Market Analysis: Dan Hueber

Market Analysis: Dan Hueber

Jan 8, 2021  | Ep4621 | Podcast


Grain traders had an epiphany of sorts this week as 2021 picked up where the old year left off. Continued drier weather in South America was paired with the release of private estimates just ahead of a stack of USDA reports. March wheat lost 2 cents while the nearby corn contract added 12 cents. There was more investment in the soy complex, even as China cancelled some of its sales. Nearby soybeans jumped 64 cents.  March soybean meal went up $10.20 per ton. March cotton expanded $1.65 per hundredweight. In the dairy parlor, February Class III milk futures skyrocketed $2.18 or 13 percent. A down week in the livestock sector. February cattle lost 55 cents. March feeders dropped $3.43. And the February lean hog contract declined $1.58. In the currency markets, the U.S. Dollar index improved 13 ticks. February crude oil added $3.81 per barrel. COMEX Gold lost $54.90 per ounce. And the Goldman Sachs Commodity Index improved more than 19 points to finish at 426.05.

Yeager:  Now here to provide insight is one of our regular market analysts, Dan Hueber. Dan, good to see you.

Hueber: Good to be here. Thank you.

Yeager: I caught your attention with the word epiphany. We'll get to that in a moment. But it was something you wrote last week that I talked about last week and it kind of continued into this week and that was the wheat market and how it kind of seemed to be left out of the big rally. It had a run up, but then this week falls back down. It did turn negative 2 cents, but it didn't rally 64 cents like soybeans did. Why?

Hueber: When you look just at the sheer fundamentals of wheat compared to corn or soybeans, not to mention the demand situation, there's not an issue really at this point. When you look at the global stocks of wheat, you look at domestic stocks of wheat, there is nothing that is going to really push prices that much higher unless you continue to elevate them along with corn and beans. So, certainly there will become a price point where corn becomes too expensive or maybe soybean meal becomes too expensive, you'll feed a bit more wheat, we're maybe kind of at the border of that. But the availability of wheat should be good. The winter, the acreage is probably not going to improve significantly or grow significantly over last year if any. But that said, Russia, Ukraine have had some issues but still looks like a pretty good crop. Australia looks great. Argentina is just into wheat harvest. So we don't have to worry about where the next bushel of wheat is going to come from.

Yeager: We have good stocks. So losing acres might become a bullish story, or at least a necessary story that was needed for a while. So, when you start to see a tick downward is it time to pull a sale right now in any of the wheat markets?

Hueber: I think particularly if we're looking out at the new crop at this point in time if you're getting geared up, you think your wheat looks pretty good, you're certainly over the $6 mark so it's hard to argue with booking in that kind of revenue. Maybe you don't go 100% because, again, we don't know what is going to happen when it comes to spring planting. There is certainly going to be a battle for acreage as we come into the spring. But I don't think you're probably going to lose that many acres of wheat here moving forward from what we've done already.

Yeager: The big battle will be between corn and soybean acres, seeing where they can grab extra ground whether it's cotton or wheat.

Hueber: I think you throw cotton into that mix as well. You've seen the cotton market of course accelerate along with corn and beans knowing that as we get into the spring we're going to see who puts the best dollars out there to get the acreage out there this year.

Yeager: But the cotton price though, as you said, has been going up. Is it going to continue that trend, especially after Tuesday, if it would on prospective plantings lose or an acreage discussion lose acres, would it send this market even higher?

Hueber: Well, if we lose some more production possibly so. And I think that is the next here is do we see China really step up their buying of cotton. They have been a pretty consistent buyer for the last six months to begin with. So will that continue on? And if that is the case we're going to have to have cotton at least maintain the acreage we had last year which might be a difficult challenge against beans.

Yeager: Which one looks to have a better '21, corn or soybeans right now?

Hueber: I would say it's somewhat of a tossup. Yes, I think right now your corn/bean ration, it's a little bit favoring beans as compared to where we were a year ago at this time. So you would tend to think that we could start attracting a few more bean acres out there. But the big, as it has been for years now, the 800 pound gorilla in the room is China. How much demand is out there? We know they have been a substantial buyer of beans now over the last six, seven months. But on the same token, I really should say since August when they really started coming back into the bean market, but there's a lot of discussion that they could, with that expanding hog herd over there, could be substantial buyers of corn as we move into next year. So I think we've got a bit of a tossup here as we move into the end of March.

Yeager: Is China buying corn one of the biggest surprise of late '20 to you in this?

Hueber: I think it surprised everybody a little bit that they came this quickly back into the corn market. But if you can believe the numbers they have published as to how they have rebuilt that hog herd I guess it shouldn't be shocking. They are supposedly back to 90% of the pre-African swine fever production levels, which is just phenomenal that they could expand that fast. I think I read a week or two ago there was one single operation, I think it's a -- pork company was going to have one farm, 89,000 sows and basically put that together within a year, which is astounding really.

Yeager: And that is going to be a story that we hear moving forward that will impact the hog market. Well get to that in a moment. With corn specifically, there was a little bit of a bearish story on ethanol, one of the longest ethanol plants in the United States announced it was done. It has become a tough margin for the ethanol producer. Does ethanol become a loser here for the near-term?

