Pearson: This is the Friday, September 22, 2017
version of the Market Plus segment.
Joining us now is Dan Hueber.
Dan, welcome back.
Hueber: Thanks very much.
Pearson: Now, we've got a couple of questions from
our followers on Facebook and Twitter.
And I just want to kick it off with those.
We're going to start with Hedge Whisperer in
Virginia He's on Twitter @sellis1994.
Got a ratio question for you, Dan.
He wants to know, if corn doesn't get within the
2.25 ratio of soybeans price, why should we even
grow it?
Hueber: Well, certainly a good question.
And I guess it really has to come back to an
individual grower, why are you growing corn?
Are you growing it for your own livestock feed?
Well, you're going to grow corn for your livestock
feed.
If you're growing it for the marketplace here again
too there's not a generic answer you can give
because some areas have better localized markets
where you're maybe in close proximity to an
ethanol plant.
Some people are just geared up to grow corn,
don't want to really try to upset either the
rotation or the operations they have as far as grain
facilities.
So I'm a little surprised yet this year that even
coming into the spring that we did not see a
slightly larger shift over to corn acreage.
We really thought there was going to be less than
90 million acres planted because of that price
advantage that beans had over corn and we ended up
with 90.9 planted.
So yeah, there's so many little circumstances that
fit into it.
But on a pure economic question, why not shift
harder to the beans and go ahead and take advantage
of it.
And I think that's the critical element is if
it's profitable for the beans take advantage of it
but truly take advantage of it and make a sale.
Pearson: Right.
Exactly.
If you're planting based on the ratio, sell that
ratio.
If you're planting beans because they are higher
priced, sell the price you're being offered
today.
Hueber: And again, here's one of the truly
astounding things of the bean market this year is
this was a large increase in acreage.
We're not looking, we're record bean acreage,
second highest projected yield on record, so truly
we're going to produce more beans than we ever
have and we still are watching this market
rally.
So here again, we never want to lose that focus
that supply is only half the equation.
Demand is still truly what is going to help prices
move up and down.
Pearson: So has the market, and you're making
me think here, has the market kind of disregarded
USDA's ending stocks number?
Do traders consider from the WASDE report August,
September, 500, 600 million bushel carryout,
do we just kind of cast that aside now because
USDA has underestimated demand so consistently
over the past decade?
Hueber: In the beans, yes I think more so than corn
or in the wheat, even there for years we have
tried to push that bean carryout up as far as
projections.
We're going to have 450, gosh it could be a 600
million carryout on beans and it has just never
happened.
Now granted, you never want to be lulled into
complacency thinking it can't happen.
As you know it's never the alligator you're staring
at that bites you.
So you always keep it in perspective.
But certainly I think we are quick to look at the
demand in beans, let that override where the supply
situation is.
Pearson: Alright.
Well, while we're speaking of soybeans, our friend
Chad, @hort4cy, in Randalia, Iowa wants to
know, as the soybean harvest gets ramped up,
should we be selling unpriced bushels off the
combine or putting into storage?
And then what about commercial storage versus
your at-home storage?
Hueber: Of course at-home storage is always going to
be the most cost-effective I should say as long as
you don't have to go through a huge process to
get in and out and you keep good care of it once
it's in there as well.
That's not something you necessarily walk away.
Yes, the answer is yes on both.
I think you go ahead and sell beans as we approach
this $10 level.
But on the same token that doesn't necessarily mean
you don't store them.
Look at how much carry is in the market.
I think we've got about a dime to January now and
then maybe another 5 or 8 cents to March.
So it is a decent amount of carry to put it back in
there.
Now, is that worthy of commercial storage?
You would really have to kind of look at in your
regional area what kind of basis swings you normally
see.
The futures spreads say yes, you probably should
store the beans.
Again, that doesn't necessarily mean store
them unpriced.
If you're at a profitable level still take advantage
of that because for the time being unless we truly
get into a weather difficult situation in
South America the upside is probably somewhat
limited even though we have been very resilient
in bouncing back here in the recent weeks.
Pearson: Watching the upside and its resiliency
let's say we do manage here in the next week to
10 days to push up to $10 on the November contract.
What would you say once we get to that area, if we
break through it what would you be watching as
an upside while we're trying to see what happens
in South America?
Hueber: Here again we spoke on the previous
section but you look at all these commodity
markets, they seem to have developed these very
large, broad trading ranges and in November
beans for four years now, we can take maybe 8, 10
weeks that we were under $9 and we can take about 6
weeks we were over $10.50.
But we have been between $9 and $10.50 for four
years in November beans.
So the logical step was we get above $10, $10.50 is
probably going to max you out unless we've got a
true circumstance that would dictate why we
should go higher than that.
Pearson: La Nina is confirmed, dryness
spreads, etcetera.
