Spring marketing opportunities: weekly market outlook, April 5-9th

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 heading into a new week and also the first full week of April. We've got special guests with us today for the marketing discussion, Clark Neuber with BIS Commodities in Cedar Rapids, Iowa. How's it going, Clark?

Clark

Neighbors: Good morning, Chris. It's nice to see the weather changing.

Chris

Barron: Yeah, that's for sure. That's for sure. I think a lot of people are, are getting anxious to get in the field, and I know we have some, some clients in the south that are working away and getting at some things. And so We're going to be doing some of that conversation with, with growers, bringing them in for 3 or 4 minutes, some of our operators in the, in across the area as things get going and ask them a few questions and do like a little 3-minute interview with farmers and, and kind of let us all kind of hear what's going on in certain areas. And, and thought that would be, be good, and that's a little plug for that, I guess. But also wanted to start out with you, Clark, today. Just, you know, look back to last week here for a minute, and the report was obviously pretty wild there, at least for a day, and gave us some really interesting information.

I thought maybe we don't want to spend a lot of time on that because everybody's probably knows, knows what we saw. And, and, but is there anything that, you know, as we go into the next couple of weeks that come from that report that we need to, to keep in mind as as we march forward?

Clark

Neighbors: Sure, well, going into the report, I think the market was more focused on the stocks number, i.e., the old crop and where we are with tightness, etc., etc., as we go forward through the balance of this crop year. And the surprise, as everybody's aware of, ends up being in the acres. And I guess one thing I would just bring up on the acres that will be interesting as we go along, and keep in mind acres is always a liquid number that's always moving is the fact, according to the report versus a year ago, the I states— Iowa, Illinois, Indiana— you had about a million acreage switch from corn to beans, and you added about that many acres of corn in North Dakota. So, you know, I think you'll see some people talking about you're losing potential yield on those acres going forward, assuming those numbers stay in place.

But the job of the market coming out of that report is, you know, when you have tight stocks, is to either ration demand or increase supply. And the report on Wednesday obviously tried to address that supply situation going forward, as you mentioned, over the next couple weeks. You know, the question is, do we see acreage build to some degree to help buffer, uh, this tight stock situation, not only on the old crop, but as we progress, uh, into the '21-'22 crop and beyond. Um, every state I think saw a lower total acreage versus expectation. Other than Wisconsin. So, you know, we're getting some of those acres back from the prevent plant here the last couple years.

But again, I think the key thing, especially this old crop, is focusing on these stocks as we go forward because we still need to ration demand, Chris, and we're seeing that in some cases with wheat and corn rations that type of thing, but still got good crush margins in soybeans. You have much better ethanol margins right now than we saw 30, 60 days ago. We're in the heat of probably the biggest export, um, uh, play we've had on corn in years, if ever. Obviously going forward, and I can touch on that later, but the next 2 weeks, next 2 months, next 2 years are all going to be interesting. I think the next 2 weeks, market's just going to need to figure out where it wants to focus. As we kind of transition into this new crop.

Chris

Barron: Yeah, it's kind of interesting, you know, the— it was, it was such a surprise with not as many acres and with that farmer survey side of it. Um, it does the— just a quick question before we move on to the next topic here, but on the report side of it, you know, it's always here's the information you get and then there's the reaction, which is what really matters to the market. And it almost seems like, you know, there's the market maybe not even believing that, you know, that those are the acres. There's more than that there. Does that kind of make sense? I mean, it just seems like the market feels like there's more acres than what total than what they said.

Clark

Neighbors: Yeah, either that or the market was underreacting on the acres prior. I mean, what's interesting about, you know, the trade going into the long weekend here was we made new contract highs on both old crop corn and new crop corn. Made new contract highs in new crop beans, but what was real interesting is late in the week because of that report, the amount of change we saw in spreads. In other words, the new crop gained a lot more momentum late in the week than the old crop. Kind of like the market or the traders focused on December corn, November beans. We saw a big change in open interest in those on Thursday's trade, and that was enlightening to me because of these tight stocks. You have a very inverted market where the old crop's a big premium over the new crop. Mm-hmm.

Kind of like that acreage number made everything react a little differently and have put a little more strength in that new crop, at least short term.

Chris

Barron: Well, and then with that said, last part of the report discussion here before we move on, but is the— what about the funds? I mean, what's your crystal ball say? I mean, with their interest moving forward, I mean, that should bolster their long positions, hopefully moving forward for our, for our sake, for price strength. What's your thought there?

