A big corn and soybean crop?

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

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch. We are heading into another marketing week, August 8th through the 12th, but we are recording this on Friday because myself, I have a son that's getting married this weekend. And we are lucky enough to have with us Ryan Moe. And you got a bunch of stuff going on this weekend too, Ryan. How's it going?

Ryan

Moe: It is going pretty darn well. I'm down here in Iowa, so right back where I belong.

Chris

Barron: Yeah, so Ryan Moe with StoneX. You guys, uh, let's just get right into this. Uh, you guys had a crop report on Tuesday the 2nd of August. Talk a little bit about that. What'd you guys see? And, and What's some perspective on, on CRAP?

Ryan

Moe: Yeah, so it's important to note that the methodology behind this survey is that of a survey. It is not anybody going out and pulling any data with any fancy technology. It is people like me and brokers like me with relationships either on farm or at the grain handler space, and we call all of those customers and we ask them what their impression their yield is going to be for the January report, not what they see this upcoming report or the report of September. We are trying to focus on what the January number is going to be. And so we came out with a number I think that was a little bit larger than a lot of people expected on the corn. And with 176 bushel an acre corn crop, I think that's a very strong number. Number.

From my perspective, the customers that I polled in the western Corn Belt, I was rather amazed by how pleased so many of these grain companies are with the crop that's in the field. When I looked at how much rainfall they've had in June and July, I was thinking that we would be a little bit softer and people would be pretty conservative with their initial estimates. But they came out pretty strong. So I think we have a pretty good crop here in like the root areas of the Corn Belt, but I do have some concerns about the perimeters. On the bean number, we came in at 51.3 bushel an acre. To be frank, I don't put a lot of confidence in any yield estimate that comes out on the 1st of August simply because it's the 1st of August and everybody knows that August is bean month and so much can change. But we have to put out an estimate, and so that's what we came up with.

It's better than what a lot of people thought, but I still think that, uh, we have a lot of things that can happen here in August to make or break this crop.

Chris

Barron: I know you and I talked offline, um, actually yesterday, um, when I was traveling at— I spent this past week in North Dakota, and I've kind of been all the way up and down Minnesota and and across Iowa, of course, and a lot of Illinois. And so I haven't personally been in Indiana as much or Ohio or east, but we talk to a lot of guys and I'll be getting to that direction and also getting south. And what I continue to hear is, you know, there, we always call it the have and have-nots, but it seems like there's a lot more haves than have-nots. And unfortunately the have-nots are living in a toaster oven And then on the other side of it, you know, some of these areas are just getting ideal rains.

You always wonder, you know, and I'll hit corn first, but, you know, it just seems like the good areas could fairly easily outpower the bad areas, which is not fun to hear if you're in one of those bad areas because, you know, it's easy to have that backyarditis. The other thing I wanna say, and then I'll shut up and get your perspective on this stuff, here, Ryan. But the other thing that I, I've noticed as an observation, like not traveling everywhere but traveling a lot of areas, is that the soybeans don't look nearly as good as the corn in a lot of areas. Now, I was shocked in North Dakota, South Dakota, how excellent in most of those areas— South Dakota is a little more sketchy— but shocked in North Dakota. I mean, their crops look almost as good as, as in Iowa, especially in the eastern half of North Dakota.

So talk a little bit about that, because the thing that scares me a little bit with soybeans and having a 51-bushel yield on soybeans is, you know, they're quite a ways behind, and we run out of daytime eventually on those. A lot of those, you know, especially Iowa got planted a lot later. So if you look, I mean, we're we're 10 to 15 days behind schedule. So we're going to need a— we're going to need September to be a growing season month.

Ryan

Moe: Yeah, I don't know how you get longer days. Yeah, you can figure that one out, that would be great. Yeah, so you're, you're spot on about the soybeans needing time. Um, to your point about the Dakotas, credit to the farmers out there. Holy cow, when you look at what a terrible window they had to get that crop in and how well they did and how well they performed in those circumstances, it just once again tells the market to never bet against the American farmer. They did so much with so little out there and it looks like they're going to be rewarded for it. If we can delay a frost, that's another thing. If you can figure that out, we'd really appreciate it. Yeah. If we can have a late frost, the Dakotas are going to do— I think they're going to do very well. To your points about the have-nots, it's going to be pretty bad this year.

