Pearson: This is the Friday, March 21, 2014 version of the Market Plus segment. Joining us now is Elaine Kub. Elaine, welcome back.
Pearson: One of the topics we didn't have a chance to discuss on the show but has been on a pretty incredible rally is the cotton market. Talk to us about that. We're up north of $90 now. Where is this headed?
Kub: Yeah, well I don't know how much legs there might still be in the old crop market. Like you say, $92 I think was the high and you're right, this rally has been going on for a couple of weeks now. It's interesting to note in the new crop cotton it's not that high, it's $80 but it has been trending higher. So there has been some bullishness in that but there is also apparently the thought that there's going to be significant U.S. supply coming on line before December. However, I wonder if there's not considerable legs in the new crop cotton market to come up and meet that $92 level that the old crop is simply because of that drought. There's thought that the corn is going to lose acres to cotton this year because of the profitability but if you have to pay enough money to irrigate your cotton acres and pump that water maybe your profitability does not favor that.
Pearson: That's true. And are we expecting to see fewer acres in cotton as more folks switch to corn and beans as well? Is that still a topic in the market?
Kub: I think the expectation of the past several months was for cotton to gain acres. I think that's probably what we're going to see in the prospective plantings report honestly because that's what intention may be. But as far as profitability I'm not sure that it's there. I think that it may not happen.
Pearson: Might still be looking at other crops --
Pearson: -- to see a little more better profit potential. Alright. Now we've got a number of questions -- you're a South Dakota native.
Kub: Yes, sir.
Pearson: And so we've got some folks from South Dakota's northern brother in North Dakota. Dave in east central North Dakota and Adam in Kindred. They're dealing with rail issues, a weakening basis, of course oil has been the main transport on the railroads up there and basis is suffering. We saw it in Canada with the oats two weeks ago, now we're seeing basis suffering up in North Dakota. When is that going to turn back around? What does the future look like for crop producers in that neck of the woods?
Kub: Well, we'd really need to get an executive from the VNSF or the UP here to answer that question. They really just need to add capacity so that you're not just bottlenecked with energy trains so that you would have some capacity to be shipping that grain and that really needs to happen the next 10, 15 years or now would be a good time. Strategically more and more grain is going to be headed west to the P&W to load out to Asia. So that capacity for grain on the northern shipping routes needs to happen. But it has not happened yet obviously and you're seeing that obviously in those basis bids there's a fairly large ethanol industry in the Dakotas. However, the ethanol industry does not have to bid more for basis than what they have to compete against the rail market for. So if the rail market's not there this is basically just a situation you have to deal with. And I think one of these guys on Twitter mentioned fertilizer being another problem being bottlenecked from these rail problems. So I don't have a solution for you, it's just interesting to note the challenges, how this is not helping anybody's profitability in the northern routes.
Pearson: And I'm not a rail expert, and perhaps this comment will expose that, but if I've got a rail train running oil in North Dakota down to wherever, the Gulf I imagine, wouldn't it be easy to send it back with fertilizer, different tanks I suppose?
Kub: Yeah, well, gosh I don't know the answer to that either. But I think some fertilizer is certainly pelletized and can be on the hopper cars so it might be a different type of train to be honest with you. But at some degree it doesn't really matter because you've got bottlenecks on the rail lines themselves.
Pearson: Right. So there's your expert analysis on the fertilizer market. We don't know anything about trains. But as we go forward we've got a number of other great questions here from our viewers. Gail in Remsen, we were talking about winter kill in the wheat market and how that's going to have an effect. She is concerned about alfalfa and the grasses. As we look at this winter kill are we going to lose as much alfalfa as Wisconsin and Minnesota did last year do you think?
Kub: Well, no I think her question is coming from Iowa so that is interesting to note because this is still in Iowa is a drought region, like the winter kill regions for the winter wheat crop. So having a situation where 20% of the winter wheat crop is poor or very poor we have seen that before, we have seen that in several years in the past and we've still managed to produce enough wheat. The difference is that the very cold winter has created this winter kill and that is also the situation in Iowa where you've had a dry winter but it has been very cold. There has not been enough snow cover to protect your alfalfa or your hay roots. So certainly it could be a problem for individual producers or producers in this region that has had the drought or the cold through the winter. But honestly the overall hay market I would be fairly bearish on because your northern plains, Montana, Wyoming, they actually have ample moisture going into the spring, they're probably going to have a very large hay crop coming on and I don't think we're going to be in a 2012 situation of a shortage of hay.
Pearson: Okay. Alright. Well that's probably reassuring news for producers who are looking out at their alfalfa fields in Iowa and parts of Nebraska thinking --
Kub: It's kind of like the pig thing, it's not great news if you were the one affected by this problem but from a market perspective it may be good news for somebody else.
Pearson: Alright. Now we have had some questions about the feeder market. We saw the feeders pull back this week. What is happening there? We did see corn basically unchanged and we saw a $1.80 move in the feeders.
Kub: You know, it's really hard to say there, again, probably just some speculative profit taking here ahead of time. But honestly the expectation going into 2015 would be for the herd to expand, the breeding herd to expand but we have not seen it yet. There are certainly indications that people will be holding their heifers back but you're looking at 18 months before that has any effect on the actual supply of calves in the mix. So for the near term there's really no expectation for a greater supply of calves coming on and you're still looking at a neutral or bullish, perhaps, potential for that drop that we saw on Thursday to certainly recover and perhaps even go to fresh new highs.
Pearson: Alright. Now, Elaine, before we let you go, you travel a lot, you see a lot of the country and you're also going to be an international traveler before too long. As we sit here in mid-March 2014, what is the biggest story do you think going to be in agriculture as we roll through this year?
Kub: Well, it's really interesting to see how the markets did not respond to the interest rate move or the move in the dollar this week. But overall I would say in 2014 that whatever happens to the dollar will affect the grains and the expectation for the dollar would be to go up. We have record highs in the stock market. The general suggestion that the economy is doing well, that the chairman of the Federal Board of Reserve will raise those interest rates as the economy continues to strengthen. So these are not great news for anybody owning land or owning commodities. So that would be a sort of big, broad story, the number one thing I would say.
Pearson: Alright. Well thanks so much for taking the time to be with us this weekend, Elaine, we appreciate it.
Kub: Thanks, Mike.
Pearson: And wish you safe travels.
Kub: Thank you.
Pearson: Thanks to all of you for continuing to submit your questions via Facebook and Twitter. Please continue to do so, tell your friends to do so. We would love to get expert analysis right to you. So thanks for watching and have a great week.