Pearson: This is the Friday, August 19, 2016
version of the Market Plus segment.
Joining us now is Elaine Kub.
Elaine, welcome back.
Kub: Good to be here.
Pearson: We've got a lot of great questions to ask
you from our followers both on Facebook and on
Twitter.
So I want to start off just at the top of the
list, we're going to work our way down, give us your
best answer.
From Doyal in Alma, Arkansas, Doyal wants to
know, will we see corn prices a little higher
than what they have already been since June of
this year?
Kub: I don't think so.
I think the general trend between now and the end of
the year going through a 15 billion bushel harvest
will be a downward trend in prices.
Pearson: Let's say as future WASDE reports come
out they do start to trim that yield expectation,
they trim that total production number down.
At this point would that be bullish or has the
trade already priced that in?
Kub: It would be somewhat bullish.
I think yes, the trade is expecting to see that
number trimmed.
It would still be bullish to have that confirmed so
you could have a bounce from that.
You could continue to have some higher support from
investment money that we talked about in the show,
so these things could support prices a little
bit between here and December.
But are we going to retest June numbers, I don't
think so.
Pearson: That $4.50 is not in the cards.
Kub: Not that I, I think that would be
extraordinary, it would be fantastic.
Pearson: It would be unless you're feeding
cattle or hogs or energies -- Kub: Yeah, get your
feed cost locked in.
Pearson: And so that's the next part of that
question.
As we look at this bean meal market that has
broken a little bit or at least stayed relatively
stable corn market down here on these concerns of
15 billion bushel corn crop, are you locking in
feed costs right here?
Kub: I think that's a really good idea.
And we talked a little bit when the cameras weren't
on about the soybean meal idea.
I read, and I don't have a lot of details about this,
but I read that some soybean meal crushers in
Brazil are shutting down because of their currency
problems or whatever.
And so, I don't know, pie in the sky maybe we'd be
exporting soybean meal to Brazil someday.
That would be fantastic.
But there are certainly reasons to continue to be
worried about, or to think that these are nice low
prices to get your feed costs locked in.
Pearson: Okay.
You're not willing to wait until the combines start
to roll to see if we put in an even lower harvest
low?
Kub: I think you can wait to lock in a flat price
with the basis, but these futures values it might be
good to lock in the futures values and then
potentially see that gut slot pressure on the
basis.
Pearson: Okay.
From Fran the Man on Twitter, Fran is
wondering, he's hearing a lot of reports of tip back
on corn.
How much do you think that will affect final yield?
And so you think we will still hit trend line
yield?
Bringing it all the way back close to that 168 and
change -- Kub: Well 175 is pretty extreme, I agree
with that.
But the tip back anecdotes do not concern me at all,
even on a -- if you show me one ear with some tip
back, nice tip back on it in a field, that field
might have been planted at 50,000 population.
That could still be a record setting yield from
that field even with tip back.
Tip back is good.
It's showing that you're reaching the limit of what
that field can do.
Pearson: Utilizing everything in the dirt.
Kub: Yeah, so even if everywhere in America had
tip back I would still not automatically think that
that was a threat to yield.
I'm not worried about that.
Pearson: Okay.
From Marty in Buxton, North Dakota, he is on
Twitter @SatMonstor.
Marty remembers back in I think it was May we had
you on Market to Market and then you posted a
chart on Twitter, you said, June 18th was going
to be the top of this December corn market and
you called it, Elaine Kub, I believe on the day of
that peak you called it.
So now Marty wants to know, what is your
calculated highest probability of a December
corn high chart?
Let's talk about what's the highest probability
form here until December?
What is our next best time to sell?
Kub: That was it, it's passed.
Pearson: What does it look like for 2017?
Kub: Well assuming that we'd have normal weather
and have another normally abundant crop in 2017 and
again you'd be looking at sometime in mid-June and
I'll be honest and say that this year June 18th
was a Saturday, so it was actually June 17th.
