Weekly market outlook: June 20th-23rd - extreme localization

Paul

Neiffer: Thank you for listening to the Weekly Market Outlook.

Ryan

Moe: It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business.

Paul

Neiffer: Please reach out anytime by emailing cbarron@agviewsolutions.com. Welcome everyone to the Ag View Pitch, and this is the Weekly Market Outlook. I am actually Paul Niefer, Chris is taking some time off to be down at the beach, I believe. So he reached out to the third team, which is me, to do the weekly market outlook. And this week we have Ryan Moe from StoneX. Ryan, how are things going?

Ryan

Moe: Well, it feels pretty good. If you're on the third team and I'm on the junior varsity reserve team, kind of what it feels like to be a market analyst right about now with this kind of environment.

Paul

Neiffer: Yeah, so I think off-screen we were talking about the fact that you were visiting, you know, you were actually attending a funeral back in your home state and the rain was following you around. So how was that?

Ryan

Moe: Yeah, we were very fortunate. So back home, which is near Fort Dodge, Iowa, we were able to get anywhere from half an inch to a full inch of rain depending on where you were at. And it fell real nicely, temps stayed cool. And so, yeah, we soaked up every single drop of that storm. But yeah, when you start to think about and talk about the weather events here of 2023, one of the major themes has been just this extreme localization of this weather pattern, which has been giving everybody in the marketplace fits. Because even the best of the best experts are having a hard time projecting the impact of these pop-up showers. But they're covering such a small area, but over the course of the season, a lot of little things add up into being something that are— that's quite beneficial to crops. So it's been a very, very challenging year with weather here this year.

But whenever you get a rain, you're thankful for it and you do the best you can to root for your neighbor to get some too.

Paul

Neiffer: Yeah, I was actually in north, well, sort of north central Michigan last week on Wednesday, Thursday, Friday. And I think it was Friday morning or Thursday, no, Thursday morning. We got some rain, but I wouldn't say it was a lot of rain. And I don't know how much of that is just normal rain that comes off of Lake Michigan because we were right on the right on the eastern side of Lake Michigan. So, and again, for listeners out there, I live in Parker, Colorado, and we've had the most rain, I think, since 1873 so far for this year. So, it just depends on what part of the country you're in is where you're going to get the rainfall.

Ryan

Moe: One question we got to ask ourselves here, Paul, is what kind of data gathering technology did they have in 1873? To verify whether or not they got that number right.

Paul

Neiffer: Yeah, I don't know, you know, although, you know, weather's always been very important since I think mankind finally showed up. So I think, you know, that is something that they probably have been tracking for quite a while.

Ryan

Moe: Oh yeah, very much so. But that's also why we raise corn in Iowa, Illinois, Indiana, Minnesota, etc. I mean, it's because the weather pattern is more favorable there than anywhere else in the world. And you want to bet on the farmers and you want to bet on Mother Nature that eventually something will fall.

Paul

Neiffer: Yeah. And speaking of Illinois, I happened to just sort of look at a weather forecast and it wasn't, you know, one of the major ones, but I was just, you know, typing in Illinois weather forecast for the next 10 days and looks like it's pretty hot and dry through maybe the end of this week, first part of next week. And like you say, it's maybe parts of Illinois are going to get a little bit of rain, but lots of the parts are not going to get a little bit of rain. So how does that affect, you know, somebody like you that is trying to market this grain and help your customers market their grain? How does this affect that analysis?

Ryan

Moe: Well, we, we break it out into two different components, which is the board price and the basis market, because the local basis market has been behaving very bearishly while the Chicago Board trade market has been quite bullish here in the last week. Now with these forecasts that are coming out— now depending on when you listen to this podcast, we're shooting this podcast at 9 AM on Monday morning. So we need to understand that we could see a world of change between 9 AM this morning and the market open at 7 PM based upon which weather forecasters say what. But right now the forecast looks exactly like you said, Paul, where it's going to be dry in a very vocal part of Illinois, and with that dryness persisting, that is of course supportive to the marketplace on the Chicago Board of Trade values.

Now, something that we are seeing, and we are seeing in a major way, is the local cash market is getting a lot of corn bought. And when I say a lot of corn bought, I mean a lot of corn bought. I know a few end users that now have enough corn to get them all the way to new crop. And so that's very significant if you still have old crop corn to market, because there's no law that says the corn buyer has to buy your corn. You're an ethanol plant and you're an ethanol plant corn buyer, and you have a fixed demand of 40 million bushels per year, for example, that ethanol plant does not want to buy 41 million bushels of corn just to do the farm— do the farmer a favor. And so we might start to see some of these large end users go either no bid or absolutely crash their bid because they don't need any more corn.

And the realities of our world today is that we're sitting in a 10.3% carryout-to-use ratio, and with a 10.3— excuse me, 10.6% carryout-to-use ratio right now, this is what happens in those types of markets is there's more supply for corn than there is demand, and those that are left last could be left holding the bag. So definitely have to separate their, uh, cash position from their board position. So long answer to your question, but that's the advice that we're giving people, is to just make sure you understand what— how much more corn your local corn buyer has to buy.

