Weekly market outlook, Aug. 22-26: it's time to plan your pre-harvest marketing strategy

Narrator: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com.

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and we are heading into another week, getting to the end of August here as we go, and we've got Jared Creed with us, J.C. Marketing, Jared, how's it going?

Jerod

Creed: I'm doing well, Chris, as always. I appreciate the invite.

Chris

Barron: Well, it's good to have you here and good to have the conversation. I guess just, uh, want to, uh, see kind of what you're seeing out in the, out in the fields. I guess you've been traveling around a lot, same as, as I have. And I guess my— I'll give you my two cents first, and then we'll, we'll see what you, what you think. But It's traveled a lot in the center part of the Corn Belt and then north and south of it. And it looks to me like there's still the have and have-nots. I mean, there's some areas where the— it's just a record on a record crop, looks phenomenal, fantastic. And then sometimes you don't drive very far and all of a sudden it's pretty toasty. And you can see that some of these places just keep getting missed and then some of these places just keep getting it. So what do you— what are you seeing more specifically?

And what's your thought as it relates to the markets?

Jerod

Creed: It seems like the word variability has been exhausted the last 3 or 4 years. Maybe our weather is getting more variable. I'm not going to put a tinfoil hat on there, but it's been a wild roller coaster. I think you're dead right that it is a have and have-not type of situation. My gut and from what I've seen, I think there's actually some more, there's more have-nots than there is good places. There are places and pockets that are going to be sitting on records like you mentioned. But it seems like this crop, this growing season of '22 has just had the kitchen sink thrown at it. And you kind of work your way west to east in the Corn Belt, you know, North Dakota and South Dakota, there's a lot of optimism there.

With the exception of southeast South Dakota and maybe some places in eastern South South Dakota, Dakota that are a touch on the dry side, but with that optimism comes a little bit of a reminder that that crop was planted awfully late and growing season is not quite as forgiving in South Dakota, North Dakota, so we got a long ways to go to finish that crop. Nebraska, for the most part, it sounds like irrigated corn is going to be pretty darn good. You got a few pockets of some issues with pollination, but the dryland situation in Nebraska I think is for what the technology we have and the advancements we made, I think dryland corn in Nebraska is just flat out a train wreck. Nebraska is probably a big swing state for overall production this year, you know, always bouncing back and forth between the number 3 and number 4 corn-producing state in the U.S. between it and Minnesota.

Then you make your way into Iowa. For a— seemed like a long time, I-35 was kind of the the west-east mark of good crops to the east, poor crops to the west. And I think that line's actually moved further east, actually kind of right in my backyard, up and down Highway 63, down into Grinnell and on into southeast, southeast Iowa. There's plenty of places that are struggling. And in my opinion, from the years of— from the yields that we've had the last couple of years, there's going to be a large area of Iowa, I don't know, 5, 6, 7 million acres that is every bit of 20 to 25 bushel off the last couple years. That's my opinion. I could be dead wrong there, but when you start looking at it district by district, the crop is just, like you said, it's had the kitchen sink thrown at it from negative, uh, from a negative standpoint.

And as of right now, it seems like this crop is moving awfully fast. It's had its foot on the gas all summer. It's just not slowing down, even with the places that have had moisture and some cooler temps. And the Eastern Corn Belt, I think obviously there's plenty of concern in the beginning of the growing season, but something that's starting to sneak up in the last couple days— again, I'm no expert in this space, I'm not going to pretend to be— but there's plenty of squawking going on about unexpected tipback, and that's obviously a word that can become quite annoying. There's a lot of potential still in those fields, but You know, where it's been raining very consistently the last 30 days, it's coming at the sacrifice of sunlight. And I'm hearing, at least from Pioneer side, Pioneer agronomists chirping pretty loud about tipback caused from a lack of solar radiation.

