Market Plus: Elaine Kub and Walt Hackney

Sep 21, 2018  | 14 min  | Ep4405 | Podcast

Podcast

Delaney Howell:  This is the Friday, September 21st 2018 version of the Market Plus segment. Joining us now are Elaine Kub and Walt Hackney. Welcome back guys. I'm going to start with cotton first. Elaine, are we showing any, any signs of a short term low and cotton?

Elaine Kub:  I hope so. I mean cotton had a, had a rough week and you know, that was probably related to some exporty thing too is you just have these big volatile movements when you have any sort of news in those markets and it was a shame because you know there were bullish ideas that perhaps damage from Hurricane Florence would have been priced into the cotton market bullishly but that just did not happen this week, so. So yeah, let's hope that that the big jump downward this week in cotton will will maintain it and it will consolidate upward from here forward hopefully.

Delaney Howell:  Yeah. Walt, if I want to ask your thoughts on the hog market, we had a pretty big rally or we've had a nice little rally here since the beginning of September. What's going on there?

Walt Hackney:  I think that the domestic demand has surprised a lot of the analytical community that I'm 30 days to 90 days ago. We're predicting again, this wall of pork coming at us in the fourth quarter and it, and it isn't there. We're going to continue to kill 2 million, 2 million, three, five, 2 million for hogs every week, but we're able to use the product.

Elaine Kub:  Bellies- talk about demand.

Walt Hackney:  Exactly. That's exactly right, Elaine. And, and we're, we're seeing our usage factor much greater than the analysts had expected back when they were forecasting that wall of pork coming at us. You look at the pork, what market in livestock has maintained a stable less volatile altitude as, as pork. There isn't one. Feeder and have been like a kid on a Ferris Wheel. The fat cattle market has been a busted affair all the way through. Pork has maintained stability, which surprised everyone.

Delaney Howell:  What about the USDA said they're projecting pork to increase in production. About six point three percent here in the fourth quarter are we going to see a wall of pork in the first quarter of 2019 then?

Walt Hackney:  They're still your own. Uh, going into the first quarter of 19, I don't know, why. Are you going to suggest that the ration costs are gonna, perpetuate heavier hogs? Probably not. $3 corn, soybean meal as a price is which we speak. That probably is not a factor in the market weight of hogs as some had projected it to be back 60, 90 days ago. So as a result, I don't think tonnage, while it's not, it's, it's large and they the tariff issue, obviously we could use the exports, we could certainly use it will not only enhance the stability of the hog industry, but right now it isn't hurting us that much. The fact that we're holding a lot, our cold storage is up, but our domestic usage is doing wonders on that. Poultry is the one that surprised everyone and and the usage factor and the overproduction if you will. In the poultry has created a net loss that's enormous in the poultry industry for the packers and the producer. The packer on the other hand, is, is making great profits in regard to be finished making a nice profit in regard to pork. So as long as that continues, we're not gonna let a wall of that product, uh, influence us one way or another.

Delaney Howell:  They're still incentivized to slaughter pork and beef with margins at that level.

Walt Hackney:  That's a big work- Incentivized.

Delaney Howell:  Incentivized.

Walt Hackney:  I can hardly get that out. But that's a good word because that's exactly right.

Delaney Howell:  All right. Let's, let's, uh, unpack a couple other things. Elaine, we were talking a little bit here before market plus about Argentina and Canada potentially buying or are buying U.S. soybeans to export to China. Fill us in on that.

Elaine Kub:  Well, I don't have. Well, you know, so that was the thing this week that Argentina was buying U.S. soybean cargoes and they should because they had a poor harvest and they have a very strong domestic industry of crushing soybeans. So they legitimately need soybeans for their industry. I don't have any evidence that Canada has been buying U.S. soybeans yet, but I did look into the price differentials. So like from Pembina North Dakota up to Morris Manitoba, there's a $1.65 and that's US dollars per bushel. Apples to apples comparisons of $1.65.

Delaney Howell:  A basis of $1.65?

Elaine Kub:  Yes. And hat tip to Dr Frayne Olson. He walked me through the process of how a US farmer legally could sell soybeans in Canada. They have to present a phytosanitary certificate when they cross the border at customs and then if Canada buys soybeans from a US farmer, if they commingle those soybeans and tried to export them, they would still, China would still have to pay the tariff or they would still have to pay China's import tariff on commingled U.S. and Canadian soybeans, but Canada could export Canadian soybeans without a tariff and then backfill their domestic supplies. And that has always sort of been the idea that this is what's going to happen when you disrupt the natural trade patterns is that other trade patterns will fill around it. And that's always of been the idea. And like I mentioned, I don't have any evidence that that's happening into Canada yet.

Delaney Howell:  But it could.

Elaine Kub:  But yeah, and you know, that price, differential price differentials that large, somebody's gonna try and take advantage of that. And uh, you know, it's just, it's gotta happen, right? Canada is buying cargoes of soybeans even from the United States and paying the tariffs on them. A big ship loaded in the middle of August and it went knowing that the tariffs would be in place. They sent that ship to China. It's unloaded, they're doing it. The Chinese buyers are politically worried about doing that, but they, they're doing it because they need the soybeans. Brazil's pretty much out of soybeans, so it will come out of the United States in these tariffs are just going to be part of the, uh, what's the word I'm looking for? Disruption of the market, you know, it's an interference and in the free working of the market.

