Market Analysis: Dan Hueber

The USDA report pegged South America’s crop as smaller than earlier predicted and the market reaction was neutral. For the week, the nearby wheat contract added 37 cents while March corn jumped 31 cents. Thursday’s trade range for soybeans was dramatic touching highs before a big reversal following CONAB’s Brazilian bean production estimate. The March soybean contract gained 30 cents. March meal strengthened $12.70 per ton. March cotton shrank by $1.46 per hundredweight. Over in the dairy parlor, March Class III milk futures expanded 99 cents. A mixed week in the livestock sector. April cattle declined 70 cents. March feeders put on 13 cents. And the April lean hog contract moved $2.15 higher. In the currency markets, the U.S. Dollar index added 60 ticks. March crude oil advanced by $1.08 per barrel. COMEX Gold rose by $56.00 per ounce. And the Goldman Sachs Commodity Index bumped up almost 4 points to finish at 648.60.

Yeager: Joining us now to provide some insight is Dan Hueber. And Dan, you come in at a time when I'd say at 11:00 Friday morning I was all ready to say let's start with soybeans. But then there is a report of Russia is going to invade Ukraine, the market all of a sudden takes off back up, which was going to be a pretty flat day. We start with wheat because that initially was going to be the big reactionary commodity if an invasion happens. Is that still accurate information that that's the market to face the biggest impact?

Hueber: Well, for the day certainly. And again, uncertainty just breeds people taking risk off, people who are end users who need product will tend to cover themselves in fear of something of that nature. Again, let's hope it doesn't happen next week, but on the same token I think if it does we're not going to see necessarily that big of a market reaction. So you go back 8 years ago when the similar thing happened when Russia went into Crimea, markets panicked, we had a lot of uncertainty. Is it going to disrupt exports? And within a day or two we had pretty well settled down even after the invasion.

Yeager: Prior to Friday there was a report that Russia is poised to make billions and billions of dollars on crude oil on all of this run-up.

Hueber: Oh certainly, there's already been I think the official Russian energy agency posted record profits here this last year. So absolutely this has been a real boon for them and realistically had we not seen this kind of inflationary push in the commodities in the last year they might not have had the wherewithal to really even stage such an event.

Yeager: Let's finish up wheat and kind of put a bow on it and actually talk about it because we're talking about all these geopolitical things going on with it. What are you doing right now in this, if I've got wheat still hanging around?

Hueber: You know, when you look at the wheat market really for the last 8 weeks now we've really gone nowhere, it's just a back and forth market, it kind of gets tugged around with what happens with the corn and beans where the big story of course has been driven by South America. I tend to still look at where wheat is. When you're hovering around the $8 mark by no means should that be considered a poor price to take. I still think you sell into this market, both old and new, if you have the old and do some pricing on the new. The fundamentals on wheat they changed dramatically in the last year but they have really kind of stagnated. In fact, the reports out this week if anything were a little bit higher world carryout than was expected. Australia looks pretty good at this point. So not really looking at any real major trouble spots other than some possible winter kill in the winter wheat or in the U.S. wheat. So I think you still take advantage of the prices where they're at right now.

Yeager: We are talking weather when it comes to corn. South America crop, USDA as we mentioned lowering the estimate. What is that doing to corn specifically, the South American weather?

Hueber: Again, nobody has really done dramatic reductions in the South American crops yet. The Brazilian beans are coming out, the early beans are coming out at a pretty rapid pace. Yes, the yields are not necessarily what people would have desired or expected initially but that also means that the second corn crop is getting around pretty readily. The weather in Southern Brazil still a little bit iffy, at least for the next 10 days. But beyond that at least the weather forecasts I've read say that starts to clear up again. So they really could come back with a fairly decent second crop. And even in Argentina, the crop is pretty well planted down there at this point but in the major growing regions not necessarily as adversely impacted as maybe the markets would make us think at this point in time.

Yeager: What are we doing here on the new crop side for corn?

Hueber: Similar thing, you're pushing the $6 area. I think when we look historically, yes we know nearby corn is more in the $6.50 range, but $6 corn traditionally that is an exceptional price level. Really this is the only second time in history we've been in this range. Granted, we know inputs have escalated pretty dramatically. But here again I think at $6 you need to start looking at what kind of return am I looking at in my operation? How do I lock this in most effectively including your inputs costs? If you're making money I think you just need to sell into it. When you get emotional in markets like this no one realistically knows, one, how big the damages are in South America, and two, just how high is high. Have we really factored it in already? The action this week would probably say no, we're still in that process of trying to adjust to those lower crops. But that said, nobody knows how to pick the high. You have to look at your profitability and make your decisions based on that.

