Market horsepower: weekly market outlook May 10-14

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, and we are heading into a new marketing week, uh, with the thrust behind the market like we've been seeing here along the way. Uh, this market's kind of been really strong and some volatility. And today we have with us Ryan Moe with StoneX. How's it going, Ryan?

Ryan

Moe: It is going pretty darn well, thank you.

Chris

Barron: Good, good. So, um, this has been a pretty wild ride. We haven't seen anything like this for a long time. We're more used to seeing light movements and not, not a lot of horsepower behind the market and And let's start out with weather. We've had a lot of horsepower behind the market. One of the big fundamentals or one of the big issues that I think the market's kind of watching is weather. Talk a little bit about that, both domestically, but I think Brazil, you know, the South American weather story is kind of a big deal too, isn't it?

Ryan

Moe: Yeah, the South American situation most certainly shouldn't be overlooked. It was something that we've had analysts looking at that since the beginning of the soybean planting season in Brazil several months ago. They were delayed on that. They ended up having a late harvest on those soybeans due to weather, and with that late harvest on soybeans, since they oftentimes have combines and planters in the same field, they were very delayed on their safrinha corn harvest— or excuse me, corn plantings, right? That, and that just kept dragging out and kept creating more and more problems. And now they're facing some very severe drought conditions, and the yield potential is falling precipitously down there.

Chris

Barron: Does that something that's going to continue to give strength, or at a certain point, does that enough in, you know, does that put enough horsepower behind the market at a certain point, or or does that continue to drive the market and get— continue to give it some strength?

Ryan

Moe: Well, it's all about exports, right? So if China's demand stays as strong as what it is, where are they going to get that corn? I mean, there's 10 million metric tons maybe that they were expecting to get out of Brazil that's just not there right now due to Mother Nature. Uh, where does that corn come from if they want to continue buying at these levels? Argentina can fill some of that void, but the U.S. is the market of choice because of our reliability as an extremely good corn supplier to the world.

Chris

Barron: Speak to that demand thing for a minute as far as what, you know, what are you guys seeing? What are you hearing? What do you— do we, do we continue with that, that strong demand from China and, and others, or what's that look like on both corn and soybeans, wheat for that matter?

Ryan

Moe: Yeah, for the— from the corn side, I mean, it's a very, very interesting scenario from the standpoint of you hear about ASF flaring up in China, and we've heard about that for the last several months. Yet their demand for feed doesn't seem to be dropping as precipitously as what the hog numbers in China say they are, what we're seeing as far as hog data. So that's a very confusing question to answer because you just never know when they're gonna continue to keep stockpiling or if they just shut themselves off. I saw a very interesting sale on Friday morning about a big sale for new crop corn into China. And right away we had some merchandisers coming in and asking us, if that was going to be a cancellation later, uh, on later data as they are shifting some of their old crop corn sales into new crop.

So we just don't have a lot of clarity on that, which isn't all that uncommon from China.

Chris

Barron: Interesting. So, uh, let's, let's hit another topic for a minute. This week we're going to see a Another report on Wednesday. Talk a little bit about that. What are you guys looking for? What are you, what are you seeing coming down the pike there?

Ryan

Moe: Yeah, I mean, it's— reports are always, they're always big for volatility. You know, it's even in the era of expanded limits, which we're in right now, the likelihood that we have a limit day on Wednesday is very likely. Uh, if it's going to be limit up or limit down, I'm going to let somebody smarter than myself guess on that.

Chris

Barron: So we can count on volatility though, probably.

Ryan

Moe: And this is what you can, you can count on. You can most certainly count on the vol being there. Uh, the number I'm watching the most closely is going to be what they're going to do with Brazilian corn. I really want to see what they're going to do with with that number because I think that is going to have a lot of ripple effects throughout the world corn scenario. And that, that's the number I'm most closely watching on Wednesday. But there could be any, any one of these factors that could be the, the straw that breaks the bull or the bear's back.

Chris

Barron: Mm-hmm. Anything else in the report you're watching for besides that that could be a surprise or to be a watch out?

Ryan

Moe: I mean, when you're in a carryout situation as tight as the soybeans are, any adjustment is a big adjustment, right? Yeah. You know, and so 120 million extra bushels of soybeans is, that is what we would call just in time. And since we're not seeing any rationing from a demand standpoint, it's going to be tight on beans. And so now, uh, who's, who's caught— who's left holding the last bushel of beans in the US? Tell those people to call us, we'd love to, we'd love to buy those from them.

