Weekly market outlook: May 16th-20th - slow planting progress

Chris: We are grateful that you are joining us for another episode of the Ag View Pitch, as we know that your time is very valuable. Our team at Ag View Solutions is always here for you for any questions or comments that you may have. Please feel free to reach out to us at cbarron@agviewsolutions.com. And now here is your host, Chris Barron. Welcome everybody to another episode of the Ag View Pitch, and we are heading into a new week, and we are lucky to have with us Ryan Mo to talk markets. How's it going, Ryan?

Ryan

Moe: Going pretty well, Chris. Thanks for the opportunity to be here.

Chris: Well, it's good to have you. And I talked to you offline here a little while ago, and you're like, I bet you're just going crazy not planting. And I said, well, actually I'm not, but I probably should be. We haven't done— there isn't hardly anything in our neck of the woods in the eastern half of Iowa that's done at all. Planting pace is— I wouldn't even call it slow, I'd call it no-go. Hopefully the middle of this, this week here now with the heat coming in and the warmer temperatures and stuff, maybe we'll get some stuff going. What's the market thinking? Is there any, anything to it from there, or is it, you know, what's your thought on your end?

Ryan

Moe: Yeah, I'm driving across western Minnesota right now and spent quite a bit of time in western Minnesota this weekend seeing much the same. I don't feel like we're as wet out here as you are there, but the pollinic progress, there's not much to speak of at all out here. But I also have had the experience where I've bet against the American farmer in the past thinking that they weren't going to be able to get a crop in, and year in and year out the farmers have surprised me where they catch the narrowest of windows, and it is amazing what these folks can do in such a small window of time to still plant a very good crop. I think the market is in a little bit of a wait-to-see spot as well because they believe in the American farmer too.

Chris: Yeah, and I think it's more of a frustration thing for the producer that's sitting there where it is wet because you can't— it's not like you can just go into a, into a quarter, you know, 160-acre field or a 300-acre field and just plant the whole thing. You know, it's one of these things in these wet areas where a person might get to go plant 100 acres and block some stuff off or whatever to get some things done. So it's not quite as fast is maybe, you know, last year a lot of guys were done by now with corn and beans, and, and this year the whole different tale. And then, you know, it's been so darn cold, it doesn't really matter if stuff was in the ground. It's not like we're getting any GDUs anyway.

Ryan

Moe: You're correct, it's far from ideal, and, uh, it is absolutely not ideal, but Again, I— these producers, they're so good these days. So we'll see. We kind of just have to wait and see. And we're not to that magical 80% planted by May 20th mark, which is the number that the markets really pay close attention to. That spot on the calendar gets closer and closer every day. And I, I'd put me in the slightly nervous category, uh, but we got to see how things go next week.

Chris: Yeah, and, and, you know, if we can get a bunch of it planted next week and then even the following week, a person's not giving up a huge amount of yield even at that point. So, um, let's shift gears a little bit here now then. So, you know, that's the planting pace, or the lack of, in a lot of areas, and there's some areas that are done and some areas haven't turned a wheel and won't for a while. But then you've got the funds looking at this stuff, and, and, you know, the funds need, you know, on the bullish side anyway, need to be fed news. There's not been a lot of news out there unless there's something I'm missing. Is, you know, what's your thought on, on the position of the funds and what they're looking at?

Ryan

Moe: Yeah, big bulls need big stories, and we've kind of off a few big stories here in the last couple of weeks. We had a really nice stretch there where we were getting, you know, mega sales to China in corn almost on a weekly basis. We did not catch one of those last week. That's a, that's a little bit of a, not an issue, but it's something that in order to keep the bulls interested in this market, when I say the the big bulls. I'm talking about the mega funds. And those, those groups are going to go and seek alpha elsewhere in other markets like energy or in metals or in, uh, heck, even the US dollar in the currency market. So if those guys just kind of pause in the marketplace, which has kind of happened here, then, uh, then that, that buying support It's just somewhat left the marketplace.

