About This Episode
Grant Shimek makes an argument that undercuts his own job: the higher prices go and the bigger net returns become against a crop insurance guarantee, the less any analyst opinion is worth. Shay Foulk sets it up by looking back a year to soybeans near $8 and corn near $3, and Shimek notes the market loves anniversaries, with the continuation chart lows falling in late April. A year of rallying, he warns, makes it easy to stay entranced and quietly stop selling.
The structural change he wants listeners to understand is the CME raising speculative position limits on the grain contracts, nearly doubling the size a speculator can hold across all months. His point is symmetrical rather than bullish. The larger limits open the door to more length when a catalyst appears, but the same limits let funds build enormous shorts if the trend flips, which is why he expects relentlessly bullish markets to eventually turn relentlessly bearish.
On selling two crop years at once he stays practical. December 2022 corn near $4.40 sits at the top of the range that contract traversed over the previous six years, which is a defensible reason to start, but rising input costs are making growers hesitant to price that far out and are even shading their willingness to sell 2021. His closing instruction is behavioral: opportunities appear exactly when field work breaks loose, so stop every couple of days and reassess the plan.
“So these grain markets are relentlessly bullish, and my philosophy is at some point this year they'll probably become relentlessly bearish for some of the same reasons that made them bullish.”
— Grant Shimek
Key Takeaways
The better your return against your insurance guarantee, the less any market opinion should influence the sale.
A long rally is most dangerous when it stops feeling like a rally and starts feeling normal.
Higher speculative position limits cut both ways; the capacity that fuels a rally can fuel the break.
Justify a two years out sale off the contract's historical trading range, not off a forecast.
Rising input costs change the price you need, so revisit the target rather than the opinion.
Schedule a marketing check every couple of days during field work, because that is when opportunities appear.
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: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Grant Schiemek of Black Oak Financial. How's it going, Grant?
Grant
Shimek: Great, great. You?
Shay: Oh, can't complain. It's a beautiful day here in northwest Illinois and looks like we have some okay temperatures here ahead. I know it's hard to think with spring planting conditions right around the corner. We have, of course, people listening to this podcast in the southern states that are already planting and well on their way, and farmers here kind of throughout the I-states and northern Midwest are itching with the conditions that we've had. So it's that time of year where We like talking about the markets and like having these conversations, but at the same time, it's about, it's about ready to get the engines running and take off here.
Grant
Shimek: That's right, it's ready to break loose.
Shay: So I appreciate you taking time to talk with us today and essentially wanted to do a quick recap of what the markets looked like here for the second week of March, how we ended in corn, soybeans, and wheat. If you could give us a recap of that, Grant.
Grant
Shimek: Well, for the most part, in The reports that were out this week were non-events, but the only thing, number of consequence really, was the world-ending stocks in wheat tightened up a little bit. So we didn't get a big reaction off of those, though what's typical of USDA reports, it's not, you know, if it's an indecisive data point the day it comes out, the rule of thumb is that you wait for the close of the second day to really for the market to lean. And at that point it leaned weaker and we saw some erosion and especially off of the lows into Friday morning and then we recovered some of that, especially in the beans from the worst case, but we still lost, definitely lost ground from where our highs were for the week.
And I think it's a little bit more muted in corn, range is a little bit tighter, but it was similar there and For though we did get improvement in the, in the world wheat ending stocks, there wasn't any follow-through there and it also eroded. So a quiet, quiet data week for as far as reaction off that. And are seeing some of the spreads in beans weaken a little bit, but not dramatically. Definitely not any kind of dramatic weakening in the spreads. In the corn, which a lot of people look for to denote the underlying strength in the market.
Shay: What's interesting is when you look over the last month, you know, beans are still finishing higher than they did here a month ago, even after kind of that drop and tail off that we had there. Corn has, you know, really kind of had that key volatility within a trading range, though nothing too crazy there. What I want to look at from a perspective standpoint, though, and I know this is a really long-term, for, for market conditions. But when you look over the last year, you go to the same time last year, I mean, we were, we were knocking on the door of, of $8 or lower soybeans depending on where you were with basis, you know. So we've had 175% increase in market prices from the same time last year in soybeans, and, and pretty similar on corn. Uh, of course, May was, was the low last year there, knocking on the door of $3.
It's just really interesting to look at it from a perspective standpoint year over year with the incredible amount of change that we've had. Any comments on that as we, as we kind of move into next week and then even beyond that through the rest of the spring season here?
Grant
Shimek: Well, it's worth noting because the market loves anniversaries, and when you look back at last year, we're coming up on completing the circle, coming 360 degrees, because the lows last year on lead— if you're just looking at a continuation chart— was the 21st of April in soybeans. And I believe the— if I'm not mistaken— around the 29th for corn on the continuation chart was actually the bottom tick. So to me, that's notable because historically, especially for corn, you typically have a seasonal high around the 13th of April. So we're— it, to me, it's very interesting that in essence, if especially if we're making new highs after April 1st, we're going to come to the point where we've been actually rallying for a year straight. Now, every single week or month? No, not exactly. You could say that definitely the last probably 6, 7 months corn has been up.
So I think we are— we run the risk of kind of just being entranced by this and this, let it keep going, keep going. And we still got to focus on these returns because my— the statement I want to make is that the higher we go and the bigger the net ROIs become, especially in the context of crop insurance,, the more worthless my opinion or any other talking head's opinion is on this market because you're getting— it's getting too rich. And if we keep this up, we're going to have to answer that question where hunger stops and greed begins. And that's a little bit different for everybody.
