Market Plus: Elaine Kub

Jun 7, 2019  | 11 min  | Ep4442 | Podcast


Howell: This is the Friday, June 7, 2019 version of the Market Plus segment. Joining us once again is Elaine Kub.

Kub: Glad to be here.

Howell: Let's have some fun, Elaine.

Kub: Okay.

Howell: Okay. So we didn't get a lot of fun questions this week. Folks, please send us your questions. We like getting them. But let's take a couple of them here. The first one here that we're going to take is Rod. He's @olson428 on Twitter. He said, the market is telling us this is enough until the commercials have control of the actual commodity. Then it can go higher. Do you agree with that statement?

Kub: Let me just briefly defend your Twitter followers and Rod and anybody is that this is not fun times. It's not an easy week to ask fun questions. And even Rod's question isn't fun, the thought that we had sort of a bullish run-up, 90 cents added to the corn prices and now we seem to be pulling back, which is alarming to folks who don't have corn planted and who do feel legitimately bullish about supply. So Rod is talking about how much the commercial side of the market is participating in the futures market. And what I have noticed or what I have found is the open interest in the corn market has been, in the new crop corn market, has been growing, there has been a lot of new participation coming into the December corn contract. A lot of it was the non-commercial speculators who previously were net short in corn futures, they had to get out of those positions because those were losing. But at the same time that they were buying to get out of those positions, the commercial side of the market, so you're talking about farmers and big commercial grain companies, they were massively selling corn futures. So if folks feel that they like these prices, maybe not anybody is really fired up about $4.33 or whatever the price is, but if you did feel like selling, locking in corn prices now you would not be alone. A large contingent of the industry, the grain industry, has been frantically, not frantically but eagerly selling corn futures during the past three weeks during this run-up. So the commercial side of the market so far has been bearish on it.

Howell: So if you have taken advantage of some of these and you have locked in these sales on new crop but you also maybe thought ahead and have some options that you have worked on, let's say you have a call on new crop, would you exit out of that at this point in time?

Kub: No. I'm bullish. If you're long a call hang onto that. But the problem with trading any sort of option strategy right now is that the time value is quite large. So if you're going to buy a put at these prices you're paying for a lot of time value. I think you're better, you do have some advantages in trading the new crop of grain that way because you don't know how much grain you're going to have. I feel all across the Midwest every farmer is in extreme uncertainty about not only how many acres he or she may or may not get planted by this weekend or whenever their final date is, and then how much yield they might get from those acres. So nobody really knows how much they've got sold right now. Do you have 30% sold? Do you have 50% sold? It's impossible, it's really, really difficult to have a marketing plan this year. But if you have a bullish position or if you have unsold grain, I'm telling you that I personally do feel bullish and I don't have a whole lot extra sold, I have the stuff I sold in the spring at prices that aren't real compelling now and I personally believe that the market will have to express more bullishness before this is all said and done.

Howell: Just in corn?

Kub: Well, both corn and soybeans. But I don't even have any soybeans planted. So I'm not selling any soybeans.

Howell: I think that is still the case largely with many producers that we don't have soybeans, maybe we're still trying to get corn in, trying to mud corn in. At what point does it then become okay, I'm not getting corn or soybeans in?

Kub: Yeah, when that date comes for you, and it's probably not the prevented planting date, most of the people that I speak to are not feeling that the prevented planting option insurance is a great deal. It's a deal that would reimburse you for some of your sunk costs or your fixed costs but you would prefer to have the crop, especially if prices are going to go up, as I believe they might. If that happens most farmers would prefer to get these crops planted. So the prevented planting dates are not a shut off date for the planters. I think they will continue to roll past June 15th in Iowa, past June 15th in Illinois if they have to. But you have non-ideal scenarios. And then if you don't have the grain now you have to speak to your local merchandiser who you have previous contracts with to try and get that sorted out. Hopefully you can roll those forward to 2020. This whole thing is just a mess, it's a mess in every conceivable way.

Howell: It is and we haven't really started focusing on the yield aspect of this yet. But when do you think we move away from planting an acreage focus to then yield focus because there's going to be yield drag, no doubt.

