About This Episode
Dec corn sat in a $5.40 to $5.60 band for about six weeks, broke out after the August 12 report, ran to $5.94, then closed the following Friday at $5.37. Roughly 60 cents gone from the high. Clark Neighbors ties the slide to things outside the grain pit: Fed taper talk, a dollar index at its highest since November, COVID pressure on energy, and a midday story about the EPA cutting RFS volumes below the 2020 level. Soybeans closed in the low $13s.
Late August is when growers talk themselves down. Neighbors calls it the pre-fall fade: a farmer convinces himself he has 160 bushel corn so that 180 off the combine feels like a win. That makes selling harder even though the margin on the board is the best since 2012. Pro Farmer's 177 bushel corn would add 300 to 350 million bushels of carryout, pushing toward 1.5 billion. Snug, not comfortable. The 51.2 bean yield adds about 100 million bushels. Neither number changes the picture much.
Tight old crop stocks mean most of the Midwest has room to put this crop away, so Neighbors does not expect a flood of producer selling before harvest, and basis may not weaken much. The first 10 to 15 percent of harvest just refills the pipeline. Carries have started building in beans after months of inversion, and the bean export program runs hard from harvest through Christmas while corn exports wait until after January. Sell beans, hold corn. In the dry west, early harvest may buy short-lived basis premiums.
“A lot of times a producer will convince himself that he's got 160 bushel corn. So when the combine rolls and it's 180, feels good.”
— Clark Neighbors
Key Takeaways
Dec corn gave back about 60 cents from its $5.94 post-report high and closed the week at $5.37, under the $5.40 floor it had held for six weeks.
The pressure came from outside grain: Fed taper talk, the dollar at a 2021 high, softer energy, and an EPA story pointing to RFS volumes below 2020.
The margin on the board is still the best since 2012. Late August yield pessimism is what makes it hard to sell into.
Pro Farmer's 177 bushel corn would add 300 to 350 million bushels of carryout, near 1.5 billion. Neighbors does not think that moves the market much.
Beans have carries now and a strong export window through Christmas, while corn exports wait until after January. Sell beans first and hold corn.
Storage is not short this year, so basis should hold up better than usual into harvest. Dry western areas may see brief premiums for early, high moisture corn.
Full Transcript
Chris: Welcome everybody to another episode of the Ag View Pitch. We are heading into another week of marketing, actually the last week of August, and we're lucky enough to have with us Clark Neuber. How's it going, Clark?
Clark
Neighbors: I'm good, Chris. How are you?
Chris: Good, good. So, uh, talk to you just a little bit offline here. I think we're gonna, we're gonna title this, uh, discussion Under Pressure because, uh, last week we saw the markets under some pressure. Pressure for various reasons, and we'll try to hit on some of those topics. But before we do that, let's talk a little bit about kind of the crop conditions and what we're seeing. It looks like in the Cedar Rapids area, I flew into where you're located a couple of days ago, and boy, there was a lot of brown burn-up spots coming in and kind of the north-central part of Iowa. What are you seeing in your area?
Clark
Neighbors: Well, I think that would flowing with what you're saying, Chris. Here in Cedar Rapids specifically, haven't had much rain, say, in the last 4 weeks, month, if you will. Lighter soils are showing some issues. Some of the— those are doing okay. So I, you know, I don't know how big of an area or pocket that is. I think anytime you're in the western Corn Belt this year, there's gonna be a lot more variability. I think the crop tour probably pointed that out as much as anything, that west of the Mississippi, we're going to see a lot more variability. East of the Mississippi, things look real good as a general rule. Where does that play out in the end? As you and I talked about off the air, time will tell in the next few weeks.
But I think as a whole, from what I hear in general, most customers in general seem pretty comfortable with their crop considering the lack of rain in some areas. Others may be concerned. And then in the east, you know, Illinois, Indiana, Ohio, you know, things are real good in general. Yep, that time we nitpick about every little thing that's either right or wrong with the crop. I even kind of call this time of year the pre, the pre-fall fade, if you will. And it's kind of human nature to— I don't care what year it is. The crop is not looking good. A lot of times a producer will convince himself that he's got 160 bushel corn. So when the combine rolls and it's 180, feels good. Or if it's convinces himself the 200 bushel corn when the combine rolls is 220. So they feel good.
I, I think we were in that window, been doing this a long time, and this is the time of year where I think you see a lot of that type of thought process mentally going into harvest, and it's human nature to do that.
Chris: I think it makes it a little harder to make sales or to feel like we should be comfortable to make sales even though the margin opportunity right now is the largest that we've seen since 2012 still with the prices even after last week's, you know, pressure on the markets. But with that said, you know, there's a lot of stuff going on. There's a lot of risk factors out there. You know, we talked about, you know, the potential issues with demand. We talked about some potential issues, you know, with the technical side of things and with the funds and them stepping aside a little bit and doing a little risk-off last week and some things like that. So Talk a little bit about some of the things that could pressure the market or anything that kind of concerns you out there that we should be aware of as farmers.