Hueber: Well, it certainly doesn't have the kind of story it did throughout the 2000s and the 2010s. Crude oil of course is going to have a major play within that. And we've actually seen the crude oil market really recuperate pretty well particularly from the disaster lows that we saw back in the spring. Saudi Arabia this week agreed to cut back on their production a little bit further so that really helped stimulate that market. So that, if anything that could help restore some of the profitability to the ethanol market if we could get that raw price up there a little bit stronger than where it stands here today.

Yeager: We finished Friday below $5. How much above $5 looks to be on that corn number and how long?

Hueber: I guess Uncle Sam will give us a lot of help on determining that come Tuesday. I'd say picking highs I guess could be somewhat of a fool's game. I don't think we push dramatically above $5 at this point, not that we couldn't get into the teens. But really when you look at the corn situation even if the USDA drops us down to a 1.7 carryout, which was being discussed for the report next Tuesday, it's certainly not a panic situation with the corn market. It's a dramatic change from where we were, and of course we went back a year ago and you probably wouldn't have had people talking about 3 billion bushel carryouts in the corn market. So very justifiable why we are at the $5 level for the first time since 2014. But really extended through here, particularly after a market that has really been rallying straight higher, very few corrections since the beginning of August, it's difficult to think we're going to get something bullish enough to really extend that move from here. So it's probably, if it's going to happen it's going to have to come with a little more surprise buying from China.

Yeager: I have a question that came via Twitter. When is it time to start selling new crop beans? Have the South American weather patterns been the largest driving force or not?

Hueber: I think they have been the, I would say dominant, but possibly equal to the Chinese demand. The combination of the two have certainly, if one kind of slacks up a little bit, until this morning we finally had a sale, an outright sale to China on the overnight. But they have been in and out of the market. Those are very shrewd traders. They know time to back away if things get a little bit heated. But when they backed away this year then you had South American weather kind of pick up the slack. So I think the combination of the two have really driven us to where we are. When you look at that new price your $11.60 futures range, that's easily $11 beans for a lot of people walking out of the field. Boy, if you as an individual are thinking about increasing your acreage I would certainly look at locking that in. Tempering it a little bit between here and the end of March when we get the acreage numbers and maybe you could say into spring it's difficult to really imagine prices coming apart, that we won't have several opportunities to make sales in these ranges. That said, I don't think when we have all of this bullishness going on we tend to forget that unusual things happen. A year ago today did anybody predict what was going to happen in the year 2020?

Yeager: Let alone the last six months. Since July has even been a major story. I need to ask you real quickly in soybeans here, you talk about an epiphany. At what moment is the realization that maybe the good times are over and we have got to head to the exits?

Hueber: Again, you probably can't really come apart just in the respect that we can't do anything at this point to encourage demand at least until we have a better handle on what is really going to be harvested in South America. Granted, we started seeing some bean harvest a week ago. By mid-January we'll see that pick up and some of those early beans are probably going to be some of the worst beans in Brazil, but it is going to be available supply. So psychologically that is on the market. One other key element in there that I think we have to keep in the back of our mind is throughout most of the last year we've had a declining dollar making our prices more competitive around the global stage. The dollar itself is reaching the levels that we have supported at a number of times in the past so we may not have that extra bonus that is keeping us competitive in the world market.

Yeager: I've got to get real quick in the livestock market because the cattle had a retracement this week, a 38% correction and then the technical, those that watch the technicals seemed to jump back in at exact moment. There's a lot of pressure on that livestock market right now. When does that end?

Hueber: It's not the time of the year to see a big move in the livestock market so I think really starting we need to get out towards better weather before you see that recuperate. Now granted, any time you start pushing these dollars back out into the hands of the public with the most recent stimulus bill that is always going to be a slight positive or some kind of a boost for what could be on the sales of meat products and things of that nature. But I think yeah, in the cattle market you probably start to have to look at spring or summer before you see anything better than what we've had.

Yeager: And then the feeders it's going to continue to have that pressure on the feed price, right?

Hueber: Absolutely, as long as corn prices stay like this that's going to be a weight hanging on top of that feeder market.

Yeager: So again hold out for a little bit longer if you can?

Hueber: I guess I wouldn't be in any kind of a panic mode. But on the same token we have pushed up to areas that for the last 12 months have stopped the cattle market, have stopped the feeder market. I think if you see returns to those levels certainly it's worth taking advantage of and locking that in.

Yeager: In the hog market we talk about China. How much longer before that impacts U.S. production and U.S. sales?

Hueber: Well, I think a few weeks ago you probably already had a lot of people thinking with the rate they're expanding in China we’re not going to see them remain as a substantial buyer. Then they surprised us a week ago with some pretty massive purchases on the weekly numbers. We're pretty much absent this last week though. So I would tend to say seasonally we tend to move prices higher into the spring and summer. But looking out into those spring and summer prices, any time you're in that 83 to 85 cent range on summer hogs that has been traditionally a pretty good price and has capped rallies outside of the most exceptional years or two years ago when we really started seeing the panic of the African swine fever. So here again we might have priced a lot of that in already into the summer months and then if we see China back away it might be tough to sustain those numbers.

Yeager: Dan Hueber, good to see you.

Hueber: Pleasure to be here, thank you.

Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus. We're going to talk about dairy this time so join us there, you can find it on our website of Now, whether it is winter, spring, summer or fall all you have to do is follow our feed and we'll be there with you from scenes from rural America. Give us a follow @MarketToMarketShow or just tag us in your images so we can see some of your finest work. Next week we'll bring together a panel of analysts to break down the numbers contained in several major government reports. Thanks for watching. Have a great week.



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