Wheat and weather attention: weekly market outlook, April 29th - May 3rd

Andy

Ruby: Welcome everybody to the Ag View Pitch weekly market outlook for the week of April 29th through May 3rd. Today you have Andy Ruby. Pete Meyer. Pete, what's going on?

Pete

Meyer: Not much, Andy. Just watching these, uh, excuse me, this radar, all this rain. Pardon me. All this rain coming through the Midwest. Uh, you know, it's either feast or famine. So, uh, but, uh, I mean, as far as the markets are concerned, I guess it was a week of W's, right? Wheat, wheat, and the weather. So, uh, wheat was the big story this week, Andy. Um, So everybody was all excited when the SRW— when the July SRW contract went through the 100-day moving average on Tuesday, and then it went through the 200-day average today, Friday. Uh, 200-day average is around $6.28, but it's, uh, it's heading in a downward, uh, direct direction as the market has been. Uh, but unfortunately, we, uh, while we made a high of $6.33 and a quarter in July, we, we closed below the 200-day at $6.22 and a half. Same thing for HRW. HRW broke through the 100-day moving average on Monday.

And, you know, it's just the 200-day was $6.61, closed about 7 cents below that at $6.54. So why do we care about wheat, Andy, when we usually talk about corn and soybeans? Well, again, these markets are kind of starved for any sort of information they can get. And outside of the weather and planting progress, everybody's kind of looking, looking towards the wheat. So a positive sign out of wheat, even though it didn't close above the 200-day. We'll see what next week brings. Yeah, that's about it on wheat.

Andy

Ruby: Okay. Yeah, you know, as I guess as we talked through that correlation between what the wheat market's done, and I guess hopes for the corn and soybeans, what, what are kind of some things that growers need to be keeping an eye on? Or What are things that you're looking at that you think may carry over from the wheat market rally into the corn and beans?

Pete

Meyer: I think it's almost entirely psychological, right? I mean, but, you know, I mean, the funds are always short. I mean, they're short beans, they're short corn, they're always short wheat. So the sort of feeling is when you start to get through some of these moving averages, that the funds will bail out. And then the hope is that that'll that'll continue to corn. Outside of that, you know, as far as beans are concerned, I hate to say it. I hate to say it, Andy, but I mean, beans are just a lost cause. I just don't, I don't see it. I mean, even corn, I mean, Dec corn this week, $4.75-ish, really having trouble there. We talked about moving averages a few minutes ago that the Dec corn moving average is $4.80, 200-day moving average is $5.

Well, you and I both know that those are— the $4.75 psychological level, but I would imagine over $4.80, between $4.80 and $5, the, uh, the farmers will have their palms out, as we say, and they'll be selling. They should be, should be selling that rally. I mean, you know, can the weather kind of push things here a little bit? You and I were talking before, um, before this meeting started, before the recording started. I mean, some of these numbers they're talking about throughout the Midwest, are absolutely unbelievable. 4 to 6, sometimes 7, 8 inches through some of these parts. Certainly some of those areas need moisture, but they don't need that much moisture. So that could be a problem because especially, I was in Iowa last week, a lot of dirt flying in the western part of the state.

And, you know, you certainly don't want to see much in the shape of replant, but in the form of replant, I should say. But you know, it's, we're kind of at a dull time here, Andy. I mean, we're waiting for the acreage report, but that's still 9 weeks away. So we're trading weather. And in my opinion, you know, we'll trade weather from May 15th to July 15th. If you want to trade weather after July 15th, God bless you. I don't have any interest in it. If you want to trade weather before May 15th, Same thing, have at it. Um, you know, already starting to hear all the rumblings about 2019 comparison. And boy, in 2019, I was, I was in your state and Ohio throughout the Eastern Belt. And it was just, you know, I don't remember when we were there, first week of June, second week of June. I mean, it was awful.

So, but you know, everybody has comparison, but certainly I don't, I don't think we're going to hear much drought comparison. Now we're going to hear, oh my God, it's too wet, right?

