Valentine's Day and soybean sales: Sunday market outlook

Shay

Foulk: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Jared Creed. Jared, where are you at today? What are you up to?

Jarod

Creed: I am actually in the car right now driving down to the airport in Des Moines.

Shay

Foulk: Yeah, you're gonna be taking in the Super Bowl here. Sounds like maybe we got a, you know, Super Bowl of things going on in the market. I don't know, that's probably not accurate right now. Things have been a little quiet here, but headed into the The week of love here on Valentine's Day. We're recording on Friday, February 10th. What do we got shaking in the markets here, Jared? And what else we got going as we think about this week ahead?

Jarod

Creed: Well, I'm glad you mentioned that because I'll call myself a guilty party. I did forget that Valentine's Day was next week, so I hope all your listeners catch on to that this weekend as well. You're— make sure you get the— make sure to get the significant other a gift. It's important. Yeah. Yeah. So this week, you know, kind of just to recap last week, February WASDE, obviously we're inside the insurance period. February WASDE is typically a little bit more focused on South America production. We had a few adjustments to domestic supply and demand, had to cut a 15 million bushel on domestic U.S. soybean crush. It really doesn't make a whole lot of sense from a 30,000-foot view when you consider that the soybean crusher is making tremendous amount of money right now, but they cannot operate to the full capacity that they have the capability to do.

And a lot of that is still tied to logistics, just unable to move the products in an efficient way. On the corn side, relatively static there as well. We actually left exports alone again, which I think is probably against the common belief in the industry, but, you know, tinfoil hat. I think USDA probably wants to see how a few things shake out in South America, which we'll touch base on in a minute. Uh, and then we had a small reduction in the ethanol space of 25 million bushels. So, you know, the big focus February, South America production. You rewind the calendar a year ago, we had the wind at our backs prior to the invasion into Ukraine. We had plenty of fundamental issues taking place, uh, primarily just Brazil and Argentina, both fighting a significant drought. And we had significant crop cuts. To both countries last year.

This year you had a 5 million ton cut ballpark in both corn and beans out of Argentina and left the corn and soybean number unchanged out of Brazil. Uh, and that's following up from some adjustments in January as well. I think there's still some belief that the Argentina soybean crop size can sneak a little lower. I think USDA has it down to 41 million tons now. Uh, I'd imagine that, uh, you know, if I had to take a wild card guess, probably have a hard time seeing it go below 35. Uh, but meanwhile you're sustaining Brazil around that 153 million ton area. So the important takeaway on the relationship of Brazil and Argentina right now is that even though Brazil's got a few issues trying to get their beans harvested right now, their supply side is going to be very strong.

And naturally some of the beans in southern Brazil will actually make their way into Argentina to satisfy the physical needs that the Argentina soybean crusher has. Why I bring that up is eventually we do run a little bit of risk. It might not be in March, maybe it's out in April. We run the risk of saturating the market with an old story of what's happening in Argentina. You know, the old phrase of it's priced in. Uh, we're going to have enough supply in Brazil that it's going to be a competitive market for them to ship beans to China. It's going to be a little bit of a lifeline for Argentina to source some beans from Brazil. Meal has been the real story. You know, Thursday this last week meal went back above $500.

There's a few more, I would say, well-respected technical traders that kind of have a line in the sand that you start trading in that $5.10 to $5.13 area on front meal that we could actually open the door to visit $600 a ton. Which is borderline mind-numbing. So, you know, when you look forward here, we're definitely still in a weather market and that maybe the possibilities of getting a little bit more focused on weather in Brazil starts to sneak into the market pertinent to— it needs to dry up for the sake of the farmer there to get their bean crop harvested and plant the corn crop timely. It's a little misleading to look at year-on-year corn planting comparisons in Brazil, specifically Mato Grosso right now. They had a record planting pace last year. As of this last week, they were kind of running right in line with the 10-year average.

