Weekly market outlook Dec. 7-11th

Clark

Neighbors: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one. Full count, here comes the play at the plate, and it's the Ag View Pitch!

Chris

Barron: Welcome everybody to another episode of the Ag View Pitch, and we are starting the weekly market outlook again here for the week of December 7th through the 11th, and we have special guest with us today, Clark Neuber. Clark, how's it going?

Clark

Neighbors: I'm very good, Chris. How are you?

Chris

Barron: Hanging in there good. Just thinking that we probably should have some conversation on the markets. A lot of, I think, question on maybe where we're going from here. We, you know, over the last, well, you know, since harvest began, we've kind of brought this rally into the market unexpectedly. I don't know if there was anybody on the planet that could have predicted that. And now we've seen a little bit of choppiness, I guess. What's your thoughts moving forward on a broad spectrum, and then we'll start dialing in on some specific stuff.

Clark

Neighbors: That's good, Chris. I'd break it down in a couple little segments. First, more short-term, or what's kind of involved over the last week or so. You know, we started Sunday night with a higher market, made new contract highs on corn. Beans were nipping at that $12 barrier, and And as the week wore on, based on better rain forecasts in South America and so on, the market seemed to kind of stall, almost like a holding pattern if you're flying into Chicago O'Hare or whatever, you know, go in a holding pattern. And volume has backed off, the funds have liquidated some of their long positions, so it kind of feels, at least short-term, like this market's maybe looking for more news going forward, and that's not uncommon as you get into December, get into the holidays, see some of that happen. Happen.

But, you know, going back to your point about, you know, anybody see this rally coming in since August, it's a very good point. I went back and looked at some supply and demand updates on a month-to-month basis, and it's interesting. When we started the year in May, which is the first S&D for the new crop, corn carryout in May was 3.3 billion and bean carryout was 405. Since then, we've lost roughly 9 million of corn, and we've seen a magical shift in the demand sector, which, you know, I would still argue this is more of a demand rally we've seen over the last 3 months than supply. And now you're sitting at a 1.7 carryout on corn, a 190 on beans, and most analysts feel those numbers will slowly decrease.

Even in August, the carryout in beans was 610, so I don't recall in my time in this business we've seen that dramatic of a shift in the S&D without some major, major supply issue, and especially at that time of year. So it's been a dramatic rally, but it seems like in the last week or so it's kind of hit a little bit of a stall or holding pattern 'til something changes. And keep in mind that January crop report, which is still 5, 6 weeks away, can have a pretty important dynamic on that as you get an update on stock. And also the final production number, Chris.

Chris

Barron: Mm-hmm. Speaking of that then, so, you know, that's sort of on the demand side, and there's several components to that. One of them is and has been pretty heavily in the news on the coronavirus and the impact that that's having. Is there a direct correlation there, do you think, that's impacting any of this, or what do you think about that?

Clark

Neighbors: You know, the pandemic, coronavirus, however you want to look at it, has changed our world in many, many ways. You know, it'll be interesting to see going forward. Now, interestingly enough, if you look at the macro picture and you say, look at the equities, the stock market, it's looking out, it's looking at the vaccine, is looking at hope as you make, you know, new record highs in the S&P and the stock market here of late. The dollar index index has dropped to the lowest level since 2018. I think you have the large fund, the investor, looking at raw materials, commodities, as an inflationary hedge. So that's creating opportunities in the big picture for commodities, you know, whether it's metals, grains, etc. So I think that part has had impact longer term, or the vision longer term.

Short term, I think, you know, the impact it has on, say, at least domestically, on meat consumption, and that's changed dramatically versus, you know, restaurants versus the grocery store, and how that impact on the economy has to spending habits of the consumer. And more, maybe more importantly short-term, the impact that's had on transportation, driving, especially when you look at unleaded gas demand running 10, 11, 12% below a year ago. In fact, last week was the lowest, even with Thanksgiving, was the lowest amount of daily unleaded usage going back to June. That impact obviously is directly back to kind of negative margins again in the ethanol industry, which is continuing to struggle. That's the one demand component that's a little concerning going forward, especially getting into the winter driving timeframe. Ethanol margins are struggling right now.

