Update your cost of production! Weekly market outlook June 23rd-27th

Shay: Welcome back to another episode of the Ag U-Pick Sunday Market Outlook. Shay Foulk here with Joe Paulsen. Joe, is it, is it hot and windy at your place today as we record here on the summer solstice?

Joe

Paulsen: It is very hot and very windy today. I was hoping to finish spraying some beans. This morning, get a couple loads off, and I woke up at 4:30 and I could hear the wind howling outside already. So that kind of, kind of dictated what this day was going to look like.

Shay: So you went back to bed is what you're saying?

Joe

Paulsen: I absolutely went back to bed.

Shay: Well, you know, it's a, it's an interesting time of year. I know a lot of the listeners here, unfortunately, North Dakota, some areas of Minnesota had some nasty weather here. This last Friday evening. So thinking of you guys, and we'll be curious to see kind of crop updates there. If you guys are listening from those regions, shoot us a text, let us know how things are looking after that storm. But a lot of the Midwest here did catch some rains, and when you look at the bigger market outlook, I think regardless of planting delays in certain areas, regardless of too much moisture in certain areas, that rain makes grain in the, in the trade's eyes. You know, how are you kind of feeling as we head into the last week of June here with where the crop outlook is, and are you feeling nervous at all from a marketing plan standpoint, Joe?

Joe

Paulsen: I am not feeling super nervous about the marketing plan side of things as of yet, and I'll tell you why. You know, it's a couple of, couple of reasons for that is, you know, we've We've got a hell of a crop coming on here. We're a little short. We had some cool weather, and I know a lot of the Corn Belt experienced some of that smoke from Canada, and that definitely slowed us down a little bit and kept the nights cold. I mean, we had decent daytime temperatures, but it got down in the low 50s at night, and it really slowed the progress of the corn down, but it's even. It looks good. The population's there. Um, but back to the marketing piece, I mean, I've got, you know, about 40% already sold and I got 85% RP policies with ECO. And, uh, you know, that, that, that gives us a little bit of a floor.

Shay: Yeah. And you were saying, you know, 85% on that RP policy sitting around $446 as a floor. Probably not a, you know, a lot of reason to do any aggressive selling at this standpoint. Do you have target orders in place, and kind of at what levels, you know, are you looking for as we move forward here if we get an opportunity, Joe?

Joe

Paulsen: I have some orders starting to work up in that, uh, $4.58 range, and, uh, to, to get some additional sales on. The beans, I don't have anything working on, on, on the beans yet. You know, we really need to get up close to $11 to really, you know, to start getting close to that cost of production. Mm-hmm.

Shay: How about that?

Joe

Paulsen: How about yourself?

Shay: Yeah, so I, you know, as I've mentioned here this spring, I'm not looking very much at all at 2025 because we're, we're all sold on corn. Soybeans, I'm about 35 to 40% priced. I'm not going to get too excited until we get up closer to that $11 range. So I'm hoping we get some sort of market rally. And if and when that occurs, Jill, I think I'm just going to unload everything from a pricing standpoint. I just, I don't have a lot of confidence outside of a market rally. Other than if we had a trade deal put in place from the tariff negotiations or conversations that are occurring here. And again, you know, my outlook is always super long. So if that's the case, then I'm probably just going to lean into 2026 here and move onwards and upwards from 2025. But I agree, probably not anything to get too gung-ho about.

I will say, you know, getting 2024 wrapped up for a lot of guys, You just, you really have to think about that cost to carry from an interest standpoint or an opportunity cost on those dollars. If you're not wrapped up there and are having a hard time pulling the trigger on some of that, just give us a call and talk through it. We're not market, you know, we're not market people, but we are market adjacent from a cost of production standpoint where we'll help you talk through that decision and, you know, help you come to whatever conclusion you maybe need to. So, Don't feel bad about it. There's a lot of people out there that still have old crop. And if you, if you need an ear, you know, give Joe a call, give me a call and kind of happy to talk through that. But in that, in that same vein, Joe, this is something that you and I both wanted to hit on.

You need to evaluate your cost of production now in June, particularly looking at this new crop that's coming in. So you got the crop planted or you didn't, depending on if you're in one of those wet areas. You have probably 85% of your input cost already into that crop after the chemicals minus maybe some top dressing, maybe some fungicide or any late season stuff that you're going to do. So dive into Profit Manager or dive into whatever you're using for your cost of production system and get those numbers updated. Uh, Joe, I don't know if you've done that recently, but it's kind of refreshing just to relook at the numbers and feel confident as I think about marketing of of, hey, you know, where am I at and do I still feel comfortable with those levels? And then Chris hit on it in the 19 Minutes episode the other day.

