Weather vs sluggish demand

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 a new marketing week. Before we get going though, I just want to remind everybody about our 19 Minutes podcast that comes out on the 9th, the 19th, and the 29th. We've got a lot of great episodes out there. Um, just wanted to remind you, um, we will have a sign up on the, uh, show notes here for this podcast that you can go in and click on that and get signed up. It's $30 a month, a lot of really good content in there now, and we'll continue to keep putting good stuff in there. So we've got some things in there on leadership, the one I just did on 9th, and then we've got another one coming in here on the 19th called Ego and Insecurity. And so it's going to be an interesting one for y'all to check out. But with that said, we're going to talk markets.

We are heading into this week of the 12th through the 16th of June, and it's getting dry, getting hot. And we are lucky enough to have with us Jared Creed today. Jared, how's it going?

Jarod

Creed: I'm doing well. I don't know if we're going to talk markets or we're going to talk weather because only one gets talked about the majority of time lately.

Chris

Barron: Yeah, I think, I think we're going to start out with, with weather because that seems to be the topic on everybody's mind. And, you know, last couple of weeks has been just getting drier and drier. I was just telling you offline, I, this past week I drove back from Michigan because the airplane I was supposed to be on apparently didn't have all the parts they needed to fly. And so it was going to be a while and I just said, I think, I think I'm just going to drive back. And so I got a pretty good crop tour. And the thing I would say generally speaking, is the— it's toasty. I mean, it's like, you know, you just could see it everywhere. And as the day got warmer and I got closer to Iowa, it got hotter and hotter and you could just really see it in the crop. I was kind of surprised the crop in Illinois where I drove through didn't look too bad.

But I think what's happening is the tank is empty. You know, we're pretty much using up all the gas in the tank., and there's no excess there. So I guess with that said, you know, what, what are you hearing from, from your clients? What, what are you watching weather-wise? And let's just dive in here.

Jarod

Creed: I might be mistaken that we talked about this last time I was on with you, or it's just something that gets mentioned, uh, often lately. Nobody we work with is really too excited about their crop, and even some of the ones that I thought would be pretty optimistic, really don't have that optimism at this point in time. Whether it be on the east side of who we work with, you know, in western Illinois replant stuff, just excessive moisture at the beginning and then just kind of a dry spell since. Obviously no secret the issue on the opposite side in the west, you know, I-90 territory in South Dakota and then down into northeast Nebraska. Very, very tough.

Actually have— this will probably light people's ears on fire here in a heartbeat, but there is a situation outside of Lincoln, Nebraska that 1,200 acres has been zeroed out already prior to even June 1st of dryland corn, first planted stuff. Lots of anhydrous burn, absolutely no rain to speak of. Crop was just not putting on any roots. I'm not going to pretend to be an agronomist there, but that has actually been zeroed out. So it goes from absolutely zero already being the first, well, second week of June now to guys thinking that, hey, you know what, we could still have a pretty darn good crop, but it better rain. And I got to steal the, you know, kind of the thought process from our buddy Pete.

I thought he put it pretty well here recently is that as you look at all these different weather models and you look at the challenging dry conditions that we have and, you know, on that note, yeah, we always talk about, you know, May, June, if it's going to be dry and warm, well, that's your timeframe, right? I just wonder if that's sneaking up on anybody on the idea that this May-June stretch— I mean, does anybody really want the driest May on record? That's what we had. That's what your backyard had. You know, Waterloo ended up having the driest May since like 1994 or something along those lines. And plenty of other areas that have been significantly dry. But what I was going to say, Pete thinks just that, you know, we got to get over the hurdle. You know, we got to get to what can be potentially normal July weather. And again, I'm not going to pretend to be an agronomist.

You know, are we going to do any irreversible damage prior to then? I do have some producers that are very concerned about that. There already has been some of that damage done. You know, obviously recording this over the weekend, big anticipation of moisture to fall on the 10th and 11th. You rewind the calendar a week ago, the expectation for this rainfall this weekend was huge. And it certainly seems like over the last 48 hours to 72 hours, a tremendous amount of that expected rainfall has been pulled out. So a lot of rambling there, Chris, but nobody's pleased. Challenging days ahead, it looks like, with another dry stretch coming up. Some of these weather models And I would say weather research firms do suggest that we're going to have, you know, obviously July is going to get warmer, but we're going to get warmer than normal for the first 10, 15 days of July.

