Numb: farmers, traders and analysts alike - weekly market outlook, Feb. 28 - Mar. 4th

Shay

Foulk: 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. Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Clark Neighbors headed into the end of February and beginning of, beginning of March here. Clark, hopefully you've had a little time here over the weekend to you know, take a breath, maybe kick up your feet and relax a little bit. Kind of a whirlwind here when we wrapped up on February 25th. Talk to me a little bit about the last couple of days and the trade there and just the, you know, the insanity that went on. What were you dealing with on your end?

Clark

Neighbors: Well, I think, Jay, everybody's somewhat numb, you know, and it doesn't matter if it's a trader, a farmer, who— I think everybody's a little numb on how volatile the market's been. I've been doing this a long time, and I wouldn't say Thursday was the oddest— that's the correct word to use— trade I've seen since I've been in the business, but it'd definitely be in the top 2, 3, or 4 days. Some that pop into mind are Chernobyl back in the late '80s, maybe a day or two in 2012 with You know, the short crop and the drought that year. I've made a lot of comparisons from time to time this year with 2008, which was a very driven up every day type market, more based on commodities being an asset class. And I think there's a little bit of that mindset this year, and we can go in that more detail because of the inflationary story and that type of thing.

But Having said all that, the trading ranges are crazy. We got within, what, 30 cents of the all-time high in beans Thursday morning early, settled at the same point, $1.75 off of Thursday morning's highs for the weekly close on Friday, with beans actually closing the week down 11 cents. Corn made a big run, not quite, you know, obviously getting to all-time highs there, but wheat— corn closed the week, I think, up around 5 cents on the week. And wheat, which I like to call the barometer of the current environment we're in with the Ukrainian situation, even with being down limit 75 cents on Friday, was still 45 cents higher on the week. And, and the reason I feel the wheat markets kind of the barometer of the events that took place late last week with Ukraine is, you know, the Black Sea region is a major exporter of wheat and some grain, feed grains and that type of thing too.

So the impact on, you know, movement of wheat in the world market is key. So I think the two commodities that are worth watching for direction are wheat and probably the energy trade obviously too with crude, which also on Thursday morning, the front end of the crude crude futures April contract breached $100 briefly. And interestingly enough, you're closing the week— we closed the week, I should say, at about $92. So that's about $8 off its high, and percentage-wise, that's a pretty good break.

Shay

Foulk: So, so let's talk about that real quick. Yeah, not to interrupt you, but let's talk about that real quick on, you know, with the dramatic change off of those highs that we saw. I think generally with the environment in Ukraine and Russia, everybody understood why we saw that dramatic price increase when news came out that Russia had invaded. But a lot of people had questions on why we saw such a steep drop-off, such a steep, you know, as you said, being off by the end of the week when markets closed there. Talk to me a little bit about why that occurred and fundamentally what some of the reasons are behind that.

Clark

Neighbors: It's a great question. I would say it this way. Over the last several weeks, you know, the events that were leading up to the situation, you know, was it really going to happen? So the market put in a lot of premium, whether it was energies, the ags, etc., on what may occur, you know. And the old saying is buy the rumor, sell the fact, is one of the oldest things in the commodity trade or trading in general. And I saw somebody on on one of the business channels late last week on Friday mentioned, you know, the anticipation of the event has more impact than the actual event itself. So again, buy the rumor, sell the fact. So I think what occurred was markets do not like questions. They don't like uncertainty, if you will. And now, even though We don't know how tomorrow's gonna play out with the Ukrainian situation. There is a little more factual information there.

They have invaded. How's that all gonna play out? And over the next few days, next few weeks, things may play out and there may be more clarity, I guess is what I'm trying to say. So I think that's the key thing. You probably ran out of the buyers, okay? So people plugged into the threat of this, the anticipation of this, and once you had the headline news in the middle of the night when there's not a lot of paper to trade on the other side of a steep upswing like we saw Thursday morning, whether it was energies or in the ags, once that kind of faded, then the market broke, and, and then it kind of, uh, you probably had some profit taking by some traders that have been long for the month of February that have been well rewarded. You know, you get the end of the month coming up on Monday.

Um, you know, it sometimes you hear the phrase blowout tops, and looking at a chart, you could in hindsight come Friday, look at the chart and say, well, that sure looks like a potential blowout top. Now, I don't want to sit here and say we don't make new highs somewhere down the road. We very well could. You know, you got to get through the growing season in the US here over the next few months. But you would look at that chart and say, wow, that thing kind of, you know, blew its top. And now and see where this thing wants to consolidate, settle. In the meantime, we're gonna continue to see a lot of volatility. Mm-hmm.

Shay

Foulk: One thing that I had also read, and I just want your reaction to this, is that potentially the impacts of Russia invading Ukraine are more bearish due to the impact it'll have on the world versus the bullish sentiment based on the reduction in exports or the lack of resources that are going to be coming out of Ukraine and in that area. How do you feel about that?