So again, I mean, you go to the north, planted late, you go to the south, bone dry all the way through the Delta. Those crops are obviously struggling throughout the entire growing season. It just— we're far from going to be producing a record corn crop. I think beans are very easy to sum up. There are some places that are already too toast, too toasty, going backwards without the ability to recover. If we can find widespread moisture, I suppose, especially in the western Corn Belt, it's important to remember North Dakota, South Dakota, Nebraska, Kansas, Missouri, Iowa, Minnesota, that's 45 million acres of beans, half of the nation's bean crop. If you can put some more water on that bean crop, I still think there's probably chance of yielding trend nationally, but we're making some assumptions that right now it's going to be unexpected moisture.

One other piece just on what I'm seeing from our crops. We start on Monday, the Pro Farmer Crop Tour. That'll be very interesting. The western leg is going to start in Sioux Falls, make their way to Grand Island, Grand Island and Nebraska City, then on up to Spencer, Iowa, and Spencer up to Rochester. And you try not to go into that tour with expectations, but you're going to see some very, very ugly stuff the first 2 to, you know, maybe even first 2.5 days before you get in a little bit closer to, you know, central Iowa, I suppose.

Chris

Barron: Yeah, one thing that's worth explaining, you brought up the crop tour just real quick because you're I would call you a resident expert on the process too. Just so people— seems like every year people get confused on the information during the week and then the final number. Can you explain the difference between the two just real briefly for, for anybody here that's critical of the, of the process? Because the process is pretty darn good and it's pretty proven. And explain the difference between the daily yield estimates and then that final number.

Jerod

Creed: Yeah, so the process, just so everybody knows, in, in beans you're basically counting the amount of pods in a 3x3 area. In corn, what you're doing is you're going in past the end rows, 30 paces in, you stop, you measure out 60 foot, you grab the 5th, 8th, and 11th ear, and at that point you're measuring kernels in length of inches and you're counting kernels around. And at that point you have your numbers to drive a yield calculation. It is important that it is a yield estimate, and what is key about those estimates and a longevity of that tour taking place is you have data to, to compare against multiple years, both the tour data and how the tour data lines up with numbers that you actually receive from NASS and USDA. So at the end of each day, whatever the samples show is what the samples show. Those are the numbers that are reported.

And I think maybe a lot of the angst, Chris, comes from you have the tour numbers daily and you have the culmination of the tour numbers, right? But then, you know, not getting into the business of Pro Farmer and such, but at the end of the tour, after the tour is over, Pro Farmer can use some of that data from the tour, but they will still come up with their own national yield estimate as well, right? Remembering that the tour tour only goes through, uh, 7 states in total, right? So basically your Big 7, uh, and at that point, um, you know, what the tour shows is what the tour shows. And it's nice just to be able to compare that versus years prior and, you know, kind of generate your own opinion of how accurate the numbers that you're seeing on a tour are relative to what USDA prints.

Chris

Barron: Yep, no, that's a good explanation. I think just sometimes there's some confusion there that it's nice to kind of make sure that we keep people on the understanding kind of the process there. With all that said, you know, we talked about, you know, crop conditions and we talk about, you know, the crop tour will go next week and that'll, you know, that'll keep a lot of interest for a week and traders will watch that and, you know, there may be some movement around, you know, back and forth, but With all that said, talk a little bit about where's the market right now. I mean, does the market have any weather in it? Does it have any other demand segments of things? Is there anything technical going on? I mean, we've seen the corn and bean thing just kind of bounce around.

I mean, we're sitting in that 6-something, you know, $6.20, $6 to $6.20 range on corn, it seems like, and kind of around that area in that $14 to $14.50, kind of just kind of hanging out in those areas, you know, what's the upside potential or the downside potential in your opinion based on some of the, you know, some of the things going on outside of the crop production side of things? Or maybe, and maybe that too.

Jerod

Creed: Yeah, in the last 30 days we've really, we've really gone nowhere but violently, right? That makes sense.

Chris

Barron: Yeah, exactly.

Jerod

Creed: And it's, you seems like corn is trying to carve out what I would consider— I do think that barring any negative outside surprises or, you know, a much larger crop than anticipated, it seems like corn is trying to grind out an earlier low than what we're used to. And it does seem like the last few years we're setting harvest lows a little bit earlier than, again, what we're used to. So bouncing either side of $6 December corn, trying to maybe say the $6.25 is fair value at this point in time. Beans bouncing around the $14 area, just quite violent swings up and above and down below. Uh, but you rewind the calendar a week ago, you had your August WASDE, and it's critical to remember in that, that it does not have any boots-on-the-ground data from any USDA enumerators in their August numbers. It's farmer survey satellite data and, uh, looking at the July temperatures and precip.

