Pearson: This is the Friday, July 7, 2017 version of the Market Plus segment. Joining us now is Dan Hueber. Dan, welcome back.

Hueber: Thanks very much. Glad to be here.

Pearson: We've got a lot of questions from folks on Facebook and Twitter and so we're just going to dive right in if that's alright with you.

Hueber: That sounds great by me.

Pearson: Let's do it. So we've got a question here from Roger, he's on Twitter @rogerediger. Roger is saying, with KC July 2018 HRW over $6 what portion of next year's wheat crop should be sold on this rally?

Hueber: Great question. Again, granted I guess part of it is your risk tolerance out there. But as much as anything if you are making a good consistent return, and I recognize these are not numbers we've seen for some time in that KC market, or the Chicago market for that matter, but I think between the $6 and $6.50 range I have no hesitation being 25%, 30% sold, recognizing as well we're not too far off of setting our base price for the crop insurance for next year. So I don't necessarily want to get too far ahead of that. But here again I think most people are going to look at a pretty reasonable return on investment, up north of $6 and to have that foundation, your own foundation set if you're selling in that 25% to 30% range you're probably covering what crop insurance won't anyway. So between the two you might be 100% sold by the time that base price is set here this fall.

Pearson: Hopefully north of $6 for a lot of producers because as you look out a little bit longer term, and of course this can change in a heartbeat, weather can always change, demand can change, but as things sit today there's nothing that should make you think we're going to be running out of KC wheat.

Hueber: No, and granted running out of course would be a bonanza situation as far as market price wise. But no, we still have ample stocks both domestically and globally. Now granted the projected stocks of next year we're back under a billion bushels on wheat. So the old adage in the market of course is that if ending stocks are steady to lower prices will tend to move steady to higher and of course vice versa. So yes, we are reducing the ending stocks so that should be price supportive. That doesn't mean we have to go exceedingly higher without developing some problems or issues maybe elsewhere. Again, we know Europe is having a little issue, particularly in France. I watched a little bit of the Tour de France in the last day and 100 degree temperatures as they're riding 75, 100 miles a day.

Pearson: It's like South Dakota this week, it's terrible.

Hueber: Exactly. But here too Australia I know most of the privates down there have reduced the projections for that crop so those world stocks are going to contract which should be price supportive if nothing else.

Pearson: Alright. Well our next question, bring it back to Iowa, Nathan up in Inwood, Iowa, he's on Twitter @nieuwendorp_n. He's asking, how much higher can hogs go before big supply catches up? We talked about that on the program. Or he's wondering, is demand strong enough to keep the hog market increasing? You mentioned exports have been very strong. How much of a factor is China in that export game today in the hog market?

Hueber: And of course China themselves, they have been a big importer, but of course they have been on a pretty strong program to try to increase the herds there as well, hence the soybean and the meal demand that we continue to see moving over there. I don't see where the hog market is ready to stop and fall out of bed. That export side of it is there. The market reacted well to the ideas of a 3% greater herd. That said, there's still some seasonality into it. Yes, we have discounted that into the Oct and the Dec. My way of thinking is when you have this kind of a ride going you still need to take advantage of it, nobody is going to pick the high side of the market, particularly in the last -- I guess I'm a very strong proponent of using options in the last Oct market, you can leave your upper end open, you've had enough volatility there that you can do some nice strategies with puts and calls to keep the premium down. Take advantage of it and still use the floor, give yourself some upside room open, if you're going to short calls do it a few dollars over, above where we've seen the markets trade. But don't, never assume that we can't stop and head back in the other direction.

Pearson: It was last October we were $46 front monthly in hogs. And now October is trading north of $70.

Hueber: North of $70, exactly.

Pearson: Boy, $30 difference in one year.

Hueber: And generally a time of year when we see the hog market take a swoon, so why not take advantage of that and at least have your foundation locked in there in case somebody decides they don't like our pork anymore.

Pearson: Right, because things can always come out of left field.

Hueber: Right, right.

Pearson: Speaking of coming out of left field, I think this Minneapolis spring rally came out of left field. I think this run back to $4 has kind of come out of left field for a lot of corn producers, they've kind of written it off. Phil in Ontario, Canada is asking, he says, $4.25 December corn remains elusive. What is it going to take to break through that barrier? Now that Dec is over $4, where did we close, $4.25, no --

Hueber: $4.03, $4.04, somewhere in there. And really the first $4 close in over a year I believe, weekly close. I think when I look at it just from a technical perspective it looks like either we still have everything pointed higher, that we have technically easily room to move in that $4.25 to $4.50 range. When you look at, again, you feel sorry for everybody here and north and west of here, from what I can see in the weather forecast a lot of warm temperatures coming in, some rain in that forecast but certainly not you would call any kind of a general accumulation of moisture and I think that's probably going to be the element that's going to be enough to kind of tip us above the edge I guess in this case and to send us up into that $4.25 to $4.50 zone.

Pearson: Now, devil's advocate, are we still at a situation, we're early enough in the growing season that if we come around Sunday and the forecast has changed and we know what this northwest flow forecasts can and do change and they've added moisture back in, are we going to be right back to testing $3.80 in December corn?