They're getting some help from just the raw world demand for proteins and DDGs having very high value, but I guess to wrap up your question, you know, on the virus, short-term I think is having more questions or negative impact, but it feels like when you look at, you know, the stock market, the investor habits, you know, I guess there's hope going forward, and that inflationary concern or fear could be good for commodities going forward.

Chris

Barron: Gotcha. So another question on China demand. It seems like, you know, every morning, every, you know, you're looking to see, you know, what kind of purchases did we get or did not get. And it seems like there seems to be some sort of a correlation there almost instantaneously. What's your thought there with China? Do we count on that, those purchasing continuing? What's that look like, your opinion?

Clark

Neighbors: Yeah, very good question. So we got in this habit of, as you mentioned, through the last 2, 3 months of almost having daily announcements, especially on soybeans. Now I believe we've seen 17 trading sessions in a row where we have not seen a daily announcement on soybeans during that timeframe to China. We have seen some to corn. Now I think part of that is just time of year and the correlation. China has a ton of beans booked, okay? Now we're down to just, you know, getting them moved and executing the exports where— and keep in mind this October through February timeframe is when many of those sales are going to be shipped, and then you go in that transition in late winter, early spring where that transition that will go to a very heavy related corn export program. Now there is some talk that China has bought some additional corn.

We could see some daily announcements on that. So I think going forward, you're gonna probably see more announcements on corn versus beans at this time just because of where the dynamics are and what they've purchased. Here's kind of an interesting little plot, Chris, when you step back and look at it. So far we have moved or executed, exported almost a billion bushels of beans so far for this crop year. So 3 months in, we've exported almost 1 billion bushels of beans, and keep in mind the total crop's, you know, a little over 4 billion, so we've nearly moved 20, 25% of the bean crop overseas in the last 3 months. That's kind of an interesting dynamic, and you know, that pace is going to continue to be very strong. Logistics are taxed. I mean, we're moving a lot of product right now.

Right now that focus is on beans, As you shift into the spring, that focus will be more on corn and some other products like sorghum, milo, and they've also been buying barley out of Canada. So China continues to be very aggressive in buying feed grains and soy products.

Chris

Barron: What kind of risk do we have? I know there's been a lot of talk about South American weather and all that, and, you know, obviously, you know, at least in this current administration that we still have yet for a little while here, it hasn't gotten along great with China and, you know, it's not like they've really wanted to buy from us but have probably had to. If South American weather straightens out and they have supplies, what kind of impact might that cause for us in terms as it relates to pricing and that kind of thing?

Clark

Neighbors: To be determined, I think, to some degree. I think the President-elect Biden has mentioned he's not going to, you know, at least initially do much to change the phase these one deal, et cetera, with China. Now as time wears on, I'm sure there's going to be some fine-tuning of that depending on what the needs are on both parties. We'll see how that plays out. But in regards to South American weather, if we can stabilize the bean crop, get a decent bean crop going, there have been some weather issues, namely in parts of southern Brazil and Argentina, and I think those are still worth noting going forward. But a big trader in Chicago was telling me last week, assuming South— in the big picture, assuming South America has a good crop, he said there's probably enough beans in the world. The problem is they're not at the right place at the right time.

And if you shave back that production in South America, that builds to that issue. Many— I've heard from several analysts that I know, and in the export business there's pretty good odds we could see some beans imported into the eastern U.S. later this summer. We've seen that in the past, I don't know, to bring meal and product into that poultry and pork market on the East Coast, but that's part of that scenario of are the beans in the right place at the right time, and the appetite in China is obviously created that situation.

Chris

Barron: Interesting. So what I'd like to do next is to get to some nuts and bolts on 2020. So, you know, a lot of producers, you know, and we've had— I've had this conversation with a lot of people here over the last few podcasts just with respect to the economic or the, the emotional side of it and the economic side of making some sales a little bit prematurely based on how we've seen this market rally, at least in, in the producer's minds, prematurely. So, and there's grain yet to sell in most farm operations, both on the corn and soybean side, more so on the corn side from what we see. What's your thought? I mean, where, where should producers be pulling the trigger if a producer's sitting there, you know, 70% sold on corn. I guess I'll ask this question: what's the reason not to finish up 2020 sales if in fact that puts them in the black?

Is there anything to be holding out for on, on corn first, and we'll get to soybeans on 2020?

Clark

Neighbors: Well, on corn, let me ask you this question. Uh, on your client base that you talk to, Chris, what percent of the corn do they have left to sell?

