Weekly market outlook: Nov. 28th-Dec. 2nd - time to put a bow on 2022 sales?

Chris: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com. Welcome everybody to another episode of the Ag View Pitch. We are heading into another marketing week, November 28th through December 2nd, so we're at the last part of November, and we have with us today Jared Creed. Jared, how's it going?

Jarod

Creed: Going well, thanks as always for the invite, Chris, and hope you and family and all your listeners had a happy Thanksgiving.

Chris: Yeah, we did. We snuck out of state for a couple of days and had Thanksgiving early and stuff, so I didn't stuff myself at home, but I stuffed myself on a little getaway. How about you guys, did you have a good, good Thanksgiving?

Jarod

Creed: Definitely stuffed myself. Uh, had, uh, extended family of my wife's all over here at our house for Thanksgiving, so it was busy. A lot of kids, a lot of activity, a lot of food, you know, field drill.

Chris: Awesome. Well, it's a great time to, to be thankful for the crop we had and everything that, uh, that we can— are blessed with now. And, um, and before we get going too, one thing before I forget, I did want to mention the Ag View Executive Business Conference. Um, you're going to be at it again this year, aren't you?

Jarod

Creed: Yes, sir.

Chris: Yeah, I was asking you, it's kind of funny, I'm like, so what are you going to talk about? And you're like, I'll tell you about 2 days before the event. There's so many things going on in the world. So, so, you know, it's January, uh, 25th, 26th, 27th in St. Petersburg, Florida. And obviously you're one of the presenters. Um, we're really excited about that and just wanted to bring it up again. I know I've talked to some of you that are planning on going, and I know some of you that are planning on going are not registered yet, so not to harp on you, but just saying, uh, we've, we've got, we've got space yet, and I just want to remind everybody about the conference. We're super excited about it and, uh, but really looking forward to it.

So with that said, uh, Jared, with this new week and some of the things that are, have become unknown such as for many people that are completed, have completed harvest, they know what they have for unsold bushels. And if they don't, they probably need to do a little calculating and figure out, okay, what do we have in inventory that's not sold? Once that becomes a known, what's your thought? What are some of the things that people should be doing with that known?

Jarod

Creed: Well, that known actually should, and something to keep in mind for the future, that known should be the final, you know, drawing the revenue in ink, right? Drawing the— no more projected revenue, knowing what that revenue is. And we've talked about that for months and months and months through a growing season. Yeah, that you're able to project that revenue very, very clearly with the backstop of federal crop insurance. Now you're at that finish line and you know what those values are. I would say that in the cash market given the known revenue and harvest wrapping up, as you mentioned. I think we actually have softened just a touch in the cash market. Some of the, you know, for lack of better words, fireworks in the basis market has settled down.

You've had plenty of, plenty of corn handling facilities, and let's just call it the eastern portion of the Western Corn Belt that were a lot slower to react to the, the just incessant demand for corn and lack of supply available. The eastern part of the Western Corn Belt, I guess what I'm saying, they had their run. They're maybe still firming a little bit, but it's funny, you know, you think about one of the largest corn processors in the Western Corn Belt being Cedar Rapids ADM. Went from what, 50 under at the beginning of November to 10, 15 over potentially now. Uh, and in the west, you get 100 miles west of there, 150 miles west of there, basis has been firm since basically the first day of harvest. And a lot of your historical facilities that are 20, 30, 40 under at harvest never even got below option basis.

And And now here they are pushing back up to the 50, 60 over numbers, I think, in general across a lot of your Western Corn Belt processors. But I should stop rambling there. The, the calendar and the farmer's activity, and to the degree that basis went, I think it has brought enough bushels to the market to get us to the end of the calendar year. That's not a blanket statement, but there's a lot of case-by-case situations that, that has happened. So as the farmer looks at the known, you just need to be aware that at least for the next 45 days, we've probably seen the fireworks that we're going to see in the basis market. And after the first of the year, farmer movement should pick up again in January. February, March, we have fireworks all over again. So it's just doing your homework to make sure you know what you want to get accomplished in the coming months.

