Weekly market outlook Feb. 22-26th: volatility marches on

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 a new marketing week. And today we have with us Grant Schimmick with Black Oak Financial. How you doing today, Grant?

Grant

Shimek: Great, great.

Chris

Barron: Excellent. So we are, as I said, heading into another week. It's, it's actually toward the end of February. We're getting to the kind of a final insurance number, and there's gonna be a lot of things we're going to want to talk about here today. But let's kind of start out with some of the things you're watching right now going into the short term in the next couple of weeks. What are you seeing in the markets as we move into the next couple weeks?

Grant

Shimek: I think the The main fundamental that's of consequence that can kind of create fresh emotion in the market is it's going to be Brazil's weather again. It kind of had went on the back burner. We have basically public and private estimates look like we're going to be a good crop there, but as the weather progresses here, especially in the northern part of Brazil, Mato Grosso in particular, they're seeing forecast for some heavy rains. And if anybody's been out on social media, they've seen some photos of wet, wet beans being unloaded, some beans sprouting in the pods. That's probably going to become more pronounced. Obviously, that's not good for the crop they want to harvest, but also for the safrinha crop of corn that they're trying to get planted. So after next week, you know, they're still at full potential on that safrinha crop.

Probably around 110 to maybe slightly over that in bushels, 110, 120 maybe, is full potential. But if we keep getting delays, then that crop's going to go backwards in Mato Grosso anyway, probably about 10 bushels per acre equivalent. If we get delays every week is about that much. And then the later that gets planted the more important it is to get rains in that April, late, sometime in April, May, to make sure that crop's got moisture to finish out. So just like the same thing that put this bean crop that they have on there in a really tight window, it's, everything's ready in a tight window until the rain's coming and it's affecting the bean crop and the zucchini crop. So I think that's the big new information that we have in front of us over the next couple weeks.

Chris

Barron: What kind of, um, potential does that give us, do you think? I mean, from a price perspective, is there a range in there that you think it could be driving toward, or not really?

Grant

Shimek: I can give you some numbers where I think things accelerate that we're going to have to clear. And to me, the big number on corn is we need a weekly close above $5.63. We've probed above it. We've been— I think the top take has been $74.25 on the March corn. So on that front month, we need to get a close above $5.63. If we do, then I think it opens us up technically to— and I don't know if we'll get this in the next few, you know, 3 weeks even with rain, but we probably need to be in the North American growing season and some, some weather emotion built into this. $6.32 at that time, but the upper bound to me would then be that $6.30, $6.60 zone on old crop given we can clear that $5.63.

Chris

Barron: What's that?

Grant

Shimek: Same type of number on beans is going to be $14.38 and three-quarters. We need to get a weekly close above there and then that opens us up to that high 14s, low 15s number on old crop.

Chris

Barron: What's that mean for new crop?

Grant

Shimek: Well, basically I guess I would say this, uh, A lot of my research here is on the old crop, the numbers, but if, if the old crop is there, it's timed, most likely it takes some kind of action on new crop. I can give you what I would consider upper-end targets for the year, though I'm not gonna— I'm gonna be doing a lot more and have done some stuff already before we'd ever even approach it, get on top of these numbers. So if I were to give you like an educated guess of what a high might be for the year in D scoring, I'd say it's somewhere close to 544. Wow. And on beans, 1360. But that's, to me, that's more, that's somewhat infotainment there. Right. Like I said, I'm not gonna think, well, I'm gonna wait out and see if I can sell it at 1315 on beans. That's not the point of that. But To me, that's what I tell my clients is that's about— those prices are bell ringers.

You get close to them, obviously you got to be doing something with new crop, but I think that's also a point to be waking up and doing something with the '22 crop and getting started there if we see the '21 crop corn and bean contracts at those upper bounds.

Narrator: This is Alyssa with the Ag View Solutions team. Here at Ag View Solutions, we work with farms and ag businesses all across the country on cost of production, business decision-making, collaboration opportunities, farm and ag business structuring, and transition planning. We work with operations of all sizes to help you with the important decisions that need to be made in your business. If you have questions or would like to learn more about how we can help your farm and business, please email us at cbarron@agviewsolutions.com.

