Market Analysis: Dan Hueber

Market Analysis: Dan Hueber

Aug 23, 2019  | Ep4501 | Podcast

Podcast

Results from the U.S. crop tour were eclipsed by new Chinese tariff fears and President Trump’s order for all U.S. companies to immediately look for an alternative to China. For the week, September wheat gained a nickel while the nearby corn contract fell 11 cents. Renewed threats of higher tariffs compounded losses in the soybean market as the September soybean contract dropped 24 cents. September meal lost $5.00 per ton. December cotton dropped $1.92 per hundredweight. Over in the dairy parlor, September Class III milk futures lost 41 cents. The livestock sector ended mixed as October cattle gained $1.35. September feeders put on 87 cents. And the October lean hog contract shed $2.70. In the currency markets, the U.S. Dollar index lost 50 ticks. October crude oil shrank 82 cents per barrel. COMEX Gold put on $13.10 per ounce. And the Goldman Sachs Commodity Index fell nearly 3 points to finish at 393.35. Joining us now to offer insight on these and other trends is one of our regular market analysts Dan Hueber. Dan, welcome back.

Hueber: Thanks very much, great to be here.

Howell: Dan, I want to start off the show today, I think we've got a lot of social media questions that came in talking about the crop tour results. Did the market care this week that we had all of these?

Hueber: I certainly wouldn't say it didn't care and granted any crop tour is an estimate. I do think it probably would have had a little more impact, particularly after the results came out last night, had there not been some of this other news and round 2, round 3, whatever it is of the trade tariff that has hit us yet again. But yeah, I think it was a verification for a lot of people in the trade that those USDA numbers that were issued earlier this month are just not even in the ballpark as far as what reality looks like. So as we move out into August and maybe of course start feeling a few cooler temperatures and maybe a little more realization that we've got a lot of crop out there that is probably at risk yet and the numbers that we have factored into the price are probably not realistic, or at least in my opinion not realistic, that it should start supporting us. And getting past this period of just constant bad news throwing at the market I think is going to be enough to say we'll look back a month or two months from now and say geesh, that was kind of a ridiculous period, we probably never should have been there. That's how markets trade sometimes.

Howell: Yes, that's right. Dan, since you mentioned some weather issues there we've also had a good question sent into us this week that I'm going to throw in early in the show. Coming into us on Twitter from Kendall in Treynor, Iowa. How much frost premium is priced into the market especially considering the forecast for below normal temperatures heading into September?

Hueber: I would say viewing where we are in the price range for the year, zero. we're realistically down to lows, what were the lows of the year. Yes, we're better off than we were maybe into last fall, but realistically yes we have maybe factored in a slightly lower crop because we know the acreage is not what it once could have been. And even the USDA numbers did show a reduction in yield. Maybe not realistic as compared to what's out there. I would say there's absolutely no premium in the price right now trying to factor in any potential of a frost.

Howell: When you look at the wheat markets obviously the story is a little bit different there, they have been following pretty closely in tandem with the corn markets, but they had a pretty substantially higher export sales for this past week. Why didn't the market care?

Hueber: Well, of course wheat is still not going to be the dominant player, it's not going to be the dominant market out there. I wouldn't say it didn't care. The losses were significantly less if that can be called a good thing. But losses were not quite as bad in the wheat but I think that whole psychology of worrying about trade, the whole psychology of seeing a strong dollar week after week just continues to weigh on the wheat market. It was really in a retracement mode. We're not back down to the lows we even saw in the spring. We're probably closer than we should be. That said, we had a pretty good wheat harvest it looks like across Europe, the Soviet Union, the eastern block, those areas look like a pretty good wheat harvest too so there's still quite a bit of competition out there. But the U.S. is certainly not burdened with quite the kind of psychology that we're faced in the corn and the bean markets as this point in time. But that said, all of these markets are kind of under the burden of all the external factors at this point in time.

Howell: Yes, definitely. And when you look at the corn market it seems like maybe potentially they have been probing for a new low or a new bottom? Is that what you're seeing?

Hueber: Well, I think we're down testing lows. Not that there is a great justification why we would need to go to new lows but sometimes you do it just because you can, you want to in essence test the water out, see what's left down there. But I really think we have reached a point beyond value. I think the value investors have already looked at this and said, enough is enough. It's just a question mark of when do we start stimulating some buying from bottom pickers, maybe the shorts that just kind of recognize that with the amount of risk we have out there yet, I think we estimated there's somewhere around 8 million acres of corn that was planted after June 1, which really says we've got a tremendous amount of acreage out there that is at risk for even a normal frost let alone an early frost. So like I say once we get the calendar to roll over into August those things will probably -- I should stipulate as long as we're not hit with some other kind of an external, a new trade war, a new threat here or there, those factors will start to come back into play in the minds of traders and start providing value back into the prices once again.

Howell: When you look at the corn and soybean markets, we just keep kicking this can further and further down on yield and acreage and what is actually going to get harvested. When you look at marketing of new crops do you see a short window for corn and soybean prices to be break even or maybe where corn was earlier this month?

