Market Plus with Elaine Kub

[Paul Yeager] Welcome in to the Friday, June 2, 2023. This is Market Plus. This is Elaine Kub on a livestock week.

A lot of livestock questions this week and that was even before today. But we're just going to pick right up about fundamentals and money. One thing we didn't quite get into, but I know you look at all sorts of things. Let's start with Mitch in Iowa here. How much of the trend downward in commodities the last several weeks do you attribute to money flow over real fundamentals? What does that mean moving forward?

[Elaine Kub] Well, that's a good question. And I think you can attribute it to sort of maybe just like a doldrums or a lack of money flow or lack of story or perhaps even an investment community that was, you know, was still pretty freaked out about a new interest rate rise. And then we had a jobs report on Friday that was not great. And then that actually turns out to be bullish for the markets because it means that the Federal Reserve is less likely to to boost interest rates. So I think Friday was sort of proved. The point is that the money flow doesn't really do anything there for a while and it's ready to come back in when it gets an excuse to.

[Paul] Well, a jobs report is actually mixed when you look.

[Elaine] Yeah, I mean.

[Paul] Because I mean but I mean 339,000 jobs and then it's like. But then how did we rise unemployment 3/10 of a point.

[Elaine] Yeah.

[Paul] Yeah. And it, but it but it breeds another fed excuse.

[Elaine] Yeah.

[Paul] Well, yeah, and it brings in we had a question about excuses and things it seems to be one there is always some excuse. Yeah. For something else.

[Elaine] Yeah.

[Paul] Is this an excuse on money flow. Oh you love.

[Elaine] It. Yeah. I mean, I love any excuse not to raise interest rates. Sure. Like, who doesn't?

[Paul] Yeah. Yeah, I get you. All right, let's. Let's get back to that livestock. Let's go. Scott in Wisconsin here. He wants to know, how sustainable is the dollar? $82, 90. Even $2 fat cattle in the near future.

[Elaine] Oh, $2. I mean, I guess we should be aiming for the eye. You know, let's not get greedy. I think it's relatively sustainable. So as I mentioned on on the main show, like packers don't really pencil out at a profit if the choice cut out is three or six or whatever it is, and they're paying 180 for these cattle. But what are they going to do, stop slaughtering them? Of course, they're going to continue to buy what they can buy and pay what they have to pay from the feedlots. So I think the feedlots can continue to press this and certainly stay steady here. I don't think it was a one week flash in the pan.

[Paul] I'm looking at the number again, 555 was the weak rise, 3%. Who would have thought that? A $5 you're.

[Elaine] Talking about.

[Paul] Future and I'm talking I'm talking futures. Sorry, I'm talking about August cattle. The cash is really what kind of exploded. So at what point do people not even dip their toe in that futures and just stick to cash?

[Elaine] Oh, no. I think the futures will catch up. And this sort of caught up on Friday. It has expanded trading limits now. I mean, I think it'll, it'll start to reflect reality. I think it'll show up on Monday and it'll start getting closer to the 180 number. Yeah.

[Paul] All right. Well, Candy farms in Oklahoma then asked the follow up to what you're saying. Can the feeder and live cattle find a top before the end of the year, or are we about as high as we can expect?

[Elaine] Oh, another great question. I mean, I, I do think that these numbers are sustainable. I think they're very real numbers. I think they're absolutely justified by supply and demand. I don't know that I'm necessarily looking for a top much higher than that, because at some point you can't you can't squeeze blood from a stone from the grocery shop or let's say.

[Paul] But at what point?

[Elaine] I don't know.

[Paul] I mean, is it the grocery shopper that's going to just stop?

[Elaine] But yeah, I mean, they haven't stopped yet. Yeah. I mean, maybe we can just continue to.

[Paul] The story about we had a question in the main program about the chicken and the pork. I noticed it again. I've noticed it for weeks at a time here in the grocery store about cheaper pork. But there wasn't the line in front of the pork counter.

[Elaine] Yeah, exactly. But it was but it depends on how cheap it got. I mean, and I, I also don't think that that pork market is going to collapse necessarily because of Prop 12. I mean, I think there will be definitely a noticeable spread between compliant and non-compliant pork or hogs in the hog market. But I don't think that your average grocery store consumer in the Midwest is going to discover a sudden glut of pork necessarily.

It's going to be famous last words. That's that is not actually my prediction. But if that did happen, I mean, maybe people would start moving away from beef.

