Weekly market outlook: Jan 31 - Feb 4, a must-listen roundtable discussion

Chris: Welcome everybody to another episode of the Ag View Pitch. We are heading into a new month of February, and so we are just wrapping up as we record this, the Executive Ag View Business Summit. And so we've got with us some of the real smart guys with marketing, I guess. And so I'm going to have Duane Lowry here moderate this conversation, and we'll go ahead and introduce Brandon Moe, Joe Vaklovic, and Jared Creed will all be on here with Dwayne. And so you guys enjoy, and here you go, Dwayne, you're on.

Duane

Lowry: Thank you, Chris. I'm quite humbled by this crowd at the table here, but a lot of expertise, and we're going to try to bring the theme from the conference, put it onto the podcast, and try to tie some of the theme together with a marketing conversation some outlook, some pitfalls and concerns that we might have or expectations. Because there's going to be 4 of us here, I think everybody's probably been on the Ag View Pitch and most people will probably recognize their voice, but just for clarity, I think if you kind of identify yourself when you're speaking. The theme throughout this conference has been to talk about risk management or to risk identification. And there's been different perspectives, but most of the— what's been at the conference has been big picture items, trying to identify what might be out there for concerns.

There has been little done in terms of marketing, in terms of specific how to handle the situation, how to navigate it. Hopefully we'll get to some of that here in this podcast. I'm going to start with something simple. Basis levels to me seem like they have been quite firm and for a period of time and maybe more so than what we used to call as normal. Is there anybody here that thinks that there might be something on the horizon that may cause basis to surprise us in either way? But more specifically, is there anything that might cause a concern? Because I think there's a certain level of complacency towards basis on the producer side, and justifiably so. It seems like it's been strong. But Jared, I know you work a lot with producers directly marketing their grain. So can you give us some insight on what you're seeing for basis or expectations?

Jarod

Creed: Well, you went all the way through this last year's harvest before you broke the cash inverse and the expectation of a wave of corn to move from the farmer after the first of the year. I mean, it came true. A lot of processed destinations anymore are now in carry markets. It seems like the cash inverse has come and gone even though the board is still inverted, which makes you scratch your head a little bit. Um, from here forward, um, to impact basis moves higher or lower, we've already experienced one hell of a roller coaster in ethanol margins in the last 30 days. That has certainly had negative implications on, uh, especially Western processor bids. At the same time, you've had rail freight go through the roof. That has a negative impact on plenty of elevator, uh, elevation margins.

Um, from here forward, I think it's probably a slowdown of farmer selling to keep the pipeline full can obviously impact basis. But maybe more than anything, until we get through the end of the winter, any larger weather event that would slow down grain movement as well. Because at the end of the day, yeah, we had a wall of grain move after the first of the year, but But I don't know if it's been enough to necessarily, you know, make everybody feel real cozy going into the end of the winter. And to your point, you know, basis levels are still firm for the most part.

Duane

Lowry: Joe, I don't remember if it was you that brought this up, but some of one of the speakers today talked about the farmer still having 62% of the inventory. One, do you feel that that's an accurate assessment? And that sounds like it's a little on the high side that Do you believe the farmer is sitting on an abnormal amount of his production from '21 that makes us a little more vulnerable where the tables might turn on that producer with the ethanol margins backing off maybe a little bit? Is there any— do you have any concern about that?

Ryan

Moe: I don't know what's being stored on the farm. I know it was in the Grain Stocks Report. I would say that in general, in regard to what's been priced, as in committed to the board or to the market, My personal thought is that the farmer is more aggressively sold than he would be in a normal year, and rightfully so, because the profitability is fantastic and you can't argue with it. Does that mean that there's guys out there who aren't happy that they sold corn a dollar ago? Yeah, there's a lot of that for sure. There's guys out there that sold corn $2 ago that aren't happy about it. But, you know, profit's a profit. That's my general takeaway.

I did a poll of my newsletter subscribers just a few weeks ago, I think, and most people indicated that they had, uh, were a little bit more heavily priced, priced in regard to, to the 2021, uh, corn and soybean crops than they would be in a normal year. And, and the reasoning was simple. I mean, it was profitability. Um, what's still on the farm, where it's moved, I don't know that. But, um, the— I think the sales have been pretty aggressive, and it's not uncommon for farmers to be totally sold out of the '21 crop.

Duane

Lowry: No, it's— the prices have been so good, it's hard not to be a seller if you've got the inventory. You already know what your costs were, and And you want the cash flow. Ryan, I'm sure you have a lot of good contacts and information and perspective on a global perspective of cash markets and exports and sales, etc. How do you feel that we're stacking up in terms of our sales pace versus what's projected by USDA? Are we going to end up with better sales than it's on the books now, or are we going to fall short of those expectations? And how is the U.S. Export market competitively priced right now for the '21 production.