Clark

Neighbors: I think Yeah, I think you have to look at that with kind of a positive light. I mean, there's many different angles to look at that, one being, uh, you know, right now funds are long all the ag products to some degree except for the wheat. If you look at the fund's response to, you know, what's going on in the world with potential inflation, with Things opening up again, etc. Those tend to be positive, the funds' activities going forward in commodities. And lastly, as you're probably aware of, 2-3 weeks ago, exchanges made it possible for the funds' limit positions to be increased. I don't think they've taken advantage of that yet, but the size of the positions they can have in any of the ag products, energies, etc., have been expanded.

At some point that could come into play and something to have in mind is we could see, you know, record fund length at some point down the road.

Chris

Barron: Do you see any threats out there for that, you know, the connectivity of the stock market or any of the larger economic things going on in the world, you know, and you can bring China in on this or whoever, any watch-outs in the next few weeks that we need to be aware of?

Clark

Neighbors: Well, there's always, you know, something laying out there that we don't see today, right? The only thing I would say is, you know, again, when you talk big picture, you talk inflation. There's a lot of money in the world looking for a home and a lot of money looking for a return. You know, you can't get it via interest rates right now, so the creativity of finding returns returns elsewhere. If you're a trader in London or wherever you're at, you know, commodities may be in the mix, real estate may be in the mix, etc. But it's kind of one of those situations where a rising tide raises all boats, and I think we're kind of in that scenario right now when you look at the stock market in general, what's going on in commodities, right?

Chris

Barron: Okay, interesting. So You're one that has a lot of connectivity to what's going on at the elevator level and processors, commercials. What are you hearing in that camp, so to speak? You know, what's the thought process and perspective from that area of the market?

Clark

Neighbors: Sure, sure. I think the thing that sticks out, Chris, is the fact to a tee. Most places will tell you the farmer has sold the vast majority of his old crop beans, a big majority of their old crop corn, and so if you look at the stocks number, for example, of this week, what was interesting is the on-farm stocks are at like a 7-year low. The off-farm or the commercial side is like at a 5 or 6-year high, which basically means Those bushels, both corn and beans, have been moved to town, if you will, and now the commercial elevator is in the process of executing. A lot of elevators I talk to have a huge amount of bushels to deliver on corn right now going forward because of this huge export program we have in place, and it's a logistical battle to some degree to get enough trucks, get enough rail, etc., etc., to make that all transpire.

But they're in the process of doing that right now through probably the early part of the summer. The bean export program has kind of wound down, so that sector has kind of slowed up, and now the bean sector is going to be more domestically driven. And so producers need to keep that in mind instead of looking at, you know, the river, for example, or export rail as the lead component in the cash market being driven. It's now going to be the crusher going forward, and we could see some changes in that going, you know, as we get into the summer. Not if, but when we see beans exported, for example, into the East Coast or meal into the East Coast for the pork and poultry.

So the market's going to have a function on the commercial side of where to find the stocks And I think you're going to find some regionality in this where there's going to be some shortages depending on, you know, crush margins on beans, depending on ethanol margins as we're starting to see a few more plants come back into play. For example, ADM this week noted that they're opening the dry plant in Cedar Rapids and Columbus, Nebraska again later this month. So after being down for nearly 12 months. So that demand sector is still strong, and you kind of question whether we're rationing demand. So the commercials are trying to execute on all these bushels they've sold. Obviously, in an inverted market, they're trying to move that as quick as they can because there's not really an opportunity to hang on in an inverted market and make that work from a commercial standpoint.

But I think At the same point, Chris, I think my guess— and I wouldn't say this in public— many crushers and end users are probably a little nervous about supplies as we get into the summer months. And again, that may be regional, but I think that's making a lot of them nervous.

Chris

Barron: What, what does that mean for basis, you know, near term and then out further? So for example, you know, we always like, and always see a lot of our clients, you know, moving a few bushels. You know, you get somebody in the truck when you're planting and move some bushels at that point. In a lot of area— doesn't work in every area, but a lot of areas, you know, it's, it's taking advantage of that planting in spring season when a lot of the elevators don't— they got all their people doing other stuff. So that's the farmer's opportunity to move some grain on a really good basis. Is the basis going to be as good or better later on in the summer then too, possibly? Is that what I'm hearing maybe, or am I reading too far into what you're saying?

Clark

Neighbors: No, I think that's a fair assessment. Again, it's probably going to be regional. One thing I would say is, right, if you look at the current cash market, it's pretty flat, you know, whether you deliver in April, May, June, July, etc., right now in most locations.. And we're at very high basis levels right now. I don't want to say record. In some cases it may be, uh, depending on where you're at. I'm not sure we're going to get this basis push we typically see in the spring because again, the commercials, the country elevators delivering against these contracts have been moved by the producer and they're trying to deliver that to buffer that zone. But once we get, um, later in the summer, June, July, I think you could see some pretty interesting basis levels. Again, depending on the area, depending on the region.

