Weekly market outlook May 17th-21st: volatility, where to from here?

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 another new marketing week after the volatility last week. It'll be interesting to have a conversation kind of in review of last week a bit, and then we'll get into some things to watch for in this new week. So today we have with us Chris Wilson at Babbler. How's it going?

Chris

Wilson: Good, Chris. Thanks for having me on again.

Chris

Barron: Yeah, you bet. So, uh, thought we'd have you back and, uh, and first maybe start out kind of looking back at last week briefly here. Um, that first day we saw a lot of pressure on the corn market. Coincidentally was about the same day there was a bridge closing., and it slowed a bunch of barges down and stuff. Was there any correlation there? Were there some other things driving the corn market, or any ideas there on, on what created a lot of volatility last week?

Chris

Wilson: So I think there— yeah, I mean, this certainly had an impact. I think it was a knock-on effect. Um, we had, uh, a relatively quiet start to the week, and then the WASDE report on Wednesday there and then the bridge closing. So, you know, at first it seemed like it was maybe not too big of an event. But as the market started to liquidate, especially on the corn side, that became more of a story as well. And we saw— we saw in many ways we saw new crop take the lead lower. Um, and then old crop, especially here, uh, especially the end of day on Thursday. And then, you know, we had that bounce on the overnight, uh, into the morning trade and then sold off pretty hard. And, and that— a lot of that was— seemed to be driven more on the old crop side and and maybe just some concerns of weakening basis, especially on that river market. Um, and pretty strong correlation there.

We also had the Informa report that came out and posted a 96 million acre number on corn, um, which would be a huge number if that, if that were, if that were anywhere near accurate.

Chris

Barron: So let's touch on that acre thing for a minute and get your two cents from, from what both you're hearing from clients and what you're seeing and hearing? I mean, do, do we get to that acre number? That would be huge.

Chris

Wilson: Yeah, 96 million seems like a stretch. Um, you know, I think we do have to walk back to pre-report in March when, when the trade was expecting a number closer to 92.5 to 93 million. And then on top of that, we've had conditions that certainly allowed for plenty of planning progress take place and a market that's gone up, you know, at one point was up $1.70 from that March report. So you combine those two things and it's not crazy to think that we would add 2 or 3 million acres. In fact, you know, in our area driving around the countryside, I'm seeing a lot of sod ground that's gotten tore up in the last couple weeks and presumably going into corn. Um, so that could be— I've seen pasture ground, I've seen a fair amount of alfalfa stands, um, going into corn.

So, you know, you may be finding some acres there We are definitely in an area that has more of that, so it's maybe disproportionate, but we are— I'm definitely seeing activity that, that I think probably is adding corn acres to that overall number. 96 million, that's a big number, but I can certainly see it, you know, somewhere between that, that 92 to 90, 96, so 94, 95, you wouldn't be completely out of question.

Chris

Barron: One—

Chris

Wilson: in my mind.

Chris

Barron: One thing, you know, kind of tied to acres, you look at where we closed last week and look at that corn-bean ratio shift quite a bit actually, and it's almost looking like, you know, do we change over here and soybeans maybe are going to be responsible for taking the lead and maybe being a driver here moving forward, or do you think corn still stays strong? You know, because the bean, the bean story is probably a big story that hasn't received, you know, as much, as many accolades on the market as corn has along the way so far. And so it just, it makes me question, um, what could that mean for soybeans if we throw a bunch more acres onto the corn it's got to come from something, right? So, um, it's probably going to come at the expense of soybeans to a degree, or what's your thought there?

Chris

Wilson: Yeah, I think— I feel like it's pretty late in the game to be, you know, stealing acres from corn, beans, beans to corn. Um, so I, I feel like— I feel like it's happened So on balance sheet, if there was going to be a shift, it certainly played out. It's going to be tough. You know, if we did add, let's say, 3 million acres to the corn balance sheet and we get to 94.5, you know, I think we'd probably only lose a million acres of soybeans in that scenario. We may not lose any, but I think you're going to— gained the corn acres mostly from, from additional, additional overall acres, which that certainly is more bearish overall. Now, if you look at where it's kind of where that corn-bean ratio has gone, heading in and through that, that planting report in March, we were, we were definitely probably tilted more towards beans.

And then the report came out and, and there really was less of both than expected, but more, you know, less of, less of beans in many ways out of that report because there's a lot of talk of the 90 million acre bean number and we weren't anywhere near that. But yet corn took the lead off of it. So it sometimes is not the fundamentals don't always line up with what intuitively you think on the price signals. So it's a little bit bizarre. Now, we've taken— corn made that huge, huge run. It took a while for beans to get going. I mean, beans, beans have lagged, lagged, lagged. And now with corn getting beat up real bad here in the last, really the last 4 or 5 trading sessions, Beans really haven't fallen nearly as much, you know, they've held their ground extremely well and pulled that ratio back towards beans quite a bit.

