All,
Posting this here for future reference. …wrote this newsletter in June of 2023.
“ May you live in interesting times! “
Farmers have sold very little of the 2024 crop. 30 days ago, there was a lot of regret for not selling at higher prices. Let’s not be saying the same thing 30 days from now.
Consider making a sale into this strength.
Corn—if you would have told me that we would get 20% of expected rainfall in MAY/JUNE I would have expected to see a disaster. So far it is not but the markets are bidding price and a prudent marketer will take advantage of that bid.
“This time it is different” the seasonal high for corn is normally the last two weeks of June or the first week of July. Is it different this year? Maybe but if you understand probabilities, you will sell this rally.
“Drought year will scare you….”
“sending down roots”….
Selling 30% by July 4th has always been good advice and it will continue to be. See a couple seasonal charts below.
Soy’s peak slightly later than corn but in the same ballpark.
Where do we stand with Fertilizer and what is the forecast for next year’s relationship?
Nitrogen
Let’s start out with NH3…recently CF came out with a summer fill program on Ammonia. That number is around 425 depending on freight rates. If we use that as a starting point to predict Urea and then combine those two to predict 28% it looks like this.
NH3 at $425 is .26/# of N
Add a dime premium for urea
.36/# is $335 urea
Add a nickel premium for 28%
.41/# is $230 28%
Now let’s plug $230 into the ratio charts for 28 and $335 into the ratio charts for Corn and then answer the question, “should I sell corn and buy fertilizer?”
First 28%
SO…..do we need to even discuss this best in 20 year relationship between corn and 28%?
For the record….the last dot is using $4.71 cash corn price for 2024 OND delivery to MAC. The way the markets are today that number could be significantly different, up or down, by the time I finish writing this update.
Also, for the record….the second to the last dot is what the CZ23/28% ratio looks like for those who waited to buy sidedress 28%. The cheat code here is that the yes nitrogen prices have been coming down, but corn has shot up 60cents since the mid-May point.
UREA
Anyone got a straight edge handy? I think this might be a 20 year record in favor of buying urea and selling corn.
There is an old saying that you “buy when there is blood in the streets” or “be fearful when others are greedy” The hardest sale to make is when you are fearful and the hardest purchase to make is when you think others are greedy.
These charts should give you comfort on both sides of the decision tree. Don’t over think it. Don’t freeze up. Take the data at hand, take historical yields, be conservative, but do something. The market is offering you opportunity.
Below is what today’s economics look like for the weighted average chart of NPK vs 2024 cash corn: solidly in the green.
What you are seeing above is not a record relationship as phosphate remains stubbornly high. Did I mention that phosphates are the only one with tariff protection.
Trade wars are not easy…unless you’re the one being protected!
The black vertical lines are marking the best time to buy/sell (fert/corn) over the last 7 years….we are in one of those periods now.
Interest rates
5% is the starting point for most loans today……interest is like truth or gravity. When rates are zero it is like dunking a basketball on the moon….anyone can do it. When truth and gravity come back to the market the BS stops.
(30) How do we get out of this mess: inflation and the gravitational pull of debt (substack.com)
Above is an update I wrote in Jan of 2022. The fed had started to raise rates and I talked about how and why in above article. Currently we are seeing a “soft default” play out in real time. We are 2 years in to 10% inflation and 5% interest rate. The stock market is not rolling over. The confidence game that is our monetary system is perceived to be working. Never mind the largest bank failure since 2008…..nothing to see there.
In the above article I mentioned the FED was trying to ride two horses with one ass. What that means is they want to let inflation run hot (horse 1)and keep interest rates “relatively” low(horse 2).
“Relative” is the key word in that sentence. If “real inflation” is 8-10% an interest rate(cost of debt) of 5% is low(relative to inflation). The FED is essentially paying down 3-5% of the debt thru inflation every year. If they can keep this charade going for 10 years, then “presto” half the national debt is paid off! Who is paying? Anyone who holds cash and anyone who holds fixed rate government bonds.
The real trick is to make the people believe there is no inflation while it silently steals their collective purchasing power.
Why did the banks fail this spring?
Very similar to 2008 except in 2008 it was mortgage backs securities(MBS). In 2023 it was Government bonds that caused the collapse. Yup the FED sold bonds to banks and said, “don’t worry..inflation is transitory…we are going to keep rates low”. Then proceeded to hike interest rates at the fastest pace in history. The value of bonds dropped, and the banks became insolvent. To fix problem they installed a typical 4 letter government bailout…aka BTFP(bank term funding program). Essentially the FED offered to loan money to the banks that they just railroaded at cheap rates to help them thru the liquidity crunch(aka…BANK RUN). So, the FED is the cause and the solution?? Riding two horses with one ass is not easy!!;)
How will this play out long term is anyone’s guess, but my bet is that they keep printing every time there is a bank failure or crisis. Yes, the stock market will keep going higher(nominally) to keep the masses happy but good luck trying to buy a BigMac for under 10 bucks in 5 years.
Here is a paragraph from above article on why a farmer is “mostly protected” from inflation:
My advice to farmers….keep your debt respectable and keep some powder dry. Remember you are sitting in the catbirds seat….the normal course and structure of your business inherently protects you from inflation. CARRY ON!!
We appreciate your business and look forward to earning it in the future.
Spot nitrogen keeps moving lower….call us for the latest prices.
John Ezinga
C: 517-719-8200
VP-Agronomy
Michigan Agricultural Commodities, Inc.
PO 195 Middleton MI , 48856