What path does the market take now? Weekly market outlook, Jul. 26-30th

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 week, actually the last week of July, the 26th through the 30th. And so, uh, we have a special guest with us today for the market outlook, Grant Schimmick. Grant, how's it going today?

Grant

Shimek: Great. You, Chris?

Chris

Barron: I'm hanging in there. So, uh, it's been a pretty interesting week. Um, it looks like there's a lot of things to talk about, like from last week, and as we go into a new week here. What I want to start out with though is it seems like, you know, there's, there's still a lot of eyes on weather yet. I mean, we've had pretty dry conditions still in some of those dry areas, and then we've had too much water in other areas. And so Talk a little bit about weather, what you think that might hold for us in this week ahead and maybe weeks ahead yet, and kind of some of the crop conditions you're seeing from some of your, some of your clients.

Grant

Shimek: Well, as far as weather, Canadian prairies, Dakotas, part, parts of western Minnesota still very dry. Temperature, and number one, that temperatures, uh, being over 100 for so many days So the— what moisture they do have there, and they did get some showers that kind of popped up in the Dakotas, but when you have those very high triple-digit temperatures, does it— and you get a few tenths to three-quarters of an inch of rain, evaporation takes care of vast majority of that, even if you do get it. So those areas, it's especially the, the canola, the canola ground, the the Minneapolis wheat ground, the damage has been done. And so we've baked, we've baked a lot of that in the cake except for how the USDA actually pegs the numbers.

So you can debate, we're in this stage where we can debate reality or we can debate what the USDA is going to peg yields and actual production for when we get to these August reports on— you know, things like the oats crop and the Minneapolis wheat crop. So if they really throw some gasoline on the fire with their numbers, well, maybe we can drag everything higher yet based on those things. So that's, you know, it's possible that that still builds with the weather. The 6 to 10-day is still dry, but obviously we know what happens when the 6 to 10-day changes. We don't—

Chris

Barron: we lose that momentum fast. So do you think, you know, everybody always talks about, you know, July makes corn and August makes soybeans, but, you know, if— and again, it depends on what this weather does, but I mean, do you see any potential more strength yet for corn? And I'm going to talk specifically fundamentally here first, and we'll get to some technical stuff, and if you need to throw it in, that's fine, but Just, you know, from a purely from a weather perspective, do we have any, anything, you know, if we think this thing does stay dry or whatever for beans more so than corn?

Grant

Shimek: I think that what we have is in a significant part of the Corn Belt, we have, if we don't, if we lack some moisture, we had great stands. And that's in Iowa, Nebraska, southern Minnesota, I think that is the case. So we've got just enough rains in some of those areas that were really dry, say, 3, 4 weeks ago. And so we still have a, have a good crop coming. Eastern Corn Belt looks excellent as far as, in some cases, maybe too way too much moisture in some locales. But I think right now we have a, a good national yield on tap. When we look at the Western Corn Belt where it's drier, are we going to lack some grain fill even on corn? I mean, yeah, we have, we have the kernels there. We still need to fill these things out. Soybeans, obviously you can still have weather that's going to be very impactful in August.

That's gonna, gonna definitely have an impact, so I'm not going to discount that at all. When we get to this time of year, it's the seasonals, and if you go back and look at '70, or since, say, since 1970 forward, you get to after July 15th, there's not too many years where you ramp and make new highs. So we have history against, against us, and I think that's part of the— what this last 2 weeks has been. We got past the 15th, and we have a lot of players that look at those, look at those, the history of it, and they back away from putting on positions even if the weather does look threatening. So I think we're lacking some of the buying enthusiasm just because of history.

Chris

Barron: Industry. And I think sometimes as producers we always talk about like backyarditis, or that, you know, the situation of looking at our crops and sometimes it feels like you can be smarter than the market. You can see some things that are going on the market doesn't have to really trade those things.

Grant

Shimek: Yeah, and then corn in particular, we're in the midst of the middle of the range. You know, you get between— obviously we got the $6.38 on Dec corn, we've been as low as $5.25. Well, you get in this mid-$5 zone to say $5.70, we're right dead center in the middle. And as we sit here and grind away, it makes people complacent, and whether they're bullish or bearish. And so that's, uh, something we, we deal with. But, you know, this time of year, you've really got to step back and take a look at what your own prospects are and and weigh that with the revenue per acre.

Chris

Barron: Exactly. So let's shift gears here for a second and kind of think about, you know, the demand side of the picture. There's a couple things that I think worthy of talking about. The first one's probably China. You mentioned offline the flooding and some things that that brought, you know. Just go ahead and talk to us a bit about, you know, the demand side of the picture and kind of some of the things that you're anticipating or some of the things that you think we should be watching.

