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Market Plus: Dan Hueber

posted on July 25, 2014


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Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts Dan Hueber. Dan, welcome back.

Hueber: Thank you very much for having.

Pearson: Well, we are excited to have you. We have got - we saw wheat market stage a bit of a rally. We are up a nickel this week. Have we hit the bottom? Does it look like we are going to see some support from here on out?

Hueber: We have had about two weeks now of actually pretty stable trade which is encouraging. I mean and it just stands to reason a market has to quit going down before it can go back up. So that said the grains particularly corn and wheat when they do bottom they tend to get an extended, sideways patterns. It looks like we could be into the beginning stages of that and there was absolutely was no positive news out there in the market this week. The export side of it, the Black Sea owns the World Trade at this point. The crop data coming out of the Dakotas on the equality tour really shows very substantial yields in the spring wheat up there. So, it is not like it had good news to turn it around yet we stayed stable. We always think that a good sign is if you receive bearish news and you don't react to it you know it probably says the market has heard enough of the bad and at least wants to start fishing for something new or something a little more positive at this point.

Pearson: Maybe we are finding a little bit of resiliency at these prices.

Hueber: Correct. Correct and certainly we are not seeing it in big export numbers. The export sales this week were modest at best. They certainly were not disappointing but nothing to get anybody excited about either. But that said, like I say we have heard this. We have heard the story now for several months. The market I think is just a little bit tired of playing the bear. The crops technically are not going to get significantly larger than it has already. So, we have to factor that into the price value. A few weeks of stabilization and we could maybe then start talking about a corrective rally to the upside.

Pearson: So, advice for producers as you mentioned we have seen fairly decent yields coming out of the crop tours on the spring wheat so far. For producers in that situation just hold on and wait and see if we get that little rally.

Hueber: For wheat - that is one market I think it is probably ok to hold the physical without having a price. I think we could turn around with a nice corrective rally during the month of August maybe up into Labor Day or something. I would -- that. I don't think we are going to see any market get carried away to the upside. The Europeans are a little slow on their harvest but the quality is such it is going to be mostly feed wheat but great yields. I think the Russian crop is going to be three to four million metric ton higher than initially thought. So, it is pretty difficult to think we are going to get carried away on the upside but that is certainly not to say you couldn't see ten percent rallies. So, 50/60 cents and then --.

Pearson: Keep close to that six dollar mark.

Hueber: Correct.

Pearson: Pull the trigger.

Hueber: Exactly.

Pearson: Well now let's jump down into the corn market. It looks like it is going to be a big crop. That is the topic all over the place. How big are you thinking? What is the trade anticipating as far as size goes?

Hueber: You know what the trade has really factored in at this point is probably maybe even a little conservative from some of the numbers you hearing. Lanworth who is a satellite technology company did put out an estimate this week of 172.8. I think most in the trade have been thinking we will probably b closer to 170 on this report but that number certainly did not shock anyone. So, it is a, you know to banter around 170/172 is not a shock to anybody in the trade. Didn't really produce a negative reaction per sea when it came out not that the market performed well anyway. We were still under pressure throughout the entire week. I think difficult thing looking ahead, there is just no threat out there. I mean here we are going to have probably almost a 100 percent of this corn crop pollinate under zero stress and generally that translates into large yields. This crop - in trader's minds and in reality probably gets bigger pretty much every week at this point.

Pearson: And to that effect as we watch this crop grow larger and larger until we see what is actually happening we had a question from one of our Facebook viewers, Paul Kronberg in Wisconsin is curious with the prices under pressure as they are will China and other buy up and build their reserves with these prices or is China pretty well tapped out?

Hueber: China is in a situation they have an ample reserve of corn. Probably a little excess corn. They had a very strong crop this year. Some of the maneuvers that they have put into place in concerns with the GMOs probably were in as much response to having excess amount of bushels, a difficult time managing the bushels they have at this point in time, they will - everybody buys at a certain price but by no means will they be a major buyer. One of the last nails in the coffin, I guess you might say, this week was the - yesterday they announced that they would no longer accept any DDGs from this country that were not certified free of the MIR Gene by the USDA. So, in essence they are not going to take any DDGs. So again just another indication they have more than ample stocks at this point in time. They can choose to be a little bit picky about what is going to come into the country at this point in time.

