Weekly market outlook: Mar. 8-12 - grab the bull by the horns

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 with Jared Creed out of northeast Iowa. How's it going today, Jared?

Jarod

Creed: I'm doing well, Shea. I appreciate the opportunity to be on with you guys again. Thank God it's Friday. How about that?

Shay

Foulk: Hey man, yeah, Jared and I were talking offline. I think we both need a beer to cap off the end of the week here. This first week of March, we're going to be having a little bit of a discussion on what we can expect in week 2 of March here. Jared, if you want to talk a little bit about how we finished here this week, some of the conditions that we saw, and then roll into what we can expect for week 2.

Jarod

Creed: Sure. I think it's a continuation of the old saying that we're going nowhere but very violently. As far as old crop perspective goes, wheat and corn both actually finished the week lower, albeit it doesn't feel that way. And soybeans found the ability to rally, I think, about 20 cents on the week. But we continue to see large, large swings on a daily basis. You know, 10-15 cent a bushel swings seem to be a kind of a normal thing in the row crop perspective at this moment. You know, middle of this week there was certainly a lot of volatility in the equity markets. Specific to Thursday, we had a sizable rally on our hands, lost all of it and some in both corn and soybeans. I think that was certainly driven from a risk-off perspective.

From a macro picture, you continue to see changes in the energy space, you know, specifically to Saudi Arabia basically voluntarily going to keep off— I can't remember exactly what that number was, but I feel like it was basically about 1 million barrels per day of production offline. That kind of follows up some of the announcements here 2 weeks ago from the impact of $60 to $65 crude. You're starting to turn wells back on. At the same time, I'd say maybe something that's got to start being monitored here from, you know, outside of the ag world specifically, the Brazilian— excuse me— the Brazilian real managed to go back to the lows that it was in last October, November. That's certainly an added benefit for the Brazilian producer. Excuse me.

A lot of that being influenced by changes that their President Bolsonaro has made to Petrobras, far and away the largest organization in all of South America, a large, large energy company. And furthermore, their head of— oh, I can't remember exactly what his title, but an individual that would have a monstrous impact on their financial situation in Brazil, announcing that he was stepping away. So that volatility in a Brazilian currency, only reason I bring that up is we've seen massive impacts from a cheap Brazilian real over the last couple years. And I think that's just something that needs to be monitored here in the next couple weeks. Unfortunately, that's not a lot we can do about it. But I would say that that somewhat stacks up as a little bit of a bearish input into the general ag market.

Outside of that, from a production standpoint, obviously still a lot of focus on South America prospects. Argentina remains dry, a couple-week spell here now. Plenty of discussion of continued diminishing crop size in Argentina. At the same time, you're facing almost too wet of situations in Brazil, hampering their soybean harvest, hampering the safrinha corn crop. Pace getting planted. We are about 1 million hectares, I believe 1.4 million hectares behind planting pace of last year at this point. When you start to run into planting issues of the double crop corn in Brazil, it definitely opens up the opportunity to see some more corn export business out of the US. Whether that's from a timing perspective of the available supply out of Brazil or just a flat-out reduction in their total crop size.

So you got a lot of weather situations happening in South America at this moment that is certainly pumping additional premium, you know, price premium into the US corn and soybean markets.

Shay

Foulk: And this all relies on the fact that we still have really strong demand from a global perspective, right?

Jarod

Creed: Yes, demand has been good. I would tell you that the last 2 weeks have been rather disappointing from an export sales perspective. I don't know if you can necessarily say that it is an overall bearish tone considering just how much we have sold leading up. To this point, you know, our soybean sales, I believe I read here earlier today that we basically have never averaged as little of sales that we need over the course of the next couple months to meet the USDA estimate, which lends a hand to think that our soybean export number could continue to go higher. Domestic soybean crush is still very, very resilient. You know, USDA has their hands full of exactly what you do with the U.S. balance sheet.

You know, a mentor of mine kind of threw out an idea that I think it's somewhat unique that USDA could basically come in and say, you know what, we're just going to let the market figure this out. From a cash market perspective, we're going to call U.S. carryout on beans somewhere from 150 to 200 million bushels. And that doesn't change. The only numbers that you could see is a domestic crush go up as our soybean imports go up. With that said, I think our record soybean imports is around 74 million bushels. Uh, could we see that number go to 100 or 150 this year? Potentially, especially with the size of the Brazilian crop and the dependency on the U.S. soybean crush market to provide all those meal products. And at the same time, soybean oil, uh, is just shattering records. Uh, I think 52, 53 cents soybean oil, that's, uh, borderline unheard of.