Chris: You talk about other areas and stuff. The stock market had some pretty big bumps in the road last week too. So what's your thought there? I mean, is any of that money get moved back and forth potentially, or is that— is there that totally going to be decoupled?

Ryan

Moe: Yeah, the, the stock market's a goofy one because You know, there's some of these places that are blaming the, the lack of the pandemic, uh, like the online shopping is just absolutely cratering as more and more people are going to the brick-and-mortar stores. I don't know how much of that I believe in, as opposed to a lot of that market was really overcooked for a really long period of time, and some of the valuations on some of those equities was really high just from a perspective of, oh my gosh, they just lived in a world of irrational exuberance for like a couple of years. So a setback in that marketplace should be expected because going straight up all the time, that's not a healthy market.

Chris: Yeah, you would think there'd be some correction. The, the same thing holds true, I think, with the commodity market. Shifting another gear, I guess, over to Russia and Ukraine and all the stuff that's going on there. Some of the stuff I've been hearing is kind of along the lines that, you know, hey, they are getting planted, they are getting stuff done. You know, they're a long ways from harvest and distribution, you know, that's a long ways down the road and probably the big question, but they are getting stuff planted and we're hearing kind of mixed reviews of what's maybe really going on over there and what the crazy media tends to like to screw around and tell us whatever they feel like telling us. So what are you hearing? What, what's your take?

Ryan

Moe: Yes. Yeah, we have a, we have a pretty nice set of clients in that part of the world, and they're, they're good grain companies, they're good operators, they're, they're good people in Ukraine. When we look at Ukraine, we have to realize that Ukraine is about the geographical size of Texas. And when Russia started this thing, they went in there with a shotgun approach, thinking they were just going to be able to mow the entire country down in just a matter of a couple of days. The resistance from the Ukrainians, the resistance from, you know, the, uh, the assistance that, uh, the, that Ukraine received was bigger than what Russia expected, which is, which is a good thing. And so when Russia had to pull back and regroup, they had to go and take a little bit more of a rifling approach.

And that is what we're seeing is the cities like Mariupol, which I believe is about the size of Minneapolis. They're going after those types of entities and at those types of cities. And that is, and that's what we're seeing from the extreme side of stuff. We see those reports on the news and we assume that's taking over the entire geography. And from what our boots on the ground out there tell us, that's not exactly the case. And so with that happening, um, we just have to kind of do our due diligence as to what we're seeing on the news. Is it real? And if it was— if the entire country of Ukraine was such a hot zone, would the U.S. have sent Pelosi in there last week like they did. I guess I just don't know about that. Maybe I'm kidding, right? Right.

So there's just some— I mean, there's just a lot of mixed messages, and that's just what we have to expect out of our, out of our media in the year 2022.

Chris: Yep, for sure. Let me, let me ask a little bit on, on the demand side too then, because You've got China in the mix, you've got production considerations and stuff in Brazil and all of those things that are in the blend. But there's, you know, is there really anything out there to kind of move the market at all? Or do you see things just kind of trending sideways to maybe lower? What's your crystal ball saying?

Ryan

Moe: Demand, I think, is going to continue to be strong. I think when you look at China, you have to just look at hog numbers and things are going, you know, there's lots of hogs to be fed in China. I think they're going to continue to need grain. You're seeing some moves out of China that they're doing what they can to secure supplies of grain. And if the South Americans, either the Brazilians or the Argentinians disappoint, It's like they've got the U.S. tons in reserve. I'll be very interested to see those big sales that were, that were made here in the last month, month and a half. I'll be interested to see if they do take much of those in the old crop or if they roll those over into new crop purchases. And that's just kind of an insurance mechanism to ensure supply for the Chinese. So I see the demand picture still being quite strong.

Uh, and then if you look at the domestic market, ethanol plants, they're making good money. You're starting to see some bid structures out of the ethanol plants as they are becoming a bit concerned about their supply base for July and August. Um, and then as the— and then now as planting dates keep creeping, uh, back, what their first half of September needs to look like. So you're starting to see some moves in the cash marketplace from the ethanol industry that is saying, hey, we need to do something about these, uh, July, August, and early September bushels. And then with beans, you just look at crush margins, they're phenomenal. So the demand from the domestic bean market it should stay really, really strong.