I think producers need to be kind of careful though to wait until June and July to price basis when right now it's pretty flat. You know, on some bushels that's alright, but I think the key is know your logistics, know when you need to have things cleaned out and try to, you know, proceed that way. As I know Uh, in many cases, trucking is a little limited, especially in the springtime.

Narrator: Right. 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: Okay, so the next thing I guess I want to go to is if we look at Dec corn, for example, we're in that, you know, we'll be starting a week out here in that $4.80, $4.50-ish range on Dec '21. And soybeans, you know, we're in that $12.60, $12.63 range. There's a little bit of carry in the, in the new crop corn there, you know, obviously inverted and nothing, which means probably if a person's going to be making some sales, you almost want to be making those soybean sales and planning on moving stuff off the combine, using the corn as storage, is at least what it's looking like as we look out at new crop. Out ahead of ways. As we think about that and look at percent sold, I'm going to throw this out there for you too.

Our clients are in that, um, and, and I'm probably just a little bit behind after last week, but prior to the report, our clients were in that 30% sold sort of on average. I mean, we have some guys over 50% sold, and we have some people that haven't sold hardly anything, but on average about 30, just right around 30%, both on corn and soybeans, new crop. I'm gonna couple-part question here. You know, what, what makes you comfortable as far as having some, some sales on the books and for new crop? And then what kind of, again, the crystal ball, what kind of an outlook are you seeing or perspective do you have out there for plugging some more sales in as we head into spring and opportunities there?

Clark

Neighbors: Well, it's a great question. I think the number one thing to keep in mind is If you look historically over many years, typically adding or being fairly aggressive on new crop sales while you're in the planter, slash spring, early summer, historically has been some of the best times to lock in prices. Now, you mentioned— and I should back up, the opportunity to get new crop priced this past 4 to 6 months has been very good because, you know, I know you work with folks and on their numbers and all that, and, you know, we're at levels where that makes sense, levels that make money. So no matter what you do right now, things make sense. It just gets to a situation of, all right, where do I make that next step?

So I, I think people need to be aware and have that in mind that The new crop opportunities exist, and I think there's good opportunities in the next, you know, 2, 3 months, however you want to look at it, as you get into growing season. I would guess, you know, again, talking to commercial elevators, I'd have to give you kudos. If you gave me a ballpark number what percent of the new crop corn and beans are sold in the broad scheme of things, I'd say 20% right now, both corn and beans, maybe a slight, slight bigger number on the beans over corn. That's much bigger than the last several years, which makes sense with where prices are at.

As far as, as far as numbers to look at, Chris, you know, just technically, you know, $4.40, $4.50 area of the December corn which we were visiting midweek before the report, I think is really good support for quite a while, until at least we get further along into the growing season. We did make new contract highs coming out of the report on the new crop corn. You know, I assume a lot of producers will be eyeballing that $5 mark, which isn't very far away, but you know, this is the kind of year, depending on how the summer goes, Who knows what kind of number you could or may see, but I think the best approach is to be disciplined and have some sales in place.

And normally I wouldn't say this, but I think this is the time of year, or the type of year I should say, where on some sales you made or some future sales you made, it's probably not a bad idea just to buy some, some summer calls also at that time to kind of make a minimum price and spend X amount of cents. In theory, it just kind of gives you a minimum price. You get some grain sold, adding a little bit of price potential with some calls. The market doesn't go higher, you know, you still have a minimum price that's probably well above profitability levels. But you're participating in case you have some weather issues as you get into June and July, etc.

So I think that's something that producers can look at, and if that gives them the ability to maybe be a little more aggressive with new crop sales with that comfort level, you know, that's not a bad strategy to look at in some degree, if that makes sense.

Chris

Barron: Yeah, and everybody's a little different too. With, you know, with what that number is. And, and, you know, again, I, I like seeing people that when we go into planting time, just to make sure you have some offers in to, you know, some targets where you're plugging in some additional sales. And that's different for everybody. Like I said, we've got some people that are already at 50% sold. And, you know, and some of the early sales that we've all made on new crop, even you look back and like, you know, when the market's going up, you never make a good sale. You know, till it goes back down. And so you got to keep perspective and, and keep plugging into this market. And, and like you said, knowing your numbers and, and being okay with, with taking some profit.

