Pearson: This is the Friday, May 23, 2014 version of the Market Plus segment. Joining us now is Dan Hueber. Dan, welcome back.
Hueber: Thank you very much for having me.
Pearson: Well, on the show we did not have a chance to discuss cotton and its recent decline this week. Is this just a continuation of the bearish selling? Are we hitting technical levels? Or what's going on?
Hueber: A combination of both. As with so many markets, as we discussed earlier, I think the weekend had a major impact. The selling in cotton really accelerated on Thursday and Friday, which is what took it in the new lows. That said, the cotton market has been in a retracement now for about a month and certainly you had part of the rally as the general commodities rallied. But realization that within the United States we're losing acreage still. Those numbers on the last plant demands were a little bit positive but the cotton market is not unlike wheat right now. Domestically, sure we have somewhat of a tighter situation or a closer situation than we have for the last several years. You look around the world though there's ample amounts of cotton everywhere around the world. So, I think to break this week is probably a little bit overdone. We're due for a corrective bounce but it is maybe indicative of a little longer trend here where it's going to be difficult to sustain any rallies on the cotton market.
Pearson: Probably not getting close to that $92, $93 level we were at a few months ago.
Hueber: Correct, exactly. I mean, if we can bounce back 2 to 3 cents from where we're at here right now might be a good opportunity to take advantage of.
Pearson: Get in there and make some sales. Alright. Now, we do have a number of questions from our viewers on Twitter and Facebook. And not surprisingly, of course, it's planting season. We have been watching the radar, folks around the country have been watching, waiting for storms or hoping to miss the storms. So all of our questions are weather related. So we'll just kind of get your general thought on weather. Megan in Kansas, Kyle in West Central Iowa and Shannon are all curious, how is the trade reacting to the weather, specifically in the Corn Belt and in the eastern, excuse me, in the western plains?
Hueber: Western plains, starting there first, of course, we have seen the market react in the wheat considerably with the problems that we're seeing down there and really are still experiencing. I mean, they've had a little break in the temperatures and I think some more moisture has come through. That, again, is a factor I think that has been well priced into the market. The market needs to build some risk premium in there, maybe overbuilt risk premium in there, now we have trimmed that back to kind of equalize it out. The forecast that we have for that area really call for a little moderation in temperatures, some more moisture coming through. Granted, for the wheat that was damaged and torn up, too late. You're not going to bring that back at this point. But, you know, it should help with the crops that are still in the ground and, of course, the crops that are under irrigation. So, I don't see that as being a real market mover at this point. I think the wheat market is probably going to concentrate more on if there is a disruption in Europe, if there is a disruption in Russia, that could stimulate some interest again. But I think domestically we're probably kind of moving beyond the real impact there. Now, you move to the plains, upper plain state and, of course, into the upper Midwest, definitely been a late season. It has been a positive influence on the market but it hasn't really drug down the nationwide planting progress all that significantly. In fact, last week with the great strides that were made, we were very close to normal as far as the planting rate in corn. Spring wheat probably lagging just a little bit. But with the progress that we should see this next week we're going to come back very close to normal on a lot of these. Now, granted, North Dakota, we're pushing late enough I think the prevented planting date in North Dakota is May 25th, not too many days away. They're going to have to make that decision, do I stay with corn or do I move back over to soybeans? Do I go to an alternative crop like a sunflower? They do have a lot of alternatives they can go with up there but it is, like I say, the numbers on Tuesday should be very interesting because the progress should be very significant.
Pearson: Start making those decisions.
Hueber: Oh, absolutely.
Pearson: Alright. Now, we're also getting into springtime, we're getting into that time of year where summer you start seeing farmland for sale, you start seeing auctions again and the common refrain, of course, in the Corn Belt is you buy farmland because they're not making any more of it. But there were some numbers out this week that showed that perhaps worldwide there is additional farmland waiting to be made. Could you talk about a little bit what we're seeing worldwide in terms of investment in the commodity sphere?
