Heading into harvest: weekly market outlook, Sept. 13-17th

Chris

Barron: 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. We're heading into a new week, getting kind of in the middle of September, that week through the 13th through the 17th. And we've got with us today Chris Wilson. With Attenbabler. How's it going, Chris?

Chris

Wilson: Good, thanks for having me on, Chris.

Chris

Barron: Yeah, it's good to, good to have you on here again. It's been a little while since we last had a conversation, and we're coming off of a USDA report at the same time. We have a few guys starting to get in the field here. This last week I was down in the Ames, Iowa area and kind of around the state of Iowa? And I know we've got a couple of guys even up in Minnesota that are starting to do some harvest already. What are you hearing in your area?

Chris

Wilson: Yeah, there's a lot of corn silage is starting to finish up. Um, there's a lot of disease pressure in our area, so we are seeing the corn dry down pretty fast, but I still think we're probably a week to 10 days out before some of the early stuff starts to come out of the field.

Chris

Barron: Yeah, and you're in exactly— kind of tell the listeners exactly kind of the area you're in.

Chris

Wilson: We're in South— I'm in Southwest Wisconsin. Our office is in Northwest, uh, Galena, uh, or Northwest Illinois in Galena, Illinois. Um, but my farm is in Southwest Wisconsin, right outside of Platteville, Wisconsin.

Chris

Barron: Gotcha, gotcha. So, um, You know, what, what are you seeing on soybeans? It was interesting when I was driving, you know, across the state of Iowa, it looked like there was a lot of people that were thinking, hey, I'm going to plant some early beans early and take advantage of some basis, potential basis opportunity. And you can really see that right now. I, I'm guessing there's going to be a lot of soybean harvesting starting across the state of Iowa based on what I saw just driving across our state. Next week. And but it is interesting because the fields either looked ready to harvest or they were still green yet, and I think there's going to be a window where there's not going to be as much harvest going on once those early beans are out. What are you seeing there?

Chris

Wilson: Yep, that's almost spot on. I'm seeing fields driving around that are probably, you know, 80% leaf loss. I, you know, I would expect them to be coming out of the fields and in probably 2 weeks if we have good weather. There's other fields though, especially ones that had fungicide applications and were later maturity, they're green yet and still filling pods. So it's, it's going to be that same spectrum. Yeah, certainly some very early beans, but definitely going to need, you know, a good, good long growing fall here to finish out those green ones yet.

Chris

Barron: Right, it's interesting too, we've, we've got a few clients that are rolling, just harvesting a little bit of early corn. Sounds like the yields are pretty good even in the areas where they were pretty short on rainfall too. So with that said, you know, we're all going to be a lot smarter here in another few weeks as more and more of us get into the field. You know, USDA came out with— an adjustment to their yield, which I don't think was any big huge surprise to anybody, you know, that 176.3 on the corn and that 50.6, I think it was, on soybeans. You know, any, anything that as producers, you know, from that report last week that we should be thinking about, or do we just start moving forward and don't worry too much about that and start looking at what maybe our own yields are?

Chris

Wilson: Yeah, I mean, I think that report certainly confirms some general expectations, a little bit more corn acres, you know, bump in yields. You could consider maybe slightly fundamentally bearish just from expectations. But I also think it's a report that you've been sold into. So, you know, you sell the rumor, buy the fact type report directionally. And that's what we saw in the reaction. The end of the day, it's no surprise you've got, you know, your core Corn Belt states are carrying the load on both corn and beans. Illinois is going to be, you know, big one. Indiana, both projected record yields. And then Ohio and that eastern Corn Belt also expected to hit some record, record yields on corn, beans. And then you got your western Corn Belt that and peripheral Plains states that, that have struggled, have struggled for moisture.