But, anyway, I appreciate that he points that out
because I feel pretty good about this year, that the
statistics just happened to work out correctly,
that that was the highest chance.
But going forward, so let's say we missed that
highest peak in June, between now and December
the expectation is for prices to erode through
the harvest.
You do see some highs in March so if you hold onto
it, if you can store it, there is carry in the
market suggesting that it makes sense to store it,
you could try and store your harvested grain until
March maybe.
Pearson: Given the probability of a perhaps
trendline or higher yield storage is going to get to
be a concern for a lot of the parts of the Corn
Belt.
As producers are looking at making some sales,
maybe they're undersold what they're going to be
producing, how should they be approaching a
potentially saturated cash market come harvest time?
What are your thoughts on basis?
Is it going to pay to store?
What are your thoughts?
Kub: Well I think that the industry as a whole has
really developed a lot better capability to
handle large amounts of grain and it's from the
grain bags and the covered bunkers.
We have learned I feel as an industry not to just
rely on concrete and steel, we have learned how
to keep grain in condition out in the middle of
nowhere.
So that's great, so that has expanded our ability
and it takes a lot of the pressure off of basis when
you get into a huge harvest scenario.
And also another reason, you worry about a repeat
of a 2013 or a 2014 situation when the grain
couldn't get on the trains, especially up in
the Dakotas, we really had some terrible basis, just
feel apart a dollar or more because there was no
space to get it moved to, I don't think that's going
to be repeated in 2016, knock on wood, but because
there's not as much coal moving around.
Coal is the number one mover on the railroads and
right now natural gas prices are cheap that the
electrical power plants are using natural gas
rather than coal.
Grain trains should be able to move just fine.
So I think we'll see normal basis pressure at
harvest but hopefully not a disaster.
Pearson: You talk about the trains, they have also
added a lot of capacity in hauling over the past
couple of years.
I was speaking to a producer and there was a
large national rail company had tracks near
his house and they had twelve miles of engines
lined up one after another because the coal market
was down so far, those trains were just resting
ready to be pressed into service with a massive
crop.
Kub: And I think the staff too they have taken some
folks off of furlough again so I think they're
ready to go for the grain harvest.
Pearson: Okay.
The next couple of questions we have for you
are very big picture.
We appreciate your analytical mind, Elaine,
we want your thoughts here.
Aurea, and I apologize if I'm mispronouncing that,
in Dayton, Ohio wants to know, what is the goal of
USDA's August Crop Production Report when
there is at least six weeks of weather left
prior to harvest?
Why, Elaine?
Kub: Well they put out monthly reports and this
is survey based.
They go out into their crop plots and they have
the most extensive database of data that they
can use to draw and say look at conditions right
now.
All of their crop conditions rating, weekly
conditions, they can use all of this to model what
they expect the crop to look like.
That's the best you can do.
Pearson: How accurate are the August reports
compared to the January final report historically?
Are the fairly close?
Do we see a correction?
Kub: There's usually a correction as there
should, I mean, things change, like a weather man
will give you a report for seven days down the road
and then seven days later something will change.
So that's fine.
You would hope that it would not be exactly
correct.
But this is the best knowledge or the best
prediction that can be made at this point.
And it will be confirmed or denied or sort of we'll
get another look at it this upcoming week with
the Pro Farmer Crop Tour is going to, if we see
them also expecting to, given their mechanism for
predicting yields, if they're also predicting a
very large increase in yields from last year I
think that will confirm USDA's ideas.
Pearson: If they confirm USDA's ideas, what is the
downside potential to corn on a 173, 175 confirmed
via plot tests and everything else yield?
Kub: Oh I don't know that the market will ignore the
USDA saying the 15 billion bushels but all of sudden
agree with Pro Farmer saying 15 billion bushels.
Pearson: Well, it's confirmation bias of a
sort.
We've got two people now have come out and said
well it's a huge crop.
Kub: It is probably going to be a huge crop, whether
it's going to be that huge I don't, you know.
