Market to Market (July 19, 2019)

Jul 19, 2019  | 27 min  | Ep4448

Coming up on Market to Market -- Trade takes center stage around the globe. Lab-grown protein looks to pass the taste test to reach the table. Using strong community ties to survive and thrive. And market analysis with Shawn Hackett, next.

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. 

(music)

Accu-Steel, offering fabric covered buildings specifically designed for the cattle industry since 2001. The next generation of cattle buildings. Information at accusteel.com.     

(music) 

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, July 19 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Delaney Howell.

As the Federal Reserve looks to prime the economy with a rate cut, consumers turned to shopping online, at grocery stores and in restaurants to boost business. ---

The Commerce Department reported a 0.4 percent growth in retail in June, the fourth straight increase. Consumer spending drives two-thirds of the domestic economy.

A nearly 10 percent drop in apartment construction was offset by a gain in the breaking ground of new homes. June’s figure was off 0.9 percent.

The Rural Mainstreet Index fell in the most recent 10-state snapshot, but stayed above growth neutral for the seventh time since December. ---

Almost nine of ten bankers surveyed by Creighton University added the trade skirmishes “have had” or “will have” a negative impact on their local economy.

Late this week, Chinese trade officials and their American counterparts spoke via phone. No new face-to-face talks have been scheduled, but both sides have reasons to put a date on the calendar.

China is just one of the major trade fronts as Paul Yeager reports.

Trade was the message of the week as Senate Republicans are looking to get a deal done ahead of the approaching summer recess.

Ratification of the NAFTA replacement must originate in the House of Representatives. Iowa Senator Charles Grassley said U.S. Trade Representative Robert Lightheizer met this week with some House Democrats.

Sen. Charles Grassley, R – Iowa: 6:59-719: “To satisfy them about concerns they have on labor, environment and enforcement. I don’t know how those talks are going, but I know this administration has done more to satisfy Democrats in the Congress than Republicans on this new USMCA.”

Domestic agricultural trade groups would like to see an agreement between the three North American trading partners first, with settling the rift with China a second.

Again this week, the Chinese government said a deal with the U.S. must be a win for both countries. Both a Foreign Ministry spokesperson for China and American negotiators say a deal is close.

Geng Shuang, Chinese Foreign Minister: “We believe the Americans think a deal is far away. A journey of a thousand miles begins with a single step.”

And the European trade landscape changed this week with the election of a new European Commission president. The issues of agricultural subsidies and naming rights took center stage.

Ursula Von der Leyen, European Commission President:  “We want multilateralism. We want fair trade. We defend the rules-based order because we know it is better for all of us. We have to do it the European way.”

For Market to Market, I’m Paul Yeager.

First the debate was over what defines milk.

Now meat is in a similar discussion as cell-based alternatives are coming to the market.

Products that look and taste like pork, beef and chicken are being put on the table to allow consumers to decide their fate.

David Miller explains.            

It looks like chicken, cooks like chicken and tastes like chicken but no chickens lost their lives to make this cutlet.

Memphis meats is one of a growing number of startups worldwide that are producing meat from cells, which doesn't require slaughtering animals. They want to bring cell-based, or cultured meat, to your dinner table.

Uma Valeti, Memphis Meats CEO:"We take cells from high quality animals. We feed them with the nutrients of these cells need to become meat. And once they become meat, we harvest it and we cook it into the products we love to eat."

In addition to chicken - deep fried in this demo - Memphis meats has made cell-grown duck - and beef meatballs. It hopes to start selling its products within two years.

San Francisco-based new age meats is producing cell-based pork, which was prepared as sausage for this tasting.

Brian Spears, New Age Meats, CEO: "So people want meat. They don't want slaughter. And so we make slaughter-free meat, and we know there's a massive market for people that want delicious meat that doesn't require slaughter."

But these startups face some difficult challenges to bringing cell-based meat from the lab to the marketplace. They must win approval from government regulators, assuring consumers that the products are safe to eat. And they must bring down the cost of cultured meat, which is still extremely expensive to produce.

New age meats is developing a new type of bioreactor to produce cell-grown meat at an industrial scale.

Ricardo San Martin, UC Berkeley Alternative Meat Program:"How can you go from the tiny, tiny meatball to produce the amount of meat that one cow has, which is like maybe 800 pounds or so? That's the real challenge."