Hueber: Absolutely. That is a great question and a great topic. And probably, my estimation that's probably going to be one of the Achilles heels in American agriculture over the medium term. When I say medium, the next five to twenty years. Starting really back in 2008 when we had the last, the major drought in not only the U.S. but, of course, in many places overseas, you had food riots. I think a lot of these countries understand that if you want to keep a population at least semi-content, make sure they have food. If you don't, there's where true riots, there's where governments are overthrown is when you have hungry bellies that are kind of leading the charge. And at that time countries like China, Saudi Arabia, South Korea, you name it, anybody who was totally, I shouldn't say totally but very dependent or realizes they're going to be dependent on imported food started searching for places to invest to increase their production and increase their own food security. It looks like the number one place now has, as it was, starting in 2008 and continues today, has been into Africa. And so often when we think of Africa we think of either jungles or barren deserts or whatever the case may be and that's not the case at all. A good portion of the arable ground that is left untilled in the world resides in that continent. And we had even spoken earlier, take just the country of Ethiopia alone and, again, most people probably don't have a great vision of what Ethiopia is comprised of but it is my understanding that in Ethiopia alone they have got around 183 million acres of arable ground of which only a fifth is currently in production. And there are definitely countries such as China, India, Saudi Arabia investing very heavily, not only in trying to bring the production up but improving the infrastructure with irrigation models, with transportation modes, anything that will help bring those grains to market. So the World Bank and the United Nations did release a report in the last week showing that they estimate that in 2014 it will set another new record for a single year investment in Africa and they believe it's going to be somewhere in the neighborhood of $80 billion. So a lot of people are doing every measure they can to make sure that they have food security at home.
Pearson: That's true. And it will be interesting over the next five to ten years to see where this takes us in American agriculture.
Hueber: Absolutely. I think we look back to 1970, who would have heard of Brazil and Argentina as a major producer of soybeans when we had the issues on producing crops here. Again, it was those same countries, Japan included, that went down and invested very heavily in Brazil and Argentina, here they produce more beans today than we do.
Pearson: Fundamental. Alright, now Dan, before we let you go, as part of our initiative for Market to Market in the Classroom we like to get our analysts' thoughts on how do you do your job? What did you do before you came on and that sort of thing? So these are a couple of questions that we'll post on the Market Plus website and eventually they'll be found on the Market to Market in the Classroom website. So, Dan, we'd like to get your thoughts. How do different commodities interact with and influence one another?
Hueber: Well, of course, the simplest way that that happens is that some are substitutes for each other, corn, wheat, sorghum of course have to be interrelated in price because they can be used as a feed source. Domestically we often don't even think of wheat as a feed product but you go to Europe and that's very common, the produce wheat so they're going to feed wheat. So they all have to keep a certain amount of relationship there and that does apply over to the soybean and soybean meal markets, again, because really the value of a soybean is the value of those products and, of course, meal is a major protein source for the livestock industry as well as the food industry. Again, the profitability of each of those, in certain parts of the country there will always be a competition for where the acreage goes. So absolutely, you can't really just study a commodity and feel that you have a handle on what is going to happen to the prices because it is always an interaction, an interplay between all of the various commodities that we can produce within a country.
Pearson: Alright. Now, that in mind, the next question is, what one thing do you believe every new producer or new trader needs to know or understand about the commodity markets?
Hueber: Well, it's difficult to narrow that down to one thing most certainly but when so many people come into markets today I think they want to rely very heavily on just the technical aspects of the market. And to a certain extent that's a simpler introduction. You don't really have to dig in and understand the fundamental side and what it takes to produce a commodity or a crop or reach it out of the ground be it a production of oil or whatever the case may be. But I think ultimately those are the factors that give you the foundation, that really help you understand what is, why that commodity works, why we need to produce that commodity. Why is it important for the sustainability of life in itself? And by detaching yourself from that actual cash market experience I think really ultimately leaves people a little bit short of what the lessons they need to learn to be able to apply that into really understanding what they're trading.
Pearson: So more information is always better than less.
Hueber: It's hard to get too much.
Pearson: Alright. Well, Dan, really thank you for taking the time to be with us this weekend.
Hueber: Absolutely. Thank you again.
Pearson: And thank you to all of your questions via Facebook and Twitter. Please continue to do so and we will continue to get expert analysis. And be sure to enjoy this three-day weekend and thank a veteran. Thank you if you're currently serving or have served, we at Market to Market appreciate your service this Memorial Day weekend. Thanks for watching and have a great one.