Trick or treat markets ahead? Weekly market outlook: Oct. 30 - Nov. 3rd

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. October 30th through November 3rd. So we're sticking the fork in October and heading into November. And we have with us today to talk markets, Joe Vaklovic, Standard Grain. Joe, how's it going?

Joe

Vaclavik: I'm good. How are you, Chris?

Chris

Barron: Hanging in there. We're still plugging away with harvest in our operation. We got, I don't know, probably 5 harvest days, but we finally got some rains. That knocked us out, let us catch up on some, on some rest, let us move some grain around. So hopefully we can be efficient when we try to finish up. What are you hearing on harvest progress from a lot of your guys? A lot of, a lot of people are done in some areas and some other areas are really struggling, aren't they?

Joe

Vaclavik: Well, the government numbers would tell you that on a national basis, we've been largely ahead of schedule. The rains have resulted in some delays. I know, like Some areas up north, in particular parts of Michigan and Wisconsin, have been slow. Overall though, the rain is very much a good thing because of the river situation. We really, really, really need to see additional improvement in, in terms of river levels. It's, it's helpful for so many reasons, uh, just in general from a demand standpoint. So yeah, there's going to be some little hiccups. Does it matter for the market? No, it doesn't.

Chris

Barron: Yeah, well, it's, it's one of those things that is connected to basis. What are you hearing on basis levels? And are we seeing some improvements from what you're hearing? I mean, we, we've seen, you know, a week or so ago, and on that one Thursday when we had that price rally, the, the basis went away for like 2 days, and then it started coming right back again. So it tells you that you really got to separate those two. Thoughts on basis?

Joe

Vaclavik: Well, I think that there have been basis pushes in some areas of the country because farmer selling just dried up when the board was cheap and basis is bad. Farmers are just not interested in selling. I mean, I don't know what the financial situation is of the farmer. The general attitude, broadly speaking, is that the farmer's in decent financial shape because the last 2 or 3 years were pretty good. And '23, '24 could be a hell of a lot tighter, but the farmer doesn't have to sell. And I think that there were some basis pushes, these ethanol plants, end users, they want to get corn bought, especially before the bins are locked up. And I think that that was probably part of the reason that you saw improvement in some areas, certainly not all areas.

Chris

Barron: Yeah, I guess let's hit, we're going to bounce around a little bit here, but let's hit on on the unpriced bushels? You know, we're talking about basis here, and there's a lot of people that wish they had sold more. There's people that didn't sell anything. There's people that sold quite a bit, actually, and everything in between. But, you know, we're all going to have some level of unpriced bushels. Start with corn. What's your thought there? What are some things people need to be thinking about? And as far as getting some of these bushels moved eventually at some point in time, we're going to need cash flow and that kind of stuff.

Joe

Vaclavik: Yeah, this is, this is the most common question that I've had come in from subscribers and from customers over the last few weeks is what do I do with my unpriced bushels? And it's a lot trickier this year because of this interest rate situation. I mean, generally speaking, you know, over the last 15 years, you'd look at the market, you'd say there's a lot of carry. You know, you can roll HTAs, you could sell deferred contracts, hold on, wait for basis improvement, you know, price versus make some sales versus a higher price deferred versus a March or May '24, July '24, wait for basis improvement, then price it all. But it's just there's a lot of this interest rate thing is a big time obstacle when it comes to storage and unpriced bushels this year. And one of the— maybe this is not a going to be a popular thing for me to say.

I've had a lot of inquiries regarding like production overages, I guess. Like, hey, my crop was way better than I thought it was going to be and now I've got these extra bushels. Like, what should I do with them? So I don't, I mean, it's the million-dollar question. There's, I don't have an answer to it. I mean, I think that there's certainly a chance that even with the interest rate situation, you could see something happen in the markets that rewards you for storing. It could be a South American weather hiccup, it could be additional demand. If you're talking timeframe like next spring or summer, which, you know, a lot of years guys are still going to have bushels by June, July next year, you run into another US weather issue, it could be a lot of things and you could be rewarded.

