The magic corn price

Narrator: 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.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. We're heading into a new marketing week, January 22nd. Through the 26th, and it's the last full week of January. Unbelievably already how fast time goes and how time flies when you're either having fun or not having fun. The markets have been a little interesting. So what I thought today is we would bring Clark Neuber on with us with BIS Commodities in Cedar Rapids, Iowa. So, Clark, how's it going?

Clark

Neighbors: I'm good, Chris. Some of these days do seem long, though, after moving snow every day, every day, every day. But Yeah, you're living in Iowa, right?

Chris

Barron: So, yep, yep. I was in Canada this last week and they got just as much snow up there as we do, so I didn't feel quite as bad, you know. So, um, this, this week now here we're, we're going to be in Arizona with our Ag View Executive Business Conference. And so I'm guessing the weather is going to be a little bit nicer in Phoenix. So looking forward to some nicer temperatures and stuff. So then we'll, uh, we'll have some more good marketing information out. But in the meantime, we're going to pick your brain for a little bit here today on some things. And one of the things I want to start with is, and I kind of told you offline a little bit about this, but, you know, the '23 crop, there's a lot of bushels sitting in bins. There's a lot of people scratching their head. There's a lot of people with hope in their mind and in their pocketbook, so to speak, and in the bank account.

And I was at a meeting last week and I essentially— there was about 75 growers in the room and we were going over cost of production and transition and all this good stuff. And, and I made— asked the question, I said, how many people here are willing to unload the rest of your corn crop at $4.60? And nobody raised their hand. I said, how many here are willing to unload your crop at $4.70? And nobody raised their hand. How about $4.80? I got some takers. I got, you know, 3 or 4, which kind of surprised me. But, you know, I got a couple of takers there and I think the takers were the ones that had already sold maybe a fair amount, you know, so they weren't unsold, you know, they had enough sold that, you know, their average price is still probably pretty good. Then I said $4.90 and I got about 30% of the room. So I thought that was interesting. I'm like, I'm getting warmer.

It's getting warmer. I said $5 and I bet you 90% of the room. I mean, there was a few that didn't, but The majority are like, yeah, $5, I'll let it go. If that's the case, if all these, if all these farmers and if that cross-section, you know, of growers is willing to let everything go for $5, what lets the market go above that? Anything?

Clark

Neighbors: Well, in the immediate future, it seems a little difficult, I would say, Chris, based on fundamentals we look at right now. I mean, obviously, as we get into— unless something really crazy happens in South America from, from a supply standpoint, you probably have to get in the US growing season to really put that into focus of any type of number like that. So in the meantime, the one thing I guess I would be cautious of and what ties in with what you're saying very much is the producer is the long in this market. He's long in the market in a physical standpoint versus on paper, just like you're talking about. We see that based on the stocks report that came out a week ago, especially in the western Corn Belt, on-farm inventory for the states of Nebraska, Minnesota, and the Dakotas is 600 million more bushels of corn on farm than a year ago.

Now, keep in mind, a year ago, that area was kind of cut back with production, but The balance of the Midwest isn't a lot different than a year ago. But the other thing that I think rings to this also is when you talk to a commercial or country elevator, the inventory they have in-house is mainly owned by the producer. Also, the country elevator has bought grain and simply moved a lot of that via rail, via truck, whatever, into the ethanol plant, into the export trade. So be Because of that, if and when we do get a rally in the market— maybe more so if— uh, any kind of rally is going to be suppressed by that producer selling you're mentioning, because it'll end up being hedge pressure into the market. So it's kind of a situation where if we get a little momentum going to the upside at some point, it's going to be a lot more difficult.

