The biggest market mover - weekly market outlook: May 28-31st

Chris: Welcome everybody to another episode of the Ag View Pitch. We're heading into a new marketing week, May 28th through the 31st. Kind of a short week, but it is the end of May, and so we're gonna have an interesting marketing conversation here with Jared Creed. Jared, how's it going?

Jarod

Creed: Going good, Chris. I'm glad the rain has stopped for now, but as always, appreciate the invitation.

Chris: Yeah, well, we were trying to record with video so it'd be on YouTube as well, but apparently because it likes to storm in Iowa nonstop, I guess we're just going to do audio this time. So with that said, though, speaking of weather, speaking of rain, Planning progress, obviously caught up a bunch a week or so ago, but it's— there's definitely some delays out there in a lot of areas. There's going to be a lot of replant, I think, in some pockets, and obviously probably some prevent plants. Definitely not going to be zero anyway. So with that said, talk a little bit about what you're seeing with your clients, kind of what's going on on the planning progress side of things.

Jarod

Creed: Well, across the client base that we work with, I would say the biggest problem areas is probably just Eastern Nebraska. And to a certain extent, there might be a few isolated issues in the northern half of Iowa. Uh, but for the most part, uh, South Dakota folks, North Dakota folks got a nice window of opportunity to run. Um, like I said, eastern Nebraska is an issue. Um, western Iowa, quite honestly, they're probably in some of the better shape that they've been in for several years. You get into Western Illinois, they definitely maybe fought planting, took a little bit longer than what they would like to have happen. But nonetheless, got the crop in. So I guess that the takeaway from that is, you know, we're looking at areas that I'm very familiar with, but obviously there can be issues outside of those geographical footprints.

But, you know, you hit the nail on the head a minute ago. We made up a tremendous amount of planting progress the week prior. We'll see another planting progress report here this upcoming Tuesday. I would expect to see that the Eastern Corn Belt continued to see extreme improvement with some sluggish pace in the Western Corn Belt. But the fact of the matter is, we're probably not going to see an increase on planted corn acres above and beyond the Prospective Plantings report in the end of March. And I think that was the expectation after they printed about 90.5 million acres that we would probably find our way getting closer to 92 million acres. Instead, well, I guess we do run a slight risk of seeing those acres start to slip from the intended acres. Now that might sound a little conflicting, or, you know, just flat out wrong in the eyes and ears of most of your listeners.

But I think it's important to remember that our average zero on prevent plant nationally is typically around 1 million to 1.5 million acres. And this is specific just to corn. Do I expect that that prevent plant number is going to get a lot higher than that? It might, it might, but I'm not willing to bet on that today. I think your bigger issue might be some of the areas that are gonna have to replant. You know, it's May 24th as we record this. Weather can change awfully quick for the good or bad. And it wasn't just a couple years ago that we saw planters going all the way into the second week of June. And to this point, we still haven't seen some type of an abomination yield. And quite frankly, we can't forget either that the first, you know, third to 40% of the US corn and bean crop got planted very timely and probably some preferred conditions.

So the weather challenges that are out there right now are A, not everywhere. And B, not detrimental everywhere. In fact, some of these places it is more of a positive than a negative. So it's going to be easy to get emotional about yield from this point moving forward. You know, all the, the data, the math, the statistics suggest that we still have the ability to raise a trend yield to maybe just a touch below So I think your, your market participants at this point in time specific to corn are probably really not that far off from talking about 180 bushel national yield. And I get it, bring out the pitchforks, people are gonna hate it. But stats are stats. The planting progress on the first half of the crop made that happen, albeit there could be some crop planted here in the final 2 weeks in tougher conditions that's going to have to have Mother Nature help it along the way.

And soybeans are soybeans. I mean, we can plant beans and not be 100% planted until June 15th, year after year after year. And we always, you know, not always, but we tend to find ourselves somewhere right around that 50-bushel national yield area.

Chris: Yeah, I would agree. There'll probably be a couple of pitchforks thrown because, you know, there has been some corn planted in pretty marginal conditions. But to your point, it's not like it's a high percentage of the acres. And so I think it's, it's those producers that maybe didn't have the opportunity or chose to not go out and plant when it was cold and dry. They were going to wait for it to warm up. The problem is when it warmed up, it got wet. And so there's, you know, I was telling Joe Vaclovic, I think there's about 25% of the acres, and I could be wrong, but just in talking to our client base, that got put in. I think guys went out maybe a day or two too early and did a lot of compaction in some places that probably won't show up if we have a decent year.

