Weekly market outlook Jul. 18-22nd: weather and market volatility

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. We are heading into another marketing week in the month of July, the 18th through the 22nd. Kind of getting through the meat of July. We've had some pretty good volatility, and we have with us Jared Creed, JC Marketing. Jared, how's it going?

Jerod

Creed: As always, I appreciate the invite, Chris. Thank you for having me on.

Chris

Barron: Well, it's always great to have you on. You see a lot, you work with a lot of producers too, and keep an eye on a lot of things. What are you hearing so far on the have and have-nots on the rain and the weather? You know, we've seen a lot of volatility this last week and probably going to see a lot of volatility moving forward. What are you hearing on weather and crop conditions?

Jerod

Creed: Yeah, I don't think it's any secret that I would call the dividing line east of 135 in Iowa this year and into the Eastern Corn Belt versus west of I-35. The moisture situation is quite different. Don't get me wrong, there are plenty of places in Illinois, Indiana, Michigan and obviously in the Mid-South that are struggling for moisture as well. But at least in the here and now, the recent rainfall and at least some of the forecasted rainfall over this weekend appears to favor some of that eastern stuff versus the west. When you talk about kind of conditions, if I looked at a scale of 1 to 10, with 1 being poor and 10 being great across my client base, I'm pretty sure I could give you every single number.

We do have individuals that it does appear that forecasts are not going to reward them with any moisture this week in the state of Nebraska, that they will be running choppers by this next weekend, abandoning dryland corn. And then on the flip side, you get into parts of eastern Iowa and perhaps parts of southern Minnesota, guys would rate that crop 8 or 9 or 10 out of 10. And moving forward towards a pretty special crop, certainly appears. With all that said, when we think about forecasts and such, it's no secret that the next 2 weeks is going to be very, very interesting. I would say glass half full, at least we're not in grain fill. Granted, grain pollination can still be its own problem as well in dry and much warmer than normal conditions.

You always wonder if there's that one system that we've been accustomed to that just pops up very unexpected and kind of derails the, at least the forecast that we have through the first week of August right now. But again, no secret that dry, warm is definitely the tone for the next 2 weeks.

Chris

Barron: Well, and even in the areas where it looks spectacular, I mean, I'd probably rate our crop in northeast Iowa probably a 9.5 at least. I mean, it looks about as good as we've ever seen it, but there's a long ways to go yet, right? I mean, we have, uh, we're halfway, maybe you could call it, through July. We've got August, and we're going to have a lot of September in a lot of areas too, because like in our case, we planted a lot later too. So we're, you know, we're 2 weeks behind normal. We're going to need, we're going to need September to, to give us rain. And, and, you know, that's going to be part of our growing season pretty heavily. And so how much— go ahead.

Jerod

Creed: I've always been a guy kind of, you know what, 25% of the battle, maybe even a third of the battle, is getting the crop planted with good stand count, assuming that you end up with normal weather from there forward. Well, we're not in a normal weather pattern right now.— or just not. And with the talk of La Niña strengthening and not necessarily weakening, and these ridges that are blocking moisture from coming up out of the Gulf— that's about my extent of meteorology. I'm just going to shut up on that comment. The weather is just— it's not normal right now, obviously.

Chris

Barron: How much weight is the market, in your opinion, putting on weather versus all this other stuff that's going on? I mean, you can— there's like a whole laundry list of stuff that's impacting the markets and the volatility and stuff. What, you know, how much of that is weather and versus some of the other things? And what are those other things you're paying attention to?

Jerod

Creed: For nearly the last month, it seemed like at least 4 out of every 5 days was more so focused on the macro liquidation picture. It seemed like we were just yearning to find some type of a bottom in that, find some type of stability, stabilization, and energy and equities. You know, I've got to rob a term from an old counterpart in the industry years ago. The US dollar is getting a lot of attention. The US dollar is strengthening as a result of money chasing bonds. And basically the US dollar being the, you know, the shiniest turd in the bucket. Nobody's good. No country has a good financial outlook right now. Economies are hurting. There's no question about that.

But as the interest rates have crept higher and the belief, or maybe perception versus reality, of us going towards a recession away from an inflation environment, you know, that definitely caused plenty of havoc in more— the majority of commodities. Now with that said, in the last 3 or 4 days, it seems like it's the first legitimate push-pull tug-of-war type of scenario we've had against fundamentals and macro picture. I think the forecast that you continue to see from a fundamental standpoint continues to bring in a bid into the market. And this is basically starting this last week from Tuesday through Friday. Monday was a bloodbath coming off of weekend rains. I shouldn't say Monday was a bloodbath. We rallied significantly on Sunday night, down on Monday and down throughout the day on Monday, and then down on Tuesday.

