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Market Plus: Elaine Kub

posted on April 19, 2013


Pearson: This is the Friday, April 19th, 2013 version of the Market Plus segment.  Joining us now is Elaine Kub.  Elaine, welcome back.

Kub: Thanks.

Pearson: We did have to cut off the market analysis segment on the show.  We didn't get a chance to talk about lean hogs.  Give us your thoughts on where that market might be headed.

Kub: Well, I think that market is headed in a pretty flat direction and the reason why is because even though we're headed into grilling season, eventually, right -- the eastern seaboard has actually had some sort of springtime weather so there are these reasons to believe that the grilling season might be starting, especially when you look at the beef market there is a wider spread between the choice and select beef prices.  So you do expect to see this happen so you would expect that to be kind of bullish about hogs but I think that will be counteracted by just this general sort of slow growth in the industry.  It has continued to grow over the past three years and it keeps doing that.  So I think, you know, it's been the same story for hogs that it's been for months is that you have, you know, enough sufficient supply to keep prices from getting too hot and they can then build in this larger and larger discount to the beef prices at the counter.

Pearson: Gotcha.  So the prices that we're seeing for hogs, they're not enough to entice people to begin to liquidate.  I mean, folks out there are doing okay as hog producers.  But they're not high enough to -- they're too high to really get folks out there buying.

Kub: Right.  Well, I wouldn't say that the producers are probably doing okay.  But of the entire livestock industry that is the part that is losing the least amount of money.  They are losing money but not as much money as a beef packer or a beef feeder, for instance.

Pearson: As of late it is all relative.

Kub: Yeah.  So, so, yeah, so when you look at the livestock or the pork industry or the pork market they do have a fairly large quantity being moved through, their volumes of trade is going well and that should be the case through the summer.  When we do get to grilling season that will be what is probably going to be what is featured at the counter at the grocery store is the pork products and get that volume keep moving and the price staying at a discount.

Pearson: Is there anything on the horizon you think could cause us to spike up as we look to events in China with the bird flu and changes in the -- are there things on the horizon that could cause us to move either one way or the other in your opinion?

Kub: Well, that Chinese flu, I wish that there was a good way to predict how when these headlines hit the market, you know, you've got the pink slime or a mad cow, I mean, you can just expect that the markets are going to have some crazy thing happen. And so it's hard to really predict what's going to happen coming out of that flu situation and if it comes into the U.S. god forbid.  But the one thing that I would say that could be coming down the pipeline for meat prices as a whole would be this projection of Japan importing more U.S. beef.  So they're expected to have 45% more than a year ago which would be great and that would be a huge increase and it still wouldn't really come back to the levels that we had 10 years ago before this mad cow incident, talking about strange incidents.  But if you could see that, you know, building some sort of excitement into the beef industry and you get the boxed cutout above $200, if you had that happen then pork, which must stay at a discount to beef, could also follow it higher also.

Pearson: And this is a possibility even if Japan continues to devalue their Yen.  We still might be able to get that.  Or is that the counterbalance that is perhaps out there?

Kub: Gosh, that really does complicate things if you think they might be importing more of our beef but what would they pay for it.  Yeah, I mean, that Yen situation has been I think one of the sparks to this entire community meltdown over the past week.  So you're absolutely right, whether they import it or not I don't know what they're going to be able to pay for it.

Pearson: Okay, but there is possibly hope on the horizon for these prices to maybe move up a little bit on the pork side.  Now as we come back to cattle, because we didn't spend much time on cattle during the show, could you give us a thought, where do you see live cattle prices going?  What sort of levels of support do you see out there on the live cattle side?

Kub: Well, in the market, in the cash market this week it was kind of like gold, some folks wanted to try and make an aggressive recovery.  They were asking for $128 or $129.  By the time trade actually developed in Nebraska and Colorado is stayed around $125, $126 so that's -- we've just been in this pattern for a couple of weeks just waiting and waiting and waiting for this grilling season idea to spark the market and it has not happened and I don't necessarily think it's going to happen until you get some sort of confirmation of, of customer's willingness to pay or Japan exporting or something like that.

Pearson: It's going to take a big headline or a big change in sentiment to get these prices to change.

Kub: I think so.

Pearson: Now, moving to the feeder cattle market, what do you see there?  Those feeder cattle guys have been on a roller coaster these past three, four weeks.

Kub: Yeah and it's, again, it's been the same story there too is that you have a shortage of supply which was the case a year ago.  I think back to a year ago where folks were buying the kind of calves that you could put on a pasture or a background for $170 a hundred weight and this year that cash index is $135.  I mean, nobody can put together the program or wants, or has a willingness to spend the money, to bleed out that money to put together a program to feed these calves or these feeders.  That is the segment of the whole live sector issue that is suffering more than any other is this cattle feeders.  So -- and the pasture is not there and hay is expensive, at a record high, even more expensive than a year ago so that explains a lot of that difference between feeder prices from last April to now.