Kub: Yes, especially because, as you mentioned, they've been mudding it in and so you have problems. You can see areas where the furrows probably didn't close quite right and that means that the seeds aren't in great condition. I'm not an agronomist but I can tell you that this whole summer all across the Corn Belt is going to be just a giant science experiment to see what happens. Nobody has done this, nobody plants corn on June 8th in muddy conditions with soil compaction and has any good sense of how that will ultimately affect yield. We really don't know. But there definitely will be a yield drag. And as for the timing of it, I suspect now what has not already been planted to corn won't be planted to corn. So in this next crop progress report that is probably going to be our roughly closely our final corn acreage number. But soybeans is still a really open question. I suspect that folks here in the middle of the Corn Belt, in Iowa, Illinois, the I states, will keep planting soybeans while they can. Folks in my neck of the woods where we're quite far north and we really worry about an early fall shutting off green soybeans, which is a real problem, the soybean planting will probably stop a little earlier and it might be a little more likely to take those prevented planting insurance payments.

Howell: Okay. So with all that being said we've got the crop progress report, but we've also got for the first time the conditions report coming out on Monday. It's only on, it's conditions only on the crop that has been planted. How do they account then or will they ever account for those acres that were not ever planted?

Kub: No, the conditions report will not. If you've got a summer fallowed field or a chemical fallowed field that was never planted that does not go into conditions ratings.

Howell: Do you think it should?

Kub: No, no, that's acreage. That's a different part of the calculation.

Howell: But will acres that you've maybe planted that didn't germinate be counted as part of that report?

Kub: Well I don't know. I don't know the answer to that question. The ones that will germinate spotty, that will come up uneven, those will be because the conditions reports are, those are filed by people like you and me driving around in pickup trucks and taking a look at the fields in their county. And what's interesting is as I've had my sort of Midwestern road trip to come here to Des Moines today is there are fields that look fine if this was May. They're green and the corn looks fine, it's about ankle high. Like I said, if this was a month ago I would think that's a good or excellent condition field. But to what extent do the condition raters say just the lateness of it is a condition problem? I think that is a subjective and I have no idea how much that will work into the official numbers.

Howell: I think that you and I could be good USDA corn --

Kub: I always wanted to do that. USDA, call me.

Howell: So with that being said, how do you think we trade on Monday, Tuesday I guess because it comes out after the markets close, how do we trade on Tuesday with that report that comes out?

Kub: Yeah, Tuesday is going to be awfully interesting because at 11:00 you've got the WASDE report and then 3:00 or 2:00, whenever the crop progress report comes out. So that's why I'm saying the timing of it, I believe there is still more fundamental bullishness that needs to be expressed by these markets and yes, so Tuesday will be the day to see that happen.

Howell: Tuesday will be an interesting day.

Kub: Absolutely.

Howell: Keep your toes on, that's for sure. So I think that really, the discussion really culminates to this last social media question we've got here from Randall in Illinois. He said, what traders need to realize just because some of the crop is planted it doesn't mean it's in the bin. Most of the crop is planted is not ideal conditions meaning the top end yield potential probably is not going to be achieved. Who is right then in all of this, the traders or those in the trenches?

Kub: Yeah, I'm right there with him is that I feel that the folks who have been trading the futures market this past week, letting it slide back down, are not reflecting fundamental reality yet and a lot, this happens sometimes and it turns out that an analyst such as myself was just wrong or was just not paying attention to the broader picture. But in this instance, in 2019, in June 7th of 2019 the folks in the trenches, we are seeing reality that has not yet been, in my opinion, reflected correctly by the futures markets.

Howell: Okay, Elaine, one last question for you. We had the assistance package that was passed this week, the disaster aid package. It puts in a piece, if you will, for prevent plant, those acres that won't get MFP payments. How do you think that will affect people's planting decisions?

Kub: Well, clarify for me because this has been back and forth and back and forth for me. So folks who let's say I don't get my soybeans planted, are you saying I'm still going to get some of these Trump bucks?

Howell: That's supposedly what got passed this week in the new $19 billion disaster aid package.

Kub: Okay. Yeah, because otherwise, I could argue it either way, it sort of makes sense that you wouldn't receive a trade package for a product that doesn't exist. But we shouldn't be receiving a trade package, we wouldn't have to be receiving a trade package if a trade war didn't exist and these prices weren't already depressed because of the trade war. So you could argue it either way. And I will just say from a farmer's perspective it would have been extremely frustrating if your neighbor who didn't get as much rain as you got planted and got the MFP payments and then the folks who got skunked by the rain also got skunked from this plan. So I am happy to hear you report that they have possibly got that sorted out, yeah.

Howell: Sort of, it's a wait and see game, as is everything.

Kub: And it keeps on going back and forth.

Howell: Yes it does. Well, Elaine, thank you so much.

Kub: Thanks, Delaney.

Howell: Join us again next week when we’ll explore how one Midwestern state is trying to help small towns revitalize their local economies and Mark Gold will join us at 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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