Market Analysis with Elaine Kub

Russia rhetoric on Ukraine cast a shadow over the trade that was making moves ahead of a USDA report coming Monday. For the week, the nearby wheat contract jumped 59 cents, while the December corn contract added 19 cents. The bean bears and bulls are doing rock, paper, scissors over whose turn it is to drive the soy complex as the November contract dropped 8 cents. December meal shed $7 per ton. December cotton expanded $1.63 per hundredweight. Over in the dairy parlor, October Class III milk futures improved 87 cents. The livestock market was higher as October cattle gained $1.13. October feeders put on 63 cents. And the October lean hog contract rebounded with a $3.15 move up. In the currency markets, the U.S. Dollar index fell 49 ticks. October crude oil lost 42 cents per barrel. COMEX Gold added a $1 per ounce. And the Goldman Sachs Commodity Index moved lower by almost 12 points to finish at 645.75.

Yeager: Joining us now to provide some insight is Elaine Kub. Hi, Elaine.

Kub: Hello, Paul.

Yeager: The wheat discussion it would be pretty easy just to say wheat (?) because it's hard to make sense with Australia having a large crop, it's still dry as we're getting ready to plant a winter wheat crop, there's possible rain and cooler temperatures coming for some of that same area and then there's this Vladimir Putin saying Ukraine is not doing enough exports to Africa. What is your take?

Kub: You're right, there's a lot of subtle little things and you could kind of go one way or the other. Russia has a nice big crop. North Dakota and Minnesota are late harvesting the spring wheat crop. So there's lots of little stories. But the overall impact of each of them together is kind of nothing. That chart is pretty flat at the moment and that may be about as good as we can hope for. Honestly some stability is better than the wild volatility that we experienced earlier this spring.

Yeager: So you're saying stability is a winner over the instability of before?

Kub: Yeah, I mean it's hard to get very bearish for wheat because there is always going to be this threat that something new may happen to disrupt those shipments across the Black Sea. Actually during the month of August that grain corridor was kind of working and somewhere in the range of 1 million metric tons theoretically made it out of Ukraine and there's the possibility of lots more coming out of Russia because they had such a big crop and the ruble is weak, etcetera, etcetera.

Yeager: They stole crop. That theory is out there too that that's what Russia is putting on the market. Is that in the discussion too?

Kub: That it's available to the worldwide market. So there's sort of in my opinion a bearish tilt to the supply thing. Here in the United States you look at the futures spreads and the story is that there is bearish ample supply of wheat despite the drought that we have experienced in this country in wheat country for years now. Nevertheless, we have plenty of the stuff. So you have sort of a bearish tilt but you can never get too bearish because something strange may happen geopolitically.

Yeager: Real quick, what are you doing then? Are you hanging tight?

Kub: That's tricky, yeah. You want to sell to avoid the potential problems or to take advantage of this while you can. It would be tempting to do some sort of an option strategy to keep a little bit of ownership.

Yeager: This U.S. dollar is impacting wheat, also impacting corn. Which one is it impacting more?

Kub: Wheat, wheat is typically more sensitive to the dollar. But let me tell you about the dollar this week, we had a reaction based on what was going on in the European Union. They raised interest rates, the Euro goes up, the dollar goes down, wheat goes up. That's great. That's all fine. But that's sort of a short-term thing until the U.S. Federal Reserve does their own interest rate raise in two weeks. So you have sort of a mismatch in timing between these two central banks and I wouldn't get too worried about this being a longer term phenomenon.

Yeager: Let's move around DC to another government agency. USDA is going to release something on Monday, highly anticipated because we haven't had as much data from USDA. What do you make about what is to happen on Monday in corn specifically?

Kub: Yeah, I should have started this whole show with a disclaimer that anything we say here today kind of just goes out the window at about 11:00 a.m. on Monday. We can say what we want but until you see those numbers who really knows. The expectation for corn is that they're going to cut the yield to 172.5 or something. So that sounds reasonable in comparison with the crop tours that we've seen this summer. But like you say, there could be a lot more that they could do. This time around in September they may actually change some acreage numbers taking in some FSA data, which would be unusual. So they could make all kinds of adjustments. I think they can still make adjustments to exports even though we haven't had weekly export data. They probably have access, we still certainly see the daily export sales reports and they seem to be seasonally appropriate. So there could be all kinds of changes and some sort of big reaction on Monday. But again, that's not going to be the longer term reality two weeks down the road.

Yeager: USDA has a history of not making big changes on non-big reports until this year when they have been making more changes incrementally. So if you want to stick your neck out a little further on what you think is a big move? Or has the market already factored in what might happen Monday?

Kub: No, I think if they change corn yield and certainly if they change corn acreage in the September report on Monday, if nothing else you've got the funds, the algorithmic traders that go through and scrape this data and trade based on the USDA data, even if other fundamental traders already have priced it in based on crop tours or if they're waiting for more certainty from harvest reports, which are going to be late this year. Nevertheless, there will be some sort of just sort of automatic reaction from computer traders if nobody else.

Yeager: All right, so we're looking at the March contract there at $6.89. Is this an opportunity to do something?

Kub: I don't know, Paul. If somebody offered you the change to sell $6 corn two years ago, three years ago, would you have jumped at that chance?

Yeager: Especially close to $7 corn.

Kub: Yeah, so yes, in my opinion, yes. Sell your grain, make some money, lock in some money.

