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Market Plus: Market Analyst Elaine Kub

posted on January 13, 2012

Market Plus: Market Analyst Elaine Kub

Pearson: This is the Friday, January 13, 2012 version of Market Plus. Thanks for joining us here at our Market to Market website. Mark Pearson here with Elaine Kub our analyst this week. And Elaine I have some great questions for our Twitter folks out there. People who are twittering away and we had one that I want to start with because we didn't get to feeder cattle in the show and you wanted to but we were short. Jimmy from Iowa writes which option would you recommend sell my feeder cattle and sell my corn or finish my cattle out and sell them this fall? Now my answer, Jimmy, is how hard do you want to work? If you want to go ahead and feed those calves it might pay to do that Elaine.

Kub: Well, yes. I mean the answer is the absolute low risk answer would obviously would be to sell everything, take the prices, take the money, and run. But the reason that Jimmy and everyone else is in business is to add value into the supply chain right? And actually we have a great opportunity right now to get cheap corn and to market that corn as cheap in your accounting. So, that being said - and the fact that I don't see any particular sign that the feeder cattle market has topped out at all and we have got August futures as high as a 155. The CME Feeder Index has reached a record high right now and like I said there has been no indication that the demand for this the buyers have backed off in any way at any of these prices. They really have not balked. So at this point that could keep on rising certainly into the spring. So, I guess that would be my - if I was going to aim for one or the other I would definitely aim for the feeder cattle market going higher.

Pearson: That is right and we are assuming he owns the corn. So -

Kub: Yes, as the question stated.

Pearson: I own the corn so - which -

Kub: I mean it is a slightly higher risk strategy than just selling out of everything but that is sort of what we are in business to do.

Pearson: Right, to maximize return.

Kub: To bring things to market.

Pearson: All right. So, let's talk more about this calf market. So you feel pretty strong about the calf market for 2012. You like the fat cattle market for 2012 too?

Kub: Yes. I think the fat cattle market should stay pretty steady and I am actually pretty bullish about the feeder cattle more so than the live cattle and I know a lot of producers have wanted to put some puts on or have some hedges there just because these are amazing prices and they don't want to look back six months later and -- so I think it makes sense to be ready to have the trigger on that and I am not making and, I have made some sales in the past, I am not making more sales for spring and summer cattle or feeder calves yet. Just because like I said there has been no indication that the market is topped out yet.

Pearson: All right. Let's go back to the start of things here and we started on the note that the S&P downgrade of nine euro members including France being dropped a notch. Spain getting dropped a couple notches. One of the -- was hit. Impacting a stronger dollar. We talked about this relationship of the strong dollar and our impact to sell product overseas. What kind of an impact are we going to see? Can we put a percentage on that - on what kind of an impact that has and what kind of rules of thumbs do we have?

Kub: I would say on this subject that Europe's struggles the market has known about and probably traded to a large degree as far as the stock markets and the wider range of market. So I am not as concerned about Europe's problems or new problems or new ways of expressing their problems but I am concerned about when you talk about a higher dollar with is influenced by the euro how that affects Asia's ability to buy our products. So in China, if you take China's futures prices and you adjust it back to dollar equivalency you are talking about nine dollar corn there and eighteen dollar soybeans. So, as the dollar goes up that makes it harder on them and it really puts the squeeze on them. At this point it makes sense for them to definitely come to us rather than South America but as we squeeze their economy not only from our grains but from every other input that they have to go out and buy they are already having trouble engineering this soft landing. So I would be less worried about Europe going crazy. I think we have already traded the worse case scenario there. I would be more worried about what is coming down the pipeline as far as China suddenly having its own problems because of a real estate bubble bursting.

Pearson: That is right or who knows what could happen over there. All right. So that is always the risk. That is what killed our last big growth movement that was Russia going into Afghanistan or the former Soviet Union going into Afghanistan back in 1979. Tell us this - we have had some great Twitter questions that I hope I got Ralph's questions answered about how high corn can go with the dollar. Here is another question that I think is a great one is from Kent. Is there any hope for corn usage for feed to go up based on higher livestock prices? Are there numbers out there that maybe we could take off grass early if we had to and start feeding more corn or is that pretty much going to help consume some of that excess wheat supply?

Kub: Yes. When I hear that question I would like to have a time frame on that. Right? I mean because eventually sure the absolute projections for the rest our lifetime certainly for the next fifteen to twenty years is for feed grain demand to grow expediential is the developing world needs more grain. So, certainly I don't think corn as a feed ingredient is going away or that very much demand destruction, you know, the actual growth of animals being fed in the world is going to stop in 2012. But you talk about the pasture or the wheat DDGs are another one that are really getting worked into the feed rations a lot better than just straight corn. So there are a lot of ways --

Pearson: And the overseas part.

Kub: Yes, absolutely being exported. So, yeah in the near term there could be some less corn going on but I think over all that is not a big problem for me going into 2012 or going into 2013.

Pearson: We are going to have a February World Stocks Report. That is going to be our next big government catalyst for this market place. Any thoughts?

Kub: Well, I think they are very conservative about how they cut the South American production and I think that was a little disappointing to see how the market really overreacted to old news about yield and usage and didn't pay enough attention or seem to discount the new news, what is coming down the pipeline about the uncertainty about production there. So I think as Brazil and as Argentina adjust their own more confident about how much they can produce the USDA will also have to factor that in, and increase U.S. exports more than the fifty million bushels which is - I mean fifty million bushels more corn exported, we know it is going to be more than that.

Pearson: All right. We need to wrap it up. Leave it there. Elaine Kub thank you so much, appreciate your insights, as usual thank you for joining us on Market to Market and of course here on Market Plus as well. For all of us who join us here on the Market Plus segment here on the internet thank you for being with us and from all of us here on Market to Market keep those Twitters coming in join us on our Facebook page and of course come right back here and enjoy more Market Plus next week. For all of us on Market to Market I am Mark Pearson have a great week.

Tags: agriculture commodity prices economy markets news