Weekly market outlook: Oct. 24th-28th - technical and fundamental market movers

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.

Grant

Shimek: Welcome everybody to another episode of the Ag View Pitch. We are heading into a new marketing week, the 24th through the 28th, the last full week of October as harvest is in full swing, getting wrapped up in some areas, but I know a lot of you are in full swing. We've got Grant Schimick with us, Black Oak Financial. Grant, how's it going?

Chris

Barron: Good, Chris, yourself?

Grant

Shimek: Uh, going really good. Um, didn't sleep much last night. We, uh, we have two combines and we have one that's been in the shop the last couple of days, so it's been a few sleepless nights trying to, uh, keep one machine going around the clock to make up for the lack of the other one. I, I see now why we have two, I guess. So or not.

Chris

Barron: Yeah, breakdown, never fun.

Grant

Shimek: Yeah, the downtime is, is an expensive endeavor when, uh, the combine usually keeps, you know, uh, 3 or 4 people gainfully employed. And when it's down, all of a sudden everybody's looking at each other, okay, now what do we do, you know? And so, so it's been a little bit of a stressful situation last couple of days, and I'm sure everybody has those windows of, of stress like that. And things are for the most part going pretty good though. We're pretty blessed in our area. Yields have been really good. Not— I think you said offline too, like in your area maybe not quite as good as last year. We're in what I think people had considered the garden spot, and I still think we're off of last year now. Now that we've gotten far enough into harvest, we're not seeing as good a yields as I guess we thought maybe we would.

And I think it comes back to just later planting dates for us, and in other areas it's dry weather. What are you hearing harvest-wise and yield-wise?

Chris

Barron: Oh, it's, it's good. There's a lot of APH+ in— if you are, let's say, you know, east of I-35. And now, not always, you know, you got to probably be north in Iowa anyway, north of— oh, maybe is it Highway 6? That runs east to west, just south of Interstate 80, and on into Illinois. It depends on the locale. There aren't a lot of disasters there. There are a lot— there might be some areas that are slightly below APH, and that are the poorer areas. Lots of good yields, like APH+ in Indiana, Ohio, in general. There's always exceptions everywhere. As far as the areas that are poor, I-29 corridor in Iowa, and then of course spots in South Dakota, North— uh, Duke, Nebraska, lots of poor stuff in Nebraska, in western Kansas. And so yeah, you're in those areas, it's a different world. Otherwise, it's not, not bad at all. Southern Minnesota, southern Wisconsin, strong. In general.

So yeah, that kind of, kind of a typical year. There's always areas that are poor and some that are great, and you know, for the most part it's typical.

Grant

Shimek: Yeah, with that said, that's kind of the, the harvest thing, and then that leads to another thing that's kind of been a big issue here, uh, lately has been, um, the low, low river levels and lack of sleep here. I can't speak. The low river levels and kind of what's going on. Talk a little bit about that situation. I know you're up to speed with a lot of that stuff.

Chris

Barron: Well, navigation is closed down like 3 separate states, and obviously given the draft levels, everything's running at a percentage of what normal is. You step back, look at it, and think, well, that doesn't hurt. What's that got to do with demand per se? Well, it doesn't. I think the greatest The risk that we have is that we dislocate things and we don't get things through the pipeline, and then if something did turn, you know, we did have a hit to demand later on, then it would compound it. Do I see that happening? No, I don't see or not see it, in all honesty. It's this, if you, you know, if you want to play devil's advocate, you have stocks up and down the river that are stranded and they're not getting moved to the port. So they're not getting moved out. And you can see that in the export numbers that were way down on wheat and corn. We're not as high as we could be on beans.

And that, I think the PNW is moving as fast as it can. But, you know, I guess we'll see what happens. You know, it's, there's lots of, you know, even piles of beans in places like Memphis that you usually wouldn't have it, which If you're in the north, you're like, "Oh, big deal, we pile beans on the ground lots of years." I think maybe the temperature difference is going to be maybe a risk there. And, you know, if grain goes out of condition, in and of itself, it's never a bullish element for the market. But, and it's getting late, you know, it's going to be late October. Even if it does rain and the temperatures turn colder, a lot of the stuff isn't going to get moved too far unless some unusual things happen. So it's going to be something we're going to be dealing with in the winter.

