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Market Plus: Apr 18, 2008: Elaine Kub, Market Analyst

posted on April 18, 2008

Market Plus: Apr 18, 2008: Elaine Kub, Market Analyst Pearson: Welcome to the Friday, April 18th, 2008 version of Market Plus here at our Market to Market Web site. Glad you've joined us. Mark Pearson and with us this week one of our newer market analysts, Elaine Kub. I don't know at what point you're not going to be new any more. You've been around for a while. That's alright. Elaine, talk a little bit about -- I want to talk about hogs because we ran out of time on the show which is what we love about Market Plus, we can talk about more things. I want to talk about hogs but first I want to talk about soybeans. A couple of interesting things you said. First of all, strengthening basis in beans which seems odd considering we're converting to many acres to beans according to USDA.

Kub: For April.

Pearson: Yeah, and for April, this time of the year ...

Kub: Yeah, this is generally when we get lots of pressure, lots of South American soybeans going onto the export business. But they have really been cut down by their own factors, political factors and that's a really interesting story all on its own that Argentina is trying to play games with what they're telling their producers, their farmers to produce. They would love it if farmers produced nothing but cattle and wheat and other things that would make their urban population great and that's the same game that a lot of these developing countries have done for 30 years. Argentina I do not include as a developing country but in Asia, places like that and now they're really seeing the pain of that ...

Pearson: They wouldn't invest in their own agriculture.

Kub: Right, so now Argentina is just perpetuating that same mistake, it's not like they don't know -- well, maybe they don't know. But anyway, long story short, good news for U.S. soybean producers. Obviously we have been shipping out a lot of soybeans, export business has been really, really good and we need to continue to do that just to meet world demand and that's really creating a lot of demand out in the country, they want to ship that out down the river really fast at the same time that farmers are too busy doing early field work to really be bringing things into the elevator these days.

Pearson: It's an interesting problem and like you say, those beans are going to come to market, those beans in South America at some point are going to come to the market. But it is interesting the challenges that have been happening down in that part of the world in the face of what appears to be a really good crop down in Brazil and Argentina. So, take this on out -- we've got a good crop down there and good production down there with obviously some internal transportation and export issues but a good crop there. And we're talking about record acreage here. Is the bean market overpriced?

Kub: I wouldn't even say that necessarily just because it's not sensitive to supply really. The reason that beans have had such a rally and that they are priced the way they are is because it's a demand driven market that people really, really demand protein in their diet worldwide and it's a global market and so we've got a demand driven global market and it's, like I said, just not as sensitive to supply as it used to be. So, you can get large supplies and there will be a market for them, someone will want them. And you can see that in the futures spreads particularly for old crop soybeans. People are concerned, commercial traders are concerned about having enough soybeans to export them throughout the calendar year 2008.

Pearson: Alright, that's going to keep demand good. We'll see what happens with acreage shifts. As you mentioned on the show the economics for most parts of the Corn and Bean Belt are favoring corn now after what's happened following the USDA report.

Kub: Yes, but there are definitely some areas where they don't and people want to stick with their crop rotations. So, you get some acres going to soybeans obviously. At the time that the insurance prices were set when a lot of these decisions were made and at the time when people were making forward purchases of their fertilizer and of their seed it wasn't quite as stark I don't think.

Pearson: Let's talk about hogs. We didn't get a chance to talk very much about them. A lot of red ink over there, like you say, producer meetings, the independent producers still out there are struggling certainly. Obviously those who are -- the vertically integrated producers are struggling. I think the demand certainly for corn and bean meal and those products, those inputs have totally made this market upside down. I had a producer tell me the break even on a 270 pound pig is probably going to run around $160. That's a little pricey.

Kub: It's hard to meet that out in the sale barn. The thing about hogs -- I think what the market is saying that it expects to see is that you'll see some rationing, some reduced feeding, some cutting back of the herd throughout this summer into the fall. Whether that happens or not I don't know. But at this point that's what has been priced in. You really see it in the deferred contracts in August and then December and then through 2009 there are some really good prices. So, if you're a hog producer right now it would be a good idea to get coverage in 2009. These are really favorable prices and if these foreseen ideas of reduced herd size do not come true then you will never see prices like this again. There's a lot of ifs and a lot of uncertainty left in that market.

Pearson: And on the flip side of it as a producer looking out there you would hope that in those far deferred contracts are we starting to see some hope maybe that this hog market that we could see some deliverance from this disaster in terms of price for hogs -- and it's not uncommon, it's always been about a three and a half year hog cycle -- that we will see that occur further out, we will maybe see those hog numbers shrink so much that we see that price jump?

Kub: Yeah, if that happens. That's the idea. If it comes true then it starts to confirm, if you start to get confirmation of these ideas then yeah, there is some up side potential to those prices.

Pearson: You talked about that with cattle but I didn't quite see it yet with hogs.

Kub: No, no, there's been no confirmation for hogs that I'm aware of, even slaughter weights, there hasn't been any reason at all to increase that other than, you know, cattle they have benefited somewhat from the retail meat markets, the demand there, some really good featuring, a lot of demand, a lot of meat being put out for the consumer and this season, the grilling season there has been a lot of demand for that. That has started to spill into the cattle market this week, cash cattle market. If it would start to spill into the cash hog market then there would be another little reason to hope for these nearby contracts. But until any of these things happen these are great prices and if you're not willing to take the risk and if you could make a profit on these prices I don't know, the deferred prices, if you could then this might be a good idea to get some coverage.

Pearson: Alright, as usual Elaine Kub, appreciate your insights. Thanks for being with us here on Market Plus. And for all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news