Chris

Barron: Is there a rough number Yeah, I mean, what we see on average, and it's all over the board, I mean, we've— I can point out some people that don't have hardly anything priced yet, but there's very few of that. That's— you can count those on half of one hand. On the other side of it though, we do have a number of people that are essentially 95 or 100% sold. We had some people in the Duracho area that were over 100% sold. So, you know, it, it's probably— I'm gonna say without having ran the numbers yet, I'm gonna say somewhere in that 70-75% priced on corn on average of our client base.

Clark

Neighbors: I'm just curious, I mean, I talked to quite a few green elevators and that typically gives you a little indication. Like you say, the numbers are all over the board. Um, I would guess there's more sold in the eastern Corn Belt, i.e., Illinois, Indiana, than there is probably in areas like Iowa in Nebraska and Minnesota where you have more on-farm space. But to go on to kind of fill in with your question, I think a lot of it depends on where you're at, where your markets are. So on corn, for example, northern Midwest, you know, we've talked about the river market being a key element, or the export market being a key element going forward. If your market's the Mississippi River going forward and you still have corn in the bin, obviously you've got to start looking at that reopen timeframe along the river, which is April.

That'll be right in the sweet spot, we assume, of all this export demand that's going to be going overseas on corn. So I think if that is your market, at least from a basis perspective and an opportunity in that, I think it's probably during planting time, okay? Now if your market is more of an ethanol plant, that's the one that's a little more concerning. From a demand standpoint or basis standpoint, because as I mentioned earlier about the margins. I think we'll see some plants slowing down in some cases. We have some plants in the Midwest that are shut down, so it's shifting the direction the grain moves. Now looking at board prices and so on, as we talked earlier, we seem to have kind of stalled a little bit.

I would venture to guess, you know, until we get to the January crop report, This recent high up around $4.40 seems like a little bit of a barrier, and you look at long-term charts, that $4.40 area seems like a number to watch that's kind of tough, tough to bump through. Now if the carryout continues to drop, which many people think it can, some, depending on exports, that can be a catalyst to see the market at least hold values we're at. If not improve some. So I would guess if I'm 75% sold or better on corn and I have a little more to sell, a lot of that's going to depend on my logistics, where I'm at and when I can move it. But I don't think, you know, you don't want to get to the point where you're having some risk to the downside in case things go south.

I feel the demand structure, at least as we know today, is strong enough to help support this market So my guess is downside risk is fairly limited over the next few months. The question is, how much upside is there? Um, and a lot of that will depend on what we see from demand sector and so on, because we've got a very positive export story to tell in corn. The one little hiccup is the ethanol side and the domestic side. So not sure that answers your question, but I, I guess I would make pattern sales. And it depends where our market is. If I'm in the export market, I'm going along the river, I'm going to probably be a little patient. I watch those values.

The one interesting thing too, Chris, is we're seeing the exporter on many of these river locations put basis levels out all the way through May right now on bids versus historical basis levels we typically haven't seen for that time of year this far out. That's a pretty good indication there's pretty good demand. And watch those bid structures out in May, April, you know, March, April, May, excuse me, and don't be afraid to price some of that in on those balancing bushels, uh, if that's your market.

Chris

Barron: Well, and that's the thing too, um, you— a person could be in these areas where, you know, basis still has some potential strength yet, maybe looking at some HTAs or doing some futures pricing or something along those lines, I imagine.

Clark

Neighbors: Yeah, I think that that would be fine, or look at some option strategies to at least lock in some downward, you know, hold that downward risk if there happens to be something that changes to the negative side. It sure doesn't hurt to protect some in that regard. Exactly. And I think the basis opportunities are good. Now, the— again, the movement's going to depend on logistics, and we're taxing logistics right now in a major way, and that will continue just because we're moving all this product. So you may run into some disruptions into the river, they can't get barges, ethanol plants slowed down, you know, getting things moved. So there's going to be some kinks in the armor, but I think there's some good opportunities over the next few months in that regard.

