Market Analysis: Dan Hueber

Market Analysis: Dan Hueber

Oct 1, 2021  | Ep4707 | Podcast

Podcast

USDA reported bigger stocks in corn and a smaller 2021 wheat crop. For the week, December wheat added 32 cents while the nearby corn contract improved 15 cents. A soybean sell-off came after the larger stocks number fed the bears. The November soybean contract lost 39 cents. December meal shed $12.10 per ton. December cotton skyrocketed $8.54 per hundredweight. Over in the dairy parlor, November Class III milk futures jumped higher $1.28 or nearly 8 percent. A very mixed week in the livestock sector. December cattle dropped $2.95. November feeders weakened $5.68. And the December lean hog contract added $8.38 or nearly 11 percent. In the currency markets, the U.S. Dollar index gained 71 ticks. November crude oil added $1.78 per barrel. COMEX Gold increased $11.80 per ounce. And the Goldman Sachs Commodity Index improved more than 15 points to finish at 562.60.

Yeager: Now here to provide insight is market analyst, Dan Hueber. Dan, it's the story of the extremes this week. Let's talk about wheat to start, how we normally do, but it was one of the headlines. Why?

Hueber: Well, granted, part of it was the adjustment in the inventory according to the USDA. But I think that also brought into -- you have to add corn into this mix too because I think realistically what that really showed was that we were probably feeding more wheat than anybody anticipated and wheat has really been somewhat of an underperformer anyway. It has had, percentage wise it has had bigger reductions in not only the output but also the ending stocks and greater usage than what we've seen recently in corn and soybeans. So it's probably playing a little catch up.

Yeager: That story had been talked about this summer when corn had a run. So maybe this number is trying to tell us that that was, that anecdote was true.

Hueber: It was true, right. And I Think a lot of people just kind of passed it along, we don't really feed that much wheat, but as it turned out in this country we did this year.

Yeager: But weather is also a story and then Russia saying, oh yeah we're not going to export after a certain time period domestically. If I'm sitting at these prices, we're up 4% on the week, am I watching this thing go higher or lower right now?

Hueber: I guess short-term I still lean a little bit on the friendly side. I think we could go up and at least try to challenge some of the contract highs and I think there is probably a 50/50 chance that we push into new highs yet for the year. But it's probably the last push. I don't think we see this go on and continue to really extend. It looks like Australia is coming in with a good crop again this year. Ukraine still looks to have pretty decent production so it could put a hold on things.

Yeager: Let's see, that's the March contract. So I was going to ask about March in the sense that there's some rain in the plains where they were going to maybe start planting winter wheat soon, which would lend you to think that the price should be going down. Why is that not --

Hueber: Well, one I guess we always worry about is it going to make it through the winter, this type of thing. So just getting it planted doesn't really necessarily assure us of a crop and there's going to be a lot of competition. Will we even leave that in the ground come springtime when we see where corn or bean prices are at that point?

Yeager: Corn has had this ridiculous week. Let's just take out Thursday. Let's start with the government report. Did that surprise you?

Hueber: The report, I think it surprised everybody a little bit but those numbers were not significantly different than what really the trade was anticipating. Yes, a little bit higher. And, again, I think that's probably attributed to a little more usage in the wheat. Still it did not shock anybody I think to a large extent and when you look at where the corn market, we pushed down recently towards that $5 area in December corn and I think what it's probably telling us is we moved in somewhat of a trading range, $5 is going to be the low ebb for a while, we know we're probably going to need to attract a little more acreage come next year on the corn, particularly when you consider up in some of the Plains states, those people are probably going to look harder at some of the smaller grains because the expense of raising corn has become so much higher. So unless we can really maintain these levels or push it higher we might have a real battle for acreage come next spring.

Yeager: We will talk about inputs in Market Plus. I do have a good question that was submitted that I'm holding over from last week and I think it's appropriate to continue it because a couple of other people were talking about it. I'm combining corn right now. Am I stepping off to make a sale?

