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Corn and Soybeans - What to do next? · Professional Ag Marketing Podcast

• 0:03
  SPEAKER_00: You're locked in to the Green Market Talk Podcast.
• 0:06
  SPEAKER_00: Fast updates, market movers, and the grain news you need right now.
• 0:12
  SPEAKER_00: Trading commodity futures and options involve substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_03: Today is October 13th.
• 0:23
  SPEAKER_03: I've got uh I've got three of us here today.
• 0:26
  SPEAKER_03: I've got Pat and I've got Jaden, and we're gonna talk about the grain markets.
• 0:29
  SPEAKER_03: It's been a busy couple of weeks.
• 0:31
  SPEAKER_03: Things have changed quite a bit, so we're just gonna cover the vast uh things that have changed this grain market over the past couple weeks and what to do about it now, whether you have corn going to town or in the bin, and uh let's talk about the USDA a little bit and some of their track record as well.
• 0:47
  SPEAKER_03: So let's start off with just a few things that have changed over the past couple weeks here.
• 0:51
  SPEAKER_03: Jaden, do you want to kick us off with some of the key events?
• 0:54
  SPEAKER_02: Yeah, Mike.
• 0:55
  SPEAKER_02: So the USDA, you know, dropped a couple of bombs, you could say, on the corn market the last uh couple reports there, and it happened in a matter of two weeks.
• 1:03
  SPEAKER_02: So first we started off with the grain stocks report where they you know increased about 170 million bushels above trade estimates.
• 1:11
  SPEAKER_02: And then last Friday, where the whole trade or the average trade estimate, I should say, was expecting a lower yield on corn.
• 1:18
  SPEAKER_02: We actually did raise corn 2.7 bushels.
• 1:21
  SPEAKER_02: So now, you know, that puts the USDA balance sheet at a pretty comfortable carry out now around that 1.8 billion bushel carry out.
• 1:28
  SPEAKER_03: So in only a couple of reports within a two-week time frame, the USDA added 407 million bushels of supply to our new crop balance sheet, Pat.
• 1:39
  SPEAKER_01: Right.
• 1:40
  SPEAKER_01: So 470 million bushels to the balance sheet or the equivalent of just about five bushels of yield, right?
• 1:47
  SPEAKER_01: And most of that was in or majority of that was in yield.
• 1:50
  SPEAKER_01: So um, and and so when we're talking about the change in, well, likely the the larger carrion number was an adjustment to last year's production number, too, right?
• 2:02
  SPEAKER_01: So just just as as we you know sort of think about those things, I think I think that's important to acknowledge.
• 2:08
  SPEAKER_01: Um, um, especially when we're comparing this year's crop to last year's.
• 2:11
  SPEAKER_01: Last year's crop probably grew a little bit in the process here.
• 2:14
  SPEAKER_01: And now the USDA is saying that um that this year's crop is growing as well, at least from the August number.
• 2:21
  SPEAKER_01: Um, this is the one of the bigger changes or the biggest change, is it, from from uh uh from SEP to to October?
• 2:29
  SPEAKER_01: Is that accurate?
• 2:30
  SPEAKER_03: Yeah, it was the biggest miss for the October report ever from yield expectations to start off with, and then that uh this would be the biggest yield increase or change period from the SEP to October in at least recent history, going back the last 20 years.
• 2:46
  SPEAKER_01: Right.
• 2:46
  SPEAKER_01: And and so, and so the the way that Mike said that is interesting, right?
• 2:50
  SPEAKER_01: Like this is the biggest miss from September.
• 2:53
  SPEAKER_01: Um, the question is is whether or not September was wrong or October is wrong, right?
• 2:58
  SPEAKER_01: I mean, as as we're you know, sort of talking through all of this.
• 3:01
  SPEAKER_01: And I and and so um we as we're kind of talking through this grain market podcast, we we we might want to just for a little bit here acknowledge that the shrinking crop, you know, as we went through the month of August and and weather might be the issue, right?