Hueber: Correct.
Pearson: Alright.
Now, our next question is a little more theoretical.
Looking at the economy a whole, looking at risk
management as an industry, Ben in Jesup, Iowa on
Twitter @BenRiensche wants to know, or at least he
notes, crop insurance companies originate
policies.
The reinsurance companies buy those policies.
Doesn't that mean that throughout October they
must be buying back their hedge protection?
Aren't they hedging this crop just as a producer or
an elevator would?
Hueber: Which would make a lot of sense from somebody
who comes from a grain marketing, risk management
background and certainly people in the insurance
industry would be considered risk managers
but they traditionally have not been hedgers.
And I think for the most part most of them do not
utilize futures, options, over the counter
derivatives, whatever the case may be.
And by no means is that saying that's exclusive.
But they generally tend to manage their risk by how
they have allocated into the various risk pools
they can put it.
The insurance companies versus the underwriting
companies will tend to kind of split up who is
going to take how much risk on any given year.
So yes, those who hedge probably wouldn't just
step in and start buying it back.
But really yes, past October 30th they have no
need for that hedge anymore.
The instrument of choice I would suspect would be
some kind of over the counter derivative that
takes an average price for the month of October and
just lifts out of the hedge if they had it on.
But again, I would say very few insurance
companies actually venture into that field.
It's just out of their realm of expertise.
Pearson: Right.
So that's not something we see moving the market in
October.
There isn't a huge inflow of outside money trying to
take positions back off or remove hedges.
Hueber: Correct.
And I think every year there is always kind of
that assumption that they're going to keep --
the old story is the government is going to
prop prices up so they don't have to pay out
indemnities.
I don't think anybody is quite that organized or
has quite that nefarious type of motivation out
there.
But certainly that could lift a little bit of the
pressure.
I think there probably just is as big of a
tendency to see funds who have been the short in the
market lift out of hedges this time of year just
because seasonally this is when you have your lows.
So if they're not seeing potential to remain short
in the market they tend to come back out of it.
Pearson: Now, before we let you go, Dan, we have
another question from a student.
And so it has been a week or so since we have done
this but we are once again featuring questions from
the people that follow us on Facebook and Twitter.
And if you are a student, high school, college,
lifetime student, please go ahead and send us an
email at MarkettoMarket@iptv.org,
let us know and we'll tell you how to get your videos
to us.
So today, Dan, this question is coming from
Sam Reed in Washington, Iowa.
Here is his question.
Sam Reed: We've recently learned in our agronomy
class that grain buyers dock farmers for different
toxins found in grain.
So what are the effects of toxins on grain products
and processing?
Pearson: Kind of a big question, feed quality
type of question but you've got some knowledge
in that arena.
Hueber: Well, I have a little background in the
feed and the food industry.
And again, it truly affects both.
But you think about the word toxin in itself tells
you what you're dealing with, something that is
toxic, something that you don't necessarily want in
the food system.
Now probably one of the more common ones we hear
about is aflatoxin, you usually find it in drought
stressed areas of corn.
Well, aflatoxin into the let's say for a market hog
probably doesn't have a major impact.
But on breeding herds they know aflatoxin in a sow
ration will tend to make the sow abort the pigs.
So yes, it does have toxic reaction within the animal
that is feeding it.
And here again too, really would you necessarily want
something that is a toxin being made into your corn
flour or your corn starch or your corn oil for that
matter?
So certainly they don't want that stuff within the
system.
Of course some of the buyers and the export side
are saying we want it free of X toxins or we want it
free of so much garbage within the product.
So they have to discount that back to the point
where you can treat it in some respects.
There are locks that can be added in as a feed
additive that basically locks up that toxin.
But even then you have to be very specific about
what you're feeding it to, it may be a fed animal as
far as cattle or market weight hogs.
But it costs extra money to put these locks into
the feed so here again that is why you discount
that incoming product and worst case scenario there
are some that are just not marketable, that might
have to go -- and when I say not even necessarily
acceptable in the ethanol industry because you
think, well that's going into corn, well what is
the byproduct is ethanol is feedstuff.
Pearson: You bet.
And then it kind of comes back to the elevator's
dance where the solution to pollution is dilution
so you dock and then you blend and then you find
ways to make it work in the market.
Hueber: Right, get it down to enough parts per
million that would be acceptable for the
marketplace.
Pearson: You bet.
Well, Dan Hueber, we always appreciate your
insight.
Thanks for taking the time to join us this week.
Hueber: My pleasure to be here, thanks.
Pearson: Join us again next week when Tomm
Pfitzenmaier will sit across from me at the
Market to Market table and we'll take a look at a
Midwest producer's partnership with an East
Coast dairy giant.
Until then, thanks for watching or listening.
I'm Mike Pearson.
Have a great week.
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