Chris: Well, I think the caution there is if, you know, if a person's waiting because of tax reasons or whatever other reasons to go in January, the first part of January, because we're going to see price strength— typically if we see price strength, that's when you get instantaneous pressure on the basis. So that's really what you're saying is if you, if, if you don't have a plan for those bushels, you better get one because—

Jarod

Creed: well, yeah, and you know, I ought to summarize even a little bit easier, Chris. Cash price is still ridiculous. I hate to guess what the average cash price is in the state of all combined Minnesota, Iowa, South Dakota, Nebraska. I'm sorry to pick on your eastern Corn Belt listeners, but the western Corn Belt The cash corn market is still easily over $7 cash bid, and that works whether you had insurance bushels paid at $6.86 or you have physical bushels that you haven't sold. What I am finding, even if an individual had insurance claims, their overall revenue is— overall revenue and profit margins are still ridiculously high. And the comment continues to happen of when is enough enough? Can I just focus on moving all this stuff, turning it into cash as fast as I can, and turn all my focus on 2023? And almost taking a mindset that I just want to put a bow on 2022.

I want to wrap it up. I don't really care what price does from here to the future for the balance of the 2022 crop. Because quite frankly, I don't need it. That sounds bad to say. I don't need a price increase on '22. That's a known. I know I can make good money in 2023. Still a little dicey. We need the higher price there. Why do I need to gamble on both? So right now our message has just been, let's just keep moving grain, keep going, keep going, keep going. Uh, and still the same old intent that we talked about numerous times on your show. We want to have it all gone by the time we get on a planter tractor, maybe down to a few gamblin' bushels, but have it all gone. And that's going to feel pretty darn good when an individual is getting into the month of March thinking about field work and they've got 10-15% of their crop left to move. One less stress to add.

Chris: Well, the other thing too is when you're focused on— if you're still focused on '22, I don't care how good of a manager you are, it does make it a little harder to, to put an emphasis on '23. And, and there's a lot to pay attention to for '23. And I'll come back to some micro or macro stuff here in a bit, but I want to hit '23 since you mentioned it while I'm thinking of it as well. As we look at 2023 and you look at where the, the margin is right now, let's assume that a producer by, you know, the 1st of January or somewhere in there, has got a lot of their, their '22 bushels taken care of, they're focusing on '23. What are some of the key things? And I'll get a little more specific on a question, but what are some of the key things you're watching for the '23 sales?

Jarod

Creed: Well, I think you need to admit— any producer just needs to admit it's not a bad thing here, but admit that the greatest amount of risk they hold is really between now and the middle of February. And why I say that is you don't have an insurance price established until the middle of February. That risk is very, very large between now and then in the event we had a price setback. But again, to refresh the idea of what is risk, risk is both good and bad. I'm not suggesting that we're just going to move lower in price.

What I do want to point out though is that the levels that we're at today, assuming those translated into our insurance prices in the month of February with today's costs, it's very, very hard to not be looking at some pretty nasty loss situations for 2023 in the event an individual raised their APH, had nothing done on marketing, have a $6 sum insurance price, take $6 times 80%, that's $4.80. Meaning if December '23 corn will be $4.80 next fall and the producer raises their APH and the spring price was $6, the market has to go to $4.80 before we have any type of price protection. And you darn well know that if you are for— in selling $4.50 to $5 corn next fall on an average crop, it ain't going to be pretty. So it's just identifying the fact that in the here and now we have a significant amount of risk. There's some things you can do about it, there's some things you can't.

But when you identify that risk, it at least gives you a little bit of an idea of where do I need to be proactive to make sure I can get into next planting season and still have— I don't want to say a chip in a chair or hope and prayer. We got some decent margins on the table right now, but those can go away so fast. I'll just tell you, '23, it scares me strictly from the potential financial outcome. We have About 95% of the producers we work with are carrying margin protection this year. So I can feel a little bit more relaxed knowing I have a very, very salty floor for next year in the event price drops. But I still don't know if that's enough. And right now the name of the game for next year is just flat out, how do we make money and take a step forward? I don't know if that needs to be $300 an acre profit. I don't know if it needs to be $50 an acre profit.