But with some of these forecasts, I think there's probably a heightened chance of seeing their planting progress sneak up to be 15% to 20% behind a 5-year average pace. And then obviously, you know, you start to run into some weather issues of potentially getting out of their monsoon season, drying up on moisture, and then arguably more important of running early frost risk. So what do you know, here we are in the winter in the US. You think that we should be relatively ho-hum, and we've got a weather situation in Brazil. Last piece I'll add to that, and I'll move on here. You know, as we're in the insurance averaging period, You know, for the majority of the Midwest, our, you know, our insurance price on beans is not going to be as high as last year. It's going to take a stellar rally in the bean market. The last year beans rallied $1.40 during the February insurance averaging period.

I don't think we're going to have that happen this year. So maybe we can sneak up to that $14 insurance price. Corn still got a fighting chance of having a 6 in front of it. Last year was $5.90. But the piece I want to get at there is currently implied volatility measurements that drive the premiums on crop insurance elections are cheaper year on year, which in theory can actually end up resulting in a cheaper multi-peril insurance premium payable by the farmer.

Shay

Foulk: You know, I found that really interesting though, Jared, because I— it doesn't— you know, the volatility index is lower, but it doesn't feel like there's less volatility.

Jarod

Creed: You're right. It doesn't feel that way, especially at these prices. You know, to tie that out though, volatility is not measured until the last 5 days. Okay. So, you know, canary in the coal mine as you start to have an issue in Brazil and we really do start paying attention to it, which, you know, I know this isn't probably normal business given the timing of what my schedule, your schedule, you know, we're recording this midday Friday and corn is up 10, 11 cents at the moment. And a lot of that is kind of tied to forecasts in Brazil. So there is always a risk that you could uptick volatility into the end of the month. We come away with a higher insurance price, but we find ourselves paying the same type of premium we were last year. Yeah.

Shay

Foulk: One last thing out of South America there. We had talked on this, uh, you know, at the conference a little bit here last week. There was some discussions maybe between Argentina and Brazil on doing a common currency. Anything come out of that, or what are your thoughts there?

Jarod

Creed: I haven't seen anything else, Shay, and I really would be surprised to see Brazil bring in the dumpster fire of Argentina. Argentina is on the verge of becoming the next Venezuela, it seems like. Yeah. And meanwhile, you know, something that's sneaking up as well that hasn't gotten a lot of attention lately, the relationship with Brazilian real and the US dollar is really, really moving. So, that can have some long-term ramifications as well, but that's probably not something that becomes more pertinent until late spring, early summer. Another wild card in the mix.

Shay

Foulk: Yeah. What else is going on globally? Any other implications outside of South America right now? You know, we always— China and Russia are obviously two big ones that we've been looking at here. You know, we had the whole spy balloon incident, and who knows where that whole thing goes. And then of course, Russia, as we move forward, maybe, maybe looking at an increased and more intensive offensive as we head into warmer months. Any thoughts on, on your end on how that might have market implications?

Jarod

Creed: Well, a couple of different things. And to make light of the situation, I think when China gets their, their data back, perhaps from the balloon, they're going to find out that we're losing acres daily to all these Dollar General stores. Couldn't help but laugh and see a commentary on that. They're going to find out we got a lot of Dollar Generals. But, you know, I think the China thing had some people nervous. Market really didn't seem to care much. You know, that's a touch and go situation. I'm not going to pretend to be any way, shape, or form any geopolitical expert there. I think you got a lot of, uh, a merit to the potential concern of an escalation in tension between Russia and Ukraine. Kind of a deal of watch what they do, not what they say. It seems like we're still continuing to pump a whole bunch of money into that Ukraine defense.

That, uh, individual a lot older than me brought up the other day that I know a dollar today is not a dollar back then, but we've now spent more We've given more funds to Ukraine than we spent on the entire Vietnam disaster. Hmm. So it's, it's real. And we continue to send equipment and other countries continue to send equipment. One piece that is also coming down the pipeline is, you know, sad deals happened in Turkey, obviously the last 4 or 5 days. Um, I'm not, I haven't seen it this morning, but I think going to bed yesterday, death toll is over 20,000 people. Wow. Turkey is critical in the negotiation between Ukraine and Russia on the safe grain passage. Critical. I wonder, March 14th is kind of that soft date, uh, the ending of the 4-month extension that we had on that grain deal, right?

