You can't screw with space! Weekly market outlook Aug. 19th-23rd

Andy

Hruby: Welcome everybody to the Weekly Market Outlook. Today you have Andy Ruby with Angie Setzer of Kansas Ag. Angie, how are you?

Angie

Setzer: I'm good. I'd be better all things— I mean, good all things considered, right? But I'm good.

Andy

Hruby: Yeah, yeah, just kind of another doom and gloom week in the markets. We were talking ahead of time, uh, the report on Monday. What were your key takeaways from that report?

Angie

Setzer: Yeah, I think, you know, one of the biggest things that we saw is the USDA came in pretty aggressive with their yield figure. I don't think folks were really— I mean, they came in above what traders were expecting, um, but we did see the production figure, you know, kind of back off a little bit, or at least not be, as, as big of a hit in the market side. I mean, because of the decrease in old crop ending stocks on corn, you know, in this little bit of a more positive outlook when it comes to corn demand. And so for me, you know, the biggest takeaway was of course the USDA came in relatively aggressively with a yield figure, that, that kind of makes me wonder to a certain extent, like, yes, everything has been really great weather-wise. Most of the year, relatively benign, no real production issues.

But it takes, you know, some, some real perfect conditions across the board, you know, to kind of meet that number. And so one of the things that I take away from it is that the USDA came in, you know, real hot with that number. It's survey-driven, NDVI-driven, you know, and I think a lot of folks can't really argue with it. And so that's good. We don't have this sort of idea that they, they, you know, slow rolled it and that we have another bushel or 2 bushels coming on, you know, potentially. Now we could see yield continue to increase in the eyes of some out there. But, you know, to me, I think the other big takeaway was that the USDA is not as negative with their demand outlook as what a lot of folks, you know, is what you would think they would be with some of the conversations that we've had circulating in the marketplace here as of late.

Andy

Hruby: Yeah, no, that makes sense. There's definitely been a lack in demand. And I think that's really starting to drive home with a lot of these guys as we look at old crop '23 and new crop right here, you know, I'd say a month, 6 weeks from being harvested. Kind of as we talk about harvest right around the corner, I think most producers would say, yeah, we're gonna have an APH or above crop. What, what are kind of some suggestions or things that you guys think you need to be thinking about as we consider space and fall delivery and, and just around that whole realm of getting this crop harvested and going somewhere with it?

Angie

Setzer: Yeah, the— I always kind of anytime I give a market outlook or presentation or just, just discuss with a grower on what we need to do, I'll bring up the non-negotiables. And the number one non-negotiable and a non-negotiable is basically something that should be the cornerstone of your marketing plan. And it's something you— it is what it sounds like. There's really no way to kind of work around it. And the number one in that is space, space needs. Those should be your first bushel sold, you know, and they should be the things like, like I said, you really can't work around it, you know. And so for me, one of the biggest things that I've been pushing is having the conversation about what type of bushel movement we're going to have to see. And then take a look at what your local basis structure looks like. Like, for instance, us here in Michigan, Right.

We had problems with bird flu for the last year. It basically has wiped out our commercial poultry flock here for the last 6 months. We've had 2 massive crops with another one expected, you know, and so like our basis risk is probably going to remain in place for 3 or 4 months, whereas in other areas where, you know, like Iowa, the Western Corn Belt, like, yes, you guys are going to have a potential problem in getting it put away, but you should see basis potentially firm itself up as you move ahead just simply because of the market structure itself. And so for each individual grower out there, you know, you really need to kind of assess what your local market structure looks like and what you anticipate to have happen as we work into harvest and beyond.

If you're in an area where you know that space is going to be at a premium and that you're going to have to move X amount of bushels, you should be looking to figure out a way to get that locked in, communicating with your buyer. Hopefully you have some, some early bushels sold or some HTAs or something of that nature. But you know, completely honest, not everyone does. I mean, I've talked to growers that, you know, have several thousand acres. I've never, you know, hadn't worked with them before or anything like that. And they have nothing sold for new crop. And so they're scrambling. But when it comes down to it, that basis risk is real. You know, not being able to— or wanting to know where you're looking to move is probably going to be your number one priority.