But if something doesn't happen, these, these interest rates and these carries are just going to really eat away at you.

Chris

Barron: One of the other areas you can comment on that too, but like we were talking about basis, I mean, A lot of times during, you know, at least in our area, what I always look to do is during that, say, week between Christmas and New Year's, sometimes the week leading up to Christmas, and sometimes the week, you know, between, you know, right after New Year's there for first couple of days, but there's always in that holiday season when none of us want to work, which is, that's a lot of times when it pays to work for basis. Yeah. So, you know, so basis might have to do some of the work here too, don't you think?

Joe

Vaclavik: Or— yeah, I mean, it's, it's a big deal. And if you run into a lower volatility environment on the board, and that's kind of what we're seeing, especially in the corn market, I mean, the basis could be just as big of a deal as futures. I mean, if you're gonna— if you're only gonna trade a 15, 20-cent range back and forth in corn futures and, and your basis can move by that much also, I mean, it's, uh, it's absolutely important. And, uh, the holiday thing that Part of that is because, yeah, people don't wanna work and some of it can be due to weather too. You run into some nasty weather and movement just slows down and that, that can be an obstacle, but could also present you with an opportunity, I guess.

Chris

Barron: Yeah, for sure. So, you know, one of the things that, you know, we're all doing is we're kind of in hope mode a little bit. You know, not a big fan of store and ignore, but you know, there's gonna be a lot of people that are sitting on it. With a whole bunch of hope, and what we need is demand. So what, what, if, if anything out there, what can we, um, you know, look to and say, okay, there's a probability of this or a probability of that? Is there anything out there on the demand side that, that can give us, you know, something to, to watch for, look for?

Joe

Vaclavik: There were actually a couple of things out just this past week that, that traders were discussing that, that were kind of, I guess, positive, potential positives when it comes to demand. This soybean meal story is interesting. So ADM had their earnings report out and the CEO was on the conference call and what he said was that Argentina is going to run outta soybeans to crush. And what happened after that was this big rally in soybean meal market and it was, I think, kind of caught some people off guard. And it's gonna steer some additional meal business to the United States. Also, depending on how you track this, starting to look like US corn and soybeans might be becoming just slightly more attractive on the export market versus our competition. And a lot of that's gonna have to do with the river situation.

If we get the river situation back to something that resembles normal, I think we will be competitive versus Brazil when it comes to corn and soybeans. And if that's the case, we should start to see better sales. I'm not saying it's going to be super bullish, but is that how you get a rally out of this thing? Maybe. There's also some chatter about planting delays in Brazil because it's too dry. You know, they need— during the planting season in Brazil, it's different than it is in the US. They need to see rains because it's so incredibly dry during the dry season. If it doesn't rain during planting or around planting or shortly after planting, The crops just don't emerge. It's just too damn dry. So there's some talk about that, you know, some replant, maybe some early, I'm not going to even say crop issues, but just early hiccups in the growing season.

So there are some little signs out there that maybe things could improve and you've got to step back for a second and say, okay, you know, the function of these low prices is to generate some demand. And ultimately I think that's what will happen. I just, I don't know if we're at those prices yet, but I hope we are.

Chris

Barron: Is the South American situation sort of like a weather market that we really could kind of pay attention, more attention to than what we maybe normally would? And will it maybe give us some bumps that, that are, those are some of the opportunities to sell on some rallies or thoughts there?

Joe

Vaclavik: So think about the United States. Very rarely do you rally on planting issues, say like it's say it's April or May in the US, very rarely does the market rally on planting delays. I think 2019 was the year where we were super, super late. So we did rally on planting delays that year. But generally speaking, we don't. And I think you've probably gotta go with that same attitude when it comes to Brazil and Argentina. Like, you know what, it's planting season. Nobody's gonna kill the crop as it's being planted. Fast forward 6 weeks, 8 weeks into, call it December. Yeah, if you run into some weather issues, you run into a couple weeks of dry weather in Brazil, I think that that is absolutely a factor when it comes to soybean prices. Argentina's still got drought and they have not fully recovered.