Then on the corn front, maybe my only concern from a corn demand perspective is we have a pretty sizable book of corn export sales that we have to execute shipping the balance of this year. We do run a little risk that if not all of those sales end up leaving the country in this marketing year, that basically means we're going to slide some carryover from this year's crop or increase the carryover from this year's crop into new crop. And obviously a lot of discussions happening on a new crop US acreage I think a little bit of a thorn in our side could be too many corn acres, whatever that number is. That's tough to decipher. But, you know, in an event that the U.S. farmer decides to plant 94 million acres of corn and we bring in an extra 100 million bushels that's currently not penciled in on a balance sheet, it gives you a fighting chance to get into a 2 billion bushel carryout.

And that would certainly down the road not coincide with $5+ old crop corn, or even for that said, $4.80 December corn. So could be a little bit of a stickler in our side, but at the same time you got the offset to what we're just talking about, what's going on in Brazil.

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.

Shay

Foulk: Well, and with the carryout Two things that kind of strike my perspective there, you hit on one at the end, is with the Brazil crop that has a lot of questions being raised. But in addition to that, I mean, we see a huge amount of, uh, current sales going on with cash price of corn being, uh, $5.40, $5.50 plus depending on the area of the country that you're in. And, and yet you're still talking about potentially looking at a huge amount of carryout. I guess With the amount of cash sales that are being made right now with crop prices more profitable than we've seen in a long time, maybe doesn't have as much of an impact on carryout as what I have in mind.

Jarod

Creed: Maybe long term the market gets a little bit better of a grasp of exactly what is in the countryside. You know, that's always a tough one to to account for exactly what is in the farmer bin. In the past, high prices bring out bushels that you really didn't know was there. I don't want to get in the weeds here, but, you know, the crop in general has been a pretty heavy one from last year, and I think you're seeing the result, at least on my client base, that, you know, you thought you had X amount of bushels and you ended up having, you know, a couple percent more. Can that sneak up on us in a quarterly stocks report as all these grain sales are being made and the exchange of ownership happens between the farmer and a commercial elevator that ultimately reports the flow of those bushels back to the USDA?

That could certainly have an impact, but I would imagine, you know, the selling pace that the farmer's on right now, that really probably wouldn't even show up until, you know, perhaps a stocks report in the middle of the summer.

Shay

Foulk: So looking at what happened this week and with those market conditions, you know, even though finished a little bit lower on the week in both corn and wheat, higher for soybeans, what does that mean as we head into the second week of March here, and what do we need to be looking for as farmers?

Jarod

Creed: Well, I don't know if I'm gonna hang my hat too much on the old crop price moves. At the same time that old crop has been somewhat of a little bit of a Debbie Downer, new crop continues to shine. You know, went to a new contract high in Dec '21 corn today. What, we closed at $12.48 on new crop soybeans, within striking distance of its contract high as well. I believe that's probably its highest close. What I would suggest at this point in time before we get on the planter, you know, you're making your final elections on your crop insurance, you're making your final elections on your government programs, some very important decisions that are going to have, you know, monstrous impact on your bottom line in the next 12 months. But it doesn't stop there. What I have found unique in the last couple weeks of discussions.

When I work with a producer, you know, I'm not a big fan of talking about a breakeven. We're running a business and that business's goal is to make money, not to break even. So what I like to find is based upon the inputs that we know and the information around us combined with our crop insurance, you know, what price do I need to accomplish my profit goal? Furthermore, after I start making sales, what price do I need on a balance of my crop to accomplish that profit goal? More of a mark-to-market perspective on the entire crop instead of focusing on what has been sold. So what is unique, getting back to that, is we're having the ability to make just enough sales to push the price that we need to make our profit goal per acre below where my crop insurance would support. I'm going to repeat that, that's a lot of words.

We have the ability with where the market is at today to sell just enough to push the price that I need to accomplish my profit goal below where my crop insurance would actually kick in based upon my yield goal. What that represents by combining crop insurance, um, my revenue in general only goes up if I don't accomplish that yield goal when I'm identifying what price I have support at. Furthermore, the old-fashioned way of making money, we obviously hope we have a good crop and good prices. That's pretty simple. We make money in that fashion. So the scale-up selling approach, I think, is still very imperative here. You know, right before we jumped onto this, I was just updating some sheets and just continuing to place these orders. And as the market grinds higher, we continue to lay off risk and drive the price lower and lower from what I need to accomplish my goal.