And one of the biggest things I'm looking at in addition to that, if you are someone that's going to be looking at APH or better, I do feel like it's important to be taking a look at your revenue per acre instead of the price per bushel. Because I think we can get sticker shock looking at an idea of selling deferred bushels for $4 or less. But if you really are truly outpacing, you know, for me right now, we're looking at numbers for our growers where with some of the yield projections that we're looking at, you know, based on what we're hoping for now, we're not, you know, counting our chickens before they hatch by any means. But, you know, you'd see a pretty significant swing in our cost per bushel needed down from where we started to where we are if we truly do put the bushels that we think we are going to produce in the bin.

And so for me, the biggest thing that I want growers to be thinking about is what are your space needs, what are your cash flow needs, and then reevaluating what your cost structure looks like and, and what you need to accomplish from a revenue per bushel or per acre standpoint versus that focusing on the price that you're getting.

Andy

Hruby: No, I think that's great. You know, kind of my motto for this year has been we're going to have to yield our way to prosperity. And I think that point you hit on of looking at gross revenue per acre and don't, don't get tied up in that cost per bushel, that's key. And it's, it's so hard to do. But as producers, that's probably the biggest thing we need to look at. So as we're, as we're looking at those bushels and saying, okay, well, I know I'm going to have to move 20, 30, 50, whatever that number is, thousands of bushels this fall. What all— I mean, obviously we look at basis and logistic concerns need to be thought of too with how fast can we get in and out of those elevators. How do you guys figure in or, you know, think about carry and some of these other factors in the market when we're deciding, are we going to haul corn? Are we going to haul beans?

What crop's going to move and when?

Angie

Setzer: Yeah, you know, you obviously got to take into consideration your cost of carry because it's not the same for corn as it is for beans. It's more expensive to hold It's, you know, you're gonna have to turn more corn bushels into cash in order to generate the amount of money that you need to meet your bills or those cash flow needs that you may have. So obviously there's a whole host of thoughts that go into it. And it's very, you know, local, or it's very much determined by your local market structure, you know, but for me, one of the things that we're looking at right now is just the potential for loss in basis., you know, in corn and in beans and in some of these other things. And then we're taking into consideration what would be a historical norm for values as we move out into those deferred time periods.

You know, and for me right now, that's one of the conversations that we are currently having is, you know, for beans in the state of Michigan right now, and it's not the same everywhere, but in the state of Michigan right now, you know, for beans, we're looking at the potential of picking up 60 to 70 cents worth of carry from October to February, Whereas in the end, you basically widen their deferred bids, you know, to kind of take away this incentive of holding bushels because we were looking at growers buying baggers, you know, looking at putting grain in flat storage simply because the carry structure was there. And so we've lost that ability to really kind of accomplish anything in flat and corn.

You know, we're looking at basically breakeven 25 cents between October, November to February, and it costs 4 cents per bushel per month, you know, so you're not really looking at making the same amount in beans.— it's very grower-specific. Obviously, it will factor in, you know, what you need to be accomplishing from a cash flow standpoint for harvest, and then what you're able to look at for movement later on. But that is one of the things that we've been working on here. We're a little bit different. We have wheat too.

But the ability for us to be able to move wheat in September versus the December board means that we're pushing wheat bushels out, you know, when we would traditionally maybe be holding on to some and are looking at replacing those wheat bushels with bean space or something else simply because, you know, we do have that opportunity to make a lot more in the, in the deferred space than, than anything else. So we're rolling HTAs, you know, maybe looking at putting some, some cash sales on or had been looking at cash sales a while ago in those deferred time periods. And so just working to try to capture some of that flat carry when we can, and then determining, you know, what makes the most sense for the grower and what they need to be doing from both space, cash flow, and all those other things.