Chris

Barron: Yeah, it always seems like some of the big opportunities, like you said, you know, you were talking about that April timeframe of, you know, if a person wants to lock in that that price, you know, that Chicago Board of Trade price or whatever, leave that basis open in these areas where we could have some basis strength. And that usually happens in the spring when either, you know, your river opens or, and/or guys start getting in the field. And, you know, I always tell a lot of our clients, you know, it's worth it to try to find somebody to get in the truck when you're planting corn because that's when nobody wants to deliver anything. And that's when the opportunity is, is when you don't have time to take it. And so, you know, those are, those are things where I think there's some opportunities for people to capture basis.

And, you know, probably looking at these prices, even where we're at right now, between now and in that, those recent highs, if we look at the, the bottom line on the majority of our clients, it puts a lot of black ink on, on, on the paper. And so I think after the last several years it's probably not bad advice to go ahead and take some profit so we can all kind of start focusing on 2021.

Clark

Neighbors: And I think that's a good conversation to have with your clients when they— when you talk to them. I mean, start with a fresh, you know, get a fresh start, look at those opportunities. If they're satisfied with where they're at with profits, it probably makes a ton of sense. The only thing I would add is when you— when you're on that March, April, May timeframe, you're exactly right, guys are in the field a lot times there's opportunities, but I guess I should reflect that some of the basis levels, depending on where you're at, already in those windows are good enough where, you know, if the price is at a level a guy likes, I just lock in the forward contract and maybe be done versus even waiting for better basis. It could happen, could happen, but values that are out there right now are very good.

Chris

Barron: Yeah, it's not— there's never anything wrong with sticking a fork in it if there's profit. So, you know, I always want more profit, but you also got to get a mani that, that fear and greed, those two crazy things that kind of affect our decision-making here. So as we, as, as we look at 2021, let's get to that here. I want to finish up there with 2021. Um, what's your thought? You know, I mean, there's some, there's black ink in a lot of these projections, and we're just kind of getting started on 2021 projections with clients. But as we look at that, you know, we're able to start making sales significantly higher on both corn, soybeans, and you look at wheat, kind of same thing. So what's your thought on 2021 getting, getting started on some sales there?

Clark

Neighbors: Well, it's interesting you talk about the black ink. I'm assuming it's at this time of year, first time black ink in several years. Is that— would that be an accurate statement for this early crop year?

Chris

Barron: And every year when we start this too, keep in mind last year, 2020, 2020, we had a lot of federal aid that made lower sales work. And we started making sales at lower levels because there was black ink with that aid. Assuming that there's little, if any, aid going into 2021, and where these commodity prices are at right now, if a person gets started, I guess my question to you is, is there, you know, do you feel like there's some downside risk? Or, you know, just person being a little more patient and pull the trigger on a little bit but not get too carried away. So, uh, throw the question back at you there and say, you know, sure, sure, where's a person get started here?

Clark

Neighbors: Yeah, I think your last comment's probably pretty good. You get a start, get a little bit. Sometimes the, you know, if you, if you have a profitable level, you know, it certainly doesn't hurt to lock in X percent of the crop and say, I hope that's my worst sale of the year, you know. Um, and the and the opportunities for this upcoming year could be interesting. So we've had a lot of conversation, or a lot of questions I should say, from customers. Well, should I lock in some of my '21 crop and that type of thing? And I guess my initial reaction right now when I sit here and I look at the calendar and it's November, December, late in the year, is it certainly doesn't hurt to lock in I don't know, pick a number, 10%, you know, you get Dec corn above $4 and you get on the new crop and then those '21, the November '21 beans, you know, north of $10.

We haven't seen those values this time of year. So it certainly doesn't hurt to start, but at the same point, I think I look at the calendar and say, I don't think I gotta push the pedal too hard yet. I typically like looking at those values and seeing where you are when the corn planter is going versus right now. I imagine a lot of farmers would like to see what their February insurance rates look like as we approach that March timeframe. And as I mentioned, you know, some of the conversation earlier, I think this market's pretty well supported based on demand, and as long as that doesn't change dramatically I think the downside risk in the new crop is even somewhat limited now.

Having said that, if this market does at some point take another run to the upside, whether it's weather-related or whatever, let's say it does, the front end of the market is going to rally a lot quicker than the new crop. That's just where the investment money comes in, is going to be more related to the May contract or the July contract if that happens. But I think it's important for them to have a conversation with somebody like yourself and put a plan together, 'cause for once you got a plan that have a smile on your face to start versus a question mark. But I do think there's some opportunities down the road potentially and/or maybe not a tremendous amount of longer-term risk. To be a little patient as you go through the winter and early spring, assuming something dramatic doesn't change. And now, as I say that, we've seen dramatic changes in the last 3 months to the good side.