Grant

Shimek: That kind of leads into, you know, basis as a conversation overall. You know, in our area we've seen— we saw basis obviously super good going into harvest, and we saw it go away. Then we saw it come back as people got into beans, and the corn basis took off again. And, you know, it seemed like, you know, they, they had a— they had a lot of corn for like a week, and then all of a sudden they didn't have as much corn. It's almost like the, the corn is going to have to keep, you know, being pushed into the pipeline, or the second it's not, all of a sudden the basis takes off again. This, this week now we've, we've seen basis get not as good again. Do you anticipate basis being pretty strong once we get a little bit further towards being wrapped up with harvest?

Do you see basis coming back and being pretty strong again just because, you know, some of these low areas you talked about? I mean, you mentioned all these areas that weren't so good. That, that has an amplifying effect on, on basis everywhere. I mean, it's a, it's a domestic and global market that's gonna, you know, gonna feed into that basis strength. Talk about, about that for a minute.

Chris

Barron: Right. Well, there have been comments this week that commercials are surprised by how little, relatively little corn selling was being done by the producer. I think that As we move on, all things held constant, which is a— in this game is a foolish thing to say, but you know, if we, if we look at it, we're cruising along now where we have hot and cold with the grain corridor coming out of Ukraine and we have a tight supply and demand situation. You would assume that to keep the grain flowing, the front-end basis pushes are going to be there. So that being said, how do you get poorer basis? Well, it could be that we do take off on a run to the upside, and then the basis doesn't have to do the heavy lifting.

So if you are already committed with a hedge drive or something like that, that's probably more your risk, is that, well, yeah, I've got a— what is a reasonable basis, and I know where I'm at, you know, your flat price, and then we take off on a rip to the upside, and you're, you're hoping for better basis. So I'd still be cognizant of the, the net dollar amount that I'm dealing with because Murphy tends to show up, you know, when profits are this high Murphy tends to show up and they disappear on you.

Grant

Shimek: You said if the flat price would take off to the upside, what is it that takes it off to the upside?

Chris

Barron: Well, if the futures price takes off to the upside, I tell you that the numbers I'm watching, to me the week of the 14th of October was a significant turning point from a timing standpoint. You can see we kind of rolled over last week from those levels. So if we would close above those levels, then the market's telling us something different. I would assume we would erode from those levels into, you know, late calendar year, early next year by a little or a lot. But if we do close above them, and that'd be like on Jan beans $14.23 and a quarter and Dec corn, the high was $7.06 and a half. So if you could decisively break above those levels, well then the futures market to do that could do the heavy lifting. And if you end up being challenging the summer highs on corn, or we get back into that $15 handle on front month beans, well then the basis isn't going to do the work.

So, you know, it's fine if you're unpriced because then the flat price is, is what it is. If you've got base contracts and you're looking to gain that, you kind of have to watch out too. If you're seeing a good offer, if you're seeing a reasonable opportunity now, it doesn't mean it's necessarily going to be there on down the road.

Grant

Shimek: Yeah, and for everybody it's so different too, you know. For, for one person, right, your net, your net income or your margin is, is record at at, you know, even $6, and the next operator, it takes, you know, $6.50 to be record, or $7, or whatever.

Chris

Barron: And right, and some, some of these areas like, you know, Nebraska, Kansas, those areas that have been hit hard, it's hard to imagine that— let's say that we did have a rip to the upside on futures, would they need to panic? Well, you wouldn't think so because there should come an opportunity to set basis again at some point at something pretty strong. Yeah, if you're in a heavy, heavy yield area or you're dealing with a lot of, you know, rivers still backed up and there's heavy inventories, there may be not as much incentive to keep that basis where you'd like it to be. Mm-hmm.

Grant

Shimek: Okay, so from a technical standpoint, um, Anything, anything else that you're watching? You're, you're kind of the technical guru that I rely on from a technical standpoint. Is there anything else that you're watching that's notable that we should be aware of?

