Waiting for a spring rally? Weekly market outlook, April 22-26th

Chris: Welcome everybody to another episode of the Ag View Pitch. We are heading into a new marketing week and we're getting into the heart of planting season, the heart of April, and not too far away from May here, we're lucky enough to have with us Jeff Victorman. Jeff, did I pronounce your name right today? This time you did, and I didn't even ask you ahead of time, did I?

Jeff

Fichtelman: No, that's true. Yeah, third time's a charm.

Chris: Yeah, that's right, that's right. So we're excited to have you back again. Uh, last couple times you've been on, it's been really good to have conversations with you because, uh, you're in Ohio, you're A lot of our listeners are scattered all over the place, everywhere from, you know, you know, east, east coast to west coast, south to north. And but it is nice. We have a lot of, a lot of people in the middle part of the Corn Belt. You're over there in God's country where it seems to be raining all the time. How's, how's the planting conditions over there? Or are there any planting conditions yet at this point?

Jeff

Fichtelman: I mean, I could tell you I'm in central Ohio and It felt like the further east you went, the more rain we got. I think our percent of normal for the last 30 days was like 300% of normal. I mean, most of the guys around here now, we have had a couple days of quite hot, dry, and windy. So it's dried things up reasonably well. But we just took a survey, actually, the growers, and most of our growers are Ohio, Michigan, Indiana, and Kentucky. And they're on average 1 to 2% planned, and most guys haven't started And we also asked the question, how many days before you feel like you can get in? And it ranged from as little as 2 or 3 good days, which right now looks like it's going to be kind of cold, so we might not get those, to 10 good days we need before we could really start getting in. None of our growers are really losing sleep yet in terms of a delay.

Obviously, it's front of mind. You look at the forecast, though, and it still shows rain 6 or 7 of the next 10 days. They're only 30 to 50% chances, so we'll see. Uh, we do seem to be— I noticed in Ohio for about 3 to 4 weeks, it felt like every time they called for a half an inch, we got an inch and a half. But now they're starting to call for a half inch, we're getting an eighth. So it do— it feels like we're turning the corner a little bit. Um, and, and anymore, it's like— and I'm not going to pretend to be too old in the industry, I started in '07, but back in those days, if you want to call it that, delayed planting was a fairly legitimate concern. But man, guys now can plant so quickly that it's just hard. And most guys have told me time and again, they have some really good corn planted early June. So I just think for the most part, guys aren't really that concerned about it.

And therefore the market doesn't get that concerned about it. I think the market's waking up to just how well-equipped guys are and how quick they can plan. Seems like we can go from 0 to 75% in 2 good weeks. So it's kind of a non-event, which is why, although we had a good day today— today's Friday as we're recording this, and we'll talk about that for a couple reasons— but we've been choppy and sideways, as everybody's been following the markets knows, for the last month here.

Chris: Yeah, and it's, it's interesting, you know, you say on the planning delay potential. You know, for a while there we thought everything was going to go in really super fast, especially in the West. And then we got rain over here. I'm— my operation is in northeast Iowa, right in the heart of the— I don't know what they call it, D3 or whatever drought where it's deep red or maroon or whatever. And we got about an inch of rain here and some areas got, you know, a couple inches. That's not enough to fix the issue. It's just enough to keep us from planting, which is frustrating. I like it when it's dry in the spring. I'd rather have it as dry as it's been. We've had sufficient moisture. We planted last week or at the beginning of this last week. We planted about half of our soybeans and about 13 or 14% of the corn.

We didn't plant as much corn, but, you know, you know, with this cool weather and stuff, I'm pretty content with what's in there now. And I think a lot of guys next week, or this, this week and into the next week, you're going to see a lot of planters rolling. To your point, I think guys can get stuff really fast. The challenge is, is in those wet areas, even though you can plant super fast, you don't want to be mudding things in either. So I think guys are going to be limited by soil conditions in a lot of fields as opposed to their capacity. The capacity is there, but you got to have the conditions and I think it's going to slow things down. I mean, we'll see here in the next couple of weeks how that progresses.

