Planting progress improves slightly

Chris: 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. Welcome everybody to another episode of the Ag View Pitch, and today we are going to be talking with Jared Creed. Jared, how's it going?

Jarod

Creed: As always, I appreciate the invite. I'm doing well and hope you're making progress in planting.

Chris: Yeah, we're gaining there. You're always a fan favorite from the feedback we get, so we love having you on, Jared. And yes, we are getting a little planting done. I actually sat in the planter all night, so I haven't slept. So if I, if I ask goofy questions, it's because I'm— I haven't slept yet for quite a few hours, but Anyway, a couple of questions, you know, as we go into this, this new week here, the 16th through the 20th. Um, last week's report was kind of interesting. I think there was a surprise there. Talk a little bit about that in terms of yield and some of the things that, that, that might impact, or, or better question, are there things there that are going to impact stuff moving forward from that report?

Jarod

Creed: No doubt it was a surprise to see them lower the yield already in corn. You know, the big 4-ticket items on this report was looking at new crop balance sheets from a demand perspective. And then you added in the idea of a lower yield estimate already. And then also getting a good look at new crop production and exports demand and such out of Ukraine. Obviously, been a very important talking point for the last— it feels like a year now, but, you know, at least the last 90 days. On the yield perspective, it's very rare to see a yield adjustment in May. USDA has their models, so be it. In 2019, we actually had similar to maybe just ever so slightly better planting pace in the middle of April than what we have this year. Now, I think if you would compare apples to apples, 2019 versus where we this weekend.

I think there's an anticipation that we probably punch in somewhere around 30 million acres of corn in the last week. You know, just some quick math behind that. We were 20-some percent planted before. We're working on a 90 million acre pie, so we got 18 million in the ground. We know that between west central Minnesota, South Dakota, North Dakota, very few wheels are turning, so you might account for another 15 million acres there. So now you're up to 33 million acres that are kind of off the table at the moment with the balance of that 57, you know, eligible or should be getting planted. And I think from last Monday to this coming Monday, the world looks a lot different from a planting pace. Nevertheless, we still lowered yield. You know, keep in mind 2019, we did lower the yield in June and went back up in July.

And I hate to say that 2019 is our best anecdotal year, but that's really all we got to work with right now. So no less, the yield surprise, but there's also a little bit of devil in the weeds. Just looking at the other side of the balance sheet, our demand got cut substantially. And it does make an individual wonder, without a yield reduction, how much more would have our— excuse me, how much more not how much more, I can stop saying that. How much would have our demand been cut even without a yield reduction? That was maybe a, again, a devil in the weeds type of a whoa, wake-up call in the world that we're in. It's hard to see it day by day of rationing any demand, but based upon the adjustments that they made, it certainly seems to be the case. And a lot of that's driven just because lower supply around the entire world, less supply, less demand.

So we don't want that to turn into a trend. So that's something we're going to need to keep an eye on going into June, July, and August WASDEs. Remember, there's a WASDE every single month. And then really the more important yield aspects start to come around later in the summer. So a big surprise, definitely caught the market off guard. We had a rough go in the corn market going into the week, you know, traded all the way down to $7.06, $7.07 December corn and then traded as high as $7.58 late Thursday night before closing right around $7.50 mark. So here we are just $0.08 off that contract high set Thursday night. The market is still very firm on, on the heels of a lot of unknowns still today from a planting Ukraine, a demand perspective, so on and so on.

Chris: Yeah, I know last week we talked a little bit about, you know, just the, the bull needs some feed and they got some last week.

Jarod

Creed: So yeah, I shouldn't leave out, you know, remember Ukraine produced 42 million tons of corn last year. Their estimate from USDA, uh, this last week was 19 million tons, so a rather sizable cut. Keep in mind that 42 was a record. 36 to 37 is probably more of a norm. So at the end of the day, they cut it by basically half. And wheat saw a very similar cut as well. And on the comment on wheat, I hate to go off topic here real quick, but, you know, just put a timeline to this. You know, we're talking here on Saturday. Late last night at about 10:30, headlines reported that India did officially suspend effective immediately all wheat exports. That does have the potential, you know, it's a buy the rumor, sell the fact type of deal.

I'm not saying that the market's going to sell off on that news, but that should create even more of a firmer bullish tone in the feed grains in the event that that ban sticks around here for a while. Mm-hmm.

Chris: Yep, got it. So I guess the other, you know, and you kind of mentioned it too, you know, the report was a big deal. The other thing, there were some pretty mean storms that cruised through, and you talked about the, the Northern Plains, and, and, you know, and I also on the other end of the extreme had a friend of mine, a client that we work with in Nebraska, send the dust storm videos to us. And so you know, just planting progress. Is that, you know, is that built in? Is that going to get built in more, or just going to kind of have to play this a week at a time here?

