About This Episode
Clark Neighbors uses a violent June week in the grains to teach a habit: before blaming the forecast, look at the whole commodity board. Soybeans fell more than a dollar in a single day, but hogs, metals and softs sold off too, and none of those care about rainfall in Iowa. The Federal Reserve had just hinted at rate increases, and there was pressure in China to curb speculative investing, so a large share of the break was macro money repositioning rather than weather.
His second read comes from the commercial side of the business. On one Tuesday, not a single new crop corn or soybean hedge came through the elevators he talks to, which he calls almost unheard of in the middle of a growing season. He reads it as farmers waiting on rain or on a return to the old highs. His counter is to work from your own numbers and keep resting offers in place, because the market reacts faster than any person watching it can.
On structure, Neighbors reads the spreads to decide what to store. An inverted new crop bean market tells the trade not to hold beans; a corn carry says the opposite, and early September is often the best carry window of the year. For the last unsold percentage he likes short dated puts, which Chris Barron describes as term insurance: downside protection over a thirty day window without paying time value out to a full new crop option.
“The problem is this market reacts way quicker than we can.”
— Clark Neighbors
Key Takeaways
When grains break hard, scan the whole commodity board first. If metals, softs and livestock fell too, the driver is macro, not your weather map.
Elevator hedge volume is a sentiment read. Days with almost no new crop hedging mean the seller is waiting, not that the market is done.
Keep resting offers in place, because overnight and computer driven moves give you seconds at your number rather than a day to think.
Let the spread structure tell you what to store. An inverted deferred market says move it; a carry says you are being paid to hold it.
Short dated puts work like term insurance on the last unsold percentage, buying a month of protection without the time value of a full new crop option.
Set price goals off your own cost structure instead of a number you heard on a podcast, a newsletter or the radio.
Full Transcript
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 week, the actually the last full week of June, and we've got with us today Clark Neighbors, uh, BIS Commodities in Cedar Rapids, Iowa. Clark, how's it going?
Clark
Neighbors: I'm good, Chris. How are you getting along?
Chris
Barron: Well, we're hanging in there. So far we are super dry. What I wanted to do is start out with, with a conversation just on, you know, the emotion that that brings to a lot of producers when the crop looks a little iffy. You know, there's areas we've talked to clients in the last, this last week that are still dealing with some flooding wet, super wet conditions. We've got clients that are dealing with, uh, obviously the, the heat and the dryness and stuff, and we're going to be cooling off this week now in a lot of areas. But, uh, talk to us a little bit about, about the weather and, and kind of what that's saying to the market at this point.
Clark
Neighbors: Well, like you say, Chris, it's kind of an emotional roller coaster and the haves and the have-nots depending on how You want to look at the situation in regards to your back door or your region of the state or the Midwest as a whole. So, you know, the market is definitely focused on a lot of that. It's also, I think, the thing producers need to kind of keep in mind. The market's always what expectations are, or anticipatory weather forecasts, and that's what we've been kind of riding that roller coaster this week, as you know, with reality, what we see in our back door each day, in many cases, heat, record heat in some cases in the West, lack of rain, but a forecast that genuinely looks a little more benign going forward. It's just, you know, Is it gonna happen? Is everybody's question.
So number one, nobody can predict the weather, and you go more than 2 weeks out, forecasts get pretty blurry the way they are anyway. So, but if you look at a Drought Monitor map, generally most of the areas of concern and dryness are north of I-80 generally, and most of the Midwest depending. So Obviously, there's going to be a lot of comparison of where it rained, where it didn't rain over the next week, etc. So, that emotion is genuine, is going to be there. So, what that also has created is a market with a tremendous amount of volatility. So, you know, this past week, you know, we just saw what I would call very historical type markets where, you know, on Thursday Thursday, beans are down over a dollar. Never seen that before. But, you know, but the key to that is there's more to that than just weather, believe it or not.
