Weekly market outlook Oct. 3-7: harvest markets

Chris: Hey everybody, before we get going with the market outlook for the first week of October, just wanted to remind everybody about the Ag View Executive Business Conference, January 24th, 25th, and 26th. Early registration ends October 9th, so if you're planning on going and are not registered yet, try to get that done beforehand. The registration will continue beyond that, but the early discount ends October 9th. And so with that said, Just wanna let everybody know that there was no hurricane damage at St. Pete's that was like super substantial. Luckily, the hotel is already open again that we will be having the conference at. So we're pretty lucky there. We originally thought we were gonna be at Fort Myers Beach and thankfully we didn't get that one booked and we are at St. Pete's Beach.

But we are thinking about all of those in Fort Myers Beach and praying for them, those all affected there in Fort Myers and Naples area, so. With that said, we will turn you loose on the market outlook. Thanks. Welcome everybody to another episode of the Ag View Pitch. We are heading into a new marketing week, the first week of October. I know a lot of you are out harvesting, some of you are still waiting to get rolling, and some of you are done in the South, but We are lucky enough to have with us Dwayne Lowery this week. Dwayne, how's it going? Good, Chris. Awesome. So hey, I'm gonna— I'm gonna— I didn't tell you this offline, but I'm gonna pick on you, man. We had you out in the field this week working, didn't we?

Duane

Lowry: Yeah, you did. Evidently it's hard to find a mediocre grain cart driver.

Chris: Yeah, I know. You did— you did really good. You didn't even like spill anything. I was— I got my shovel all shined up, thought maybe I'd get to do— get some exercise outside, but I didn't even have to do that. So it's a good job.

Duane

Lowry: Well, I'm glad there were no, uh, Twitter or Instagram moments that I was involved with.

Chris: Yeah, well, that is one thing though that I told our team when we had our pre-harvest meeting. I'm like, no, no, uh, social media pictures unless, uh, unless you, um okay it with me, you know. So, um, you know how that is, you know, you don't want to get too much bad news out there. Things, things do happen. But so, hey, uh, as I said at the beginning of the podcast here, this first week of October, um, it's always interesting every year. There's the seasonals and all that stuff, and harvest is underway in a lot of areas. Um, it's, it's kind of up and down. I mean, we're hearing some really tremendous yields and some not so good. We took out a 102-day hybrid this last week, and it was good. I mean, it wasn't, you know, it was in the, in the 220 range, so I'm very happy for our area.

But, you know, that, that's just telling me that, you know, we're probably above average some in our area. The beans are— a lot of the beans we're hearing in our area are coming out in the high 60s. You know, we had last year probably record yields, you know, uh, 2018 we had some record yields. It's just kind of all over the board. What are you hearing on early harvest stuff?

Duane

Lowry: Honestly, Chris, I don't feel like I've heard enough firsthand reports to really have a strong feeling about the scene going forward, and I have found it difficult to get a lot of confirmed second or third-hand report yields. So I'm having a difficult time determining what the theme is, or at least being confident in the theme. So far, I haven't heard a lot of people use the word disappointing. So I think that's good. I would assume in the case of corn, we haven't seen our best yields yet. We haven't got into the best fields. In the case of the beans, it sounds like there's quite a bit of concern consistency that they're quite good. When you say, use the term upper 60s being common, that's kind of similar to what I hear.

There have been some super good bean yields over the last few years, and so it's difficult to gauge these upper 60s or 70s versus, you know, whether that was expected or not. But so far, I guess the only thing I would say is I haven't heard the word disappointing yet. So I think that yields are doing pretty well. But I also haven't heard, you know, a lot of reports from the areas that were the driest. And in the Plains states, we know that there were some definite sizable yield reductions. I just find it difficult to get a handle on the theme. Maybe it's too early or Maybe people are more quiet, I'm not sure.

Chris: Yeah, if they're quiet, that a lot of times that means it's really good. But, um, so let's, let's move into the another like kind of logical topic here then. In harvest, we've seen basis levels really come back off of where they were just, you know, a couple weeks ago. We had some super strong basis levels. A lot of areas have come back off.

