Weekly market outlook: April 25-29th - soybean acres shifting back to corn?

Peter

Meyer: 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 marketing week, the final week of April, the time when a lot of people should be thinking about planting, but it's a little wet and cold in certain areas and we are lucky enough to have with us Pete Meyer, S&P Global. Pete, what's up?

Peter

Meyer: Well, it's a beautiful sunny day here, but I know it's not by you, so hopefully the sun will move west, even though I know it doesn't move west, but hopefully the sunny weather will move west and you guys can dry out. Yeah. And commence your spring planting sprint.

Chris

Barron: Yeah, no kidding. It's been like a freezer too. It's been super cold this spring. Be interesting. We get to the end of the month here to see kind of if it was how much colder than normal it really was, because it's, it's crazy. Um, not much in the ground. Anybody, um, from your perspective on the marketing side, is there anybody that's concerned about planting on your end? You asked me offline, I don't think as farmers we're too concerned yet because we can do it fast. And but it's— there's also some areas that's super dry. So any, any of the planning delays that, that could be pushing the market up, or what are your thoughts there?

Peter

Meyer: No, I don't think so. We've got farmer friends in South Dakota that are already getting their wheat planted and that sort of stuff. North Dakota is a little bit of a different story. I mean, the only people that seem worried about it are these extensions at these universities and, you know, oh my God, the soil, the temperature is below 50, you know, yeah. I mean, I looked at a soil map yesterday, Illinois is between 46 and 48. If they don't think that they can go to 50 in a matter of a day or two, and as if it matters. So no, the point is, is that We don't see any panic, and certainly that has not driven the markets in the last few weeks or so. I mean, I think that there probably are some bulls out there trying to make a story out of it. We don't see a story in that at all, no.

Chris

Barron: Is there anything that you're seeing? I mean, we've obviously seen some volatility. We've seen a big separation where corn has really taken off. Price-wise versus soybeans. We've seen a lot of producers, and we've spoken to a lot of producers, a lot of clients too, that have been seriously considering and shifting acres from soybeans back to more corn. And I know the, the March report showed probably a different story than what's going to shake out here now, just because of what the market's done. The market's asked for a bunch more corn acres. What's your thought there? What are you seeing? What are you hearing?

Peter

Meyer: Well, you know, late last year, we typically don't put out acreage estimates, but late last year, we were kind of pressed to put out an acreage estimate. And I came out at 90 million corn and 90 million beans, and I'm back there. I mean, I made one switch in January, I believe I went to maybe 89 million corn and 91— I'm sorry, 89 million beans and 91 million corn. And now I'm back to— the same number. So what I like about the NASS numbers is the combined acreage at 180.5. I mean, it's kind of what we planted last year. I'm not sure that we can get— we're going to need some cooperative weather because last year, as you remember, I mean, the weather was good throughout, almost throughout the country. It was a little bit dry, but I mean, that's not necessarily bad for planting. Now we have too wet conditions.

So 180.5, the anomalies that stick out from the Prospective Plantings Report was North Dakota down 1.5 million acres in corn, wheat, and soybeans. Can we get some more acres out of that? Maybe. Will we lose some other acres in certain places there? So I'm of this 180.5, I think, is a good number. And when you talk to NASS, they would also— when I asked NASS what their impression of the numbers were, they would also agree that their takeaway was that the 180.5 was probably, was probably a solid number. So, you know, NASS doesn't like the Prospective Plantings report, This year's report had a very, very poor— the lowest response rate that I've seen in quite some years was below 50%. So while they'll tell you they sent out whatever it is, 17,000 surveys, they only got 8,500 back or less than 8,500 back. So we have to take that into consideration. NASS hates their report.

They don't trust the report. So, you know, I get it. But as far as moving corn or bean acres to corn, we've seen some of it. In southern Minnesota, and it has been, as the co-op manager told me, paid for. So, so that's confirmed. We're hearing of some acres in other places. So, you know, yeah, I mean, look, after, after the way that, after the way that bean prices took off and corn was kind of left in the dust, corn had some, had some, um, some room to make up. And, you know, there were some areas when we looked at the cash basis where the ratio was only 1.9. So, you know, I mean, yeah, they're going to plant, they're going to plant a little bit more corn. There has been some discussion in east— I'm sorry, in west southern Minnesota, fairly large producer that we talked to there that was going to plant some corn on corn this year, but he's going all beans.