Pearson: Alright.  So not a lot of bright spots on the horizon for feeder cattle producers?

Kub: Sorry but no.

Pearson: Hang in there.

Kub: Yeah.

Pearson: Alright.  Well let's take a look, we do have a lot of questions here from our social media followers and Kevin in Dunlap, Iowa has asked a question that I'm sure a lot of people have thought about this past week.  We had the fertilizer plant explosion, the horrible disaster in west Texas and his question is, does that plant explosion, is that going to have any impact on fertilizer prices?

Kub: Well, I am probably not in a great position to fully answer that question.  I think that we have to wait and I think time will tell.  But I don't see why it would immediately.  I think some stockpiles are probably already in place that folks could have been putting on over the past two weeks if they had been planting but nobody has been planting.  I think the more relevant question for fertilizer prices going forward would be the closure of the Mississippi River, how that might affect that fertilizer that gets backhauled up from the Gulf, how does that affect the localized prices in Illinois and Iowa by the time, you know, planting ever does get started?

Pearson: We do have another question here from Phil in Ontario and I think this is a question that a lot of producers have been asking as we watch these massive selloffs in gold, as we watch these big funds come in and move money around in the market.  His question is, how can a farmer truly hedge their price risk when fundamentals get swapped by violent fund moves?  Someone who is working with farmers on a day-to-day basis, Elaine, how do you -- what is the best way to handle these markets with these relatively new players?

Kub: Well, and my sort of flippant answer that is not even particularly relevant to poor Phil in Canada who does not have the same sort of federally subsidized crop insurance program that we have here, is that if a farmer, in the U.S. anyway, chooses he could sell everything at a profitable price right now with a cash contract and sell it up to his insurance levels and know that even if he doesn't raise a crop he will be able to buy out of that contract with his insurance payment and he'll be okay.  Like he could just spend the next eight months not even looking at the futures board if he chooses to.  So if you choose not to do that you are choosing to participate and sort of speculate in these markets and that's, I mean, that's what I'd do.  Like I said, I'm still kind of bullish on new crop prices so I have not been selling large portions of the new crop so I am, I am choosing to participate in that volatility.  So, what can they do?  They can just play in the cash market and hedge everything.  If you're not hedging, you're speculating.

Pearson: There you go.  There you go.  Pretty simple answer really.

Kub: Well, it's, I mean, it is more complicated particularly with crazy weather years.  I mean, it really takes a real leap of faith to make huge cash sales this early in a season.

Pearson: Certainly, especially when if you look recent history, you know, the guys that came out the best were the guys that did no planting --

Kub: Yeah, exactly.

Pearson: -- and they sold right off the scales.  We've got one final question here and this is something we touched on in the show.  Paul in Columbus is asking, as we look at these saturated soils and this cold weather, in your opinion, how many corn acres might be transitioned to bean acres?  Do you have a number out there?  Or is this kind of a wait and see, see how things clear up?

Kub: Uh, no, I don't have a number.  And, again, like I have not hit the panic button yet. My hand is over the panic button but I think right now you could still theoretically get all the intended corn acres planted, you could switch to 90 day corn or any shorter season corn, you could still have the same number of corn acres and just have some yield drag.  And there's also the situation that some corn acres may be switched to soybeans in Illinois or even Iowa but there could be additional corn acres coming out of Kansas right now after wheat gets abandoned.  So I think it's very much in play and right now before we really are close to that May 15th cutoff date I would say that any corn, abandoned, or switched corn acres from the eastern Corn Belt would be counteracted by abandoned wheat acres in the western Corn Belt.  So I don't think that there's going to be a net change at this point.

Pearson: It's a balancing act currently that they're balancing.  Well, it's going to continue on will this rain continue?  Will soil temps warm up?  Will people be able to get into the field eventually?

Kub: Exactly.  Good question.

Pearson: Well, thank you so much, Elaine, really appreciated having you on the show here today.  Do you have any final thoughts you'd like to share before we let you go?

Kub: I think you hit a lot of them.  I mean, it has been very volatile and it's frustrating when, you know, a big fund can go in or whoever can go in and short sell a market and just make everybody very risk averse and ignore the fundamentals.  It's frustrating but I think it is valuable to have that volume in there and be able to get these things traded.

Pearson: Alright, well thank you so much, once again, really appreciate having you on the show.

Kub: Thank you, Mike.

Pearson: Elaine Kub.  And thanks to all of you for continuing to send in your questions via Twitter and Facebook.  Please keep doing so and we'll continue to have experts give you expert answers.  Thanks for watching.  I'm Mike Pearson.


Tags: agriculture analysis cattle commodity prices corn economy Elaine Kub hogs markets Mike Pearson news soybeans wheat