• 3:21
  SPEAKER_01: Not so much what this last report um suggested was the yield.
• 3:26
  SPEAKER_01: And so, like, first of all, I I think we we at least need to acknowledge that that's a a possibility.
• 3:33
  SPEAKER_01: Um and then and then the the second point is is that I find interesting when we start to break down the state by state data here on this report that was released on Friday was a chunk of it in Nebraska, right?
• 3:47
  SPEAKER_01: Which which uh um I think we always wondered about the spread between Iowa and Nebraska, right?
• 3:55
  SPEAKER_01: I mean, there there always was a pretty big gap there, and and so um the likelihood of that gap narrowing, right?
• 4:03
  SPEAKER_01: Then you can debate, well, Iowa too high, and you know, that whole thing, but but but pulling Nebraska up a little bit um relative to where um Iowa was was being printed at.
• 4:14
  SPEAKER_01: And and and Iowa's unchanged, right?
• 4:17
  SPEAKER_01: And and so so there might be some logic there.
• 4:19
  SPEAKER_01: Um there might be some logic behind um you know later season moisture helping non-irrigated and and irrigated is just fine all along.
• 4:28
  SPEAKER_01: And then you also sort of you you wonder, right, if if if um um if there's excess moisture at any time, um the the sand hills of Nebraska can handle that a little bit better than than the potholes of of uh north central Iowa potentially, right?
• 4:46
  SPEAKER_01: So anyway, just starting to to maybe think through if these um most recent numbers are accurate, how come, or how can they be accurate?
• 4:55
  SPEAKER_01: That'd be the first thing because I just talk about Nebraska versus Iowa a bit.
• 4:59
  SPEAKER_01: And then the next thing I just mentioned is that the other parts that it came from wasn't from the I states, it wasn't from the core part of the belt, you know, it was from fringe areas, and we've been hearing some of that too, right?
• 5:12
  SPEAKER_01: Of Tennessee crop is really good this year, those kind of things.
• 5:15
  SPEAKER_03: And so when you look at those fringe areas from that, from that right there that he's got pulled up, anything with an R next to it was a record for that state.
• 5:23
  SPEAKER_03: And uh the ones that really stood out to me weren't necessarily Iowa, which we'll get to that in a second, but Ohio, Kentucky, uh, you're looking at Arkansas, Tennessee, Mississippi.
• 5:35
  SPEAKER_03: It was all your fringe areas, specifically south and east, that we have been hearing from the majority of things like our crop call we're on with folks down there.
• 5:43
  SPEAKER_03: Uh it makes a lot of sense that we're seeing those type of numbers and that increase there.
• 5:48
  SPEAKER_03: And they have pretty conclusive data as well.
• 5:50
  SPEAKER_03: They're pretty much wrapped up with harvest, so that helps too.
• 5:53
  SPEAKER_03: But the the big one that spread between Iowa and Nebraska, I would say from what I'm hearing that I agree with in the southeastern corn belt and records down there, um, Iowa, kind of hard because we haven't really combined a whole lot of corn in Iowa yet.
• 6:07
  SPEAKER_03: So there's a little bit of a question mark there too, just with a lag and crop progress with how wet it's been.
• 6:13
  SPEAKER_03: And then Nebraska, maybe not quite as good as what the USDA had from an 11 bushel increase there.
• 6:18
  SPEAKER_03: I'm hearing a little bit more disappointing numbers, but uh there's a long road ahead of us on Nebraska yet as well.
• 6:24
  SPEAKER_01: And just for whatever it's written that Nebraska number at 188 is still six bushels off of their record.
• 6:29
  SPEAKER_01: Yes.
• 6:30
  SPEAKER_01: Right.
• 6:30
  SPEAKER_01: So so there is um maybe they maybe they are factoring some of that in today in terms of of uh and for dramatic changes, you know, an 11 bushel increase, that's pretty big change in one yield number for Nebraska.
• 6:44
  SPEAKER_03: I will say their weather dramatically improved through August and September as well.