Andy

Hruby: Yeah, no, that's, yeah, so true. I think a lot of guys overlook the cost to carry. So, you know, kind of as we recap that, you know, in my mind, the 4 things I think about is, is what is the carry in the market? What's my cost of carry? What are my cash flow needs? And then I would say most importantly, or definitely higher up on the list is logistics in the fall. Yeah, there may be, it may financially make sense to go here. But am I going to go to this particular location and sit for 4 hours and get nothing accomplished?

Angie

Setzer: Right?

Andy

Hruby: Yeah, right.

Angie

Setzer: That's what we have right now. We're working on harvest basis with a grower of mine that, you know, he has to move X amount of bushels, he has a large chunk he has to move. And we have a rail facility up the road, we have an ethanol plant and rail facility and the rail facility is is about $0.08 less. But when we factor in what it costs to pay, you know, to sit and maybe not get unloaded or only be able to move 2 loads versus 4 when we're trying to harvest, you know, those are the types of things that we're taking into consideration. And like I said, it's hard, you know, to kind of make a blanket assessment for anyone. But the things that you're talking about are all the things that I'm going over my growers with where it's like, what do we need to accomplish?

You know, what are the non-negotiables like I talked about before that we can't absolutely— that we absolutely cannot work around? You know, and then what makes the most sense for you from a logistical standpoint and quality, of course, too, you know, depending on what you've got there, where your constraints may be.

Andy

Hruby: Right. No, that's, that's good. It's, it's kind of fun to talk about a potential good problem, you know, having, having more than we have storage. It seems like we have— haven't had any good news to really talk about. So it's fun to talk about. Well, if you have, you know, we have something, we have extras.

Angie

Setzer: Yeah, you're, you're The problem is not as large, like, and that's one of those things where like, it stinks. And so if you're one of those right now that's looking at a sub-APH or whatever, like earmuffs, just don't listen, la la la, you know, but from an overall standpoint, you know, we've got to refocus a bit of what we're looking at or how we're looking at this market, you know, and so for the last 3, 4 years here, it's been easy to just focus on price per bushel, you know, and know that you're selling at a profitable level, and it's super easy. But now is the time to really kind of reevaluate the cost structure that you have, and then take into consideration what you're looking at if we do produce more than what we traditionally would. Yeah.

Andy

Hruby: As we switch gears and talk about kind of what the markets did this past week, corn failed a key reversal. So we can talk about the implications of that. And then Nov beans with a new contract low, I guess I'll, you know, both of them aren't fun to talk about. So let you pick which one you want to start with.

Angie

Setzer: The key reversal. We could start with the key reversals simply because I've lost count of how many key reversals have meant nothing this year in corn except for maybe the ones to the downside. They seem to have been good. But, you know, like, I'm Charlie Brown and, you know, the market's Lucy with the football, you know, and here we sit. Now, today is young yet, or we still have time. Like, I'm looking at the market today. You know, and it's, it's what, 11 on Friday? I'm not sure if we, you know, like we're, we're, we're still away from the close and corn's working its way back probably just to disappoint me and go, you know, close at the lows at the end of the day or something like that. But, you know, the key reversal is, is one of many that's lying in a heap there that, that has just been completely ignored. And I, I feel like we eventually one's going to stick, right?

I mean, and I'm not saying that like sarcastically, I'm not saying that., you know, from a point of taking it too lightly. I'm just simply saying, like, at this point in time, we're so used to them failing and just kind of working to establish what the new range is. I'm not surprised. Um, you know, the same on soybeans, trading new contract lows. Um, we bounced back a bit, have since fallen off some more, you know. And I think from a technical standpoint, like, as much as I love the idea that, you know, technicals will be able to tell us, or the charts will set us free, I feel like this past year or even the last couple of years, like what should happen, you know, just doesn't tend to want to.

And so I think the problem that we're going to run into here with soybeans especially is until we see some solid indication of demand, or until we get to where we're really focusing on what's happening in South America, which I think is something like I know it's only August 16th, you know, we're a month away from them being able to turn a wheel, but it does appear as though, you know, they're going into their growing season exceptionally dry and, you know, are probably going to stay that way for a while. You know, the technicals just aren't overly supportive for us. It opens the door to additional downside, you know, and really that's unfortunate in both, in both markets. Like at this point, I've kind of relented myself or given up to the fact that, you know, with the amount of old crop bushels that are out there, which we have been seeing, you know, some pretty extensive movement here.

