Markets focus on weather now: weekly market outlook, Apr. 12-16th

Narrator: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. We are getting into the heart of April, having another marketing conversation here today going into this new week with JC Marketing and Jared Creed. How's it going, Jared?

Jarod

Creed: I'm doing well, Chris. I appreciate you having me on again.

Chris

Barron: Yeah, it's great having you on. Uh, you're, you're always full of some wisdom. So, uh, I guess, you know, uh, what, what's a good word going into a new week? Anything exciting going on in your world?

Jarod

Creed: Anybody planting?

Chris

Barron: Oh yeah, that kind of stuff.

Jarod

Creed: Yeah, no, you know, I think we had a lot of excitement here a week ago that we were going to maybe see some planting this past week. But with the forecast, cooler weather, wet, I think that put the brakes on plenty of anticipated field work. You know, I spent a couple of days driving across Nebraska and Iowa this week, and I was a little surprised, to be honest with you, the lack of field work taking place. But from that expectation of thinking you were going to see plenty of action, I think it was actually a result that we got pretty much everything done. You know, it's easy to forget just how wide open of a fall we had last year and getting a lot of prep work done for this next year. And perhaps that's just the reason that there's just not much tillage, not much fertilizer application, certainly not much for spraying, and obviously no planting at this point.

But, you know, not even April 11th yet. I guess we're recording this on April 10th, but, you know, I believe tomorrow's a big first date for eligible planting for insurance purposes for some regions. So I wouldn't be surprised to see some planters starting to scratch dirt at the end of this week locally.

Chris

Barron: Yeah, I think it's, uh, it changes your attitude when, when the temperature is 80 degrees than when it's 55 degrees. And I was looking at the low temperatures and I went through kind of the weather through Illinois and kind of the heart of the Corn Belt, and it looked like, you know, we were going to stay fairly cold in the, in the nighttime too, which is going to make it kind of hard to start warming these soils up, which like you said, will probably slow guys down. We did put, uh, 35 acres of soybeans in last week. We always plant something, uh, you know, it's usually always soybeans early, and we tend to try to get all the beans in before we do the corn. But I think we're going to cool our jets next week too, the way it looks, just with the way the forecast is and kind of what I'm hearing from, from clients.

What do you think the market, um, has in terms of what it's looking at? You know, we've, we've come off of last week's report, which was kind of nothing unless you're going to bring something up that it would— that was in it that we need to pay attention to. But, you know, it didn't seem like there was a lot out of that in terms of, you know, direction for the market in a big way one way or the other. Is weather going to be something that, that's kind of the driver now moving forward, or what do we need to be watching?

Jarod

Creed: I believe that weather will have a, a monstrous impact on our market eventually. I don't think we're there yet. I don't feel that we really have much of a planting risk here going into the second full week of April. You know, if you fast forward to the end of this next week and we have continued forecasts of wetter and cooler than ideal situations, I wouldn't be surprised if the market starts paying attention to the forecast at that point. Currently, with the balance sheets that we have in place, a guy's just going to have to buckle up this summer. Forecasts this summer are going to create a lot of volatility in our market with how tight our balance sheets are and still with a monstrous uncertainty of acres.

When you bring up USDA, I do see this as a little bit of a problem from the general market disbelief or perhaps unwillingness to accept current USDA figures, whether that be balance sheet and ending stocks information or that even be tied to new crop projected acres. The projected acres from a couple weeks ago left us plenty of people, you know, surprised to say the least, thinking that we probably should have had closer to 182, 183 million acres combined, and we were a good 4 or 5 million acres less. That number obviously has the ability to grow between now and the June acreage report. Following that is obviously tied to weather forecasts. Actual weather to take place during critical growing time frames. My message to producers and anybody in the industry for the most part is to make sure that you have what you want to have done by the, probably the second to third week of June.