Maybe the most anticipated number out of that report was seeing what we were going to look at for, you know, quote unquote, final acres planted. And you had some adjustments primarily from the resurvey in North Dakota, South Dakota, and Minnesota. And now we're stuck with those acres here for a while. The only other caveat to that is what percentage of those planted acres are going to be not harvested, and that number will likely change. It's just not going to change anytime soon. So there's all this, all this unnecessary talk about what the yield is, what the yield is. Well, it's more important as a total production. Right now we're hovering at $14.4 to $14.5 billion number in corn. My personal belief, I think that that number can be a lot closer to $14 than $14.5 when all the dust settles.

But that's going to come at the expense of losing, you know, several hundred thousand acres not harvested. So, excuse me, so at that point, uh, your yield number might not change much. It's going to focus more on total production in a market from a marketing perspective of looking at the actual crop production right now. It's kind of in a lull. You're in the dog days of the summer, and in September September, we're going to have another quarterly grain stocks to end the 2021-22 marketing year. And on top of that, we're going to get another look at actual, uh, you know, USDA plot data on yields, which definitely holds a heck of a lot more firepower than the July and August WASDE. You know, from other outside pieces that are maybe I don't know, creating a little bit of a wet blanket, I suppose, just from a fundamental standpoint.

We continue to see Ukraine estimates from both a production and export estimate go up in the last week. It seems like grain is moving relatively freely. That's a poor choice of words for what's happening over there, but grain is moving much more fluid. And their production estimates keep creeping higher from the big cuts that we had at the very beginning of the, uh, you know, all the tension between Ukraine and Russia. So outside of that though, Chris, I don't know if there's really a whole lot to write about from a fundamental or technical perspective. You've had wheat just get pressured so darn hard for so long that you would think, and kind of the way the market closed on Friday, uh, you're awfully close to seeing some speculative shorts in the wheat market actually get stopped out.

So wheat could be our saving grace here for a moment if it can firm up and actually go on a decent rally. I wouldn't really be all that surprised to see December corn, you know, even trade back up above $6.42 where we petered out here, I don't know, 2 weeks ago or a week and a half ago. Uh, and then on the bean side, Chris, I mean, right now it's just— you've had some good people on your show talking about, uh, the potential out of South America, and I think that right now it has to be considered that potential that maybe, just maybe, the weather market rally that we have become accustomed to in North America, our weather market rally for 2023 could very well be in the December, January timeframe if you have a weather scare in South America. Kind of nuts to think about it that way, but they're forecasted to raise 6 billion bushels of beans. That's, that's an amazing number.

It's an amazing number relative to what the US produces. Right. Uh, and, and with that said, you know, even their yields are surpassing the U.S. numbers. So from, from a standpoint on the bean crop, you know, as long as we don't see demand just absolutely crater, which it seems like our demand is staying firm, uh, that's probably against common logic. A lot of folks are concerned about potential recession in China, but they're continues to be a bid for bean exports both out of the U.S. and Brazil. In fact, from a cash value, you know, the Gulf traded $3.35 over the November on Wednesday, maybe it was Thursday, one of those days. You know, that's somebody still buying over $17 beans to leave the U.S. That tells you about all you need to know there.

So just to, you know, to wrap up beans, yeah, you're going to have to focus on what this yield number is and a few more you know, reports and maybe adjustment on stocks. But I think the big story for the shorter term, you know, a 3 to 6 month window, is monitoring the progression of planting in South America and their growing season. And that very well may be, again, that could probably provide some of the better marketing opportunities that we have for both old crop '22 beans and new crop '23 beans.

