trade.

Chris

Barron: And then how do we get to that point without them taking a big chunk of the basis out of that? And I know that's regional, but I think that is a problem.

Duane

Lowry: We know we've talked about that for several weeks in basis, that that was a risk, and we're seeing that risk manifest. With basis weakening, weakening as you described earlier, and I don't know that that's going to change. If the futures rally, I don't think basis is going to handle that very well. Whether it's right or it's wrong, the cash buyers in— unless it's a regionalized thing, overall cash buyers feel that there's a lot of unpriced old crop corn in farmers' hands, And farmers sense it as well, and nobody wants to be the last one to hold the bag, but, um, uh, so that, that does not paint a pretty picture for basis if the futures rally. You know, there's been different times of periods of a day or two of strength or a push and a bid, but it seems to satisfy near-term demand.

But as soon as the futures market goes up like we saw on Thursday, the cash buyers, you know, quickly back off. One, because they hope that the futures market triggers the movement so they don't have to, and number two, they don't want to get too much of a book on either because they think they're going to get to buy it cheaper from a basis standpoint, and so we don't have a solid market here. We have a market that's afraid of farmers selling and and they expect it to be increasing, and with each passing week, you know, the pressure's on the producer more so than the buyer.

Chris

Barron: Yeah, they're counting on— they're gonna get it one way or the other, but—

Duane

Lowry: Yes, that's their expectation. The producer doesn't seem to have much of an appetite to want to carry it into next year, and, you know, I'm not sure that you can justify carrying it into next year either.

Chris

Barron: Anything else? You know, we've kind of hit on the China relations. I think that's a moving target. We've hit on weather, that's a moving target. All things that, you know, if you go back, we started this podcast a year ago and how different the world is from a year ago to today when we were having a conversation and talking and corn was in that $4.20 range to almost a dollar less now. You know, it's just how the world has changed. Any— anything, you know, I mean, that sounds bad, but, you know, low prices usually will, you know, eventually as time goes on, we're going to see demand increase. I mean, ethanol plants, that's one thing we haven't talked about, but they're starting to grind more, people are starting to drive. This is the time of year that, you know, a lot of times we do see some price strength.

My final question then is, you know, on the ethanol side of things, that's picking up. What do you hear in there? Is that going to be something that could give us, you know, some, some stability and a little bit of a price increase moving forward here yet?

Duane

Lowry: Well, there's been some encouragement on the ethanol front. You're correct in what you said about the driving and recovery coming out of the coronavirus situation. However, everything you're describing there is trying— is a process trying to get back towards normal. It's not an improvement. Right. And, you know, the demand that was— usage that was lost, it's not going— you know, that's not going to be recovered. And if you take a step back and you step away from weather, you step away from trade, you know, you're left with underlying balance sheets that are not constructive. They're all very plentiful supplies.

That is not to mean that we can't get a rally here, but it means that if you're going to meaningfully change the fundamental foundation outlook, it has to be due to either weather or it has to be due to aggressive Chinese purchases that have become— that the trade has given up on and forgotten about or ignored or no longer have any confidence that it can occur. It has to be something that alters that and/or it has to be weather. We have the longer-range forecast that certainly in years past I would just say would have been enough to generate— has already created some price strength and despite the fact that we had— rains last week. I think the forecast is concerning enough that it could do that, but in the current environment where it's such a burdensome supply expectation, we have— we're going to have to actually see it. We're going to have to see 95-degree temps.

We're going to have to see, you know, 10 days go by without getting rain and then also have a rain— also have a dry forecast in front of us. So That is still something that's possible, can happen, but I don't sense that we're going to trade that tonight. I— a week ago I did think that we would trade some dry weather concerns, so I wasn't really surprised to see the markets up a week ago, and therefore once that got started it wasn't surprising to see some short covering, which is what we had on Thursday in corn, and then you you get a rally. The difference between now versus last week is not the fact that we had the rains this week. The difference is that we've had a rally. It's not much, but we've had a rally. Now we have to defend it.

And with the focus being on Trump's speech on China Friday, which was not really bad in terms of trade or agriculture in general, and there hasn't really been a response from China that appears to be all that bad. So on one level, some people could say, well, maybe we'll be higher tonight based on that. And I understand the logic on that, but I'm afraid that, uh, I'm afraid that we have to defend the gains that we had, and it doesn't feel like we have the energy to defend it. So I'm, I'm a little concerned how we start out the week.

Chris

Barron: Yeah. And, and so I said my last question. Here's my last, last question then. Um, we haven't said too much about soybeans or wheat for that matter. I don't know if you have anything there, but on soybeans, anything there different than what we've been talking about with corn in terms of trends and tendencies and stuff?

Duane

Lowry: No, I don't think there's anything different there. The soybeans need to see some Chinese demand for U.S. beans. We— the demand is certainly there, but it's not there for U.S. and Um, without some sort of a spark, we again still have a plentiful supply outlook, and, uh, to get to some outlook that tightens that, we need to have increased demand, uh, for U.S., uh, soybeans, um, and we probably have to have a weather concern. The last thing that we haven't talked about much I think that's probably because nobody seems to have a strong opinion. But what's the acreage mix going to be? The trade has built into expectations that I would say 1.5 million to 2 million acres switched out of corn and into soybeans.