Andy

Ruby: I mean, yeah, you know, and I think our area is kind of that way. Is it? It's on the wetter side. Would I call this a wet spring? No. No, we like to get going. Yes. Have we done a little bit? Yeah, we have. I mean, we're less than 5% done, but we've, we've gotten started. And I think that's common for a lot of guys. You know, they're, they're just getting going or, you know, they planted a day or two. I, as a grower, I don't feel like it's anything we need to worry about yet, at least in our area. It's not uncommon to get started till the first week of April. And I feel like we're really a month away before the market truly cares. You know, how far along planted are we? How does this crop coming out of the ground and things like that? I mean, we, we can get a lot done the first 2 weeks of May, weather pending.

Pete

Meyer: Yeah, I mean, I think that, you know, we talk about negative influences on the market. Well, and we talk about positive influences on the market. But one of them, one of the influences on the market is if you could get the corn planted, let's say 50% by the 10th of May, and I don't, I don't really know how the crop progress reports kind of match up against the 10th of May. It's probably, it's probably pretty close because I think the 1st of May is, well, 1st of May is next week already, which is hard to believe. But You get 50% of the crop planted by the 10th of May. That's going to bring some negativity into the corn market, I would think. But I just don't know that we can get there. I mean, certainly the West is in good shape. I mean, guys in Nebraska that I talked to have a lot of their stuff planted. Guys in Minnesota have a lot of their stuff planted.

I saw Omaha got 2.5 inches of rain today. I mean, that's just perfect. I mean, you know, I can imagine what you would give for, You know, if you were, if conditions were dry to regular and you got all your corn in and all of a sudden a week after that you got 2.5 inches of rain, I think you'd be a happy guy.

Andy

Ruby: Yeah, no, I couldn't agree more. You know, and I guess kind of as we look at this and, you know, I think a lot of growers kind of have that $5 number in mind when they're looking at Dec corn. And yeah, as a grower, I'm a little concerned because yeah, everybody's kind of has that, likes that nice round $5 number. What's going to be the implications when we get to that, if and when we get to that $4.90, $5.10 range? I mean, is it— I assume it's going to be short-lived, just based on farmer selling. And how does this '23 carryover of corn sitting in the bin affect that?

Pete

Meyer: Well, that's the problem. You've still got a tremendous amount of corn in the bin, right? And where do we close? We closed Mayoni at $4.40 today. I mean, I don't see Or I don't hear of many guys that are interested in selling old crop corn below $4.75, and that's 35 cents from here based on the futures. Obviously, I'm not including your cash markets in your area or the basis. You know, I think that we've seen this 100 times, right, Andy, where guys say, yeah, geez, if it gets to $5, I'm just gonna let it go. Just give me that $5. And then they start looking at the cost of production. The serious producers and realize the cost of production might be $510 or $515 or $520, and then they just got to hold on. So we'll see. I don't, you know, I would imagine that there's going to be a fair amount of interest.

Um, if it was me, I mean, I'd be looking if we want— when I'll say when, because I think we do get there— when we get to $480, you know, take a look, see what's going on. And then if it starts to gradually just build up a little bit, you know, maybe you want to just take a— either put in orders at nickel increments or just step back a little bit and see if you can get it to $5. Just kind of let the dust settle because I think above $4.80— I could be 100% wrong, but I think above $4.80 for Dec corn, you're going to get a lot of interest. I'd be surprised if there wasn't a lot of volume changing hands at that point. And then it's a matter of who has the strongest hands. But as you bring up, Andy, I mean, the amount of old crop that continues to be unsold and sitting in the bin, you know, maybe that'll play out in the spread. I don't know.

I mean, the other thing we have to look at too is let's say, let's say we get 6 inches of rain in some of these areas and it's just a disaster. Let's just, let's just make that scenario. And all of a sudden corn opens you know, $5 higher on Monday, $10 higher on Tuesday. And there we are back to $5. I mean, the other thing I think is that the Prospective Plantings report is probably a little bit light on corn acres. So if we get back, right, so they were at 90, I'm at 92. I, you know, people made a big deal. Oh my God, we're 6 million acres below where we were last year. That's true. But you're 2 million acres higher than you were in '22. So let's, let's everybody just slow the roll here a little bit. So I think that '22 number, you know, was low. We had some prevent plant in '22. '23, we didn't have much. So, you know, I think there's a couple million acres.

