Market Plus: Elaine Kub

Jul 3, 2020  | 13 min  | Ep4546 | Podcast


Yeager: This is the Friday, July 3, 2020 version of the Market Plus segment. Joining us now is Elaine Kub. Elaine, we wanted to have you stand in a cornfield and we've asked people to do the #kneehigh4th on Instagram and Twitter and then we'll post something on our Facebook page on Saturday morning. Where would the corn be in your back yard today?

Kub: Actually in South Dakota we do sort of have knee high corn depending on how high your knees are and some of the corn that got planted earlier looks really nice. We've had lots, plentiful rain this spring, to put it mildly. So some of it certainly higher than my knees, let's put it that way.

Yeager: Okay, it all depends on your perspective. But usually people's knees are not that far apart. I noticed to the north of you North Dakota keeps getting some rain, some more rain just keeps falling but other places not so much. I need to first a little housekeeping, finish up some hog discussion that we had on the show, then we're going to get into corn. So with the hog market below 50 it has been on a trend, the report last week was just not any good, a lot of questions. We still have a lot of hogs out there?

Kub: Yeah, and I wouldn't say that the hogs and pigs report didn't have any bullishness in it. Like I mentioned there at the end of the show, that implication of all of the euthanization of the pigs under 50 pounds, if you fast forward that six months you’re looking at that October timeframe when that supply chain won't be coming to market. So there could be something there but certainly we don't see evidence of that in the futures markets where that under $50 scenario that you mentioned that's true all the way through 2020.

Yeager: All right, there was a conspiracy theory online this week about there's some back and forth about the cold storage because part of the report was talking, in the news, not necessarily in that report, was the amount of pork that did not come out of cold storage when we were having supply problems. Why don't you empty cold storage down to 10% or 20%? Why only take 10% to 30% out of cold storage if you're a grocer?

Kub: I suppose it sort of depends on what they're moving and when and it certainly could be the case that some of these cuts have been benefiting during the grocery shopping versus the restaurant eating better than others. So the overall poundage of meat that could be in cold storage may be on thing, but the cuts that aren't moving that could be answering part of your question.

Yeager: We put something in that will pull out or a remote market, an export market that they're going to want for another day because you're right, if it's all loins in there of course liquidate and sell. Corn wise, I need to get back to this report. We kind of talked about this thing in the program and Jeff in Nebraska starts us off. This one is about the dollar and helping. He's asking, is the U.S. dollar ever going to go lower to help the demand side of commodities? That's not something we discussed but let's talk dollar first.

Kub: Well, I like that Jeff gives us a good long timeframe. He says, is it ever going to go lower? And yes, probably eventually, within our lifetimes it will. But in the next marketing year or in the next six months when we're trying to be selling a crop and looking for higher prices because of a lower dollar no I don't foresee that. And the reason is we have low interest rates and everything here in this country, no U.S. policies are necessarily propping up the dollar artificially but the rest of the currencies of the world, your Brazilian currency, any South American currency, any Latin American currency, the Euro, the British Pound, all of that is in worse shape than the U.S. dollar is. And so those cheaper outside currencies are going to keep the dollar probably stable here for the next several months.

Yeager: Okay. Good to know. Like I said, corn question. Now this is the other side of part of that corn discussion. Rob in Illinois asks us via Facebook, if we continue to receive timely rains, with the corn crop looking as good as it does, how low will it go? Same for beans. And then there's a side part of this question, if locks and dams undergoing repairs don't reopen in October how will it affect the basis? Pick any of those to start with.

Kub: Yeah, that basis question, so today is July 2nd and the La Grange Lock closed on July 1st and will remain closed through September 30th. I did happen to look at a snapshot of basis values along the Illinois River there right on July 1st and obviously they haven't instantly changed between June 30th and July 1st. But more interestingly we have just seen weaker basis in the western part of the Corn Belt, not even along that eastern barge market. Basis did weaken sort of dramatically during the futures run-up. So what we gained in futures in some areas we lost almost as much in a basis weakening. Some areas went, if you had a 20 under bid you might now have a 40 under bid. So some of that was pretty dramatic. We have not seen evidence of that yet at that Illinois waterway. And honestly the impact on local prices right in that region might not be so bad. Folks are going to have to truck it over to the Mississippi River now but because all of the service providers, the barges themselves have also been moved over there, honestly the freight price might not be run up too dramatically.

Yeager: Because it's one of those planned things, not a sudden thing, so you can logistically move some things. Another part of that question though was about the grain, you know the saying, rain makes grain. And we talked about carryout. We still, as you said, the spreadsheet if it pencils out the way it is we're still going to have a lot of grain.

Kub: Yes, and I think there was a yield part in that question. I think right now what is yield 178.5, something like that, I guess that's as good of a guess as any other guess right now. We do have some concern because of dry weather or hot weather. But concern hasn't been long enough or widespread enough I think for it to start affecting my yield outlook. So I think yeah, at this point we still are looking at a fairly bearish record high yield is a real possibility.

