Weekly market and new year outlook with Joe Vaclavik

Joe

Vaclavik: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one. Full count, here comes the play at the plate, and it's the Egg View Pitch!

Shay

Foulk: Welcome back everyone to another episode of the Egg View Pitch, and you're joined today with Shay Foulk live from Lakin, Illinois, which is a town you all have probably never heard of, and also Joe Vaklovic with Standard Grain. Joe, how's it today?

Joe

Vaclavik: Uh, doing great. Happy New Year, Shay.

Shay

Foulk: Happy New Year to you as well. Uh, today we're gonna have a discussion looking at a weekly market outlook for the week of January 4th. Uh, did you have any New Year's plans, Joe? Uh, what did you spend your time doing there?

Joe

Vaclavik: Uh, I was in, in bed by about 10 o'clock, probably, as I usually am. Uh, we had my parents over and, uh, hung out with the kids, and, uh, that was about it. Pretty low-key. I'm far removed from the days of staying up real late and partying hard, you know.

Shay

Foulk: Yeah, we watched the ball drop out east, and that was close enough to midnight here for us in the Midwest with our Central Time. We're battling a little bit of sickness here, which might sound silly to be thankful for something like that, but actually, you know, if you have sicknesses outside of the coronavirus, it almost seems normal, I guess. So we've actually been thankful for that here moving into the new year, but Yeah, 2020 is upon us, and so just wanted to give a little bit of a review here. You know, we were talking offline that, uh, 2020 started out, it was all doom and gloom, uh, from a market outlook perspective. From the end of December, uh, first couple weeks of January, I went back and was reading some articles and the outlook was not good. So can we touch on that a little bit and look at how the year developed?

Joe

Vaclavik: Well, what I think that this, this tells you and is really a classic example of is that, uh, long-term market outlooks, just like long-term weather forecasts, uh, are largely useless in my opinion. I think that those are both, uh, items that have never really done anybody any good in regard to, uh, their grain marketing, uh, trying to, uh, better their profitability on the farm. Um, I've done a couple different, uh, podcast episodes on this specific topic, as a matter of fact, and, uh, Over the years, I've done a lot of meetings for farm groups. I've done speeches and web conferences and traveled all over the country. And in the last, I don't know, 5 to 10 years, I've really changed my approach to doing those meetings and how I talk to farmers because of what we're talking about right now.

I think it's very, very difficult, first off, to put together any sort of market outlook that extends beyond a month or 2 months. Things change so quickly as we saw this year. I just know that, that I just don't know that it does anybody any good. The second thing is that I'm aware that farmers attend so many meetings and there's so many things that are thrown at them throughout the year. And another balance sheet breakdown is not what they need from me. I think I can provide other things that are perhaps a little bit more useful. So yeah, I mean, 2020 started off with a terrible outlook and then it got even worse as a matter of fact. When you, when you threw COVID into the mix in February.

So we started off on a terrible note, we're ending on an extraordinarily positive note, and then of course beginning 2021 on an extraordinarily positive note, which begs the question, you know, could we do what we did last year except like the opposite? Could we start off with a really positive outlook and then finish on a terrible note? Uh, that's certainly possible. You know, you just, you don't know what's going to happen and things just seem to change so fast these days.

Shay

Foulk: No, I appreciate the view on that because I agree. I think beyond a month is really, really hard to do. And it's interesting, uh, you did a really good podcast, uh, looking at stock markets and just some of the basics and investing that you believe in. And, you know, to summarize this, and I don't want to put words in your mouth, is, you know, invest that money and kind of leave it and just, and walk away from it. Let stock market do its thing. Grains are, grains are very, very different, uh, when we look at the volatility that we've had, um, particularly from a price standpoint. I mean, you go back 30 years and there were times in the marketplace where You know, we did have upper 3s, low $4 corn, and here we are today seeing some exceptional numbers, you know, $4.80, $4.90. But overall, not enough volatility to just kind of invest it and forget it and play the long game.

You gotta, you gotta take advantage of the opportunities that change month over month, day over day.

Joe

Vaclavik: Well, as a matter of fact, the best strategy— the fact of the matter is that the best strategy in grain marketing would have been to do absolutely nothing the entire year, for the most part, aside from maybe some basis or spread decisions. But in— in regard to flat price, in hindsight, when I look back, the best decision would have been to go to sleep on New Year's Eve 2019 going into 2020 and wake up, you know, this morning and look at the markets. I mean, that would have honestly been the best strategy. But this year, 2020, the calendar year was about the exception to just about every rule in regard to grain marketing. I mean, the seasonals didn't work. The seasonals were like the exact opposite of what they typically are, you know, in the corn market, in the soybean market.