Regardless though, in the tail end of the week, it seemed like we definitely had a little bit of tug of war going on. And I would expect that as long as we see equity stabilize, the S&P continues to refuse to spend much time below 3,800. It'd obviously be nice to see that creep back up into the 4,000, 4,100 mark. And crude oil has refused to go under $90 a barrel. Yet, uh, and it would be awfully nice to see that creep back up into the 100-digit level as well. Um, all of that should, you know, maybe soften some nerves a little bit and allow commodities to breathe a little bit and focus a little bit more on fundamentals.

Chris

Barron: Interesting. So, um, let me ask a question here on '22 if we want to— we'll keep this one Kind of short and to the point, but you know, you work with a lot of producers kind of like we do, and you see some practical decisions needing to be made at the farm level. If you're a producer, regardless of where you're at, and you can talk about the various areas because I mean, some areas may be looking at pretty good crops, and as you said earlier, not so much in some places. What's the practical thing that producers need to be doing right now? What do we, I mean, It's always the question of how much, how far out do we go, how much do we sell, what are some of the practical things that, that we need to be really focused on right now.

Jerod

Creed: Well, I'll tell you what, I think one of the first things that an individual needs to have in their hands right now is their schedule of insurance from their insurance agent. Obviously acres have been reported to the FSA. That data has probably been provided to the insurance agent, and they should be able to provide a very detailed farm-by-farm guaranteed bushels, you know, insurance report. Then you're able to start looking at what that overall liability is using the spring insurance price versus whatever price we are at today, or when you're looking at that information. Given the potential of some additional volatility, and, and this go-around talking about maybe the potential of a higher price move, I think it's pivotal to, you know, it's imperative to understand what those guaranteed bushels are.

So if you are, you know, for lack of better words, this isn't meant to be disrespectful, if you're lacking confidence in pulling the trigger because of production concerns, you're at least able to back into what would my worst case revenue be strictly from an insurance perspective. Because whatever that price is in October, If corn price is below $5.90 and you don't raise a bushel that you're guaranteed, you're going to get paid $5.90 from the government. If you don't raise that bushel and the corn price is above $5.90, you're going to get paid whatever that price is. Meaning between now and then, you still do have the ability to manage some price risk on whatever that price payable to you is. And the same goes with soybeans, you know, getting that schedule of insurance and such.

I gotta admit here, Chris, uh, You know, I look back in the last 6 to 8 weeks, and I'm a guilty party here, just as plenty of others in the industry, I think. It's awfully hard not to get too heavy on one side of the boat. It's awfully hard not to say, you know what, we've got some good things coming towards us, we've got some good sales, that we can afford to relax for a moment. And I'll tell you, I'm probably, I've put the weight on my shoulders. The last 2 weeks of the market drop-off was an incredible surprise. Price. Now, it don't— doesn't necessarily mean I could have went out and did a whole bunch more than what we did do, but the size of the move was so hard to ignore, both from a historical perspective and also the change to the P&L. And what that does is drive up emotions, and the emotion piece just has to be in check. It has to be kept in check.

And that's why I bring up the schedule of insurance, getting back down to blocking and tackling, looking at dollars. Here's your worst case, combining your grain sales and what bushels you're guaranteed left to sell, making sure you understand what the revenue is of those, and then obviously you're hoping that you're producing above and beyond your insurance guarantee, which I'm going to guess is, I don't know, 8 to 9 out of 10 listeners on your show are probably not in that case. But if you are a western Corn Belt producer that is struggling at this point, maybe Kentucky, Tennessee, so on, so on, It's very— it's probably something that would calm your nerves quite a bit, especially if you're all of a sudden able to value those bushels closer to 7 versus 6.

Chris

Barron: What about from a practical standpoint on basis? And you can hit corn and beans on that, but, you know, I was, you know, the last couple of weeks we've been working with producers and dialing in that cost of production, looking at things, looking at where the marketing is, looking at the risk management, doing kind of all the things you just described. Described. What makes you comfortable with basis? And I know it's local, it's regional. Anything there though that's noteworthy?

Jerod

Creed: On the corn front, Chris, I don't know if I have much concern on basis becoming a bloody mess. Old crop, it's no secret that the buyers just want to get what they need to new crop. Doorstep. So you always have, you know, probably a little bit of a, you know, a setback there. There are places in the eastern half of Iowa this weekend paying $1.50 to $1.80 over. That's a big number, but don't get too wrapped up in that number. Just remembering what the spreads and inverses were July to September, just a short 3 weeks ago. However, when you start thinking about that type of a value for new crop, that's a big, big number. I'm kind of at the camp that I wouldn't be surprised to see somewhere around a dollar a bushel premium on the front end of corn harvest versus gut slop harvest, uh, for basis.

