Where do the corn and soybean markets go from here?

Chris

Barron: And it all comes down to this. 2 on, 2 out, bottom of the 9th. The Farmers lead by 1.

Grant

Shimek: Full count, here comes the play at the plate, and it's the Ag View Pitch! Welcome everybody to another episode of the Ag View Pitch.

Chris

Barron: We're going into a new week, and again, Duane is out this week, but we have Grant Schimmick with Black Oak Financial. How's it going, Grant?

Grant

Shimek: Going great, Chris.

Chris

Barron: Good, good. So, uh, looking forward to the conversation today. We do have a little bit of new technology we're starting to try to work with, and we're not all the way there yet, but we're trying to improve the audio quality and some of the stuff. That's some of the feedback we get. And again, just to get everybody out, out there, make sure if you're not subscribed to the Ag View Pitch, make sure you get subscribed. And we're pretty much on any of the podcast carriers now. So anyway, with that said, Grant, uh, a new week. One of the things that I like about you, and just in full disclosure to everyone, uh, we work with you on our own farm operation pretty extensively, and you're one of the foremost people that I know that really pays attention to technicals and really study that very well.

So let's start with corn and, you know, kind of what we've seen going on here as of late after that rally we had earlier this month. And now, you know, we've had some sideways and bottoming out a little bit here. Talk a little bit about that and kind of what you're seeing in the future here.

Grant

Shimek: Well, as a recap, obviously we had highs in the December corn there the first few days of July, just after the June crop report. And we were able to go up and make a run to $3.63. We actually even had a few days where we closed above the June high, which in many cases can be— historically has been in some years bullish, where it could run into August. Except I don't think that's the case this year. Mainly because we continue to follow the 60-year cycle, so we're really rhyming very closely with the same price patterns that corn traded 60 years ago in, in this case obviously the year 1960. So what I think we've seen is, and the other metric too with summer corn market, if you could get up close to new highs after that 10th, 11th of July, then something big has happened. We came right to the line and we just couldn't, couldn't get above it.

And what I think we have now is this breaking down. We have a weather pattern that's just better and there's not a narrative to drive it. So we're, we're just kind of drifting, being upheld by the strength that we have in soybeans and also exports. But otherwise, I think there's patterns such as a 5-bar low on the daily chart that's down at 322 on the DXY, and just some very flat support that to me says ultimately you're probably going to go down under 322 at some point, in my opinion. And timing-wise, I think the, the true low, whatever it is, is something further out into probably November, coinciding with obviously the election and, and just the other things that are happening socially and economically, I don't think it's going to be time for grains to have a big, big move to the upside quite yet.

Chris

Barron: So what has more of an impact on where the corn price is and may be going is— I mean, is weather pretty much out of the equation now? And now is it some of these other things that you're discussing? Demand?

Grant

Shimek: I don't think weather is especially, we're not to the midpoint of August yet, so definitely things can happen to the soybean crop. I think it's less so for the corn market right now. But every week that goes by that we have, in general, benign weather. And you can look at the drought map, the North Central Drought Monitor, and you can see that the areas that are stressed, northern Indiana, southwest Iowa, part of western Minnesota, the Dakotas, those areas are dogging it somewhat, but in a fast— in enough of a difference to create a real issue today until we see some yield numbers? Probably not. The corn market, especially in the summer, it needs heat, and when the heat's gone, it's very tough to get the narrative going, even if you're— even if the crop is suffering with dryness. That's been my experience.

Chris

Barron: So even if— so even if we see some strength— not to interrupt— if we see some strength on the soybean side, and we'll get to beans here in a minute, but wouldn't that or couldn't that give us some strength on the corn side though?

Grant

Shimek: Or it can help. It can help. If you, if you look at this pattern, I think that it's going to be tough to— right now, the gap that we left a few weeks ago on Sunday night, which is right around $3.42. That's going to be a tough number to get above, but even if we do, the first part of June the high was $3.48 and a half on December corn. Something in the mid-$3.40s would be my estimate that that'd be the upper bound on that, with an outside chance that we could, we could run up to that $3.50 to $3.52 zone and just a stop-running pickpocket event for some people with bearish positions to run their stops, only ultimately to come under pressure again as we get into the fourth quarter.