Jeff

Fichtelman: Something I am watching, I mean, I'm not going to pretend to be an expert on weather. I just follow people I respect in this whole shift to La Niña. From the people who have gathered information, again, who I respect, they tell me it's a slower shift, which according to them tends to translate to a later start to the heat and dryness, maybe We're in August, September versus June, July. And because of that, as long as we plant in a normal window, it's probably not that big of a deal. But it certainly could come into play if, yeah, we push everything to mid to late May, early June. And as you say, maybe the roots aren't that good and the crop's a little more at risk. It also— there's been some people talking about the southern half of the Grain Belt, the Delta area. Feeling a big brunt of that extreme heat and dryness.

I mean, there's going to be areas, there definitely will be weather stories. And if anything, um, and I know we'll talk about still the lingering impact of '23 corn, uh, in the marketplace. I, I almost feel like nowadays we might see a later rally, a more counter-seasonal. I think, uh, just in the farmers who I've talked to The guys who are sitting on old crop corn at this point, it feels like they're unwilling to sell unless we get a magical $0.50 rally. I think a lot of guys will sell $0.50 higher, maybe even $0.30 higher. But right now it feels like they're unwilling. They want to wait and see what summer brings. And I kind of joke, I feel like there's a lot of guys waiting for that summer rally. And usually if there's too many people waiting for one particular event, it's really hard for that event to happen.

Chris: Yeah, exactly. And it—

Jeff

Fichtelman: I just theorize it almost feels like maybe we see a later rally than, uh, we, we tend to believe. Kind of that everybody plans for that June rally, feels like everybody's ready to sell it. A lot of farmers said, ah, I missed it last year, if we get it this year, I'm absolutely selling it. And I tell them, I'm like, well, either we're not going to get it, or we're going to get it, and you're going to regret and say never mind because my crop's burning up.

Chris: Yeah. So But well, and let's stay on the '23 for a minute. And so, you know, when you think about the '23, there's a lot of bushels still sitting out there. And to your point, you know, let's say we get a 30-cent rally. Right now basis is kind of all over the board depending on where you look. I mean, I was just telling you our basis in our area of Northeast Iowa is very strong currently because we had a really poor crop last year. And so they're having to pull corn from other areas, which has given us a really strong basis. The other thing that's given us a stronger basis in this area is the declining price the last few weeks too, right? I mean, as, as we have that price pressure, that actually helps basis. Conversely, I think everybody's got to keep in mind that if the price goes up, you're probably going to lose a big chunk of that in basis.

So if you do gain that $0.30, good luck getting it. You're probably going to get maybe half of it or two-thirds of it at the best. Because they're going to take basis away because that means people are selling, they're getting the grain. And so I think we all have to think about that. I also think too, it seems like, you know, there's a data price and there's a data set basis. And it might be one of those things where you better have a target in for one or the other, you know, and at least get part of the equation. And it seems like the part of the equation that's maybe going to be the most important is getting getting that price where you want it. But again, you know, maybe it's the basis. I don't know what your thought on that.

Jeff

Fichtelman: Yeah, I do think the basis piece of the equation for '23 really does worry me. We're in this lull where I think a lot of guys are unwilling to move. They got their focus on planting condition or planting here in the next month or two, and therefore basis tends to be strong. And as you said, with prices so depressed, most guys don't want to sell anyway. So basis has had to do the work. But there's going to be two outcomes. One, either price rallies to your point and basis can then fall off. So in that case, you want to lock in basis today and maybe wait and see if you can get better futures. But a bigger concern is we just don't rally, we just stay sideways and we get to, say, July. And that's kind of the, the end of the line. Maybe guys hold it to August, but almost everybody wants to move by harvest.

