Weekly market outlook: Apr. 19-23rd - market drivers for the upcoming week

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, and we are heading into a new marketing week. And today we have with us Chris Wilson with Attenbabler out of Galena, Illinois. How's it going, Chris? Good, good, good, good deal. It sounds like just talking to you offline here a second ago, I kicked you out of the tractor just to come talk to me. Sorry about that.

Chris

Wilson: Yeah, no problem. We finally got some sunny weather here, so it's, it's exciting and moving.

Chris

Barron: Yeah, that's good, that's good. So, uh, if I did get you out of the tractor, I, I'll start out with the obvious weather question. In your area, you're in the northern part of Illinois there. What, uh, what What's going on? Is anybody out doing anything in terms of planting? I know there's been a lot of guys out, you know, scratching around and stuff. So what are your soil conditions like, and are guys out getting anything done as far as seeding soybeans or corn or anything?

Chris

Wilson: Yeah, so we— I've seen a few tractors doing some tillage work yesterday evening and a little bit here this morning. And I'm actually in southwest Wisconsin, was where our farm is at, and our office is in Glean, Illinois. Okay. So we are, we're seeing a few guys. We had, we had a good shot of rain about a week ago. It was cloudy and rainy all week, so guys are being patient. I would say conditions are still not optimal for, for getting, you know, getting a perfect seed bed and getting everything going, but I think there is some, you know, some, some primary tillage happening. And I would be expecting Monday to see planters rolling fairly aggressively after a couple days of warmer weather and sun here.

Chris

Barron: You're in Southwest, what town are you near then?

Chris

Wilson: Uh, Platteville. Okay, Platteville, Kansas City.

Chris

Barron: Gotcha. Okay, awesome. So, well, let's stay on the weather topic here for a minute. You know, the market is appears to be watching the weather now. I mean, there's some pockets that you don't have to call too many people and you can find some areas that are pretty wet. You don't have to call too many people and you can find some areas that are really dry. And it's been extremely cold almost everywhere. And so is the market watching that? I mean, are we seeing a little bit of premium in the market, do you think, because of weather yet? Or is that something we're going to have to keep watching?

Chris

Wilson: Well, I think that the market is— has premium in the market for getting acres now. I mean, I think that's what we're seeing, especially after that March Planting Intentions Report and the tight balance sheet is we need acres and the market's going to incentivize that. So I, you know, I expect a fairly firm price, strong price. We had a good couple weeks here post-report on corn. And I expect that to continue so that we can, you know, can pull any of those peripheral acres in. And then as far as weather challenges go, you know, that especially in those, in the Dakotas and, you know, parts of southern Michigan, northern Indiana, the areas that have been drier or exceptionally dry, Weather's gonna play a part in that and, and certainly impact, uh, impact where, where we land on planning.

But the incentive certainly is out there now, and then we, we have added to that, you know, last couple weeks, start bringing more acres in.

Chris

Barron: What's your thought on the acres? You know, go back to the planning report and in the estimated estimated planting intentions and, and stuff. Do you think, you know, are— do you think the market's still trading that? Do you think the market thinks we're— seems like a lot of people think we're going to get the acres. What's your opinion of that? I mean, do you think the acres are going to, going to come, weather permitting?

Chris

Wilson: Yeah, I think conditions are, are very good to get more acres out of that March intentions. And historically, you look back The two things that typically drive additional acres from March to June are your spring planting conditions, obviously, as your primary driver, but then price and incentives. So those two things are right now aligned to add acres for the most part. Again, I think, you know, there's a lot of question marks in the Dakotas. They did get a little bit of moisture here in the last week. Not a lot, certainly not, you know, enough to recharge soils or anything like that, but that will be a big question mark, especially on beans, I think, of maybe bringing in some of those fall acres into beans that, that would bump up that bean acreage.

But I think you're going to see certainly the Corn Belt, it should add acres from that report and with the conditions we have and the prices we have.

Chris

Barron: Shift gears on you here a minute. As far as the funds, we've had some others on here on the podcast in recent weeks kind of talking about the how long the funds are and, and the intensity of that and, and how that's, you know, really a big driver in the market. Do you see that continuing you know, to give us strength and continuing on? Do you, or do you think there's some risk there, or what's, what's your thought there?

Chris

Wilson: Well, I think that, you know, with the funds holding effectively a record position in corn, uh, near record position in soybeans, they own, you know, effectively a couple billion bushels of corn plus. Um, that's a, that's more than our carryout's going to be. So yeah, they're definitely a large participant in the market. Historically, you know, there is risk on liquidation, especially if there's a momentum change or a direction change in the market that they can reinforce that. But I would say the recent action in which we pushed through and made new highs, Um, that, that's kind of a reinforcing, uh, variable in the market, and right now it's a positive factor. Um, you know, I think they're— I think their levels point to certainly a risk element, uh, because if they do liquidate, then, you know, there's a sizable position there.

