Market Analysis with Elaine Kub

Announcer: Next, the market to market report.

Brooke Kohlsdorf: We are recording this week's show on Thursday and our closing numbers reflect that change in the schedule in the markets. Dry weather and the mixed message being delivered by this week's economic signals have led to mixed activity for the week. The nearby wheat contract added $0.08 and the May corn contract added $0.16. Even with dry conditions in the Americas and commodity demand remaining, high soybean contracts have been in a steady downward trend.

Brooke Kohlsdorf: The May soybean contract dropped a penny, while May meal added a dollar 20 per ton March cotton expanded by $6.20 per hundredweight, a nearly 7% jump over in the dairy parlor April Class three milk futures fell $0.69. The livestock market was lower, April cattle cut $2.55 April feeders shed $6.25 and the April lean hog contract declined $0.57.

Brooke Kohlsdorf: In the currency markets. The US Dollar index added 20 ticks. April crude oil rose a dollar 43 per barrel. COMEX gold increased $4.80 per ounce and the Goldman Sachs Commodity Index bumped up more than four points to settle at 556.95. And joining us now is regular market analysis with Elaine Kub. We were just joking that I think the last time I did the show, the last two times I did the show was with you.

Brooke Kohlsdorf: So how lucky am I to get to have you again? 

Elaine Kub: It's a pleasure. 

Brooke Kohlsdorf: Yeah. All right. So we're talking about we we, we are entering the second year of the war with Ukraine. We're seeing that sanctions Russia, some new sanctions against Russia, Russia dumping lots of cheap wheat on the market. And yet prices have gone up the last couple of weeks. What gives?

Elaine Kub: Well, so there has been this sort of looming threat on not just wheat, but all of the grain sector. A lot of funds selling have become very short. They have amassed really large short positions in the market. And so that means at any point in time, if they decide to get out of the market, that generally brings these higher prices that, as you mentioned, we have seen.

Elaine Kub: So we saw that certainly last week. I think the funds you see, the March contract couldn't come off the board and they maybe decided to take some profits and get off of those positions. That meant some higher prices. But I don't think that it should be interpreted as some new direction for the market necessarily. I think the wheat market will still be locked in a sideways pattern because of all of the bearish reasons that you just mentioned. Russia has a lot of wheat. That's who gets the tenders. That's how the wheat market seems to be shaping up.

Brooke Kohlsdorf: What about whether it's been so dry and unusual, the unusual barley warm? When will that have an impact on the market?

Elaine Kub: Right. So you're right that it will probably bring that winter wheat crop out of dormancy a little bit early.

Elaine Kub: Yeah, it could make some decisions about whether to graze or to harvest that for grain, maybe bring those decisions higher. But for the time being, you look at the drought monitor or the story, the cover story about the fires, certainly it is still dry in the southwest and it's not positive for wheat conditions, but I don't think it's enough to move the market because it is such a global market.

Brooke Kohlsdorf: Okay. So moving on to corn, we there's been a lot of talk about have we reached the bottom yet? It has settled down each week since the start of the year. So are we at the bottom?

Elaine Kub: You know, I don't think that there is a specific bottom. You might say that a market shouldn't go below the cost of production, and we're certainly bumping against that.

Elaine Kub: You look at the land grant universities across the Midwest and they're projecting that in 2024 to produce a bushel of corn is going to cost somewhere between 450 in some states. And some of them are saying $5 a bushel. And the futures prices looking out for 2024 are not there. I mean, there's not profit in there except for folks who are maybe have ways to produce the corn really cheaply.

Elaine Kub: So if that's not going to be the bottom and support for the market, there's really nothing that is it could certainly continue moving lower.

Brooke Kohlsdorf: Okay. Well, what will be the thing that gets the market going in the other direction?

Elaine Kub: Yeah, especially because as I mentioned, there's that huge fund position of short positions. So if something happened to spark a suddenly higher move, for some reason, all of them would want to flood out and we would see a big a big boost in prices. It hasn't happened yet. It could continue not happening for a very long time because there's really not much at this point in time that I could think of that would make that boost maybe South American weather. But it's not bad enough to do it yet. So we could be bouncing along here much longer than folks want to see.

Brooke Kohlsdorf: There was some news this week about Southwest Airlines making some changes to try to use more renewable fuels. And I want to talk to you more about that in market Plus. But moving on to soybeans, our export numbers are still down. China still isn't buying from us. They're buying from Brazil. Right. So the question is, will this continue to keep prices down?