Chris

Barron: You know, as you tie in crop insurance to that, there is going to be some staying power probably for a lot of people. You know, I think From what we see with our client base, and interested in what you're seeing, but we, we, uh, just a couple of weeks ago, and I need to do it again here, but looked at where kind of people are at on new crop sales on average with our client base, and they're somewhere in that just shy of 30% on corn and probably in that same range on soybeans on new crop. And then if you look at where the insurance numbers are coming in, they're probably a lot of them are sold a little below on average where this insurance number is going to come in. And we don't know yet, we got, you know, a few more days yet to, to figure this, and there's some— probably might be some volatility.

But if you use, you know, that $4.50 for corn and $11.60 or so for soybeans, that covers, you know, the cost production for a pretty large percentage of producers. It doesn't quite for some, but it does for a lot, uh, anywhere in that, you know, somewhere in that 80 to 85 for sure. What's your thought there? I mean, that does give people some pretty good staying power, you know. What's your comfort level for sales, or I guess maybe even a better question is, what are some practical strategies for, you know, what you're looking at with your clients?

Grant

Shimek: Well, without a doubt, with the way the crop insurance programs are with— if they do the buy-up program where they're 95% covered, and where these guarantees are, given, given those are going to work for their farm, that some people are going to say they don't need to mess around with marketing because they're already putting $40 or nearly $50 an acre in crop insurance program. So I think there's going to be some of that thinking that's going to take place. But obviously, in the— I'm going to focus on ROIs, and I know I've said that on the last podcast we did, that you get to the 30%+ ROIs and you're not creating some kind of floors, you know, you just don't see those kind of returns in most businesses, especially commodity-based businesses. Right.

So that's where, you know, I threw out those wildly high numbers, but, you know, for a lot of operations, I'm confident to say in the Corn Belt, if you're 470+ on corn, you're probably in that 30% zone. ROIs with what we have for input costs, and the beans are probably there, if not above it, for a lot of operations at the $12 level. So yeah, you have crop insurance there, and if you do buy up, you got a lot of money in it, so you gotta justify putting up capital at risk in the market with other strategies. But nonetheless, these numbers are worth protecting in some way because Murphy, Murphy will likely show up when this is all said and done.

Chris

Barron: Yeah, yep. You know, we've talked about the potential on the, on the high end and, you know, the next week or out further, you know, and some things to watch. What are some of the risks that, you know, from a technical and a fundamental perspective that you're looking at that maybe give you caution, that are things to keep an eye on, or is there anything in particular there?

Grant

Shimek: A lot of the same things that have been a caution, cautionary flag for some time. Just the extreme positions and commitment of traders. Sentiment indexes are very high, and we have technical indicators that have been— your oscillators, many oscillators, and even the ones that don't typically peak out this often over and over, but they've just been maxed out. And all of a sudden you can end up with having a situation where you're, you're going to have a shakedown that looks like it's coming out of nowhere, but we've been up and up strong for so long. We can easily go back and do 45-day and check the 45-day moving averages. Corn market, that's right around 5— as we come into next week, it's probably around $5.10 on March, which isn't dramatic, but it's a lot different than $5.74. And both that thing can can happen.

No, right now the daily trends are still up on corn and beans, so are we at risk of anything major? No, we're just at risk of a nasty tree shaking. But given, like, things we might have mentioned here, like the Outlook Conference USDA had, pretty much gives us a bullish tilt longer term, is what most analysts look at that and come away with, which says that, yeah, we can shake it down, but there's going to be willing buyers this early in the growing season to support the market on any break.