As global demand for meat grows, backers say cultured meat is more sustainable than traditional meat - because it doesn't require the land and resources needed to raise livestock - a major source of greenhouse gas emissions.

Finless Foods is developing fish and seafood that can be produced on land - no fishing required.

The process begins in the lab, where scientists coax fish cells to multiply and grow into meat. The startup created its first cell-based fish in 2017 - which it served as fish cakes at this private tasting. It's focused on producing a cell-based version of blue fin tuna which federal officials say are overfished and contain mercury.

Michael Selden, CEO, Finless Foods:"The ocean is a very fragile ecosystem and we are really driving it to the brink of collapse. And so we think by moving human consumption of seafood out of the ocean and onto land and creating it in this cleaner way, we can basically do something that's better for everybody."

 

The upstarts are facing resistance from livestock producers, which are lobbying to restrict what can be labeled meat.

But perhaps the toughest task will be convincing consumers.

Ricardo San Martin, UC Berkeley Alternative Meat Program: "The key point is like how people will react to these products ... It's not clear that the consumers having that choice, they will choose for lab grown meat"."

These startups believe they can change those eating habits one bite at a time.

Excessive-heat warnings extended from Nebraska to the mid-Atlantic this week.

Real temps approached 100 degrees with feels-like temperatures even higher.

Dry conditions had been developing in some parts of the Corn Belt, but mid-week rains likely will limit any pending heat damage. ---

Last weekend’s rainfall totals from Barry were less than expected, but still exacerbated an already tenuous situation in the Delta with those in the seafood industry.

We look at one operation that’s turning to strong community ties to assist the business.

The report is our Cover Story.

The business of seafood can be treacherous, with many variables challenging producers. For one Louisiana seafood company, success has been measured by a pickup truck and one firm handshake at a time.

After a mission trip in the late 1980’s, Tommy Deluane, moved back to Louisiana with his new wife. He decided to start a family and a new career in New Orleans.

Shalin Delaune, Vice President, Tommy’s Seafood: “And so, uh, they just pursued the American dream and started building their business with a pickup truck, work in early mornings, driving down to the docks, two, three, four o'clock every morning, getting the days fresh catch and, and bringing it right back to the city to sell to all of the best restaurants in the quarter.”

In the years that followed their pursuit of the American dream, the Delaune’s would expand what is now Tommy’s Seafood. They brought their children into the mix and, in the early 1990’s, started to vertically integrate. One of their first big purchases was a dock.

Shalin Delaune, Vice President, Tommy’s Seafood: “We have control over, of course, over the catch from the moment that it's unloaded all the way to the final packaging, uh, at the last stage before it makes it to the consumer. So we, uh, our fishermen that we work with. They harvest the seafood for us, we unload it, we send it to our other facilities, we process it, we package it, we store it, we ship it, and it's ready for the rest of the world to enjoy.”

Tommy’s Seafood sells several types of shrimp, oysters, and blue crab. But the company’s seafood mix is only part of their success. One way the Deluane’s are trying to sustain their family operation is to rely on the tools used decades ago when the business was taking its first steps.

Chalin Delaune, Vice President, Tommy Seafood: ”Growing up in Saint Bernard parish allowed me to be able to cultivate all of these long standing relationships that, uh, that, that my family had or that I was able to make along the way with other families who have a multigenerational fishing in their blood. So, uh, it is without a doubt one of the reasons why we're able to be so successful in this business.

Of the 3.6 billion pounds of seafood landed in the contiguous 48-states, more than 1 billion of that total comes ashore in Louisiana. In 1990, the U.S. shrimp catch was just over 18 million pounds with an estimated value of $75 million dollars.

Almost three decades later, the 2018 harvest was 40 percent smaller at around 11 million pounds and the final tally cut nearly in half to come in at just over $40 million dollars.

Shalin Delaune, Vice President, Tommy’s Seafood: ”You know, we face not just competition here domestically, although it's a friendly competition, but we face a lot of competition overseas. So we consume about a billion pounds of shrimp here in the United States each year. And 90 percent of that comes from overseas. And that's 90 percent and counting. So their objective is to completely eliminate the domestic industry we're without a doubt the underdogs in this business.”

