Market Analysis: Elaine Kub

Market Analysis: Elaine Kub

Nov 30, 2018  | Ep4415 | Podcast


The build up to the G20 summit and export reports were main drivers in the commodity trade. For the week, March wheat gained 9 cents and the nearby corn contract increased 7 cents. The soy complex shook off Monday’s bearish outlook for the G20 to move the January contract higher by 14 cents. January meal improved $2.50 per ton. March cotton added $1.69 per hundredweight. Over in the dairy parlor, December Class III milk futures fell 23 cents. The livestock market was mixed. February cattle went up $3.40. January feeders plummeted $4.15. And February lean hog contract retreated $1.20. In the currency markets, the U.S. Dollar index strengthened 37 ticks. January crude oil managed a 51 cent per barrel gain. COMEX Gold shed $3 per ounce. And the Goldman Sachs Commodity Index dropped nearly a point to finish at 406.10. Joining us now to offer insight on these and other trends is one of our regular market analysts, Elaine Kub. Elaine, welcome back. And I like the color of your jacket there. 

Kub: The color of your dress, yeah.

Howell: Elaine, let's start off here by talking about some of the trade news we had this week I want to start specifically talking about USMCA. We saw that agreement officially signed by the three country's leaders here on Friday morning. What impact did that have on the markets today?

Kub: We did see higher prices today. But that agreement that was signed today, that was obviously pre-arranged and not a surprise to the markets necessarily. I think you could explain the higher prices today just by it being the end of the month and the fact that speculators have been net short in the grains so if they try to close out positions before potentially a wild weekend or wild week next week they would therefore be inclined to be buying out of those positions. That could be the explanation. But any positive trade news is good news for the grain markets right now. So it's certainly not a surprise to see a good trade development like that be reflected in higher prices.

Howell: Was the end of the month story the reason that the Chicago wheat pits saw such strength today? Even in the deferred month we saw I think 8 or 10 cents put on at the end of the week.

Kub: Yeah, absolutely, and it carried over into Kansas City and Minneapolis too. We've got Kansas City wheat back above $5 a bushel so that's nice. It's not, on a weekly basis those gains weren't a huge percentage and it isn't a huge big bullish change to the structure of the wheat market. But yes, we did see that shortcovering for wheat.

Howell: The KC And Chicago contracts have been seeing a pretty big spread and this week it tightened a little bit. What caused that?

Kub: Well, it has been funny actually all year and I suspect it is just sort of a supply story. And I think there's some frustration especially when you start looking out into 2019 that you're not seeing more of a premium for that hard red winter wheat which is historically what we would expect to see.

Howell: Why should we be seeing a premium right now?

Kub: Well they've had, for the 2019 when you look ahead to that crop that has been planted and has not had an ideal start, well the stuff that got planted on time had really an ideal start, they had wonderful moisture this fall. But you are seeing folks that are seeing those stands come up now and they're not great and so there's just not as much acreage as folks would have liked to get in.

Howell: Okay. Let's talk about corn here. As we mentioned just briefly there in the program earlier, exports were also leading the commodity markets this week and they were definitely leading the corn market. I think we're sitting about 41% of USDA forecast as compared to 44.5% on the five year average. Why are we seeing these slow export numbers this year?

Kub: That's not terribly slow. That's not that bad. And this week actually the export sales number was quite favorable. And so I think that helped corn. Corn is a domestic story and having Mexico be a good trading partner is still important. So I don't think that slightly lower export pace that you mentioned there, I don't know that that's dragging our prices down at this point in time.

Howell: So can we pick up pace and get back on target with where the USDA puts us?

Kub: Yeah, absolutely. That could easily be done. We've got a lot of marketing year left.

Howell: That's true, we absolutely do. The other big thing that happened in the corn market and in the markets in general was the EPA's announcement to increase advanced biofuels for this year. What impact do you think that's going to have on the corn market moving forward if any?

Kub: Yeah, from my understanding the ethanol numbers there are not a huge change and in fact ethanol right now is a struggling part of the corn market. You're looking at ethanol plants might be projecting a 20 cent per gallon loss right now, some of them. And you have seeing RBOB gasoline prices come down 33% during the month of November just like crude oil. So that's really, the energy side of the market is weighing on corn prices right now rather than being a benefit.

Howell: Why are we seeing both ethanol and oil coming down drastically in prices?

Kub: Well, the oil thing is a global supply story. There has been this encouragement of getting OPEC to produce more oil. But at some point I feel that's not helpful to the U.S. economy because actually the U.S. is the number one producer of oil in the world and this week oil prices, the nearby WTI, went below $50 per barrel and that's sort of the magic number where it starts to be unprofitable for the Permian Basin or the Bakken formation to still be pumping. So it could get too far where it's perhaps helpful for consumers but not necessarily helpful for the overall economy.

Howell: Okay. Elaine, I want to take a social media question because we've got a lot of questions this week about what is going on with the G20 deal that's happening hopefully this weekend or no deal. But we've got a question here from @TheMizzouTiger. They want to know, does a deal even matter?

Kub: Yeah. If there was a magical deal that would matter but I don't think that's the plan. It's not going to be like a conference with 50 staffers and a 500 page TPP document. It's going to be just the market's interpretation of whatever rhetoric comes out of a dinner between these two heads of state, between the United States and China. So if the market interprets that rhetoric or just the overall attitude of that meeting, if that gets interpreted well, actually it could be hugely influential, especially to soybeans. And I even looked up what is the limit, the daily limit for soybeans, and it's 60 cents. And I don't think it's out of the range of possibility that if something huge happened or something certain happened you could have the soybean market recover very quickly. But, as you mentioned, it's perhaps equally possible that either nothing happens or it gets worse, the trade contention gets worse.