Because at that point, with the current forecasts that we are at least looking at after this cold spell, I don't think it really, uh, screens any type of planting issues, and with the current prices, you would at least believe that the farmer is incentivized to get this crop planted fast and furious. Technology treadmill continues to show its face. We will plant the crop, probably will. We should see a couple weeks of record planting pace that we have seen in the last couple years. May 10th is always a magic number that you want to be somewhere around 50% planted on corn nationally.. And if that is actually the case, it does open the door historically to the USDA looking at raising the yield in July, August above trend, just because of that planting pace and planting timeliness. So you have a couple, you know, 30 days out, that is that May 10th mark. Can we get to 50% planted by then?

It seems like an awfully big number in 30 days, but historically it's, it's very, very doable. And then, you know, like I said, out into June, June 10th, June 15th. With today's technology, it seems like we're looking at forecasts 30 days out versus going home on Fourth of July weekend wondering what those Sunday night forecasts are going to be to really impact our markets from there moving forward. So I think we got a 60-day period here to get the crop planted, watch the pace of the crop being planted, see if we don't have any detrimental weather, if it actually does result in us gaining another million to 2 million acres between corn and soybeans. To be determined how that gets split up. And then from the middle of June on, like I said, buckle your seatbelt because any gyrations in weather models is going to create a tremendous amount of volatility this summer.

Chris

Barron: Mm-hmm. Sounds like, you know, we're always, you know, in weather markets during the growing season, but it sounds like the sensitivity is extremely heightened compared to normal. And with that in mind, I just want to bring up one quick thing. You know, we've got a lot of clients in North Dakota, South Dakota, portions of Iowa, western Iowa, and in some pockets in Nebraska where it's super dry yet. A high percentage, if you look at the drought map, a high percentage of it is, is sitting there super dry. If we don't get rains in those areas, is there increased sensitivity because of that too? Is that going to add to the sensitivity, or what do you think?

Jarod

Creed: So I'm not trying to dismiss the agronomic importance of the moisture in the short term for those producers, but I will point out that that dry condition in the near term is probably more of a bearish input than anything, allowing a blistering pace of field work. And then once that crop is planted, we'll have to obviously monitor what our moisture situation is from there, move forward in crop development.

Chris

Barron: Yeah, I would say that, you know, I would say there's some guys though in North Dakota that are going to sit until it does rain at this point. I mean, they're that dry.

Jarod

Creed: That's what I was just going to make mention. The situation in North Dakota and southern Canada right now where it's arguably the worst. When you— I guess I've never heard this before, Chris, of mechanically actually not being able to plant the ground because of being so dry. And again, mechanically, as in the equipment is not operating to the degree that it's supposed to, considering how dry it is. That's, that's obviously alarming. Yeah. But at the same time, I do think just to play the devil's advocate here for a second, a lot of these areas are challenging or being challenged to get this wheat crop planted. Spring wheat specifically, and perhaps some other small crops, small grains.

If they can't get those in and the calendar continues to move forward and then moisture comes around, it does open the door to more of what most of your listeners are probably near and dear to of corn and soybeans. Mm-hmm. So just have to be a little cognizant that in the short term, it's probably As a whole, it is beneficial to crop planting progress. Long term, we do have to rectify those dry situations, and Mother Nature is going to have to shape up to not have a drag in those areas.

Narrator: This is Alyssa with the Ag View Solutions team. Here at Ag View Solutions, we work with farms and ag businesses all across the country on cost of production, business decision making, collaboration opportunities, farm and ag business structuring, and transition planning. We work with operations of all sizes to help you with the important decisions that need to be made in your business. If you have questions or would like to learn more about how we can help your farm and business, please email us at cbarron@agviewsolutions.com, and thank you for listening.

Chris

Barron: I'm going to ask you a farmer question here for a second, knowing that you're involved on the farming side too, is that Okay, I'm going to give you 15% of your acres that can either go to corn or soybeans yet. And I know most of our listeners pretty much have already made up their mind kind of what they're going to plant, but if you're sitting there making that decision on another— on 15% that yet could go either way, you planting corn or beans?