Now keep in mind, the Commitment of Traders report on Friday came out And the funds continue to pile into the short side. They're short 260,000 contracts of corn. The record short's 322,000. They added 45,000 shorts to beans in the last week, and open interest has also went up a fair amount during that same amount of time, especially on corn. Now, I would say we've seen areas, not big, but areas where movement has picked up in the last 3 weeks, more so right after the first of the year, maybe cash flow needs. But your point on $5 corn, I think, is interesting and I think is understandable. Let's see if that happens. But I also think the other side of the coin might be a point in the calendar that creates movement. When cash flow needs may come into play prior to planting, that type of thing. So it's going to be interesting how that all plays out, Chris.

Chris

Barron: So to tack on to that then a bit, you talk about calendar being a consideration that, that probably pulls some, some grain into the, into the mix. But we're going to have to be able to sort of navigate basis a little bit along the way here too, because You know, as the— if the price— if we do in fact see some, a bit of a rally or whatever, typically what happens is basis goes away and we're still at the same price. Is there anything that producers should be thinking about in terms of navigating that basis opportunity? And maybe because there's going to be a day when you probably should set basis, there's going to be a day probably when you should set price. And sometimes basis is before price and sometimes price is before basis. Anything that you guys are thinking about in terms of like kind of navigating that opportunity or challenge?

Clark

Neighbors: Sure. So the one thing to keep in mind, it kind of ties into what we're talking about. I think we're— because of, because of the inventory held by the producer, if and when it does move, it not only suppresses any potential, the upside of the, of the board, but I also think it limits basis potential also. So how a producer may want to look at that is when the market's kind of in the doldrums right now, and as it has been, you know, for 30 days and more so since the crop report a week ago, it's challenging. But if there's logistical opportunities to move because of poor roads or delivery into certain markets is limited and there's pushes, I think it's important to take advantage of those. I mean, an example is we're seeing seeing that to some degree in Cedar Rapids right now. But I think some of this recent push is because of snow, because of cold weather, etc.

Once the weather frees up, you know, you lose some of that strength. So the other side of the coin is, is there a window where demand picks up, creates some additional basis? It could, but I think that's limiting also. So I would think and it may be rare, Chris, that this is a timeframe where not only the board but basis, especially on corn, may have some limitations going forward just because of the inventory that has the opportunity to move. And once it does, it could soften both, both segments. Keep in mind, you know, and again, the calendar side, you get to March 1st, you get cash rent due, you get property taxes, that seems to be the next window where a lot of cash could be needed. It's also a time where, you know, producers have commercial— excuse me, ownership in commercial space. Every month is so much a month as far as storage. You know, you tie in the interest cost of that.

The meter's ticking. It's also a time where if there's basis contracts, with that country elevator. Those will have to be rolled or priced come the end of February. That was kind of a really tough scenario in late November for producers that had basis contracts coming out of harvest and rolling into March because the spread widened 5 to 10 cents in those last 2 weeks because of that partially. I think that's something to consider. Producers are sitting on basis contracts waiting to price, be really careful that last 10 days, 2 weeks of February before we get to March deliveries, because in late November, that was eye-opening, I think, for a lot of people, because you had, let's just say, for example, basis contracts that were priced at $20 under the December. Once they got rolled, they were $40, $45 under the March currently.

And now that decision is going to need to be made in late February again. So be pretty prudent on going to the tail end of February because the cash flow needs— do we see movement? We'll see. But also having to make a decision on certain cash contracts at that time.

Chris

Barron: Talk a little bit about soybeans as well. There's not as, you know, obviously I think a lot of producers and I think a lot that listen to this podcast probably had the majority of the soybeans out of the equation priced in the fall, but there's probably still some sitting around. What do you guys see in there? What do you think? And what are you watching for soybeans?

Clark

Neighbors: Yeah, I would, I would say the bean inventory in the country is not as concerning as far as the amount as corn. I think it was marketed a lot cleaner at harvest time, you know, and looking back, both corn and beans, the best sales were right off the combine generally this year. Beans are going to depend on if we see some potential on basis going forward, mainly from an export point of view, I think, to capture some momentum. But I think corn and beans are kind of in the same scenario right now, unless we see some late supply issues in South America. And that still could happen. But there's a fair amount of the growing season left to harvest. And, you know, that gets strung out. But we did see a Chinese announcement of beans this morning for the first morning announcement, like 30 days in soybeans.

