About This Episode
Ryan Moe and Shay Foulk work through a market with an unusually steep inverse, May corn well above July and July well above September. Moe's concern is what happens when interior end users finish filling their June positions and begin bidding off a much cheaper deferred contract. A farmer holding grain into that transition can watch the inverse eat the value that looked so attractive on the nearby board a few weeks earlier.
His antidote to that stress is perspective on absolute price. A merchandiser tells him the western cash market feels like it only wants to pay seven dollars, which reads as terrible against a much higher board but is historically a lot of money. Moe's point generalizes: judging a bid against the futures screen makes you feel robbed, while judging it against what that price actually pays for on your operation usually makes the decision obvious.
On wheat he argues supply shocks get absorbed faster than headlines suggest, because there is a wheat crop growing somewhere at all times and the world reallocates quickly. Looking a year ahead, he flags 2023 as a possible sleeper, worrying that fertilizer supply chains will not have slack for ninety million corn acres, and suggests well-capitalized producers grab margin on deferred contracts in a measured way rather than committing heavily against an uncertain acreage picture.
“Make sure that the position that you have in soybeans is the position that you really truly want, because having your druthers in a market like this could be very expensive.”
— Ryan Moe
Key Takeaways
In a steeply inverted market, carrying grain costs you the spread. Find out which contract your buyer will bid off before you decide to store.
Judge a cash bid by what it pays for on your operation, not by how it looks against the nearby futures screen.
Supply shocks in wheat fade faster than the headlines suggest, because a wheat crop is growing somewhere at all times and the world reallocates supply.
When a risk is already the consensus expectation, escalation is not automatically bullish. The bad news may already be in the price.
Deferred-year margin is worth taking in measured size when input availability, not just input price, is genuinely uncertain.
Decide whether the position you are holding is the position you actually want. Drifting into a volatile market by default is expensive.
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.
Shay
Foulk: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk and Ryan Moe with StoneX. Ryan, how's it going today?
Ryan
Moe: It is not too bad for a Friday. For a big cyclone wind tonight. Everybody listens to this, our fate will be already determined, huh?
Shay
Foulk: Yeah, they'll know if you're, if you're any good, if your crystal ball maps out, and we'll see how that goes. But we are recorded here on March 18th, ahead of the week of the 20th or 21st. So lots to think about right now, Ryan. You know, we're going to talk a little bit about corn and beans. How things are going in different parts of the world, what we're seeing in some of the river markets, and then maybe take a final look here at 2023. But when you think about corn pricing, where things are right now as we head into the week of the 21st here, you know, what are some things that you have in top of mind, Ryan?
Ryan
Moe: Exports, right? I mean, we got to be watching the export sales announcements, watching for those flash sales that come out every morning a little bit after 8. Central Time is going to be pretty important. And then just the export sales and export inspections numbers, the way that those have been trending here over the last couple of weeks, there's been quite a bit of excitement. And honestly, I think that is going to lead to quite a bit of excitement here for this summer because, boy, are we entering into a real, real I don't know if it's awkward or interesting or what it is exactly. I can't quite put my thumb on the right word, but this summer market could get to be really, really crazy. And I don't know if it's good crazy or bad crazy yet, but I think the pace of our exports and the intensity of our exports is going to determine that in the, in the next 3, 4 weeks or so.
Shay
Foulk: So talk to me a little bit about that excitement for, you know, a farmer listening to this that maybe hasn't been paying as much attention. When you say excitement, Ryan, what do you mean by that? What are you looking at?
Ryan
Moe: Well, you know, we're— so as we're looking here at the May board trading at $7.41 and 3/4, which closed out on Friday going home, got the July board at $7.12 and a half, then you got the September board there at $6.64 and 3/4. Massive inverse. Um, we're also getting a— a lot of end users on the interior pretty well booked up here for their March, April, May positions. And on— now they're getting pretty well— getting some good sales on into the June positions. What happens when those June positions get filled up? Do those folks end up bidding off of the September? And if they end up doing that, the farmer's in a spot to where, oh my gosh, that inverse really eats the after lunch. So there's some very stressful times coming up as far as that is concerned.
