Market Analysis: Elaine Kub

Market Analysis: Elaine Kub

Apr 16, 2021  | Ep4635 | Podcast

Podcast

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Paul Yeager: This is the Friday, April 16, 2021 version of the Market Analysis segment from Market to Market. Corn traded above $6 for part of the week. As a combination of continued pressure by China, for some of the old crop and weather conditions affecting planting of the new crop buoyed prices for the week, may wheat gained 14 cents, while the nearby corn contract added 8 cents. A run on soy oil kept the bulls in the soy complex. May soybeans improved 30 cents. May meal increased a dollar. May cotton expanded by a $1.31 per hundred weight. Over in the dairy parlor, May Class III milk futures fell 46 cents. A down week though in the livestock sector, June cattle dropped $3.40. May Feeders declined $5.90 and the June lean hog contract plummeted $7.25 or nearly 7%. In the currency markets U.S Dollar index lost 63 ticks. May crude oil added $3.74 per barrel. COMEX gold improved $35.80 per ounce. And the Goldman Sachs commodity index jumped almost 18 points to finish at $489.45. Now here to provide insight is regular market analyst, Elaine Kub, Hey Elaine.

Kub: Hello Paul.

Paul Yeager: So wheat is an easy story to start with this week because it rallied like the corn and soybeans did. But the question though, is wheat a follower or is wheat going to be a leader in the grains?

Elaine Kub: Yeah, I don't know. It is such an easy story because that has been a mystery, uh, in the past couple of months. Why hasn't it followed corn and soybean more particularly. And I took a look at this because when you think about drought in the United States, now you think the wheat country it's the high Plains, Colorado is a big wheat producer. So North Dakota is the number one wheat producer, and it has large pockets of extreme drought. So actually I kind of was feeling that wheat should be following along more or like you say, take the leadership role, but it is such a haves and have not story. When you look at Kansas, actually the crop is pretty luscious. It's 55% good to excellent rated. So it's not, you know, outstanding and there's portions of Kansas, basically anything anywhere West of highway 385, all through the high Plains is going to still be dry. But nevertheless, um, there is enough wheat there and certainly from a stocks to use perspective here in the United States and internationally, you know, we're not in the position of running out of wheat to the same degree we're running out of corn. And we did see that in export sales this week too, that was a very disappointing report for wheat. It was actually net reductions. So wheat, this wasn't the week for wheat to be taking the lead.

Paul Yeager: Is this a wave right now in the sense of, do I need to be making some sales right now because this wave is almost done. Is there more to it in the next two weeks?

Elaine Kub: I dunno. See, I am of the opinion that all of these grain markets sort of should in a rational market sort of move together. And we're going to talk about I'm sure all of the reasons to be bullish about corn and soybeans and feed grains as the season goes on. So to the extent that we can follow along with that, we do have motivating prices. If you're in a position to be planting spring wheat, uh, and looking at a $6.75 price this September. Yeah, that's motivating. But if it's going to keep following along with other bullish grains, you know, let it,

Paul Yeager: Where do you want to start in corn? Because you could talk about the weather. You could talk about the drain on old crop. You could talk about the weather not being dry, but the weather being cold and planting the new crop. What's the biggest story in corn this week?

Elaine Kub: I'm going to, I'm going to split the difference. Paul, you talked about old crop and you talked about new crop, but what about the stuff right in the middle of this Brazilian crop, the second crop and third crop from Brazil, which was expected to be record large in 2021, you're talking like 4.3 billion bushels. So even if it was just a little bit of a, of a yield adjustment, because of the weather going on there, that would still be a story, but because we are so short or expected to be so short on corn supplies here in this country, over the summer, uh, we were really, or the globe was really relying on that Brazilian crop coming in and leaving some of that, that shortage. So that I think was the weather story this past week. Um, and going forward as well,

Paul Yeager: The, the weather story in Brazil in South America, you're saying, but what about the story here? Uh, there were pictures, uh, in the corn belt. I mean, in Iowa, we've seen fifties for a week and there's fifties for another week. There's a lot of people, some put some corn in a little early, maybe put some beans in early. At what point do we start getting concerned that the corn is not going into the ground soon enough?