Duane

Lowry: There's—

Chris: some exceptions to that. What, as a farmer, what are you looking at basis-wise? I mean, are you— do you think that as we get further into harvest, if there are some areas where maybe it's not as good, the basis gets kind of crappy, and then maybe we see it come back even before harvest is done if farmers decide to quit delivering on that crappy basis level? Do you think we see some more strength come back, or do you think it just keeps eroding?

Duane

Lowry: Well, the basis levels are, you know, backed off from very, you know, high levels, and the backing off at this time of the year usually is the buyer putting out a bid where he hopes to buy from, and I would imagine this year, no matter how much they back the basis off here in the near term, I find it hard to believe they're going to keep that basis very weak Yesterday's stocks report probably plays into that statement a little bit, but I kind of felt that way even beforehand. The pipeline, you know, certainly was pretty thin by the time we get into new crop harvest, and right or wrong, the farmer doesn't seem to be a very, you know, interested seller, even though prices are, you know, quite good. And I think the farmer has seen the value of putting bushels in the bin and waiting for a better basis. Forget the flat price idea of it, just better basis.

And I think the farmer is going to store as much as he possibly can, given the stocks level that we have and the fact that yields right now are seeing, you know, 5 bushels an acre less than last year or something like that. There theoretically should be plenty of storage space for them to do that. And I think basis levels will have to firm as harvest unfolds, and I don't see basis being able to maintain much weakness. Mm-hmm. And probably the exception to that statement would be if, you know, the futures market, you know, got super strong or something, but I doubt if basis weakness is able to be sustained very much. I think the cash buyers are going to find it difficult help to get the supplies that they'd like to have. And so I would imagine basis firms.

Chris: One of our core values at Ag View Solutions is transparency, so I'll be transparent with what I'm doing on some beans, get your opinion, because I think there's a lot of people with this question of, uh, do you put beans in the bin, you put corn in the bin? And we had a plan going into it and we're kind of sticking to it. I guess we I— we, we've always in the past pretty much just hauled beans right off the combine. Even last year, for the most part, we did that. This year we are gonna store a lot of beans. We had a lot of November HTAs, and we're putting a lot of them in the bin. Uh, we got good basis on the early harvested beans, and then now we're putting those in the bin. And maybe, I don't know if we're gonna roll it.

I mean, if you're gonna roll it, I think the first part of November is always You know, like historically, probably an okay place, but it just— this year there's really no carry to roll it. But I think we're still doing it mainly just because if we do roll it, um, you know, we will get a lot better basis. Any, any comments on that? Does that make sense, or, or, you know, should we continue to be rolling them off the combine, take that price? I mean, the problem is now is we've We went from like in our area, buck, I think beans were like $1.50 or almost $2 over to now we're like $35 under.

Duane

Lowry: Well, 30 days ago I would have probably agreed wholeheartedly with that plan. I'm finding myself pondering now just what we are dealing with to some extent in the case of beans. I feel like my head is spinning. September 12th we had such a bullish number from USDA and had carryout down to 200 million or less as a perceived possibility, and then yesterday we find, you know, revisions in last year's crop, we find, you know, larger stocks than anticipated. They're not— that wasn't a large number by any means, but it changed the whole dynamic and feel of it. You made a comment that there wasn't a lot of carry in the market. So typically if there's not a lot of carry in the market when you store the beans and looking for basis improvement or, or looking for flat price improvement, you know, you don't really have a crutch to lean on.

Everything, you're just kind of betting on it all to unfold. And I don't find it easy to answer your question, to be honest with you. Basis values are backing off and part of me wants to say that I don't think the basis will be able to stay weak for— and, uh, but the other side of this corn coin is, you know, barge freight is very high. Uh, that means that it's going to be— the river bids are not going to be competitive. That means that, uh, the processors maybe is going to have to get more of the supply that are available at harvest, and maybe that keeps that processor bid, you know, depressed more than than maybe we normally might expect it to be, and I say maybe because the futures market right now is about $1.40 off of the high made the day after the September report, and it's the lowest futures price we've had for a while.