[Paul] But we may we we may see the story next week in the national media. Yeah. That talks about these cattle prices. Is that the type of thing that finally because you know it's always the once it shows up on the you know, the nightly news or the the national newspaper, the.

[Elaine] Cattle prices aren't going to.

[Paul] You don't think cattle.

[Elaine] Prices. Well, I mean beef prices would Beef prices is a headline that the newspaper reader would care about cattle prices. Who cares? Yeah.

[Paul] Okay. Yeah, I did cut you off about hogs.

[Elaine] That's okay.

[Paul] But I just want to go back one more thing. At what point do you see? Because I thought by now we have seen a hedge and maybe expand some herds. Well, are we. Do we know anything about numbers yet?

[Elaine] No. And I don't think that there's any optimism for that. I mean, maybe somebody else has a different opinion about this. But the underlying story behind all of this Prop 12 stuff, even without that China is buying. We had a very disappointing export sales report this week for pork. And China is just their outlook is to purchase less pork for the United States. So there's bearishness underlying even the short term bearishness. So um, no, I don't think that expansion of the swine herd is something you be looking for.

[Paul] That might have to be the tweet bearishness.

[Elaine] Oh, dear.

[Paul] Christmas, I can't even say it. I'm not going to try it again. Let's go to Phil in Dresden. He always wants to make sure he gets a question to you. He wants to know. I was looking forward to that seasonal high in corn around June 18 and early July for beans. What's it going to take this year for that seasonality to happen?

[Elaine] Well, it would have to be a completely different kind of year. I mean, that's that's sort of the the general expectation. If you have a normal year with normal supply and demand and then you get the most risk premium at this time of year when the crop is at the greatest risk. But, you know, the 2023-24 marketing year is is always going to be in the shadow of our very strange and short supply 2022-23 marketing year. So it's I don't I don't think that we have a reason to expect a normal seasonal pattern necessarily.

[Paul] When does normal ever return?

[Elaine] Oh, someday. I mean like what? You know, once we once we no longer have a triple dip La Nina, you know, like when you have normal production throughout the globe, which does sometimes happen, then you can expect normal seasonal behavior.

[Paul] So you could argue South America helped get us back to a normal production year and global stock issue.

[Elaine] Eventually. Yeah.

[Paul] Someday. Yeah. Once it fills all the voids. Okay. All right. Let's talk about oil. Daniel asked us on Facebook. Oil seems to be priced low. It's that due to recession.

[Elaine] Oh, oil is okay. So it is really nice from a farm input perspective that we do see these prices coming down for oil and other energies and fertilizer even has been coming down lately. Not this week. Kind of sort of bottoming out here. Is it recession? I don't know. I mean, I don't think so. I don't I think actually, when you look at the overall economy, it's better like we're going to go back to the jobs report thing.

It's it's not as dire as any as as it would warrant the recession word right.

[Paul] But people still look at gas prices. We're not that far removed from a spike. A lot can change in a year. A lot can change in three months. Supplies can change. People go on vacation. Right now, it seems like we're going on vacation this summer that that story might reemerge again. And one of those drivers of, eating into demand or adding to the demand.

[Elaine] No, you're right. And I think, yeah, gas prices certainly are perhaps a reflection of that. But it may just be a matter of refineries finally catching up from just coming back down from there. Yeah, really constrained moments. Earlier this.

[Paul] Year, you mentioned natural gas. Just needed to say we show the chart during the main program to 18. That's off 9% this week. You also want to talk a little bit about fertilizer. You mentioned it here. Maybe bottomed well or paused.

[Elaine] Yeah, let's say pause. So it has been coming down since the high as we saw during the like the peak of the Russian war concerns. It has been coming down. But I don't think it's ever going to come back down to what it was before 2021. Unfortunately, I think they will remain elevated. They're certainly above five year highs.

You've got dry your ear around $625 a ton, which moved up this week probably based on South American buying more than us buying at this point. But um, yeah, I think they will remain elevated and I think we may have gotten all of the pullback that we might hope to get from that.

[Paul] You sure you don't want to resell those calves sold.

[Elaine] Like I'd sell them every week if I could, you know?

[Paul] Good. All right. I appreciate the time and the insight. Thank you so very much.

[Elaine] Thank you, Paul.

[Paul] Elaine Kub, everybody. Next week, we take the temperature of the pork industry after the Supreme Court ruling and we'll have market analysis with Ted Seifried. Thank you so much for joining us right here on Market Plus. And have a great week.