We get into summer and if we never get that rally that allows guys to get rid of their '23, there could be an absolute day of reckoning, which again, I think would depress both futures and basis, but especially basis. That tends to be impacted more by sudden farmer selling. So I just think you have to be locking in basis in the next 15 to 35 days where guys are— they tend to be focused on planning. I mean, if you you could squeeze in delivering during April and May. I know most guys don't like doing that, but that tends to be the best values. Obviously, if you lock in June delivery, um, see if you can negotiate some good values now where maybe some of the elevators are feeling a little bit tight. It's been interesting watching the spread between May corn and July corn has come into 9 cents versus a 15-cent carry recently where beans went from a 9-cent carry out to '15.

So beans have widened out, corn is tight, and it's kind of reflecting that there's maybe a little more demand for corn than what we thought and just nothing's moving. So it does feel like we're kind of in this little moment. Tough thing is the board price hasn't rallied. So most guys, they look at flat price and say there's nothing that exciting here. So as a farmer, I definitely would recommend locking in basis.

Chris: Yeah, that's the scary thing is, I mean, if you're sitting there waiting for that 30 or 50 cent price increase, you're going to give a chunk of it up in basis. So you better calibrate your mind to what actually the opportunity is going to be versus what you're hoping for, I think. Yes. Um, as far as, you know, I want to get to the '24 stuff, but before we do that, because I think this correlates to, to the '23 all crops— corn, soybeans, wheat, whatever, any of the grains, um, or the outside markets— and then when you look at all of the commodities or the whole commodity index, it looks pretty shiny until you look at the grains, right? Talk a little bit about what you guys are watching at your firm and, and what producers should be thinking about, what the potential is.

I mean, when you've got this stuff going on with Israel and Iran and all these, these other things, are— is there— do you see anything that maybe we aren't seeing, or is there anything we should be looking for?

Jeff

Fichtelman: I think it's really how do you market grain during these kind of escalating war events. And the most recent one that we all have a pretty close memory of is Russia invading Ukraine. That created a multi-month rally. And that— what we see between Israel and Iran will not create the length of rally simply because Israel and Iran are not growing wheat and corn and exporting into the world, whereas Ukraine and Russia were. So by taking both of those places off the map, That literally did limit supply for about 8 to 10 months. Now we're feeling the repercussions of that because they're shipping it all out. However, we still could see a rally. And what I was really paying close attention to, uh, over the last handful of days, it felt like Israel was going to take a shot back at Iran. I, I just don't think they could be at peace with this idea Iran bombed Israel.

Yeah, they were able to knock, what, 99% of them off. But still, I mean, if somebody took a shot at you, you feel like you got to take a shot back. So watching the markets overnight, uh, we saw all commodities— crude, beans, wheat, especially corn to an extent— rally fairly sharply when the first headlines hit. And then as time progressed and kind of dust settled, so to speak, it looked like, okay, well, there were no casualties, and the damage wasn't that bad. Maybe it was more of a warning shot that you can't mess with us. And what was interesting is all those markets reversed, and especially crude and equities. We saw the stock market down substantially overnight and crude up $4 a barrel. By this morning, crude was unchanged, if not even lower, and equities had fully recovered. So what it tells me is two things.

One, if this war escalates, it will be bullish, but it's going to be short-lived.. And you just don't know how high things can go. Wheat was up, I think, 17 or 18 cents at one point, then went back down to up 4. And as a farmer, you're about to get extremely busy here in the next 2 to 4 weeks, if not already. You just got to put some offers out there. Just put a handful of just-in-case offers because over the next 2 to 4 weeks is probably when the market's most heightened and sensitive to this., and every news wire that hits could easily spook the market. So just have a series of offers. That's what we've been telling our guys is like, hey, okay, you got $50,000 left in '23 and maybe we're selling July because they don't want to move it over the next 2 months. So we're still planning on locking in June basis. So depends on where the guy's at.