And the farmer, right or wrong, is not in the mood to sell anything on weakness here, so I don't— I think the cash market is going to find it difficult to buy beans from the farmer at these 30-under type values when they've seen overs for so long and the market is more than a dollar off of where it had been, you know, quite a bit of the time during the last half of July, August, and September. So I find it difficult to believe that the basis values stay weak because at Cedar Rapids at $30, $35 under, that's not too far from kind of a normal—

Chris: a normal stock is $40 under.

Duane

Lowry: Yeah, yeah, so it's not too far below that, and yet even though yesterday's stocks report shows a few more beans, the entire aura of cash basis corn, beans, everything, and what it's been, it doesn't give you the feeling that, oh boy, I better urgently get this basis sold at 30 under because normally it was at 40 under when you've seen months where the basis values have been so good. It just doesn't seem like something that the producer is going to be enticed to do. It doesn't seem like something the elevator is going to be enticed to do if they buy bushels. So I think it seems to me everybody, again right or wrong, feels like they have the incentive not to make those cash sales. I, I don't want to be very spacious of those values.

Chris: Yeah, it's interesting you say that too because I think a lot of, you know, it looked like the truck pace started to slow down as the basis started to go away. And I don't know if that's the case in every area. If it's, if it's a lot different in your area and there's 5-hour lines to get bean trucks dumped, um, send me an email or a text or whatever because I'd be interested in knowing what other areas are seeing. So if you're listening to this, um, you know, feel free to text us kind of what you're seeing for basis levels and stuff and give us some more to chew on. I guess the other thing too, as we came off last Friday's report, you know, we ended the week with corn a lot higher, beans a lot lower, you know, and you said, you know, you're finding that hard to metabolize or whatever.

What As we go into the next couple of weeks between corn and beans, is there anything you're watching or anything that farmers should be paying attention to?

Duane

Lowry: Well, let's separate them out because it feels like corn and beans each need their own little conversation here. In the case of corn, you know, Friday's settlements were not that much higher. I mean, they finished 20 cents off the highs pretty much in the nearby December contract, um, only finished up 8 cents on the day. Um, but as the market and the traders look forward to this October USDA report, number one, right or wrong, uh, I think many people, the sentiment is that the yield for October might be shaved off a little bit more. They are looking at stocks down significantly. They're looking at some of the tightest stocks-to-use ratios we've had. In, you know, quite a few years.

People are having a hard time figuring out where on the balance sheet USDA could shave demand, and some people think they might lower exports, but others say, you know, with Europe down as much as they are, export prospects might be good. And so the net result is I think traders are going to go into this October report anticipating numbers that will be difficult to be bearish, and so the corn market is probably well supported as we go into the October USDA report. I think the basis values probably are well supported, so looking forward, that market is probably going to hold relatively well. And then you flip the page and you start talking about beans, and the market is down so far off the highs. You know, this is a lowest settlement we've had since, you know, early August or late July, and that you wonder if that doesn't promote more liquidation selling.

And people are going to look at those charts, you're going to say, "Man, that looks threatening. This could be all kinds of selling next week on follow-through." And seasonally that makes sense, and historically that probably makes sense, but in the current environment, I'm not sure we can trust that idea, to be honest with you. You know, part of the thing that's been affecting the grain markets negatively prior, prior to even yesterday's reports yesterday was great economic fears about global recession, high interest rates, all of these factors. And the stock market is, you know, down significantly from where it was. But I think that has largely been baked into the cake.

I'm not sure we're going to get a lot more selling pressure in those outside markets and pressure coming into the grains from those outside markets, and prior to yesterday's reports I felt the soybean market had liquidated a lot of longs already. So I'm sitting here looking at the charts and boy, this does look bad and there could be follow-through selling, but then as I think, think about it, I'm thinking a lot of the long liquidation has occurred. Yes, there's still a lot of spec, large spec longs in the market, but we've seen those large spec longs maintain a certain level of long positions. They just don't seem to fall down and they don't get the follow-through selling on these type of days that we've seen in the past, and I'm wondering if that's going to be the same situation again.

