Market Analysis: Elaine Kub

Market Analysis: Elaine Kub

Aug 30, 2019  | Ep4502 | Podcast

Podcast

Cool weather and a presidential promise prevented some commodities from adding to last week’s losses. For the week, December wheat lost 15 cents while the nearby corn contract was 2 cents higher. The potential for renewed U.S.-China negotiations was combined with questions about the length of the growing season to give the November soybean contract a 13 cent bump. December meal lost a dime per ton. December cotton added 62 cents per hundredweight. Over in the dairy parlor, October Class III milk futures gained 22 cents. The livestock sector remained mixed as October cattle shed 47 cents. October feeders cut $1.73. And the October lean hog contract put on $4.23. In the currency markets, the U.S. Dollar index skyrocketed 131 ticks. October crude oil expanded 99 cents per barrel. COMEX Gold dropped $4.00 per ounce. And the Goldman Sachs Commodity Index gained more than 3 points to finish at 396.60. Joining us now to offer insight on these and other trends is one of our regular market analysts Elaine Kub. Elaine, welcome back.

Kub: Happy to be here.

Yeager: It's a shame we have nothing to talk about. Thanks for making the trip.

Kub: Nothing good.

Yeager: Well, it depends, it depends. We'll get to that in a minute. Let's start with wheat though. Bearish pressure continues on this crop. Is that something that's going to continue?

Kub: I think so. I can't foresee anything that could come in here to be bullish for wheat. We even had good export numbers this week for wheat, export year over year we're 24% higher than last year at this time but not even that kind of good news can do anything for this wheat market. When you have the dollar, as you mentioned, it went up about half a percentage point on Friday alone.

Yeager: Yeah and it's already at a four week high going into today.

Kub: So I think that is probably why you're seeing these double digit losses in nearby wheat futures, especially on that Chicago board. But even the KC wheat price wise itself is pretty grim, the futures are below $4, which means the cash price is much below $4 and that all kind of makes sense just domestically. This is true for spring wheat also where you've had pretty good conditions all summer. And this harvest is late, it's about 10 to 15 days late, but nobody cares about a late harvest if you're eventually going to get in all of these bushels.

Yeager: And get a harvest. So, do you cut your losses and make a sale now? Or do you hold?

Kub: No, and especially in the case of that spring wheat where I believe some folks are having, the protein isn't there, you need to know what protein you have in your bin, get tested for falling numbers and see where the market is going to shake out because I think right now there are lots of bushels but the quality or the protein levels is not what it would be in some other years. So I think it would pay to know what you've got in your bins and make a marketing decision months down the line.

Yeager: I'm not making light of the weather but we do know Punxsutawney Phil and we see six more weeks of winter if we see him. If we see this new creation called Frosty Frank, are we going to get that frost in the next six weeks? If Frosty Frank sees his shadow the market looks like it's going to be headed up. We're really watching a frost but it's already cool, continued cool forecast. Is that going to save the corn market?

Kub: I'm actually, I think the soybeans will be more sensitive to that weather concern than the corn, but both of them will. Certainly if you have a frost scare in the near future both of them would have a response. And there isn't at this point, I've checked the 10 day forecast even up in North Dakota where they have a good corn crop this year, so far so good. But we are absolutely in a weather market and it could be the case that six weeks from now nothing has happened and so there is no response in the market. I'm not necessarily bullish from this alone. I'm just saying that every day we wake up and watch the markets and watch the weather forecasts and we are absolutely in a weather market on that frost potential.

Yeager: We've been in a weather market but we've also been in a market where people don't believe things. And e got a question via Facebook. This one came from Dan in Geneseo, Illinois. Elaine, he was asking us, why is corn basis so firm if there are high stocks from last year and 169 bushels per acre in the field this year? Do end users not believe USDA? Or are farmers holding?

Kub: That is an excellent, excellent point that he's making there. And it really sort of depends locally. The really high basis levels are in the Eastern Corn Belt, in Ohio specifically. They were as high as 65 over, now they're about 30 over, maybe as high as 40 over, which means $4 cash corn bids are still out there for folks in the Eastern Corn Belt and it is exactly because the end users there can drive around and they can do a crop tour like anybody else and they can see that the acres aren't there and the bushels aren't there. If I was going to quibble with any of the USDA numbers right now certainly I don't believe this 169 number and I think satellite data backs that up and just general observations really put doubt on that. So yes there was large carryout. But remember a lot of that, more of that carryout than usual was left in farmer bins as opposed to commercial bins. So the farmers did have an ability to keep that basis strong and they responded and we've seen that Eastern Corn Belt basis, like I mentioned, go from 65 over to 30 over, so it's not what it once was, but it is still a reflection of reality. I think if you want a reflection of real concern from the end users who don't believe that the new crop is there and are trying to bid up that old crop, this basis is exactly where you see that reality.

Yeager: So watch the basis. And I'm going to get your conspiracy theory in Market Plus on something related to that. But before I let you go real fast in corn, if you maybe you're in the Western Corn Belt, Middle Corn Belt and you've got to empty those bins do you do it?

