Weekly market outlook May 30 - June 2nd: bullish weather markets?

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. We are heading into a new week, actually a new month. We're heading into the last couple of days of May and the first couple of days of June, but, uh, as we record this, we're recording this on Memorial Day weekend, and I have a special guest with us today, Brian Split, and wanted to have him talk markets. But before we get going on that, Brian, welcome. How's it going?

Brian

Splitt: It's going really good. Thanks for having me on, Chris.

Chris

Barron: Yeah, it's great to have you on. I haven't had you on for a long time, and I got a hold of you yesterday and said, you know, hey, Memorial Day weekend, you were a Marine, you're, you're a veteran, and I thought, you know, what better person to say, hey, let's, let's talk for just a minute about something that's super important, and that's, uh, you know, those who have served and, and those who have served all. And talk just a little bit about here real quick before we get going on the markets, just kind of the importance of Memorial Day weekend and what it means to you and what we should all be thinking about.

Brian

Splitt: Yeah, it's funny because I was talking to another client yesterday and he was— they have a lot going on on the farm, and they were going to work, um, on, uh, Saturday and on Monday, and he was going to give them Sunday off. And one of the employees, you know, was saying, well, it's Memorial Day. And he said, well, you've had the last 3, you know, 3-day weekends off. And he's like, well, we got to remember all the dead. And he's like, well, it's not remembering all the dead, it's remembering those that gave all for their country in the military. And so I think there's a not a true understanding from a lot of Americans that this isn't remembering those that served, this isn't remembering those that died, this is remembering those that gave the ultimate sacrifice, um, for their country while serving in the military.

So for me, um, you know, I, I reflect all weekend because, uh, there's 3 individuals that, uh, are dear to me that, uh, that, uh, I think about over the course of the weekend. Um, one would be Chad Bales and Chad was the driver of my vehicle when we were in Iraq, and we were in a vehicle collision on April 3rd, 2003, and Chad was crushed by the steering column in that, in that collision. And so just 10 minutes prior to that event, him and I— he was my spades partner. We played a lot of spades in Kuwait and Iraq when we crossed the border. You know, when you're, when you're in a, in a combat zone, it can be very intense, but then there's a lot of downtime. So it's kind of a lot of hurry up and wait. And so, um, you know, that's something that stuck with me. I, I actually, I, I don't play cards anymore. I, I haven't played cards in, um, well, this was 20 years ago.

So when I, when it's poker night, I am not involved. And it's just one of those things that has always stuck with me. I just have no desire to, to play cards with the guys. Um, so I always think about Chad. Um, you know, there's a, a local Marine, uh, from Arlington Heights, Illinois, which is, is the town that I'm from. Um, his, his name is Lance Corporal, uh, James Stack. And, um, he, um, uh, gave the ultimate sacrifice on November 10th, 2010. And, um, November 10th is a— is an important day for Marines because that's the Marine Corps birthday. So it's one of those, uh, you know, individuals that'll kind of go down in Marine lore, um, you know, having given the ultimate sacrifice on one of the days that are most important to Marines in general, which is the birthday of the Marine Corps.

And, and then of course you have my, uh, my stepbrother, um, that, uh, passed on June 5th, 2010, uh, so his, uh, 13-year anniversary of, of, uh, of that event, uh, is coming up very quickly. Um, so I, I think a lot about those three individuals, um, quite a bit. But, uh, also, you know, there's a lot of generations that went before us that, um, what— whatever conflict it was, whether it was, uh, you know, Operation Iraqi Freedom or Enduring Freedom, so you're talking Iraq Iraq and Afghanistan in that period. Um, you've got the Gulf War in Iraq, you've got Vietnam, you've got Korea, you've got World War I and II, uh, going all the way back to, um, when we were fighting for our independence, uh, from, from the, uh, the crown.

Uh, and, and there's a lot of, uh, individuals that, uh, were willing to sacrifice their lives so that the belief, um, and, and the ideals that we we live by now can continue to survive. And so I think it's important not only to remember that they gave that sacrifice and to honor them, but I think it's our responsibility to continue to fight for those same ideals that make the United States the greatest country in the world.