Despite how bad the charts look, despite the bearish spin you're going to get fundamentally from the report generated yesterday from USDA, I'm really doubting if we're going to get a lot of follow-through near-term. The next most important thing on the horizon fundamentally is going to be South American weather. Now Brazil has seen an improvement in soil moisture and soil moisture expectations in the, over the next 2-week outlook, and they've got planting off to a good start. That all looks favorable, but in the backdrop is the overall dry pattern that's been around, and when you look at the forecast now versus where it would have been a week ago, there's not a continuation of this moisture theme arriving.

In Argentina, it's real early, that's not that important as far as their planting is concerned yet there, but their improvement in moisture has been in a much smaller precip total, so I got a feeling that that's still going to be a dryness concern talking point going forward. And I'm going to tell you what I would, what I would have said 24 hours ago, you know, prior to getting this USDA report. I just said there's the chance that the soybean market just kind of continues to hover up here waiting to see how South American production season develops because we're very, very early. We have, we don't have any idea how that's going to turn out.

And I thought that the soybean market would kind of stay up here and continue to flutter around up here, and despite the negativity that we found in Friday's reports and the sharp sell-off, I still think that might still be a theme, and since I said previously that I find it difficult to believe the farmer is going to be rushing in to sell beans in any type of panic mode and selling it at a at a negative basis when he's seen such a long period of positive basis and the market more than a dollar off of where it's been for the last several weeks. I just don't think that farmer is going to do that, and I think the pipeline is tight enough that I don't think you're going to get a lot of those supplies.

The one flip side of that is the fact that, you know, export pace, export sales pace is probably not where it needs to be., and the farther we get down the calendar, if we get confident in South American crop, you know, the U.S. is definitely going to lose market share, but we're not going to know that for a while. So I, I find myself doubting if the market is going to generate follow-through this next week, despite the fact that I know everybody's going to look at these charts and they're going to respond to the market action and they're going to respond to the USDA report and be very, you know, concerned about negative downside momentum in the soybean market. And I get it, that's totally understandable to have that view, and they may be 100% correct, but I'm finding myself doubting that that happens.

Chris: Yeah. Um, on a, on a— I'll have you give me the short answer version here too, and you probably won't be able to because it's a bigger question, but the my the macro stuff. You mentioned, you know, recession. You mentioned the spec positions holding these longs. Do you— are you fearful at all of the general economy having some major issues? I mean, we've seen this TV show before where the general economy and the stock market and stuff all of a sudden crushes the commodity markets, and it's like it, you know, it's like a van out of nowhere that runs some people over. Is, is there any concern there or not?

Duane

Lowry: Well, yes, I have concern about that, and I've talked about it even on those— probably every time I've been on the podcast in the last several months, I've talked about the Fed fighting inflation and that being a battle that the farmer can't win and commodity bulls can't win. So yeah, I have that concern. But on a near-term temporary perspective, the marketplace has dialed in a lot of that negative momentum, that negative fear, all that energy. We got the stock market the lowest we've been since, I don't know, early '21, maybe late 2020. We've got the dollar index the highest it's been since May 2002. Which is contrary to having inflationary bullish tendencies towards commodities. We have the gold market the lowest it's been since, I don't know, sometime in early 2020.

So we have all these forces have been at play, and I think that those forces have had a limiting effect on the grain market's ability to have strength. It's created some sort of a rollover. Atmosphere in the commodity markets in general, and so it's already had a lot of influence, and I'm suspicious that from a near-term perspective, and using the near-term meaning over the next several weeks, maybe this is as weak as those outside market influences can get. Maybe from here forward for a couple months, those outside markets stabilize, possibly have a recovery, Maybe the crude market begins to stabilize, have a recovery going into the winter period, and so I think those outside market forces are either not going to have any negative influence on the grain trade. I'm not sure I'd say those factors become bullish to the grain trade.

I don't think I'd stretch it that far, but I don't think they're going to have a negative influence. I think that part is kind of over for right now. I think the dollar has found levels that it's probably not going to get a lot higher. The Fed is getting itself up into interest rates where it's probably not going to go a lot higher in the near term. I don't think they're going to— a lot of people think they're going to end up having the lower rates again. I think they're going to hold steady and maybe not raise them at some point, but we may not even be there yet. But I think those outside influences, the amount of negative impact they can have on the grain, I think that's over. For the time being. So I'm not, I'm not expecting those to continue to put pressure on.

