Pearson: This is the Friday, September 22, 2017 version of the Market Plus segment. Joining us now is Dan Hueber. Dan, welcome back.

Hueber: Thanks very much.

Pearson: Now, we've got a couple of questions from our followers on Facebook and Twitter. And I just want to kick it off with those. We're going to start with Hedge Whisperer in Virginia He's on Twitter @sellis1994. Got a ratio question for you, Dan. He wants to know, if corn doesn't get within the 2.25 ratio of soybeans price, why should we even grow it?

Hueber: Well, certainly a good question. And I guess it really has to come back to an individual grower, why are you growing corn? Are you growing it for your own livestock feed? Well, you're going to grow corn for your livestock feed. If you're growing it for the marketplace here again too there's not a generic answer you can give because some areas have better localized markets where you're maybe in close proximity to an ethanol plant. Some people are just geared up to grow corn, don't want to really try to upset either the rotation or the operations they have as far as grain facilities. So I'm a little surprised yet this year that even coming into the spring that we did not see a slightly larger shift over to corn acreage. We really thought there was going to be less than 90 million acres planted because of that price advantage that beans had over corn and we ended up with 90.9 planted. So yeah, there's so many little circumstances that fit into it. But on a pure economic question, why not shift harder to the beans and go ahead and take advantage of it. And I think that's the critical element is if it's profitable for the beans take advantage of it but truly take advantage of it and make a sale.

Pearson: Right. Exactly. If you're planting based on the ratio, sell that ratio. If you're planting beans because they are higher priced, sell the price you're being offered today.

Hueber: And again, here's one of the truly astounding things of the bean market this year is this was a large increase in acreage. We're not looking, we're record bean acreage, second highest projected yield on record, so truly we're going to produce more beans than we ever have and we still are watching this market rally. So here again, we never want to lose that focus that supply is only half the equation. Demand is still truly what is going to help prices move up and down.

Pearson: So has the market, and you're making me think here, has the market kind of disregarded USDA's ending stocks number? Do traders consider from the WASDE report August, September, 500, 600 million bushel carryout, do we just kind of cast that aside now because USDA has underestimated demand so consistently over the past decade?

Hueber: In the beans, yes I think more so than corn or in the wheat, even there for years we have tried to push that bean carryout up as far as projections. We're going to have 450, gosh it could be a 600 million carryout on beans and it has just never happened. Now granted, you never want to be lulled into complacency thinking it can't happen. As you know it's never the alligator you're staring at that bites you. So you always keep it in perspective. But certainly I think we are quick to look at the demand in beans, let that override where the supply situation is.

Pearson: Alright. Well, while we're speaking of soybeans, our friend Chad, @hort4cy, in Randalia, Iowa wants to know, as the soybean harvest gets ramped up, should we be selling unpriced bushels off the combine or putting into storage? And then what about commercial storage versus your at-home storage?

Hueber: Of course at-home storage is always going to be the most cost-effective I should say as long as you don't have to go through a huge process to get in and out and you keep good care of it once it's in there as well. That's not something you necessarily walk away. Yes, the answer is yes on both. I think you go ahead and sell beans as we approach this $10 level. But on the same token that doesn't necessarily mean you don't store them. Look at how much carry is in the market. I think we've got about a dime to January now and then maybe another 5 or 8 cents to March. So it is a decent amount of carry to put it back in there. Now, is that worthy of commercial storage? You would really have to kind of look at in your regional area what kind of basis swings you normally see. The futures spreads say yes, you probably should store the beans. Again, that doesn't necessarily mean store them unpriced. If you're at a profitable level still take advantage of that because for the time being unless we truly get into a weather difficult situation in South America the upside is probably somewhat limited even though we have been very resilient in bouncing back here in the recent weeks.

Pearson: Watching the upside and its resiliency let's say we do manage here in the next week to 10 days to push up to $10 on the November contract. What would you say once we get to that area, if we break through it what would you be watching as an upside while we're trying to see what happens in South America?

Hueber: Here again we spoke on the previous section but you look at all these commodity markets, they seem to have developed these very large, broad trading ranges and in November beans for four years now, we can take maybe 8, 10 weeks that we were under $9 and we can take about 6 weeks we were over $10.50. But we have been between $9 and $10.50 for four years in November beans. So the logical step was we get above $10, $10.50 is probably going to max you out unless we've got a true circumstance that would dictate why we should go higher than that.

Pearson: La Nina is confirmed, dryness spreads, etcetera.

