Market Plus with Elaine Kub

Paul Welcome into the Friday, January 20, 2023 Market Plus. Elaine Kub is with us. Elaine, I apologize for cutting you off at the end of the show, but how many times have I done that?

Elaine Well, I go long. I mean.

Paul But you normally are extremely tight in what you say. And then I, I.

Elaine Then sometimes I ramble. Yeah.

Paul Yeah. That's my. Me too. I don't want to ramble on a couple of things. We're going to get to several things. One of the things you wanted to talk about before we got here was energy. And so our first question where I got from Craig in Minnesota, he wanted to know Elaine via Facebook, should a person lock in their fuel needs now or wait?

Elaine Yes, this is a thing that I am really looking at right now. Is you starting to starting to kind of pencil out what your budget needs to be for planting 20, 23 crops. So the national average diesel prices like for 60 right now, which doesn't sound great. In fact, it's a dollar higher than it was a year ago at this time.

Elaine So we are still facing all of the inflation and some of the effects of the Russian war and OPEC and yadda, yadda, yadda. Some of that is already still built in there. And but it has dwindled down, right? Like this is better than it was in the summer. It so, you know, it's yeah, it's better. But the concern is, yes, in the next few months there's almost a consensus among the commodity sector people that oil prices are going to go up and energy prices are going to go up because you have China coming out of lockdown.

Elaine You have you know, not a recession, the potential for a soft landing or out of the United States. Everything's doing okay here. And from a supply side, you have the potential for those Russian sanctions to actually start to bite and their production to go down. United States shale oil. Oil is also kind of starting to dwindle. And OPEC has claimed that they are going to start cutting production.

Elaine So from a supply and demand perspective, both oil and energy prices are expected to move higher here in the next month or two. And when there is a consensus that makes you a little suspicious. Right. But nevertheless, if you're talking about hedging risks, about input costs. Yes. I think even at diesel prices, where they are now slightly better than they were, not as good as they were a year ago.

Elaine But yeah, I think that's a buying opportunity.

Paul Higher inputs, though, are tied to some math that somebody was doing at the University of Nebraska about acreage intentions or planting intentions.

Elaine Yeah. Yeah. I mean, that's that's the take this land grant universities put these crop budgets together for farmers to use, you know, to to make choices about their own planting decisions. They're not really meant to be used by market analysts to do some second guessing about what the crop acreage is going to be. But I do use them that way.

Elaine And for Nebraska, they come out first. Iowa State University waits until February, usually to release their estimates in Illinois and South Dakota and everywhere else. But the Nebraska numbers are out already and they are very alarming. I mean, you're talking $5.30 per bushel as production cost for corn, and that's mostly because of the fertilizer prices that have gone up.

Elaine I mean, everything has gone up. Land prices have gone up, labor prices have gone up. Energy prices have gone up. Everything has gone up. But it's really the corn that is concerning in those Nebraska budgets and it's because of the fertilizer.

Paul So do you think, given what you've seen so far, given your outside study, what's our breakdown this year? I mean, I know I asked you right at the end about cotton buying acres. Yeah. Not going to supplant corn and soybeans, are we, to that final 5050?

Elaine Well, I mean, yeah, I think at this point it's too early to tell. And here's why is because fertilizer prices remain very volatile. I think if you're using today's fertilizer prices or last fall's fertilizer prices, then, yes, there would be a bias towards more soybeans or towards anything that doesn't use a lot of fertilizer. However, by the time March and April and may come around, fertilizer prices may be very different.

Elaine So for folks who didn't lock in fertilizer prices, yeah, maybe the usual 5050 thing. And for the folks who did lock in fertilizer prices, they're going to want to use that fertilizer.

Paul Unless they turn around and sell it online. They become retailers.

Elaine There you go. There you go.

Paul All right. Let's go to Matthew in Ohio again, a little more on the energy side, but this one's about nitrogen. He wants to know, what is your advice on on price? Tons of nitrogen. Seems that there has been a nice downtrend in the U.S. market lately.

Elaine Yeah, so prices are coming down. The fertilizer prices have peaked. Nitrogen based fertilizer prices have peaked. And I suspect that they will continue to come down. The last time we saw fertilizer prices really peaking in 2012, they did come back down for years and years and years. I don't know that it's ever going to go back to 2021 prices ever.

Elaine Maybe not in this inflationary environment we are, but we've had a relatively mild winter in Europe, which has allowed natural gas prices to come down, production to remain relatively stable. And I think fertilizer prices are peak days are behind us.

Paul Yeah, there was I to cut some of the weather story a little bit for time. One of the lines I had in there was about no snow in certain parts of Europe, I think Bosnia. There's none of the ski runs are open now. It's like but but Austria had snow. It's like, you know, it's a global thing anyway.