Chris

Barron: That's awesome. Yeah, I, uh, that's the thing. I think just it's something that we have to just stop for a minute and, and pause and, and, and just kind of reflect and, and just think about what what the day means and, and why it's an important day.

Brian

Splitt: Yeah, and, and so we've got some traditions in our family, um, you know, sports are kind of taking over, but, uh, before travel baseball was a thing and tournaments all weekend, uh, we would go into the, the city, uh, which is Chicago, and my dad and I are, are members of the Chicago Police Marine Detachment of the Marine Corps League. And so, uh, the tradition has been that we would walk in Memorial Day Parade, uh, in downtown Chicago with the detachment. Um, and then there generally be a get-together afterwards at a local watering hole. Um, and so, you know, remembering, sharing stories, uh, that sort of thing. Um, but, you know, like I said, I've got two boys playing travel baseball right now and, and everything is about an hour away from each other.

So my wife will just— my, my wife and I will be a little divide and conquer all weekend, uh, depending on how the process goes over the course of the weekend and whether they, they win or lose these games. But, um, yeah, it's just one of those things. If you're, if you're barbecuing with your family, um, you know, having a cold one, um, just maybe take a few minutes to, to think about, um, those that gave all and, and what it was like, uh, to be in that situation. There's a lot of Americans that never served, never been in a combat zone, um, you know, and maybe the closest thing that they've been, uh, is, is what they've seen in the movies, but Um, you know, you think about being in a foreign land on foreign soil, somewhere you've never been in your life, that you've, um, all you have is the guy next to you.

And, and what that feeling is like, and, you know, being willing to put yourself in harm's way and put yourself in that situation for, um, you know, the, the, uh, belief that, that, uh, our country, uh, deserves to be fought for, and our country and our belief system deserves to be fought for. And, you know, and it's tough because I think back to um, my own conflict being in Iraq. And, you know, should we have been there? Shouldn't we have been there? Were there weapons of mass destruction? Weren't there? What, you know, and those are things I, I gotta work through internally. But regardless of, of that, um, it's, it's not about that to me. It's about the guys that I was out there with and remembering them, uh, and, and all those others in, in other conflicts that, uh, that went before us.

Chris

Barron: Yeah, well, again, we, we, uh, well, thank you, uh, Brian. And we also thank, you know, all those, like you say, that they gave all. And, and we just want to make sure we remember and make sure we make it a point so that everybody does take that couple of minutes and, and reflect and appreciate. So with that said, Brian, thanks, thanks a lot there. Now I'm gonna pick on you on the markets here a little bit, if you're ready for that one. Now I'm going to throw some tough questions at you too.

Brian

Splitt: Yeah, let's do it. Maybe. I don't know. I think these questions might be a lot easier than talking about— Yeah, you know, my time in the service. It's— it can be difficult to talk about sometimes, but the markets, let's go. We can do that. That's easy.

Chris

Barron: Yeah. Okay. Well, let's, let's transition. That's a tough transition here, but from, from such an important thing. But, well, the markets have been a thing that people have been pretty are you paying attention to? You know, we had this pretty big slide for a while there. Everybody was getting kind of nervous, getting scared. And then, you know, as we head into this last part of May, a lot of, a lot of shorts put on, a lot of things going on in the markets. But I want to start with weather. Weather is really going to be the thing that's going to drive things moving forward. Talk a little bit about what you're looking at or what you think farmers need to be paying attention to. As it relates to weather and the markets, because we finished last week super, super strong, obviously.

And I hadn't looked at the markets until I, you know, yesterday was busy or last, you know, on Friday was busy. I look at it and like, holy crap, we really closed strong. Talk about, you know, what this long weekend means and what this means going into the first part of June.

Brian

Splitt: Yeah. So maybe let's just kind of take a quick step back and think about what type of weather we've dealt with for the majority of the Corn Belt since the beginning of April. And I think it would really encompass like eastern Nebraska all the way across to western Ohio, um, would be the, the primary zone where we've had a rather significant deficit in precip compared to normal. So some of these areas may have had as low as 10% of normal precip, and, and some of the better areas maybe had 75 to 80% of normal.