Typically, your, your better prices are going to be seen in either the spring or more recently in the summer, like that June-July time frame, on some sort of weather issue. And this year we saw some of our worst prices. We saw our lows printed in the spring. As a matter of fact, we never really had some— had much of a summer weather scare or rally. There was, there was a little event that lasted a couple days, but that was it. And then we bottomed the market in August when we're usually trending lower into our harvest low. Everything this year was exactly the opposite of what it typically would be. So this, this is the year that, you know, the hold and hope guy was the big winner. This was the year that, that the guy who always sits on his hands and waits was the big winner. And, um, like I mentioned the other day, you know, a broken clock's right twice a day.

Uh, this, this was, was one of those times that, uh, the guys who are usually late to the ball game don't make those forward sales. This was the time that they were the big winner, no doubt about it.

Shay

Foulk: And we've had a lot of clients here over the last week or two weeks now say, hey, if you know of an extra 100,000 bushels of soybeans sitting around, we'd love to have it. I mean, there are not a lot of soybeans out there. A lot of old crop is pretty well depleted, some soybeans left out there. So let's jump in from that perspective, talking on soybeans. What do we see as we move into the week ahead based on yesterday's markets? And then as we move into— or excuse me, Friday January 1st markets, and then as we move into the new week here on the 4th.

Joe

Vaclavik: I had always kind of assumed, um, since this trade war started, uh, since we got down into like that $8 to $10 range in beans, and it lasted 2 or 3 years, I had always assumed that at some point in time we would revert back to a soybean market that traded a $3, $4 range every year. And I, I think that we've probably done that now. I think that we're probably out of this like trade war environment where, where things are restricted and locked down. You got to remember during that same time frame, China had this African swine fever, which made it a lot easier for them to avoid U.S. soybeans during that time frame. If it wasn't for that, I don't know that they would have been able to avoid our beans in the way that they did. But in any case, I think that the volatility is back.

And now that the volatility is back, um, your marketing plan doesn't have to change, but you just have to realize that Yeah, now it's not a $2 range in beans every year anymore. It's a $3 or $4 range like it used to be. This used to be par for the course. I mean, just about every year we'd trade these massive ranges in beans and you'd see a $2 or $3 rally, you'd see a $2 or $3 sell-off. And that was kind of the norm. I think we'll revert back to that. You know, headed into the year, we're at some very lofty levels in the, relative to what we've seen the last few years. But grand scheme of things, you know, you go back 10 to 12 years, Beans at $13 is not an extremely lofty level. We've seen beans at higher levels with worse fundamentals, in my opinion, in, in years prior to the trade war. So I'm not going to say that we're like overpriced.

I'm not going to say that, that we can't go higher. I think that we certainly can. At the same time, to go back to the volatility, the volatility is here, and volatility goes in both directions. For the time being the volatility has been almost exclusively to the upside, meaning that, you know, all of our big price moves have been up. We've seen a couple of, of small minimal like 50 or 60 cent corrections during this rally, but, uh, the vast majority of, of the volatility has been to the upside. There will be a time, and I don't know from— I don't know that— I don't know when it occurs or from what price level it occurs, but there's going to be a time when the market sells off like a buck and a half or two bucks. That would be my, my thought. I think that's going to happen eventually. Um, not a guarantee by any means, but the, the trick of course is timing it.

Is, is it a sell-off from $15 back to $13? Is it a sell-off from $16 back to $14? Or is it a sell-off from where we closed on Friday back to like $11.50? I, you know, it's, it's, that's so, that sort of action is probably inevitable, uh, at some point in time. But, but timing and figuring out the price, of course, that's, that's the million-dollar question, and that's the difficulty in this.

Shay

Foulk: And a couple weeks ago, I think you and I had talked, you know, potentially looking at by the beginning of February, South America starts coming online, we might see some at that standpoint, you still think we're maybe that far out? Or, you know, with volatility, I mean, we can see it tomorrow or, you know, Monday.

