Market Plus: Dan Hueber

Jan 10, 2020  | 11 min  | Ep4521 | Podcast

Podcast

This is the Friday, January 10, 2020 version of the Market Plus segment. Joining us once again is Dan Hueber. Dan, obviously today is January 10th, the day that we've been waiting for, for a long time, to see what the USDA did. Can you just give us a general recap again of the report for folks maybe that haven't watched the full show analysis yet?

Hueber: Certainly. Of course I always refer to it as the word of gov coming down from the mountaintop. But the word of gov didn't deliver us a lot. The numbers were not quite as reduced as much as the trade was expecting, particularly when it came to carryout. The grain stocks number was probably the most bonus we got as far as maybe helping out price activity as in world stocks. But USDA raised yield on corn and beans both just a smidge. They dropped harvested acreage finally on the corn a little bit more. And at the end of the day it was really almost a non-event which is not all bad. We don't need to have a shocker every time and certainly it would be for the pulse of the market it's maybe best not to have a shocker sometimes. So now we can start focusing on things such as demand, on what we can talk about for spring plantings and those types of things. So for the time being at least, granted this will not be the final word on last year's crop, but for the time being it is. 

Howell: And since you mentioned demand I'm going to take a question here talking about demand because export sales of course were delayed this week because of Washington weather. We've got a question here from Bradley in Upland, Nebraska. Can corn exports catch up to USDA projections?

Hueber: It's going to be very challenging honestly for a combination of reasons. One, we're certainly going to have to see demand pick up. Export sales last week were of course the record low for the year. Granted it was a holiday week or two holiday weeks in a row which impacted that. But we're going to really need to see some non-traditional customers pick up the pace. China maybe will be in there some time during the year but right now we're pretty much a Mexico, Japan, Columbia market now. South Korea has not even really been all that dominant in our markets as of late. And then take it a step further, we have a lot of quality issues on corn in certain parts of this country, which may not make export grade. So there's going to be a question mark where we're going to get the corn when we need to for good quality export grain.

Howell: And I think that the quality is probably part of the reason basis has been so strong but we've got a question here from Gary in Wilton, Iowa wanting to know about basis specifically. He says, why are basis numbers so high? We are right on the Mississippi River in his part of Iowa and soybean basis is nearly 70 cents per bushel. Corn is low now but in the fall it was 35 cents per bushel. What is it going to take to shrink the basis? Maybe Gary is an end user there.

Hueber: You mean shrink as far as improve it a little bit more so of course part of the beans, I think the Gulf really got caught with their pants down so to speak when we didn't know China was going to step up and start buying when they did and we just had nothing in the pipeline so that really of course accelerated the basis levels. The corn here again we just have not been putting the bushels out of the country. Ethanol industry has certainly not been as dominant as we would normally suspect for this time of year and they have been operating on some pretty rough margins so that has really kind of pulled down the demand. Time will of course bring it along some and yes, as we do see some more of the export business pick up after the first of the year here that is going to improve it some. But until we really see this corn demand situation change around a little bit basis is probably going to be just hit and miss. As we see spot demand pick up they'll get hot for a week or two and then they're going to back away again.

Howell: Dan, do you see the areas along the P&W, specifically the Dakotas, that are still having corn acres in the field, do you see the basis improving drastically for them in the near future?

Hueber: Well, the basis undoubtedly will improve but that could become a quality issue up there. The basis might have to improve to direct corn from other regions that are going to be able to meet their grading standards. So that is going to be the million dollar question this year. Granted the corn is not necessarily out of the field but also what is out is it the kind of quality we need to get it into that export chain?

Howell: And if we did see the USDA address that quality concern it's probably not going to be until when?

Hueber: September realistically. And again not everywhere is the same. I certainly have seen it in our neck of the woods farmers that I've always loaded my truck this way and it's always 900 bushels and gosh this time it's 850 bushels. So those test weight issues and the breakage issues are very real out there. So those are things you really, particularly if you have not scaled that grain you're not going to recognize that until you finally get that bin emptied out and get it across the scale.

Howell: And test weight issues can also be a problem for livestock feed. It's going to be interesting to see what shakes out for them this year as well.

