Market Plus- Dan Hueber

Jul 15, 2016  | 10 min  | Ep4147 | Podcast

Podcast

Pearson: This is the Friday, July 15, 2016 version of the Market Plus segment. Joining us now is Dan Hueber. Dan, welcome back.

Hueber: Thank you very much, glad to be here.

Pearson: We've got a number of questions sent in and I want to start with this one, it's from Brock in Baxter, Iowa and he touches on an issue you brought up a little bit on the show. With trend line yields in corn and beans and a big wheat crop, how negatively does that effect the grains?

Hueber: Again, assuming trend line yields are there it keeps a weight on top of prices. I do tend to want to believe that corn and wheat especially who are relatively close to the lows that we posted this year, realistically the lowest, comparable lowest levels we've been since 2009, this is where we seem to find value. So yes yields could become so burdensome that we have to go lower just to kind of clean the deck, but I really think we're already at a point where we're finding buyers, were finding enough interest. Farmers have been very reluctant sellers and have been in a financial position they didn't have to be forced into selling anything. So if the yields are trend line or higher psychologically it certainly works against the market. But I think there is the major element and I'm one that would already argue that with the acreage that we have out there this year, where we saw the changes around the country, where did we see increases in corn versus beans, these yields are very optimistic. 168 bushel to the acre is still third or fourth, I believe the third largest yield ever, 46.7 bushel to the acre is the second or third largest ever and it might be tough to defend those yields. Realistically a one bushel change in beans changes the picture dramatically. A two bushel change in corn or three bushel change in corn, which is still 165 bushels, that would still be the fourth highest record yield on record and we change from a $3.50 corn to a $4 corn that quickly.

Pearson: Right. We kept from a 2 -- where did USDA peg the carryout?

Hueber: Just a little over 2 billion bushels. It will be with the increases in usage we got over 2 billion. And interestingly enough for probably four years now we've had various reports all predicting we're finally going to get above 2 billion bushels and at the end of the day we never have and it would be interesting this year, particularly seeing how we seem to have a slow but sure rebound in corn demand. Will we really be above 2 billion bushels? Granted, we know the jury it out there, but I'm kind of in the camp that says I don't think that's really going to happen.

Pearson: Okay, because demand has been impressive on the soybean and on the corn side. Where do you see our best potential for demand increases come from here in the next year on corn and beans?

Hueber: I think the biggest surprise may be corn because that's really just beginning to evolve and we mentioned earlier on the program that here just in the last two months China has imported over a million ton of corn each month, which is a record. Granted, it's coming from various sources. But it's coming partially from the U.S. and we have been locked out of the Chinese corn market for a number of years. There is a change that we need to kind of readjust to and with their economy chugging along, their livestock, particularly hog herd is on the rebound, that demand could be far more substantial than is really estimated. Really same thing applies to the soybean market. The people from our commercial trade have maintained all year long be careful with the bean market, particularly looking out into 2017 because they think the demand is going to be just absolutely phenomenal.

Pearson: Really? Are you as a spec play getting long '17 beans at all?

Hueber: Not at this point in time. We still advanced quite a bit. In fact I'm of the camp that believes we could put in one more shot up on the soybeans this year, but chances are we'll drag back down as we kind of assess things out and maybe stop a little bit of that buying. But ultimately, yes, I think between now and fall if we see a nice correction there then absolutely I want to be long. I think want to be long commodities in general moving into 2017. In fact, Citygroup came out this week and said the same thing. So they think the play led by crude, they're still big -- granted, you look at any commodity index crude has got a very heavy weighting in that, those two markets if you apply to a Goldman Sachs Index chart with crude oil you would think you're looking at the same chart if you took the prices off. It’s a big, heavy influence there but looking into '17 and beyond I'm quite positive on commodities yet.

Pearson: Okay. Well while we're still dealing with 2016 we've got a question from Marty in Buxton, North Dakota. Marty wants to know, other than too much rain, is this a wheat feeding year?

