About This Episode
A mentor's line stuck with Creed: a market can go nowhere and do it very violently. That describes the last two weeks. Corn recovered on record January flash sales with China leading, taking March futures to new contract highs, while beans and wheat had the same swings without the same recovery. December corn is still 15 cents off its high. Beans have covered 75 cents to a dollar high to low, which barely registers after a $5 rally. Creed reads $5.50 March corn as the top end.
February is the insurance price discovery month, and Creed wants December corn between $4.40 and $4.50 with November beans $11.50 to $12. Pair 30 to 50 percent forward sold with a good policy and the balance becomes a free look that mostly buys time. Most operators forward marketing 50 to 100 bushels an acre alongside that policy walk into 2021 unable to lose money. He goes to 50 percent on corn and stays lighter on beans, since a 10 percent slip in bean yield makes today's price unattractive.
The most useful habit here is how Creed makes clients look at sales. Do not average only the bushels you have priced. Price the whole crop at today's board, including everything unsold, and ask when you have ever achieved a whole-farm average of $4.35 or $4.40. That number takes the emotion out. On 2022 he is deliberately slow, because if inflation lifts cost of production those prices could land below break-even. Operations short on storage sell cash; those with bins can hedge futures and keep basis open.
“Think about a bigger picture of what would my all-in average be today if I went to 100% sold based upon today's prices.”
— Jarod Creed
Key Takeaways
Price your whole crop at today's board, unsold bushels included, and compare that all-in average to any year you have actually achieved.
30 to 50 percent forward sold plus a good policy takes the loss off the table and buys time to see the crop.
Creed goes to 50 percent on new crop corn and lighter on beans, because bean yields are harder to hit than corn yields.
If February runs 10 to 20 cents above the running insurance average, selling bushels above the insurance price generally makes sense.
No storage means sell cash. With bins, hedge the futures and leave basis flexible.
Insurance cost is up about 25 percent, but 3 to 6 percent of total cost still covers most operations.
Full Transcript
Jarod
Creed: 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. We are heading into a new marketing week and we've got Jared Creed here with us today. Jared, how's it going?
Jarod
Creed: I'm doing well. Chris, ready for old man winter to move on, I'll tell you that.
Chris
Barron: Yeah, we've had our share of snow here. I just was mentioning to Alyssa, we were looking out, we have a snowmobile trail that kind of goes across some of our land and one of them goes right in front of our house. And so we've had, I don't know, we had about 50 snowmobiles go by in the last 2 hours here. So I think they're having fun. That's at least it's good for them.
Jarod
Creed: Yeah, absolutely.
Chris
Barron: So hey, let's get rolling here on some questions on the markets. We saw some volatility, week or so ago where, you know, kind of a wake-up call, the markets got hammered a little bit, and then we came back, and, and we've just kind of been in a little bit of volatility here. What's your thought going into a new week? What are you looking for?
Jarod
Creed: Well, I'll tell you what, I know my clients are gonna get tired of me saying this, but wise old man— shouldn't say old, but a mentor of mine in the industry— said perhaps everybody needs to think about this: we could be going nowhere but very violently. And I think that's kind of what you've seen in both corn, soybeans, and wheat in the last 2 weeks. As a matter of fact, you know, beans and wheat have had just as much volatility as corn, but certainly did not make the same kind of recovery that corn has. Corn's obviously had the benefit of some substantial purchases from China from an export standpoint over the last— well, especially this last week., you know, we're going to end up January with a record flash sale amount of corn sales, with China definitely being the leader there.
So going into this next week, you know, I don't want to be too optimistic from the bean market, but beans definitely have some work to do from a perspective of catching up to what the corn market just accomplished here in the last 5 days after ultimately what ended up being a pretty big head fake. Friday we saw March corn and nearby contracts go to new contract highs, but we're still looking at 15 cents off the highs in December corn, with beans basically in a, in a range-bound market, albeit a very, very large range. You know, a 75-cent to a dollar high to low range in beans in the last couple weeks may seem like a lot, but I suppose after having a $5 rally, that ain't much to talk about.