Chris

Barron: Okay, a couple more questions on corn. China and the demand picture there, I mean, every time they buy more corn, it seems like everybody just looks the other way and there's no response in the market. Right. What do you say there?

Grant

Shimek: Well, in the macro sense, I think my opinion is the worm has turned, and we are going to step into better fundamentals here. The crop has gotten smaller last month as far as acres and total production. The demand is definitely picking up, and it can almost seem like the market's ignoring that. From my vantage point, it's about timing. The time for when all these things, I think, will flush out is once we've gone through the election, had those decisions, and in the meantime China's been buying a lot of grain. We got some of the best July so far stacking up with exports of corn and beans. And the basis level's been really strong in the PN— Pacific Northwest and the Gulf. And, you know, the export program in corn's in full swing, and we're still ship— needing to ship a lot of beans. Well, those things are real positives.

And that goes to the situation that China finds itself in with this flooding that's historic. And we've had a real about-face, and the idea is in the last few weeks that what we had saw for the last year and a half or thereabouts that China would— you seem to easily just walk away from the table and not buy anymore. They're almost to the point where I think that has flipped, and they're scared that they would get shut out from US green exports if— if the tensions rise even further. And you're looking at some tremendous damage to food production in China, and this also ties in with the fear that the CCP has of keeping power in China. 'Cause if they have major problems with food production, that's when historically any country, but especially Chinese, where regimes and dynasties have fallen.

And interestingly enough, we're right within the midst of walking into a grand solar minimum, and you can look back over centuries of time, and every point we're at a grand solar minimum, Chinese dynasties fall. And I would assume that the CCP is well aware of that, so they're going to do whatever they can, you know, right now importing a lot of grain to try to keep prices in check. I believe they're in the vicinity of 5 year highs in corn prices, and they're gonna try to keep their population fed as much as they can. But it does— probably the most interesting thing I can point to, if people aren't aware of it, is that the Three Gorges Dam is at— this would have been late last week— was 50 feet over capacity. And the government, the CCP, finally came out and said as much. They would not admit it. Admit that there was a problem.

So there's some major human catastrophe if Three Gorges Dam is compromised. And if you— if those who are listening haven't seen the pictures, the satellite photos of Three Gorges Dam, it's distorted since it was built. It's not— doesn't appear to be structurally sound. And that would end up displacing upwards of 400 to 500 million people and damaging, it's estimated, probably 25% of crop production. The area that the Three Gorges Dam is in is more heavily livestock. It's in the more the Southeast part of the nation. The Northeast is more of the heavier corn production, specifically in China. But nevertheless, it would affect meat production dramatically and displace a lot of people.

Now, when this is discussed, it's said that, well, it's bullish right now because they want to to import food and control this, but if the Three Gorges Dam breaks and all these people are displaced, well, that's going to be bad for demand. I would say yes, that could be the interpretation of it for a while, but in the long run, if that catastrophe takes place, it would be bullish for food prices also for the world if China's in that position.

Chris

Barron: Well, and everybody talks about the Phase 1 trade deal, but is China really even paying attention to that?

Grant

Shimek: They're Or are they buying what they need? I don't think they give a damn about that, that was posturing. And now, given the situation they're in with flooding, they're just stepping up purchases for their own self-preservation, the CCP, not anything to do with— because it really goes against their, probably their ultimate goal to keep the US destabilized. So I don't think they would want to do anything that made the current administration look successful or the U.S. look successful in any, any vein.

Chris

Barron: Yeah. Uh, let's shift gears here for a second. We can come back to China if we need to, but COVID is obviously on the rise and is in the news everywhere and it's a big deal. What impact is that having or may that have with ethanol and some other things, or where do you see that? Fitting into the demand side of things?

Grant

Shimek: If anything, that can be the greatest headwind, is ethanol, yeah. And if it really intensifies, especially as we go into the latter part of the year, it's going to impact ethanol, even if ultimately it can be inflationary due to the monetary stimulus by the Federal Reserve. By the government and the Fed. But ultimately, I think we'll overcome that, and we'll rally out of that. But that can be one of the things that looks very negative. It might be part of the real negative narrative as we get into October, November timeframe. You'll have harvest pressure, COVID narrative. And my opinion is that we've just been in a really intense corrective event, and we still need to shake down the the U.S. equity market for at least a while and head down and have some kind of correction down. I'm no bear in the least for long-term U.S.

equity prices, but I don't think we're going to have a one-way ride up, and that'll feed back into poor economic activity, poor ethanol demand.