Howell: So if we've got the scenario of what happens if we see some positive rhetoric. What happens if we see some negative rhetoric after this meeting tomorrow?

Kub: I don't know that we would retest the lows in the soybean market which I think stand at like $8.27. I don't know that we would retest those because a lot of that bearishness has already been baked in and we have been seeing basis improve in the United States already. We have already been seeing some improvement just because other countries have been stepping in and some of the soybeans are moving through the Gulf. So I'm not looking at us to retest the lows necessarily but it wouldn't be good and it would imply a longer-term lasting of this pain perhaps through 2019.

Howell: I want to put this aside. Let's say we've got some positive rhetoric or whatever. What's the next thing that producers need to keep in mind? Because we have put so much of our attention and our focus on this G20 meeting and the trade disputes. What other factors are going on in the soybean markets that producers need to be cognoscente of?

Kub: Well, if you're talking about looking ahead it's certainly the timeframe that the markets are looking ahead to acreage. I hate to start banging that battle of the acres drum already but it makes sense to this year because yeah, if you came out of that and felt that soybean prices would be low or you'd have cash prices below $8 all the way through 2019 you would talk about a major shift in acreage when farmers go to plant this spring.

Howell: Absolutely. When we look at the soybean markets and also the hog markets a little bit here we saw Chinese crush margins push negative for the first time since early August. Is it just because of the African swine fever outbreak?

Kub: Possibly. And that reminds me that there was the story this week about China going to Argentina to talk about buying soybean meal from Argentina. So they will find a way I suspect to feed their hogs. But absolutely that African swine fever thing is a real problem. And we did notice in the United States that the third largest export buyer of pork this week was China. So that suggests that they are looking ahead and they are worried about that African swine fever problem and they're looking on how to get those supplies into their country.

Howell: Absolutely. And we're going to shake things up here and just continue the hog discussion because that export number is phenomenal that we saw from China importing U.S. pork. Do you expect us to continue exporting pork over to China?

Kub: I sure hope so. I mean, that would be fantastic wouldn't it? And I think that that would be one of these markets, again, if you get positive rhetoric coming out of this weekend meeting hogs are in a wonderful position to respond very quickly with big gains on Monday, especially these nearby contracts. They're at such a strange spread structure when you look out to the summer contracts. You could easily see them pop up and continue rising $10 to $20.

Howell: What about when you look at the cattle markets, Elaine? Does this G20 Summit have a huge impact or have an impact on the cattle markets?

Kub: I would suspect if we had bullishness in all of the rest of the ag markets then yes it would receive that response and especially because export growth is really the one big bright spot of beef demand growth, certainly not domestic demand growth. So it would be a good argument for that. But I wouldn't be the farm on it because I wouldn't be the farm on any positive necessarily from this trade thing yet, we just don't know.

Howell: What about exports in general? We've seen the lowest export sales in live cattle since July 19th of this marketing year. Why such this slow demand all of a sudden?

Kub: We have been seeing the U.S. dollar get a little bit stronger. That's always going to be a headwind against any sort of export. I guess I don't have a specific answer for that. It could just be a blip. Let's hope it's a blip.

Howell: So if it's a blip then where do we head from here in the February contract in particular?

Kub: Yeah, so prices, if we saw cash prices transacted this week at $120, that's a nice steady number, that's a number where folks are making money all through the industry. So if that could continue that would be fantastic and I don't think, certainly we see day-to-day volatility in those futures but that cash business has remained strong.

Howell: Okay, let's talk about feeders because I was reading a report this week, a string of steers were selling for about $150 on seven to eight weight cattle but futures have not been at the same premium. Why are we seeing that happen, Elaine?

Kub: That is wild and it has been going on here for a few weeks and we continue to see that carry structure month-by-month for the next three or four months, or the next three or four contracts out so it's really hard to say. When you see, again, like I mentioned the cash market is hanging in there stronger. If you look at these actual prices, like you mentioned Delaney, the prices at a sale barn are fine, they're not reflecting that same day-to-day volatility.

Howell: Is there a reason that we're seeing the incentive to pay higher cash prices?

Kub: Well, this has sort of been a structural problem for the past three or four years, hasn't it, where you see all of this volatility and part of it is just a structural problem of the futures trade itself, of the proportion of futures traders that come from the speculative side and how few of the traders are actually bonafide hedgers. That creates part of that disconnect I believe.

Howell: Okay. Elaine, we're going to squeeze in cotton because we don't always get to that in the main program here. We put in a $1.69 gain from last week at this time. What is going on there in the cotton markets?

Kub: That was beneficial, it's good to go up. But I don't necessarily think that's going to continue because the cotton prices have just been boucning along here under 80 cents and they don’t have a good fundamental reason to break out of that range just yet.

Howell: G20 thoughts impacting here in the cotton market? They're a buyer of cotton as well.

Kub: Exactly, that's another one of those markets where even if it doesn't have a specific story from that or even if there's so much global competition for it, it could still be pulled higher if the rest of it does and I want to emphasize again on all of this it's a huge if.

Howell: All right. Elaine Kub, thank you so much.

Kub: Thanks.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at We really want you to like us … on Facebook. Head to IPTV Market for behind the scenes information and other stories of interest including a survey we want you to take. Join us again next week when we’ll talk with an investigator about the biggest farm fraud cases of his career. So until then, thanks for watching. I’m Delaney Howell. Have a great week!


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