What price can't you sell for? Weekly market outlook Nov. 6-10th

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 are heading into a new marketing week, November 6th. Through the 10th. And we are lucky enough to have with us Mark Welch, marketing economist with Texas A&M. How's it going today, Mark?

Mark

Welch: Good morning, Chris. Good to be with you.

Chris

Barron: Thanks. Well, it's good to have you. And just kind of an interesting week, actually an interesting several weeks. We've seen a lot of different things going on. Talk a little bit about what you're seeing or what you're hearing. We've just kind of seen this market slide sideways. We did finish last week with a little bit of strength. Let's just start out in general. What are some of the kind of general things we're seeing? And then we'll kind of dive into some specifics.

Mark

Welch: You bet. Of course, you know, kind of look at where the December corn contract for the '23 crop has been trading over the last weeks. Months, uh, you know, we'll, we'll seem to, you know, catch a little ground, uh, and then, you know, kind of pull back again, which, uh, you know, the, the question— I guess a couple of things kind of come to mind as we watch where we're trading today and kind of what's left toward the end of this contract. And as we wrap up this '23 season, um, you know, one question is, is, is the low in? Have we seen the harvest low, you know, built into these markets?

The other question being, which I think will answer that question to a large degree, is have we got all the yield adjustments made given the very difficult growing conditions that, you know, much of the corn growing area experienced in 2023 and how much of that is offset by areas that did really, really good. And so kind of what that number is going to come into. And I think what we're seeing as we're playing out here to the end of the year is, uh, my personal expectation is not for a high likelihood of a significant rally as, as we're, you know, wrapping up the end of the year. So certainly something could change to alter that. But one is, if you look at the corn supply, uh, for, for 2023, you know, we're coming in changing the yield of half a bushel, uh, here, there, a small adjustment harvested acres. Are we going to really get off of that 15 billion bushel crop?

I just don't see that happening. If we kind of stay in that kind of area. And then the concern being with a 15 billion bushel crop that our use categories, particularly in this current marketing year, are kind of stuck in the doldrums. And I think there's a lot of reasons for that. And it makes a lot of sense given the, you economic outlook, the economic conditions that we're in. But particularly, I guess, the area that I've really, I think might be a whole potential for us, if we're going to trim that, that ending stock number that 15 billion bushels creates, would be the export area. I guess the bottom line, a 15 billion bushel crop and the use numbers kind of like we're looking at right now, We've got a 2 billion bushel carryover, you know, and we just haven't had that in a while.

And, and that creates, I think, enough of a price moderating influence that the market's just having trouble breaking away from. And kind of makes sense if those are the kind of numbers that we see coming out of this '23 crop. And at this point, I think we're pretty well on track to see that play out. Through the end of the season. So I'm not looking at that significant post-season, post-harvest season-ending rally that, you know, we've seen, you know, China come in and buy a bunch of corn or, you know, kind of something happened to rally us going into the next year. But where we're at right now, I'm just kind of seeing this year just kind of, kind of fading along kind of where we're at.

Chris

Barron: So do you see any hope at the beginning of the year then if you're, if you're pessimistic? As we wrap up the year, I think there's a lot of financial strength with a lot of listeners. You know, they're sitting there, maybe, you know, if you're watching this on YouTube, you see the bins behind me here. You know, a lot of those are full everywhere. So the supply, like you just said, is there, but you got to get it out of farmers' hands. And so, you know, basis is probably going to be something that's going to have to do a lot of the work. To get it back out of the bin. But, you know, how long should or could a person hang on? I mean, and does it make sense to— I mean, you know, like I said, we saw a rally last week. We saw one 2 weeks ago. These rallies keep coming off of lower lows.

And so, you know, the word, the wording always, or the advice a lot of times is you know, sell the rallies. Well, we've been trending lower and then we catch a rally, but each rally is a little lower and it's harder, I think, for guys to make sales. One of the other things is, is I think, you know, there's going to be quite a bit of indemnity payments in certain parts of the country, too, where, you know, corn finished up, what, at $4.88. Soybeans finished up at $12.83. And so that's going to create some indemnity payments, especially for those who had 85% coverage. There's going to be money there. So I think it's going to, it's going to slow people down to make sales. Is there any threats there or anything that, that you think, you know, should you be selling those rallies? What should people be thinking? What should they be doing about that?