The Wall Street Journal every week on Saturday always puts out kind of a list of stock exchanges through the world, a bunch of commodities, and what they did during the week as far as percentage gains or losses. And this past week wheat was down 2.5%, corn was down 4.25%, beans were down 7.5%, but the leader was hogs, down 12%. But keep in mind, silver, copper, gold, a lot of the softs like cotton, coffee, cocoa, Obviously, those, plus the metals, plus everything else, had nothing to do with the weather. What created that commodity break, if you will, from a macro standpoint that added to that? Probably a couple things.
Number one is we've been going through here over the last year, give or take, with the reopening of economies, etc., the drive or the supply shortages to some degree, or demand push for many commodities as things open back up, whether it's building materials, etc., and the inflation story starts to build. So, a lot of times, financial money looks for a home. Inflation is a talking point, obviously, and commodities are typically or historically a way of trying to evaluate that. And then on Wednesday, the Fed had their meeting and hinted of bumping interest rates up in 2023, potentially, to slow things down. Down. Prior to that, you know, there wasn't any talk of that in the immediate future, so that kind of had many investors kind of tap the brakes on some of this commodity push.
The other thing is, there's been a fair amount of talk that there's been pressure in China to back off on some of the speculatory investing. Now, most feel that is more out in the in some of the metals, okay? But the bottom line is, weather's a key part of the market, but there's also many other factors laying underneath the weeds as far as this investment money, where it's wanting to camp, find a home, etc. So this past week, and again, beans down over a buck on Thursday, recapturing, you know, A lot of that again on Friday. I think you had, oh gosh, $2.14 trading range in soybeans from the previous Friday to this Friday. Corn was on the new crop $6.20 to $5.30. I mean, those are big ranges, and I think guys need to try to get away as easy Easier said than done. Get away from the emotions of those big swings.
Make sure they know what quote-unquote their goal or their price is in those parameters.
Chris
Barron: Yeah, you know, if somebody just woke up on Friday morning and was living under a rock or something and saw the markets, you'd be like, wow, this is great. But you kind of need to know what happened in the past. And really Friday was sort of just a rebound a little bit. My question is, as we go through the next few weeks here yet and still have weather and a few of these other things, you know, to drive volatility.
Clark
Neighbors: What's—
Chris
Barron: what are some things, or are there some things yet that can get us back to potentially some of those levels that we were, were at? Or, you know, and, and could weather do it by itself, or all these other factors that— that impacted the market last week going to be a drag on its potential to get back to some of those highs where we were at and producers maybe having some more opportunities to sell, or do we need to be starting to recalibrate our thinking right now?
Clark
Neighbors: Great question, and I don't know if there's a definite answer. The $64,000 question is how do things react going forward. This time of year is historically, you know, seasonally I should say, kind of the tipping point a lot of times in the market. 2 years ago when we had all the rains and the lateness in planting, you know, this time of year gosh there was still a lot of the corn that hadn't even popped out of the ground yet. I think the high was made June 17th, okay? So, It's typically and seasonally a time to continue to create sales and/or protect price. And it's always hard to do emotionally, especially with the way the weather is. So to answer your question, can we get back to, you know, the highs or whatever we've had in the past few weeks or month, if you will? Obviously, the answer is if the weather ends up being an issue, the answer is probably we can.
Now, in reality, is that likely? Time will tell. I would say if the forecast that we have in front of us comes into play and reality hits and there's not a lot of heat after that, I think it's very difficult to go up and reach those values again, especially on soybeans. 'cause they're just so far away. On the other side of the coin, you know, you could see, you know, pretty violent swings back towards, you know, recent upward levels on both corn and beans, but I think the market's job is to try to figure out, all right, A, we've got this tight spread, stock situation. B, what do we need to do in regards to production to meet a snug or a comfortable type carryout going forward, and how is that going to play out?
