Market Plus: Dan Hueber

Market Plus: Dan Hueber

Jun 15, 2018  | Ep4343 | Podcast

Podcast

Howell: This is the Friday, June 15, 2018 version of the Market Plus segment. Joining us now is Dan Hueber. Dan, welcome back.

Hueber: Thanks very much, great to be here.

Howell: I want to make sure we get in a feeder question that I didn't get to ask during the main program because we ran out of time there. But with August feeders moving above the 100 day moving average does that give you some optimism that we might break through this $150 level?

Hueber: Certainly. Of course lower feed grains are almost always a positive influence over in the feeder market and absolutely with these depressed prices, looks like ample crops on the way, certainly not guaranteed, that should be a demand boom over in the feeder markets. So I think yes, the technical picture looks pretty good in the feeder market right now, a little better than it does in the fat market.

Howell: With that being said, is there a certain timeframe that you're looking to see some of that price support built into the market?

Hueber: Well, once you, particularly after markets like this have been beat down for several months in a row once you turn back up I would think you would have at least a 30 day run back to the upside. So yeah, it shouldn't be just one of those flash in the pan type of things barring turning around and tomorrow we end up with some kind of a disastrous turn in the weather and changes that situation drastically. But that would be kind of a far-fetched idea I think at this point.

Howell: That leads me to the next social media question we have. Lexi in Iowa would like to know, will we see a summer rally in the beef market this year? Or are the trade disputes compensating for increased domestic seasonal demand?

Hueber: That is one of the challenging things, it really has pushed back what you would have expected to have as far as your normal seasonal barbeque type of rallies in the beef market. I really think yes we could still see it materialize. The economy is good. When you look at the consumer spending that happened in the last couple of months we seem to be on an increase every month. The American consumer seems to feel a little bit better about their prospects and their jobs and everything else which generally translates into a little better meat demand total. So yes probably not what it could have been without all the psychological damage to the market earlier in the year. But yes I think we've got room to improve here as we move out later into the summer.

Howell: All right. Watching those prices later in the summer. Let's talk cotton because that seems to be one of the bright spots on the market.

Hueber: The sole one on the ag sector.

Howell: Yeah, and we had China commit to buying 361,000 bales this week for future purchases which was the most since 1998. Are we signaling an increase in demand, in Chinese demand?

Hueber: Well, of course China has always been a little bit unknown as far as what kind of cotton stocks they have. Farmers would tend to kind of keep them hidden away and they had a very regulated program over there. I kind of tend to think this might have been a bit of a goodwill gesture to counteract some of the other things that are happening.

Howell: So do you think those will get cancelled now?

Hueber: Well I wouldn't necessarily say they'll get cancelled but to have them continue on as that strong as a buyer I think would be a little bit questionable at that point in time to move it forward from here.

Howell: Right. So over the week compared to last week where we were sitting at this time we lost about $5 in the cotton markets. Was that just a short-term correction?

Hueber: When you look at the cotton market we're really pushing up against the highs that we posted back in 2013 and 2014. Yes, partially demand, but of course a lot of this has been the drought in the Texas panhandle and those areas that have pushed us into these levels. I think it's going to be a bit of a challenge to move any higher than we have. These are tough, tough resistance levels that we've moved to. For the last couple of weeks we've just really been chopping back and forth, don't really seem to make any headway but we can't break, volatility has been increasing, all kind of classic signs of what you see at the top of a market. So I think we're probably due for a little bigger correction than what we have seen here for the last couple of months.

Howell: Okay. Let's take another social media question here. KD would like to know, what do you think will be the big impact of this week's fed fund rate increase and the two future anticipated increases will have? Or do you think this increase in return on the safest asset is already priced in?

Hueber: It certainly has been priced in, in the ten year note market, even in the 30 year bonds. We've seen them consistently move to lower lows. 30 days ago I don't think the market was anticipating an additional hike in interest rates this year. I think that has pretty well been fully factored in there. Sure there are some caveats that could keep that from happening but right now the economy seems to have picked up a little additional steam so the fed is, if anything, wants to temper inflation before we really, really even see a whole lot of inflation. The other market that has boosted certainly has been the dollar. That has been one of the stimuluses that has popped the dollar up once again after looking like it was getting a little bit weak at the knees. So yes, until we see them react into additional moves I think the market has pretty well anticipated what has happened and what is factored in when you look at some of the prices on the deferred futures as well.

Howell: With the ECB saying that they were going to keep rates the same through the summer months, did that also help prop up the dollar?

Hueber: Oh absolutely. Absolutely. That's usually a bit of a competition on who either lowers or raises interest rates on where the money flow moves. So right now that really gives the U.S. dollar a place to be to try to accumulate a little more safe type of return on investments.

Howell: With that being said of course the dollar has a strong impact on exports and we talked about that a little bit during the main program. But from a commodity standpoint, and ag commodities specifically, should producers be concerned with the potential rise with the dollar here?

