Pearson: This is the Friday,
June 13, 2014 version of the
Market Plus segment.
Joining us now is Elaine Kub and
Walt Hackney.
Folks, welcome back.
Hackney: Thank you.
Pearson: We had an interesting
discussion on the show.
And Elaine, we've got a lot of
questions for you curious about
this corn market and where it's
going to go.
Ben in West Union, Iowa and then
another Ben are both curious,
new crop corn, hold or sell now?
Kub: I don't like the concept of
selling now.
These are not very attractive
prices.
And I don't think that there's a
lot of down side.
I mean, I think there's
certainly some down side and
there's certainly always the
possibility that some disastrous
global thing could happen to
pull the rug out from our
tenuous recovery, economic
recovery.
But generally speaking I think
there's maybe 20 or 30 cents of
down side on this and there's
any number of things that could
happen through the growing
season to put some sort of
little bounce in it or even to
wait longer and if you can store
it and hope that maybe you get
some sort of El Nino bullishness
down from South America.
There's lots of things that
could happen and these aren't
very attractive prices.
Pearson: Okay.
Now, flip side of that same
question, Josh and Amanda down
in Eddyville, Iowa are folks
that perhaps might be more in
Walt's camp, they are cattle
feeders or at least livestock
producers down in southern Iowa.
And they're curious, how low can
this corn go?
You mentioned 20 to 30 cents on
the show.
Is the door open for perhaps a
bigger falloff even short-term?
Kub: Sure.
I base that 20 to 30 cent number
on the fact that the national
average cash price for corn
right now is $4.23.
And it felt like last, you know,
in January, the last time we hit
a low, there was really some
bulking when the cash price hit
$4.
There was really like a
psychological floor at that $4
level.
So, that is where I got my 25 or
30 cent drop on that.
But there are certainly areas in
the northwestern Corn Belt where
the rail market has fallen apart
where they are buying corn at
$3.50.
So, it's not a hard and fast
floor.
But I think certainly this would
be a good time to be buying feed
needs, let it fall another 20
cents and continue buying.
Would you agree with that, Walt,
to be buying?
Hackney: I sure do.
I sure do.
Pearson: Alright.
And now, you mentioned the
northwestern plains where the
rail market has fallen apart.
Ethanol plants we know are
buying up there at that $3.50
you say.
When do we see this changing?
What have you heard from the
railroads?
What does the trade think?
Kub: Well, actually the
railroads, they were short on
cars for a long time and now
they have the cars and they're
delivering the cars in
abundance.
So it's really quite chaotic,
there's a lot of empty cars
sitting around and guys are
scrambling to get them filled
now, which is not particularly
helpful to basis either yet at
this point.
I think it's a long, slow road
and I think it really depends on
getting an oil pipeline to get
the entire rail picture fixed.
But that's a very long-term
thing.
And in the short-term there's
really no solution.
Pearson: Well, and you mentioned
oil and that's another market
that had a very exciting week as
we look at the developments in
the Middle East was crude oil.
This pop we had, $4 and some
change pop this week,
short-term, I mean, at the end
of the day are we going to kind
of peak out and curve back down?
Kub: Well, it was really funny,
we started the week with
everybody thinking that markets
are really boring and that we
were going to go through a
summer with zero volatility in
stocks or any of the commodities
and then all of a sudden the
Sunni insurgency in Iraq is I
think what is causing this risk
premium to be built into the oil
market.
So, from what I can read in the
news they have a plan, they've
got some air strikes going on
against the insurgence so
they're trying to keep Baghdad
away from the bad guys, shall we
call them.
If that succeeds then fine, this
was a short-term thing.
But if the Sunni insurgency
continues for a long time and
takes control of Baghdad then
you've got more serious
problems.
And they may not really come
into the U.S.
oil or gasoline fuel market
because really we're not
importing oil at this point.
But just global oil prices, yes,
could be subject to more
volatility.
Pearson: Alright.
Now, as we're talking volatility
everything -- you guys are
providing great segways tonight
-- as we're talking volatility
and we look at these cattle
markets, Walt, and something you
mentioned on the show, we expect
to see the fat cattle trading in
that $145 to $150 range is kind
of where the market looks like
it's holding.
And for a long time this spring
we have seen the futures down in
the $130s, cash with a $7, $8 to
$10 basis, now the basis seems
to be eroding.
Do we expect the cash to pretty
well full trade along with
futures here in the next little
bit?
Hackney: I don't think we expect
it.
Now, it could happen obviously.
But I don't' think we expect
that to happen.
What we expect to happen is that
this cash due to the
availability of fed cattle in
the feedlots and the
possibility, in spite of cheap
corn, of cattle actually being
marketed lighter than where they
are now simply due to the fact
of the dollars involved and the
hundred weight profits that
they're making on selling these
fat cattle, right now it would
appear that we're wondering if
this market could go on into the
mid-50s or even higher.
You know, Mike, I think the last
time I was here or so I
mentioned a cattle feeder in
Hubbard, Iowa that was
projecting $165 fed cattle,
that's when I'm going to sell my
cattle I think he said.
Well, the fact is he in fact
sold cattle well into the $150
range and just totally hit a
home run on those cattle.
The industry in general feels
that the potential is there for
another run-up in the fed cattle
markets.