Elaine Kub: Right. So not only is China buying soybeans from Brazil, but the United States is buying soybeans from Brazil. That was the headline Reuters reported on this past week that really caught my attention that Southeastern poultry producers are buying shipments of soybeans from Brazil to bring to the United States. And that kind of goes into the renewable fuels piece that you mentioned.

Elaine Kub: You know, we have such an expectation for renewable diesel to be a big demand driver for soybeans and soybean oil. And it will and it probably already is. And yet all of this demand piece and frankly, a shortage of supply isn't enough to move soybean prices higher in the United States, kind of just because there's so much feed grains, you know, if you in a world with $4 corn, you're just not going to have $13 soybeans, soybean meal. The feed grains piece of the soybean market is still the driver of what the ultimate soybean price will be. And in that world, like I said, when you have cheap DDGs cheap corn, you're not going to get super expensive soybean meal. And soybeans themselves are just not going to be able to reflect, you know, admittedly bullish supply and demand.

Brooke Kohlsdorf: All right. Well, this leads us into a question that one of our viewers had, Matt is asking, At what point do we pay attention to the heat and lack of moisture in both Brazil and here? The weather and the USDA have been on opposite ends of the spectrum and reality of how to grow crops needs to come back into play.

Elaine Kub: Yeah, so probably not in February. As far as looking at North American weather, it's not an appropriate time to be really bullish about North American weather. Yet Iowa certainly is in a drought, but we have time between now and planting. Lesson planting is a long time off. It doesn't seem like it when you go outside and it's 50 degrees in February and with an early Easter, I think folks are going to be really antsy to get out and plant early.

Elaine Kub: But really, it's not planting season yet. We don't have to worry about North American weather and the South American weather. The forecast is so mixed it's really hard to get bullish about it right now.

Brooke Kohlsdorf: Can we talk about cotton? Yes. Okay. So Cotton having a moment right now. I haven't seen these prices in a couple of years. So farmers in the south, are they going to start rethinking their corn and soybean acres?

Elaine Kub: I think absolutely. Now, the cotton futures are definitely driven by the old crop is having that big surge in the big rally, but it's dragging the new crop prices along to the 80, $0.83, $0.85. So when you look at that for a new crop scenario, that is certainly going to be more attractive than corn at these prices. So I think absolutely cotton will be in there as an acreage player, very attractive to southern farmers.

Brooke Kohlsdorf: Okay. So cattle will the feeder market impact the cattle market this spring?

Elaine Kub: Well, yes. I mean, so everything is impacting. I think the cattle market is really at this point in time. It has been driven, as you're saying, by the shortage of supply from the cow calf operation or from the overall beef herd. But we're bumping up against prices now, where I start to wonder if it isn't the retail end of it, that will be the limiting factor.

Elaine Kub: We have choice boxed beef that is, you know, reaching that $300 level that it has. Try it again a couple of times in the past last year and it couldn't really break above that. So I feel like we certainly have a lot of bullish things to say about cold storage report showing that a disappearance of meat is happening, placements that were down in January. There are bullish things to feel about the live cattle market, but I wonder if we bumping up against as high as the retail market can pay him.

Brooke Kohlsdorf: At what point with beef do consumers start to say, I can't afford this?

Elaine Kub: Yeah, I don't know. So ground beef on walmart.com is, you know, $4 or $4,40 thereabouts, depending on what variety you get. So that doesn't seem too bad in this world where everything else has been inflated and we see so much food inflation. I don't know that folks are going to necessarily balk at that. And yet we just haven't reached above that. As I mentioned in the box beef market before, we haven't tested it. It certainly could happen and we certainly could see new fresh highs in the live cattle market to reflect that, too. The cash market was steady or strong this week.

Brooke Kohlsdorf: The feeder market has been great. This year. They've been enjoying some really great prices. So how long will that continue and where do we go from here?

Elaine Kub: Right. Well, prior to today, you mentioned the prices. This week we saw that $6 drop. But that is, again, kind of a function of the funds maybe in the market or just the illiquidity of the market. The feeder cattle market, there are days when there's only 2000 or 4000 contracts that are traded on certain contracts. So you could have really volatile days, but it doesn't change, as you were mentioning, the very fundamental scarcity of the number of animals that are out there. So I honestly, I'm pretty confident that as we go forward, we'll continue to see strong prices and potentially make a run at a new at a new all time high of nearby feeder cattle futures prices, which would be above 257 from last September, certainly possible for the April contract when we get to there. So it's certainly possible the scarcity is still there. Kind of don't ignore the volatility in the futures market. But that's a call to maybe do the LRP contracts, the things that can get you some protection if you do see the futures markets collapse.

