Market Plus: Elaine Kub

Feb 19, 2021  | 13 min  | Ep4627 | Podcast


Yeager: This is the Friday, February 19, 2021 version of the Market Plus segment. Joining us now is Elaine Kub. Elaine, the last time I saw you face-to-face was March of last year, 2020. I remember having the conversation about what is going to happen with this virus and here's how it's impacting all of these industries. Who would have known that that's where it would have gone? But this virus has changed a few things. You haven't been doing the public speaking because there just haven't been those opportunities. This week at the Ag Outlook Forum you had the opportunity to actually listen to it while you were driving down and I hardly asked you about what you were narrated to. What did you take away from the forum that was impactful?

Kub: Well, the big number that the analyst community care about for the next few months until we get March prospective plantings is sort of the economic projection for acres in the new crop planting season. And those were interesting. They weren't earth shattering but they were interesting. 92 million acres of corn, 90 million acres of soybeans, 45 million acres of wheat, 12 million acres of cotton. So the corn, soybeans and wheat all together that is I think record large, or it is as large as it was since 2016. It's big acres. But it wasn't, the implications for the supply and demand tables for the 2021 marketing year were not hugely different than what we're used to.

Yeager: No major surprises. And there's people who on Twitter or wherever had complained they want some stability out of the USDA. Do you feel that there was that this week? Is it too early to tell?

Kub: Yeah, sure, stability. I understand the complaint is because the 2019 crop year was so difficult for the USDA or anybody to get correctly because it was outside of the usual, it's out of sample data.

Yeager: That was the year it rained and rained and rained.

Kub: Yeah, nobody, no algorithm, no economist, no anybody can make a prediction when you have things that are so out of sample. So everybody is still kind of gun shy about that 2019 crop year. But I wouldn't worry about it. Most crop years, most normal crop years, even if we have this continued drought in the Western Corn Belt, drought is something that USDA's models will be well able to handle. I think the market will have a good sense of how yields will shape up in a drought more so than they did with excessive rain.

Yeager: All right. Part of the forum and one of the things we didn't flush during the program, and I wanted to ask you about spreads, March to December $5.42 to $4.60, March soybeans to November $13.77 to $11.96. Why have we been having a continuation of this major difference between old crop and new crop?

Kub: They are just two very different markets and it is undoubtedly tied to China going back to the African swine fever and their sudden need or sort of unexpected participation buying up all of these grains including feed grains, which is something most folks did not see coming. So that really affected this 2020 crop year, also the derecho, the drought in the center of the Corn Belt in August. All of these things really affected the supply and demand scenario for the 2020 crop year but are not expected necessarily to affect things in the 2021 crop year. Now, I've mentioned this drought and I do want to point out that the NOAA, the climate prediction center folks, they have pointed out that the La Nina scenario which has created these drought scenarios is expected to sort of neutralize in the May, June, July timeframe. So it is entirely possible that even the Western Corn Belt could get enough precipitation in the critical timeframe of early summer that we could still have sort of normal yields. So we're not, I'm not entirely flying the bullish flag yet. I don't think we can really hitch our wagons to that star very confidently yet entirely.

Yeager: Okay, good insight. I want to ask some questions now that came in via Twitter and Facebook. And the first one is something you touched on talking about insurance. Terry in Iowa asked us on Twitter, will crop revenue insurance justify buying 85% coverage? Right now soybeans would have to fall $1.75-ish in the fall to achieve 15% loss.

Kub: Well, now this again is a sort of depends on where you geographically because I think that generally crop insurance participation is lower in the Eastern Corn Belt because they are more confident of their yields. And that is definitely going to be the case in 2021 where they now have soil moisture built up and they can be more confident of their yields. I will also point out that crop insurance, as we said on the show, crop insurance premiums are likely to be higher this year than most people have been used to in recent years. So that also will affect his decision making as he look for his individual scenario.

Yeager: Well, and Tom in Greeley, Iowa was asking a bit of a similar question. What are your thoughts on crop insurance corn and beans? Buy some extra supplemental coverage to buy up to 95% of back off a little bit? With higher guarantees should we be looking at crop insurance as insurance coverage or return on investment?

Kub: I have been doing that in some recent years personally of buying up the extra coverage because, exactly, it's a really good risk marketing tool. If you can sort of think of it as a federally subsidized put option you have got a guarantee that you'll get some money. And it certainly makes sense certainly in the areas where we've, I'll say it again, the drought in the Western Corn Belt, if you've got soil that is not very moist right now I think yeah, you should absolutely be taking advantage of your past yields and getting this opportunity to get some money locked in.

Yeager: Bradley in Upland, Nebraska asked a question and we kind of answered that in the show. And Sam in Eagleville, Tennessee also asked about the feeding. But I want to answer, it looks like we put Bradley's question up. Bradley was asking about how severe was the storm damage to the winter wheat crop? Now, but he continues on the question. If corn goes higher will that buy acres from soybeans or are farmers fully committed at this point?

Kub: No, nobody is committed. It's February.

Yeager: Unless you've done fall field work and you're committed that way.

Kub: Well, sure, okay. True. Yes.

Yeager: Right? But I guess things could change. The question I've been asking people lately when they come on and I forgot to ask it last week. If you had 40 acres, not committed, what would you plant, corn or soybeans?

Kub: I farm more than 40 acres now, Paul.

Yeager: I'm saying if you had a spare 40, an extra 40. They call you, Elaine, I've got this 40. What are you going to plant on it?

