Pearson: This is the Friday, June 10, 2016
version of the Market Plus segment.
Joining us now are Elaine Kub and Walt Hackney.
Welcome back, guys.
Kub: Good to be here.
Pearson: Alright.
We're glad to have you.
Elaine, my first question is to you.
It's a question I touched on, on the show, but I was
hoping you could expand on it a little bit.
Matt in Anamosa, Iowa wants to know, is $4.50 in
the future for corn?
And you said, maybe, but don't hang all your
bushels on it.
Kub: Yeah, absolutely do not hang all your bushels
on it.
But I was really worried that today's report would
be, if it came in bearish, even mildly bearish, that
would be the trigger to change the trend.
We've had this nice trend of churning higher.
But it did not.
It was nicely kind of bullish.
So the trend is still there so the trend could
continue to churn.
And as it happens, in January I did the
statistical calculation that the date with the
highest probability of seeing the December corn
contract's annual high is June 18th.
So yes, I think we could continue to keep on
churning here.
Pearson: Okay, statistically.
What does that mean?
Kub: That in a year, not every year, but in a year
of normal abundance, so 2016 when we're expecting
to see a normal sort of large crop, that there
tends to be a high put in, in late May or June or
early July, and if you average the dates of those
highs June 18th is the most likely day to see
that.
So we'll see.
Pearson: So should I plan on -- Kub: No, you should
average your sales over a number of dates and if
it's not $4.50 still sell it.
Let's not get crazy.
Pearson: And you mentioned on the program you're not
real excited about getting long again, reowning
somehow on the new crop corn market.
Kub: I don't understand -- there's not really a
really bullish fundamental case to be made for corn
right now, not for U.S.
corn.
There are things like Brazil poultry feeders
would even be willing to import U.S.
corn at these prices, at the price differential
between Brazil and U.S.
Africa, sub-Saharan Africa has like $8 white corn
right now.
So there are little things that logistically U.S.
corn cannot fit into them so really there's nothing
really bullish, no upside that would justify in my
opinion rebuying a call.
Pearson: Now we didn't get a chance on the program to
discuss the cotton market.
And it has been pretty volatile.
We're continuing to see some strength here as we
pull into this week.
Where do you see cotton moving?
Kub: It has been really stuck in a range since the
middle of 2014, it has been stuck between 55 and
70 cents and the USDA report had a couple little
bullish comments like Egypt cotton's production
is lower than it has been since the mid-1800s, which
I thought was an interesting statistic.
How often do you have a statistic that says that?
But that is not enough to overrule the fact that
there's 67% stocks to use ratios globally.
Fortunately we are using more cotton in 2016 than
we're producing so hopefully we're drawing
those stocks down.
And in the U.S.
the condition ratings are not great.
We've got Texas really struggling with the excess
moisture, obviously planting is behind pace.
So there are reasons why it could churn more
towards that 70 cents.
I think it could have some upside.
Pearson: Now with that 67% stocks to use ratio in
cotton, how much of that is stockpiled in China
where the quality is pretty unknown?
Kub: Yeah, it's definitely an international story
more than a domestic story.
The domestic cotton stocks are more like 33% stocks
to use ratio so it's not as bad.
And like I'm saying there are bullish stories here
in the U.S.
quality wise and anything else, but yeah, globally I
don't think we're going to see that market budge too
far.
Pearson: Okay, now the next question for you is
from Shannon @puzzer69 on Twitter.
Shannon wants to know, and I think Shannon maybe
heard me speak this winter, he says, where are
all the guys that said there's no hope for beans,
they'll be $7 by harvest of '16?
I was one of those bean bears coming into this
year.
Are we out of the woods on that?
Are we seeing a new resurgence in bean demand?
Have we set a new floor in here for soybeans at $8.50
and change?
Kub: No, not necessarily.
No, no, I mean, absolutely there could still be
downside risk because a lot of this rally is sort
of a mystery honestly, right?
A lot of it is driven by the funds, is driven by
Chinese demand or feed demand, so it could
certainly turn back around.
But let's just stop and appreciate how nice it is
that we're not still talking about $7 beans.
We've had 3 extra dollars from where we thought we
were going to be in February and March so this
is nice.
Pearson: And we're $4.50 over where some of the
worst case projections were for this fall.
That $7 bean when we were talking 450 million bushel
carryout plus looking at a boatload from South
America, we dodged a bullet.
Kub: This is nice.
Yeah.
Pearson: Now, Walt, we were talking earlier on
the program about you were seeing some bullish
potential coming into this live cattle market and so
much of that is going to depend on demand.
When we left the program, you talked about how you
expected to see some export shares shifting
from pork to beef.
Do you think that is being driven by increased wealth
in Japan?
Is it the break in the beef price?
What would cause those Asian countries to start
buying beef over U.S.
pork?
Hackney: I think it's a cost driven issue in
possibly Japan but in China.