The Pelican State’s seafood industry recently received some help from the Louisiana legislature and Governor John Bel Edwards. Last month, a new law was passed requiring food establishments to notify customers when the seafood they are being served is from a foreign source. The measure was introduced to put local commercial fisherman into the spotlight and help boost small town economies along Louisiana’s coast.

Besides weathering the storm of ever changing markets with overseas competitors, Tommy’s Seafood has to navigate through an eco-system that can force changes to their product line in a flash.

Shalin Delaune, Vice President, Tommy’s Seafood: ”Prior to Hurricane Katrina in 2005, the industry, the waters, the marsh lands, they were a lot different than what they were today...We started seeing a whole lot more crabs show up in this area in a whole lot less shrimp. So that was another reason why we changed our tactics of just putting all of our focus on shrimp and diversifying more into crabs. Now we unload more crabs at our dock, then we do shrimp. Prior to Hurricane Katrina, it used to be the other way around. So, uh, you know, we're just finding ways to be creative and to make sure that we can still sustain ourselves.”

Those long standing relationships are the backbone of their operation. Over the past five decades, the Deluane’s have expanded their reach across the Pacific to markets in Asia. They are hopeful their reputation will help them move across the Atlantic as they begin researching market opportunities in the European Union.  

The Deluanes have no plans to stop building on their successes and will continue to stick to the family’s main principles of quality product, reliable delivery and making a deal one handshake at a time.

Chalin Delaune, Vice President, Tommy Seafood:” Our Louisiana slogan, the official state motto is feed your soul. Right? And so I think that they go hand in hand with one another. When you think Louisiana, you think seafood, you think food, you think culture and it's just a, a big medley of awesomeness down here.”

Next, the Market to Market report.

For the week, September wheat fell 21 cents while the nearby corn contract plummeted 24. Bulls are fighting over a struggling U.S. crop and cheaper South American options in the soy complex. The August soybean contract decreased 12 cents. August meal declined $3.60 per ton. December cotton improved 39 cents per hundredweight. Over in the dairy parlor, August Class III milk futures improved 13 cents. The livestock sector was mixed. October cattle lost $1.48. September feeders sold off $2.75. And the October lean hog contract rose $5.70. In the currency markets, the U.S. Dollar index gained 43 ticks. August crude oil fell $4.35 per barrel. COMEX Gold added $8.20 per ounce. And the Goldman Sachs Commodity Index dropped 21 points to finish at 413.95. Joining us now to offer insight on these and other trends is market analyst Shawn Hackett. Shawn, welcome back.

Hackett: Thanks, Delaney. Great to be back in Florida style weather here in Iowa.

Howell: Yes, and happy belated 50th birthday.

Hackett: Thank you. I've even got the gray hairs to prove it.

Howell: Well let's talk about the markets because maybe it's time to not have gray hairs over the markets anymore. You can tell us. Let's talk first off here with the wheat contract, the Chicago September contract broke below $5 on the chart. Is it just harvest pressure or something else causing this?

Hackett: I think it's primarily harvest pressure. It's not unusual for that to happen. We had a lot of concern about this heavy rain and what it might mean and the yields have been coming in albeit low quality but better than expected. So it's just kind of the farmer doing what he has to do, getting it off the field, selling it and clearing the market out. But I do think most of that is behind us. And with some of the production in Russia, for example, coming down we think that we're ready for some kind of a turnaround here later in the summer.

Howell: Okay. Let's continue that discussion in Market Plus. We've got to talk about the corn contract. Yesterday we saw a drastic drop in open interest in the corn markets. What was causing that selloff?

Hackett: Well, I think we're at a place right now where there's tremendous uncertainty. The market is trying to figure out is the USDA right? What's going on with pollination? The weather, are we going to have an early frost? And when you don't know what's going on, when you're not confident, people withdraw from the markets. So lowering of open interest is saying that the money is withdrawing from the market saying we're going to take a wait and see approach until we get something to get our hands around where we're just not sure what to do. And that is just indicative of the uncertain times that we have in this really, really unusual year that was really unprecedented.

