Weekly market outlook, May 2nd-6th: will delayed planting drive grain markets even higher?

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 week, actually the first week of May., and we have Joe Vaklovic with us. Joe, how's it going?

Joe

Vaclavik: I'm doing great, Chris. How are you?

Chris

Barron: Uh, hanging in there. Um, I wish I was planting instead of talking to you, with all due respect, I guess. Um, we're sitting here in our neck of the woods in northeast Iowa, pretty, uh, pretty wet. Uh, we were dry early in the season and super cold. We haven't got rid of the cold, but we got the wet now too, so cold and wet doesn't match too good for planting. Hearing a lot of that from a lot of places. Some areas are getting a little bit done, and then you go out west and those guys are still in a dust bowl. So what's your thoughts on U.S. weather and conditions going into planting or in planting season here?

Joe

Vaclavik: Well, I guess I'd probably tend to separate it into like two different categories. Um, like, what does it mean for farming? Well, for farming it sucks, right? Uh, what does it mean for the markets? I'm not necessarily sure that it's the biggest deal in the world at this point here in time. Um, we're recording here, what, last day in April or whatever? Um, I mean, I'm not going to say that it's like a bearish factor, but I'm not going to say it's a super bullish factor at this point either. I mean, I've said this before, nobody ever knows why a big fund buyer or whoever is pushing the buy button. Maybe it is because there's planting delays, but historically the market doesn't start to care about this sort of thing until another couple weeks down the road. Mid-May is when planting delays really start to matter in terms of the market.

And I don't know if we're there yet, but again, I can't say with any degree of certainty that it's it's not the— it's that it's not the reason that somebody's buying the market. It's just not like, generally speaking, at the end of April or first day of May, it's not generally like a big cause for concern in regard to the market. It is for farmers. I mean, everybody's nervous and would like to be more active and get the crops in the ground. But in terms of the market, it's usually not the biggest deal in the world this early.

Chris

Barron: Mm-hmm. You— Um, you have your subscriber-only videos, and for anybody listening here, if you're not subscribed, I would check in with Joe because, um, Joe, you do a great job with the subscriber-only videos and your daily videos on YouTube. But you had something on there yesterday. Um, can you touch on that a little bit? You were talking a little bit more in detail on, on the planning delays and some of the things you were seeing there.

Joe

Vaclavik: I went through some studies that I actually pulled off the FarmDoc website, which is University of Illinois, and they've got some really great data in regard to planting date and ultimate impact on yield. They defined, I believe in that article, and don't quote me, but I think they defined late corn planting in Illinois, generally speaking, which is going to be different geographically for everybody. But is anything beyond like May 20th, I think. So you're still not like to the point where, you know, corn gets planted even a week or 10 days from now. You're not really to a point where there's going to be like widespread yield drag. And I'm not an agronomist or anything, but I can look at those charts that they had out. What I tried to do in the video is kind of paint a few different scenarios in regard to corn yields. And the balance sheets and what it means for prices.

You know what, this is a long conversation, but what the market's trading right now, Chris, the corn market— just let's put the corn market in a vacuum. The corn market is not trading anything that USDA has printed on paper to this point, right? What the market is trading is the '22-'23 balance sheet, and we haven't seen that yet. USDA doesn't give us our first even glimpse of that until— I think that next report is May 12th. Is when we see it. But there's so many unknowns when it comes to that balance sheet. I mean, first off, you've got your normal stuff, like just general US crop production, right? When I talked about the yields and late planting, I went back and I said, okay, what if this turns into 2019? And in 2019, we had, you know, historically late corn planting. And I think corn yields were like 4 or 5% below trend that year.

So if you're, if you're 5% below trend in yield this year, that say your trend's 180, that takes you down to 171 in terms of the national yield, that puts you in an incredibly tight situation based on the balance sheets that I had. I mean, an incredibly, incredibly tight situation, but that's assuming a lot of things. I mean, it's assuming that demand holds together. It's assuming that this inflationary aspect or this large money, they still want to be involved. But when I went through those balance sheets and you saw the video, It's tough, it's like really tough to paint a bearish scenario. I also went through and I adjusted some of the acreage numbers. I personally believe we're going to see a little bit of an increase in corn acreage versus March intentions. I could be wrong about that, of course. But basically what I tried to do was like lay out a few different possibilities.

