Market Plus with Elaine Kub

Yeager: Welcome into the Friday, September 9, 2022 Market Plus. Elaine Kub is with us as we had a show. Okay, Elaine, I had to admit something before we started taping about travel the last time you came down and I asked a lot of people this summer about what did they see when they were making the trip. How did things look? It's easy to make a dashboard tour. And then you have these tours that actually dive into the fields and look. Nobody is happy because that's not what is happening outside their back yard. Why is backyard-itis a problem?

Kub: Particularly in a year like this. You started off the show, the main show, with haves and have-nots. There was such very different prospects and results being seen by people this year. They are not having a shared experience during this particular growing season. If you're out in Western Nebraska -- I've had lots of rain this summer, it's been a lovely summer. But it really affects the way people experience market results or USDA numbers. On Monday the USDA is probably going to cut corn yields and soybean yields but it's not going to be enough for the people who are going to look out their own back yard and see it's drought, it's drying up, the corn is firing and they expect to see a bigger cut. And I think almost certainly a bigger cut is going to be justified farther down the road than whatever conservative step that they take during this September report. But nevertheless, I feel there's a reason why we have one big national aggregator doing a shared public number for everybody to use and it is so that we're not bound by this phenomenon of backyard-itis, so that we can get one big official number that is aggregating all of the data together and to some extent we do just kind of have to trust that process, that they are the only ones who have all of the observers that go out week-by-week to get those condition ratings and do more than just a back yard tour, that they do have a sense of what the local conditions really are and once you put those all together and average them all together there is immense power in averaging, there is immense mathematical power in averaging and getting a real result.

Yeager: And the number of people that are surveyed and a consistent basis. I'm not here to defend and asking you to be the --

Kub: I'm happy to be the defender. But they're doing more than just calling five guys and asking what you see out your back window. There is immense power in that averaging and it's more than just what is out your own back yard.

Yeager: Okay. And it's not the orange juice futures of trading places where it can be easily influenced.

Kub: Well, who knows.

Yeager: We're not going to get into that conspiracy theory now. We're going to start with questions that came from you. Thank you very much everybody on Facebook and Twitter. Let's start with Gary in Franksville, Wisconsin who has got a nice little streak going here of getting his questions asked. Gary wants to know, with no weekly export results, can the USDA get by with very minor changes on this report? Does this buy them time to kick the can to get a better feel once harvest starts?

Kub: Yeah, I don't know that we should be looking for a big change to the export number. As we get to the end of the marketing year they're probably not going to totally meet those 2022 expectations. But I wouldn't worry necessarily about the USDA economists' ability to continue using their same models to come up with whatever numbers they want to come up with. My understanding is they probably have whatever export data they need to have that they would use anyway. They're just not releasing it out officially these last couple of weeks because it's not in a statistically kosher form that can be put in the same data stream. I don't know what's going on but I would imagine the folks who are coming up with that WASDA report have all the data they need.

Yeager: Okay. You get asked a lot of strange questions when you come here by me. This one is right in there. Tractor Ninja in Colorado. Let's give us a wider perspective on this one. Does the world care if there's no millet crop? A, tell me what a millet crop is. And why do we care?

Kub: Does the world care? I don't know. Well, millet farmers care. Tractor Ninja, for instance. And the millet market cares. And I do like this question from a broader perspective. I honestly don't know what the price of millet is but these specialty crops are going to be an important piece and they're going to be an important piece even on Monday if the USDA does start changing acreage data based on FSA numbers of what they see not just millet but we're talking your milo, your sunflower, all of that was hot in the spring during spring planting season. So this is a bigger player than usual. However, you look at prices now for some of these specialty crops, sunflower in particular, anything that is sort of oil see related has definitely come down. Malaysian palm oil is 50% off its highs. Soybean oil is only 25% off its highs. Sunflower is like $26 a hundred weight now, which is again sinking down from the spring highs. And I think that will be true of all of the specialty crops. I would imagine that's the case for millet. But to be honest, Paul, I do not know the price of millet right now.

Yeager: But I appreciate you diving into it and giving some insight on that.

Kub: Someday, Paul, I would love if we did a whole program on specialty crops. We do your lamb market --

Yeager: We have a couple of stories about that in the works and we do get to some of those in the M-to-M podcast. So maybe we bring it into this discussion too.

Kub: I think that would be great.

Yeager: Okay. Mitch in Wisconsin, soybean meal basis for new crop October '22 to September '23 is very strong currently. Do you see it remaining high or eventually softening with new crop?

Kub: I do see it softening. So you think of basis for anything right now is very, very hot for your old crop corn, old crop soybeans are over right now, soybean meal. Anything that you need, everything is kind of short, we are not overwhelmed with supply of any sort of feed grains or feed market whatsoever. So things are hot and yes, typically once you get through the gut slot of harvest, particularly if there is any sort of trouble with -- well, if you had a nice harvest things would immediately come down basis wise. I was going to say as long as there is no trouble with railroad shipments because --

Yeager: Are you looking ahead at one of the questions I have here?

Kub: No, sorry. But yeah, I would expect to see basis weaken at harvest as it usually does unless something strange happens with shipping.

Yeager: We'll get to the rail in a minute. I want to go back to basis because I know you like to talk about basis, you've charted on basis before. Does basis, let's go back to the very first thing we discussed in Plus -- how does basis relate to backyard-itis because does it support some people who think I don't have a crop and that's why the basis is off? Or how does that tie together?