Clark
Neighbors: Well, I think the things that are pressuring the market, maybe that's a better way to look at it right now, is the fact that, um, macro-related, a few things going on, especially this week. Number one, the Fed talking about the taper, which means less buybacks into, uh, bonds and treasuries, etc. Uh, it's kind of a leading indicator that maybe inflation's a little more of an issue, an indicator that we may see some changes in interest rates down the road. And I think that put kind of a pause in a lot of the investment world this week, even though the stock market kind of, A, took a pause, we're still near highs. But having said that, you get that in play, the US dollar, a new 2021 high today. Keep in mind the dollar index tends to be a direct reverse correlation, if you will, with commodities. In fact, we haven't seen the dollar this high since November of last year.
So that tends to put a little headwind on the commodity world. I think there's enough COVID noise out there that's put some pressure on energies in that regard too. To point, I think we'll see some issues in regards to just bleeding of confidence, if you will, to some degree with the Afghanistan situation also. So those are some things kind of floating around in the market right now, at least from a, fundamental macro standpoint. And then there was a story floating around about late morning, midday today about the, the EPA, uh, basically wanting to back off and some of the RFS numbers going below the 2020 value. So that You know, what happens with that, how the administration and the White House interprets that or pushes that forward will be seen.
But I think that put a little pressure on the late close Friday and put some additional negative tone as far as from a newswire or a fundamental story. And then lastly, technically we did quite a bit of damage this week too, this past week. Dec corn prior to last week's report was in a $5.40 to $5.60 range every day, every day, every day for like 6 weeks. We busted above that a week, a week ago Thursday on the 12th of August. And after that report went above that $5.60 area, went all the way to $5.94. Here we closed this past Friday at $5.37. So we're pushing what, 60 cents off of that high coming out of the report. So closing below $5.40 wasn't good on the corn for the week, low $13 to $13.10. That's not what I would call a good technical close on the soybeans.
But as you mentioned, to put it in perspective, these are good values still from a historical perspective going back the last 10 years.
Chris: Right. Yeah. And that's, you know, kind of leads to another question here. We come off of last week's, you know, Pro Farmer throwing out a $177 on corn and a $51.2 on beans or whatever. That's a little higher than what the USDA said, you know, back in the last report. You know, what does that— you know, does that stuff start to influence the market, do you think, too?
Clark
Neighbors: I think the market's trading probably a number equivalent to what the USDA was, to slightly higher. So I'm not sure the market's going to be influenced tremendously on those numbers. I mean, the knee-jerk reaction is, all right, if the corn yields 177 when it's all said and done, that would add off the top of my head 300, 350 million bushels to the carryout, which in theory on corn would get you up near 1.5 billion bushel carryout. Demand doesn't change dramatically. That's still a slumber, not a 1-2, it's not a 1-1, but it's still snug. Beans, if you're 51.2, that adds probably around 100 million bushels to the being carried out now that it's being carried out to, you know, again, not changing the demand dynamics too much, probably a $2.50 carryout. That would be a little more comfortable than the mid-$1.50 area that we're seeing right now.
So I don't think those are numbers that change the big picture, move the needle dramatically. We may see a little more pressure at harvest time, but You know, I— one thing I anticipate in talking to a lot of the elevators or commercials I talk to, it doesn't feel like we're going to see a big surge of producer movement between now and harvest. Now, during harvest, that'll be interesting to watch. But keep in mind, with the tight stocks, most areas of the Midwest should be able to put this crop away. I don't want to say easily, but fairly comfortably in most care— most areas. And Because of that, we may not see this big surge of bushels looking for a home. Uh, it's going to take first 10-15% of harvest, Chris, I think, to fill the pipeline back up to some degree, depending on how quickly harvest goes, how the weather plays out.
It's, uh, again, I think it's going to be hard to see huge producer movement this fall, so Taking that a step further, basis levels may not see a ton of weak weakening as we go into harvest, I guess is what I'm trying to get at.
Chris: I was gonna, I was gonna get to that question. You sort of answered it a little bit, was, you know, how does that, you know, bode for basis as farmers look to being able to maybe store more than what they otherwise maybe could have just by the crop being a little bit short, but on the eastern side, you know, maybe that'll be a different picture. So for the producers that maybe have a little excess that they don't have room for that's not currently sold, what do you tell those, those producers? You know, are they, um, are they smart to sit on their hands here going into harvest, or if they've got bushels they're not going to be able to, you know, put in the bins? And I, and I, and I'm speaking to soybeans as well, so you can hit corn first and then soybeans because there's going to be stuff that's going to have to go off the combine yet that I guarantee is still not priced.