Chris

Barron: So we're going into June with a—

Brian

Splitt: already having a drier bias for the— that general swath of production. And so going into the weekend, we've had a fund manager that has accumulated a rather large short position in corn for this time of year. And so with the ongoing dryness, the fund manager has covered shorts going into the holiday weekend. And I think the forecast coming out of the 3-day holiday weekend is going to be extremely important next week. If we continue to have this, this drier bias, I think you're going to have a pretty strong start to the week ahead. And the fund manager is likely to continue to cover those shorts into the end of months. Right. So we're towards the end of the month. There's only a couple of trading days left. And then I think what Thursday and Friday are going to be June 1st and 2nd. So I think the timing of the end of month, beginning of month is important.

Now, that's kind of the shorter term. And the bigger picture is we do have a shift from La Niña to El Niño. And so that's what I think the market's trying to figure out is, does this drier bias continue deeper into the growing season where we need to continue to price in the potential for less than trendline yield? Is it trend minus 1%, trend minus 5%, what are we, what are we potentially dealing with? But in the big picture, if we do have the El Niño weather patterns come into effect and you're thinking, you know, your northwesterly flow that will generally bring some good rainfall into the Midwest during the growing season, if we start to hear more of that, then I think the fund manager is going to go right back into being a seller. But this has been eerily, eerily reminiscent of 2013. And I know there's probably been a lot of talk about that. And really there should be.

We've been talking about it for the last 5 to 6 months, just the, the way it lines up. And if you think about 2013, it was right after the drought of 2012. So there was a supply shock. We had a lot of things happen in the market with inverted futures, right? So nearby futures are trading above the next month or the month after that. Your old crop, new crop really inverted, right? So then you think about what we've dealt with this year, and it wasn't a drought, but we did have the invasion of Ukraine and, and the supply shock from that. So both years you get corn to $8, you get new crop values up towards similar levels. And so that, you know, I'm thinking like 2013 D's versus 2023 D's. You know, very beginning of the year. So far, both years have made the high for the, for the calendar year, the very first trading day of the year. Now granted, there's a lot of 2023 left.

But so far, the first day of January, the first trading day of January has been the highest price that we've had available to us. Then you fast forward to February. That's when we make our spring average for crop insurance. Both years were right at $5.90 to start the month. Both years we break into early to mid-March, get a little bit of a rally into that Quarterly Stock Planning Intentions Report. And it's crazy, the day before that stocks report in 2013, the high for December 13th corn was $5.73 and three-quarters. The high the day before the report this year was $5.76 and a quarter. So you're talking 2.5 cents apart. Those reports sent us lower. We go down, we make lows in May. In 2013, it was May 21st. This year was May 18th. In 2013, we rally into Memorial Day weekend, which we did this year. We closed very strong into the weekend.

And so this is where we got to see if this pattern continues. So 2013, we actually gap higher on December corn coming out of the weekend and we traded strong all the way through the week up to Friday, closed strong on Friday. Opened up Sunday night into Monday's trade, kind of had a little bit of a 2-day double top, and then we went down into the June report, got one last little bounce, uh, into mid-June, and then we started to go down into the quarterly stocks and, and planted, uh, acreage report at the end of June. And from that late June peak to the roughly right around the August WASDE report, we broke from $5.70 to just below $4.50. Now $5.70 is important because again, that quarterly stock report high was around $5.70. We revisited it a couple of times in 2013, so once in April and then once in May and twice in June. So we've already revisited it once.

I wonder if we're going to see $5.70 as a target later this week. If we do, I am going to be extremely aggressive in getting some catch-up sales for those that did not hedge adequately the first time. I'm going to be adding any maybe more conservative hedges. Because we have quite a few clients that, that hedged quite aggressively early. And so now, depending on their own perception of their crop, we'll be adding to those hedges. How we add to that will depend on the individual. But if we've got more aggressive sales, meaning HTAs or futures sales, then our methodology will likely be a little bit more conservative. We just don't want to overcommit until we have a comfort level with the crop itself.

So maybe it's going to be more option-type strategies, providing a floor with puts, maybe selling some calls that at this point feel relatively safe, you know, $6.50 to $7 type strike prices to, to finance those puts. But I expect to be— well, I'm hoping to be rather busy later this week.

