Podcast

Yeager: This is the Friday, January 5, 2018 version of the Market Plus segment. Joining us now is Dan Hueber. Dan, hello.

Hueber: Hello.

Yeager: Happy New Year.

Hueber: Happy New Year to you.

Yeager: Happy Vest Day. You look very dapper.

Hueber: Well, thank you. It is seasonal.

Yeager: It is seasonal. We've had a cold snap this week. I know you like to, I don't know if anybody knows that or not.

Hueber: I hadn't noticed it was cold.

Yeager: Did you see the video in the East Coast in Boston? You've been to the Boston Harbor before?

Hueber: Lucky dogs.

Yeager: All that water going through and they're pushing it with a snow plow. Better them than you?

Hueber: Well, with water certainly. Again, I would enjoy a little extra snow at this point in time.

Yeager: You like to get out and ski a little bit don't you?

Hueber: I do. In fact, I reminded the people at the office the other day this is not cold, again, it's the old Scandinavian adage that it's not bad weather, it's just bad gear.

Yeager: You've got to have some intense gear to maintain some of the things that we're seeing. Alright, Dan, we've got a lot of questions that have come to us via our Instagram page, Twitter page, Facebook page. Thank you everybody for that. We’re going to start with more of a general question. This is from Kylo and he wants to know, if more investment money would start to flow into ag commodities which ag commodity would be the most attractive to them?

Hueber: Personal bias, and most specifically because of the amount of spread that is out there right now. To me it's almost a toss-up between wheat and corn, but I think it's going to come to wheat first because it has been oversold the longest, it probably still has the heaviest amount of shorts in it from the speculative side. So I think the money comes to wheat first, corn second.

Yeager: We were discussing right before we started talking about the money going into commodities and we're going to discuss that now I guess since we come out of that. When did all this money leave the commodities? And what prompted the exit?

Hueber: Where you can really see it moving in the other direction was when the bubble burst in 2011, 2012. There's a little bit of debate when it happened there. It is interesting when you look back and, again, when you start talking about macro pictures in markets, that's kind of one of my favorite subjects anyway, but when you look just from a macro sense, commodity indexes versus the U.S. dollar, commodity indexes versus equity trade and there is very much so an inverse relationship between the dollar and the commodity indexes, but to a certain extent also in the equity trade versus commodity indexes, which stands to reason, if equities are the hot market money is going to flow that way. Generally they're going to move a little bit better when inflation is a little bit subdued, which of course we have had non-existent inflation for a number of years. But really both commodities and the equity markets turned up after the recession in '08, '09, began accelerating almost identical but then commodities really took off and of course that was their bubble up into 7, 8 and as late as 12 in the commodities. Once that bubble really burst, and of course that was crude oil, that was corn, soybeans, it was all the commodities, that money moved out of commodities rapidly, moved over to the equity market and of course we have now pushed that out to record levels, the differentiation between where commodities are trading as an index versus where equities are at is out to a record extreme levels. I don't think you're going to be able to push that much further. I shouldn't say any, but much further. I think we're at the tail end of it.

Yeager: So what gets you back is this lower dollar -- I know I got you right at the end of the broadcast about the dollar. Is that what is going to move this?

Hueber: I think the dollar could be one of the major impetus that really turns it around. I think if we start breaking below the 91 cent mark here in the dollar, we're just above it here at this point in time, then I think you psychologically start panicking a lot of people. The equity market itself you have already had a lot of what you would call the smart money, the big investment gurus that have been little by little but very forward about we are leaving. We just think the risk is too high to continue to stay in the equities. What does seem to continue to prop it up is that money that feeds into 401K's on a regular basis, it just automatically is invested and it's almost like blind investing. We're just buying because that's what we're paid to do is buy that every week, every month and generally those are the kinds of things you see at the tail end of a move. And will it all come back into commodities immediately? You have actually already seen the commodity indexes come off the 2016 lows fairly substantially and really sit on that edge of breaking into higher ground. At this point yes it has been led by crude oil, it has been led by industrial metals, but I think when the money comes in now as the good question before, it's going to look for value and I think the value is in the ag sector.