Kub: Well, I mean, again, it depends on where you are. If you're in North Dakota and I mentioned those canola prices, any sort of yellow pea price, the pea prices when you've got the fake meat scenario going on, any sort of -- oil seeds, everything is hot. If you're in the South with cotton, cotton is going to be 95 cents probably before it hits any sort of resistance and pull back on its chart. If you've got an opportunity to get some of those, we talked about milo, sorghum, if you’ve got an opportunity to get one of those markets if you have a market for one of those more interesting sort of specialty crops I think I would be looking in that direction because all of these expected acres that are going to corn and soybeans means who is going to plant this other stuff that the market still needs and still very much wants? China very much wants the sorghum, the canola, everything. So that is what I would say.

Yeager: Phil in Dresden, Ontario asked, canola hit record highs last week. Is this another reflection of the strength in global oil seed markets? Or is it a reflection of canola only and soybeans won't approach their all-time highs?

Kub: No, bingo, Phil is right. It's a global phenomenon. Malaysian palm oil is up also. The soybean crush, the January crush was released above 180 million bushels for the fourth straight month in a row of record-setting seasonal paces. So yeah, oil seeds.

Yeager: Well, Phil continued on a Twitter conversation with somebody else that I was included on this morning and it discussed, they talked about if everybody is planting corn and the corn price is so good why go there? It's kind of what you were just saying there before I asked Phil's question. So if you are contrarian, what if I've never planted something like that before? Is that a little too big of a risk?

Kub: Okay, listen, I am not suggesting that folks should go out and buy Jerusalem artichoke seeds or hemp or whatever the hot new thing is supposed to be. In fact, I'm not even saying plant oats in Iowa. Iowa used to be the world's biggest oat producer and they're not now because there's not a market for it. You've got to be in a geography that you have a market for your sunflower or your canola or whatever the specialty crop may be. I guess that advice was not for someone in Iowa, Illinois, Indiana.

Yeager: Sunflowers, it's funny you say that. But how many sunflower seeds last year did you see, or fields that turned into an agritourism --

Kub: Yeah, that's a different matter. Oh man. Profit.

Yeager: There's another thing we can think about. I want to ask, let's see, let's do one more question. I want to finish Zach in Lawrence, Nebraska. I asked his at the end of the show. I unfairly gave you 30 seconds to answer this one. Marketing plan the last 5 years has been 25% for the southern harvest, around planting, before July 15th and then hold for after harvest. You answered about corn. Is this a good plan for '21 soybeans?

Kub: Yeah, actually I do want to touch on that more because there is another subtle piece that I really do feel that I should say. I am someone who is always on the record saying that farmers do not or should not feel obligated to use futures or options in most years. In most years locking in prices of corn and soybeans pre-harvest hedging, before you've got anything planted even is sometimes when you're going to get, usually when you're going to get the best prices. That is usually the right thing to do and you don't have to do anything more complicated than going to your local elevator and writing out a forward contract which costs you nothing. That is typically a very good marketing strategy and you don't even have to touch a futures and options contract. This year, 2021, 2019 in hindsight would have also been a good year for this strategy. But in 2021 in the Western Corn Belt when you are legitimately concerned about yields and not being able to fill forward contracts -- let's say you sell 50% ahead of time and then it turns out you really did get a drought and you don't have 50% of your bushels to even bring to the elevator. Buying out of that contract could be extremely painful. So in this year I do think that farmers in the Western Corn Belt should be thinking about using futures and options rather than just cash forward contracts because it will give them the flexibility to get back out of those positions.

Yeager: And if you need help there's people there to assist, right? You don't have to do this alone.

Kub: Yes, always. This is true not just for this futures and options idea, but working with an advisor, I'm not selling any advisory services in this scenario so I'm unique among your analysts in this sense.

Yeager: But you have a book that will help us walk through that.

Kub: Yeah, read the book. No, but using an advisor is helpful from a behavioral economic standpoint actually. Having somebody on your team so that you're not shouldering all of this blame and guilt and fear on your own can be extremely helpful for grain marketing.

Yeager: Last thing and it's the first thing that I asked in the main discussion and it's about weather. We talk about little snow cover in some states, cold lots of states, dry in other places. As you look to 2021, you've kind of mentioned Western Corn Belt drought, other drought, what is the biggest story that is going to have the longest tail? Is it going to -- we already have on the table -- you can include the South cattle yards that were covered in snow because like anything when you see snowy cattle being fed in Texas show up on CNBC or the national news it freaks some people out. What is the biggest weather story that Mother Nature has thrown us this year?

Kub: Yeah, the cattle thing I think that's a short-term thing. There were shifts were shut down at the packing plants and that will create some friction for the next couple of weeks may even but I don't think that's a long tail story that you're mentioning. I think, I'll say it again, the drought in the Western Corn Belt. If this becomes a multiyear, it is a multiyear thing in Colorado and there is, as I mentioned, the chances of La Nina showing back up again later in the summer and becoming a multiyear thing, that would have a very long tail.

Yeager: Elaine Kub, good to see you. Thank you so much for making the trip.

Kub: My pleasure.

Yeager: Good to have the conversation. Thank you for the insight. That will do it for Market Plus. Next week we'll look at the energy debate that was sparked by the Texas storm and Sue Martin will break down the commodity markets. I'm Paul Yeager. Thank you so very much for watching, listening or reading. Have a great week.

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