Clark

Neighbors: I don't know if there's an exact answer on that, but I guess, you know, on the surface, how I would answer that is, number one, you know, Ukraine is a very ag-rich area. Obviously, it's in the Northern Hemisphere. So right here, right now, you know, you're not exporting a lot of product out of that region. Now, once the wheat crop comes out, come July, August, September, October, they're a big, big player in the world wheat market. To some degree next fall on some of the feed grains, the corn, the barleys, and so on. So having said that, they're not a big player in the world market as we speak today. Other no crop stocks and that type of thing. And keep in mind, there's U.S. entities, that have ports in that area, you know, the Cargills, the Bungees, the ADMs, et cetera. So chances are that product's still going to move. It may have a different destination.

You could presumably look and say, well, because of some of the ties and relationships, maybe some of that product moves a little heavier to, say, China, for example, okay? You could also say we could see some additional wheat go to other regions versus Europe, but the bottom line, I think the region that is impacted the most going forward is Europe because of the reliance on Russia for their energy needs. Sometimes energy is what makes this world go round and round, and You kind of wonder if that's Russia or Putin's attempt in this whole situation to have a little more control on the world's energy trade and in essence, to some degree, hold Europe hostage, if you will. So that's a region that's living a little closer to the issues at hand, if you will, versus here in the US.

The question is, you know, how does the US respond with say natural gas exports and that type of thing to fill in that hole. So a lot of questions going forward geopolitically, but I think, I think we have to keep in mind the Europeans are, are the ones that have the most impact potential on trade, on supply of products, and also, you know, maybe logistics on moving those supply of products, especially out of Black Sea. Right.

Shay

Foulk: So you mentioned the word numb earlier, and that's, that's, you know, we were, we might have had that feeling 6 months ago when we saw the real uptick in some of the market trends and this, this volatility word we keep throwing around here. So how do I think about this as a farmer today when I'm looking to make decisions, lock in profit? Considering how far sold I want to be and, and what options I have moving into the next year. You know, putting on your farmer hat, how do you think about this and what's some of the, you know, not recommendations, but just some of the advice that you would maybe give to anyone listening to the podcast here?

Clark

Neighbors: Sure. You know, and I know you guys do a real good job of working with everybody on knowing where their profits are and the ability to lock those in. And as we approach approach the end of February here, you know, the insurance price is going to be more of a talking point going forward. I thought I saw somebody this morning talking right now the insurance price in corn would be somewhere around for month of February around $5.90, I believe, and the beans about $14.35. I'm not so sure, but that bean number is roughly a dollar bigger than it's ever been. For a February price, so you have to put that in perspective. But I think the main thing, you know, we hear out in the country is that there's a lot of concern about input costs and that type of thing, and there's no doubt, and that's a real factor, okay?

But same point, so are the profits or the potential profits, so we're all playing with bigger numbers than we ever have. Bigger numbers for revenue, bigger numbers for expense, and that type of thing. So the key, you know, in this part about being numb, and I remember saying this several times in the last month, is, you know, this is all depending on where a person's selling patterns are at, but when the market's going higher, it's all glee and joyous, right? But when the music stops, Do you have a chair to sit on? Right. So is the music stopping? I'm not going to say that, but obviously maybe we have a skip in the record here in the last couple of days.

So I think the key thing producers need to do is try— and it's hard to do in these kind of markets because it gets very emotional— is try to stay level-headed, know where you can lock in profits, you know, and, and work with somebody like yourself and start putting, you know, put some sort of plan or strategy together, if you will. Typically, historically, doing that in the spring, you know, this time of year in the spring for the new crop, usually is a pretty good idea to get a fair amount of percentage locked in. I always say everybody's got a little different needs. Some have on-farm space, some have to move some to town at harvest time depending on on on-farm space, but put some thoughts or numbers together in that regard, big picture.

The other thing when you look at a market, especially like yesterday, I think it's very important to know, and I hear this all the time, well, if we see this price, let me know, or, you know, well, let's see what happens. The problem with those statements are the market reacts way faster than we can react, and especially in these type of markets. So I don't think it's a bad idea to just have— if it's cash sales for next fall or even this spring, you know, have those offers in place at your local elevator. Have offers in place if you're wanting to put hedges in place with, you know, good old canceled orders or hedge-to-rabs, whatever it may be. But it's always a good idea that those have those offers in place because a person can never react quick enough. And a day like yesterday is a good example when you have, you know, dollar trading range in beans.

