Market Plus: Dan Hueber
Dan Hueber discusses the commodity markets in a special web-only feature.
Yeager: Welcome in to the Friday, February 11, 2022 Market Plus. Joining us to continue the conversation is Dan Hueber. Dan, I had a couple of philosophical questions. I knew we had so much to cover a few minutes ago. Are we living history right now? Is this 2008 all over again?
Hueber: It's hard to argue that we're not living history but I Don't think we're quite into that same period as we were in that 2008 to 2012 period which is compounded with several different things. And I think that period you've really got to go back to that 30 year commodity cycle. 2008 to 2010, 2011, however you want to equate it, was very comparable to in the 1970s which were also comparable to the late 1940s. So I still think that long-term 30 year commodity cycle is in effect, which would tend to say we're not ready for the next real big boon. You can't argue at all that this is a very exciting time, very exciting period for the commodity prices, but I think we're probably just in that readjustment period. We're setting what are going to be the high watermarks for the next decade or so and we just have to adjust to this new range. So yeah, the whole level is elevated. We've come away from the Depression of the 2014 to 2016 period. We probably won't revisit that very often. But I don't think we're ready for the move to $20 beans and $8 corn again.
Yeager: Google is telling me that maybe people are looking that up. We have a couple of videos that have discussed that topic that have all of a sudden popped this week. So people are looking at that discussion to wonder, what if?
Hueber: Sure. Again, if you have enough circumstances that turn poor like South America on top of having a difficult crop here, sure those elements could come into play. And you could easily find individual, we've already seen individual commodities go to record highs this year. When I look at, for example, soybean oil, with so many people pushing into the renewable fuel with using soybean oil and diesel now or oils period in diesel, that introduces a whole other set of circumstances that can change the picture. But boy when it comes to the basic corn and soybean meal, wheat, we have not really shifted it that much to really say we should necessarily be looking at the historical move like '08.
Yeager: Well, we're seeing high prices on a lot of things, not just commodities, but what it takes to grow them. And that kind of starts off, we had about 4 or 5 great inflation questions. We used one in the first program. Now we're going to use Matt in Amherst, Wisconsin's question that came in via Twitter. And he wants to know, we have always been told high prices cure high prices. With inflation running rampant, are these really the high prices that will kill demand?
Hueber: Well, it isn't so much necessarily even killing demand. That is one part of the equation. But also is it giving people incentive to increase production levels? And I think you put the two together and I have to come back and historically answer, yes. IT has in the past and I think it will in the future as well. And again, we can go back to some of those other periods, particularly in the early '70s and again the early part of the last decade and we would probably ask the same questions. How can we stop this? How can we ever get enough production out there? How can we ever stop the demand? And that is the job of the market and I think that is what the market is trying to exactly do right at this point in time.
Yeager: It's just a matter of what that ear is telling us in the market. Let's ask Tim in Crookston, Minnesota's question here. He wants to use a football reference, sports reference this week. Corn and beans have been playing offense in the first half of the bid for acres game. We are in the second half nearing the two minute warning before time expires and planting begins. His question, will soybeans now control the clock to keep their lead instead of trying to put more points on the board?
Hueber: Soybeans have to control it at this point. I think there is with the problems that have happened in South America at this point in time and, again as we mentioned, some of the changes that are happening on demand in soybean oil, soybeans are the ones to have to buy the acreage at this point in time. And it is really, do we really necessarily need to move either one of them dramatically higher than they stand right now? Is it more just a relationship between the two of them? I should say three, we've got to add cotton into that picture as well. And I don't think we necessarily need to move a lot higher. But we're going to have to see what relationship there we can find to buy the acreage. A couple of weeks from now we're going to have the USDA's first estimate on the preliminary and then of course at the end of March we get the prospective planting. So between now and the end of March you've really got markets that are probably going to remain in flux until we get a few of those questions answered.
Yeager: It wasn't that long ago, Thursday, what happened Thursday was the norm. Then we kind of settled into a little more each day is the same, not each minute is completely different. All right, this is a take on a similar topic you've already covered but a little different twist to it. Phil in Dresden, Ontario asked us via Twitter, corn futures and cash corn are not near 2012 records, but are very high within their historical ranges. He says, this is happening even though corn basis is weakening. Are corn prices getting tired, despite the fact futures spreads are inverted?