Grant

Shimek: Well, if you look back at the last 12 months and we had tremendous buying from China, especially in the latter half of last year. Well, what happened in the middle of last year, really from late June on, if memory serves me right, definitely July on, the flooding in China in the Yangtze River Valley was horrendous and that impacted their food supply. Now, if you look at their own official statements and data on it, they'll say that every year they have a record crop, a tremendous abundance, and that part's absurd, but that's what they say. Well, what they actually do is more important, and they had tremendous buying out of it.

So as we get into this year, we've had tremendous flooding again in, in some different parts of the country, this time not in the Yangtze River Valley, this be towards the northeast, more towards the northeast part of the country, and It happened in a province, it's one of their higher-level corn and one of their top-level wheat-producing provinces. So if you didn't take a look at this, I'd get out on social media and see if you can find some videos about it, 'cause amazing. The one province had what equates to 8 months of rain in about 24 to 48 hours. So the damage again is unbelievable. Now, is that gonna feed back into demand? Well, it's possible. If you look at their own internal prices of things like hogs and grains, things have been backing off. So we're not seeing that connection there or that fear yet.

But if that continues, and as we go into what is their, seasonally, their rainy season, and as this damage continues and even moves into that key producing area of the Yangtze River Valley again, then we have that same type of impetus that we had last year that they could step back in and need to be buying.

Chris

Barron: So USDA kind of shows them buying essentially what they did the prior year. So, you know, do you— so you're pretty confident, are you pretty confident, I should say, in that the numbers USDA has given us right now on the prospects for, for for continued demand strength there.

Grant

Shimek: I think they're plugging a number in there. When it comes to China and demand, I have no confidence in that. And I think that's the linear type of thinking that will get us in trouble. And right now we're heavily supply-focused here in the US and the demand side of the equation is a number that's plugged in there. But you start changing that demand side of the equation and all of a sudden you can go from a tight stocks usage number to not so tight fast. So even though it appears as though the same things that drove us, some of the same things that drove us to better prices in the last 12 months are picking up again, but we're not seeing it yet in China's own internal demand in the last couple of weeks. If that changes, then we might even see better demand, but we're not there yet. And also, even if they need it, will they buy from us, from the U.S.?

There's lots of geopolitical crosscurrents going on, and to assume that just because they're in dire need of it, that we're gonna— that it's gonna work out the way it has the last 12 months, I don't think that's a safe assumption.

Chris

Barron: Another quick thing here on the, on the demand side with China specifically, you know, between corn and soybeans, we're talking about demand in general. How do you differentiate the two? You know, what do these situations mean for corn versus soybeans? Is there some differential there that we should be aware of as producers in this year and maybe even in '22?

Grant

Shimek: Well, definitely with what's happened the last 60 days in the Canadian prairies where we've burned up the canola crop and the— just going from memory, I could be wrong in my recollection of this, but I want to say that it's well over 70% of that oilseed is exported. So we're definitely tightening up oilseeds in the world. And the demand for that, for beans on the world stage, definitely of consequence. We, even though we're at the prices we are, I think I've seen that some of the expansion or plantings, sowings in Brazil, South America, Argentina in particular, are not expanding. So we, we can see beans actually be, I think, in the— over the next year being a better leader and a better holding together necessarily than the corn will.

Chris

Barron: Okay, sounds good. So appreciate that. Now what I want to do is get your two cents on the technical side of things. Start with corn. You're one of the foremost people that understands technicals, what's going on there. Talk just a little bit about what you're seeing specifically on corn and kind of what your outlook is here in the near term.

Grant

Shimek: Well, I did mention the seasonals. As far as the— what we need to see is I'd like to see some truly daily uptrends. We have not quite gotten there. I, I determine an uptrend our trend in general by the position of the 15-period exponential moving average and the 30. 15's got to be above the 30 to be in the daily uptrend. Well, we tried to turn it up this week. We even had a few closes above the 45-day, but we weren't able to sustain it on a weekly close. Same thing could be said for beans for that matter. We're— and again, we're in the middle of the range. We need to get legs and stay above that 45-day and get this daily trend up. I think it, it's gonna be led by wheat and oats and, and potentially yet canola. Those are in good positions.

The wheat market to me is in a good position to still go up and, and make a new high for the move, Chicago and Minneapolis, which is gonna maybe tow corn and beans along, for lack of a better term. And as far as the soybeans, it's really a very similar position. You went and got above the 45-day But we have turned the daily trend up, so I mean, there's potential we can keep it going, but we need to see that action to the upside. Otherwise, we're not— the calendar is not our friend now.

Chris

Barron: What about on the soybean side of things specifically?