It was a little bit of a mystery on the sale because we're not competitive right now with South America into China. Throw in all the logistical issues on ocean freight because of the Panama Canal and the Red Sea, etc., etc. But that was at least a little bit of a light for the market this morning. But the board rallied for, you know, the overnight, a little bit this morning, and basically lost all that ground as the day wore on. But point being is we're kind of winding down that export window as far as soybeans. And conversely, typically we see the buildup in corn inspections going forward. So I would continue to move beans, namely on the scenario of, you know, it's 7, 8, 9 cents a bushel a month to hold beans right now, just from an interest standpoint.

And I think the other thing a producer may want to look at, both in corn and beans, especially if they have commercial space that they're paying for in storage, if, if their need is to continue to have ownership, a cheaper way to to own or reown might be sell the cash and call options are fairly cheap right now because the market's not doing much. The reownership of some call premium is presumably cheaper than storage and interest on your money. So something to consider that way too, as far as if, if a person feels they need to retain ownership.

Chris

Barron: Yeah. And I've been encouraging people to, to look at as we, as we start wrapping up '23 and we're looking at the cash flow final quote unquote, with the remaining bushels to price. If the producer was in an area where the yields were down, crop insurance is a consideration. Because if there was, you know, for example, they got 50 cents a bushel, if they take their total crop insurance premium, divide that premium by the, uh, or that indemnity, I shouldn't say premium, indemnity, by the bushels that they produced, if it's, let's say it's 50 cents and their average selling price is, you know, currently maybe let's say it's in the mid-fives or whatever, but they got to sell the rest of it at a lower price. You know, they're probably close to $6 with that insurance premium or insurance indemnity, you know, unloading the rest of the bushels and sticking a fork in '23.

Clark

Neighbors: Sure.

Chris

Barron: Probably not a bad idea. And then if, like you said, if you want to leave the topside open a little bit, you know, the, the call option strategy is a consideration too. Um, just to, you know, I think navigating this thing here in the next, you know, couple of months is going to be interesting because like you said, you've got the calendar, you've got, you've got the interest rate cost, you've got cash flow needs and all of these things. Um, with that said, the last thing before— I have one other last thing, but, uh, funds and the interest from the funds, you know, let's say something happens and you know, you got wheat, corn, soybeans, you got kind of those three sisters bouncing around. If one of them takes off, you know, and is it the wheat or is it something— does everything go along with it or do these things stay pretty separate because of the situations we're in?

Or what's your thought there? And would the funds step in? I mean, because like you said, they're going the wrong way right now for us. But is there anything that could, could turn that around from a money flow standpoint?

Clark

Neighbors: Yeah, I think a couple of things to consider. I mean, honestly, Chris, the most bullish thing in the market right now is everybody's bearish, including the funds. So to reverse that, you know, obviously that takes some sort of a change to create that change in momentum. At some point that'll happen. Is it in 2 months, 2, you know, 2 years? I mean, that's, that's the issue. The other The other commodity to watch, and sometimes is the tail wagging the dog, so to speak, is the energy trade. Crude's in the low 70s. Considering all the geopolitical things going on in the world, I think 6, 12 months ago, somebody told you crude's in the low 70s, they said you would be crazy. There are some analysts out there looking for the energy, you know, trade in general to get cheaper, less expensive.

Maybe that's a slowdown in, in world demand, whatever that could be, slowdown in economic activity here and overseas. Keep in mind, the US is producing more oil right now than we ever have. So sometimes the energy trade can guide us where the rest of the, where the rest of the commodity world is. So I think that bears watching. For some reason, if crude, because of geopolitical issues or whatever, takes off, that may help pull all commodities and maybe more specifically grains along with it because of the ties with soybean oil and corn for ethanol, that type of thing. So I think that bears watching. The other thing I was going to mention too, when you look at the funds and where the market's trading, we were looking at some charts going back basically 10 years, comparing different years, if you will. And we're— we seem to be in somewhat, I would call it, transition right now.