Chris: Um, on that demand side, I want one, one more macro thing and then I'm going to go to some micro stuff at the farm level. But on diesel, we've heard, you know, I mean, you, you talked about energy a little bit ago. Talk a little bit. Are you guys hearing anything on the diesel side of things and what's going on there with cost?

Ryan

Moe: It's not a, it's not a great situation. There's, there's, there's a lot to be desired in the, uh, in the energy space right now. Something we are hearing more and more about is typically in the summer, the refineries shift into more of a gasoline type crack because they focus on the summer driving season. When you look at what is taking place in the spread between diesel and gasoline, refiners are looking at those economics and saying that they're going to— that they're incentivized to produce the heck out of diesel fuel here throughout the summer. Whether that solves all of our problems transportation logistics-wise, I guess I'm not going to make a strong statement on that because who knows in this day and age, but the refiners are certainly being incentivized to produce the heck out of diesel fuel, and hopefully that problem of high prices ends up curing high prices.

Chris: Mm-hmm. One last macro thing now too that I just thought of, but is I talked— I think it was last week with Joe Vaclovic— we talked a little bit about the lockdown in China. Is that— are you guys hearing anything with all your connections in China and stuff? Anything going on there that's gonna affect any supply chain stuff for us and be another factor that's maybe another one of those black swans we aren't hearing about or seeing, or any news there?

Ryan

Moe: Well, Chris, now the next question I have is, do you want me to answer this with my tinfoil hat on or my tinfoil hat off?

Chris: We'll do it, we'll do it each way.

Ryan

Moe: Okay, well, my tinfoil hat on Uh, and I got the antenna way up on this one too.

Chris: Okay, good.

Ryan

Moe: My tinfoil hat conspiracy theory says that China was likely going to report some poor economic news, and I think we're all pretty well known that I'm not a big fan of communism. In fact, I hate it. Uh, and the communists They knew that the numbers that they were going to have to report out of China were going to show some disappointing economic results, and that is why I believe they shut Shanghai down, is because if they shut Shanghai down unnecessarily or necessarily, however we want to get into that, they could point that that is the reason why their economic data was going to be poor. And we were all going to be stupid enough to believe it. Now, that's the conspiracy theory.

But if we take the conspiracy theory away from it, with such a major trade hub of Shanghai being shut down and then, you know, talks of expanding into Beijing, there's no question that that's going to impact economic data coming out of China. And U.S. agriculture, whether we like to believe it or not, is tied heavily to China. And so if that poor economic data continues to persist for a long period of time, that's a, that's a risk to us here in the U.S.

Chris: That's kind of a negative, isn't it? Big time, potentially.

Ryan

Moe: It can be, but if, uh, but if they, if they still keep their, uh, swine herd big, they need feed, you know. So it's, it's, it's not all doom and gloom. Uh, but boy, some more accurate data out of there would sure be appreciated, wouldn't it?

Chris: Yeah, it's worthy of watching. I guess that's kind of why I was just curious what, what you—

Ryan

Moe: I agree, I agree, because that's going to be our, you know, that's going to be our, our corn supply. I mean, that's going to be the— that's going to be the big difference in August as to whether we're tight or whether we're just fine on carryout.

Chris: Yeah, so those were my macro questions. Now let's go to some micro stuff. For a minute. The acres being planted, so, you know, now, you know, I'm still leaning toward, you know, personally thinking there's going to be way more corn planted than what the March report showed. And I don't care, all reports aside, whatever's going to happen is going to happen. But just in talking to producers that we work with, there was a fair amount of acres shifted over to corn that I think will still be planted to corn even for another few weeks yet, just because of where you can ensure, uh, total dollars, total revenue. Um, you know, we've spread out the, the demand side of it for the input side of stuff, you know, for nitrogen or whatever. So I think, you know, we're going to be probably seeing more corn.