Chris

Barron: When we get to March, there'll be the, you know, the planning intentions information, and I kind of want to get your opinion on that. I mean, we were in Alabama last week. I mentioned that last week on podcast, but— or the week before— but just talking to some of the growers that do cotton, there's some opportunities to shift a lot of those acres over to soybeans. And I know cotton's come up in price. But even when we sit down and look at those numbers on Profit Manager and we dial them in, it still makes sense for a lot of those growers to maybe switch over to a bunch of soybeans. And it looks to us like we're seeing some of that happen. Do you think there's any, any thing to be watching on planted acres, just on increased acres on both corn and soybeans?

I would also say when you look to the north, all the prevent planted acres we've had in the past few years, there's more tillage done than we've ever seen in the north. Which has got them set up to plant either corn or soybeans. I mean, the surprise might be on the corn acres to the north if we have a good spring. I mean, those, those guys have got all their tillage done. They could throw a bunch of corn in and surprise the market. Is there anything that you would be watching there that you think we should pay attention to on the planted acres?

Grant

Shimek: Well, you bring up something I hadn't thought about, and that is the cotton acres, because cotton is profitable now, but If you've ever, as far as marketing, covering your marketing risk on cotton isn't nearly as easy as soybeans. Right. And most of those growers are participating in cotton pools. The flexibility is not there, and if they're planting any acres of size, it takes capital to manage that. And I think that in and of itself is going to be a really big motivating factor, especially when you get, and you've got sap beans, that we're, you know, mid-12s, let alone no beans getting into that level.

Chris

Barron: Right, and then the other observation from our standpoint is when, when those acres, when they make the decision to shift, I mean, a lot of times the people will make a commitment and make some sales, then you're actually committed to those planted acres then too. So, you know, I think, I think we're going to see some shift there, and it's just going to be an interesting thing, I think, to keep an eye on, obviously after the March 'Cause, you know, the intentions and what actually happens will be two different things.

And like you said, weather currently, but weather as we get into the spring planting timeframe and into the early part of summer, probably when, you know, at the beginning of the podcast you brought up some of those, that Dec potential high, you know, from a technical perspective and that high on the soybean side of that, you know, $13.60 or or whatever range you're talking on new crop.

Grant

Shimek: $13.16.

Chris

Barron: $13.16, okay.

Grant

Shimek: For an annual high, yeah. Not in the next few weeks, but potentially for whatever we see this year, yeah.

Chris

Barron: Right, and that's just it. The thing of it is though, it seems like when we get into those weather markets, they last for about 15 minutes and you don't have much time. So I think those are just some things to be watching. Is there anything else that we haven't really hit on that you think some things that producers from a risk management standpoint in terms of tools or ways to protect themselves, you know, I mean, we talked about the insurance on the marketing side. What are some of the tools that you're using?

Grant

Shimek: Nothing, nothing outrageous, especially as emotional as these markets can get. I would try to keep it simple and try to keep it margin So you're not putting on positions that are going to take a lot of margin. You might allot 20% of your, your crop into a marginal position or something like that, as long as you know yourself and how you're going to react if that goes against you, right? Because if you get any kind of significant marginal position, especially if we get to some of these upper numbers, the problem with that is if you've got to make a margin call, whether it be $5,000 or $50,000, your brain will check out and you will not want to take the next step. And this is, to me, one of those times this could end up being a multi-year— and I don't mean wildly aggressively for 2022, but to do some things that you rarely would do.

And if you have yourself in a position that is sapping all your emotional capital, in the end it'll ruin your opportunities. So just beware of that.

Chris

Barron: With that said, I mean, does that mean you would lean more towards some, like an HTA type product or something? And leave—

Grant

Shimek: especially on the first half of the, the first half of the crop, cash and HTA sales.

Chris

Barron: And you're talking '21 crop.

Grant

Shimek: '21 crop, right?

Chris

Barron: Yep.

Grant

Shimek: And in every case, well, you'll have to assess on the '22 strategy. You just have to assess that. That might be a some kind of program sale, just that they're— the entity you're dealing with, the elevator, so forth, holding the bag type of thing. But yeah, as far as doing other strategies, I would probably stick with some kind of option strategy past the 50% zone if you're— if you know you just can't stomach it and work out a plan. Like you mentioned before, you have these things that are going to seem to only last a week or so, and they probably happen when you're the busiest, right? I think that April 1st to May 7th timeframe, if those are new highs on new crops, could be very significant. Well, what are we doing then?

