Market Plus: Elaine Kub

Nov 29, 2019  | 11 min  | Ep4515 | Podcast


This is the Friday, November 29, 2019 version of the Market Plus segment. Joining us once again is Elaine Kub. Elaine, welcome back to the table.

Kub: Good to be here.

Howell: Elaine, I know you said there on the main program that turkey is not your favorite Thanksgiving meal even though it's a traditional staple, hopefully our turkey producing listeners will forgive you for saying that. Tim in Crookston, Minnesota on Twitter wanted to know, are you a dark meat or a white meat kind of gal?

Kub: Well, I saw Tim's question and that is actually what made me think of it is the ham that has become a bigger thing for families to bring or prime rib, let's boost the beef producers too. But yeah, folks do buy the turkey and they do still produce that. And turkey and chicken, when you see that cold storage report of how much the poultry meat has really been growing and the demand for it and the production of it and just as a piece or a marketshare of the overall protein that we have in this country poultry is the big growing segment. So good for them. If I have to eat turkey I eat dark meat.

Howell: A little less healthier for you.

Kub: Well, it's better. It's just better.

Howell: Going back to your cold storage report and the growing demand and shift here in poultry production, is it also maybe due to the fact that African swine fever continues to take out some of the hog herd and more folks over there are turning to poultry as well?

Kub: Globally strategically yes it makes sense for poultry producers anywhere in the world to be moving towards that because yes I think China is looking to import chicken meat and chicken products so that's great. Let me back up a little bit too about the turkey thing. I just wanted to tell your viewers that Scott, one of the cameramen, suggested to make a turkey with lard in it, so pig lard. So let's bring this back to the lean hog futures market too. There's lots of support for the pork industry even on Thanksgiving.

Howell: Really just protein industries in general.

Kub: Protein and fat, animal fat, yes, animal products.

Howell: Elaine, I also wanted to ask, on your drive down here, obviously a lot of people are hitting the road this week if they've got harvest done, but what have you been seeing? What did you see on your drive down?

Kub: I saw a lot of snow in the Dakotas and Minnesota so that's not really helpful for folks who are still trying to get into the field. I saw a few fields still unharvested in Iowa. I've seen unharvested fields last week even in Illinois and Iowa that I assume they're still not all done. So it's just very unusual at this time of year. But the real concerns are more for the soybeans. If you get the snow on soybeans now then that's probably lost. But honestly the corn that is still standing in North Dakota and gets some snow on it this week that's probably still going to come to the market one way or another whether it's wet or light test weight or anything, it will still be coming to the market.

Howell: And when do you expect it to come to the market? Have you talked to producers that have said maybe their timeframe for that?

Kub: Yeah, the expectation is to get it done in December sometime and that's a crop insurance thing too is if you, to maintain current in your 2019 policy it needs to be done by December31st. But I suspect there will be some of it that gets harvested next spring so we'll see how that goes, how that stands through the winter and how much snow we get that would otherwise knock it down.

Howell: A little bit of a trickle effect in that I think.

Kub: Right, so the implications of this are that we will not know the actual size of the 2019 production for many, many months, potentially over a year. If the market is waiting for USDA supply and demand tables to have a final official number that everybody can trust and believe in it's going to be a really long time.

Howell: Elaine, I want to take a couple of social media questions here. First one here is a question about wheat, which we don't often get a question about wheat, but as we discussed on the main show it has had more of an exciting time maybe than the corn and soybean markets. Bill in Manhattan, Kansas would like to know, when will the combination of fewest planted wheat acres in a century in the U.S. and poor winter wheat establishment coupled with poor crops abroad bring bullishness to the 2020 wheat prices?

Kub: Well, the bullishness is there like I mentioned for the Chicago wheat contract and that is partially an acreage scenario like I mentioned the hot basis prices in Ohio where they lost the acreage, where there's not the opportunities to get those acres planted this fall, some of that is probably related to that but it's also more immediate which I think goes to his point about the international bullishness of that particular class of wheat or that particular variety of wheat. So the bullishness is there fundamentally for the soft red winter wheat variety but for the other ones there is very wide carry spreads that suggest no one is worried about those supplies at this point.

Howell: Elaine, we've got another question looking at the overall economics of the grain markets from Peter in Alabama. He said, he has been trading for 40 years and has never seen such a disconnect of what is report and what is reality, like you just mentioned there. Will there be adjustments later when the focus is onto the next crop?