And we're seeing that bean yields are pretty poor, corn yields, especially in Dakota, are quite poor. And that's basically what the USDA is affirming out there. So I think we're narrowing in this crop. Like you reiterate, there's a lot of variation and a lot— yes, to learn over the next month, month and a half as we roll. I do think with this crop coming out early, and as you said, Minnesota down to where you guys are, certainly Central Illinois rolling hard all the way through there. We're going to have a lot of corn coming out at once too. It's not going to be You know, it's not going to be a wide stretched out region, uh, of harvesting across that season. It's going to be— it's going to be a lot of regions rolling at the same time.

Chris

Barron: What— well, so we, we finished last week with some decent strength coming off of that report. And, you know, when you look at basis, like our local basis here over the weekend, and obviously I think it just has to do with they're just not any corn coming in yet, at least in the new corn side of things. And Cedar Rapids, Iowa had a $1.30 over on basis, and the Minnesota producer I was talking to that was combining corn last Friday was saying, you know, he's got an 80 over basis, and they get Valero or something. And so, you know, what's your thought on basis? I mean, is this— is basis going to stay fairly strong even once the combines get rolling? If you mean, do you think guys are going to be stuffing a lot of this stuff in the bin and not a lot of it going to town and keeping basis strong? Or what's your thought there that a producer should keep in mind?

Chris

Wilson: Yeah, I think, I think if you're in an interior market and you've got majority of stuff for storage, I wouldn't be as concerned about basis. I think there is some concern if you're near a river market and you're depending on that for those extra bushels that you don't have storage for. I think it's good to have a plan in place. The repercussions of Hurricane Ida and logistics, that's going to reverberate through here and create somewhat of a, you know, a domino effect or an effect that— a bottleneck effect that kind of persists, I think, through the fall. There's certainly going to be some opportunities with the market starting to incentivize some carry on the new crop contracts that, you know, maybe some piling and things of that nature that, that can kind of alleviate that, that concern in certain areas until those logistics get worked out near the river.

But that typically also result in some wider basis in those areas, especially on, on areas that maybe have better yields and extra bushels to deal with. So I, I would, I would certainly, if you've got extra bushels that you know you're going to need to move or you don't have storage, you don't have enough basis where you're comfortable in those regions where yields are better, I would, I would stay on top of that because I think that that you could see, you could see a severe weakening, especially if we get into October, late October, and tail end of that harvest. So right now, very strong. I think that there's some opportunities to manage some of that basis on even the forward basis offers. I would be proactive on that.

Chris

Barron: I've, I've asked the last couple of weeks this question. I'll ask it to you too, is You know, you're— you know, you've got X amount of storage in the bin, you've got either corn or beans that got to go to town. What are you hauling to town and what are you putting in the bin?

Chris

Wilson: That's a good question. I haven't scrutinized that one quite as hard. Uh, I mean, a lot of guys typically will store corn over beans.

Chris

Barron: Um, I mean, when you look at the carry, there, there's some carry there, you know, that Dec— as I look at it as we record this, I look at, you know, there's about a 14-cent carry from Dec to May, but it doesn't really gain you a lot going out to July. And so, you know, if guys have hedge-to-arrives or whatever and they want to roll those out and store the corn, there doesn't seem to be as much you know, there's not obviously as much in the beans, and the beans aren't as much fun to store in a lot of cases. So I don't know, I'm letting you know my bias, I guess, but, you know, shoot a hole in it, I guess, or tell me why that's wrong.

Chris

Wilson: Yeah, I mean, I, I think typically because of the, the two-hemisphere production on beans, it's just typically your, your more— your bias is going to be towards corn. Now On that, I think if you're looking for more general upside in a market and you're kind of betting on some tightness, I think you could see more asymmetry on the upside to being on that basis and on some of those windows, especially on PMFAB and then out in the next summer. There's nothing on the board structure for beans that would, that would, you know, trump corn at this point. I think corn is certainly the winner on just seeing what's there for a carry.

