Processor perspective

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 marketing week, getting into the center part of October, the 11th through the 15th, and we've got some special guests with us. We've got two people here with us. Today to kind of talk about the markets as we go into this new week. We've got Brenda Kohane. Brenda, pronounce your last name for me.

Brenda

Kochanny: Kohane.

Chris

Barron: Kohane. Okay, I got that right. So, so see, I told you we don't edit when we do these, so we're just gonna, gonna make sure we get these out right. And then Matt Coley, and I'm not going to call you Matt Cooley, I'm going to call you Matt Coley, senior merchant at Eddyville in Cedar Rapids, Iowa. And Brenda, you are the corn merchandise manager for Cedar Rapids and Eddyville, Iowa as well, right? Yep. Okay, well hey, I muddled through your guys' names and got that out and everything. I told you we don't edit, so that was one of the questions these guys asked me at the beginning, and my listeners know that we don't do a lot of editing. We do it, uh, the real thing here. So with that said, um, you know, we are heading into a new week and a lot of A lot of things are going on in the world right now, and one of the big things for producers is harvest.

And so what I'd like you guys to do, and either one of you can start, you guys decide who, but what's the harvest progress looking like, and what are the— what are you kind of getting a feel for yields in Iowa? Because it sounds like, you know, things look and feel a lot better than maybe what a lot of people were thinking. What are you guys hearing?

Matt

Coley: Yeah, Chris, I'll jump in on that question. Um, just anecdotally, what we're hearing around the countryside right now is that everyone is pleasantly surprised with what they've come across so far in both corn and beans. Interestingly enough, the area of Iowa here that got hit with the derecho last year also faced a pretty severe drought this summer, and the yields that we're still seeing out of— those areas have been surprising, you know, hovering somewhere in the 180 to 210 range, which a year like this, lack of moisture that those folks have seen, that's really shocking to hear. We expected to hear some yields in the lower 100s, not the lower 200 ranges this year. So pleasantly surprised there. And then there are areas of the state here that have had quite a bit of moisture, especially late in the growing season. Had some timely rains around the pollination timeframe.

We've heard some phenomenal numbers coming out of those areas and anywhere from 260 to 290 in some of those areas. So on the corn side of things, we're really happy with what we're seeing so far. But again, that's a small subset of the entire state. So perhaps we've seen some of the better ground come out first. And it'll tell what the last half of harvest looks like is gonna be the big difference here, so.

Chris

Barron: Mm-hmm. What are you guys seeing on soybeans? I mean, from what I'm hearing in Iowa and in our northeast part of Iowa where I'm at, the yields are really good. And from what I'm hearing from a lot of clients are really good, again, with the exception of that North Dakota, South Dakota, area that got super dry and never did catch rain in time. What are you guys hearing in your areas?

Matt

Coley: A lot of the same. Again, we have some of our counterparts that are up in North Dakota, and you know, you hear some bean yields up there of somewhere between 10 and 25 bushel. But across the state of Iowa here, consistency, I think, is the biggest word you could use for beans this year. It's hard to find a field that's less than 50 bushels. But there's not 95-bushel beans very common out there either. So I would say 60 to 65-bushel beans across the state of Iowa is what we've been hearing so far. And as far as progress goes on that side of the ledger, We were somewhere in the 40% complete range at the end of last week. Uh, do expect that we've made some pretty good progress this week. Uh, we had a good run at it the first half of the week before a little bit of moisture moved into the region, but we probably will be somewhere in that 60% to 65% complete range on beans.

Uh, corn is a little bit slower. The calendar is not pushing you to get corn out quite yet. So a little bit slower on that side of things, and we'll probably be in the 40% complete range on the high side for corn, possibly as low as 30 next week.

Brenda

Kochanny: So I think on beans, I mean, on beans too, a lot of producers are really surprised on the counts they're getting off now because I think when the Pro Farmer went out earlier, their pod counts weren't that high. And so I think a lot of people are just, you know, surprised on how well these beans are really doing.

Chris

Barron: Yeah, and the bean size is really big in a lot of areas too, from what we've seen and what we're hearing too. And I think it's just a big surprise to a lot of our listeners, a lot of our clients we work with in other states, you know, they are just, um, really surprised because Iowa, you know, we were so dry, we were so dry, and now, and then now we're producing this huge crop. So it's like, you know, just a little bit of a shock there. So I want to shift gears here a little bit, and the next thing I wanted to kind of hit on is we continue to hear about this supply chain disruption, and there's, you know, there's boats sitting all over the place waiting to dock to offload and those kind of things. And, you know, you continue to hear that kind of stuff in the media, and then you start thinking about, okay, well, we gotta, we we got to move some of our stuff out.