If this turns into 2019 and we do end up losing yield because of late planting, these are some of the price implications. I'm not on that page yet. I don't think you got to go another couple weeks and then we can start being a little bit more serious about that conversation. But I guess it was, it was worth at least doing the experiment. I'll tell you.

Chris

Barron: Yeah, it's interesting because when I look at our forecast here right now for, you know, a large piece of Iowa anyway, or pretty much all of Iowa, it looks like we got quite a few days here of not being able to plant just because we're not going to dry out. About the time we start getting dry, there's rain in the forecast. Cast. They can never predict weather very good in the spring and fall though, so we'll see, I guess. And like you said, we'll just have to see what happens there. As far as, you know, you talked a little bit about the acre mix too in past conversations, and you and I did that last weekend on YouTube as well, where we kind of talked about the corn versus soybeans. A lot more money in corn. I still don't think it's going to make sense for guys to switch out of corn either until we get to the end of May.

Even when you start looking at the, the coverage levels and the, and the revenue in corn versus soybeans, and this is going to spread out the nitrogen availability, it's not all going on, everything's not all going on at exactly the same time like last year. I mean, we planted everything in a 5-day window pretty much last year. I know last year on the 29th of April, we were done planting corn and beans, and most of our clients were that early last year. And now this year is completely different. Any thoughts on the acre mix or any additional comments on that?

Joe

Vaclavik: Well, I think there's just a tremendous amount of uncertainty. I mean, I told you earlier I think corn acres are going up, and you're telling me there's a possibility that corn acres go down if the late planting becomes like a real issue. So I mean, that uncertainty in itself is, is a supportive and probably friendly factor in regard to corn prices. I mean, just nobody has a clue. And when nobody has a clue, I think the path of least resistance is for the market to move higher at this time of year. And that's, that's probably more exaggerated or amplified this year because, you know, you've got Ukraine, you've got inflation, you've got all these issues. But I mean, in any given year, there's a tremendous amount of uncertainty regarding the crop in April into May or June.

And I think not coincidentally, that's why in many years you'll post your, your highs for the year in May or June, you know, on some sort of weather issue or crop scare event or whatever. It's when that uncertainty is the highest that a lot of times your best pricing opportunities will emerge. And yeah, I understand that the corn market goes higher every single day and feels like it has for months now, but Um, there, there will be a point, I would imagine, where the market, you know, peaks out or levels off or something along those lines.

Chris

Barron: Yeah, and I'm not necessarily saying the corn acres will go down. What I'm saying is I think guys should keep the corn planters rolling. That's where the money is going to be this year.

Joe

Vaclavik: Yeah, for sure. And in regards to markets, again, just the uncertainty regarding that situation in itself, I mean, that's just one level of uncertainty when you're talking like a balance sheet scenario. I mean, first off, we don't know what the corn acres are going to be exactly. I would almost guarantee see that they're different than that March intentions number. And then of course the yield thing is always a huge toss-up. And then, I mean, you've got the whole demand, uh, ball of wax that just is totally uncertain when you look at Ukraine and some of the other things going on in the world.

Chris

Barron: Yeah, for sure. So the other thing you had kind of mentioned in the earlier conversation, we were hitting on weather, you talked about demand on corn and soybeans. Touch on demand. What are you hearing? What do you see?

Joe

Vaclavik: Well, it's good, and it's impressive that you've still got good demand for corn and soybeans despite prices that are essentially at or very close to all-time highs. I was looking at some of the export sales data. New crop sales of corn and soybeans are the best on record for this time of year, and that's with corn— new crop corn at $7.50, new crop beans at $15. So global buyers are booking record amounts of corn for new crop delivery, record amounts of soybeans for new crop delivery. We're at an even better pace than we were a couple years ago when China started all that buying, and they started a little bit later in the year, in May, I think, in 2020. But it's really impressive. And then you look at ethanol, I mean, it's not fantastic, but it's close enough to normal in terms of demand there. You look at the soybean crush, it's really good.