So we've got interesting times on our hands moving forward here.

Chris

Barron: Mm-hmm. For sure. Let me ask it this way, too, you know, and we can talk about what the difference is with what the market's looking at. You know, is it, is it the forecast versus actual to start with? I mean, sometimes it seems like You know, it's like every few hours during every trading day, the models come out with, it's going to rain, it's not going to rain, it's going to rain, it's not going to rain. And the market's moving exactly with that. But with that said, at what point does it shift from, do you think, from that to, well, holy shit, it hasn't rained, you know? It's at what point do you think we might, you know, the trade might start saying, okay, yeah, it's not just the forecast, it's reality.

Jarod

Creed: If history repeats itself, it's when it's too late. Right. It can be, you know, late June, maybe early July. I would agree that the market has found a way to move up and down consistently on weather model runs. But at the same time, it's also trading very, very poor demand that we have currently.

Chris

Barron: Yeah.

Jarod

Creed: And it's also trading you know, continued geopolitical and monetary, inflationary recession. I mean, you name it, it's just we still have this, this, this grouping of challenges that we've never really had all at once before. So there's a ton of different things in the marketplace that's moving us up and down. But I would like to think that fundamentals always do win out and weather forecasts will will be the— it'll be the shiny object here for the next couple of weeks. And, you know, this Sunday night's open and next Sunday night's open. They'll be— they'll kind of be potentially trendsetters for the following week.

Chris

Barron: So when you look at the, the weather versus this sluggish demand, it's— it almost feels like it's been the sluggish demand that's been winning so far. What, you know, talk about what, what is creating quote-unquote sluggish demand. I mean, you've got the, you know, last week's report you had mentioned offline, the, the Brazilian crop and, and some of those things. I mean, there's a big supply there, but there's also some issues with demand. Talk a little bit about that too.

Jarod

Creed: So months and months ago, we talked about demand of being advertised as, oh my gosh, it's so poor, so poor. You know what? At the end of the day, here we are still looking at cash corn, $6, $6.50, $7, depending on where an individual is, $13, $14 soybeans. It is what it is, but it's not the end of the world. Yeah, our exports are not great and that's primarily driven by Brazil, big, big crops and flat out US crops being too expensive. A lot of that being a still a sign of tight, tight supplies in the US. And maybe a little bit of tight-fisted farmer is helping that as well. But, you know, exports is our smallest piece of demand, in essence, especially on the corn side. Our domestic usage still continues to be okay. We know that over time our feed number is going to be challenged just because of the reduction in the cattle herd.

And obviously the hog sector is not doing so great right now either. You know that on the ethanol side, it just continues to churn, maybe not as high as we would like it to be, but it's just not firing on all cylinders. But it's doing enough. It's getting us from point A to point B. So our demand, yeah, it's sluggish. We're just missing, you know, what would be nice to have another 500 to 800 million bushel of demand. And so when you start to bring that into the picture for new crop, you know, just talking about corn here. Yeah, we like 500 to 800 million bushel more demand on corn. On soybeans, we'd argue like to have a couple hundred million bushels more demand as well. On soybeans, I can make the case that we better not have that demand because we don't have the soybeans to ship anyways. We're crushing as much as we possibly can.

On the corn side, I don't want to go as far as saying that we can't have that extra demand because we don't have the supply. But at the end of June, at the end of June, we're going to have our quarterly stocks report that for a long time here, I've had a hunch that we're going to see another greater than anticipated cut to ending stocks. Not really a sign of usage, but a greater, deeper cut in stocks on the heels of last year's crop still being overstated. I've got plenty of different reasons of why to think that. Could be dead wrong. But when you talk about the production issues that we're facing right now versus the sluggish demand, the biggest fear, Chris, is what happens if we do have another issue on production, we take prices higher. Yeah, the farmer gets rewarded in the near term. How much more are we going to kill our demand next year? If that really does happen, that scares me.