Chris

Barron: Gotcha. So, Let me give you a pointed question here, and we've had this conversation. Dwayne and I have had the debate. I think I've had the conversation with, uh, Steve Johnson and Joe Vaklovic and some others about a situation that we continually see with a lot of our clients as we've been out running around looking at the possibility of pretty high yields in a lot of areas. Granted, there's some dry pockets here and there, and maybe you maybe there's not going to be as big a yield in some areas, but on, on the other side, there's some operations that are probably looking at a pretty good-sized crop, may not have storage for everything, and are sitting here with less sold than they've probably had sold in a long time anyway. And especially for these overrun bushels and the question of what do you do with it, where does it go, any, any ideas there, any perspective.

We don't really, you know, need to be giving anybody advice here, but it's just— it's more of a question of, you know, what should farmers be thinking about as we get toward harvest if this crop starts to look like it's bigger than what we got room to store on farm?

Grant

Shimek: Well, I think one, this needs to get some at-least-base contracts covered up and get a home for it. Because if you want to look at what the worst-case scenario could be, at least for a short time during harvest pressure, if it's also the same point in time, the COVID situation is ramping, and I doubt there will be any peaceful news media right up to and maybe just past the election.

Chris

Barron: Probably not.

Grant

Shimek: And if that's also feeding into some negative economic activity, we can also all remember just a few months ago in grains, and even more so in livestock sector, the ability to just deliver and to be able to move product. It's not worth the risk, in my opinion. I'm, in the very least, just like in livestock, we got to have shackle space. We need it in this grain to move it. And it's easy to be complacent now, because you don't want to make the wrong move. But I still believe that the biggest price move will be on futures, and not that I am negative basis, because if you look at basis, I mean, it's hot and we're moving a lot of grain, but that's just not the game as you go into harvest.

You have to expect, and hopefully it's not the case this time, but you have got to expect that the cash market will back away at least for 30 to 45 days, and you don't want to be selling into that hole. And in a lot of places, the good part about it is, in many places, and if not the vast majority, we have relatively strong basis. It's not, it's not wildly strong, but it's not horrible by any means for fall delivery. So, yeah, I don't think it's a horrible compromise. Especially if you know you don't have this, you don't have the capacity to hold it to somewhere in the first quarter. And, and definitely if you need cash flow. And in my experience, people tell me they don't need any cash flow, don't worry about getting any sales on. And a good many of those guys call me sometime in late September, early October and say, you know what, we better sell some of this stuff.

Just know yourself and how you, how those things typically happen for you.

Chris

Barron: So if those, you know, if a person sets basis, at what point? I mean, you just watch for a bit of a rally and take advantage of it, or, you know, or does a person just go ahead and make a sale there? And again, not as a recommendation, but just some perspective here.

Grant

Shimek: In perspective, I think, I personally think they'll be— if you, if you're not comfortable just doing basis by itself and essentially getting a place to take it, which doesn't solve you the flat price and keeps you open on the futures, the idea being, you end up using some kind of paper or other type of method to stay long the upside. If that's not going to work for you, then to me, my opinion is, yeah, you wouldn't want to sell any kind of rip to the upside in that mid— in the mid-$3.40s if we can get it and lay off some of that risk.

Chris

Barron: Well, what about the growers? You know, this is the contention on the other side of the argument. Okay, the cost— they're their cost production is $3.80, not $3.48. And so what do you do to open up the topside on some of those bushels? Any suggestions there, perspective there?

Grant

Shimek: My bias would be to do basis now and then at some point, say, especially with corn, some— sometime in November to go along or buy an option, long option position, or even long the board, and in that timeframe. Because my prognostication is I do think that we'll have better prices in that first quarter. So, but—

Chris

Barron: And do you go long March or July, or—

Grant

Shimek: I would, personally, it would be March or May. I don't think there's any sense in going further than May. I think it'll be front-end-led, and I think you're— once that starts, I don't— in most cases, people typically don't hang on to reownership that long, and in many cases shouldn't if they see some opportunity where they've made some gains that they want to be protecting them anyway. So I don't think they need to get out that far in July.