You know, there was the hurricane that affected, you know, getting things out of here, had a big impact on basis and stuff for a while and probably still does. What's your guys' take on the supply chain disruption? Is that something that we need to be paying attention to as producers moving forward here as regard to grain?

Brenda

Kochanny: I think overall, yes, we do need to be concerned. You know, if you look back at just the year we came out of, you know, from COVID to the demand that we shipped down the river for China, I mean, we pushed a lot of grain down that river. And then also just tapping out a lot of rail freight as well. And then, you know, we went into— now we're into some labor issues all the way from, you know, vessels to rail to trucks. I mean, locally, you know, our truck driving systems, I mean, have been pushed. Got a lot of people that are looking for any type of driver sign-on bonuses. I know we had some problems with freight earlier just because people were trying to get, you know, fuel hauled. And so freight is at a big premium. The other thing too is this freight issue also goes back as far as the Suez Canal when we had problems down there and a lot of container shipping.

A lot of stuff goes out of this country back and forth on these containers. That's going to be a problem, and as well as vessels. Then again, it all gets sewed up with our labor, the labor situation we're having. I know the jobs report came out, which was a little— it wasn't as large as expected, so it continues to not really perform at— people coming back into the workforce.

Chris

Barron: Mm-hmm. Interesting. Any comments, Matt, on that?

Matt

Coley: Uh, no, nothing to add necessarily right there. I do think that part of it that you touched on as far as the Gulf and the issues that we had due to the hurricane, we have seen a spike in barge freight here recently, and that has subsided subsided this week, very substantially actually. So perhaps we're seeing a little bit of the glut that we had built up along the river system starting to break free a little bit. So it'll be interesting to see how these river houses bid for both corn and beans between now and when the river closes late November, early December. Whether they get back in the game and compete with these processors on the interior.

Chris

Barron: I think a lot of producers are pretty lucky that we went into this fall as empty as we did, or we would have really had a mess, I think, the way things look.

Brenda

Kochanny: I would, I would agree with that. I've been thinking a lot about that, is how much this crop, you know, we continue to hear people, you know, pleasantly surprised with what's coming out, and one of our biggest concerns was how empty we went in, but I think it's really helping us not have such a buildup of issues going into harvest.

Chris

Barron: Definitely starting to fill some things back up. So, all right, um, uh, getting to my next topic of discussion for you guys I want to hit on is, um, you know, and again, I, I just want to make this point here. I should have did this at the beginning of the podcast, but, you know, again, just trying to bring perspective to everybody. These aren't recommendations, and we're just trying to cultivate critical thinking here, and, and just so that we all have better informed decision-making as producers as we listen to these conversations.

And so what I want to hit you guys up with, Brenda and Matt, is to just kind of talk a little bit about as we continue through harvest here, you know, we just kind of hit on storage a little bit, but basis management and carry are kind of a lot of the things that I see with our clients where there's a lot of HTAs out there, there's some futures positions and things, and producers got to make those decisions. Okay, you know, is this a basis opportunity or do I take advantage of the carry? There hasn't been a lot of carry. I mean, any thoughts on just some things that producers need to be paying attention to as we maneuver storage, basis, and carry?

Matt

Coley: That's interesting timing on that as we, we kind of get into the gut slot of harvest here. This is when we would expect to see a carry build in the market. We've been in an inverse situation here for quite some time now, and even today, just due to some moisture in the area and slower harvest, you're seeing an inverse put back in some of the processor bean bids. Corn bids have softened slightly, but again, we have a ton of bin space that we're going to have to fill up before we start to really build a carry in the corn market as well. So from a cash perspective, there's not a ton of carry out there, so it's going to be based on your personal operation, what your cash flow needs are, Again, interest rates are fairly low. There's not, there's not a ton of incentive either direction when it comes to either generating cash flow now versus in the deferred months.

But I think it's going to depend on what you have the ability to store, because we do expect there to be a basis snap after harvest again. I do think we'll somewhat kind of form back into an inverted tight market. Because we're going to have a general, you know, just a slow pipeline fill this year. We're not going to really have a gut slot harvest. It doesn't feel like— it doesn't feel like we're going to have a ton of ground piles out there this year right now because we're chewing through everything that we're getting harvested right at the moment here. So it'd be interesting to see how this all unfolds over the next 20 days.

Brenda

Kochanny: Yeah, if you just look at our December to March futures spread, we're only at what, 9 cents, which is nothing really to write home about. And then you look at storage and all that goes with it and cost of money and potential of, you know, the inflation concerns and the cost of natural gas. You know, there's just, you know, 9 cents isn't much to work with.

