Market Plus: Elaine Kub

Apr 16, 2021  | 13 min  | Ep4635 | Podcast

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Paul Yeager: This is the Friday, April 16, 2021 version of the market plus segment joining us now, Elaine Kub. Hello. Elaine, again.

Elaine Kub: Hello, again.

Paul Yeager: We could just make, if we made a podcast of the discussion between shows we'd really have something, wouldn't we?

Elaine Kub: You'd have to do more of the bleeping, right?

Paul Yeager: Yeah. I just run my mouth like a sailor when it gets to be between these times. Don't I? Yeah. Yeah. That's the way it goes. Um, as always, we get great questions from the audience and I always appreciate every single one of them. Uh, Facebook and Twitter. We just don't always get them all in, but let's try to cram as many in we're going to start, um, with Adam in North Dakota and we did get a nice, I had a nice discussion back and forth with some folks in North Dakota this week about planting. But this one is assuming the Dakotas and parts of Canada stay relatively dry. What are the reasons spring wheat wouldn't rally similar to the summer of 2017?

Elaine Kub: Right? Uh, well, I have sort of bad feelings on two fronts here. First of all, that they stay relatively dry. They might stay exceptionally dry, the longterm climate prediction folks, you know, it is, there's lots of uncertainty when they try to predict May and onwards, but their predictions are not promising as far as both temperature and precipitation for that part of the universe. So things might very well stay quite dry. Um, and then why wouldn't wheat rally? Well, because there's a lot of wheat in the world. You know, we we've said this for years and years, the stocks-to-use ratio globally and domestically for wheat of all kinds is upwards of 30%. So it's not a scenario like corn or soybeans where we are running out of the stuff and we need to start price rationing it. Also, um, you know, actually there is some concern about European wheat supplies. They had a big freeze there in the past couple of weeks, but you know, there's just other areas, Russia, black sea region that can come in and, and, and take some of that milling wheat market away from us and Canada. So there are reasons why, even if you had a crop failure in North Dakota, you might not see as big of a, of a rally as you want to see for spring wheat, specifically,

Paul Yeager: Weather is always, uh, a thought and there, there is a school of thought that right now we're trading for things, the weather demand crop conditions in the USDA, but it looked like this week, the weather was one of the big stories. And Matt in Amhurst, Wisconsin asked us via Twitter are the widespread dry conditions factored into the grain and beef markets at this time.

Elaine Kub: I think they kind of are. Um, and honestly the row crops more than the wheat, like isn't that weird. That's what seemed weird to me that corn and soybeans, new crop corn and soybeans seemed to be trading this drought in the Western United States and portions of the Northern United States more than wheat is. But that, that does seem to be the case is that there is more concerned about the yield because of the supply situation. It is more critical to receive that new boost of supply this, this fall. And livestock, yes, I mean, when you look at a hay price, for instance, or the availability of forage and pasture conditions already being carried over from last fall and coming into this spring, there's very severe concern. And it's, it's sort of regional. I mean, if you are feeding cattle in Iowa or even Eastern Kansas, it's maybe less of a concern, you've got opportunities, but if you're feeding cattle, uh, or you're running cattle on grass in Colorado, New Mexico, these sorts of places, it's, it's a big problem.

Paul Yeager: Okay. But when it comes to feeding cattle in certain spots, there was a theory floated this week that the drought could cause the weather could be a story two different ways when it comes to the feeder cattle market. specifically. If we stay dry producers who are out of that hay that you're talking about, don't have the grass to run it on, are going to liquidate some of their herds. If they have some rain or get some rain to allow that grass to grow, they're going to keep those herds their size. An interesting juncture right now.

Elaine Kub: Yeah. It's kind of a crunch time right now. Yeah. And the crunch time for that decision on grass is now, I mean, it's the next three weeks. It's what rain you receive here. And in the first parts of May like that, that's really going to be your decision making time. And as far as feeder cattle, you know, I will say that, um, I was told that cost of gain has gone up to a dollar a pound. I was told that in Nebraska this week. So when people are, are penciling these things out six months down the road and looking at feed prices and looking at hay availability, you know, things are getting more and more challenging.

Paul Yeager: They are. And they're only going to get that way. Uh, there is a concern in the cattle market that the basis is gone. Uh, that has been a thing. I mean, we talked about basis in corn. Uh, what's the basis story in the livestock market.

Elaine Kub: You know, actually that is a subtlety that I should have mentioned on the show is, you know, you asked, you asked about hogs is the timing of why do we all of a sudden have this liquidation in futures? Why was there this big future sell off this week? And I think the timing of it may have been, of course, the April contract expiring from hogs, but also the April deliveries for live cattle deliveries were made in Kansas and Texas against that April contract above $120 a hundred weight. So I think that that actually that, that, that basis argument, or like keeping these two cash and futures prices aligned, I think that that did absolutely play a role in the timing of this week to sell off.

Paul Yeager: All right. Speaking of selling, if you got any of that old crop, you're going to sell it, let's ask Adam in central Indiana's question that came in via Twitter. He says, where's the top of the old crop corn. Uh, got a wild number.

Elaine Kub: Let me pull out my 12 sided die roll it. I don't know. Um,

Paul Yeager: Okay. I'll make it easy in it. What are the factors on why this thing could go dramatically higher?