Jarod

Creed: I really wish I knew, Chris. I question half the time if we have any fundamental input into this market, right? I don't, I don't really know if for the long haul currently we have much fundamental reason to make the moves that we do higher or lower. You continue to see a reduction of your legacy grain, you know, speculative money. They're just non-existent. The volume has dropped off the map, and you have a bunch of algorithms and computers providing, you know, for lack of better words, liquidity. But that liquidity is thin enough that the market moves in bigger ranges. I mean, just think about beans for an example. How many What, 4 out of 5 days last week was probably over a 30-cent range, if not even a couple of them over 40-cent range. That's not, that's not fundamental stuff. That's not weather. That's, that's, that's, that's not supply and demand.

You have outside influences, whether it be from a macro market perspective. Just the money that's moving around the market is not your legacy money. So If fundamentals don't matter yet, they will eventually, but something has to change to get to the point that we actually care about fundamentals. Yes, we do have a problem in North Dakota, South Dakota, west central Minnesota. It's like every time you look at the forecast, you say, okay, well, I hope this forecast sticks. I hope this forecast sticks. I think that there is a heightened chance based upon looking at weather forecasts in the here and now that there could be, emphasis on could, some decent field work here in the next, you know, starting 6, 7 days from now in some of the wettest places in North Dakota, South Dakota. You're not going to get all the dirt going that early.

But, you know, from a financial side, the risk-reward of getting after it is obviously there. Most South Dakota, North Dakota producers on average you're probably looking at a difference of $500 an acre, worst case, on multi-peril insurance versus prevent plant. That's a tremendous amount of money.

Chris: Yeah, even if you got to hook a boat to the planter, you're going to be better off, um, seeding stuff with just corn.

Jarod

Creed: Just hope that it doesn't burn us in 2023.

Chris: Well, yeah, right. So, um, when we look at that, you know, you talked about, you know, the, the result of this. The other thing that we've seen is some pretty strong basis in certain areas, like excessively strong in some areas. Any comments on basis, old crop first, and then, and maybe any influence on new crop as well?

Jarod

Creed: Well, I'd say two things. Don't forget, you know, 45 days ago when we had a basis washout, when the market just went above and beyond what cash grain was actually worth. Yeah, we imploded the cash market, selling slowed down. Most end users got coverage for, you know, at least the month of March and April and maybe some into May. And then recently, there has been some selling out for June, July. And as normal, a typical slower grain movement in the month of May because it's field work. So I don't know if I'm willing to go out there and say that demand is just blazing strong and bidding up for grain because of that demand. It's probably just because the logistics— I mean, don't forget, diesel's having a big impact. These elevators are— these elevators that are dependent on truck markets are absolutely hating life right now, driven by diesel primarily.

So the, the maybe the more important piece there is just think about the timeline. Here we are the middle of May, and let's just make an assumption that the average end user throughout the Midwest has 75% of the coverage that they need for the month of June, and then maybe 25-50% for the month of July. If that's the case, after planting is finished, how fast or how soon does the farmer engage the market if they see a crop developing in a favorable fashion? How fast does the farmer engage the market on the balance of the old crop? And it is no secret that your inverse from June, July corn out to August, September is very, very detrimental, as much as a dollar a bushel in many places. That will probably happen. We will probably see see old crop grain become the same cash value of new crop.

I'm not suggesting that it can't still be higher than where we're at, but there is probably around a dollar a bushel worth of cash price risk in old crop corn specifically between now and call it August 10th, give or take 10 days on either side. So I think an individual at least by the Fourth of July— if not, maybe just a touch earlier, probably ought to have a pretty darn good look at what are my cash plans, because the last thing you want to do is be the last of the feed troughs with the end user going hand to mouth waiting for new crop grain. And they will. They have no reason not to. They've done it every single time we've been in an inverse. And keep in mind, last year's inverse implosion was well over $1 a bushel. So I think you just guys got to have a, I don't know, a 30 to 45 day clock in their mind. Uh, basis is obviously strong for shipment now.

It's not as strong for June, July, but it's still pretty darn good considering it's over $8 cash corn for most, right? Uh, or pretty darn close. Um, just risk reward after Fourth of July probably is not in the favor of the farmer on old crop from a cash market perspective.

Chris: Yeah, and a lot of our clients really don't have much left anyway, but it's, uh, it, it also begs the question a little bit too on new crop. Uh, any thoughts there, um, continuing to manage the, the sales there or, or not sales? What's your thought?

Jarod

Creed: You know, I wish there was an umbrella type of processes to share with somebody, but there's so many different circumstances out there, right? Just in our client base, right? I can show you folks that are absolutely zero planted, haven't turned a single wheel for field work or fertilizer, and show guys that are completely done. And actually having some discussions of marrying those two groups up, uh, this high-speed planting capacity that we have— hey, let's go get a truck and a lowboy and let's transport this tractor and planter into eastern South Dakota and instead of taking 7 days to plant all these acres, how about we cut it down to 5? You know, things like that. So when you're talking about that wide of a disparity, there is no one size fits all. I'll try to break it in 2 segments.

If you got a good crop planted and what I've heard so far, the corn that is up, the stands are tremendous, just like last year. So that is a welcome— I'd almost say a welcome surprise. We'll see what all this corn planted in the last 10 days comes out for a stand. But again, if you have that crop planted, the money on the table is ridiculous. And I think you just have to continue to chip away as the market gives you the opportunity. And, you know, whether that's operating in, you know, even if it's 1% increments every 10 cents, I don't care what that is, just continue to take some off the table. On the other side of this equation, if you are a farmer with a very questionable crop production situation, but you get the crop planted. Again, you have to understand your crop insurance.