Kub: Yeah, so I am really puzzled and I don't know what to say because we always have been taught to believe that the futures markets are efficient markets and they reflect real information, that all of the participants in the market put all of the information that they know, that they have observed out in the field and out in reality and put that into the price and the prices are supposed to reflect reality no matter what a supply and demand table might say. That is what we were meant to believe that the futures markets will reflect reality and I think they will eventually. The question just becomes for folks who are trying to do marketing now how long will it take? And the old saying is that the markets can remain irrational longer than you or I can remain solvent. So how long do you have to wait before you need to have the cash flow? How long can you afford to sit here and be bullish and wait for this reality to be reflected? Which I believe it will, but it is an inherently risky position to just sit and wait and hope that my opinion or anyone else's bullish opinion will eventually show up in those futures prices.

Howell: Elaine, when you look at the soybean contracts we talked a little bit about technicals during the program but Dan in Prairie City would like to know, is there a reason that January soybeans should stop going down? And I want to add in too what fundamental factors are you watching at this point? Is it all just U.S. and China trade negotiations?

Kub: I am fairly convinced that at least this week the day-to-day price movements are almost entirely explained by the Brazilian currency movements. So that is about the only thing I'm really watching right now. I don't think that the soybean market reacts any more so much to the day-to-day rumors about the trade deal. If we get substantive progress or we see a signed piece of paper that's a different story. But as long as it's just day-to-day who said what, he said, she said, I don't think the markets are worried about that. But they are worried about the realistic value changes as the Brazilian currency changes and you're looking at spring export business. So that's the thing I think that affects it day-to-day and that's the thing that could potentially come in here and put some support in there is if you all of a sudden did get a sense that the political situation in Brazil was going to get sorted out and they were going to go back to reforming their pensions or doing whatever they need to do to stabilize their currency, then that would hopefully stabilize soybean prices too.

Howell: Elaine, final question for you looking at the corn crop. We've got a question from Phil in Ontario regarding new crop 2020 corn forward pricing. Will the first week of December, as in next week, and mid-June 2020 traditionally offer the best pricing opportunities moving forward? I think this is a great question because this year was so abnormal when you look at the markets as well as the crop.

Kub: Well, actually the pricing opportunities of the 2019 new crop was extremely normal. It is exactly like Phil said, we had the high on June 17th which is typically when you have it. What's weird about it is that you shouldn't have such a normal seasonal pattern when you have such abnormal production prospects. So that's a mystery. But 2020 if you expect that to be a year of normal production then yes that is when you would expect to see a high. And right now that December 2020 contract isn't above $4 but when it does get above $4 or gets towards $4.10 that seems to me like a wonderful selling opportunity to be doing some pre-harvest hedging for 2020. More interestingly is what do you do now with the old crop stuff when you have such strong basis? And I don't think necessarily that the basis is going to collapse immediately because that is the one mechanism that the commercial buyers have to try and motivate these bushels out of the hands of the farmer. But if that tight basis during harvest season, during this "gut slot" of a slow trickle of a late harvest, if that hasn't even convinced folks to bring in enough corn to weaken the basis, then certainly once harvest is done and the bin doors are shut I believe the commercial buyers are still going to have to be bidding extremely strong basis prices to try and convince farmers as long as the futures markets don't do that work for them.

Howell: So I want to ask one more question because we've been getting a lot of questions about basis as well and we had Matt Bennett on a couple of weeks ago who is a big basis guy so we heard his thoughts there. But if the commercials are offering such strong basis prices should producers be taking advantage of these prices or should they be waiting and thinking they're going to maybe be stronger later/

Kub: Exactly and it kind of depends what scenario you're in. If you're talking about selling this at the elevator now, sure, take advantage of this now. And if you still feel terribly bullish about the futures or flat prices you could get long on the board. But if you're talking about bushels that you have your own storage for and you don't need to pay commercial storage for and if you're worried about that basis all of a sudden weakening that's what I'm saying, my opinion is that the basis won't suddenly weaken after harvest because I think as long as the futures market isn't doing the bidding for the commercial grain companies, which it hasn't been and doesn't appear likely to do at least until let's say January, then the basis will have to remain strong in my opinion. And so I don't think there is great urgency to sell bushels that you don't have to bring into town. There's not great urgency of that basis falling apart.

Howell: All right, Elaine Kub, thank you so much for joining us.

Kub: It's always a pleasure.

Howell: Join us again next week when we’ll head on the search for rural land in the East and Sue Martin returns to the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Happy Thanksgiving and have a great week!

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