Delaney Howell:  Elaine, with that being said, I think the big question that I feel like I'm asking all the time and I think producers are asking is can China then replace their soybean needs this year with shipments from Canada or Argentina or Brazil? I mean physically can they do it at this point in time with everything going on?

Elaine Kub:  No, no, no. The physically the numbers is that they will have to buy some shipments from the United States and they are.

Delaney Howell:  And we expect them to do that now?

Elaine Kub:  They are doing this now. It just, the limited amount. Very, very limited and not out of the, there's no bid at the Pacific northwest, so that's very hard on the western states, but they have to do it, but what they could do, Delaney, and this is a bigger worry is and I think that they have specifically stated that this is their goal is to find new products to work into their pork rations and their poultry rations, you know, rather than feeding soybean meal or you know, to find ways around this and that would be very concerning because now you're talking about significantly altering the global supply and demand tables for soybeans and you know, upwards of 900 million bushels of ending stocks, U.S. soybeans, that would be more bearish. You know I mentioned on the show, it's not to say that soybean markets couldn't get worse. They could get worse.

Delaney Howell:  They could, they could. They don't. Hopefully they don't. Well, let me ask you then about that. Is it plausible for us to see China switch feed stuffs, I guess if you want to call it that, could they switch that much of soybean meal or soybean oil or whatever? To a different product?

Walt Hackney:  I'm not qualified to answer that category.

Delaney Howell:  Is that in Elaine's wheelhouse a little bit.

Elaine Kub:  I don't know that there'd be enough sunflower or cotton seed meal. There's probably not enough of it.

Walt Hackney:  I don't know the count on these other items, so I'm a poor one to have an opinion on that.

Delaney Howell:  All right. Let's go to our social media questions then guys. First one here. Right off the top. Given current, very favorable weather in Brazil. How much more early season beans do you expect to be planted?

Elaine Kub:  Well, they're planting and planting is happening fast and fast. It's so fast may imply more acres. Sure. I don't know how many.

Delaney Howell:  Okay.

Elaine Kub:  I can't. I don't know. That'd be an interesting study. Wouldn't if. If you could tie, if you could tie a line between a faster planting pace in an equivalent faster or larger acreage, but I don't have that.

Delaney Howell:  To be determined. All right. Another question here from Josh and Belmond, Iowa. Green Plains is one of the big consumers of Entogen corn. With this week's news, what impacts do you see on that market? Syngenta push that hard in northern Iowa and southern Minnesota especially.

Elaine Kub:  Well, the news was sort of news like Reuters reported that Green Plains was shutting down a couple of ethanol plants and then DTN did a follow up with the CEO and he said, no, we're not shutting down any ethanol plants. It's just part of our usual seasonal on and off. And so some of this is probably just corporate-

Delaney Howell:  Fake news, fake news lead.

Elaine Kub:  Well, I don't want to say that, but you know, it just, I'm managing the optics of the scenario. So, uh, so I don't know that if you listen to the Green Plains CEO, they're not really shutting down, they're just doing some maintenance or whatever and they'll still be buying the Entogen corn. So fingers crossed. But, but there would be a legitimate reason to be worried about the ethanol profitability right now. Crude oil prices have been taking off, you know, you mentioned that earlier in the show, but, uh, ethanol prices have not. So it would be really wonderful for the ethanol industry to get some good news.

Delaney Howell:  With some RFS news. The EPA doing something there with E15 year round, still waiting for the administration. Walt, I've got a good question here for you. Jeremy in Lanark, Illinois would like to know: "Is the increased dairy cow slaughter going to be a weight in the protein complex on beef or pork?"

Walt Hackney:  It's bound to have an effect. Uh, we have seen in the past, every time we've had anything like an increase in dairy cow culling, as you will, that has in effect has increased the tonnage production of 80 percent hamburger. And as a result of that, we've seen a depress in market on the product, not so much retail going into the meat counter. It hasn't been coming back to the cow. And so the rancher who is suffering to an extent with the drought, his lack of feed the cost of feed. The expanse of carrying his cow herds. He's also going to be in competition with the dairy cow increase, and that rancher with beef cows is going to also come in with his culled cows, and as a result you could see a drop in the value, cash value of that product, but not, not the finished product going into the retail.

Delaney Howell:  How much of a drop?

Walt Hackney:  I don't know. But, uh, you know, in that, in that industry, um, beef cows of a cullable age, um, you're looking at $900 to a $1000 dollars a head roughly speaking. Usually are through calving and all of that and are going to market anyway. Then you couple that with cows that are of a thin position in place to count on the cow carcass. That also is going to affect that market. So how much you could it affect? 10 bucks a hundred. Now that's, that's a lot of money. And you take a cow at a 1000, 1100 pounds and you take 10 bucks a hundred, you're looking at $100, $125 a head. That's quite a bit.

Delaney Howell:  It is quite a bit. Well, you guys have definitely given I think listeners and watchers a lot to chew on this week. Walt Hackney and Elaine Cub- Thank you so much.

Walt Hackney:  Yep, my pleasure. Nice meeting you, Elaine.

Delaney Howell:  Join us again next week when we'll provide several viewpoints of a government report in another one of our round table forums. Darin Newsome, Ted Seifried, Naomi Bloom and Don Roose will join us 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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