Pearson: We'll have to wait for the combines to
really -- Kub: I think so yeah.
Pearson: Final two questions for you.
First one is from Elyssa on Twitter, @Farmer
Elyssa.
She wants to know, again, talking the USDA, how are
ending stocks calculated and what are the
limitations of that?
Kub: Ending stocks just have to be put into
context.
So how are they calculated?
Very basis, right.
You have the production plus imports, which is
negligible for most U.S.
grains, plus the previous year's stocks gives you
for corn let's say 16 point something billion
bushels of total supply, right, minus what you use.
So ethanol gets used, feed and residual gets used,
help me out here, exports, seed, -- Pearson: Seed
and food and industrial use.
Kub: Yeah, so all these things.
You get a total use of 14.5 billion bushels so
what you have leftover is the 2.4 billion bushels,
that's your ending stocks number.
Is 2.4 billion bushels a lot?
I mean, here's a riddle for you.
When is 1.1 billion bushels bigger than 2.4
billion bushels?
Pearson: I don't know, Elaine Kub.
Kub: So the wheat ending stocks are 1.1billion
bushels but that's 47% of the total usage, right,
it's basically half a year's worth of wheat just
sitting in storage whereas corn's 2.4 billion bushels
is only 16% stocks to use ratio.
So also in context we are accustomed to having very
large wheat inventories and we're accustomed to
having 12%, 13%, 15% corn inventories.
So it is really context dependent of what the
industry is used to storing and used to
holding.
But that's how it's done, to answer her question.
Pearson: And the limitations are both
supply and demand are basically just estimations
of basically based on prior year's use and/or
imports and/or production.
Kub: Yeah.
Pearson: And now you jumped ahead on me, Elaine
Kub, you are really striding forward.
Our ask the analyst question where we ask you
to define certain terms and phrases used in the
futures business is, how are ending stocks
calculated and what are the limitations there?
So as you mentioned, they're calculated there
finding that ratio.
Talk to us a little bit about the limitations.
When have we been surprised by ending stocks
that didn't quite materialized or stocks to
use ratios rather that didn't quite materialize?
Kub: Well, there's also some limitations, like
particularly in the soybean market, when there
is effectively zero soybeans left in the
universe and yet their table still shows 100
million bushels, like you said these are just
economic numbers on a table at the end of the
day.
And furthermore, another limitation to it is no
matter what it looks like, it gives you a really
broad overview for sort of the supply and demand
picture for a year's worth of this crop, but it
doesn't tell you from day-to-day what the mood
of the market will be or what is really moving the
markets from one day to the next.
Pearson: Now there's a saying or at least
something talked about on Twitter, if nowhere else,
USDA always underestimates soybean demand.
Fairly accurate?
Kub: I don't know about that, it probably just
feels like it because we've had a series of
years where globally this demand for protein is,
we're not keeping up with the growth of producing
it.
So I think it just feels like that.
Pearson: Okay.
A little selective memory, perhaps.
Kub: Yeah.
Pearson: Alright.
Well, Elaine Kub, thank you so much for taking the
time to join us and answer our questions.
Kub: It has been a pleasure.
Pearson: Thanks to all of you for sending in your
questions via Facebook and Twitter.
And before we go we'd like to remind you that prices
for a web-only sale of Market to Market gear have
been slashed.
Market to Market is getting crazy, Elaine,
we've got great deals.
And if you're already on our webpage, search for
the story about everything must go.
Inside there you'll find a link to the
iptv.org/warehousesale and once you click through
you'll find a list of one-of-a-kind mugs,
Diecast tractors, now those are moving fast so
get in there, and Carhartt jackets and a lot of these
are covered with the vintage Market to Market
logo.
Or if you're interested in new gear you can follow
the links to show your support for the program
that brings you news and market analysis you trust.
Your contribution for any of these items helps keep
this program going.
Remember, once they're gone, they're gone.
Thanks for watching and have a great week.