Chris

Barron: Uh, just those numbers I laid out above us. The big— another big number on front month corn is gonna be like $7.18 and a half. So if we would get above that, yeah, that's how you can get up and, and keep probing. There's retracement the 75% retracement level on, on the high on Dec corn to the low is about 714.5. So if we got up and jab that to a large degree, we're just killing all the bearish energy. Not always in every case because there is no such thing in this game, but that would make you think that, okay, we could go up and test these highs. Otherwise, we, you know, what have we been doing? We've spent almost 7 weeks here in this range from about 660 to essentially 695 has been the bulk of it. Or just, you know, it breeds complacency in both directions. Yeah, nothing's happening.

Grant

Shimek: Yeah, yeah, it's— I think Jared Creed called that, we're, we're going sideways violently. Violently sideways. On soybeans specifically, from a technical standpoint, you were talking like that $14.23. I think there are— and correct me if it's different in your situation— but a lot of the growers that we work with actually put a few more beans in the bin this year than quite a bit more than normal and are actually sitting on some beans. From a technical standpoint, that $14.23, I mean, what do you sit there and How much risk do you leave on the table, I guess, with soybeans if you're sitting on, on soybeans that are either not priced or no basis and all that?

Chris

Barron: Well, this is a, this is a case-by-case basis, right? Individual's own psychology, because a lot of people are looking at here coming into a fall where we— I've seen it said many times where people are in the best financial situation as far as liquidity and, and position that they've been in, in years. And so they're much more willing to take a risk and swing for the fences. Now, is that good or bad? Well, you got to know the future. No, for certain. And I think that as we— the more we— the closer we get to '23, I don't, I don't like the looks of some of the patterns that we typically see in years that end in 3. Now, I want to stop right there and say I'm looking from about 1953 forward, and for something to be statistically significant, you usually need more than 30 data samples.

So I concede that, but if you go back and think of years that end in 3, the bulk of them have a rough first half, and a lot of them make lows right in the middle of the year. So if we do get these runs that take us into— if we get the odd thing that happens and we're running hard into winter. And I know some of you say, "Ah, well, we did that the last 2 years." Yeah, I know, but that's not a very typical seasonal thing to run into January, February to the upside from the fall in a significant way. But if we get it, just, you know, I would be aware of that. Now, also with that pattern that ends in 3, a lot of those years, like let's say '83, '93, '03, '73, What happens, you beat down in the middle of the year on prices and then you come back in some cases with a vengeance in the late Q3, Q4.

So I'm optimistic for the future given where we at on this, about agricultural production cycle and the Grand Solar Minimum would say that, hey, it's going to be tougher to produce big crops, so prices should be strong. It's just that on the front end here, I'm, I'm risk averse because I see a lot of I see— I don't see black swans, I see a potential flock of black swans, right? For me personally, I'm an aggressive seller, but when it comes to the individual and they want to swing for the fences, hey, they could be right, right? And that's why I think you got— if it's, it's your money and you're going to take the risk, well, who am I to say, right? Right.

Grant

Shimek: Okay, so another question for you. Ukraine Um, there's more heat being put on the fire there, um, this last week or so. And you talked a little bit about the power grid and stuff. Touch on that for a minute, and then I want to relate that back to fertilizer and stuff is where I want to get to with that. But talk a little bit about what's going on over there and your perspective of how that might influence some things.

Chris

Barron: Well, it's not getting better because I think Russia started to hit the power grid, which is— which was the expectation of what they were going to do right away when they moved in in February, which they were just going to take the country down because that's standard operating procedure to take the country down and occupy it. You knock out the power grid, you knock out internet communication, and you dominate it. And that's how the U.S. does it when you go into Iraq or wherever. You just— that's first step. So that was kind of the point of confusion for many months, why they didn't do that. Well, it looks like that they're starting to be more aggressive with that. So as we— the Green Corridor Agreement has until November, and it's getting kind of murky. So we'll see if that can— that's, that's how you get a part of a bullish element here that drives this up. Mm-hmm.