Hueber: The wheat probably has changed that, so unless we see the wheat market really come apart, so yeah I think psychologically that scared enough shorts out of the market for now that they don't feel all that comfortable. Now granted we do have a supply and demand production estimate next week. Usually you don't see the USDA tinker with the yields too much on that first estimate, it's really just a beauty contest or statistical beauty contest as much as anything. I think the trade is actually looking for about a bushel reduction, which may or may not be a good thing. If you're already expecting a drop, you don't get it, it could be psychologically negative. So it would really I think have to be a wholesale change in that weather forecast. And usually those only happen when there's a disruptive factor, another hurricane comes in, kind of really moves things out of the status quo and the old adage that drought begets drought basically is intact here and I think unless there's something very disruptive that can knock that pattern out of the plain states it's going to be --

Pearson: We did see Informa release their statistics earlier this week. Corn they brought their yield down to 169.7, beans they dropped to 47.9 I believe. At this point in the game do you put any stock in those estimates?

Hueber: Not really. They're all still basically best guesses at this point in time and sure they might have a little statistical data to back that up. It is a, I guess I kind of look more out to some of the computer generated, not computer, the satellite generated models, Lanworth and those type of people, and they were down towards 166, 167 range. So personal bias I think that's probably closer to accurate. Is that something we'll see the USDA say here in the next week? Probably not.

Pearson: That would be a big move. I don't know if they have ever made a three or four bushel move --

Hueber: Well, a few years ago they did make some pretty big adjustments, I think in '12 they did make some big July adjustments, but what an exceptional year. We were already in a significant drought situation by July 1. So it was going to be easy to make that kind of an adjustment.

Pearson: Alright. Well we've got a question here from Roger in Kokomo, Indiana and this is more of a market question. He wants to know, why should a farmer have to pay for real-time board prices? You get the free quotes on the web, they're always delayed ten minutes, he notes that seems kind of archaic in the world of frequency, high frequency algorithmic based trading, in ten minutes a lot can change.

Hueber: Of course one, the question mark is why do you feel you need that instantaneous quote? The simple answer is the Board of Trade charges it. That is an exchange fee. Every one of us in the business we want real-time quotes, we have to pay it. So it's not like somebody gets a special compensation unless you are a member of the Board of Trade, well then certainly you can have that fee waived.

Pearson: But you've paid it all up front.

Hueber: Exactly, exactly, and probably paid for it over time as well. But that said, I guess my thought, and here I look at the markets all the time, it's my livelihood, I don't actively put a lot of orders in for customers, most of the other people in the office handle that. I don't need real-time quotes. Unless you're truly a day trader, that information probably as much as anything can sometimes distract us because we get so focused on what is that last little tick, what's it going to do? You lose a little bit of loss of sight of what that bigger picture is and ultimately in the hedge business that is the name of the game is keeping the overall picture. If you're going to be a trader, if you're a short-term trader and you want to be in and out on a regular basis, then absolutely.

Pearson: And hopefully if you're going to be in and out on a regular basis you'll make enough to justify the purchase of the real-time quotes.

Hueber: The exchange fees, right, right.

Pearson: But like you're saying, on the hedge game, set your targets, get those orders out there, let the market come to you.

Hueber: Right. Here again too the tendency, if we tend to watch it too close we'll second guess what we just did, well maybe I better pull the cancel order and those can be some of our worst enemies when it comes to risk management as well.

Pearson: They absolutely can. Now, before we let you go we are continuing our session with taking questions on video from students, whether you're a student at high school or at any level in life, I think we're all probably students, send us a video, get out your smartphone, shoot us a video. This week we are featuring a question from an Iowa State student. And you can learn more about this project if you listen to the MtoM podcast #143. So Dan, here is the latest installment of our college level ag student questions.

Cody: What would you say is the best way to utilize futures in different farming operations?

Pearson: Kind of a broad question.

Hueber: Certainly, each operation is a little bit different. But I would first back up to the point that I think there's this idea that using futures is something that is out of the ordinary, maybe out of the ordinary, it is different. It certainly doesn't make anybody a better risk manager or a better marketer. You really need to kind of lay the foundation for whatever type of farming you're doing be it livestock, be it crops, understand risk management, first understanding making a plan and how to put that plan into effect with discipline and consistency. Then once you have mastered that, I don't know if we've ever truly mastered it, once you have at least developed the discipline and the rules and the strength and understanding to do that, then it's fine to start looking and using futures and options. Now granted, any tool that is available on the futures market is available in the cash market as well, be it a hedge to arrive contract, min-max contracts, those varieties are out there. Now granted, the elevator, whoever, the grain company that is using it will often times take a little larger fee than if you're doing it yourself. But if you really want an introduction to see how you react to it that is a good stepping stone to do it. Ultimately you use futures for basis capturing, to capture a carry in markets for storage. I think we have again this tendency to think that it's going to elevate our marketing to a new level. It can open new doors and new opportunities but it isn't by any means anything that is an absolute. It's not going to make you a better marketer just because you stepped into it. So education is the key. You have to understand the tool you're using and why you're using it and then go ahead and step into it. But of course step into it lightly.

Pearson: It is a tool. It's like a saw, it can help you build a house or it can take off your arm.

Hueber: We always use the analogy that if you perceive, if the only tool you have you're going to perceive all problems as a nail, more tools you have in the toolbox theoretically should give you an advantage when it comes to marketing. The key is knowing when to use that individual tool. There isn't all tools fit all the time. So know which ones to use when.

Pearson: Well, Dan Hueber, great advice as always. Thanks for taking the time to talk to us.

Hueber: My pleasure. Thanks.

Pearson: And join us again next week when Tomm Pfitzenmaier will sit across from me at the Market to Market table and we'll examine the work scientists are exploring in the use of genetically engineered insects. Until then, thanks for watching or listening. I'm Mike Pearson. Have a great week. 

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