And if corn continues or, you know, has this jump and outperforms beans, I would— once the weather breaks, I would not be surprised to see more corn acres go on the ground. I have no problem with the 86.5 wherever the, wherever the prospective plantings report was. I mean, 178.5 combined is as good a number as any. They're at 176.5 combined. So I think that's a little bit too low. But let's all remember that the USDA and NASP specifically, they hate the prospective plantings report. They just, they just don't think it's worth much. But by law, they have to, they have to issue it. And when I asked Lance Honig about what the response rate was, It was below 45%. So I would not— that means that, you know, I think it was 44.8% or 44.9% of the farmers who were surveyed actually sent their answers back in. So what's the old saying? Any garbage in, garbage out.

Andy

Ruby: Right, right. That's— I think that's a really good update and kind of a good outlook on the corn market. Let's shift gears a little bit to soybeans. I feel like it's been pretty stagnant. What kind of, what are you seeing there? What chances of hope, I want to say, is there for it?

Pete

Meyer: Well, I think that, you know, for a lot of the guys that we deal with and that I spoke to from, let's say, Des Moines West into Western Iowa and into Nebraska, let's not include the Plains because those guys are still planting spring wheat, right? They're not even, they're not even going yet. But, you know, a lot of beans, a lot of those guys continue with this, the beans are going in first, I get a better yield when the beans go in first, the earlier I can plant my beans, the better. And I stopped and talked to— I spent a week or so out around the Denison area. And yeah, everybody was planting beans. So as far as the market is concerned, I mean, once again, Andy, I mean, we killed the Brazilian crop, we killed the Argentinian crop. We just, we continue to kill crops and say, yeah, it's going higher, it's going higher. Well, the fact of the matter is that those crops are okay.

And, you know, a little bit off topic here, but, you know, you know, about 6 months ago, China released their birth rate, their fertility rate rather, and it was the lowest in, I don't know, I don't know how many years. And we, you know, we look at China, I mean, China obviously is a huge player in the soybean market, the biggest player in the soybean market. And this is unrelated, but I don't know if you saw it or not, but the US announced this week that the fertility rate in the US is at the lowest it's been since they've been keeping records, which is the 1940s, which actually even— I'm an old guy, but that even predates me. So at 1.6, you know, so I do, I worry more about the Chinese economy being pretty bad. I worry about, and that's the reason that always translates into less children.

Really, in the US, you need what, 2.1 is the quote-unquote replenishment rate or replacement rate, whatever you want to say. I mean, even though you can't divide your children in half, obviously, we're a half child behind that at the moment. But I mean, this is, to me, this is a systemic problem. I mean, it's just, We have— I don't have the data on other countries. But, you know, the reason I bring this all up is that, you know, we're, we're very reliant on soybeans as an export market. And I just don't, I don't really get any really great news about it. So, yeah, something's going to have to move the soybean market. Like, in my opinion, this is— this was a domino effect this week. Wheat was up, pulled corn or held corn up a little bit with the wheat. And the beans just floundered.

And I really, I have to be honest with you, Andy, I'm at a loss to find out what breaks the logjam in beans. I really don't know. Okay, it's hard. It's a very hard one for me.

Andy

Ruby: How big a concern is it the fact that China doesn't have any new crop sales booked? I mean, is that, is that a major concern at this point?

Pete

Meyer: Is it not that we're not, we're not exactly a favored son for, for China, right? I mean, yeah, if they're doing all their business with Brazil, I mean, that would be, that would be a real problem. I mean, that would obviously, and I think that's kind of, that's kind of weighing on the market as well. But like I said earlier, I mean, everybody was so quick to kill the Brazilian soy crop, you know. People ask me, oh, you know, it's a $145, $145, I've kind of hung around the $1.50 area. Now everybody's, you know, $1.55. Oh, it doesn't look so bad, this and that. I mean, kind of reminds me of last year's corn in the US, right, Andy? Oh my God, it's a disaster. Oh, it's going to be terrible. Oh, here's a record crop. Granted, not a record yield, I get it. But, you know, it's hard for me to find much bullishness in the bean market.

