Pearson: Alrighty, welcome to Market Plus here at our Market to Market website. Thanks for joining us this exclusive service we offer to you absolutely no charge to our friends who enjoy Market to Market. And by the way if you enjoy Market to Market make sure you mention that to your local public television programmer and make sure he puts Market to Market on his programming schedule.
Pearson: And this week a special guest, Elaine Kub, joins us one of our regular market analysts and Elaine a lot of things we didn't have time to talk about on the show which we never do. That's just normal. I want to follow up with them and there are the three things; foreign exchange, the dollar, king dollar a lot of people are talking about situation in Europe is continuing to deteriorate. Now we are off to Greece and we're on to Spain. That is one thing. The second thing is the gold fall off and all the gold bugs out there that thought that would always be the safe place to be. Here we have uncertainty in the world with that is happening in Europe and gold prices went south. And the third thing is crude oil which really for all the movement by the end of the week, 30 cents a barrel. So at the end of the week it really didn't do much. $3.94 a gallon though is too darn high for gas and that could be the impact of the economy which could have impacted the big selloff we had one day this week on Wall Street that we saw.
Pearson: Now let's - let's talk first about those other items though and I want to talk first about the dollar. Obviously we are very dollar dependent in this world. We export a lot of our product. What is your take on the dollar? How bad is this situation going to be in Europe?
Kub: You know I couldn't really speak for the situation in Europe. Time will tell about that but we have to think about what the dollar is going to affect the markets that we care about. I mean probably somebody cares about European Bonds, but not me personally.
Pearson: Well, I care about them if it continues the dollar back to the levels we were at like four years ago.
Kub: That's the thing. It was fairly impressive over the past week how independent the grain markets or the ag markets in general were to the strength of the dollar. The dollar came rocketing up back to it's 80 to the 80 level which is not as high as it has been over the past year. So, it can still go higher without finding some resistance. But it is not good for our entire economy, like you say; we are an economy that depends on exporting a lot of goods to get our trade balance back into business. So it would best if we could arrest that movement of the dollar just as far as our general economy improving goes.
Pearson: Right. It does strengthen us when it comes to buying crude oil.
Pearson: However that is my next topic. What is your take on crude oil?
Kub: Well, here in the U.S. this week they came out with an inventory report that was bearish but that should not have surprised anyone. The general supply and demand. The general supply and demand situation of crude oil within the U.S. that WTI Crude Oil Contract is a bearish situation. The things that are driving up crude oil prices are just geopolitical, you know concerns that are not necessarily dependent on how much inventory we have here in the U.S. and you could also say under normal circumstances when you did not have Iran and Libya having problems you would also see the very cheap natural gas prices perhaps dragging crude oil down and just the general energy sector being pretty bearish and pretty cheap by historical standards is what it should be. But at this point I am not, I mean if you saw it go back down to 100 that would be impressive. If I saw it go to 95 I would be extremely surprised.
Pearson: All right. You think stronger oil prices are going to be here to stay through the summer?
Kub: Yes, so - like I said it feels terrible to suggest that you would hedge energy needs when it is unjustifiably expensive, but I don't see an opportunity for it to fall back much lower. So for the next few months perhaps hedging some energy needs makes sense certainly against natural gas. How much cheaper could that possibly get?
Pearson: True. Real quick the gold. To some certainty you say who cares about Spanish Bonds? A lot of gold bugs do.
Pearson: And they ran away from gold this week. Where did they go?
Kub: Into the dollar apparently. You could see that spread occurring but to me gold is a hedge against - risk was never, you know there is not really a good fundamental case for that in my opinion. It doesn't make much more sense to buy gold than any other substance. So, I don't expect to see gold return to its old highs.
Pearson: Uncut diamonds are a good one.
Kub: There you go.
Pearson: All right. Let's go to all of our viewers who were kind enough to send a note and a great lady down in Healy, Kansas asks this question, I am not going to bother – because Louise, it is a great question and if we knew none of us would be here. But she asks what is the Western Kansas cash wheat market going to be on June 20th? That's one we really can't do, but she wants to know because she can cash forward contract at about 610 a bushel and if that works for you, Louise, take advantage of it is your advice.
Kub: Right. I mean it is always good risk management advice is if you are going to make a profit, to lock in that profit, and perhaps leave yourself some up side. The nice thing about marketing wheat in June is that you don't really have a lot of time value left in options. So you could put some sort of a put strategy underneath the current price level that’s 610 level if that works for you. But I do think there is chances for feed grains. China is in a general period of restocking all of its supplies, all of its commodities. So it might be buying some wheat off of the world market and sort of support wheat prices over the next couple months.
Pearson: Some great questions from Daniel down in Kansas also. We are kind of specializing, I guess in Kansas tonight. But what are key differences and concerns in cash commercial users versus non-commercial speculatives in the WTRT in the 2012 grain markets? What are your thoughts on that?
Kub: Well, my thoughts would be ordinarily if I saw this kind of a net long from the speculators from corn over a billion bushels they are net long and in soybeans. I would be very concerned about the potential for them to get washed out particularly with the dollar going up. But in this instance they will be - if they start to sell off, the commercials will probably step in because they know legitimately they really need to have coverage for edible oils for the next year or 18 months, let's say, and for feed grains certainly over the next 6 months. So, I think there is going to be enough supportive interest from the commercials to make up for any sell off from the non-commercials.
Pearson: All right. Well, it is going to be interesting to see where we all wind up. A lot of questions related to what we talked about on the show and that is acreage switch. What is the max acreage switch you think we could see maybe from corn or from other crops into soybeans? Is it a million and a half? Is it maybe two million? I mean it doesn't look like there is really that much --- here.
Kub: Play. Yeah. There should - you would think there should be about a million and a half that could still be in play and what is interesting is if you look at the math of soybean supply and demand for 2012, it gets really scary if it doesn't get a million and a half acres or if it doesn't get something like average yield. Because if you do not have average yield and at least a million more acres then what USDA is currently projecting then you end up with a situation of basically zero ending stocks in 2012 and nobody else can make up for it. China is planting more corn. Corn has bought acres in China even over soybeans. So they are going to need to buy it from somebody. They are not going to be able to buy it from South America as long as they would like to. So we basically must have more soybean acres or the apocalypse will happen. I don't know.
Pearson: Yeah, it is going to be interesting to see and obviously, you know we will ration this thing down and that's where it will turn it and that - that will be occurring this summer. Several questions have come in. We have got some early corn planted, as you know. There is no secret here. There has been early corn planted and why not? Because if I can get that corn to - I can sell cash corn to the Midwest for half a buck more than what I will get for it two weeks later.
Kub: And not just that. They are not going to plant everything. It makes some sense to just agronomically to have a few acres planted early just so you have your risk spread out for your weather over the summer. Sure.
Pearson: All right.
Kub: But the question going forward is this problem? There is some freeze threat over the next week but I don't think it's, you know it is not going to matter to the crops that are at this young stage at the growing point that are underneath the soil and they will be fine.
Pearson: That's right.
Kub: That's what it sounds like hopefully.
Pearson: All right. We are out of time. Elaine, thank you so much. Elaine Kub joining us this week on Market to Market and of course here on Market Plus as well. And if you are in an area that is not carrying Market to Market talk to your local public television programmer and ask them why not? Why not? We are covering the largest industry in America and that is food production and consumption. Talk to your local public television programmer and do it today. Thanks for being with us. For all of us on here on Market to Market, I'm Mark Pearson thanks for joining us here for Market Plus. Have a great week!