I like the idea of opening the top end up a little bit, especially on some of those bushels there that you want to, you want to make sure you— if this thing did, did take off for some reason in the summer, if there's a weather problem or whatever, you can participate in some of that as well. On the soybeans, what's your kind of range? You're talking that, you know, support on the corn at that $4.40 range and maybe pushing up toward that $5 range on the corn side is somewhat of a range to be in and considering. What about on soybeans, new crop soybeans? Kind of where are you at there?

Clark

Neighbors: Yeah, and I think both corn and beans, you look at Alright, there's probably pretty good support under the market. The topside is more of a question mark at this point. I would say as far as beans, you know, these values we saw earlier this week prior to the report, I think are pretty good support for quite some time, you know, as you go through the growing season at least, which is just shy of that $12 mark on the futures. We had a pretty good correction. We did make new highs again late in the week after the report. You know, I suppose most people are going to be eyeballing it, you know, $13 or the dollar increments going higher, which, you know, we're knocking on that door as we speak. I think the key— and you mentioned this earlier and I forgot to fill this in— when you look at new crop bean prices, there's, you know, it's an inverted market, there's no carry.

With corn, you at least have some carry. So I think producers, because of that, need to look at beans a little more aggressively than corn, especially if they don't have on-farm space, because you're going to focus on farm space with corn if you have any type of carry. It's a little bit like last summer, Chris, only way different prices.

Chris

Barron: Right.

Clark

Neighbors: The market was telling a producer to sell beans and hold corn. At least, you know, in this early April, so it's early, but at least at this point the market's kind of saying the same thing at this point. But I think you just have, you know, again, it's discipline. Have levels with offers or however you want to look at it on a scale-up basis and be disciplined that way. And those offers are important to have, like you said, while you're in the planner because you may hit it one day when you're not paying attention to the market. And just have pattern sales, be disciplined. It's always good to have those numbers in place because most— the most overused line I hear from producers in our business, well, let's see what tomorrow brings. Well, you know, that's fine and dandy, but it's not the most disciplined situation when you look at it.

If you actually have numbers locked in, yeah, a plan needs to have—

Chris

Barron: not— and it needs to not just be a plan, but it needs to be an execution model too, where you have some things in place that will actually, you know, make you pull the trigger, make you take advantage of those opportunities when they're there. And like you said, it's— we don't have our eyes on that stuff here. Pretty quick, real soon, we're going to be looking at a lot of other stuff. So real quick on that new crop sales, and, you know, we talked about basis on old crop and, and stuff. What about this new crop basis? Are we doing, you know, are you leaning more towards doing HTAs or, you know, selling a little on the board or using some option strategies, or what, what's your, your tool of choice, I guess, right now? Or is it a combination, all the above?

Clark

Neighbors: Somewhat of a combination. I would focus on beans first of all. Is the crab bean basis, as we sit here today, is historically pretty good for this time of year where If I'm selling beans, I'm probably more apt to say, you know what, let's just get it locked in. Basis is good enough. The board or the price is strong enough. I think it's worthwhile selling beans. The market's kind of saying it needs it today. It's not worth holding, storing at home. So I think on beans, I would focus more on just making flat old cash sales, okay. As far as corn, it's a little different animal. Um, probably more opportunities down the road depending on how these carries build, and I think you'll see at some point carries building the corn and a little less inversion on the beans as you get closer to harvest.

But having said that, on corn, I think you can kind of look at a combo of probably an HTA or locking some in on the board. Uh, the other strategy I would look at on bushels that, you know, once you get say north of that 50 percentile range, then you might start looking at puts just to have a floor under the market, keep topside potential there, or a put type strategy. I think that makes sense, and as I mentioned earlier, on stuff that you have sold or some additional sales that are already locked in place on that first 30-50%. Some long calls is, you know, giving upside potential also makes sense. But new crop basis on corn, too early to make a lot of judgment on that.

So I would say I would not lock that in, and that's the reason I say an HTA or a hedge makes sense, at least, at least at this point with looking for some upside potential on that basis because this stock situation's not going to clean itself up the way it looks in the next—

Chris

Barron: there's probably 8 months, probably not. Go ahead.

Clark

Neighbors: No, no, go ahead.

Chris

Barron: I'm sorry, I was going to say there's probably not as much of a threat of the basis, you know, getting worse than it is staying the same or maybe improving, you know, right?

Clark

Neighbors: I mean, the only, the only little tidbit out there on basis that could hamper it somewhat is we do have a lot of corn on the books and we gotta execute. We gotta export like 80 million bushels a week from now through middle or into July just to achieve what we have in the books, which is pretty astonishing when you think about it. I think some fear that China may cancel some corn or roll some into new crop. I think it's more of the latter, rolling into new crop. You gotta realize Why would China cancel some corn that they own, you know, $2 to $3 a bushel cheaper than their own domestic supply?

