Weekly market outlook, Aug. 15-19: WASDE

Narrator: Thank you for listening to the Weekly Market Outlook.

Pete

Meyer: It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business.

Narrator: Please reach out anytime by emailing cbarron@agviewsolutions.com. Welcome back, everyone, to another episode of the Ag View Pitch. Today you have Shay Foulk and Pete Meyer following the WASDE report here on August 12th. Kind of interesting, Pete. I mean, maybe not as big of changes as what some of the farmers listening might have expected.

Pete

Meyer: Yeah, I think that, I mean, the biggest surprise to us, well, it wasn't a surprise to us that the acres didn't change much. But, and that's because when we talked to NASS after the June acreage report, and they were going to do a resurvey of North Dakota, South Dakota, and Minnesota, NASS was kind of like, yeah, we don't think it's going to yield much. No pun intended. And, um, and it didn't, uh, you know, corn acres were down 100,000 and, and the bean acres were down whatever it was, 200,000 or 300,000. Now I, I will say personally I'm a little bit surprised at the bean acres. Um, I would have expected, given that those areas that were surveyed were surveyed because planting was late, you would have thought they would have got some more soybean acres in, and they didn't get any extra spring wheat acres in either. So I think that's a little bit of a surprise.

On the yield side, um, you know, Shay, when we, when we look at all the farmer surveys ahead of the report, um, StoneX, they had a 176 yield, uh, my colleagues at IHS Market, you know, were like even higher than that, 176.5 or something like that. And, and our bean yields, or not our bean yield, but the IHS Market survey bean yield was like 51.8 versus which is almost identical to where the USDA is. You know, I thought to myself, wow, you know, the farmers really have a high opinion of their, of their crops this year. That's the only takeaway I could get out of that. So, and I'm not saying that they're wrong, um, because as usual— or not as usual, but it's going to be another year of the east has it and the west doesn't have it. But typically that's east of the Mississippi and west of Mississippi, and now I think it's closer to probably east of Des Moines west of Des Moines.

But, you know, when I looked over the numbers, I thought that they were, they were fair. Um, our yield model was at, uh, 175.8, uh, last week, and, uh, it came down to 175.3. So I, you know, um, that looks fine to us. But that's, of course, that's egotistical, right? Well, that's a yield model. There's not much I can do. About it. But our bean yield was around 51 versus the USDA at almost 52. So I will say though, Shaded, I think moving forward here, what we have to be aware of is, A, as I mentioned earlier, there was no objective yield data in this. So stand counts were not included. This was merely the weather, satellite data, and the survey data from farmers. So we expected it to be okay.

And the second thing that I would say is that I, even though my yield is exactly with, you know, with relative, you know, 10th of a bushel here or there in corn, my corn acres are lower than USDA and I've slashed corn acres. I'm probably about 300,000 or 400,000 acres below where the USDA was this month and they were down 100,000. And the reason for that, Shay, is that, you know, we've seen a lot of, corn being zeroed out and cut in states like Texas and Kansas and Oklahoma and even Nebraska. So, you know, it's one of those things. I mean, as— and, and the other thing that I would draw your attention to as well is that, you know, they did cut the EU corn crop from 68 down to 60, but we think that crop is probably a 55, maybe 54 or 53. So one of the things that has been noticed by us recently and noticed by a lot of traders as well is that Italy was in to buy corn.

I think it was last week or maybe it was the week before. That's an anomaly, right? So they're not really too keen on GMO corn and now they're coming to us for corn. Poland also came in for soy meal. So this situation in Europe, bears watching in my opinion, Shay. And also the fact that I saw some statistics today at the Rhine River, is at a 120-year low, and as far as the level of the river. So you've got some big problems in Europe, and how we figure that out is going to be interesting. Now, USDA doesn't seem fazed by that. I mean, they cut exports from 2.4 billion bushels, which is where I am, to 2.35 billion bushels. Or thereabouts. I mean, so they obviously don't seem to think that there's going to be some increased demand for U.S. corn. At the end of the day, Shay, I think this is just an interim step. We have a very, very long way to go.

Crop Tour is week after next, and I look forward to seeing what the Western what west of Des Moines looks like, because that's where I'll be.

Narrator: Right. So, so talk to me a little bit about that with the crop tour. You, you mentioned that what we're looking at from today's report, there's no objective yield outlook in there, right? They weren't doing stand counts, they weren't out there doing kernel counts. Historically, you know, how do you think about that in this next 3 to 4 weeks of how it might change, uh, when you get actual boots on the ground out there, Pete?