Chris

Barron: Yeah, we get a lot smarter once we know what the final yield is too, and then it's a lot easier to manage that, that different differential between the cost of production and where we need to be. And then also it looks like probably another aid package coming out and, and maybe two more yet before the end of December, and that, that changes the price objective as well based on what that kind of assistance is as well, wouldn't you think?

Grant

Shimek: It's all gonna— it's gonna be a very fluid and intensely emotional rest of the year into early next year. I mean, we need to get the election decided. We need to hopefully reach peak panic at some point on COVID, and then we can take direction. Yeah.

Chris

Barron: So let's hit beans quick, and then I am going to pick on you just a little bit. You didn't know about this on the, on the election too, but we'll get to that in a minute. So, um, soybeans, what's your take there? We don't have to spend a lot of time on it, but what's your outlook here in the next week and then a little after that?

Grant

Shimek: Okay. On beans, we continue to follow the 60-year cycle. What happened in 1960— we won't replicate this exactly. To me, it's been amazing watching this the last 10 years that I followed it, that in some years, and this being one where the correlation is very tight within sometimes within days, sometimes within just a few weeks of the same period it was 60 years ago. Well, in the summer of 1960, the high was— there was two highs in July, 1st of August and then the 13th of August. There was a high, they were very close to each other, and then beans turned down. I think that we're probably going to follow that pattern. We have a shot here yet of still making a new high for the move, in my opinion, based on export sales will be part of it.

The narrative and maybe some weather concerns always built in this time of year by default, where I'm going to estimate that there'd be resistance or a good band of resistance just above the current highs, probably in the middle of that $9.17 to $9.27 zone. And at that same time, that's probably when corn is, is on a recovery in that $3.40s, maybe if we can get enough juice into it, the low $3.50s. After that, I think we roll over, and I think if in 1960 soybeans bottomed on the 18th of November, they did not run as dramatically as low as their first half of year lows that year. Corn was the 22nd of— 21st of November that year. I think it's going to rhyme with that, with the election. Now, if we can't make that run to the upside yet, if we decide— got a decisive close below $8.70, I know beans at this point, I think it's done. I don't think it'll recover, especially after this week.

It's going to be tough for below $8.70 to, to make a run. It doesn't mean that we're going to implode. I think we just do a lot of chop and slop, and then maybe even we— this time of year, the grain markets like to fall prey to the leaky bucket syndrome where you're losing a few cents a day most days, and all of a sudden it adds up to real money.

Chris

Barron: Right, so your, your thought is, based on what you're telling me, if you're following that 60-year cycle trend, there's more of a likelihood of a later harvest low than an earlier harvest low. Am I hearing that right?

Grant

Shimek: Yep, that's right. And that's my opinion on it. I know there's lots of smart minds out there saying that, you know, we really could get August lows and then at worst a retest in September, and then we take off. And we—

Chris

Barron: and—

Grant

Shimek: and you can look back at years where that's exactly how we washed out. I don't think that is the case this year given this pattern. I think we're more likely to be under pressure into the fourth quarter, but I think as we come out of November, early December, we turn up out of that, I think it could be dramatic, especially— of the two, I think beans have the better fundamental backdrop. I think they have the history that's much stronger, and I think there is much more upside there. But I think corn and wheat will be along for the ride in that Q1. I just think beans will be the one that makes the, the more significant up move.

Chris

Barron: The thing that could, could adjust that harvest low a little further forward would just be probably more of a demand story. Is that right?

Grant

Shimek: Yeah, I think, and we are entering into, in my opinion, demand market. And that's the tricky part of it. It's not all supply side and demand markets can just seem like they come out of nowhere. And that is the tough part to analyze them fundamentally, because you're just looking at the supply side. It doesn't seem like, given history, that you would have an issue, but then out of nowhere the demand pushes the market up. Mm-hmm.

Chris

Barron: Okay, one final question on soybeans, and it's the same question I asked you on corn. Again, it's what we are seeing with a lot of our clients, and many of them their soybean crop is sort of their cash crop, it's that cash flow coming in, does it make more sense to use some of that bin space for soybeans or do you go ahead and continue to run the beans off the combine and if they're not priced what do we do? So it's kind of a two-part question.