And who knows, maybe here in the next week or two, what I need to do is revisit the goals that we have established And perhaps maybe try to swing for the fence a little bit and push that goal higher and basically determine where do I need to be to accomplish that. The crop insurance piece, I can't reiterate enough. I think we've talked about this on your show a couple times. I just, I just hope that your listeners have exhausted all the resources they have to explore all the tools that they have access to.

If there's ever been a year from leveraging all the operational successes from the good yields that we stacked up over the course of the last 10 years and now seeing the highest insurance prices that we've had since 2013, combined with the fact that our prices are on a percentage standpoint relatively higher than our insurance levels, Oh man, Shay, this is, this is a deal that, uh, this agriculture would be a hell of a lot of fun every single year if we had this kind of opportunity. So keep away— I know you guys had a title of a show here a while back, uh, don't get the sticker shock. Look at the total dollars you can guarantee, identify what price you'd have to have on your insurance, uh, if you yielded your APH, work around all those variables. This is stacking up to be pretty an amazing situation in '21 if you do something about it.

And even furthermore, you know, getting to a point here where I think I'm going to be willing just to push the envelope and be sold up to my insurance guarantee, but on a portion of those bushels not be afraid to go ahead and spend some premium on owning a few out-of-the-money type of options. You know, owning $5 December '21 calls or $5.20s Maybe looking at a few call spreads to attach to those sales. Getting back to the very basic math, if the market goes higher, guess what? My grain is going to appreciate in value whether I have the crop or I don't. I'm seeing a net increase on my revenue from crop insurance or a physical crop.

And then on a flip side, if the market goes lower, A, I'm going to be happy I sold the bushels, and there's actually a chance with the mechanics of some of these Cadillac insurance programs that you could, I hate to use the phrase, double dip, but it's real and it's a significant amount of money. So I'll just tell you this, this is maybe a little politically incorrect, but I'll be disappointed in some of the more progressive producers in the US if they do not explore the opportunities that they have in front of them, especially the ones that have big aspirations and are maybe looking at a little bit higher of a debt load than they'd like to be carrying after the years that we've just been in. You're up, the pitch is coming at you this year and you have a great opportunity to pretty much hit a home run.

Shay

Foulk: I love the way you put that and particularly tying it back to the Ag View Pitch here. That's a nice touch that you have there. Any other, any other, um, you know, market considerations, any reports we need to keep in mind next week, weather outlooks, anything major that might affect us as we head into this second week of March?

Jarod

Creed: Uh, I would just say that you just got to be conscientious that we can shift this thing on a dime on the silliest stuff. Uh, you know, we're going to have a few reports coming at us in the month of March. You're going to have another WASDE. I don't know if that one is necessarily that important or going to be that paid attention to, absent of a big surprise, considering we have the March intentions report later this month. Just a little bit of a background on U.S. acres. The record that we've ever had between corn and soybeans is 181.5 million acres. From some of the smartest individuals I know, gun to their head, I think that they would say 183.5 to 184 is the highest we could see from a corn and bean base combined. But to get there, I think you got to lose a little bit of wheat in the Dakotas.

You know, the Dakotas in general are going to be the big ones to watch considering the prevent plant problems they've had in the last couple years. You've got dry conditions in the West, maybe a little bit less than ideal weather conditions in the East at this— as of today. You know, we could blow the doors off on this thing from an acreage intention. And if there's one thing to put a damper on this market would be some type of a big surprise number from the two combined. Uh, it's not impossible that with where the prices are, we could get estimates of 185 million acres combined and come in with a 95 million acre corn number and 90 beans, or 91 and 94. That can't be ruled out. Maybe that's the most important piece. A surprise has hurt us so many times in the past. So it's the old phrase, fool me once, shame on you, fool me twice, shame on me.

So you better be at least aware of what your opportunities are and just do something about it.

Shay

Foulk: That's sage advice. Jared Creed, always enjoy the conversation with you. If there's anybody listening here on the Ag View Pitch, interested in getting in contact with you, how might they go about that?

Jarod

Creed: Phone would be the easiest. Area code 402, 680-1744.

Shay

Foulk: Any in-depth questions, go ahead and give Jared a call. Thanks again, we always appreciate it, Jared.

Jarod

Creed: You bet, Shane.

Shay

Foulk: And as always, thank you everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.