He was all corn last year, he's going all beans. So, you know, yeah, getting a little bit, a little bit here and there, but You know, I, I feel pretty comfortable kind of saying that we're going to split the acreage, you know, down the middle with this 180.5.

Chris

Barron: What, what about the market? Does the market— is the market still trading that, that March deal, or does it— because if those acres do shift back and, you know, we the other day we were at like a 2.0 or whatever, like you said, I mean, that corn-bean ratio is really leaning heavy to corn profitability. When we look at the numbers on our clients, I mean, it's $300 an acre more on average.

Peter

Meyer: It's huge. No, the corn market, the corn market is trading two things, and that's Ukraine and Brazil, and that's it. The corn market really doesn't care about anything else that's going on. So the longer the Ukrainian war keeps going here, the more nervous people get now. We have heard that there is a, you know, a remarkable amount of corn, old crop corn, making its way out of Ukraine to the west. The problem you have when you go to the west, like Poland, is that the railroad gauges change. So they've created what basically is called a dry port where they dump all the corn at the border with Poland and then it gets reloaded. It's a pain in the ass for sure, but the fact of the matter, it's getting done. And I am surprised really surprised at the amount of corn, old crop corn, that has come out of Ukraine. So you say, well, Pete, then why is new crop corn above $8?

Well, that's more of the money flow, right? Everybody's trading in the front month. So, but then when we look at Ukraine now, we don't— we think that, you know, 40%— 40 to 50% of the crop they produced last year is probably going to be their number this year. So that's going to make, that's going to make things tight. And Brazil, you know, Brazil had some decent moisture for the safrinha crop early. We moved our estimate up slightly. I know some of our competitors were more aggressive, and now it's getting real dry, and now we're going to have to move it down again. And, you know, it's one of those things. So I think what we've seen is we have seen more, more of a production rally than a demand rally. Really haven't seen much on the demand side. I mean, if anything, corn seems to be stuck with the lack of railroad movement.

The rivers are all open, but it just doesn't seem to be much movement. Today is Friday. We saw some China sales, and then all of a sudden the market just went straight down. I think that what we're seeing here is more of a supply rally. And my opinion of supply rallies is that they are meant to be sold. But am I saying that the high is in or whatever? No, I'm not, because we still, even though it could be, I'm not saying one way or the other because the money flow is gonna dictate this. But I would think that once the wheels start turning here, you know, if anything, Chris, I think that the cold and wet has maybe delayed some farmer selling, even though the guys that I talk to are just piecemealing it out there. Why not? Rally's another 10 cents, sure, I'll let some go, old crop, or some new crop. You know, it doesn't matter.

But I think that's probably keeping a little bit of a bid underneath it, but mostly it's focused on Ukraine and Brazil at the moment.

Chris

Barron: Mm-hmm. With that said, obviously the funds are, that money flow you're talking about in there, the funds got a ton of money driving this thing. That's what makes this whole wheel turn. And so the Fed's saying, okay, another half a percent increase on the interest rate side, inflation inflation is still super high. I'm like a broken record. I'm saying it's closer to 18% than it is whatever the hell the US government saying it is, because I can see what people are spending. And, you know, what does that spell for the funds if that starts to impact the stock market? Talk a little bit about that.

Peter

Meyer: I don't, I don't think it impacts them at all. I think we really have to have— because the funds have been buying corn and soybeans for that matter, and even wheat on a, you know, just as an inflation trade. And they're, you know, they've got a lot of money built into this market. I mean, I would think you probably need, you know, for you to see mass liquidation of the fund position, boy, you'd have to be down $2 from where you are now, and we're not going down $2 because given Ukraine and Brazil, the global balance sheet is tight enough to keep a $6 bid underneath this market. So, you know, how long they trade that, I don't know. I mean, look, we also have exchange-traded funds, ETFs, in both corn and wheat that have seen a lot of smaller investors flock to. We saw a big outflow in wheat this week as far as those investors leaving.