Joe

Vaclavik: No, it could, it could be tomorrow, it could be 4 months from now for all I know. Um, there will be some South American beans available in February. Uh, they're not going to have a bumper crop in terms of yields. Uh, they could still have a record crop in terms of total output just because their acreage expands pretty much every year. Uh, looking at the weather forecast for Brazil and Argentina here to start the week, they're again going to see some, some below normal rainfall really through the first 2 weeks of January. And that's not to say that they're going to be totally void of rain. They're going to see rain, um, it's just going to be below normal. And that's been the trend the entire growing season for the most part. They had maybe a window that lasted about a week where they had normal to above normal rainfall, uh, in mid to late December.

And aside from that, it's been mostly below normal. So in regards to South America, I'm going to say that it's, it's kind of friendly in that, you know, those crop expectations from earlier in the year, like like 135 million metric ton bean crop in Brazil. It's probably not going to happen, but it could still be very good and it could still be a record crop.

Shay

Foulk: Gotcha. Let's switch over to corn here real quick. I know close to where Chris is near Cedar Rapids, they almost had a 5 in front of their corn market there. Of course, they, uh, Cargill facilities, the Cedar Rapids area is a huge draw, pulling in about a million bushels of corn a day. Uh, but almost having that 5 in front of it was pretty exciting for a lot of producers in that area. How does corn look in the week ahead?

Joe

Vaclavik: It's absolutely unbelievable, the, uh, move that we've seen in the corn market. You know, I look at soybeans and I see the, the tight balance sheets. I see how tight that it is, um, that, that at least based on what USDA has told us, and, and as, as many issues as we've had with USDA over the last several years, I mean, it's, it's still the best data that I know of. So in any case, the beans, I get it. I get why we're at $13. I get why the market's rallied. The situation is incredibly tight. In corn, I don't know that the situation is as friendly as the market is telling us that it is. And maybe we're going to see some big shifts in the supply and demand situation. Maybe China's coming in for more corn. Maybe China's going to import more ethanol. Maybe USDA is going to reduce the size of the crop again.

Uh, maybe there's some other stuff, uh, on the balance sheets that we're unaware of. Here's what I think is really going on. There is some large speculative money that is making its way into the grain markets, and it's driving prices higher. And I don't know that it has a ton to do with fundamentals at this point. I think that the rally started out based on supply and demand in corn in soybeans, um, and, and maybe more so in the case of corn. But I, I think it's turned into this deal where large speculators are, uh, chasing the markets for other reasons. I really don't think that based on the, uh, the stocks-to-use ratios, the, the balance sheets, the stuff that USDA has told us, crop production demand, I don't know that $5 cash corn is necessarily justified, or that a price at like $4.80 spot month futures is justified. Um, but there are some other factors at play here.

Shay

Foulk: With that being said, um, you know, what does a farmer do to protect themselves if they see some of this volatility moving forward? Uh, having corn near $5 looks really, really good on a lot of guys' cost of production. And also as they move into 2021 for some marketing opportunities, you know, incremental sales on the way up and, and some incremental sales on the way down is a lot of times how we see producers make decisions. If they're watching closely, is there anything they can be doing to protect themselves as we move into this first week of January?

Joe

Vaclavik: Well, there's basically two, two things or a couple of different options. I mean, the first thing, keep in mind where we were, to go back to our first topic at the beginning of 2020, the outlook was extremely poor. There is— there were not very many farmers that ever dreamed that they'd even sell $4 cash corn in 2020, much less $5 cash corn in 2020. So you do not want to look a gift horse in the mouth here. I am a fan of incremental sales and I tend to back off my increments in bull markets like this. I'll go from maybe selling 10% of a crop at a time down to selling 5% or even less at a time in moves like this where the market seems to go up every day. But you know the old phrase that we used to use in Chicago, the bull markets, they take the stairs up, but the escalator down, or the elevator down, and they go down a lot faster than they go up.

So when we see the— whatever the catalyst is for a break in this market, whether it's a rising US dollar, or whether it's just a phenomenal amount of corn and soybean acreage planted in the US or expected to be planted this spring, whatever that catalyst is, the market probably goes down from whatever— wherever it peaks, it's going to go down faster than, it, it went up. Probably. That's, that's typically how it happens. So you don't want to totally just, just sit on this thing and ride the wave. I, I do think that there's some merit to, to incremental sales. Um, I know that anybody who's made a sale, of course, over the last, what, 5, 6 years now, you've been early on those sales basically. So you don't want to kick yourself too hard over early sales. Everybody's got them. Everybody's got sales that look bad now.

