Market Plus: Elaine Kub

Aug 30, 2019  | 13 min  | Ep4502 | Podcast


Yeager: This is the Friday, August 30, 2019 version of the Market Plus segment. Joining us now, Elaine Kub. Hello, Elaine.

Kub: Hello, Paul.

Yeager: Where do you want to start? Should we start cotton since I ran that out. We have a hurricane, already a category 2, slowing down, worst fears headed towards Central Florida, could affect some southern states, cotton areas. Is that at all being factored into the market right now?

Kub: No, I don't think there's any bullish concern in the cotton market. The cotton chart is one of the grimmest of all the commodities. If that December chart is below 60, which means cotton farmers are not projected to make any profit, they are about 15 points away from any sort of profit, and domestically you'd have a bearish scenario because we have higher cotton acreage this year. And condition ratings, that's like the only crop, I think even including oats and barley and everything, the only crop on the crop progress report every week that is actually ahead of its pace or doing reasonably well. The condition ratings are okay except for some poor ratings in Missouri. But otherwise things look bearish domestically and bearish internationally because of demand. You've even got India doing sort of poorly economically. So there's just really no good lights in the forecast for cotton.

Yeager: Isn't that cheery. Let's continue with the cheery discussions and all of these great questions that came to us via @MarkettoMarket on Twitter or on our Facebook page of @Iowa PBSMarket. Let's start with Parker and I'm going to combine Parker and a couple of questions. Parker was asking about unplanted acres. But he was asking, will the markets ever realize the unplanted acres or that the acres planted in June will not be average yields? Which is similar to a question that Austin was asking about, when are we going to realize that farmers grow corn in adverse conditions and the USDA is historically fairly accurate? The two thoughts kind of the same.

Kub: They are kind of the same and I like Austin's point that corn does really, really well, we are able to grow some very high yields in this country once it gets planted. But I've driven through eastern South Dakota today and there's a lot that never got planted. So you're not going to have good yields there, you're going to have a goose egg. And I think that is one of the things that really haven't been reflected in the USDA tables yet and they will eventually, eventually there will be corrections if not to the planted number then certainly to the harvested number, which honestly I think could be less than 80 million acres by the time this is all said and done because some of it is going to be too late, lots of it is going to get cut for silage and some of it just wasn't there to begin with. But reality is out there, somebody knows, somebody can look at satellite data and see what is and is not there. So the market perhaps knows that and just isn't bidding it up yet and for whatever reason the futures price is still trading based off of the USDA tables and not what I have interpreted as reality out in the Corn Belt.

Yeager: And a lot of people are looking at that reality. This is kind of what I alluded to a while ago in the show, the conspiracy side of things, that there's people looking at satellite data, those who can afford it, large companies, looking at data. Do you believe that's part of the reason for the run up in the basis in the Eastern Corn Belt?

Kub: Certainly. Well and even there we wouldn't even need satellite data to just drive, if you're an elevator operator there or a livestock feeder, a poultry feeder of any kind, you don't need to pay for satellite data, you just drive around and see that the crop is not there. But if you are certainly trading or want to get a bigger picture there are people who have commissioned lots of aerial images, but that's expensive, and there's certainly people who can go to the U.S. geospatial folks and pay for satellite data and see what is and is not there. But this kind of disturbs me because it feels like we shouldn't have to pay for that data, it should be the case that the USDA, that this is why the USDA historically has always given this information away for free evenly, fairly, to everyone at the same time so that the smallest participator in the futures markets, the farmer, is operating at the same time, with the same information as the biggest operators. But this year it feels like only the certain people who can afford to pay for satellite data are getting the information and the stuff that is given away for free at the same time is so suspect as to be unusable.

Yeager: You could argue that the rich get richer because they're the ones who can afford those types of things and those who rely on the government are on the short end. But the market trades more of what USDA reports.

Kub: So it seems.

Yeager: It seems. It seemed this year because how many times have you talked to producers in the last three months, two months, I did not get it in, I couldn't get anything planted and people will say there's nothing reflected in the market to indicate that what is in my back yard is the case across the country.

Kub: Yeah. And a lot of times, listen, a lot of times farmers get backyard-itis and they think yeah, it's terrible where I am, but oh yeah, they're going to grow 200 bushel corn in Northeastern Iowa, which they probably are, it's beautiful in some places where it did get planted. And to Austin's point that yes, farmers, we in the United States grow amazing yields for corn in incredible conditions these past few years. We have proven to ourselves that this is a very resilient crop these days with the technology that is in that seed. That is a problem that happens, backyard-itis, but this year it is different, this is different. This time is different. They always say that.

Yeager: This time it's different, it's always different, I promise I'm changing. All right, let's talk about demand then. Let's get rid of this crop. Jeannine was asking about demand but it's really Phil in Ontario @Agridome on Twitter. He says, the December corn high this year was around June 17th. Can the about to be announced new ethanol initiative from the President help prop up corn demand? Or have the corn market bulls vanished until mid-June of 2020?