They've seen some rains, but yeah, I mean, you're gonna see a South American weather market.

Chris

Barron: Absolutely. From a technical perspective, I'm funneling you down here, Joe. So from a technical perspective, what kind of a range hit corn and soybeans? What a lot of guys are wondering, I think, to even more specifically, and we talked about unpriced bushels, we're asking about demand, we're, you know, we're looking at some of these other outside potential things that could give us some price strength. At what level do we need to feel comfortable pulling the trigger on a little bit, or do we just look at our own financial situation and pull the trigger on rallies along the way as they come at a certain level? Or is there any— is there any technical level, I guess, that, that it's going to be really hard to get through on, say, corn and soybeans? And if we get close to some of those numbers, we need to really be seriously thinking here to pull the trigger.

Joe

Vaclavik: Okay. So when you say technicals, you're talking about charts. Yeah. So December corn futures, very briefly, what, on just the 20th of the month went up and traded $5.09. And that rally was very, very quickly sold.

Chris

Barron: Yeah.

Joe

Vaclavik: Did not last very long. You pull up a December corn chart and we've been confined to a range that's essentially $5.09 to about $4.68 or so all the way since the beginning of August. So we've been confined to really a pretty darn tight range for months now. So I mean, you see a breakout above that $5.09-ish level, I guess that's positive. Now you're in this carry market and this is something that I think most people understand. But if the cash price stays kind of stagnant and just doesn't change a whole lot, what eventually could happen, and we've seen this in years past, you know, you've got a March corn futures contract that's at $4.95, you got May corn futures at $5.03, you got July at $5.09.

In a lot of years what'll happen is once that spot month contract goes off the board, so once December futures expire, in a lot of situations what you'll see happen is you'll see March kind of, kind of just deteriorate and kind of move down to where the December left off. And that could happen for several months if something doesn't really change in the market. So that's kind of one of the risks, I guess, of just holding unpriced bushels. And I know everyone's going to do it. That's going to be the most popular move with unpriced bushels is just put it in the bin, you know, and hope for higher prices. And I don't think that's necessarily a terrible strategy, assuming you did some forward marketing and and you've got some decent sales on the books. But that's one of the scary things about it.

Chris

Barron: Mm-hmm. What about on the soybean side?

Joe

Vaclavik: It's similar. It's, I mean, the carries in some of these soybean spreads are like record wide calendar spreads. But again, the interest rate situation is the obstacle and it could do the same thing. The thing about soybeans is that the balance sheet is so much tighter than the perception of the balance sheet, at least put it that way, is so much tighter than what we have in corn. I mean, USDA's telling us we're going to have this super burdensome corn situation at the end of the marketing year. And granted, they're trying to make projections for how much corn is going to be left at the end of August next year. There's a lot of things that can change in that timeframe. Soybean projection is really tight. And if USDA cuts the yield again and exports improve a little bit, you're in a really tight situation. I don't know that the market believes the soybean numbers.

Maybe they think the exports aren't going to be there. The book of export sales leaves a lot to be desired. But, uh, you've got this, this divergence between corn and soybeans. And, and, um, actually when you start talking about '24 and, uh, acreage possibilities, you're seeing the same thing. Like corn looks better on the budgets and it looks like again corn could end up buying more acres than soybeans, which I think is honestly, I don't think that I feel like the market should be trying to buy some bean acres, but it doesn't look like it wants to.

Chris

Barron: Not yet. Mm-hmm. Yeah. You kind of jumped into '24, which is where I was going next. What's your, what's your thought? I mean, you know, a lot of, a lot of people didn't sell very much '23, and now we're in the situation we're in. It's going to be, you know, even less selling probably unless we see something really, really change. What, what's your thoughts on 2024 moving forward here? What should guys be thinking about watching for?

