Market Plus: Elaine Kub

Nov 18, 2016  | 11 min  | Ep4213 | Podcast

Podcast

Pearson: This is the Friday, November 18, 2016 version of the Market Plus segment. Joining us now is Elaine Kub. Elaine, welcome back.

Kub: Pleasure.

Pearson: We're excited to have you. We are very excited because we have a lot of questions of people who are Elaine Kub fans on Twitter. And we want to kick it off here, we had a very specific question. This one is from Viking in North America. He wants to know, how many metric tons of soybeans and corn does the U.S. export to Mexico? Same question to China. And what impact of the election going to be on those numbers?

Kub: I just want to say, first of all, I really appreciate when I can see these questions on Twitter so that I can do my homework because I wouldn't have known these off the top of my head to be honest with you and I'm realizing now that I'm not going to give the answers to him in the format that he requested because it turns out, so first of all, corn to Mexico. Mexico and Japan pretty much trade places from year to year as our number one and number two corn customers. But in 2015 definitely Mexico was the number one corn customer. So it doesn't do good things for our industry if we irritate our neighbor to the south. Specifically it's about 600 million bushels, which doesn't sound like a lot, but that's about 5% of a 15 billion bushel crop. We really don't export as much corn as we do soybeans, which you already know, but Mexico is number one customer and that's how much they take from us. And don't forget ethanol, DDGs, etcetera, etcetera.

Pearson: The question would be 600 million metric tons --

Kub: No, million bushels.

Pearson: Million bushels, excuse me, 600 million bushel, looking at Mexico is there enough give in Brazil, Argentina, Ukrainian exports to meet all that or would they be coming to the U.S. regardless do you think?

Kub: Not last year, not last year there wasn't and probably not this coming year. But yeah, in the future it is possible I suppose. I don't know. The logistics are so nice right now, the trains that cross the border and they just go straight down to Mexico. The trade is there, the transportation is there, that's all in place and it will be bad news if that goes away.

Pearson: Yeah. I worked with a guy who had dealt with a feedlot down in Mexico in the south central part of the country that they fed something like 120,000 bulls on feed, uncut bulls.

Kub: Interesting.

Pearson: Yes, but I'm sure that was all American corn they were eating.

Kub: Exactly.

Pearson: China, do you have those numbers on China?

Kub: Yeah, it was like $10 billion worth of soybeans, so a lot. We export --

Pearson: So it would be a billion bushels at $10 a bushel.

Kub: Exactly. So it's like a third of our crop effectively. So again, bad news to irritate that customer.

Pearson: But where can China go if President Trump decides to put on a large import tariff? Can they get a billion bushels from Brazil and Argentina?

Kub: I don't know.

Pearson: Tomorrow?

Kub: Not tomorrow, right, but yes absolutely we would lose market share to Brazil, Argentina, and longer term we would lose it to more local or more easily accessible markets to China like Ukraine, Russia sort of region.

Pearson: Makes sense. Alright. Next question, Elaine Kub, from our buddy Phil up in Ontario, Canada, ties right into what we were discussing. Will Russia and Ukraine corn production in 2017 and beyond increasingly replace U.S. corn in some markets?

Kub: I'm sure that Phil is referring to this exact phenomenon, the suspicion that the U.S. might not be such a favorable trading partner for certain Asian countries in the future. And that has always been the long-term sort of concern or the long-term goal, the stated long-term goal of Russia and China is to build that agricultural conduit for these products to move that way. And it hasn't happened really yet and it's probably not going to happen in 2017 but absolutely that is the long-term goal.

Pearson: The capacity is there.

Kub: Agriculturally the capacity is absolutely there. The land is available, could be done.

Pearson: In order to get it done, looking out beyond 2017, 2018, what is going to be more important, is it capital that they're lacking? Is it political stability? Or is it some other factor, just knowledge?

Kub: So, on Paul's MtoM podcast this week I kind of talked about that I have traveled around to various places but I have not traveled around there so I have not witnessed it firsthand. But my understanding is the lack of investment and perhaps some manpower. You'd have to get somebody to invest that capital to make it happen because the land is there but you just need to get out there and till it and plant it and make it happen.

Pearson: So it sounds like we need to start a Go Fund Me to send Elaine to Russia and Ukraine to write about these issues. Hopefully somebody is taking notes at home and we can get that going for you. Third question going back to something we discussed on the show, Roger in Nebraska and Phil in Ontario are both asking about the dollar. Roger is wondering, if the interest rate does go up in December, which you had mentioned on the show, the value of the dollar could go up. Where are exports going? And then Phil wants to know, how much higher can the dollar go? What are you watching as a top in this market?