Hueber: I would tend to say we're pushing it down far enough late enough in the year that no, I think the marketing window is probably going to be a little bit wider than it would have been had there just been a normal bounce up in to early July, something like that. We almost did that but of course that got reversed with the acreage report and what not. No, I guess I kind of tend to believe that if we finally come to the recognition that the crop is shorter than what has been factored into the marketplace at this time it's probably going to be more of a gradual turnaround and granted there's always that risk at this point in time. Yes, if there was a frost situation I'm old enough to remember what happened in 1974 and we saw those late season frosts and of course the market really didn't get excited until late September, October in that year and truly for anybody in the physical trade that's the last thing you want. It is a miserable situation handling off quality corn and that's exactly what we'd end up with too.

Howell: When you look at the soybean markets are we seeing a cap put on what we could potentially see here for a rally because of all the trade war stuff like what came out this Friday?

Hueber: It certainly has been the case all year long and you can make the case that why haven't beans broken further than they have earlier than they have. If there has been any bright spot in the acreage situation it has been with fewer bean acreage numbers recorded than the trade really anticipated all spring and summer long. That said, with basically China out of our market, well yes they did have a few beans for new crop in the purchases here this week. But for all intents and purposes they're going to be out of this market. Even with the news we had out of South America that looks like they think they can pretty well supply the Chinese market right through the fall because of the less demand, because of the swine fever situation in China, it really puts a lid, even with some weather issues it puts a lid on what we can do to the upside of bean prices.

Howell: What about in the cotton markets? How much of an upside or downside potential do we have there? In the cotton markets.

Hueber: Actually cotton is one of those markets that yes, we have been in a very long downtrend here, even more so than in the grain markets. I really think as we move out into the 1st of September here we're probably, where you look at it on the extreme to the downside, we're matching lows we haven't seen for three to four years. I really think the cotton market could be one of the first to merge out of this long downtrend here.

Howell: That sounds like good news for cotton producers.

Hueber: Let's hope so, yes.

Howell: Dan, we had the cattle on feed report come out on late Friday. Anything to report there or anything noteworthy?

Hueber: Again, I just got to look at the report very briefly there but really nothing noteworthy. Granted I think one of the major things, of course we know the situation with the packing plant in Kansas really kind of put a nail in the coffin of the cattle here in the last couple of weeks. That said, the other element is we continue to at least maintain the numbers, a slight increase in the numbers. And when you have,, it was not a great grilling season so not great on the demand there and now you've pushed the retail side of the beef market quite high because of what has happened in the packing industry. And then you back it up with a slight reduction in overall exports this year which I think that was looking like it was going to be the bright spot for all the meat industry possibly earlier this year, that yes this could be a potential of a decent year to pick up exports and we have gone just the other way around. So it has just been here again one disappointment after another and the whole psychology of restricted trade and what that's doing and of course now you build in the additional concerns of is the economy teetering on the edge of moving to a recession, which tends to make people maybe spend a little bit less on those items as well. So it has just been a calamity of errors, a calamity of issues this year that have kept us under pressure.

Howell: When you look at the Tyson fires, obviously those were early-to-mid last week. In the aftermath then we saw cash discounted $6 to $8 with live and feeder cattle. Are we seeing recovery from that yet? Or how long will that take?

Hueber: The futures maybe are coming down to meet the cash at this point in time. But yes, they're going to balance out, but again it may not be because cash rallies significantly off of here. We might just see futures come down and meet them and both of them kind of move sideways until we still see some demand build up again.

Howell: Dan, you also mentioned something there about a recession, that we're possibly heading into a recession, concerned about it, right. With beef being usually a premium cut do we see consumers then turning to pork as maybe a viable option?

Hueber: Absolutely, I think you look at pork and poultry both. They are very price competitive compared to beef at this point in time. So if I think the dollar or the consumer is out there trying to stretch their dollar that's probably where they're going to go with their spending money on what kind of protein they want to have in their meat diet.

Howell: And interestingly enough China has been obviously increasing some of their protein demands because of African swine fever. But I read something this week that said they're trying to speed up the distribution process of some of those subsidy dollars for the hogs culled by African swine fever. Does that indicate to you that maybe China is not going to start importing big shipments of U.S. pork?

Hueber: Well, they may not bring in big shipments of U.S. pork period with the current environment there. When you look at their pork numbers as a whole I think they were up about 36% on the year to date. So it's not that they aren't trying to pick up pork and granted it's not coming from the U.S. or at least, I'm sorry I should step back a little bit. Our pork exports to China are up fairly substantially this year but it's certainly not the lion's share of what they have brought in. Now, of course what China, they're trying everything they can to increase that production, try to bring production back, and it isn't necessarily pork. I think in some situations they have just gone into what were hog facilities, filled in the pits and now they're putting chickens in to try to get some meat production back there. They have in some instances really tried to press the pork, increase of their pork production restarted and then had secondary outbreaks of the swine fever. So realistically as far as rebuilding their herds you're probably looking at a multiyear process at this point. So it's not going to be a quick change around, which should keep the door open on imports.

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

Hueber: Certainly. Thank you.

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 Market-to-Market.org. Facebook allows you to keep track of many interests including those in rural America. You can find our links and photos at IPTVMarket. Join us again next week when we explore how the mushroom capital of the world is working on an upgrade. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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