Market Plus: Elaine Kub

Jul 9, 2021  | 13 min  | Ep4647 | Podcast


Yeager: Hello and welcome to the Friday, July 9, 2021 version of the Market Plus segment. Joining us now, Elaine Kub. I should have taken -- while you sent me a photo of you getting stuck in the hail we were in the hail here and had some video and it's on our Facebook page, it's on our Instagram page. But not everybody gets rain. I asked you during the show, what if you're on the one side of the fence? What if you're on the wrong side of the fence and you don't have the crop? There was a discussion on our Facebook page this week about I'm not getting the rain -- someone asked, it'll be one of our questions here -- I didn't price anything because I didn't have anything. It's a tough spot to be in. What are you supposed to do?

Kub: Well, I'll tell you what not to do and it's a thing that happens to us farmers a lot is we get this back yard-itis and we think crops look terrible, which they do outside my back yard window, and prices must be going up and since I can't sell anything to make money that way I should buy some futures, I should speculate that prices are going to go up in my futures account. And then you just lose both ways or you have a big potential of losing both ways, of not having anything to sell for cash and potentially losing on your bullish position because seasonally we are expected to see prices move down towards harvest and it is raining in a lot of significant portions of the Corn Belt, notably including Iowa.

  00;59;56;10   Yeager: And the market really, that is what sent us downhill hard on Tuesday is that 7 day forecast and so far it has been on.

Kub: Yeah, we are in a weather market.

Yeager: We are in a weather pattern. And guess who had back yard-itis? That's Ken in Humboldt Saskatchewan, he asks us via Twitter, is spring wheat going to be able to push through resistance? It has tried twice now. Is the third time a charm? Maybe I got some back yard-itis but we only have one-third of a crop coming into northeast Saskatchewan, maybe half a crop for the entire western part of Canada.

Kub: Yeah, he's exactly right about Saskatchewan, the Canadian prairies, North Dakota, South Dakota, Minnesota, Washington also missed out on some rains this past week. So it's not just Saskatchewan. He is correct to identify that the hard red spring wheat producing areas and the Durham producing areas are all, in North America, in bad shape. So it is more than back yard-itis in his situation. And yes, as I mentioned on the show I do think that it would be justified for it to move up towards $8.50 or higher, in the $11 direction but I'm not necessarily calling for $11 yet. But I think it's the timing of it. You have to wait until the winter wheat harvest is over and wait until the elevators start to really realize how little spring wheat they're going to be getting in.

Yeager: Is this an opportunity for whom to benefit from --

Kub: It's an opportunity for French wheat producers to benefit, for European and Black Sea -- the French wheat actually looks great. I think something like 79% good to excellent ratings. And they just went out on some tenders to Algeria and another one this past week so there is wheat out there in the world, milling quality wheat. And it's just probably not going to come from North America in the next year or so.

Yeager: All right, let's go back to Shane in Bloomfield, Nebraska for a question, Elaine. New crop corn seems to be going lower which would spur new demand, right? That's his question. If so, and a below trendline yield is achieved because of the large drought, what prices should producers be looking at for sales?

Kub: Okay, well first of all I think the below trendline yield, that's a pretty good expectation and I think we could already even see that in this upcoming WASDE report on Monday. It is very, obviously they have to increase their acreage number on the table because we had the June 30th acreage report that showed an extra 2 million acres of corn. So that has to come up. But there may already be enough evidence because of the widespread drought for USDA to bring down yield. So I think that could very well be a bullish report. And a bullish report for the other reason that he's asking there -- what was the first part of the question about more demand?

Yeager: New crop corn seems to be going lower which would spur new demand?

Kub: From where? Where could we possibly get more demand? We already have I wouldn't say maximum but we have record high export demand of corn. We have ethanol plants are ramping up production.

Yeager: Even at the time when they have been hit in the courts two Fridays in a row.

Kub: Yes, and nevertheless we are seeing inventories rise because they are increasing production. We are seeing, I don't have any evidence, but livestock feeder demand, but I suspect in the WASDE report that will either be stable or perhaps higher. I think we're already seeing demand, the demand hasn't been limited necessarily by price at this point. So I don't think that we should look for more demand from price.

Yeager: Okay, fair enough. Let's shift to beans. Wayne in Iowa asked us via Facebook, will beans have some price rally potential both new crop and old crop?

Kub: All things are possible. And it is so volatile. On any given day yes I think they could go up. But I think largely the highs have already been placed there, especially for old crop because we have just moved past the timeframe when that is going to rally and we're going to start looking into the new crop coming in -- by the time the July contract goes off the board you sort of lose the opportunity to get a real old crop rally.

