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Market Plus: Elaine Kub

posted on January 3, 2014


Pearson: This is the Friday, January 3, 2014 version of the Market Plus segment.  Joining us now is Elaine Kub.  Elaine, welcome back.

Kub: Thanks.

Pearson: One of the topics we didn't have a chance to discuss during the full show was cotton. A little bit of a rally this week, a bit of a sell of -- or last week -- a bit of a sell off this week.  Where is the cotton market headed?

Kub: Well, that sell off this week that you mentioned is fairly consistent with the general commodity pattern this week similar to crude oil, something about coming into the New Year and traders wanted to lay off risk.  And I think there is significant risk in the cotton market right now.  That uptrend that it has been on was maybe tied to the tightness of the U.S. supply and demand but globally -- we're going to get another look at this in the January crop report that is coming too -- globally there is large stockpiles of cotton, in China particularly that at any point in time they could wake up one morning and release these stockpiles and really drive prices down.  So that is the kind of market where you would not want to face that risk or you might be looking ahead, even as a speculation, and thinking that it might make sense to get short in cotton.

Pearson: Now, we were talking a couple of weeks ago about China's large stockpile and at that point there were concerns about the quality of the cotton that China had been stockpiling.  Is that still an issue?  Is the market still concerned about what it is that China is holding?

Kub: It may be.  The merchandisers of cotton, they may have been getting their hands on or certainly contracting down the higher quality cotton in the U.S. and, again, that may have been what drove this recent short-term higher trend.  But at some point, you know, I think you still have the threat of China releasing those stockpiles and shocking the market.

Pearson: Now, what happens when China, should China release those stockpiles, where could cotton prices go?

Kub: Well, I think they would certainly drop below 80 cents again fairly quickly.  I don't know exactly where they would find support again.  It may not be a long-term trend that keeps going down and down and I don't know that we'd go retest the previous lows from a couple of months ago.

Pearson: Okay.  But potential sub 80 and into the 70s?

Kub: Certainly, yes.

Pearson: Alright.  Well, now anything there specifically?  That would be your sort of trade of the week then as we look at cotton, get short?

Kub: Yes, I think so.  And like I said, even as a speculation I think it would make sense.  I don't know that there are much reasons to expect it to go back above 85 cents.  I don't know that anyone really expected it to get this far to begin with.  So for it to -- to be short in cotton and see it take a dive back down to low 80 that would be a nice little pay off.

Pearson: Yes it would for those that are short cotton.  You bet.  Now, we've got a question from John in Columbia, Missouri and we're going to have you gaze into your crystal ball here.  Look out to 2014 and John is curious, can any ag product rally this year?  And what will it take?  We're seeing one going on with fat cattle trade.  What else out there looks promising?

Kub: Well, to answer his first question, can any ag commodity -- yes, of course.  Of course they can.  Anything can happen.  And, like I said earlier in the show, that was the sort of thing that we were looking at in soybeans even when it was a little bit dry in Brazil and quite a bit dry in Argentina.  You look for any sort of weather thing and you could easily see something have a major rally.  But that is not happening anymore in South America.  I think that shipped has sailed.  Their pods are filling fine.  They have plentiful moisture in the forecast, even the long range forecast that will get them started into harvest, if anything they may be a little uncomfortably wet during harvest.  So for our major row crop ag commodities I don't see anything in the near next few months that is going to trigger a rally.  But we've still got the North American crop to get through.  We have no idea what the spring and summer weather is going to be like.  So within the year, to answer his question, of course they can.  But that is what it would take in my opinion to be some sort of weather effect or to go back to the livestock or other commodities some sort of really juiced up demand.  Like I mentioned, crude oil was not able to go above $100 per barrel just because the economy is not growing that fast, it's not that optimistic.  But if something did happen that we really had a lot of optimism and a lot of growth in the U.S. economy or the global economy that could certainly help the boxed beef market and the fat cattle market and the feeder cattle market and the hogs and all of the meats, sort of consumer demand could drive them.  That's what it would take to drive them to even higher record highs.

