Market Plus with Elaine Kub

Yeager: Welcome into the Friday, July 1, 2022 Market Plus. Joining us again is Elaine Kub. We had some guests in the studio last week who had not heard of the Market Plus. When you get asked --

Kub: Oh, that's the good stuff.

Yeager: Well, I'd like to think they're both good, but this one is a little more free flowing back and forth. I always appreciate when you mention you're on Market to Market when you speak and things like that. But do you tell people that, oh by the way, we keep going?

Kub: Well, I'll make a point to in the future. I just assumed everybody just watched the whole package.

Yeager: Well, people do, they watch and we use a lot of your questions that come in via Facebook, Twitter, Instagram. I received one via Snapchat today that we'll get to. But I also need to apologize first and say, I cut you off in the main program. We were joking about it before we recorded that I was just going to let you answer like one word answers and that's pretty much how it was with fuel. Talking about crude oil finishing back above 108, a gain on the week. What is going on oil, natural gas has fallen out of bed, still continuing lower? What is this energy sector doing?

Kub: Also helpfully fertilizer prices are finally starting, not that it matters at this point, but yeah everything is just kind of starting to moderate. It feels like most of the information or the shocks that these markets needed to have we know about, we've known about for months and now they're just reacting in a smaller way to day-to-day things.

Yeager: So fuel wise, the ethanol story, is that a bullish one?

Kub: Absolutely. So I mentioned on the show that Eddyville is buying corn for $8, which sounds like a lot, it sounds like gee how can you make money buying corn at $8 and turning it into ethanol? Well, you can't, if you're going to get like 2.8 gallons and sell those gallons for $2.67 or something is the value of ethanol in Iowa plus 250 some dollars a ton for DDGs, there's very nice margins in making ethanol these days. This is also true for soybean, soybean oil, soybean meal. The crush margins of these grains products are very favorable to keep on buying this great so that's great. That's great support underpinning these markets.

Yeager: And corn in general.

Kub: Absolutely.

Yeager: Not just ethanol.

Kub: Yes.

Yeager: Got it. Let's start with Aaron in Ocheyedan, Iowa. One of these days I'm actually going to spell Ocheyedan without looking, Aaron, but I'm not there yet. Aaron wants to know, when will fundamentals start to matter? He thinks an arguably bullish bean report and the markets crashed.

Kub: Well, yes. Did they crash for fundamentals? I could give you a number of reasons fundamentally why soybeans may have gone down today. Global edible oils generally went down. Malaysian palm oil went down. Who knows what is going on in the sunflower market. That and the weather is the other big one, that's a fundamental reason why you'd see markets go down. So a government report I think should be outweighed by weather from a fundamental perspective. So let's say it is fundamentals. They do matter.

Yeager: Okay. I have another government report question then I guess. I have to find it as I stall here. Let's go Gary in Franksville, Wisconsin. He's asking -- we kind of talked about this on the program -- how much uncertainty is there in the USDA numbers when they put that they will resurvey next month?

Kub: Yeah, quite a bit of uncertainty. So yeah, and actually that acreage report and the grain stocks report, those are all very helpful and reliable government reports because those are surveys. Those are not just economists trying to model some numbers. Those are actual surveys. So they're generally reliable and extremely helpful to the market to make the market fair for everybody. I don't want to pick on the USDA. But your questioner has gotten to something very important here with this particular acreage report when stuff wasn't planted by mid-June there was still a lot of planting going on so there was a great deal of uncertainty. But by the time August rolls around acres will have to have been certified.

Yeager: Right. And that is part of the methodology is my understanding is there is no FSA certification that figures in this June 30 report?

Kub: Absolutely not, no.

Yeager: So that is part of it. But it never is. This isn't a special year.

Kub: No. Well it is a special year, we don't usually have people still planting this much in the middle of June.

Yeager: That will be the podcast, the MtoM for Tuesday, next week's feature is going to be a discussion with a couple of farmers, one in Kansas, one in North Dakota. Our friend in North Dakota had just basically finished planting and that is, you agree that that's going on up there in the Dakotas?

Kub: Yeah, they're probably done now. Yeah, everybody I know I think is finally done but it was a slog. And it may or may not even be bullish depending on what summer weather does and as long as harvest weather, you have a nice long window to get it harvested eventually, it might be fine.

Yeager: Well, the theory, I'm sorry, the theme of our discussion was heavily on everyone, and I'm pretty much using the word everyone, is going to need as late of a frost as possible, right?

Kub: Yeah, absolutely.

Yeager: There's certain areas that --

Kub: It was an unusual year. Other years, if corn was $3 and soybeans were $9 nobody would have bothered with this, to be honest with you. Nobody would be planting past the insurance dates, the final planting insurance dates. You don't lose all of your insurance guarantee but you lose parts of it and you have the option of taking a prevented plant policy but nobody wants to do that when soybeans are $14.

