October is here: weekly market outlook Sep. 27 - Oct. 1

Jody

Lawrence: 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.

Shay

Foulk: Welcome back, everyone, to another episode of the Ag View Pitch. Today you have Shay Foulk with Jody Lawrence. How's it going today?

Jody

Lawrence: Great, Shea, how are you doing?

Shay

Foulk: Well, it's beautiful weather here in northwest Illinois, and I think we got a Interesting week ahead as we look at the week of September 27th. Could you just talk a little bit about, you know, historically kind of what are we looking at in this time frame as combines get rolling and what should listeners maybe be aware of?

Jody

Lawrence: Well, the, uh, to get to this point, uh, this year I think it's a little different than a lot of, uh, or simply because the crop so dry and so much more further along and more mature than normal that, uh, you know, once whatever slowdowns were caused by the rain that moved through, everybody will get going. And it won't surprise me, but, you know, Sunday night, by the time we start next week, if we're over 20% harvested on the corn. And you're going to start seeing numbers earlier than we typically do. Then on top of that we're going to have a pretty good idea where yields fall— falling before we get to, uh, next Thursday's, uh, quarterly stocks report. And I think that's really— if you look back where we were last year, that was the report when they made the cuts, uh, for what we thought was an overestimation of 2019's crop.

That it really springboarded, uh, it springboarded and, you know, began the series of the dominoes falling. Our crop came up short, the stocks numbers were smaller than expected, China was buying everything, and then of course Brazil got hammered with their drought. So it was a combination of things, but that certainly was just as important as the rest of them. And Thursday's report has kind of that same potential because if you look at where we have been with basis all summer, and even now with a good bit of corn coming into, uh, into the pipeline, basis levels across the country are still historically high. In some places they're still record high as everybody is buying up all they can find, and which seems a little counterintuitive at times what's happening this year because The futures tell you one story.

You know, last week we were trading at $4.97, or on the 10th before the report, you know, at $5 or below. But you look at the cash market, the cash market was nowhere close to that. It was significantly higher. And when you get to that kind of problem, then you know that there's a number somewhere in there that's not being calculated correctly. And this is historically a report where the USDA does go back and track whatever changes, positive or negative cuts or additions to stocks, that they can make it in this report, which, which everybody thinks they will find lower stocks this year, whether it's whatever column they decide to put it in. It's— they're gonna find— they're going to try to explain why basis is been record high for nearly 2 years, and that would be in the form of a cut to ending stock, a follow-through cut that ends up being on ending stocks.

And then if you get to October 10th when the October report comes out, within 10 days you're going to have 2 huge pieces of information on top of all the harvest information. And if those things start to line up to where corn stock, corn and bean stocks are lower and yields start to disappoint a little bit, like we're certainly seeing the trend, uh, and for a lot of people that I've talked to all over Illinois, that you're, you're in a spot that really, uh, you could have some dynamic numbers that come out that don't justify $5.25 corn. Now we're gonna have to see them all and A big part of this is China is going to have to show back up as a buyer if we're going to duplicate what we did last year, uh, because they've been notably absent. But their corn crop is going to be harvested pretty quickly.

They're expecting about a 10 billion bushel corn crop, bigger than last year but not nearly what they need to be self-sufficient. So a lot of stuff happening in the next 2 weeks for sure.

Shay

Foulk: So let's talk on the yields a little bit there because I've been hearing a fair amount of the same thing as the corn belt gets rolling. Uh, you know, areas of tar spot heavily affecting not only stock quality, uh, but maybe some early season stress that we didn't know was there or didn't think was there. Uh, you know, how much impact do you think that's going to have on the market? Even if farmers had these high record yield expectations, uh, there's still a lot of good corn out there. Do you think that has much of an impact here as we move through the week and the end of September into that October 10th report?

Jody

Lawrence: I think it certainly adds support under the market because if you look at just some, some of the sample test weights that people from the Eastern Corn Belt, now with it moving a little bit, you know, Iowa and Nebraska getting further along, with their start. You're starting to see some test weights in particular in the Eastern Corn Belt where the disease pressure, it really got to that plant, it really got to the corn, and you just couldn't see it from the road because I was all over Illinois in August and I went to a bunch of places where they, you couldn't have had a cosmetically better looking crop And it on August 15th had a lot of people with normal 220 yield fields thinking they've had 240, 250 potential who got into them, uh, you know, right after Labor Day, and they found out that they were, uh, you know, 190 to 200.

So they were even under what historically they had been because, like you said, there was some inconsistent growing weather early. And you think back Right around Memorial Day, we live in Nashville, and I can remember we woke up one morning, I think the Friday, Saturday before Memorial Day, and it was 40 degrees. And I know that there was some early season stress just from the cold. And I don't know whether you qualify that as a really, really late, you know, cold event or really, really early one in the year. But that The dry, hot finish didn't help anything. And in the middle of it, you know, there were— everybody said they were happy to get the rain, but there were a lot of areas in Eastern Corn Belt that got way too much rain in June. So it wasn't just a perfect Goldilocks type, not too hot, not too cold, you know, just enough rain type year. And this is what you're starting to see.

And, you know, this isn't a commentary on any of the seed varieties or the genetics, but for the crops that I saw that you couldn't have made look any better, to be able to underestimate them that much, it brings out a new problem with the weekly crop condition reports because you had some extremely high ones for Illinois that you couldn't tell unless you got out into that field and started peeling off some ears and looking at them to see what was going on. What, like you said, the stalk quality, you know, the cob density and everything else that you had, you had a tale of, you know, a great-looking picture of somebody you're about to go on a blind date with, and then they show up and you get a completely different thing. So it's, uh, it's an interesting, interesting year.