That I think at that point a guy's got to be thinking, can I do better than that after, say, the first of the year? And on top of that, the 15 to 20 cents that's going to cost me to carry it into that point, that might be a little Far-fetched, maybe, I don't know, time will tell, but it's kind of a bird in the hand approach versus hoping that something comes. So I think if you are, if you happen to be in a position that you can execute on early grain shipments, whether that be drying or equipment setup or logistics, whatever it may be, you know, you're probably looking at a scenario that's going to reward you net of all costs to do so., you know, well over 50 cents a bushel, if not even higher than that.

So on the, on the long term on corn, as long as we can keep our demand steady at bare minimum from where we're at, at least in my opinion, I think our supply situation is going to do nothing but get a little bit tighter than where we sit today from an estimate standpoint. So I'm not overly concerned. And real quick on the beans, I think beans are probably back to some of that historical timing that between now and call it March 1st or Valentine's Day basically is your opportunity from a bean basis perspective. But with the expectation of Brazil going to really chase a monster bean crop, and they've got all the incentive in the world to do so, you know, they're going to own the export market, or at least they should. From late this next winter and on. So internal crush margins need to stay strong and we need to export every little bit we can between now and then.

And exports have been a touch softer on soybeans, but at the same time, I would say without getting in the weeds too much, very simply put, the bean balance sheet is in tremendous trouble should we have any type of yield slip up. Not going to go casting wishes and hopes and all that type of stuff. Let's just make it very, very simple that, uh, the bean balance sheet needs to see us yield near a record crop. The end.

Chris

Barron: Right. And, um, one other side note I wanted to throw out, and I'm asking about '23 here for a second, but, um, is when you think of the, of the bushels you need to market that you don't have space for. A lot of people have those bushels marketed, but I've asked the question to a couple of others, you know, if, if you need to sell excess bushels because of storage concerns and then you're watching this and maybe you put some targets out there now, so when this volatility is— the markets are moving around, you actually get something sold— are you more inclined to be more lean more towards soybean sales or corn sales? If you've, you know, if you're where you need to be, you'd be pushing the corn?

Jerod

Creed: I'd be pushing corn. I'm a big believer that profitability in beans is heavily dependent on yield and yield only. Now granted, when you start talking about $13, $14, $15, $16 beans, that changes that a little bit. Yeah, but you know, just run some simple math scenarios. I'd rather yield 75 bushel at say $14 and you know, 60 at 16, whatever those scenarios are. Yeah. Um, I, I think that the corn one is one that can, you know, get away from an individual quicker just because of a volume perspective. And I think one thing that's worthwhile saying, you know, we had that a flurry of a move in the market that I think it's— you guys need to be careful from not falling into the trap of, well, I don't want to sell grain here because of the insurance price being so close.

Make sure you talk to your insurance agent about exactly how that works because that's definitely not the case unless you're going to have a shortfall. But then secondly, hey, I sold $6.50, $7, $7.50, whatever those numbers are, and the market's at $6. Yeah, I don't want to sell that. I want to sell a higher price. You know, I think we just got to remember at the end it's all about an average and just continuing to chip away at that average.

Chris

Barron: Yeah, exactly. Good, good comments. Let's wrap up here with '23 for a minute. You know, it's kind of the "oh crap" for some people that, you know, were thinking about making, you know, pulling the trigger. I mean, there was a lot of people that got to the edge of the cliff there thinking about pulling the trigger and maybe didn't get anything sold for '23. There's also those out there that, you know, I know of some operations that were pushing 30-35% sold already on '23, and a couple of those, as they were being able to get a little bit of the inputs purchased for next year, they were going ahead and kind of doing some one-to-one a little bit. What's your thought on '23 moving forward?

I mean, we have to watch this volatility, but does it make sense to, to put some targets out there as you buy some of these inputs and, and maybe look at that 1-to-1, you buy $50,000 worth of, or $100,000 worth of fertilizer or whatever, and maybe, you know, putting a target out there to sell that many dollars worth of grain. Talk about that for a minute.

Jerod

Creed: So for those who have the ability to book the fertilizer, whether taking delivery or not, that's exactly what we have been doing. We're still to the point that not everybody can book fertilizer, right? I would imagine in the next 30 to 45 days that'll be the case. And I think your have and have-nots on sales on '23, at least in the producer base I work with, is heavily dependent on that. Can they book fertilizer or not? Now, the one thing that I think guys don't want to— they shouldn't panic about looking at what price was in '23 on corn versus what it is now. Because they need to take a long, heavy look at what the input price was when corn was at those levels versus where it's at now. The, you know, the nitrogen market continues to be, at least in my opinion, into a pretty good slide.

