Market Plus: Dan Hueber

Aug 23, 2019  | 12 min  | Ep4501 | Podcast

Podcast

This is the Friday, August 23, 2019 version of the Market Plus segment. Joining us once again is Dan Hueber. Dan, we had some very exciting news come out while we've been taping the show today which we're trying to fix in the main show so I'm not sure how it's going to come together. But President Trump put another round of tariffs on Chinese goods. How is the market going to react to this?

Hueber: Well, it's probably fortunate that it's happening on a Friday afternoon so the market or the market participants will have a couple of days to think about it. And to a certain extent I think people are getting fatigued from all of this. Granted, earlier today when he started rattling some threats about what China was doing and other various things this week it did get the market just a little bit excited but of course that happened during the session. I think people tend to react in kind of a knee jerk fashion. With this happening on a Friday afternoon maybe by Monday morning they'll have reconsidered a little bit. I would tend to think if it's going to have a negative impact though it's probably going to be a little bit stronger in the financial world than in the agricultural world and particularly statements that U.S. companies need to quit doing business with China. I think Apple, 20% of Apple's revenues are China. GM sells more cars in China than they do in the United States. So it really has potentially a bigger impact. We've already felt the impact in ag and we've seen our bean business dry up to nothing. Of course they were not a corn buyer to begin with so we've already absorbed a lot of this negative news where some of these other industries are maybe just starting to feel the wrath here at this point.

Howell: And when you look at what's going on then from a global economy standpoint we've got a really interesting question. I'm going to kind of rearrange our questions we had today because when you look at the inverted yield curve and maybe the potential that we're heading in a recession I think this is a really interesting question. I'm excited for your answer. It's from John in Iowa off of Facebook. He said, what has been deemed financially worse for farmers, and I want to add in for just the general economy, the Carter grain embargo or the Trump tariff debacle?

Hueber: The Carter grain embargo we have the luxury of being able to look back and seeing what the impacts were on that, not just the immediate impacts, but to recognize what that did long-term. And of course what it did long-term was provided our traditional customers incentive to invest elsewhere. And I think if we have the luxury of maybe being 20 years in the future now and looking back at what happened with this one we're going to say the same thing. We already know that China has, just COFCO, the Chinese grain company has invested $200 million in infrastructure in Brazil. We know the Chinese government and other governments are doing the same thing and not only in Brazil but in Argentina and Africa and I think the ill effects that we're going to feel on this, yes this immediate impact might, in the greater scheme of things is relatively short-term, it's a year, maybe it's a year and a half. It's very painful, don't take me wrong. But the real impacts are going to be 10 and 20 years down the road because we are not going to recapture the lion's share of that business that we once had.

Howell: And I think that you teed us up nicely here for another question looking at the business we will, it sounds like from your standpoint, very most definitely lose to South America. Bradley here in Upland, Nebraska has a question about that. He said, how many bushels of bean exports will the U.S. lose to South American acreage expansion next year? And probably because of this trade war debacle?

Hueber: Well, the acreage expansion I guess is they can only clear so much each year, although President Bolsonaro down there when he took office said we are open for business, we're looking for investment, and I think the raging topic, no pun intended, is with the fires in the rainforest here at this point in time. And I think the belief is every year, it's supposed to be illegal, every year Brazilian farmers will go and burn off a certain amount of ground. But it is kind of held in check. They try to control what's happening there and I think the accusation at this point is nobody tried to hold it in check this year. Once it's burned off it's very little stopping people to try to increase it. Is that going to be 2%, 3%? I guess that's unknown at this point as far as additional acreage down there. But realistically they're probably, they're already set to maybe produce 125, 130 million metric tons, so another 8 to 10 million metric tons over and above what they are for this year. So absolutely. Now, here again, we don't know what the weather is going to hold either so they could have a disastrous year weather concern wise. But they're already positioned to take advantage of our bad relationships with China and take it a step further, the Brazilian farmer's prices are reflective of the strength in the U.S. dollar. The stronger the dollar, the better the prices for the Brazilian farmer. So the longer the dollar continues to hold the strength, the more incentive they have to put extra acreage in beans. So it's kind of a vicious circle here at this point.

Howell: But then the flip side of that would be if we do head into some sort of economic recession, our dollar should weaken, and then we should be able to export agricultural commodities supposedly?