If you look at the last 10 years, the bean market has spent very little time between the levels of $11 and $13. So when we rallied in late '20, since that time, we've traded mainly above $13 here to just recently. Prior to that, we spent a lot of time below $11. Conversely, on corn, very similar. We've spent 3.5 years or whatever above $5, and prior to that, a lot of time below $4.20. So we're kind of in this transition area potentially. I don't know if we know— the market knows where that gravitates towards for another 6, 8 months. We may have to get another growing season behind us to know if we're below that level or above that level. Another kind of interesting tidbit, I think this is probably more just timing than anything, but one thing we were looking at the other day too, when you look at the crop yield on the report last Friday, ended up being a record yield on corn.

But at the same point, it's below trendline. And we've went 5 straight years where the corn market's slightly below trendline and we've had fairly flat yields the last 10 years. But one thing that's interesting is in the years of 1994, 2004, and 2014 were big record yield years. Not to say 2024 is going to meet that pattern, but at the same point, you could argue the market may be due for a big crop. At the same point, you could argue, well, it's been a while since we've had, you know, a tough year via drought or whatever it might be. So, uh, we'll see what 2024 brings. But I guess I would say this: if we're above trendline yield 12 months from now, I'd say there's pretty strong probability we're in that bottom range I talked about, $4.20 and less, more typically than we are above that, based on that information, if that makes sense. So based on what stocks to use.

Chris

Barron: Yeah, and we're going to find out what the low parameter is. I mean, we've had some inflation since, you know, recently here in the last 4 years, and so there's probably an inflationary impact. Correct. That will maybe like sort of subtle— make, make that lower number a little bit more subtle. But it will— we'll find out what that number is in the event we get a big crop. You're going to find out real quick. What the low— how low can we go and stay, you know, for a bit. So last, last thing I want to hit on, um, 2024. There's not a lot sold. We're gonna potentially run into the same issues, you know, with the '23 crop when prices rally. And at what point do people sell?

I think there's a lot of people in the same boat You know, in numbers above $5, I think a lot of growers would be— from what we see anyway, from cost of production, if guys could, could sell the whole crop at $5.20 right now and get cash on farm at $5, that would keep people whole for— in a lot of cases. But, but the cost of production is interesting because it's not that much lower than it was last year. It's a bit lower. But on average, I'm kind of surprised that, you know, it's still a fair amount higher. Land rents haven't come down. Sure, equipment costs are still the same. Fertilizers come down and, and some of those things, but a lot of things have not come down that much yet. So it's still a fairly high cost of production. If we yield more, that's the fastest way to lower our cost of production.

But what's your guys' take on '24 and what people should be watching and paying attention and having some targets in there.

Clark

Neighbors: Sure. And it's a good point. I think your, your note on very little new crop sold is accurate in most cases, not all. And I think a lot of that, Chris, based on, you know, when there's a lot of old crop to sell, new crop's really not in anybody's mindset too much. And up to the last 3 weeks, we went kind of through this time where if you look at December '24 futures, we spent a lot of time between $5 and $5.20, which is kind of clockwork, you know, which way is it going to break out? Now, we've since first of the year especially, we broke out to the downside. It seemed like on January 2nd came in and the funds just added their shorts and market's been kind of soft since. So we're not terribly far from $5 on the futures.

I think if you can approach the $4.90 area between now and say March planning intentions, and I know a lot of people are going to focus on February for crop insurance and that type of thing, that might be an area to just stick your toe in the water and get some coverage, whether it's with the board, cash sale, short-dated puts. I think there's many ways to look at that. But I think that's an area where to play defense of what may happen next fall if we have a good crop, even though that may not look good today. Some of that may look good down the road. So I think that's a good stepping stone, especially between now and the end of March. Mm-hmm. $0.20 to $0.50 higher on the beans, similar scenario. Stick your toe in the water, not heavily. Usually January, February are not the best times historically to sell new crop. Obviously, it's more early growing season historically.