Those are probably more vulnerable, but they're really not holding the position. So yeah, I mean, look, stock market down the last couple days, rates are going up. Certainly, certainly it looks like rates will be up by at least 3 or 4% by the time we get to the end of the year. Fed Chairman Powell mentioned the word recession yesterday, which was a shock to a lot of people, including myself. I mean, you just don't hear him use the R word, but I think that they're getting very close to big concerns on this. So Yeah, we'll see. But I mean, certainly it would appear that the, you know, yeah, that inflation is taking a big bite out of everything at the moment.

Chris

Barron: Yeah. Well, we talked offline about the Friday, last Friday, they mentioned Indonesia holding on to their palm oil or whatever. And just a little thing like that gave us volatility, there's all kinds of other things out there. I mean, that was probably not a huge deal, but I mean, talk about that. I mean, isn't there some things out here that can kind of drive this either way too?

Peter

Meyer: Well, yeah, the Indonesian palm oil export ban was announced today. It's a huge deal. But, you know, somebody, a friend of mine made the joke that, you know, if you want to bet which has a longer lifespan, Indonesian palm oil export ban, or CNN Plus, which just closed after a month of work, right? Right. Right. So, and then the problem there is that Indonesia has done this like 3 or 4 times since the Ukrainian war started. Now, bean oil today was as high as, it looks like almost 85 cents. Today it's down to 83 cents, or now it's down to 83 cents. It's come off the highs dramatically by a couple of cents. But I mean, you know, this is the problem is that the market is kind of scared here about supply. And again, we go back to Ukraine and the impact of Ukraine on global vegetable oil supplies. I mean, huge deal, right?

A huge exporter into the EU of sunflower oil and soybean oil and rapeseed oil especially, which is used in the EU by biodiesel plants., but also for food, for cooking oil. So I don't think— I think that it just shows that the market is very vulnerable to sort of supply shocks. And, you know, but look, the Indonesian economy could not withstand a palm oil export ban for very long. So, you know, this is one of those things where they claim it's to make sure that the domestic supplies are high. Well, yeah, everybody's talking about Every country in the world now is talking about food security and making sure domestic supplies are high, but I mean, our intelligence tells us that there's plenty of palm oil stock in Indonesia. So to us, it sounds like they're just using it as a ploy to raise their export tariffs, but we'll see. We'll see.

But in the grander scheme of things, it does suggest that, you know, we are very, very vulnerable with this just-in-time economy for supply shocks. And that's what, that's what kind of we're seeing here.

Chris

Barron: Yeah, that's, that's just it, you know, the, the volatility potential moving forward is pretty wild. Yet, um, let's get to some nuts and bolts now for a minute. We've kind of been hitting a lot of the, a lot of the macro components to the market. On a, on the farm side of things, you know, from a nuts and bolts perspective, what's your What's your take? I mean, if you put your farmer hat on, I've asked you this before, you know, where, where are you comfortable being sold? I mean, that it still comes back to, you know, I just talked to a producer this morning that said, you know, I'm at 30, I think he was at like 33% or something, and, you know, and, and didn't start too early, has done a pretty good job, but the market has gone up since those sales were made.

And sometimes, and I was telling him, I said, you know, that's what I've always called, you know, price increase resistance. When the price continues to go up even though you've made good sales and you, you get— become resistant to make more sales as the price goes up because you're mad that you made those prior sales. Talk to me a little bit, or to the listeners here, a little bit about where you would be comfortable being sold on corn and, and soybeans on the '22 crop.