Grant

Shimek: Uh, on the soybeans, I think that, um, you know, you can get up there and spike if we can spike higher. And you get it back into that $14.10 to $14.60 zone, uh, I, I don't understand why you don't want to cover it up. The, the pattern that I see is that I, I wouldn't be surprised at all to go back down and at least test that $12.40 zone, given how we, we dropped 5 days in a row sharply to that and then kind of repelled from it. We tend to check out those 5, 5-day high and low patterns quite regularly. So I think there's a lot of downside risk the further away we get from, from those levels.

Chris

Barron: What kind of downside risk do you think, like in soybeans, as we get, you know, into like harvest? And you could hit corn on that question too.

Grant

Shimek: Into harvest, I, I think it's— to me, and to me, I think you have a very good chance getting back to a minimum of that $12.10 to $12.40 zone. And bigger picture, by the time we get to the end of the calendar year, if things turn negative, I think that $10.80 to $11.20 zone on front month beans is possible. On, on corn, going back and checking this, $5.07 to $5.10 zone, which is not far away at all, that'd be a bare minimum. And otherwise, I think somewhere between $4.40 to $4.80 is likely to be checked before the year is out unless something really bullish happens. And on those— and on that note, how do you know something really bullish happened? You really got to watch. Now that we're after July 15th, the only thing that's going to get really bullish to make us ramp from a technical standpoint, in my opinion, is if we can close to a new high decisively.

A new high is going to be based off of that May high, that $6.38 on Dec corn.. And yeah, you can even probe above it. You could trade in the 640s. I, I, it's still not likely in my opinion you're going to be able to sustain it. But if you do get a weekly close above 638 after, uh, now that we're after the 15th or 2 days in a row, that's what I mean by a decisive close, not just a 1-day close. Well, maybe we can blow this thing out. And those years that you do that, you can spike sharply into August, September. But if you go back and look at history, when it does happen, you typically do spike. Yes, but the probabilities that it does happen are low, that you can close to a new high after the 15th. I don't have a metric on beans that I'd use that on, but that's definitely the case for corn.

Chris

Barron: Interesting. So One thing that just as an observation, and we have a number of clients to get to yet, but what we're seeing is as we look at like Profit Manager information where a lot of the people that we talk to are at On Marketing and we get to kind of see that and then kind of average that. These aren't super statistical numbers, but we're seeing, you know, literally on corn anywhere from 0% still sold, and there's not very many, but that's kind of the range, 0 to 100% covered. And, and 10% to about 100% covered on soybeans with an average sales or coverage levels of about 57% on corn and about 42% on soybeans. What, what do you tell these guys yet that are still uncovered on, on sales or some kind of an option strategy or whatever? What, what, what's your watch out?

What's your thing that people need to be thinking about on those bushels that are not yet either covered or sold or priced or whatever? And I know it's different from one area to another because we got guys listening to this in North Dakota that might not have a crop, and we've got some clients that were completely hailed out, so that changes things. I understand that, but just generally speaking, I think if you—

Grant

Shimek: if you, given where we are as we get towards the end of July and you know the amount of rain you had, you're I mean, you take a step back and look at what are your crop prospects. If— and know yourself too. What kind of mistakes have you made in the past? Are you— you— do you tend to get tied into the bullish story or even the bearish story when it gets bad and end up zigging and zagging? Now this market right now, like I mentioned before, we're in the middle of the range on corn and we've been very quiet on beans. And it makes one complacent because every time we've gone down We've come back up and we're holding steady. So it may seem complacent, but you got to take a step back and look at the historical returns that you have. And if you don't have anything, my attitude is fine. You're worried about all the things that could be bullish and you don't want to sell.

Well, then don't sell. But this is one of those moments where getting some kind of option floor in place, even if it's further away than you think, is justified because you can look at put options that are relatively far away from the market, but it still holds a good value. So you don't end up having Murphy show up at the door and then you regret it. Otherwise, you got to accept your fate one way or the other. If you don't want to sell it, well, then don't, but you realize that we can drop rapidly and still be at relatively good prices where we were the preceding 6 years, but the money is going to be much, much different. So, you know, don't fool yourself and not realize the risk that you are taking by doing nothing. And, you know, we're all adults here. If that's the way you want to play it, just accept the risk you're taking.

Chris

Barron: So with that said, one other quick thing, and then I have a last question, but on the side of basis, and I know that's different for every area, But in a lot of areas we're seeing a basis play being done here where there's a lot of sales being made without locking in basis. How are— what do you, what do you think on basis? What are you watching there as we get closer and closer to harvest? Anything in particular there that you need to be aware of?