Chris
Barron: You know, as we look at the markets across the board here on the grains specifically, it just seems like, you know, there's so much optimism still. We're still trending higher. We've seen some volatility, but, you know, the assumption is just, you know, a strong market. Is there anything out here that we should be watching for that, you know, could give us pause and be like, hey, you know, let's be careful here? You know, what are some of the watchouts that we need to be paying attention to, or what's your thought there?
Jarod
Creed: Well, I guess nothing in particular order here from an importance. You know, last time we went to $5.50 March corn a couple of weeks ago was beginning of that substantial setback. So we poked our head above $5.50 on a close Friday, settled a little bit below that. You got to wonder what's going on around us from a fundamental standpoint in the corn market. Do we have enough ammo to support that high of a corn price for an extended period of time? My guess on this is $5.50 corn, I guess it's pretty easy to say this, but it seems like it's on the top end of this market. Can we move to $6? Sure. But now you're talking about less than a 10% move. A 10% move on a $5.50 commodity versus a 10% move on $3.50 to $4 corn that we've been used to for years here. It's an entirely different ballgame. On the bean front, obviously we're just now getting into harvest in earnest in Brazil.
Parts of Brazil that are still a little ways away from harvest are experiencing way too much water in the last 5 to 7 days. You know, this might not be a reason for pause, but a little bit more of added concern around the, the dependence on supply of soybeans out of the U.S. For another, you know, 5 to 10 day timeframe when we should be expecting to see South America supplies come online and hit the export market. So we went through the last 90 days looking at dry concerns in Brazil to all of a sudden weather turned ideal and now has been too wet. You know, pause for concern. The only thing that I don't know if I can call this a concern, but from a macro market perspective, You don't have to look very far to see some of the games that are being played in the US stock market and certain stocks in particular.
Yeah, I think what maybe needs to be considered is the uncertainty in those markets will certainly spill over into other markets, and it probably creates a little bit higher of a, you know, an implied volatility to our market. That doesn't necessarily mean volatility in price, but price insurance, you know, option market in particular, should stay relatively elevated because of that uncertainty. What's going on in the stock market can't happen in commodities. Just get that in clear air. You can't take a physical commodity in the behavior that we have seen in the stock market You can't have that physical commodity be long, long, long, everybody, and into first notice day. It just doesn't work that way. We don't have a trapped short, in essence, like you've seen in some of those stock markets, but it's in some of those particular stocks.
But it should keep things, you know, uncertainty at a higher level here, which uncertainty is not always the best thing for us. So I guess that that's my pause for concern. You know, markets don't like uncertainty, so we're in a key time frame here. We finally get into the February insurance averaging period, you know, knock on wood, we can have December corn somewhere between $4.40 and $4.50, November beans between $11.50 and $12, and you know, that puts us off to a very, very good start for the 2021 growing season.
Chris
Barron: So on the other side of that, you know, as we do enter into February, this price discovery period on insurance I like your comment there and a good lead into, you know, some of the new crop decision making. What's your thought there? Where are you at there as we watch that? I mean, a lot of people are pretty well wrapped up with bean sales. I know there's still a little bit old crop out there yet and people still plugging away and watching some of that. There's, you know, there's that to go yet for some, but stick to new crop for a minute here. What's your thought for pulling the trigger on some things there? And what should we be watching as we're in this price discovery period in February?
Jarod
Creed: Well, no secret that every farm is different in perspective of what works for them and what doesn't work for another operation. But in general, when it comes to both corn and beans, um, at the current prices that we're at, and if we can see similar prices for insurance, you know, the magical number is to be somewhere between that 30 to 50% forward sold combined with a good insurance policy, you almost create yourself a lottery ticket on the balance of the crop. And that lottery ticket is probably more of a value of time than anything. Allow yourself to get into the planting season, get into summer growing, and have a little bit better of idea what kind of crop you have coming your way to take a little bit of the— oh, a little bit of the guesswork out of, you know, what is my expected yield versus today's prices.