Are you hearing anything different or see anything different from your clients, or do you kind of see we're gonna bump up the corn acres quite a bit yet, I think.

Ryan

Moe: You and I agree. I can't say that my entire client base agrees with that. Um, you know, the fringe acres, that's where there's going to be questions.

Chris: Um, but even in those areas, we've ran numbers and, and it's the corn, the corn hands down is, is generating more revenue. And, and there's exceptions to that, so I know there's people listening like, well, that's not right. But in a lot of cases, we're seeing a fair strong advantage to the corn economically, right?

Ryan

Moe: I, I agree with you and your numbers, um, and I think, and I do believe that given time, that will show up and that will work itself out. There's— but it's kind of in the, uh, Missouri is the show me state, right? I think we're kind of in that show me, and that's— we're just not getting the opportunity to show the market that with this delayed planting situation we're facing right now. Yeah, I agree with you. I think this will play out to where there's going to be some market pundits that are surprised by the number of acres that we planted for, but I don't want our people to be in that surprise category. Yeah.

Chris: So another micro, so at the farm level, what are you seeing with clients? What makes, you know, what makes Ryan Moe the farmer, put your farmer hat on, comfortable with sales for both corn, soybeans, wheat for that matter, you know, where are you comfortable? You know, we are, we're talking about possible market pressure here. We've seen some pretty amazing prices. That's not to say we couldn't take off with more weather issues and really test the sky, you know, with prices. But what makes you comfortable? What are some of the things that farmers need to pay attention to while they're in the field rolling here trying to get a crop in?

Ryan

Moe: I mean, again, I don't want to bet against the farmer because I think they are going to plant a really sizable crop. I think that's going to be, that's going to be something that pressures futures prices here very soon. I also want to, I also think that these prices are so dang good. I mean, I heard Farmers that are in their 70s, you know, they sold $8.12 corn here last week or so, and career highs for people that have been in the business for 50 years. That's phenomenal. I love to see people taking the money and running. But there's always going to be some of those lottery ticket bushels that they want to keep aside. And then I've just— how big of a Powerball jackpot did they expect to hit? So I don't— you know, if you talk to a farmer and he's totally sold out of corn, I think that's a great position to be in.

But if they've got a cash position and a wealth position where they're only 75% sold up, I guess I wish I was in that level of wealth position. It's not. So, yeah, but then for new crop, we've got, we've got a pretty healthy new crop book on. As far as all the commercials, the end users, the exporters, they've got a pretty healthy new crop position on. But if a farmer wants to go ahead and just chip some more sales in there, I don't see how they can get hurt at these levels either.

Chris: Yeah, it's, it's just been interesting, you know, we're We put together some margin data with our client base last week, and just looking at it, we're— the only other year that I have in our database where the margin potential a year out was as good, and we didn't know it back in 2012, was 2012. There was some good opportunities going into 2008 until it, it wasn't, but You know, we had some really good opportunities here, now still do, that are record levels from what we typically see in terms of margin. When you look at what it's costing us to put the crop in, even though it's as high as it is, the margin's still phenomenal.

Ryan

Moe: Hey Chris, what's the word that every market analyst used for the 2012 crop since 2012. That word is anomaly. Okay, there's a lot of data analysts, and you'll do this when you're trying to get your numbers to tell a story. There's a lot of data analysts that when they're looking at trends and stuff like that What do they do with the year 2012? They take it out because it was such an anomaly. The same thing happened with the '88 drought, that, you know, those types of years where they're just so shockingly large, 5 years down the road, a lot of data analysts said, we're going to pull that one out because it was an anomaly. So are we looking at another potential anomaly? It's hard to, it's hard to use the word anomaly when you're in the middle of it, but it is, it is how the data might look 5 years from now.

And that you don't want to be on the wrong side of thinking that, oh, the anomaly is the quote-unquote new normal, right? Where people get in trouble is when they start believing that anomalies are the new normal, right?

Chris: Yeah, that herd mentality or recency bias. I don't know, there's a whole bunch of things you can throw out there, I guess, to add to that.

Ryan

Moe: But eternal optimism.

