Pearson: This is the Friday, May 5, 2017
version of the Market Plus segment.
Joining us now is Elaine Kub and Walt Hackney.
Folks, welcome back.
Hackney: Thank you.
Pearson: We had a big discussion on the program,
had a big discussion, covered a lot of ground,
but we're not done.
We've got several folks that have submitted
questions.
This was, as you mentioned Elaine, an interesting
week.
And I wanted to start with a question from our good
friend Phil up in Ontario, Canada on Twitter
@Argridome.
Phil wants to know, does the U.S.
wheat harvest still matter?
Do wheat acres still need to continue to decline?
And is the world awash in wheat?
Kub: Well, it still matters.
If we lost every ounce of wheat it would be hugely
inconvenient logistically.
We have a huge domestic consumer base for bread
and pasta and such.
If we had to import all of that wheat -- it matters.
What was the second part of Phil's question?
Pearson: Do U.S.
wheat acres need to continue to decline?
We were at the lowest wheat acres since 1909.
We're going to abandon 1.5 million in Kansas.
Clearly we need to give up more acres.
Kub: Maybe yes, maybe no.
We can say this for all feed grains globally.
We have an oversupply or an abundance of feed
grains globally.
So I wouldn't even necessarily pick on U.S.
wheat acres as what needs to decline here.
And maybe nothing does.
Pearson: Canadian wheat acres, should they cut
back?
Kub: There we go.
Pearson: Phil, come on.
Kub: I don't know that Phil plants wheat
actually.
Pearson: I don't either.
But when you look at the global glut of feed grains
in general, wheat in particular, how long do
you anticipate us being stuck in this oversupply
scenario?
Kub: Until somebody gets a good solid drought and
preferably somebody in South America.
Pearson: Well, and if we get a South American
drought would it do much for wheat worldwide?
Would we need an Australian drought?
Kub: Oh for wheat prices, sure yeah.
Or Ukraine would be a good place for a drought, yeah.
Pearson: Or more political unrest or something.
Kub: Something, yeah.
We shouldn't be flippant about this stuff because
it's people's livelihoods.
But yeah, we need something to shock the
market.
Pearson: And a massive catastrophic spring
blizzard in the Heartland of the U.S.
didn't do it.
Right.
Alright.
So our next question, Walt, on the program we
got busy discussing cattle, we did not get a
chance to discuss the pork market.
And Dietrich has a question.
He's asking, along with this beef demand will this
cause any spillover into the hog market?
If folks are willing to go to a grocery store and
spend $15 a pound on ribeye, should we
anticipate some increases in pork prices retail that
could translate back to the producer?
Hackney: I don't know if your question there is
referring to the nearby or a longer pull.
We had that scenario up until about two months
ago.
We had a huge demand because of cheaper pork
and cheaper poultry in the retail and the pickup was
phenomenal.
And it's still good.
But to say that a consumer is now going to switch
back over from $8 for an 8 ounce filet or whatever
your point was earlier, probably not.
I think that the economy right now is going to be
indicative of people preferring possibly some
luxury cuts of beef to what we got used to
cheaper luxury cuts of pork.
Pearson: Okay.
So you continue to see that hog market just kind
of flop around in here.
We're up a little bit on the week but there's no
real reason for it to move too much higher given the
supply?
Hackney: The analysts missed the inventory for
the fourth quarter and the third quarter, and not to
be critical but there was a lot of things they
didn't anticipate when they were forecasted a
huge increase because of expansion in the
facilities and it didn't occur.
There is some expansion going on out here but not
in the magnitude of what had been initially
programmed into the thing, say back in January.
Pearson: Back when we were bouncing around $45, $46
in pork.
Hackney: Exactly.
And so as a result of that I see the pork industry to
say stumbling around, I say it will stabilize and
I think it's a healthier trend if it does stabilize
as long as the cost of production is allowing
those producers to have a profitable return on their
production.
And they deserve it, it should be there and it
ought to be there.
And if corn goes like ya'll are talking in
regard to markets and possibly soybeans if they
do plant the excess that some people have
indicated, then possibly the feed costs are going
to dictate heavier hogs.
And if it dictates heavier hogs and more tonnage,
that will not be a plus to the hog market.
Pearson: Same story as beef in 2015.
Hackney: Exactly.
Pearson: And potentially beef in December of 2017.
Hackney: You got it.
Pearson: Alright.