Hueber: Here again, depending on where you're at are you looking at a big ethanol market where your basis is there? Not necessarily does it have to be a cash sale right now. We do have a little bit of carry in the market. I think basis is going to have to come back after corn once it has been tucked away. Any time though I think we see corn in the $4.40 to $4.60 range I think yes that probably caps the market off for now and I'd make sales against those.

Yeager: What about in soybeans? That was I think I saw a couple of tweets, our friend Angie Setzer had one, I think I can say all of it on air. But to summarize just an oof.

Hueber: Right, right and again, production increased from a year ago from last fall so that is really what kind of pushed those numbers out there. Combine that with yes China is still an active buyer of beans but that's probably going to start slimming down over time and realistically they're not buying the kind of quantities you would expect to see them purchase if they were going to live up to their agreements on how many dollars they're going to buy there. So yeah, it may be tough holding beans with a 12 in front of them at this point in time.

Yeager: Do you buy the thought about China necessarily is going to step away for just a little bit? The dollar rose quite a bit this week, that is going to further exacerbate problems of trying to buy U.S. commodities. China is going to step away until we lose that 12?

Hueber: Well, they're certainly savvy buyers. Now, they’re not going to be -- again, we look at each week, yes they take 60% to 70% of the sales we do each week, we're still selling a million ton a week so it's not like they have really moved away from the marketplace. But I think once they see what has happened in South America, does Brazil get planted in a timely fashion, they are making some progress down there right now, conditions are not ideal, maybe a little better than they were a year ago at this time in Brazil but I think if China feels comfortable, if they see a nice crop coming out of Brazil and they're absolutely going to increase acreage down there, then yes they'll feel pretty comfortable stepping away from our market?

Yeager: Corn or soybeans, which one has had the bigger impact by outside markets impacting? We had kind of an up and down week in Wall Street and with that dollar rising. Which one is being impacted more?

Hueber: Probably beans to a certain extent. And I say that, where the tug of war of course is there right now is yes, there's still a lot of debate on what we're going to do with energy prices, yes we pushed crude up and touched the $80 mark this year, the highest we've seen crude oil in two years. Does that start pushing more demand into the oil sector? It's probably bean oil more so than corn at this point in time. But I think some of those external factors have probably psychologically hit the bean market maybe a little bit more than corn.

Yeager: We have a question that was submitted by Boyce in North Dakota. We always appreciate the questions that come in. This one came in via Facebook. With all those extra soybeans out there, why is the basis so strong?

Hueber: Well, of course, basis is pretty regional. But the other thing to keep in mind, a lot of the beans that China has put on the books to this point were not priced, they're not flat priced. So they are going to need to price a lot of soybeans, or the market is going to have to supply a lot of soybeans over the next 30 days, next 60 days. So I think there's not much in the pipeline and I think the commercials are doing what they can to get those moving into the pipeline at this point in time.

Yeager: And that is a story I heard this week in several places. All right, I need to talk about cotton. You write about cotton on a regular basis. So is this a surprise to you? You've written about, I've seen you talk about that 100 is the threshold. We've popped through that and then some.

Hueber: And granted, when you look at cotton over the last year, just like any commodity it has gradually worked its way up, it has been a very well-defined --

Yeager: I mean, look at that thing, Dan.

Hueber: Oh perfect -- to me what it looks like is we've entered into that final stage after we push into new highs. I had some targets up around $103, we blew through them this week, $105, $106. Nobody knows exactly where the stopping point is here but this is kind of classic end of a move. We finally, the last of the bears have given up. We need to get out now and we make a run like this to the top and we reach a peak. Granted, the cotton harvest pace is running a little behind schedule. They've had more than enough rain in the Delta regions and those areas to kind of hamper that. So that has helped fuel that drive here this week. But I think we're probably, like I say, towards the tail end of seeing it exhaust.

Yeager: Live cattle December contract has been a tough one, five straight days of losses, lowest level since June. This one is going the other way. Is there any end in sight for the selloff here?