Jarod

Creed: Speaking for a farm in Minnesota, Iowa, or Nebraska, probably even North Dakota, South Dakota, it's corn. I rarely come across a situation within all of my client base that beans are outpacing corn. And quite frankly, in the last couple weeks of price action, corn is at— is either too expensive to soybeans, or soybeans are too cheap compared to corn. And as anything, it's probably somewhere in the middle at this point.

Chris

Barron: What about the cost side of it with where anhydrous is at now and some of those things, if a person doesn't have that, you know, has that option either way, is that still, still the way you lean?

Jarod

Creed: I still think it is corn. Okay. Uh, primarily just I'm— this is probably my personal bias and my clients probably get sick of me talking about this, but the years that we make money in beans, it's not ever about price, it's about yield. In the years that we lose money in beans, it's never about price, it's about yield. And it seems like the comfort level of being able to, you know, pull out 200 bushel corn versus 60 bushel beans, or perhaps 220 bushel corn versus 70 bushel beans, whatever that spread is dependent where you're at, the comfort level is higher on the corn front. When you get into Dakotas, a lot of clients are looking at 35 to 40 bushel beans at probably 42, 43 being a farm record, but have plenty of history raising 160, 170, 180 bushel corn.

So, okay, at this point in time, I still think it is corn, even though these costs on the corn inputs at the last minute here are obviously higher than what they were 3, 4 months ago.

Chris

Barron: Okay, so you're gonna switch, you're gonna switch those, uh, those acres over, are you going to price them?

Jarod

Creed: If I'm planting more corn? Well, that definitely rolls into the entire picture for sure, right? You know, not to, not to overlook your question, but I think in the corn market and bean market for that matter, the farmer's job right now is to continue to focus on where's their sweet spot, as in where do you need to be positioned, how do you need to be positioned to make sure that at the end of the day you're going to make money no matter what. And that goal of making money, uh, specific to that word goal, how do you get positioned to make sure you do reach that goal? Using historical yields, using the tools that are in front of you. We just talked about the weather that we could see this summer to create tremendous amount of market volatility, uh, that the farmer needs to remain willing to be flexible, willing to be flexible from a price standpoint.

In higher margin situations, please, please, please make sure you're willing to put a little bit of premium risk out on a table of using the tools surrounded— that you are surrounded by, such as options, using puts and calls for the purpose of why they're there. That has served— this is not a pat yourself on the back type of a deal, but the decision was made months ago here that we were going to need to be an owner of options in this upcoming year, and they have served their purpose tremendously that plenty of producers now are anywhere from 40 to 70, maybe even as high as 80% forward contracted on a physical standpoint pertinent to corn. But the higher the market goes, the lower my percent sold goes because of the mechanism of an option and what it's purpose really is for the farm. Mm-hmm.

So to get back to your question, yes, in some way, shape, or form, you have to protect what you are switching. That could be tied to you already carrying a good insurance policy on your corn crop. It doesn't matter if you're adding in more acres at that point. If you bring in more corn, it's obviously decreasing your percent fold. You have the ability to go ahead and lock up and pull off more dollars off the table. I just, I think a producer in a big picture here, sorry to get off subject if I am, but a farm needs to remain flexible right now because my biggest fear is far from 2021. I'm downright scared about 2022 at this point, Chris. I can't get input costs. I can't get quotes. Individuals who are typically starting to receive quotes for summer fill on dry or anhydrous, they can't get quotes right now.

And I'm sitting here looking at our cost this year versus the potential of next year saying we've got to be budgeting at least a 10, maybe even closer to 15% higher cost. That might, that might just jump out to some people and say, oh, there's no way. Well, our average Iowa producer, I think as of middle of this week was looking at about a 7, just call it $750 an acre to grow a corn crop this year. Some higher, some lower. If I throw in a 10% cost increase between land, fertilizer, chemical, maybe seed, who knows, maybe even a little bit of interest. Equipment is obviously on the rise, all these pieces in an inflationary environment that we're in. All of a sudden, APH corn at $4 cash for next year isn't even a breakeven. And it just jumped out to me loud and clear when a good friend of mine, a client, said early last week, I'm just not ready to lose money again at $4.50.