We may lock in basis and just put offers on futures. Or we just put a futures offer in today and wait for lock-in basis later. But we're stacking offers 10, 15, 20 cents higher for the first one and maybe another 10 to 20 cents above that for the next one. Because these kind of environments create fast, violent moves that when guys want to sit and think about it after, it's already gone.

Chris: Mm-hmm. They last about 30 seconds and they happen at night when you're sleeping. Yes. Or they happen when your hands are all greasy and you're fixing the planter and you're— and you just, you just thought you were going to do something, but the next day you didn't. And then you wished you would have. All of this movement and these price changes that you were just describing from the equities to the energies to the stock market and all that takes the funds, right? It takes, it takes that money moving around. So talk a little bit about where— I mean, the funds are obviously super, super short grains and stuff. Talk a little bit about what spooks them. Is there going to be anything or do they stay that way forever for one of the first times ever? And this, this intense, you know, like it's working for them so far.

Jeff

Fichtelman: March 28th was a really key test and I was talking— there's a couple hedge fund guys who I get to talk to on a regular basis and Obviously they carried— their peak short was 330,000, uh, and they went into March 28th Stocks and Acreage Report around 250,000. So they did net cover some, so they didn't come in at record short. However, 250,000 is still a very heavy short position. The number that was printed arguably should have been more bullish in what happened. And what was— I felt like we were just sitting at this moment in time where it's like, okay, We don't know what the report's going to bring, but we know the farmer wants to sell an up market, and the funds probably want to net close their short position if it's really bearish. And the farmers arguably won in terms of the number that was printed, but did not win in terms of price action after.

I think that gave the funds, at least the guys I talked to, gave them all ultimate confidence in just sitting on that short position. However, they're not ignorant to the idea of seasonality and summertime and all of that. So I definitely think they are probably more patient than we would like to believe. We want them to probably not be patient. We want them to cover, but it just takes one big catalyst. And this war that Israel-Iran, it certainly could be a little catalyst, but what really would be a major catalyst would just be a drastic change in US weather. That would have larger yield impacts because demand largely is soft. Even with 90 million acres, if we can yield decent, we still have over 2 billion carryout. That's not that scary. And I think the funds realize that rallies have largely been short-lived and just comes right back.

So, and the other thing I've noticed with just how the funds trade is Um, they'll let a market move the first day or two, but if it becomes a sustained rally, they're not afraid to buy new highs on the way up to close that position. And it— so usually if we can get a material catalyst, we can get a 4 or 5 week run, but we just don't have it yet. And maybe this shift to La Niña comes quicker, and therefore we do get that hot and dry forecast in June and July. But as of today, you can't bank on that. So they're unfortunately quite patient. And seeing that 90 million acre print in corn and watching it only peak at $4.80 and trade right back to $4.65 was very disheartening from a farmer perspective, I would say.

Chris: Yeah, their staying power has gotten really, really good with respect to confidence in the production side of things. I don't think you know, it just feels like anyway, and get your take on this, but it just feels like, you know, we're going to grow, you're going to grow a crop. It doesn't matter. You can get too much water, you can have too much heat, you can have too much dry, too much whatever, and you're still going to grow a decent crop. So we're just going to sit tight and we're going to, you know, we're going to basically see who blinks first here because, you know, the farmer's eventually going to have to unload. At some point, right? You know, and, and, and not to mention, you know, as we shift to the '24 crop and some decisions there and things that we all need to be thinking about, there's very little '24 sold.

I don't know what you're seeing in your book, but what I see with Profit Manager and our clients, you know, we're somewhere in that, you know, right around that 9 to 10% sold corn, soybeans, wheat-ish. I mean, it's just not much. What do you see and what would producers need to be thinking about as we look at this '24 crop?

Jeff

Fichtelman: I've been able to meet a handful of new growers in the last, I guess, really over the wintertime. And there is an absolute relationship between if they were sitting on a lot of '23 corn, they had nothing sold in '24. And the guys who got rid of their '23, there are definitely a subset of farmers who've been bearish, and have been heavily sold. Um, we pushed our guys when we were above $5. They didn't all listen, but I would say our guys are in the quarter to half sold on $24. But even that is way beyond their comfort zone. And, and most guys are, are probably— I, I would say our weighted average is maybe still under 25%, but anybody new who we've met is absolutely under 10%. And they're paralyzed right now because really you look at the economics and I mean, it depends what you want to throw in the bucket.

