Pearson: This is the Friday, March 17, 2017 version of the Market Plus segment. Joining us now is Dan Hueber. Dan, Happy St. Patrick's Day.
Hueber: Thanks very much. Glad to be here today.
Pearson: Yeah and you're looking festive with the green tie and green shirt.
Hueber: I needed to be cautious because this week not only did I break a mirror, I walked under a ladder and a black cat crossed my path. So I figured I have to do something to kind of counteract that.
Pearson: It's a long drive.
Pearson: We're glad you're safe, glad you're here. Alright. So we've got some great questions from our followers on Facebook and on Twitter. I just want to get right into them. Nathan up in Inwood, Iowa. He's a follower on Twitter @nieuwendorp_n says, we know the bean supply situation, big carryout, big crops in South America, big acreage coming in this country. The sky is falling. But what about demand? And you touched on it on the show this week. With carryouts staying the same where is demand fitting into this whole picture?
Hueber: Even look at the recent export sales. They've drifted a little bit lower on soybeans, we're only selling 17 million a week or something like this. But already we have sold 95% of the projections for the year. We've got 24 weeks left, 25 weeks left in the year. So I really think we're already on a pace that we've probably understated the demand to begin with and certainly that seems to be kind of the supportive factor that continues to hold the beans in there. Yes, the South American crop seems to become larger every time you turn around here but we still have that 800 pound gorilla in the room, which is China, and they just seem to have an insatiable demand for the beans right now. We know their livestock numbers, particularly hogs, have been on the increase. Maybe some concern with the avian flu that has been popping up here and there. But again the growth numbers over there seem to be in hogs and hogs need a lot of meal and it seems to be the driving force right now.
Pearson: How has the domestic crush been recently?
Hueber: The crush for the last month did back off, it was down considerably from where we were in January, not unusual. You're going to tend to see it drift off as the year moves on, still has been strong numbers for the year as a whole. Inventories on the meal and oil certainly not burdensome so it is a, again, I think that is a supportive factor. We continue to expect the demand to back up and yes it slowed down but it had to, we were just running such phenomenal sales and exports week after week that it was inevitable it had to slow down some. But it's still tremendous.
Pearson: It is. And all things considered given 108 million metric tons in Brazil, given 88 to 90 million acres of beans potentially in this country, beans closed the week at 993.5. That tells you that the market is anticipating strong demand.
Hueber: Right. And there's no question about it when you add all the things together as far as the acreage, the South American production, you just think things seem to be weighted against the soybean market but it doesn't give it up and I think part of the element now is yes, we know there's a lot of ingredients in place that could conspire together to ultimately push bean prices lower, but we still have that major concern which is, what is the weather going to be like this summer and until we get a better handle on that it's going to be hard to take that soybean market dramatically apart.
Pearson: Alright. Our next question is from Tim in Crookston, Minnesota. He's on Twitter @6dollarwheatguy. Tim is the eternal optimist. He says, his marketing plan, like his bracket, is busted. Already, Tim, geez.
Hueber: Early in the year for that.
Pearson: He says, can wheat bounce back? Will corn continue to roll? And, as we already talked about, is South America's bean offense too much? So let's talk about wheat. Can it bounce back? And if it would, what are you looking at for levels for guys to really be aggressive on making some sales?
Hueber: Well, realistically the wheat market has never had a huge gain to the upside either. We've been really in a yearlong or better basing pattern in here. Now, granted, unlike the soybeans of course we have these dramatically low acreage numbers in the U.S., already a little bit of a weather concern but not enough to really kind of push us over the edge. So honestly as we spoke on in the earlier section, I want to be friendly in wheat and I'm certainly not negative but we still like that spark that I tend to think is going to be coming along as we move a little bit closer to spring and start building a little more weather in there. Can we push July wheat back up into the $5 plus range? I don't think that's a big challenge honestly.
Pearson: Alright. If we get north of $5 should producers really start to look at locking in some sales? Or if we get to that you let it run and see what happens?
Hueber: Granted, we don't have the crop insurance kind of supports that would say you can be overly confident in not doing something. But yeah, I think we're to the year, and this kind of comes back to my belief that I think the commodity sector as a whole is in this transitional stage, we're moving into more of an I'm going to hesitate to say bullish market just yet, but higher markets overall. So that does favor tending to use options, put options versus actual sales, or at least if you’re making sales always be ready with some kind of an instrument to give yourself protection to the upside in case one of those unforeseen elements does come about.
Pearson: Some type of reownership strategy.
Pearson: Our next question is from Troy and he's in Monfort, Wisconsin. Troy says there has been talk of the expansion in the cattle herd for the past five years. The general consensus is we're going to feel that expansion in 2017. His question is, how should cow-calf operations be marketing their feeders? Because they do have the flexibility that the feedlot operators don't. How should they be tackling this upcoming year of potentially downtrending feeder prices?
