Market Analysis with Elaine Kub

Elaine Kub
Market to Market | Clip
Jul 1, 2022 |

Elaine Kub discusses the commodity markets.

Transcript

Quarterly grain stocks numbers and an acreage report joined weather as topics of conversation at the kitchen table. The market quickly digested the news and grains made a run lower. For the week, the nearby wheat contract plummeted again, this time off 91 cents or 10 percent, while September corn dropped 46 cents. Soybeans briefly rode the wave of fewer acres planted before turning sharply lower. The nearby soybean contract improved 8 cents. August meal added $10.70 per ton. December cotton fell 57 cents per hundredweight. Over in the dairy parlor, August Class III milk futures lost $1.17. Lower grain boosted some of the livestock. August cattle added $1.22. August feeders put on $2. And the August lean hog contract declined $3.80. In the currency markets, the U.S. Dollar index improved by 96 ticks. August crude oil gained 91 cents per barrel. COMEX Gold lost $22.70 per ounce. And the Goldman Sachs Commodity Index fell 15 points to finish at 718.70.

Yeager: Joining us now to break down these markets, our friend Elaine Kub. Hello, hello, hello.

Kub: Happy Birthday, Paul.

Yeager: Thank you very much, appreciate that. Also to Naomi Blohm.

Kub: Absolutely, Happy Birthday Naomi.

Yeager: But not yours?

Kub: Not this month.

Yeager: Anybody celebrating who has wheat right now?

Kub: Well, what's wrong with -- it's still $9 some dollars. If you're harvesting wheat in Kansas let's say this past week the yields have been extremely variable, some of them have been good, protein generally above 12%. So I think the general attitude from harvest has been pretty positive, people are pretty happy with it and if you're just going to take it to the elevator and sell it for $9 cash, I mean I know it's not as good as it once was a few months ago, but in historical terms it's still $9 wheat.

Yeager: So, when you put it into perspective, and that's what I heard somebody describe the stock market, yes we're six months into the year, it has been a terrible year when you look at it, but if you go back five years it's pretty good. So, closing September wheat, $8.46. What are you doing come Tuesday when the markets reopen?

Kub: Right, this is the problem. I knew you were going to ask me this and I honestly don't know what to say about wheat because there's not like a clear seasonal expectation in wheat, there never is, which is one of the reasons why I think a lot of producers do tend to just sell off the combine at harvest because there isn't necessarily always a harvest low, it's usually an okay time to do it. And it's just so volatile and it's so based on what is going on in the rest of the world. It's actually the European wheat futures are the ones that sort of triggered this slide and the Kansas City futures have since outpaced them in this downward movement. But because you don't really have any sort of expectation that it's necessarily going to recover but it might recover if something else strange happens in Ukraine or Russia, it's a really tricky answer. And like I said, it's $9 wheat, it's not wrong to sell $9 wheat.

Yeager: Well, and the Russia story, there's this oh all of a sudden Russia has all of this wheat on the market and the thought is they're stealing it from Ukraine. So what is that doing for maybe the global price and the global outlook?

Kub: Absolutely, I think that is absolutely the reason why that European wheat futures did trigger this slide, did start sliding. The Financial Times had a really good investigation where they had satellite imagery of grain ships being loaded out of Crimea, which doesn't grow a lot of wheat, so it is wheat that has been stolen or coerced from Ukrainian farmers and then the waiting says Russia. So that is absolutely what is happening and I think it is completely bananas to think that that would send the price of wheat down to know that stolen grain is coming on the market. But from a supply and demand perspective it is relieving that Middle Eastern wheat market, it's getting into Turkey and Syria, and so that is absolutely what is happening.

Yeager: The market might not necessarily care where it comes from as long as it gets to --

Kub: The supply is there.

Yeager: Okay. All right. In corn, we're dealing with this whole knee high by the 4th of July, we're past it, we've always been past that --

Kub: No, not this year.