Grant

Shimek: Well, at this stage, in, in far as for new crop, a lot of the basis is, is in, in many— relative to the number of locations you look at across the Corn Belt, the The basis has eroded on new crop. It's not what it was 60 days ago. So I don't want to make a blanket statement like it's good. It may not be anything better than the normal, even might be below normal relative to the prices that we have now. But I don't really see a reason to see this basis be really tight. I mean, I would not want to take, especially if I was going to deliver it, knew I was going to deliver it off the combine or before the end of November with corn or early November with beans, I, I wouldn't want to take the basis risk.

I think what we saw in this first half of the year is the commercial entities cover the rear end because of the way the data looked from the January, February reports, and they were not going to go uncovered with basis. And I think a lot of that, that basis opportunity has eroded on the new crop because of the emotion that we had in the old crop basis. I don't I don't expect to have strong basis as we go into the end of this year.

Chris

Barron: So if people are sitting there on that, they better watch it really close, even, you know, because I think a lot of people are thinking, well, I'm going to be the first one to harvest and take advantage of the early basis. And there's a lot of people thinking the same thing, it looks to me like.

Grant

Shimek: Yeah, I mean, if you can, if you can make it happen, right? Those, those, it's, uh, you're in an area that you can get it there. Great, but you know, we all know that can be a coin flip sometimes.

Chris

Barron: Yeah, well, it's kind of like a light switch. It's, it's good, it's good, it's good, it's not.

Grant

Shimek: Yeah, comes the day it's over, right?

Chris

Barron: So last question then, um, on '22, uh, I know a lot of people are looking at inputs and we've been rolling on that and I've been asking some people the last few weekly outlooks, you know, as we, as we look at '22, we look at input costs. They're obviously a little higher. Our average data is showing as we roll into '22 cost of production and kind of analyze that, we're in that, you know, 48, 50 cents higher for cost of production per bushel on corn and about a buck or so on soybeans. Some areas that's starting to, uh, trying to touch higher than that, kind of depending on what people do with fertilizer and stuff. So What's your thought on '22? You talked about, uh, you know, possibility of if we do see some strong markets in August going into September, if that were to occur, is that an opportunity to maybe plug in some more '22 sales possibly?

Grant

Shimek: If we would end up taking it, you know, closing to new highs on the '21 crop and that would trigger Typically that triggers a ramp then into sometime in August, September. It would most likely pull these '22 contracts up. And in numerous, not, I'm sure you could say definitely not all, but it ends up being a definite selling opportunity for the next year for in this case, the '22 crop. So without knowing the future, if that does happen, that's a big deal and I'd get it really aggressive. You'll know it when you see it. Now that's probably again not the likely thing to happen, but it was— we look at this many times. How many times do we grow a crop and we usually go back and check the cost of production for, you know, the futures go back to cost production. Why wouldn't that happen this coming year in the '22 crop? I think it will.

And maybe by default of just the supply chain problems and the cost of production keeps going up and we check it, I guess that's possible. But if you're going to end up booking stuff like $700+ a ton anhydrous and you're going to do those things and you don't lock in some crop or create some kind of strategy and it doesn't work, then, you know, you're just— you are managing the input risk, but you're not managing the output risk. So you're just— I don't know if you're getting anywhere.

Chris

Barron: Exactly. Yeah, great comments. And one thing that, you know, I think— and tell me on this too, but it's nice to put some offers out there. Sometimes you got about 5 minutes to make that decision. And you're focused on the right hand when the left hand's doing something else. And so, you know, if you're sitting there watching the '21 crop, and you forget about the '22 crop, maybe even putting some offers in to have something at least priced at a level that you— and it might seem like a big reach right now, but if you put that out there and it does happen to hit on a small percentage, then that wakes you up. So you're like, "Oh yeah, I need to watch the left hand here too." Right.

Grant

Shimek: Put some wish orders in there and it makes you pay attention that, "Hey, I got to fill here." And I put that order in there because at my current, you know, cost matrix, I was going to make X percentage. And then you start seeing the other things that are happening, especially as we get into the busy season of the year.

Chris

Barron: Exactly. So, hey, Grant, I think this is a great conversation. Really appreciate your time and your expertise, especially on the technical side of things. You watch this way closer than most people I know. If people want to get a hold of you or um, check your stuff out? What's the best way to look you up or, and/or get a hold of you?

Grant

Shimek: Just go to my website, blackoakfinancial.com.

Chris

Barron: Awesome, sounds good. Well, hey Grant, thanks so much for the conversation, really appreciate it.

Grant

Shimek: Okay, thanks Chris.

Chris

Barron: All right, and thanks everybody for listening. Have a great final week of July, stay safe, uh, stay cool, and we will catch you next time on the Ag View Pitch.