Yeager: I had not thought about it in that context, that makes total sense.

Kub: Yeah, this is why everybody kept on pushing and kept pushing and wanted to get something planted because you have better chances of getting this nice high priced grain, you want to grow as much of it as you can.

Yeager: Okay, let's wrap up on prevent acres here. Troy in Tama, Iowa wants to know, where did all these prevent plant acres go to/

Kub: They're planted.

Yeager: Because there was a story three weeks ago, four weeks ago, 5 million, 4 million, 2 million up from whatever. So they planted them?

Kub: I mean --

Yeager: Not necessarily soybeans.

Kub: Probably soybeans, some of them are probably going to sunflowers to be honest with you in the Dakotas and there will still be some prevented planted acres, I'm sure there's low spots, the prairie pothole region where you're going to have some prevented plant acres. But to the extent humanly possible I think farmers were motivated to get seed of some kind in the ground because it will turn into a high priced crop.

Yeager: Okay. Mike in Dyersville, Iowa says that he's in the camp that corn has put in its high for the year. But I also think it's oversold. What is your target to finish sales for the fall?

Kub: I think I agree with both of those statements too. I kind of feel the same way is that we have had the Russian war story, that is priced in, the global scarcity, that is priced in, the inflation is priced in. So at this point all you can do is pull back from that. You get Russia smuggling grain onto the world market will be a bearish factor to pull back some of that risk premium. You've got the weather risk premium that is always present in mid-June. We're past mid-June now so that is always going to tend to dwindle towards harvest. So yeah, typically in a normal year we would expect to have seen the high placed by mid-June and now we dwindle towards harvest. I'm not saying it's a normal year. Weird things could still happen between now and harvest. I don't guarantee that we have put in the high. But that is my feeling as well.

Yeager: Okay. Do you wonder if there will be an extension of the weather premium discussion another week to maybe two just because of the tardy nature of the planting?

Kub: Sure, yes you're right that you do get a broader window there and also there is this flash drought. There is a significant number of pockets in the Corn Belt that are very concerned about this flash drought and I did see portions of that on my drive as things look a little crispy and weird and leaves rolling. That could all go away if it rains though. So it really depends on what happens over this weekend.

Yeager: Which is maybe why there was positions exited on Thursday, Friday ahead of that unstable weather report. Even here it is this it could be a tenth of an inch, it could be two inches. It's just --

Kub: Yeah and because it's so scattered that's why it's hard to know how the market will react. If you did get a lot of rain in some spots but not others it's hard to predict how the market reacts to such a scattered pattern of rain showers.

Yeager: I have two questions left. Get your tin foil hat here. Doug in Thornton, Iowa. When export buyers cancel buys do they pay penalty for cancellation?

Kub: I don't know the specific terms of the, I don't know. Pass.

Yeager: But you think maybe there was something in the mix also?

Kub: Well, I thought part of the question is does that affect prices?

Yeager: Does it affect prices?

Kub: Absolutely it affects prices. And here's why. So if a foreign country needs to buy a big ocean-going vessel full of soybeans that must be hedged, well they don't have to, but they do go to the futures market and lock in the price, the flat price with a futures hedge. So that activity in the futures market is why you see big movements two days before you hear the big sale announced on the daily sales report. So yes, if a previous purchase gets cancelled, that hedge then needs to get pulled, and so that selling activity equally affects the futures markets and it is entirely possible, I don't know, but it's entirely possible that we saw soybeans going down 60 cents today for some kind of reason like that. There might be something going on in the market that we don't know yet.

Yeager: And that's why we watch it all play out. Last question comes a little tie in to the end of the show, we kind of got into a little bit on the livestock sector. Tuttle sent me this note. He says, it appears from the hogs and pigs report there are fewer hogs held back for breeding, increased beef cow slaughter and bird flu impact in poultry. He wants to know, aren't people going to eat through this pending/impending recession?

Kub: Yeah, people -- yeah. But what's interesting to me about these numbers, the livestock numbers, the poultry especially is when you looked at the grain stocks report, the quarterly grain stocks report, 4.3 billion bushels of corn sitting around implies that there were 3.4 billion bushels used up in those 3 months during that quarter and that is less than usual, less than last year at this time. And that is why, it's because we have less poultry eating, slightly fewer hogs eating. Absolutely.

Yeager: And fewer cattle, right?

Kub: Well, there's more cattle on feed.

Yeager: More cattle on feed but yeah. You're right, I get it. I see how, yes that works.

Kub: But the poultry I think is the bigger, it's a bigger effect on that feed grains market than we sometimes realize.

Yeager: Anything else?

Kub: That is all.

Yeager: That is all. That's what we're going to do. Elaine Kub, everybody. Thank you so much. That's going to do it for Market Plus. Next week we're going to check back in as we mentioned with two producers on their crop's progress and Ted Seifried will join us to analyze the markets. Thank you so much for watching. Have a great week.

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