Elaine Kub, next question is for you.
We talked a lot on the program that you didn't
see a lot of movement to the upside in corn.
We're up here at $3.88, we're pretty decent.
So Josh's question on Twitter @JoshDeal1 says,
what can push this corn market further down?
What do we not have priced into this thing?
Kub: Oh, that it could go further down.
Well, if you had, if you had any number of things,
you could have a higher dollar, suddenly change
export projections but actually in the upcoming
WASDE report those corn exports are probably going
to look pretty good, you could have any sort of
geopolitical problem might really spook commodities
in general and in fact there is some concern
about, we saw oil prices really fall apart.
Pearson: Yeah, what happened there?
Kub: I think the thought was that China's economy
is kind of slowing or their rate of growth is
slowing so there was some spookiness about overall
global demand of raw materials.
So that is the kind of thing that corn can follow
along on.
But I'm not terribly bearish on corn.
I honestly can't come up with a lot of scenarios
that would make it fall into a sub-$3 place.
I think we're pretty much where we're going to be
and we're just, the question in farmer's minds
ought to be are we here and we're going to get a
boost this summer for sure?
Which we don't know.
Or are we just here and then you better sell here,
this is it?
Pearson: And your take today is well we're here,
take advantage of it.
Kub: Some of it, I would definitely leave some
open, for sure I would because I believe in the
seasonality of the markets and you're going to have
the most risk premium when the crop is at the most
risk, which is probably June.
So I would still keep some gambling bushels around
definitely.
I still believe in the summer high but I don't
want people to bank their entire production on this
thing that may or may not happen.
Pearson: Last year you called June 18th and you
were right.
Kub: And it could still happen.
But I don't want to be the one responsible for
somebody not locking in a good $3.40 cash price.
Pearson: Okay.
Now I want to ask you the same question on soybeans.
Given that we do have some spookiness in China, plus
potentially additional acres in this country, how
aggressive do I want to be locking in November
soybeans today?
Kub: I would be more aggressive.
I would feel better about selling soybeans that I
would about selling corn right now for sure.
Pearson: Okay.
And would you be selling cash beans right now if
you had to, would you be forward contracting?
Kub: Yeah, I would be locking in where you know
you're going to take those beans.
And if you feel, if something changes in the
next six weeks or something you can go back
in and buy calls or buy futures.
You can get some upward exposure again if you need
it.
But at this point I'm way more nervous about the
downside potential in soybeans.
Pearson: Where does the downside, where from a
statistical analysis perspective, where are you
seeing the downside?
Where could we go?
Kub: We have in modern times seen soybeans with
an $8 handle on them.
So that could certainly happen.
Pearson: Well, modern times last winter, winter
of '15.
Kub: Yeah, it wouldn't take much.
And the volatility of these markets, when you
see crude oil, for instance, fall 6% in a
week, you could certainly see soybeans do the same
thing.
Pearson: Okay, so you want to be aggressive locking
it in.
Are you going to buy puts on the beans you sell?
Excuse me, buy calls on the beans you sell?
Kub: Again, I don't see a lot of reasons why you
would, we don't have a problem yet to feel
bullish about the soybean market.
Pearson: Isn't that when you buy the calls, when
there's no problem there and they're cheap?
Kub: They are cheap, I will say that, absolutely
and that's another argument for buying puts
rather than selling cash.
If you're not sure where you want to take them yet
and you're willing to play with puts, you have an
account that you want to put that in, this is a
good year to do it, this is an excellent year to be
buying options.
They are cheap.
Pearson: Okay.
Low volatility, low price.
Okay, now we've got a final question for you.
And, Walt, we kind of touched on this, you have
talked about the strength of the U.S.
economy, the consumer willing to go out there,
buy premium cuts.
Bryan again, @Baylissbeef in Southeast Iowa wants to
know, how does our higher beef value stack up
worldwide?
Can we get international buyers with beef at this
price?
Or are we mainly looking at U.S.
purchasers?
Hackney: As we speak, and that doesn't include
possibly last week or this week, those are going to
be deal breakers.
Last week and this week will be deal breakers.
It's going to be interesting.
I'm not so worried about the people importing our
beef.
I'm not so worried about that and their ability to
economically take it and love it, as I am what our
local retailer is going to do in respect to this
volatility that has come into this market.
