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Market Plus: Market Analyst Elaine Kub

posted on July 13, 2012


Yeager: This is the Friday, July 13, 2012 version of the Market Plus segment. Joining us now is Elaine Kub. Elaine, welcome back. We talked about weather a lot because that is the big story. How long can weather because if the corn crop is dead in so many areas how much longer can weather be a story?

Kub: Exactly. In my opinion the corn market is no longer a weather market. We might as well be trading corn as if it is harvested because what is not there is not there. But the soybean market is obviously very much still a weather market. So, I think if we see towards the end of July or August some forecast for rain or actual rain events we will see some volatility in the soybean market and we must see some spill over volatility in the corn market but to my mind that won't necessarily be justified. I mean, I think the corn is dead.

Yeager: There is not enough wide spread rains in the Corn Belt that would die off in the end of July or August that doesn't get rain is what you are trying to say?

Kub: Yes.

Yeager: Ok and it has been spotty. Soybeans, they need the rain. So, if you are a producer that was looking at either a double crop coming off of wheat or if you were somebody that was thinking I should go with corn because man, that is going to be really good, and you ended up planting soybeans that was a pretty good decision right now.

Kub: Yes. Back in spring I remember having these conversations with some farmers who were worried about the drought and this was even in Minnesota because Minnesota had the drought over the winter and they have sure turned around. But this concept of it is cheaper, right, if you are worried about your production prospects going into a year, it is cheaper to put in soybeans. And then if they go to $16, $17, I mean who knows where they are going. Then that really pays off and I think that the market signs were there to some degree. Obviously the market was trying to buy soybean acres but the insurance levels didn't necessarily buy soybean acres. But the market was there because we knew about the South American drought. So, there were probably some people that are taking advantage of that agreed.

Yeager: Talk about puts and calls and trades and all sorts of things. I didn't put you on the spot in the program. Is it time to put any puts on any, either of the markets or is it too late?

Kub: Not in my opinion. I don't think that I would be spending very much premium money and have a bunch of time value expire on puts. When frankly to my mind, you know this is a real problem. This is a real supply and demand problem. Stocks to yield ratios is less than 10 percent. Unless you had something go wrong in the broader economy and we had the dollar start going up higher or another recession or China; really doesn't stimulate their unemployment more, unless something like that happens, I think these prices are - there is going to be good prices available for farmers that they don't necessarily need to go put a bunch of money into puts right now. But should they be selling? Could they just sell as a hedge to arrive with their elevator or anything like that? Sure, I think these are wonderful prices to sell at.

Yeager: One of our friends up in Siouxland, the co-op up there in Sioux Center, they want to know if December futures test eight dollars if there is no rain event before August 1st? And could it break that eight dollar mark?

Kub: Well, here is the thing. You kind of wonder where the rationing price level is. It is not an infinite price level because at some point people will stop buying corn. So is eight dollars that level? Not if crude oil can go higher or gasoline can go higher. Then ethanol could probably still make money at eight dollar corn. Not if the live cattle market can increase then maybe some livestock feeders or the hog market or poultry market even could increase then maybe some livestock feeders could afford eight dollar corn. So, it is sort of predicated on a lot of outside factors. So, I think it is an absolute possibility and I don’t know where the price rationing level would be because you don't know what these other things are going to do.

Yeager: Louise in Lindsborg, Kansas wants to know when that market is going to peak. We talked a little bit about corn breaking. When does the soybean - when do the other things peak?

Kub: The timing of it is, probably to me, a more predictable question than the price. The actual - where the actual price will peak out? I don't know. But the timing of it, like I said for the old crop market it certainly feels like the timing of that will have to be in the next couple of weeks before new crop harvest comes online, in my opinion. But for the new crop market, I think we have got an entire - through the entire month of August where we are going to be discovering more and more about how much soybeans have suffered these past months and how much they still could suffer in August and they could keep the market going. So, I would say late August is where I would be looking for the actual weather market to come to an end.

Yeager: Tim in Crookston, Minnesota had asked where do you see wheat and corn and beans. Tim that is always a good question. That is one we kind of covered a couple of times. Our friend Phil in Canada is always asking and by the way these are the questions that come to us via Twitter. You are on Twitter and you see questions come to you. So, she cheats a little bit. She knows what is coming in advance. Give us a shout out at Market to Market. We are out there. Phil was talking about walking in 1988. It was something that was alluded to in that piece. When I was down in Kansas that was what they were talking about this week was that '88. It is all comparison but 2011 was extremely dry for them. They were in a two year cycle. There is plenty of places in that two year cycle. So, where does that 2012 compare to say 2011 in some spots or '88?