Right, so it's, it's a deal that you gotta remain flexible, as flexible as you can possibly be this year. And when I say that, you can still remain flexible but strip out as much risk as you possibly can in doing so. Mm-hmm.

Chris

Barron: Now that's all good, good advice because it's gonna be, it's gonna be something to watch on that '22 if we do get some, some wild and crazy market because markets, because of weather, it's gonna dry that stuff, but it seems like the, the input side of things chase the, chase the price about as fast as the price moves anyway.

Jarod

Creed: I don't know what your opinion is on that, but I'm just kind of circling a date. If Fourth of July, if we're still anywhere above, uh, $5 old crop corn and above $4.50 new crop corn and above $4 for 2022, I think that the nail is in the coffin at that point, that we're going to be booking fall inputs in the next 90 days from that timeframe. And we're going into a, a very tricky environment that— back to remaining flexible. I feel like I've talked more about crop insurance last couple times on, on this podcast with you than anything. Producers are going to need to start looking at what their opportunities are to potentially leverage margin protection crop insurance for next year.

Chris

Barron: Oh yeah. For sure, especially, especially the way this could shake out going into next year.

Jarod

Creed: Um, gotta find whatever tool can cover the most risk possible for you, but still leave you the most possible opportunity. And quite frankly, that far out, and maybe even to a certain extent, a significant more about this year's crop, that's not just forward contracting it and being done with it.

Chris

Barron: Yep, for sure. And I want to shift gears here for a minute on you. And I'm really close to Cedar Rapids here, and I know ADM's got two, two plants going back online, and ethanol's a little better deal with fuel prices where they're at and stuff on the demand side. And so from an old crop perspective, that's probably going to give us a little bit better basis. I mean, actually today I was in the bottom of a bin shoveling $5 corn. I wish the stuff that was coming out of the top of the bin would have been $5 corn, but it didn't work out that way. So as we look at finishing up old crop, for those that still have some left and consider basis, what's your thought on basis? And then also with regard to the basis discussion on new crop, catch that as well, because, you know, if we're making sales, are we are we making futures sales?

Are we, you know, and you're talking about the options and that's fine, but on, on these sales that we're making, that are, are they futures? Are they HTAs? Are you setting basis or are you going to wait on basis until, until about the time you're going to want to deliver stuff? Where are you thinking there?

Jarod

Creed: So I think new crop is easy to address. It's hedge to rise in futures. Yep. And when I get back to that flexible comment, making sure that you're not putting too many eggs in the basket to give yourself some flexibility on if you would have a physical crop problem. You know, there's, there's nothing wrong with being sold up to your insurance guarantee on a physical standpoint. In the event you have a crop shortfall, you're going to be protected, obviously, but you could leave a few bucks on a table from cancellation charges, or even worse off, if you get into an environment that there's just not much corn available, the end user is going to be begging, is going to be begging for that corn and might not let farmers out of their contracts. So just stay a little flexible there. On the old crop side, I, I think I'm going to come back to that June 10th, June 15th timeframe.

I think a producer better have done what they want to have done. Doesn't mean you got to be completely sold up and done with the crop, I've been very reluctant to let go of the last bit of old crop here for an extended period of time just to see if we can get to the doorstep of planting and then make some better decisions from there. But I do think the general end user is sometimes smarter than the credit that the farmer gives them. That might sound really silly, but The end user will figure out a way to limp along until more supplies come available. It doesn't mean that we can't see big jumps in basis for short periods of time. It doesn't mean that we can't see basis continue to stay firm and walk higher over time.

Uh, but once that crop is planted and if we don't have any issues with that and the old adage of knee-high by Fourth of July, it seems like that's more of a middle of June type of a deal. The producer starts to get a little bit more comfortable about their oncoming crop and starts to let go of some stuff. So I think the cash market will, will, it won't have as much pressure on it as it has now, post-June 15th into July, into August.