Acreage report here in 10 days helps to maybe try to figure that in, but the ebb and flow of what the yield potential is for the balance of the summer is going to be debated, especially with the have and have-not situation. So, There's no set answer. Nobody has the answer. I think the key thing I would tell producers is that, you know, working with your products and knowing what their price structure are, you know, what's their goal. And I think it's so, so important to not get tied up in what somebody else's number is they hear on the radio or on a podcast or on a newsletter where they're selling subscriptions. Know what your number is and have those offers in place and try to be disciplined with that and not get caught up in the emotion.
Easier said than done, but I think it's key to have offers in place when you have these kind of swings because, well, you know, I've heard it a million times, "Well, let's just see what it does." Well, the problem is this market reacts way quicker than we can, and so having those products in place in some manner, I think helps out a lot.
Narrator: This is Alyssa with the Ag View Solutions team. Here at Ag View Solutions, we work with farms and ag businesses all across the country on cost of production, business decision-making, collaboration opportunities, farm and ag business structuring, and transition planning. We work with operations of all sizes to help you with the important decisions that need to be made in your business. If you have questions or would like to learn more about how we can help your farm and business, please email us at cbarron@agviewsolutions.com, and thank you for listening.
Chris
Barron: So another question for you. You work with a lot of elevators and a lot of commercial entities. What, what are, what are you seeing there? What, what should farmers be aware of and be thinking about for from your perspective of things that you're seeing going on right now, especially as we march through the growing season here that we need to pay attention to?
Clark
Neighbors: Yeah, that's a good question. So an interesting side note this week, you know, we talk about the historic of this week. On Tuesday of this week, all the commercial elevators we talked to there was not one hedge of corn, new crop corn or beans on Tuesday, not a bushel. And Wednesday was very light. So part of that was coming off of, you know, the weekend, the market was a little lower, concerns on weather. It tells me that, and it's not to say you don't see days like that once in a while, Chris, but it's typically the day after Christmas or something like that. Very, very rare to see something like that in the middle of the growing season. Okay? Uh-huh. So, I think the takeaway from that is, you know, read between the lines. The farmer's nervous to make additional sales because A, the market's backed off its highs and/or B, they're waiting for rain on their field.
Whatever it might be, but I find that rather interesting. Going forward. Now what creates that movement to come, that's to be seen. Now backing up, there's a fair amount of new crop that has been sold up to this point, most of that probably more last winter, last spring, so I think there's this attitude somewhat in the country to try to bring those levels higher based on those sales that were made a fair amount below the market or back near probably insurance rates, if you will. Mm-hmm. But that tells you the emotion or the attitude of the market. So in regards to, you know, the commercials going forward, there's a, you know, again, there's a decent amount of new crop on the books. Again, I think most of that was sold by the producer January and February, I think, were the biggest months that we can pick up from what we see in the numbers since then is more sporadic.
And, you know, the commercials are trying to make some ideas on, you know, what's demand look like this fall, where we, you know, what are exports looking like going forward. And right now there's a fair amount of corn and beans on the books for this time of year for new crop, which again shows signs of good demand going forward, which hopefully for those trying to capture better basis is something to keep in mind as we get into new crop. The one thing to keep in mind though that's making it difficult is the bean market, new crop bean market, is still inverted. In other words, the November premium over January, March, and on through the year, where corn has some type of carry where March is a premium to December and so on, similar to what we saw last summer on beans being inverted.
So, you know, the bean market's kind of saying, "Don't be holding beans," to the commercial, and the market's telling the commercial, you know, at this point, "Hang on to that corn inventory, wait for better basis." Speaking of basis from the farmer's perspective, then, you know, I know we have seen a lot of sales on Profit Manager and things with a number of producers.
Chris
Barron: There's, there's, there's some cash contracts out there, but a lot of what we see are either basis, you know, still open yet where we've got HTAs on. There's maybe some futures selling that has occurred and/or some option strategies to sort of put a floor in or minimum price strategy type things. In that position then, we still have to lock basis or we still got to be thinking about either rolling these HTAs or these futures positions out, maybe store, capture the carry. From a, from a strategy standpoint, and not a recommendation, but from a strategy standpoint, what do farmers need to pay attention to on the— on managing this basis and capitalizing on that, in your opinion?