Elaine Kub: Yeah. Yeah. And I was in the camp that absolutely you should be. You should be pushing that, that starting line as fast as you can. This year with the intention of trying to hit the September market, September futures alone are worth 17 cents more than December futures. So if you could get your corn out of the harvesting faster and get it to the market faster, there was an incentive to do that. But actually when you look at the cash market, there's actually a dollar inverse between old crop prices now and new crop prices now, but those new crop prices start already September 1st, if you're looking at cash bids in Southern Illinois, for instance, so Southern Illinois has been able to get started there about 5% planted statewide. There is this incentive to do that, but like you say, if the ground's not fit, if the ground's not warm enough and our 7 to 10 day forecast does not seem to support that, you know, you're not going to get, you're not going to get this stuff out of the ground by August, right? You're not going to hit that market. I think we just have to make peace with the fact that we're looking at an inverted market and not as great of opportunities once, September and October roll around.

Paul Yeager: I want to touch on this just very quickly, the basis for corn right now, what does that mean? And why should I be paying attention to it?

Elaine Kub: It's very hot. And, um, you know, it's hot in a, in a local basis, a, in a, in a nationwide basis, I'll tell you even my local elevator here is options zero basis, which virtually never happens in North central, South Dakota in April or any other time. So I went back and looked, has this ever happened before? Not since July of 2013. And that's kind of the timeframe that I think folks are going to have in the back of their mind as we head towards summer, when we have futures markets, this inverted, you know, it's, it's a bullish signal that the market is, is short on grain, and they want it coming to the market. That means wild things can happen. It could become wildly more inverted than the 75 cents. It is now. And it could be the case that basis starts going absolutely nuts this summer. If people, if processors and feedlots and people who need the grain, can't get their hands on it and we start importing. But whatever crazy thing happens, the point I'm trying to make is that basis is likely to continue to be volatile all through the summer.

Paul Yeager: It almost sounds like you're quoting a, an old Carpenter's song- "We've only just begun" when it comes to basis and corn. But what about in soybeans, Elaine? Uh, that has been, it was a breakout star at the end of '20, but it's kind of, it's playing more of a supporting role. Does it have star power?

Elaine Kub: I think it will continue. These are not bad prices. Nobody complains about $14 something, dollar old crop beans, new crop beans are not in the teens, but they may or may not get there depending what the weather does. But I think you're right to point out that it feels like there's a lid on this market. And part of the reason for that, I think is the, um, the ocean shipping rates. Actually, those have gone up quite a bit. You're looking at, at sending soybeans from the PMW to Japan, which I know nobody's doing right now, but if that's what we're basing, all of our prices on that's 92 cents a bushel, that's up more than it was obviously more than last year at this time. COVID obviously, but it's up compared to four year averages and everything.

Paul Yeager: All right. Are you in the camp yet to make any sale? If I had some of that old crap left, do I sell that or am I holding out? Let it ride.

Elaine Kub: Yeah. If you've got old crop anything, um, I would be inclined to just wait and see what happens this summer. If it's not hedged, right.

Paul Yeager: What about the new crop? Are you making any sales there?

Elaine Kub: I mean, you want to be right? These are, these are very good prices and that's the responsible thing to do from a risk management standpoint, if I'm in the Western corn belt or even if I'm in the Eastern corn belt. And I just want to, you know, gamble on the misfortunes of those of us in the Western corn belt, uh, it's tempting to just kind of hold off and see how things go.