But there's nothing, uh, nothing I think hindering or holding them back from continuing to add to that position. Outside macros are very favorable, and we finally started to see some weakening in the dollar after a fairly strong run in the first quarter this year. And I think that, that, that, that story probably is just as important as some of these other variables in the market here moving forward. Where those currency flows are, uh, and, and where we see the strength or weakness in the dollar, and then how the funds react to that. We are seeing fairly broad-based commodity buying. It's not just ag, it's fairly across the board on, on fund investor commodity purchases.

Chris

Barron: We're also seeing some increased demand on ethanol and, and some other areas. Is there other demand areas that people are watching or that you guys are looking for?

Chris

Wilson: Yeah, I mean, I think ethanol is, is kind of the additional marginal demand here in the near term. Exports on corn continue to, you know, be fairly good. We maybe have had some near-term, uh, at least pausing, but we look at the last 3 months of sales on corn and they've been huge, uh, and China's been a still continuous participant in the corn market. And I see the price action, I, I think that, you know, they're, they're very active in our corn market still. Um, beans and old crop, not so much. I, I do think because South America has had such a large crop that we could see, um, at some point start to see some the movement of old crop sales into new crop sales, so cancellations on old crop and basically turning that into a new crop sale on soybeans.

I think that they're going to continue to kind of see how our crop goes before they, you know, before some of that happens, but I do expect that to, if our crop gets off to a good start, to start to see some of that playing out on beans. Corn side, I think that you've got potential for similar situation on exports, specifically with China, where they're going to wait and see how the second crop, Brazilian corn crop, comes in and before they start to shift their purchases there. And we'll know a lot more in June and July. July is typically when they, when they start to harvest that second crop in Brazil. And so you would anticipate some, you know, some changing in action in June. Right now their crop is progressing okay. It got in a little bit later than what they would like. They've had drier conditions, but they've been catching enough rain that so far it's, it's developing okay.

And I think They're going to continue to watch that, and if it does come in as a decent crop, then I do think that's where you might see some weakness in our export market areas. But I think that there's, there's kind of a double aspect to that. And then livestock, I do think, you know, it doesn't get talked about as much, but I do think we are starting to see You know, we're seeing lower numbers in hogs. We got lower numbers in cattle. The margins are excellent. So, you know, I think there's opportunity for expansion in front of us on feed demand. But I think we are probably seeing weaker demand on feed than what we, you know, than what we've seen maybe a year ago for this period.

Narrator: Yeah.

Chris

Barron: And, you know, we We've just seen kind of lately anyway, corn kind of leading the charge here. As far as soybeans go, what do you, what, what do you think there? I mean, it just seems like if we're going to plant more acres of soybeans, when people look at corn versus soybeans, I asked the guest last, last week, I said, if I'm going to give you 15% more acres to plant, you're going to plant corn or soybeans? I'm going to pose the same question to you. Are you going to plant more corn or more beans?

Chris

Wilson: Right now, corn. I think, you know, the margins are there. It's, it's, uh, it's a more predictable crop in the sense of, you know, you know what you're gonna— you have a better, better certainty of, you know, what you're gonna get. Beans tend to be a little bit more variable in yield. Across our client base, just looking at kind of our median farm, and we you know, we're kind of all over the map as far as our clientele, but the median producer right now on their 2021, um, they're about a $225 per acre margin on, um, on corn and just under $200 on beans. Um, so, you know, we're statistically pretty close. Yeah, statistically pretty close. Um, the one thing I will say on that is is that's a mix of some open inputs and locked inputs. So, right, I think it really comes down, comes down to your situation.

Um, you know, I think if it's a, if it's a corn on corn acre, it's maybe more challenging. But if you've got, you know, if you're looking at, if you're looking at a situation where it's fallow, you know, in the Dakotas, um, and you're looking at putting into something— it probably goes to corn at that point. Does that make sense?

Chris

Barron: Yeah, it does. And that, that's what continues to drive my thought process, is that I don't know how we're going to get— you know, you go back and look at the USDA's number on planted acres for soybeans, that could be a real number in the end if we— if, if these acres get planted to corn with it being pretty good conditions for planting and people roll hard on the corn, that could give us some price strength later on in the, in the summer on the soybeans. It might be a catch-up price deal though on the soybeans, mightn't it?

Chris

Wilson: Yeah, and I think, um, yeah, I think, I think, you know, you get to the end of this, it's— you got old crop, new crop kind of questions there mixed in, but I think As far as looking at where the new crop price action, you know, there might need to be— if we have an average crop or, you know, kind of on the way, we have some challenges, but it's not a complete disaster, you know, I think that that's a situation where beans may start to catch up to corn just to start to ration some demand and and try to manage that early. But that's going to be at the margin. I think at the end of the day, this is going to be a weather market. We've got a lot of sensitive balance sheets, and if we have weather challenges, the price action here, the ranges of potential prices is very, very wide.

And I think through all that, then the biggest thing producers should be expecting, um, is just a lot of market volatility up and down.

Chris

Barron: Yeah, um, this could be a wild ride this summer.

Chris

Wilson: Yeah, absolutely.

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: Um, I wanted to ask you too, you know, on basis, and you can touch on old crop and new crop if you want, but primarily my question is around the idea of, you know, guys wanting to get out there early. A lot of people were putting some beans in, looking for that early basis, you know, probably a strong basis in that September, mid- type mid, mid, early to mid-September, maybe even toward the end of the month in September, depending on, on how the crop gets going and what the, what the crush is looking like. But what's, what's your thought there? I mean, anything on basis that needs to be discussed, or conversations you're having with your clients around basis on either old or new crop?