Paul

Neiffer: Well, and I know, just like I was talking with Chris, uh, you know, he ended up selling a fair amount of— or selling and delivering a fair amount of corn last week at $7 a bushel, slightly over. So, uh, for the '22 crop. So that was a way to sort of clean out the bins and get ready for the '23 crop.

Ryan

Moe: And right, and we also know what's wrong with $7 corn.

Paul

Neiffer: Yeah, there's nothing wrong with $7 corn. So, uh, matter of fact, it was sort of funny, uh, earlier this year I was, I was finally selling my last corn down in southwest Missouri, which has pretty good basis, and I felt really proud of myself because I'd sold my last 5,000 bushels at like $8.60. And then I get a call from my farmer saying, hey Paul, you can sell as much as you want for $8.95. So, you know, I missed it by 35 cents, but that's okay. I can't complain about $8.60.

Ryan

Moe: No, you're, you know, you're kind of, the psychology behind that, and psychology in markets is more important than really anything else. And the psychology on that is, You've got to look at it like the 90/10 rule, right? 90% of the business decisions you made right there, Paul, were fantastic. That last 10%, though, is what eats up 90% of our emotions, though, doesn't it? Yeah. And so, you got to just boil it down to the business and how many great things did you do for the long-term, just financial wherewithal for your farm there and for your business there selling $8.65 corn.

Paul

Neiffer: Right, right. Now, in this type of a market, we're likely, you know, there's a good chance that pricing is going to continue to go up. From a marketing standpoint, should we be selling into that market? Are we trying to, are we trying to pin down the peak? Or should we just take advantage of the fact that the market's going up? And start selling some of our '23 crop, maybe even look at '24 crop. What's your suggestions there?

Ryan

Moe: So I like to— so the order flow book that we have is largely commercial. I don't have a lot of direct-to-farm accounts. I work mostly in the commercial space, and so my My clients are then serving the farmer. So my visibility into flow, and I watch a few of the grain originators that I work with that I know work with some very, very smart producers, and we are seeing a lot of the really smart producers going out and executing DS23 and DS24 corn accumulators. Now I'll be upfront with everybody and admit that I do not like accumulators all the time.

I— there's a lot of markets where they're absolutely, positively the wrong marketing tool to utilize because people are trying to grasp for straws on missed markets, and so then they try to use an accumulator to get them to a value that they wouldn't yet sell before, they wouldn't have sold before, but now they're trying and begging for it. So there's times when accumulators are totally the wrong tool, and that's sadly, that's when they seem to get used the most. But right now I'm seeing some very, very smart farmers use these '23 and these '24 accumulators, and they're able to go out and get $6, uh, you know, let me see what some of the stuff that we did. You know, they're able to go in and get some very, very nice averages for those, like, you know, at $6 for the Dec '24.

And that seems like a great place to go ahead and start a marketing plan, because the other thing that is a significant highlight for grain buyers is our new crop books are as small as they have been in my 19-year career.

Paul

Neiffer: So that's a problem. So for the listeners out there, just expand on that, exactly what you mean by that.

Ryan

Moe: Yeah, we have bought as little new crop corn for these 20— for, uh, fall delivery of '23 than I've seen in my entire career. Hmm. We— there is so much farmer ownership out there right now on new crop or a crop that is in the field. And yes, there's some questions on weather, but knowing what we know today, that is a fact. This crop is in pretty good shape so far in a lot of areas, but we have almost no farmer sales on the books right now.

Paul

Neiffer: I'm wondering if, if that's a result of the fact that this was probably by far the most expensive crop ever put into the ground and, and the farmer saying, hey, until it gets up to that price, uh, where I— oh yeah, it could be that. Or the other thing is the farmer has sort of a floor, you know, if they, if they did RP coverage, you know, crop insurance coverage at 85%, you know, their floor has been in that $5.02, $5.03 range. So as long as the price is around that range, there really is no incentive necessarily for the farmer to sell that '23 crop. Plus, you know, with this weather event right now, they don't know what their crop's going to be.

Ryan

Moe: And see, and this is where it's smart for all of the businessmen and women in ag that are listening to this, whenever they do listen to this, this is when you need that team approach, right? You need to have a very, very solid team working with you to give you advice in market conditions like this because Paul, you know far more about the breakeven points and where and what crop insurance means and what it doesn't mean for this producer and that producer. You know far more about that than I do, who's just basically a futures options and OTC jockey, right? And So what the point that you just made is so critical as to what these market conditions mean and what, you know, the current insurance environment means to that producer and why we're seeing the behavior that we're seeing. So great example of why you need a really good team to build a very solid business over the long term.

Paul

Neiffer: So with that, with that low book, Does that mean your customer base, you know, not the farmer but the commercial, are they going to have to start bidding up on the basis, or is it still a little bit too soon?