Pearson: Alright.  So there's a lot of potential out there in a new year as there often is.  And you mentioned the row crops, waiting on a weather event, March of 2012, April of 2012 we were all counting on huge planted acreage, huge corn crop --

Kub: 14 billion bushel crop, which we may finally get.

Pearson: Right, and we'll find out on the 10th.  Now, Phil in Canada has a question.  We're going to bring it back to wheat.  We talked about that a little bit on the show.  Phil is curious, is there hope for wheat looking out longer term?  Or are world feed grain supplies just too onerous for the next two years barring a weather calamity?

Kub: I think there is hope for wheat in that eventually we will spur some demand.  We'll have somebody step in here and change that trend.  Trends change eventually.  They cannot go on forever.  Someone will come in and buy that wheat.  But as far as any bullish news items that I can see coming down the pipeline, not really.  So Australia is starting their harvest, getting pretty hot right now, so USDA is going to look in on that and, again, possibly change that.  They upped the Australian production in the December report, they certainly may do so again in January based on favorable harvests there.  So there's not, like I mentioned, as I'm sure Phil knows, you know, Canada has ample amounts of wheat so there's really not a lot, other than demand, other than export demand, buying, again, consumer demand, consumer change in pattern, diets changing, that is what it would take to change that trend in wheat.

Pearson: Right.  So we're going to need to see the economies continue to improve around the world to get consumer demand up and then probably prices stay low a little while to chew through the stockpile we've got. 

Kub: I believe so.

Pearson: Alright.  Now, we've got a couple of questions, guys curious about corn.  Bob in Nebraska is asking -- and we touched on this on the show but maybe you can go into a little bit more detail -- Bob says, for those of us still holding onto 2013 corn what do you feel about the chances we will see an increase in the corn cash price in the month of January when compared to cash harvest prices we could have received.  Do current prices already reflect a worse case January crop report?

Kub: No.  I think that the chances for cash corn prices going up within January are fairly slim.  This is just typically the time of year when farmers may be selling or the commercial mills and consumers are still working through the harvest stockpiles. So this is not the time of year where you would ever typically expect to see a rally in cash corn prices.  And as far as a worst case scenario I think that yes, I think that the size of the harvest and the size of demand is pretty well priced in at this point.  But a worst case scenario January crop report could be quite wild indeed and we could easily see that average cash corn price in the country fall well below $4.00 or 20 cents below $4.00 let's say.  That could happen on a really volatile crop report, worst case scenario.  But I think that the market is pretty well priced in the anticipation of a 14 billion bushel number from the USDA and hopefully nobody will be too surprised by that when this comes out.

Pearson: There's bearish sentiments already in the price but --

Kub: Maybe not worst case scenario.

Pearson: Certainly.  That would be a great buying opportunity if we already were pricing in worst case scenario.

Kub: Absolutely.

Pearson: You bet.  Alright.  Well, Elaine, we really thank you for being with us.  Before we let you go, any final thoughts on the market here in this next week or this next month? Anything that really jumps out at you?

Kub: Well, I think that, you know, I'm jittery like the stock investors that we would see something really wild happen there.  I feel like it was probably overwrought there at the end of 2013 going after that record high and everybody is waiting to see if there's going to be a major pullback, even 20% and I don't ordinarily, I don't ordinarily do much analysis of stocks but the concern is that an event like that would really scare investors and create volatility, waves of volatility through a lot of other investment markets including our commodity markets.

Pearson: And then we would see that in the farm yard.

Kub: Yes, sir.

Pearson: Alright.  Well thank you so much for being with us, Elaine, appreciate you taking the time.

Kub: Thanks, Mike.

Pearson: 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 to you.  Thanks for watching and have a great week.


Tags: acreage agriculture analysis basis commodity markets commodity prices corn economy Elaine Kub markets midwest new crop grain soybeans USDA weather wheat