But, uh, No, I mean, you, you've got to look at the balance sheets, look at the spreadsheets, look at all the black ink that you've got versus where you were just 6 months ago even. It's really such a phenomenal shift that it's got to be taken advantage of in some way, shape, or form, whether that's cash sale or buying some put options to set a floor or, um, or doing something to, to offset some of that risk. Because there is, there is risk here. Markets don't go up forever, uh, unless you're talking about maybe the stock market.

Shay

Foulk: All right, I want to do a quick review here on both these crops. So you'll have better numbers than me on this, but year over year from the beginning of 2020, you know, we're looking at $1.30 or more in corn on what we've gained over the last year, and $4 or better in soybeans. Any thoughts on that for that type of movement that we've seen?

Joe

Vaclavik: Um, I mean, it's, it's not— like I said, these, these prices are not totally unprecedented in, in the scheme of like what we've seen the last 12 years. I mean, you go back to 2000, I was looking looking at the, uh, 2010 corn— or no, I'm sorry, it was 2007, 2008. 2007, 2008, there's some parallels between that time frame and what we have going on right now. We had a big bull run in the grain markets during that time frame that was in large part due to large speculative money coming into the markets. And, uh, at that time, during that time frame, um, corn peaked at like $7.50. And that was when crude oil was at $100 and was up in it over that neighborhood. And it was just, it was a different world in terms of commodities. But we had just gone through this crisis with the financial crisis and then the bank bailout and all this stimulus. And I see some parallels here.

Like you had that and it was on a much, much smaller scale back then. But this year you've got a similar thing in that you've got these now trillions of dollars in government stimulus. Because of the virus. You've got a weak dollar. You have a bull market in some commodities, uh, in specific— specifically to the grains. You have a similar amount of speculative money, uh, coming into the markets. As a matter of fact, I was looking at a chart this morning and I posted something on, on Twitter that was very similar to this. Um, the, the large money managers, the funds, this large speculative money that I'm talking about, they are basically record-long corn, soybeans, and wheat combined. Across the board, that they're, they're basically back to, to where that, that net position across those 3 commodities peaked back in, um, like 2012.

And, uh, that really says something because, like I said, I, I see it in the beans, in the corn. I, I see the better fundamentals, but I don't know that they're necessarily justified by the prices. And in the wheat, I don't see the story at all. In the wheat, uh, the government's telling us we're gonna have the largest global ending stocks and stocks-to-use ratio ever on record. Yet funds are long the wheat and, and have been aggressive buyers and are pushing it up into 5 or 6-year highs. So that's the big— the wheat, maybe, if anything, is, is perhaps the best indicator to me that this is not all just fundamental. This is, this is big money coming in chasing these markets because of the weak dollar, because, uh, they need an inflation hedge.

Any long commodity position is an inflation hedge, and for the moment they're picking the commodity complex that has some better fundamentals., but, uh, this is something that could bleed into other commodities down the road too. So I, I can't, um, I can't understate at this point how big of a deal this speculative money is. I, I really think it's an enormous, enormous factor here. And to do a quick plug, uh, on, on, on my podcast, I'm gonna have, uh, my friend Ken Morrison on, on Wednesday, and we're gonna talk about this, uh, specific topic the entire episode. Just, just large money managers, speculative money coming into the grain markets. And what that means and what we've seen in past instances of that.

Shay

Foulk: And you read my mind on that. I was just sitting here thinking we need to, we need to have a better discussion on that, but I'm really looking forward to that. And certainly going to link in your podcast here because you put out a lot of great stuff. And, and just that chart that you were talking about there, I mean, it's pretty outstanding when you look at that. I think close to $590,000 on the fund position on that, is, is that right?

Joe

Vaclavik: Yeah, corn plus soybeans plus SRW wheat. I had it at 611,000 contracts at Friday's close, which is, uh, the largest we've ever seen barring 2012 where they got up to 626,000. So you're basically— I mean, and these estimates from the private groups could be, could be off a little bit, so they could be record long, but in any case they're very close to record long across the 3 commodities. Which, um, you know, some people might argue with me and say, Joe, this is all supply and demand, and that's fine if that's your, your position, but that's not my position. I think that a lot of this has to do with supply and demand, but I think that the weak dollar, the massive stimulus, the large speculative money that is looking for a home, um, is a, is a part of it. And you're seeing that in other markets too. Like, you talked about the stock market.

