Market Plus: Dan Hueber

Jan 8, 2021  | 13 min  | Ep4621 | Podcast


Yeager: This is the Friday, January 8, 2021 version of the Market Plus segment. Joining us now is Dan Hueber. Hi, Dan.

Hueber: Hello. Great to be here, thanks.

Yeager: Good to see you. We had you in your home for a few weeks.

Hueber: I almost forgot how to drive to Des Moines. Good thing GPS is still out there.

Yeager: It still dings turn left at this spot. Getting around snow covered areas, we're in that planning process. Talk about the dairy industry first before you get to the acreage battle. The dairy industry has struggled for several years. Then the government comes in and starts a government buying program putting U.S. dairy products into food boxes. That has really rocketed us up. Is that the only thing propping up this market right now?

Hueber: Well, of course in many parts of the country you absolutely saw a lot of facilities go out of production, again smaller type units, but every little bit counts if they're not being completely replaced by the commercial operations. But absolutely, I think it is stimulus money that is really driving this market or has driven this market at this point. I don't know unless it was announced today exactly how the latest package is going to be totally allocated on the food programs. But I think you're talking $3 billion that is going to go out there and I'm thinking some people think half of that could really help boost the dairy stockpiles or purchasing dairy. So that has been the driving force of the dairy market.

Yeager: If I was going to play the stump the analyst or stump the politician of what is a gallon of milk right now it's hard to answer because that thing has been rocketing up. It's not a cheap thing right now. So that is good for the dairy producer.

Hueber: And I'm glad you didn't ask.

Yeager: I'm not going to because I don't have the answer either because I didn't look at the milk price last week when I bought it. I want to start with Nathan in Inwood, Iowa on the Twitter questions here, Dan. He's asking, is the grain ship starting to tip over because of the many enthusiastic passengers on the bullish side of the boat? If not, when will it?

Hueber: The one that is probably the most critically close to being a little too heavy to one side is corn. I saw the numbers this afternoon, after last week the large specs added another 17,000 contacts or so. So I think they were just shy of 400,000 contracts long. So that doesn't necessarily guarantee a break by any stretch of the imagination, but it does possibly warn you that only so many dollars are going to get committed to any one single market. So I think you could start to wane the buying interest in the corn market unless there is some stunning news that really excites people to come in. So I think we have, we'll soon be at risk of a correction of the corn market. Now, is that going to be the wipe out we never come back from? Far too early in the year to make those kind of assumptions. But sure, I think we could put a cap in this for a while until we find out what is going to happen a little closer to spring.

Yeager: This question kind of follows up a little bit about what you said. Bradley in Upland, Nebraska asked us this one today on Twitter. Corn, soybeans and wheat seem to be in an overbought position. When will the money flow into the commodity sector stop and the funds start taking profits? There was chatter that Thursday that is what happened, there was some profit-taking. When they're talking about commodities on CNBC --

Hueber: It's always dangerous, absolutely. Again, that was one of the old rule of thumb before there were so many business channels, once you see it on the front page of the Wall Street Journal your peak is probably in there. So it's probably not a bad analogy to say when this becomes the major topic on news networks you're close. Now, again, we can't shift the demand situation that is out there right now, which is tremendous, nor can we really make the supplies a whole lot greater for the time being. So there is kind of your cushioning effect. But that said, sure, funds, other traders will go through waves of profit-taking and we're probably due if not a little overdue for one of those sessions right now. Again, sometimes government reports do funny things, sometimes long weekends do funny things to markets. So I would say the time to be cautious would be Tuesday, see what the government says. Of course the old adage is, if you get a bullish report and you close negative watch out, you've probably reached the end of the line.

Yeager: All right, I'm going to have Aaron do the follow-up question to what you just said because I've had it on my mind for a few minutes here. With Dan's crystal ball, where will the grains, especially beans, close on Tuesday? Price guesses for a bullish report versus a bearish surprise? That's my question is what is the surprise that changes this one way or the other?

Hueber: What would be a surprise, of course I should state unfortunately about a month ago my crystal ball fell off my desk, smashed.

Yeager: That bull on your desk knocked it over?

Hueber: Exactly. So probably not going to be much help there. I would probably tend to say a neutral report would be a disappointment, a slightly bullish report would be a real disappointment. Honestly with the trade already geared up for 170 million carryout in the soybean market, which I think they all recognize is probably not even realistic, we're probably much tighter than that, is we would have to see that more into reality, 40, 50 million bushels, which we can't have. We would have to do something to either really curtail demand or bring beans in. And I guess if there was a bearish surprise it would be the USDA bumping up those import numbers significantly and I think that could, that would say we're ready to start -- we're ready to start taking active measures to temper the activity in the upside.

Yeager: You could look at past reports, just the last two major reports have a couple more bullish surprises, very much so. And that is after listening to the farmer in the field say, no, we knew it was this way, the government is finally catching up. Is some of this action that has been happening on this run-up anything tied -- normally this week before it's that I'm positioning myself on what I think the report is going to do -- is there any of that in play this week?

