Market to Market (October 5, 2018)

Oct 5, 2018  | 27 min  | Ep4407

Coming up on Market to Market -- NAFTA’s replacement rides in on a wave of upbeat reviews. Producers and politicians sort out the details for the new trade deal. Harvest slows as farmers fight rains, floods and hurricanes. And market analysis with John Roach, next.


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And by Sukup Manufacturing Company. Offering a full line of grain drying and storage equipment and steel buildings, Sukup Manufacturing is on a mission to protect and preserve your crop and the tools that produce it. 


This is the Friday, October 5 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Delaney Howell.

A few more people went to work in town last month. The income will help soften the blow of higher tariff-induced prices for cellphones and cars. --

The unemployment rate fell to 3.7 percent in September – its lowest level in nearly five decades.

The number of jobs created was a modest 134,000.

The Mid-America Economic Index fell slightly but managed to maintain its 22-month streak above growth-neutral.

Despite 6-month old tariffs, the trade-gap widened in China’s favor to hit a total of $261 billion.

The trade war with China remains on the minds of rural Americans along with other big issues like a bountiful harvest and low commodity prices.

Chinese officials have been staying away from the negotiating table but that hasn’t stopped U.S. trade officials from making other deals.

John Torpy kicks-off off our coverage with details on NAFTA’s replacement.  

After sparring for more than a year, trade negotiators came together early this week to announce the creation of the United States Mexico Canada Agreement or USMCA. The fight was triggered when President Trump announced the U.S. would be dropping out of the quarter-century old North American Free Trade Agreement in 2017.

Almost two months ago, the U.S. reached an agreement with Mexico, which pressured Canada into returning to the negotiating table. A failure to reach a deal by last weekend would have resulted in a bilateral trade agreement between the U.S. and Mexico. The move would have left Canada to endure steep tariffs on their automotive industry, threatening up to 60,000 jobs.

The new deal contains big wins for agricultural producers. U.S. dairy farmers will now have access to a 3.6 percent share of Canada’s tightly controlled dairy market. The level is higher than the one negotiated in the Trans Pacific Partnership - a deal also abandoned by President Trump. Canadian negotiators have further agreed to scrap a controversial pricing structure which U.S. dairy producers claimed artificially deflated prices for some of their products.

Cheese makers were soured by the new arrangement. Mexico had leveled retaliatory tariffs on U.S. cheese after President Trump installed duties on steel and aluminum imported from several nations including the nation’s number three trading partner. Cheese producers were hoping the tariffs would be repealed in the new agreement however those duties remain in place.

Officials with automotive producers in both Canada and the U.S. were pleased with the deal. Several new rules will help reduce tariffs in cross-border vehicle production. In the trilateral deal is a requirement that up to 45 percent of all cars manufactured in the three countries be assembled by people earning at least $16 an hour.  Also included is a provision mandating that 75 percent of a vehicle be manufactured within U.S, Canada, or Mexico to qualify for duty-free status. The earlier agreement was set at 62.5 percent.

Both rules were a move by negotiators to create more manufacturing jobs and boost wages.

The agreement also makes it difficult for China to work its goods into the U.S. through Canadian or Mexican ports. The United States was given the power to oust either of the trading partners if they enter into a deal with China.

Other nuances in the trilateral trade deal include a 16-year sunset clause and a review of the pact every six years.

The USMCA still has a way to go before it becomes a reality. The leaders of all three countries must sign the deal, and the U.S. Congress needs time to sign off on it, which is unlikely to happen before 2019.

For Market to Market, I’m John Torpy.

The deal is only done in principle.

The member nations spent the week singing from the same page of the U-S-M-C-A songbook.

Peter Tubbs has more.

President Donald Trump: “The agreement will govern nearly $1.2 trillion in trade, which makes it the biggest trade deal in the United States history.”

Negotiations with Canada carried the talks into Sunday night, when both countries gave ground on issues that had slowed talks.

Justin Trudeau, Canadian Prime Minister: “What I can say is free and fair trade in North America, a trading zone that accounts for more than a quarter of the world’s economy, with just 7 percent of its population, is in a much more stable place than it was yesterday.”