There's, there's been some interesting things by some investigative journalists I follow that have been able to, you know, make big calls and other things like that. And they've been— one individual's been talking about a potential peace deal coming to fruition as we end October, which makes you think, well, that doesn't make any sense. And this individual explains it as you have to escalate to de-escalate. On both sides to the point where we can get to that point. And there has been rumblings of that. So you can see how this gets confusing. So at one— on one end, the power grid's being taken down in parts of Ukraine. Why would this not get worse as far as export shutting down and the whole fertilizer situation? But it can also get turned on its ear and Given it's an election year, the timing of that for the midterm elections could also be paramount.

Now, that means you could end up getting a peace deal. And am I saying that there's going to be peace there? Probably not. But could you get a truce and create a lot of market volatility for 3 to 6 months? Absolutely. Mm-hmm. And so it's wild. Like it has been all year. And so I can't draw conclusions, but you can see how it can all change in a week.

Grant

Shimek: Yeah, well, it's just one of those, um, outside macro, uh, things to be watching for us as farmers because it seems like, you know, like you said, it can get turned on its ear all of a sudden. You know, the market's up a bunch for the day or it's down a bunch for the day, or fertilizer is being impacted. One way or the other. And that's one of those big things that seems to— when there's news, it seems like it's moving stuff around one way or the other anyway, at least. So something we probably better pay attention to. Um, we'll, we'll stay tuned on that topic, I guess. The last one I want to hit on with you is the 2023 marketing. This reminds me of, um, I should have put my phone on do not disturb, and I don't know how to do that while I'm recording. So if people are listening, they're like, my phone is doing this.

No, it's my stupid phone because I wasn't smart enough to put it on do not disturb. Um, everybody wants to know what to do this morning apparently. Uh, 2023. Yep. If you go back and you look, and, and it's all— I feel like I've seen this movie before. In 2012, we, we had all these opportunities for 2013 and 2014. That most of us didn't take advantage of because the price was quite a bit lower than what it was in the given year we were in. But yet there were, there were margin opportunities that were pretty significant in terms of, you know, profitability that was there. But a lot of times you just, you know, sometimes the best time to make sales is when you don't know. What makes you comfortable for 2023 sales?

And I know it's different for everybody, But I'm asking you, Grant, like, you know, what makes you— and I don't want to throw you under the bus, I'm just saying, you know, from a risk management standpoint, what are some things that, that we need to be super aware of as we think about '23? Because there's a lot of stuff being bought, and what's making me really nervous is people are buying fertilizer and buying stuff, and if you're not setting that stuff off one-to-one, I think there, there could be some big-time risk ahead.

Chris

Barron: Right. If you're gonna buy fertilizer, especially in size, then, and you don't price any '23, because, you know, you look at it here at $623, we've been, you know, knocking on $630. There's revenue there for most people to cover those expenses and still have a good net. So I think we're talking about a 10 to 20% zone for a lot of people. I would go back to first off is where's the individual at or where am I at on '22? And if I'm not heavily sold, if I've had APH Plus and I am under 50% at these levels and then I'm still, and I'm putting out significant money on '23 and I'm not selling '23, well at least that's why I'd be definitely making a sale. Now I say that knowing That's not the way most people's brains work. You're not going to be sitting on a lot of '22 crop and then sell some '23. I know a lot of people don't do that. Some do.

And that goes back to, well, you got a bucket of risk. How much, how much risk do you want to throw in that bucket? And I'm, I'm more apt to, because of the net returns, to be aggressive on '22 and less aggressive on '23 because I have a lot of time to market '23. Doesn't mean it's going to turn out, but at least I have time to be wrong. Yeah.

