Welcome into the Friday, August 25, 2023.

This is Market Plus.

Dan Hueber is our guest.

Be our guest.

Be our guest.

Let's talk basis.

All right.

So a few things online this week.

Basis getting.

Is it still a local story or have some stories changed with that?

Well, basis is always going to be a local story, particularly now with the with with the not only the ethanol industry, but I mean, the way the transportation system is in the country.

It is a you know, and even to the north and up into the plains states, I mean, it's really a situation of what we're seeing over on the West Coast.

So it's a it is a local story.

But, you know, state corn, for example, I mean, corn we know is looks like an ample crop this year.

Now, there are some problem spots out there, But, you know, it's the natural tendency or the job in the market then to really try to keep bushels off of the marketplace.

And you do that through a combination of having seasonal, maybe even wider than seasonal basis level and widespread, you know, give people the incentive to hang on to it, be that commercial or the farmer.

So it.

So, you know, I don't think there's anything unusual, but I mean, if there's going to be a general rule that applies all the way across, it's probably slightly normal or wider than normal basis levels of the corn market.

So if you see something good in your favor, maybe it's the time to act.

You want again, if you have something, a regional demand where maybe an ethanol plant is having difficulty sourcing corn.

But I, I don't think there's many places in the country we find that right at this point in time, at least, soybeans are maybe a different story.

I mean, if you have a bean processing plant in your backyard, sure, there could be some demand here because they still have, you know, very, very strong profit incentive to go out.

And crush those beans right now.

I ran out of time in the main discussion.

Do you like crude oil moving forward or are we going to keep easing off?

Uh.

You know, I, I tend to think it's going to continue to slowly deteriorate.

You know, I one, I think you've got the the commodities as a whole are going.

I think we'll turn defensive as we move further into the the fall and into next year if they keep talking about the world economy slowing down.

But I think the major slowdown is happening in China.

And we, of course, know they are a a major user of crude oil.

So I think that alone could be enough to to start to see is like any of the crude prices as we move in the next year.

Let's get to some of the questions that came in via social media.

We'll start with Boyce in North Dakota.

And he says, Dan, are the large amount of delayed price contracts an indicator that we are about to put in a low in the grains?

Well, I think the grain industry puts out price leader contracts when they they know they're going to have a difficult time maybe putting a crop away.

You know, we were really looking at some of the largest inventory in corn we've had for three or four years.

So it's you know, space might be at a premium this year.

So they'll they'll come up with that alternative.

Chances are they're maybe not going to be quite as lucrative price wise as you would storing it.

But here again to a price later, contracts are also an effective way to try to get the grain out of the farmer's hands, you know, without having to part with any cash upfront to do it.

So it's a, you know, always be a little bit careful with those price later contracts unless you're dealing with an inverted market.

You know, sometimes they they'll cost you more than they're worth messing around with.

You're not a fan of giving up your grain without any option to get it.

You know, it depends.

I well, it depends, I guess, and where the the overall the overall breakdown of the market is.

But but no, I mean, in the general rule, if it's used as a substitute for storage, probably not a great alternative.

That question got Mark Gold to spin out of his chair last week when we talked to him.

Let's go to Troy in Iowa.

And Troy wants to know about insurance and he's asking that the insurance price is set at $5.90 for spring.

How many insurance companies are going to go bankrupt right now, writing out checks if prices, don't rally?

Well, you know, of course, that's a two tiered question.

The not only is it the lower price, but I mean, you have to through a yield in there, is yield really going to suffer there?

Are we looking at yields that could be better in some areas than what we're anticipated via the coverage, 80, 85%, whatever the coverage was taken?

You know, you can compensate a lot for a down price as far as the the actual risk, you know, the waste, the the way crop insurance is, is structured.

You know, the government ultimately takes the biggest hit and the risk insurance companies can decide how much risk they want to assume every year now and I don't think that there couldn't be some who, you know, are just, you know, a roll of the dice.

But I think they've they've done a pretty good job of studying how much how much risk they can accept.

So seeing wholesale bankruptcies in the crop insurance industry, I don't think is probably in the cards.

Hmm.

See, I Troy had a good question last week.

Sorry I didn't get to it.

We got it to it this week.

All right, let's go to Shane in Nebraska.

Had a chance to talk to Shane at the Iowa State Fair, and he had some good insight for me.

And this one he put down on paper, he says with some national yield estimates for corn around 175 bushels per acre.

Yeah.

What would be the probability of corn being over $5.50?

Oh, very slim.

Very, I would say nonexistent.

So, Shane, in part, my insight from Shane was he had been traveling to a few places and he had seen some things and he had described in detail what's it going to take to get us over $5.50?

How about I ask it that way?

Well, of course, we were really talking about a dollar rally there.

Right.

So it I think you would probably have to have.

Oh, gosh.

I mean, not only an issue here, you know, far, far lower yield, probably less than 170.

Yeah.

At least, you know, low 171, 170 and a half.

So we're in that neck of the woods.

I think you would also probably need to see some issues with the planting in South America to where they were.

There was a little panic that we're going to atleast Brazil.

You know, again, is becoming more of a down player in the corn market all the time, is having issues.