Joe

Vaclavik: Well, my fear, and this is not a prediction, but my fear is that we're flipping from one cycle to the next. And the cycle that we were just in involved prices that were above the cost of production, provided excellent margin opportunity for the farmer. And my fear is that we're moving away from that and we're moving more into like a 2014 through mid-2020 type environment where you're going to see marketing opportunities, but you're also going to see times where we're below production cost. So that's That's my fear. It could change really quickly. But I've advised some, some '24 sales, as you know. I don't know how I feel about them. I know that at least on the corn side, there's probably still some black ink on the budgets for most farmers, not for everybody. I don't know everybody's situation. Soybeans are, soybeans are tricky. I mean, like, the bean market could go lower.

They don't guarantee you any profit in these markets. But that's, That's the one that's really tough for me is the soybean market. Like I feel like the fundamentals could lead you to higher prices, but are you gonna be able to do that with corn and wheat under all this pressure?

Chris

Barron: It's tough. Yeah, for sure. Yeah, I just, I think, you know, going back to what you said, you know, go back to the price range on corn and soybeans and looking at the, or corn anyway, looking at the charts. $5.09 to that $4.68 and anywhere in there, those aren't prices that anybody's really excited about or happy with even to any degree. But I think if a person, as we talked about basis, I think if a person can get basis separated from that price opportunity and maybe do some basis contracts, or if you do have a rally, maybe move the grain and, and, you know, price later. There's, there's a lot of options, a lot of things that a person can do. Are there any strategies or any tools that you think guys need to be paying attention to or thinking about using to, to manage some of the risk or at least leave some of the topside open? Or is it kind of individual by individual?

Joe

Vaclavik: All right. So I'm not— when people say tools, they're usually talking about like you should buy some options or something. I am, I am not a big reownership guy, as you know. My general thought when it comes to grain sales is that you should make the sale, call it good, be done, look forward. You know, that's, that's my general thought here. At the same time, like if there was a, if there was a time that you could convince me that reownership was a good idea, it would probably be this year just because of the interest rate thing. Like if you're paying interest on unpriced grain and you can go sell it, and kill the interest payments and reown on paper with some sort of strategy that leaves the upside open. I guess that it's a little bit more palatable for me in this situation.

The obstacle, of course, is, is, is the same obstacle that you're dealing with with unpriced bushels, this carry in the market. So if you buy a call option on deferred corn contracts as an example, you're going to buy May call. Okay. May futures are at $5.03. These futures are $4.80, like the carry is working against you, I think. And that's part of the reason why the funds are short corn. They like to be short, you know, they're probably short most of their volume in December futures right now. And when they roll it, they're going to buy back these corn at, you know, $4.80, and then they're going to sell March at $4.95. You know, they're buying low, they're selling higher, and they're going to, they're going to, a lot of them are going to bet on these, you know, contracts just kind of coming down to where the previous contract left off.

So it's not a recommendation for me or anything, and I don't, I don't ever advise reownership officially, but I'm sure that there are some people who are going to look at that sort of stuff this year.

Chris

Barron: Mm-hmm. Well, from a technical standpoint, and it's not for everybody, and like you said, I'll say the same thing, it's not a recommendation. But, you know, if you, if you can turn it into cash and you reown it, even with just a futures position, you've got the threat of a margin call, but you have the margin call with the corn in the bin. You just don't have to write a check for it.

Joe

Vaclavik: Yeah, everybody's a little bit different. I mean, honestly, I know people who are excellent grain marketers that don't even have a futures account. They do it all in cash. You can be very good without ever touching futures or options.

Chris

Barron: Yep.

Joe

Vaclavik: And there are other people who like to be more involved and like to, um, you know, take positions on the board. It's, it's very much an individual decision, but you can, you can do it well, uh, both ways.