In general, I think most operators can be looking to have somewhere 50 to 100 bushel an acre forward marketed with a good insurance policy, and they're going into 2021 without the risk of losing any money. It's just black and white, plain and simple. It works. And beans aren't that much different. I would say that if I'm willing to be aggressive up to a 50% standpoint on new crop corn, I may consider letting beans be my wild card. Um, and I hate to use the word swing for the fences, but obviously there's a heck of a lot more dollars of risk in corn than there is beans from a volume perspective. Uh, so I guess I'm willing to be a little bit more modest about my approach in marketing new crop beans especially from, at least in my vantage point, I see the ability to achieve certain corn yields to be easier than achieving certain bean yields.
You know, a 10% slip in a bean yield all of a sudden makes today's prices still not that attractive for new crop. So it gives us a little bit of ability to take some dollars off the table in corn. And be a touch more patient on beans. And that's kind of my game plan here for the next 30 to 45 days. And the only other thing I'd add on crop insurance that, you know, if we get to the halfway mark perhaps of the February insurance averaging period and we are 10, 15, 20 cents higher than what our existing average is, and it mathematically makes sense that we can sell more bushels above our insurance price, You know, that generally as a rule of thumb is a good thing. In years past, we always establish that insurance price obviously in February, but our best pricing opportunities haven't come for 60 to 90 days after that.
So it's nice that we get to kind of marry those up at the same time this year.
Chris
Barron: Yeah, it's setting people up pretty good. I have a question for you too, just to expand on this just a touch more with respect to basis and the tools. So you're talking, you know, 30 to 50%, you know, is a place people may want to consider to look at getting to on both corn and soybeans. But as you look at basis opportunities and harvest timing and some of those things, are there certain tools that you think based on, you know, and obviously every operation is different, but is there any discussion there that you think that worth talking about?
Jarod
Creed: Well, an operation that can't store much of their crop, they probably need to be more so focused on cash. Cash is king, right? Operations that have plenty of storage, I'd just rather go the route of managing futures at this point. And I think it's important to remember what got us where we're— what got us to this point in the market. Supply shock. It's no secret now. That we're at least led to believe that our supply in the countryside is lower than ideal, uh, ideal stocks. So if we're lower on stocks, it's obviously advantageous to at least be considering going the hedge-to-arrive route or short futures, whatever you're more comfortable with, and leaving some of your basis opportunities and flexibility open.
Chris
Barron: Sounds good. Anything else as we You know, we don't have to continue on here with a lot of stuff. I mean, we're just going to be watching this thing during the month of February. Any other comments or suggestions or things that you think guys ought to be considering going into this next week or week?
Jarod
Creed: The one other thing that I would add in here, when you start thinking about new crop marketing, I mean, there's no doubt a lot of the decisions made over the last 6 months, all in hindsight, look wrong, right? But when you start looking at new crop And if you have some bushels sold right now and you continue to scale up, don't just stop and look at what your average price is on what you sold. Incorporate what the price is on the balance of the crop that you don't have any price established. You know, look at what your all-in average would be. And I bring that up to all clients to say, if, you know, if our all-in average is somewhere $4.35 to $4.40 today, When in history have you been able to achieve a whole farm average higher than that price? You know, it's tough. So what I guess what I'm getting at is think outside the box from not just what your average price on what you sold.
That creates more of a negative thought process in my head. Think about a bigger picture of what would my all-in average be today if I went to 100% sold based upon today's prices. That should, you know, help a guy understand even to a higher level of what his potential profitable opportunity is today. You know, better— a better— what's the word I'm looking for? Strip out the emotion. It's gonna help us take the emotion out by looking at the big picture versus what has been done versus what I still could be doing.
Chris
Barron: Exactly, you know, I agree wholeheartedly there because when we, kind of like you do with your clients, we sit down and we look at, okay, what's, what's the margin opportunity there? And right now we're looking at a margin opportunity going into 2021 that we haven't seen for about 6 or 7 years now. And like you said, if you just plug it all in, it locks in a profitability level that that we haven't had either. So you got to look at the profitability side of it for sure.