Chris: Yeah, my last question, um, for you, and we'll wrap up here, is, um, and I'll go back to my transparency. You know, one of our core values is transparency. I'm about 20% sold on 2023, and, um, you're— everything you're saying here is fairly positive. I mean, I, I don't see, like, I mean, there's, there's, uh, hurdles to navigate and things to watch and pay attention to. But on the downside risk assessment, I mean, what I'm trying to do is just match up one-to-one as we spend money. I'm trying to make sure we're managing that margin because, you know, 6-something corn and 13-something soybeans is giving us still a pretty reasonable margin. So I'm trying to match that one-to-one, and that's what we have. A fair amount of our clients are doing the same thing. We're seeing people sold any— in a range from 0 to about 43 or 44%, I think, is the highest one I saw on Profit Manager sold.

And, and pretty much everywhere in between there. What makes Duane comfortable on 2023 corn, soybeans, and wheat?

Duane

Lowry: Before I answer that, I want to go back and address or clarify a little bit that you said most everything I'm saying here is kind of positive. I want to say it somewhat differently. I want to say it's maybe positive from the standpoint that maybe the prices near-term don't collapse and continue and build downside momentum, but I'm not sure that we've got a lot of ability to go up. In the market, even in the corn market. I think to some extent there's some type of ceiling above us.

I think that ceiling has been created by the Fed because stop and think about it, the last half of April, all of May, first half of June, any given day you could have sold Dec corn futures for '22 at $7.20 probably, and if you couldn't get it that day, wait 3 days and you probably got that chance, and yet, and at that time we were talking about 177 national yield, now you got people talking about 175 $2 or less. At that time we didn't know Europe had lost 25% of its corn crop, or was going to lose 25% of its corn crop, but they did, and yet here we are even after the bullishness from yesterday's report, we're now 50 cents below that midpoint of price trading between the last half of April, all of May, and June. You know, what's wrong with this picture? Why are we, you know, 50 cents below the midpoint there when we've had a significant change in in supply outlook both in the U.S.

and globally. So there's something, some overriding ceiling there that's being provided. I think that probably continues, and you know, we had a high in Dec '22 corn in, in the upper $6.90s on September 12th. We got to $6.96 on Friday. Maybe we can go to $7.10. Who's— I'm not saying that that couldn't happen, but we're probably not going to trend higher in any, you know, significant manner because we're going to continue to find this ceiling. So when I sound a little bit positive, I'm— at least in my mind, I'm sitting here, my definition of positive now is just staying up here and fluttering around up here for a while, and that would be positive because you're not falling and weakening due to the seasonal harvest pressure.

Chris: I think Jared Creed called that going nowhere violently. Or something.

Duane

Lowry: Yes, I would agree with Jared. Jared's a wise man. As far as the '23 is concerned, as far as percentage sales and what my— how I perceive farmers, I think the vast majority of people have nothing sold. And I think there are two camps of people that I find when I talk about new crop. There are some people that are very concerned about the outlook. They're concerned of the economy, and they're concerned that we've had a few good years in agriculture, and they're concerned based on historical trends that we can't maintain that. They have those concerns. They see the high input costs. They are fearful that if they don't make sales, if they don't do something to protect that, that they could get caught with the high input prices and then the inevitable happens and prices tip over for some reason that we can't think of right now, and then they're trapped.

So there are— people have a respect for that, but that doesn't always— that respect doesn't always translate into sales. I would say most people have very little sold on. The ones that are selling, most of them are probably selling 20 to 40% would be probably the max that I would see. And when I talk to people about strategies to put in price floors to protect the crop, even the ones that are concerned about the price outlook, it's very difficult for people to sell and put on strategies at, you know, $6.10, $6.20 Dec '23 futures when they've seen so much time you know, in the last 12 months be above those levels. And people are struggling. They're struggling to know how to handle this because they don't want to have revenue go down. They don't want to go backwards, but they also don't want to get caught selling corn this far in advance and at $6 and have it go to $8. Fear of missing out.