Yeager: Well, let's take Glen in Ohio's question right now because it is related to both corn and for sure what we're going to get into soybeans. Glen wrote is via Twitter and this is what he says. If we take into consideration the current rate of inflation in our economy, factor in the foreign countries and exchange rates that we compete against, how far out into the future should a producer hedge his costs and sales to offset the potential downside risk?

Hueber: Of course, 2022 is a slam dunk. I think you can pretty well lock in whatever your costs are for 2022. You know, granted, you don't know exactly what your profitability would be as far as yield wise. Crop insurance is going to lay a pretty good foundation there. I don't see any reason not to be a relatively aggressive marketer there. Looking out to 2023 I think you start dabbling there. Inflation is an unknown. Granted we can't say anymore that it is transitory. The Fed said we can't use that word anymore. And it hasn't been, it has hung on much longer than anybody anticipated. But really when you look at some of the elements that have been pushing inflation higher such as used car prices, it's probably not as direct of an impact as we'd like to say when we see the headline 7.5% inflation. But we know the Fed is ready to act and may act even more aggressively than we might anticipate with some of the rate hikes. We're almost certainly going to see a rate hike next month. And keep in mind that once you start seeing rate hikes what does that do to the dollar? Well, it tends to make the dollar go higher, going to make us a little less competitive on the world market. So it can be a negative impact.

Yeager: And things can disappear quickly. Let's take a look at Thursday's bean market as an example. So if you are watching what happened on Thursday, you take a lunch, come back. How am I protecting myself when I'm way into the 16's?

Hueber: Exactly. The other aspect there is markets never ever find a peak because the news turned bearish. It happens just because we have basically adjusted for whatever the supply and demand fundamentals are out there, we have basically over compensated for where they should be and they turned down in their own way. The news is almost always going to be the most bullish when you find a peak in the market and I haven't found anybody yet over the last 45 years I've been in the business that can accurately tell us exactly where that's going to be.

Yeager: Only one person hits the top, right?

Hueber: That's the one who is liquidating, getting squeezed out of a short.

Yeager: We have to finish beans in Plus but I need to get to the meats because they are still being dealing with their own things. Feed costs, live cattle, the processing. What do you see happening in that market?

Hueber: Of course we've had a pretty explosive rally in both cattle and hogs as of late. This is really the highest we've seen April cattle -- in fact, on spot cattle we haven’t really had spot cattle above $142 for years so we've actually taken that level out. I don't think it's necessarily unrealistic to see things move up towards the $150 range. In the hog market, an explosive rally in the hogs over the last four to five weeks pushing $107. Interestingly enough we look back historically and the last time we had April hogs above $147 we pushed all the way to $120. Now, not saying that has to happen again but I think part of it is demand, part of it is inflationary, part of it is compensating for the increased input costs that we have to deal with at this point.

Yeager: I think hogs, that is at least $7 here in the last two weeks that we've moved and if we're going to $120, that's $18 to go, that is a heck of a run. So if I'm a hog producer am I expanding right now if I can?

Hueber: Well, I don't know if I would base my decision on what is happening today.

Yeager: And it takes a while.

Hueber: But I think if it works in your cash flow and you have the wherewithal and you don't have the neighbors that are opposing you, why not? I think the demand for meats is going to remain pretty solid as we move forward.

Yeager: What about in the feeder cattle market if I had that opportunity to go to the sale barn tomorrow and make a purchase?

Hueber: My outlook on the fats into this year I think is still pretty strong. So I think yes, if you have an opportunity to have some more cattle out there than certainly there is going to be a market for them.

Yeager: All right, as we wrap up in the final seconds here, cotton. Is this still a little bit of a selloff this week but we're still in incredible territory, they bought all their acres?

Hueber: Well, I don't think they bought the acres. I think that is the thing we've got probably another 60 days before we really determine who is going to win the battle for acres this spring. So cotton has been acting a little bit sluggish, particularly in the last two weeks here. But that said, it's difficult to imagine that we're going to really get much pressure here at least until we have a better handle on what the acreage battle is.

Yeager: And is this a weather or a trade issue right now that has been running cotton?

Hueber: I think it's -- to the rally to this point? Oh, I think it has been trade. I think the demand has been solid enough. But now it's a question mark, can we keep the acreage up there. And I think a lot of people to the south would tend to want to stay with cotton if they could over soybeans.

Yeager: We'll continue your thought process, we'll get back to soybeans and I've got a couple other questions that I think you're going to enjoy. Thanks, Dan.

Hueber: Very good.

Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus with Mr. Dan Hueber so you can join us there. Find that on our website of MarketToMarket.org. And a little secret of the show, what you just heard is our Market Analysis and is available in podcast form and so will the extra session that is not on TV, our Market Plus and Tuesday's conversation around topics that we cover is on the program we call M-to-M. Follow all three today to stay in the know. Next week, the push to end famine. Thank you for watching. Have a great week.

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