Chris

Barron: And it's almost easier with the beans maybe just if you've got a few extras rather than messing around with them, putting them in the bin. Maybe, you know, obviously not advice here, but you know, sometimes it's easier to store them on paper too if you can get rid of them. The problem is, is you know, during harvest you get that gut slot. There's trucks lined up for 30,000 miles, it seems like, and it's hard to get, get rid of them. But it seems like one— about the minute bean harvest is done and corn harvest isn't quite done yet, you can kind of start hauling beans to town and, and free up that space. And sometimes there's an opportunity there as well.

Chris

Wilson: Yeah, I think that's the nail on the head. I mean Generally, my bias is to reown it on paper as well. I also think we're just in a little different environment too, and we can kind of touch on that, I guess, a little bit. But the firmness in the market that we saw last year is certainly still there on the balance sheet, but the price action is not necessarily driving that either. So I think Or, you know, it's a little bit of a 180 from where we were a year ago where we had lower prices and we had firmness everywhere despite the balance sheet still showing at that time 2 billion bushels of corn, etc., etc. Feels a little bit the opposite this year in the case that we have higher prices, we got a really tight balance sheet, but that price action keeps— has been kind of a grind for the last month and a half, 2 months.

Chris

Barron: —to the downside. Yep. So anything else that, uh, you're thinking on as far as producers as we get into harvest? You know, um, any certain levels of sales that you're more comfortable with than others? I mean, do you see any, any outstanding risk out there? I mean, these price levels are still pretty phenomenal from a return to management perspective. Anything, you know, that, that, uh, guys need to be thinking about as we get rolling here more hot and heavy into harvest?

Chris

Wilson: Yeah, I mean, the guys I'm working with were focused on, on opportunities to maybe reposition forward, reposition on paper, uh, so that at the moment, you know, we're looking if— and we're looking if we do get a move into that, that sub-5, that $4.70, $4.80 level where there's there's some pretty important support levels. We get a move into that level, taking profits on downside options, put options, and then on sales that were made, if you make that roll on that carry or if we just want to own some paper out into May, July next year, looking for those opportunities at that time. So that's kind of our mindset on the '21 crop. Where we're maybe looking at positions or just make sure that we've got good coverage in place is on that '22 and even some '23 markets that haven't moved to the downside, you know, nearly as much or much at all.

So that's where we're looking at new positions. '21 is a lot of repositioning and looking really if we, if we get that further downside slide to take advantage of that., you know, through repositioning versus looking to make new sales at this point.

Chris

Barron: Yeah, the last thing I want to bring up, you mentioned '22, um, you know, when you, you look at that, we've got a lot of people that are starting to buy nitrogen, starting to buy things, and talked about that last week with Peter Meyer, is, is, you know, you're, you're buying X amount of dollars, you buy $100,000, $200,000, $400,000, $500,000 with inputs for '22 and not locking in something on the sales side of things to lock in that margin, because there's still a pretty decent margin. I think we're, we're still running over a 10% ROI with producers with where the current board prices are at for corn and soybeans in '22 based on expected cost of production for '22. But if you start buying those inputs and locking those in, not locking in the, any of the $22 is, is kind of the danger zone. Any comments on that?

Chris

Wilson: Yeah, I think, I think as you lock those inputs, you, you're more exposed, you have more risk at hand, um, especially locking those. Your cost production is going to be up anywhere from 50, 75 cents is what we're seeing on the various inputs and costs. Per bushel. So you've got, let's say your cost is in that $4.40 mark, $4.50 area, you've got a $5 board, you put some carry on that, like you said, there's a 10% ROI. You can, you can go grab some of that and then look for some opportunities to give yourself some upside through some straight sales. I don't think that's a bad business move. If you want that upside immediately, there's still plenty of choices out there that give you coverage from, say, $4.80 down to $4.20 and give you room up to, you know, $5.80, that type of window, $6 with fences and 3-ways.

So I think that when you have a 10% ROI a year out, it's wise to be active there and taking advantage of it, especially as you're locking those inputs in and locking that higher cost structure in place.

