Pearson: This is the Friday, October 11, 2013 version of the Market Plus segment. Joining us now is Elaine Kub. Elaine, welcome back.
Pearson: One of the things we didn't get a chance to talk about during the show was cotton prices. We had a little rally going on heading into last week. This week it fizzled, we lost about $3.00. Explain to us a little bit about what's going on in cotton.
Kub: I think that rally was tied to the Tropical Storm Karen, they were concerned that that was going to damage some of the U.S. fields so the U.S. cotton futures, they respond to that. And then the tropical storm fizzled out so the prices fizzled out too but it's a good demonstration of how volatile the cotton market is because it's in the same timeframe, I mean it's a harvest timeframe for it so it really will respond to news like this.
Pearson: So, looking at the demand picture, this $83 and change level that we're at now in cotton, does this seem to be a reasonably well supported level going forward?
Kub: It doesn't have a lot of support beneath it and I do think that they're, particularly with Informa increased their projections for cotton. In the absence of USDA we rely on these independent forecasters. They increased their cotton production forecast. There generally seems to be good yields expected here in the U.S. so I think the natural direction for cotton at this point would be to go down and there's not a lot of support so it could continue to be volatile.
Pearson: Okay. Something to keep an eye on. Well, let's take a look at some of the questions we've gotten throughout the week on Facebook and Twitter. We've got a question here from Brianne in Moville, Iowa. They were one of the places hit with that, the remnants of the storm that came through South Dakota, tornado touched down in Moville and they lost their storage. So her question is, what is the best strategy for pricing both corn and beans off the combine? And is NPE with a storage charge going to be worth it?
Kub: Well, not for beans. And let me just say that's pretty heartbreaking too. I mean, I am very bullish for storage and not just for Brianne but for anybody, to rebuild that storage or to rebuild as much storage as you can, because once we get out of a pattern of wild weather and we have great yields, and some areas of the Corn Belt are having great yields this year, we're demonstrating that we can grow huge crops and it will be nice for the farmers, there's opportunities for farmers to capture the carry by building their own storage so it's really too bad. And so to answer her question, yeah, the soybeans I don't think it makes a whole lot of sense to store, it certainly doesn't make sense to pay somebody else to store it so forget about paying for the DP or whatever for soybeans. As for corn, with her NPE program or DP program, I think it pays to shop around and perhaps some co-op even 50 miles away would have less punitive fees on that. But I think, yes, it would make sense at this point. Like I mentioned on the program we're in harvest pressure for corn prices right now and I do believe that there will probably be better opportunities after the first of the year.
Pearson: Okay. Alright. Now, as we take a look, Neil in southern Minnesota has another question coming back to the story out of South Dakota, the cattle losses there. What effect, if any, is that going to have on cattle as we talk about -- especially as we look towards next year with feeder cattle prices being in uncharted territory? What does 2014 look like? And then also if you could talk a little bit about hay prices. Are we going to see much of an impact there?
Kub: Yeah, well I think it will be a cut to the feeder cattle supply in 2014, which was already, we want to be expanding. I believe that the industry has been paying for us to be expanding feeder cattle in 2014 and that is obviously, has not helped that goal at all. As for hay prices, actually the northern states have been recovering their, I mean they have not been in a drought the way that western Kansas has been, for instance, or even Oklahoma and Texas range has not, the northern areas have not been as bad. So gosh, I don't want to say that a 4 foot blizzard is good for future range but it probably is good for future range and bearish to hay.
Pearson: Right, certainly be a little bit supportive looking forward.
Pearson: Now, as we take a look, obviously a lot of the concerns from people on Twitter and Facebook, a lot of concerns from people in the field, a lot of concerns of yours are, where are the hard numbers that we can trade?
Pearson: Thomas is asking, are you freaking out about the USDA reports not being issued? And just on a bigger level, we've got a lot of questions here, Phil in Ontario is asking, in the vacuum of no October 11th USDA report where are soybeans really at stocks, acreage and demand? Without the USDA how can producers find this information, where can they pick it up?