Chris

Barron: Yeah. So, um, I guess what I mention is, you know, you talk about, you know, the similarities or how '13 kind of rhymes with, with this year. And then, you know, you've got the weather, and the weather correlation to this year is probably more important, wouldn't you say, maybe, than, than even what happened in '13? You know, past performance doesn't necessarily mean, you know, it's going to be this weather thing that we're going to watch because, you know, it's, it's so You know, it's, it's the thing that's really going to drive it.

So what I want to ask you then is, from a technical standpoint, you watch the technicals very closely, and, and, you know, you're on with, uh, Joe Vakovic a few times, and I've watched some of the charts that you've put up on his subscriber-only videos and, and regular YouTube videos and talk a lot about, um, just some things to watch and some target areas and some areas to maybe think about putting some offers in there for both corn and soybeans, what, what are some of those target areas you're kind of looking at right now, assuming, let's assume that the weather does stay dry and the market continues to kind of move in that direction?

Brian

Splitt: Yeah, so if we get some upward mobility into, you know, later this week or later this month, and I'll look at old crop too, I think for the July contract, I am going to be looking for a $6.40 to $6.50 type of a price to relinquish the, the last bit of old crop that producers may be holding on to. For the new crop, again, I think there's going to be a lot happening. Technically, $5.40 is an extremely important level. So $5.40 was a spot. And I've talked about this extensively on Joe's videos where the day after Russia invaded Ukraine, December corn made a low at $5.40. And then from that spike low, we ran to the contract highs a couple months later. Uh, we made some lows in July of 2022 at like $542.75 was your first July low, and then $543.25 was your secondary low in July. And then those lows led us to the, the rally that we had into October for our fall highs.

Then we came back down again, we kind of muddled around, um, and then eventually did break through $540. And that breakthrough led us to that sharp break that we had, uh, that we all just experienced into, into May 18th. Um, so I think the first is we got up to what was it, $5.35 and 3/4 going into this weekend. So if we see repeat of 2013 and we do gap higher, I would like to see it gap over $5.40. I think that would be extremely important. And if it does that, then I'm waiting for the $5.70 level. Now, maybe if you're feeling under-marketed and you don't have sales at $6 plus or $5.80 or what have you, maybe you should bite off a little bit bit as we start approaching some of these major levels, $5.50, $5.60. But as we get higher in price, I think you have to look at selling more bushels. So maybe that first sale is a small sale.

And then if you get to the next 10-cent notch, you know, increase the bushels a little bit. And then if you see $5.70, then get more aggressive. Now, what we don't want to have happen is say, okay, we're so happy to see $5.50, $5.60, $5.70 again, and then we you know, go all in and hedge aggressively. And then it turns into a 2012. Now, there's some similarities on the chart to 2012 as well, which we made lows in late May and we just never looked back. Right. We just stayed dry. We stayed dry all the way through July into August. And we actually made contract highs in August.

So I also think there's some validity depending on where you are in your own local forecast to making— if you're going to make a hard sale, let's say an HTA, where once you make that sale you're committed to the elevator, maybe it's not a horrible idea to look at a short-dated call, just something to provide a blow-off valve where if we do keep going up, that this market will allow you to still participate. I can tell you that if we were to get through that $5.76 and a quarter high that we made prior to the quarterly stock report this year, then that would be a pretty strong technical breakout to the upside. So if I'm— if I am selling in the $5.65, $5.70 area, there's probably a reasonably priced $6 call that maybe you could hold on to for the next month just to give yourself a little bit of ability to participate if it stays dry, because 2013 doesn't know the weather in 2023, right?

Chris

Barron: Yeah, right.

Brian

Splitt: So we've got a lot of similar situations and scenarios And I think that's why we're trading a lot like 2013, but it can deviate at any time and we have to be aware of that. On soybeans, you know, this is a pretty lofty goal, but there's actually a gap on July beans at $14.77.5. So, you know, we're talking, what, about $1.30, $1.40 higher. But these are beans and we need to remember that beans can make some rather large moves in short periods of time. We hit downside objectives, we retested the July lows from last year on, on July soybeans. So that was the $12.99 area, I think we got down to like $13.04 and three quarters for our low. So that objective has been met. And if we start to see some weather concerns, and let's face it, the beans really haven't been quite as strong as corn over the last week or so. The fund manager was not short beans, they were short corn.