Yeager: That's the thing, this year it actually is lower, it's behind schedule. What is that doing to this market?

Kub: Well, yeah, it's a funny time for corn condition ratings and where I'm from in the eastern Dakotas it is short but I have short knees, it absolutely is knee high by the 4th of July.

Yeager: Always is, right?

Kub: Yeah, so this is fine. But it is interesting, I think it will probably catch up. The more interesting thing is the flash drought scenario sort of in Southern Minnesota, portions of Iowa, there's a streak of it from Missouri into Indiana. So there's places where they really do need this rain and we're getting the rain. In fact, I was driving through, on the drought monitor there is a little red spot south of Sioux City and as I was driving through there today it was raining. So you've got to think we've got three days --

Yeager: I'm being told Sioux City wants you to drive back through there on your way home.

Kub: Absolutely. So we have three days of weather before the market is going to open back up again on Tuesday. So it really depends how much rain happens and where it happens and who chooses to respond to that. Do farmers choose to respond to that rain by selling more or do speculative traders choose to response to a lack of rain by putting in more risk premium? I really couldn't predict what's going to happen on Tuesday but I suspect there will be a large movement one way or another based on this weather.

Yeager: But that was also a school of thought going to the whole people are selling, maybe it's the speculators, maybe it's not. Ahead of that such a long vital volatile window and that is maybe most of this? When are we going to sort that out?

Kub: Yeah, this is the time of year, absolutely. This is not a coincidence that we're having a big market movement at this time of year. I looked back, you remember 2012, 10 years ago this is when we had that big vertical run up because this is when the market looks around, can really make a confident prediction about yields because it is knee high, it's at a growth stage where you can be pretty confident about how yields might eventually turn out in a normal year. So this is absolutely, it happened in 2008, 2011, this is very much the time of year when the market sort of gets an overall feeling for what the crop is going to do and trades correspondingly.

Yeager: The market is saying prove it and finally maybe the weather is proving that it's that way. All right, soybeans because that is also the same story similar in beans. However, less acreage, there was some thought that we were going to have less acres but not this much. But there's a caveat. It's like the USDA got an extension on its term paper. Right?

Kub: Yeah, very much so. They put out a number, which is an ostensibly bullish number, saying we'll only have 88 million acres of soybeans planted instead of 90 million acres. So if nothing else changes and you took those millions of acres off, there goes your 280 million bushels of ending stocks. Ending stocks would effectively go to zero. That's not what is going to happen. But you're absolutely right is that these 88 million acres that they put out in the June acreage report is an asterisk because at the time when that survey was done in mid-June there were still soybeans being planted in North Dakota and they have acknowledged that and they sort of tried to build that into that number but they do very much expect to put out a revised number in August. So eventually the supply and demand tables will reflect reality, but for now the markets just either ignored the number or were reacting to other things including the weather.

Yeager: Okay, so behind the scenes here this is the Market Analysis segment. We're going to do a Market Plus, it's separate, it's a podcast, it's on video. We have a bunch of questions that we'll dive in more to what Elaine is saying. But we also ask for social media questions and right now let's go to the one, let's go with Russ in Postville, basis question gets our attention for Elaine. If so much grain is still on the farm, why are basis levels so high?

Kub: Yeah, that was another really interesting part from the reports this week is the on-farm stocks of corn specifically was 22%, which is higher than usual, higher than last year, higher than most years, which is very clever. I think farmers knew going into this year that we relatively short supply or short stocks to use ratio and so they had a feeling that there would be a summer run up and a tight supply or tight market for corn this summer and holding onto some of it. Great move. But he's absolutely right to point out that basis is variable. Again, I'll use the word variable because it really depends on where you are. In Iowa, actually Eddyville is like 35 over so you've got $8 corn opportunities to sell in Iowa. But it's all really dependent on transportation costs. That is the textbook thing about basis, right, it's a reflection of local supply and demand and transportation costs. So if you're in the Dakotas where you've got to put a lot of rail freight on that you could have a dollar under basis. If you're down in the Panhandle of Texas where you're screaming for grain and there is a drought basis could be a dollar over. So there's just a very, very wide range of cash prices for corn specifically right now, it could be $6.40 to $8.40, it depends on where you are.