Grant

Shimek: Well, number one, you're asked a lot of this is logistics. So just as I say that, oh, I would store beans or not, it's For a lot of operations, that's just ridiculous, given what you've got to go through in the fall. So that being said, right now, I'd still advocate having a home for them, someplace you know you're going to move them, if you know you're going to have to. Otherwise, create some floors, use some options, would be my bias, because I don't really want to price out of beans yet. I think there is significant upside in that first quarter. And you just got to be aware of the risk. I mean, I've had seen people use put-call spreads for the— just to create a floor. And as long as you have the inventory to back those up, I think you're okay.

Chris

Barron: And another simplistic approach might be the same with corn is managing that basis before harvest, right? And maybe looking at some price opportunity. The thing that we keep seeing too, and every farm operation, as you said, whether it's logistics or profitability or whatever, is unique. And so what's right for one isn't always right for the other one. And we've seen, you know, you get $9 soybeans or a little better cash on farm, that gets a lot of growers given they have, you know, an APH level type yield in the black. And so, you know, if they want to leave the top side open, like you said, you could, you could open the top, you know, go ahead and get your floor set by actually pricing some stuff and maybe some call options or some real ownership or something that way as well. Would that be an okay thought process too?

Grant

Shimek: Absolutely. And also, when you're in the black, you're in the black. So there's nothing saying you have to reown. If you're able to move 20-30% of the crop at $25 to $40 an acre, net, you don't need to reown it. And you can, if it takes off up to the upside, wonderful. I mean, hopefully get some $50 to $100 an acre net, and that's on the rest, right? But if you're not comfortable with paper, by all means don't use it.

Chris

Barron: Gotcha. So is there anything I haven't asked you on, on, you know, the outlook for this next week as we head into it?

Grant

Shimek: No, no, I think we just take it as it comes.

Chris

Barron: And sounds good.

Grant

Shimek: Well, pretty much have to for 2020.

Chris

Barron: Gotcha. So hey, the last, last question for fun. I told you I was going to pick on you, but I didn't tell you ahead of time. On the election, you and I offline have had a couple of questions, you know, a couple of conversations on this. What's your thought as we move forward here? It looks like this is going to be pretty interesting. There's definitely evidence, at least on the polling, that Biden's got some strength here. What's your take?

Grant

Shimek: Well, number one, I think that it's the violence that we see is going to continue to be in front of our face. It's going to get more intense to and through the election. No matter who wins, the other side will probably not accept it. Mm-hmm. KISS historically— and I won't mention the individual, it's a very prominent individual who has a computer model that's modeled all the elections, major elections, and historically almost never wrong— and that model's predicting Trump wins. And I would say that probably is the case. And but I think voter fraud will be a big issue this year. And just as much, not just the presidency, but all the legislature and local city-state elections, the way those fall will be a big part of the direction of the country.

Chris

Barron: Gotcha. Well, I think that's good conversation to kind of end up on. I mean, that's something we're going to be watching. It's going to get interesting, I think, as time gets closer and with the The attention on agriculture and the connection with China and COVID and all that kind of stuff, I think it's, it's going to be a year to really pay attention and, and it'll be interesting, that's for sure.

Grant

Shimek: Yeah, you got that right.

Chris

Barron: Yeah, you bet. Hey Grant, if people want to check you out, look you up online or look at your website, how do they, how do they get in touch with you or look you up?

Grant

Shimek: I just go to my website, which is blackoakfin.com. That's fin as F as in Frank, I as in income, N as in Nancy, dot com. And my contact info is there. Awesome.

Chris

Barron: Hey, Grant, really appreciate your wisdom. Like I told everybody here in the beginning of the podcast, we've worked with you for a lot of years, and you've really helped us think through things and kind of look at, you know, and kind of look at things from a little bit of a different perspective. And then your wisdom and study of the tech— technicals is about as good as we've ever seen from anybody. You do a great job there, and we appreciate your time today on the podcast.

Grant

Shimek: Sure. Thanks a lot.

Chris

Barron: Yeah, you bet. And thanks, everybody. And if anybody has questions, make sure you get a hold hold of Grant. He left his information here, and we appreciate you listening, and we will catch you next time on the Ag View Pitch.