So the products, your meal and oil, have kept up with beans in terms of prices, allowing for a good crush margin. So it's very impressive to me that you haven't seen demand really back off in any material way. And then the other thing that's impressive is basis. I mean, you look at corn basis around the country, both spot and new crop corn basis are very good, I would say, considering the board prices. I mean, if you would have told me, you know, 2 years ago corn $7.50, I would have said, oh, well, your basis is probably terrible then, right? No, that's not the case. I mean, it's actually the opposite. It's really, really impressive how demand has held up despite these high prices because normally the market's job in a scenario like this is to deter demand, right? Reduce demand through higher prices. We haven't really done that to a material degree yet.

Chris

Barron: Well, everything is higher, so it's kind of a margin thing, isn't it? Or what's your thought there? What's causing that?

Joe

Vaclavik: Um, yeah, I mean, that's part of it. I mean, I don't, I don't— again, it's difficult to say why corn is at $8. Is it, is it because of Ukraine? I think that has a lot to do with it. Is it because of inflation? I mean, I think that has something to do with it. I think there's a lot of outside money involved in the markets. Is it because we've got dry weather in Brazil? Is it Um, there's so many different, uh, reasons. There's not a whole lot of bearish things I can tell you about the corn market, but there's certainly a lot of positives.

Chris

Barron: Well, you said that's a good segue into the funds then. So touch on that because, you know, why is corn $8 or whatever? Wouldn't a large part of that really be that— I mean, the money flow? And then the other thing I told you offline I might hit you up on too is, does the stock market have anything to do with that? It's been under pressure Is money looking for a place, and are commodities maybe the best spot?

Joe

Vaclavik: Um, so large money managers or funds have been kind of like stagnant long in the corn market. They've been heavily long for a long time. They haven't really over— I mean, they're, they're historically like at an extreme, but they haven't gone to like new, uh, records in terms of, of fund length. And I'm talking specifically about large money managers, as CFTC puts it. But in any case, yeah, I mean, fund money and speculative buying has a lot to do with it. I think you've just got an absence of selling interest too. I don't know that the farmer is overly interested in selling right now. And I don't know if that's because they're already heavily sold when it comes to old crop, or they're just waiting, or whatever the reason is. There just doesn't seem to be a lot of selling pressure from that natural seller, who's the farmer in this instance.

So, yeah, I mean, spec money has something to do with it. And you talk about outside markets, I mean, a phenomenal amount of money has come out of not only the stock market, but the bond market. The global bond market is off to its worst start on record. And the global bond market's worth trillions and trillions and trillions of dollars. I mean, it's bigger than the global stock market. So you've got money coming out of fixed income or bonds, and that goes for not just like US Treasuries, but I mean corporate bonds, I mean bonds, all sorts of debt, money coming out of these markets. And I don't know where it's going. I don't know if it's going to commodities. I mean, it's not like it's all going to the corn market. The corn market's so tiny compared to global equities or global fixed income. I don't know where it's going.

I don't think it would be smart necessarily to go to cash in an inflationary environment. So I don't know where it's going. It's a good question that I think a lot of people are kind of wrestling with right now.

Chris

Barron: Interesting. Also, another factor supportive maybe is Brazil or anything there worthy of support?

Joe

Vaclavik: Yeah. Brazil had a rough go at it during the month of April., and that's a very important timeframe in regard to, uh, that second corn crop in Brazil. You know, up until very recently, uh, most of the government entities and USDA still got a projection for a record Brazilian corn crop on their balance sheet. Um, everything looks good and then they turned dry in April and the forecast, uh, as we sit here this morning is not really offering much in terms of relief. Um, typically May is like the month where that second corn crop in Brazil kind of reaches maturity. There's some, there's some very early corn harvest in May, and most of it's like June or July. But that corn crop's not going to be as big as what people thought it would be maybe a month or two ago.

So that, I think, is— I mean, if I had to try to like paint you a priority list in terms of like what's bullish the corn market, I would certainly put the Brazilian situation above the U.S. weather situation at this point in time. I mean, you're without a doubt trimming yield in Brazil, whereas in the United States, it's far too early to say that anything like that's happening.