Hopefully we don't see dramatic changes to the bad side or the downside. But yeah, 10%, I think you start layering in some sales going forward. I still think that $4.40 futures on I think corn is kind of key longer term. You know, there hasn't been a lot of opportunities in the last 5, 6 years to sell above that, I think one. Okay, so the problem is you get, as you mentioned, the greed and fear thing. You get in these kind of markets, it gets pretty emotional, and I mean, the opportunity's there, but it gets emotional on the what-ifs. So I think you just start making a plan, start making some small, sales and maybe look at the calendar as much as you do price to some degree. And as we approach springtime, get to that March Intentions Report, you know, that's probably a window to add a little bit and to just kind of stair-step into these sales yet keep some opportunity going forward.

I think it's too early to buy a bunch of options for new crop because you're paying too much for time premium. Um, but at the same point, just lock in some cash sales and/or some small hedges, hedge to rise, whatever it may be, and then know where that next step is going to be, maybe after the first year, early part of, early part of spring.

Chris

Barron: Yeah, a couple of key things that I think work really well that we've seen with some of our clients that are pretty proactive marketers and do historically almost every year consistently do a pretty good job. One thing I see a lot of is setting these targets in place to scale up sales, like you said, because, you know, you're talking like that $4.40 on corn, for example, you know, that might be a 10-minute thing, you know. So you put those targets in there now, and so if it hits, it might only hit for, you know, overnight or something, you know. And, and getting those in. And then the other, the other challenge that I see for a lot of growers— and we'll wrap this up— but is that that crop rotation is still in question for some people between, specifically between corn and soybeans, a little bit more so in Iowa than some other states.

But we're seeing it almost everywhere where there's the question of, you know, do I, do I plant a few more bean acres here, or do I plant a few more corn acres here? And that price spread between the corn and soybeans has obviously has a lot to do with that, but also, you know, the agronomic components to it and everything. And one of the things that I, I guess I warn people against is if you go ahead and do make a shift over, say you were going to plant, you know, 50/50 and now all of a sudden you're going to plant 60/40, you add in those additional acres of soybeans because of a price change and then don't price any of them, and then that goes away and you just made a decision that you didn't lock in that opportunity. So I guess I, to me, I like to throw that out there and say just be real careful if you're making changes. Ask yourself, why am I making that change?

And then say, okay, what action do I need to take with regard to that? Any quick comments on that?

Clark

Neighbors: I think that's very good. I, you know, um, I agree wholeheartedly with what you're saying. If you make that rotational switch It's based on a market— it's based on the markets on that day when you make that decision. You need to react and protect that in some manner. I think that's very good to say.

Your earlier comment in regards to having orders in or offers in, it seems to me, Chris, the best marketers that I work with are ones that have those standing orders in, whether it's a, you know, an open order on a futures or a hedge, or whether it's an offer in at the local elevator, because Many, many, or maybe I should say too many producers will have the attitude, "Ah, let's just see what happens." So the ones that have kind of the plan put together, the prices in there, over time historically I think those guys tend to have, or that individual tends to have better marketing plan, probably better marketing sales on a long-term basis with that attitude.

Chris

Barron: Yeah, I think that's key. Hey, I think this was a great conversation. Like to have you back again sometime if you're willing to do that.

Clark

Neighbors: I would be glad to do that, Chris. I always enjoy the conversation. I'm always intrigued of what you're offering to your client base and maybe potential client base because I think you guys do some pretty good work, work up there and helping people keep kind of a level head and try to keep the emotions out of marketing and the other parts of just being a producer.

Chris

Barron: Yeah, and that's always the challenge, isn't it, is manage that fear and greed for sure. So yeah, so all right. Hey, thank you very much, uh, appreciate your time today. Again, uh, that was, uh, Clark Neighbor. Clark, how's the best way if somebody wants to get a hold of you? What's the best way to reach you?

Clark

Neighbors: Sure, uh, 800 number is 800-373-2525. Or on our website, it's bascommodities.com.

Chris

Barron: Awesome, sounds good. Thanks for joining us, appreciate it, and thanks to everybody for listening, and we will catch you next time on the Ag View Pitch.