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Market Plus: Dec 05, 2008: Elaine Kub, DTN Analyst

posted on December 5, 2008

Market Plus: Dec 05, 2008: Elaine Kub, DTN Analyst Pearson: This is the Friday, December 5th, 2008 version of Market Plus. We're glad you've joined us here at our Web site. With us this week one of our regular market analysts, Elaine Kub. Elaine, if there was an underlying theme to your discussion on the program this week it was recession.

Kub: That's pretty clear. That's the motivating factor for every single market we thought on Thursday when every single market, including the dollar, got sold off, went lower simply because everybody is selling, selling, selling because of this recession. You want to get rid of these dud markets before they have a chance to do anything worse to your portfolio. The question becomes when would that end? There are calls for the recession to be over or to start improving by the middle of 2009. So, you would expect to see these markets start to capitalize on that opportunity before then but I wouldn't expect it in December, for instance. We obviously have all of this selling to get through before the tax year is done. And then it will still take some time. I don't think that they'll come up anywhere near as fast as they went down.

Pearson: It'll be a challenge to see what happens going forward. But you mentioned demand based markets and the demand story is still in tact despite the problems with ethanol, despite the global issues there's still a huge export demand. So, there's still demand out there for product and people are going to be slow to produce at these prices.

Kub: Right, absolutely there's a long-term bullish argument there but it's at what point does the market start to realize it? At what point do you see those prices actually built in on the chart? Not in the next couple of months but as far as that demand is concerned the other thing here is you will start to see these prices come up in these ag markets prior to coming up in crude oil perhaps simply because, as you hear people say, people gotta eat, right, these food prices will be one of the things that are relatively recession proof compared to a lot of other raw materials.

Pearson: I don't want to borrow trouble here but let's say something in the Middle East, I don't know what it might be, some kind of instability, they're kind of known for that there, oil prices pop up, $100, what do we see in the ag sector?

Kub: You could see some bullish reaction from that just because so much of their downward movement it tied to oil because so much of their downward movement is tied to the selling that happens sector wide, the index funds and what not that invest in all commodities. If you see that starting to come with crude oil then it will drive things up too. And it's also a bullish argument for soybeans and corn for the biofuels argument. So, soybean oil, Malaysian palm oil, canola, those will definitely come up if crude oil spikes up as you say in that kind of situation.

Pearson: So, that could be one scenario. Obviously we still have the weather issue. You talked about South America on the show, not a lot of great stuff happening down there production wise.

Kub: No, they're having a lot of trouble getting their credit, getting their fertilizer in, getting the licenses to even plant in Paraguay so they're not producing -- in order to fix these situations of low ending stocks we've had in the past couple of years in soybeans the world was really counting on South America to ramp up their production and they're simply not able to do it this year. So, don't look at ending stocks being built up, a bigger inventory built up any time in the next few years, which is, again, another long-term bullish argument but it's just not the timing to take advantage of it just yet.

Pearson: But keep your ear to the ground. Elaine, as usual we appreciate your insights. Thanks for being with us on the show and here on Market Plus. We're going to have more, of course, with Elaine I'm sure in the future. We'll have more of Market Plus next week. For all of us here on Market to Market, I'm Mark Pearson. Have a good one.

Tags: agriculture commodity prices markets news