So I don't think you want to get real aggressive. But I think those areas where at least if a person can get— again, stick your toe in the water, 5-10%, maybe as much as 20% if they haven't done anything yet. I think those are good starting points. Now there are about few isolated people that have, you know, 25, 50% of next year's crop locked in. But I say that's very isolated situations from what I can see at my desk.

Chris

Barron: Yeah, I think the profit managers we have for 2024, we've seen with what's marketed currently is right around 14% on corn and some percentage I can't remember off the top of my head, but I think it's like 9 or so, 8 or 9% or something on soybeans. So that the numbers are pretty low. They've been low the last couple of years though. We've been trained to do nothing, and so we're doing what we've been trained to do. And now it's not the right thing to do. So, you know, it's, it's just one of those things we really gotta probably step back and, and look at what our costs are and really manage that risk. I like what you said about, you know, figuring out some way to put a floor in you know, in figuring out how to at least mitigate some of the risk because the crop insurance is going to do some for us.

But we also may have to do a little more than the crop insurance depending on what that spring price comes in this year, because that may not be enough this year. I mean, last year it was, it was, it was like this huge blessing. We may not get a blessing this year. We might just get a number and it is probably not going to be enough. From a, you know, from truly mitigating the level of risk that we need to do. It's probably gonna get us close, but it's probably not going to be enough for a lot of producers. So any, anything else I didn't hit on as we wrap up here? Any, anything I didn't ask or throw out there? Are you pretty good?

Clark

Neighbors: I think we're pretty good. I would just again keep the new crop in mind. Don't lose sight of that even though the price doesn't look real attractive right now just to play a little defense short term, getting some in play again, whether it's depending on the individual, whether it's some option play, especially short-dated options because the premiums aren't as much. Again, option premiums are pretty low right now in general just because markets don't move much. But yeah, just keep that in mind. And again, like I said, we seem to be in that middle ground of that transition potentially, uh, in, in the big picture on price. So keep focus on that going forward. Where do we need to gravitate towards?

Chris

Barron: I think a lot of producers have gone through the 5 stages of grief and they're in the acceptance phase now. So now it's a matter of deciding, okay, maybe I start letting some of this go when we get a little bit of a rally, a little bit at a time, a little bit of rally, a little bit more, just, and just you know, don't beat yourself up. I mean, there's so many people in that same boat. And, and so, you know, I think that's something to keep in mind. And don't, don't beat yourself up. I've seen a lot of people this winter that are pretty frustrated themselves. And, and, you know, if we were all perfect, we'd all be in Vegas on vacation right now or something if we all knew what to do.

Clark

Neighbors: You know, I think that's a good comment to make to them because as far as being discouraged or beating themselves up, not that it's good, but that club is big right now. So they're not alone, you know, generally in that thought process. So yeah.

Chris

Barron: Yeah. So no, hey, I really appreciate it. If people want to get a hold of you, get or have some questions specific for you, what, what's the best way to reach you?

Clark

Neighbors: Yeah, they can just call our office here in Cedar Rapids. Phone number is 800-373-2525 or biscommodities.com on the web. There's 4 of us here in the office and everybody works with producers and trying to navigate what they do individually versus, you know, just general vanilla recommendations, if you will.

Chris

Barron: So, yeah, it's all about the specific farm, specific situation for sure. Well, hey, Clark, really appreciate your time today. Clark Neuber with BIS Commodities in Cedar Rapids, Iowa. Thanks.

Clark

Neighbors: Thank you, Chris.

Chris

Barron: Appreciate it. You bet. Thanks everybody for listening too. And also stay tuned. This week we're going to be at the Ag View Executive Business Conference in Phoenix. There's going to be some good information coming back from some of the speakers. And so if you're not there, we'll be getting some good podcasts out with that information. So stay tuned and we'll catch you next time on the Ag View Pitch.