Access to the Canadian dairy market had been a red line during talks, but negotiators traded increased export volumes from the Canadian auto industry for more American exports of dairy products.

President Donald Trump: “Dairy was a deal breaker. And now as you know for our farmers it is opened up, much more. And I know they can’t open it up completely, they have farmers, also. They can’t be overrun.”

The American Farm Bureau Federation applauded the new deal.

Zippy Duvall, President, American Farm Bureau Federation: ”Trade is critical to agriculture, especially trade with our two closest neighbors. The USMCA builds on the success our farmers and ranchers have seen from NAFTA. The elimination of Canada’s Class 7 Dairy Pricing program is a clear victory for our farmers.”

The American dairy industry sees the potential for millions of dollars of sales to both Canadian and Mexican consumers.

Tom Vilsack, President U.S. Dairy Export Council: “So I think the certainty that this relationship brings provides some stability and reassurance to the market. Hopefully over time this will strengthen and stabilize the market. It certainly does provide for us the assurance that our number one market for dairy, Mexico, will be preserved.

Senator Charles Grassley, Iowa: “It’s going to help wheat, they take very little American wheat, they take very little of our dairy, poultry, and eggs, and for those segments of American agriculture it’s an idea agreement. And one that I did not think they would get, in particular in the area of dairy….That opens up more markets for our dairy products.”

The scale of the American economy and its importance as a destination for Canada’s agriculture and manufacturing output kept the country at the negotiating table, but the northern neighbor views the accord as both an opportunity and source of protection.

Justin Trudeau, Canadian Prime Minister: “It also needed to be fair, which meant it would have to maintain the fundamental principle of the original agreement, which is that when your trading partner is 10 times your size, you need rules. You need a level playing field.

 Mexico also applauded the agreement.

Enrique Pena Nieto, President of Mexico: “Among other benefits, the new agreement promotes new, more responsible regional commerce in the areas of labour and the environment. It helps create more jobs and better salaries to the benefit of workers of the three countries."

For Market to Market, I’m Peter Tubbs.

Hurricanes and political actions have been adding pressure to crude oil prices for a year.

Farmers have felt the effects as prices for on-farm diesel moved 17 percent higher over the same time period.

Weather is always on the mind of those living and working in farm country. This week, hurricanes and flood warnings have garnered headlines.  

Paul Yeager reports.

The arid Southwest experienced a sea change this week as remnants of Hurricane Rosa swamped Phoenix streets. Flash flooding roared through other locations of Arizona, California, Nevada and Utah leading to closed schools.

The region has been locked in drought for much of 2018. The latest Drought Monitor from the University of Nebraska reveals slight improvement nationally in areas with parched conditions. Currently, 52.65 percent of the U.S is out of drought, the highest mark since June.  

Water levels at New Mexico’s Elephant Butte Reservoir have been low for years. The captured body of water supplies the region through prior-appropriation water rights and sits on the Rio Grande River. Any rainfall will help ease tension in following years.

A large swath of rain is predicted in the next week stretching from Amarillo, Texas, across the Corn Belt and into Canada. Another six to eight inches of rain could fall in an already drenched area that is in the middle of harvest.

The weekly look at rainfall from Intellicast also reveals an already wet Corn Belt into Wisconsin and Michigan.

This 7-day precipitation forecast map from DTN drew a lot of attention on social media as farmers waited for fields to dry, again, from a wet September that has lingered into October. Fifteen cities set marks for rainfall. Records in Texas, Iowa and places farther East that fell victim to Hurricane Florence’s rainfall will be noted in many history books. 

When combines eventually did roll, it was usually for a limited time engagement. Despite the delays,  USDA data reveals corn and soybean harvest is ahead of the 5-year average pace, for now.

For Market to Market, I’m Paul Yeager.

Next, the Market to Market report.