Hueber: Correct. And again it could, it doesn't have to be China although China is certainly the 800 pound gorilla when it comes to the bean market. But that could boost our total exports with a weaker dollar and I think that has been one of the things that even when we were a bit panicky about the weather situation before those end of June reports, I think the strong dollar was the thing that was really kind of holding our prices back from really accelerating at that point in time. So a weaker dollar I think would be a great boon for the ag sector.

Howell: The weather has obviously been varied as you mentioned there. We had the crop tour going on this past week. We've got another question here from Gary in Wilton, Iowa asking about just that. He said, the crop tours are winding up. In the past a 2 bushel variation in what the USDA predicted either dropped or increased the prices dramatically but this year's reports are not looking very promising. And the market seems to be responding opposite of the reports. Are they hedging for an ugly fall?

Hueber: I really think it was probably more a reflection of the other factors that were impacting us here this week and I think those numbers, each one of them came out daily and I think were supportive to the market but I Think it was just not enough yet to really attract new interest or to scare those out who were ready to push it to the downside. So no, I don't think it tried to react in an opposite fashion, it was just too many other mitigating factors that held us from really stabilizing with what we heard this week.

Howell: Okay. And then when you look at, I know it's a bit past due now, but kind of in the aftermath of last week's WASDE report we had a question here from John in Ohio asking how many prevent plant acres are being recognized in the report and factored into the market at this time?

Hueber: According to the USDA they have looked at the numbers, they have not told us if they have factored any in there. Now they are running a slightly wider harvested acreage versus, less harvested acres versus planted partially reflecting more corn going to silage but that said, if we look at the numbers from the FSA, the 11 million, supposedly 11 million unplanted acres in this nation, I fail to see where those, unless we want to believe we were going to plant 100 million acres of corn it's pretty difficult to determine where they're in there.

Howell: That is a question I've heard from a lot of people was 11 million acres of prevent plant but we were never forecasted to plant --

Hueber: -- to plant that much to begin with. Exactly. So at this point I would say none. Ultimately it could be a situation where they just change it in the harvested acreage. They might leave that planted acreage number alone and then do a wider harvested acreage number to compensate for it.

Howell: So it's really going to be September, harvest time. The market is waiting.

Hueber: Exactly, kind of the show me mentality -- it's kind of difficult to blame the market in the respect that there is so much uncertainty. And honestly, not that I want to preach about it, but I come back to that July report. I think it was irresponsible to put a number like that out without some major preface saying this is a history setting year, unprecedented problems, we need to treat the numbers as such and it was probably just as irresponsible of the marketplace to actually take them as gospel truth as well. So it has just been kind of a collection of errors and I think they have led us to the point we're at now.

Howell: I think that sets us up nicely here for our last question. I'm guessing this is what Brad from South Dakota is implying with this question. He said 7th worst crop conditions report, all the other problems but yet saying that this is the 5th all-time record yields? How?

Hueber: Most specifically talking about corn, 169.5 bushels is what the USDA had, Pro Farmer was 163 on the tour, which is probably far closer to reality. Okay, you can say the 5th highest but it's not very far behind 4 and 3 at 169.5. So I have a difficult time finding that realistic, particularly with what we know just as far as the wet holes and those type of issues that everybody confronted this year.

Howell: I guess one final question I have for you, Dan, in talking to some producers I guess specifically I'm talking Iowa here. But we've seen a lot of variance really all across the western and eastern legs of the Pro Farmer Tour and we've seen some variance in yields showing maybe better than usual yields while others are showing obviously well below normal yields. How much of a variance there will we see? I guess what I'm asking is the acres that are looking really good, is that going to be enough to make up for the acres that are looking poor?

Hueber: That's of course the challenge even with a physical crop tour is you can only cover a very limited amount of space. And I look forward to the day when we can kind of move beyond that and recognize or rely on satellite technology to give us a better handle on that because realistically that gives a so much larger, more comprehensive picture out there. Some of the companies we work with that are putting out the satellite readings were dramatically less than what the USDA, 85 million acres of corn and yields in the 150 bushel range. Maybe that was extreme to the other side. Again with a year that has just been marked by uncertainty from day one that is probably why we're going to be September or October, really this year we're going to say October, November because of the lateness of the harvest before we really have a great handle on what kind of production there is this year.

Howell: Kicking that can further down the road.

Hueber: Yes we are.

Howell: Dan Hueber, thank you so much.

Hueber: My pleasure, thank you.

Howell: Join us again next week when we explore how the mushroom capital of the world goes for an upgrade and Elaine Kub 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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