Chris

Barron: All right, so let me ask you another question, and we'll stick to the '22 crop here for a minute. Then I gotta— I'm gonna throw a couple things real quick at you on the '23 crop. But so, you know, we've been talking Pro Farmer Crop Tour and what we're seeing out in the fields, and hopefully producers— this time of year is the time of year where hopefully guys are out doing some yield estimates, kind of figuring out roughly, you know, and doing some projections where they're at. And, and for some of these operations that maybe have been a little slower on sales, or maybe they've been faster on sales and they're, and they're realizing their percent sold higher than they thought it was, there could be the other way too though. So we need to be planning logistics and storage and those kind of things with that data.

Any comments on, you know, what producers should be thinking about once they, they get some of those yield estimates and they start looking at what their production is, whether it's a little overrun or they're going to be a little short either way.

Jerod

Creed: Yeah, obviously logistics can be a big piece of the puzzle in the fall. Hopefully that's not going to be an issue just based upon what pricing opportunities were on the table this summer. And quite frankly, you're still talking $6 corn and $14 beans, right? That's— I would sign up for these prices for the next 5 years if input costs stay the same, right? I got no complaints. Yep. But I think it's probably time before harvest to do some what-if scenarios. Okay, so I have my estimate of a yield of X. I've got this grain sold. I've got these bushels unsold. You know, what is my what-if scenarios if I price the balance of my grain at various price points both up and down to get to a total revenue number? And the same to be said on the flip side. Downside, if you're looking at a potential of a lower yield, are you in an insurance indemnity situation?

And I'm sure you have plenty of listeners that are probably in an insurance indemnity, right, right here and now before harvest. You must, you must, must, must look at some what-if scenarios from above and below a $5.90 December corn price. Everybody wants to talk about, you know, know your risk, know your risk. Well, quite frankly, between now and the end of October, sub-$5.90 corn, the risk diminishes for the producer that has a short crop because it's the lower the price goes from the spring price, the higher the yield requirement is going to be to offset a revenue claim. And vice versa, if the market takes off, you just need to acknowledge, um, if you don't, you know, you're gonna, you're not gonna have a revenue claim if the market's higher than the spring price, you're only in a yield claim situation, and if you're not going to have a yield claim, your risk is getting larger.

Now granted, that is a good risk, market being higher. That's the difference— good and bad risk is on the table. But it's time just to look at those overall revenue scenarios, not focusing on just I sold corn too cheap or I have not sold enough corn or whatever it may be. What is the final total big number. And I'd say there's a tremendous— I would say the overwhelming majority of producers, uh, throughout the Corn Belt primarily, you're probably talking on the low end of $1,000 revenue an acre to on its top end, you're probably going to have some people that are bumping $1,400 to $1,500 revenue. And now you just got to start doing your what-if scenarios on either side. And and, you know, make your business decisions, i.e., marketing, uh, on where you want to be, making sure that you got those orders working, uh, for again where you want to be.

And the other piece too, that's gonna— that in my opinion, it's probably one of my more stronger opinions, which actually scares the heck out of me that I'm just dead set on it. I think basis is— I don't think we've seen any of the fireworks, the fireworks that we've had the last 6 months in basis, I think it's going to be child's play compared to this next year. We're going to— we brought corn into the processor early last year and we're stuck in fumes right now. We're going to be begging for corn early again this year, albeit the majority of that crop is going to be a tad later just because of plant date. And you're going to have such a long, strung-out harvest from south to north that I don't think we're ever going to feel some type of a harvest glut. A, the yield isn't a record. B, our acres are down from years past. And C, farmer bins are empty.

I don't think you're going to see the commercial world ever get full. Their daily consumptive use versus the space that they have, there's going to be few and far between places that actually run into 'Hey, we're full, our basis sucks now.' Uh, I just don't see that that's going to happen. So the, the basis piece, I mean, you're talking probably to the extent of over $100 an acre on average of a difference in basis opportunities for this year versus years past. Yeah, that's a tremendous amount of change.

Chris

Barron: Yeah, last year was a big year to manage basis correctly. This year is going to be all of that plus, plus some, maybe, like you say. I I also think I would add to what you said, you know, by, you know, there's usually two opportunities from a logistical standpoint to be moving grain if you do have overrun. Two is, you know, the early, you know, obviously you mentioned that, is trying to be in there as quickly as you can. But the other one always is in the hot zone of soybean harvest when everybody's doing soybeans. So if you do have a way to get an extra truck or two moving, which there's never enough trucks, there's never enough drivers, and there's never enough labor. I get that. But boy, if you can just plan something out and figure out how to do that, your $100 an acre is, is no lie. I mean, that's— those are real numbers.