The end result, the vast majority, yeah, yeah, fear of missing out. So at the end result, the vast majority of people are choosing an option of not doing anything, which isn't necessarily a good choice, but we don't know what a good choice is going to be going forward. Yeah. And the part that scares me here from a producer marketing level is if they're not making sales now, if they don't want to put in price protection strategies now, I can assure you that if prices were to stay sideways or to dip a little bit going forward, nobody's going to sell on weakness. And so we've got the farmer in a position right now that their mindset will not allow them to sell on weakness. So if the thing starts to tip over, everybody's going to get caught. Mm-hmm. And that's concerning to me, but I don't know what exactly they can do about it. I would point out this: in 2013, we came off the highs in 2012.

At this period of time in 2012, you had nearby corn just under $8. You had Dec '23 probably at $6.50 or— it's not '23, Dec '13 at $6.50, $6.60. Okay, people didn't want to sell that because it was so far discounted to the price that they're seeing in the here and now, but when you fast forward it to the end of 2013, you had corn futures in the low $4 range, and so your best sales were made at this time selling into a market that was sharply discounted to what you were seeing for your local spot bid. We have the same situation this year. We also have an overriding economic view that makes it look like commodities are tipping over. We've seen energy suffer. We've seen natural gas fall off of its peak. We've seen the hog market in serious trouble here. We've seen the cattle market begin to roll over after being at contract highs just a couple of weeks ago.

There's ample warning signs out there, but people find it difficult to pull the trigger, but we can go back in history and find very similar situation to this that the right thing to do was to pull that trigger early. Mm-hmm. I, if, if people really press me for, uh, you know, like a strong opinion about what they should do, I, I'm encouraging people to make some sales and, um, I would like to see people make at least 20% sales on those 2023, uh, acres because there they are fully committed to paying for those expensive inputs or booking those expensive inputs, and those expensive inputs are probably not going down by the time spring rolls around. And so if they're committed on that end, they ought to be committed at least some degree. Yeah. On the price side.

And then, you know, between now and, and March, nobody's got crop insurance protection unless they, you know, did something by Friday's close of business to purchase margin protection. Otherwise, from here forward, you know, they have full risk of having no protection that way, and, and they'll be very vulnerable to whatever that price is in February. But again, the most important fundamental going forward over the next 5 months is going to be how does South America perform. Did they have return to a normal production? And if they did, The market's not going to care about the U.S. tight balance sheet in corn. They're going to say overall we have ample supply outlook. They're going to say that 10 times that on the soybean. Soybean market is the most vulnerable when you look at it from that perspective.

So I don't know, getting back to your question, I think, I think having nothing sold in '23 is the It would be scary for me. Yeah, me too.

Chris: Yep, yep. Now that's, that's great. I, I appreciate all the commentary there and the, and the content and the wisdom and the things that you're watching. Uh, really appreciate it. And I'd really appreciate you to come run a grain cart again here sometime soon.

Duane

Lowry: Well, we might be able to do that.

Chris: Yeah, that would be good. You know, we can keep you busy. Um, we'll have to get you a new hat. You're wearing an Iowa State hat. Maybe I can get you an Iowa one or Michigan or Nebraska or something.

Duane

Lowry: Well, I've got an Iowa one I could wear that next time. Okay, try to balance that.

Chris: Okay, sounds good. Well, hey Dwayne, this has been a great conversation. I really appreciate it. I, I think, uh, there's a nugget of wisdom there. If for those of you that haven't sold any '23, it's not a recommendation, it's just a consideration, and it's thinking through, um, kind of how you're making your decisions and why. And if you're buying inputs, are you, uh paying attention to the margin potential for '23. That's kind of our ask. So with that said, if anybody's got any questions or needs anything, got comments, please text me, um, or email us, um, things that you'd like us to be hitting on the podcast or anything that you have for questions for us or Dwayne, uh, reach out. And, uh, or Shay too, you know, he's out combining here hot and heavy too. So with that said, hey Dwayne, thank you very much, really appreciate you.

Duane

Lowry: All right, thanks, Chris.

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