Market Analysis: Elaine Kub and Walt Hackney

Market Analysis: Elaine Kub and Walt Hackney

Sep 21, 2018  | Ep4405 | Podcast


Delaney Howell:  This is the Friday, September 21st, 2018 version of the market analysis segment from Market to Market. Trade winds and harvest bins coupled with export transactions, powered the sale of commodities. For the week, December, we gained a dime while the nearby corn contract increased six cents. Expanded sales to Europe along with Argentine buying pushed the November soybean contract seventeen cents higher. The December soybean meal contract added twenty cents per ton. December cotton declined 2.70 per hundred weight. Over in the dairy parlor, October class three futures again moved lower by twenty cents. A mixed livestock market as the October cattle contract declined seventy two cents. October feeders shed eighty cents while the October lean hog contract jumped 4.07. In the currency markets, the US dollar index lost 71 ticks. Crude oil continued it's bull run with a gain of 2.01 per barrel. Comex gold rose twenty cents per ounce and the Goldman Sachs commodity index expanded 10 points to settle at 473.50. Joining us now to offer insight on these and other trends are two of our regular market analysts, Elaine Kub and Walt Hackney. Welcome back guys. Thank you so much for being here. Elaine, let's start here with the wheat market. Bring me up to date on what's going on with the Russian wheat market and how that's impacting our prices here in the US.

Elaine Kub:  The Russian thing is currently sort of a bearish idea...this is going back to the WASDE report of, you know, a week and a half ago or two weeks ago, When USDA comes out and increases their, their Russian wheat export projections and that sort of had a bearish thing on the wheat market. But as you mentioned in your recap of the commodity prices…actually was an up week for wheat and it was really more tied to Australia than Russia. It's just all across the globe this year, right? There's always something going on in wheat. They had a weekend frost and I know a lot of times in the US if we get frost in Kansas or something, the market kind of poo-poos it because you know wheat is pretty resilient, but that Western Australia wheat crop was looking beautiful and the frost was serious and some of the wheat was still in boot stage and might still pull out of it, but a lot of it will be put up for hay and will be lost and so it was just another supply shock in the wheat market and the wheat market responded.

Delaney Howell:  Let's talk about how the wheat market is responding here in the US then, Elaine. What are we expecting to see for...let's talk December contract specifically.

Elaine Kub:  Well, they all have followed along so that they have just been in lockstep with the Paris contract. Australian prices and the, the three US wheat prices, they all moved together this week. So it wasn't necessarily one story about, you know, Kansas hard red winter wheat planting. It was just all wheat globally moving up together and I feel that that's probably priced in now and I don't know that we would expect that rally to continue.

Delaney Howell:  Okay. Elaine, when you look at the grain industry as a whole, is the wheat market pulling corn and soybeans up with it this week? Absolutely not. No. Wheat is doing own thing and it's a little bit unusual. Usually you do see them moving together, but it's harvest time for the row crops. They've got their own weather story going on for the harvest timeframe and wheat is just off doing its own thing.

Delaney Howell:  Okay. Let's talk about corn because we have started corn harvest here. What are you hearing from growers out and about? Are we going to have a record yield or USDA's projected yield this year for corn?

Elaine Kub:  I think it's entirely possible and I think the USDA had data from ear weights and ear counts and farmers certainly have been increasing the populations that they plant these cornfields at, so I think it's legitimate to expect that 1.80, or above 1.80 average yield that the USDA came out and projected and harvest reports, you know, just anecdotally there's poorer ones coming out of the southern plains so that those poor harvest reports will be frontloaded this year as they come up from the south. But in the heart of the corn belt, yeah, we are seeing, you know, anecdotes that support this idea of a very large corn harvest, but it's just going to be kind of stuttered here in the next week because of rain delays.

Delaney Howell:  Let's talk about harvest lows. We had a low put in this week at 5-20 something 24, 26 something or 3-24, 25...?

Elaine Kub:  Yeah I wish it was 5 something.

Delaney Howell:  Do you think that that is our harvest low? I mean I feel like a broken record. We talk about this every week on the show and we just keep putting in new lows.

Elaine Kub:  It would be unusual to have a harvest low in September, but it is possible, especially given that this harvest is going to be early in 2018 and given that the market has known that all along, but the expectation will be that farmers will be selling this corn because they need the cash. They'll be selling that cash corn off the combine this year more than most years because they won't be selling the cash soybeans, which means they go to the elevators, the elevators hedge that with short futures position and there will just be continual selling pressure on that December corn contract.

Delaney Howell:  Typically we rally in October. I was reading a report today at 13 percent, 20 percent, 37 percent in years past. Are we setting ourselves up to do that this year or not?

Elaine Kub:  It would be very easy for the row crops to rally if something happened to change...

Delaney Howell:  Corn specifically?

Elaine Kub:  NAFTA, NAFTA, you know, if we had some positive news there or positive news about the RFS. I think the speculative side of the market is inclined to come in and buy these relatively cheap prices and these commodity markets. But as of right now, I don't see any reason for that to happen.

Delaney Howell:  Walt, I want to ask you a quick question here, when we look at corn prices right now, we just put in a new low this week. What's that doing for the cattle markets?

Walt Hackney:  It doesn't have a lot of effect on it as we speak, Delaney. Um, of course the cattle feeder is always looking toward a lower price ration cost and uh, he's been adequately policed with his cost of production. However, the price of the feeder cattle themselves coming in as replacements have way more than offset cheap feed. And they are a loss leader in the feedlot industry right now.

Delaney Howell:  Tell me a little bit more about that. A loss leader, how?