Hueber: Here as well I think they have a lot of positives kind of underlying in there. And one that we have tended to overlook over the last couple of years which is a rebound in demand. And, again, I think that is something that has been understated. Granted, I'm talking about what if possibilities here now, but we also have the second what if possibility. What if we really do see the dollar turn lower in earnest looking into the months ahead here? You could see a little bit of a resurgence back into the export market which would be very beneficial. All that said, I am a strong believer when it comes to risk management is developing profit objectives. We have so many tools available to us today, not only with futures sales or cash market sales that could be locked in with operators, but using these various options short-dated and don’t be afraid to use both sides of the option market. There's no excuse not to lock into a profitability, particularly after coming through such a difficult period as we just have. But, same token, use and develop strategies that are going to leave that upside open.
Pearson: Gotcha. It's all about flexibility as you look at 2017. Coming out of this, hopefully we're coming out of this downtrend and in that transition period you want to be flexible.
Hueber: Absolutely. And of course never losing sight of the fact that yes, there’s a lot of pain out there at this point in time and I don't think we've really seen that shake out just yet. Again, this expands over into the crop side. Boy, if we do have any kind of an issue in production this year I think you're going to see a lot of pain come to the surface very quickly in the respect that over the last couple of years low prices are dramatic but we have compensated for them with phenomenal yields. Boy, you can never have a good enough price if the yield is not there.
Pearson: Alright. Weather concerns, issues like that, Phil in Ontario, Canada wants to know, with December corn near $3.89 and the apparent switch worldwide to soybeans, when do we hit $4.25 corn in December?
Hueber: Sure. And I think it's probably going to be a little bit more towards spring, maybe early summer. Honestly that $4.25 to $4.50 range really looks well within striking distance and I don't think it would take much of a spoof anywhere production wise. That could be the U.S., that could be Europe, could be Ukraine for that matter as far as getting into some issues there. Over the last two years, the last two and a half years I should say, we traded $4.50 December corn with 3 to 4 million more acres than we theoretically will have this year. So yes, I think that $4.25 will come relatively easy once we start concentrating just a bit more on the weather here and of course assuming the yes, we're going to lose 3 to 4 million acres of corn acreage.
Pearson: Do you find that plausible, as you look out and you're making your estimates, do you think that 90 to 92 million corn acres is realistic?
Hueber: I think so, I really think economically, statistically it works out when you run economic models, the more people you talk with in the country, yes. Nobody is wholesale switching over to beans but you've got two or three percent here and ten percent there and yes I don't think that's going to be difficult to see that number. Now, granted, last year early on we thought we were going to lose that on the corn acreage, did not happen. Are we going to see an early spring? Well, the warm weather would kind of indicate that. Some people will say if we get an early spring you're going to get the corn acres anyway. I think the economics are just al little bit different this year.
Pearson: Now, last year did we get the 94 million corn acre number from USDA on March 31st?
Hueber: We did on the March, I thought it was around 93, but at the symposium earlier in the month they actually came out with a lower corn acreage as they did here just a few weeks ago as well.
Pearson: Alright. So we've got these factors coming together. Phil in Ontario has another question that I think speaks to a lot of what we've kind of been dancing around here on the program. He says, will it take hot and dry this spring and summer to bring investment money back into the ag commodities? And that’s where I want to focus your attention. Dow, record high, we're seeing the dollar have maybe a little bit of a break. When do we start, we in agriculture, start to capture those investment dollars?
Hueber: At this point in time most of the -- and really for the last 13 months now there has been money shifting back into the commodity sector as a whole. Now, granted it has been more heavily weighted towards crude oil, gold to a certain extent, some of the other industrial metals, but on the periphery that has put additional money into the commodity sector as well. I think the stage is already set but here again I think everybody knows it's a value and you're going to get the value investors in there right now but you're not really going to get the wholesale switch over until we have that incentive and the incentive at this point when you're on a supply based market the incentive always has to come with a weather issue. So we're not quite there yet.
Pearson: Keep an eye on the forecasts.
Pearson: Alright, Dan Hueber, before we let you go we like to get our analysts to answer a question, help us define terms frequently used in the commodity markets. So I was going to ask you, could you define what it means to go short in a market? We talked about it on the program. What does that mean?
Hueber: Certainly, certainly. Well, going short of course is always referring to selling. Now, granted just selling something isn't necessarily going short, it is selling something you don't own theoretically. Of course that brings me back to a many year ago conversation with my grandfather when I first entered this business in the 1970s. He said, Dan, what you do is wrong. I said, well why is that, grandpa? And he said, well you can't sell something you don't own. And of course being the young buck I was, no grandpa, this is how the markets work and it gives us liquidity in the markets. And he just said, no it's wrong. So okay, I'm not going to argue with grandpa and some people probably still feel that way. But it does provide that liquidity. That is really a lot of people don't know you can short equity markets. You have to do it on an uptick unlike commodities where you can sell at any point and any time. But if you're selling something you do not own yet, that's going short.
Pearson: Right. I've heard the futures market defined as selling things you don't own and buying things you don't want, which is an interesting definition.
Hueber: Well, you maybe don't want to buy it when you don't want it. That would be when you want to sell it when you no longer want it. But usually the market tells you that you don't want it anymore.
Pearson: Or your banker.
Hueber: That's called a stop. Yes.
Pearson: If you don’t have a stop it's called your banker.
Hueber: A term for later, yes.
Pearson: Well, Dan Hueber, thanks so much for taking the time to join us.
Hueber: Absolutely, my pleasure.
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