Mark

Welch: You bet. And as you kind of look at all those factors coming together, of another piece, you know, we didn't talk about in that, of course, depending on a person's, you know, financial situation, is there, is there an operating note that needs to be covered out of that grain that's sitting in the bin? And, you know, and interest rates in today's world, and what's that doing to farm budgets? It's not a small thing. So, you know, the cost of, you know, tying up our assets in that regard? Is that, is that meter still running? Also, if, of course, another piece that plays into that is, you know, looking at the carry that's in the market, if you look at the price differential between the different trading months on December corn and just double-checking again kind of where we finished yesterday or last week was, you know, about a 15-cent spread. Between December and March.

You talk about basis. If we can, you know, get a, get a decent basis bid and on what basis doing and, you know, up in y'all's part of the world, we still have an above normal basis down here in the Southern Plains, which we don't have a positive basis, but it's still a little better than average. It's come down as we've gotten into this harvest season, but a little better than what you say the 5-year average would be on our basis levels. And is that enough carry that, you know, you could lock something in, capture that, not let that get away? And then with a decent basis bid, you know, what does that— what kind of value or what kind of floor, you know, can you kind of assure on that grain that's in storage? And I think those kind of things that we need to look at, you know, leaving with no protection, you know, at all with that grain that's in the bin.

You know, that's pretty risky strategy. The last couple of years we've seen some significant price acceleration. You know, we've finished up harvest and off to the races to the next year. And I just don't think the fundamentals are there from what we see right now that would warrant those kind of expectations that were much more of a kind of a normal kind of wrapping up a season, kind of running to the end here without I don't see the price enthusiasm in that market from the demand side, and I don't see significant adjustments on the supply side that are going to change the picture. And again, there's all kinds of things that could happen that I don't know about, but I just don't foresee those. I don't know what those would be at this point.

Chris

Barron: Mm-hmm. Yeah, it was interesting. I, I'd have to go back and listen, but the last time we had you on, it was quite a while back, and I remember you making a comment at the time, I think we were in like the $540 or $550 range or something like that, and we'd come off some pretty strong prices. And I remember a lot of people pretty hesitant to make any sales at those levels because we were coming off some pretty high level prices. And I remember you saying, well, $5— I think it was like $540, you'd have to go back and listen to the podcast, but I think you said like 5, 540 or 550 is a lot better than, than 450, you know, 470 or 450. And we're, and we're getting close to those levels. And I think at the time people just don't believe that it can do that, you know. And so I think we almost need to recalibrate our thinking and reset our margin targets, you know.

But with that said, another question for you is you know, a lot of people do have sales made, right? And so one of the things I always try to encourage people to do is look at your average selling price. Don't look at the first one you made versus the last one you make or any of them in between. Look at, okay, where is your average? Take into account insurance if that's, that's part of the equation. Take into account basis opportunities like you said, and also take into account yield. There's a lot of people that we work with that were in areas that had way better yields than they ever expected. And so you got to look at gross income then at that point rather than price. I mean, we can sit here and talk about markets all day, but at the end of the day, you need to cash flow, you need to pay off your line of credit, you need to buy your inputs for 2024 and those kind of things, you know.

So I think those are, those are key things to kind of keep in mind. So the next area I want to go into is, is demand. You know, our biggest reason for, I think, digging this hole is a couple of things is demand. And then it seems like when there's not excitement, the funds don't get involved very much either. They kind of, they kind of hide or go do something else with their money because they, you know, they want volatility and, and we've just kind of had a slow slide down. We haven't had, you know, and when they come back in, maybe that will create some opportunities. But with that all said, What do you— what hope do we have on the demand side? Because that's really what we need in the grand scheme of things. That's where it needs to come from, or South American weather. Of those things, what kind of key things are you watching that maybe we can be paying attention to?