Pete

Meyer: We think it's critical because last year, you know, when we, when we went to Western Iowa and Southern Minnesota, you know, it was known that it was going to be a, just a disaster. Disaster is probably a strong word, but it wasn't going to be a good crop. And we went in there and the stand counts were unbelievable. And I have, I have driven from Columbus, Ohio to Gettysburg, South Dakota and back a few weeks ago, right at the end of June. And at that point, the only thing you can look at is stand counts. Stand counts look good, but, you know, we're going to have to see what, what that, what that really translates into. Now, when we talk to some farmers, I mean, we had a delayed planting, and then after delayed planting, let's, let's talk in central Illinois, for instance, they had a shot of heat and everybody said, oh boy, that's a deterrent.

But really what the, what What my friends there tell me is that that really helped their emergence and it really helped the stand count. So that's one of the things that, you know, I mean, as you mentioned, NASS doesn't have the OY plot data, the objective yield data in August. They got rid of it about 4 or 5 years ago when Secretary Perdue was there. They claim it just, you know, it didn't mean much to them, but I have a funny feeling there were some budget cuts that had to had to do with that as well. But, you know, okay, so we don't get, we don't get this plot data. We don't, we won't get ear weight now for, you know, for another couple months yet. But I think that the stand counts are going to be very, very interesting. As far as the western leg of the tour, we're really only going to spend that first day in southeast South Dakota, which I know is a rough spot.

That being said, we only go as far west as Mitchell, South Dakota on tour. That's probably not going to look very good. So, but, you know, the USDA has corn yield in, in, uh, in South Dakota up a bit. And, uh, in talking to some of my friends in the central part of the state, they went from harvesting 95-bushel winter wheat to harvesting 90-bushel spring wheat. So you can imagine what their corn looks like. So I would not, you know, I know that, I know that there are probably some people in South Dakota saying, uh, What's he talking about? It looks ridiculous. As a matter of fact, one of my comments to Farm Journal was that when I went out to South Dakota at the end of June, it was the best I ever looked, and I caught some ridicule for that online, which is okay. It's a free world. But the fact of the matter— it's a free country, I should say, not a free world.

But the fact of the matter is, is that, you know, it was the greenest that I've ever seen it. So, you know, that, that area of South Dakota we're going to go through is probably not going to look good. The second day in Nebraska, that's going to be a tough slog, right? I mean, Nebraska yield is way, way down. And I would imagine that's going to be a day where it's just going to be, you know, you're hanging your head probably most of the day because it's just going to be rough. Right. And then we go into western Iowa on the third day. That's not going to be a walk in the park either. It's gonna be very interesting to see what's going on there. And then the final day we get into, get into southern Minnesota, which is going to look a lot better than it did last year. So just to give you some numbers on this, Shay. So last year, the South Dakota corn yield was 135. USDA's at 147 today.

I would probably be a little, a few bushels below that, but it makes sense to me. On their bean yield, it's 43. For them. It was 40 last year. Okay, I can kind of see that. Nebraska, they really took to the woodshed. Nebraska was 194 last year, which would have been the highest yield, uh, in the previous 5 years from 2021. This year it's down to 181. And the bean yield, if anything we know about Nebraska farmers, they know how to grow beans because they can, they can stress them and then put water on top of them. That's down big. That's down from 63 to 55. So, you know, I, I think that the numbers were fair in Nebraska and South Dakota. In Iowa, it's hard for me to believe that Iowa is going to have the same yield they have last year, which is what the USDA is thinking in corn, 205 and 205. Um, the East is certainly in pretty good shape, and the West is, uh, is going to be tough.

Now, I don't know necessarily that the, that the West can carry it. It was interesting to me though, Shay, that They did lower the Iowa soybean number from 62 last year to 58 this year, so something doesn't— I know when I went through Iowa at the end of June, the beans didn't look that good, so, you know, maybe that has something to do with it, but, you know, we'll see. And as far as Minnesota is concerned, last year 178 yield, this year, um, USDA came in at 193, so that's going to be a fairly large jump, but those two, uh, South Central District, District 80, and the Southeast District, District 90. They're going to look really good on crop tour. District 70, which is the Southwest District, is probably not going to look very good. Um, so, you know, we'll see.

