Market Plus: Elaine Kub

Aug 3, 2018  | 10 min  | Ep4350 | Podcast


Howell: This is the Friday, August 3, 2018 version of the Market Plus segment. Joining us now is Elaine Kub. Elaine, welcome back.

Kub: Good to be here.

Howell: Elaine, we didn't get to cotton during the main program so I want to ask just really quick here about cotton conditions. They seem to be getting better. Will that continue to happen?

Kub: We sort of forget about this ongoing drought in the Southern Plains with all of the really good condition ratings for the row crops in the actual Corn Belt, we kind of forget about the fact that Oklahoma, Texas, everybody is still really dry and we do see that in the condition ratings for cotton and it's right in the season when it's setting bolls and there's maybe 40% good to excellent ratings for cotton and if that dryness and the heat continues those condition ratings could fall, cotton prices could continue to see some strength.

Howell: Okay. Elaine, I want to move on here to social media because we got two pages of questions for you this week. Everybody wants to ask your opinion. Let's start here with DeAnn in Kansas talking about what is going on in the cattle markets. The word is that we will have every single storage place for beef full by the end of August due to tariffs. Is that true or false? And if so, will the feeder cattle market drop?

Kub: That is something that I've wondered about myself. When you think of storing grain you sort of start to run out of bin space, right? And I honestly don't know how much cold storage there is for beef and pork and the problem is that it would get filled up with your pork and your poultry and all of these other products that have worse market prospects than beef does.

Howell: Especially with pork flooding the domestic market now, China and Mexico shut off.

Kub: That absolutely could start to take away some of the availability for beef storage. The short answer is I don't honestly know but that's certainly something to worry about. But I think that the impacts on that will be seen in the hog prices much more than the beef prices.

Howell: Okay. Even in the feeder cattle market prices?

Kub: Yeah. I think that as those feedlots eventually move out these cattle that they've been holding onto longer they will want to refill, they will want to keep on buying those feeder cattle at a price as we get through into the fall.

Howell: Absolutely. All right, Elaine, we've got to talk about tariffs. That's what a majority of our questions came in this week from. James in Nebraska, we're going to get to that here in just a moment, but James in Nebraska said, do you think we will see a bounce in the grain markets as we move through August and the crop ratings start to reflect what is really out there?

Kub: Well, I think that James is trying to imply that the crop ratings right now don't reflect what is out there and I would push back and say that they probably do and I know that's terribly frustrating for anybody who had the flooded acres or anyone who is currently experiencing very dry and hot weather this weekend that is probably going to absolutely diminish condition ratings in Missouri, in Southern Iowa, in pockets of Indiana and in Michigan. That I'm sure is frustrating to not see that reflected in the overall aggregate U.S. condition ratings. But I think those overall aggregate condition ratings are accurate but this is just the way it is. There are hundreds of observers that go out there and physically look at the fields and this is legitimately what they're seeing. And so yes those ratings do tend to fall through the summer as things get drier and browner and just sort of mature. But no, I think that is when you're going to see folks going out there and actually taking kernel counts and actually getting real yield estimates that I suspect are going to be quite high in 2018.

Howell: It seems like on the U.S. drought monitor it's slowly pushing northward. How much further north do you think that will get here before harvest?

Kub: Well, not enough that I'm going to get real bulled up about corn prices because the long-term forecasts don't suggest that and pollination is happening during some nice weather. I think that once folks get out in those fields and they're counting those kernels and counting those rows I think we're going to see another large harvest.

Howell: Okay, another large harvest, which isn't good for prices in that aspect.

Kub: Not typically, no.

Howell: All right, we're going to open up the trade discussion, Elaine. We're starting out with Phil in Dresden, Ontario. Will there be 94 million plus corn acres in 2019? Of course the assumption with what is going on in the soybean markets. And should farmers be looking to book some of that 2019 corn now?

