Howell: This is the Friday, November 30, 2018
version of the Market Plus segment.
Joining us now is Elaine Kub.
Elaine, welcome back.
Kub: Good to be here.
Howell: All right, Elaine, we've got a lot of
questions about the G20 Summit.
So let's just start here with Steve in Findlay,
Ohio.
He said, will the China deal be buy the rumor,
sell the fact announcement?
Kub: Not necessarily.
If there is a real honest to goodness deal or a real
reason to believe that talks will continue
because that's sort of the tentative plan right now
is if they come to an agreement at this dinner,
or after this dinner, then there will be more talks
in Washington D.C. in December.
So if that was actually the path coming out of
that there wouldn't be just one burst and then a
selloff in response.
I think there would be a reason for the soybean
market in particular to have a sustained recovery
in prices perhaps towards $9.50.
Perhaps it could gain another dollar if you
think of the comparative prices between Brazilian
prices and FOB U.S.
prices, there's about a dollar of difference.
So it could recover that much in the same way that
it fell the $2 when the 25% tariff was announced.
So no I'm not looking for one big burst and then a
selloff.
If there was something to react to I think it would
be a sustained reaction.
Howell: Okay.
The Brazilian FOB and the U.S.
FOB, that kind of sparked a scenario in my head.
Let me try and walk it through with you and then
see what you think.
Let's say we get a deal in place or we have some
positive rhetoric or whatever and China says
okay we're done putting tariffs on U.S.
soybeans.
If we don't get back up to the same level of premium
that Brazil's soybeans are at how bullish is that for
U.S.
soybeans then?
Kub: If we would have a discount?
Yeah, that would be great news.
We'd sell a whole lot, it would start to move.
But this is a caution that the futures prices would
react much faster than the physical market would,
especially that market that goes to the P&W
because the physical scheduling of the shuttle
trains has gone haywire this year, they just
haven't been physically moving to the west as you
would expect them to so it would take some time for
the actual basis market to recover for some of those
FOB prices.
But the futures market could recover very
quickly.
Howell: Okay, I'm going to skip down here and take a
question about acreage because we touched on it
during the main program but I think this is a key
time producers are starting to look ahead.
I think that this G20 Summit meeting could have
an effect on acreage.
And Elaine, we're interested here, Luke in
Nebraska would like to know 2019 acre battle
starts now, who wins, corn or beans?
Kub: Yeah, at this point in time very much corn.
I think the last time I looked the price ratio of
soybeans to corn was 2.3 to 1 which is historically
very weak and it would favor more planting of
corn.
And it has been going on for the past month or so,
two months or whenever the seed specials that the
seed salesmen try to give you, this is the prime
time for that.
But I will say that a decision coming out of
this weekend the only thing you might see is if
there was no deal or there was an increase in the
combatitiveness between these two countries.
Then you might see farmers say okay, I'm going to buy
some more fertilizer and put it out there because
I'm going to plant corn.
But if it starts a little bit hopeful that maybe
soybeans might recover then everything is still
up in play.
Howell: I have mixed feelings about that.
So let's say we get some sort of positive rhetoric.
Should producers still be looking to switch or keep
acres in soybeans because we don't know if
anything's going to happen?
We could say something is going to happen in 2019
but we really don't know.
Is it smart I guess as a producer to say okay,
we've got positive trade rhetoric, I'm going to go
ahead and plant X number of acres in soybeans?
Kub: Well, the good news is that in December you
don't have to lock in that decision.
Seed can be returned.
The only thing that you would do at this point
that would lock in your decision is if you put
fertilizer down for corn.
So you could keep that open until March or
whenever, the decision, like I mentioned, would
still be in play unless you felt very confident
that it was going to be bad news through 2019.
Howell: Okay.
We talked a little bit about this on the main
program.
We've got a question about how the G20 Summit will
affect the cattle markets.
Paul in Northeast Iowa said if positive news
comes out of the G20 meetings will that benefit
the cattle market as well?
Kub: Hello, Paul.
And yeah, I think exactly, that all of those ag
markets would get pulled together and the beef,
this is the season where we do try to see a little
more domestic better beef prices and we have not
seen that lately in the beef cutout numbers or in
the boxed beef results.
But I think we would expect to see that
especially if you did start to see more
hopefulness that we would get more growth in the
export sector.
Howell: Okay.
Elaine, we've got another question here and you and
I kind of talked about it a little bit before the
show started, just so you weren't completely thrown
off.
We have Steve in Ward, South Dakota.
When looking at our grain exports how much movement
would it take in the U.S.
dollar index to significant change where
soybean are bought from globally by China?