Delaney Howell:               Strong export sales, trade news, and poor weather made for several volatile sessions in the commodity markets. For the week, December wheat gained twelve cents and the nearby corn contract added twelve cents. Soybean export sales and news of the USMCA helped push the November soybean contract twenty four cents higher despite unresolved issues with China. The December soybean meal contract added 10.60 per ton. December cotton shrank twenty seven cents per hundred weight. Over in the dairy parlor. November class three milk futures fell a quarter. The livestock market finished mixed as the December cattle contract shed seventy cents. November feeders added eighteen cents and the December lean hog contract moved thirty eight cents lower. In the currency market, the US dollar index bumped up 56 ticks. Crude oil prices hit a four year high early in the week, but fell back on news of a Russian-Saudi deal to add 1.09 per barrel. Comex gold added 9.40 per ounce. And the Goldman Sachs commodity index gained eight points to settle at 494.20. Joining us now to offer insight on these and other trends is our senior market analyst John Roach. John, welcome back.

John Roach:                        Thanks, Delaney. Nice to be here.

Delaney Howell:               John, we had another busy week this week. I want to start out here with Russia wheat exports. They mentioned this week that they're going to be halting loadings in Russia. Was this a political move or do you think Russia really needs to stop exports because of phytosanitary concerns?

John Roach:                        I think they have a problem with, uh, with production level of the, uh, uh, this last summer was a very dry summer and, uh, in Russia and so yields were smaller than what they had anticipated and now they're in the planting process and it continues to be very dry and about half of the Russia, the southern half of Russia... And so the concern is that their supplies are going to be further limited and they don't want to get themselves into a domestic high price situation. So they're, they're talking the market to slow down a little bit, but what's happening is actually the opposite. The, the Russian exporters fear that they're going to be limited and so they're shipping about as fast as they can ship right now and they actually are ahead of the pace that they would normally be here at this time. So it's kind of a funny thing where there may be limitations, but meanwhile they're actually hurrying to get some of the shipments gone.

Delaney Howell:               Interesting. So John, tell me what is that doing then for the US market, if Russia is speeding up exports?

John Roach:                        Well it's actually when we get the news that they may run a little bit shorter, may restrict them, the wheat market rallies very quickly and then we get news that they just sold a bunch more wheat and the market goes back down again. So we've been just kind of going back and forth, uh, uh, trying to work our way through these big sales that are coming right now.

Delaney Howell:               If Russia does get to a point where they have to curb exports, how much of a rally do you anticipate us to and the wheat markets?

John Roach:                        Well, you never know. I mean, but we could go back somewhere close to summertime highs perhaps, uh, the, the wheat market this upcoming year is one of the first years and quite a while that we've had the ending stocks actually being pulled down. So we're actually tightening supplies. Uh, and so there's a, uh, there's opportunity here for this market to rally if we start to worry about the new crop wheat production for next year. Now on the, on a similar discussion - the US wheat now is getting some rain and so we're taking away maybe, unless it gets to be way too excessive, but, but, but rain is usually good for wheat at this time of year. And so it would seem to me that that might take away a little bit of worry too. So we're going to watch wheat crops around the world to see what the weather situation is doing.

Delaney Howell:               Let's talk about the weather situation. When we look at the corn market, a lot of producers have been delayed. Have we priced in this wet weather into the corn markets at this point?

John Roach:                        Well, we all looked at the map that had the big black stripe on it that looks like we're going to be inundated and so, uh, so yeah, we've priced it in I think, but we haven't yet seen how long it's going to keep us out of the field and see whether we actually have losses because of it. The likelihood is that this will slow down our harvest a little bit and one of the things about a big crop is if it's all trying to move out of the field and into the pipeline at the same time, it puts a lot of pressure on. If you meter it out a little bit because you're having weather slow downs, it takes a little of the selling pressure away from the market. It gives the market a little more time to absorb it.

Delaney Howell:               And you mentioned there that it might impact yield. We've got a big report coming out next week with the WASDE report. Do you anticipate the USDA to adjust yields at this point due to weather?

John Roach:                        So far everybody else has. FC Stone came out and raised their corn and bean numbers. Informa came out and raised their corn and bean estimates. So. So yes. And then the farmers as we talked to them, we're still finding lots more farmers surprised with how good crops are than we are fighting. disappointed...being disappointed.

Delaney Howell:               The other thing, John, I wanted to ask you about the WASDE report in regards to corn. Is new crop corn came in higher. How will that translate into the crop carryover?