Jarod
Creed: And I don't mean to turn this to a question to you, Chris, but I field a lot of questions in the last couple weeks about guys asking around 2022. And to this point, I've been a little cautious on being too aggressive out there, or more so doing anything, uh, because if we truly are in a long-term inflationary type of environment that, that ends up raising our cost of production, I'm afraid the prices that we can sell in 2022 right now would actually be below a break-even. So I'd be curious on your thoughts on that. Yeah, but it does mean that they— if that's the situation out there, it should tell an individual that I'd better be even more engaged and on top of my opportunities for this next year if I can't do anything out there in 2022 at this point?
Chris
Barron: That's the hard part. You know, we've been looking at that and thinking the same thing, but when you start increasing the cost of production relative to what we've seen in the past, when you get this kind of a commodity price increase that we've seen, typically then that leads to the, you know, fertilizer, seed, machinery and equipment, all of those you know, crop protection, all of those things, you know, move up really fast in line with the commodity price to the point where to make multi-year sales, I'm not sure '22, when we look at it from what we've seen anyway, unless you're seeing— sounds like maybe you're seeing the same thing— it's really hard to pull the trigger right now because of that margin opportunity isn't, isn't quite where you'd want it.
The only thing that I've seen You know, or— and I— this I'll throw right back at you, I guess, is, you know, does it make sense to maybe put a floor in, you know, somehow, you know, some kind of a minimum price objective and take a little risk off the table if in fact, you know, this— the commodity, you know, we have a huge crop this year or something or whatever, you know, you can kind of put a floor in. But I, I'm just like you. I'm, I'm really concerned about the threat of the increased cost of production side of the equation.
Jarod
Creed: Yep. Yeah, I don't disagree that there's some opportunities potentially to look at a floor. I would just encourage everybody, keep the horse in front of the cart and make sure you're on top of what your opportunity is for '21 if '22 is something that looks a little flighty to you at this point.
Chris
Barron: And some of the volatility that you're talking about, if we continue to see volatility and and get some opportunities. I think we just gotta watch that one really close. So anything else we haven't hit on that we need to?
Jarod
Creed: No, no. It just, like I said, I feel like a broken record in the last couple months that I've talked to you. It was so nice to be able to get to the doorstep of February with advantageous prices because that takes so much darn risk off the table for this next year. So it's nice that we're here where we are. Hopefully we can at least maintain these prices for, you know, at least the first half of February.
Chris
Barron: You bet. Had a good conversation with Steve Johnson from Iowa State, or retired from Iowa State now, which he's proud of. But we had a good conversation on the crop insurance too, and I think there's going to be some— if people haven't listened to that, go back and take a listen to that. But we talked a lot about, you know, just the opportunities that just the, just even the regular coverage at 85% level, what that's going to look like. Did you have any comments on that? I know you had made a comment last time we talked, Jared.
Jarod
Creed: No, not really. Guys are just gonna need to be prepared. Uh, from all the meetings I've been in, our insurance cost is going to be up, you know, call it 25% year on year. But, uh, that still— I think I talked to Shay about it a couple weeks ago when we're on this, um, you know, 3 to 6% seems like it catches the overwhelming majority of operations, whether they're carrying a baseline policy or baseline with some type of add-on. You know, you're spending 3 to 6% of your total cost to not only cover all your costs, but actually probably ensure a profit this year. Well, no, definitely a good thing.
Chris
Barron: Yeah, yeah, that's the exciting thing about the insurance this level this year. It's going to bring us some really good value. You just got to be cognizant it is going to cost a little more, but you're getting a lot higher level of coverage as well.
Jarod
Creed: So, absolutely.
Chris
Barron: So hey, Jared, I think this is a great conversation. Really appreciate your time here today and and look forward to having you on again soon.
Jarod
Creed: Absolutely, appreciate it again. Thanks, Chris.
Chris
Barron: Thank you, and thanks everybody for listening. Uh, have a good week, good luck on the marketing, and we will catch you again next time on the Ag View Pitch.