Give your lender a call and just push them an update or say, hey, you got an hour to meet up and kind of talk through things. They would really appreciate a call like that, you know, this time of year. But maybe you could speak a little bit to the importance of just reevaluating those numbers in June and kind of how you build that into your operation.

Joe

Paulsen: I've always said that there's actually comfort in the numbers. Even if the numbers don't look so great, just getting good solid costs into your budget and understanding where you're at allows you to start looking at, oh, okay, this is the box that we need to try and fit into this year. What are some things that I can do to help get us there? Whether it's cutting some costs or, you know, looking at something agronomic in order to try and boost yields. The thing that— and a lot of cost of production tools will allow you to do this, so I'm not just saying Profit Manager, but that's what I use and that's the thing that I absolutely love about Profit Manager is the ability to scenario plan, run different scenarios. Like today, you know, I spent a little bit of time and looked at what it does to my cost of production if I produce $2.40 versus $2.20.

That's a 35-cent swing in cost of production. So, you know, if I get up into the $2.40 range, well, then my cost of production is like $4.07. Well, we're well into the black at that point in time. And then you can have a lot more confidence about, you know, maybe starting to make some sales at maybe $4.45 or $4.50. You know, looking out your window and you're, man, I got a great crop coming on, we got a lot of growing season left to go. But just kind of running some scenarios to see how good could things be, how bad could things be, and what are some things we can do to try and maximize some sort of a profit as we get through, through the year.

Shay: Yeah, and people sometimes get caught up in that of, well, I want to be conservative with my yield and conservative with my price, and then if it works out, it works out. And, and I always push back on that and I say you want to be as accurate as possible. And so we're a long ways from final yield potential on anything here, so that's not what we're looking for. What we are looking for is update those costs, update your return to management or your cost of living. You know, you're halfway through the year, so sit down with your spouse, go through your numbers and say, hey, where are we at compared to budget? And, and get those actuals put in there and then run your scenario. I kind of call it the trifecta. So do your APH, do 10% under your APH and 10% over your APH, just because we don't know right now. I mean, you're, you're You got a good idea.

There's, you know, we're over here at Jason Mock's event in Indiana and there's a lot of damn good looking crop out there, Joe. And that's what I've seen in my travels here the last few weeks. I'm not, I'm not saying that there's not problem areas, but there's a good crop out there and we're seeing a lot of the good mineralization in the soil. We're seeing a lot of yield potential from good planting conditions and there are problem areas. But I'd say generally speaking, there's a lot of good crop out there. So Maybe like you said, maybe it's not saying, oh, we're going to be 10% off APH. Maybe it's, hey, we're going to be 10% above APH. And that does start impacting your decisions that you're making today. Like you said, a $0.35 swing in a lot of scenarios, that's going to get guys into the black.

And maybe that's just saying, hey, I need to monitor the possibility of being 10%, 5% above APH for the next 2 months. So that if and when we get a market rally for whatever reason, I'm not looking at a cost of production based on APH. I'm looking at the reality of being 5 or 10% above APH. And I think you have to tie a lot of those things together.

Joe

Paulsen: I completely agree. And one note on the APH is here at Ag View, we're, we're fans of using a 5-year APH, not necessarily your crop insurance APH. You know, if you've been farming a while, especially, you know, a certain piece or whatever, they're using a 10-year APH in there. Use, use the last 5 years depending on the area. And maybe, maybe that 5-year APH is less than, than your 10-year. But, but, you know, be realistic about what that APH actually is. You know, I— my, my father's one that's just very, very conservative. I mean, the yield he uses is 85% of what his APH is, and I've, I've never seen him raise that. I mean, in the last 15 years, I've never seen him raise that. So, you know, you could possibly be leaving some bushels on the, on the table, you know, when you're thinking about how much you need to be pricing.

Shay: And I think this is also a fair point, too. As I mentioned, I'm kind of eternally long here from a marketing perspective, but I, I am looking heavily at 2026, and just for perspective, I'll list these numbers off and people can go back and, and re-listen to it. My goal for 2026, just because the input costs and kind of preparation on some tax things, I want to be about 60% sold for 2026 by the end of November of 2025. So I have pretty aggressive target orders in this year, and I would say that if the pricing opportunity is there, that's really not that abnormal for, for me personally. Um, but the 60% target orders that I have set right now, um, and go take a look at these 26 if you haven't, I have 13% at $477, 13% at $489, 13% at $504, 10% at $519, and 10% at $534.