Pearson: As we look out on the countryside there are still a lot of producers out there with 13/14 crops sitting in the bin. As we approach harvest, approach a record harvest, potentially we are going to need all that bin space. What is the best advice for getting that out of your hands and into the market?

Hueber: I don't know if I would call it best advice at this point maybe the only advice I am afraid we were on a slippery slope here. You know not that - there is kind of a seasonal type pattern in big years where by the time you get to August 1, sometimes you will see the market stabilize but you know we know we have this large crop coming. We know the transportation system is going to become taxed which means basis levels will probably deteriorate if we move closer to harvest. So, I think the best move at this point is to just get the bids cleaned out, have that room for new crop. The new crop prices are offering very ample carry. If you want to put it in the bin and try to carry it out until the spring or summer months, but unfortunately I think if you still have old crop product around there is not much you can do other than just to convert it into cash.

Pearson: I do believe that July '15 trade around four dollars.

Hueber: Exactly. Just under four dollars. About a 30 cent premium to the current December futures. So, you know for those with bin space it should provide a nice return to that bin space.

Pearson: All right. Now let's jump over to the soybean market. We are beginning to see that diversion. We are seeing that tightness in the old crop versus another potentially record crop in the new crop. For producers out there with some being still in the bin, do you continue to hold and ride this recent rally on old crop beans?

Hueber: To push it much more than a few weeks, I think you are living in dangerous territory. You are not that far from the South where you could see some early beans come in. So, it is - and you know the trade is very well aware of that. Sure the processor is going to try and grab whatever -- he can yet. I mean there is still good money crushing beans but that said they know within 30 days there is going to be ample supply out there. So, again I think if you saw a 30 cent/40 cent rally any time in the near term here. Boy, it is just time to reward it and have those beans move down the road.

Pearson: Thoughts on new crop? We are hearing yield reports close to USDA's number.

Hueber: Correct.

Pearson: Which would be a very, very large soybean crop.

Hueber: It is still a very large crop and what is really impressive about that is when you consider that kind of acreage or that kind of yield number on the record acreage. This week and you covered it earlier in the report the ratings on soybeans have only been better in 1994 and 1992, and I went back and looked at those years and in each of those years we set new records for bean yields. So, the potential is there but of course compared to let's say in 1994 we have got seven million more acres in production which would tend to dilute the yield a little bit. So if we do come out of that 45.2 which is the current USDA number that is also what Lanworth came up from their satellite data, that would actually be very substantial considering there is 84 million acres or over 84 million acres planted and granted we know in beans, in the month of August, everybody keys in August. You know strange things could still happen. Most of the weather forecast that I have seen are pretty pleasant. Nobody is calling for any major stress. If we do get moved through there without seeing any reduction in yield it is going to be pretty tough to, I mean I think we do at this 10.80/11 dollar area which we stand in the new crop beans, I think there is a certain amount of risk premium built into that already. So, it wouldn't take much to erase that if they don't see any threat during the month of August here.

Pearson: Certainly and certainly if the yield data should change in the August report maybe go ahead and make some sales today to put some money in your pocket.

Hueber: Absolutely.

Pearson: Well, let’s jump down - let's look at the livestock numbers. It has been a compelling story. We have talked about it again and again, record prices, it is almost like we are talking about the stock market when we are talking cattle.

Hueber: Exactly.

Pearson: Up 750 this week on the fat cattle side what changed? Why the turnaround from last week to this week? Why the big spike?