And you really feel in your hearts and minds have to go out to those farmers in places of Indiana that are just totally scorched. And there's parts of Nebraska and Kansas that again are totally scorched. And there is going to be some very key demand areas that are going to have a big need for crop that the truck market just flat out isn't going to be able to reach it with any efficiency. Right. So that's going to impact basis in the more central areas where there is a good crop. Because if the railroads can perform, I want to go ahead and put a big if on this because these railroads have been a massive disappointment in the last 18 months or 24 months or however long they want to go ahead and blame COVID. But the railroads have really disappointed as far as service is concerned. And if they can hold up their end of the deal, we will be able to get corn to those areas.

But the have-nots are really hurting right now.. And if the rail can perform, we can, we can do okay by getting them by. But we got to really put the weight on the Union Pacific and the BN to get those bushels to where, where we're going to need them. So don't underestimate what the bad crops in parts of Nebraska, Kansas, and Indiana, what that's going to do to basis in your local market. If you— even if you think you have nothing to do with those crops, that does matter for you.

Chris

Barron: Yeah, for sure. And, and, uh, as— while you— I guess while you're on basis here for a minute, um, talk a little bit about, you know, give us some perspective. We talked offline just a little bit on basis. Give us some of your perspective on some of the things you think producers need to pay attention to, both on if they're— if they still got a little bit to clean out of the bins yet, hopefully not, but if they still got a little bit yet to get rid of and, and managing that with new crop, talk a little about that.

Ryan

Moe: Yes, if you still have corn in the bin, think of it like— you have to think of it from a grain buyer's perspective. The grain buyer's job, his or her job, is to not pay any more for corn or beans than they absolutely have to. That's their job. Now, when they get coverage, let's say harvest is going to start September 15th in your area. As soon as they get enough corn to get them to September 16th, they should immediately drop their bid. That's just— that's what they should do. Now, they— it doesn't always work that perfectly. It's not always that linearly, but that is, that is how it should look. So when I'm looking at the corn bid for May, June in Cedar Rapids, it's $1.40 next week. My question is, what more do people want? So there's some old crop corn that you still have laying around. I don't know what's stopping people from delivering that.

And if they want to have risk, which I can understand if people want to have risk, if they're bullish the the market, this should be bullish futures and not bullish basis, because I don't know how much better it's going to get than $1.40 with a 10% carryout-to-use ratio. So corn basis at any point here is going to do what bean basis did here in the last couple of weeks. We saw massive overs being paid at soybean processing plants all across the Corn Belt. And heck, last week, or I think it was yesterday or the day before, bean basis, the, uh, Mankato market and the Fairmount market went to 5 under the nose. So I mean, yeah, you can see a buck, buck and a half correction in corn basis any day now. So people just need to, if they've got stuff to market, just get it to market. And that's— and if you're waiting, my question is, for what? And what more do you want? And is there a target?

Chris

Barron: So, um, let's transition to the '22 crop specifically here now. And let's just— I'm gonna just throw a couple numbers out there. Let's just throw $6 and $14 out there as, as you know, we we seem to bounce up and down. You know, there's been, you know, quite a bit of volatility, and obviously that's probably going to continue for— I mean, we can, we could talk all day on all of the market drivers. It seems like we just keep getting more stuff in the mix to complicate things and make things even more confusing. But, you know, if you look at '06 and '14 for you know, 90-some percent of our clients, that's a, that's a pretty strong profit margin for this year.

And then also, if you look at it in most areas that are in toast— living in the toaster oven areas, you know, thank God we have crop insurance to the level we do for, you know, for a lot of people in that $14.33 for beans and and $5.90 for corn. So that's, you know, given us essentially we're kind of right at about that insurance level. So talk a little bit about, you know, where you think producers should be relative from corn to soybeans. And I've brought this up to a lot of people, you know, you have a lot of us have a set amount of storage available, and now I'm kind of leaning into these guys with the with a bigger crop maybe coming on and they know they're going to need to deliver some fall stuff, and you're talking about basis here, are you hammering down with the combine on soybeans and selling the beans off the combine, or are you selling more corn off the combine?

And what are you doing with the storage space there?

Ryan

Moe: If you were in a spot where there is going to be a good corn crop. There's a lot of corn buyers that are very well bought up in their October, November, December, so the OND timeframe. There's even quite a few of them that have coverage into Jan, Feb.