And I will keep those target orders on until we— if we hit, you know, people always say, well, what if there's a massive rally? Okay, well, great. I'm going to keep my target orders because I feel comfortable with those levels of profitability. And then beyond $5.34, that's where I would reevaluate and say, hey, do I need to go up to APH because of a pricing opportunity? Do I hold on to those bushels because we're still a year out from delivery? You know, what do I need to do? But We, we are not— we're not at that $4.77 right now. These $26, um, I'm only 2.5. We're not far from it though. And that's, and that's my point is like, if you don't have target orders in, you know, we saw this in 2024 for 2025, which is why, you know, a lot of those targets hit for me is I just said, well, let's put it in. I know I'm going to be profitable at those levels.

You know, now's the time to be thinking about it. 18 months, 20 months out on a lot of these is the time to be thinking about it. So that's, that's a perspective thing. There's people out there that do it totally different. There's people, and I get it, the acres that are more variable from a productivity stand— or yeah, from a productivity standpoint on what you have for final bushels. That's fine. I'm not saying do, do your APH or your insurance guarantee or sell the farm. Just do a percentage and have a plan in place for what that looks like. And I'll say this too, you know, I've been doing some speaking events here last couple weeks. There's no excuse for not having a marketing plan written down. Like, there's no excuse, there's no good excuse I've ever heard on why you don't have that written down. Well, it changes. Okay.

You should have a plan in place and you should have a plan for, you know, your family or the team that you work with in the farm operation, or I mean, at least if no one else fits the bill of what I just said, at least for the grain merchandiser that you're working with, you know, sit down and have a meeting with them and just say, hey, here's what I'm looking at, and get a plan put together. So I'll get off my soapbox on that, but just have a marketing plan in place and take a look at these 26 on the corn side of things. Get some target orders in if you haven't. I guess that's kind of where I'm sitting, Joe.

Joe

Paulsen: I, I totally agree with you. I mean, I mean, March 27th, $4.86. December of 2026 is, I think, closed at $4.72 yesterday on the 20th of June. And, you know, those are, those are, uh, profitable levels and, you know, putting a stake in the ground for '26 of, hey, this is where I'm starting, you know, that's, that's probably something a guy should be looking at for sure.

Shay: Well, and in relation to that, just for people to be primed on, I have a note next week in my calendar to be following up with my chemical supplier on any pricing opportunities as 2025 winds down headed into 2026. I have a note in my calendar for historical nitrogen pricing coming up in the next 2 weeks. Of historic lows, and we may not be there. But, you know, be thinking about your prepay inputs now and then offsetting that variable expense with marketing opportunities. You know, the price— the price of some of those things is being set now. Are you covering your costs from a variable expense standpoint, or are you thinking about that accordingly? So, and then, you know, I think— I think just to wrap up here, Joe, you had a note of let's just make sure that we're controlling the controllable.

You know, like I said, just a terrible deal with some of those 100-mile-an-hour winds that were in areas of North Dakota. I know there was operations in Indiana that had some pretty straight-line winds. There's areas in Kansas that are dramatically wet. You know, you have hail that comes through. There's a lot of that stuff, but you got to stay focused on the things that you actually can control, and that's why we have some of these protection policies in place. You know, any final thoughts you have on that?

Joe

Paulsen: Yeah, I mean, it's, it's easy to just, you know, get really, you know, kind of down about where we're currently at. And, you know, you got to stay positive, keep your eye on the ball. It's farming. It's farming. It's, it's, you know, we go through, we go through this every year, and you know, you just stay focused on what you can control and, you know, taking the best care of the crop that you possibly can and get the most bushels you can. And, uh, and then keep your eye on the horizon.

Shay: Absolutely. As we close here, Joe, I guess I would say, uh, you know, my phone number is 309-264-3090. If you want to talk marketing, if you just want to talk where you're at or kind of where our decisions are, um, as we look at the week ahead here, the last week of June, feel free to give me a call. And Joe, I know you're available as well.

Joe

Paulsen: Absolutely. Absolutely. My number is 815-739-5437. Love talking shop.

Shay: Yeah, absolutely. Joe, I hope you enjoy your summer solstice, longest day of the year. You got anything fun planned this weekend?

Joe

Paulsen: We're going to get in the pool this afternoon.

Shay: Don't forget to have fun. After all, why the hell do we do all this if we're not enjoying it?

Joe

Paulsen: Exactly. Exactly.

Shay: All right, well, thank you everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.