That really does scare me that all of a sudden you do raise a normal crop and you have reduced your usage again. It's really not that far-fetched to find ourselves in the crosshairs. It could still be this year, it could be next year. Who knows? Of all of a sudden blasting out over a 3 billion bushel corn carryout and a 500 million bushel bean carryout. And fundamentally, then we are way, way overpriced in current markets. So the pull between production and demand is probably going to be more focused on the supply side for the next 3 to 4 weeks post-4th of July. If rain falls and we don't have any surprises on acres in the end of June, it'll be focused right back to the demand side of what are we going to do with it all.

Chris

Barron: With that said, on, you know, for the okay then quote unquote what do we do type of question, when you look at the '23, we'll start there, you know, corn and soybeans. And, you know, there's, there's still, like you said, there's geopolitical, there's domestic financial issues and all that kind of stuff. What, what things do you think, you know, producers on the '23 stuff should be thinking about? Because I know, I mean, I guarantee there's a lot of people listening here that feel like maybe they would feel better if they had a little bit more sold. But, you know, I think everybody kind of sits on their hands a little bit when it looks like there, quote unquote, could be some opportunity ahead. And so, you know, is it just a matter of getting some targets in and, or, or is it more complicated than that for what people need to be doing or thinking about?

Jarod

Creed: Maybe we can put a little definition on your listeners. So if you had to guess, Chris, of your listeners, how many do you feel would be carrying some of these add-on insurance programs from area-based programs, whether it be margin or ECO or SCO?

Chris

Barron: Oh, that's a good question. Without pulling up the information and calculating it, I don't know.

Jarod

Creed: Maybe that's okay.

Chris

Barron: Just maybe 50%.

Jarod

Creed: 50/50?

Chris

Barron: Yeah, I was going to say 50%, probably.

Jarod

Creed: Okay. So you have a little bit of split in what people need to be doing now, in my opinion. Let's just start with anybody that doesn't have any type of area-based programs. I would imagine that that would be the grouping that feels a little bit more pressure with the current prices if they don't have enough sold and probably looking for that next opportunity to possibly catch up. And I do think that that catch-up opportunity still can present itself in the next couple of weeks. Don't know what follows that. Is it continued higher prices or lower prices? But I do still think that a guy is going to get another crack at selling $5.50 to $6. $6 might be a little aggressive on the corn side, but I think $5.50 plus is still going to be an opportunity. And expect stronger basis come harvest.

On the soybean side, I think that you got to keep that ratio in mind, you know, 2.2 to 2.3, give or take. And I think a guy might get a crack at selling somewhere around $12.50 to $13 beans as well. So if those prices are profitable, and I'm assuming that it is, if there's something else that has been sold and you're still using a normal yield, you know, it might not be overly profitable, but it's at least an opportunity to catch up to, get yourself back out of the red and maybe looking at least an opportunistic black situation. Anybody with area-based programs here, Chris, you know, 95% type of coverage levels, they don't need to be doing anything. They need to be farming. They need to make sure that you understand what you bought, what you spent money on was in the form of a hedge. And that's what you have now.

When you consider some of these 95% policies, whether it be ECO or margin protection as such, if you got any type of grain sold alongside it, you're way over 100% financially hedged at this point in time because you're at a point that mathematically and historically it's going to be impossible to see a county yield move up to the level that it would need to be at the current prices that we're at. To avoid some type of an indemnity payment. And at the end of the day, all we care about is revenue. I don't care about what the price of the grain is. I care about what the revenue is. And in a situation that you don't have downside risk for a period of time, at that point, if we're trying to sell something, we might just be speculating. If you don't have that risk, why are we selling anything? Wait until that risk profile shifts. It says, okay, yeah, now I do need to sell something.

So I think there's quite a dichotomy out there, Chris, of who needs to be doing what and what that— what does that look like? I could make an argument that those with bigger insurance policies should be leaning on the long side. I can make the argument the ones that without those insurance policies and quote unquote undersold need to be ready to be leaning into the short side here in the next couple of weeks. And one thing probably plays out as always, weather markets are typically meant to be sold. And demand markets are meant to be respected. And we're certainly not in a demand market right now. We're in a weather market.