Kub: Yeah sure. The basis is very good for this time of year. You've got an equivalent of 10 over the December, ADM in Cedar Rapids, Iowa is sort of a benchmark. But sort of processor level bids all across the Midwest are about zero. So really for this time of year this is a good basis opportunity and maybe the price isn't what we wanted it to be but we did have a large crop in this old crop.

Yeager: We posted a picture on Twitter and Facebook, I think it was more of a tweet, last week or early this week, of pictures of soybean fields. And someone said, I zoomed in and looked and all I saw were blossoms, I didn't see pods. The video we showed you earlier, or we're going to show you here in a minute, will show you pods. That was from Northeast Iowa. How good is that crop out there right now?

Kub: Yeah, it looks nice.

Yeager: It looks nice from the road, right?

Kub: Yeah, from the road. But, like I said, I'm much more worried about soybeans than corn when you talk about the frost concerns. Any sort of frost before let's say Halloween there will be areas --

Yeager: That's pretty late, Halloween.

Kub: I know, but a lot of that was planted really late. And here I'm not thinking about the northern tier of the Corn Belt, but Southern Iowa, Southern Illinois where some of that was planted very late, then yeah you've got to get into October to get those pods fills. So I'm very worried about the soybean yield scenario by the time this is all said and done.

Yeager: 3 month low, pushing near a 20 day average, the weather, it has been cooler, we've got tariff talks, we've got China buying maybe. There's a lot of question marks facing soybeans right now.

Kub: Right, so it's a weather market ad we could get a rally, we could get a response from a frost. But that response will be going from a very low point. So cash prices in Iowa and anywhere west of Iowa or north of Iowa for soybeans is 90 under the November. That's like $7.80 per bushel for soybeans. That's yuck. So sure we could get a bounce up from that if there is weather, which itself is a big if, and that bounce is still not going to take you to a price that you're going to like.

Yeager: No. Is there any chance there is a price I'm going to like after November?

Kub: If it frosted in the next 10 days and took out the entire U.S. crop then maybe, maybe.

Yeager: That's a pretty big scenario right there.

Kub: Nobody is expecting that either. And you'd still feel bearish months down the line because there's the expectations for very large South American crops given what the Brazilian currency has been doing, given just their scenario down there and their acreage expectations. So it's really hard to feel any sort of bullishness for soybeans, beyond a little weather boost, any bullishness until a trade war gets solved.

Yeager: All right. We'll talk about cotton and the weather impact on Market Plus. Let's talk about the cattle market. We have a fire in Kansas still being talked about because now members of Congress are wanting an investigation and also trade groups are wanting an investigation of what happened. Is that still having any impact on the cattle market?

Kub: It's definitely having a profound impact on the market. The packers because they are now the bottleneck, they are the scarcity point in this industry, they are in the cat bird seat and they have $500 a head packer margins or more, which is record large. So the consumer is still willing to pay for the beef, the wholesale beef prices themselves are holding up, it's just the packers don't have the capacity, the capacity fell let's say 6% with some of the estimates, although when you actually look at the weekly slaughter numbers this past week they're only down about 3% from a year ago levels, so we probably haven't lost or we're not really behaving as if we've lost 6% of the capacity. But the packers are making money and they're pushing back against all of the fat cattle that otherwise would have been able to come to market.

Yeager: And we have those in the lot now, that feeder market. We've heard about expanding the weights, holding out, waiting for something, the bottleneck. Any good news there with feeders?

Kub: For the live cattle I would expect a jump up from this or a recovery in the futures market because that drop that happened right after the fire was almost certainly an overreaction. We've dropped $20 from the level it was on August 1st. So to me that suggests that a bottom has been found and a recovery could be seen. But with the feeders I don't think they would necessarily have that same overreaction, they don't have the same potential for a recovery. 

Yeager: All right. Costco opened up operations in China. That is seen as a possibility of putting more consumers over there in with U.S. pork. The hog market up a good chunk this week, 7%, $4. Is it going higher?

Kub: Yeah, it could recover, certainly seasonally and as you look out on the board it would recover. But even this bullishness that we had this week I think that is related to trade, maybe not so much China, although the Costco story was good. Folks were lined up out the door. But I think perhaps the timing of the discussion with Japan might have been enough of an influence to send hog traders moving upwards. And in fact that is one of the rare commodity markets where the funds are currently net long in futures. So I believe there is potential for them to continue building that hog position.

Yeager: One of those signs that we should be watching is what you're saying.

Kub: Sure.

Yeager: Just keep looking at things like that.

Kub: Absolutely.

Yeager: You’ve got 10 seconds, you get to finish your thought.

Kub: I was just going to say that the hogs are the only one you can say that for, the funds generally otherwise you look at the commodity markets most of the grains, cotton too, is a pretty bearish scenario.

Yeager: All right, Elaine Kub. Thank you so much.

Kub: Thanks, Paul.

Yeager: That is going to wrap up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus, conspiracy theory remember, where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. Our Facebook page is filled with links and photos. The more you like the more you’ll see @IPTVMarket.  Join us again next week when we’ll look at how demand for a southwest specialty crop is heating up. So until then, thanks for watching. I’m Paul Yeager. Have a great week!

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