Weekly market outlook, Oct. 4-8th: harvest marches forward while 2022 inputs continue to climb higher

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, and we are heading into kind of the first full week of October, the 4th through the 8th, and we have with us Jared Creed. How's it going, Jared?

Jarod

Creed: Doing well, Chris. I appreciate the invite again.

Chris: Yeah, it's great to have you back. JC Marketing, you've been out doing some farming yourself too. How's things looking in your area?

Jarod

Creed: Well, I would say we're probably the norm, quite a bit of better than expected. Very locally right here, you know, we're about, what, 50 miles northwest of you as the crow flies. Yep. We missed, you know, any moisture for an extended 30-day stretch from early to late July to late August, and it really had quite a bit of, quite a bit of expectations to really lower our crop potential. But so far, knock on wood, it doesn't appear that we really went that far backwards. Beans, okay. You know, there's going to be a lot of beans right here in this area going 60 to 70, some above, not many below. And corn, corn looks like a little bit of a sleeper, to be honest with you. Corn definitely looks like it has the potential to be APH+ with the expectation of being below just a short 2, 3 weeks ago.

Chris: What are you hearing from your clients in various areas? I know you work with a lot of people scattered around, you know, the Corn Belt. What are you hearing? Are we, are we slightly better everywhere? Or, you know, I know obviously there's pockets in North Dakota and some areas in Minnesota and other pockets that are way below what, you know, and they kind of were expecting it. What are you hearing from your guys?

Jarod

Creed: Well, speaking for primarily the western Corn Belt, North Dakota, South Dakota, variable, best way to put it. Anywhere from 20 to 80 bushel beans can be a couple miles apart. Corn, a little too early to tell, but pretty variable there, but I think a little bit more optimism there. And then it's pretty easy to talk about, well, Minnesota, maybe slightly better than expected, nothing special, but not a disaster. And it's very easy to talk about Western Iowa and Eastern Nebraska, or just basically the states combined— huge. As in, I'm not so sure that we can't be talking about a record yield in Nebraska with Iowa not far behind, way higher than expectations. And when I say way higher than expectations, I'm talking about 10 to 20% in a lot of places above expectations.

Chris: Interesting. I was talking with a producer that I visit with quite often in central Illinois, and he was making the comment, I thought Iowa was supposed to be bad, you know. And they're in an area where there's some tar spot, and they had, they had a really wet spell and a dry spell they went through. And they're in an area they, they typically have phenomenal yields, or having really good yields, but they're not quite to that degree. But I think, like you said, Iowa, Illinois, there's some areas that are pretty big surprises. Do you think that's gonna affect anything on yield, you know, on this— some of this, this next report that we're going to be seeing eventually here from USDA in October? Any movement or changes there, do you think, or not?

Jarod

Creed: I, I don't think that, uh, I should have mentioned that when I was talking about yield. I don't think that has much of an impact on the market at this moment, Chris. I think that our, um, our production is going to be around 15 billion bushels of corn. Our production is going to be around 4.1 billion bushels of beans. And that's been a number that's been worked with for quite an extended period of time. I think the production conversation is more or less over. Granted, you can still see some very late surprises like we just experienced this last week from last year's crop, uh, but you've got a whole bunch of other influences happening in today's market outside of just production.

Chris: Okay, so with that said, last week we saw that stocks report USDA had you know, look a little bit more than what we thought. Uh, talk about that. What, what's your thought there?

Jarod

Creed: Well, maybe a long time coming perhaps that you tend to see bushels show up on balance sheets that you didn't know were there until prices go to multi-year highs. I'm not so certain that this is a result of this bin bottom, that bin bottom, this guy that didn't need money stored this crop, so on and so on. I'm— I have a pretty big hunch that a chunk of that 80 million bushel of beans that we found is not just a yield increase from last year's crop, or not just an acre increase, or a combination of both. Uh, plenty of beans, uh, from the 2018 and '19 crop for that matter could have finally found their way to market. Um, just a hunch, you know, we had that happen back in— oh, I think that was 2013— that after those prices that we've seen in 2012, there was plenty of grain from in the bin from '10 and '11 that made its way to market that really had never been accounted for.