Chris

Barron: That's for sure. I'm going to backtrack for just a second here. I forgot to mention, you know, a couple of things. One is last week when that dam got blown up that Russia didn't blow up or whoever didn't blow it up. You know, that kind of moved the wheat market for a little bit. Is there anything over there that could move the market?

Narrator: That—

Chris

Barron: I mean, it just seems like no matter what happens over there, it doesn't last. You know, it's like they're not paying any attention. So do we just forget about what's going on over there, or is that—

Jarod

Creed: it does seem like an old story. And I guess, I guess what we probably need to admit to ourselves now is that it is old news and the world market the world grain trade has moved on from that. And I just have to laugh at this. I don't mean this in a, in a negative connotation towards the sad situation unfolding over there. But Ukraine numbers on Friday's USDA report, their corn production was raised 2 million tons, their corn exports was raised 2 million tons. Their wheat production was raised 1 million or 2 million tons, their wheat exports were raised 1 million to 2 million tons in the face of all of this continued challenge. I just, I can't wrap my mind around it. I almost, I almost feel that maybe the average individual, including myself, that we're being duped a little bit on how widespread that situation is over there.

Ukraine's obviously not a small country, not a tremendously huge country now starting a counteroffensive. Does that tell us that— I mean, what are we, are we back to 80-90% of normal in Ukraine, or 80-90% of landmass in Ukraine is unaffected at this point in time? I don't know. But you continue to see these little signs that their production was definitely challenged by Mother Nature as well on top of the war. But at the end of the day, any type of news out of there might have a, might have a market impact for 12 hours, but that's about it. And you rewind the calendar a year ago, that dam blowing up probably would have been limit up wheat a couple of days. Mm-hmm.

Chris

Barron: Okay. I'm going to keep moving here. I got two other things I want to hit on. One, one of them, another one I forgot about. I wanted to ask you when we were talking like fundamentals and different things. What are the funds watching that's gonna— what things are gonna bring them back in? You know, is it gonna be the weather that pulls them back into this equation after it's quote unquote too late, like you said, or what entices the money flow?

Jarod

Creed: It looks like they're making a recession trade first and foremost. That's about it. Just they are paying attention a little bit to demand. They are paying attention a little bit to the weather that can certainly catch up to them. The unique piece about a big fund short position in a market, the only one who can let them get paid, quote unquote paid, is the farmer. The farmer's the big long over the next 6 to 9 months. And the spec to get out has to have somebody sell it to them so they can buy. And that's potentially a pretty good stare down here in the next 6 months, given what prices have done relative to insurance and production question marks and a big short position already in place. But they're really, Chris, it's just a lot of the trade is still light, light in volume, not anywhere near the amount of participation from outside money that we've experienced in years past.

But all the betting positions right now is just betting on recession. And it's pretty amazing to continue to hear that recession trade talk when you look over at the equity market and trading what we're less than 10% off of our all-time highs now in the equity market from what, 4 years ago, 3 years ago. Pretty amazing. Yeah.

Chris

Barron: Interesting. So I kind of want to wrap up with— and I didn't mean to jump around and hit Ukraine in the funds, but I forgot to ask that when we were talking other stuff. But so we talked '23 and some things that people need to be thinking about and, and probably working into their plan. The last thing I want to hit on is 2024. If we do get continued crappy weather in terms of no rain and that starts to, to move things a little bit, at what point Does Jared, when, if he puts his farmer hat on, think, you know, I maybe need to start looking a little bit at '24? Because I don't— there's a tiny bit sold, but like most people are at zero. And is that something to watch?

Jarod

Creed: Yep, we might be going— the average guy might have 15-25% of their '24 crop sold, uh, before the end of June, actually, if we do get some type of weather market. And a lot of that is on the heels of what you're seeing nitrogen and P&K prices do. Anybody with summer fill capabilities on nitrogen, I think we can get it under $4 now. That's a pretty darn good conversion margin anywhere from $5 to $5.50 corn, right? On the soybean side, it's just not that easy. I, I guess I'm not afraid to admit I don't know exactly what we should be doing in 2024 beans at the moment. All we can do is understand what our costs are, understand where we need to be. With the acceptance that margins look very tight on 2024 beans currently. But on corn—

Chris

Barron: They look a loss to me.