Kub: Well, 94 million acres would be a lot. But, should they book some 2019 now? I don't know. The 2019 December futures are $4.10, above that on any given day, give or take something like that and historically folks can make a profit if they lock in some futures above $4. I wouldn't go crazy, I wouldn't sell 50% of your 2019 production, but it's not a terrible idea. I don't necessarily think that it's going to be because of an acreage boost to corn because we have a lot of time to go between now and setting those crop insurance ratios for 2019. But even if the price ratios, the soybean to corn price ratio stayed exactly as it is today, it hasn't eroded that much. I think soybean to corn price ration is something like 2.3 to 1 because corn has fallen right alongside soybeans generally, not quite as far but pretty close, it has kept up with those losses. So even as it is right now I don't think corn would be a huge winner out of soybeans from an acreage perspective.

Howell: Okay. We do have an acreage perspective question later on I want to get to, but Jeff in Lincoln, Nebraska wants to know, what impact do you expect the trade discussions and tariffs between China and the U.S. to have on harvest soybean basis levels?

Kub: Well, hi Jeff. So that is a really interesting question and, again, as I mentioned on the show I cannot predict what is going to happen from day to day, what the negotiating strategy of this country's executive branch --

Howell: We wish you could.

Kub: I wish I could, we could make a lot of money. That's just it, if you knew that this was going to get sorted out there is incredible potential for the soybean market to really recover. And the first place, one of the first places that it will show up would be in soybean basis. Right now soybean basis seems pretty bad. So at the Gulf for export it's maybe 50 over where in a normal scenario you might expect it to be 70. 80, 90 over. So that backs up. You've got Midwest processor basis levels about 50 under through August and September. So you've got the average countryside basis level is 78 under the November. And at my local elevator, Delaney, in Roscoe, South Dakota, harvest basis for soybeans is 120 under. So it's not great. Soybean basis is bad and Jeff is right to point out that it would change dramatically if that Gulf basis level where this is all backed up from got stronger because there were actual business being done for that August/September timeframe.

Howell: Okay. Elaine, I want to get to this question that kind of ties into that talking about shipping options and I know you're excited to answer this question. Devin in Marion, North Dakota wants to know, are we in the Northern Plains most vulnerable to these tariffs because our only shipping option is the PNW?

Kub: Yes, exactly. It's sort of a black hole up there that the soybeans have to go west and that math that I just mentioned does not work in your favor if you're going to be shipping these soybeans west. I will mention one sort of conspiracy theory sort of idea is that if the soybeans that will eventually end up in China go through Canada, I don't know, it would be a strange logistics pattern, it's something that hasn't happened before --

Howell: That's not uncommon though for Northern Plain producers to send their product to Canada, right?

Kub: It's not uncommon to send wheat but not soybeans. That is not a common logistical pattern but it certainly could be done. It would be interesting to see if that really does happen. There's a lot of rumblings about that, that the soybeans would move to Canada and then to China, could happen. But like I mentioned, it's kind of a conspiracy theory answer.

Howell: All right. Well, Elaine, I want to wrap it up here with one final question as we go back to the acreage discussion, looking at maybe some of those acres that might shift from soybeans this year. Brian in Illinois wants to know, with the great wheat harvest or wheat prices we've been having to the upside will this buy a lot of acres for next year?

Kub: I think it will buy as many acres. We saw a big boost in spring wheat acres this year because of prices and I think prices buy acres. I don't know if the 2019 will represent another surge on top of that 2018 acreage surge. I think it all really depends on what happens with soybeans.

Howell: I want to ask you this final question, I'm going to ask you to speculate, I've been asking you to do that kind of the whole show. But let's look long-term here and say we get to the end of the year, farmers get through harvest, they're going into the 2019 calendar year having to make those decisions of what acres are going to plant. Do you think farmers are scared enough yet to see large shifts away from soybeans?

Kub: Probably not yet. I think it's really going to depend on February. If you wanted a timeline of when does this need to get sorted out that is when it would need to be as far as far as 2019 production implications. It would need to get sorted out in time for that crop insurance prices to be set.

Howell: Okay. Elaine Kub, always a pleasure.

Kub: Thanks, Delaney.

Howell: Join us again next week when we look at a partnership between a Midwest dairy producer and an East coast dairy giant and Tomm Pfitzenmaier 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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