John Roach:                        Well, we may well increase the carryover number, but so far our corn exports are running a little ahead of schedule and so maybe the government exports are a little bit low and so maybe they have to raise them a little and it might be enough to absorb a bigger corn crop. We may actually add a little bit to the ending socks, but I don't think that really makes much difference to the market. We're trading, right now, based on what it takes to do business rather than what's the longterm outlook. The longterm outlook, if you look at corn, you talk a lot higher prices and on beans you talk lower prices, but we're at the price levels it takes in order to do business.

Delaney Howell:               John, the other thing I wanted to make sure we talked about here is ethanol. We've got President Trump coming to Council Bluffs early next week. If he does announce a deal, uh, or a announcement about E15 being able to be sold year round, how much support does that add to the domestic corn market?

John Roach:                        Well, it just keeps adding. I'm not sure exactly how much, but I mean we're going to start talking about boosting the total demand on ethanol and, and we're going to, we're going to consume more corn doing it, but we're also developing some, some means for cellulosic ethanol that we've been hearing about lately too, so we may be able to source it from, from some different spots too. But if you increase the blend, you increase the demand.

Delaney Howell:               That's right. Definitely. John, let's talk about beans. All the rains across the Midwest...I want to ask the same thing. Have they been impacting this year's soybean crop?

John Roach:                        Well the, the um, if you're, if you got beans in the field and it's raining on them and if you're expecting lots, lots more rain, it definitely is scary, uh, but we've had experiences in the past where we didn't lose too much and we had the experiences where we have and so it just depends on each particular variety of bean and a lot of other...and we'll just have to wait and see. Normally, it's hard to get the market very excited about too much rain. All you typically do is delay things. You don't really change the numbers much.

Delaney Howell:               So at this point in time, how much should the market be reacting to that weather?

John Roach:                        Well, I think we have, I mean we've brought the corn and bean market both up into sell signals in this period of time here and, and, and that doesn't happen without having the market react to something and weather has been one of those factors that we've reacted to. And so I think it's kind of dialed in. I think when we come in on Tuesday, on Monday, on Monday's trade, I think we're going to need to see this rain actually having occurred or in the process or so forth. If it's gone and the forecast looks better next week, I think they'll take it away on Monday. Yeah, on Monday.

Delaney Howell:               John, you mentioned there some ranges with corn and soybeans and that brings up a good question here that we got sent in this week on social media. I want to squeeze it in here quickly. Nathan in Inwood, Iowa wants to know with the big carryouts and big crops, should we expect bound range bound trade in corn and soy throughout the winter, winter, and then what are those estimates for ranges?

John Roach:                        Well, I think the answer to that is yes, we're going to have to find the price level. Once the crop is put away as first thing we have, we have to get the crop put away. Once it's put away, we're gonna have to find out the price level that it takes to get it back out again. What will, what will farmers want? What will they wait for and that will really determine how far the price can come up and we've got another thing we really have to keep in mind here and that's that we're acting as if we've lost the Chinese business forever and I want to remind people that we came in on Monday and found out that surprise, surprise, we had a trade deal done over the weekend and so the, the, NAFTA is gone and now we're dealing with a new trade agreement and we don't know all the details and they aren't all worked out, but there is a trade agreement in place. We could have that same situation happened on any day with China and we and, and, and I...My suggestion is, and this is just my idea only and I don't know anything about this at all, other than to say that if I were negotiating with President Trump, I would think he would be more willing to give me as much as I'm going to get if I were to do a deal with him because it will allow him maybe to to win what he wants during the midterms. And so, uh, I, I'm of the opinion personally that the, that the likelihood is the Chinese will come, we'll, we'll put together a deal before the midterm election - because that's their best time to negotiate. If, if, if it looks like the election is going to be the big blue wave that they talked about two weeks ago, they'll wait until afterwards, but the blue, the colors changed. The polls are changing here this week and so the possibilities are that he will not lose the majority. And if that's the case, China might be better off to make a deal before the election rather than wait until after. And so we'll see. And I'm just suggesting to growers don't, don't think that we can look out this next year and we can understand it. I can't answer the question because I think, I think that's going to be the biggest key that's coming along is when we finally get to deal with China.

Delaney Howell:               John, really quick before we move on here, if we do get a deal in place with China before midterm elections, around midterm elections, what price strategies should producers be looking at to make sure that they can take advantage of those profits because I assume the markets are going to rally on news of a China trade deal?