Chris

Barron: It's not. And then it's like you said, it's kind of a balancing act for us on the producer side to say, okay, Do we roll that? Because it's been bouncing, like you said, between about 8 and 13 cents Dec to March, and it's like, you know, I keep thinking, is it going to break through that? So, you know, you can roll some of those out there, or, you know, and basis kind of got hammered after that hurricane went through, you know, realistically. And, you know, and the bushels are coming off the machines fast enough that it's gonna keep everybody satisfied pretty well for a while here too. So it's just a, it's just a balancing act for us, I think to, and like, I think Matt, you said it right. You know, it's every operation's different and we gotta, gotta kind of make those decisions there. So, um, good comments.

Matt

Coley: I think, I think one good point that everybody needs to keep in mind as, as you're going through this and trying to make these decisions, Currently on our bid sheet, we don't have a bid for this crop year that's under $5. And knowing what inputs were last spring and coming into this harvest, if you looked at a balance sheet, I would be willing to bet my next paycheck that your operation can make money at these cash levels. So if you're making money and you can just roll that forward into next year, you know, live to fight another day. You're not going to go wrong here selling $5 cash corn. Or $5.30 cash corn for next spring, you're still putting money in the bank and we're still living to farm another year. So, um, as tough as it is to make a decision, it actually becomes hard to make a bad one at this point in time.

It's going to be that next crop year that gets a little bit tricky.

Chris

Barron: Yeah, and we're going to get to that here in a bit too. And that's a great segue to, um, just looking at, okay, we're going to get through harvest, it's going to get done, we're going to have it in the bin, then we got some more decisions to make, right? And then, and then we got to be looking at the demand side of things, whether it's China or how— what's going on in South America and, and some of those things. Any comments on, on, you know, the demand side of the picture here? Because as you said, you know, Matt, We're sitting here, as I look at it from a profitability perspective from our clients, it's been 2012 since we had this kind of an opportunity, you know, 2008 there. I mean, these don't come along very, very often and they don't last very long.

So any, any watch-outs or just things that you think producers should be thinking about, you know, post-harvest and watching the demand side?

Brenda

Kochanny: I think what I mean, the one we already hit on was the supply chain, right? And then the other thing is China, you know, they came in pretty, you know, empty last year. And obviously, I mean, they really propped up their exports and they're behind on their trade one phase deal. But they also, I think they're stable more on their sow herd. They have Also too, their rations, you know, we're hearing reports of do they change their rations? They don't typically do that a lot, but I think they're playing that with a little bit of head fake. And then you add in the ethanol story. So, you know, last year in COVID, early in spring, some of these plants were running at, you know, not very much money, but the DDG on the back end was helping them make the margin.

Now, right now we're hearing reports ethanol anywhere between between 20 and 40 cents a gallon profitability, which, you know, ethanol plants don't normally see that. I think the biggest question is, as you look at the geopolitical landscape with the EVs and some other items, what happens, you know, with ethanol and how long does that sustain? So there is some, you know, opportunities of demand destruction, but We also have, like I said, China can go both ways, whether they fill their obligations or not. They're probably the biggest wild card. South America out there, I mean, they had some roughness getting going into their season. They've still got some dry areas. I think the reports of anywhere between 30 to 40% that they're planning, and correct me if I'm wrong, they've really built up their port infrastructure too. So we've really got to keep an eye on that.

And the other thing is, is the economy in the US and our dollar. So it's a big watch out this year. And then what this, this energy market does and how that affects, you know, the whole, the whole factors.

Chris

Barron: Yeah. On the other side, and I just thought of this, but you know, you think of where inflation's at though too, and you look and this kind of leads to this '22 question of, you know, what things do we need to be thinking about going into '22 as well. And on the inflation side of things, we're looking at pretty massively high fertilizer prices and some things, crop rotation decisions are going to get interesting and those kind of things. Any comments on that too, as we, as we, you know, not only try to figure out how do we, how do we finish up '21 after harvest and, and, you know, into the springtime. But we also got to be making a bunch of decisions on '22 at the same time, don't we?

Matt

Coley: Yeah, certainly do. And it's not— there's not a lot of information that you can put your hands on right now as far as being able to lock in fertilizer costs and things of that nature. You know, typically at this time of year you'd be looking at had everything that you could get your hands on, but lack of information and willingness to actually contract any inputs at this point in time from lots of entities that really made this fall challenging.

Brenda

Kochanny: And we're in such a pinch right now too because of— we have some freight issues hauling the stuff. I mean, you've got vessels in, in in the middle of the sea and they're getting diverted. I mean, you don't hear that all the time. And then you add in some of these countries have taken down their usage and their coal plants, so they can't really go back. They're not able to go back that fast. Right? So we've got this kind of this whole big competition on natural gas in between Europe and Asia and Latin America. If you look back at just like, just urea prices alone, I mean, it, you know, Earlier last year on the dry side, we had a 3 in front of it, and now we've got, you know, almost a 6. So, you know, and that's kind of repeatable on any of the inputs. I think it just goes back to what Matt said earlier about having that plan. And we also talk a lot about marketing diversity.