Joe

Vaclavik: Yeah, for corn, the biggest concern for me in that is the sales versus the inspections. And are we going to— is China going to take everything that they have purchased from us? As far as how things are moving right now, it's a little bit odd to me that we saw an export sale to China today because we shouldn't have seen that because we are not competitively priced in the world marketplace. Place. I mean, Brazil has— they are talking about the crop shrinking down there. It's still a big crop. And Joe, I think you had one of the slides in your presentation about the size of the crop. And even with it being smaller, is it the second—

Ryan

Moe: it'll still be second or third biggest ever, probably second biggest ever.

Joe

Vaclavik: So I mean, it's still a monster down there, right? And so they should be getting all of the business that is coming our way. But there's that uncertainty that exists with the Russia-Ukraine escalation of tensions and the uncertainty around that. And world buyers, if they're going to be buying, they're going to want to buy from a reliable supplier. That probably offers some level of support to the U.S. as we are one of the better suppliers, more, um, certain suppliers in the world.

Jarod

Creed: I don't think it necessarily matters when we sell it to them as long as we do sell it to them. And if I wanted to put a tinfoil hat on, Brazil pipeline is still tight until they harvest this crop because of a short crop last year. US has a supply. Ukraine had a record corn production this last year, but that was already a front-loaded program to China. So what other choices China have to go to buy if they need it now?

Joe

Vaclavik: So that, that's— you're saying the US is going to be the place that they come?

Jarod

Creed: I'm not saying for a long haul, but if there's a need now with the Russia-Ukraine tension, again, that might just be a tinfoil hat opinion, but we're the only ones that they could really go source it from right now because they've already cleaned house in Ukraine.

Joe

Vaclavik: If they need, if they need the corn.

Jarod

Creed: If they need the corn.

Joe

Vaclavik: Yes. And who knows on that one, right?

Duane

Lowry: And then the other thing with China is, um, I think there's a general thought that they're going to remain a strong importer of corn, whether, where, whether it comes from the US or not is a question. But what is their timing situation? Have they replenished their stocks from where they were when they first started this large buying program more than a year ago? Are, are they capable of waiting, for, you know, a different set of circumstances that maybe they don't buy until the 2022 crop comes along? Could they take the inverse that exists between old crop and new crop, and even if they make purchases, they end up delaying those or rolling them or changing the origin? I mean, what's their situation? Are they hand to mouth, or did they greatly improve their stock situation?

Joe

Vaclavik: I would say they've greatly improved their stock situation, but you're also having to try to figure out the psychology behind communism too. Like, they can, they can, they've proven that they will hold out much longer than anybody ever expected. I mean, they've proven that in a number of different, uh, world events in the last 5 to 10 years. So I don't know what the actual numbers would be, um, from a what do they need need, um, but I also go back to from a long-term perspective, depending on them as our only major client in the export space. I think there's a very major risk associated with that simply because ChemChina owns Syngenta.

And if they start to focus on, you know, improving their yields, I mean, we need somebody else to be able to sell to because if we're dependent upon them for the customer as the only customer to keep $6+ corn, I don't know how long-term of a plan that is looking 5 to 7 years out.

Duane

Lowry: Joe, um, since we've talked about basis, let's talk a little bit about spreads, and we'll start— talk about it from the inverse standpoint. Right now we have an old crop inverse over new crop. It's quite early on the calendar to really talk about that, but what's the, uh, threat of that working against the producer, that that alone should cause a producer to maybe be more heightened in moving '21 inventory, um, Give me your thoughts on the inverse and is it too— maybe it is too early to talk about it. And secondly, in terms of spreads focusing on new crop, can you imagine a situation where we build carry in the market structure by the time we get to harvest? Or is it possible we'll have enough acreage, we could have a good enough yield to increase supply enough that we will start to build carry? Are we going to continue to have a relatively poor environment for carry?

Ryan

Moe: This may not be a popular opinion, but I don't really care about the inverse between old crop and new crop. I mean, I know it's an indication and a characteristic of a bull market, but when it comes to marketing, the 2021 crop and the 2022 crop are apples and oranges, even if it's the same crop. I mean, they're two totally different situations. So I don't know that it makes any difference to me if there's a $3 inverse in old crop beans or a $7 inverse, or we go back to carry. I mean, if you go back to a carry, we're probably into some lower prices would be my guess. That would be the obvious thing that would happen. But I don't know that I'm overly concerned as, like, in regard to grain marketing about what these spreads do. I think the front month is going to lead the way, especially if money managers keep pouring into this stuff. I think they're going into the back months too.

But I mean, this is just, this is classic bull market type stuff. I mean, you've got an inverted market, old crop versus new. It's probably going to stay that way unless something really changes. But from a grain marketing standpoint, I don't think that— I don't think the inverse means a damn thing, to be honest.