That pays for a pretty good labor premium for somebody to keep a truck moving to take advantage of those opportunities for sure too.

Jerod

Creed: Yeah, and probably the best way just to look at basis under the assumption we see some, you know, light your hair on fire basis values in the first, oh, I don't know, first 20-25% of corn harvest. I think what you have to look at is if, if my bid difference for shipment now versus say January, a bushel that can go in the bin and stay there but doesn't necessarily have to, You're looking, you're betting on the come. If you've got a 50-cent difference in a bid from now versus January, you not only need basis to get 50 cents better in January, but probably closer to 65 to 70 to cover the additional cost that you're taking on from handling that grain for that long of a time frame, and on top of any interest that you're paying in that time frame.

Chris

Barron: Yeah.

Jerod

Creed: So, that's it. I'm excited about basis, don't get me wrong, but I don't think it's a situation that you just sit on your hands trying to hit the home run on basis. I mean, Chris, I legitimately think that anybody that's close to a processor, especially— I'll just break it down from basically Nebraska, Iowa, Illinois, Indiana, Ohio, some parts of southern Minnesota, some parts of South Dakota, Missouri, and Kansas. I really do think, and this is famous last words, I'm sure I'm gonna get some, I'm gonna get a nasty message about this, but I really do think we're gonna get to see selling $7 corn a handful of times between now and, you know, let's just say the 1st of March.

Chris

Barron: You gotta be, you gotta deliver it though. Yeah, you gotta sell it and deliver it.

Jerod

Creed: Yeah, a lot of that's going to be on the heels stronger base. Right, right.

Chris

Barron: Now that's really good. So real quick, to wrap up, let's shift gears here for a minute to '23, and then we'll wrap this baby up. But, um, we've seen, um, Shay did some, uh, research earlier, I don't know, like a week and a half ago, just to kind of get some feedback from, uh, some people on kind of where, what we're seeing for inputs. Particularly the stuff he was looking at was nitrogen, and we're seeing some ranges anywhere from like on 32%, anywhere from that 400 to 500, kind of in that range-ish. And nitrogen or anhydrous for fall applied somewhere in that 1,000 to 12.25 or something like that, kind of all over the board in between there. What are you seeing? Are those numbers similar to what you're seeing, or what are you hearing?

Jerod

Creed: Yeah, that's the same numbers I've been seeing. Uh, I think the process there in '23 though needs to be a little bit different than '22. That legitimately think there is risks on the table from input prices and long-term grain prices for next year's production, the juice is not worth the squeeze to take the risk. As in, when you go back to those, you know, scenarios or playing things out of total revenue versus costs, um, the last thing we need to have happen is just explode the ratio between our nitrogen costs and the corn price. And I think it's right now hovering around $5.90 to $6.23 corn. I really do think that if you're buying fertilizer, sell the amount of dollars of grain that you're buying. Yep. Just— and it's a hard thing to do that far out. But again, it's the point of you just got to do it. In my opinion, it's— call it a cost of business.

Maybe you miss out on being able to sell a higher grain price on that percentage of grain. But when you look at the entire picture, you're still long a lot of production out to '23, whether it's insurance bushels or physical bushels. But I don't think— I just think it's a very poor business practice to be buying fertilizer at the values that were being offered and not selling the grain against it. That's the fastest way to, you know, ruin the equity build that we've seen on the farm in the last few years.

Chris

Barron: Yeah, for sure. And I, I think you're 100% right there too, because, you know, it's— we have to be margin managers rather than price takers or price chasers, which I mean, I— nobody knows what this thing's going to do. We've been staying at these pretty lofty levels for quite a while, and there's nothing that says that the, you know— and that's, you know, my last, last question, I guess, is, you know, you didn't mention the, the outside money. You know, that's been pretty darn supportive of this whole thing, and we're pretty dependent on that, aren't we?