It's not in its freefall that it necessarily was, but it certainly does seem that we're going to be talking about, you know, like in anhydrous under $900 a ton this fall. That's a welcome surprise versus where we were 90 days ago. You know, when you start talking about closer to 50 cents a unit for your N, and we were estimating a dollar a unit in— I think we talked about this on your podcast late this winter— a dollar a unit versus 50 cents a unit. I mean, that's dramatic. That's, that's a huge, huge change. So there's probably still some okay cushion in the numbers if we continue to slide fertilizer down and maintain price relatively steady. That's what's most important, not about what corn price what it was or what it is. It's about the relationship of what you're buying and selling. So just make sure that you stay on that path.

And that's like you said, I mean, that's exactly kind of what we've done. If I'm buying $100,000 worth of air and I'm selling $100,000 worth of grain, and that bushel per acre that it takes me to cover that per acre expense is wildly different to the farmer's advantage now than what it was, you know, for sure 6 months ago, if not 3, 4 months ago.

Chris

Barron: The only other part of that equation that's a little different now and may continue to be a little different is depending on where people's working capital position is, and you look at the cost of money, that's going to start to influence things a little bit too, isn't it? As, you know, maybe we have another 75, you know, 3/4 point move and then maybe another point move. I mean, some of that's going to start to enter into the equation a little bit too.

Jerod

Creed: Yeah, you know, we talked about that. I don't know, Chris, we started talking about that a year ago. Yep. 6 months ago of getting in position to be operating on, you know, as much cash as you possibly can be into this next crop year. I'm not saying that this is near the reality of all farms, but I work with some operations that had You know, sometimes it's just better to be lucky than good. With the price run-up that we ended up having in old crop grains, with the price run-up that we had versus when we were talking about trying to operate on cash, there are some operations that are just right there, if not done paying off their operating note for this next year already.

Chris

Barron: Mm-hmm.

Jerod

Creed: And 2 months away from harvest, giving us I think there's a lot of flexibility. I think there's a lot of operating notes at very, very low levels, and I think working capital is okay. And I think that that's where a guy needs to stress, "What's my cash flow opportunities in the next 6 months?" Because we just need to avoid interest as much as we can. How about that?

Chris

Barron: Mm-hmm. Exactly.

Jerod

Creed: Don't borrow the money just because you can. Know that you can borrow the money in the background if you need it. Don't just start with borrowing the money.

Chris

Barron: Yeah, this working capital management thing is going to be a topic for discussion as we move forward for sure. It's going to be— there's going to be a lot of interesting decisions to make on the business side of things here for sure.

Jerod

Creed: Any— hey, yeah. Hey, Chris, one more comment on interest. Yep. And I just can't help but laugh at this. Almost a joke. Beginning of last week, there was legitimately analysts talking about the expectation of interest rate cuts into the beginning of next year. Not in— not further increases, but starting to cut interest rates beginning of next year. That, in my mind, tells you that the Fed is more scared of their own shadow from going into a recession than they are inflation. This last week's CPI suggests that we are still roaring our ugly head in inflation. The only thing that's changed is fuel prices. You can maybe make a little bit of a case that the housing market is changing up a little bit, but beyond that, there isn't a damn thing that has gotten better for the US consumer. So, I am not at all in the camp that we are just saying, "Oh, inflation is over.

It just ended overnight, and we're going to go to recession now." No, no, no, no, no, no, no. That's got a long, long tail.

Chris

Barron: Right, and I think the how they calculate inflation and what it really is versus what is being reported are always, at least in this go-around, have been quite a bit different too from what we see anyway. Yep. So, all right, Jared, uh, any final comments, things to wrap up?

Jerod

Creed: Uh, I don't really believe so. There's not a lot of Fundamental business practices to be focusing on. Well, that sounds bad. There's always time to focus on things, but you know, there's no real time-consuming points right now. I'd just give that reminder again. Contact your insurance agent, get your schedule of insurance. Typically those would roll out to the farmer's hands middle of August, beginning of September. Trying to get our hands on them about 30 days earlier this year just to give a guy a little bit of comfort. And if you don't understand what we're talking about on guaranteed bushels, calculating what the revenue of those are, uh, you know, just make sure you quiz your insurance agent or find somebody that can help you on that.

Chris

Barron: You bet. If people want to get a hold of you, what's the best way to reach if they got a question?

Jerod

Creed: Area code 402-680-1744.

Chris

Barron: Got it. All right, well, hey Jared, this has been a great conversation. Really appreciate your time today. Thank you.

Jerod

Creed: You bet. Thanks, Chris.

Chris

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