So they had to cover that more aggressively. Now, the question is, do they have a reason to come in and buy more and add to the position that they have? Because thus far, they've been reducing the length in their soybeans. On November, I would be looking at $13.30. I think that— and there's been a lot of talk about corn in 2013. But in 2013, November soybeans made some lows for spring at I think it was $11.86 and a half. And hasn't been exact this year, it was about $11.62. But I think it's interesting that both corn and beans went about 20 cents lower this year than they did in 2013. But $13.30 was ultimately that, that peak that we had after making the spring low. So and there's, there's levels that correlate with $13.30 on the November soybean chart as well. So if you go back and think about where we were, uh, right at the end of March, beginning of April.

Actually, this would have been the first day of April, April 3rd, which is wild. We just talked about April 3rd. That, that was the day I was medevaced in Iraq. So we made, made our April highs that day. That was $13.38 and three-quarters. Um, you've got the 200-day moving average is working its way into that, into that price point. It's at $45 right now, $13.45. Um, and you've got the downtrend from December highs, all that's going to be kind of lining up in that $13.30, $13.35 area as we get into later in June. So if we were to see a revisit of that, I think you have to be pretty aggressive on beans.

Chris

Barron: Interesting. Yeah, there's just a lot of stuff to pay attention to here. And, and, you know, the thing that I look at with our clients is you know, the market always seems to get to the cost of production of our operations. And it did that. And now I think, you know, we're talking about again, some maybe some opportunities here. We need the funds to be involved because that's what creates volatility. And, and then the next layer is, is discipline, right? It's like we have to do— we have to take action. We can't just sit here and watch this. And, you know, so I guess what I'm, what I'm getting at here is as we wrap up, I'd like to have you just kind of throw out, you know, and if there's any fundamentals I didn't ask you on any fundamentals, but if there's like, you know, Brian puts his farmer hat on over the next couple of weeks, what's Brian doing?

What, what do you tell the farmers, you know, really pay attention to this and this?

Brian

Splitt: Well, I think number one is a little bit of mindset. You know, one of the other lessons from 2013 is that when we— if we do hit these price points and revisit these levels, we may only be there for a day. So—

Chris

Barron: or a minute.

Brian

Splitt: Or a minute, right? It might open up on a Sunday night and then it's there and then it's gone. And you wake up Monday morning and you say, I should have had the order in. Well, yeah, you're right. You should have had the order in. So I think that would be number one is get these levels figured out and then put orders in. And if that's an order at the elevator, then call your merchandiser, put it in there. If that is a, an order with your broker, then call your broker, put the order in. Your broker should be able to help you identify these price points with their own analysis and their own charting. I, um, you know, it's a, it's an art, it's not a science. So not everybody's levels are going to be the exact same, but I think they'll probably be pretty similar.

If it's an option strategy, your broker should be able to say, hey, if we get to this price, the put should be about this price, or the call that we want to sell should be about this price. So get some targets in and have the orders working. Something else, you know, the, the problem long term is if we, if we, and you could probably back me up here, Chris, because I've never grown a corn crop, but everything I've learned is I've learned from my clients that I work with. If we are going to be dry, this is the time of year that we want to be dry, right? Absolutely. So So what happens if the fund manager gets scared out of their short and then the weather turns and then we start putting in a forecast of rain?

You're going to have the, the potential for a corn crop that was dry after planting where the roots got dug down deep, and then you get some rain and you're going to have very strong stands, you're going to have a fantastic yield potential. And so we have to realize that the balance sheet is changing drastically year over year with a good crop. We're going to be going from a 1.3, 1.4 type of a carryout to 2.2. And if it's trend plus, which, you know, we've had 17 El Niño years since— what was it, like 1980 or something like that? I forgot the exact year. But 14 of those 17 El Niño growing seasons, we had above-trend yield. And, and the ones where we were below trend, we were not below trend by very much. So I, I think if we do have an El Niño growing season, there is the potential potential to actually grow a yield that is bigger than what the USDA is projecting.

