Market Plus: Elaine Kub

Nov 18, 2021  | 13 min  | Ep4714 | Podcast


Yeager: Welcome in to the Friday, November 19, 2021 Market Plus. Joining us again is Elaine Kub. We kind of flew through a lot of things in that TV show so we're going to broaden things a little bit, Elaine. First I need to broaden the discussion about the hog market. ASF reported in Germany this week. The ASF story getting closer to the United States was a topic about six or seven weeks ago. So ASF is still on the mind. Is that the biggest weight in the market right now?

Kub: It should be, that should be a bigger -- we should have seen a bigger market reaction than we did because we didn't really see a market reaction to it. But yeah, that ASF was found in a finishing pig barn so that's not just some wild boar wandering around the forest, that should seriously concern the European hog production people. So, we didn't see a market reaction to that. And in fact the hog futures market was pretty mild this week and I guess that seasonally that is sort of what you expect. However, in the actual cutout prices those continue to be very wildly volatile from one day to the next. So it's really hard to predict how the futures and the cutout are going to come together as we get into December and things sort of wind down for the year.

Yeager: We talked a lot about cattle and the food aspect, the export aspect. But in the feeder side of things there is one topic that is getting caught up, it's not at the packing house but it's more or less getting to the packing house or maybe away from it on a trucker story. What is that impact?

Kub: Well, the farmers will bring their calves into the sale barns for these big fall runs and the feedlots want to buy them, there is great demand out there to get the animals into a feedlot and get them into the supply chain in this very profitable environment of feeding and packing these cattle. However, it has been noted in almost every sale barn report for the past couple of weeks is that once the calves get sold it's hard to find trucks to get them to the feedlots. And that I guess is not unique to the sale barns, this is true of virtually every industry in the United States and probably globally is that it's just hard to find trucks. Why is everything backed up in the Port of Los Angeles? Because you can't find trucks. I'm sure that grain farmers this harvest have noticed trucking prices up year-over-year and just a shortage of people willing to do that work. So that's just something that I thought was interesting to note. And like I said, almost every sale barn report for the past couple of weeks has made note of that, that the trucking shortage is yet another piece that is a little bit tricky and perhaps limiting some of the upside in those cattle feeder prices.

Yeager: Let's talk harvest for a little bit. And there was a lot of it, a lot of crop, we had big yields. But here's the thing, with Roger in Indiana that he's asking, he says, what does the fact that corn and bean prices held up so well during a record harvest say to you?

Kub: Yeah, we did not have a big collapse in the market during the gut slot of harvest, especially not in the basis. It is almost unheard of to see basis this strong right when we're still sort of in the middle, not in the middle but still in technically harvest season. And you're seeing basis bids of overs in Minnesota and Northwest Iowa, that's almost unheard of for this time of year. So I think that he has very correctly identified something that is going on and that is just a shortage, that we just do not have -- the end users are looking out in the next 3 months, the next 6 months or the next year, the next marketing year for these crops and realizing that they want to get that on the books, that they do not feel comfortable with there being an ample amount of it out there by the time next summer comes around.

Yeager: I have a 2022 question I'll get to in a moment. But this one is about the next pressing issue when it comes to grains and it's Jeff in Sheffield, Iowa. He asked us via Twitter, how long do we have to market our soybeans until the South American crop comes on board?

Kub: You know, that's a great question, because ordinarily you just say February. You expect them to start shipping those out in February. And last year there were so many stutters and problems that it was sort of late. And I don't know if there's -- let me say I haven't heard any expectations for it to be later this year so maybe we'll still say February. And that is a rule of thumb that some old grain trader told me a long time ago is that you want to sell your soybeans on February 14th, on Valentine's Day. I don't know if that's still true. But there's a date for you.

Yeager: All right. That's one thing to consider. Now, Tom in Greeley, Iowa asked us on Facebook and it's about the crop and moving forward to 2022 and maybe Feb. 14 is the answer for him there. I'm penciling and thinking I should be selling a great majority of the 2022 corn crop at these levels. He says, it pencils out for profits for me. What are your thoughts?

Kub: Yeah, it's profitable. So the nearby is $5.70 and I think December 2022 is maybe $5.40 or thereabouts. It's still historically very high. If you think sort of long-term any time you see corn above $4, first of all yes it's going to be profitable, and second of all it's going to be sort of a limited time opportunity. However, this year it doesn't feel as urgent because there are so many bullish factors keeping this backed up from the inflationary pressures to the worries about fertilizer availability and yield drag from that. I'm not feeling really urgent about locking that in. But people who have confidence that they will have grain to bring to the market in 2022, absolutely get started on your disciplined hedging program a little early at this time and particularly if you're an operation that doesn't have a lot of capacity for risk, your banker is going to really appreciate it if you can pencil out and prove that you will have profitable opportunities this next year.

Yeager: Or better yet, cash that check and pay part of that note back. That's always helpful too. I want to go to an acreage question. Phil in Dresden asked us on Twitter, I've boiled it down a little bit here, Phil, sorry. He gave great background. Will corn need to rally to buy acres next year?