As you're well aware, Mike, the government
stepped in and discontinued 20% of the
production of pork in China, or yeah in China.
That in itself is going to create an issue and soon
if we're not starting to go into it by the middle
or latter part of it this summer, I think we will.
The problem with that is this issue of rations, the
tonnage that we're going to be able to produce at
the higher cost of performance.
The feed efficiencies of these feeding floors is
going to start being a costly item for the pork
producer.
As a result of that, I'm thinking that the average
market weight of our hogs is going to drop possibly
10 pounds a head.
That doesn't sound big but when you put it against 2
million head of hogs a week, that's a lot of
tonnage to take out of the market.
So I think that pork is toward full, it's going to
have a potential of coming back around and being a
highly competitive product for export where now
they've gotten it, pork went up pretty
dramatically.
And as a result of that the dressed beef, as
you've seen lately, for a switch, has done some
pretty nice moves of its own and particularly when
you look at a buck a pound, a buck and a half a
pound on beef cutout, that is a considerable move in
regard to the beef industry.
Over here on pork, that thing is the volatility in
that pork trade because of this usage factor has been
phenomenal.
You take like Monday, the close on pork product was
up $2.40.
Now that is an enormous move.
And then your individual primals like loins and
butts and ribs and hams and bellies and so forth,
they were all up substantially, a dollar
plus, some of them $2, some of them $3.
The next day they had lost it all and more.
Now that is the volatility in this thing that is
creating a lot of reluctance to go into any
further expansion in the hog industry.
Pearson: Okay.
You also said something interesting on the program
and it's a dilemma I've seen a lot when I'm out
traveling, talking in particular to farmer
feeders.
You mentioned this rise in the price of corn from
roughly $3.50 to pushing $4.30, $4.50 is adding
considerably to the cost of feed.
Now, feeders are expected to stay strong.
What is the farmer feeder to do in this situation?
Do you buy the feeders and just pray?
Hackney: There's been speculation that that may
be the case.
We've seen it before.
Wouldn't you suggest that we've seen it as recent as
two years ago when we had feeder calves in October
fall delivery up nearly $3 or, if you will, a pound.
Now that was an issue that wouldn't materialize, they
were not going to make a dime on that product but
they had to have them.
They learned their lesson after $400, $500 per head
loss that they took on those calves after they
finished them for the packer.
Now they're losing $100 to $200 now but it is cattle
that is more of a residual issue.
They're filtering in on lower, cheaper priced
feeders that have brought those losses down.
They're still losing a lot of money but it's about at
a level where they're going to hold this feeder
cattle market about here and maybe even through
demand show a little bit of activity.
Pearson: Okay.
It's that old saying, what does the cattle feeder do
when he loses a pile of money on a pen of cattle?
He builds another pen.
That's how the industry has gone.
Hackney: Exactly.
That's exactly right.
Pearson: Well, Walt and Elaine, I want to thank
you both so much for taking the time to join us
this week.
We do appreciate it.
And, Elaine, we have one more question for you
before we go.
A lot of people ask us, we're interested in the
options but we don't really understand it.
So could you explain what is a call and the
advantage to using one?
Kub: Well, a call option is a financial instrument
that you can buy.
You pay 25 cents per bushel, for a 5,000 bushel
financial instrument, that will pay you some money,
you'll make some money off of this, some profit off
of this in your trading account, in a financial
account, if the market goes up above a certain
price that you set on this contract.
And if the price does not, if it goes down you're
just out your 25 cents maximum as an example.
But these prices are all different, there's an
entire strip of prices and strike prices and it gets
complex when you look at the whole matrix of what
is available.
But the simple instrument is pretty straightforward.
You will make money if the market goes up, you will
lose only so much if the market goes below a
certain price.
Pearson: So in a real world explanation, we
talked on the program about this would be a good
time to sell your cash soybeans, possibly reown
with a call so you could capture that upside if it
gets hot in August.
Kub: I'm not, yeah, I'm not real excited about
doing this today, but yeah, if something happens
in July or we start to get more worried about that
August, then maybe this is something to do.
So yeah, you would do that so you know you have a
price set on your soybeans, but you will
still receive some more financial benefit if the
market goes up.
Pearson: It's a way to reown, in a sense,
soybeans.
Kub: A simulation of reowning them on paper,
yes.
Pearson: Beans, corn, feeder cattle you can find
options, calls and puts and anything.
Kub: Absolutely.
Absolutely.
Pearson: Well, Elaine, thank you so much.
Kub: My pleasure.
Pearson: And one more time, thanks to both Walt
Hackney and Elaine Kub, always appreciate the
insight.
Hackney: You're very welcome.
Pearson: Thanks to all of you for sending in your
questions via Facebook and Twitter.
Please continue to do so and we will get expert
analysis right to you.
Thanks for watching and have a great week.