And Chris, you would know better than anyone in terms of cost of production. But like if you throw really all of your costs in the bucket, $4.60 corn is, is not really making money unless you just have a monster yield. And it's psychologically hard for guys to plug in a big yield, even though they're more consistent at getting that big yield. Um, so it's, it's a challenge and, and guys just are holding out. And that's, I always tell them like, do you realize how long the line of farmers is waiting for the summer rally? And anytime I see like everybody tell me the same thing, like I'm just going to wait for the summer rally, it means it's, it's going to be really hard to come. And, um, yeah, it's, it's going to be a challenge. But the one thing is There's definitely a chance, and, and I know you and I talked a little bit about beforehand, uh, before we hit record.

It's just I almost feel like we could see a bit of a counter-seasonal rally, maybe a much later rally, and unfortunately it'll probably be after guys get rid of '23 and maybe give up on '24. Um, but to your point on, on yield prospects, like our Michigan guys are a great depiction of this. I was talking to a Pioneer agronomist when I was doing some customer meetings for him this, this winter. And I said, man, how did we grow such a good crop when it was arguably so dry? Now I was saying so dry out east, and you guys were certainly far more dry than us. But he's like, you know, ever since 2012, we focused all of our attention on making drought-resistant technology. So we're better able to handle that. Farmers are smarter. We've put in more tile and stuff. So it does feel like we can both grow a better crop. And our guys in Michigan, I mean, they're consistently yielding 210 to 230.

And it just feels like we've taken the black dirt in the central part of the country, and it consistently is 230 to 240 corn. But what is more meaningful, in my opinion, is taking all of the outskirts and raising them from 160 to 200 type levels. And It's maybe we're recency bias and we haven't seen bad weather enough to shake this crop up, but it does feel like it's hard to grow a bad crop anymore.

Chris: Yeah, well, you got to add the carryover into the new crop too, and you got to figure in, you know, really crappy demand. Yeah. And then you couple that with we have the ability to grow one hell of a crop this year. And the other thing that as an observation for the listeners and for you and I to think about too is that everybody's trying to grow a monster crop this year because that's the— that is the, the one way of the three elements that have to be analyzed so importantly: the cost of production, the yield, and the pricing that you can get. The only, only lever that they're able to pull right now is capitalize on maximizing yield.

And so everybody's like doing, you know, putting the details to it and making damn sure they're not sacrificing on anything that's going to enhance or protect yield, because that's going to be the fastest way to lower their cost of production, you know. And some of the guys are managing that cost production side in, in addition to, you know, trying to enhance yield by cutting some things that don't affect yield, which is hard to do. And but I think that's really the only lever. And when we look at that weighted average, we're at $4.97 with our clients on corn, weighted average in about $12.34 on soybeans. And we're a long ways away from those prices right now. And to your point, the only way you fix those is you had to add another 20 bushel to your average yield on corn and maybe another 8 or 9 bushel on soybeans. And guys are planning for that.

A lot of people are like man, we're gonna, we're gonna knock this one out of the park on yield. And to your point, I mean, last year we had— and I've said this on another podcast, I'm going to say it again— we had the same amount of rainfall on our farm last year that we had in 2012, and we grew 40 more bushels than we did in 2012, you know, just, just, uh, 10 years later. So I mean, the, the potential is there, and, and what that Pioneer agronomist told you is 1,000% right. I mean, all the companies have worked really hard at, at drought resistance and, and it works.

