About This Episode
Shay Foulk and Jarod Creed spend most of this conversation on a single structural idea: the February insurance price is a marketing tool, not just a paperwork date. Creed argues that if prices hold into February, a higher spring guarantee combined with an average yield rewrites what a grower has to sell to be profitable. He works the math out loud, comparing a guarantee at a higher spring price to recent years.
His selling method follows from that. Rather than forecasting a top, he asks how many bushels a grower would need to sell at today's price, plus another fifty cents to a dollar, to guarantee a profitable year alongside crop insurance. Once that number is met, the grower earns the right to pause and watch the crop develop. Percentages sold matter less than whether the profit is locked.
Creed also explains why the market moved so violently in a quiet week: liquidity is thin because sellers are absent on both continents, so any sizable buyer moves price in jumps. He is candid that supply and demand had not been driving the market for weeks. His closing instruction is operational rather than analytical: call your crop insurance agent now, because add-on products run out of allocated capacity.
“But at the end of the day, all we care about is making money. It doesn't matter where that money comes from. It's all about the total revenue per acre, uh, above and beyond what our expenses are.”
— Jarod Creed
Key Takeaways
Ask how many bushels you must sell to guarantee profitability alongside crop insurance, then treat that number as your plan.
Once the profit is locked, percent sold stops being the scoreboard. You have earned the right to wait and watch the crop.
Use scale-up orders in small increments, one to five percent at a time, instead of trying to identify a top.
The spring insurance price sets the floor your marketing builds on, so know what a strong February does to your break-even.
Thin liquidity, not new fundamentals, explains many violent price moves. Absent sellers let any sizable buyer move price in jumps.
Add-on insurance products have limited allocated capacity, so sign up early rather than at the deadline.
Full Transcript
Shay
Foulk: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one.
Jarod
Creed: Full count. Here comes the play at the plate, and it's the Ag View Pitch.
Shay
Foulk: Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk with Jared Creed. Jared, how are you today?
Jarod
Creed: Hey, I'm doing well. How are you?
Shay
Foulk: Well, can't complain too much. A little overcast here like we were talking about offline, and I I think the mood is probably fitting as we head into another marketing week. A lot of questions that we may have moving into the reports this week, but I thought we'd start off by doing a little bit of a review. Um, you know, what did we see as market movement last week? Where did we end up? And what are some of your thoughts on that?
Jarod
Creed: Well, you know, we started the week off very, very strong, uh, and then basically tempered our expectations as the week went on. It may not feel like it, and it certainly doesn't look like it on paper, but all in all, we had one of the quieter weeks that we've had from higher or lower price action from a Monday through Friday perspective. Nonetheless, we had some massive volatility at the beginning of the week as we went into the beginning of the 2021 calendar year. You know, we can't forget that Monday we saw a 50-cent price range in beans from high to low. Follow that up by a dramatic rally back on Tuesday. Uh, beans ended up the week, uh, you know, relatively higher. Corn, uh, really failed to go address those highs that they set on Sunday night, Monday.
But nonetheless, I mean, maybe we're just getting spoiled with the volatility that we've had over the course of the last month, but it almost felt like a pretty quiet week. And towards the end of the week, things seemed to be relatively slower paced from an overnight perspective and during a day session, albeit the trend is still intact. We're continuing to take this market higher and higher across all these commodities.
Shay
Foulk: Why did we see some of that early in the week volatility there? Can you touch on that real quick?
Jarod
Creed: Well, beans were definitely the most volatile in that space. I think it's another reminder that our liquidity in this market is rather thin. Specifically driven from the lack of the seller side, both in North America, South America. The farmer is relatively absent, and I could say rightfully so in North America. South America, you know, we're just on the doorstep of starting their bean harvest. I would expect that one of two things happens. You will see them become engaged again, whether it be time on the calendar as they get through their harvest, or or potential currency moves in relationship from the Brazilian real and the U.S. dollar to open the door to them to become larger sellers. Several reports last week show that the South America farmer would be somewhere 55 to 60% sold of the crop that they are just now beginning to harvest.
So obviously the selling pressure from that aspect is, is relatively minimal. Nonetheless, you know, path of least resistance in this market when somebody wants to come in and buy a significant amount of contracts market's going to move in big jumps, a lot of ticks at one point in time, just because you don't have a liquid offset from the long and the short aspect.
Shay
Foulk: I appreciate that perspective from the South America side. I did see online today a few combines rolling down there, so it's kind of interesting. You know, we live in such a truly global world, to think that the impact of something— hundreds, or not hundreds, but hundreds and thousands of miles away, uh, is having such an impact on what we're seeing in our local agricultural communities here in North America. So in addition, with the combine starting to roll down there, we also have a report coming out this week. Can you touch base on that a little bit, please, Jared?