Kub: Absolutely. I think that the patterns we're seeing in basis right now are absolutely related to local supply and demand characteristics. So basis is very hot in the Texas Panhandle, which is as it should be. So it's let's say 70 over in Amarillo, it's also 70 over in Sioux City or a dollar over or $1.10 over in Sioux County, Lyon County, Northwestern Iowa, anywhere there's livestock. Those critters got to eat. So old crop basis right now is incredibly hot and it's hot in sort of unusual places, places that would typically have unders are way over because you've got to feed that livestock. So it's really interesting to see and it is very much related to local supply and demand.

Yeager: So, in an end -- all basis is local, that's the old politics line there. Okay. Let's go back to the rail question. This one is Phil in Dresden. You knew he was going to ask you a question. He wants to know, cash markets are efficient and usually result in corn, beans and wheat getting to where they are needed. However, how would a potential rail strike upset that apple cart?

Kub: It would really upset the apple cart.

Yeager: And whose rail strike are we talking about here? Anything specific right now?

Kub: Yeah, I don't know specifically who is going to do it and I think hasn't the federal government been trying to work this out and get some commitments from people? But we've seen this, any sort of rail trouble we've seen what happens. And what happens is that basis gets higher or stronger for the people where it's already strong and really bad for the end users and it gets weaker and even worse for the people who are the other end of the rail line that are trying to ship it out. So North Dakota, for instance, is particularly dependent on rail to get all of their crops out towards a population center. And where basis is typically weak it will get much weaker and where basis is typically strong it will get way, way fierier than it is even now because you have shortages and overwhelming supply in mismatched places. It would be bad.

Yeager: Okay. Let's go to Tim in Crookston, Minnesota, near the North Dakota area. He lives with what you're just talking about with a projected smaller corn crop this year. His question is, has the battle for '23 acres started already?

Kub: Yes. And if I will, I will kind of shoehorn in that fertilizer topic on this too --

Yeager: It's on my list. We'll do it now.

Kub: Yeah, because absolutely. Folks have got to be thinking ahead for 2023, you've got to be thinking ahead for price wise and inputs. Yes, I did a study recently, a hat tip to my local fertilizer retailer sort of nudged me and suggested to start buying fertilizer for 2023 and this is earlier than I would typically do it so I did a study about the seasonality in the fertilizer markets. Should we have an expectation of when is the best time of year to buy fertilizer? And it turns out that there is seasonality, that it's typically high in the spring and during planting season. Okay, pretty obvious. But the lowest average price is usually late August into early September so right now would be a good time. In 2012, however, if we were looking at a pattern for a previous time when fertilizer prices were really high it did just kind of dwindle lower and lower and lower into 2013. I am not expecting to see that into 2023. And think of all of the reasons why fertilizer got so hot last fall and last spring. All of those reasons are still in place. The problems with Ukraine and Russia, the very high natural gas prices that have shut down some production in Europe, all of that is still in place. So I would expect to see one of these patterns where we do not see it fall back down. We've got urea prices at 800, anhydrous at 1300, maybe these are pretty good prices. And I know it's tricky to lock this in months in advance and if you don't have storage for it, for instance, I know it's not always possible or easy to do. But from a pure mathematics or chart-based or seasonality-based this would be a good time to think about it.

Yeager: I heard that was a popular article you may have written.

Kub: Yes, it was very highly read.

Yeager: Search DTN for that one. Lastly, let's go Craig in Adams, Minnesota. What is your outlook on the crude oil market?

Kub: Well, what's the Federal Reserve going to do?

Yeager: You think it's tied directly? Majority?

Kub: Not directly but I do think it is certainly related to how the economy goes in general. If we're able to avoid any major recession where people are going to stop using so much energy, which we haven't really seen yet. So, so far, so steady I guess for crude oil.

Yeager: Crude down this week 42 cents to $86.57. We haven't been over $100 in a while, a few weeks. Do we think we've passed $100 for a while?

Kub: That seems to be the general story for all of the commodities is that we've seen the high and we're still in elevated levels but there's no reason right now to expect a new explosion to a new high.

Yeager: I don't know what you saw on the road but in Central Iowa this week unleaded with ethanol mixed down to $2.99 a gallon.

Kub: Really? That's not what I paid at the gas station.

Yeager: No, and that's what I'm saying. But again, it just kind of depends on places. There's still $5 here and national average is high.

Kub: For the record, you didn't ask about gasoline or ethanol. You asked about crude oil and those are very different. Just pumping more crude oil is not going to solve prices at the gas pump. There's a bottleneck of refinery capacity in this country and we're not importing refined products from Russia. That has really been what is driving the consumer level gas prices at the station, sort of unrelated to how much crude we're pumping.

Yeager: I understand and was just maybe going to the next thing. But we're out of time.

Kub: Yeah, thanks for letting me --

Yeager: Thank you for saving my bacon again. Thanks, Elaine.

Kub: Thanks, Paul.

Yeager: That's Elaine Kub. And next week we're going to look at the uncovering of clues that might lead to a COVID-19 treatment derived from pig cells and Don Roose will analyze the markets. I'm Paul Yeager. Thank you so much for watching. Have a great week.

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa PBS which is solely responsible for its content.