Kub: I think '88 is a much better comparison and what is interesting is I remember in February I was at a farm show with Mark Pearson and farmers were talking about that too because there was the dry winter and they said that was the exact same thing in 1988. I don't remember 1988 very, very well, but I remember it. I remember the dust storms and I think that is exactly what we are looking at. We are very fortunate we have no till agriculture that is not creating these dust storms as much this year. But that is absolutely the comparison to make because it is so wide spread and because where it is happening and because of the actual, the yield drops are going to be much more severe than in 2011 in my opinion.

Yeager: Well and that was one thing that our friends at Kansas State Extension were talking about. Craig Rosenblum was saying, he goes the corn is different, the varieties have changed, we make changes in our planting position in terms of how wide of a stand or how we have made some adjustments. We have learned from 1980. I remember '88 quite well. I was talking to my father this morning. This is his 50th crop in Buchanan County, Iowa and he is saying I am finally going to have one like my grandfather did in South Dakota. And one out of fifty is not so bad but there are some people who are dealing with that year after year. But you just wonder is a drought here something that can weed people out?

Kub: Well, I understand and most of the Western Corn Belt certainly a lot of people are going to have crop insurance. But there are people who did not crop insurance. These people exist and so if they are not very cash rich, they could really be having some problems. I think that that's a real problem. I think that this is not the '80s. My understanding from the Ag Banking Center and I am not an expert in this, but my understanding is that farmers in general aren't as leveraged now as they were in the 1980s. So hopefully this is not going to be a big industry problem.

Yeager: Chris in Rowley, Iowa also close to that Buchanan County region. He wants to know when should we begin our 2013 or even '14 corn sales if we see that demand destruction?

Kub: Well, 2013 December corn is above six dollars. 2013 November beans are above $13. So those are profitable levels and so there is nothing wrong with locking in some profitable levels on a portion of these 2013 crops as a risk management standpoint. But from my standpoint, I would wait until we see this market peak out because I mean really that is what is dragging 2013 out. There is no particular reason for us to be bullish on 2013 crops with the technology we have available. We could have a huge crop in 2013. So, you just wait to let the current markets keep dragging those up and if you see those pop out and you feel like selling 2012, I would sell 2013 a chunk of it at the same time.

Yeager: I want to ask, Jerod in Seldom Rest, Oklahoma. He brings up a point that if - are we going to see the opposite of this when we go to that two to three dollar mark on some of these crops? Are we going to look back on the 2012 and say man, those are the absolute good days.

Kub: Well, I mean price wise these very well could be the good days of price wise, but two or three dollars? No, I think we have got a real demand driven curve in the prices and I think that there are some fundamental reasons why farmers won't want to accept less than five dollars, let's say going into any future year. Their production costs are higher. They have more storage and they can keep the grain off the market. So, I am not looking to see two dollars or three dollars come back. But I certainly am within the next five years expecting to see some very large crops and some very bearish levels, price levels, that are going to be challenging to people. But we talked about cotton.

Yeager: One final thing. It is our final question. This is talking about cotton. Fill me in a little bit about that.

Kub: Well, this place or this point of could we see two or three dollar corn again, you know cotton a couple years ago made it two dollars and now it is at 70 cents. You know it really fell back because the high prices destroyed demand and that demand never came back. And so now that market is flat and doesn't have a lot of bullish potential because the fabric producers just went to polyester and they just haven't come back to cotton. So, does that happen to the corn and soybean markets if we destroy demand? If our customers and our customers' customers are suffering? I don't think that they are really good parallel comparisons because cotton has so many other substitutes that, you know that's fine. But corn and soybeans there is not a lot of really good substitutes particularly in the poultry sector, hog sector. You have got to be feeding ground corn and soybean meal. What else are you going to do? So, I think that demand isn't going to be completely destroyed.

Yeager: Elaine Kub, thank you so much for this discussion, appreciate it, good to have you here. That is going to do it for this Market Plus. I want to thank all of you who have contributed questions on Twitter at Market to Market or on our Facebook page. Always glad to add it to the discussion. Next week in this seat, Mike Pearson. Check out the website to see the video that is welcoming him to this program. Mike starts next week on Market to Market. Thank you so very much. From all of us here, have a good week.

 


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