Chris

Barron: So what are some— well, go ahead.

Chris

Wilson: No, you go ahead.

Chris

Barron: Well, so what I guess I'm wondering is, you know, we saw a pretty good setback on the corn, you know, what's it take What are some of the things out there that you guys are watching to see? I mean, can we get back to those levels? Can we break through those highs? What's it going to take?

Chris

Wilson: Yeah, I think that we're definitely early enough in the season. I think I look at what happened here in the last week as being very much a liquidity event, and we certainly have had a couple of fundamental variables, but The fact is that we've got a record-long spec position in corn, and that is a culmination of futures and options spec positions and a significantly record position on the options side, which creates what's called a lot of gamma in the market. So as the market moves, it that transitions into faster and faster speeds of the market. So if the market starts trending lower, it can accelerate on itself until it sort of runs to its fruition. And we've seen that here in the last few trading sessions where, you know, those down moves even within the tick charts are very violent, um, as we move through different strikes.

And all of that to me, uh, points to more of a liquidity problem and more of a liquidity— short-term liquidity challenge than it is anything fundamental that has changed in the market. And fundamentally, we still have a, you know, we still have a tight balance sheet. Now, I would also argue that the run-up that we've seen in corn from $5.50 to $6.40 was also fairly spec-driven. Right. So they gave, they took away on corn. It kind of— it was kind of gone through that fruition. And I've been looking back and digging around and I've had a tough time finding historically events where we've, within basically a 4-week window, where we've had such a strong move up and down in the same period. I mean, I look back, I'm just curious, and, um, I look back to last time we talked and the market was $5.30 on Dec corn.

Well, we took that market to over $6.40 and and now brought it back down almost a dollar down towards $540, all within a 4-week period. And historically, there's not a ton of precedent for markets to now rally back up a dollar. It happened in 2011. Where we had a similar hard sell-off into the spring, and then we did rally back out of that that year, back up towards where we had been previously, and then made new highs. So I think this situation certainly has all the ingredients for that to happen. I think that the liquidity stop and run its course. But on the flip side, there's definitely been some psychological damage done to corn, and we're going to need some stronger, you know, fundamental reports to kind of turn around. And we just happened to catch a week where we got 2 or 3 things that were more bearish for the first time in a long time.

And the barge thing, it does look like that's been They have reopened that, so as of, I believe yesterday, they are starting to move through barges underneath that bridge, but there is a pretty good logjam there. There's estimates of 700-plus barges backed up. Oh, geez. And 3/4 of those are reported to be corn. There's maybe a little bit to work through there. But you look at the kind of outlook on some of the core fundamentals for summer markets and, you know, there's still plenty of weather premium that's warranted to be in the market. And that to me, I think, should be a stabilizer here as we look, look into the next few weeks.

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: Um, what, uh, as far as, you know, so you talked about a dollar decline in corn, um, and we've seen movement with the beans, but, you know, relative to corn, that's a pretty big— that's a huge, uh, shift. One question I have, and what it kind of seems like, is with inflation and with the amount of money that's there, is it likely that we could see some more new money from the funds pour into the corn market with this being maybe perceived as a buying opportunity, or is that wishful thinking on my part?

Chris

Wilson: Yeah, I think it's— I think what you could see is, is in many ways, if you're an inflation hedger, you are buying commodities You know, plural, right? And we've seen that. We've seen lots and lots of commodities seeing strong money flows into it. The biggest winners have been, uh, have been the strongest markets that seen the most money come into them. And there's a couple different types of spec investors. There's the ones that are following the hot markets, the trends, and then there's the ones that are buying, like you said, hedge that inflation. And those ones are more going to be allocation-based. So as the market runs up, they may take some of the gains from those markets and reallocate them into other markets. Um, and it is a smaller pie than the, than the trend-following, um, directional traders, but it certainly has, has an effect.

So what I think You know, what I think you could see is some of the, some of those investors may be looking at this pullback in corn and their portfolios a little underweight corn now. You know, let's pick up some corn, let's shift some money out of soybeans or hogs or other commodities that have held their ground quite a bit and still have quite a bit of of money, a lot of money in, in those markets.

Chris

Barron: Okay, uh, the— when you look at the risks potentially out there for this to continue, you know, you talk about— again, I'll hit corn again specifically, but it's going to impact other commodities— the price pressure that we saw last week. What are some watchouts that could cause that to continue further? Or do you think we're— we stabilize in sort of the range we're in? What's your thought there?