Brooke Kohlsdorf Well, let's talk about hogs now, because they've also been enjoying some great prices. Do you think that consumers are eating more pork because beef is so expensive? And is that playing into what we're seeing?

Elaine Kub: That could be part of it. And the other thing that has been driving pork prices higher is the bellies. And that I think, sort of plays into, you know, this kind of warm and unseasonable weather we've been having honestly, maybe an expectation for spring summer grilling season to start a little early to have these belly prices surging the way they are bringing the pork prices higher, bringing the lean hog prices higher so that everything is sort of sort of ticking along that when we see the futures prices in the summer months looking above $100, that feels appropriate or it feels like an appropriate spread seasonally.

Brooke Kohlsdorf: Okay. We've got another question from one of our viewers that we want to ask you. This is Robert in Minnesota. What are your thoughts on the swine industry? Has it turned the corner finally?

Elaine Kub: Gosh, I yeah, it would be. That's the way that it would work, right? Somebody would see these prices better, a little bit better and feel motivated to all of a sudden expand their operations or work into that into that seasonal swing. I suspect it might be a little bit too vulnerable to really count on that long term at this point in time. I don't know that it's going to be profitable all the way through 2024, but for now, we take what we can get.

Brooke Kohlsdorf: Do we need to lock in feed needs?

Elaine Kub: You know, not a bad idea when prices are grain prices, feed. Grain prices, as I mentioned, seem cheap. And in recent terms, I don't know that there might not be better opportunities six weeks from now. I do think that there's still potential for more weakness in the feed grains markets, but it's not a bad time to be buying China's buying, right. You know. So, yeah. So it could be a buying opportunity.

Brooke Kohlsdorf: What commodity are you looking at in the next six months where you see growth?

Elaine Kub: You know, one of the things that I wanted to highlight when I mentioned China buying in the export sales report this week, it showed, you know, China buying sorghum and we saw a big daily sale of sorghum, a vessel of sorghum going to China. So if China's going to get in there and be buying feed grains at this point in time and sorghum specifically, that sort of makes or breaks that market. And it's something for folks, you know, in that dry Kansas and Nebraska region to be looking at into 2020 for planting opportunities.

Brooke Kohlsdorf: What about inputs if you haven't locked those in yet? What do you think?

Elaine Kub: It's better. It's a lot better. You know, the fertilizer prices are back down towards their five year averages. Anhydrous or anhydrous is maybe 770 per ton. So it's not as terrible as it was a couple of years ago. Nevertheless, the cost of production that we talked about a little earlier are certainly high. It's driven more by land prices or interest costs than the raw inputs. As we as you're asking about there, the fertilizer prices are a little bit better and energy prices seem to be keeping relatively stable. So not the end of the world for input costs.

Brooke Kohlsdorf: Yeah. What about the dollar right now? Where do you think that's headed?

Elaine Kub: Another good, stable market right? These are these are and that's kind of the story for all of the markets at this point in time. Day to day volatility notwithstanding, everything seems to have found a level that makes sense for its own supply and demand. There haven't been any fireworks in this past week for us to really be talking about, which, of course, makes you suspicious that something is going to come in and create fireworks. And if that does happen, the tendency for the grain markets will be to move higher as funds pull out of their short positions.

Brooke Kohlsdorf: Okay, We've got about 30 seconds left. So we'll end with oil prices. Where do you see them settling?

Elaine Kub: It really depends, let's say, on geopolitical problems that we can't foresee. I don't know that there's a reason to expect them to move really far out of the range where they're at with $80, let's say, for West Texas oil. It seems to be a level that they have reached sort of an equilibrium that seems to be fair.

Brooke Kohlsdorf: Okay. Thank you, Elaine for your insight, as always. All right. Well, we are going to pause this analysis and continue our discussion about these markets in our Market Plus segment. You can find both analysis and plus on our website of market to market dot org.

Brooke Kohlsdorf: And many of the stations where you see this program maybe changing broadcast times because of their annual pledge drives. If you believe in this service that you have trusted for nearly five decades, consider investing in your local public television station to keep programs like this one in production. We thank you for your support. And next week, we look at the economic factors affecting higher priced livestock.

Brooke Kohlsdorf: Thank you so much for watching and have a great week.

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