Duane

Lowry: Jared, absent a, uh, problem with the '22 crop in the U.S., uh, given the carryout at USDA says if we take that at face value, doesn't there come a point in time where the commercial will force carry into that market by the time they're going to take control of those physical bushels? Because they're the ones that are going to carry it.

Jarod

Creed: I'm going to piggyback on what Joe was talking about there for a second. Especially on all the outside money that's in this market. They are front-loaded in a big way. Granted, they are buying some back stuff. I think there's a reason to watch that, but they're sitting there on a managed money position arguably the longest they've ever been going into the end of January.

Duane

Lowry: That sounds like it's something you're concerned about.

Jarod

Creed: Let's, let's just put it this way, that oftentimes you talk about a big long position— I think Joe talked about this yesterday— that, that can be viewed as maybe something that's not so friendly. It's that risk of them being long that has created the opportunity to price these much higher prices. So it's not like it's necessarily just a guaranteed bearish event. Their behavior and the size of the long that they have with a farmer that still had a record crop last year and an inverted board but a carry cash market— a very interesting setup of all that. If Imagine there's 300 of us in a 10x10 room and we all got to get out the same door all at once. The funds are long 300,000 contracts of corn, and if— big if— something tells them that they need to get out, it's going to be a, it's going to be a bloodbath.

Ryan

Moe: I mean, that's, that situation, the, the carry in the cash but inverted board just screams outside money, doesn't it? I mean, to me it does, 100%.

Jarod

Creed: And they've had plenty of reason to do so, right? And it's work for them.. And as long as the board stays inverted, it ain't costing them to push it forward. So to your question on a commercial, I think the commercial is probably just hands off on that right now. I mean, they're trying to stay hand-to-mouth as possible as well.

Duane

Lowry: Right. They're, they're not going to build an inventory until either a massive problem happens with the '22 crop or carry develops and they can buy a cheap basis and with some spreads. Ryan, shifting gears here towards acreage. There's been a couple of extreme acreage expectations on large corn and large beans, both ends. And there seems to be a lot of people that are looking for numbers that are very similar to last year. Do you see anything either agronomically, input-wise that's going— that offers you a strong opinion on where that acreage is going to slant? Is it going to be more towards an increase in corn or more towards an increase in beans? And do you think the, the decision by the producer is largely committed because they were aggressively trying to put on fertilizer in the fall and they, they had the weather to do so?

Or do you think that it— that final decision is still in limbo and will be impacted a lot by what price relationships occur between now and that final decision?

Joe

Vaclavik: I'm in the camp that we're going to see very similar situations to last year. You know, the thing about the fertilizer expense is a very real issue, but not everybody bought all of their fertilizer at the top of the market, which is— and so there is, and I'm not as familiar with the outlier states. You know, the big area that we work is Minnesota, South Dakota, Iowa, Nebraska, those areas. And those crop rotations are pretty well baked in. They're going to stay where they've been. And so I don't see us having a major acreage shift in corn and soybeans anyway.

Duane

Lowry: I would say that I've kind of heard the same things even at this conference. Some people with more southern connections that I thought maybe would be encouraged maybe to scale back their corn, they're more inclined to stay with their corn. I was a little bit surprised at some of those themes that I heard.

Joe

Vaclavik: It's a good lifestyle crop.

Jarod

Creed: It's the coffee shop deal that, oh, our neighbors to the north, they can't do it, but we can. And then them same neighbors to the north, oh, they can't do it, but we can.

Joe

Vaclavik: That's happening everywhere. Right. And psychology around corn farming is if there's any reverse psychology or any psychology that allows the corn farmer to convince himself that he should plant corn that nobody else is, he's going to plant corn.

Duane

Lowry: So if there's a consensus here that we're somewhat similar to last year and maybe not dramatic, is there also consensus here that given normal growing season, that we are going to either maintain carryout or add to carryout. Is that a fair assessment for the '22 or not?

Joe

Vaclavik: I believe in seed genetics far more than I believe in most commodity analysts.

Duane

Lowry: I would do— I do probably do too.

Joe

Vaclavik: Myself included.

Ryan

Moe: And I think it's a hard thing to bet against these last couple years. I mean, there were people at this meeting, we were phenomenally wet, record crop. We were phenomenally dry, record crop. I mean, it's really phenomenal what's happened and how I mean, weather's still an issue in the market trades, weather, no doubt. But it seems like the impact of weather on crops is just becoming less and less, I guess.

Duane

Lowry: So if that's the case, I'm going to shift gears a little bit and go back to what the economist Bill Connerly spoke about. One of the things that caught me in his presentation, he had a slide that he talked about that peak asset prices, and he was talking about more than just ag commodities, and he probably wasn't talking about ag specific. He was just in general about asset values in an inflation environment, that he indicated that he thought that we'd either— we're near the asset peak, may have even gone past that asset peak, or we'll be very close to it. And he said that as inflation occurs and the Fed takes its fight against inflation, which they're clearly on that pathway, as they raise interest rates, the decision by the investor to where they're going to put money might start to go away from some of these assets.