Now this retailer isn't a rookie and he is not
stupid and that pace that he was on with $145 fat
cattle a week ago and wherever it ends up this
week and going into next week is going to be
dramatically different, it would appear to me.
And I think the role is going to, if you will, the
ownness is going to come back on our local
retailers.
Pearson: Well, and here's an argument I've heard
from several cattle feeders.
They say look, cattle prices dropped a record
breaking drop, we went from $172 cash down to $96
and $92 cash trade, retail beef prices didn't move
all that much.
There was a whole lot of margin being captured by
the packer and by the retailer, so the cattle
feeder argument I've heard is, let them eat a little
bit, let the retailer, packer margin erode to
carry these high beef prices.
In your experience with both packers and
retailers, Walt, do they let that happen very
often?
Hackney: If it would occur.
You'll find the packer because of his shrinking
margins, you'll find the packer reducing his kills.
624,000 cattle last week.
It will be interesting to see what it is next week
if the retailer takes a hold of this beef and
drives it down as a result of this Mercantile
activity of volatility that occurred this week.
And there's so much pending right now in
regard to the psychology of this market.
It would be almost mundane to make a comment on my
part of what way it's going to go until I see
where they're going to handle the product next
week.
Pearson: Okay.
A lot of volatility.
Oh yeah, Elaine.
Kub: I've got kind of an ignorant question.
But regarding Memorial Day, all of that has
already been, schedule wise the packers have
already dealt with the Memorial Day schedule, so
the decisions they make, these pending decisions
you're talking about, these are June decisions
probably?
Hackney: Yes.
Actually you've got a 21 day factor they use in the
movement of beef from the packer to the retailer.
That is in process right now as we speak.
And so those products that are involved in that 21
day process are probably 50% to 70% priced as we
speak.
Pearson: Alright.
A lot of volatility, a lot of craziness this week and
we've got a question here for our Ask the Analyst
segment.
This question came from Mikayla, Mikayla up at
Iowa State University.
And we encourage all of you if you are students
whether at high school or college level, get out
your iPhone, shoot us a question, we want to hear
what you want to know.
Mikayla has got a question for you two as a young
producer.
Mikayla: Coming from a cow-calf operation as well
as a feedlot operation, how do we see the
implementation within markets as future
agriculturalists?
Hackney: Well, my impression of an
agriculturalist is a person that is another
rung in the expertise ladder higher than where
we are right now.
And I think a graduating senior from any college in
agriculture who intends to be an agriculturalist is
going to have to make an intensive effort on their
part to become very astute at futures brokerage
language, instrumentation and appliance.
I think that will be the future of an
agriculturalist if he's going to protect his
production.
Pearson: Elaine Kub, as an agriculturalist who is
proficient in the futures and their nomenclature, do
you have any additional thoughts?
Kub: Yeah, it reminds me of a conversation that I
think you and I have had, Mike, that agriculture is
unique in that it is made up of many thousands of
small business owners and it's the only industry
that is like that.
Mining or airlines, all of those businesses they have
very professional people making their hedging
decisions and making their commodity buying decisions
for one giant company and there's maybe five
companies in the entire industry.
Agriculture has thousands of very small business
owners but they need to be as professional, as Walt
is saying, they need to be as educated and as
professional and as dedicated to managing
their positions the same way.
Pearson: Walt, did you have a follow-up?
Hackney: If I could interject one point that
Elaine hasn't made and possibly out of her
humility.
I would say that a producer today has got to
absolutely understand the nomenclature, as you
indicated, specifically you can go back, Mike, to
the era that I come from educationally and
Morrison's Feeds and Feeding was our bible and
we had to nearly memorize that as far as the A, B, C
values of different grains and their productivity in
regard to nutrition.
Today the bible in my opinion of a graduating
agriculturalist in our colleges, his or her bible
needs to be a course and an intensive course in
their education process of brokerages and the
terminology.
Pearson: You bet.
Interesting side note, I was at a hipster coffee
shop, I was in Chicago and they had a bunch of old
books on the shelves.
Guess what one of them was.
Hackney: Morrison's Feeds and Feeding.
Pearson: Morrison's Feeds and Feeding.
Wow, things change.
Let me wrap this up here and then we'll pick it up.
Join us again next week, ladies and gentlemen, when
Mark Gold will sit across from me here at the Market
to Market table and we'll explore one farming
community's efforts to clean up its water supply.
So until then, thanks for watching or listening.
I'm Mike Pearson.
Have a great week.
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