I think I agree with you, we could have a huge crop, you know, even with those late planted stuff, provided we have decent weather. If we get— if we'd happen to have a drought like we had in Iowa last year in some big portion of the area I think that could impact things. But let's, let's talk about, you know, right now, maybe what is moving the market. I think a lot of people think that it is the quote unquote, at least perception of delayed planting, whether it is or not. What's really driving the market? Is it, is it that, or is there, are there other factors?

Jarod

Creed: Well, in the last 3 weeks, the stories were biblical rains down in the southern half of Brazil and parts of Argentina. And then obviously slower planting pace here recently in the US. But the biggest story yet is the question marks around the Ukraine and Russia wheat crop. And I would say you can start adding one more story in there. Currently, it seems like the tensions between China and Taiwan are not getting any better anytime soon.

Chris: Mm-hmm.

Jarod

Creed: So the biggest driver though, is definitely this Russia-Ukraine wheat crop. It's seems like the market right now feels that that crop is somewhere around the 85, maybe 88 million ton area of a wheat crop, knowing that the expectation originally was closer to 100 million ton. So, you know, you'll knock off 500 million bushels of wheat production globally. That creates a story. And all you have to do is look at the wheat market to see what it's done here recently., and you'll understand exactly what that story has been. I mean, July wheat in the last 2, 2.5 months has rallied to, well, yeah, approaching $2 very quickly here. And July Kansas City wheat has rallied, uh, also just about $2. And being feed grains, it's obviously going to have an impact on corn. Uh, but if you start to think about how much of an impact it's actually had, it's been pretty minimal.

In the last 10 days, it actually felt like, okay, here we go, we're finally getting a little bit of momentum in the corn and soybean market, kind of following the, following the steps of wheat. But then you take a step back and think about where we have been and where we have not been. December corn, it may be in the top end of a 40-cent price range that we've had since the beginning of the year. It just— that's a sign right there, Chris, that the market— it's just a little silly to say, but the market just doesn't care about US planting woes or concerns, what have you. And this is another pitchfork comment, it might not have to, because the bad thing is our demand is still so terrible that if we come in with less than 90 million acres of corn and still yield you know, $1.75 plus.

I, I guess I would go on record as saying it doesn't support $5 corn anyways from a strictly supply and demand fundamental type of picture. And at the same time, soybeans, it's like, oh, it feels like we're actually doing something. They've had maybe a little bit better of a move than corn here recently, uh, but still in the same type of, uh, you know, call it a dollar range that we've seen since, uh, January 1st just happens to be in that top 15, 20 cents right now. And I would say, just not a big technical guy, but there's two glaring things on each the corn and soybean chart right now. We still have open gaps just up above the market that were left behind going into the first trading day of this year, and those gaps in that $5.01, $5.02 area on December corn and closer to that $12.40, $12.45 area in November beans.

You know, history doesn't always have to repeat itself, but those gaps do have a tendency to go get filled and at times can reverse direction after those gaps are filled. Yeah, maybe tinfoil hat type of thought process there. But again, that's just a historical tendency of, you know, looking over a chart over years and years and years. So biggest driver again, Russia, Ukraine, crop size, not necessarily their conflict, but more so crop size. It doesn't seem like the market cares about any type of geopolitical issues between Russia, Ukraine, and Israel and Iran. I mean, just look at the crude oil market right back down here into the upper 70s, and which is, you know, a multi-month low. That's obviously not a help towards corn either. At the same time, your gasoline demand is pretty, uh, pitiful here in the US as well.

So my point being, the market quote-unquote rally that we've experienced here as of late, if you want to call it a rally, has nothing to do with the US balance sheet. Uh, if anything, you've forced the hand of the speculative players in the market. Maybe forced is a strong word, uh, but you trimmed a significant amount of the short positions that they've had. The farmer selling has somewhat caught up. It's still behind normal pace. But I think that's a telltale sign that we've spoken on for months, that the undersold North American producer was going to let the short speculative position out of their short relatively easy. And when you talk about having a spec position in corn get trimmed by 200,000 contracts, and not even rally the market more than $0.20 a bushel, well, there's your sign. Uh, there's obviously a willing seller on the other side.