Peter

Meyer: I think that if we have a decent '22 crop, our opinion, and I know that the USDA is much, much lower than our number, but as far as the farmgate price that the USDA publishes, they published a $5 price in their outlook, and I've published a $6 price. So, you know, I think that To me, that's where I see a lot of demand in that $6 level. As far as the upside is concerned, I really don't, I don't, you know, sometimes as analysts, you know, we tell the market that it's wrong. Can I make a fundamental case for $7.50 new crop corn thinking that 90 million acres are going to be planted? No, I cannot. But sometimes as analysts, We have to listen to what the market is saying. And the market is telling you that it's fairly comfortable above $7. And it's remarkable. I think the market also told you that it's not really comfortable above $8 in old crop this week.

We'll see what next week brings. But yeah, I mean, look, this $7.50 seems to be an area where a lot of people, where it did see some resistance. So, you know, we do see some demand destruction out there, but, you know, as far as just giving you a price, I mean, I see plenty of support at $6, but, you know, I can't make a fundamental case for where we are at the moment. I just can't, but that's not— Yeah, and— Markets can stay irrational longer than we can stay solvent. Right. So, I mean, it's one of those things.

Chris

Barron: And the wild unknown is the weather after planting and through the, you know, through the season. That's, you know, it depends on where do we rally or do we regress from that?

Peter

Meyer: Well, certainly, you know, if 2021 taught us everything, it's not to be too afraid of the dry in some areas, right? I mean, if anything, if anything, what we know about corn seed genetics is the fact that the genetics have basically flattened the adverse reaction curve, right? So I mean, I could easily make the case that if we were in 2012, that instead of producing 123 bushels of corn nationally, we could produce 155 or 160 given the genetics that they've, you know, improved them so much. But You know, there's a kind of a misconception out there that genetics have added bushels to the bottom line, and I always look at it, or I believe it's a misconception, and the seed companies would say it is as well. I always look at it as the fact that the genetics have basically flattened this, you know, this adverse reaction curve, so you're not going to get as big a reaction.

We saw it last year in Northern Iowa, Southern Minnesota, certainly much bigger crops than people would have thought looking at the rain. Yep. And that sort of stuff.

Chris

Barron: Yeah, we can, we can handle the dry weather better than we can the wet weather, which is counterintuitive to what I think a lot of the trade thinks. And so what you're telling me is the trade's starting to figure it out.

Peter

Meyer: Right. But then, you know, going back to your question on new crop, I mean, you know, the problem, the risk you run here now is Ukraine doesn't plant a crop.

Chris

Barron: Mm-hmm.

Peter

Meyer: That's a huge problem. Yeah. There's a 40, 42 million metric ton crop last year, of which we expect the 35 million metric tons to be exported. So, you know, I thought that maybe they could export '20 to '22. Now with some of this stuff moving out, maybe it's '22 to '24, but they're exporting last year's crop. I mean, I don't, you know, 50%. And then the problem too is our boots on the ground in Ukraine tell us that there's no foundation seed to grow next year's seed corn. So now I think we might have a 2-year problem here in Ukraine that needs to be fixed.

Chris

Barron: Yeah, there's more than a 1-year issue there for sure. Absolutely. It's multi-year.

Peter

Meyer: Absolutely. Absolutely. So, but that's, I mean, yeah, look, the funds for sure are holding the market up a bit. When they get tired of it, I don't really know. I don't really know, but I certainly don't subscribe to this theory that if the stock market crashes here, given Powell's use of the R-word, that all that money is going to run into commodities. These people are not that stupid, right? They've seen it. They've seen the rally in this stuff and they're not going to jump.

Chris

Barron: Well, that's why I was wondering where the buyers come from. You know, at a certain point, who's— who are the buyers?

Peter

Meyer: I don't know. I don't know where the buyers come from, you know, and I really don't. And these ethanol plants, you know, had— who had a great fourth quarter last year are now kind of shuffling around when the prices were I mean, they've come off a little bit here today, but when they were high, you know, making maybe a nickel a gallon or 3 cents a gallon when they were making multiple, multiple multiples of that a while ago, you know, maybe we can export, you know, some ethanol to other countries. I mean, certainly, I mean, our corn exports are average. I mean, I would have thought they would have been a lot, lot better given the loss of exports out of Ukraine, but it just seems like, you know, people are just taking their time and don't really want to pay this price if you're a foreign buyer. Yeah, of course, you know, we sold some corn to China today.