Okay, so did it shock the market? Yes. Yeah. Do I need to focus on it? No. I think it's kind of a move on. Maybe we have a little bit more of a cushion than the bean market, but our focus is quickly going to be on South America total production. It's going to quickly be on all of these continued rumors for the renewable space. It's no secret that you're seeing an incredible amount of money being invested in the renewable fuel space. I mean, what are we up to now in Iowa? 4 new plants been announced in the last 6 months? Yeah, they're— yep. So it seems like beans have an exciting story there. We could have a little bit of a bumpy way, uh, or a bumpy path to get to the, you know, next year's crop. For example, South America may be raising 145 to 150 million ton crop.

But at the same time, alongside all this money that continues to flow into the bean market from an R&D standpoint, an investment standpoint, you still have this inflation bid in the market. The non-commercial long in the bean market is not so big anymore, but there's still a very large position from the index funds, more of your passive investor, that has been a sticky long in all commodities for a very extended time frame now.

Chris: So let's shift over a little bit to the, uh, the, the demand side with regard to China. Um, there, you know, you hear all this stuff— well, you don't hear it in certain areas, but in other areas you are hearing what's going on in China with energy issues and financial challenges and some things there. Is Is there something there that we need to be cognizant of, worried about, thinking about, paying attention to?

Jarod

Creed: I would love to be an expert on that matter, Chris, on all of the, you know, the devil in the details of all those problems they're having. More or less, I think you just got to look at it that that uncertainty can create some fear, and any type of market participants that are focused on more of a fundamental supply and demand specifically demand with China, I think that can definitely make them nervous very quickly. This energy piece combined with financial troubles, combined with Olympics right around the corner, it just smells. How about that? It just smells. Meanwhile, what have we been seeing China do? They've obviously been absent from the U.S. corn market since this last spring. Eventually we need to see them come back in, maybe have a little bit of concerns on long-term corn price if China is absent on any more corn exports.

But on the bean front, I'd say that they're just kind of been having maintenance purchases, maintenance purchases. And at the same time, you throw in the hurricane in the Gulf, that's definitely thrown a kink in things as well. And if I'm China, to a certain extent here, take this with a grain of salt, if I'm China and I'm looking at the current price price on beans in the US versus the price in Brazil in another 90 days, I'm holding off as long as I can. And quite frankly, I think we figured out in the last couple years that it's not so much about the US balance sheet on soybeans. I think it's more about the world balance sheet from the mix of Brazil, Argentina, US, Paraguay, Uruguay, Chile to a certain extent, all these other countries, the world balance sheet is probably a bigger story than just the US balance sheet. And again, why are beans still $12.50?

I'm not going to say that they should be lower, but why? It's not like we have a crazy friendly fundamental situation out there. We have okay demand, but we have an inflation-driven market that people continue to flock to own commodities.

Chris: Yeah, it's the inflation thing, it seems like, you know, because there are some threats there on the soybean side with South America and, and, uh, with, with China and the unknown and what they say they're going to take and what they do take. And, and, and then you add supply chain issues to that both ways. With us getting stuff back from them. And, um, you know, we still do have the tariffs, right? I mean, the Biden administration still has the same tariffs the Trump administration put on. So does that incentivize them to buy a lot more?

Jarod

Creed: Yeah, on that note, um, maybe you have read anything on this. I saw this late last night, uh, so I admit I have not read anything on this, but apparently on Saturday afternoon Biden had spoke on the threat of tariffs to China in some fashion. It's all I saw. So, you know, maybe it could have a little bit of a bumpy road beginning this next week.