Shay: Now, looking at that from the amount of money that's out there, you know, the term rich that you use there, It's kind of interesting looking into sales kicked out to next year because at some point it's likely that this thing's going to come back down. And I don't think anybody's got a crystal ball out there, but historically, you know, we have increase in prices and then likewise it comes right back down at some point here. So looking at sales out into the 2022 crop year, how aggressive have, you know, marketers been on making some of those positions and setting themselves up for success down the road here into next year's marketing year?
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.
Grant
Shimek: Well, most of my clientele in the '21 crop are probably somewhere between There's a lot of people are probably at a 20% sold zone, some as high as 35, some of course sitting at zero, but I think the bulk of it's going to be right around that 20% zone. On the '22 crop on corn, you can, you can justify, just given the price history that we went through the preceding 6 years, of getting in there and making a sale. We've been right at $4.40 on Dec '22 corn this year. You look back at the range that the December corn contract traversed the preceding 6 years, is that we would wash out around that $3.47 to $3.53 zone, and we'd have some spikes that term— lots of spikes that terminated in that $4.17 to $4.40 zone. You can justify that and say, well, given that historical price range, to start there. But that's a tough one for most people, being to be marketing 2 years at once.
And the other thing that's more and more— I'm— it comes up in conversations is that, and this is affecting the attitude towards selling a '21 crop also, and that's that the input costs are ramping for next year. My clientele, there's very few that are going to be open on any inputs going into the '21 crop year, but the outlook for the next year is creating concern of how high they want to be able to market the '21 crop. Is it, is it a huge deal? Not really, but you can see it coming up more like, gosh, I don't know what, where I would want to sell '22 crop because of the inputs. Now it's not as as important on beans because the inputs aren't as big a driver as it is for corn. But on soybeans, it's probably easier to justify. Is there people wanting to do 22-crop sales out there? Not in any— not at a large degree.
They might be using some sales vehicles offered by entities, you know, larger grain entities, accumulator contracts or something like that. Could that are, you know, taking in 80 cents to a dollar more than the current price and maybe jabbing at that with small sales. But right now it's more of a holding pattern that far out, but a lot more talk about it as we go to the upside.
Shay: And just for reference here, NOV of '22, we're at $11.46 and a half here. So I appreciate that perspective on it. And I think to wrap up today's conversation, I just wanted to poke your brain a little bit here on, you know, what, what are overall market conditions like, not just in commodities, but looking at the big picture here, and how does that affect what we're looking at here in the next week and month ahead?
Grant
Shimek: There's obviously a prevalent idea that with the stimulus and the easy Fed policy, that we've had a lot of capital rotate into commodities. You can get out on the financial press and find many articles talking about new commodity supercycles, so forth. So you have that feeding it. One of the elements that are grain-specific is that the CME has increased speculative limits on all the grain contracts, and that takes place on the 15th, here next Monday, and it's very significant. It's nearly doubling the size of position speculators can hold when you look at all contract months together. Now, I'm going to— this, I'm sure people have— many people have heard about this, but one thing that needs to— you need to absorb with that is, yes, we're going to need a catalyst for that to become more bullish.
We need something bullish to happen, and the window is then open for speculators to add position length. Great, but the flip side is also true. They can also, when this trend flips, put on very large short positions, and it can be a point where if we do get a big crop, we could have a 2.5+ billion bushel carryout in corn, for example, and they could have all that and maybe is upwards of 3 billion bushels in a net short position because these sizes of increase. So these grain markets are relentlessly bullish, and my philosophy is at some point this year they'll probably become relentlessly bearish for some of the same reasons that made them bullish.
Shay: Can we talk, uh, for those who may not be real familiar with the speculative positions, uh, realizing this increase, why did they make that change? And, and why, you know, why did this occur? And why is it taking place here on the 15th?
Grant
Shimek: The, the articles that I read, read on it, some pointed to it as somewhat of a surprise, but the CME had pointed out that it was more to do with a metric they were using based on open interest. Not that I did not personally come across anything that was more descriptive than that. It's probably out there and I missed it, but open interest argument does make sense, and the capital that's flowing into it to be able to lay off risk, especially in the, in the deferred months, can actually be a thing that would be supportive for the hedging community. But outside of that, it is surprising.
Shay: Yeah, it's just interesting, you know, one more variable for the farmer to think about when making marketing and management decisions here. Anything else you have on your mind here as we wrap up, Grant, heading into this third week of March in front of us?
Grant
Shimek: As we go on into the spring, it's exciting to get out there, especially after the cold weather we had, and, and not think about some of these things. Just, just fun to get out and operate and be outside. But make sure you guys take the time to stop and pay attention to these markets because many times the opportunities are when everything else is breaking loose on you. So make sure you, you take a moment at least every couple days and really assess your plans, because that's when, when things happen, is when the plan is rolling and there's opportunities that present themselves. So be ready for that.
Shay: Thanks a lot. Grant Schemick with Black Oak Financial. Grant, if they want to get a hold of you, how can they do that?
Grant
Shimek: I can just go to my website, which is blackoakfinancial.com, and my contact info is there.
Shay: Sounds great. As always, thank you so much for the wonderful information, and thank you everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.