Jerod

Creed: Yeah, we are dependent on it. I don't want to go down a rabbit hole too far, but it certainly does look and feel like that money's coming back into commodities ever so slightly. Yeah. You know, they've been on a fairly decent buying spree. I'd say, you know, corn's working on a little bit of a trend right now of higher lows and higher highs. We can ruin that in a heartbeat. And the It does feel and look like the big managed money just flat out does not care right now. You have some interest in buying some commodities. Maybe that's driven from other parts of the world, inflation issues that we're experiencing, but you— it doesn't feel like an environment that funds would ever have the interest in going short. That day will come, but I just don't see that on the nearby horizon.

Well, so if you have an opportunity to participate in a big rally where they're wanting to buy, they're wanting to own the grain at a big premium, give it to them. Yep, yep.

Chris

Barron: Well, and I just look in here too, uh, while we were talking, just to wrap up on that nitrogen thing, it, you know A lot of producers, if they sell to maybe 10% of their production, maybe 10 to 15%, kind of depends on where a producer is at. But it's not like you just got to make some huge sales for, for the '23 crop year either. I mean, you're probably making a 10 or a 15% sale, you know, to match up. So it's really not a big—

Jerod

Creed: you're hitting them. Yeah, you're hitting the nail on the head there. It's almost as simple as taking your projected acres and production for next year. When you buy your fertilizer, turn around and sell 15% of your crop. Yeah, because that might be a little bit more than the money you're going to spend on a fertilizer, but it's not like selling $6 corn as a starting point based upon all the costs on the farm is a bad spot to start whatsoever, right?

Chris

Barron: Yeah, I was just doing the math there. Yeah, it's Yeah, percentage-wise, it's, uh, it's a way to look at it for sure.

Jerod

Creed: So any, uh, I guess one other comment on that for anybody that got '23 corn sold, you know, we traded as high as $6.70, uh, in the late spring, and the approaches of selling grain out in '23 was almost methodical and boring. We knew that we had a big unknown on fertilizer cost But we got to price points that it was going to be hard to justify fertilizer prices outpacing the selling opportunities that were on the table. So it was literally just, I'm going to sell a percent here, I'm going to sell a percent here. I'm talking like literally we were putting in 1 to 2% sale orders every dime. And quite frankly, started at like $5.60 and got filled all the way up to $670 for numerous individuals. And so the overall average price on those sales and the dollars associated with them, it was basically as soon as the fertilizer supplier would give us an offer, we're buying it.

Didn't really matter what the price was. We knew that the ratio was great and the juice was not worth the squeeze once again to try to speculate on fertilizer going lower. And I'm obviously not a fertilizer salesman, but some of the things that are happening in the world from shortages of natural gas going into Europe, you know, they're not producing anhydrous ammonia. And for the longest time now, I've been questioning if this is a good thing to even look at. But CF Industries, big fertilizer player, their stock price was down to $80 a share on July 14th. It recently traded $105. Hmm. $25 rally on an $80 stock, and their high price at the, uh, you know, around the invasion into Ukraine was at $110. So to me, I, I do have a concern that fertilizer has probably seen the lowest prices it's going to see until maybe next summer again.

Chris

Barron: Interesting. I think it's a good place to wrap up. I mean, it just— the, the take-home message here is pay attention to '23 while you're paying attention to '22, because there's, there's opportunities, and we're going to have to manage that risk going into '23 for sure. Any, any, uh, um, final thoughts and any takeaway for you, and we'll wrap her up?

Jerod

Creed: No, I think that's it for today, Chris. Awesome.

Chris

Barron: Hey, uh, really appreciate your time, and it's been a great conversation. Thanks a lot, Jared.

Jerod

Creed: You bet.

Chris

Barron: All right, and again, Jared Creed with JC Marketing in Hudson, Iowa. Um, if they want to get a hold of you, somebody does want to give you a shout, what's, what's the best way to get a hold of you real quick too?

Jerod

Creed: Old-fashioned, just give me a phone call or a text message. Phone number: 402- 6801744.

Chris

Barron: Awesome, sounds good. Hey, thanks a lot again, and thanks everybody for listening, and we will catch you again next time on the Ag View Pitch.