Yeager: So the video that we just showed I shot south of Waterloo, Iowa, northeast part of the state. The blossoms on those plants were incredible but they weren't all shading the row. Beans are different than they used to be. We always used to talk about this whole canopy, it's going to come at some point. The science -- I have people ask me about the drought, we've been able to survive things longer, you talk about this trendline we might be below trendline. We kind of thought last year we were going to be that way and we had a terrible year for the maturity and then a derecho hit. Who's to say that we're not going to be above trendline? And is that a position to play? Science might be on my side.

Kub: You've convinced me, Paul. No, I do think it's certainly possible for beans because their critical period is later in the summer and so if we start this wonderful wet pattern, if you started to get really great timely rains across the center of the Corn Belt, this is a big if, but if that did happen, sure that could happen for beans. But if it doesn't happen, Paul, what you're seeing with the beans already blossoming so fast is because we've had this rapid accumulation of heat units. That is not necessarily bad, I have been told by agronomists that that's not necessarily a bad sign as long as it's not stressed out. So I guess as with all things in summer it depends on the weather.

Yeager: Well it goes back to what you said about wheat on the main program, the heat units early for wheat in your area --

Kub: Turned out to be a bad scenario.

Yeager: A bad scenario, now we're not saying that. I don't want to say that's what is going to happen but that could be something to think about for the beans. Fair enough. All right, Derek in Silver Lake, Kansas, he had a question in the main program, he's got another question here. I think we've already sold his t-shirts, they're available on our website. Will we see more than 12 cents of carry at any point between December '21 and March '22 corn futures?

Kub: So, that would be pretty normal. If we were in a normal year or normal supply and demand scenario 12 cents would be about right. And I think if we're looking at the WASDE tables I think we should still expect to see that stocks to use ratio of less than 10%. I think the last report it was about 9.5% which is quite tight. That actually suggests a lot of supply concern and tighter spreads than 12 cents. So my inclination would be to see tighter spreads than 12 cents. But all things are possible I'll say again.

Yeager: I can't believe I'm about to ask you this, I had to write it down, you have not said the word basis yet.

Kub: Oh yeah, we should have talked about basis.

Yeager: What's the story with basis?

Kub: Well, it's real hot still and this is that time of year, like I said, if you're going to see the peak screaming desperation for corn to feed cattle or whatever it may be if you don't have the corn bought in, July is the timeframe. Before that August and September Texas crop starts coming out July is when we saw that in 2013, 2014. So we are seeing very hot basis, you're talking a dollar or more in some weird spots in the Corn Belt. So actually Cedar Rapids is only 67, I say only 67 over, but it's weird spots out in Ohio and South Dakota and people who got caught short that are bidding $1 or $1.25 over. And then down in the panhandle of Texas you've got feedlots that are bidding $7 for corn. So yeah, it's real hot and this is the timeframe when you expect it to see hot. So if anybody was still holding onto old crop corn with the expectation of hitting this really hot high, now is your moment, my guy, now is your moment.

Yeager: Call the truck, get it here tomorrow, sell it. Okay, this one is pretty open from Mike in Stillwater, Oklahoma. Cattle will ... What's the story?

Kub: Yeah, I'm going to interpret that as a long-term question. I think cattle will continue to be a fantastic market. I'm not guaranteeing that you're not going to continue to see weird weeks when the packers aren't going to bid more than $120 or where you're not going to be making a whole lot of money as a feeder. But the fundamental ability of a consumer and the desire of the global consumer to buy beef and the fundamental sort of lack of supply we're going to have for the next couple of years because of beef cow liquidation that we talked about on the program to me suggests that the fundamentals of the live cattle and beef market and the feeder cattle market are going to be bullish for the next 18, 24 months.

Yeager: So, it sounds like the traditional way of thinking about some of these markets is still upside down. So is upside down a new norm? Or is upside down the new norm?

Kub: What do you mean by upside down?

Yeager: Well, in the sense of things don't make sense the way they used to make sense. It's not the way I remember it, not the way I studied it, not the way I came up looking at this market. What I thought was simple information that worked to help me isn't working right now.

Kub: Yeah, and some of those changes, like I mentioned on the show about the farmer, the beef producer not receiving as much of the consumer's dollar, beef dollar. Some of that is legitimately the profit margin or the expense it takes to slaughter a beef cow is probably higher than it once was, especially after COVID. There have just legitimately been changes to that supply and demand scenario or that sort of market dynamic between packers and feeders. That may not be able to change no matter what Joe Biden signs. I don't know that that is really going to change.

Yeager: The chart shows us still trending higher. We'll see how it works out. Okay, Elaine Kub, thank you so much. Good to see you.

Kub: Thanks, Paul.

Yeager: Appreciate the time and the insight. Thank you.

Kub: Glad to be here.

Yeager: That will do it for Market Plus. Next week we will take a closer look at drought conditions across the country and we'll take an in-depth look at the WASDE report as Angie Setzer and Chris Swift will be here. Thank you so much for watching. We'll see you next time.

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