I mean, I'm just looking over here at some of the screens. I mean, bean oil still trading at 45 cents. Meal's trading at $3.44. Um, just not a whole heck of a lot there. I mean, I think a lot of people thought a few weeks ago when we got above $11.85 in the May, that, you know, this is going to be it. This is going to be it. You know, how many times have you read on Twitter, Andy, that beans never stay very long with an 11 handle? I mean, I, I've heard that, right? You're laughing, but I think we both see, we've both seen it out there. We're at 11 handle for like the last, you know, forever now. Now we're stuck in the middle at 11.59. It's like, you know, I love the generalities on this stuff. But anyway, let's talk about something more interesting, Andy. Let's talk about sustainable aviation fuel. My favorite topic. What do you say? Okay.

Andy

Ruby: Well, yeah, you're kind of our expert on that, in-house expert. So what do you got for us?

Pete

Meyer: I don't like the title expert. So the first thing that's exciting was that the UK decided this week that They implemented a government standard that 10% of jet fuel used starting in 2030 is going to have to come, is going to have to be sustainable aviation fuel. Now, there's no tax credit involved in that, and there's nothing, nothing really that's going to help them around. But they have said, now granted, Europe, Europe and the EU specifically, but Europe generally are way ahead of us as far as sustainable aviation fuel and that sort of thing is concerned. But it's interesting now how they start to put in the mandates. 10% have to have 10%. The EU already has a 6% mandate by the year 2030. So now here comes the UK at 10%. Okay, we'll see how that goes. Now, it's interesting.

What's interesting to me is that 10% is the exact number that Delta, United, Southwest, your major US carriers, are also talking about how they, uh, That's their— I'm sorry, that's their target, right? So they all want to be carbon neutral by 2050, but they, they expect to have 10% of their fuel needs met by sustainable aviation fuel in 2030. That's self-imposed. Not a big deal. Okay. So we've been anxiously waiting since April 1st for the modeling for the 45-seat tax credit. And now you brought— even though you said I was the expert, but I missed this. You brought it to my attention, Eddie. So you're You're a better expert than me on this stuff, but, um, sometimes you get so, so far down the rabbit hole with this stuff, you miss the most obvious. So Reuters is reporting that by next week sometime, the Biden administration is going to announce their interpretation for 45Z.

So if you remember on April 1st, they basically dismissed the GREET model out of hand and they said it wasn't restrictive enough. I mean, they need restrictions on it. And then you have the Corsia model, which people don't refer— I refer to the European models, the Corsia model, and that's a little bit too restrictive. So there's going to be some blending in here. Finally, we're going to get some clarity, I hope. I mean, Vilsack had said after the April 1st deadline came and went, he said that he would have something in everybody's hands by May 15th. Next week is May 1st. Maybe it comes out 2 weeks ahead of time. But we continue to have meeting upon meeting every week with some of the largest ethanol producers in this country because they're still trying to figure out how they validate someone's carbon intensity score, right?

So the 45C tax credit is going to be based on the carbon intensity score of the corn that you deliver to your ethanol plant. So how are they going to measure that? I mean, there are measurement tools that are out there.. But most of the biggest, bigger ethanol plants that we talked to, you know, they're gonna, they're gonna be liable. They understand their liability. Should they accept corn from, let's say, your farm, it was presented to them as a CI score 0 corn, they gave you some money, and then all of a sudden, they put it in with everybody else. And they sold it as CI score, let's say 20, for whatever month it was. And then the government comes in and audits them and they say, oh no, no, no, no, no, your CI score was higher than that, you're not going to get the money. Well, they're already out the money to you and every other farmer that they've paid.

So we find that there's a lot of liability here with the quote unquote verification folks that are out there trying to sell their wares. I don't have anything against these people, but you know, fact of the matter is that the ethanol plants that we talked to, they're going to need your data from John Deere Center, FieldView, whatever it is. They're going to need that data in hand before they pay you because they are— with tax credits, you're going to have IRS, Department of Treasury, Department of Energy. They're all going to be doing these audits. And yeah, so hopefully next week we'll get some clarity on this. I hope so. You know, throughout my travels this spring, late winter, early spring, I've spoken to a lot of people that are a lot smarter than me, which really isn't saying much because there's a lot of people that are smarter than me.

But they've all said that they really felt, and they still feel, that the 45Z will take place on January 1st, 2025, even despite the delay in the modeling.

Andy

Ruby: Okay.