Hueber: Not that some of that can't go on. I would tend to say with the breakdown of the people who trade in the markets currently if it's not commercial interest who really felt the need that they had to have coverage the end user most specifically, I would tend to say the speculative side of the market doesn't tend to do that anymore. When there was a lot of smaller individual traders, sure they might take a move that way, usually covering themselves with options for a backstop. But right now I would say the end user is probably the only one that really kind of positions themselves to make sure that disaster doesn't, back to the old adage, it's a pretty safe way to keep your job is to just make sure you don't make a disastrous mistake. Not a bad way to enter a big report like this I guess.

Yeager: I've been trying to do that for a long time. Still working on it.

Hueber: Limited success on my part.

Yeager: I teased it a little bit about the epiphany, you wrote about the epiphany this week. It's a religious holiday and it has meaning and the other side of the word. But at some point did someone realize, oh, I don't think we can do $14, I don't think we can do $15 or I don't see how we can go back to $11 or $12? Was that the epiphany that you're referring to that someone realized we're in the middle of something that we don't know how it ends?

Hueber: Well, again, I think we've gone through a multitude of epiphanies, tied in nicely this week just because of where we were on Wednesday.

Yeager: Is your Christmas tree still up, by the way?

Hueber: It is. Keep it up for the candle mass now, you have to, or it's bad luck. The first epiphany really happened in August with the derecho storm. Then it was followed by an epiphany on China actually does have a substantial demand for U.S. products. And then of course the third epiphany came with the South American weather -- thankfully they do have the acreage. So they may be smaller epiphanies and coming at opportune times but the market I think it took a long time, the latest one I think is we've had this very orderly rally, that's the only way to explain it, it's calm, it's orderly, it was consistent and generally you have to hit a point where we have to cut demand and I think the most recent epiphany is we better accelerate out of here or else we're going to have a real problem at the end of this coming crop year.

Yeager: My decoder ring over here is saying that epiphany is the old way of calling it a black swan. Change the letters around, no that's a different thing. Phil in Dresden, Ontario, I've got to get moving here, prices are higher especially soybeans. Do market conditions now in soybeans possibly mirror conditions of the 1973, at that time all-time high? If so, what standing price order should farmers make for both old crop and new crop beans?

Hueber: I'll be remiss to compare to 1973 in the respect that 1973 was a shocker. The checks and balances were not there, there was a big turn up in the amount of activity on the export side of it. Of course you can go back into what was happening with currencies and everything else at that point in time but it was really a, we had no idea how many beans we had sold, recognized we didn't have enough to even meet the obligations. Of course, President Nixon put an embargo in place which ultimately ended that price rally.

Yeager: But if '73 is not the one, let's go to a new question, new set of years. This one is from John in Kansas. A lot of money had been printed to keep the general economy stimulated, you talked about that a little bit. Will the dollar continue to be pressured lower leaning to higher exports? If so, will commodity prices follow a similar trajectory to that of 2008 or the '12 to '13? Let's use more common times.

Hueber: I think we can correlate '73 in the respect that we had a demand that was unanticipated and I think we have also confronted that here with the amount of demand we've seen in products coming up to this point. A similar thing in 2008, but 2008 I would differentiate in the respect that that was really the emergence of we finally recognized just how big of a market ethanol was going to become, how many acres that continued to pull away from beans and other crops into corn, so not quite that inflationary system or situation, but I do think inflation is a threat as we move into this year. If we have inflation as a threat that keeps upward prices on all commodities. So ultimately -- we'll talk on it a little bit more and then I'll be quiet at that point -- the dollar is going to be the key in there. I think if the dollar continues to stay under pressure I have questions that it's really going to continue to push down much further than it has already. We're down to about 2018 lows and I think that could stabilize that market for a while.

Yeager: I promised you I'd allow you to answer the last question, the biggest question. What is the biggest story you're watching for '21? Is it the dollar?

Hueber: I think it's going to be the dollar. In fact, on what I had written this morning was a year ago people probably were tired of me talking about the dollar is going to crash and the ultimate effect that could have on the commodity market. And I think right now the anticipation is it will not start to recover. I think it's in a position where it could recover and if it does I think that creates headwinds or at least takes away part of the bull story for the commodity sector.

Yeager: Dan Hueber, so good to see you in person and have a conversation.

Hueber: Pleasure to be here, thank you much.

Yeager: Have a good safe trip home. That will do it for this portion of the program we call Market Plus. Next week we're going to assemble four people on a panel to break down three major government reports. Naomi Blohm, Ted Seifried, Don Roose and Matthew Bennet will be here. I'm Paul Yeager. I'll try to moderate as best I can. We'll see you next week. Thanks for watching, listening or reading. Have yourselves a great week.

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