And so what do you tell— what do you, what do you tell those guys to be careful of or to watch?
Clark
Neighbors: Sure, great question. So I think you do a comparison to some degree if you're tight on space or if a fair amount of your bushels need to go to town at harvest time, if you will. You know, you still look at the carries in the market and say, all right, what is the market telling me to do today? We have seen some carries built into the bean market just this week. Bean market has been very inverted. If you recall a year ago, the market was kind of screaming out this time of year, and it's a whole different scenario versus a year ago, is to sell beans and hold corn. And I think from a comparative standpoint, that is the same theme, I would say, going into harvest this year. Is there's probably better opportunity to hold corn, if you will, at least from a carry standpoint than beans.
Now, the other part of that equation is typically at harvest time through maybe Christmas, uh, the export program for beans is very robust. The corn export program typically doesn't pick up until after the first of the year. It's just kind of the way the logistics work out. So that could also create what I would call firmer or less pressure on the basis in beans because the pipeline is going to need to keep that thing fairly full as we go through the harvest months. We've seen 10 of the last 11 days, and don't quote me on that, but I think that's pretty close, where we've had some sort of export announcement to an unknown or China each morning. I think today is one of the few days in the last couple of weeks we haven't seen an announcement. And keep in mind, typically most of those beans are going to leave the U.S. over the next 4 to 5 months once harvest picks up.
What will also be interesting in that, as you mentioned, anything going out of the PNW, i.e., the Western Belt, especially the Northwestern Belt, the assumption is that crop's not going to be as big, not going to be as good, maybe not going to have as good a quality. So does that mean the Gulf, for example, that's going to be able to pull off the eastern Corn Belt a little more readily. As far as corn, Chris, I would say we would look for opportunity to see better basis down the road. From a flat price perspective or a board perspective, especially with this kind of break, that may bring on some additional business both in corn and beans. I mean, if you're an end user, this is the kind of break you've been waiting for, hoping for to get some coverage. Whether it's an ethanol plant, end user overseas, whatever it might be. So watch carefully over the next 3 or 4 weeks.
If we start seeing some more announcements pick up, that could be at least a stable situation for the market and possibly an uplifting type situation for the market going forward. So again, in a nutshell, sell beans over corn. If things need to move and kind of watch these announcements on a day-to-day or week-to-week basis because that's going to be key as we go through harvest on how this demand pull starts to play out. I think once we quit talking about supply, the focus is on demand. And once it's on demand, the demand story is still strong. Okay, doesn't mean— yeah, Ralph. Very supportive.
Chris: Yeah, well, it's a good, good point. I think, you know, the, um, when the combines roll, people better be thinking about if they, if they do need to get the beans sold, be watching that real close now. And because basis might get away from us short term before it comes back, and if you're not planning on putting those soybeans in the bin, better have a plan. And now is probably the time to be really getting that put together. Um, any Any final thoughts or anything that, uh, I didn't bring up as we wrap up here?
Clark
Neighbors: Well, again, August is always kind of a weird month, weird transition month. You're kind of gap the bridge from the old crop to the new crop. I think it's on to some degree on steroids a little bit this year because the tight stocks going in, the pressure to, uh create a good crop, you know, that is to be determined how that all plays out. So it's not uncommon to see some pressure in the market this time of year historically, especially this time of year as we make that transition from old into new. We've seen huge basis premiums, as we know, in pockets, and I think you're going to continue to see that until the pipeline fills. One thing producers maybe in the West may want to watch because of the dryness, maybe there's some of this harvest that's able to go a little earlier than what they typically, typically would see. They may need to push to fill that pipeline.
There may be some nice basis opportunities, but it may be very short-lived. But I think anybody that has the crop that's coming on a little quicker than anticipated, may want to have that in the back of their mind. Do I harvest 30 to 35% corn if I get a certain premium and figure out what that's worth as far as shrink and drying and all that? So, uh, be light on your feet to take advantage of those if that opportunity exists.
Chris: Yeah, there's probably going to be a lot of opportunities too where maybe some higher moisture, uh, corn and that kind of thing is going to be opportunities where they're going to give you some drying discounts and those kind of things just to get the bushels in there to get the pipeline started up. So good points.
Clark
Neighbors: I agree.
Chris: All right, well, hey, great conversation. Really appreciate your information and your contribution, and we will be back and bug you again another time fairly soon.
Clark
Neighbors: Super, thanks for the opportunity, Chris. Have a great, have a great harvest yourself.
Chris: All right, thanks a lot. Again, Clark Neuber out of Cedar Rapids, Iowa, and we really appreciate your time. And again, to Everybody, thanks for watching, and we will catch you again next time on the IQ Pitch.