I think the market's going to struggle to really see any type of aggressive buying until we get beyond the first part of September, if not well into harvest, where we feel comfortable with what we've got. And so, you know, key reversal-wise, failed. We traded back to lows. I mean, I feel like that's just the, the, the story of grain here, corn here for the last few months. And then the new lows on beans, you know, it's, it's going to be one of those things where I think we probably could see the market continue to pressure that side until we feel better about whatever. I mean, and the thing is, we're seeing a continuation of rains, and everyone likes to think that rain makes grain, you know, and I'm optimistic on soybean yields. But I always feel like no matter what, soybean yields disappoint us. Like, I, and maybe that's just because I'm in Michigan, you know what I mean?

But I feel like where everyone's always like, oh, well, we got a rain, that's all soybeans need. And then soybean harvest comes and we're like, well, on August 8th, you know, like the moon was not angled correctly. And so we would have had 70, but we're more like 64. You know what I mean? Like, I feel like that's what happens in beans every year. But until we get into harvest or anything like that, everyone's just going to continue on the idea that the crop is big and getting bigger. You know, and that demand is less than what we need in order to chew through it. I feel like.

Andy

Hruby: Yeah, well, I think that kind of leads into my next question, which I didn't warn you about ahead of time, but is this 2014 through 2019 all over again?

Angie

Setzer: You know, I said that, um, I'd have to go back and see. I wrote a bar chart article, um, that— and I want to say it was November of 20— it might have been February of '23. It was a while ago. It was a long time ago. Where I said if Chinese demand doesn't show up here, then we're probably relegated back to the pricing levels of '24 through 2019. I didn't listen to myself enough. Apparently I'm not used to me being a pessimist in that regard. So it was a little weird. I think we could, but I don't, I don't know if this year is the year. I will say that I feel like there is enough stuff happening globally and geopolitically that I don't know if we're going to go back into the doldrums of '14 through '19. And so the stuff that happened '14 through '19, you know, I've had quite a few people say that too, like where demand's in line with '14 for corn. And I'm like, no, it's, it's not.

I mean, we're outpacing '14 demand by, you know, a billion bushels. I think exports in '14 were like 1.6, 1.7 final. You know, ethanol demand was sub-5 billion, feed demand was off a bit. You know, that's not the case here for us in '24. I think global demand continues to grow. But there's some wildcards that we need to work through. And one of the biggest being what the heck does China do? You know, if China doesn't look to stimulate their economy, which that's one thing that kind of has fallen on deaf ears. You know, 2, 3 weeks ago they had that Politburo Committee gathering of like 24, 25 of their top leaders in which they said that boosting consumption was moving to their number one priority. And that was a pretty massive change. But we really haven't seen any sort of direct consumer stimulus that we would need in order to make us feel better about China.

And so could we be back to '14 through '19 where we trade from $3.50 to $4.50 and that's all she wrote? I think that's very possible, but I think that that might be something that will happen beyond '25. I think the production problems that we've had in '24 in the world, I think Ukraine, I think the adjustment lower in Ukraine, I think some of the adjustments that we've seen lower in Brazil, you know, the crop loss that you've seen in Eastern Europe, Romania, Hungary, these other places, like, I think that's going to matter. And I think that's going to help bolster US export demand for corn going forward. I think one of the things that we've kind of gotten complacent on is the idea that we're going to see this continual flow of heavily subsidized grain out of Ukraine into Romania or even out of Romania as well. And so if you see supplies reduced, I think that that helps.