I took it to imply that there might be less, you know, natural gravitational pull to the upside from inflation, you know, mentality in the ag markets under that scenario. Is— would you agree that, that with the prices that we've had, the recent price rally, the market news, the adding of risk premium from geopolitical risk of Russia, Ukraine, uh, South American crop. Have we priced in a lot of this stuff? Whether you want to say we've priced in inflation influences or the near-term recent fundamentals storylines we've been talking, have we priced this stuff in? And I'll start with, uh, Jared.

Jarod

Creed: I don't know if the question of have we priced it in what we want to try to answer. What we want to try to answer is how does the general consumer and market participant react to any of those types of changes? And just look back in the last 24 months at some of the incredible moves that we've seen in our markets. Lumber, nothing supply and demand related there, right? I don't think so. It was a pile drive, everybody chasing return. And you look at some of these other small stocks and such The only reason I bring that up is just how does market participants react? Who's the first shoe to drop? What commodity is it, or is it interest rates, or is it hard assets that has the potential of creating a domino effect? That's my opinion, that once— if something changes in the next 2 months, 6 months, year, it will be a domino effect.. And I think we've seen history suggest that as well.

And I don't know what that first thing is to drop. I think commodities is— it can be a near and dear just because of the high-risk, um, you know, environment that commodities generally are. But again, I just think it'll be a domino effect whenever something does happen.

Joe

Vaclavik: Would you think your first domino would have to be energy? I mean, because so much of the ag is tied to energy anymore. I mean, if you see crude oil go from mid-80s to Mid-50s, something big enough to scare the hell out of somebody.

Ryan

Moe: Corn's not staying at $6.25 if, if they cut crude in half. No, not going to happen. Not, not without a big weather problem or some sort of— I mean, major fundamental supply and demand factor. That managed money is not staying in the corn market if they cut crude in half. Not in my opinion.

Duane

Lowry: It's been my experience that when the Fed starts to make a move and they get committed to something— and we can argue about whether they're committed or not to fighting inflation here It seems like there are other things that kind of join forces and they just kind of seem to happen and they unfold. Ryan mentioned the hypothetical scenario of crude goes from mid-80s to mid-50s or 60s. You know, right now most people aren't thinking that's possible or they're not expecting it. But we all know surprises occur. And if— and that would certainly be a significant blow against inflation if that were to happen. And so I personally am, it's not difficult for me to buy into that possibility, and I could certainly see it. In terms of global economic trade demand, we know we have some geopolitical hotspots going on. I'm not personally, I don't really, I'm not concerned about either one.

I'm not concerned about China invading Taiwan in the near term. I'm not concerned about Russia invading Ukraine, but that's just my personal view. But do you guys see anything on the global economic front, trade conflict, that you really do have a lot of concern about that you do believe is a serious legitimate thing that's highly probable that it's going to negatively impact agriculture? Anybody want to take that?

Ryan

Moe: I think I agree with what you just said that I don't— I think the Ukraine thing would be more likely than the China thing. And it's something that everybody's talking about. I mean, everybody knows that if Ukraine or if Russia invades Ukraine, we're going to have some issues with wheat exports, maybe corn exports to some extent. But outside of those two things, I don't know of any other factor in terms of like geopolitical type issues that I'm really that concerned with, I don't think.

Duane

Lowry: What about a global economic outlook? Is there anything there that you guys feel confident that is a serious threat that could, could hurt demand? Or are we looking at the other side of it, where demand is going to get better as everybody gets tired of COVID and we kind of get that off the The energy crisis in some of these other countries is a real deal.

Jarod

Creed: I mean, they're already living—

Joe

Vaclavik: Europe's a worst nightmare. Oh, and it's— but North America's energy issues are far different than the rest of the world's energy issues. North America is largely energy independent. I mean, our friends in Canada and Mexico, we're good here in North America.

Duane

Lowry: Well, how much of the Russia-Ukraine, uh, situation started out— not maybe where it is now— what started out as Russia posturing to try to put pressure to get everybody to buy into the pipeline and get that supply committed. Is that— was— is and was that Russia's primary reason for doing what they've done?

Jarod

Creed: Your question has more education to it than I would have a clue, to be honest with you.

Duane

Lowry: I'll say one thing about the Russia-Ukraine. Obviously, none of us here know anything. I don't think Russia will do anything because at some point in time, there will always be a dividing line between NATO and the West and Russia. And if I'm Russia, I'm gonna say, what better dividing line could I possibly ask for than Ukraine? The eastern part of the country is very much pro-Russian. I've got probably a history of influences and people and connections there. And at any given time, that's an easy place for me to try to exert pressure and create some level of fear. So I think it's a perfect little ace in the hole for them. I don't think they— I think they could lose far more. Invading, then they gain and forget the near term, but just long term. That's just my personal view on that.