But man, you know, I, yeah, I mean, if you look, if you look at it going forward, last year we did not sell— I think our friend Garret Toy at AgTrader Talk put that out there— I don't think we sold more than 2 million metric tons from here on out for the rest of the marketing year, um, last year. And we've got a long way to go to get to USDA's numbers at this point.

Chris

Barron: Yeah. Um, talk, talk about soybeans for a minute on the same question. Um, what, what makes you comfortable there? Sales-wise? And, and, you know, do we— does— do the soybeans recoup this, uh, um, this soybean— corn-soybean ratio by the beans going up and the corn staying where it's at? Or does the corn come down to the beans to fix the ratio issue?

Peter

Meyer: If I'm a— if I'm a $6— if I'm a $6 base corn guy, I'm a $15 base bean guy, right? And I realize that's a 2.5 to 1, but I have to kind of revert back to that. The bean story to me is kind of over because the Brazilian soybean crop isn't going to get any smaller. I think your risk moving forward is that instead of producing one, that wherever we are with, I think we're at 125 or 126 million metric tons, that Brazil could produce 150 million metric tons next year, and that's a real possibility. I mean, let's not forget that initially when Brazil was first brought on the map, given the amount of area that was planted, we thought, and everybody thought, that there would be a 140 to 142 crop, and we're down to 125. Okay, when you— if you would have asked me 6 months ago what I thought the possibility was on a on a Brazilian crop. I would have said 150.

So I think we can, we can get back there. And the other issue you have at the moment is that if we do end up with more soybean acres than corn acres, all these new crush plants that are coming online that are going to, that are going to provide about 500 million additional bushels of crush capacity for renewable diesel and other sustainable fuels will not be online until 2023. So we may end up with a glut of of beans, you know, in the second half, in the second half of the year.

Chris

Barron: And that's going to be a bit of a problem depending on demand and production and all that fun stuff, right?

Peter

Meyer: I'm sorry, in the first half of next year, I meant to say, right? Yeah, not the second half of the year. Sorry.

Chris

Barron: Yep, yep. No, and I guess what I want to wrap up with, or kind of the last category I want to hit on for a minute, and with your expertise and the reach you have is the energy sector a little bit with oil and how, you know, because that if we look at our input costs and where we're at it all, all of those things funnel back to oil, to the energy market. What's your crystal ball telling you? What are you hearing? What are you seeing? What do we need to be paying attention to at the farm level?

Peter

Meyer: There's a real diesel shortage in this country, and I think that's probably going to continue for quite a while. You're not going to see any any sort of relief out of OPEC+. We would have thought— we're about $15 over in crude oil at the moment. The Western Texas Intermediate, WTI, you know, you're at $101 here. We would have thought it would have been an $85 commodity at this point based on the S&D. So that tells you that there's about $15 or $16 worth of worth of fluff in their investment or, you know, hot money, so to speak. Now, you know, but now we're starting to go into May and people are traveling, but you know, you hear this now that, you know, there aren't enough pilots, there aren't enough truck drivers, there aren't enough this, there aren't enough that.

I mean, Southwest, you know, airline, airline prices have gone through the roof and, you know, are we going to see a big surge in demand over the summer? For people driving. And it's just, it's just hard to, really hard to get a, get a handle on it. I think that the market has finally understood what the ban on Russian oil means. And I think now it's just flopping around, right? $95 to $105, $95 to $105. But on the diesel front, uh, there's a real diesel shortage in this country. And, and I, and I think that that's, uh, that's, that's a concern. On the natural gas side, I mean, here we were just last week at $8, now we're down to $6.60 already today. I mean, this is just nonsense. Natural gas is maybe a $5 or $6 commodity, but everybody wants to think it's a $10 commodity, and it's not. So, I mean, we were over, when corn made the highs this week, I mean, natural gas was at $8.

Today it's 6, looks like $6.70 or $6.80, something like that. I mean, yeah. It's just, this chop is insane.