Paul Yeager: All right. Um, this livestock market though, is you talk about inverse. Uh, the easy headline story might be that it's a, that's a feed issue. It's an input issue, but there's this consumer story out there. Uh, and I'm going to start with Aaron and Ocheyedan, Iowa to start our discussion. Elaine. He says, if cattle topped for now couldn't corn, keep chugging higher into summer, right? As cattle seasonally decline for more margin fun. So there's a couple of points in that question. Unpack, go for it.

Elaine Kub: Well, I like Aaron's sarcasm. That's that's right in line, but I mean, I think he's absolutely right to be thinking about feed costs. If folks do not have summer feed costs already locked in, well, five months ago would have been the right time to do it, but now it'd be the next best time to do that. I don't know that necessarily beef prices is topped out forever. We've still got chances here in the next three, four weeks for seasonally higher movement, but then things get a little bit more grim, but absolutely the margins are tightening up for feed, feed, lot operations. Um, I mean, what more do you want me to say about that?

Paul Yeager: Well, yes. I don't know what more you do say about that. And, but let's go into the consumer part of this thing. Let's talk about box beef that has become a topic. Uh, the consumer is buying, but is the consumer buying everything we'll get to hogs in a moment? Is this the beginning of higher prices curing higher prices in, in the live cattle market?

Elaine Kub: So, okay. So from a beef retail consumer standpoint box beef price is $276, and they're going up $3 every day, not every day, but day by day, they have a tendency to do that. I mean, they're very hot and the Packers are making just tons of money off of this, right? They're making $500 a head you could estimate. So I think there is potential for the beef prices themselves to go higher. If you start looking at, and you mentioned in the show earlier, people have money in their pockets. They're going to go out grilling and spending money, even at restaurants, from a retail perspective, for both beef and pork and chicken and everything else. So I don't necessarily think that beef prices have topped out. It's the question of how much are the packers, um, paying back to the feed, lots, how much are they contributing down the economic chain?

Elaine Kub: And that has been the real challenge for the industry. To some extent, the feed lots have been successful week by week, holding back their sales till late in the week, being, you know, holding firm on their, on their offers. And it worked this week to some degree, maybe a dollar, we went up to $120 a head for live cattle traded in the South. That's a dollar improvement. Its $10 improvements. Since January, we've gone from $110 to $120, but considering the Packers are making $500 a head. It's not enough. You know, we just, with the feedlots just don't have enough power to take back enough up to claw back enough of that market share.

Paul Yeager: We'll continue this discussion in Market Plus. I need to discuss the, the hog market. And I don't know what you say. Uh, we're still above a hundred, however, it was a pretty tough week. Why?

Elaine Kub: Let's see. It's a confluence of factors and this was true for live cattle and feeder cattle too. The whole livestock futures trade collapsed in a, in a big sense. And the hog market you saw, you know, the April contract was expiring. You had daily trading limits go off. Um, there was a fairly disappointing weekly export sales. I mean, it's just like a confluence of factors, speculators, net long. And so to see some moment of liquidation like this happen, not terribly surprising, it's a big wobble, but I don't necessarily think it's more than a wobble. All of the necessary fundamental factors that have supporting been supporting hogs remain. Actually the, the pork cutout stayed high this week. It's still above $112. You've got China's GDP still growing something like 13% year over year, but even quarterly, uh, it's still growing. So, so all of the fundamental forms are still there. I wouldn't worry too much about the futures losses. I worry about some of the fundamental factors in the beef market that we talked about, but the hog market, I think the wobble will correct itself

Paul Yeager: The wobble will stabilize Alrighty. Lane cup. Thank you so much. Appreciate it.

Elaine Kub: Absolutely.

Paul Yeager: All right, that'll do it for this installment of Market to Market. We will talk more in Market Plus. So join us there. Find that on our website of markettomarket.org. It is Spring field work season and all that time in the cab means you can focus on our three podcast offerings of Market Analysis, Market Plus, and the MTOM show subscribe today where you get your podcasts. Next week, we look at the study of easing animal pain. Thank you so very much for watching. Please have a great week.

 

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