Um, shifting gears a little bit again, um, even in this conversation here, there's an aura of, uh, understanding that there's some levels of risk. Jared mentioned the concern about the specs holding a large position of corn. We've talked about other factors. We talked about acreage that is going to lead to an equal or higher carryout. And we talked about the fact that seed genetics makes it more difficult to lose a crop here in the U.S. If there's a bottom side— I'm not asking you to take a stand and make a prediction— but if there's a bottom side and a washout from either liquidation or a realization that we've had maybe a little bit better crop in South America than the worst fears we've recently dealt with, and maybe we've achieved a normal or better than normal yield in the U.S. for '22, what's the downside risk here? Some— I want everybody to put a price tag.

It's not meant to be a projection, but where do you feel the matrix could come together in reasonable plausible scenarios and define that downside risk? Corn and beans.

Ryan

Moe: Well, harvest low in corn was just south of $5, right? So all else unchanged, crude stays high, the stock market doesn't fall apart, that would be the low end of the range for me.

Duane

Lowry: So that would imply the low end of the range without any negative influences from these other—

Ryan

Moe: Right, without some massive outside influence, I think fundamentally supply and demand, if you're putting me on the spot and say pick a number where new crop corn goes. I mean, I think that would be your obvious target. It's like, that's where we bottomed out basically. It was September 10th when we posted that. It was like $4.97 spot futures. I mean, that would, that would be my spot, and beans would be somewhere just south of $12 probably. So a long ways away. I mean, that, those, that's, those are substantial downside numbers. I mean, if you, if you get there.

Duane

Lowry: So, um, if that's the scenario on the bottom side without any of these other problems, let's throw in a problem. We don't have to identify what it is, but something that causes expect a liquidation to occur and nobody wants to own the market in that environment. And/or we've added to carryout to where it's seen as comfortable. Do you want to— do you have a chart-based downside risk that you would throw out there?

Ryan

Moe: I don't have the charts in front of me, but it's more than the numbers I mentioned, probably. I think the supply and demand— the market's overpriced right now. Stocks-to-use ratio, you go back historically, we're not where we're supposed to be. But it's because I think there's outside money coming in because they want to hedge inflation or for whatever reason. But I mean, if you look at a stocks-to-use ratio chart in corn and beans, I mean, we probably shouldn't be at $6.25 spot corn and $14.50 spot beans. I don't think those are the numbers that would be fairly represented by the last, say, 10 years of a stocks-to-use ratio. But we're in a different world. This is 2008 again. This is not 2018.

Duane

Lowry: That sounds like a market that has priced in or at least been inflated by some of these other factors.

Chris: Yeah.

Duane

Lowry: I'm glad you went first on that, Joe, for the Well, you're second, Ryan. Give me your perspective on the same question. What's the downside risk? And if you want to answer it the same way he did with, you know, no other adverse situations, and then give me another one where there are some other adverse that would get blindsided.

Joe

Vaclavik: What is that? I mean, some event is going to occur. There's just, there's too many things that are bubbling up right now for nothing to happen. But I do think that we are in a, you know, I don't want to ever use the term new normal because that's what people did in 2008.

Ryan

Moe: That's what people did in 2012.

Joe

Vaclavik: Yeah, you don't want to ever use the word new normal. But when you are looking at just an overall inflationary environment that we're in and you're looking at what would actually happen to corn acres, just farming in general. If we hit sub-$5 here and stay down there for an extended period of time, I think we do some very serious damage to acres in what, 2023 then? Is that what we'd be looking at? And then, and then you would see an adjustment. So staying north of $5 for the rest of the year is probable because if you look at what Ethanol plants are breakeven right now at $6.25 corn and $3.50 at the pump gas. Now, if we keep $3.50 at the pump gas, which I'll argue there's very few Americans that look at $3.50 gas and complain about it. Yeah, they complain about it, but if they stop driving, no.

And so I want to say that if we keep $3.50 gas at the pump, I think we can afford to stay up at these price levels. But it's— I'm on energy focus. On that one.

Jarod

Creed: Jared, about luxury, getting to go last. Your question of, you know, define the risk— when, how long, for who— you know, to maybe put it all into a farmer term, the farmer's risk isn't the next 60 days, the next 90 days, it's arguably the next 24 months.

Duane

Lowry: I agree with that.

