Market Analysis: Dan Hueber

Market Analysis: Dan Hueber

Apr 30, 2021  | Ep4637 | Podcast

Podcast

Grains traded in 8 year highs as the same components of weather, demand and China stayed fused. For the week, July wheat added 23 cents while the nearby corn contract leaped 41 cents higher or 6 percent. It is not clear if the bulls have pulled an “Irish Goodbye” in the soybean complex, but the technicals spent part of the week possibly signaling their quiet departure. July soybeans improved 19 cents. July meal added 30 cents. July cotton shrank by 72 cents per hundredweight. Over in the dairy parlor, May Class III milk rose 31 cents. A mixed week in the livestock sector, June cattle added 85 cents. August feeders shed $3.15. And the June lean hog contract gained by $4. In the currency markets, the U.S. Dollar index increased 40 ticks. June crude oil expanded $1.34 per barrel. COMEX Gold decreased $8 per ounce. And the Goldman Sachs Commodity Index improved almost 13 points to finish at 505.50.

Yeager: Now here to provide insight is regular market analyst Dan Hueber. Hello, sir.

Hueber: Hello. How are you?

Yeager: I'm all right.

Hueber: Very good.

Yeager: That's pretty much all I've got. Hello.

Hueber: It was kind of a boring week so there's not much left to talk about.

Yeager: There's nothing to talk about anymore is there? I mean, have you ever, Dan, you've done this a couple of years, seen a period of time like we've had since August, we just reference a piece in August. Have you see six to ten months like this?

Hueber: Not in this kind of veracity or this kind of volatility. Generally you would associate this kind of move with a summer rally and even then summer rallies four or six weeks are done and over with and that's just it. But truly this is demand based. Granted it started with supply issues but with China stepping into the market and some of the production problems we ultimately found that we had last year this has just grown and grown. Now, interestingly enough it has been very orderly and again, one of the main purposes when you get into a market like this is the market has to discourage demand, help promote production which we've done a pretty good job there. As far as the acreage we're looking at additional acreage for corn and soybeans this year. But not up until recently have you kind of seen that panicky type of buying that would be associated with boy we've really got to kind of squeeze the noose around the demand out there. And I wouldn't necessarily say we've got the job done yet but at least we've started the process.

Yeager: We could talk about buying acres in corn but let's start with wheat where there was a big supply a year ago at this time. All of a sudden some demand has come to feed livestock with what. Is that the big fuel to this?

Hueber: I think absolutely. And granted some of it is just there's always a certain amount of people that look at it, well corn is a little high priced and beans have maybe kind of capped off what they can do so let's just go over and buy wheat. But certainly on a worldwide basis beginning a few weeks ago here the Chinese government put out official recommendations to the livestock industry and how you can rebalance rations with heavy emphasis on feeding wheat and you're seeing that in Vietnam, you're seeing that in South Korea, some of the major -- if you take South Korea, Vietnam and China there's 23%, 24% of all the corn export business in the world and if they're starting to look at alternatives to using corn or soybean meal it's going to show up and I think that is what has shown up in the wheat here in the last week or so.

Yeager: It's the question for all the grains though right now. Are you making any sales? Specifically let's start with the old crop. We're almost to the point of having some winter wheat getting close to coming onto the market. Are you making sales in either nearby or deferred contracts?

Hueber: Again all the way around of course when it comes to old crop corn and soybeans there's really not much inventory left out there. But nobody has the crystal ball that is going to allow you to pick the top on this, we just don't know how insane it could get or maybe we've already priced in a lot of forward thinking here as far as weather and demand and that type of thing. So to sit back and think I can hold out until I'm going to get that final penny is usually kind of a fool's errand. So yes, we continue to recommend on a scale up basis use your business acumen and start locking in the profitable levels that are out here.

Yeager: You mentioned the old crop corn. There's not a lot left. I got an email from somebody just before we taped today who said I've still got 90% of my grain to market. Now that's not a lot. Last week we talked about maybe 5% of the old crop still was in a farmer's hand. Do you subscribe to that theory?

Hueber: Well I think so. Of course the difficult way when you conceive that though is we're still going to look at 1.4, 1.5, somewhere inventory of corn, maybe it's 1.3 if the demand doesn't really back off, but that is not a critically tight supply of corn. It's probably in the wrong locations and you're going to have to see basis move from areas of shortages or areas of excess into areas of shortage. But it's not that we have a true supply problem in the corn, unlike the beans where yes we know it's going to be nip and tuck to make it to new crop beans this year. But here again, that said, I don't know if it's some of that is probably pre-priced waiting to deliver into the later months, although with the inversion in the spreads in the cash market there's probably not a lot of incentive to carry for any amount of time but could have been booked early on. But yeah, I think the majority of it is already moved into or is passing ownership to those who are going to use it.

Yeager: That's the old crop situation. I've got a new crop question that came from Phil in Dresden, Ontario via Twitter. Thank you, Phil, and everybody else who submits their questions each and every week. Dan, with December corn closing at approximately $5.46, November beans at $13.18 on Thursday are we beginning to see demand destruction at these levels? Or are new crop prices still about new crop weather in July and August? And how will we cope with the volatility this summer?