Chris

Barron: I'm going to ask a real quick last, last, and you give me a quick answer, but is there any like individual threats out there? I mean, these prices are still good, and all of you guys that I talk to each week are all still pretty comfortable with— it appears anyway— pretty comfortable with where these price levels are at. And you're looking at, you know, you use that $4.80-ish number on corn, and I'm not sure you'd have to rattle off your bean number, but where that kind of that support level is, is there anything that's out there that is a threat that could take us below that? Because, you know, it just— and maybe I'm just always the fearmonger there, but, you know, I just always want to be on guard.

It seems like after 2020 and some of the things we've gone through and with the way this government is and some of the things going on in the world geopolitically, it just sometimes makes me nervous. Is there anything out there that bothers you or makes you nervous out there, or do you think we've got pretty darn solid support at those levels?

Chris

Wilson: I think, I think, yeah, I think, I think that most of the big concerns in my mind are kind of known potential concerns. I think some of your macro market things that I'm less worried about, I think that there's, at least for the next 6, 9, 12 months, there's enough juice in the system to keep that macro boat afloat. I think the things that concern me and the things that I've been saying a lot really since the spring is that counting on China to be a continuous buyer of the volumes that they bought the last 12 months I think is concerning. When you look at the USDA estimates on what China's expected to buy, I'm very skeptical of those numbers. And then this report, one of the big nuggets in it for me is that they juiced China's yield, corn yields up significantly. And that, that, that, So to me, if anything in that report jumped out, it was that.

It affirmed what my intuition was based on the prices and the behavior out of China and corn buying last 3, 4 months, which is hardly any at all, is that they've got a good crop and they're comfortable where they're at. And that's, I think, a big part of the weakness that we've seen in both corn and beans is that fundamental variable there. So I think that that's certainly something to, to be concerned about. If they don't, if they don't get their nose back in the market here and become a value buyer at the support levels that we've talked about, then that's concerning because we do need those bushels to go there, or at least a good portion of them. Yeah. And then the other thing I think is that South America is extremely dry, but they are going to plant a record amount of soybean acres and they have the conditions to do that over the next 60 days.

So, you know, I think that's also a bullish opportunity down there. But I also think, you know, if, if sort of the stars align where they have that dry spring and the season's coming, you know, the weather comes in not unlike what happened in our markets in our production season where we had that dry spring, but in many areas we did get the timely summer rains and a little bit different down there with how their rain cycles flow. But if that lined up and they grew a big crop at the same time that China wasn't as big of a buyer, that does set up that sort of negative domino that could take us down below those levels. $4.70, $4.80 in corn, below $12 on beans. Those are areas that take us down below cost of production potentially, or at least running at cost production versus where we're at now, which is a, you know, a healthy 10% ROI in general.

Chris

Barron: Yeah, well, that's all really good stuff, and I think it's just things that we all need to keep in the back of our mind, you know, what are those threats out there and. And just to kind of keep us motivated to make sure we're plugging away when these rallies come in and we have these kind of margins. It's been kind of fun to see margins at these levels that we've got. We just haven't, haven't seen that for a long time. And so we don't want to, we don't want to pass these things up as, as we chug through harvest and, and keep, keep a track of things. So hey, Chris, really appreciate your time and, and your expertise, and we'll definitely have you back again here soon.

Chris

Wilson: Yeah, yeah, for sure. Thanks for having me on. And, um, if you, you want to touch base, um, our office number is 800-884-8290, and we're in Green Bay, Illinois.

Chris

Barron: Awesome, sounds good. Hey, Chris, that's, uh, Chris Wilson with Attenbabler. And, uh, give him a shout, reach out, and have a conversation. So Really appreciate everybody listening, and everybody be safe out there. I know combines are starting to roll, things are starting to get going, so take it easy, play it safe, and, and good luck out there. And we will catch everybody next time on the Ag View Pitch.