Ryan

Moe: We're advising them not to on corn because fact remains we're sitting on 10% carryout-to-use ratio, uh, for the 2023— 22-23 crop year, and Forecasts now for the '23-'24 crop year are that we're going to have a 15.6% carryout-to-use ratio. Both of those numbers indicate to us that there is going to be plenty of corn out there, and so we're just going to wait and wait for it to come to us because we don't want to be bidding up for it now because of that amount of supply in '22, '23, and '24. That's getting to be rather burdensome and people are going to have to move corn just because they physically have to move it and we don't want to pay too much for it in that environment if it is, if that is the case. So we're sitting and waiting this thing out and letting the supply come to us on the commercial side.

Paul

Neiffer: Well, and I guess also an additional supply is, you know, South America, especially Brazil, has a fairly large, you know, crop that's coming online right now. Europeans, you know, we hear, I think it's Poland that's shipping some corn into the East Coast and so on. So like you say, right now there's definitely not a lack of supply.

Ryan

Moe: Correct. And that's what you bring up is, is spot on. Because when you, when we look at the amount of production potential Brazil has, it will make your head spin. And there's a great example of if they happen to catch the right weather patterns, just how big their crops can be. But now you also have to consider how rapid their expansion can be, because what does a well-financed farmer do? A well-financed farmer expands their operation. And when we look at the stock— that we look at the potential of— I think Eric Snodgrass said that he believes there's 400 million acres of pasture land in Brazil that can be converted into cropland. There's some massive expansion potential, and that's, that's when we start to talk about the high prices curing high prices. Are they making any more land in my home county of Webster County, Iowa?

No, but they are making more land in other places around the world. So to say that they're not making any more of it is categorically a false statement.

Paul

Neiffer: Well, 400 million acres, that's a lot of acres. I mean, the, the total U.S. cropland roughly is in that range, you know, as far as if you looked at the major crops— corn, wheat, soybeans, rice, cotton, so on, you add it all up excluding hay, and you're not hitting 400 million acres.

Ryan

Moe: That's how much they've got left. Yeah. So I mean, there's, there's, there's massive potential there. So I mean, I don't want to be all doom and gloom here, because we've got a really, really rocky environment to be paying attention to here just in the next 48 hours. But just we need to keep that in the back of our mind with what high prices create for other farmers around the world as well.

Paul

Neiffer: So let's maybe to end the outlook here, let's, let's just key in on the next, let's say 72 to 96 hours, you know, by the end of the week, if we, you know, if the weather models come out, it's dry, it's dry, it's dry. What are some of the recommendations for the farmers? And again, you deal primarily with the commercials, but what would be some of the recommendations, key recommendations for the farmer that we want to leave this outlook with?

Ryan

Moe: Step 1, make sure you've got, you know, make sure you've got a buyer for your corn. Um, just because they've always been there and been in the market, they might not be because of the amount of volume that has come to the market here in the last, uh, 10 days. So that's step 1. Now I am interested in having farmers sell this thing, sell the physical early, because I still believe that July— excuse me, June weather rallies are meant to be sold, and they are meant to be an opportunity to sell. But I'm also the last person to jump on a drought bandwagon, because I believe that droughts take days, weeks, and months to build themselves, they take a couple of rainy nights to dissipate. So I'm gonna be the last analyst on the bandwagon of a drought. So we still have potential, and everybody, all these forecasters are talking about very good rains being forecasted in July and in August.

But as we sit here in this day, July feels like it's an eternity away, doesn't it? So here we are sitting on the 19th and July seems like a really long ways away. Um, so I want to see the farmers clean up their old crop corn positions physically, and then if they want to own risk, which I can understand if they want to own risk, I would like to see them own risk on the board only. I do not think corn basis is going to rally from here because I think we've got a lot of corn out there. So I don't see a big basis rally in corn. So I want to get rid of that basis risk, and I want to see, uh, I want to see, I want to see the farmers, if they want risk, they own it on the board, right? So that's, that's, that's my, that's my thoughts. Beans, completely different, uh completely different situation there. We're sitting in a very tight soybean situation with a 5.3% carryout-to-use ratio.

That's bull market territory. We're starting to see these renewable diesel plants really get it figured out. We're starting to get these crush expansions really figured out. I think we've got some really, really fun opportunities ahead of us in the soybean market space, uh, domestically. And so if you want fireworks look to the bean market here in the local cash bean market for your fireworks.

Paul

Neiffer: Well, right, Ryan, I think by the time we have this weekly market outlook for next week, we may have some fireworks for the Fourth of July. So we'll find out which way it might go for sure.

Ryan

Moe: And I'm going to have a lot more gray hair between now and then because it is going to be a wild, wild, wild week ahead here.

Paul

Neiffer: Okay. Well, again, Ryan, thanks for taking your time out of this holiday. You know, it is technically a federal holiday today. We don't have any markets till tonight. And thank you very much.

Ryan

Moe: Hey, thank you, Paul. Appreciate the time and appreciate the opportunity to talk to the Ag View crew.

Paul

Neiffer: And again, this is the Ag View Pitch, the weekly market outlook. And this is Paul Yeager, your host, signing off.