Um, and so, you know, long story short, in my opinion, um, I think there is a risk that we could go back to where we, we do end up in that 14 trade range. And to be completely honest, I was getting to where I enjoyed that. I, I was to the point where it was like, okay, well, we know you need to be a seller at 450. You know you need to be a seller at 425. You know what I mean? Like, the, the opportunities came almost with fluorescent signs that said, sell me now. And so it was a little bit easier to manage when things were less volatile. And so the risk is there, but I think that we have another year ahead of us of extreme volatility with Ukraine working their way into Russia, that whole invasion, that's a very important part of production for Russia and we've just kind of ignored it.

And so I think geopolitically, I think global production and pipeline-wise and some of these other things, could help to support us going forward, maybe more than what folks are anticipating right now, which it feels weird and awkward for me to be bullish when everyone else is so bearish and I don't really like it that much. But I do think it's a long-term worry, right? But I think worry is maybe not the right term. I think if we can focus on the good parts of that '14 through '19 range, which was it was easier to market when you knew you had profit. You know, I think that it's not that bad, as bad. But we're definitely gonna need to see inputs come down. And the one thing that a lot of smart people have said, and, and I agree, you know, if you get to the point where you can buy it cheaper on the board than it, it costs you to produce it, it's unsustainable.

And that's where we are with, with corn right now. And we weren't really there '14 through '19. We were still making profitable, we could still make profitable decisions at $3.80 futures in a lot of ways. You know, we weren't where we were losing an exceptional amount of money until we got further into '20, '19 into '20. So, so yeah, long story short, it's possible. But I don't know if we can shake the volatility yet this, this crop year. I think there's a lot of things left to figure out.

Andy

Hruby: Yeah, I would definitely agree with you on the volatility in that timeframe. It was less volatility, less opportunity. But was there still opportunities to lock in profitable prices? Yes, there was. And the input side too. I mean, the volatility is on both sides of both sides of the balance sheet. So it was, it was definitely a different world. And that's a, that's a really good perspective as we kind of, you know, you're starting to hear that a lot more of, are we entering that timeframe? So I think you really have some good insight on that. As we kind of wrap this up, is there anything you'd like to leave producers to be thinking about in the next 30 days or so, or as we start looking into harvest?

Angie

Setzer: Yeah, uh, the biggest thing, keep your heads up. You're not as dumb as you think you are. You need to, to work to, to really break the cycle, I'm going to call it, of self-abuse. And I mean, I talked to enough growers out there, and there may be some that might take offense to me saying that, but I've talked to enough growers out there to where I feel like in, in many instances you're so focused on the things that you did wrong over the last year You're not able to focus on the things that can go right for you in the year ahead. And so I feel like when we get caught in this sort of cycle of negativity, it gets very difficult to find opportunity and to be prosperous and to do well in times when, when things are tough. Um, everything changes, everything is cyclical. Um, this too shall pass.

And so the biggest thing that I want to tell every grower out there is, is really just work to focus on the things that you can control. Don't spend too much time thinking about the things that you can't. And today, you know, is you have the time now ahead of harvest and things like that, to really kind of reevaluate your, your, your cost structures, you know, what you're looking at on what you need to accomplish from a revenue per acre standpoint, in order to keep your head above water. And so I would take a look at that, look at that, get a feel for what you're looking at as a price per bushel, depending on where you end up from a yield standpoint. And then that way, when you get to the end of harvest and you can kind of finalize where you were sitting from an overall production standpoint, you have a better idea of where you order to make, you know, on this.

So I think now is the time to kind of not put your head in the sand, not give up, and definitely not continue to tell yourself how foolish you are. Now is the time to really kind of focus on, okay, what are the things that we can control in the year ahead? And what are the things that I'm going to do to where I'm not sitting in this situation, whatever this situation may be a year from now? Yeah.

Andy

Hruby: Angie, if producers want to get ahold of you, what is the best way to get ahold of you?

Angie

Setzer: You can find us on the web at KansasAg.net. You can find me on Twitter as well at Goddess of Grain. I do some TikToking. @goddessofgrain, or you can shoot me an email at angie@consusag.net as well.

Andy

Hruby: All right, great. Thank you for the time, Angie. This has been an awesome conversation. Thank you, everybody, for listening. We'll catch you next time on the Ag View Pitch.