Uh, the wheat market, you have a managed money long position at this point, very manageable short position in corn and soybeans. At the end of the day, it's probably going to be a catalyst, uh, well outside the box of supply and demand that would ever create managed money position to actually establish a long position. We have our work cut out for us to get our demand back, Chris. I mean, it's just, if you, if you didn't see the WASDE here a week, week and a half ago, I cannot remember the number off the top of my head here. But I'm pretty sure the estimate for Brazil soybeans this next year is clear up 169 million tons, 169 million tons, and this year they were going to raise 150-ish. I mean, you're talking about bringing on an additional half billion bushel of beans or more annually outside of the US. And on top of that, losing our corn export share to Brazil.

Hate to sound like a Debbie Downer here. But that's a fact of the matter of the, the offset to any type of planting concerns and/or slight uptick in prevent plant. But I'll say one last thing, again, a pitchfork type of deal. It is way too early in the year, Chris, to start talking about big-time yield cuts. Or it's way too early to ever imagine that, oh, we have a sub-170-bushel national yield, or a sub-50-bushel national yield in soybeans. That day may come. But again, I think there's more area in the US that this spring and planting has been ridden with short-term pain, but probably long-term gain. Short-term pain, long-term gain. Replenishing moisture profiles. Again, there's lots of places that are quietly here saying, well, I'm glad I haven't had that rain that others have had, the, the massive amounts of rains.

Um, but my crop is off to a phenomenal start and I've got a full moisture profile to boot.

Chris: Yeah, and I would echo that. I mean, the stuff that got planted early looks phenomenal and there's a lot of it. There's no doubt that it can— is going to probably help to offset some of the 25% I was talking about. The other thing I want to echo that you said too is when you mentioned, you know, getting above that 501 on Dec corn or No beans in that $12.45 range. The— it just seems like at least our clients that we talk to, there, there's a lot of people that have put offers in just because I think the narrative across the board has been so bearish that farmers are taking— are heeding the warnings and saying, okay, I'm gonna have targets in. I know a lot of the people I talk to have a ton of targets already in, you know, in that $4— let's see, say $4.80, $5 range up to, you know, $5.13 or something, and lots of them in between there.

Same thing with soybeans, starting in that maybe that $12.40 range up to that $12.60 range. There's just a lot of people, so you can almost see where the cap is going to be. It's just like a wet blanket over the top of the market because the farmers are gonna, gonna make sales before we get to numbers that I think producers would like to be to. Any comments on that?

Jarod

Creed: Yeah, I know what you are getting at. I know you don't necessarily mean like, oh, that's the top where the farmers are willing to sell, but that definitely that wet blanket can be tough to get through. Yep. But I'll take it one step further that you and I spoke about this for months now, across all of your clientele, across all of our clientele, the general theme is that we do need financially something above $5 of an overall crop average price with a, you know, APH type of yield to make some money. And on soybeans, that number might be closer to 13 than 12.

But generally speaking, when, when the producers are placing these offers, especially if they have not done anything of material volume to this point, I think you have to be a little mindful of reasonable expectations and also challenging yourself right off the bat that if the market makes a quick move and you all of a sudden get all those orders filled, but all those orders ended up only being maybe 25% to 40% of the crop, don't get, um, you know, don't get, uh, concerned like, oh boy, I sold too fast, I need to pump the brakes. Instead, I would be making an argument that wherever those top-end offers are, uh, they're probably a fairly decent amount of profit in, you know, corn futures being somewhere closer to that $5.30 area than $5.

Uh, that's probably an area where guys really need to do the math on how much do I need to sell there to give myself a little bit of a safety net, because we know that's going to be a lot tougher to sell on the way back down if that would happen. Same goes with beans, a lot tougher to sell from, let's say, $13 and down. If you don't just mentally prepare yourself for taking those additional steps that I still— my biggest fear, and this is a fear myself, for a lot of producers that we work with, keeping them engaged to the point that we too have offers for, you know, catch-up for new clients that we're working with that have a lot of stuff to sell. Getting that first 25-30% of it sold feels good. But it requires next step action after that. And maybe I'm a little optimistic that we can actually see December corn make a move to, you know, I'm spitballing here, $5.10, $5.15 area.

I don't think that's that crazy of an expectation. But what are you going to do after that? What is your next steps? Is it selling more? Is it buying puts? Is it, uh, you know, roll puts up? I mean, what have you. To be blatantly honest, and this is a lot easier said than done, and I know that we're going to have some that are going to be willing to do it and some that are going to struggle with it a little bit, I can make a pretty solid case, Chris, that you know, above $5 December corn and maybe closer to $13 November beans, one of the best strategies that we can use is literally just to sell up to our insurance guarantee, and on half of that, just go buy some call options and identify what it gives you. I mean, think about simple math. Let's do it on both corn and soybeans.