Chris

Wilson: Yeah. It's all circumstantial. I mean, most of our producers that are crop only, because we do have a lot of livestock cropping operations as well, and that's a lot different conversation. Um, if you're, if you're in the cropping side, I, I really feel like you need to have the vast majority of your, your bushels managed by, by that, that mid-June sometime in June and it can be incremental on the old crop depending on how much you have left. But over the next 2, 2.5 months, I think it would be wise to have a home for most of your bushels. And a large part of that is because I think that South American crop is so important. And if we do have shortages here, I think that it can still be managed through, through export cancellations. So, and I think that that could be a bigger, a bigger topic in July and August is that export cancellations.

If, you know, if we do have a fairly tight old crop, but it looks like our crop is, or our new crop is kind of coming home or looking good at that point. I think managing it that way in the old crop. I think new crop, I would be focused more on where your board prices are at. And I think how you go about that depends on, again, on your operation. We, you know, we really pride ourselves in knowing our customers and knowing their business and trying to make a plan that fits their operation and their goals. With that, you know, we're a strong advocate this year, especially in all that new crop marketing, and make sure that you've got, you've got most, if not all, your upside in the market in some way, shape, or form. Now, it doesn't necessarily mean that you don't protect some bushels, but if you, if you sell an HTA for new crop buy a call on it.

If you want to stay open but have some protection out there, look for some option strategies that, that can achieve that. And I think the more too that we've seen some, especially on the corn side, we've seen markets move up off of that insurance level. It does, it does open up here where you've got, you've got to start looking at that downside and make sure that, you know, you don't let these opportunities slip away either. So I think, I think it's a dual focus. But again, we, we strongly advocate making sure that you, you keep some optionality or quite a bit optionality left in this new crop market.

Chris

Barron: What do you tell the producers that are sitting there saying, well, geez, I wish I wouldn't have been pulling the trigger when I was here on, you know, 10, 20, 30% of the crop at a lower price, do you still go ahead and buy calls on those bushels, or what's your thought there at this point?

Chris

Wilson: Yeah, if you've— a good question. If you get— if you're in a situation where you've got— it is a tough question. I will say that, you know, our producers, if they're making a sale, we're driving home pretty pretty hard, go ahead and spend that 20 cents, 25 cents and just buy the best call you can buy. And we'll do that, we'll do that with some short-dated options. So yeah, on those sales, look to reown with them in different ways, and you can do that with a short-dated option or the full December contract. If you've got some sales made, It kind of depends on probably where you're located and what your operation is. But yeah, I would still look at getting some calls on. I mean, we've had a 30-cent rally off of that $4.80 level to $5.10. We're probably up against that trend line now a little bit. And in the near term, we could see a little bit of pullback.

But the bigger question is gonna come in the summer with that summer weather, and especially that July weather through pollination on corn, and that's where historically you can get some very violent markets, big moving markets, both up and down. So, you know, 30 cents in this type of market is not a big deal. We want to make sure that with that call option that you're there if we do have a, you know, a $1, $2, $3 rally that that you make sure you get a big chunk of that. And that's our goal with that.

Chris

Barron: Right. And this is one of those years when you said the word volatility, we could, we could see a lot of that. So anything I didn't ask you about, I guess the only other thing is, while I'm thinking of it here, on that you talked about corn, you know, there with the sales and buying calls, or, you know, kind of the same strategy with the soybeans?

Chris

Wilson: Yeah, I think soybeans, soybeans, I got more producers that are maybe just starting out with some put options. We got our corn side, if I look at across our customer base, we've got an average of 40% of new crop priced and vast majority that has a call above it. On the bean side, we're about 20%. On pricing stuff with, again, with buying a call right away above that. We've, we've got another chunk of put options on corn and beans, but beans is a little bit heavier on just buying a put and seeing what happens on that side. Gotcha.

Chris

Barron: Well, hey, I think this has been a really good conversation. It's a good place to wrap up here. I think if people want to get a hold of you again, rattle off your company and what's the best way to get a hold of you?

Chris

Wilson: Yeah, so Attenbabler Commodities, you know, out of Galena, Illinois. And if you want to get a hold of us, uh, our number is 800-884-8290.

Chris

Barron: Awesome. Well, hey Chris, uh, really appreciate your time today, and if you're willing, we'll have you back another time and pick on you again.

Chris

Wilson: Yeah, no, thanks for having me on. I really Appreciate it. And, um, everybody enjoy the spring planting. Um, but be safe through it and Godspeed.

Chris

Barron: Yeah. And we better let you get back in the tractor. I don't want you to have any withdrawal symptoms or anything while you're still on here.

Chris

Wilson: Yeah. My boss is gonna, uh, is waiting to get some stuff going. So I better get back out there.

Chris

Barron: That's right. Well, well, good luck and you be safe. And again, everybody, uh, thanks again for listening. To the Ag View Pitch, and we will catch you again next time.