It's not necessarily on
commodity cattle, it's on the
grid cattle, if you will, that
are going into the premium,
primal market area and there
just isn't that many of them
available.
Pearson: And consumer demand
appears to be fairly strong.
We've seen restaurant demand
pick up and folks are grilling
and they're paying the prices.
Hackney: That's true.
Pearson: Now, another thing I
wanted to follow up on before we
let you go, at the end of the
show we were talking the hog
market and you mentioned third
quarter could be tight.
Heading into the fourth quarter,
though, we expect to see a
rebound in hog numbers?
Hackney: That is basically an
unknown right at the moment.
The market analysts that
seriously study the availability
prospects of product in
livestock don't quite know how
to handle the fourth quarter.
They feel we're going to have a
certain limitation available
hogs going into the third
quarter and through the third
quarter.
But they don't know about the
fourth quarter.
What is bothering them is
exactly what Elaine alluded to
as a potential is there for
cheaper grains.
If the cheaper grains
materialize then what will
happen is that the extra weight
they will put on these hogs,
even though we have a limitation
in the supply, is going to
create a tonnage issue at the
marketplace.
Pearson: Alright.
Now, Walt, final question.
We didn't get a recommendation
from you on the show.
As you're looking at these
prices, are you a buyer or a
seller?
What is your, what does your
heart tell you here in these
prices?
Hackney: My profession and my
heart is two different things.
Pearson: Exactly.
Hackney: My profession indicates
that our business is to sell
into a market if it is available
and that's what we're doing.
The price, my heart tells me,
could be a mistake and the
cattle feeder could be making an
error.
But, who knows that for sure.
We don't know that and there are
abilities that he has today at
his disposal like options and
that type of thing that can help
protect his cash flow needs.
His risk exposure is terribly
high but he's got ways to offset
part of that.
Pearson: Alright.
Now, one of the things that we
have been doing recently on the
show, we have been asking our
analysts and our experts how
they came to be experts and what
they do to prepare before coming
on Market to Market.
So, Elaine, I'd like to start
with you.
As somebody who is a new
speculator or a new trader
getting into the industry, what
commodity would you recommend as
the starter trade?
Kub: I think you should look for
a market that has good,
available information.
So, not necessarily whatever is
the most exciting move.
For instance, this year coffee
has been wild, it has doubled in
price in 2014 already.
But to be able to understand
that or to get very timely
information on that is rare.
So it would make more sense to
me to start in something that
just your average news source
would cover.
Oil is a good example, it's a
good proxy of the entire
economic situation.
So, anything that would affect
the American consumer can affect
the oil price or global consumer
can affect the oil price.
They have mini contracts so you
can start at a lower price.
So that is one example.
Or in the grains if you feel
like you have a good
understanding of supply and
demand of grain or what market
factors would impact that you
could start in let's say corn
has very good open interest and
they have mini contracts so
they're cheaper.
If you understood the spreads,
the corn spread trades between
the calendar, between each
calendar month contract, that
would be the best low risk, low
price way to get started and
you'd really have to understand
what is going on in the markets
so you could become an expert.
Pearson: Alright.
Now, Walt, you're sitting next
to a guy at a restaurant, he
says, I'm interested in the
protein market, what should I be
doing to get started?
What would you say?
Hackney: If the guy is talking
in terms of livestock I could be
fairly fundamentally good
assistance to him.
If he is talking in general,
which would then overflow into
Elaine's field, I would be of
little value to him.
But in my case, he has got to be
prepared to go back to the
education factor of
understanding breeds.
He's got to, if it's in the
hogs, if it's in cattle, if it's
in sheep, it's immaterial.
He has got to understand the
cutability and the sheer tests
that are involved in these
products.
At that point then he's got to
make an intensive study of
genetics.
And if he has access to that,
well where would you find that,
Mike?
You would find that at your
animal science industry, which
would be your, I'll call it land
grant colleges.
That is where I came from, that
is where most of your more
modern-day buyer group that are
in that respect referred as
traders, they have to come out
of that environment.
You can't get an old beat up
pickup truck and go around
picking up cold cows and become
an expert.
You've got to have a fundamental
background and expertise.
And that has been a challenge
for me.
I came from the other era and I
have been forced the last 10
years specifically, maybe 15,
because the packing industry has
become more and more and more
specialized in what they will
pay premium prices for in the
beef industry.
The pork industry, as you well
know, have done the same thing
through the genetics.
PIC out of England proved that
in the hog industry in the
United States.
They come into Iowa with large
units of the PIC pigs and they
proved that the yield, the lean
cut in those PIC hogs, they
proved it's possibly genetically
to get a 57%, 58% yield out of
these hogs.
As far as lean dressing
percentage, instead of the old
70%, 72% dressing percentage,
they have proven that you can
genetically bring that hog into
a 75% to a 78% yield, carcass
weight.
Pearson: And that's going to
continue to change as we go
forward.
Hackney: Absolutely.
Pearson: Alright.
Well, Walt and Elaine, thanks
for taking the time to be with
us today.
And thanks to all the viewers
for sending in their questions
via Facebook and Twitter.
We really appreciate it.
And please continue to do so and
we'll continue to get expert
analysis straight to you.
Thanks for watching and have a
great week.