There's no way to participate in that unless you have that offer in place. And I think lastly, what I would say is in these kind of markets, we're protecting a lot of premium, hopefully, and Thing is, Shay, is in these kind of markets is, you know, whether it's crop insurance or whatever, when I look at futures options and, you know, in the trade, there's a lot of premium in those right now, especially in these volatile markets we're in. It adds juice, it adds volatility to the premiums involved. I kind of use the analogy is in these kind of markets is kind of like insuring a an 18-year-old in a Corvette versus somebody's grandmother that drives a Buick that goes to church once a week, right? So the option premiums are going to be expensive, but at the same point, they're protecting a lot of value.

So look at puts, look at short-dated puts, which have less premium, but yet less of a window. In other words, they're short-dated puts against new crop, But instead of owning puts or options all the way till expiration next fall in both the corn and beans, you can pick timeframes in a shorter timeframe that may expire in May or July. And, you know, learn about that before you, you know, talk to somebody like ourself or whatever, but learn more about that before you participate in it. But in these type of markets, to buy some time, to buy some protection, to kind of alleviate some of that numbness that might not be a bad way to go on, on part of your production also.

Shay

Foulk: Yeah, that's a great analogy and I think really good advice. You know, as we, as we kind of wrap up here, we're looking like you said $5.90 on corn, $14.34 on soybeans at those prices. And it's, it's really interesting time period. I would ask, you know, probably in closing here, When it comes to the Russia-Ukraine crisis and the impact on the market right now, does anything else matter? Any, any other buying, any China involvement, South American weather? How much, if at all, is any of that playing into the market right now, or is it just noise?

Clark

Neighbors: All of this noise, and it all probably matters, I guess, is how I would answer that. I mean, you know, the latter part of this week, the the crescendo was, was the invasion. But, you know, we spent— the market has spent the last 60 to 90 days in reference to production cuts in South America. Okay. And, you know, that's still, that's still a factor and something to watch as we're starting to begin, you know, harvest in some areas. And, you know, the Suprena crop in corn, I mean, that, that storyline's still going to be there. And the key to that part probably is how that has a potential reaction to additional U.S. business down the road. Our feeling is, is if that crop is cut short from a Chinese perspective, we're starting to see them book a fair amount of beans for new crop. There's a little bit of new crop— or excuse me, old crop business going on.

Our folks we talked to in Chicago think that's more late summer. China is not, you know, they're, they're pretty shrewd traders and they're looking at the inversion in the bean market. In other words, the premium today versus the cheaper values next fall. And they're pulling beans out of the reserves right now versus buying expensive beans in the world market, thus replacing those reserves here later in 2022. But I think that's going to be interesting to watch, how the South American lack of production could have some influence in U.S. numbers going forward. Mm-hmm.

You also have to be kind of careful, is do we see— getting back to your question about Ukraine, does that impact and does that— again, getting back to that Black Sea area where you're looking at wheat and feed grains, do we see extra feed grains go to China from that part of the that part of the world or region than we typically do. Uh, do we lose out on some of that? Now, bushels are bushels, and they need to get shoved around the world in different directions sometimes, so maybe that's more of a logistical play.

And then lastly, on the macro side, and maybe this is the bigger, longer-term storyline, and I'm not sure how much impact on a day-to-day basis this has, is just the in The inflation story, the impact that has on commodities as a whole, whether it's higher price crude, which again kind of ties back to this Russian-Ukrainian situation and the amount of power Russia garners with energies into Russia, how that impacts, you know, energy prices here in the US, but also just commodities as a whole, you know. And I think we've seen, you know, investment money, whether it's London traders, New York traders, and so on, invest into that kind of thought process, big picture. We were looking at something the other day. Now, the stock market's come back nicely here the last 36 hours while the commodities have broke.

And it's interesting, since the first of the year, keep in mind, you made the high, all-time high in the stock market second or third of January, if I remember right. And one time yesterday, stock market's down 11% year-to-date. That was before the last couple days, which is deemed a correction in the stock market. Anything over 10% is a correction. Same time, commodity index, which includes the energies and the metals and the ags and livestock, etc., was up about 10.5% on its own in that same time frame. So we seem to be going in opposite directions a little bit short-term. I think longer-term, that means may not be the case, but kind of ironic, that reverse correlation, if you will, between equities in the stock market and commodities over the last 60 days.

Shay

Foulk: That's a great place to wrap up. I really appreciate that perspective. Clark Nabors here with BIS Commodities. If anybody's interested in getting a hold of you, having a further conversation, or picking your brain a little bit here, how might they do that?

Clark

Neighbors: Yeah, sure. Phone number is 800-373-2525. Website, biscommodities.com. There's 4 of us here in the office that have a good background in all the information, so anybody in the office could handle any questions that somebody may have curiosity on.

Shay

Foulk: Absolutely. As always, appreciate you joining us here today, Clark. Looking forward to the end of February, moving into March, and we'll see what's ahead for us.

Clark

Neighbors: Sounds great, Shay. Thank you for the conversation. Look forward to talking to you again soon.

Shay

Foulk: Absolutely. And thank you everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.