Kub: It really sort of hinges on the fertilizer issue. I mean, I think that that's the expectation is that some farmers may see the inputs costs be so high for corn versus soybeans in 2022 and be tempted to switch out of corn. I don't know that that phenomenon really happens that much. But if fertilizer prices remain this high it would be perhaps the year that something like that would actually happen. Now, I don't necessarily think that fertilizer prices are going to be this constrained all the way into next spring, but maybe.

Yeager: I've got another acreage question that might help clear up some of that. This one is Cul in South Dakota asked us via Twitter, will there be an increase in spring wheat acres planted in the north?

Kub: Yeah, and it's sort of a similar answer to Phil's is that I don't think people necessarily just flip over into spring wheat just willy-nilly. I think there are a lot of farmers up here in the Northern Plains that don't have the equipment, don't have the willingness, don't have the familiarity with it and just won't plant spring wheat. But for the folks who are willing and the folks who do have that program in their rotation absolutely, $10 spring wheat is extremely motivating. So I think broadly, to answer Cul's question, yes probably will have more spring wheat acres. But it's not switching into spring wheat if that's not part of your program is not necessarily something that a lot of people do.

Yeager: I didn't get to this in the show. We talked a number of things about wheat. I mentioned the Pacific Northwest and all the rain. We did have a question about the port in Vancouver impacting some rail infrastructure damage. What does that mean for wheat producers?

Kub: Yeah, well and canola producers and everybody else who are trying to get their crops out to the world market. It absolutely has been a disruption. But interestingly there has not been a hit in basis when you back out into the prairie, the Canadian prairies. Their actual local markets are still buying the grain with the expectation that they will be able to get it to port. So, so far so good. For the markets anyway there hasn't been a significant reaction in the cash market. But it is concerning from a logistical standpoint. And also I want to point out that I think you kind of mentioned during the show that this PNW rain is helpful for the winter wheat country there, the Washington and the Oregon and what not, but you look at the drought monitor, and this goes back to Torpy's Wild Weather documentary, is that actually that region, winter wheat region, the Palouse Valley, is still in that 4 exceptional drought. They need a lot more rain than they got and maybe a nice steady rain rather than these torrential things that are tearing our roads.

Yeager: Right, because in Oregon you saw the pictures over the weekend and into the early part of this week, but that’s only a small portion of Oregon. There's a whole lot of the east country that didn't get that rain that still needs it. And it goes back to a discussion we had when you were here before, we were talking about oats. I had a podcast a couple of weeks ago on the M-to-M about oats and the big factor there is the dry conditions. So this drought story is still going to be a thing. And back to what we talked about with wheat and it was inputs. And that brings us, we need to actually ask an input question when it comes to corn and it came from Jon in Iowa on Twitter. He says, when does high NH3 and fertilizer start to impact corn acre numbers? You've kind of talked about it a little bit. But here we are, we're going to hit this topic again.

Kub: Yeah, I think spring is the answer. I think that at least as far as I have been able to observe folks who wanted to apply fall fertilizer were doing so this fall but there wasn't just a sudden shutdown of that activity. That still happened. And that fertilizer was probably purchased at cheaper prices than what are available on the market today. So as long as these prices come down before spring, fingers crossed, I suspect we'll be okay.

Yeager: Okay, two questions before the last one. What was on your mind this week that you wanted to talk about? Was it inputs or was it something else?

Kub: Well, inputs and the feeder cattle. I think we got all the highlights.

Yeager: Good, that means we're going to save a little time for this last one because when I sent this to you I think you got a little excited. Jeff in Randolph, Wisconsin asked us, is there a gold to grain spread indicator and how is the dollar value spread to grain going now?

Kub: Yeah, I don't usually think of grain in terms of gold prices, but I did in response to this question because it kind of ties into this idea of the speculative traders or fund traders that have been purchasing commodities of all kinds as an inflation hedge. And that was historically what gold, people went into gold with the idea of an inflation hedge. And so actually if you look at these two markets in 2021 since about April actually corn and gold have been pretty tightly related, even from a day-to-day perspective. But that is just now. That is just this year when you have, like I mentioned, these fund traders just sort of trading all commodities together at the same time. Longer term we should not expect that. And if you were going to look at that as he's say, as an indicator, you might say maybe corn is slightly underpriced compared to gold this year. But please do not interpret that as trading advice. I don't think that there is a reason for gold and corn to move together except as this inflation hedge. Again, I don't think that gold is being traded in that way, the same way that it used to just because the population of people who did that are probably trading Bitcoin or something now. Gold just isn't what it was, the statistical regime has changed I think between any sort of long-term relationship between gold and corn and short-term - so anyway, please don't interpret this as trading advice, but I like the idea of these commodities moving together.

Yeager: It is something to think about and something to look at and discuss. Elaine Kub, thank you so much for the insight. Good to see you again.

Kub: Thanks, Paul.

Yeager: All right, next week we look at bringing a discussion about the state of our world economy to our holiday table with Analyst Chris Robinson and Economist Ernie Goss. The two of them will be here. We'll see you then. Thanks for watching. Have a great week.

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