Chris: Yeah, that's one of the things to, to say, uh, whether it's this week or the next couple of weeks, is stay tuned, I think, because they're just weird stuff. You know, you talk about something smelling, they're just weird things going on. And so those are things we can't control and stuff we just need to pay attention to.

Jarod

Creed: I would, I would say a, a great reminder of what just can happen in an inflation market is 2008, right? We basically went from $4 to $8 to $4 and a little bit wider than that. I think we went all the way down into the 3s when it's all said and done in the course of one year, while at the same time inputs went up and didn't come back down. In time. Correct.

Chris: That's the issue. Um, that leads me to my final segment of questions, I guess, which are around the idea of, you know, we talked in the beginning about yields, kind of how things are looking. Some— there's haves and have-nots, obviously, but, um, harvest is, is underway. I mean, there's places to the south, obviously they're done, got some stuff put away, but there's places in the north haven't started, and there's everything in between. When you're out harvesting and you're putting stuff away and you look at— and this is just me speaking, but you sit here and you— me anyway, I sit here and I look at these, these margins on soybeans, you know, 12-something on soybeans, 5-something on corn. We're looking at margins we would have— we, we were praying for, for the last 6 years, and they're there. What, what, you know, talk about that. What, what are you doing?

You know, what What do you think farmers need to be doing? I mean, you put stuff in back in the bin and you don't do anything to protect the risk. There's a lot of risk there, isn't there?

Jarod

Creed: Yeah, uh, obviously this year versus years prior, just considering where the markets are. Look, this is the best and the worst part about agriculture. Most likely it comes with an enormous amount of motion, and I think it's as simple as somebody has to look themselves in the mirror and say, if I can make this much money year in, year out farming, I'd be thrilled, right? I'd be emphatic about it. The margins are so good that I think it completely tosses out the window a store-and-wait type of a situation. If grain needs to go in the bin, it damn well better be because of logistics. And it doesn't necessarily have to be unpriced grain in the bin either. Still, as of today, there's still some basis premiums available. So guys are still trying to execute on that.

But then, you know, I have the expectation of a lot of producers I work with that we will be out of grain in the bin by the end of February. And I literally It's going to sound bad. I don't care what the price of this year's crop does from January 1st and forward. I don't care because I'm focusing everything on 2022. Yeah. And one little other, you know, maybe piece to consider. If, you know, I ask a farmer, what happens if your farm was a listed stock? That the public had the ability to go trade, what would your stock price on your farm be doing in this environment? Your stock price would have skyrocketed. Mm-hmm. You would have been the attention— everybody's attention would be focusing on your stock. And at the same time, then you look at your board of directors. Your board of directors says, hey, you're making 50% 75% return on investment.

You think any successful business in the US is going to turn down that type of ROI considering it went from -20% to 50% in less than a year? Right. That's, uh, I just think that it's simple. Not get caught up in the market. Look at the profit, and if it's not enough, then jokingly somewhat here, maybe agriculture is not for you because this might be one of the best years a lot of producers ever have.

Chris: Yeah, and it is tough for some of these guys that are on the fence, that are slightly below APH or in that wedge zone where the, you know, and, and that is not a good place to be, and definitely understand that. But there's, but you know, there's a lot of—

Jarod

Creed: you, that's a good point there, Chris, but I I still think even when I look at a lot of producers that are yielding below APH, they're still making very, very good money.

Chris: Oh yeah, yeah, because of where the price opportunity is.

Jarod

Creed: Yep. And we don't want to let the situation of making good money last year, making good money this year— we want to make good money next year. And all of a sudden, if I can string together 3 very good years and things get lean in 2023 and '24, I'm gonna be able to, uh, I'm gonna— I shouldn't say afford it, but I'm gonna be able to, uh, you know, hold my ground a little bit better.

Chris: My last—

Jarod

Creed: again, just take the money. Yeah, look at the money on the table. Yeah, no price, no yield opinions, just look at the money on table.