Hueber: Of course I would say yes on both. I think we are starting to see demand destruction. A great example I think, granted this pertains more to the old crop at this point, but look at the hog numbers when they came out. Shocked everyone that we were not seeing expansion in that industry. And I think one, they've had a rough several years so they didn't really have the economic incentive. And yes we've seen a phenomenal hog rally along with the rest of the ag sector here at this point in time. But all you're doing is keeping pace. So if anything yes I think we're starting to back down the demand and with little incentive why would you want to take the risk of expanding six months down the road when those markets are really still well within where we've been within the last three or four when it comes to fall months. The one place we haven't seen it -- granted new crop and old crop are two different stories here this year -- but one thing we haven't seen yet is in the ethanol industry. Good margins yet so they have all the incentive in the world to continue to grind as much corn into ethanol and of course the DDG market is going to remain substantial for the feed side of it. So not happening yet but again, even in that industry all it would really take would be for Saudi Arabia to maybe kind of turn up the nozzle just a little bit and pushing more onto the world markets and you've put a cap on that.

Yeager: Crude oil finished at $63.51 this week. So anything above $50 is usually seen as positive for the ethanol industry. All right, new crop corn though, the volatility that happens right now is very hard to, you'll be down 11 and finish up 30. That's about to get worse come Monday and we'll kind of talk about the volatility that is even going to expand in Market Plus. But how does someone who is trying to plant a crop right now market that crop, specifically corn, while they're out putting it in the ground?

Hueber: Well, number one, again this really comes back to why you need to have a plan in mind, sit down and put it on paper and offers put into place because your job as a producer is not to be watching the market every minute it is trading. That said, if you've done your homework you know what it's going to cost you within reason with what production is going to be this year, you've got crop insurance in place to cover some yield losses. And if you're at the point where the return on investment is exactly what you're shooting for or within the range that you're shooting for there's no sense to not continue to sell into it, ideally on a scale up basis, and just on the fact that when it turns -- markets just like bottoms, bottoms never occur in markets because the news got bullish, it's always the most bearish news when you're at the bottom and ready to turn up. Same thing on the top. It's going to peak when everything looks the most bullish and it will come as a surprise and at some point we're just going to run out of the capital coming into the market. It's a little bit curious right now. For the last two weeks now we've had large specs exiting the corn market even though we've continued to push higher which I would tend to say -- they still have a massive long position in the corn market -- but I think it would be indicative of saying we've probably committed as many dollars as we need to at this point in time and if anything we're starting to rebalance a little bit.

Yeager: Pull the cord. Is Dan Hueber bearish about the bean market?

Hueber: Bearish outside of weather is the wild card of course at this point. Old crop beans though it's just difficult to see much bright in there, not that we're going to come apart because we have got to continue to ration demand the best we can. But even in South America you've seen basis levels start to slip in Brazil at this point in time. So I think China has maybe backed away or maybe have secured the needs they have to have for beans at this point in time which opens up that whole other discussion about is there really a major reoccurrence of African swine fever in that country and if there is -- the news is sparse at best out of there. Some of the privates that we've had contact with say it's as bad as it was two years ago. But you certainly don't get that from the popular press and even the U.S. ag attaché said, well if they get beyond these problems yes they could be back up to where they were a few years ago. But nobody has a great answer on exactly what is happening there.

Yeager: Well let's stick with hogs and go into the U.S. hog market. The hog producer who has maybe taken a shipment this week is he in a good position?

Hueber: Absolutely. I think right now you can future them off. Granted your feed costs it's nice if you want to lock those in as well if you really want to keep the margins there. But I think for the time being certainly. But here again too we've no expansion in the domestic hog industry and we're still seeing, even though the exports to China were down this last week, they were still importing pork from the U.S. and the total numbers had a nice rebound. So we're still putting a lot of pork out of this country.

Yeager: Got to get this on the record. Thursday was the first time in 56 days that the lean hog index is down. So take that for whatever you want. But in the livestock, in cattle, let's start with live cattle, cash and futures have been different, cash has been dramatically different. But a lot of people are asking me about packer margins. Is that going to be the big story in keeping a lid on the cattle or is it a drought story I'm selling so many cattle right now because I've got animals on dry conditions?

Hueber: Well, you're probably bringing some animals off a little premature and have to move them out because they're not looking at adequate amount of hay out there. But there is no simple answer to what is going on in the packer industry. We do not have enough packers in this nation. It is controlled by too few people. But how do you -- they're making phenomenal margins here at this point in time. But beyond that how does a community welcome a new packing plant? And I think that is just as big an issue as anything else. Nobody really wants those sitting in their back yard.

Yeager: Not in my back yard.

Hueber: Exactly. So you can push and say all you want as far as the economics are there. But if it came actually to push and shove are we able to construct it someplace? That's a whole other challenge that may be insurmountable.

Yeager: If you're ready to take order on a shipment of feeders this week are you in a good position?

Hueber: That's a little more questionable. And granted we're still looking at a pretty decent fat market out there but with the unknown being in the feed sector at this point in time that is usually a little bit of pressure into the feeder market. But yeah, not that we're going to see a collapse in the meat markets this summer. Granted we're just starting into what should be our grilling season, our peak demand. But that said we have run up pretty well into these in anticipation of that, in anticipation of the COVID rebound or the post-COVID rebound. So we might have factored a lot of those things into these prices already unless it comes in the export side.

Yeager: Dan Hueber, thank you, sir.

Hueber: My pleasure. Thank you.

Yeager: Time goes fast.

Hueber: It does.

Yeager: That's Dan Hueber and that will do it for this installment of Market to Market. We'll keep this conversation going in Market Plus so join us there. Find that on our website of MarketToMarket.org. The beauty of planting season is in full display via Instagram. We have shared many of your posts in our stories section of our own feed of MarketToMarketShow. Follow today to see those pics. Next week, we look at the push and pull of agriculture with China. Thanks for watching and have a great week.

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