Where is Turkey's efforts and abilities going to be with a a very sad situation happening within their own country, right? Are we going to potentially lose some of the firepower in the negotiation of that same safe grain passage in the event Russia does escalate things and Turkey's got their hands tied as it is with the problems they have going on now? That, that's, you know, that's right around the corner. That's a month away. Uh, you get to that doorstep, but there starts to be some rumors of slowing that down. Uh, one of the first commodities that can really feel that impact is wheat, right? And wheat can certainly lift the boat for other commodities too. And quite frankly, it's probably been the most picked-on commodity for the last 6 months. A massive speculative short in wheat that could potentially be just as a a drum filled with dry gunpowder waiting for a fuse.

Shay

Foulk: Yeah, wheat in a lot of the scenarios, and I don't know if you've seen the same thing, wheat kind of looks ugly right now for crop production at current prices relative especially to some of the revenue out there on corn and even paired up against soybeans or if you're doing double crop on that wheat. So, you know, maybe people that are, that are growing wheat are, you know, looking for some sort of shakeup and things there, but I agree, you know, we saw this happen Last year, we're coming up right now on basically a year of this conflict in Ukraine, and the volatility about make your head spin in the wheat market here over the last 12 to 18 months. So I think it'll be interesting.

Jarod

Creed: Yeah, if there's a bright spot in wheat, Shay, the producer that is looking at a crop— let's just talk about HRW for a second— the producer looking at a crop coming out of dormancy that really didn't have a lot of nitrogen tossed at it this last fall. With what nitrogen prices have done and wheat trying to make a little bit of rebound, if that would happen to continue, the relationship between the two, you know, the margin outlook can actually get better pretty quickly. I mean, maybe, maybe to the tune of $100 an acre. I mean, you tack on $1.08 a bushel in wheat and You drop fertilizer expenses by another $40, $50 an acre. That might be a little wishful thinking, but that's kind of the path that we're on. The relationship between nitrogen and wheat, and for that matter corn, continues to get better.

You know, it's still— I would make an argument that the producer that has a fall fertilizer program was kind of stuck with buying what they needed to buy, and hopefully they were offsetting those purchases with grain sales. And at those times, you know, next year's corn was still— or this year's corn crop we're getting ready to plant, I should say, was still $6.20 to $6.35. The margin opportunity was good at higher fertilizer. Now you're talking about corn closer to $6 and those fertilizer prices being closer to 2021 values, still not as cheap as '19 and '20. But things are, you know, there's a bright spot there. There's been a recovery in a margin outlook in the last 30 to 45 days, primarily on the heels of fertilizer dropping. So that can't be lost in translation. The important piece about making sure that that is being viewed early and often.

Shay

Foulk: Well, I was ready to go out and terminate all the wheat that I had out there and plant corn, so maybe you talked me out of it, talked me off of the cliff here.

Jarod

Creed: Well, I can't really speak for, you know, you boys growing wheat east of the Mississippi, but I'm a Kansas boy by by nature. They're short on feedstock for all the cattle down there. I've got a couple close friends that were walking through the calculations of potentially just grazing out as much wheat as possible so they don't have to trim their herd because the cattle outlook is— I don't want to say promising necessarily, but it's, it's kind of easy to be a little giddy right now with how many cattle we're killing. So, a guy at that point is trying to monitor the value of, do I take a wheat to a cash crop or do I actually use it as a feed crop as much as I possibly can and then potentially roll that ground into a row crop out in May and June. So, that's— and I suppose there's a little bit of merit to that too.

We're going to be talking about acres here for the next 6 to 10 weeks. March 31st, Prospective Plantings, the stocks report is the next huge date to circle on the calendar. February insurance prices will have a massive impact. How are we going to split up 179, 180 million acres? There's some in the boat that we're going to plant 95 million acres of corn and 85 of beans. I'll tell you what, that's not enough of beans. But if we plant 95 of corn, the music would stop in a hurry, I'm afraid. I mean, that would be, that would be a potential nail in the coffin. You know, you come in at 92, 87 area, that seems kind of be the safe spot of where we need to be. It's just what does price do between now and say March 15th. So any listeners that get their prospective planting survey from the USDA, damn it, don't throw it away. Fill it out. You know, our survey responses continue to drop. Yeah.