I just want to make sure that on a cash basis for the crop, we actually make money and we don't take a step backwards. Mm-hmm. And that's what I think we run the greatest risk of right now. Fast forward 12 months and if we still have $6 corn and above average crop, you know, those two don't really go together very well historically, talking strictly US production, but we'll be okay if that happens. But I think that's something that you kind of rewind to 2022. We started the 2022 crop year making decisions on $5, $5.50 corn. Now we can sell that crop for $7 to $7.50, average well above $6, and make really good money. Well, the, you know, ante up for next year is significant. And cost per For next year, you know, we're beating an old, you know, we're beating the old horse there, Chris, that we need to know what costs are next year too. If you don't, you're being complacent.

And not afraid to say shame on you, just because I think there is a segment of producers that feel fat and happy on both the cash position, the crop they had this year, the prices they can sell. It makes them feel a little complacent and maybe not looking out to 2023 to the degree that they need. And the same goes with beans. Beans are even a bigger risk. You know, a dollar loss is a dollar loss regardless of what crop is planted. And there's so much overhead risk going into next year that just need to dot the i's, cross the t's, create the plan. You have the plan, it's going to make it easier to execute versus wondering in February, now what do I do?

Chris: Yeah, a couple of things I was taking some notes on there that we And I know you do this with your clients as well, but, you know, you said knowing your numbers. Well, that's, that's something that we're, we're beating that dead horse constantly, you know. And I think, you know, most of the people that are listening to this, I think, do a pretty good job, or they wouldn't be probably listening to this podcast pretty religiously. And the second thing though is, is identifying, you know, sort of a margin target, like what, what profitability works for you and, you know, where you want to be there.

And then this next one I want to ask you a question on, which is kind of, you know, step 3 that we look at a lot of times, which is that, that crop rotation or that business rotation of, okay, you know, X amount acres of corn, X amount acres of soybeans, X amount acres of wheat, X amount acres of, you know, pinto beans or whatever when you get to the north and in different areas, or cotton or whatever. It's that crop rotation though that does have a pretty big impact on the bottom line for, for essentially everybody listening to this, you know, whether, whether it's just a corn-soybean operation or we've got some guys in Canada that grow as many as 12 different crops. And the bottom line is there's a direct correlation to that decision that's probably as impactful as any as to what to do there.

And when you look at where the corn-soybean ratio is, and let's pick on those two as an example. The same, the same process applies. It doesn't matter if it's cotton or wheat or whatever, the same process applies there. But let's just use those two for an example. And I am going to bring this up too. We used to call Profit Manager the least, least loss manager because, you know, in the, from about 2013 to about 2017 or '18, you know, you had to figure out which crop you had the potential of losing the least amount of money on, and then you'd, you'd go heavy on that one. And, and some guys just have a set, you know, they're, they're 50/50 or they're two-thirds, one-third or they're whatever for agronomic reasons.

But there, there is a reason for sitting down and looking at that, and maybe just because you've always done it that way might not mean that's how you should do it, particularly going into like a 2023. Talk a little bit about how you view that crop rotation decision-making.

Jarod

Creed: Well, I look at it two-fold way here, and I'm going to start with the one that I probably forget about mentioning after I go down the tangent about what the ratio is telling the farmer to do. I think that when you're at this time of year, and if you're stuck on a rotation— I shouldn't say stuck, but just kind of a traditional rotation, two-thirds, one-third, half-half, whatever it is Identifying what those profit or loss margins are projected to be for next year on each crop and keep those numbers in mind over the next 6 months that in the event the loser of the two today gets a lot better, you have to remember where you started. Because for a lot of the producers we work with, strictly just an average yield, you know, we're, we're betting on the come on soybeans. We're betting on the come on soybeans.

And comparing corn and soybeans right now, if I looked at strictly just an APH yield, we're all shooting for above APH yields with the money that we're tossing towards this crop. But 9 out of 10 producers, an APH corn yield is which I think would be reflective of some corn on beans and a chunk of corn on corn, identifying that we probably do have a potential yield drag on corn on corn. At the end of the day, it all averages out to be close to APH. Anyways, APH corn is a heck of a lot better than APH beans and quite frankly, probably need to be yielding 15% above APH in beans to match that. You know, if you think about 60 bushel APH in beans, 15% above would be an extra 9 bushel. Call it $13. There's an extra $117 an acre. That's going to get you awfully close to what you can do in corn today. But you're, again, you're betting on the come on a bigger yield.