Chris

Wilson: I mean, my biggest concern is just the momentum in the market and coming back to that point earlier about different option strikes that have, you know, large open interest and potential, you know, potential for basically a liquidity squeeze. Squeezes to continue that can do permanent damage within a market. And I, you know, I think the $5.40 level, you know, this $5.40, $5.50 level on new crop is fairly significant. I really don't want to see too much further slide here. So I think that we do have a critical week or two ahead of us. I'm optimistic that we can, you know, can kind of turn this thing around and get a nice bounce.

I do think that depending on where you're at on your marketing, I do think that if we do get a bounce, you know, back up towards even $6, that you need to be active in that market, just because historically it's It's more— there's more historical precedent for what's called dead cat bounce, where you get maybe a 50% retracement and sell-off, which in this case would be about 50 cents, um, before you resume a down pattern, just on a technical pattern, than there is on a full retracement and making new highs. Um, so look back over the last 20 years, you know, there's 4 or 5 examples of a market that sells off this hard and, and retraces half of it and then ends up heading lower from there. Um, again, 2011 is the only case I can come up with that, that we had this hard of a comparable sell-off and ended up going back to make new highs.

Um, so I, I do think that there's plenty of caution warranted on, on corn, um, and the markets from that perspective, and you need to be active on your marketing, on, on corrections up. It depends what you've done. I mean, well, that's a lot of—

Chris

Barron: that's a question I was— I'll just throw out there, not to interrupt you, but to throw out there. And, and I know what a lot of farmers are sitting there thinking, okay, what, what level of sales should I be at? You know, because it's all over the board just talking to our clients. I mean, we've got some guys that are 100% covered, and we've got guys that haven't sold anything, and we got a whole bunch of stuff in between. And I'd say the averages, and I, and I haven't sat down and statistically done it because I just haven't had time, but just looking at what I can see from our clients and from our perspective, it looks like probably, you know, 45 to 50% is going to hit a pretty average number for a lot of, for sales for both corn and soybeans. And I'd say they're pretty similar in sales, both crops.

Is that a comfort level, or does it— you know, or what you're saying, it sounds like if we are having a dead cat bounce, like you say, or, you know, as some people always say, you know, a bull market has to be fed. There's got to be some new news or something that's going to continue to drive it up. If we get a little bit up and we take advantage of that in this coming week or weeks, what level of sales makes you comfortable if you're— you know, from a farmer's perspective?

Chris

Wilson: Yep. So I would say, you know, our customers are probably in about that half sold of what they want to sell, you know, what they would normally sell for new crop. And we, you know, we've been making sales pretty much every 50 cents, $4.85, $35.80, and $6.30. Have been the 4 main areas that sales have been targeted at. If you take the average on those 4 levels, it's about a $555 level. So that, you know, it's not too far away from marking on those sales. You're maybe just a little bit ahead of it now. On those sales, we've been reowning. So that's been our playbook. We've been spending, you know, about 5% of the sale price on a call premium, typically in those July and August short-dated calls. And then we were able to roll up some of those first calls that we bought. So a lot of $5, $5 to $5.20 calls got rolled up to $6 to take out some equity on the run-up.

So that's how we've been managing the volatility and opportunities with a lot of our customers. And so if you're in that position, I think that, you know, you've got the luxury of being patient and looking for a bounce up. If you've been lucky enough to make some sales and not reown it, I would be advising to reown on this pullback. To where we're at right now is a good area to be reowning bushels that were sold, especially at higher levels. That's on the corn side. Beans are similar. There's maybe a little bit more of a mix of strategies on beans. I've been maybe a little bit more comfortable on beans, uh, using collars and, and our fence strategies where you buy a put, sell a call, um, at these levels. And you're typically still giving yourself plenty of room outside. And I, I do like that strategy even, even now. I mean, we haven't seen nearly the pullback on beans.

There's good value there still. So I think that if you're going to be focusing on— on marketing right now, I would definitely be leaning towards the bean side. And if you're maybe a little bit behind where you want to be, you know, the bean area would be a good area to get current on what your marketing plan is. And then as far as, you know, what we're looking for, you know, if you get— if you get a bounce up towards that $5.85, $5.90 on corn, and you're not where you want to be, I mean, that's, that's definitely an area to start getting caught up on corn. Again, I'm very biased to the sell and reown strategy that, you know, I think that, that, that is one that lets you get a really effective price, you know, know your price, and, um, and lets you sleep at night knowing that you've got all the upside from a certain level., and that's a really effective tool.