Shay

Foulk: Yep. Nope. That's a good point there. Last thing I want to wrap up with here, Jared. You know, I had a guy sitting in my office here yesterday and he said, well, I prepaid everything. I'm mostly sold on all my old crop. I got 20,000 bushels of corn in the bin, you know, what should I do with it? I don't give marketing advice, and I know a lot of other people don't either, but, you know, some of the things that we looked at is, is it protected on the bottom end? What do you have for cash flow needs? Is that money better used elsewhere? You know, what are your thoughts on this scenario? People ask this question all the time, but do you have thoughts with where we are today?

Jarod

Creed: Well, let's, let's have fun with that for a second. Um, you know, 20,000 bushels of corn, just call it $7. What's a 50-cent drop on 20,000 bushels? That's pretty easy math, right? $10,000, right? Flip a coin, are we going higher or lower? As in, would you go to a blackjack table and make a single bet, or to a roulette table and make a single bet on red or black, $10,000? Average listeners are going to say No, hopefully they're going to say no, right? Uh, there's, there's, there's individuals just have some gamble in them. I get it. And maybe that's, uh, you know, some of their enjoyment of life, of the ag industry as well. But for the most part, I just, I don't think the message has changed for the last 3, 4 months. Just keep the grain moving as quick as you possibly can and try to leverage that cash to a return elsewhere. Yep. And maybe that's even just saving expenses.

You know, as we continue to run through more and more numbers, uh, it feels like it's all nice and rosy out in agriculture right now. Shay, I'll be honest with you, we still have probably half a dozen producers we work with that, to cut to the chase, if things don't go well for them this year, they won't farm next year. And that, that's almost been communicated from the bank. And a lot of that is they might just be a victim of growing at the wrong time. So everybody's situation is so different, but they— you can't be focused on the here and now, on those last bushels that need to be sold. Uh, we got to be thinking about the implications of doing something or not doing something with those in relation to new crop and finance needs here for the next 12 to 18, 24 months. Uh, I like to think of trying to be as slim as possible with producing as much revenue as we possibly can.

And I say the revenue word— I wish I talked about this a little bit more at the FBU conference, but that's what we're farming for this year. We're farming for revenue. We're not farming for yield. We're not farming for price. We need to know how much revenue we need to generate, and we need to know when we need to have it by to be as efficient as I possibly can on cash flow. And work towards that. And you got to define what those numbers are, and that's where I get a little scared of the guy saying, ah, I'm just going to hold this 20, 30, 40, 50,000 bushels and see what happens. That's a choice. You just made a choice that you are willing to take a lower price and face the music and to gamble for a higher price.

Shay

Foulk: Yeah, doing nothing is a choice. You know, doing nothing is still making a decision. So, well, with that, Jared, you know, really appreciate the time here. Enjoy taking in the Super Bowl. Looking forward to watching it. And more importantly, do not forget Valentine's Day is next week. To all the listeners, you're welcome for your reminder. Thanks a lot, Jared. Really appreciate it.

Jarod

Creed: Hey, Shay, on Valentine's Day, I got to tell you one other thing here. Okay, go ahead. I want to tell you real quick the transition of the soybean market. I think we're getting back to it. For years and years and years, when we go across the countryside giving farmer meetings, especially in the Northern Plains, Western Minnesota, South Dakota, North Dakota, Northern Nebraska, Western Iowa, the message on soybeans was always Valentine's Day. Two things you got to do: you better have a plan for your beans and you better have your gift for your significant other, because after Valentine's Day you're in trouble with the missus and you might be in trouble in the bean market because Brazil is coming. And I think that's the situation that we're in this year.

Shay

Foulk: Circle it on your calendars, don't forget, make sure you got your flowers, take care of your beans. Great message, Jared. All right, hey, thanks a lot, Jared, really appreciate it.

Jarod

Creed: You bet, Shay, thanks.

Shay

Foulk: And thank you everyone for listening to another episode of the Ag View Pitch. We will catch you next time.