Elaine Kub: Well, it's because it's already weird, right? You already have this weird inverted structure. You already have positive basis in a lot of places. Cedar is 2 over a lot of Southern Illinois is over basis. So there's just already all of these reasons why people are, you know, tense and twitchy about not having enough corn around and when you don't have enough booked for July, that's really the timeframe. If history is the guide and the pattern that we follow from July, 2013, when the markets were wildly, inverted and basis became really wild. That's the timeframe. I don't know how high it's going to get, but I'm going to suggest that that's probably the timeframe when we're going to see that high.

Paul Yeager: All right. Things are wacky. So why not Phil in Dresden, Ontario, Canada for the next question? And he submitted one about beans, but this one's about corn nearby corn futures touched $6 this past week for farmers considering contracting new crop is June 18th, still the magic date for new crop pricing or as our world changed?

Elaine Kub: Well kind of. So that June 18th, uh, is a study that I did years ago. And then it holds really magically true in normal years is that you tend to have the most, uh, you know, risk premium put into the new crop futures markets during that timeframe when the crop itself faces the most agronomic risks. So when it is silking and pollinating there in, in late June. So sure, if 2021 is going to be a normal year, that's still kind of the timeframe, but all back up to what I said about maybe July being the hottest timeframe for the old market. And to the extent that psychologically then old crop market affects new crop market prices that people see is six, seven, I'll wash my mouth out with soap, if they see that corn is worth this crazy amount, it does tend to spill over into the new crop market to some extent also.

Paul Yeager: All right. Well, I'm going to skip ahead then. Um, and this is about money coming into the market and there's already, we, we talk about, um, speculative money outside money that's not involved necessarily in the day-to-day operations of commodities that comes in and that helps provide some, some background. But Shane and Bloomfield, Nebraska was asking at these price levels, how much could they correct and still look friendly to outside money?

Elaine Kub: Yeah, I don't. I think when outside money is sitting around twiddling their thumbs, trying to find a new place to park their capital and they start to look at commodities and they base this on the ideas of us quote, unquote Supercycle, or they base it on the idea of food price inflation, which is expected to grow this summer with the, with the economic recovery. Uh, they make those decisions and they allocate that capital sort of, regardless of whether corn is $5.11 or $3.55. I mean, whatever it's, if it's high, as long as it's going to go higher, they are still interested, in my opinion. And, and we do see actually very net long positions already for managed money in the grains and also in the livestock. And, and again, I think that that is part of the mechanism behind this, the selloff we saw in live in livestock futures this, this past week, but it's certainly a threat that could happen to corn and soybeans too. If you ever had some sort of a bearish story that would trigger a sell off, but I don't think, you know, I can't necessarily predict any sort of a bearish story in the near term for the grains.

Paul Yeager: Well, I was just going to ask, are there any bears anywhere, right now.

Elaine Kub: Must be somebody somewhere, but you know, it just fundamentally, if you start to sort of look across the calendar and think of a fundamental story of what could come in and make a bearish headline, I don't, I I'm my imagination, which is pretty good. Paul, it's failing me at this moment.

Paul Yeager: Well, I got one for ya, Doug and Thorton, Iowa has a thing that he exchanged with me via Facebook this week. Are we seeing any shortages of certain meat products and what would cause that that's the kind of thing that would get some of the attention, if say prime rib is no longer available New York strip, no longer available that great cut of pork no longer available, that'd be an attention grabber.

Elaine Kub: It would be. And, uh, you know, it's, it's interesting when you, when you look through the cutout, actually that rib primal is, has been the leader of those cutout values that I mentioned. You have been turning higher day by day, overall $276, but the rib primal will has been a leader of that. But no, I don't think there's necessarily a systemic, you know, industry wide shortage of anything specifically the cold feed report showed, or what does that cold storage report showed, um, at the end of March, actually beef supplies are up 3% from last year. So I don't necessarily think that we have specific shortages. It's just a willingness to pay higher prices and maybe there are localized shortages of something. I, I, I can't definitively say that that's not true everywhere.

Paul Yeager: Cotton had a good week. Dairy, uh, declined. Which one of those, uh, is something we need to watch?

Elaine Kub: Well, cotton is interesting for a lot of the same reasons that, you know, soybeans or any of the other row crops are. It had the same sort of China background behind them and they have the same sort of weather issues. Texas was showing, you know, they don't have enough moisture to really get planting off to the start that they want. They're in the black lands. So cotton has fallen back, but I think there's a real potential that it could bounce back up to 90 cents. There's no reason that it couldn't, especially when you think internationally towards China and whatever is going on with those headlines. If you want to talk about headlines. Yeah. Cotton is in a real position to, to get more of those.

Paul Yeager: Well, and that's part of the, the summit this week with the Japan and the United States and their relationships with China and with Taiwan in relation to China. I mean, there's some global headlines that we just maybe didn't see as much this week with other things going on, but there's still news out there happening.

Elaine Kub: Yeah, absolutely.

Paul Yeager: All right. Elaine Kub. Good to see you. Thank you so much. Hopefully. Are you, did you get above 50 much this week at all?

Elaine Kub: No, I'm in South Dakota. No, of course not. But you know, I don't know. It's nice. I am not complaining and you know, and I know that it will be nice when the soil warms up for people, but it'll get there eventually.

Paul Yeager: All right. Elaine Kub. Thank you so much.

Elaine Kub: Thanks.

Paul Yeager: All right. Next week, we'll look at the study of easing animal pain and then Mr. Mark gold will join us to break down the commodity markets. Thank you so very much for watching. Have a great week.

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