Chris: Yeah, especially once you know what your yields are, have a pretty good handle on them, there's, there's no excuse to say, well, I don't know what my yields are. You know, you're finding out, or you will know real soon. Here. Last question, '22, what's your thoughts there? Are you still doing anything there, watching this stuff? I mean, we talked about these threats on the soybean side and a few things. There's really good margin opportunity there, and we won't talk about it yet this one. Next time I talk to you, we're going to talk about crop rotation going into '22 and some decisions, and probably people need to be thinking about that when they're combining I guess anyway, because that's gonna, that's gonna be some things you're gonna want to do maybe differently this fall. Any, any comments on '22, things people need to be thinking about as they're harvesting?

Jarod

Creed: Uh, obviously inputs is a nightmare for '22. Um, I hope that that conversation for most on input started at least 2 months ago, and in the last couple weeks that You know, inputs have just gotten ridiculous, I'd say. In fact, I won't mention a co-op's name, but a very well-known co-op in the state of Iowa, I asked for a bid for anhydrous for the spring in the event we're not able to pull everything we need for this fall, and their best indication was $1,100 to $1,200 a ton.

Chris: Ouch.

Jarod

Creed: We've obviously seen what the urea market's doing. Potash, eh, somewhat moving. DAP, somewhat moving. You have fertilizer market might just be at the beginning of a very wild run. So all I'm saying here is that big variable. If you're buying any fertilizer, just simply divide off the price of new crop grain and sell that amount of dollars. Make sure that we're not going to get hung out to dry with the high input price. You know, the biggest movers year on year get those covered. And right now I think the entire fertilizer package for, you know, I'll be curious to see what you say here, but most of my guys, it's probably about 17 to 18 bushel an acre covers their nitrogen need for next year at around a $5 price. And then you need to, you know, consider chipping away on the balance of your fertility needs.

If we end up being a third sold with a 5 in front of it, combined with, you know, margin protection that we talked about before, got a pretty hard time a farmer not making at least $100 bill per acre next year. And then on the beans, I think it's even simpler. Good money on table, just going to have to start chipping away here. Admittedly, I haven't done a lot of beans for next year, focused more on corn from the higher revenue situation. But I don't think it's a lot different than the 2021 conversation. Look at the money on table and just make sure you're taking a little bit every time you get an opportunity. To do so.

Chris: Yeah, I concur 100%. I mean, on that fertilizer side of things, what we're seeing with the, the, those who have been buying it anyway, for the most part, that we've worked with Profit Manager on some of them, just trying to make sure that you offset exactly what you said, your fertilizer with, with sales dollar for dollar, because there's still margin there even though those, you know, nitrogen's more than double now, and it was double, you know, 4 weeks ago or a month and a half ago or whatever. You could, you could still make that work with where the price corn was and, and is, and, and I think it still holds true. So yep, any, any final thoughts? I think we're ready to wrap up.

Jarod

Creed: No, kind of a dead zone of the market. I'd just tell you, Chris, outside influences more than anything, and You know, just the producer just needs to be looking at the dollars on the table. That's— we're a business, want to make money.

Chris: That's right, let's make money.

Jarod

Creed: I think, uh, I think this, uh, next time I'm on with you, maybe get a little bit more detailed on a couple different marketing strategies to be thinking about for next year considering the heightened input costs and, uh, you know, just what can happen to the bottom line should we see the bottom fall out in this inflation-driven market.

Chris: Exactly. I would say stay tuned because there's a lot to talk about for '22 and, and moving forward. So hey, Jared, really appreciate your time here today. Thanks a lot.

Jarod

Creed: Thanks, Chris.

Chris: All right, thanks everybody for listening. Again, if you're out there harvesting in the field yet, you guys please stay safe, get your rest. And easier said than done sometimes, but pay attention to stuff and, and be careful out there. And we want to talk to you again next week. So again, thanks everybody for listening. We will catch you next time on the Ag View Pitch.