Chris

Barron: Right, right, exactly. Uh, so from your client base and what you guys are seeing, um, question I've been asking as we do a lot of crop updates, um, we've been doing, I don't know, 3 or so a week, or as farmers call and say, hey, well give you our two cents in our area, what we're seeing. What are you guys seeing? I mean, do you see a big shift? Do you think there's a big shift of acres over to corn and less beans? Or I guess my question is, where would the bean acres come from? And, you know, we're obviously got to be buying some corn acres here, I would think. Where do the bean acres come from? And are you seeing that big shift over to more corn acres being planted?

Ryan

Moe: So not seeing a big shift. Soybeans did a terrible job of trying to buy acres this spring. You know, when you look at what that ratio did, November beans over Dec corn, you know, we were trading at 2.6 to 2.62. And that was at the beginning of April. And if there was going to be any last minute changes to be made during this, during that time, they would have been made if the ratio was higher than 2.7 or so. We're trading at 2.25. It's a corn— these corn just absolutely stomped on the accelerator. So if we are going to be buying beans, it's not going to be in your, your big I states. It's not going to be in Nebraska. It's not going to be in Kansas. Where we are hearing some additional bean acres is places like Kentucky. Where there's other crops that are being rotated out because these soybeans are just so darn profitable for them to plant.

Those aren't going to be the huge needle movers like the aforementioned core Corn Belt states, but then we'll probably pick up some acres there. But the corn acres, I mean, who knows? We should have picked up a significant amount of corn acres since our last report.

Chris

Barron: Mm-hmm. That will be interesting.

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.

Chris

Barron: Another question I have for you, I guess, here is with regard to fundamentally, and as farmers look at, you know, geez, where should I be? I mean, I get involved in these conversations. We primarily work on the cost side of things, so we've been involved in the last couple of weeks, especially as guys start wrapping up planting. Of, okay, here's what my cost of production has done. However, I'm still really, really profitable, you know. And it's been kind of fun to see that, you know. I've had operations talk to me and say, well, geez, I'm— I've sold, you know, too much, 30 to 50%. Some of these guys are calling, and some maybe even a little higher, slightly higher percentage than that with accumulators or whatever they've done to this point to get as sold as they are, but now they've got seller's remorse a little bit, but yet they're still very profitable.

So for, for those producers and for the producers that maybe are wondering, should I be getting a floor on, you know, these prices for both— well, for corn, soybeans, and wheat, but for, for these grains, you know, should I be doing that? What mechanism and what percentage do you see a lot of your clients at with respect to having a floor on things and maybe leaving the topside open, or what's your thought there?

Ryan

Moe: Well, I'll put a comment around the seller's remorse. I mean, we're in power-hitting territory here. And if you've got a power hitter in a baseball game that hits a grand slam home run and he hits it just over the fence, and he hits it just one row over the fence, it's still a grand slam home run. If that player comes back to the dugout and is crying and complaining because he didn't park it out of the stadium, it's still a grand slam home run, right? He doesn't get any more. So, we need to realize that we are in some cases unprecedented times. So, let's celebrate those big wins where they are. We also have a pretty nice book of business on a lot of the commercial entities that we work with for new crop. That's good to see. It's better than what it's been. But again, profitability levels have been there and they've been extremely substantial.

When you talk about what percentage somebody should have a floor under, or what percentage they should have sold out, at these levels, I would say looking at getting a floor under, under soybeans that, you know, like a $13.50 or something like that? Is that really a terrible idea? And then we have to start answering the question of, well, yeah, it is kind of a bad idea because if I'm gonna buy a $13.40 put option, it's gonna cost me 47 cents. 47 cents is a tough pill to swallow, I understand, but it's a $13 put option. Floor. That's a phenomenal floor, right? It is. You've got the upside in case the beans happen to really take off. I understand it's expensive, but everything in these, in these types of markets is going to be expensive. And sadly, the mistakes that you make marketing are going to be far more expensive than, than doing the right thing by taking that grand slam home run.

Chris

Barron: Yeah, I get some questions too on what's sold, you know, and we have been getting these questions along the way. And I've— and as I've asked different analysts or brokers about, okay, do you buy calls on those bushels that were sold earlier? And sometimes you, you know, I've had one guy work with that has said, you know, it's a lot of times what you do is you just make a bad sale, or what you assume is a bad sale, you make it worse sometimes by trying to to fix it. What's your thought on that? I mean, is it— does it make sense on some of those earlier sales that were made? Do we still have some potential for enough upside that warrants doing anything there, or do you just stick a fork in those sales and call them good?

And let me preface that by saying, in almost every case with our clients— and I have an opinion about this— but in almost every case with our clients, they they made those sales at profitable levels. And so, you know, they were happy. They probably should have had a happy stamp that they put on that sale each time those sales were made because, you know, it's easy to second guess and it's amazing how hindsight 20/20 vision works.