Yeager: I discussed also with you before we rolled about the S&P. They had a great week and it looks like you hit what's driving it, U.S. dollar and crude, right?

Hueber: Certainly, certainly.

Yeager: Alright, let's get back to our questions from our audience. This one, Cal in Osage, Iowa @calniess is asking, what is the status of La Nina for this upcoming growing season?

Hueber: La Nina primarily has an influence on South American crops. There is a pattern of drier weather, a tendency to see drier weather in South America when there is a La Nina present. I don't think there is any kind of massive type, strong correlation between La Nina events and North American weather. So, now granted, the last reading I had seen on the La Nina it is strengthening if anything, which would tend to say we could still maybe look for some problems in Argentina where they are already occurring. The crop is late, it looks like the bean acreage may not even reach what was anticipated for planted acres down there. So we haven't heard the last of what the problems are for this coming season here.

Yeager: We've only just begun. Isn't that a Carpenter's song?

Hueber: 70% planted, so we've got room to create some problems.

Yeager: Let's keep talking about the weather. We talked about it in the main broadcast about wheat, but Louise in Amy, Kansas, she's asking, with this winter wheat crop in questionable condition in the Southern Plains how long will it take the market to recognize that? And how much of an uptick is possible?

Hueber: Truthfully, not that every year we tend to see some type of scare, there's not enough snow cover, we're going to get a killing freeze that's going to knock some of the wheat out, and I think realistically the trade recognizes it's not really until you get to spring and see what really comes out of the ground can you make that kind of determination. So sure, psychologically it is giving us a little bit of boost right now. Throughout the winter months is it going to be enough to really catapult us into new ground? I don't think so. But it certainly sets the stage. We're aware that there's some problems out there and already when you have these kind of low acreage numbers giving up any is a little bit price positive.

Yeager: Well, and not just the Southern Plains, but if you look in the West, California is back to ridiculous, I think they had their driest wet season that they've had in some time if not ever in recorded times.

Hueber: And of course that does bring you back to the El Nina and La Nina. La Nina, and I don't think there's a major California influence there, but of course it's El Nino years where California tends to see a lot of rain. That was 12 months ago, that was of course what they were experiencing, but this year just the opposite again.

Yeager: Let's look ahead, we have USDA report coming out next week. Do you see much in the trade in any of the three commodities happening ahead of that report? Or have we done our jockeying and we're just going to kind of sidestep for four days?

Hueber: You could continue to see a little bit of strength in the bean market just because you've already kind of rolled the tide around, I think you've got the momentum moving ot the upside in the beans at this point in time, certainly wouldn't help to have a little better positive news on the export side, which not only in the poor export sales but there was just nothing happening all week long, this week even that we're aware of on the export scene. That said, corn, wheat I'm going to tend to say pretty flat.

Yeager: So that's ahead of the time. Let's ask, the report itself, wheat. Any major changes there?

Hueber: Wheat probably the one you can almost count on no changes.

Yeager: Corn, any big changes?

Hueber: Corn, there are some thinking that the USDA could boost up the yield once again. I tend to think in the camp that says they were pretty close to it, record yield 179 bushel to the acre, 175.4 in the last report. I don't think you’re going to tinker with that much.

Yeager: And soybeans?

Hueber: Soybeans, and again, you highlighted it earlier in the show that there were some rumors this week that they could see a reduction in the bean acres. If I was going to gauge it by what we saw for bean production in Northern Illinois I'd say that's believable. We certainly did not have outstanding soybean yields this year. They weren't bad by any stretch of the imagination, but weren't record. I wouldn't be surprised to see a slight reduction lower in the soybean yield.

Yeager: Alright, sounds good. Dan, always good to have you here.

Hueber: Great to be here.

Yeager: And you said Roll Tide, right? Isn't that what you said, you think Alabama is going to win on Monday night?

Hueber: Oh of course, of course.

Yeager: Very good. Dan Hueber our analyst this week, thank you so much. That will wrap up this Market Plus. Join us again next week when we'll explore a lucrative export commodity rooted in the Upper Midwest and Angie Setzer will sit across from me at the Market to Market table to discuss that USDA report. So until then, thanks for watching, listening or reading. I'm Paul Yeager. Have a great week. 

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