Anybody who, who reads the fundamentals of the stock market, like P/E ratios, like earnings, all that stuff, they'll tell you that the stock market is enormously overvalued. And then there's this other story that there's all this money out there that's looking for a home. And, and that's why the market, markets rallied. There's no interest rate, so people aren't interested there. Um, there's, uh, there's not a great place to put your money right now. You could even look at, at, uh, at a goofy market like cryptocurrency and say, hey, Bitcoin's at $31,000 this morning. It's because money's looking for a home. They're looking for— it's looking for something with a return. And, uh, that's, that's part of what's going on in the grain markets, I believe. And I, I would never look at the grain markets as an investment for, for, uh, for a massive return.

But, but some of this large speculative is, I think.

Shay

Foulk: I hear you there. Uh, great stuff. I appreciate the outlook on that. Final thoughts that I have here, uh, there's kind of 3 or 4 key things I wanted to touch on with you real quick. So let's talk about the dollar if you have a few seconds for that. Well, what are your move forward? I know, I know there's been some, some different opinions when it comes to the dollar moving into 2021, so I'll say that.

Joe

Vaclavik: Well, um The dollar is weak for a couple different reasons. Um, the first one is that it, it was kind of viewed as like a safe haven. I'm not going to call it an asset, but a place where you could safely keep your money during the pandemic or during the height of the virus. And it was kind of attractive to just be on the sidelines for a moment in time, especially when you saw that big dip in like every market back in the spring. You know, we saw commodities really cheap. We saw the stock market take a dive. I think a lot of people just said, you know what, I'm going to cash, we're going to put money in cash. And that's— and I'm not just talking individuals, I'm talking large entities, you know, pension funds, hedge funds, that sort of stuff. And now that trend is totally reversed and everybody has some risk appetite again, and actually a lot of risk appetite.

So you've seen money come off the sidelines, not being held in currency, and it's going into the stock market, commodities, metals, all sorts of different assets. Real estate's really hot. You know, go look at the used car market, go look at a used truck, go look at anything, and it's expensive. There's a little bit of inflation going on here, I think. And there are people who have differing opinions on that, but I think we're seeing some signs of inflation. It could turn into a a bigger deal down the road, in my opinion. I think that's at least a possibility that you've got to entertain, that inflation becomes a really big deal here. Uh, the government's printed in a phenomenal amount of money. I mean, they've put a phenomenal amount of new currency into circulation, which has diluted the buying power that the US dollar has. It just doesn't— it doesn't buy what it used to buy.

The dollar doesn't buy what it bought 12 months ago because there are so many more dollars in circulation. Um, I really, I don't like it all how that— this is maybe a little bit off topic, but I don't like at all how the government handled, uh, the virus from a financial standpoint. And I'm not going to talk about like, you know, is the virus real or is it not, blah blah blah, and everyone's got their own thoughts on how dangerous it is. But what I'm talking about is, is this. So the government went and they, in a lot of states, in a lot of counties, cities, they went in and shut down all these businesses, right? And it gave them almost, in my opinion, an excuse to just turn on the money printer and print money and distribute money to wherever they wanted.

And people in politics, the wealthy, people who run these big hedge funds, people who are in the know, have become extremely filthy rich during this pandemic. And it was really, in my opinion, what the government did was they made this, this massive redistribution of wealth essentially from the poor or from the middle class to themselves, to the rich and to those in power. And when I say that, I don't mean that they actually took dollars out of your pocket if you were lower class or poor. What they did was they made the buying power of the dollars that you have less. They reduced the buying power of the dollars that you have. They reduced the buying power of your salary. And they made their own stock market portfolio, uh, worth more. Um, they, they made their own assets worth more. And you got to keep in mind, rich people own, own assets. They don't own dollars. Um, so it's real.

I just, I don't like what they did. I feel like they took this crisis and, and, and used it as an opportunity to better the position of themselves and the positions of, of those in power. And maybe this is way off topic, but I, I— it's not off topic because it's part of the reason why we're seeing what we're seeing in the grain markets. It's part of the reason why there's so much more money out there, uh, chasing, uh, these same assets. So it's, it's all tied together. And, and maybe that was a little off topic or, or maybe a little too political, but, but it's, it, it's relevant, I think.

Shay

Foulk: Oh, I think it is too. And I think listeners appreciate having, um, some candid honesty in there with people's opinions, you know, looking at— there's more going on in this big picture here, uh, than what we see on a day-to-day basis. And What I talk with Chris back and forth on all the time is, you know, how does a farmer make these conversations actionable? You know, what do you do about it? And I think one of the keys is just taking advantage of the marketing opportunities when you have it. You know, the American farmer's about as good as you can get on production, and so carrying optimism, you know, the farmer's eternal optimist moving forward, and just maybe diversifying your operation, making additional investments into some of these other markets. And, uh, you know, it's hard to, hard to beat those that have all the money out there in the world.