Vice versa, like I was mentioning, if the bean market would take off and all of a sudden make it a lot more attractive to planting corn, just remember where you started to where you go. I would be shocked from a marketing perspective, strictly price, if beans in the next 6 to 9 months ever compete with corn. You have to extend the ratio from this 2.2 level to closer to 2.8. So if you think about that price relationship, you know, just take $6 on corn times 2.8. Now you're needing what, $17 new crop beans to compete with $6 corn. And furthermore, the, you know, maybe a poor assumption, but if beans go to $17, you darn well know corn's not going to sit there at $6. Flips. It's going to make its own move.

So, you know, I hate to sound like we're on a soapbox here, but just again, looking at what that opportunity is today versus the two crops, making a mental and paper note of where margins are when you're starting that process, and not losing sight that if the bean market gives you a chance to remotely compete with corn, that's when you probably need to be pretty engaged in the bean market to more of a defensive model on beans versus corn, I would say. And one other piece on this, and this is just math, and if you, if you can't walk through these numbers in your head, you know, pair up with your crop insurance agent and walk through the math. With, with the suite of insurance products that are out there, I can make a case that for a lot of growers, a guaranteed yield at the spring prices that we have currently will compete with an APH bean yield at the current prices that we have.

Meaning the worst case in corn is likely on par with an okay base on beans. So just again, sorry to repeat myself, but you just got to identify what those numbers are today. And if you know those, it's going to make your decision 6 months down the road a heck of a lot easier. And when you think about making those switches, corn to beans, I thought that last year, this '22 crop we just harvested, was maybe going to be the peak of seeing, at least across our client base, of acres switching from beans to corn on corn. Uh, no, we're moving the needle even more this year, and a lot of that is tied to the tools that we have access to, make sure that the farm makes money no matter what, and we'll address whatever challenges come our way in 2024 when that time comes from an agronomic standpoint.

Chris: Yeah, we're seeing the same thing. And, and I would say, you know, the other— one other like additional comment to, to everything you're saying, which is 100% right on, is, is also having that flexibility to your point of later on You know, if something changes, you know, I mean, if you've got the anhydrous on or whatever, you likely— you're not going to change that unless the world tipped over or something. But, you know, if, if you can, can switch— I mean, I know I drive our, our guys here crazy because I'm willing to switch at the last minute. I mean, if the seed's not in the plant— even if the seed's in the planter, I guess— if the seed's not in the ground, we can dump the planter out and change, you know. I mean, That flexibility does have a lot of value too.

But on the, on the other side of that though, where I think a person's got to be somewhat careful not to go too extreme on that side of it is, you know, if you're, if you're marketing your corn, let's say for example, and you've got, you know, let's say 70% of your acres are corn, 30% are going to be soybeans, and you're marketing that way. So when you make a, a 10% sale, if you on corn, you switch a bunch of acres over to beans, all of a sudden you just you know, your, your sale was, was, uh, a lot bigger than, than a 10% sale if all of a sudden you had a bunch more bean acres, or vice versa. So a person's got to be cognizant of, of, you know, the need to be flexible, but the consequences of that flexibility and everything too.

It's like you said, it's just math, but I think there's a lot of opportunities for us to probably spend a little bit more time doing a little bit more math And it really adds to the bottom line.

Jarod

Creed: Yeah, I would add to what you're just mentioning there, making that switch. Jeffrey has some sales in place in the event that actually does happen. If your percent sold skyrockets on corn because of switching acres to beans, the price move that at that time we probably experienced in the bean market, hopefully it's not reflective of corn corn going lower. Okay, that creates a whole nother dynamic that you're probably not going to want to switch anything at that point. But in the event corn stays steady and beans skyrocket, that's probably a net, net good financial return to the farm, even if your corn percent sold went up. And, and don't stress about, oh my gosh, I'm 60, 70% sold on my corn now. Well, Why does that really matter when you are making those selling decisions on good profitable opportunities in the first place?