You're now guaranteed paper bushels that you have the responsibility to sell or take the price of whatever it is in October. So in the event that, let's just say December corn wants to go to $8, $8 on guaranteed bushels Yeah, for most of the producers we work with, Chris, 8 times guaranteed bushels is a record profit.

Chris: That works.

Jarod

Creed: Talking 80% yield at $8, a record profit, right? So just keep those things in perspective to not lose sight of, oh my gosh, my crop looks so bad, I'm afraid to market anything because I don't know what I'm going to have. No, you got to take a step back. I'm guaranteed 130 to 170, 180 bushel an acre, depending depending on where you're at. Hey, I got a chunk of money sitting there at $7.50 board price today. Should I be doing something about it whether I raise the crop or not? Right.

Chris: Great comments. I, I have a final question. I'm going to keep this one a little short. I'm, um, I, I do need to go take a nap here eventually, but, uh, one of the things that we've also seen, and, and I don't know if what your thoughts are, but the stock market's had some pressure And at a certain point, you know, you go back 2008 or you go back to different times, the stock market has spilled over into the commodities, you know, if you look at what's going on in the general economy and everything. Are there any watchouts or anything there that farmers should be paying attention to with regard to some of these outside markets and influence to the commodities?

Jarod

Creed: Well, there's another two-way street. Sometimes the belief is money will leave the equity space and come in the commodity space. We have not seen that, with the exception of the index funds staying long and not giving a darn. They stay long and they stay there. But the uncertainty and risk-off type of behavior that has happened in the last 2 weeks, especially in the equity market, always has the ability to spill over into other markets. It's just people are not willing to put capital at risk. And that's more from a speculation standpoint, not your long-term investment retirement money. Uh, so here's my maybe most important thought on all of this is that, uh, when you think about the US consumer and the on the brink of recession, this last week's CPI report was in my opinion, worse than any of them that we've seen.

Interest rates now being talked about going up 3/4 basis point in the next meeting. Uh, that's a big move when they were trying to stick with quarter point moves. You talk about fuel prices at the pump, uh, sadly food prices have exploded in the last 6 weeks. If anybody's not looked at that, uh, it is now just go to the grocery store. Yeah, yeah, uh, just it, it's all adding up. That the cost of borrowing money going up, that doesn't, that just doesn't end well for somebody. And I think what that is, is the somebody that's negatively impacted is the individuals that are exposed to those consumers buying their products. The farmer is somewhat exposed to that type of idea, whether it be fuel consumption from an ethanol standpoint or straight up feed demand. Now that's a, that's a long, that's a long tail that doesn't happen overnight. That doesn't happen in 6 months.

That's a couple year type of a deal. So we just need to be cognizant that we might not feel day by day demand destruction and that demand destruction could be led by less money in the consumer's pocket because of all these other expenses getting higher and higher and higher. Yes. So tread carefully.

Chris: How about that? Yeah, it's definitely—

Jarod

Creed: I don't think it's an '08, Chris. I don't think it's an '08 because we, we position the positions in the grain market in the big move in '08 were entirely different than where we are now. Yeah.

Chris: Yeah. Well, we had some big, big, big, huge, uh, commercial problems at that point in time that were on the banking side. So, um, any final thoughts or anything, uh, in this new week guys need to be thinking about watching? What's the hot topic to keep an eye on?

Jarod

Creed: I'd go back to that India comment. I don't know exactly what to think there. Um, you know, India wheat is sometimes compared to Argentina soybean, soybean oil, soybean meal export tariffs or restrictions. India is obviously a very, very large wheat producer. Their weather has been detrimental, and I think the world is kind of counting on bringing a lot more wheat out of India to replace the lack of production that it appears we're going to have out of Ukraine. So that definitely can light a fire, uh, if we haven't already priced in that risk. So opportunities, again, in my opinion, that time frame, I think the best of the opportunities from a marketing standpoint, you know, my own opinion on what market movement is going to be, I think the best of the best opportunities are probably in the next 60 days.

And unfortunately, we're going to all be busy in the ag space the next 60 days. You got to take the time to get the pencil pad out and start jotting down some numbers. And if you need help on that, contact somebody and get some outside guidance just to understand what the risks and rewards are in the current environment.

Chris: That's right. Awesome. Hey Jared, really appreciate your, uh, info. If somebody needs to get a hold of you or wants to reach out, what's a good way to, to reach out to you?

Jarod

Creed: Best way, just cell phone, 402-680-1744.

Chris: Awesome, appreciate that. And hey, really appreciate your time today. We'll get you back another time, we'll have a longer conversation and dig into the weeds even deeper.

Jarod

Creed: You get some good sleep.

Chris: Yeah, yeah, I'm gonna do that. And hey everybody out there, hopefully you are planting, you are done, or you will get to plant if you haven't been able to yet. Just a big thing is be safe and take care, and we will be back again next time on the Ag View Pitch.