Howell: And I think it's safe to say it's a wait and see game for the corn markets and soybean markets in this rangebound pattern here until we get to harvest and really see what's in the ground. Shawn, are we going to be expecting some sort of post-harvest or during-harvest rallies with that being said?

Hackett: We believe that we are. Our idea is that the market was going to have this top in late June on weather kind of subsiding, we're going to have a period of confusion, like 1993 we've talked about many times where we correct into August, and then we get some clarity, maybe we tidy up what the acres actually were and then we get an idea of early harvest results and we match them against USDA and determine where from that 166 are we going to come from. And so that's really where the 1993 market really took off. And we do think there's a bad ending to the crop but we just need time to get there.

Howell: And if we're going to see similar to a 1993 pattern when can we expect to see that harvest or post-harvest rally?

Hackett: Well, no two years are the same but in 1993 we did bottom in early, the first half of September, and then it was a moon shot when everyone realized oh my gosh, this crop really isn't there, we didn't pull a rabbit out of the hat and so we would really look for that first half of September as an ideal time to be looking for some kind of a bullish reversal in the corn market and grains in general.

Howell: I've got to ask though, Shawn, we started off the year very rough, now we're starting to see normal temperatures, we're starting to see normal precipitation levels. Are we going to still see as much of a harvest rally as what we were originally expecting to see?

Hackett: Well, much is going to depend upon, right now obviously the corn is starting to pollinate, we're going to be setting pods in soybeans here very, very shortly in August. August weather is really, really important and so as we found out last week we get a little hot and dry, they run the market up, they pull back and it's cooler and wetter and they run the market back down. This is usual and normal. We think that we're moving away from cool and wet to more of a warm and dry pattern based upon the weakening El Nino and some upper atmosphere changes that we think could offer some additional hot and dry risks that could still worry the market here and provide kind of a resurgence of interest like we saw last week.

Howell: And it seems like it's definitely doing that weather trend in the soybean markets as well. We touched $8.93 on Thursday's trading session, Friday we had strong gains up 20 cents I think to close the day. What was going on there?

Hackett: Well, we always wonder if that's China buying the soybean market. They talked on the phone yesterday, maybe it's a good will purchase. We don't really know until after the fact. It also could just be we're getting so close to mission critical now in soybean yield determination that the market is just getting a little uncertain because the acreage number that the USDA came out with whether you believe it or not is a low number and should that number be verified or even get a little lower you could easily see the soybean ending stocks of a billion drop down to 600 or 700 million on a 5% or 10% decline in yields. And so while that's not running out it's certainly a much more bullish scenario than we've been trading for quite some time.

Howell: Because you touched on the Chinese thing, Shawn, I want to ask, until we really know what is in the ground, what is being harvested this fall, are we going to trade on news of a U.S./Chinese trade agreement?

Hackett: I think right now the market is simply not really paying much attention. It's saying look, we've been doing this for so long, we don't know what's going on, we're going to assume nothing is going to happen, we're going to trade weather, we're going to trade the fundamentals that we know and we'll let the trade deal take care of itself.

Howell: Okay. Shawn, you're kind of our resident cotton expert. We've got to talk about cotton. We've been seeing a lot of downtrend. We saw finally a slight gain this week, I think 39 cents improved from last week. What is really causing the cotton to have suck lackluster markets?

Hackett: We talked about this in prior shows that it's a very economically sensitive commodity. It's an industrial ag commodity and because the global economy has been showing a lot of weakness, a lot of concern, there's a lot of fear that cotton demand globally is going to be on the decline. And so that on top of the fact that the trade war has meant lower exports to China has just continued to pressure this market. As of yet we have not found enough weather reasons to turn the price around but I think with the Indian monsoon failing in Gujarat, which is northwest India, and it looks like some hotter, drier weather coming in for Texas and maybe again in the southeast, we do think there could be a weather related rally that kicks in and provides some upside to the cotton market as we move into August.

Howell: How much upside are we talking, Shawn?

Hackett: I don't think there's any problem with the market going back to say 70 cents from where you are in the low 60s. That would be a reasonable, rational weather premium to put back into the marketplace.

Howell: Okay. I want to talk about the cattle on feed report which came out on Friday. But first I'm going to take an important question we got in this week on social media from Linda in South Dakota. She said, do feeders have a sustained rally yet this summer?