Jarod
Creed: Well, I'll tell you what, um, my personal opinion, I don't think the fundamentals of our marketplace have really been a player for the last couple weeks, uh, maybe even as long as a month in the bean market. The only argument that you can make with that would be Argentina production forecasts. Uh, you know, their forecasts have been all over the map, and in years past we've seen extreme volatility in their production estimates. You know, one that jumps out to me, in 2016 they were forecasted to raise a 51 million ton crop dropped that estimate all the way to 45 and ended up being close to 48 or 49. Now you're looking at them being forecasted at 50 with the fear of them being as low as 45. And now weather models are starting to shift to be a little bit more favorable for the end of their growing season.
So you link together what's going on in South America production, specifically Argentina has a much more, more important impact on the U.S. balance sheet here moving forward. There's been plenty of talk about how do we ration demand in the bean market. To this point, I don't think we have. And on Tuesday, if we see another further uptick in both exports and domestic crush, you know, that confirms that, albeit that data is a couple weeks old. But I think we continue to see crush margins do just enough to keep our domestic demand strong. And meanwhile, the users of these byproducts from the crush market so far have just been willing to pay more. So as you fast forward to Tuesday, you know, my expectations are to see, obviously, obvious, I should say, a further reduction in the soybean balance sheet. I would say if you do not see a reduction, that would be a massive surprise.
And on the corn front, maybe you see a little bit of wiggle room from last year's total production. A little bit of wiggle room on the ethanol side, and perhaps a small uptick in, uh, corn exports. But all in all, I'm not so sure that, uh, there's really any surprises out there on the supply and demand aspect for corn. Beans perhaps, but again, to put an emphasis on it, uh, maybe our only risk from Tuesday is that you have a large enough surprise, good or bad, that it outweighs the participants' attitude towards our market that have not been built or traded on supply and demand. If that's kind of trying to string that together, I just don't think that supply and demand has mattered much in our market the last couple weeks.
Shay
Foulk: So I'm the American farmer listening to this podcast here, and I'm thinking about the report coming out. I'm thinking about what I can do to protect myself, protect profitability moving into 2021. With this lack of fundamentals outside of what we're seeing with the Argentinian projections here, as you mentioned, you know, it leaves a lot of questions in the air for the farmers. What do I need to be thinking about? What should I be doing? Do we just hop on the bull and let it, let it ride and see what happens? If you're the American farmer, what are you thinking about right now? What are you doing?
Jarod
Creed: I think the American farmer is obviously— the majority of the American farmers have shifted their focus away from 2020 to 2021. Um, you know, call a spade a spade, the overwhelming majority decisions on selling 2020 in a hindsight perspective has obviously been wrong as the markets continue to go higher and higher. Nonetheless, I think that the emphasis on 2021 uh, it needs to be centered around what do I need to sell in order to make sure that I'm profitable for next year at these prices and continued higher prices. That I think we're getting on the doorstep here of establishing a solid insurance price in the month of February, uh, and given the opportunity to sell just enough over the course of the next couple weeks that we get to pretty much, uh, move our 2021 soybean profitability in in the green direction automatically.
So I would just say that the simple approach right now is just continue scale-up orders on small percentages. It doesn't matter if it's 1%, it doesn't matter if it's 5%, but I think there's a healthy zone here where everybody needs to explore how many bushels would I have to sell at today's price and perhaps throw out another 50 cents to a dollar to guarantee myself a profitable 2021 conjoined with crop insurance. And at that point, when you talk about making the most out of an opportunity, perhaps a farmer gets afforded the opportunity to stop selling for a moment in time. Let yourself get to planting timeframe. Let yourself see what your crop development is. See the balance of South America production. Of course, you still have risk on the bushels that you don't have marketed at that point.
but year in, year out, we always have a certain threshold of risk, except our threshold of risk would obviously be less, uh, going into this next growing season given the opportunity that we have to sell at these prices.
Shay
Foulk: I like what you said there about incremental sales, and I want to touch quickly on something that we were chatting about offline just before we got started here was if we can maintain these prices through February, uh, you— you know, we as the American farmers could be in a pretty good position as we move forward with some of these pricing opportunities. And I don't want to oversimplify what we're looking at in the marketplace, but when Chris and I sit across from operations, we look at their cost of production, we talk through profitability and profit management with them. We can pretty safely say that all the farmers that we work with right now are seeing profitable levels in the marketplace.
And there's different factors that affect, you know, how many sales you're making, the percentage of sales, what you're comfortable with forward selling to, especially in a market that has a lot of volatility and uncertainty on it. But right now we're looking at a time of pretty significant profitability that we haven't seen since about that 2013 timeframe. So just really interesting from the marketing and sales standpoint. But I want to go back real quick to the the maintaining those prices through February. Uh, talk just a little bit more on how important that could be, uh, as we move forward.
Jarod
Creed: Well, I'll tell you what, here's the struggle. It's very, very important to keep those prices, but it's very difficult to protect all of that price risk as well. So when we talk about incremental sales, that doesn't pertain to just soybeans, it also pertains to corn, no doubt, uh, especially given what you just mentioned, that majority of operations are looking at profitable opportunities. But at the end of the day, all we care about is making money. It doesn't matter where that money comes from. It's all about the total revenue per acre, uh, above and beyond what our expenses are. And I can't emphasize enough that our marketing plan and our mindset can shift dramatically if we can get into the first couple weeks of February with prices anywhere near where we're at.