• 6:49
  SPEAKER_03: And they caught rains earlier than like we did here in the in this part of the world, that maybe that helped their corn uh uh uh production a little bit more than what it would have like up here, for example, Pat.
• 7:00
  SPEAKER_01: Yep, that's exactly right.
• 7:02
  SPEAKER_01: So let's talk a little bit about strategy and and what uh what we're gonna do do next here.
• 7:06
  SPEAKER_01: I uh um you know, as we start this week and coming into work this morning, um I uh you know, we the three of us were talking about um how or when from a rope crop producer's perspective, um you get uh two bearish reports in a row.
• 7:26
  SPEAKER_01: Um, you know, corn traded down to 470 on Friday's numbers after trading up to five uh um up to 550, just short of it on on uh um on the first of September.
• 7:39
  SPEAKER_01: And so anyway, we've had uh as much as as much volatility as we've seen in this corn market in in quite a while.
• 7:46
  SPEAKER_01: And I and I and I and I know what it's like, you know, as as you guys are are are working to harvest this crop and and you're and you're uh lamenting and wondering about what to do next, and and uh, you know, not the least of which we're also of course, you know, setting this thing back during fall pricing time, you know, on crop insurance.
• 8:07
  SPEAKER_01: So a pretty frustrating situation for for everyone I understand from again from a real crop producer's perspective.
• 8:14
  SPEAKER_01: And so let's just talk through um you know what what uh options and and opportunities are available to us, you know, as we go forward here.
• 8:23
  SPEAKER_01: And and and you know, I mean, again, we said it this morning, but uh you're never short enough when the corn market goes down 70 cents, right?
• 8:32
  SPEAKER_01: And and and so um so applaud everyone for the work that they've done to varying degrees of success up until this point.
• 8:40
  SPEAKER_01: And uh um, you know, I it and so so where you're at today in terms of of what your risk management strategy has has been, how much corn you have hedge, all of those things certainly matter as it relates to the next stage of the discussion.
• 8:54
  SPEAKER_01: And and that's why you know we uh appreciate the opportunity to engage with with um our producers on a routine basis so that we've can establish a plan, execute a plan, and and be talking to each other um in terms of of what that plan needs to be and what adjustments need to be made.
• 9:13
  SPEAKER_01: But um, you know, one of the things about uh you know what's happening today is we still have some extraordinarily good front-end basis levels going on here today.
• 9:24
  SPEAKER_01: And so um, and and we've seen it with you know the mills that we have an opportunity to work with.
• 9:30
  SPEAKER_01: Like yesterday the light switch came on, corn start, you know, we went from we went from bean lines that are three hours long in our area of the world to to uh um you know now corn is is I mean I is is moving significantly, right?
• 9:44
  SPEAKER_01: And and and producers should be doing that.
• 9:46
  SPEAKER_01: We should be taking advantage of upfront narrow basis levels here, um, because that that will break, um, especially based upon a uh a slightly um more burdensome balance sheet going forward here.
• 10:01
  SPEAKER_01: You should be you, you know, if you weren't bearish basis as if you weren't as bearish basis before, you should be a little bit more now, right?
• 10:08
  SPEAKER_01: So um, so anyway, that's that's the first thing is if you have corn that has to move at harvest, maybe utilize your risk management strategies for that and maybe and maybe also get some basis locked in, right?
• 10:19
  SPEAKER_03: And that's the hardest one because a setup here is important because regardless of what our bias is with what the USDA has came out with, that's the information the market's gonna get to trade in the short and medium term here.
• 10:32
  SPEAKER_03: And the problem is now, like you said, we're switching from soybean lines three hours long to corn.
• 10:37
  SPEAKER_03: And now if I've got corn that's gotta go to town this week, we're gonna run out of time for the USDA to give us any meaningful answers to change that rhetoric.
• 10:46
  SPEAKER_03: And right now the funds are long, still pretty substantial, 250,000 contracts of managed money or so.