Hueber: Correct.

Pearson: Alright. Now, our next question is a little more theoretical. Looking at the economy a whole, looking at risk management as an industry, Ben in Jesup, Iowa on Twitter @BenRiensche wants to know, or at least he notes, crop insurance companies originate policies. The reinsurance companies buy those policies. Doesn't that mean that throughout October they must be buying back their hedge protection? Aren't they hedging this crop just as a producer or an elevator would?

Hueber: Which would make a lot of sense from somebody who comes from a grain marketing, risk management background and certainly people in the insurance industry would be considered risk managers but they traditionally have not been hedgers. And I think for the most part most of them do not utilize futures, options, over the counter derivatives, whatever the case may be. And by no means is that saying that's exclusive. But they generally tend to manage their risk by how they have allocated into the various risk pools they can put it. The insurance companies versus the underwriting companies will tend to kind of split up who is going to take how much risk on any given year. So yes, those who hedge probably wouldn't just step in and start buying it back. But really yes, past October 30th they have no need for that hedge anymore. The instrument of choice I would suspect would be some kind of over the counter derivative that takes an average price for the month of October and just lifts out of the hedge if they had it on. But again, I would say very few insurance companies actually venture into that field. It's just out of their realm of expertise.

Pearson: Right. So that's not something we see moving the market in October. There isn't a huge inflow of outside money trying to take positions back off or remove hedges.

Hueber: Correct. And I think every year there is always kind of that assumption that they're going to keep -- the old story is the government is going to prop prices up so they don't have to pay out indemnities. I don't think anybody is quite that organized or has quite that nefarious type of motivation out there. But certainly that could lift a little bit of the pressure. I think there probably just is as big of a tendency to see funds who have been the short in the market lift out of hedges this time of year just because seasonally this is when you have your lows. So if they're not seeing potential to remain short in the market they tend to come back out of it.

Pearson: Now, before we let you go, Dan, we have another question from a student. And so it has been a week or so since we have done this but we are once again featuring questions from the people that follow us on Facebook and Twitter. And if you are a student, high school, college, lifetime student, please go ahead and send us an email at MarkettoMarket@iptv.org, let us know and we'll tell you how to get your videos to us. So today, Dan, this question is coming from Sam Reed in Washington, Iowa. Here is his question.

Sam Reed: We've recently learned in our agronomy class that grain buyers dock farmers for different toxins found in grain. So what are the effects of toxins on grain products and processing?

Pearson: Kind of a big question, feed quality type of question but you've got some knowledge in that arena.

Hueber: Well, I have a little background in the feed and the food industry. And again, it truly affects both. But you think about the word toxin in itself tells you what you're dealing with, something that is toxic, something that you don’t necessarily want in the food system. Now probably one of the more common ones we hear about is aflatoxin, you usually find it in drought stressed areas of corn. Well, aflatoxin into the let's say for a market hog probably doesn't have a major impact. But on breeding herds they know aflatoxin in a sow ration will tend to make the sow abort the pigs. So yes, it does have toxic reaction within the animal that is feeding it. And here again too, really would you necessarily want something that is a toxin being made into your corn flour or your corn starch or your corn oil for that matter? So certainly they don't want that stuff within the system. Of course some of the buyers and the export side are saying we want it free of X toxins or we want it free of so much garbage within the product. So they have to discount that back to the point where you can treat it in some respects. There are locks that can be added in as a feed additive that basically locks up that toxin. But even then you have to be very specific about what you're feeding it to, it may be a fed animal as far as cattle or market weight hogs. But it costs extra money to put these locks into the feed so here again that is why you discount that incoming product and worst case scenario there are some that are just not marketable, that might have to go -- and when I say not even necessarily acceptable in the ethanol industry because you think, well that's going into corn, well what is the byproduct is ethanol is feedstuff.

Pearson: You bet. And then it kind of comes back to the elevator's dance where the solution to pollution is dilution so you dock and then you blend and then you find ways to make it work in the market.

Hueber: Right, get it down to enough parts per million that would be acceptable for the marketplace.

Pearson: You bet. Well, Dan Hueber, we always appreciate your insight. Thanks for taking the time to join us this week.

Hueber: My pleasure to be here, thanks.

Pearson: Join us again next week when Tomm Pfitzenmaier will sit across from me at the Market to Market table and we'll take a look at a Midwest producer's partnership with an East Coast dairy giant. Until then, thanks for watching or listening. I'm Mike Pearson. Have a great week. 

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