Joe

Vaclavik: Uh, but you gotta play. There are some, there are some, uh, parallels there though, because I— so here's, here's this, the statistic that I saw. I think it was in Forbes or somewhere. Uh, the average, uh, billionaire— it was either global or in the United States— their net worth increased 30% in 2020.

Shay

Foulk: Wow.

Joe

Vaclavik: While at the same time, you know, the, the lower class people in the United States are struggling like big time, and the government failed for months and months and months to push the stimulus. The farmer has assets. The farmer is not the, uh, the ordinary, you know, person who works for salary. The farmer may own some land, uh, the farmer has commodities that are either in storage, and even if he's totally sold out, he's got, uh, commodities assets which, uh, will be sold next fall. So You weren't totally— if you're a farmer, you weren't totally left high and dry by this scenario. As a matter of fact, your land value increased, um, the price of your commodities, whether— and even if they had all been sold, you've still got forward production in all likelihood, um, that, that needs to be sold. So this situation has actually helped the farmer, um, to, to some extent.

And I'm not saying it's right or wrong, I'm just saying that that's the deal. I mean, that's what happened.

Shay

Foulk: Kind of the final question I have on this topic, Joe, is of the farm operations that you work with, um, you know, roughly how many of them are doing investments into other areas of trade across this global spectrum that we're looking at? How many are getting in deep on some of these oil things, or, you know, whether it's oil or cryptocurrency or dollar, you know, are farmers doing that?

Joe

Vaclavik: Highly, highly variable. I have people that ask me about everything. I mean, I'm on the phone with customers all day, every day for the most part, and people ask me what I think about the stock market, and I'll tell them, but I'm not a professional a financial planner or anything like that. If somebody wants my two cents, I'll give it to them. But yeah, I think that people are a little bit more interested now in, uh, investments than maybe they were over the last few years. And the reason is because they have the money to do it. Um, you know, if during the last 3, 4, 5 years it was really tough— I mean, guys were just trying to get by in a lot of situations. We're trying to get by, pay the bills, uh, cash flow, and make it to next year. And now you're in a little bit different environment where there's some money out there, um, again, more money looking for a home.

It's a kind of a common theme here, right? So, uh, is, is the stock market the place to put your money? Is it commodities? I mean, you're already pretty long commodities, or some of them at least, uh, inherently. So yeah, I do get a lot of questions like that. It's highly variable. Um, I have always been a big proponent, as you know, of investing in the stock market consistently never selling stock, especially those of you who are younger. I'm 37. I buy stock as pretty much as much as I can every month, whether it just be index funds or whatever, just kind of basic like index type stuff. And I'm not ever going to sell it till I'm— till I need it, you know, till I'm in my 60s and I hang up my grain marketer hat and call it a day. But I've always been an advocate of that, but that doesn't mean that that's right. I mean, that's what's worked over time.

Could this be Could this be a different deal where the stock market's the worst place to put your money? I have no idea. But there, there are, um, there are people who are a little bit more interested now. Had a ton of questions about cryptocurrency recently, and it's because I did that podcast a few months back about Bitcoin, and I talked about how, uh, my mind had been changed about it. Um, I was a skeptic forever when it, when it first came out, and when I first started hearing about it, I said this is nonsense. And, and part of me still thinks that for sure. That it's like a— that it's a Ponzi scheme and it's a huge bubble and all that. There's, there's about half of me that still thinks that, and then half of me thinks that it's a phenomenal store of wealth. It's anti-inflationary. There's no cost of carry. Um, they're not ever making any more of it.

Um, it's a whole different conversation, and I'm not an expert on it, but, um, uh, I'll never— I probably won't ever sell my, uh, my cryptocurrency either, or, or unless it got to like the point where you could, you could offload it and buy some phenomenal income-producing asset, uh, down the road.

Shay

Foulk: Right. Two final topics here that I want to hit on real quick. Uh, let's talk about ethanol. Uh, what are you seeing here as we move into the week ahead? And, uh, you know, maybe a month outlook on that.