Chris

Barron: Yeah, I was writing that down, Dwayne, as you were saying that because I just wrote down '97 and I wrote down '95, you know, or '94.

Duane

Lowry: It's probably like that. Yeah, and I think is— I don't think the focus is so much about how many less corn acres we have. I think the marketplace is weighted down to some extent on beans, on this expectation that there might be 2 million more bean acres out there, right, and then what they have in their balance sheets, and therefore the tightness that appears to be a you know, plausible in that balance sheet, is that going to be erased because we're gonna find 2 million more acres, therefore 80 million or more acres, or 80 more million or more bushels of beans than what we currently have on the balance sheet? That's, that's the anchor on the bean market, and I don't have a strong opinion at all.

I think there was a brief period of time where producers thought they would plant more beans and less corn, but as the price got cheaper, I think some people took the approach, maybe I'll just stay with the corn because none of the prices are any good, and maybe I'll get a bigger government check if I got the corn bushels than if I have soybean bushels, was some thinking. And the last component that would have encouraged them to plant more corn would have been just that the weather was very favorable for— to maintain and continue with planting corn in what was, for most places, a favorable soil condition. So I don't know where we're at in that soybean/corn acreage balance switching situation, but my sense is that the early expectations for a large shift to soybeans, I don't think that occurred. That's where I'm at. How about you?

Chris

Barron: What do you—

Duane

Lowry: how do you read that?

Chris

Barron: I agree, I agree. And, you know, I think the less acres on the corn side, some of that's coming from, you know, North Dakota and those areas that are going to be prevent plant again. That's a ripple effect from more so even from 2019 than it is this year yet. I mean, it's just the carryover problems and stuff. And so it'll be interesting. We'll all be a little smarter here as time goes on. So any questions I didn't ask, and we can kind of wrap things up.

Duane

Lowry: No, but the— I just want to emphasize again that, you know, we need to have some sort of a production threat or a major change in perception of China's buying of U.S. ag products to give us a positive outlook. On price just because we have such a plentiful supply situation, uh, as our general expectation. That all being said, it's important to point out that I don't know the last time we've ever had corn this cheap at this time of year when a measurement for determining what is cheap is based on the percentage of your spring crop insurance price. I mean, We're basically at your 85% RP price level, and I don't know, I'm not sure when we've ever been at that price in this, you know, at this time on the calendar. So my point is, the market is already built in and anticipating and maybe discounting an awful lot of negativity here already.

And so it's a very fertile environment to have a sharp run-up as much as 30 or 40 cents in corn could happen very easily and very quickly given just the right input, uh, and that right input would certainly be some sort of a weather scare. So we have a very, uh, situation that creates a great opportunity for it, but I would caution that if we get that, it might also be fleeting in the amount of duration and time that it spent after you get that type of a reaction to a weather concern.

Chris

Barron: And like we said as a broken record over and over and over again, that basis is going to be eroded at the same time. So you might be lucky to get half of that.

Duane

Lowry: Yeah, that's right.

Chris

Barron: Unless you're proactive on the basis on old crop and probably whatever new crop needs to be moved at harvest.

Duane

Lowry: Yes, I would agree with that.

Chris

Barron: Hey, Duane, I think this was a good conversation, and we'll kind of see what happens this next week. You know, I know last year, like I said, a year right at about a year ago, we started this podcast and we did a lot of conversations during the, during the week because there was just so much going on. And, and not only is there not as much going on, it's not as happy to talk about it as it is during a rally.

Duane

Lowry: So Not nearly. It's amazing. A year ago, we didn't even have half of the country's corn acres in the ground yet. Right. And the conditions of what was planted was questionable. And this planting delay continued. And then we were talking about losing 10 or 13 million acres of corn to prevent plant. And somehow, with the magic wand, We didn't really lose any corn acres, and how— despite how late some of that stuff did get planted and the conditions it got planted in, here we find ourselves in a position where we think we have an abundant and an excessive supply of grain. So it's really amazing and somewhat depressing.

Chris

Barron: Yeah, it's crazy, and sometimes when you least expect something that happens one way and maybe it'll happen the other way too. Like you said, we'll keep an eye on China relations and we'll watch weather and stay tuned and we'll continue the conversation next week.

Duane

Lowry: Sounds good, Chris.

Chris

Barron: All right. Hey, thanks, Duane, and thanks everybody for listening. Again, if you have any comments, questions, suggestions, anything to help us do a better job, um, we just want to bring you good perspective conversation around the market., and we will look forward to talking to you next time, and we'll see you again. Thanks for listening to the Ag View Pitch.

Shay

Foulk: And we hope everybody enjoyed today's podcast. As always, you can reach out to us at any time. My name is Shay. My phone number is 319-464-5708. You can reach Chris at 319-533-5703. And for any marketing discussions, please be sure to give Duane a call. 563-419-1300. You can always check us out at agviewsolutions.com and find us on Facebook. Thank you so much for listening. We will catch you next time on the Ag View Pitch.