Market Analysis: Elaine Kub

Market Analysis: Elaine Kub

Nov 18, 2021  | Ep4714 | Podcast


The individual wheat contracts have minds of their own as Kansas City took the lead this week, reflecting drier conditions. For the week, the nearby wheat contract added 6 cents while December corn shed 7 cents. The bulls came in mid-week on export news, but lacked fresh information to keep running much higher. The January contract improved 19 cents. December meal added $9.70. December cotton expanded $1.53 per hundredweight. Over in the dairy parlor, December Class III milk futures strengthened 73 cents. A mixed week in the livestock sector. December cattle improved $1.40. January feeders expanded $3.20. And the December lean hog contract shed $2.13. In the currency markets, the U.S. Dollar index improved 91 ticks. December crude oil decreased $4.80 per barrel. COMEX Gold dropped $16.50 per ounce. And the Goldman Sachs Commodity Index fell almost 14 points to finish at 567.50.

Yeager: ow here to provide insight is market analyst Elaine Kub. Hey, Elaine.

Kub: Hello, Paul.

Yeager: There's this little thing about inputs that has been dominating the discussion. We think a lot of it when it comes to corn. But you're going to tell me here in a moment that it has a little more to do with another crop and that is what we usually lead off with in wheat. Why?

Kub: I don’t know about more. Here in the United States it is a problem. We have a new record high anhydrous price, retailers are at $1100 a ton and urea is at $832 a ton. So I’m not suggesting that the United States fertilizer situation is not concerning, but it's maybe solvable by next spring. If you think of the reasons why we have shortages here, there was hurricane damage at the fertilizer plants along the Gulf. That is solvable, those will probably come online. But over in Europe and the Black Sea region where there is a lot of wheat production that fertilizer problem is much more persistent, it is because the fertilizer plants have shut down because natural gas prices are just so high. So these very high natural gas prices, that is something that is, I don't know, solvable by Vladimir Putin. But how much do you want to risk on that? So the concern for what, and I think this is largely the reason why we saw wheat prices go up, even in the Kansas City contract, following the European wheat futures contract which hit a new record high this week, those concerns are that the winter wheat crop in that potion of the world has gotten off to a poor start. Not only is it dry but also this concern about the fertilizer. How much fertilizer is going to be put on that? What kind of yield drag are we going to see in 2022 because of this influence?

Yeager: All right, so $8.23 is how we finish this week. Does this thing have another leg higher or are we right at the top?

Kub: I don't know that we're at the top forever, but I think it's possible for the next couple of months we might not see a new push to a new high because globally speaking Australia is harvesting a more or less bumper crop. So these -- that are coming out to the market -- especially the Asian -- buy wheat they will be able to find new supplies coming out of Australia for the next couple of months or so. But once we get past the Northern Hemisphere's dormant period for winter wheat and we start looking into spring problems again I think there could be continued bullishness in wheat even into 2022.

Yeager: It seemed at the end of each day the commentary about the corn market was that it either followed wheat or it followed soybeans. Why was it not following its own instinct and moving independently?

Kub: There's really not a lot going on with corn right now. And you're absolutely right, it's these outside markets that are the exciting ones this week, it's the European wheat contract, it's Malaysian palm oil driving up edible oil prices and soybean prices. So corn doesn't have a whole lot going on for itself. Harvest is just about done. We probably put in our harvest low. What else do you want to say about corn? What can we even say?

Yeager: That is true. What more can you say other than we look like we've leveled off and hit into a little bit of a range. Do you agree?

Kub: I absolutely agree with range-based trading for corn for the foreseeable future.

Yeager: How long does that future last? End of the year?

Kub: Well, yeah. There is certainly an argument to be made that if the funds go through and rebalance their commodity positions because they have grown long in commodities to get this exposure to inflation hedges it is possible that you get towards the end of the year and they may have to sell off some of that commodity exposure just to rebalance their portfolios.

Yeager: Okay. The soybean market, you mentioned a couple of the outliers that impact it. Meal was a part of it towards the end of last week, beginning of this week. But meal, is that the only story in soybeans? You mentioned the harvest in Australia for wheat, there is about to be a harvest come online in South America. Help me out.