Chris

Barron: And that's because of where the prices were.

Ryan

Moe: Right.

Chris

Barron: They have a lot bought.

Ryan

Moe: Right. Farmers did the right thing. They rewarded the market. That's absolutely what they should have done. And so to expect a big post-harvest rally in an area that's got a strong corn crop is expecting a lot. So if you're going to be storing, expect to store that stuff for a while. Now, if you are in a spot where there is going to be a light corn crop it is likely that basis is going to stay strong and basis is going to rally after the combine shut off, and they're going to need to do some pretty extreme things to get corn moved to that market. So wherever you're at, just make sure you're paying attention to what is going on in your backyard, and that's going to allow you to make that decision with your storage.

So if you're going to be storing and you need to get some stuff moved and you're in a light area, yeah, you're probably going to get a real nice opportunity after— shortly after Thanksgiving. Now when it comes to beans, we need to realize that we're going to get more and more crush capacity coming online here as the year trickles on. And that amount of crush capacity is going to change the way a farmer should merchandise his or her beans just because of the demand profile shifting in your local area. So if it's a spot where you've got a crush plant coming online at some point, yeah, maybe want to go ahead and keep some, you know, keep some beans in the bin and just be able to get that system figured out. Now, also in that category, everybody else is going to have the same idea as well. Yeah, exactly. It's not like you're the only one that sees this plant getting built, right?

So, um, when I look at what the risk-reward is as far as your return to storage, it looks like there could be some pretty interesting opportunities on beans. Now that goes against what a lot of farmers like to do because farmers like to store corn on the, on the whole, but there could be some pretty interesting opportunities. And so if you're looking at what to move versus what not to move, maybe fading a little bit more towards storing more beans this year could come up with a pretty interesting reward profile with you. And the only reason I am coming at farmers with that is because of demand. I mean, there is a very interesting demand scenario shaping up in soybeans here for the next several years for the United States.

Chris

Barron: Yeah, I like how you said, you know, we like storing corn. I wouldn't say we like storing corn. I'd say we dislike it less than— or dislike it— how do I want to say this? We don't like storing soybeans, and corn is a little less of an evil to, you know, it's easier getting corn in and out of the bins and easier to shovel and all that fun stuff. But, but you're right, I think, I think kind of the same thing. And not that I'm making any predictions or know anything any better than anybody else, but I'm not a fan of storing soybeans. But, you know, this looks like one of those years where, you know, it, it might make sense to have a percentage of those when we, you know, we normally go right off the combine with all of our beans, and this might be one of those years where maybe it does make some sense.

Ryan

Moe: Yeah, and I mean, you just have to kind of look at world dynamics on, on soybeans as well. The Chinese situation is always ebbing and flowing. It appears that we didn't upset them all that much here in the last week for reasons I'm certain everybody's been reading the headlines. They'll come back and be a buyer at some point. The US right now is the cheapest they've got the cheapest beans between now and about February. And so if the Chinese show up, they're going to show up here and they're going to buy US beans. This renewable diesel thing has been talked about so many times, that is just going to be a massive shift in demand.

And then when you look at what it is, the advantages that we have as a first world country, and our ability to afford the logistics of these challenges of fertilizer and all of these other high-priced ag inputs and what that means to us, we're going to be able to supply those, uh, we're going to be able to create a supply where some of those other countries that have been major suppliers in the past won't be. And so you just think about all the fireworks that could come. There could be some pretty significant fireworks here in soybeans even if we have a decent crop here in the U.S.

Chris

Barron: Yep. So last thing I want to ask you about here, and, and you can just kind of give a little perspective here. And so it's kind of a wide open question, but if you look at the outside conditions, you know, whether it's fundamental or technical, whatever, on corn and soybeans, what— you know, and I'm asking a two-sided question. So the first side of the question is What are— what concerns you that could pressure the market that, you know, one or two black swans or some things that, you know, could materialize to give us the downside pressure? But conversely, what's— what are a couple things you're watching that you think's just stabilizing this thing and giving us a lot of strength? And I'll let you wrap up with that.