Now you have less risk in corn and you have the opportunity in a, you know, in a roundabout way, less financial exposure on beans from a cost perspective does not translate into potential less or less or more, I should say, uh, profitability on a bean acre. But again, I mean, if you would experience a couple-dollar bean rally on the heels of some issue in Argentina and Brazil in the next couple months, which is definitely possible— they're far from ideal right now— if that happens, you know, that's probably a big, big win because it's creating a little bit more of agronomic advantages perhaps rather than doing all the corn on corn and setting yourself up for a better position for 2024. Again, it's case by case. Just make sure that you walk through the scenarios and document them.

Go through it at least once a month, file them, get yourself a little notebook and file those away and print yourself a new copy every month and just see what that trend is, ends up being over the next 6 months. 'cause by the time you start putting seed in the ground, you know exactly why you're doing it versus, oh, the market told me in November to do it. Should I be doing it now? Mm-hmm.

Chris: Yeah, we do that with Profit Manager a lot too, where we just ask people to save it at each point in time. And if you're doing some what-ifs, leave those what-ifs on there. Exactly what you're saying, that works really good. 'Cause then you can go back and you can say like 2 months ago, why did I make that decision? Decision, you know, and, and you can go back and you can see the why, because a lot of times we forget, you know, why we did what we did. And, and I think that's important.

Jarod

Creed: Um, I would, I would add one more thing to that, Chris, that right now, given the knowns that we have— '22, we know for most of your listeners you're gonna have a pretty darn good year. For '23, all we know right now is the price that it takes for us to plant crop and we know what prices we could potentially sell and making the assumption that we don't have any type of prevent plant, every bushel that you establish a price on between now and February is in theory setting your own spring insurance price. All right, you're, you're locking in any type of downside risk or taking it off the table regardless of what way you go about it. You can still be flexible using options or futures or HTAs.

I would tell you right now, I think it's in the environment we're in, I would tell most producers to steer clear of any type of cash sales this early for next year and stick to more just managing the futures price. After you get the crop planted, then maybe you can look at a little bit more of a cash selling perspective. But anyways, The— assuming we don't have any type of prevent plant issues, we can identify today that I can make sure I make money no matter what happens in 2023. And again, I think that's the most important piece for next year right now, is just flat out take a step forward, don't take a step backwards. Because if you do take a step backwards, that obviously means there's probably plenty of other producers that are taking a bigger step backwards perhaps if they haven't had any proactiveness.

Your competitive landscape, your competitive advantage is going to be massively in your favor if you just make sure that you position yourself to make money no matter what next year. And in the event a market experiences a sizable setback, that's going to open up the door to an extreme amount of opportunities in 2024.

Chris: Yeah, typically we don't see this much opportunity this far out, this far out ahead. So hey, this has been a, a great conversation on the '23 stuff. Before we wrap up here, last thing I wanted to hit on real quick is, um, is there anything on the macro side that you're watching, whether it's China, South America? I'm just throwing some stuff out there. China, South America, It looks or appears like the funds are stepping out of their long positions to an extent as well, and just wondering if there's anything out there that's like, okay, this is kind of something I'm keeping an eye on here now.

Jarod

Creed: Well, let's just run down the list starting with the US and Fed monetary policy. The rhetoric on the street is that we're going to see rates continue to climb but the rate of increase is going to slow. And recent Fed numbers from consumer spending and such suggest that we could actually see a pause from the Fed at some point. Maybe this idea of interest rates going to 7 to 8, and, you know, I think the idea was that, okay, we're going to go to 7 to 8, but how much higher can we go after that? I think what you're seeing is some of the ideas of going higher than that are going away. Still can happen, but it seems like maybe the worst is behind us from an unknown perspective on interest. It's all speculation. You move past that and you think about China and its potential impact on some of this rate increase conversation.