Hueber: And granted the livestock feed you're dealing on volume, 100 pounds is 100 pounds, but on the same token you're using up a lot more corn than you necessarily thought you were.

Howell: Dan, we've got a question here looking at quite a few different market fundamentals impacting specifically the cattle market from Cole in North Dakota. He said, with the Chinese trade deal, USMCA, Australian fires and lastly the high percentages of females going to slaughter is it safe to say that the fed cattle and feeder cattle will be bullish moving forward? And what do you predict for just the livestock protein sector as a whole for 2020?

Hueber: Well not that the fundamentals haven't stayed relatively decent for the cattle market, we certainly have not backed up any cattle on the feedlot areas so that has allowed the prices to stay where they are. I think the biggest issue, the biggest competition they're going to face is from competing meats and certainly if the economy has any kind of a hiccup as we move into 2020 as well could really throw a little disruption there. The USMCA certainly is a positive. I guess the trade in Japan might have a bigger impact on that than anything with the new Mexico-China agreement. But I think the biggest problem is going to come back to the competition between the lower priced pork and the lower priced chicken at this point in time.

Howell: And since we're talking pork we've also got another question looking at protein from Minda on Twitter. Why haven't hog futures held up better in light of so many Chinese comments about buying pork to get to that $40 billion projected purchase?

Hueber: Of course comments have to turn into reality and China has stepped up their purchases of pork significantly but we also have a large number of hogs coming to market. We're 6% above two years ago. So it's just, we've got ample supplies that continue to come in, packers know what's out there, they know what is going to be coming into market so nobody has to really pick up the slack and pay for it. Deferred months are offering a pretty good premium because they are counting on that demand as we move out into next summer. But when we start talking about that $40 billion from China I think it's doable, don't take me wrong, when you look at the numbers and what they could import those are figures that are potentially doable. But we might be exporting them some kind of non-traditional commodities to make that happen. And truthfully it won't be until after the 15th when we get this signed that really we'll know exactly what that commitment is. Are we just talking about ag products? Or are we adding in crude oil? I think there could be, it could be more of a commodity situation as a whole. So we don't even really know specifically yet exactly what the breakdown of that $40 billion might happen to be.

Howell: I was reading something that said we might not ever even know what that breakdown is going to be, they might not release that as public information.

Hueber: Well, it would be nice if they did, it would answer a lot of questions but I suppose that is the prerogative of the government. But it would seem kind of counterproductive not to release it. But here again it's not our call I guess.

Howell: I guess not. But the other commodity besides pork has been soybeans and I think a lot of growers are hoping China picks up here in 2020. So we've got two different questions but I'm going to combine them together coming to us from Scott in Illinois and also Daniel in Minnesota. Looking at soybean prices for 2020 what are you selling for fall 2020 beans? And are we going to be higher or lower in six months?

Hueber: A lot of guess work there. One, I do think there is one little bit of concern when you consider recently China has been backed out of Brazil doing a lot of purchasing down there. So that is always a million dollar question, will they really honor the agreements they're even moving into? Realistically China has made some very massive investments in South America. Price competitive wise if the price is right certainly they're going to probably shift more business up here, even regardless of whatever kind of agreement they come to. Something else you are starting to see, not that it has completely turned yet, but it does look like the economy in Brazil is starting to shape up a little bit, which if that is correct you could start seeing the real start increasing in value against the dollar which will make us more competitive again. That said, it's difficult to think, unless we're really thinking we're going to lose 2, 3, 4 million acres of soybeans this coming year, which is not necessarily unfeasible, unless we really think that can happen and knowing that Brazil already looks like they're on their way to a pretty respectable crop, maybe the second highest or maybe even the highest on record it is hard to think we're going to see a tremendous amount of upside from where we stand already on the beans. So here again too if you can see your way towards $9 beans maybe it's not a bad time to just have it locked in.

Howell: Okay. Dan Hueber, thank you so much.

Hueber: Most certainly, thank you.

Howell: Join us next week when we’ll look at a job retraining program that focuses on economic and personal development and Naomi Blohm returns to the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Have a great week!

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