Joe

Vaclavik: Ethanol has big problems, uh, big problems. And you would never know it in a million years by looking at the corn market. You would, you would never know by looking at the corn market that the single biggest segment of your demand base is in serious trouble. And when I say serious trouble, I mean that the ethanol margins, uh, spot margins and forward margins are, are production margins are some of the worst that we've seen like basically ever, barring, uh, that time frame during the spring when, uh, you know, crude oil traded negative and there was just no demand for, uh, for gasoline and therefore ethanol. But what we've seen here over the, uh, the last several weeks is a big surge in ethanol stocks Ethanol production margins have declined.

Spot margins— I'm looking at some calculations on my screen right now— spot ethanol margins, if this is assuming that the plant had no margins locked in, you know, say a few months back, I mean, spot margins in the Corn Belt are negative to the tune of anywhere from like 5 cents to 30 cents a gallon negative depending on the location. And those are— those sort of margins continue through the first quarter. So there's probably going to be a point here where ethanol production really starts to fall off. And it, and it did decline last week. I think we saw a 3 or 4% decline in ethanol production last week, and we may see further declines there.

It would make a ton of sense, uh, given the margins, given this big surge in stocks, given the fact that gasoline demand's still running, you know, gasoline demand, like the measure of like people driving, we're still running like 10 to 15% below last year on, on a weekly basis. So we, we've never recovered in terms of ethanol production. In terms of gasoline demand. We've never recovered, uh, from, from the COVID deal. It just hasn't happened yet.

Shay

Foulk: So we talked at the beginning that, you know, it's really hard to do long-term outlooks when it comes to, uh, grains and how much merit do you hold in that. But I know that ethanol continues to be a conversation of, you know, where does this thing go, uh, 5 years, 10 years down the road, uh, particularly with the push for more electric vehicles and things like that. Is this something that the American corn farmer should be worried about in 2021 as we move forward, even if we get back to a quote-unquote more sense of normal?

Joe

Vaclavik: I actually, if I had to guess, I would say that that's short-term. Like, you know, you get through the first quarter, and ideally, we'll get this vaccine up and running. And no matter how you feel about the vaccine, there's a lot of hope there. When you look at the markets, when you look at just general public opinion, I think that there's a lot of hope that the vaccine vaccine, uh, gets things back to normal at some point.

Maybe it's not till the summer, but, um, I think that like second half of the year, if I had to make a guess— and I'm basing this actually on a conversation I had with, uh, Jordan Fife, who's an ethanol trader, and he was, he was on my podcast a couple weeks ago, we talked about this— and he kind of said, and, and I tend to agree, he kind of said that, you know, the first quarter is going to be rough, but there's going to be some light at the end of the tunnel after that. And I, I guess I'm kind of on that page. So I'd, I'd like to say that short term here, like this year, you may see the worst of what you're gonna see in regard to ethanol over the next 2 or 3 months. And then you may see some improvement, which would be fantastic. Long term. Yeah. You get into some different, you get into some different stuff. Like you said, electric vehicles, government policy.

What, what is, what does Joe Biden really wanna do when it comes to fossil fuels and renewable and renewables? I mean, we know on the campaign trail, He said he wants to eliminate fracking, and then he backstepped that when he realized that he was going to lose votes in Pennsylvania and elsewhere. I mean, uh, I don't know what he's actually going to do. So that's— it's, it's kind of like a wild card, uh, but like, like we talked about at the top of the show, I can't tell you where we're going to be 6 months from now. I have no idea what's going to happen 6 years from now, right?

Shay

Foulk: No, that sounds good. Uh, final thought here, you hit on it there, uh, with President-elect Joe Biden. That transition is supposed to happen here towards the end of January. And of course, you know, there's talk out there whether, uh, current President Trump will make any fuss about that with the transition as we continue. And then also what happens in that first 100 days of President Joe Biden's presidency, any, uh, any effect on the market as we move into that? How much of a play do you think that's going to be?

Joe

Vaclavik: Um, in regard to like the grain markets, I, I don't know that I can tell you that like Joe Biden getting into office, which has been a known factor for a couple months now for the most part— I mean, of course there are people who still think Trump's gonna somehow remain in office due to whatever circumstances. I mean, I'm—

Shay

Foulk: we're just—

Joe

Vaclavik: let's just go with the idea that Biden is inaugurated here on the 20th or whatever the date is. Um, we've known largely that that's going to be the fact— that's going to be the case for a while now. And, and it's— the markets have gone up through that. So I, I don't think that the grain markets overall are going to necessarily like see any huge impact from a shift in presidents. Um, The big factors that I'd be concerned about would be taxes, uh, which affect anybody that make money— that makes money. Uh, Biden said on the campaign trail, late in the campaign trail, that he was only going to raise taxes on anybody who made $400,000 a year. Yet throughout the campaign, he said that he was going to totally repeal the Trump tax cuts, which means that basically everybody's getting a tax increase. So, uh, what actually happens there, I really don't know.

