Pearson: This is the Friday, January 18, 2013 version of the Market Plus segment. Joining us now is Elaine Kub. Elaine, welcome back.
Pearson: We've had a lot of questions submitted, a lot of people are curious about what is going to happen with new crop corn and beans in particular. Phil in Ontario is asking with Brazil pushing towards 84 million metric tons of soybeans, is there hope for new crop beans? What are we going to be looking at?
Kub: Well, I think within the timeframe of a battle for acres you could say that there might be -- I don't think that the market is very excited about being bullish on the new crop of either corn or beans because at this point there is a drought, yes, but I think you could still make an argument that we might see normal yields. So next month in February the USDA is going to come out with its baseline projections for 2013 and when they do that I'm curious about when they look at their trendline of corn, let's say since 1990, do they include 2010, 2011 and 2012 because if they do that, that makes the trendline for 2013 156 bushels per acre. But if you throw those out, if you just pretend that these past bad years didn't happen your trendline for corn should be, so previously the path that we were previously on should set us at 168 bushels per acre. So there's about a billion bushels, if you have 100 million acres planted, there's about a billion bushels of play in the supply and demand matrix just from how you want to guess at yield. So with those kind of guesses, with either of those guesses they would still be pretty bearish. I don't know we're going to see new crop corn go much above $6 or new crop beans go much above $13. So yeah, to Phil's point, yeah, when South America comes in and brings their supplies to the market we're looking at a stocks to use ratio for soybeans that is roughly the same as what it is now which is none too tight. So I don't think that we're going to crash the soybean market back down to $9 or anything like that. But I don't think you can make a very bullish case yet until that drought has been confirmed into the spring.
Pearson: And so with that in mind, at this point in time, you mentioned on the show it would be prudent to get out there and at least sell a little bit of your '13 crop. Should they continue to plan on incremental sales up until we get the report next month?
Kub: Oh, well my incremental sales passed an initial sale at the $6 and $13 level. My incremental sales from that point forward are dependent on precipitation because that is why you don't want to be making bigger sales. I might be saying sell everything at $6 if I believed that we were going to get precipitation and have a normal crop. Then you're going to wish you sold at $6. But until you yourself get precipitation and feel confident of being able to raise a crop I don't think you want to get oversold.
Pearson: All right. So that is what they need to keep in mind.
Kub: I think so.
Pearson: Okay. Tim in Crookston, Minnesota is asking, what is your short-term upside goal for wheat, beans and corn?
Kub: Well, for the Chicago wheat, it really seems to have found some resistance at that $8 level. And I think part of the reason why that market has ever come up at all the past couple of weeks is because it is following corn. So it doesn't have much to bring it much above the $8 level unless corn takes off again, unless we don't really see a pullback in corn and corn just keeps going higher. Other than that I would say that the Minneapolis wheat and the Kansas City wheat, Minneapolis wheat would certainly be justified aiming for $9 and shooting above it because it is also in a drought. They don't have their moisture being replenished yet and the Kansas City wheat, I don't have an upside target for it because I think that's about a bullish market there is. I really think that it should be rebuilding its premium over these other wheat markets.
Pearson: And so we're going to have to keep an eye on Kansas City and hopefully we should begin to see a weather premium take shape in the market here in the next, soon.
Kub: Yeah, I mean, it's probably not April until you really get some sort of confirmation from a government condition report but you're going to be able to see it much sooner before that.
Pearson: Now, since we're talking everything is dependent on precipitation, everything is dependent on the weather, you keep a pretty close track of weather predictions looking out there. How are things shaping up? Is anything predicted to change short-term?
Kub: I have not seen any medium term predictions for precipitation because I think it is -- from what I understand, I'm not a meteorologist, but from what I understand it is hard to break out of a drought and you guys touched on that a little earlier in the show is that once the soil and the air kind of gets into that cycle it takes a big front or big event to really pull it out of there. So I have not seen any predictions for that yet. So yeah, I guess that's why you don't, I wouldn't want to be selling a whole lot of new crop of anything just yet.
Pearson: Be cautious.
Pearson: Be cautious. As we look with the high prices we've had and in corn -- we've got a question here from Erik in Beaver Creek, Minnesota. He is asking, long-term what prices are we going to need to stabilize at in corn and beans to build back the demand that we have lost?
Kub: Well, I think the demand is going to get built back fastest from the poultry and the pork and the ethanol and things like that because the beef herd is going to be very hard to build back because we're taking away all of their range to grow corn. So we're compounding the problem, if it's a problem, we're compounding the situation where it is bearish, you're producing a lot and then you're going to produce more in this year, in this cheap year and make it just cheaper and there's not going to be any place to raise these cows. So from the beef herd rebuilding argument that will take a long time, many years. But from poultry building more corn into their feed ratios perhaps that can certainly happen within a year. So what price levels does that take, I don't know, I certainly believe that if we have 15 or 16 billion bushels you could be looking at a $4.50 or a $5 price tag pretty easily.
Pearson: So that is just all dependent on weather again.
Kub: Yeah, exactly.
Pearson: Let's talk a little bit, if you could make any trade here in this next week, what would be your trade of the week?
Kub: Well, Mike, my trade of the week has kind of been my trade for the past two months. I've sort of been hanging onto this and I still really like it, it's that spread between the Kansas City wheat and the Chicago wheat. And it has kind of been hanging out in this range, it's at about 54 cents and I'm talking about the July 2013 contracts that are reflecting that dormant wheat right now because in the eastern Corn Belt where the Chicago sort of wheat is being hedged they have received decent precipitation this winter, not to say anything special about the temperatures, but they have received decent precipitation. In the western Corn Belt where the Kansas City contract is being hedged obviously they have bigger problems. So in my opinion even to just get back to a normal, just a statistically, historically normal relationship that spread should be 80 cents. So that would be my target for that and it is currently around 54 cents and it has sort of been vacillating between 50 and 60 cents here for a while. So it hasn't really been catching up much ground but I think eventually as we get towards the spring and this starts really getting paid attention to by the markets you'll see that spread come up, in my opinion.
Pearson: We'll see that widen.
Pearson: Thank you so much, Elaine, pleasure to have you with us.
Pearson: Thank you so much for submitting your questions. We really appreciate it. Keep sending them in and we'll keep getting expert advice to get right back to you. Have a great week.