Market Analysis with Elaine Kub

Paul Yeager

Argentina's wet, weak, damp and any extended bump from last week's bullish USDA report for the week. The nearby wheat contract lost $0.02, while the March corn contract gained a penny. Outside markets helped the resistance in the soy complex. The March soybean contract sold off $0.21, while the March meal contract dropped by 1260. March cotton improved for 41 per hundred weight.

Over in the dairy pilot. February Class three milk futures lost $0.42. The livestock market was lower with February cattle down a dollar ten. March feeders cut 190 and the February Lean Hog contract shed $0.82. In the currency markets, the US dollar index lost 17 ticks. February crude oil bumped up 151 per barrel, COMEX gold added 670 per ounce and the Goldman Sachs Commodity Index finished more than ten points higher at six 1150.

Paul Yeager

Joining us now, regular market analyst Elaine Kub. Hello, Elaine.

Elaine Kub

Hello, Paul. Thanks for the invitation.

Paul Yeager

Good to have you here. As you drove through, you always get to say you're in wheat, country, snow, moisture landing on some of this area, pressuring the US crop. Is the US crop story. The only one in wheat right now we are following or you are following?

Elaine Kub

No, and I wouldn't even say that the portions of wheat country that I drive through that do have snow cover, those are not even the major wheat portions. In Kansas, for instance. And the you know, the the the weather folks came out with their climate prediction for the next three months just yesterday. And it suggests that there is this band of moisture that will continue to come sort of down through Montana and then swoop down into the corn country, but continues to skip western Kansas, eastern Colorado, western Nebraska, this very arid region that has been so dry and was extremely dry at the end of the fall and hasn't received the moisture that it would

Elaine Kub

need. So, you know, we always kill the wheat crop over the winter. So we don't want to, you know, pound that too hard. But I wouldn't say that the U.S. wheat crop is in great condition moisture wise, even though some portions of the world have gotten some some snow.

Paul Yeager

Well, let's speak about the world. Putin and Russia. Yeah. Said something about exports. And all of a sudden, we're going to keep some. We're not going to keep them. Was that a bigger influence on the trade?

Elaine Kub

Yeah, actually. So the Russians have come out with their with their more official numbers from 2022 and suggest that they had a great wheat crop, actually, I think maybe even record large. But you're right, it's the it's how much of it are they going to export or are they going to put the kibosh on that and try and keep that in-house to maintain domestic prices?

Elaine Kub

Exactly. It's it's very schizophrenic sort of scenario of what somebody says from one day to the next. It's not even so much of the production. It's whether or not it ends up on the export market.

Paul Yeager

All right. Give me a range where we headed? Higher. Lower. And by how much?

Elaine Kub

Boy, it's speaking a schizophrenic. It's really hard to get a read on on the hard wheat varieties where you do have this inverted carry structure in the futures markets, which ordinarily you'd interpret to be a very bullish scenario. But really on the supply and demand tables, it's not like we're running short of wheat necessarily. So there's there's conflicting, conflicting information or complete conflicting science from the wheat market.

Elaine Kub

And I would just say perhaps we'll be guided by the dollar or by the outside markets more than than anything confirmed on their own supply and demand.

Paul Yeager

Yeah, the dollar was off this week, and that was a good story for the dollar to be lower earlier for commodities. But corn wise, let's flip to that export demand or export sales were a little better than we thought. Top five this week. Mexico. South Korea. Japan. Taiwan. China. Exports better than expected. Is that going to be enough to add some bullishness to the trade?

Elaine Kub

Well, I mean, I don't think that's going to be the savior of the US corn market. If you're looking for higher prices in 2023, exports is not going to be where it's at. There's going to be so much competition from South America. You mentioned the weather. There is really the driver of these markets from day to day. And I think that's that's really going to be where the feed grains exports and oilseeds exports is is going to be focused in that continent rather than us.

Elaine Kub

So in the US, you know, our our demand here is strong enough domestically on its own without even worrying about, you know, tweaking those export numbers.

Paul Yeager

Well, let's look at numbers then, up above. We're back up almost to $6. But the trend looks. If you had to say a pennant way or headed lower.

Elaine Kub

Sure. And this is the tendency of commodity markets. We had very high prices helped by the Russian war in Ukraine, helped by inflation. But some of that has already passed through. And the the eternal tendency of commodity markets will always be to go down towards the cost of production. So in my opinion, the the likelihood is that we're going to move lower rather than higher.

Elaine Kub

I don't see a reason that we would go back and retest the summer highs at this point. But we are well supported because, you know, folks are willing to go and pay these prices for things. People are willing to pay for ethanol. And I think we should expect to see energy prices really surge here in the next three months.

Paul Yeager

We have a couple of energy questions we'll get to on Marketplace. So I guess that's my tease for that segment. After the show that we record that's only online or on YouTube. Elaine About Corn is a range. A couple of weeks ago on this program it was discussed. Why are you storing? Then last week there was the USDA report that said, Well, maybe, but I still wouldn't be storing.  Are you storing any corn right now?

Elaine Kub

I mean, I think there could be some upside to the old crop. I am a seller of new crop because of what we just talked about, the tendency of these markets to move down. And if we get, you know, some decent weather in Argentina and we have an expectation for neutral weather in the United States, once LA Nina sort of fades, I think we should be selling new crop.