Ryan

Moe: Yeah, and so like when you say you have your opinion on that, I mean, I'm really curious what your opinion on that is. Yeah.

Chris

Barron: Well, it depends on—

Ryan

Moe: each mile and walker.

Chris

Barron: Yeah, well, it depends on the operation, but in a lot of cases, if the producer started making sales at profitable levels and didn't sell the whole entire farm, you know, and let's say there's 20 or 30% priced there and they feel like that was lower than they wanted it to be, I'm not sure that if you look at the average sale, especially where these opportunities are now, and if you can step into the market and plug some more sales in or start putting a floor in here where it really does a lot of good to look back on, on some prior decisions. And, and that's my, my take. So I answered the question, now I'll have you answer that. Yeah, I, um, and you can disagree with me, we don't have to agree here.

Ryan

Moe: No, I, I, I, I agree with you, um, because I still think it's important to run your business like a business. And unfortunately, so many people move into a position of indecision because they're worried about what their neighbor's gonna do. They can't control what their neighbor's gonna do, nor do they have any idea what their neighbor's book of business truly looks like. I read a statement here the other day that the Joneses aren't nearly as happy nor as rich as you think they are. And I think a lot of that goes, a lot of that goes for farming too, right? How many people do you see not make a decision because, well, if I sell here and Troy over on the other end of the fence doesn't sell and the market goes up, he's going to come rent that farm out from under me because he's making so much more money than I am.

Chris

Barron: Yeah.

Ryan

Moe: You sure about that? Hey, sure. Troy, you know, didn't have to have cash flow problems and sold a couple years' crops out when he could because the banker made him. I mean, how do you know these things, right? So it's a very odd case-by-case question that you have to answer. And there's so many different things at play. But long-term, going and taking the profits and, If you go about marketing your grain and saying that every time you make a sale, saying, if this is the worst sale I make all year, I'm still going to be happy. If this is the worst sale I'm going to make all year, this is— I'm going to still be happy. Yeah, look at it like that. I think there will be a lot less seller's remorse.

Chris

Barron: Yeah, that's where I like the happy, happy stamp. You, you put a happy stamp on that contract when you get to it. I'm going to get to contracts here in a minute, but, um, I do want to—

Ryan

Moe: that's why you also don't pick one top, right? The, the wealthiest people, you know, the wealthiest Wall Street bankers and all those people that everybody thinks has a bunch of money, they don't call them top guessers, they call them portfolio managers.

Chris

Barron: Exactly.

Ryan

Moe: Same thing goes for— same thing goes for grain marketing plan, right? Portfolio approach as opposed to trying to pick one top, because only one person sells the top every year, right? That's it, one.

Chris

Barron: And we look at, you know, with Ag View, we look at the margin, we look at that return on investment, and we make those— we try to encourage people to make those decisions. It just— when we get into these crazy environments like we're sort of in right now, it sometimes can skew your mental calibration for sound business decisions. And with that said, I do have another question on With regard to moving forward here, what possible issues do you see that could, you know, put pressure on this market? You know, it just seems like every, every Monday and Tuesday you don't get a turnaround Tuesday, you just get some more up Tuesday. And, you know, we just— we're starting to get used to this. And so I guess my question is, what things are you guys have as a quote unquote watch out that could turn this thing around? What, what things are out there potentially in your opinion?

Ryan

Moe: Uh, two things I'll look at is Chinese execution on corn exports and ethanol and gas prices. If China comes out and is starting to move their export sales into the new crop and we start to see all of a sudden the old crop execution slow down, then we're in a position to where yes, we will have enough corn to get us through. Uh, so that's, that's the big bogey out there. That's what we got to keep watching is that Export Inspections Report to make sure China is taking all of the corn that they've committed to buy. Gotcha. The next one would be ethanol and the ethanol industry, and that's tied to gas prices.

If something happens here where Americans slow down their driving habits and gas prices go from the nice levels that they're at right now, looking at RBOB at $2.12, $2.13, and looking at, you know, gas at the pump, If gas at the pump goes from where it's at in your particular area down to sub-$2, well, ethanol economics aren't going to look very good, and things will really start to slow down as far as ethanol demand for corn. And that would be something that would really start to sting the corn market as well. Beans, I, uh, that's a tough question to answer because the demand for soybean oil and the demand for veg oil as a whole around the world is so darn strong. We are sitting in a fundamental shift from crushing for meal to crushing for oil. That's a fundamental shift that is going to take a long time for this market to figure out.

Chris

Barron: The thing that's been interesting to me, it seems like the funds, the money just keeps coming to the market too. Even when you get some of these, you know, it seems like you'd have some news some days and it's like, well, that's a negative thing, that's probably going to pressure market, and it goes, it goes up. It's like, but you know, it just seems like there's so much money pouring into this. Is there some threat there from, from that, or do you think inflation concerns and all that's just going to keep pouring, keep bringing money to the commodities and, you know, these raw materials?