Hueber: Well, and futures spreads are going to remain inverted. There should be no question about that.
Yeager: Why? Why are they going to stay inverted?
Hueber: The market wants to come up front. Commercials would rather control the inventory right now than leaving it sit in the farm. But here again basis levels are somewhat localized so that isn't necessarily everywhere and of course Phil being in Ontario is a different market than what we have necessarily in central and northern Illinois or central Iowa. But yeah, I think that will be the rationing factor that will determine if we are overpriced on the corn market or not.
Yeager: Keep going.
Hueber: I was going to say, looking at the new crop, yeah we're going to remain in inversion there just because that is really just an acreage battle. We don’t really have any numbers to put into the supply and demand there just yet.
Yeager: Last week with Mark Gold we touched a little bit on basis but then we got into the carry of the market and he says, I don't see much carry in the market. Well then we had about four or five people quoting some of their local areas that weren't in Illinois or Iowa saying I've got carry in the market. How different is all this right now in corn growing and bean growing areas?
Hueber: Well, granted, the ethanol industry really changed that pretty dramatically over the last 20 years. It used to be you had centralized markets that all flowed into that direction so basis was really more of just a function of transportation into one of those spots. Now the localized profitability and we know the profitability has been exceptional in the ethanol business itself and there's great money in bean processing right now. So if you're in a good proximity to those kind of plants you absolutely have tremendous basis levels.
Yeager: Okay. What about the person who maybe hasn't done anything like Paul in Danvers, Minnesota? He asks, Paul asks you, Dan, since September of 2020 doing absolutely nothing has been the best marketing plan. When or maybe have we already passed the stage of doing absolutely nothing will be the worst marketing plan?
Hueber: Granted, I guess that is really saying have we hit a high in the market? And again, I guess I would be challenged to say that is the best marketing plan. I guess it is a marketing plan or it is a lack of a marketing plan. Here again, it depends on what your risk profile is if you can maintain those type of things. I'd say you're working against the clock on trying to determine when that perfect period is going to be. I would say sometime within the next 60 days you're going to be beyond the point of saying that is a viable way to stay there with the risk on the face in the weeks and months ahead.
Yeager: A friend in Chicago emailed me the exact same thing today. He says, we're living on borrowed time, this is the time to exit out. So do you think we've hit the high?
Hueber: I don't know if we've necessarily hit the high yet but I think we're very close. I think the market is going to tell us. Yesterday I think was a warning shot when we pushed into higher territory and then of course came apart. Today we responded back with some of the concerns with Ukraine and what not and again, of course having Conab come back and drop their production estimate as much as they did. But we're just feeding bits and pieces into the market to get quick reactions out of it. IF you can't continue to feed those type of pieces of news in there it's going to be pretty difficult to sustain us where we're at.
Yeager: You're a big believer in that. You write about that quite often in your newsletter and that's a good point. We're going to finish here with Dietrich in Homestead, Iowa. We're going to talk hogs but also something else. What are your thoughts on the hog market? And as a small side note, with the demand for steam rolled oats in early swine diets, the poor crop last year in Canada, do you expect any relief in the oat market this summer?
Hueber: In the hogs, I continue to have a friendly bias on the hogs. As we spoke in the earlier session, last time we got into this neck of the woods we didn't stop. And I don't necessarily think we have to get up to the $120 realm again but I think the hog market has not really shown -- yesterday it did have kind of scary day where it looked like it could have been marketing a top. But here again, when you look at some of those levels it doesn't matter how far you want to go out, if you're a hog producer you're locking in some pretty profitable levels so I don't think I would necessarily discourage anybody from going ahead and taking advantage of that, particularly we know if you can lock in your feed cost as well. Beyond there, oats, tough call. Canada had a tough crop, we had terrible crops in the Northern Plains. Unless they're going to come in from Sweden it's going to be hard to buff up the supply here at this point. So until we can get that, granted we're not that far off from starting to plant oats up in the Northern Plains again.
Yeager: Just all depends on what that Punxsutawney one said.
Hueber: I guess, a little longer winter I guess.
Yeager: Dan Hueber, good to see you. Thank you so much for making the trip and having the conversation.
Hueber: My pleasure, thanks very much.
Yeager: That will do it for Market Plus. Next week, we're going to talk about the push to end famine and Sue Martin will be back to analyze the markets. Thank you so very much for watching and have a great week.
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