Jarod

Creed: And to rule out any type of crazy environment just from a couple recency bias situations Yes, I know crude was in a delivery cycle. Yes, I know that people learned that commodities can go negative. Some didn't. Corn reacted to all that. Ethanol is building stocks right now to the same degree that we were right at the beginning of COVID So maybe it's not even an inflation deal, maybe it's the unknown future of, again, COVID. Just throwing these wild cards out there. But I don't even know if it's, uh, fair to say that I agree with these guys at $5. Supply and demand, great, but that's probably where we would be without all these outside influences just from supply and demand. If we go back to a 2 billion bushel plus carryout, which I think is doable, I would actually make the argument that if there's movement in a corn acre number, it could be higher.

2013 prospective plantings was 97.3, and our insurance price was 3 cents away from where we're at right now. And anhydrous was $100 a ton cheaper.

Duane

Lowry: I think that there's probably truth in what Jared just said. There is a risk that these acres could be larger than what we might think.

Jarod

Creed: I'm not on that record.

Duane

Lowry: No, I understand. We're just talking hypotheticals.

Ryan

Moe: You can't be surprised by anything on March 30th. I mean, you cannot be surprised by anything. People get these numbers wrong by millions of acres every year, and this year is probably not going to be any different. I mean, there's going to be something in there that's, that's off. I don't know if it's corn acres or bean acres or some other crop pulls a bunch of acres. I don't know what it's gonna be, but there's gonna be something in there that's a surprise.

Jarod

Creed: From a dollars and cents though, for the farmer, downside price risk is more or less from $13 cash beans and lower, and certainly sub-$5 cash corn. I think majority of U.S. corn farmers, corn and soybean farmers are looking at a loss at that situation.

Duane

Lowry: Yeah, it would be devastating if we started to get below those levels as far as working capital.

Joe

Vaclavik: With levels where they're at right now, And option protection, you guys working with producers then? Do you have anybody taking option protection against new crop December corn at those? I mean, I've done— I don't have anybody.

Ryan

Moe: I've done some short-dated new crop options, uh, which are available now on CME. They've been pretty good the last few years and just in terms of liquidity and the ability to put them on and off. Um, different people are different. You guys know that, you know, buying a put option in general, I'll tell you the truth, they like Most of the time they just lose money and you donate to the market. But there are years where they can work wonders. This could be one of those years, maybe not. I don't know.

Jarod

Creed: They're out there. Not to speak for all of them, but people are willing to play a little bit more defense without some flexibility at these prices. They see the writing on a wall. Hey, I'm just willing to sell something.

Joe

Vaclavik: Yeah. So then they're just doing cash sales as opposed to options.

Ryan

Moe: I've seen a lot more of that than options for sure.

Chris: Yep.

Ryan

Moe: Yep.

Joe

Vaclavik: That makes sense.

Duane

Lowry: People have sticker shock from the option. Absolutely. But I'm probably a little bit different than what you guys have mentioned. My approach has been to try to do more HTAs than maybe what they would have done in other years just because of revenue protection, not really a price opinion. But I've also, I also see value in taking the, spending the money for those at-the-money puts. I know they're 50 cents if you buy at-the-money corn puts, but I don't think that the day you buy them they're not immediately worthless the next day. And somewhere down the road, the market's going to move far enough that you're going to have other opportunities to maybe sell puts under the market and use— utilize your crop insurance money that you spent there to play off of that.

I think there's other opportunities that present itself, but I'm kind of under the opinion that you're not going to buy— pay 50 cents on all 200 bushels you plan to grow, but it's a part of your tool. Maybe there's so many bushels an acre you're going to use for that, somebody for HTA, But I, I like to seal as much revenue protection as I possibly can with the person that has resistance to that, then choosing more of the option percentage as opposed to which doesn't have the finality.

Joe

Vaclavik: A key part of what you were also just saying, though, is managing that option position. Yeah. So when you put it, when you put it in the set it and forget it mode, that's when, that's when everybody ends up feeling—

Duane

Lowry: No, I think it's a piece to the puzzle of how it's going to be.

Jarod

Creed: Tremendous amount of ways is a skinny cat, right?

Duane

Lowry: Right, yeah.

Jarod

Creed: And one way or the other, you just got to find the roadmap to get as much revenue as you possibly can.

Duane

Lowry: Um, I guess kind of, uh, uh, lastly here, um, we've talked about this a little bit, um, I want to get a—

Ryan

Moe: people—

Duane

Lowry: I want people to be able to have an understanding about how concerned you are about the level of prices now offered the revenue, the profitability that's there, the large commitment that we've already had to the high expenses, whether they were increased rents or fertilizer, whatever they were, and the plausible uncertainties that we have out there, how— what is the combination of plausible scenarios that maybe cause you greatest concern? What are you trying to protect against and how aggressive are you wanting to be in protecting that with regardless of what tools you use versus maybe a different year?

Jarod

Creed: That's a big question.

Ryan

Moe: First off, so if corn, if Dec corn drops a buck, does it matter why?