Chris

Barron: Yeah, I've had the most luck personally just by managing the cash side, like you said, and trying to manage the margins. It seems to always work out in the long run.

Joe

Vaclavik: So put it this way, in my experience, very rarely have I ever seen anybody like pay back their operating note with gains from their futures account. The cash sales are what's going to make or break you. So the futures can be a supplement, they can be a supplemental risk management tool, but that's probably not going to pay the bills.

Chris

Barron: Exactly. So what do you want to leave everybody with? What's kind of the last thing? Are we— we're in Halloween season. Is the market a trick or a treat? Or what do we need to be thinking about as we go into this week? What do you want to leave everybody with?

Joe

Vaclavik: I'll leave you with this that you already know, that you've heard me say this because you see all my stuff. But the million-dollar question for me is, what is a low corn or soybean price? Right now? What is a low or bottom of the barrel corn price in a post-COVID, post-inflation environment? Before we had ethanol, it was like sub-$2 on the board. Post-ethanol, it was like $3 on the board. Now we're in a totally different world. I think this, this post-COVID, post-inflation environment, drastically higher inputs, the cost of everything on the planet's up 25, 30, 40, 50% versus where it was pre-COVID. I mean, what's a low corn price now? I don't know the answer to it, but maybe, I don't know, maybe we found out a few weeks ago when Decorn got down to $4.68. Maybe that's the new bottom of the barrel. I don't know.

But you would like to think that we've hit some sort of new like price plateau where, you know, the lower end is much higher than it used to be. It's not a guarantee though. We heard that before. We heard that in 2012 and that was not the case. So I don't know. I hope that's the case, but that's a big, It's a big kind of like standing question for me as we move forward.

Chris

Barron: Yeah, the good thing, you know, if you want a silver lining in lower prices is it does help to throttle some of the input costs eventually. It's not like, it's not like land rents are going to be cheaper immediately. It's, it's usually land is about a 3-year lag, you know, but it does slow down some of those other input costs, which is definitely, definitely helps.

Joe

Vaclavik: Yeah, you could, you could go really deep into this topic. The government's printed so much money and, you know, you could look at inflation statistics and how price everything's up. Just, it's, we are in a different world absolutely than we were in 3 years ago. There's no doubt about it.

Chris

Barron: That is for sure. But well, hey, Joe, I think it's been a great conversation as usual. Really appreciate your time today and having you jump on here with us. If people want to check you out, I, you know, I'm a contributor but also a subscriber to your, you know, your information. Talk just for a brief minute for any of those that are not following you. If they're not, they need to be because the information you put out daily on YouTube and the information you're putting out in your subscriber videos every day is really Excellent information. Hit on that real quick. Best way for people to catch you or to see that stuff.

Joe

Vaclavik: Well, you and I do a ton of stuff together, so I bet most of the people listening probably know this, but we had— so I have a podcast and a YouTube channel. It's the same stuff. It's just you want to listen to it or watch it, but it's every single morning. It's uploaded by 6 a.m. Central Time, totally free. We talk about the news, we talk about what's moving the market. You can find it on YouTube or any of the podcast apps, Apple or Google or Spotify or whatever. It's called Grain Markets and Other Stuff. Just type in Grain Markets. It'll probably be the first one that pops up on any of your apps or YouTube or anywhere. So we started doing that. I think we started doing the podcast in 2020 and the YouTube channel like shortly after that. And it's, it's really grown. It's really grown in popularity.

I'm shocked how many people are interested in hearing about corn prices on a daily basis. But here we are.

Chris

Barron: Yeah. Yeah, that's pretty awesome. So, hey, Joe, thanks a lot again. Really appreciate it.

Joe

Vaclavik: Yeah, as always, thanks, Chris.

Chris

Barron: Yep, you bet. And thanks everybody for listening. If you're still harvesting, take it easy and be safe, and hopefully we can kind of get this crop brought in here in the next couple of weeks. With that said, everybody be safe out there. We'll catch you again next time on the Ag View Pitch.