Mark

Welch: And I think that's exactly right. If I look at those use categories that we, you know, track in the WASDE every month, and We'll get updates again here soon in the— with November numbers. That export competition out of South America is huge. The Brazilian corn crop, the expectations there and, you know, the access of U.S. market share on that corn export number is the one that I'm particularly watching to get that number back over a 2 billion bushel export number. Yeah, that's where we need to be. Is there potential to go higher? I think, I think if we're really going to boost the use categories and that demand number, kind of that total use at the bottom of this balance sheet, it's going to come from that area, be the exports. I think that's our greatest potential to recapture some of that market.

You know, Brazil's kind of battling us for the number one corn exporter in the world. And so I certainly think if we can reclaim that, I think that's, that's the one that we really need to watch. If I look at feed use, you know, our— had bigger cattle on feed numbers in the last report that we received than I think most were expecting, a pretty high placement number. But generally speaking, you know, our cattle numbers have been on the decline the last few years. Look at total cattle inventory. At some point we're going to start retaining heifers. And I think that situation is going to stay tighter. So just in terms of the livestock numbers, the poultry numbers that are on feed, do we break that significantly higher given the kind of numbers that are out there? I think that's going to be very difficult.

Gasoline demand is the primary driver of our ethanol expectations and ethanol use estimates, and that's running below, you know, 5-year averages, it's, uh, pre— it's warming, not back to pre-COVID levels there. Uh, you seem having difficulty getting, uh, you know, momentum built back on gasoline demand. And I think that's going to then limit, uh, growth on the, uh, corn for fuel sector. Now we could, you know, increase blending rates and export more ethanol. Those possibilities there. But I think the primary, the foundation of that, uh, I don't see a lot of growth prospects, in that particular category. So if fuel's kind of flat and feed's kind of flat, um, you know, we need something on that export side.

And, uh, I think if we look at what we might expect then for, for 2024 and moving beyond, uh, I think that export category is going to be the one if we're going to see a rebound on the demand side that would really trim that carryover kind of number. That's in at least for the next, you know, a year, I think I'd be looking more at the export number than on the domestic side at this point.

Chris

Barron: Let's hit soybeans for a minute. We've been pretty heavy on corn. For those who have some soybeans yet to price, do you hold on a little bit longer on the soybeans and maybe finish up the marketing on that a little quicker than the corn, or do you hold on to that and move the corn a little quicker? The same question with wheat. There's people, you know, sitting on that too. Any comments? I mean, that's a loaded question, and I don't mean to throw you under the bus with a question like that, but at the same time, you know, those are things that guys are thinking about. So, you know, what are some of the things, if you put your farmer hat on, you'd be, be looking at closely.

Mark

Welch: You bet. And, uh, we're going to start right off that I'm not the soybean guy. Uh, you certainly try to keep up what's going on over in that world with the influence it has on our, our feed grain market. And of course, we're growing a lot of beans in places that we used to grow a lot of wheat. Yeah. Uh, and so we're certainly want to pay attention to that. Uh, I was just updating the numbers the other day, and we may have discussed this that if Texas was a county in Iowa, we would rank number 70th in soybean production. In other words, any individual— the individual counties in Iowa, 70 of them produce more soybeans than the state of Texas. Yeah. So we're not a big player, you know, down in this part of the world. But and now and again, basis levels, same fundamentals that we're talking about in the corn market. You know, what are your spreads in the soybean market?

What you're, you're carrying in those futures contracts, what are you looking at in terms of your basis bids. I think those are things that really shape some of those, you know, store or sell kind of decisions. But I'm also more bullish and optimistic on the demand side for soybeans than I am for feed grains. And I think one thing that's gotten my attention over the last couple of months is since about the middle of August, and I've kind of shifted my focus now, uh, looking at that November '24 contract relative to December '24 corn, uh, and where December corn, you know, kind of fell off and we've kind of really seen some doldrums, uh, on that contract, uh, soybeans have shown a lot more resilience.

And if you look at that, you know, that price ratio between those two commodities is one that we've really seen that, that spread increase since if you go back to, you know, say the first part of July or first part of August and then kind of where we're trading now. So I think that's, that's pointing to certainly more pricing opportunities. And I think, you know, the supply concerns, South America certainly plays into that. Are the bean crop planted in time and, you know, some issues, you know, there and growing conditions, um, as well as, you know, we're trying to find out, finalize what the U.S. yield is going to be. But I think on the, on the demand side, on the use categories, uh, I think there's some prospects and possibilities that look pretty positive for soybeans.