Clark
Neighbors: Well, number one, everybody's a little different what their needs are. Um, you know, an entity that has a lot of on-farm space has a lot more flexibility trying to capture that carry and that basis gain, whereas an individual that or an entity that has to take quite a bit to town at harvest, um, just because of space reasons, um, they don't have quite as much flexibility. So that group, uh, needs to focus more on, you know, what's the market telling me to do today in new crop, you know, and honestly right now it would say in a comparative world If you had to sell corn or beans at harvest time, a little bit like a year ago, market's saying to sell beans at harvest time over corn at this point and/or shortly thereafter as you get into that November-December timeframe. Excuse me, prior to river closing, that's always kind of a key factor in bean basis I think.
Typically in normal years, and we saw supposedly some Chinese bean purchases this this week, or yesterday actually on Friday for, uh, milk delivery. Um, you know, there may be a decent export bean program in the latter part of harvest that could maybe, uh, firm that basis up a touch. But the key is, as we sit here today in late June, we don't know what the supply is, and that's going to have a major impact on the board and basis going forward. Okay, so for an individual has on-farm space That again creates more flexibility. Right now there is some carry in the corn market. Um, to be somewhat flexible, the carries are not what you would typically call normal. They're tighter than normal, and that's based on the tight supply or the tight stock situation. In some cases, you may want to lock in some of that carry a little bit.
Out to March, just to get a little more flexibility in case we see some crop issues and supply losses and that type of thing. At least have some carries locked in, especially if you're in an area that's received, you know, decent rain and you're fairly comfortable with production potential. I think that's key. So, Anytime you have good demand, basis typically is going to be kind of a driver. It was this past year. Cash markets tend to drive the market. Now, if we have supply issues and the market rallies again, that may take away some of that basis potential because the driver then is just the producers looking at raw flat price and moving against that.
So then at that point, the commercial or the end user, excuse me, may not have to push quite as hard via basis, but I think right now you just go with the strategy that assuming normal things happen going forward, fairly tight stocks, probably can build a case where corn carries eventually will build. Bean carries maybe come into play at some point, and a lot of times, Chris, the key timeframe for those carries, believe it or not, is right before harvest, about Labor Day, early September. A lot of times that's kind of a window where you have about as good a carry as you're going to see for a while, typically, depending on how harvest goes. So kind of benchmark that, an early September timeframe. Bigger picture is maybe a window or a time to maybe roll out HTAs.
The other thing I guess I would say, and I tend to hear in our office a little bit, is, um, you know, guys may be priced as much as they're comfortable with right now, especially with the weather scenario, whether it's on HTAs, cash sales, hedges, etc. I think a nice tool to use right now just to have some protection but yet be open because of potential crop losses or whatever is using short-dated put options, and basically what those are again is it's put or protection to the downside against December corn or November beans, new crop products, but they have a shorter expiration. So for example, in August, short-dated puts can expire in late July, so you can buy that protection over that 30-day timeframe in case this market goes south. Gives you the option to, you know, be short futures at that time if so desired. To protect your crop.
If it expires in late July and you're above that value, whatever that put is, you still have— you haven't made any commitment as far as selling any additional bushels, and you have that flexibility to sell cash or not do anything at that point. So that's probably a good tool to use on that last percentage of crop that a guy would like to sell this time of year, so to speak, just to get some protection in case things do go south at some point, which, you know, this week was kind of a wake-up call to everybody. So it's, it's good to look at something like that, just, you know, be able to sleep better at night and not have, you know, 100% locked in on hedges, HTAs, etc. It gives you a guy more flexibility.
Chris
Barron: That's a term— it's sort of a term insurance for a period of time.
Clark
Neighbors: Correct.
Chris
Barron: Not nearly as expensive as buying all that extra time.