Yeager: I think it's you that said this but really all basis is local. It's like the old saying, all politics is local. And that matters and so everybody's story is different.

Kub: And when fuel prices are like this it makes everybody's situation so wildly different. It will drive down the prices at the farm gate for people who have to put a lot of freight to get it to a market and drive up the prices for the end user. So nothing good happens when you have diesel at $6 or whatever.

Yeager: Let's go back to Texas, cattle country, this is a story that continues to see higher numbers of cattle getting processed. Is that what -- why is that not reflecting in an up market this week?

Kub: Well, actually the cash market was steady to a dollar lower, like $1.38, so the cash market held up better than the futures market did. You're absolutely right to point out that there's kind of a bearish feel for the live cattle and for the beef sort of wholesale prices themselves going into July, going into mid-summer. There's sort of a sense that they will be a little bit oversupplied because the packers were so, had such a strong appetite in June. So yeah, I think there's some headwinds there for the live cattle market. But feeder cattle, my goodness.

Yeager: What's going on in feeder cattle?

Kub: My goodness, so there were some hot, hot sales this past week. Bassett, Nebraska had six weight calves at like $229 and that wasn't just a fluke, there were multiple lots that sold there. Mitchell, South Dakota $210 I want to say. So even though overall, and this isn't a really strong time of year to see lots of numbers, but when you've got a room full of bidders that really wanted to put these animals on feed despite the prices of feed, they can really get in there and bid up those calves. So that was exciting, that was a really exciting thing to see for feeder cattle.

Yeager: So what does that say long-term because there have been people sitting in this chair for the last two months that saw the summer as an improved time, then that time table got moved up. Did the time table move up? Or is this the beginning of a longer march higher?

Kub: Yeah, I think this is the way it's going to be. The supply of feeder cattle that are not already on feed, because we do have more of them on feed than usual because of the drought and such, so the supply that are out there to be bought yet that aren't already on feed is down something like 3%. This will continue to be the case for the foreseeable future because out breeding herd is of course diminished by this drought.

Yeager: In the hog market though, down this week. Is that -- the pigs and hogs report was not viewed the most positive?

Kub: No, the problem with, yeah the hogs and pigs, the breeding herd, the whole herd, the market herd, everything was down about 1%, but particularly when you looked into the fall and winter timeframe, the October and December contracts, the market seemed to be saying down 1% is not down enough, that there is this expectation of oversupply going into there I suppose because China is not buying as much as they were, rebuilding their own herd. And so the market is trying to keep up with that expectation but just not fast enough.

Yeager: I'm going to tease to our Market Plus and one of the questions that we received is about the demand globally for the meats so we'll keep going on that one. We're going to end in the last 10 seconds here, I want to quickly talk about oil. That is still hovering above 100. IS that going to stay in this area?

Kub: Sure, the oil is one thing, it's the refined products that are the killer for agricultural producers and for consumers just driving on their summer vacations. I mean, this is the trouble is the refinery capacity.

Yeager: The refinery capacity, we'll put a pin and keep going. Thank you, Elaine.

Kub: Thanks, Paul.

Yeager: It was a long question, it's all on me. That's going to do it for this installment of Market to Market. We'll talk more in Market Plus so join us there. Find that on our website of MarkettoMarket.org. And all of these resources as a reminder are free. Now, here's this week's assignment. We want to hear from you. Send us a photo of you in your field. It may not be knee or head high by the 4th of July. Email that to us at markettomarket@iowapbs.org. Next week, we check back in with two producers on their crop's progress. Thank you so very much for watching. Have a great week.

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