And, and so if I'm looking where the bullish then impact on our feed grains, it's, you know, what acres, you know, could be for, for 2024. But I think, I think the underlying use numbers, uh, I'm much more positive, uh, from the oilseed side in general, uh, than I am on feed grains, uh, as we're wrapping up this season. Do you see, uh, in terms of your basis bids and just kind of what you sense of, of, uh, of the, uh, the demand for beans just kind of on the ground and at the elevator, what are you sensing and hearing up in the other part of the world?

Chris

Barron: Kind of the same thing. And I think I like your answer. It's the politically correct way of saying beans probably have more opportunity than corn does. You know, nobody knows and it's not a recommendation, but, you know, it's just a little bit more of a bleak look for corn versus, versus soybeans. And, you know, it's— everybody's got to kind of make that their own decision. But, but you're right. You know, I think, I think the, the demand on the soybean side is better. I was doing some math when you were talking there, though, looking at what our average client typically needs, about a 2.7 price ratio of corn to beans. So if you have $5 corn, you're looking at $13.50 soybeans, you know, to, to sort of entice a producer to let the beans go. Versus the corn at $5.

And, you know, and I think that, that leads me to what I want to talk about towards it as we get closer to wrapping up here is 2024. Some practical things there too, like we just talked about with, you know, looking at, okay, a $5 corn and $13.50 soybeans. What are some of the things you're looking at in 2024? I mean, You know, people got in trouble, I think, in '23 because like fertilizer and some other inputs were purchased and then there wasn't any pricing done to offset the other side of that.

And so the caution that I'm thinking about for 2024 is, you know, get it— we got to get $6 corn and, you know, $14 beans sort of out of our head a little bit and not think about that and think more about our margins and look at, okay, our cost of production expectation for '24 is going to be X for corn, Y for soybeans, you know, and whatever, you know, for whatever crop you're growing is looking at that cost of production and saying, okay, it doesn't matter what the price was last year. It doesn't matter what I want it to be, what I think it should be. But, you know, what do I need to achieve a reasonable margin or how do I manage reducing a loss. You know, we might be reducing a loss in the '23 crop for the remainder of the sales, you know, and that sounds pretty, pretty bleak. And it's not a very popular thing to say.

But, you know, to your point that you said earlier, we've got interest rates to consider, we've got lines of credit, probably, or if we don't, we're gonna have to buy '24 inputs, right? So the cash flow has to occur. So with all that said, what's your thoughts or what are some of the key things people from a practical standpoint in 2024 should be thinking about as we start, you know, buying more of the '24 inputs?

Mark

Welch: You bet. And obviously things are going to change and evolve. You know, we're still rep— we haven't parked the combine yet for the '23 crop and in making our plans for '24. But yet to still start to build within our budget projections kind of what, what are we going to put in that crop? What are we going to need out of that? What price, given, you know, our yield expectations where we're standing right now, you know, what, what is that price that, that covers those expenses? And of course, I think the number one part of any marketing plan is, you know, is input efficiency. You know, get that cost of production down, uh, be as efficient and as productive as we can with every penny that we spend.

Uh, we'll, uh, with, you know, fertilizer prices have kind of looked like they're kind of bouncing back up here this fall, uh, and maybe you had enough open weather to get more fall work done. Uh, again, that may make perfect sense with, uh, maybe, you know, demand picking up for get, get anhydrous and, uh, you know, other, other field work done. Before winter sets in. But what kind of— what's that do to your, to your cost base? And how efficient can we be with, with every pound of whatever it is we're putting on the field? What is that? You know, there are all those calculators and you guys got some great ones up in your part of the world. I think the acronym is MRTN, Maximum Return to Nitrogen. So given your cost of being your yield expectations? At what point do you get the maximum profit return from that nitrogen?