Hackett: So much depends on what the corn market does. The corn market runs up to five, five and a half, it's going to be very, very difficult for the feeder market to do much. Also determines how high cattle prices start to move because there is a yin and a yang and there's a relationship there too. So really impossible to say if we're ready to dig our heels in on feeders yet until we know more about the prospects for the corn market.

Howell: Okay. And is the same the case in the live cattle market?

Hackett: Well, not as much in the live cattle market. The live cattle market can move higher. We believe the live cattle market is being more driven by the idea of export demand, of some reduction, so for example, the fourth quarter to the first quarter we're seeing the third largest reduction in beef production in history. So the market has a supply reason why it can start working higher and there's some prospect that maybe African swine fever demand will finally start to come in and maybe on the Market Plus segment we can talk a little more about what's going on with commitments versus deliveries.

Howell: Okay. I'm going to write that down. We're going to save that for Market Plus, Shawn. But I've got to say the cattle on feed report that came out on Friday, it seemed like it was what the trade expected. Did you see anything different in there?

Hackett: If you look at the estimates it almost came in exactly, almost to the point of what most analysts were expecting and it didn't look like there was any surprises. Hard to see the market trading that on Monday the way I see it. I think it's just one of those reports that you just look at it and you move on to what we've been doing before.

Howell: Long-term here for the cattle market you mentioned African swine fever could be a factor there. We've been talking about this wall of cattle that really never came to the market. Is it safe to say that this following six months trading pattern here will follow what we've been doing for the first half of this year? Or do you expect something different?

Hackett: I expect something different. I think we're going to start kind of a persistent higher high, higher low kind of a rally into the first quarter. When we have situations where future beef production out into the first quarter shows those kinds of declines the market demand tends to get ahead of that and doesn't wait for that hole to be seen and so we're pretty optimistic that the cattle markets, cattle price can start to see kind of an orderly move higher from here. We don't think it's going to be more of what we've seen in the first half, it will be more of a bullish environment.

Howell: Okay. And talking then about the African swine fever going on in the lean hog markets, how much longer, Shawn, are we going to continue to trade this story of African swine fever and Chinese demand?

Hackett: Well, I think we're going to continue to trade because the market feels and thinks it's a really big problem. We think it's a really big problem. And what’s interesting is that we have commitments, that is export sales committed in pork that is up over 100% so far this year and up 200% to Asia, but it hasn't been delivered. So what has been happening is we’ve been booking the sales but not actually delivering the production and I think what is going to be the trigger here is we start moving the physical and start really moving it out and we see that these commitments aren't going to be cancelled or delayed then the market I think starts to see tightness in the U.S. market and takes off. So the orders are there, we just need to see them shipped.

Howell: I know this is a hard question to answer, but when do you think we will see those orders ship? Do you think it's all contingent upon a Chinese/U.S. trade deal?

Hackett: I don't. And the reason I say I don't because the Chinese a few months back set up an exemption program where you could go to an exemption to import pork from the U.S. into China tariff free which started in July. So for those that have been approved there's absolutely no reason now to stop importing pork for a tariff reason. That has been removed. So we think from July onward, it's free game, the trade deal is really not an impact right now.

Howell: Shawn, final question for you, as you look at that and hopefully that does come to fruition where China does start bringing in those shipments and needing the pork, how much of a premium are we going to build into the lean hog market?

Hackett: Well, we already know where we went before, we went up to that 90 cent area and of course a few years back when we had the $1.20, $1.30 area. If this is what we think it is and we're done with the period of uncertainty there's no reason why we shouldn't go back and retest the highs over some three to six month period. We're pretty bullish if that takes place.

Howell: All right. Shawn Hackett, thank you so much.

Hackett: Thank you.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. This week corn fields were the featured item on our Instagram page. Give Iowa PBSMarket a follow for other behind-the-scenes images. Join us again next week when I’ll sit down with the U.S. Secretary of Agriculture to get a status report from Washington, D.C. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

(music)

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

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. 

(music)

Accu-Steel, offering fabric covered buildings specifically designed for the cattle industry since 2001. The next generation of cattle buildings. Information at accusteel.com.     

(music) 

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. 

 

More from this show

Grinnell Mutual Insurance
Sukup
Accu-Steel
ICN