Jarod

Creed: Oh, yes. Yes. Maybe. Yeah, that'd be the better way to put it. How about entire farm margins look tight? Yeah. But on 2024 corn, you know, I think let's just use round numbers here that folks should consider punching into their spreadsheet, into their head. You know, comparing their costs, you know, $5.50 December '24 corn futures, not really that far-fetched. Or maybe it's even $5.40. What does that do for a producer? I mean, just do simple math there. No basis, you know, 220 bushels of corn and $5. Well, there's $1,100. And then we got another $90 an acre in essence on top of that. So you're at almost $1,200 an acre of revenue. I think we can make money on that in 2024. You know, it's all relative based upon a guy's territory, but I think 220 bushel corn will catch you 60% of the Corn Belt. So not all is lost on some type of a price opportunity.

And at the end of the day, it's, it's getting just enough booked to cover the costs that, you know, you're going to have. And all of a sudden you wake up and you're over a third sold.. And that puts you in a driver's seat pretty quickly to avoid any type of dire situation, you know, a year from now. Because I think that's an important piece right there, Chris. Excuse me. Whatever decisions you do or don't make on 2024 in the next 60 days, remember what you have felt like on the 2023 crop in the last 60 days. Remember the pressure that has potentially been there on whatever decisions you have or haven't made. You could feel good or you could feel poor. Remember those decisions or remember how you felt when you're analyzing what you should potentially do out in 2024.

I, I've said it before, I'll say it again, that I have to be careful who I say this to, Chris, but it really wouldn't hurt my feelings if we just dropped the corn market significantly because we have taken care of enough business that keeps ourselves in the driver's seat versus our competition. It's not ill will against anybody. Again, I got to be careful who I say it to.

Chris

Barron: Right.

Jarod

Creed: But I'm getting back to that feeling comment. I don't care what the market does at the moment. If we go higher, we have good yields, we make money that way. If we go lower, we can still have good yields or have poor yields. We'll make good money that way, but we'll have some type of a competitive advantage that'll let the family farm continue to prosper and thrive.

Chris

Barron: So that's just it.

Jarod

Creed: Remember what an individual feels like now is probably important how to address what they should or shouldn't do for 2024.

Narrator: Yeah.

Chris

Barron: And that's just it. You know, there is a balancing act there. You know, you, like you said early on in the, in the discussion here is you know, we grow a short crop, you know, we're gonna, we're gonna, we gotta pay our dues at some point here. And there's, you know, the, the, the sad truth of it is, is a lot of operations in this year right now for 2023 almost would make more money the lower the price goes at a certain point here now. So it's just a kind of a reality. Um, so last, last thing for you, I'm gonna let you, uh, close it out. Um, Any, any final comments and we'll wrap it up.

Jarod

Creed: Final comments in the, in the environment that we are in. Don't let emotion get to you. Right. Keep, keep it with the math.

Chris

Barron: Yeah.

Jarod

Creed: The math is pretty simple at the moment with prices where they're at relative to insurance levels. But make sure that you are revisiting what type of requirements are on the table. Based upon your current price and yield prospects. And that goes along with getting your FSA appointment scheduled as quick as you can and getting your schedule of insurance as quick as you can. Yeah. So just that, that's maybe what I would put on a priority list here for the next couple of weeks. Guys are getting better and better at that, in my opinion. It's an old pet peeve of mine of not getting a schedule of insurance until Labor Day. That can tell you that can, that can drive decisions very, very easily over the next 60 days once you know the numbers to the T.

Chris

Barron: Yeah, for sure. Hey, Jared, this has been a great conversation. Again, if people want to reach you or get a hold of you, what's the best way?

Jarod

Creed: Phone would be easiest. 402-680-1744.

Chris

Barron: Awesome. Really appreciate it. Thanks a lot, Jared.

Jarod

Creed: You bet.

Chris

Barron: Thanks, Chris. Yeah, thanks everybody. And again, remember, uh, check out that 19 minutes. There's a, uh, you can click on there in the show notes here for today. And again, we really appreciate it. Hope you all have a good week, and hopefully you get some rain. And everybody take care. We'll catch you again next time on the Ag View Pitch.