And just to put this in perspective from a national yield idea, let's just say, you know, you're talking about near 180 bushel, uh, national forecasted yield. And let's just say that that's a national APH, trend-adjusted APH. Well, uh, 80% of that, uh, you know, we're going to be insuring well over 150 bushel an acre. And if we're talking about a $4.40 spring price versus the last several years averaging out closer to $3.90, you know, that's a big $75, $80 an acre boost across all of North America producers' corn crop, let alone the fact that the bean price would be upwards of a couple bucks higher. You know, 2016 we had a decent price, and so did we in 2017.
But nonetheless, I think the point of the focus around crop insurance is it links back to how many bushels do I need to sell to make money, and then incorporating what my crop insurance does on my unsold bushels with my sold bushels, opening the door to exploring some other alternatives on protecting the balance of the physical crop that you got guaranteed. And a lot of that, at least the discussions with my clients here lately, has been centered around what type of put option spread strategy would we put in place to basically cover a certain amount of downside risk, you know, cover an additional 40, 50 cents of downside risk from current levels today, makes a monumental difference when combined with my crop insurance and what I do have forward sold.
Uh, but on the flip side, uh, if we are actually going into an environment that provides much higher prices than years past, I'm not going to be left holding the bag having too much sold too early. I'm going to go ahead and leverage what some of those tools are in the marketplace, uh, to make sure that I'm still in position to make the most of a very, very good opportunity if it does come around.
Shay
Foulk: I really don't think there's anything that I can add beyond that. I love that you tied in the crop insurance to that decision, uh, and I think that's going to be a crucial decision as we move there to that beginning of March time frame and looking at what the best options are. A lot of good programs out there right now, obviously with the continuance of SCO and then also ECO. We do have a couple podcasts on that listeners can look for, and we'll also be having more discussions on that. So, you know, we talked about weather, we talked about sales, upcoming report. From a demand perspective, we've seen some movement over the last week. Do you see that continuing as we move forward, or what are your feel— or what is your feeling on sales as we move into the next week and beyond in the global marketplace?
Jarod
Creed: Uh, Shay, just to clarify, you're wanting to know from a demand perspective? Well, Tuesday will tell us a lot, right? Uh, it's a little tough one to answer a couple days prior to that, but, uh, from what I have seen, I think you've had such a change of behavior and offerings in the byproduct space of the U.S. domestic demand. You know, on the ethanol plant side, it feels like we're day by day getting away from being ethanol-focused and ethanol is becoming more and more of a byproduct. As you continue to see high-protein DDGs produced, CO2, DDGs in general, obviously we have a very strong feed number in place right now in the U.S. with ethanol basically, being the, you know, the redheaded stepchild in all this. But even though all of these users know that their quarter one and perhaps quarter two margins look pretty bleak, it's not bad enough to have them slow down dramatically.
And then on the bean front, I mean, I heard enough stories last week to convince me of the fact even though crush margins on the board and paper took some very ugly turns, the users of those products, specifically meal, are just willing to pay more, flat out just pay more, whatever it takes for them to get ownership of it. And that's going to keep all these users both in the corn and soybean space making just enough money to not slow things down. So I don't know if we've really done anything in terms of rationing demand. And then obviously behind the scenes on the export side, uh, in the last week we definitely did see some additional business, um, specific to soybeans. I don't recall any corn sales last week, but in general holiday time frame and where we're at in the calendar, you should see a little bit of slowdown in export sales as it is.
Shay
Foulk: I think we've hit on all the major factors here, Jared. Anything else that you want farmers, listeners to this podcast, to keep in mind as we head into the second full week of January, second full week of the new year here, with some of the important stuff we have going on?
Jarod
Creed: Unfortunately, I think I'm going to repeat what I said at the tail end the last time I talked to Chris. Get on the phone with your crop insurance agent, get your meetings established, and go through all of the tools that you have access to from an add-on perspective on top of your government multi-peril policy. I cannot emphasize it enough. From what I have heard, plenty of the AIPs, the approved insurance providers such as your NAU, rain and hail, RCIS, so on and so on. None of them allocated an additional increase of dollars of revenue to insure, basically meaning there's less dollars to go around on the acres that might jump on these programs.
So a little bit of a first come, first serve, and I feel a little silly saying that because I need to get the balance of my producers to hammer that process and make sure we're not, uh, left, uh, holding the bag and not getting signed up for these programs. Last year we saw the same thing happen. A lot of add-on products ran out of space, uh, for producers to sign up. So I'll say it one more time, get on the phone with your insurance agent and get that stuff accomplished now.
Shay
Foulk: I think that's a great point to end on there. Jared created JC Marketing Services. Jared, how can they, uh, How can the listeners get a hold of you if they have an interest in talking with you one-on-one here?
Jarod
Creed: Sure, easiest way is just call my phone, 402-680-1744.
Shay
Foulk: Great, Jared, thank you so much for the time. We always appreciate your value and perspective.
Jarod
Creed: Thanks, Shane.
Shay
Foulk: And as always, thank you everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.