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Market Plus: Oct 10, 2008: Elaine Kub, Market Analyst

posted on October 10, 2008

Market Plus: Oct 10, 2008: Elaine Kub, Market Analyst Pearson: This is the October 10th, 2008 version of Market Plus. We're glad you've joined us here at our Market to Market Web site and hopefully you'll take advantage of participating in our renewable fuels blog on the same Web site so take a look at that when you get a chance and let your comments be known. With us this week one of our regular market analysts, Elaine Kub. Elaine, a lot of big stuff happened outside of agriculture this week that really didn't have much of a hand in and it was the implosion of oil prices and capital markets and subprime mortgages and bailouts and so forth, had everybody running for the exits and we got clubbed in commodities. And then to top all that off on Friday USDA released a report which caught the market by surprise by the way they increased total corn production, increased bean acres which you pointed out on the show. Walk us through this report. What are your thoughts on it?

Kub: Well, it was a double whammy and maybe it will just turn out for a market bull, for someone who wants these prices to go up maybe it will turn out as a blessing in disguise that it happened on Friday when markets were headed down anyway. So, this is out of the way on a day when things would have been locked down anyway. But as it is, yeah, we've got some definite bearish surprises there. They raised the corn yield projection which would definitely surprise anyone who has been out harvesting and found that their yields were disappointing. But you have to understand that for all the farmers that have found that in their corn fields there has also been a lot going out in the western Corn Belt, Nebraska has come up with actually surprisingly good yields. It's not that surprising because they've had a good spring and summer all year. But Kansas is the same story and in scattered areas across South Dakota they have some pretty good yields and that's why I think USDA felt confident in raising that number in the October report but we've got the November report where I think that will be a little more certain. Less corn really, yield is the only big story for corn in the U.S.. In Brazil actually there is another big story that is much less bearish, in fact, it's quite bullish because they are not planting as much corn as usual because their input costs are so high and that is something we're seeing right now. Any Brazilian producer would tell you this, that there is just not being as much corn planted this year. It's too risky and they can't get the credit. So, that's the story for corn. For soybeans they bumped up the acreage and I don't know where they found those 2.2 million acres. I think they just used that because they couldn't raise the yields with the way that yields are actually turning out across the country, we couldn't realistically do that, they just had to put in some more soybeans simply because they're seeing that we have more soybeans in the country and part of the game they played here is we saw in the September quarterly grain stocks report right at the end of September we saw that they raised the 2007 soybean production so I think they've just got some more soybeans in the country that they needed to account for on their algebra sheet there. Either way it's a pretty bearish situation for both markets but I don't think they'd be headed down necessarily from these numbers simply because they're already oversold.

Pearson: Obviously the market was in a panic anyway as huge contract liquidation is occurring all week long and then you throw that report on top of it. How does this set us up for an acreage battle? We now have more beans leftover, 200 million bushel of corn leftover as well?

Kub: Yeah, and especially for beans we look ahead and if the U.S. has the same kind of input cost issues that Brazil does then we are definitely looking at more beans planted everywhere and less corn everywhere so it's especially bearish for soybeans. But how does it set us up? The problem is even if you believe as I do that when we get into 2009 -- even necessarily in December people will be making planting decisions -- even if you believe as I do that these prices will start coming up in a battle for acres you wouldn't be acting on that right now. You'd have to have hugely deep pockets to be able to put on a long futures contract in any of these markets and have any expectation of it actually going up really near term. I think there's a lot of down side volatility in all of these markets right now.

Pearson: Well put, we're going to leave it right there. Elaine Kub, appreciate your analysis and your insights with us here on the show and, of course, right here on Market Plus as well. From all of us here on Market to Market thanks for joining us here at our Market Plus Web site. Join us again every week and, of course, check out our new rural blog talking about biofuels and let your comments be known. We appreciate you listening and from all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news