Market Plus: Elaine Kub

Yeager: Hello, this is the Friday, March 25, 2022 Market Plus. Elaine Kub is still with us. Elaine, when we left off on the main discussion I said we need to talk about live cattle. We're talking about meat. There is a story that appeared right before we went to air last week that was a well-known barbeque place in Kansas City that said, don't order the brisket, it's too expensive. Order the chicken, the pork, whatever. At what point does the consumer start balking at high prices?

Kub: Well, I'll just say that I think that's up to the consumer. I don't think the restaurant needs to be suggesting that to anybody. But I'll also say that actually the boxed beef prices right now are not as high as they were even six months ago. They sort of bottomed out about a month ago and they're starting to recover. But we are not actually at usuriously high beef prices at the grocery store yet, which is not to say that they can't continue to rise. We are continuing to see lots of things rise.

Yeager: All right, live cattle specifically. What do you see right now impacting that market?

Kub: Well, it has been pretty flat. Honestly that packers have been behaving quite conservatively. They have been sort of starting to build their cold storage, they were not bidding very aggressively this week, they have not got a lot bought for April and I think that was sort of conspiracy theory, let's say that they were counting on a bearish cattle on feed report and hoping that on Monday or next week they can sort of look at that ample amount that is currently in the feedlots and use that to their advantage in the near-term. But it could go the other way too. It could be a matter that the market is ready to buy the fact, sell the rumor. How does that work?

Yeager: Buy the fact, sell the rumor. Yeah. Buy the rumor, sell the fact. It could work either way.

Kub: It's possible that we could actually get a bullish reaction to that report just because it wasn't as bearish as it could have been.

Yeager: We did have a question, it only took me one to go out of order, sorry everybody. Steve was asking, how long does it take for cold storage to build back up some supply now that you mention cold storage?

Kub: Yeah, I don't have a pace, I don’t' have a specific pace for you, but it is starting to grow higher than it was a year ago at this time. But it's not at a level yet where anybody should be worried and I think it's just a matter of the packers expecting demand this summer. I think it's a bullish signal actually that the people in the know are looking out there seeing how willing the consumer is to buy beef even if the barbeque restaurant thinks it's too expensive, the consumer is still going out and buying it and everybody else is expecting them to continue to do that as we go towards summer.

Yeager: And if we're flush with cash, some people are, they're going to keep doing it.

Kub: Well, this is it. So, yeah, how high could it go? I think we were talking a little bit before, think about oil is 114. How high is that going to go? The last time it was this high we had this very sudden high streak and this was in 2008 and then there was demand destruction because the consumer did balk, the consumer got to the gas pump and decided, I can't pay this. So they actually started driving less. And they're losing their houses or losing their jobs, of course they can't pay that much for fuel. But this is different, we're not in a recession now. The U.S. consumer actually may have enough cash to continue to pay elevated energy prices or elevated beef prices or elevated anything prices.

Yeager: And let's not rule out the workforce that might not be driving anymore, their commute is down a set of stairs in their house. Now, a lot of offices are starting to return but that doesn't necessarily mean that mass transit is back up to full capacity or in full demand. So yes, the market has changed more than we've really ever seen in such a short amount of time that we might not fully understand how impactful a high oil price is. Is that right?

Kub: Yeah, absolutely. The consumer may be less sensitive to those prices. But, I'll tell you this, industry is still sensitive to energy prices. I'm thinking specifically of diesel prices and how we've noticed barge freight rates for moving grain from the Midwest down to the U.S. Gulf, those have, I think they're about triple what they were a year ago. They're suddenly very higher and it is because of diesel prices and bunker fuel prices. And so this is true for ocean freight and truck freight and barge freight specifically. The cost to move the grain is suddenly much higher and this pushes back against basis. So your farm gate price can only afford to be less because you have to send so much more of it toward the cost of transporting the stuff.

Yeager: I have a question and of course we cut away when I'm about to pull the piece of paper out, this question came in late. Are you hearing about elevators that are maybe not or are paying board price right now because if it's $13 I'm only going to give you $10? Is that a consistent thing?

Kub: I don't -- it was definitely a moment in the beginning of March where I think it was pretty widespread, specifically for wheat because it was so volatile. I think many grain buyers did not want to put something on the books that they may not be able to get hedged or feel confident reselling in the five seconds it would take and who knows what the market is going to do. I think that that may have settled down slightly since then. But I don't know, your mileage may vary at your local elevator, they may choose, it's up to them whether they want to stick their neck out in that way or not.