And that might be a hard pill to swallow because we haven't actually even grown the trendline yield yet, right? Our record yield is a 177, trend is 181.5. So to assume that that's the yield that we're going to be working with, I understand why there's some frustration with that. But this is just a, you know, a statistical trendline, you know, over time, and it points in the upward direction. Have we hit the limit for genetics? I don't know. But if haven't and we have a good growing season, we're about to find out how, how good crops can be. And so if on the, in the big picture, if we do continue the 2013, we're going to be significantly lower come fall. And that was about a $4.10 fall low that year. So something else I'm going to be looking at is I'm going to be making sales and I'm also going to be layering in some cheap puts. And these are going to be on top of my actual hedges.

So if we see $5.70, a $5 put may be pretty close to 10 That's for a full December $5 put. And so think about if we do see a $4.10 type of a price come fall, if you had the ability to sell $5.70 and then let's say as time goes by, crops big, you know, market breaks in the fall, one of the other things that you're going to want to do is you're going to want to manage these spreads, right? So Dec to July right now is about $0.14.

Chris

Barron: $0.20.

Brian

Splitt: But if we realize a large crop, that could be $0.25 to $0.30. So let's just say you get some $5.70 sales on and then you roll it out to July at $0.25. Now you've got a $5.95 July sale. Then let's say you had that $5 put that you paid and let's just call it $0.15. And then down the road it's worth $0.90. And so now you've got a $0.75 kicker that you're going to add to that $5.95 sale. Sale. So that would get you $6.70 corn, which I think is a number that no one really would feel is achievable right now unless we had a weather event. But I'm here to tell you that if you take a little bit of risk and get your sale and manage the spreads, if we do see a large break into fall, you have the ability to use an option to add quite a bit of value to that sale that you're making.

Chris

Barron: There's definitely some tools and some things that the guys need to be watching. And as we wrap up, really appreciate your, your comments today. If people want to reach out to you, Brian, what's the best way to get a hold of you?

Brian

Splitt: You can reach me directly at 815-665-0463. I would encourage listeners, if you're curious about AgMarket.net, go to our website, which is AgMarket.net. Very easy to remember. You can sign up for a trial of our intel. So that's something that we provide to clients only. But if you want get a sneak peek at it for a couple of weeks. We'll let you look at it. At the end of those couple of weeks, we're going to ask you to either move on or sign up with us in one way, shape, or form, whether it's brokerage or consulting. We also use an app. You could go to AgMarket.app and do a trial of that. And that's just an app to help you track sales, track your input costs, and give you an idea of your overall marketing picture. And you can get, you know, download reports for your banker if you, if you'd like from that. So that would be my suggestion.

Chris

Barron: Awesome. Well, hey, that's, uh, that's great. Now, people want to, want to reach out to you, that'd be, that'd be great. And, um, as we wrap up here, Brian, again, as we started the, the conversation, um, again, thanks for your service, and thanks to all of those who have served. And, and, um, you know, I'm lucky enough we have some, uh, kids that have served. Um, Shay is still active in the, in the Illinois, uh, Guard. And, and, um, some of our, our kids have been in the Marines. We got Marines and Army, and so they go back and forth a little bit once in a while on, on that.

Brian

Splitt: So yeah, Chris, I almost lost my mind when, uh, um, you had told me that, uh, it was 2 years, uh, that, um, Sloan's already been out of the Marines. And I, I remember when Grant was just graduating from boot camp, and it's just— I can't believe how fast time's going by.

Chris

Barron: Yeah, yeah, it's, it's crazy. We, we've, we all get older, right?

Brian

Splitt: Yeah, it's inevitable, right? Time goes, but it's a blessing to get older. Yeah, we're fortunate to be here.

Chris

Barron: Yep. That's, that's where the wisdom starts to develop too. That's right.

Brian

Splitt: All right. Okay. Yep. For those who gave all, that's what it's all about.

Chris

Barron: That's right. All right. Hey, Brian, thank you very much. Really appreciate your time today.

Brian

Splitt: All right, thanks, Chris.

Chris

Barron: Appreciate it. Yeah, and thanks everybody for listening. We will catch you again next time on the Ag View Pitch.