Kub: Well, we don't know where you'd put a top on it. We've broken through the previous 13 year high so if this is attracting sort of technical traders that are looking at this as a trend we've broken through that level, we've triggered their activity, they're probably just going to continue to churn this rally higher, to when I don't know. And the problem is, so Roger alluded to the interest rate rise, I think the interest rate rise might be a trigger to take your profits and let the dollar go back down but that's not the only reason that the dollar is going up probably, right, that's probably also going up as a safe haven, there's a bunch of money moving around right now for a number of reasons and it's probably also going up some expectation of federal spending in 2017. That's just a tautology that if you put more money into the economy there will be more money in the economy, like whether going into the deficit by trillions of dollars is the way to do it -- we'll see what Congress decides to do with this. But anyway, there is certainly potential for the dollar to continue to go higher even after the interest rate rise.

Pearson: Because if we look back on a 30 year chart of the dollar we topped out in the mid-120s in the late 90s?

Kub: If you say so, I haven't looked at this chart. But the thing is the dollar index, it's not units, it's not a real anything so it's not a very tangible quantity and so there's no good ceiling on it.

Pearson: Sure. We think of par hundred as a ceiling but it's not, it's just a number. You mentioned money just moving around kind of scattershot, especially post-election. BJ in South Dakota, @bj_rtichter on Twitter is asking, what's happening with the falling 10-year notes, looking at treasuries, and their money flow effect between commodities and the equity markets?

Kub: Well I have to confess to BJ that I don't actually pay a lot of attention to bond trading so I'll take his word on that. So there's money, as BJ is saying there is money coming out of there, there is money coming out of commodities in China right now, China has been cracking down on speculators. So there's billions of dollars of cash that has to go somewhere, hopefully into their stock markets, but maybe also into their residential real estate which would then start to get bubbly, which could trigger all kinds of problems. So there's Saudi Arabian money, there's all kinds of money that needs to park somewhere and get invested somewhere and we have not seen it coming into the commodities this past week. The commitments of traders indicated that folks were selling off long positions and taking on new short positions so I don't think it has been going into commodities recently, but it certainly could. There's a lot of money flowing around and it could come into commodities.

Pearson: It could. And one of the trends that people have been really, really jazzed about over the past week is this Dow, this equity market in the U.S. just continues to steamroll higher. Elaine, at what point do we get toppy? At what point do people pull a little cash out of there as a safe haven and roll it to somewhere else?

Kub: Where would it go? Into the dollar? I think that these are the safe havens at this point.

Pearson: The Dow is the safe haven. The dollar is the safe haven. It's not going into gold. That has been dropping like a stone. And you don't think we can get them fired up about live cattle? We can't create a story?

Kub: Let's try it, yeah.

Pearson: I've got like 30 head of feeders, if these billions of dollars need a place to go look me up. We'll hook them up. Okay, next question to you. This one is from Phil in Ontario, our buddy Phil again, thank you. Phil is wondering, are there any holes in the USDA projection, right now they're calling for 102 million metric tons in Brazilian soybeans that is being planted now. Is that a top end estimate do you think? Is that only going to come down as La Nina hits or you name it?

Kub: Well, the weather right now I think is okay, however, the private estimators down in South America that I've been reading are saying more like 100 million metric tons rather than 102. So I think the 102 is probably high and Phil is alluding to that. But there's not enough weather concern to see the USDA trim it yet. Wait and see how La Nina goes, yeah.

Pearson: How are we doing, as the dollar has steamed higher I'm assuming the real has broken, so Brazilian beans and corn continue to get cheaper?

Kub: Yeah, in fact Brazilian beans are a 20% discount to the U.S. beans right now.

Pearson: So $7.70 and change.

Kub: Yeah, so we've had such good news in exports lately and I wonder that that will start to struggle. We are seeing, I think we’re starting to see some weakness in the basis or at least steadiness in the processors but some weakness in like the sift bids. So we're going to have to bring our prices down on the basis side to start to compete with Brazil.

Pearson: Okay. Well, Elaine Kub, thank you so much for taking the time to join us this week.

Kub: I have enjoyed it immensely.

Pearson: So did we. Thanks to all of you for sending in your questions via Facebook and Twitter. Please continue to do so and we will get expert analysis right to you. Thanks for watching and have a great week. 

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