If I've got 2 bushel on corn and I sell both of them and I sell both of them at, let's say, $5.20, but on one of them I buy a $0.20 call option. If the market goes to $4, what am I going to average on those two sales? One was sold at $5.20, one was sold at $5.20, but I spent $0.20, so I'm going to get $0.05. The two of those combined, I'm going to have $5.10 corn no matter what if the market's below $5. On the flip side, if we go to $6, depending on what strike you buy, you know, you're, you're going to kind of average somewhere in between where you sold and where the market goes. And hopefully you've got a bigger crop and be able to sell more bushels at that higher price than just your insurance guarantee. It's the exact same math in beans. You sell 2 bushels at $13 and you spend 50 cents on one. Well, $12.50 and $13, average of $12.75, you're going to feel pretty good about $12.

I mean, minimum price contracts are one of the oldest risk management tools in the toolbox, and that might be what's just kind of needed for a lot of operators this year just to go ahead and get that aggressive stance taken care of and still have a seat at the table if the market continues to go higher. But don't forget about the seat at the table that you also have for 2025. And most of our producers, that's where our greater risk sits today. It's probably out to 2025, not necessarily 2024. You also have to keep the door and thoughts open for 2025. And for a lot of operators, there's been opportunities to remove a tremendous amount of bad risk on 2024 that their, their real risk is now out in 2025. Hopefully at this point in time, most listeners 23 is behind you, and you're focused on '24 and starting to gravitate towards '25.

I think we're 60 days away from probably having some fertilizer purchase opportunities. And knock on wood, that can create a $5+ corn environment, $12.50+ bean environment for 2025 crops that are actually probably pretty profitable and gives us the first opportunity to not just get this year done, but prolong success for another year after this year. So it just, again, minimum price type of functions. I mean, we've talked about that again, Chris, fellow listeners, fellow, you know, fellow, fellow producers that we know. We've got a lot of operators out in wheat in 2025, that you're going to have a really, really tough time convincing me why somebody shouldn't be 50, 60, 70% marketed out there and at the same time just step back in on half those sales and own some out-of-the-money call options. You might regret spending the money on the options.

But if the market goes lower, that's going to be the last worry you have. Because you've got a bunch of grain sold up and above the market and it's going to keep you whole, especially any listeners in the Eastern Corn Belt. Chris, that are doing a, you know, a wheat-bean type of rotation, very rarely are you able to start grossing above $1,000 an acre on a wheat-bean rotation. And when you start considering what type of money is involved with $1,000 an acre, even $1,100 for that matter, I mean, that kind of tells you all you need to know that I've got a pretty nice opportunity to go ahead and secure a pretty significant amount of profits for the next, you know, 18 months on that.

Chris: Mm-hmm. What do you tell the growers that are going to be resistant to buying those calls that are going to say, no, I'm just going to— and we have a lot of them. There's a lot of them out there. Guarantee there's a lot of people that listen that aren't going to do that part. What percent sold for those cash-only marketers makes you comfortable corn, soybeans, wheat, what have you. You know, if we get to these price levels that, that get us at least in the black, you know, and, you know, what percent level is it that 50% you were talking about and buying the calls, or do you go to a higher percentage for those cash guys?

Jarod

Creed: You know, everything we talk about on here is more ideas, not necessarily recommendations, right? You got to dot those i's, cross those t's. But when you start talking about percent sold and such, The only piece that I'd be willing to comment on percent sold, on where producers should be, the correlation there is likely an individual needs to be higher percent sold if they're carrying a lower insurance policy. And on the flip side, if they're carrying a higher percent insurance policy, they might not have to be quite as much sold. That math is strictly based upon What is your worst-case situation? And what is your worst-case situation that you're willing to live with?

And if an individual's APH is high enough and carrying a high enough percentage policy, uh, it really doesn't require all that aggressive of decisions to make sure that the farm is going to take a step forward no matter what. But again, the correlation there is Higher insurance policy, you might not have to push the envelope quite as far as early. Lower insurance policy, you got a lot more risk. I mean, you have to define that. If I'm carrying 70% of— let's just for easy math, Chris— a $5 insurance price to 70%, if you raise your APH, that means insurance isn't going to do anything for you till 3.5. If you're carrying an 85% insurance policy, now you're cleared up to $4.25. And having sales $5+ and having that safety net above $4 from insurance is a lot different than giving up another $0.50 if the market would go lower.