Pete

Meyer: So we'll see. We'll see how it goes. You know, Andy, we're also talking to some protein producers in this country that are now very worried about a two-tier cash market, right? So cash market for low carbon intensity scored corn, cash market for higher carbon intensity scored corn. And they feel that they might get boxed out a little bit here and they're kind of worried about it. And they're feeling though as well, or, their mandate as well is to lower the carbon intensity score of their operations, right? So the ethanol plants are under pressure to lower the carbon intensity score of their operations and then provide low CI score ethanol to the jet fuel manufacturers. And the, the protein guys are also under pressure to, to reduce the carbon footprint of their animals. Like, let's, let's look at a hog, for instance.

From what I've read, The carbon footprint of a hog is based— is 45% based on the feed. So now they may be, you know, now they're getting nervous, right? And how does this cycle work now, right? So if your pork guy and your chicken guy has to pay up for corn, because you're going to fly with it, where does that end up going? Right.

Andy

Ruby: And will there be a kickback for them?

Pete

Meyer: At some point. But it's also, you know, the consumer is going to eat this, right? I mean, let's talk about sustainable aviation fuel, for instance. So, you know, I saw that the sustainability chief at Boeing said something this week where there'll always be a quote-unquote green premium for sustainable aviation fuel. Yeah, no kidding. I mean, come on. I mean, it's just, you know, yeah. But I mean, I think that jet fuel at the moment, let's call it Our state of aviation at the moment is probably 2.5 times what jet fuel costs, Jet A. And, you know, these airlines are having trouble with Boeing, obviously. It's funny that the guy from Boeing brought that up with all the Boeing issues that are going on. Their airlines are not doing well. They're losing money. Airlines will tell you when you talk to them, they always operate on razor-thin margins. 25% of your ticket price goes to fuel.

When the fuel price goes up, your ticket price is going to go up. When the cost of, cost of corn for a hog, let's say, goes up, you're, you know, you're going to, you're going to feel that in your wallet as well on the protein side. So, you know, I find it— I don't think they're related, but I also find it interesting that, that the Fed, which had a 2% inflation target for a long time, is now feeling a little bit more comfortable about 3%. I do wonder, you know, if that might be too low as well. I mean, you never know. This ripple effect could could really affect a lot of pocketbooks, and your inflation rate may even be, may even be higher than that.

Andy

Ruby: Yeah. So yeah, so I don't know, there's rumors on if we'll even have a rate cut this year. You know, it's, it's sure to be able to tell.

Pete

Meyer: It's funny, Chip Flory, who you know, he interviewed me last year and he said, you know, Pete, what do you think? These guys are all talking about 4 cuts. And I, he goes, I don't believe it. I said, no, I don't believe it either. I Honestly, I thought we'd see 2. Now I don't. Now I think we'll be lucky to see 1.

Andy

Ruby: Right.

Pete

Meyer: It's just, it's just not moving in the direction that they, you know, they want it to move. But, you know, now you got all this other stuff playing in the background and yeah, who knows.

Andy

Ruby: So, yeah. Well, I think we covered a lot of ground today, Pete. Is there any last words you want to provide the listeners before I let you go?

Pete

Meyer: No, just if, you know, uh, yeah, pay attention. Let's see, let's see what happens on this 45Z this week. And, uh, yeah, the corn market, it's, it's tough. So I don't, you know, certainly as I said earlier, there should be a fair amount of selling between $4.80 and $5, and, and we'll see how that, that goes from there. I just don't see anything out there that's going to, you know, really, really push it a lot, a lot higher. And by a lot higher, I'm talking about $5.50 or $6. I just don't, I don't see those targets being reasonable in my opinion. But, uh, the last thing I'd say is I hope you got just enough rain to, to satisfy your itch and not too much rain. You don't have any replant. And for guys like yourself, Andy, that are just kind of, kind of getting going there, please be safe and I wish you all the best.

Andy

Ruby: Yeah, no, I think that's great words. And, uh, just also like to tell listeners, you know, as we get busy, safety first. And it's something to keep in top of mind and get orders working. I know we all get busy and forget about the markets and say we're going to do it and we don't get it done. So.

Pete

Meyer: Right.

Andy

Ruby: It's get those targets in if there's areas you want to sell as we get busy.

Pete

Meyer: So I agree.

Andy

Ruby: All right. Well, thanks, Pete. Appreciate your time. Thank you, everybody, for listening to this week's weekly market outlook.