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hello my name is dwayne kistner with the heritage hedge group i'd like to thank fnb for putting on the farm forum and specifically reese copeland for asking me to talk to you today about grain markets before we get into the grain markets i'd like to tell you a little bit about our company we provide our farmer customers with cash flow analysis we do an expense matrix and we'll provide you with a monthly budget and variance reports we'll help you navigate all the government programs and this year that's been a significant piece of our business we do grain marketing brokerage services we provide our customers with operations and logistics support we do estate planning and we do life insurance before we i talk about 2021 i'd like to reflect back on 20 and the changes that we've seen at the beginning of the 2020 crop year the usda told us we would see record crops record acres and record carryout numbers things that we haven't seen since the 1980s today we live in a much different environment than we thought we would be in just a few short months ago today we live in an environment where there's shrinking supply in all exporting countries there's growing global demand from all of your importing nations due to food security the u s dollar is weaker versus a basket of other major currencies the u s dollars lost about 14 percent of its buying power since may end users are short bought and what that means when a farmer crosses the scale and fall there's an end user there buying his needs for not just the fall time frame but for a time frame in the future for the deferred months well we had a rally in fall and end users stayed hand-to-mouth thinking they'd have the opportunity to buy grain at cheaper prices later the cash market is tight we're already seeing historically high basis levels for the 2021 fall crop especially beans corn spreads are tight and what that means is there's no carry in the corn market for all of our old crop corn bean futures are actually inverted meaning that you can sell beans for higher prices today than what you can in march or april so the market is telling the producer today to sell your grain now it's telling end users to hold off on your purchases and just stay hand to mouth because you'll have the opportunity to buy your grain cheaper later how did we get here what happened in may you were probably in a tractor planting your your corn and your beans and the usda told us that you're going to plant record acres well they were wrong they predicted we'd plant 97 million acres they predicted a yield of 178.5 and carryouts in excess of 3.3 billion bushels we've never seen numbers like this before in fact we planted 90.8 million corn acres we yielded a 172 and today our estimated carryout is about one and a half billion bushels of corn so we're 53 percent lower than what we had estimated we would be in may the usda did a better job at estimating our bean crop their planted acres were closed their yields were close their total production was close where they made a mistake was on ending carryouts from 2019 which became our 2020 carry-in and then our demand as you can see on the slide in may we were estimating a 405 million bushel carryout on beans we're in fact at a 140 at least that's our current estimates pipeline bushels are about 100 so it's going to get extremely tight for beans as you can see we're 66 percent below the may estimate here's the march corn seasonal chart and as you can see historically the best time to sell your grain is in june june and july in june and july there's typically a production scare in the in north america when we get past that production scare the market goes lower and goes lower through harvest we'll have a little bounce in october and then the market gets weaker into the end of the year as fund managers take profit on long positions and then you'll see the market rally after the first of the year that red line is your five year chart the purple line is 30 and the black is 15. and historically that's what happens well that's not what happened in 2020 here's what happened in 20. as we entered the year the market was weak and got weaker and it continued weaker while you're planting and it got weaker after you finish planting then we had a little bounce in july well all of us that trade the market professionally we believed at that point that was our summer high so we were all sellers the market got weaker after that bounce like it historically does and at that time many traders and most people in the industry thought we would see corn sub three dollars in harvest and that and we had seen bids at sub three dollars when we got into harvest and we realized that our crop was not as large as originally anticipated and there there was looming problems in south america the market started to rally and it's never stopped so it did exactly the opposite of the normal seasonal trends that's what that white line on the top of this chart represents that's the daily price action the blue line underneath it is called the relative strength index or rsi anything above a 60 is a cell the red and blue lines underneath that are called the stochastics anything above a 70 is a cell as you can see today the blue line on the rsi charts in 83 the red and blue line on the stochastics are a 93 so the market today the charts are telling you to sell that's one of our sell signals beans here's your march bean chart it looks exactly the same as the corn chart the the same thing happens seasonally the rsi is an 87 the stochastics are 94. they're telling you to sell beans well what drove this bull market what changed we had the driest conditions in south america for their planting season that we've seen since 1980 that raised a lot of concerns in a tight market the 19 and 20 crop in north america was overstated by the usda we had a dry august that dry august took the top off some of our yields and we didn't produce the crop that we thought we would and we had wind damage in iowa that destroyed 14 million acres of crops we have a record export demand unlike anything we've ever seen and a weaker dollar versus foreign currencies making our commodities cheaper on the world market so what drives the futures market the futures market in the cash market should run in tandem but they do not always do that manage money hedge funds spec funds whatever you want to call them and the usda and currency valuations are the three things that drive the futures market the usda has always been viewed by traders as a non-biased entity providing information and clarity to the futures market the usda is