And the nice part about it is it's not going to be drug out, uh, on when we find out answers to all these questions, because the forecast looks great. Like you said, uh, the, the fall weather has finally moved in, and it's going to be pretty dry the next 10-14 days. It wouldn't surprise me by the time we get to the October report that corn crop very easily could be 60, 70%, if not more, harvested.

Shay

Foulk: Okay, I appreciate the insight on that. Got 3 last questions for you here. You talked a little bit about basis earlier, and here in, you know, kind of across the countryside, there's maybe a little opportunity with ethanol production or reaching out to some of the ethanol producers out there with some strong basis. What are your thoughts on that?

Jody

Lawrence: I think that that's the— I guess it's not really a problem, but I'm gonna call it the symptom of the problem. Because if at this stage where you have— and the, you know, with the crude oil up over $72, back over $72, $1.77 today, The blending margins are— or excuse me, the margins on ethanol are extremely high. Not as high as they were, but they're still to a point where the ethanol plants have got the most leverage to be able to get whatever corn is coming out right now. And that would be the start, but that's always— it's the series of events. As soon as they raise their bid, the elevators don't want to be left out of this because there's so much more oncoming storage than there used to be. They're going to have to raise their bids.

So I think the ethanol margins and the fact, like we have mentioned before, uh, maybe, you know, missed the past couple years' yields and it's not quite after what we thought, uh, you know, that's where you're getting in this to where I talked to somebody up in South Dakota, his basis right now is positive, and at this time of year it's normally, you know, anywhere from 50 to 80 cents under. So that's an enormous spread to me, and if this is— it's just one isolated event, but let's just say all basis is 50 cents better than it normally would be this time of year. 50 cents, if you look at it in ending stocks, is somewhere between 400 and 500 million bushels on what would rally the futures, you know, December corn futures 40, 50 cents. You'd have to miss, you'd have to miss 400 or 500 million bushels. So it's significant.

And, uh, I'll give the USDA credit because they have They have slowly but surely been tightening up these reports. I think they did a much better job this year of forecasting and estimating and updating some past mistakes than they did in previous years. But, uh, and if they keep up that trend, we should get to at worst, uh, mildly bullish and potentially very bullish reports on the 30th and the 10th.

Shay

Foulk: Absolutely. Second question I have for you, we've been asking everybody here the last few weeks is, uh, you know, you're a farmer, you're looking at limited storage. Are you hanging on to corn or soybeans as we head through harvest here?

Jody

Lawrence: Well, uh, you look at it, the March, uh, March '22 corn is only 7 cents over the December. But if you look at basis with where I've looked at basis as, you know, delivery immediate December and then out into '22, uh, you— there's plenty of carry on the board. And an average of where I normally price is probably 20 or 25 cents plus the 7, so you're somewhere between a quarter and 35 cents better storing, uh, corn. Where with beans, uh, it, it's not quite as exciting You only got 9 cents carry on beans in January, and the basis I saw is not as good as corn. So, you know, my thought would be if I had to choose between the two, I would deliver all the beans, and if you're worried about them going up, put on a fairly low-risk call strategy, do something with some spreads, you invest back 15 to 20 cents of it, just kind of see how everything unfolds into 2022.

And then the other thing, talk to a lot of farmers, and tax implications come into this because they sold the remainder of their old crop, their '20 crop, after the 1st of January when we rallied all the way in May for significantly more than they expected. So they had a lot more cash on hand and in the bank this summer than they expected to. So simply from a cash consideration, that's, you know, if you're going to store something, I'd store corn. And then if you have to push it out to '22, makes a little more— it makes— well, makes more sense to do it for corn than it does for beans.

Shay

Foulk: Okay, well, thanks for answering that question. Final question is open-ended here, you know, just any last thoughts that you'd, you you'd leave the listeners with or anything that's kind of top in your mind that maybe is not on people's radar right now?

Jody

Lawrence: Well, uh, I, I've mentioned this in the newsletter from time to time because I had an old boss who, uh, who was very active in the oat trade, cash and the other side. And I know that the oat business in general over the last 20 years has changed where it's almost all out of Canada, very limited growth of oats in the U.S., but oats were 3— parts of 3 of the last 7 trading days have been limit up at some point. And oats to me are always a great kind of barometer. Not that corn or wheat are going to follow it, uh, penny for penny, or certainly the direction, but if you go look at the oats chart, it was much more stable during all the volatility over the summer than corn or beans were, with a much smaller range. And the general health of the grain market, always look at oats.

And you— I'm expecting that they will open on a futures basis tonight, uh, you know, off the limit today, a good bit higher. And then you start talking about, uh, you're very near, if not at, the all-time high in futures price for oats. And if you have one segment of, you know, the grain industry that's at all-time record highs, you can't really have $5 corn. That's happening, it doesn't make a lot of sense. And it's never a perfect comparison, but it does indicate how, uh, how bad Canada's drought was this year, and that affects their corn imports. They're going to have to buy more from us. Wheat wherever they're going to get it or what they're not going to export, somebody's going to have to make up for.

So I think the general health of the grain industry— look and read, you know, just for some side reading, not like everybody's terribly busy right now in the middle of harvest, but when they get to it, just, you know, find out what the oat market's doing and it'll kind of give you a good temperature of kind of the the health of the overall grain industry.

Shay

Foulk: Absolutely. No, I appreciate that perspective. Not a lot of people are looking at that or talking at that. So Jody, as always, appreciate the time here as we, you know, head into this last week of September, first week of October. And, you know, thanks. Hope to have you on again here soon.

Jody

Lawrence: Okay, Shay, thank you. Have a great afternoon.

Shay

Foulk: Will do. And thank you everyone for listening to another episode of the Ag View Pitch, and we will Catch you next time.