We're too busy getting everything ready, and it's just like you want to put this off because it's not the most pressing thing day-to-day in your life, but it really, it really is. It could be. So if you have a plan laid out and say, well, at least I'll— maybe you're not doing 10% sales scattered out in there, but you have some offers in there to make things happen if we do spike up.

Chris

Barron: Yeah, that's great advice. I think having offers in as you go into spring is huge, especially in new crop. And even if it's just a tiny little incremental thing that, you know, you'll get a notification that, hey, you just made a sale, then you can wake up, look at it, and say, okay, yeah, we need to do more. Back to that HTA, let's, so let's say that the producers are doing some HTAs on that Dec '21. Are you watching the, the spread? So like if some of the producers have storage facilities and let's say they, they pull the trigger on a Dec HTA and then, you know, want to watch the spread and roll that out to say, you know, May or July or something, what's your thought there?

Grant

Shimek: Well, right now that spread lets us take the Dec/Jul. Settled out yesterday at 12 cents for the July. We've been as narrow as a cent and a half, and if we're on a run to the upside, we probably can easily get that back to single digits to the July. Well, you definitely want to be selling the December if you have storage, right? Because if you're going to make a sale, it's, you know, the roll fee is typically 1 to 2 cents to roll once you've established the the HTA. So I would definitely do December. And say for example on that, there's getting back to 17 to 20 cents to July typically happens in, in the vast majority of years, if not more, more spread than that. So yeah, you want to, in my opinion, go to the December. Same thing can be said with beans spread. The spread on Nov versus Jan beans is actually a premium of $5.75 to Nov.

So yeah, those spreads typically between Nov and Jan beans don't get to be that dramatic, but if you look at it, look at that spread in particular, you know, over the last 25 years, it's going to go back to 4 to 8 cents to the Jan at some point in most years. Well, that's not going to make you big bucks, but it'll pay the HTA fee and put a few cents in your pocket. And then you can move on from there.

Chris

Barron: Well, in some cases the producers don't want the money in that fiscal year anyway, so that's, you know, you kind of can get a win, catch a win-win on that anyway. On the other side of it though, I watch sometimes, you know, when we hear people talk about capturing the carry, there is a cost to that carry too though. If the operation has a line of credit and, you know, you figure a couple cents a month on corn and 4 cents a month on soybeans, you got to have You know, I kind of like to see 20 cents, you know, so we can cover the cost of the money and then put some money in your pocket.

Grant

Shimek: Right, right.

Chris

Barron: No, I think this has been a good conversation. Anything else that we need to be watching, uh, in the next few weeks here? Anything, uh, top of mind?

Grant

Shimek: No, just make sure as we get into this, uh, April, that late March to early first week of May timeframe. But those are new highs. You're going to be busy in the field. Make sure you have some kind of strategy laid out because I think it will be emotional and happen fast.

Chris

Barron: I think that's awesome advice, is getting those offers in there when we get busy. It never fails. You can be underneath the planter in the, in the shop and your hands are all greasy and it'll cross your mind, I probably should be making a sale today or doing something. And then the next day the market's down and you're like, I knew I should have made that sale yesterday, but I didn't get it done. And And that always happens. But well, Grant, thanks a lot for the conversation today. If people want to get ahold of you and have, you know, a more in-depth conversation on some strategies and some opportunities, what's the best way to reach you?

Grant

Shimek: They can just go to my website and my contact info is there. It's blackoakfinancial.com.

Chris

Barron: All right, that's good. And we'll have that in the information too on the podcast. Grant, thanks a lot for your time today. Really appreciate it.

Grant

Shimek: Okay, thanks, Chris.

Chris

Barron: All right, and thanks everybody for listening, and we will catch you again next time on the Ag View Pitch.