Yeager: Especially if you would somehow get rain in some spots that need it in the next five days at the key points of pollination. We're still not through. Thursday we were lower in corn. Profit taking or something else?

Kub: Yeah, you have 2 days of big gains like that, yes that's not going to continue forever. Somebody has got to take a pause there.

Yeager: Unless something news wise happens to fundamentally change that one. All right. The corn also plays into the feeder side and Dough in Thornton, Iowa is asking about fed cattle. With them at or under a dollar and feed costs rising, how can feeder cattle prices hold these levels? We did have a good discussion on feeders but let's talk about the input.

Kub: Yeah, I think the demand is there. The feedlot operators want to keep those feedlots in business. And so when the summer calf crop comes to market this fall I think the demand will be there to pay $1.35 or thereabouts for these feeder calves and it would be of course ideal if you did see more of a recovery in that live cattle market. But the economics, it's not like there is not a willingness for the retail customer to pay for beef, it's just got to be passed on specifically to that fed cattle market.

Yeager: Well, and I was going to bring it up in the fat cattle discussion, there is the story we talk about the economy possibly shutting back down in some places and people are looking at layoffs, they're looking at furloughs, whatever it is, maybe job eliminations. They're not going to be buying the expensive cuts of meat right now because people are going back into a conservation mode if they even splurged for a very long period of time, maybe six weeks. Is there any of that playing into this?

Kub: Right, hamburger is the big winner here, I mentioned those prices are up 15% over a year ago and you're absolutely right, we never did have a totally full recovery in restaurants being opened back up or the restaurant demand ever coming all the way back so we don't have a base case to compare that too. But certainly now we have areas of the country where the restaurants are being closed back down. So we are back in the scenario, the exact same scenario that you described there where it's the grocery store customers buying hamburger rather than restaurant customers buying Kobe beef.

Yeager: Kobe beef is good but yeah, it's not something you buy on a regular basis. We had one report on Tuesday, we've got another one coming up and this one is coming on the 10th of July, it's a WASDE report. Is that report going to take the wind out of the sails of this rally that we've been having?

Kub: Oh I think so. Yeah, I think there's a really high chance that a lot of that report is going to look bearish. Yes, they're going to pull back on the harvested acreage, it will be 94 million, it will be 84 million acres of corn being harvested. So that will take some of that production number off that we discussed in the show. But the rest of that table, all of the demand side of that table I think almost has to reflect the huge bearishness that was pictured in the grain stocks report. Disappearance was down 20% March to May compared to a year earlier. So that means it's almost impossible that the ethanol usage number would be 5.2 billion bushels and yes that goes back to this current marketing year but not the forward looking marketing year. But honestly the ethanol usage has never fully recovered. It was sort of a V shaped recession where it went down for 8 weeks and then it started to grow back up steadily for 8 weeks after the low of ethanol production in April. But our latest ethanol production number was 900,000 barrels per day when we would ordinarily want to see more than a million barrels per day being produced in a normal world. And I think it might plateau here, there is every expectation that fuel usage throughout the United States and the world is just going to plateau maybe 90% below what it was in a pre-COVID world because people just aren't going to restaurants, they're not going to movies or to concerts. There's just not as much driving and fuel usage being seen. So I think we've plateaued here and I think there is every reason to expect that the demand tables on that WASDE report are going to see some bearish adjustments.

Yeager: Which adds fuel to the look out Monday fire that you mentioned during the program. I have one final question and I didn't tell the control room about this one. Phi in Dresden, Ontario, Canada asked, he wants to make sure he gets a question to you. And we have to say hello to Phil and Happy Canada Day yesterday, by the way, Phil. With November soybeans at $8.86 is it plausible to get to $9.50 heading into August 15th? And what market and weather factors will get us there? Are $10 soybean futures in the mix? And then what calendar timeline should we use to help benchmark new crop sales?

Kub: Well, I think $9.50, to say nothing of $10 is extraordinarily optimistic. It would take some sort of a disaster, a really extended weather disaster for the next three or four weeks to even approach that. And even then we're not already in a shortage of soybeans and we're not in any hugely bullish export scenario. So I don't share Phil's bullishness of even mentioning those kinds of numbers. But I will wish him Happy Canada Day. And you know, your 4th of July thing, I saw yesterday on Twitter all the Canadians were posting their knee high by the 1st of July photographs, so you could ask for that one too.

Yeager: And you know what they're doing on that day, they're celebrating Naomi Blohm and my birthday on July 1st.

Kub: Nice, I didn't know that. Happy Birthday.

Yeager: We all share that and so we thank everybody who posted. No, thank you so much, Elaine, good to see you.

Kub: Yeah, thanks to you, Paul.

Yeager: That will do it for Market Plus. Next week we're going to talk about that weather and how it's impacting this year's crop at a very key time. And Matt Bennett and Dan Hueber, they'll break down that 7/10 report as they analyze the markets. For all of us here at the Market to Market television program, thank you so very much for watching, listening or reading. Have a great week.

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa PBS which is solely responsible for its content.

Grinnell Mutual Insurance