Maybe not the maximum yield, but yet in our current pricing structure with the cost of inputs and the price of corn, then what is the level we've got to be shooting for on that? Is there any, you know, especially if you're in a stressed area this year, what's left over? What have you got that didn't get used up?, in the '23 crop that we can go back and mine and use those resources, then apply those, uh, to '24. I think we're talking about the corn-soybean switch, and, and, uh, yeah, I think the price ratio matters a lot, and I'm watching that. Uh, interesting number of 2.7. You hear 2.5, you know, just kind of thrown out a lot. Uh, and so to hear something's practical in your part of the world, I think is very insightful. Um, and certainly that ratio matters.

But it also that, of course, that agronomically what works for you, the, the rotations and the, the practices that maximize your productivity, that maybe it's not capturing all that, that all the price, but yet in terms of the profit because of the productivity that, that would produce on your farm and in your operation, all those things that matter. And, and any time I have this discussion gosh, I go back to a conversation I had with a farmer a couple of years ago, a late season crop meeting. And, you know, corn was dried down, just ready to be harvested down in central Texas. Everything was ready to go. And I, as the economist, giving my normal bleak and dismal market outlook. And he came up to me at the end of the meeting, says, well, I'll tell you one thing for sure, I can't grow corn for $3.50 a bushel. And that was basically my price outlook at that time.

And I thought, gosh, are we listening to what you're just saying? If that is true and if you know that, if you know you cannot grow corn for $3.50 a bushel, 3 weeks ago it was $4.50 a bushel. How much corn did you price when you had the opportunity to sell it? $4.50. If you know you can't sell it for $3.50 and yeah, it's early, but what is that? I can't sell corn for this price. For 2024, but what's your number? And yeah, $5.20 on the board for December '24 corn. No, that's not great. But like you said in our previous coverage, it's not $4.80. And again, if there's a conversation that can be had around, you know, contracting or a more positive basis, doing something early, if, if that creates some advantages for you or delivery flexibility or whatever the things might be, that could, could enhance, uh, that, that value proposition for our, for our customers?

Uh, can we start to look at those numbers? And certainly here in November of '23, sell all of the '24 crop? No, I'd never, you know, be that aggressive, uh, in my own personal marketing plan. But yet, can we start to get something done to layer on those sales? Does this $5.20 on the board, and whatever your basis might be, and And then whatever your yield prospects, are they looking better, average, above normal? What do they look like right now? And plug those numbers in and kind of see where they land. But I think that's the— those are the kind of things we need to have in our mind as we move along through this season. Yeah, I think there's opportunities, you know, to get through winter. And normally in the spring, we always see a little price rally.

Yeah, I think we could expect those kinds of things, but still be prepared with what our basic numbers are on the farm level, then to recognize the degree to which that would capture value. Or do we want to let that one go? That's okay. But recognize what we are passing up, just what the impact that can have. We've got to know, have enough understanding of our own financial investment in that crop, uh, with a clear-eyed look at what we really— what is my I can't grow corn for this number price. And I think that helps us perhaps making some of those marketing decisions.

Chris

Barron: There's a lot of wisdom in that, Mark. I really appreciate that comment because I'm going to steal that now, if that's okay. And then I'll give you credit for it. How's that sound? But it's the what, what price can't I sell for? And, you know, and you were using the example of $3.50 and I'm sure there was people like, well, I can't grow it for, for $5, you know, and that's true. You know, right now there's there's, you know, depending on the yield, right, you know, the fastest way to lower that cost of production is to increase productivity. But so, so I'm going to steal that, you know, what price can't, can't you sell for, but the converse side of that is that I think is the problem. And this, and this came to my mind when you said that is I think the question that a lot of people ask themselves is, what price might I miss out on if I don't sell?

You know, what if I sell, then what am I going to miss out on? And I think that's the problem, right? Because I think what you're saying is really good. That's awesome. That's something I am going to use. I'll give you credit for it. But I think we need to not be asking the other question of, you know, because I think it's you know, you go back and you never want to market based on the prior year. But I think we all get caught up in it, you know, and we have a couple of years where all we got to do is wake up and we're making money. And all of a sudden, all of a sudden now we're going to be back to reality. And it's interesting, we've had a lot of people reach out interested in Profit Manager. I think Shay said he was working with 5 or 6 different producers last week already. While he's trying to finish harvest, of guys really wanting to get their numbers crunched.