Hueber: You know and again I think the little dip we had witnessed in the cattle market was really more of a corrective phase, and again everybody is trying to outguess when are we going to see the number rebuild? When are we going to see these herds start to turn around? And every time we see a report it just hasn't quite happened yet and I think the shorts are quick to cover when that is the case. They have been behind the 8-ball all year long and are going to be very rapid to pull that money back in. The other side of the coin and probably the more important side of the coin is the - not just the domestic demand but the international demand. I mean the exports of all of our meat products but certainly pork and beef just continues to surprise everyone. Domestically I think some of the bigger shocks have come from the fact that the consumer isn't really back that way yet either. So, it is - as long as they are willing to pay the price and maybe this is kind of the little treat when other things maybe haven't been so good over the few years, but we're still going to have a nice meal out there. That has really kept demand very much in check here on the - all the meat products really.

Pearson: So in your analysis, do you see this waning any time soon or are we approaching a plateau?

Hueber: You know and again I would have to believe so yes. You know -- even with the rebound that we have in the cattle this week we are just back approaching what we were the previous highs, flirting maybe with a little bit of a new high. Now the placement number on the Cattle on Feed Report today was a little bit positive. The marketing, the number on feed was pretty much average. So, there is less of a story to continue to push it higher. That said, I personally think yes. I think we are stretching that rubber band extremely far. Now are we going to go through a massive wipe out to the downside? Probably not. You know like I said unless the consumer for whatever reason all the sudden has decided he doesn't like the taste of beef anymore. You know that seems pretty unlikely here at this point in time. Now we are tail end of summer that does tend to trim demand a little bit. It could soften things as we move into the fall months.

Pearson: Now let's jump over real quick and look at feeder cattle. We have seen fat cattle continue to rise, corn continue to fall, it is get bit into feeder prices. Can that continue indefinitely?

Hueber: You know it is - right now they have got that double whammy particularly with the corn market continuing to move lower and lower and you know here again too without any real strong signs that we are rebuilding herds and again you throw in the whole situation in California and other pasture areas where the pastures are not improving it is, you know right now it is, I don't want to say the sky is the limit, but I mean there is really nothing that would seem to stand in the way of the feeder prices staying up in the levels it is at right now.

Pearson: Now let's take in and look at the hog market. We have seen - this is the second week we have declined we have seen in hog prices. Are we starting to see the industry respond, excuse me grow?

Hueber: Grow. You know and I think that is the perception and I think it is correct perception. You know the - my family is very active in the hog business and yes, they are seeing demand for people either wanting to expand herds, build new facilities but that is nothing immediate. You know I think that is more of a psychological edge there right now. The great side is you know here as with the beef we have not seen really any, or at least very negligible slack in demand in face of these higher prices over the last 12 months, but with that said - and I think the same thing we are going to face in the cattle at some point, you know we are - you have absorbed the news, we know where the reductions are in the herd, you have kind of calmed down the threat of even that second wave of the PED Virus. So, yes the numbers are rebuilding and again we can turn them around a little bit faster than we can turn around cattle herds. So that does seem to be in the works at this point. Are we ever going --. When you see a correction they can be severe, don't take me wrong, but I think one of the realities of what has happened now in the last 12 months is we really brought the livestock sector back into par with so many of the other sides of agriculture, the price of ground, the price of grain and it is; as I mentioned earlier last week and I had the opportunity to go to the Kansas City Federal Reserve Ag Symposium and very, very livestock centric there and I think most of the people that I heard present there really kind of feel this is we have moved back to the era of the livestock producer.

Pearson: A lot of interest in that sector. Thanks for taking the time to be with us, Dan.

Hueber: Absolutely. My pleasure.

Pearson: That wraps up this edition of Market to Market. But Dan and I will continue our discussion – and answer some of YOUR questions – in our "Market Plus" segment online. You'll also find audio podcasts and streaming video of our program – as well as links to our Twitter Feed, Facebook page and the rest of our social media outlets – exclusively at the Market to Market Web site. And be sure to join us next week when we’ll examine the market impact of the government’s latest estimates on unemployment. Until then, thanks for watching. I’m Mike Pearson. Have a great week.


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