Kub: Yeah, I can't do the calculation off the top of
my head of what percentage would we have to change
the dollar index to change the corn price, or soybean
prices, by that dollar that we were talking
about.
That is the price differential between the
Brazilian soybeans and the U.S.
soybeans.
We're going to need to get that dollar.
So if you could drop the U.S.
dollar currency rate that much instantaneously sure
that would be one way to do it but that's not the
direction that the dollar has been going.
Fortunately it doesn't seem like the dollar index
is going to continue going higher especially after it
has been announced there probably maybe won't be
another interest rate rise in the very near future.
So hopefully the dollar remains relatively stable.
But I don't think that's going to be the way that
we're going to get more soybeans sold.
Howell: So is the high in for the U.S.
dollar?
Kub: Maybe.
I don't know.
Hard to say.
But I will say one more thing about this is that
the question from Steve got me thinking that the
other thing that could happen is the Chinese
currency is very, is going to be very responsive to
whatever happens this weekend and it is very
weak right now, it is as weak as it has been in the
past decade since the financial crisis.
So there is certainly the possibility that you come
out of this weekend G20 meeting with bad news for
the global trade scenario and the Chinese would
continue to weaken which would not be helpful for
them buying anything from us but it would be helpful
for them continuing to run up their good trade
surpluses with other countries.
Howell: Tell me little bit more about that.
Good trade surpluses.
Kub: So they have a cheap currency, that means they
can sell their stuff to other countries cheaply
and sell lots of it and keep on building up their
positive trade surpluses.
Howell: And increase trade deficits then with other
countries?
Kub: Yes, specifically the United States.
Howell: Of course.
All right, Elaine, we've got kind of one more
softball question here for you.
We've got Lexi in Iowa.
With trade being on the forefront of our minds and
the markets what expectations are currently
factored into each commodity market?
Kub: Yeah, you kind of look at the options
markets to give you a sense of what people are
anticipating.
If you look at the historical volatility
through the month of November these grain
markets and even the livestock markets have not
been terribly volatile from day to day except
recently.
But it has been fairly quiet through this month.
But you look ahead to the implied volatilities,
let's say for soybeans, and they're suggesting
that there will be much more volatility in the
next couple of months.
That is the expectation for them to go up or down
quite a bit.
But it's hard to say -- and there is actually the
put-call parody that you would expect to see is
definitely favoring the calls.
There seems to be more buying interest in those
call options than the put options which would
suggest that maybe the option traders are more
leaning towards seeing a good positive trade result
out of this weekend than a bad result but that's
really hard to say.
Howell: Is it the options then that are showing us
there's going to be more volatility in the soybean
markets?
Kub: They're suggesting that, absolutely.
That is baked into these option prices is the
expectation for more volatility.
And like I mentioned, slightly greater demand
for the call options than the put options, which
suggest that perhaps the option trader population
is expecting to see something good come out of
this weekend.
Howell: All right, Elaine, the last thing I want to
touch on here, oil has also been very volatile.
We talked about it in the main program.
Demand and supply is the main reason we've been
seeing this volatility in the oil markets?
Kub: Yeah, we better hope that it's supply because
if oil dropped 33% in a month because of a global
demand scare that's not good news.
That would suggest, one hates to use the recession
word, right?
But one hopes that this bearishness in oil is just
because of the supply push that has been coming out
of OPEC and we have just brought it down to these,
like I mentioned, just barely profitable prices
here in some of the U.S.
formations.
And grain farmers can tell the oil industry that just
because it's below the cost of production doesn't
mean that the market has to stop there.
So I'm not saying this is necessarily the bottom of
the oil drop but it has been remarkable.
Howell: I want to go off your recession comment
here.
It's good and bad, right?
But the Fed's announcement that they're probably not
going to hike interest rates in 2019.
Does that indicate that we're heading into a
recession or a stagnant time in the economy?
Kub: Not necessarily, no.
It just indicates that perhaps there's not as
much inflation or as much growth.
Obviously we've seen that in the stock prices.
It has not continued growing here in these last
couple of months.
So there isn't, there is no reason or the Fed does
not see a reason to try and tighten things down or
dampen things down.
It's just pulling off of the breaks.
Howell: Okay.
Elaine Kub, great discussion, thank you so
much.
Kub: Thanks, Delaney.
Howell: Join us again next week when we'll have Ted
Seifried on.
We're going to talk about some other stuff, we're
going to talk about the markets.
We're going to talk about a fraud case.
Be sure to tune in.
So until then, thanks for watching, listening or
reading.
I'm Delaney Howell.
Have a great week.
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