But I, I really don't, you know, I don't— with all due respect to my fellow crop scouts on the east, I don't think there's much of a story in the east. I think really the story is going to be in the west. I would I will, as much as I would take the under on 205 for Iowa, I would take the over on 203 for Illinois. Illinois was 202 last year. USDA has them at 203 this year. Um, I know that, I know that you spend a lot of time in there, and I mean, from what I hear, you know, the Illinois crop looks, looks pretty darn good from the center, from, let's call it the, yeah, the center of the state north.

Narrator: Yeah, now when you think about, uh, the, the private industry out there or looking at the funds, you know, how much impact does something like these crop tours have on the outlook for, you know, how the markets are, are trading? Any impacts there that could maybe be expected as we have those come out?

Pete

Meyer: Well, I'm very used to, um, people dismissing crop tour. First they call it the trespassing tour instead of crop tour, and we are very, very or I am myself diligent. You know, if there's a fence up or there's a tire on a fence post, I appreciate that. And, but, you know, we get ridiculed quite a bit on crop tour every year. You know, I saw something the other day, well, yeah, you're just out there walking around and, you know, making up the numbers. Well, for me, it's a business trip, Shay. We have end users that are very reliant on the data that we come up with. Not necessarily, with all due respect to Pro Farmer, not necessarily to their numbers, which will be released on Friday, which is their interpretation of the data, but we interpret the data as well.

So I think that, you know, as far as our end users are concerned, they have called us and they, and they are interested in it for sure. They're interested in every year. This will be my 16th year going on crop tour. So, you know, they like the boots on the ground approach. And, you know, I mean, the world balance sheet is awfully tight, and a lot of these things we talked a little bit a while ago about, about Europe being, about the EU crop being small. So there's a lot of concern there. You know, Brazil, Brazil has a lot of pressure coming. So I think that the, the end user will pay attention to it. You know, the social media folks will discount it as they discount the USDA, so that's fine. I don't really care. Now, the funds are interesting, Shay, because we have some fund clients who are not in the market at all.

The reason for that is because they bought corn and soybeans and wheat and pretty much a basket of commodities months ago in preparation for an inflation trade. They made their money and they're out. I don't know. I hear this now, okay, we had a nice recovery today after what some people are calling a bearish number. To me, I thought they were neutral numbers. I really think corn is probably worth $6.25 basis December futures just because that's where it always seems to go back. But we are hearing some, oh, it's going to $6.90, oh, it's going $7. I will say that technically, and I'm not a technician by any stretch of the imagination, but technically it does look It does look better. But the problem there, Shay, is that you really need the funds to get in there to push this thing up another 50, 60, 70 cents, right?

And I can't speak for all the funds, but the funds that we talked to are just not interested in it anymore. They made their money, they've gone home. And the funds, it takes them a long time to build up a sizable position. And we just don't see that happening from mid-August. Going into harvest. We just don't, don't see them getting excited about it. So, you know, another interest rate hike maybe next week, and they'll definitely shy away from it. So I think that the, you know, I don't think the funds really care about crop tour this year, um, because I think, like I said, they made their money, they're out. And, and, uh, and they're out to the extent that I haven't seen— we'll see what the CFTC data looks today, but last week the non-commercial positioning was only 6%, I think, of the corn open interest, which is very low. Now, the flip side to that is going to be the indexers.

The indexers are long. They have a very sizable position, and that's very sticky money, so they'll stay in the market. But I just don't necessarily know, Shay, if we're going to change a lot of minds. We may change some minds on the consumer side, the end-user side, But we're not, I don't think we're gonna change any fund minds and certainly we're not gonna change any social media, any social media minds because, you know, they all have backyarditis, but they're entitled to it. That's fine.

Narrator: Yeah, I love that backyarditis term. Thank you for walking through on the funds too. I think that's something that's pretty easily misunderstood and the perspective that you put into there I think is very valuable. So as we head into, you know, this week of August 15th and look to wrap up here, Pete. Anything else that you think the farmers listening here should keep in mind in the week ahead or any watchouts?

Pete

Meyer: I don't like the weather. I certainly don't like the weather. I mean, I like the fact that it's cool. I would like it if it's dry the last week of August while we're on crop tour, but for very selfish reasons, But I don't like the weather at all. I mean, I think it's, it's, you know, we've heard a lot of stuff about Nebraska's, um, non-irrigated crops, uh, going backwards, especially the soybeans. And that's why I, I kind of highlighted the, um, the Nebraska soybean number being down around 55. So, um, which would be the lowest, uh, well, at least in the last 5 years. So I, I think that the weather is, is probably the The coolness was going to help your grain fill a little bit in my opinion.