John Roach:                        Add a dollar to the price.

Delaney Howell:               A dollar?

John Roach:                        Yeah, maybe more and maybe more. We still have big supplies. I'm not suggesting we have any tight supplies or anything like that. I just think we have a lot of demand that's pending out there in the world and and and it may...They may throw the switch.

Delaney Howell:               Okay. John, your quick thoughts on cotton. How is the weather been impacting the cotton markets?

John Roach:                        The cotton market has been dead sideways at a lower level, at the lowest area and the surpluses are big enough that we're going to maintain low price levels here until we see some change. And again the trade tariff situation is another problem with that.

Delaney Howell:               John, how did NAFTA or USMCA impact the live cattle markets this week?

John Roach:                        Well, I'm not, you know, I don't know that it really had a huge impact, but the feeder cattle market, lots of feeders for sale and they were all higher fat cattle market higher. We think the cattle market's up here to peak. We hedged into the highs this week. If you remember when I was here on the 24th of August, we just had the swine, the African swine fever. In fact it was so new I kept calling it the African swine flu, but that African swine fever turned on the buy signal to a lot of people with a lot of money. We're up $7 a hundredweight and cattle were up $15 a hundred weight and hogs since I was on the show that time and if you recall, we talked about don't sell anything here because we've got world meat protein situation here in flux. Well that flux caused people to buy a lot for that reason and whatever other reason, but now we're up here at a price level and we think we need to hedge into this market - both hogs and cattle.

Delaney Howell:               Do you see feeders supported at the 160 level at this point in time?

John Roach:                        Yes. Feeder cattle are very well supported with these prices on feed.

Delaney Howell:               And do you anticipate further upside potential then for feeders?

John Roach:                        I don't think a lot. We have sell signals on feeder cattle too. And so, no we're, we're selling into the market. Uh, but there again we had a very strong feeder cattle market and the live cattle market this weekend and there's no signs of it being weaker next week.

Delaney Howell:               John, when we look at pigs, how did they get impacted this week by the USMCA deal?

John Roach:                        Well, we had a huge move. In fact it was the October hogs were so far behind the cash market that the October-Dec moved $3 in one day. So the market has come up with what and how much of this we can put on the Mexican agreement and how much we can put on other situations. You know, it's hard to know how to balance it, but we had a lot of positive news come into the marketplace this week for the livestock.

Delaney Howell:               John, when we look at the pork market, why is the October-December spread widening so aggressively?

John Roach:                        Because the cash market forced the nearby October to come up. The cash market lead the futures market up. Uh, the December market is still dragging behind because in general the marketplace would like to be negative.

Delaney Howell:               Final question for you. I think before you run out of time here...We've seen a significant uptick in hog weights compared to last week. We're still below where we were year over year. Will weights increase with cheap corn and feed demand?

John Roach:                        Well, as long as you have the cash market strong and the, and the futures and out just in December is weak. It's awful hard to get people to, uh, to carry hogs longer because the market"s basically saying they're going to get cheaper.

Delaney Howell:               And if you are a pork producer or and end user right now, would you be locking in those feed needs?

John Roach:                        If I We're at the sell signal on grains. We had buy signals about a month ago or so. We'll have them again. We'll wait.

Speaker 2:                           We'll have them again. John, we're going to continue this discussion in Market Plus. Thank you so much. Thank you, Delaney. That wraps up the broadcast portion of Market to Market, but we will keep the conversation going on Market Plus where we'll answer more of your questions. You can find it on our website at Check out our flipboard magazine called Market to Market Reading Material. Our producers drop several stories every day into one convenient location for news impacting rural America. Join us again next week when we'll explore how ranchers in the High Plains are still frustrated after big wins over water and grazing rights. So until then, thanks for watching. I'm Delaney Howell. Have a great week.


Market to Market is a production of Iowa PBS which is solely responsible for its content.

Pioneer Hi-Bred International is a proud sponsor of Market to Market. 

Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today. 


And by Sukup Manufacturing Company. Offering a full line of grain drying and storage equipment and steel buildings, Sukup Manufacturing is on a mission to protect and preserve your crop and the tools that produce it. 






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