Chris

Barron: Mm-hmm. Okay, another question. Um, uh, in China there's COVID craziness there again going on. Any impacts there on demand? You know, circling back to demand for a minute, anything there that's— that you're watching or of concern?

Joe

Vaclavik: So these lockdowns in China and this zero COVID policy is, is an absolute disaster for the Chinese economy. I mean, they They are destroying their economy with the zero COVID policy. I mean, they've got like huge, massive cities with tens of millions of people under complete and total lockdown where people haven't left their homes in a month or whatever. Um, it's going to be a bad deal for a lot of things. I mean, it could, it could ultimately hurt the US economy. I mean, it could go back to hurt supply chains if they're not, you know, shipping product out of China again. And it could absolutely hurt consumption of pork, and that could make its way into demand for things like soybeans and corn. So it's not a good deal. And they're talking keeping this whole zero COVID policy in place through at least the end of the year. So we've got another 7, 8 months of this.

And I don't know if— it's not a positive. It hasn't seemed to make its way into prices yet. Maybe you look at like the hog market, which is just falling on its ass here the last week or so. Maybe, maybe that's part of it. But some of the other markets, I don't know if it's had a big impact. I think it's had an impact on crude oil. You know, China is the biggest importer of crude oil globally. I think it's had an impact there. I think if it were not for a zero COVID policy in China, crude would be $120, and it's not, it's $105. Maybe it's weighing on the stock market a little bit, which has had a really bad start to the year also. So that's, that's a bad deal. And I don't know that it's made its way into the grain markets yet, but it certainly could.

It's one of those, it's one of those wildcard things where like China just stops buying soybeans, stops buying corn because they've gone overboard on the zero COVID thing. That's a problem, definitely.

Chris

Barron: Probably a dumb question, but what is the deal. I mean, what— I don't know, I don't pay any attention to any media anymore, so maybe I'm completely out of the loop, but, um, you shouldn't pay attention.

Joe

Vaclavik: It's all, it's all fake.

Chris

Barron: I, I know, and I don't— so I don't watch any of that crap anymore, but it's— I mean, what's the— what is the reason for this? It's crazy. I don't get why total lockdown. Um, is it way worse? Is it killing a lot of people, or what's going on?

Joe

Vaclavik: I don't— it's very tough to believe anything out of China, first off, because you remember they had a stretch of like months and months where they said that they had like no COVID cases in China, which is impossible to believe, right? And now they've gone in the total opposite direction. They're like, COVID's everywhere and we've got to lock down every big city. I don't understand the logic of communist China. It's like, it's like a black hole of information. I mean, it's just difficult to believe what, what comes out of there. But I mean, you just gotta, you just, I do think that the reporting, I mean, when it comes to like these total lockdowns, I think that's accurate. To my knowledge, I have no reason to believe otherwise. Uh, why China does what they do, I don't have any idea. I don't know if there's any rhyme.

I'm sure there is some rhyme or reason to it, but, uh, it's beyond my scope.

Chris

Barron: Interesting. Last question I got for you on corn and soybeans for, you know, '22, and I guess '23 for that matter. But, you know, we've talked about a lot of stuff here. The majority of things are pretty supportive for both corn, soybeans, and wheat. Anything that, that's got you concerned, or levels of sales that make you feel better, or just, you know, generally things wrap up here that farmers should be thinking about as they're either waiting to get in a planter or are in the planter?

Joe

Vaclavik: Um, I guess that, I mean, we know that there's a ton of profitability associated with current price levels, right? I wish I could, I wish I could put— me and you could actually do this— I wish I could put, um, like the average margin for like, uh, say corn production on a chart like historically and dated back like 30 years because we'd probably be like pretty much off the charts in terms of like, uh, return on investment and margins and that sort of thing, right?

Chris

Barron: Good idea.

Joe

Vaclavik: We could—

Chris

Barron: we should do that. That's a good idea.