Chris

Barron: Um, appreciate that. Uh, last question here. I've got a lot of, um, people, um, just throwing the question out there on '22 sales. Um, probably not as much with the setback here now, and was just kind of looking. Um, we closed out last week on corn, Dec corn in that $4.73, and I know we were well over $5, at $5.20 range or something some people were, were a little bit more intense about maybe making a 5% sale, you know, and just get started there. What's your thought? I mean, we get back to that level, and if some— if people haven't done anything in there, does it make sense maybe to plug just a little bit in there on that 22 in your opinion? I mean, that's, that's for a whole nother topic. I need to do a whole nother podcast on cost production side of things there. But just from a just from a pure marketing standpoint, what's your thought there?

Chris

Wilson: Yeah, absolutely. I mean, I think, you know, the, the '22 market and '23 probably surprised me as much as anything to see the significance and the pullback in those markets. And again, that drives towards that liquidity argument that it feels much more like a liquidity event than a fundamental change. I do think, you know, anything over $5 out there, it's a good area to be active. And, you know, doing probably picking, targeting that first sale being 10% of what you would like to market. And again, that's different for everybody. Somebody, some producers are willing to go to 100% sales. Some are willing to go to their crop insurance at 80 or 85%. So take 10% of that number and, and go ahead and make a sale out there at that, you know, that $5+ level.

Even with, you know, your cost production right now is projected to probably be up, you know, just on the inputs, probably 50 cents a bushel is a reasonable number. You know, it certainly depends on the situation and rotation and all that, but I— a lot of guys I talk to and work with, that seems to be, you know, kind of expectation heading into next year with what they're seeing on fertilizer prices and higher fuel costs and everything else. So I think that $5 in the vast majority of cases should still be a, you know, good profitable sale. And, and that's a good area to start. And we've also been, you know, there's also opportunities out there because there is so much time value that you can layer into some, some option strategies that are fairly costless but put you within a decent window.

Um, an example would be buying a 480 put selling, you know, a $6 or $6.50 call and then selling about a $4.20 put and trying to get that done for, you know, for zero cost on premium. So that is an example out there that if we get back up over $5, that those opportunities would be there again. And So we've got, we've got, you know, plenty of customers that are looking at '22 market. Even the '23 market, we were up, you know, knocking up towards $4.70, $4.80 on that market. And, you know, if that one happened to push— yeah, we had $4.65 on that. So that pullback here now to about $4.40, you know, if that market pushes up towards towards that, that upper fours, um, that also is a market that should be on the radar.

Chris

Barron: That sounds good. Well, we'll, we'll keep in touch. And like you said, we'll have to keep an eye on those multi-year potential sales, especially if we would get a real hot market here that carries over into those months, that we need to keep an eye on that too. And one of the things I like doing is just having some, you know, having some offers in or some targets in play so that they automatically connect. Because sometimes you got about 5 minutes for, for an action, you know. If you want to take an action and you're waiting to take the action on your own, a lot of times there's just not enough time, and, or you're busy doing 10 other things and you don't even think about it, and, and the, the opportunity is there and gone.

Chris

Wilson: And you Exactly. And I think that that's super important in this type of market. It is May 15th. I mean, historically, you know, we're just getting started on our summer weather markets. So there's plenty of juice out there to keep these things moving and certainly get turned around and see some opportunities. I think the key, the key to bring back to your point is to have a plan, have a marketing plan. And, and know what your objectives are. And then as they, you know, as they get within, you know, as we're seeing, get within 50, 60 cents on those objectives, start getting some orders in the market and, and have them active, right? So that if you get, you get a couple days— I mean, it really only takes 2 days right now to move 50 cents in these markets on corn.

Um, beans, we're seeing, you know, being 60, 70-cent days, it's important to have those, have that plan down, and then, you know, be working with somebody that's got a good eye on if you're not, and make sure that you stay on top of it.

Chris

Barron: That's right. Well, hey, I think this was a good place to wrap it up. Chris, thanks a lot, and, uh, Aten Babler and If people want to get a hold of you, what's the best way to reach you?

Chris

Wilson: Yeah, thanks, Chris. Really appreciate getting on and good to talk. If you want to get a hold of us, you can reach out. Our number is 1-800-884-8290, or you can check us out on attonbabler.com.

Chris

Barron: Sounds good. Thanks, Chris. Really appreciate it.

Chris

Wilson: Yep, thanks, Chris.

Chris

Barron: You bet. And thanks everybody for listening, and we will obviously be back with some more crop updates this coming week. And also, if anybody has any questions or thoughts, ideas, uh, anything you'd like to see us doing more of, less of, whatever, please give us some feedback. And, and, uh, have a great week, everybody. Be safe out there, and we'll catch you again next time on the Ag View Pitch.