So they're not going to get rid of that for any reason other than maybe something huge politically, but that would be the only thing that might buffer some of that late summer, early fall basis on corn, but I still think you're going to have enough to domestic push is tight enough, at least as we sit here today, Chris, it's hard to be bearish the basis. At the same point, it's hard to be very bearish the board, which is kind of a scary scenario on both ends because it's not too often you see both of those strategies or both of those segments positive at the same time, but I think we're kind of in that mode right now, at least as we go through the growing season.

Chris

Barron: Yep. Uh, we're getting up against time, but last question here quickly, I guess, is the, um, you know, I told you offline at the beginning, I'm like, I'm talking about new crop corn, and I said '21, but then I'm like, well, also '22, that's new crop also. So, you know, you look at, at, uh, Dec '22 at 4, you know, it's flirting around that $4.50 range. Um, you know, Nov '22 soybeans flirting around that $11.30 $11.50 range. You know, it— last year at this time, we would have given our left arm for those sort of prices, you know, out there. Is there any kind of mechanism, tool, or anything that we should start looking at, you know, and quickly on that, on this topic? But I don't want to spend a lot of time on it, but just, you know, just being aware of, you know, if we roll our profit managers out, look at cost of production there's money to be made in '22, it looks like, as well.

And so, you know, at what point do we start to maybe think about protecting that, some of it?

Clark

Neighbors: Yeah, it makes sense. And I think what you're talking about, if there's profit in there, guys got to at least look at it or, you know, stick their toe in the water at some point. Maybe some have, which the only thing I would say is you're quite a bit inverted from, you know, the '21 to the '22 right now. Okay, uh, the other thing I would say, especially on corn, when you go back and look historically, anytime stocks-to-use is under 10%, that $4.40 area historically has been really good support here over the last 10 to 15 years. So I don't mind locking in a little bit of that '22 crop, you know, 5-10%. I've been in this business long enough though where I There's been times in the past where producers would get aggressive selling 2, 3 years worth of crop. Look back, you know, that '07 to '09 timeframe.

Those years kind of stung, you know, because the market continued to run, continued to be pretty strong. Not saying we're in that dynamic. We could be, but I think in small fashion it makes sense. 5-10% just to get your toe in the water, but I don't think I'd be aggressive with it at this point. You know, maybe there's a black swan out there and we'll look back 6 months from now and say, "Wow, we should have had more sold." I mean, that's the function of the market and that's what makes this always a little bit of a challenge. And like you said, when you're making some money, you gotta look at it, but I wouldn't be very aggressive, mainly because it's inverted. And in times past where we see these multi-year sales, you know, pick a reason, pick a contract to do it. There's been some heartache in that once in a while if it gets too aggressive. So a little bit's okay.

Kind of like a daily vitamin. That's enough for now. Yeah.

Chris

Barron: So yeah. Market in moderation, in other words, I guess.

Clark

Neighbors: Yeah. So that's a great way to say it.

Chris

Barron: Yeah. Yeah. Kind of like everything we're supposed to be doing in moderation, I guess. So. Any last topics I didn't ask about or anything?

Clark

Neighbors: I think we've hit on some highlights, and I know, you know, in talking to you and talking to your customers, I think the key thing is, you know, in these kind of markets when they get high, it's easy to kind of put off decisions and get complacent. And I think the key thing is just stay focused on the task at hand. Know what's right according to the numbers they work with you and just make some smart decisions and work forward and just not get complacent and keep driving forward.

Chris

Barron: You bet. If people want to get a hold of you, Clark, how's the best way to, to reach out to you or to check out some of your stuff?

Clark

Neighbors: Sure. So our phone number is 800-373-2525. We have a website at biscommodities.com. We've got an office in Cedar Rapids, as you mentioned, and we have 4 branch offices, 3 in Illinois and 1 in Wisconsin, that we could reach out to those locations if need be also.

Chris

Barron: Gotcha. Hey, this was a great conversation. At the very beginning, I asked you if we had an intro or an exit song here that explained the next week and, and as we move forward, was it, was it a crazy train with Ozzy Osbourne, or is it more of a .38 Special hold on loosely? And it sounds like it's more of a hold on loosely based on this conversation.

Clark

Neighbors: Yeah, good old '80s rock and roll, right?

Chris

Barron: Yeah, yeah. So we're wrapping up here with, uh, with a little hold on loosely then. And, uh, really appreciate your, uh, uh, conversation today, Clark, and Look forward to the next time we can get you on here. And also like to thank everybody for listening to the Ag View Pitch, and we will catch you next time. You see it all around you.