Joe

Vaclavik: Like, go back and do like 30 years of history and say, okay, here's where you're at on the historic spectrum in terms of corn profitability, say on a percentage basis or something along those lines, you know. Uh, if, if I had that chart like in front of me it would tell me that I should be pretty aggressively hedged or sold or protected in some way, shape, or form here, right? Because this is pretty rare stuff. But I'm not going to rule out the idea. I don't have any real strong opinion one way or the other in terms of price direction right now, but I wouldn't rule out sharply higher prices. If we run into a weather issue, I mean, everything I know about the prospective balance sheets and the balance of supply and demand, everything tells me that you you could easily be at new all-time highs by a fairly wide margin in these markets. Then you've got these risks.

What if the US crop is huge? And what if Chinese demand falls apart? And what if the stock market loses another 20% and money managers just want to head for the exits? I mean, I think there's dollars' worth of risk in both directions in both of those markets. And it's really scary to me. Fundamentally, it's impossible to know what's an accurate price. So on paper, USDA, the only thing we know right now for the US is that what USDA says, we're going to have a 1.4 billion bushel corn carryout at the end of the year. I mean, that's not something that screams $8 corn to me. I mean, that's not a level of carryout or stocks to use that would be associated with $8 corn, but that's where we're at because we're not trading old crop, we're trading all these uncertainties. So it's just tremendously uncertain and scary time, uh, to me.

And I know the prices are great, but there's so many— there's so many lingering effects from this. I mean, from everything from cash rent to inputs to just messy stuff. I don't think you want to see corn go to $9 or $10. I really don't.

Chris

Barron: Uh, I sure don't, because, um, that spells trouble for supply, uh, for, uh, inputs and everything again too, because that's the other—

Joe

Vaclavik: oh, you're already in trouble there. I mean, that's already— that ship's already sailed, but it'll just it'll just get worse.

Chris

Barron: Right, exactly. And, and that's the issue for '23, right? As we, as we look at '23, you know, putting a few little sales on there sure looks like it makes sense. I've never seen where you could look out 2 years other than in 2012 and make some sales that probably were gonna basically guarantee you a profit. But you do have that little thing on your shoulder telling you, hey, be careful because this thing could get crazy if we have a short crop.

Joe

Vaclavik: Yeah, and, and this is like almost like mirrors a conversation that me and you probably had like about this time last year, last summer. And last summer I probably told you, well, it's not really the '21 crop that worries me, it's more the '22. Right now I'm in a situation where it's not really '22 that worries me, it's '23, because '22, you know, you You've probably got some profitable sales on the books. You've probably got more to sell. Um, you know your crop insurance situation. '23, you don't really know much of anything right now. So, uh, that's— I've kind of like almost shifted my, my focus in regard to like what I'm concerned about, uh, in terms of risk. Like, where is— where is there a phenomenal amount of risk where you could actually like lose money farming? It would be in '23, not in '22. '22 is just a matter of how much money you're gonna make.

Chris

Barron: Yeah, yeah, for sure. This will be a good year. So hey, I think that's a good place to wrap up, Joe. Um, if people want to, um, check your stuff out, again, um, rattle that off if you would.

Joe

Vaclavik: Uh, just check out either the YouTube, uh, channel, and I do a new YouTube video and a new podcast episode every single business day. They're up by like 6:30 AM Central. Uh, it's called Grain Markets and Other Stuff, and, uh, I talk about the markets and I grab visuals on YouTube every single day. And then that premium subscription deal that you mentioned where there's— you get the subscriber-only videos and you get the, uh, the morning emails. There's a ton of info for me. It's $50 a month. You can go to standardgrain.com and sign up for it. You can cancel it at any time. Nobody will try to sell you anything else. I'm a one-man business. I sell this, uh, information service and had a really great response to it. So give that deal a shot.

Chris

Barron: Definitely do that. I'm a subscriber, and Joe, you do a great job with it. And also really appreciate your time today. Thanks a lot.

Joe

Vaclavik: Thank you, Chris.

Chris

Barron: You bet. And thanks everybody for listening. Have a great week, good luck, and be safe out there when you get the planters rolling. And we will catch you again next time on the Ag View Pitch.