Yeager: I apologize for those on audio listening to me crinkle paper. I'm sorry. We've got another question, this one is about dairy. I normally don't ask you, Elaine, about dairy. But Michael wants to know, what is pushing this run in dairy?

Kub: Well, we don't think about dairy as being a global market but it is. That milk protein and cheese protein, these are globally traded commodities. So it's the same story as every other agricultural commodity, the war in Ukraine and the supply chain problems and inflation and everything. And so we are seeing record prices above that $25. And I think possible there was a higher record in 2014 but if they didn't break it here on Friday it is very easily within touching distance next week.

Yeager: All right. Let's put a bow on some of this, the meat discussion, but a little different take. Billy in Quebec wants to know via Twitter, if prices stay high for grain, will meat prices increase enough to compensate the bigger feed costs or some barn may end up empty and decrease the demand for grains?

Kub: Well, I wish it worked that way. Wouldn't that be nice? But no, unfortunately the commodity producer doesn't have the power necessarily to go and set a price for the final product based on what the input costs are. To some extent he's correct that if production of fed cattle were to drop, the cure for low prices is low prices, just as the cure for high prices is high prices. But that is a many months long process and I don't think that that's going to be the case, especially because we have this drought. The pasture and range conditions are so poor in the west that I think we're going to continue to see cattle being fed even at $7 corn just because that's the way it has to be if the market is out there to buy those cattle.

Yeager: All right. Let's take the discussion now, Phil in Minnesota, we have two Phils asking this week. Phil in Minnesota wants to know, we've cut Ukraine production by 50%. Thinking in farmer terms, if we were to cut the expected production of the "I" states by 50% in this year, what would that do to prices? And is it a little bit tied to weather?

Kub: If we cut the production of the "I" states by 50% I don't know, I mean --

Yeager: The "I" states go into this --

Kub: Priceless.

Yeager: It would be terrible, right?

Kub: Yeah, it would be terrible and I mean like truly terrible for the U.S. consumers but for global consumers. And this is the problem with Ukraine potentially cutting 50% of their production, which is a credible estimate that some people have discussed if the conflict doesn't resolve fast enough for them to get their spring planting done. If that happens you're talking about Middle East and North Africa literally not having enough calories to feed their people. We've already seen reports of protests in Iraq because of wheat prices or bread prices. So that is the place that's going to feel it first. But yeah, if you had major cuts to U.S. production, we could have cuts to U.S. production because of drought if that persists through the summer, it's going to be a global phenomenon. Think back to the Arab spring and times three or five or ten.

Yeager: That was a discussion we had in the office this week. All right, we're going to close with Phil in Dresden, Ontario's question. He says, I have some soft red winter wheat that looks good. I've sold some, always reticent as you never know about wheat. He says, it hit on the extreme highs as crazy pricing marketing orders hit at high prices that I couldn't imagine. Do I close my eyes and sell the rest assuming wheat prices dive lower?

Kub: Well, I'm with Phil in that if you've got wheat at $11 the most likely direction for it to go would be lower in the long-term, between now and 10 years from now it's probably going to go lower than that. But between now and six months from now, potentially not. I wouldn't be in any hurry to be selling it. I would continue to do what he has done there with the optimistic market orders and see what happens.

Yeager: Biggest story to come in the next two weeks to a month is going to be what?

Kub: Well, hopefully the truce between Russia and Ukraine. Yeah.

Yeager: That would be the biggest -- would we see a dramatic relax in prices?

Kub: I think so, yes, especially -- I just don't know how much permanent damage has been done to their shipping infrastructure and their diesel availability to get things planted, to get things done. I don't know.

Yeager: There's a lot going on, a lot to talk about.

Kub: Yeah.

Yeager: Thanks, Elaine.

Kub: Thank you, Paul.

Yeager: Appreciate you making the trip and having the discussion going with whatever we crazy ask. Thanks. All right, next week we will have a panel discussion as we're going to talk stocks and acres and we'll be here with Naomi Blohm, Ted Seifried and Matt Bennett to analyze the markets so get your questions ready and we'll ask for them on Wednesday on our social media. Thank you for watching and have a great week.

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