Walt Hackney:  Well, simply-spoken the feeder cattle are high enough in price that $8, or, uh, $3 corn is not going to make them work. And in fact the current price of the yearlings and then again the calves, the current market price on those way more than offsets cheap rations. And as a result, the cattle feeder, unless he can come up with a risk management program with some price protection, uh, he's looking at...oh 100, $150 a head net loss in the cattle regardless of the ration costs.

Delaney Howell:  Okay. We're going to come back to that because I want to talk about the cattle on feed report specifically, Walt. Elaine, transitioning to soybeans, why did we see such gains this week in the soybean markets?

Elaine Kub:  Well, I mentioned, you know, this, the willingness of the market to be very enthusiastic and to rally very quickly if there's ever any idea that the poor trade relationship with China would change. And I do think that the big move we saw on Thursday, just looking at the timing of it when it happened in the session, was related to a rumor that China might perhaps do something about it's import tariffs. And it's, it obviously doesn't actually affect the physical soybean market because we didn't see basis bids change at all due to this strange rumor. We didn't see the very wide futures spreads that are showing that merchandisers are expecting to have to store these physical soybeans for months and months because the trade relationship has not changed and I think it was just a boost in, in rumor based buying.

Delaney Howell:  Okay. Elaine, I wanted to ask, I saw today the EU was reporting they're buying, I mean record shipments and soybeans because US soybean prices are so attractive and comparatively so low to Brazil and Argentina. Will that add support or because they're so attractive right now at these lower prices, will that keep them locked in at these prices?

Elaine Kub:  It's helpful and they are getting a heck of a deal on pretty quote unquote cheap soybeans because of the Chinese tariffs. But uh, so the European, the EU's buying of us soybeans is up 133 percent I think compared to what they would normally be expected to do. But even at that pace, if it continues, that's only a fifth of the business we would usually expect from China. So it's nice. It's helpful, it's good for them. It's a little bit good for the US soybean industry, but that's not a fix. I mean there's going to be strange things happening with all of these, you know, trade problems in all of these markets, pork markets, soybean markets, but that's not enough to fix it from compared to our big customer.

Delaney Howell:  Right. You mentioned earlier corn producers are going to be taking cash prices, so are you suggesting producers hold on to soybeans if they have the possibility?

Elaine Kub:  Yes. I think these are just profoundly unappealing cash prices for soybeans right now. You're talking about $6.30 as some bids in North Dakota and Minnesota...

Delaney Howell:  Basis. Yeah.

Elaine Kub:  That's just horrible. And why would anybody want to sell that price right now? And you don't necessarily want to accept these poor basis bids and it's going to be a mess to try and store these soybeans for months and months and months to store them in bags potentially, which is not generally suggested for a long period of time, but, and I don't want to say that the prices couldn't get worse or that I couldn't get lower, but it kind of couldn't get worse. So you sort of feel like you have to just wait and see if there will be some very quick market recovery. Hopefully if this trade thing ever gets resolved only.

Delaney Howell:  Elaine, let's continue this discussion in Market Plus. Walt, I want to make sure we have time to discuss the cattle-on-feed report. You mentioned to me before the program, you see a couple of wrinkles in this report. Tell me what those are.

Walt Hackney:  Well, we look at extraordinarily high placement factor, for instance, around of 106 or 7 percent, and immediately the, the world looks at that as a bear market. What we're forgetting is that a large percentage of that 106 percent that came in unexpectedly due to the national drought from West Texas to Wyoming has created an exodus of calves and short yearlings offer the grass pastures and the wheat pastures and those cattle have had to go to the feed lot. They had no choice.

Delaney Howell:  Because there was no grass available?

Walt Hackney:  That's right. And a lot of those cattle went prior to their, uh, if you will, their finished time on growing rations and they're 100, 150 pounds lighter than usual as they've gone into the feedlots, the feedlots have simply put them on a maintenance growing ration and it's carrying them. They're not going on feed as finished cattle and it might lead some people to become extraordinarily bearish of that 106 when really it isn't. It needs to be analyzed. And those light cattle that came in unexpectedly need to be taken into consideration.

Delaney Howell:  Absolutely. I agree. A hundred percent, Walt. I want to ask a question too, from social media that we got this week. It's a great question from Lexi in Iowa. She says, Walt, with the October live cattle contract finally breaking through the 20, 50 and then 100 day moving averages, what trends can we expect to see in the fourth quarter of this year?

Walt Hackney:  Well, I don't think that we need to, although I don't know that there's a correlation for October with our cattle-on-feed report, as you're totally aware. A lot of those placement cattle, a lot of those on feed cattle will come in later October going into November and, and um, the fact remains: It isn't going to be that wall of finished cattle coming at us that some of the analysts are wanting or willing to predict.

Delaney Howell:  You don't think we're going to see that at all?

Walt Hackney:  No, that's kind of an abrupt statement, but I don't think so. Uh, and I'm no authority, but that's the way it looks.

Delaney Howell:  Tell me why.

Walt Hackney:  Well, the reason being we're at a buck 10 cash, that's losing magnificent amounts of money for the cattle feeder. That cattle feeder is not going to stay as aggressive on replacement cattle physically of the weight, uh, 7 and 1/2 to 900 pounds going into the feedlots. He's not going to be aggressively on those as he was this last go round and as a result of that, we're not going to have that wall of cattle.

Delaney Howell:  Okay. Walt, Elaine, I want to continue this discussion and save hogs for market plus. Thank you each for being here today. Thank you. That wraps up the broadcast portion of Market to Market, but we will keep the conversation going on Market Plus where we'll answer more of your questions. You can find it on our website at Twitter was our first social media love. The 280 characters help us share links to our stories, photos and questions for you several times a day. Give us a follow at Market to Market. Join us again next week when we assemble another panel for an in-depth discussion on the commodity industry. So until then, thanks for watching. I'm Delaney Howell. Have a great week.

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