And then they will figure out a way to get through the balance of August into September, whether that's sourcing corn from other states You know, not to get into too much detail, but that big ethanol plant that you mentioned is actively bidding for rail corn in the Dakotas and other parts of the U.S., which may have a, you know, it might be more of a beneficial impact to the farmer in that part of the world and a detriment to the producer in your part of the world that is dependent on Cedar Rapids. The cash market will figure things out. It's maybe That's maybe what I should have led with. The cash market will figure it out. Always has, always will.

Chris

Barron: Good answers. Hey, one of the last things I want to hit you up with is kind of a lot of producers, like you said, you sit here for this next week that we're in here now and look at cool weather. Maybe we're not planting. The price strength that we saw in corn, not so much in beans last week at the end of the week, but as we look at this new week, you know, if we want to do some marketing, at what, what percentage level are you comfortable, or what are you seeing with your clients? I mean, what's the, the comfort zone, um, kind of minimum for corn and soybean sales in your opinion at this point where we're at this time of year and with what you know right now?

Jarod

Creed: Soybeans, I'm comfortable. You're all right. Soybeans, depending on the operation, I'm comfortable— this is, this is going to sound so bad, Chris, but sorry, I've got some farms that we've had enough of market movement and beans here that I've almost segmented farming some beans on paper and farming the physical beans and keeping them separate for the time being. As in the choice to buy a significant amount of call options in the bean market, not as a speculation but more of a the old courage call type of setup, has given us the ability to be super patient. The higher the market goes, the more rope it gives us. I don't mean that giving us the rope in a detrimental way. It's given us the flexibility to remain patient because more margin continues to come on table.

And once we see something dramatically shift in the marketplace, we just got to be willing to pull the trigger on the way down. So I do have some producers who are 0% sold and actually probably more so they're long paper on top of long physical crop, which is very rarely works out. Corn side, um, it's all over the map. Can have somebody down to a 20% mark and they could be carrying a more aggressive style of crop insurance and could have somebody as high as 60-70% even with a more aggressive style of insurance, but using different types of option strategies. It gets back to, again, finding that sweet spot. And to put a little clarity around that, most guys, we start with a general blanket of we want to try to make $100 an acre. What do I need to do to make $100 an acre? Well, with the market done what it has done, we've been ratcheting that up to $150, $175 an acre.

Then it's finding what price do I need on the balance of my crop to make sure that I can still achieve that goal because we're actually seeing a profit per acre higher than that right now. I just got to know where I need to price the balance of my crop above to achieve that goal. And so I've got a lot of wiggle room there right now considering the prices that we have been able to sell, the insurance programs versus our cost, so on and so on. A very liquid situation. It's a very flexible situation. Unfortunately, there is no one-size-fits-all. You need to be 50% sold today. Now, I don't necessarily believe in that kind of approach. Mm-hmm.

Chris

Barron: Gotcha. I think that's a good place to wrap up. Any, any final comments from, from your perspective?

Jarod

Creed: Ah, no, I just wish all your listeners a safe and speedy, prosperous planting season here this spring. Hopefully Mother Nature will shape up a little bit here and we'll get a lot of field work done in the next 8 weeks.

Chris

Barron: Yep, put your coat on and, and maybe you'll be able to plant towards the end of the week if it looks like the forecast looks like it's warming up for everybody, hopefully. So, uh, appreciate that. This was, uh, Jared Creed and, uh, JC Marketing. If people want to get a hold of you, what's the best way to look you up?

Jarod

Creed: Phone is always easiest, area code 402-680-1744.

Chris

Barron: Awesome, yeah, that's great. Give Jared a call sometime, sharp guy. Really appreciate your information today, Jared. Thanks a lot.

Jarod

Creed: Thank you, Chris.

Chris

Barron: You bet. And thanks everybody for listening. Have a great week, everybody be safe out there, and we will catch you again next time on the Ag View Pitch.