Ryan

Moe: My answer to that question is going to have nothing to do with fundamentals. It's gonna have nothing to do with technicals. It has everything to do with the behavior of the wealthy recently. When we look at what a major driver of prices to get corn and soybeans to $6 and $14, you can't do that unless you have a massive influx from the big investment funds. I think that the large investor— I mean, we're talking people with wealth beyond our imagination— they have been behaving very strangely here in the last couple— I'd say the last 6 weeks. We have seen projects that were greenlit to go and were ready to be built. And I'm not talking just in the ag side, I'm talking about venture capital money general. And that venture capital money has dried up rapidly because the wealthy folks in America are nervous about a recession. They know nothing else except how to be very wealthy.

And so the money that they were injecting into speculative projects or speculative business ventures has dried up. Immensely. And one of the concerns that I would have going forward, and this has nothing to do with fundamentals, is what if the fund traders, they go to their whale of an investor with them trying to pitch them a bullish corn or soybean story, and the wealthy investor just has no interest in that story whatsoever. Wants to conserve his or her cash because they're worried about their billions of dollars leaking away in a, uh, in a prolonged recession. I think that's going to be one of the bigger stories, is just how uninterested the funds are going to be in the commodities market in 2023.

Chris

Barron: Do you think that that holds true with the energy markets and, and stuff like that too? Because, you know, there's has been a kind of a correlation historically anyway, in recent history anyway, between corn, you know, or the commodities and the energies. I mean, is that whole true with the energies then too?

Ryan

Moe: And you see the energy, uh, I believe it for all of them. I think they're going to hoard cash and they're going to just sit on bank deposits even if they have very little return on those bank deposits. They're going to hoard cash to see if they can weather this storm. And they're going to just sit until we have a better outlook on the macroeconomic landscape, both domestically and internationally. Mm-hmm.

Chris

Barron: Interesting. Yeah, there's a, there's a lot of things to watch, isn't there? It's going to be an interesting ride here as we finish up the, the last third of the growing season or so and head into, head into harvest and, and kind of see what this next year is going to look like as inputs are being purchased as we head now, and, and land rents and all those kind of things will be negotiated with a little bit of unknowns on the front end.

Ryan

Moe: Tremendous amount of unknowns. More, more so in years where corn is $6 and beans are $14. When corn and beans are $3.50 and $9, you're kind of sitting in a spot where your volatility to your downside is so much less than when it's $6 and $14. And, and that's, that's tough to make business decisions decisions around. But that's why, uh, that's why, that's why companies like yours exist though, right? Well, I mean, it's— and the, and the great farmers are going to continue to be great farmers, and that's what we have to— and, and that's what farmers have to do is they do have to strive to be great, knowing their numbers, knowing their business. There's still, there's still a place for those folks to be successful in the short, medium, and long term here.

Chris

Barron: Yeah, and, and the, the message I always live by because I've seen it for years, you know, running numbers and looking at cost of production and looking at margin versus, you know, price chasing. Nobody really knows where this thing's going to go, and the, the margin opportunities here are pretty strong. Um, and, you know, and you feel for the areas that don't have— haven't been getting the, the water and stuff, and There'll be some crop insurance things, there'll be some things there that never fixes the, the hurt of the, the lack of bushels though. I understand that, but I would also say that, you know, I could— this reminds me of 2012 a lot, uh, where, you know, nobody wanted to sell, you know, $6 corn when corn was $7.50 or $8, uh, into the next year or two, and these prices don't stay at these levels forever.

Ryan

Moe: Yeah, and you just don't know. I mean, demand profiles are different today than they were back then. I don't think our crop is as short today as it was back then. I will— one thing I will kind of close with here is the last 10 months I've had to kind of adopt a different mindset in life just because, you know, being so negative all the time was kind of creating quite a few problems for me. And so I just started looking at the happiest and the richest people that I knew, and I just asked them a question. And overwhelmingly, the response was, "I just go out and control what I can control." Exactly. And what I can't control, I just realize I can't control it. And I think that really holds true in agriculture as well. Those people that seem to have the most success decade in and decade out, they do the best job that they can to control what they can control.

And that's the best they can do. And they sleep well at night doing that.

Chris

Barron: Mm-hmm. Awesome. Hey, Ryan, I think that's a good place to wrap up. That's a good message, a good take-home. Ryan, really appreciate you. You being here and giving us your perspective for the week.

Ryan

Moe: Yeah, appreciate the opportunity to be here and look forward to catching up with all of you soon.

Chris

Barron: You bet, sounds good. And again, Ryan Moe with StoneX, and we appreciate everybody listening, and we will catch you again next time on the Ag View Pitch.