Chris: Yeah, right. And if, as I was talking to my nephew earlier today, you know, I said if you drew a line across, you know, at a, at a, let's say, $6 corn and you know, $12.50 beans or whatever, just pick a number on any of those, and then look at how much time we spend above those lines. It's pretty minimal. And when you're in the middle of it, you lose track of time, you know. I mean, we just— we don't, we don't think of it in those terms. And I think we just need to be really careful. And that's why I'm a— I like to be a margin manager. Let's look at the margin and manage it.

Ryan

Moe: You're spot on. We totally agree on that. Uh, it's impossible to pick a top. I actually having lunch with a client today and he said it best. He goes, there's not a bell that rings when the top is hit.

Chris: No, no, no, no, that's for sure. So anything else that you want to wrap up with that, uh, you think farmers should be thinking about while they're rolling in the field? Hopefully rolling in the field.

Ryan

Moe: Yeah, just look at, look at the local basis opportunities right now. You know, there's some of these local processors, they're having to sharpen their pencil on their July and August position. There's going to be some opportunities for producers there. If they want to own risk, maybe owning some of that just as board risk, if that's the risk that they want to own, because I think we're going to start seeing some processors on the interior that they're interested in talking, whereas 3 weeks ago it really felt like we were going to be able to get July covered up pretty easily because markets were flowing and sales were flowing. But boy, hedge desks got really quiet last 3.5 weeks. So if I'm, if I'm a producer, maybe be looking at some of those near-end basis opportunities.

And when that processor calls, maybe pick up the phone and answer, just see what they're willing to work with you.

Chris: Yeah, I always say that when, when you need to be planting or when you need to be in about 4 other places is when they're going to pay the most.

Ryan

Moe: So that is what history has shown us, hasn't it?

Chris: Yeah, for sure. And with that said, uh, last thing for me then, you talk basis on in this situation now, what's your thought for new crop You know, the guys with the December HTAs, what's your thought there?

Ryan

Moe: We got a lot of grain on. There's a lot of, there's a lot of corn and beans in the book that have been sold for new crop just because the prices have been so good. And, you know, everybody wants to talk exports, exports, exports, but like I put my morning comments this morning You can't shove a basketball down a garden hose. That's kind of what exports might look like right now. But we can't move them out all at once. Right. So expect a— expect basis to get really, really hot at new crop considering the size of book we have on already. I guess I don't want to be that optimistic.

But I'm also somebody that's sitting here in a position where with the commercial clients we've got, we've got a really nice book on, and boy, life gets a lot easier for us in the commercial side of the world if we can get nice carries from the Nov to the Jan to the March in beans and Dec to the March to the May on corn. And we're just not seeing that yet, but we'd like to see that happen. So I'd like to see that. I just, uh, because I don't— I want to keep pumping the basketball down a garden hose scenario, but, uh, only time's gonna tell if I'm right on that.

Chris: Yeah, and there could be some opportunities early too, you know, in— with it being a late planting season like this, a lot of times there's opportunities for about 2 weeks on the front end of that too.

Ryan

Moe: Yeah. Yeah, we'll see. I mean, a lot of that's going to depend on late August weather, right?

Chris: Right, exactly. Kind of how, how this growing season goes. But, uh, Ryan, I think this is a good place to, to wrap up. Is there any, uh, any, uh, other exciting things you're going to be doing over the weekend, over the next week?

Ryan

Moe: Got Twins tickets tonight, so that's, uh, that's going to be the extent of it. And then hopefully I get my, uh Basement bathroom finally finished.

Chris: Awesome. Well, that sounds good. Well, hey, Ryan, really appreciate your comments. Good place to wrap it up, and we'll catch you again next time if you'll come on back.

Ryan

Moe: Hey, thanks, Chris, and be safe out there, all you farmers. It's a lot of hours are going to be put in here in the next couple of weeks. Make sure you get some rest and make sure you work on the safety.

Chris: That's for sure. And again, thanks everybody for listening, and we will catch you again next time. On the Eggview pitch.