If you continue to see a slowdown in the Chinese economy or take a step backwards for that matter, with all of the COVID struggles that they're having at this point in time. That can definitely play a role on the US Fed monetary policy. I think China has just been— I'm obviously not a Chinese expert here, but I think China has had such a long, drawn-out struggle here that if they can get on their feet and kick this in the butt, watch out. If they open back up— I don't know if I like those words of China opening back up. It created a fair clip of excitement in the market in the first place, and then they kind of retracted those statements that they're going to open back up, and market softened a little bit. So you take that, you take that a step forward, uh, and think about what the, the money flow from the funds have been.

The funds still remain a very reduced player from a historical standpoint. Yes, they have lightened their load a little bit from what their long position was, but their long position wasn't anything to write home about in the first place. And I still don't think that there's anything in the marketplace today to entice big outside money investment to establish a big long position or a big short position. And hold it. I think you've seen them trade the range that we've been in, and here we are after spending, I don't know, 10 days within a 10-15 cent range lower than the range in corn that we had been in since like the beginning of September. We're right back in that range now. We're right back and talking about $6.70 to $7 front month corn, and we're still hanging above $6 December '23 corn. We're still hanging above $14 soybeans.

In all honesty, the market just has not moved much in the last 60 days, 90 days. It's going nowhere but violently, right? Big, big trading ranges because of the high prices that we have. But anyways, I still don't think that the funds specifically are an indicator of any direction that we're going to go at this point in time. You have to create some big fundamental reason. You can talk about all this recession and all this interest rate conversations that would suggest that the funds could go short. Well, on the flip side, they're going to go short against a— one of the tightest fundamental supply and demand situations worldwide that we've ever had. Doesn't seem like a good trade-off. And the flip side, it's obviously very hard to get paid being long at these elevated commodity prices. So I just don't think that the funds are really a conversation yet.

I think that the media does a great job of talking about interest rates and recession. Market still hasn't given any care about that, in my opinion. Uh, supply and demand will always win out, will always win out. Maybe we're there today And we got to start thinking about supply and demand for next year. And, you know, the last piece about that is obviously Brazil. Brazil's planting is actually a little slower than the last couple of years, primarily tied to drier than normal conditions. And when you fast forward into the first week of December, if those conditions or forecasts don't change to start putting a little bit more precipitation on that crop, We've already had estimates go from 150 to 152 million ton bean crop down to 145-ish. If you see that trend continue, that can light the hair on fire in the marketplace, and maybe that can entice some outside money movement.

It means if you shave off 400 or 500 million bushels of worldwide bean production, and looking at the ratio of corn and beans that we have in the U.S. today, That's the recipe for a big price change in beans. Fundamentally, that's what the market will have to focus on, and it will have to outweigh all the other, you know, headline risk— China, interest rates, recession, on and on and on. I think right now the focus is still on fundamentals from a macro picture right now, first and foremost. Um, and all this other stuff is just noise at the moment.

Chris: Excellent conversation, Jared. I think, I think we, uh, we, uh, kind of covered some things people need to think about for 2022. We covered a lot of things that people need to think about for 2023. And I think you just laid out some things to really pay attention to for the, uh, for the macro side of things and stuff that, uh, we can't really control, but we better pay attention to.

Jarod

Creed: Jared, really, I'm gonna— hey, Chris, I'm gonna throw one other thing in there if you want. I think your best indicator right now on the China front, it's crude oil. Crude oil has been all over the map in the last 60 days. Uh, if you see crude oil go below 70 into the 60s, something along those lines, um, I think at that point you need to be considering that the futures market sees a significant risk in China moving forward. That's maybe when you ought to be perking your ears up. It's a little bit of an indicator of if crude oil goes in the 60s and next year's corn is still $6 plus and old crop corn is $7 plus, you're now in a price relationship between corn and, and oil and soybeans and oil and such that probably needs a little bit more attention at that time.

But so far, crude's just been a $75 to $85 commodity, again, just like corn and beans for an extended period of time here.

Chris: Yep. Well, hey, Jared, this has been a great conversation. Really appreciate it. A lot of stuff for us to pay attention to and watch, and it's going to get real interesting here as we head toward the end of the year. So, Again, uh, thank you very much, really appreciate it.

Jarod

Creed: You bet, thanks again, Chris.

Chris: You bet, and thanks everybody for listening, and we will catch you again next time on the Ag View Pitch.