Grant

Shimek: And, and, but you talked about, you know, you said years that end in 3 and different stuff. I mean, are you concerned at all? I mean, I'm, I'm laying my bias out here now, but are you concerned at all that, you know, this thing could turn the other way when we've had some pretty good margin opportunities? Or are you—

Chris

Barron: yeah, are you pretty comfortable? I mean, I think that the '22 crop I don't— I'm, I'm going to guess that given these patterns that I think '23, holding '23 crop into— holding '22 crop, excuse me, into the middle of '23, I bet it's not going to return. I think it's not going to pay. Depending on how we move over the next few months, I think it just might pay going into that first quarter and As I said here today, it's a coin flip. I mean, if the market wants to run, it's going to run. But I don't think it's going to be a strong summer, would be my guess today. But I do think late '23 and early '24 could be really good. And that pattern, again, it's not a good data sample because it's It's basically— I'm looking at 1953 through to date.

The typical pattern is weakness into the middle of the year that ends in 3, strength, and then that year that ends in 3 has good prices, a good price opportunity relatively late in the year that ends in 3, and then a ramp into spring. It's a— in general, April 1 to June 15 for the year that ends in 4, and then lots of those years, that's the high of the year. If you think of 2014 and '04, '94, the highs are put in the spring and then what? Drops, tanks into fall. So I'm thinking if we repeat that, we still have a good opportunity. But if you're holding on a lot of '23 crop and it's a '22 crop and it's bad in the mid-'23, well then you have that, all that emotion of when the pressure builds and I think that is a great risk because of what I see is significant risk of war escalation internationally next year.

And if it— you can say, yeah, but that could be bullish like it has been, and you're right. But if it's negative and you're looking at strong yields and you have 30 to— I've had guys, we've walked through the numbers, and the yields have been strong and they're looking at 80% returns on a gross dollar invested per acre in corn, I'm not sure what number we're waiting for. I mean, is it 85?

Narrator: Is it 90?

Chris

Barron: And yeah, so yeah, let's swing for the fences on '23 in those example cases. But yeah, because I don't know about the '22 crop in the mid-year next year.

Grant

Shimek: Yeah, well, and for '22, it's getting to the point for most people they know what they've made, and then you, you just make a margin decision of, okay, this is you know, almost everything becomes a known the minute the combine harvests the last piece of grain. Everything is a known, and right, you know, and '23 is yet the unknown. However, you do have your APH, you do, you are able to do some, some math, and as we do the math with a lot of our clients, it's still, you know, close to a record of revenue, especially on the corn side. Soybeans, not so much. In a lot of farm operations that we look at, but on the corn side of things, it's like, you know, being aggressive is hard to argue with, you know. It's hard to say, you know, that's the wrong thing to do.

Chris

Barron: Not—

Grant

Shimek: I'm not— it's not recommendations at all. I mean, everybody's gonna make their own decisions, but on— but as you look at the numbers, it's like, you know, as exactly like you said, what are we waiting for, you know? Define, define what our margin target is, I guess, is what I like to see people do.

Chris

Barron: That's probably the main thing. It's— I'm not gonna say that somebody is wrong, and just know where, know where you're gonna be wrong is the thing. What, what number am I waiting for the upside? And what am I— do I make them do anything if I'm wrong? Because if anything, we know these swings can be big when we do start moving, and then, and then you look at, wow, look at the numbers I had. So just, just know where you're wrong and don't Don't take outsized risk.

Grant

Shimek: Yeah, yeah. And then when you do, I think it was you told me one time, you know, when you do the right thing, you never do enough of it either. Well, yeah, so, yeah, yeah. So, well, hey, Granick, this was a great conversation as usual. Um, I appreciate your information and knowledge, especially on the technical side. You pay attention to things more than a lot of people on that respect, and I really appreciate your information and knowledge. If people want to get a hold of you and, you know, want to give you a call or want to check stuff out that you're up to with Black Oak Financial, what's the best way to do that?

Chris

Barron: You just go to my website, blackoakfinancial.com.

Grant

Shimek: Awesome, that sounds good. And, uh, really appreciate your time here today. Be safe with the rest of your harvest and stuff, and, and, uh, we'll be in touch again soon. We'll get you back soon.

Chris

Barron: Okay, thanks, Chris.

Grant

Shimek: Yep, thank you. And thanks everybody. Want to make sure everybody is safe out there and keep things rolling. And we will catch you again next time on the Ag View Pitch.