You know, another problem in Argentina so far that doesn't look like there's any major issues down there right now.

Crop conditions or weather conditions have improved significantly in Argentina.

So, boy, it would have to be a series of catastrophe, I think, to put a dollar on the corn market.

So don't bet on it is what I think.

Don't bet on it.

You want to get in our big competition, used to be Ukraine.

Well, you know, we're not we seem to basically have passed that off as not a kind of a nonevent.

So.

Yeah, there's a lot of events there.

And there was events again this week.

But again, that the the philosophy is, is that we just don't think that Russia is that is that is a story.

No no.

Like it was on the market it takes dramatic events to happen and then the market kind of shrugs it off.

Are you in that case?

Oh, absolutely.

Many year and a half ago, certainly any any kind of the bombings like we've been seeing right now or the cut off of the the shipping through the Black Sea, of course, would have set the markets on fire.

And now that's just well, it's just another issue.

And there's still a certain amount of grain moving out.

I mean, granted, at the ports, they continue to bomb the grain facilities, which is probably going to limit what they can do.

But but somehow or another, the market in the world has adjusted to that, that supply available.

So.

Let's go to Mike in Oklahoma for a livestock question.

All right.

That's a little different than what we did.

He's asking about April 24, live cattle.

Will they break the $2 mark?

You know, and because the cattle haven't rolled over far enough yet to really say, yes, we absolutely have the peak.

I think we're on the cusp of doing so.

So my answer would be probably no.

Okay.

I'm going to ask a couple of things that I probably should ask during the program about this.

Sure.

We've been trending back towards the 50-day moving average in that commodity.

True.

Technically, is there anything in cattle, live cattle in play right now that we need to pay attention to?

Or is it still, as at least from where I've sat, listened to all of you come in and say, still a fundamental story?

I think there's always technicals at play, you know, particularly in a market that's a little bit thinner, like the cattle market and, you know, granted, I mean, they're not trying to defer anybody, deterring anybody from using using cattle as a hedging instrument.

I think that animals make a big impact there.

The thinner the markets become, the fewer players you have within the industry, I think the more so that becomes the case.

And when you want to go to the technical side, I'm I'm kind of a adherent to what's called Elliott Wave theory.

And it's quite it's just picture perfect.

I said nothing.

Nothing's ever quite perfect.

But I mean, the way we've unfolded this rally over the last six months is just a classic move.

I mean, it has all the signs right now other than just that kind of final that final nail in the coffin that would say this rally is over.

But I mean, outside of that, you know, from a tactical picture, I think it's it's just aching, begging almost to to turn lower.

But the fundamentals have kept it from doing that just yet.

But it wouldn't take much to push it over the edge at this time.

All right, let's go one more question for our friend Phil in Ontario.

Sure.

Phil in Dresden wants to know.

He says the forecast is for hot and dry, but corn futures spreads show a carry into 2024.

Dan, is the corn market more bearish now versus a year ago?

Even at price levels, $2 less a bushel?

I believe, yes.

You know, for a number of reasons.

One, we're staring at a larger carry in the market, which hence that's why we have the carry going in there at this point in time.

But I think, you know, you to to say that we would be in a better position right now, would you would have to either be counting on significantly lost acres here next spring.

You know, we could see some less acres than we did this year or you would have to see, as we talked about just a moment ago, some kind of a disaster in the southern hemisphere.

Without that, you know, the corn market looks like it's going to be pointing lower even a year from now, lower than we are today, a year from now.

Yeah, I was going to make the jump back.

I mean, you just talked about the corn.

I guess I was going to say apply those same the same scenarios to the bean market.

Large carry doesn't.

That's one of those factors, not in our favor for a huge rally.

Well, in the beans, of course.

You asking me 220, 230 million bushel beans is comfortable.

But again, if you know here's the big if if we don't put out the yields that the USDA is projecting at this point in time, that changes pretty dramatically.

I mean, if you lose a bushel, a bushel, an acre of beans, sure.

Now we're down to 150 million bushels, which is not a comfortable supply, particularly in the stocks to use ratio, then it then it's absolutely dependent on putting out another very big crop in South America to to make up to make up for that.

Last question, and this is very obscure, so bear with me for a minute.

We talked about the crop accelerating, getting closer to harvest quicker because of this heat and just the way southern Illinois, central Illinois, south was already looking at an early harvest.

What does that do to the market when you know it was here about this delayed crop?

It's wetter.

We're going to have to spend more to dry it.

Those aren't the same issues If we have an early.

No, no.

And granted, assuming the yields are are reasonable, I mean, not, you know, very depressed or light yields, but I mean, an accelerated harvest really just puts a lot of stress on the system, which means basis tends to go wider, spreads tend to go even a little bit wider because you're trying to push 2 pounds into a 1 pound bag.

It doesn't work out very often.

Very well.

No.

Good to see you again, Dan Hueber Likewise.

Thanks very much.

Thank you for the time.

That's Dan.

I'm Paul.

Next week, we look at the role of crop insurance in the next farm bill.

As Congress returns to Washington and we'll have the commodity market analysis from John Roach.

Thanks for joining us here on Market Plus.

Have a great week.