Kub: Yeah, well let me just say that I kind of like not having an October crop report. And I'm not just saying that to be facetious because it was less stressful for me this morning. I mean, really, that if we've only got about 25% of the corn harvested right now, we don't know how much, how could anybody measure or make a very confident prediction about what those yields even are? I think we should just skip October crop reports going forward. If the whole point of this government shutdown was to figure out what programs to keep and which to shut down I say keep the crop progress reports that show us how much has been harvested and whether we're passed the guts of harvest or not or how much basis pressure we can still expect and perhaps cut the October supply and demand report, don't even need it, don't want it.
Pearson: Now, Elaine, looking at your complaints about the October report, we don't have a good idea on yield, we don't know exactly what is out there, couldn't you make the same argument about every other month of the year?
Kub: Right, yes, you could. And, I mean, what I shouldn't leave out is that it would also weigh forth on the economic projections for demand. And that particularly is important to the wheat market right now. We're not worried about yield so much in the U.S. but we want to know what the demand is looking like for exports. And that is also true of soybeans, we're very conscious of domestic demand for soybeans. So, yes, we do want to take a look at some official projections for those demand numbers. But does it need to be monthly? I don't know.
Pearson: Well, and while we're in this government shutdown, without knowing how much longer it could last, where is the trade getting demand information?
Kub: You know, I think the trade is getting demand information, like I mentioned, an efficient market just knows. If China has been buying beans or buying U.S. corn over the past couple of weeks, you know, the commercials have been hedging that on the futures market and that may have been a source of support even without official confirmation from the USDA. But do I freak out about not having the numbers? Yes, I do, because I want to be able to go and see the historical database of all of this information so that we can compare one timeframe to the next. It is really frustrating not to have those databases available. But these day to day reports, the market can get by even without that and I think that it does completely disregard these independent, I mentioned Informa gives out numbers, lot of independent forecasters do but it's been kind of interesting the past couple of weeks to see how the market does not really react to the independent forecasters numbers, they only really react to the official number.
Pearson: Certainly. There's no barometer to test whether the other estimates were accurate because that's what the market uses the USDA for --
Kub: Right, nobody else has an army of 4,000 observers to go out and see how much and then average out and have some power in the quantity of the numbers to average out and see what your harvest pace is or what your condition ratings are, nobody else can do that but the USDA.
Pearson: Alright. Well, perhaps we'll have those numbers back eventually.
Kub: I hope so.
Pearson: Before we let you go, Elaine, Corey in central Iowa has a question that is on a lot of minds of a lot of younger producers. And he is asking you to kind of gaze into your crystal ball, take a look longer term, he is a beginning farmer concerned with high inputs and lowering prices. I know you preach diversity on some occasions for a beginning farmer. How do you handle this downturn in row crop prices?
Kub: Yeah, and you know, so I really started in this industry in 2006 when things were really getting hot for corn and I feel like me and anybody my age who started as a farmer then we've had some pretty gravy years here and it seemed pretty easy to make money and to be, make some kind of a profit lately. And I think that definitely going forward the next five or ten years if we can avoid major weather disasters it's going to get a lot more lean because we're going to be back to the world of producing at or barely above the cost of production. So, what was the question? What should he do?
Pearson: How should he be preparing, as a beginning farmer, to address this producing at or just above the cost of production?
Kub: You know, be more lean with your purchases. This is no longer the time to be really extending yourself on operating notes. And you mentioned diversification, there are great opportunities I believe in the livestock industry, which is a lot riskier because there is no equivalent crop insurance, federally subsidized crop insurance program to pay somebody for death loss if a blizzard takes out 50% of your herd, for instance. So it is more risky but if you can diversify your operation that is one way to do it and certainly just be more mindful and more conservative with what you're spending on those inputs.
Pearson: Maybe while you start farming some ground, Corey, don't tear out all the fence lines first thing, maybe leave a few in.
Pearson: But thank you so much for being with us, Elaine.
Kub: Thanks, Mike.
Pearson: Really appreciate your comments. And thanks to all of you for sending in your questions via Facebook and Twitter. Please continue to do so and we'll continue to get expert analysis right for you. Thanks for watching and have a great week.