And, you know, and when corn's $6, that's— it's kind of quiet. Not that many people are saying much, you know, it's a, you know, and so I think we just got to, you know, continue to emphasize the importance of crunching the numbers and getting that stuff done. But, but I really appreciate that. That might be something in the title of today's thing. We'll see here. But with that said, how do you want to wrap it up? What do you want to leave producers with to pay attention to as some of them are wrapping up harvest? Some of them got quite a ways to go. I know that I feel for some of the guys in Michigan and some— I just talked to a producer in Canada, got ways to go with harvest and the corn still 28% and it's probably not going to dry from there. So some guys are going to have some challenges yet and there's, there's people just trying to get tillage done and stuff.

But what do you want to leave everybody with as we wrap up?

Mark

Welch: Yeah. Well, and again, you mentioned, you know, the other side of that marketing challenge is if we're getting those marketing rallies and, you know, doing something too soon, leaving money on the table, you know, those kind of conversations and comments. And, you know, by doing things incrementally, when you make a sale today, yeah, you want to have sold that too early. You want to be wrong. You want that next sale to be higher.

Chris

Barron: Exactly.

Mark

Welch: In effect, you did leave money on the table. Yeah. You sold too soon. But what does that create for you? It creates a higher pricing opportunity for whatever you got next, left or next. And even if that means all the '23 is gone and we, we do get a big rally into this '24 crop, wouldn't that be great that we sold that '23 early because of the pricing opportunity that creates down the road? Because you know what? I got another corn crop. I don't have it. I'm not finished up this one yet, but I'm going to have another one. Yeah. And if I've got some things I can start doing on that one, because we— something does, you know, fundamentally change, and obviously it can. Uh, so the, you know, the, the leaving money on the table conversation I think needs to take place, but in the context of what is your financial position now because of that. Is it better or worse?

And I'm going to argue it's going to be better. You're in better shape.

Chris

Barron: Yep.

Mark

Welch: Yeah, it's not— we all want the better price, the best price we could have gotten, But, but no one can predict or tell us what that is going to be, right? It's managing what we have in front of us. And if the next one is better, then, uh, again, hopefully that will ease some of the remorse of, of letting that one get away, because now that's just created more and better pricing opportunities than we thought we had at the time that we made that decision, which was the best decision we felt we could make at the time. And that's all any of us can do at any point.

Chris

Barron: Yeah, more, more wisdom from Mark. That's really good. I appreciate that because, you know, it's, it is one of those things where I think we try to manage the price and we need to manage the margin instead. We need to pay attention to our objectives and I think that's really key. So hey, Mark, this has been an excellent conversation full of wisdom. You always bring a lot of wisdom to the table and I know people appreciate your take on things, your 30,000-foot view and the wisdom that you bring with that. Really appreciate you being on here today with us.

Mark

Welch: Well, thank you for the opportunity, uh, Chris, and, and what I learned, uh, from the chances we get to, to visit. And it's always good to be with you.

Chris

Barron: Yeah. Well, I appreciate that. And, um, also wanna wish everybody a, a safe finish up with, with harvest. And for those of you guys that got a ways to go, be safe out there. Continue to get some rest in between times, uh, when you can. And, and, uh, If you got things wrapped up and it is office time, then start crunching some numbers. Nobody, nobody knows where the price is going, but you can figure out, like Mark said, kind of where you're at and what your numbers are and what you need to be paying attention to. If anybody wants to start getting a hold of Shea or I, give us a holler. And if somebody wants to check out your information, Mark, what's the best way to, to look you up and to look at some of your, your information that you have out there?

Mark

Welch: Yeah, that'd be great. Just a quick search of Mark Welch, and you can do TAMU for Texas A&M University or Texas A&M AgriLife. That's our extension program. I'm an extension economist. I do weekly newsletters on wheat and feed grains. And if you find my contact information, shoot me an email. I'd be glad to— if you want to be added to that contact list. Doesn't cost anything, worth every penny. That's right.

Chris

Barron: On there. So, sounds good. All right, Mark, thank you very much. And, uh, also thanks everybody for listening and watching, and we'll catch you again next time on the Ag View Pitch.