increasingly providing inaccurate information to traders so the cash market is a better indication of what is truly going on in the market when i look and i see an ethanol plant bidding 40 over it's telling me corn is not moving when i look at it and they're bidding 30 under that's telling me that that there's plenty of corn and the cash market is flush fund managers trade those usda monthly supply and demand reports and chart technicals and we'll get more into chart technicals here in a moment historically funds will get 250 000 contracts long or short and a contract is 5 000 bushels and they'll get 150 000 contracts long or short beans as the dollar has declined we've seen other ag other hedge funds other than just our historical ag hedge funds trading in the ag markets just as a hedge against inflation money is now long 1.8 billion corn bushels and a little over a billion bean bushels now what that's telling us is they bought this grain on the board of trade on paper anticipating the prices will go higher and they'll take profit at a later time here's a report i receive every night from stone x it's the former fc stone the column to the left is corn and it it just says the last 30 days and if it's a the numbers in blue they've bought if the numbers in red they've sold and in the last 30 days they've bought corn every trading session except two they've bought beans every trading session except for so as you can well see they're lining up on the long side expecting prices to go higher now let's talk about chart technicals when you see a peak or a valley in a chart those peaks and valleys provide support and resistance in the daily price action for example in 2016 we saw beans touch just over 12 dollars well that became resistance for our market this year as we traded through that resistance level when we traded through that level you have to look at the charts and ask yourself where is the next resistance level as you can see it's in the 15 range that's where our next resistance level is today corn similar situation in 2014 we touched in the low fives well we've traded through that level now the corn chart is unique in that there's a huge gap above the corn market between 550 and 650. so there really is no technical resistance based off a chart my opinion is the next resistance is in the 570 to 6 range so as a farmer how do you operate in an environment like this where volatility is elevated one you need to know your operation you need to know your breakevens currently corn beans and wheat are all at levels that are profitable for most operations so you can plant any commodity giving normal yields you should be profitable you need to maximize all revenue sources you need to look at your revenue like a big bucket you throw money in and money comes in that bucket from different places from your cash contracts for example from the elevator from plc or arc payments from cfap there's was cfap original cfap there was cfap 2.0 and there's getting ready to be a cfap 3.0 there was whip plus there was the payroll protection program and then the eidl program you need to take time to be fluent in all of these government programs and if you don't have time you need to hire a professional that understands these programs in 2020 this meant over a hundred dollars an acre to many producers don't monitor daily volatility you'll need may locks if you sell grain at or near the high it's luck scale in your sales when they're profitable there are four things i ask myself before i sell grain one is it profitable are the charts in a sell signal like we talked about earlier with the stochastics and relative strength index what is the managed money position like the chart we just looked at from fc stone if funds are long that's a sell signal if they're short you don't need to sell grain what are the seasonal trends telling you like i showed you on that seasonal trend chart june is typically the best month to sell grain and typically september august and september is not here are some examples of some trades i did recently at heritage hedge group we do not speculate the market we hedge our risk most of our farmer customers are profitable at 1090 floors i don't know where this market is going to go i don't know if it's going to return to the nine dollar range where it's been for the last couple of years or if we could we could take out the 2012 highs at over 18 dollars so i set floors for 10 90 on on my fall beans with unlimited upside i know that if the market goes to 15 or 16 dollars i can sell that market if the market drops to eight my worst case scenario is 1090 futures plus basis my first sale of corn i did what's called a three-way options trade i guaranteed my customers a 450 floor and a 520 cap if the market goes above 520 they're capped at 520 if the market goes below 450 they're guaranteed 450 down to four dollars if the market goes below four dollars i've made 50 cents on the trade but i have to go market their bushels so the risk is if the market goes above 520 they're capped the market goes below four dollars they've made 50 cents and we have to go market their bushels for example if the market goes to 380 i could sell 380 add 50 cents to it and i'd have a 430 hedge that's how you utilize a three-way it does have risk but it does allow you some upside here are my final thoughts we may be entering a period of inflation so lock in your production costs the january crop report has created an environment where the fed crop insurance prices should be very attractive but this is going to come with premium your crop insurance premium is based off two things your february crop insurance price and the volatility of the last five trading days of february i would budget a 30 increase for your crop insurance this year when the market's in a sell signal sell increments of your production this does not always feel good in a bull market human nature will tell you it's going to go higher it doesn't feel good to sell 12 dollar beans and tomorrow they go to 12 20. but that's going to happen we never know when the day comes when the bull market ends instead of it being 12 it could be 11. use a mixture of cash contracts futures and options allowing yourself upside protection while limiting your downside risk be fluent in all of the government programs in 2020 this was over a hundred dollars per acre for producers and transfer risk from the buyer and don't look back don't second-guess those profitable sales if the market gains 50 cents that completes my my presentation i'd again like to thank fnb for putting on the farm forum if we can help you our contact information is on the screen thank you