Elaine Kub

But if you have corn in storage, that's on price and you don't really need the cash that badly. Yeah, I think there's some possibility in these volatile times that you could have old crop prices move slightly higher.

Paul Yeager

All right. Beans, Brazil, how big is that crop?

Elaine Kub

Big record, large. Yeah. And I think that that's that's validated by the weather that they have seen. Any sort of maps, satellite data, imagery that you see coming out of South America, I think you can very well believe that Brazil's soybean crop is going to be record large. Argentina, the U.S. has obviously trimmed the production numbers out of there, the private estimated to trim that, too.

Elaine Kub

But Brazil's crop, you know, is three times the size of Argentina's, and it's about 50 million metric tons or 40 million metric tons higher than the United States's soybean crop. So Brazil is the leader. They're the ones that are going to go out on the export market. And when they have a record large crop, I think we can expect that to to be influencing the markets lower.

Paul Yeager

Well, and we have a question that came in via Twitter about this exact direction. So let's go to Bradley in Nebraska. I know Bradley was busy this week. They were in that snow blanket. I don't think a blanket sounds like it was good. I think it was miserable for many. He's asking. Brazil announced it can add 6 to 8% more acres a year by taking pasture out of production in total. They can add 60 million acres. So Brad's question is, is this ground productive enough to offset the lost acreage in Ukraine and then extends it one more. Is this bullish for beef?

Elaine Kub

Well, this is quite a question. I mean, this covers a lot of ground, three continents, really. So to start to start with, Ukraine's lost ground, actually, I'm not sure there is that much lost ground when you look at what they were able to harvest in 2022. It was 95% of what they had originally planted for feed grains generally. And I think some of some of their production is lost because of less inputs going into the crop. But honestly, other than the 22% of ground that, you know, past the front line and some of that is still going to reach the market one way or another, whether it's under Russian ownership or not. Ukraine is not really lost as much as that. However, their exports to China, so they were a good seller to China and Brazil is able to step in for that. Whether they're taking it to ground away from the rainforest or from pasture or wherever, it's coming from. Yeah. Brazil's the ones are stepping in to do that, coming out of pasture. Is that ground productive enough? I mean, that ground is very fertile. It's been planted to pasture. That's not native necessarily. So that availability, if you've got the logistics, the roads, the railroads to get that stuff to market, I believe it is productive ground.

Paul Yeager

Which is always a concern there in Brazil, is about the infrastructure. Let's get to livestock for a minute. Live cattle trading in areas that still look okay, but there seems to be maybe some flashing lights of danger ahead.

Elaine Kub

Yeah, I mean, and even even caution. Yeah. I mean, even from way down the supply chain up to the grocery store level or the older wholesale level box, beef prices continue to kind of dwindle here. And so I think if you were looking for a boost in live cattle prices or the cash cattle market, this is not the time we're going to see it.

The signs are are generally pointing towards a little bit of a slackening there. And I think that that's that's appropriate seasonally. It's it's just needs to be expected. But I wouldn't expect the market to fall out of bed completely. The supply and demand, the fundamentals are still there for that market to be supported.

Paul Yeager

Cattle on feed came out Friday afternoon.

Elaine Kub

What we see exactly so so the cattle on feed is showing the total inventory is down 3%. The little snippet in there that's an interesting piece is that the heifers is only down 1%, which means the heifers are are going into feedlots and not being maintained in the herds, which means all of this destruction of the herd continues to happen.

Elaine Kub

So your long term outlook for the deferred futures contracts is still as bullish forever, even though analysts were going into this report expecting that inventory number to go down. More than that, I don't necessarily think the market is going to react to this with a big bearish reaction.

Paul Yeager

Not react bearish. But for how long though?

Elaine Kub

I'm talking about a Monday. I got it going to come in on Monday and have a big you know, we think all.

Paul Yeager

Right, hog market we're going into the Chinese New Year. Yes, they might they used to celebrate with American pork. Not been a lot of celebrations in China is that are we still caught up in the they're still coming out of COVID and not buying as much US pork?

Elaine Kub

Well right. But the expectation is now and this is sort of my input about the energy prices is that the expectation is China is now out of lockdown. You're going to have folks going back to restaurants more, doing more economic activity, driving around more. So I have an expectation for crude oil prices to go up, fuel prices all around the world to go up, and potentially pork prices as well in China. And then that would carry over into the export market as well potentially.

Paul Yeager

But we also saw China this week smaller population slowdown of their economy.

Elaine Kub

That's a very yeah I mean that yeah you know and a very long term basis sure but they still have a lot of people that eat a lot of pork when they are not being locked down ten days at a time.

Paul Yeager

Okay. So we're going to talk energy and cotton if you want to get 15 seconds in on cotton. We started to we've rallied two weeks in a row. Have they bought enough? Are they buying acres?

Elaine Kub

I don't know that it's at a price level where it can really compete with the profitability of soybeans particularly, but also corn in a fertilizer scenario, depending on how fertilizer goes. I don't about buying acres, but I think of cotton in the same way that I think of crude oil and any of these other global consumer commodities. I think it has potential to go up with China's fortunes.

Paul Yeager

Thank you, Elaine. We are going to put a pause on this analysis and continue our discussion about these markets in our Marketplus segment. You can find those segments on our website of market to market dot org. Next week we are going to look at how small town meat lockers keep niche markets rolling. post-COVID. Thank you so much for watching. Have a great week.

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