Yeager: Okay, let's move to beans. Again, Putin, dollar, USDA. But the bigger more mystery is the weather. I see a lot of green beans still out there, not much turning leaves. If rain would fall, it fell in North Dakota, South Dakota, Minnesota, it's supposed to fall in Iowa, Kansas and move east, too little too late or will it help?

Kub: No, it's still doing some good on soybeans. And ordinarily we'd be panicking about an early frost with the late planted soybeans. But my understanding of the weather forecast so far is that we should expect to see a nice long warm late summer, end to the summer year and no current threat of early frost that anybody is talking about. So knock on wood, it might all work out and yeah, then this weather, as you mentioned, the rain that comes through and falling on these late planted soybeans is still going to do some good bearishly to production.

Yeager: In Iowa I actually saw a bean field being harvested yesterday.

Kub: Really?

Yeager: Yeah, it was the only one. I only saw some turning in a big circle that I drove, a couple hundred miles. And it just shocked me coming over, I'm like look at the dust. So that was early. But I guess my question becomes, did the heat that we had in June accelerate the crop and so that's why we haven't even discussed this early frost business?

Kub: You may be right in some portions of the Corn Belt. But when you were talking about North Dakota, Minnesota, those areas, Michigan even, there was so much late planting and that is true of most of Iowa, certainly there were some fields that got planted early but generally our worry is of the late development. And you see that in the crop progress report, everything is about 3 to 4 percentage points behind average pace of progress.

Yeager: All right, real quick the Brazilian crop, are we paying attention to what it's doing to us market wise?

Kub: Yes, especially because there could be considerable volatility from the Brazilian real in their currency. When we're talking about the dollar's effect on things and Russian ruble's effects and the Brazilian currency's effect on things, that could be very volatile in October with their presidential elections coming up. So it pays to pay attention to that. Their planting season will probably be nice and fast because the current forecast is for good rains to get started here.

Yeager: Coming out of left field, cotton, rallied last week. Really it's just been kind of on an up and down.

Kub: Yeah, super hard to trade, very up and down. That range is so wide from about 82 cents to $1.20 that it could go anywhere in there. Everything is very dry, very drought stressed but it sort of depends on what the rest of the economy does too, what that market trades from day-to-day. If you're speculating in cotton I think your only play is to be selling options to get that volatility premium. There's just so much volatility and potential for ups and downs.

Yeager: Dry in a lot of the cotton area which is also cattle area, live cattle. You hear these stories of liquidations. When will we get a good handle on that impact on the market for live cattle?

Kub: I don't think that the packers are necessarily seeing any reason to be worried about that yet. We actually saw some cash cattle prices come down on a dressed basis, only $226 this week, only $226, but that's only because it can't go up every week. And yeah, the boxed beef is sort of moving lower. But overall this is a very strong market and everybody knows it. As you say, the herd has been diminishing because of the range conditions are so poor. None of that has gone away, none of that has changed and seasonally we're going into a stronger season.

Yeager: So who wins when cash is king in cattle?

Kub: The cattle producer, the feeder to some degree if they're able to find calves at a bargain price, which is not typically possible.

Yeager: Well, let's flip over to feeders then. What is available out there for purchase for anybody that thinks that I should be expanding right now?

Kub: Right. Well, so as we're going into the October season sort of these big fall runs I suspect you'll see lightweight calves that are going to get that $2 mark. That is probably still going to be out there for folks. Right now we're not seeing it yet and that seems crazy but when you look six months out and you can sell the live cattle contracts, you could hedge that live cattle contract at $155, so particularly for folks who are feeding their own corn, I believe there is a reason why this market is still chugging along here and able to make this work.

Yeager: Well, we rallied I believe in livestock to start the week -- people are very attune to that. There was a time where we weren't reacting to a selloff in grain. But now do you think that some of those people buying grain or feed have said, oh I have to take advantage because they see grain moving higher?

Kub: Yeah, maybe you're right that folks are actually locking in some prices. But again, this is going to go back to sort of a pass if we just say that the feeder cattle always react the opposite direction of corn. That is just sort of an algorithmic trade, just what the markets do from a day-to-day perspective.

Yeager: All right, the hog market. It has been -- there's the stories of China, big cities locking down. Is that an impact? But have we really been at the mercy of exports in hogs lately?

Kub: I think yes, actually pork exports may be the driver of why we've seen this market sort of fall apart lately. And there was a forecast that going into 2023 China's imports of U.S. pork would continue to fall into 2023. So that is just sort of a bearish tone all the way across the months for lean hogs. And yeah, I think that's true. And it's hard to say specifically because we don't have weekly export data in the last couple of weeks. But that in my opinion does seem to be the long-term driver.

Yeager: Real quick, dollar. Are we done marching higher?

Kub: No. I think in a couple of weeks we're going to be looking at a Federal Reserve interest rate bump. I don't want to say certainly, but that certainly seems to be the expectation from the market. And when that happens again, it's still the world's reserve currency.

Yeager: All right, Elaine Kub, thank you. I've got a whole bunch of questions for you in Market Plus so stay with us please.

Kub: Sounds good.

Yeager: All right, that's Elaine. And as I said, we're going to put a pause and continue and answer more of your submitted questions, I'm not kidding when I say a whole bunch there, in our Market Plus segment. Find that on our website of MarketToMarket.org. It's available in both podcast and YouTube form. All of these resources, by the way, they're free. Harvest is at hand and as you grease the bearings and prep the head we are looking forward to your pictures from the field on our Instagram feed. Let us share your view by tagging us with MarketToMarketShow. Next week, we look at the uncovering of clues that might lead to a COVID-19 treatment derived from pig cells. Thank you for watching. Have a great week.

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