• 10:54
  SPEAKER_03: Still pretty decent long position there on that they're gonna have to decide what to do with in the short term.
• 11:00
  SPEAKER_03: And you're gonna have to decide as a producer what you want to do with that corn as you're hauling it into town because you don't have the bin space available for it.
• 11:08
  SPEAKER_03: I think that's the hardest discussion to have with guys, if especially if you don't have a short position on the board to offset against that sale path.
• 11:15
  SPEAKER_01: Yeah, and what I'm saying is is is uh um while that is a tough decision, you need to make it, right?
• 11:20
  SPEAKER_01: And and so don't don't uh don't let tough decision mean um uh we can move into indecision and and and uh take advantage of of uh uh a little bit tighter basis levels up front here and get the corn moved to town that needs to move to town.
• 11:35
  SPEAKER_01: I know we're gonna need to make some guesses in terms of of yield and all those sorts of things, but it's it's the right thing to do today, and you need to take advantage of it.
• 11:42
  SPEAKER_01: And so then the corn that is uh you know able to go into the bin now.
• 11:47
  SPEAKER_01: Um now we start thinking about managing the the carry opportunity.
• 11:51
  SPEAKER_01: The dece July has widened out here a bit.
• 11:53
  SPEAKER_01: Um we do have July at 27 up over uh um 510 um as we speak, and a de July at 27 cents, right?
• 12:02
  SPEAKER_01: So so um a decent carry um relative to um underlying opportunity.
• 12:10
  SPEAKER_01: And there's some you know real nice option strategies that can be used out there in the July to to defend and lock in, uh, hedge the carry, but also provide for some upside opportunity.
• 12:21
  SPEAKER_01: And and uh and so that's the next step.
• 12:24
  SPEAKER_01: We should have some conversations about how that can work, and and uh again, that matters an awful lot as it relates to your specific situation, and we look forward to the opportunity to engage in that.
• 12:36
  SPEAKER_01: And then um the next thing to just say is is next year's crop, the DISA 2027 crop, um December 27 futures, Jaden.
• 12:46
  SPEAKER_01: More than once we've talked about um how interesting DES 27 hung in with the DEES 26 rally, which was a little odd, right?
• 12:55
  SPEAKER_01: And and so and and now on this break, actually DISA 27's hung up there pretty well, hasn't it?
• 13:02
  SPEAKER_02: Right, right, Pat.
• 13:03
  SPEAKER_02: And I think it it's a great opportunity for a real crop producer, you know, back-to-back near 2 billion bushel carryouts.
• 13:09
  SPEAKER_02: We're kind of staring at, and yet next year's DEES is above five bucks.
• 13:12
  SPEAKER_02: Definitely can do something about it and allow yourself to participate in some upside as well.
• 13:17
  SPEAKER_01: Absolutely right.
• 13:18
  SPEAKER_01: And so um, and and just one more point that I would make to your your good points there, Jaden, is that um back to what we said before, we added three bushels to this year's crop report to report, and we probably added two bushels to last year's yield, too.
• 13:35
  SPEAKER_01: And so just um a little bit of uh kind of up 10,000 feet looking down view, um, that's uh um whatever you want to say about weather the last two years, today's technology, right?
• 13:50
  SPEAKER_01: Your great farming practices with improved genetics has uh allowed for us to add three bushels to this year's crop and two bushels to last year's crop.
• 14:00
  SPEAKER_01: That that was you know, so anyway, just the underlying as it relates to what next year's opportunity is, I think is worth considering.
• 14:09
  SPEAKER_01: For sure.
• 14:10
  SPEAKER_03: All right.
• 14:10
  SPEAKER_03: Well, thank you both for your time today regarding some uh grain management risk practices and just a recap over the busy, uh multiple changes we've had over the past couple weeks.
• 14:20
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• 14:24
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• 14:32
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• 14:33
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• 14:37
  SPEAKER_03: Thank you.
• 14:38
  SPEAKER_03: Have a good day.