You know, have a diverse plan. I mean, no eggs in one basket. But also understanding what a couple scenarios could look like. I mean, map them out. What does a break-even look like at X? I mean, play some long game, maybe big scenarios that you think, wow, that would never happen, but just pencil it out and really kind of take some hard looks at that. You kind of have some good ideas of what it could look like for your operation.

Chris

Barron: Yeah, one of the things I anticipate happening with a lot of our meetings, we— that's exactly what we do with our clients. And then I am anticipating a lot of corn versus soybean scenario running because of the input costs. And then, you know, there are certain areas that are fairly heavy soybeans always, and certain areas that are more heavy corn. But I think those heavy corn areas are going to start looking more at beans. Do you guys have any concern or see any Any, um, any trends there or any thoughts?

Matt

Coley: I think it's too early to see if there's actually going to be a trend, but I was— couldn't sleep in the middle of the night last night and was making some notes for myself, and I— one of the notes that I made was that 15%, maybe up to 20% of these corn versus bean acres, I think there's a big swing factor there to where you could see an area that's typically heavier corn flip over to beans this year just because of lack of inputs or just cost of inputs in general. So, you know, I primarily focus on the Cedar Rapids draw area for, for Cargill here, and we're typically 60/40 corn to beans. Acre split. And you can see that drift back more towards 50/50 here next year. And you know, that's a big deal when you start to look at how many bushels of corn that takes out of your draw area in any given year. So, uh, certainly something that we're going to keep our eye on.

Chris

Barron: Yeah, and how many additional soybean bushels that adds into the equation too. It's, it's It's kind of, it's going to be an interesting one for sure. Do you guys have any other final thoughts? We're getting close to wrapping up here. Anything that I didn't ask or anything that, you know, producers need to be watching as we head into obviously the middle part of October for harvest? And I'll let each of you take a turn wrapping it up, and I'll pick on you first, Brenda, and then we'll let Matt wrap it up from there.

Brenda

Kochanny: Yeah, I'll just go back to kind of this, you know, cost of production, marketing plan, diversity. I'm sure, Chris, you've talked about it. There's some really great resources out there on the Iowa State, Purdue, University of Illinois websites to kind of go through some scenarios on breakevens. Even if you don't know maybe exactly what you all have on your operation at this point, you can definitely play with that calculator. And then I would say, you know, work with, you know, your grain marketing firm on really vetting out a plan and having them help you kind of be at the seat at the table. The biggest thing I've been talking about with producers this year is we made some emotional knee-jerk reactions because of COVID and we're also burning because of, you know, we saw some very high corn prices when we maybe sold a lot ahead.

Biggest thing we don't want for a producer to do is knee-jerk the other way. So having that discipline to talk through and write down some of those plans and just have kind of that vetted out will be crucial, right?

Chris

Barron: Yeah, don't beat yourself up on, on what you think is a bad sale. There's no such thing. So it's perspective.

Brenda

Kochanny: Absolutely.

Matt

Coley: Yeah, I think, uh, those comments are really important. It's It's important not to become just a deer in the headlights out here. Everything's moving around you and you've got to stay in step with what's going on in the marketplace. So the best thing you can do is just keep your hands on new information as fast as you can get it. And if you need to run some scenarios by, by your neighbor, by someone at Gargill, by Chris, by all means pick up the phone. That's what we're here to do is try to help you as far as deciphering information, creating a game plan, and then taking those next steps to make sure that your operation remains profitable in the next year.

Chris

Barron: Well, hey, I really appreciate you guys both doing that, and I'll tag on my final thought here, Matt and, and Brenda, is the thing you just mentioned, Matt, on picking up the phone and making a call. I appreciate you guys because I use you guys at Cargill all the time to run those scenarios by you guys, tell you what I'm thinking, and I think it's important that as producers we stay really close to our customers who are those end users that are using our bushels and make sure we have good lines of communication. And Matt, Brenda, I really appreciate you guys for that with Cargill and also appreciate you guys being on the podcast today.

Brenda

Kochanny: Thanks, Chris.

Matt

Coley: Thanks for having us.

Chris

Barron: Yeah, you bet. It's great to have both of you on. And again, that's Brenda Kohane and Matt Coley. And Brenda is the corn merchandise manager in Cedar Rapids and Eddyville, Iowa, and Matt is a senior merchant at Eddyville and Cedar Rapids, Iowa as well. Really appreciate them being on. I hope this was informative for everybody, and if You'd like to please share this podcast with other people, and we'd like to get it out there as much as we can to some other producers. So if you have a friend or a neighbor that's out combining, kick this on over to them, and really appreciate that. Stay safe out there finishing up harvest, and as you continue to roll through that, appreciate everybody, and we will catch you again next time on the Ag View Pitch.