Hueber: You know, even with the five days of losses we haven't really gone anywhere for about two weeks now. So I think we have pushed down to a point of value in the cattle. Now granted, this is not the time of the year you tend to look at a big surge in demand in the beef markets here. But here again too where we have pushed down to in the last two weeks here is probably going to hold us pretty well. We don't have a lot of downside. But that said, there's still a lot of competing meats out there. More of the time of year people are going to move toward turkeys and hams anyway. So not that we can move a whole lot higher than we are at this point in time either.

Yeager: Is there anything that the packer is going to do differently that you foresee with a lower price here?

Hueber: Oh gosh, I'm not even --

Yeager: I made you step into it the last time you were here.

Hueber: Yes, I don't know if I could second guess what the packer is going to do. They are still running some very enjoyable margins for themselves and I think they'll continue to push as many animals through at this point in time as they can.

Yeager: Because there's a theory that they're going to maybe do something for that producer to keep that inventory coming. We'll see.

Hueber: It would be interesting to find out I guess, yes.

Yeager: Feeder wise also a down week.

Hueber: Down week, here again I guess corn, even though we didn't react terribly great to the reports corn was still 10 to 13 cents higher in the week. So it's a situation where if we're not looking at great fat markets you still have high priced feed grains, hard to get very enthusiastic about the feeder market.

Yeager: Can you get excited about the hog market?

Hueber: I can get excited about the hog market. The question market I guess now it's very counter seasonal that we'd be seeing hogs rally at this point in time and granted, the stimulus came out of the report last week, we're just not expanding the hog industry in this nation for a lot of good reasons. But I ran some numbers here this morning when we gapped higher for a second time this week and they seem to be pushing or pointing towards pushing December hogs into the 90 cent range, which would have been unthinkable here just a month or so ago.

Yeager: So if the chart is telling you 90 --

Hueber: 96.

Yeager: 96?

Hueber: 96.

Yeager: So you're saying hold for a little while.

Hueber: Well, of course it's not like you can store hogs. You can't hold them too long. But I would say there's no sense trying to push ahead and get marketed ahead. And granted, we tend to back hogs up a little bit during the fall anyway just when guys get to the field. But this could be a year where it doesn't harm you to do that.

Yeager: We started this broadcast talking about ASF. Is there any protection in the market guarding against something that is less than 1,000 miles away?

Hueber: Well, protection I don't know what you can do other than hopefully the USDA and everybody else is doing their jobs to keep it out. And granted, it's not as big of a story as it was when it hit China, but boy it is certainly a much greater risk. And psychologically that could be impacting the market at this point in time, a few people maybe just want to get on board in case that problem does come about here.

Yeager: You mentioned oil earlier. That has rallied, there's one theory about Israel and Iran, there's another theory of just energy in general. We've had natural gas spike in Europe. What do you see with crude and its impact in rural America?

Hueber: The excuse you constantly hear, and I shouldn't call it an excuse, I think it is true, there has been so little put into the infrastructure of traditional energy sources here recently. And again, why would people? All the talk is we're going to be all electric by whatever the date is. So I do think that is a problem. But on the same token I do think OPEC's knows, I shouldn't say knows exactly what is out there, but they know the fracking market has been kind of behind the barrel, no pun intended, for the last year. And I think they have been a little bit squeaky on increasing production again. Yes there are some problems in some of those African nations that have not put money into infrastructure, have had all sorts of other internal struggles that have kept them from increasing production. But I think when push comes to shove the Saudis and probably Russia will try to take advantage of these higher prices and we'll start pushing up production here I think before the end of the year because they don't want that fracking industry to come back and start biting them again.

Yeager: I have a whole long question to follow up with that and I'll have to do it in Plus. We're out of time. Dan Hueber, thank you so much.

Hueber: My pleasure to be here. Thank you.

Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus so you can join us there. You can find it on our website of MarketToMarket.org. This time of year is great for agricultural action shots. Whether you are unloading grain, waiting in the cart or on auto-steer in the combine, snap a pic and tag us on Instagram. We’ll also post some of our images there as well, like Phil, you can see Phil there. Search MarketToMarketShow and give us a follow. Next week, we look at the supply-chain strain on manufacturing. Thanks you so very much for watching. Have a great week.

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