Jeff

Fichtelman: I mean, it's— there's at this moment and a lot of guys who we've gotten to know in the last 4 months and maybe have started working with us kind of fell into the category of carrying a lot of '23 corn and had nothing sold in 24, and they asked like, hey, what should I do? And I said, okay, why are you holding on to 23? And like, oh, well, I don't want to sell now. I think we'll get that rally. And I— what really is deep down is like, I can't admit to sell it here because that's like an admission of defeat to the market. I'd rather hold on. And I just— we're, we're it's a deadweight blanket that's just making it so hard to market for '24. And you look back to 2014, I mean, 2023 mirrored 2013 in so many ways. And 2014, '24 is mirroring itself as well. Excuse me. And I mean, by the time we got to harvest of 2014, we were a dollar lower than where we were around this time.

So, I mean, To your point, Chris, I mean, if we grow a monster crop and have soft demand, as much as we don't want to admit it, it could still trade materially lower. And the bottom line is like, as a farm operation, what would be more painful? Selling $4.70 corn on half your crop and watching it go to $5.50 and you sell the other half at $5.50, or selling absolutely nothing, watching it go to $3.70? Like, I get psychologically it'd be painful to watch the market go to $5.50, but financially it would be borderline devastating watching it go to $3.70. And we'll not know where the true range of corn is. Do we establish the recent lows of $3.80, $4 a new low? So we'll see.

Chris: Yeah, if it, if it goes that, that low to $3.70, the guys who yield their APH level are going to be collecting insurance on the, on the revenue side too. So there is a, there is some protection when you get down to that level. And ironically, if it gets that low, you want it to go low. You really want in the fall, you really want it to, you know, in that event. But I'm going to give you the last word. I mean, we've kind of covered a lot of stuff from the funds to the, you know, outside markets and '23 crop, '24 crop. Anything you want to, last word thing you want to leave guys with.

Jeff

Fichtelman: Yeah, I mean, I think the thing is right now we do have a bit of a catalyst being this war, these outside markets that could play into a bullish story in the grains. Do not get bulled up on those stories. Take advantage of those rallies and sell it, especially— I don't know how many growers listen to this have wheat— that if you got wheat and, and you've been undersold, please, please take advantage of this rally and sell that. The time window there is like 2 to 3 months. If you got old crop, please start to get rid of it and be very wary of basis, especially new crop basis. If you're out east, I really worry about all this old crop lugging in to near harvest is going to create an environment where harvest basis could be ugly as well. So just be careful. It's a dangerous market. '24 is year of survival. There'll be good years coming up, but this is going to be a tough one.

We just got to get through together.

Chris: So yeah. Yeah, everybody just kind of hang on. Have some— I like, I like the idea of having some targets in there because a lot of times those will, those will work for you, you know, as long as you calibrate them correctly. I think sometimes people set them with a little lofty thought process and, you know, start them, start them in an area where maybe you're not as comfortable and then, you know, place them in along the way and then you can kind of manage them and Don't pull them out when they're 2 cents away either. Leave them alone.

Jeff

Fichtelman: That's a little close. Yes, exactly.

Chris: So, all right. Well, hey, Jeff, this has been a great conversation as usual. We'll check back in with you here, get a couple more weeks into planting season and see if you guys get a chance to either get the boats out or dry it out so you can actually plant something. So with that said, really appreciate it, Jeff. Thank you.

Jeff

Fichtelman: All right, thanks.

Chris: Take care. Yeah, thanks everybody, really appreciate it. Also, I do want to throw a plug out there for 19 Minutes. We've kicked out the last— I don't know, probably the last 3 or 4 episodes have been really amazing on labor. We've done some things on cost production analysis and some other stuff too. So if you get a chance, check out 19 Minutes. It's a great thing. There's like 50 issues or 50 segments in there that you can listen to when you're out in the field planting and stuff. So if you get a chance, um, sign up for that 19 Minutes. It's $30 a month. There's, there's, uh, 3 episodes a month that come out, new ones. And like I said, there's 50 of them in there. So with that said, thanks everybody, and we will catch you again next time on the Ag View Pitch.