Some of this will come down to that, that runoff in Georgia, what happens with the Senate. And I'm not a political commentator by any means, but there's, there's a difference between, between Democrats having full control of the White House, the House, and the Senate versus Republicans maintaining control of the Senate. There's— there, in my opinion, political gridlock's not a bad thing, and I wouldn't mind seeing the Republicans maintain control of the Senate personally. But then again, you go back to the Obama years, and Obama at one point had control of everything. He had a supermajority in the Senate at one point. There's a lot of stuff he wanted to get done that never got done. So I don't know, it's tough to say. Washington's a crazy, goofy place. I want nothing to do with it. I would never want to work there. I have no idea what's gonna happen.

Shay

Foulk: You know, I came to everyone here at the beginning of the podcast stating where I'm from and where I'm coming to you from here today, and that's about as far far away from Washington, D.C. as you can get, and happy to have it that way. Joe, this has been an awesome conversation here today. Any final thoughts as we wrap up looking at the week ahead for January 4th in 2021?

Joe

Vaclavik: Well, we certainly ended 2020 on a really fantastic note in regard to our grain markets. I think optimism among farmers is drastically improved. This is— 2020 was a shift. It was a shift, I think, away from like these, these down and out markets and hopefully into like a new plateau of prices in regard to corn prices, soybean prices. Like, and when I say that, I'm, I'm hopeful, hopeful that— certainly not a guarantee— hopeful that the lower end of prices that we see is higher than what we've seen over the last 4 or 5 years, that the upper end is higher, and that the ranges are kind of exaggerated. We see some larger trading ranges, some more opportunity That's kind of what I'm hopeful for. And it kind of looks for the moment like we've entered that sort of environment. So I'm hopeful that that continues through 2021. Remember, marketing grain in a bull market is not easy.

It presents a whole different set of problems, but they're much better problems than what you have when corn is $3 and beans are $8. These— there are problems, there are obstacles to overcome, but they're a much better set of problems.

Shay

Foulk: I appreciate the perspective on that, Joe. As always, great information. If listeners want to get a hold of you or learn more, whether it's your podcast or the services that you offer, how do they go about doing that?

Joe

Vaclavik: Definitely check out the podcast. My podcast is called Grain Markets and Other Stuff. It's on every podcast app. And also, uh, there's a YouTube channel by the same name called Grain Markets and Other Stuff. So everything I do now is available in audio form on just about every podcast app and also on the YouTube uh, channel on the Grain Markets and Other Stuff YouTube channel. So that— check out some of that stuff. I, I do, uh, market commentary every morning live on YouTube at 6:30 AM Central Time, and then that's, that's very quickly uploaded, uh, to all the podcast platforms right after that. So, so, uh, to start listening to that, uh, and, uh, uh, if you want some more real-time stuff on, on what I'm doing and my thoughts on the markets.

Shay

Foulk: How much of the other stuff have you done recently here, Joe?

Joe

Vaclavik: You know, um I'm trying to think. Most of my— the grain markets have been so kind of exciting lately that I haven't had a ton of time to— like, like, I know I did stuff about the stock market, I've done stuff about, uh, compound interest, I've done stuff about crypto. Um, I've got to do some more off-topic stuff coming up. It's just we've had so much going on in the grain markets that I haven't had time to really think or focus on, on much else. But, but no, there's— there are some other topics, uh, on my mind, and I'd probably like to do a little bit of a follow-up on a couple of those previous topics. And I don't want to go too off-base. I try to keep it like grain markets and stuff that's kind of like related in some respect, or something that— that I know my— I know my listeners are farmers, 99% of them probably, so I want to keep it stuff that's relevant to that crowd.

I don't want to— I don't want to go on my boat and show you how to flip a jig into the brush on the lake here. I mean, that's not gonna really be relevant to most of my listeners, I don't think. But yeah, well, we're gonna do some more stuff. I'm hoping 2020 2021 is going to be the year that, uh, the podcast and the YouTube really takes off. And the first year was great, but I think the second year is gonna be even a lot better.

Shay

Foulk: Doing some great work there, Joe. As always, we appreciate it, and thank you very much for your time. Thank you, and thanks everyone for listening. We will catch you next time on the Ag View Pitch.