Duane

Lowry: No.

Ryan

Moe: If you're from a grain marketing standpoint? No. I mean, the why and the reason why it happened is really inconsequential. Is it because the Fed was too aggressive? Is it because the global economy fell apart? It was because the COVID whatever variant destroyed us. I mean, I don't know that that— I don't know. That's like the thing I'm that concerned about, really, like where it comes from.

Joe

Vaclavik: But I don't have a doom and gloom outlook. I'm, I'm still in the camp that we've got to figure out a way to still spend all these trillions of dollars.

Ryan

Moe: It's a bull market. I mean, don't, don't like— it's a bull market. These are bull markets we're talking about. I don't want to be doom and gloom, like on the edge of falling apart. It's just we're talking about this. As, as risk managers. But these are our bull markets that have trended higher for going on 3 years now.

Duane

Lowry: You know, all, all of that is true. I'm going to play devil's advocate with that thought for just a minute. Um, I don't know exactly because I don't have a chart or anything in front of me here, but what it was 3 weeks ago, there was a period of time that the stock market was up, and how many days couldn't they have printed for an afternoon recap? New record high, new high settlement, new this, new that. But in reality, it wasn't that far away from where it was in April, okay? Yet it was with only within 1 or 2 days of a hard sell-off away from those levels. There's a lot of sideways but drifting higher type activity, and yet all of a sudden, 3 weeks later, we've had the Dow drop 4,000 points. Now it's the lowest settlement since April or some day like that. All of a sudden, things change dramatically, and, you know, around this business, there's a lot of last tick analysis.

So yes, it's a bull market, but that's what it is and has been. But things can change so quickly, and that's associated with all the risks that we see out here, or the high revenues that's offered, the high expenses. All of that stuff is motivating producers to, to ask questions about how they can get revenue protection, or motivating guys like us to, to encourage people to really evaluate their risk and how much risk do you want to take. And how much do you want to protect? So I see things happen with what has recently happened with the stock market, and I look at that chart and I wonder, is this the— just the beginning? Is this going to last longer? And does it— what does that spill over to me?

If I had to identify what am I most concerned out for, the what-ifs, and the reason, even though the reason may not be important, I'm probably most concerned about an economic downturn based on the Fed fighting inflation so hard. And I think they're committed to getting rates up to 2.5%, 3%. My guess is they're going to get there a lot quicker than people think.

Jarod

Creed: I think relative to the majority of the listeners for this podcast, what you just said is all 100% true. And we all know, uh, you know, I can have opinion, you can have opinion, everybody can have an opinion, but at the end of the day, it's still how the grand crowd reacts to whatever comes our way. And in the here and now, for these listeners, there is no fundamental rhyme or reason for what we're doing. Get fundamentals out of your mind. Yeah, okay. Yeah, we rally a little bit on South America weather on beans. Anything else? You two think of any other fundamental reason that corn and beans have been—

Ryan

Moe: it's just one.

Jarod

Creed: It's part of the reason, and it's one of the probably lower end of the total pulse. And so I guess the comment that I'm getting at here is there are times where a market starts to make these moves, you run with the risk, but you better be prepared to act when you get to a pinch point that I need to go ahead and do something. And right now, though, because quite frankly, at $5.70 Dec '22 corn and $13.50 November '22 beans, I get it that stuff needs to be sold there, but there's a window of room there that I'm willing to risk. Let it run. But then when something does change, and it— yeah, it sounds easier said than done. Oh, I'm gonna see something change. We've seen a market— if corn comes out and drops 25 cents in a day, guess what? There's your wake-up call. But you know, those are getting engaged.

Duane

Lowry: Those things are certainly true. But, uh, unless you identify it in advance, which is what you're doing right now, and it meant you're mentally prepared to make an adjustment if you see a thing turn, If producers haven't been willing to sell up to this point, most of them, especially this date on the calendar, are not going to be willing to sell on weakness. That's going to be a difficult thing to pull.

Jarod

Creed: That's that— back to that order flow. That's the dangerous piece about it. But you know what, I'm going to applaud those producers at the same time, right? They've been right, right? The guys who, uh, don't have anything sold from— I mean, there are farmers out there don't have a darn thing sold from last year. Good for them, whatever their financial situation was to get there, great. Uh, how's that all play out in the future? To be determined. But I just, I don't think that, uh, there is any reason to get too hung up on any type of opinion in the current market.

Duane

Lowry: Uh, Ryan, you were— I kind of interrupted you there, so what were you—

Joe

Vaclavik: I mean, so it's not going to hurt anybody to sell into it, right, as it's rising up. So sell into the silly.

Duane

Lowry: Right?

Joe

Vaclavik: And use stops to manage the market in case of a major downshift, right?