But then if we look at what could happen here with the craziness of the export market late summer, considering how much ethanol demand there is, considering how much corn left parts of the western Midwest and went up to Canada to feed those markets, we could be in for some very volatile times late summer if this export pace continues. Now, if the exports just die because China quits buying from us or something else gets figured out with this Russian-Ukraine war, then we could just have a complete lead balloon of a summer. So just so much unknown. And that's the— That's the, that's the way, that's the reason why I can't quite put my finger on whether I want to be excited about it, scared of it, nervous about it. I don't know exactly how to feel about it. So when you get cautious, you clam up and you just get conservative, right?
Shay
Foulk: Yeah. If I'm a farmer, I don't want more stress. So, you know, how am I handling this from a farmer perspective, Ryan?
Ryan
Moe: Well, you have to just take into consideration what your, what ugly is. I had one merchandiser out here in the Western Corn Belt tell me, he goes, Boy, it feels about all they want to pay is about $7 cash for corn. Okay, that you're looking at a board and saying, oh gosh, $7.41, that's terrible against the May. You know, you feel really terrible about that. But then you think back historically, $7 is a lot of money.
Shay
Foulk: Not too bad.
Ryan
Moe: It's not too bad. But that is the— that's what that cash market here in the West Feels like, and so that's a— you have to just look at that and not get so wrapped up into the basis aspect of stuff. But if you've got something that you want to, that you need to be selling, is $7 a good value? Why, I maybe, I tend to think yes. So pay a lot of bills with $7 cash corn, can't you?
Shay
Foulk: There you go. End users, you talked about that briefly on them being backed up and maybe how we've seen some of these— or booked up, excuse me— and how some of these processors are kind of in an interesting position here. Any other additional thoughts on that, Ryan?
Ryan
Moe: I don't want to use naughty words when I'm talking about these are the sins that paying too much at harvest— I mean, this is the hangover effect from those sins. Yeah, there's some very, very sharp traders at a lot of these end users, but I think everybody's looking at how much things got just so overheated in Akh Nov Dies of this season. And this is some of the negative aspects of that, right? And so the inverses in the market may put them in also a very precarious position. And so there's just a lot of things that I, my belief is that could have been alleviated had we had a little bit of a better governor on this thing during October, November, December timeframe. But we've got to sort ourselves through it. This is what the cash markets are there for. Markets are extremely efficient. They will work themselves out.
But I'm not going to say that everybody's going to come out of this thing totally unscathed.
Shay
Foulk: Great comments. All right, let's talk on beans. Got quite the range going on here. Talk to me about that.
Ryan
Moe: It's a range, but boy, if you just look at what we haven't done in the month of March, it's pretty, pretty amazing. Uh, will we see some breakout action here next week? It is, uh, you gotta wonder because this thing is just coiling up like a snake and something's gonna happen here one way or the other. I tend to lean a little bit more bearish on that because of the situation sitting at the processors, and those that are listening to this podcast might be sitting waiting in line while they are sitting at a processor. You know, if that's going to be the case, it feels to me like we have plenty of beans in the marketplace in the U.S. right now. The unknowns out of the Brazil are becoming more and more known. Every, every day. Our group is down there in Brazil saying that their estimate is 121-ish metric tons based on the drought in southern Brazil.
But is that pretty well baked into a market that's trading $16.50? Right. That's— I think so. And that's just, that's just my opinion. But I think that's pretty well baked in. And so I think it would be hard to surprise the market with a destitute number out of Brazil at this point. But in markets like this, who knows, right?
Shay
Foulk: I want to hit on wheat real quick. You and I didn't talk on this offline. But let's say we have any sort of positive news out of Ukraine, Russia, we see things, you know, proceed in a optimistic or better outlook than what they have here over the last few weeks. How does wheat take that?
Ryan
Moe: Again, it's another one of these— is the worst of the worst stories in wheat already baked into this marketplace? I tend to think so. Again, I will be the first to admit that I am far, far, far from an expert. I heard at our outlook meeting in Orlando here 2 weeks when Mike O'Day went up and spoke. He said, ladies and gentlemen trade wheat, the rest of you guys just trade pig feed. And I was kind of like, yeah, I'm, I'm in that camp. So don't call me a lady or a gentleman by any means when it comes to the, to the wheat trade. But we talked about that on the Business of Ag podcast and the Business of Ag group here that I worked with Damian Mason on here earlier today. And we just started talking about all of the corners of the world that are going to pop up and be wheat suppliers, right?