Hueber: Well, it's not the most preferable thing. That said I think the overriding factor and I think prior to this the overriding factor absolutely was weather. Weather would always trump whatever the dollar activity is doing during the summer months. With that looking to be less of a problem there a stronger dollar, I guess the best way to put it, it provides a headwind. It just kind of pushes back against either psychological or potential real demand in the market. Again, if somebody needs a product they're still going to buy it regardless of where the dollar is. So that is one thing about foodstuffs, people just can't say well I'm going to wait until a better day when the dollar is in the other direction. If they need it, they buy it.

Howell: Talking about weather, is weather what overshadowed the USDA's WASDE report this week? Because it seems like we had some good numbers, especially in the corn markets they gave us a 1.15 I think approximate carryover for corn but the markets didn't really react to that.

Hueber: Well, if you notice the corn market actually did react very well the day after but yes, solid weather and then of course the concerns about tariffs and that type of thing just overwhelmed that, it was quickly forgotten about. That said, I think ultimately we're going to have to come back to that. And I think any time you do something artificial in a market be it a tariff, threatening the negotiations, even go back into the years like 1980 or 1973 when we did actual embargoes, which I guess you would say are extreme tariffs, we're truly cutting it off, they're manmade manipulations of what should be how a market freely trades. And we'll react to it short-term but ultimately we always come back to the fundamentals and I think on corn especially and to a certain extent wheat now the fundamentals are really not negative by any stretch of the imagination and I think particularly with the break we've seen over the last three weeks now we're at a very much a value situation again. I think investors who are trying to choose between where is going to be the best bang for my buck, if they're looking at equities as compared to ag commodities, hands down the ag commodities looks like a better value out there at this point in time.

Howell: And that leads great into the next social media question. With all that being said it looks like it's fairly bullish here for the corn markets. Jeff in Lincoln, Nebraska wants to know, has the summer low been put in for December corn futures for that new crop?

Hueber: I would like to think between now and the 4th of July at the latest that yes we'll have a low in there. Maybe it was put in this week but it's always difficult to try to pick a bottom or pick a top, whatever the case may be. Several years ago I went back and did a study and we always talk about highs around the 4th of July. And indeed when you get to late June, early July 75% of the time we see a market turn during that period.

Howell: Because of weather?

Hueber: Well generally because that is the point in the year to where you've got a pretty good look at what the weather is going to be. So we know where the planting is, we don't have necessarily a perfect knowledge of where the acreage is, although that will be coming up here on the 29th of June, but realistically you get enough of a two week or even a 30 day forecast to see is the pollination period going to be good or bad. And we build up a little risk premium normally coming into that which we had been doing prior to the other shenanigans that happened here in the last week or so. But that said, 75% of the time you see a market turn. Now, in that 75%, 75% of the time then it's a high, but actually the other 25% of the time it's actually a low. So as you have seen where markets go directly down into this late June, early July period it's not unusual to see a reversal and then get a nice little bounce up in July and maybe into August. So yes, I certainly wouldn't mark off the possibility of at a minimum a technical rally in July and August, but still there could be -- right now everybody believes we've got the crop made and we know that's not the case either.

Howell: You mentioned here the June 29th report that is coming up which is a big one for farmers. What are your acreage estimates that you're anticipating to see from that report?

Hueber: Honestly I don't think the corn acreage is probably going to shift very much and we were at 88 million. Possibly there could be a little bit of an increase in the beans from some of the abandoned acres that happened in the wheat country. But that said, it was a difficult spring, financially a difficult spring for a lot of producers. So to think that they would have gone heavier in corn I think is challenging to begin with, but even to put a lot more beans in the ground I just don't think the dollars and cents were out there this year for that to really have occurred.

Howell: All right. I want to end here with the oil market. I know some producers follow it, some don't. But crude oil after breaking $10 off the high, we held key support and broke it Friday. Where do you see it going from here?

Hueber: The crude market of course has led the commodities higher as it did last year. It has been kind of the bell weather that has been leading the whole pack. That said, solid rally this year, a lot of things have driven it up to where it is, tensions with Iran, the other situations in the Middle East, the quotas that OPEC has had into effect. I would tend to think those things are probably loosening up a little bit. They've got a little more money to work with. Domestically this has certainly stimulated domestic production of crude oil. So to push us much above this $60 plus level that we've gotten to I think it going to be a challenge. So here again I think crude, which might actually be a good situation for some of the other commodities as we've probably been long crude, short some of the ags, maybe if they come out of those positions it will bring a little buoying back into the ag sector.

Howell: Bring some of those equities to trickle into ag.

Hueber: There you go.

Howell: All right, Dan Hueber, thank you so much.

Hueber: Certainly, my pleasure again.

Howell: Join us again next week when we explore how one creamery is cashing in on the high quality dairy fat and Don Roose will sit across from me at the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Have a great week!

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