Chris: Gotcha. Now, I think that's all good, good perspective and things that people need to be thinking about. You know, I want to ask one last question on seasonals. Again, not recommendation, but some perspective here. You know, it seems like you get past the 4th of July and it's all she wrote a lot of years. Any comments on that? And we'll wrap it up.

Jarod

Creed: Well, it kind of feels like those seasonals have moved up a couple of weeks in the last handful of years. Maybe that is a result of today's technology that come June 15th, June 20th, we already have a pretty good look and idea of what weather is going to be coming our way post-4th of July. Or back in the past, uh, it seemed to be 4th of July weekend, if you're heavily, uh, heavily interested in the markets, it's kind of a gut-wrenching nervous feeling of what's the forecast going to show on that Fourth of July weekend. And that would dictate what market direction we would have from that point forward. And naturally, you know, odds are 8, 9 out of 10 years, we ended up having good enough weather that the trend was lower. So I would argue that those seasonals maybe need to be considered to be moved up a couple of weeks.

And that would imply that we have 3, maybe 4 weeks here, in my opinion, that can provide some of the better opportunities here for the balance of the year. Year. That's all based upon a belief that the crop is going to be enough because our demand is not enough. And that goes both on corn and soybeans. And we are not going to create some type of a fundamental supply and demand scare that is going to entice outside managed money to be a long owner of these commodities. That's where that thought process comes from. And back to, you know, the idea around strategy. If that thought process is wrong, so be it, you still have a seat at the table.

And so a lot of producers, you know, going down that path, if corn goes to $6, you're not going to average $6, you might average $5.50., but you better be happy with that because not only did you dodge a bullet from, you know, how bad things could have been in the last 18 months, but you actually made some money and you're continuing to better your balance sheet, which is the end goal.

Chris: Yep. That's for sure. That is the goal. Any final thoughts and we'll wrap it up.

Jarod

Creed: Uh, yeah. One more thing for maybe your wheat producers in particular. How often are we going to talk about wheat, Chris? Not very often. It doesn't feel like—

Chris: talk about it whenever you want.

Jarod

Creed: You know, when you want to start thinking about these various insurance programs and such, sometimes better be lucky than good. If we can have a wheat market sustain these prices and maybe find another 50 cents to a dollar and hold on to those prices out until August, September timeframe, you know, August 15th to September 15th is our insurance average. For next year's winter wheat. And if you just start thinking about what type of insurance products you would have access to if those prices were $8 plus, that gives you a very, very salty safety net to the extent that— I can't believe I'm even going to say this, Chris, but looking at budgets and everything for next year, We have some operators that wheat is the most profitable crop on their farm at this point in time for 2025.

Chris: Mm-hmm.

Jarod

Creed: You know, been a while, been a while since we've been able to say that. Yes, if we can sustain that type of a move, be able to start thinking about marketing that 2025 wheat crop. I have very, very close friends where I grew up in Kansas that I've just been telling them, I got the ability to tell them since I'm such a close friend of theirs, that you have no reason not to be 50% sold on next year's wheat right now. You know, you're going to grow it, you know, it's making money. And it's a coin flip whether you're ever going to make money on your wheat crop as it is. So go ahead and take some off the table. But then if we can sustain these prices for another 2-3 months and manage some of our own insurance risk, now you start talking about some of these add-on products that we discussed for corn and soybeans, you start thinking about insuring 95% on wheat.

If that insurance price would happen to be like $8, well, 95% of $8 is $7.60. And any price lower than $7.60 in the next 18 months, you're basically sitting there protected on a wheat crop similar to what the row crop farmer has been able to do in the last several years. And for that matter, I mean, 2025 July Chicago wheat's at $7.45 and Kansas City wheat's at $7.52. So it's really not all that far-fetched to be thinking about the possibility of a $7.50 to $8.50 type of insurance price if this Russia situation—

Chris: Nice. All right. I think that's a good place to wrap it up. Really appreciate the conversation today. I think we got a lot of We covered a lot of ground, probably more ground than the planters have at this point. And hopefully by the end of next week, the planters will have had a little bit better luck yet. So with that said, Jared, thanks a lot. Really appreciate your time today.

Jarod

Creed: Thanks, Chris.

Chris: You bet. And thanks everybody for listening. And we will catch you again next time on the IQ Pitch.