Clark
Neighbors: Correct, yeah, yeah, you're not, you're not paying as much time value as you would be going all the way out to a November-December option, correct.
Chris
Barron: Right, so I have the last question I have for you and we'll wrap up here, but is with ethanol. Last week, I think it was towards the beginning of the week or even the week before before that, the Biden administration having some conversations with, uh, with the, um, with the RINs and, and all this kind of stuff, and, and ethanol being in question a little bit. Is that still something that we got to watch here, or what are you hearing? Is there, is there a concern that's, that that's filtering into the market still too on the corn side of things, or not? Or what are you hearing?
Clark
Neighbors: A lot of confusion on that, I guess, is what I would say. It's one of those stories where, you know, they put the— they stopped those waivers with some of these small refiners, what, 60, 90 days ago, earlier this spring, that were in place, you know, by the previous administration. It's— and then this kind of came out of the clear blue sky here, what, a week, week and a half ago, as there was pressure by by some of the East Coast politicians with some of these smaller refiners putting pressure on. And in fact, I think it was a week ago Friday we hit like a new recent high in the RINs, and that's about when the market heard this news about these putting these exemptions in place again. It's got political attention of people like Senator Grassley and some like that. Most— I guess I would say this— most people that seem to have some sort of tie in D.C.
or have some back news on that would say this probably isn't going to take place because it kind of goes against the greener policy that the current administration has in place. So most feel this won't take place at this time. It's more noise than it is anything else. But at the same point, it's a story that at least so far hasn't really went away. So until that story goes away, I think everybody's a little uncomfortable thinking, well, it's— hopefully this isn't going to take place and have some impact on ethanol. But yet it seems to kind of continue to brew. So I think it's something to watch. I don't know how much of an impact that's had on the market of late. If any, to be honest, maybe some on ethanol margins, but ethanol margins have been really good. In fact, you know, a week or two ago, as good of margins as they've seen in the last 5 or 6 years.
Okay, so margins are still good there. Ethanol demand is fairly robust right now because all things we talked about earlier. So I think big picture, that's more important to worry about you know, look at that, then this noise we're hearing on this subject, hopefully that doesn't come into play.
Chris
Barron: Yeah, it just seems like whenever you get noise like that, the market does not like uncertainty, and so it, it kind of, it makes a real fast adjustment, which then in turn puts us on this roller coaster ride that we've been on that we've talked about the last few weeks. It's been kind of a pretty volatile scenario. So any last final thoughts as we wrap up here?
Clark
Neighbors: Well, it's just an important time of year and an emotional time of year, both production-wise, price-wise. You know, you like to talk about it quite a bit, Chris. Try to keep those emotions in check. Easier said than done. Have those price goals in place, have those offers in place, because this market moves way too quick.
Chris
Barron: Well, a lot of times, Sunday night is, or, you know, the nighttime is— if you don't have those offers in the nighttime, a lot of times is when it hits and you get about 5 seconds for that number you wanted.
Clark
Neighbors: Correct. I mean, with the computer-driven markets we have in today's world, these things move quick, and they move a lot quicker than our anticipation is. So yeah, I mean, Big picture, a lot of questions going forward. A lot of questions going forward. None of us know the answers, so hopefully those emotions stay somewhat based on price goals, you know, needs, etc. Obviously these are still very good values. I think we have to keep that in mind in the big picture. Not what the values were a week ago, what they were maybe in over the last 6 months, and where we are in the big picture.
Chris
Barron: Yep, sounds good. Hey Clark, this was a great conversation, really appreciate it.
Clark
Neighbors: Enjoyed it, Chris. Always good to talk to you and talk to the folks out there with your podcast.
Chris
Barron: Sounds good, and we'll, we'll check back in here with you in a few weeks and see kind of what the weather had in store for us, and we'll be a lot smarter at that point. But again, we've got Clark Neuber with BIS Commodities and Cedar Rapids, Iowa, and we'd like to thank everybody for listening. We will catch you again next time on the Ag View Pitch.