Kub: I hope it doesn't take that long and it won't take that long. If the reality that we're seeing and that has been reported is real then by the time, there will be a harvest rally to reflect the bushels that don't show up at the elevator. So Phil has kind of got a two-part question there and he points out that seasonal high on June 17th and, as Phil knows, in a normal year that is the time of year when I expect to see a high. But I don't believe this is a normal year and I'm still bullish. I don't believe that will be the high that we see for that December corn crop, fingers crossed. That's my interpretation. I am bullish.

Yeager: Second part of his question is about ethanol demand. We heard the President, we've had the Renewable Fuel Standard and the small refinery exemptions been in the news the last two weeks, it has been in the amount given by this current administration. But we hear the to be announced. That tends to run the market up for just a little bit and then something settles in. Is that reality? Is that something else?

Kub: It didn't really run the market up very much this week. But it should. If you get some details, actually an idea to build infrastructure to get more E15 pumps out to the actual consumer, that would be a good spur to get more ethanol used in this country. And the small refinery thing was not good and you had great comments from the Iowa Corn Growers Association member in your show previously about that, that was not good and the announcement of it was kind of sneaky and not good. But honestly the actual demand of ethanol, or the production of ethanol, the use of corn to produce ethanol hasn't really fallen off. We didn't just fall off of a cliff because of that. We're actually still seeing above a million barrels a day being produced. So it's not the disaster that we like to say for political reasons, and we should, to pressure the government to keep working on this. But the future going forward of an infrastructure program to get more consumers actually buying E15, that would be fantastic.

Yeager: But it would have to spread farther than the infrastructure that it is and that has been part of the market resistance. Ethanol production is down year over year. We see the Secretary of Ag go to the Farm Progress Show, speak on message on that topic. So it is something that is on the mind of the administration of okay, here's how we can help. So that's what we've seen. We've got a couple of other questions that I want to get to. One of them involves another thing that the administration has done, it's MFP payments. Jonathan, @farmerjon52 on Twitter, he says, how many years of MFP payments will be made until lack of Chinese demand with an ongoing or settled trade war becomes the norm and the ag industry needs to adjust accordingly?

Kub: I have no idea.

Yeager: We don't.

Kub: As long as the trade war persists I suppose. But it seems odd that -- we didn't -- this is not a politics show, we don't need to get into my libertarian beliefs about not being paid not to produce a crop. Direct payments, we didn't like direct payments and we don't like being paid welfare. It would be easier to just be paid a fair market price than to be paid -- 

Yeager: And I had an argument with somebody about calling it welfare.

Kub: I'm not on message.

Yeager: I understand that and I'm not saying that you are and I'm not saying that I am, but there are people who bristle at that and then who say, well no they're not willingly taking it. They're not.

Kub: I did it. I signed the piece of paper. I'm taking the money because I'm not a very good libertarian. But you do have to file the paperwork, it doesn't just show up in your mailbox, you do have to make the effort and go and sign the piece of paper at the FSA office.

Yeager: Okay, so here's the question. We're going to end with a two-parter, these are two different views of things. This is a chance to show me you're optimistic or your pessimistic side. I've got Steve in Venango, Nebraska. He wants to know, what do I plant next year? But Tim in Crookston, Minnesota wants to know, can I afford to farm next year? Which one is right?

Kub: Well, they're both right. The idea would be to plant something that you think is going to be profitable, right? And there's just not a whole lot out there that you know for sure. Now, the cheeky answer I would want to give is mushrooms or hemp, the mushrooms that you had on your show, something to diversify into a more specialty crop and this is if you are really ambitious and willing to build your own market and become your own processing facility. This idea that this great savior crop is going to come in and help the farm economy, this has happened before in the '80s, the Jerusalem artichokes, did you ever hear about that?

Yeager: I don't remember that.

Kub: Look into that, people planted all these strange crops and there's just no market for them. That's kind of the deal with hemp right now, there's really not enough processors to really make that available unless you yourself are willing to do the processing and do the research to make that happen. So there's not a lot of specialty crops that are a serious answer. Mostly you're stuck with what you have the equipment to plant unless you're willing to make an investment in some sort of a specialty crop. And if your options are corn or soybeans, yeah, I believe a lot of folks are going to turn towards corn if the trade war is still going on when planting season rolls around.

Yeager: You mentioned developing markets for the hemp or the mushrooms or whatever, but that is what trade groups have done for corn and found ethanol and found soybean and found pork and found other markets for it and then it's gone now. Eventually there could be a market for some of those alternatives. That's a whole lot of work. And who is going to write the check for you to do it?

Kub: Right, if you're the one willing to do that then I believe they will be rewarded. But it's probably not feasible for every farmer to make those investments right now and the equipment and the space and the processing facilities they would need.

Yeager: A lot of head shaking. That's a good holiday weekend discussion. That's heavy for a holiday. How about we'll leave it at that? Elaine Kub, thank you so much.

Kub: Thanks, Paul.

Yeager: That's going to do it for Market Plus. And we appreciate Elaine for her insight. And next week we'll be back with Delaney and she will look at how demand for a southwest specialty crop is heating up and Jeff French will join us at the Market to Market table. Until then, thanks for watching, listening or reading. I'm Paul Yeager. Have a great week.

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