And what action is going to take place around the world to alleviate the stress and the strain that is created in the world wheat market by an absent Ukraine? You have to look at— first off, we have to admit that the situation in Ukraine is absolutely awful. It's not necessary. It shouldn't be happening, but it is happening. And so therefore we have to deal with it. It's going to create some pretty significant supply chain woes in wheat. There's no question about that. But the other reality of wheat is that there is a wheat crop growing somewhere in the world at all times. And if you spit on wheat, it'll grow, right? Right? And so I think we'll be really surprised with how quickly the world ag markets can react to a supply shock coming from Ukraine.
And so if there's good news that comes out of Ukraine this weekend, which, hey, I hope there is, I think we could see wheat decline rather quickly, could see some— but if it escalates and gets in Russia gets deeper and more entrenched in there. I don't know if that's— I don't know if that's super bullish anymore, because so much of that is just an expected headline.
Shay
Foulk: Yep. Brian, real quick, when does that Business Agriculture podcast post?
Ryan
Moe: That's a great question. I am not— I'm not sure about that.
Shay
Foulk: Well, we'll be on the lookout, guys. For those listening, if you haven't gone over and listened to Business Agriculture podcast with Damian Mason, highly recommend it. Great information that he puts out, bringing on people like Ryan and whoever else just across the industry. Top-notch interviews. So highly recommend that. Ryan, last thing, last thing I wanted to close out on here was 2023 opportunities and maybe how you think about that for the farmer listening to this. How big of a play in that isn't— is that in their consideration right now? And how much do they need to be paying attention there?
Ryan
Moe: But I think 2023 could be a real sleeper market for us here because I expect— now, granted, this is just a kid from Moreland, Iowa speaking on an international conflict, and so take that for what it's worth. But looking at the Russian-Ukrainian thing, I think that we are going to turn this thing from an invasion into a long-term occupation. And That is what I am very concerned about. And when we start thinking about inputs for 2023, are we in a situation where even if the most forward-thinking and most progressive producers in America try to get ahead of the supply chain woes in fertilizer, are they going to be able to get in front of that? Because there's going to be no slack in the supply chain. So will we have the ability, and will we have the inputs for 90-ish million acres of corn in 2023? I, I have my serious doubts at this point.
And so when we start looking at 2023, Chris brought up a great point on the podcast with Joe Vaklovic here last week about there's some good margin opportunities, go out and grab some of those if you're, if you're pretty well-equity producer, that makes a lot of sense to me. Do you want to do it in a small way? Because, you know, what's going to happen to the corn acre situation in 2023? It seems like it's a really long ways away. But really, it's not. And so I think there's an opportunity to go out there and grab some margin with Dec '23 corn trading at $5.76 and three-quarters as we closed out on Friday. There's some good margin opportunity there. But from a spec position, I don't want to go too short that number if we have a, if we have a hard time, uh, planting acres in 2023.
Shay
Foulk: Great point. Anything else to wrap up here, Ryan?
Ryan
Moe: Boy, there's, uh, there's a lot there, but, uh, it's a, it's a very stressful time in the marketplace right now. We eventually will see some breakout action here in soybeans. Just make sure that you are, that you're positioned where you want to be with your old crop soybeans as it sits right now. Yeah, could we go to $17, $18? Maybe. But could we just as easily head to $15? And then not only head to $15, but then start bidding off of a more distant month in the futures that, you know, that inverse hurts even further. Those are, those are the concerning points there. And so just make sure that the position that you have in soybeans is the position that you really truly want, because having your druthers in a market like this could be very expensive.
Shay
Foulk: Great closing thoughts from Ryan Moe with StoneX. Ryan, thank you so much for taking the time as we head into the week of the 21st of March here. Have a great week.
Ryan
Moe: Hey, thanks, Shay. Have a great weekend too.
Shay
Foulk: And everyone, thank you for listening to another episode of the Ag View Pitch, and we will catch you next time.