Paul AJ on Facebook is asking you about the livestock market as we ran through that, we talked about cattle on feed. He wants to know, do feeders have more downside risk? Should you be going to the next Sept August protection? The prices, the price over $2.

Elaine Yeah that's the nice psychological benchmark there is to dog. Yes and yes this week absolutely. At the sale barns everything was a little bit lackluster and I think that reflects sort of what we talked about in the main program is the cash cattle market is also kind of lackluster right now and it's just not a great time for things.

Elaine But as far as getting protection, yes. And I want to highlight the LRP program, the Livestock Risk Protection, Federally Subsidized Insurance program. You know, for two or $3 a head, you can lock in profitable prices. You can't lock in that $2 price for two or $3 head, but you could lock in a profit for two or $3 ahead and still leave yourself the upside because I don't necessarily think the feeder cattle market is going to totally fall out of bed between now and September.

Elaine But, you know, why not? Why not get a floor underneath you.

Paul Lot of people who've sat in that chair have been saying that same thing about the the feeder cattle market. So I guess I just ask, do you get concerned that everybody is saying that about that? There can be no loss? I can be. No, and that's exactly what you're saying. But I.

Elaine Mean, nobody's real worried about the downside. Yeah. It's just so overwhelmingly bullish, the supply situation. You know, the drought has just really decimated the the crop, the calf crop so much, you know, somebody is going to have to pay for these calves. And that's why you feel pretty confident saying that. But I mean, you're right. Who knows? Some black swan, something.

Paul That we never know, though. Okay. This one is production agriculture. But this one's about more about the poultry market. Scott in Iowa is asking you, Elaine, can industrial players expect their profitability through 2023?

Elaine Well, I don't know about the profitability they're experiencing right now. You look at egg prices, obviously, these are higher than they've ever been at the grocery store and wholesale and things are good. If you were selling eggs right now and you still have barns full of animals that are able to produce, I mean, you didn't get hit too hard by the HPI.

Elaine So as long as you don't have another virus scenario and we're able to rebuild that herd. Yeah, I mean, it's it's a great industry to be in. But no, I don't suspect that the prices we're seeing today can stick around forever at egg prices. I mean, that's just not necessarily sustainable at the grocery store, even though the projection is that even at these prices, the U.S. grocery consumer is still expected to eat like 180 some eggs per year.

Elaine That's not really expected to go down in 2023. Even at these prices, it's a fairly inelastic market.

Paul Right. All right. Great questions for many of you about feeders and old crap. But I want to finish with Jamie in Iowa. Elaine, how tight are grain ending stocks and how will this affect the market?

Elaine In the latest January was the report soybeans is the one that really, you know, looks really flashy because the ending stocks to use ratio is four point something percent and corn ending stocks to use ratio is 8.9%. Now, my whole career, I've been told the rule of thumb is that if a market is less than 10% stocks to use ratio that's tight, that's uncomfortable for the industry and the end users in the industry are then motivated to lock in prices and buy these commodities to make sure that they will have the supplies that they need.

Elaine So both of these markets still remain in this, you know, tight, bullish supply scenario. From an energy stocks perspective. We do have this record soybean crop coming out of Brazil that will be coming in the next few months. So you look for that to sort of relieve that in a world standpoint. And the corn thing, you know, if we have neutral weather in the north America sometime in 2023, those may start to feel a little better.

Paul Okay. Anything else that you wanted to cover today that.

Elaine I don't know, Paul? We've covered a lot of ground.

Paul We covered a lot of ground. And the only thing I can think, we talked about planting intentions a little bit and we talked about the last thing on the hog market was about China. Where do you fall on this debate? And we kind of covered on the other show. We had to run out of it real fast. I mean, yes, the COVID lockdown has been tough.

Paul The emergence from has been tough. Can the Chinese consumer really drive things and are they going to look to America? I think you talked about they're going to look back to some of the places that they have before.

Elaine Maybe.

Paul In South America. Well, and what's the US-China relation like? How do you see things here? As we said in early 2020 through the U.S. and China?

Elaine Yeah. I mean, South America will always be their preferred origin and not just for political reasons, but just, you know, for the reasons of the quality of the soybeans themselves. They're their protein content and so forth. That's one thing. I think the more interesting question is, is how is China going to handle producing more of their own needs in-house?

Elaine And if they can have good weather and if they can encourage more domestic agronomic practices that increase yield on their own land, I mean, I think that's the big trend that will change how they come to the export market in the next two or three years.

Paul Okay. We'll ask you about that in the next 2 to 3 years. Okay. Maybe more, maybe other things.

Elaine Sounds good.

Paul All right. Elaine Cobb, thank you so much. Appreciate the time.

Elaine Thank you.

Paul That will do it for Market Plus. Next week. We are going to look at the role niche meat markets are filling and we're going to have market analysis with Shaun Hackett. Thank you so much for joining us and have a great week.

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