But the lack of moisture, you know, we all know that it's those last 2 weeks of moisture, the last 2 weeks in August of moisture and the first 2 weeks of September that can make or break a soybean crop. So in order to get to that 51.8 or 51.9, wherever USDA was today, I think we're going to need, we're going to need some timely moisture on those beans. And boy, I just don't see it. Certainly the weather forecasts are tough. A lot of discussion already, we mentioned a little bit earlier about how tight the balance sheets were and what that means to Brazil. I really— we've told our clients repeatedly that we think that there's a lot of pressure on this Brazilian crop to perform, and boy, it looks dry. I mean, some of those Some of these La Niña, you know, forecasts are coming out.

If they don't get a recharge in moisture, I think that that crop is going to be a, going to be a big disappointment. It's too early to be changing much in that. So, you know, but that's it as far as what to watch else. I think the damage has been done in Europe. I think that we're going to lose. I'd be, I'd be watching these export sales. If another EU country comes in for something, you know, I think that's going to going to be meaningful. Um, and in China, you know, China only has about 3— I think 2.7 or 2.8 million metric tons of corn bought on the books. Last year they had over 10. At this point, if they come in and start to buy some corn as well, you know, then we could probably, probably see some support. I mean, overall, I'm not uber bullish, uh, corn. But I think that, you know, I think we'll run into some selling if we get up to $6.50.

I think fair value at the moment based on our assessment of the EU is probably $6.25 basis to futures, and then you let the cash markets do the work after that. But I certainly don't see any, any big drop-off coming either. The balance sheet is tight enough at 1.2 or 1.3, whatever you want to, whatever you want to call it, billion bushels of corn, and certainly only a few hundred million bushels in in soybeans that these, these markets definitely have a, have a bit underneath them. So, um, you know, that said, the end user that we talked to has been buying hand to mouth. We think they will continue to buy hand to mouth. Uh, we don't see any longer-term hedging going on by them. We don't think that's going to happen, uh, anytime soon.

Narrator: Thanks for the outlook on that. The last thing I would ask you here before we wrap up You know, we're starting to hear a lot of fertilizer prices start to trickle out, nitrogen, some dry pricing. Any perspective on your end or any thoughts there, Pete?

Pete

Meyer: No, I don't. I mean, you know, this natural gas market and everything that's going on in Europe, I mean, it's just, you know, I'm just trying to lean over. You can't see me, but I'm going to lean over to see what natural gas is today. It was down 14 cents, but it's still at $8.73 or something like that. You know, when you look at the big names on the fertilizer business, CF, I mean, back over $105, they were, that was a depressed price a while ago, but you know, it's hard. Nutrien's another one. I mean, they're up another 2% today. It's really hard for me to get a handle on what's going on fertilizer-wise. You know, I mean, I think that when we look at the next crop, which would be in Brazil and South America, they get a lot of their fertilizer from Russia. We don't see that being a problem.

We see the Russian fertilizer getting out, you know, and much, much stronger than Ukraine's grains are getting out for sure. So we don't think that's going to be an issue coming. But as far as pricing is concerned, I would not venture to guess on that, Shea. I just, like I said, the volatility in gas or nitrogen, you know, your nitrogen base is just awful. I mean, it's just all over the place, 2, 3, 4% today. I mean, this is just, you know, I wouldn't want to be a natural gas buyer, a natural gas trader at this point.

Narrator: Amen.

Pete

Meyer: A little bit too hectic for me.

Narrator: Well, Pete, thank you for the, for the perspective here, the outlook here for the August, uh, you know, week of August 15th as we move forward. Uh, if anybody listening has any further questions or wants to follow up with anything, what's the best way to get in contact with you?

Pete

Meyer: Oh, they can easily just send me an email at pete.meyer@spglobal.com. So Pete meyer@spglobal.com. I'm happy to, I'm happy to answer any, any questions via email. It's probably the easiest way to get a hold of me.

Narrator: Sounds great, Pete. As always, thank you so much for joining us today.

Pete

Meyer: My pleasure. Thank you, Chip.

Narrator: And thank you everyone for listening to another episode of the Ag View Pitch. We will catch you next time.