Ryan

Moe: It will hurt you mentally. It will, it will cause you brain damage. That's how people feel about it. About stop orders? No, about selling and then seeing the market go up another 50 cents. That's— it's a mental thing. It's, it's not bad for you on the farm. It's just a, it's a mental hurdle that people have a lot of difficulty with. And that's— it's everybody. It's, it's just It's a very common problem everybody has.

Joe

Vaclavik: But we see very few guys sell with stop or manage with stop orders, right? And then adhering to those stops, right? And sticking with those. We just don't, we don't see a lot of that activity. And I'd like to see more of that use with farm marketers so that they don't, so they don't get so emotional about it, right?

Duane

Lowry: It's difficult. It's very difficult for whether you're a trader or whether you're a farmer, it's very difficult. Jared had the luxury going last some of these times, so I'm going to start out with our kind of our wrap-up here. Jared, pick anything you want to and summarize your view, your thoughts about the situation we're dealing with now and anything that you think provides value to the farmer.

Jarod

Creed: In this environment, I just think the farmer needs to identify what a worst-case revenue, that hopefully is a worst-case profit, that they're willing to accept, and then stress test in a couple different situations. Yield, price, what strategy do I need to employ to get there? And it's just math, it's just simple algebra. Come up with 3 different situations: high yield, low yield, middle yield. Understand where the insurance is going to kick in. We're going to know that insurance price in 4 weeks. Hopefully you're just able to identify, at least in corn, a worst-case profit, uh, and in beans for most guys is still a defensive sale. So just identify the worst-case profit and create the plan and go with it.

Duane

Lowry: Is this kind of a year that you just don't want to make that mistake of, of having markets turn and not—

Jarod

Creed: you don't want to lose money this year, right?

Ryan

Moe: For sure.

Jarod

Creed: 2023 is going to be horrible if you lose money in '22.

Duane

Lowry: Yeah. Um, Joe, you're next.

Ryan

Moe: Um, I think we've all kind of agreed that outside money has had a big impact on what's going on here, um, and they've probably driven the markets to prices that we would have not have seen otherwise. I guess I'm just, I don't have a clue what the markets are going to do. I think so much of it has to do with outside factors that are not supply and demand related. And that's not something that, it's not something that like my customers want to hear necessarily. When people call and they ask, why are beans up 20 cents? They don't want to hear that's just money.

Duane

Lowry: You know what I mean?

Ryan

Moe: That's like not the answer that they want, but that's the answer. So I mean, we're just going to roll with it and it's going to end. I just, I don't know what period of this bull market cycle are we in? Are we in the first inning? Are we in the third inning? Are we in the bottom of the ninth?

Duane

Lowry: Probably extra innings in my view.

Ryan

Moe: Yeah, it could be, or this could run for another 5 years. It's extremely interesting.

Jarod

Creed: And by the way, that question gets asked way too often.

Ryan

Moe: Why are we up a nickel?

Jarod

Creed: Well, you know what? I thought you had a New Year resolution. You weren't gonna ask me that question anymore.

Ryan

Moe: Market's gonna trade, you know?

Duane

Lowry: Ryan, share your thoughts on what summarizes here.

Joe

Vaclavik: Yeah, so I mean, I'm not— I, I'm, I'm not a downer on this market. I think corn values running where they're at, it's, you know, I can see it continuing here for a while. Uh, beans, I'm— if I'm bearish on anything, I'm bearish on beans because I do think the South American crop is bigger than what the sensational articles say about, uh, yield reductions down there. Again, I have so much faith in genetics of seeds nowadays that I, I think it's going to be a big crop, and I think we're going to have big crops going forward. And so it comes down to we got to have big demand.

Duane

Lowry: So, um, I would like to thank, uh, all the people here at the table, uh, Joe Vaklovic, Jared Creed, and Ryan Moe. This has been a great Ag View Solutions Executive Business Conference in general. We've summarized these podcasts with— finished up with the marketing podcast. You guys have a lot of great experience and perspective, and I feel very honored to have you here, and it was a privilege to, to have you on the podcast. So thank you very much for that, uh, podcast listeners. We hope you've enjoyed the podcast from this conference, and we hope that you consider joining us next year. And I think the last thing I'll say about 2022 As Jared mentioned, this is not the year that you want to end up having a loss.

And despite the fact that not knowing what might be out there on the horizon, we've all been in this business long enough, even whether you're at this table or you're just listening to this podcast, we have all seen and experienced situations where markets didn't turn out as we expected. And this would not be a good year to let the profits go by. For some, that's crop insurance, you're spending more money there as a marketing tool. For others, it's more advanced sales than you've done in the past. For others, it's options. Whatever it may be, at the end of the day, just sit down, evaluate your own operation, forget about all the noise out here, all the opinions and all the fanfare, make decisions that make you profitable in 2022. 2022. So thank you very much, everybody.