Ryan

Moe: Right. And the inflation story is very real, right? Here's the, here's the odd— here's one of the oddest parts of this market as we sit right now. CFTC report that was released on Friday showed that the spec funds were actually sellers. So the funds aren't buying this market rally. And now, granted, that short squeeze that took place last, you know, Monday, Tuesday, Wednesday, Thursday, like 2 weeks ago, that skewed a little bit of this data for last week's CFTC funds position report. But people are estimating that the funds are coming in as being major buyers, but the funds are not the catalyst for this market moving higher. We just keep asking ourselves, who's buying? Somebody's out there is buying, but it's not showing up on the CFTC fund position report data.

Chris

Barron: And there's people not selling.

Ryan

Moe: And there's people not selling.

Chris

Barron: So it takes both sides.

Ryan

Moe: Right, sure.

Chris

Barron: So last question.

Ryan

Moe: I mean, it's, yeah, it's, it's a, it's a crazy one, right?

Chris

Barron: So last question I have for you. Offline at the beginning, before we started recording here, you made a comment on contracts that we should probably be, um, be— do our due diligence, let's put it that way, both on both sides of a contract, on a grain contract here, especially when the markets get like this. Talk to us a little bit about, about your watchouts and what we need to pay attention to with regard to contracts.

Ryan

Moe: Yeah, both buyers and sellers just need to make sure that their i's are dotted and their t's are crossed and that their signature's on all the pages. These types of environments are when weird stuff happens, and when weird stuff happens, it can oftentimes be very expensive. So it's a good time to review what it is that you have on and where your contracts are at. Make sure the paperwork's done. Be businessman-like about this. This is, this is very important stuff that we are dealing with here, and you want to make sure that, you know, mistakes are— if they happen, mistakes are caught very early so that way things can get settled as quickly as possible. You don't want to get into a dispute. I had a business partner tell me one time, he said, "Great contracts are the foundations of great relationships." Mm-hmm. And I think that holds really true. Yeah.

So, just make sure your contracts are really tight. And if you have any questions about it, let us know. We've got some great contacts with some, you know, with some top-notch contract attorneys, and you're going to want those people on your side.

Chris

Barron: Well, for sure. And the other thing I would add to that is, you know, whether It's clients listen to us that use Profit Manager and, and document their sales so they can see where they're at. So, you know, the worst thing that can happen is you're, oh yeah, that's right, I forgot about those 3 contracts or whatever, you know. Make sure that those contracts are documented in your own system and then qualify that system with wherever you're marketing your grain, uh, regularly, you know, like every couple of weeks call up and say, okay, these are the contract numbers I have and these are the bushels per each of these contracts. And this is so, so that you can quantify and just reassure yourself that you aren't someplace where, like you just said, you know, you don't have something sold that you don't know is sold because of a misplaced contract or whatever.

So there's, there's a lot of pieces to that. And I, I appreciate you bringing that up. I think that was a great, uh, thing to bring up.

Ryan

Moe: Yeah. And the merchandisers appreciate those, those calls like that too, just to make sure that they're trued up on their end. Mm-hmm. And that's a, But that's, that's important for, for everybody involved in that transaction to make sure things are done right.

Chris

Barron: Right, exactly. Hey, this was an excellent conversation. Um, really appreciate it. If people, you know, if Ryan, if people want to get a hold of you, what's the best way to reach out to get a hold of you?

Ryan

Moe: Yeah, email is, uh, the best way. So I'm ryan.mo stoneax.com. And then, you know, my team's phone number up here in Minneapolis is 952-852-2911. We got a great team up here. And so frankly, if somebody else answers the phone up here, you're probably in better hands than if it's me that answers. So, uh, Yeah. Well, I mean, I got a lot of really good things to say about the passion that this team brings to the marketplace each and every day. So, if you happen to catch me where I'm out and about and, you know, doing other meetings or something and you have to talk to Sam or Mitch or Carter or Mark or Phil or, you know, Ross, Brian, et cetera, just make sure you go ahead and give us a call and, you know, talk through some things.

Chris

Barron: Awesome. Hey, this is a great place to wrap up. Ryan, thank you very much. Really appreciate your time today.

Ryan

Moe: Hey, and thank you for the opportunity. And, uh, yeah, be careful out there, folks. Lots of risk.

Chris

Barron: That's right. So thanks everybody, and we'll be back again with some crop updates later this week. And be safe out there, like Ryan said, and we'll look forward to talking to you again next time on the Ag View Pitch.