Chris

Barron: Is there any policy stuff or anything that you're hearing that could come out that would fix anything, or are we going to stay on the same path we're on?

Peter

Meyer: No, I think everybody's— I think they're, you know, on the policy front, I mean, it turns out that we exported more oil than we ever have. I think it was last week or something like that. So now we have an SPR release and we're exporting that oil. That makes absolutely no sense, right? On a policy front, on this E15 thing that was announced last week, that means nothing to the farmer because basically by our calculations, it's maybe 50 million gallons, maybe, let's call it 75 million gallons of increased demand it's going to bring in. You know, that's 25 million bushels. I mean, nobody cares, right? So I don't really see much out of the policy side. I think they've tried to do what they can to, to release oil prices.

But, you know, we don't have any friends anywhere, so we have to rely on Canada and our own production and just to see how that goes on the oil side, because we're certainly not going to get any help from OPEC or OPEC+.

Chris

Barron: All right, I guess that's about all I had. Any final thing on inputs, anything you're hearing? Nitrogen, fertilizer stuff real quick.

Peter

Meyer: I thought it was interesting that the CEO of CF was claiming that they were being picked on by Union Pacific. I actually wrote a story about it this week, or wrote an analysis piece on it, where Union Pacific announced last week that they needed to take 30,000 railroad cars off of their system, and they were taking a lot of privately owned cars and these Fertilizer companies have privately owned cars, right? They have their own cars, ethanol guys have their own cars. And Tony Will, the CEO of CF, said right away, "Well, this is gonna be a problem. You're not gonna be able to get enough nitrogen side-dressed and this and that. And the farmers should be ready for it.

The railroad's picking on us." But I mean, I just, you know, there's, So many things that went wrong in the fertilizer business that whether it was Hurricane Ida or all these other things that now all of a sudden to put your finger on the Union Pacific Railroad is, I just don't get it. The fact of the matter is that railroad times on the east of the Mississippi, what we call dwell times, which is the amount of time that a train sits in a station, are awful. To the west, we don't have a problem. To the east, And I think that some of that is also in creating a backup in some of these exports that we just don't have any movement from east to west to get it to go north and south, or get it to go south, I'm sorry. But so I don't, that's one thing that I've heard something about, but here we are again, Chris, we are absolutely stuck.

With a just-in-time economy that we thought was going to work. I mean, I have to laugh that we were sold this a long time ago by Fred Smith, who's the CEO of FedEx, who basically, you know, if you need it overnight, yeah, we'll get it to you. Well, you created this kind of— and look, I've met Mr. Smith and he's a nice enough guy down in Memphis, but we created this kind of fallacy that we could get anything we wanted overnight. And if the pandemic taught us anything, it taught us that that's absolutely not the case. And now we are here, we are Walmart paying $120,000 for truck drivers with CDLs, Southwest Airlines canceling flights because they don't have enough pilots. I mean, yeah, we gotta, we gotta be careful here.

Chris

Barron: I mean, I think that, you know, it's pay me now or pay me later, right? I mean, it's, you know, you have the inventory or you're gonna pay for the time log.

Peter

Meyer: I mean, look, I mean, if you have a good year this year and you've built enough, you build enough bins to last you a while and you need a tax write-off, I think you'd probably be spending that money on a fertilizer shed because I don't see how that, yeah, I don't see how this thing turns itself around anytime soon.

Chris

Barron: And it's a supply disruption. I mean, that, like I said, you know, it's not, it's not that the, the product isn't somewhere, it's just getting it moved.

Peter

Meyer: Exactly right. Yeah, exactly right.

Chris

Barron: All right, this was a great conversation, Pete. Really appreciate your time.

Peter

Meyer: Sure. Good luck to you and good luck to all the farmers listening, and I wish you a speedy and a safe planting season. Thank you, Chris.

Chris

Barron: Yeah, thanks a lot. Really appreciate your information. We'll get you back here again real soon. And again, thanks everybody for listening to the Ag View Pitch, and we will catch you next time.