Hueber: I think it has to be. Granted, we're going to get the ratio between corn and wheat where it just has to be competitive your feed wheat if you're in an area particularly where you're producing the wheat. I haven't had an opportunity to speak with my brothers who of course work pretty actively in the hog industry but I'm sure with the availability of new crop wheat on now they'll be reformulating their rations to put a little heavier in the wheat in there to make it work.

Pearson: And then finally, Brian in Arlington Heights, Illinois is asking, and it's a very broad question. Brian is saying, what about this week's collapse? Or one thing at a time? As we look at this week's collapse what do you think?

Hueber: I tend to look at this week and say it's really a collapse from anticipated excitement because of weather. We pushed up late Wednesday and into Thursday thinking the heat dome is going to build in and then when we broke by the close yesterday and of course some follow through here today all we really did is put prices back into trading realms or trading ranges we've been in the last two or three weeks. Now granted, weather markets are, in fact in my commentary this morning I wrote, they're the absolute worst, because they're just flip a coin propositions. We tend to kind of lose sight of the big picture because we're so focused on is it going to rain today or tomorrow but that's just the challenge, we could come back Monday morning and if that heat is back in the forecast all the pressure of yesterday and today is forgotten.

Pearson: It's interesting, I believe that GFS forecast updates every six hours. So every six hours we're crunching a new set of numbers and the computers are buying or selling and so are producers. So how does a producer, if I'm sitting there, if I'm a dime short of break even and I want to put some hedges in place, how do I handle a volatile weather market?

Hueber: Of course the bigger challenge is I'm a dime short of break even. So number one I guess I would say on that hopefully your crop insurance is kind of giving you that foundation to where you don't need to panic and we're not that far off of those levels on the corn market particularly, we are in the beans, but I think that's just it, I think when we really try to work with clients on putting together marketing programs we try to take that focus off of I need to have $5 corn, I need to have $11 beans. What you need to have is a return on investment and we need to look for respectable, consistent returns on investment and then find the price that we need to get to make that work. And if you don't, it's easy to lose sight of that, particularly in exciting weather markets. But you don't make, once you made a plan, once you have initiated targets for returns on investment, you better have an awfully good reason to change your mind because the name of the game is consistency of profitability and ultimately that's what is going to keep you in business.

Pearson: Keep you in business through 2017 which could be a fun year.

Hueber: Exactly.

Pearson: Alright, Dan, before we let you go, we have been asking each of our analysts every week to define terms that get thrown around quite a bit when discussing the futures markets. And so yours, what is a long position? What does that mean?

Hueber: A long position of course is any position that would profit from markets moving higher. So granted, somebody who is a farmer is in a long position every morning he wakes up or really even when he goes to sleep, you're in a long position the moment you put that crop in the ground because you are at price risk and if prices go higher your holdings or your potential production becomes worth more. Most commonly we think of a long position in the futures market that is a purchase of a futures contract or the purchase of a call option which gives you the right to have a long or a purchased contract in the futures. So basically you're just trying to profit from up moves in the marketplace.

Pearson: Is the sale of a put also a long position?

Hueber: The sale of a put is a means to try to profit from a market moving higher. It's not long in the respect that you cannot convert that into a long position. All you're ever going to do is receive the money from the person who purchased it if the prices go higher.

Pearson: Okay. Well, Dan, thank you so much for taking the time to join us.

Hueber: My pleasure. Thank you.

Pearson: And before we go, we'd like to remind you about a web-only sale of Market to Market gear. If you are already on our website, go to the story about everything must go. Inside you'll find a link to iptv.org/warehousesale. Once you click through you'll find a list of one-of-a-kind mugs, diecast tractors and Carhartt jackets, many adorned with the vintage Market to Market logo. Or if you're interested in new gear, you can follow the links to show your support for the program that brings you news and market analysis you trust. Your contribution for any of these items helps keep this program going. Remember, the list is short and once they're gone, they're gone. So go get long some Market to Market gear. Thanks for watching and have a great week. 

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