Kub: Yeah, South American weather is always going to be important this time of year. But right now it's not problematic. They have been seeing showers every 5 to 7 days and that has continued to be called for in the forecast. So no big problems, no big bullish problems from South American weather to draw a story from. And soybeans I think it's more of that Malaysian palm oil that I talked about. Now, you mentioned soybean meal and that is the biggest part of the soybean crush. But lately you could take a $12.60 bushel of soybeans and turn that into $8.70 worth of soybean meal and $7.65 worth of oil. So the meal is still the driver, that is still the biggest part of the crush as it always is. But 46% of that crush is coming from the edible oil, the soybean oil. That is very unusual and that is almost certainly driven by the correlation between edible oils of all kinds, particularly that Malaysian palm oil that I mentioned is at a fresh record high just today actually. And at 59 cents a pound that is equivalent to the soybean price we're seeing here in the United States.

Yeager: Okay. More grains in Market Plus coming here as we look at the March contract. I want to move to cattle on feed report. I'm going to read real quick, cattle and calves on feed was slightly below 2020, placements 2% above and marketings were 5% below. What else am I missing on that cattle on feed report?

Kub: Yeah, the cattle on feed report was, it was slightly above the expectations. So that would be considered to be a bearish situation but it's not big enough to be a problem. And it's lower than it was a year ago. So we should be fairly confident that the bullishness we've seen in the cash cattle market this week, we saw prices go up another $1 and a live basis in the South at $1.33 and that is a follow on from last week. These are good and probably sustainable prices.

Yeager: All right, so the feeder market, which we're talking about here right now, the futures closed over the 50-day moving average at one point this week. Can we continue to hug that line? Are we headed above or below that 50-day, maybe 100-day moving average?

Kub: It's hard to say because of the historical price range here. You look at feeders, April feeders at $165, that is generally a good selling opportunity. But if you're looking in the near-term actually at the sale barns this month we've seen the big fall runs come in and demand is considered very good. The feedlots want to get their hands on feeder cattle, especially the higher quality ones that they know that they could turn into prime beef. We've seen not enough prime beef come on the market in the past couple of weeks, especially right now when the packers are trying to get animals into the chain to make holiday feasts coming up for Christmas.

Yeager: Well, cattle did gap higher Thursday, their highest since September 3rd. What is the significance of that?

Kub: Yeah, there's been a lot of volume of trading. This last couple of sessions this week there was a huge volume of futures trading, unusually high and it is very possible in these markets, which are relatively small, relatively illiquid that you can get gaps like that, you can get big days. But fortunately they are backed up by bullish moves in the cash markets as well.

Yeager: Is there any way that a new plant announced west of St. Louis had anything to, any bullish news for cattle? Or is that just too small of a story?

Kub: I think yeah, the cattle markets anything with price transparency, the moves in the market to share that knowledge has been helpful and I think that has been a big reason why we have seen success in the cash cattle market this week.

Yeager: And one last thing on beef, sorry to stick with this, Brazil they're having, the NCBA has called for a ban on Brazil fresh beef. Any impact here too on that?

Kub: It would be contentious, it would cause ripples through the industry. But I don't think that it's a threat necessarily when you've got the fundamental strength of consumers want to go to the grocery store, they're not phased by these prices, China is not even phased by the prices. Export sales to China this week were humongous. If it continued at this pace China would be a bigger purchaser of U.S. beef than South Korea next year. So nobody is phased by these prices. It's a profitable industry to be in. And I don't think that little things like that should be enough to knock it off of its course.

Yeager: And here I went and asked all these 12 beef questions and I left such a tiny little time about hogs. Real quick, we'll talk about it in Market Plus, but give me the quick 10 second story.

Kub: Not as much bullishness as beef I'm afraid. The export story was kind of poor this week and so I think we're just going to head towards the doldrums.

Yeager: All right, thank you, Elaine. I appreciate the time there trying to fill us in on that market. And we will continue that discussion and answer more of your questions in Market Plus. Thank you so much, Elaine.

Kub: Thank you, Paul.

Kub: That will do it for this installment. We'll have Market Plus in just a moment. You can join us there. Find that on our website of And we are always looking to include more of you in all of our offerings including audio on the go. We have three podcasts that fit the bill, the Market Analysis, which you just heard, the Market Plus recorded after the TV show and the M-to-M conversations and behind-the-scenes information from the production of this program. Follow all three where you get your podcasts. Next week we look at bringing a discussion about the state of the world economics to our holiday table. Thank you so much for watching. Have a great week.




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