Market to Market (November 22, 2019)

Nov 22, 2019  | 27 min  | Ep4514

Coming up on Market to Market -- As harvest nears the finish line, Congress does a credit check. Biofuel proponents take their comments to the top. After his release from prison, a cattle producer is again in trouble with the law. And market analysis with Mark Gold, 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. 

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Sukup Manufacturing Company – providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing, store now, profit later.   

This is the Friday, November 22 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Delaney Howell. The early arrival of winter has done little to slow one sector of the construction industry. ---

The Commerce Department reports new home building increased 2 percent in October fueled by lower interest rates and a healthy job market.

The same factors are boosting the sale of existing homes. However, a shortage of available properties are keeping a lid on even more transactions.

The 10-state snapshot in mostly middle American states hit its highest mark of 2019. Creighton’s Rural Mainstreet Index topped growth neutral for the fourth time in five months. ---

The survey’s author says federal agricultural crop support payments and somewhat higher grain prices have boosted the survey.

And as Peter Tubbs found out, some members of Congress received an update on another vital aspect of the economy – farm credit.

Multiple years of losses on the farm have stressed farm balance sheets, but have been slow to injure the farm credit system as a whole.

Glen Smith, CEO of the Farm Credit Administration, testified before the House Agriculture Committee this week that while the absolute number of farm bankruptcies is still small, there is concern in their growth.

Glen Smith, CEO, Farm Credit Administration: “You’ve heard of foreclosures being up, percentage wise, and percentages, the numbers aren’t alarming, but the percentage increases are. Foreclosure should be a last resort.”

When asked if the current financial crisis on the farm is similar to the situation in the 1980’s, Smith sees parallels to that difficult decade.

Glen Smith, CEO, Farm Credit Administration: “Which part of the 80’s? When we got to the mid-80’s and the late 80’s, we were in a crisis situation. But I made the comment that I think we’re at a level that’s comparable to the early 80’s. Decreasing farm incomes, decreasing margins, eroding current ratios. And at that time in the Midwest, we’d lost 15-20 percent of our land values. Guess what? Today we’ve lost 15-20 percent of our land values in the Midwest. The late 70’s and early 80’s were also typified by trade wars, right? At that time it was the Soviet Union with the grain embargo. So I think we’ve learned from the 80’s.”

Farmers have taken on an additional $41 billion in farm debt in the last 3 years, matching a record high set in the late 1970’s. Despite a trend of low farm net income, low interest rates have allowed producers to stay current on loans.

The percentage of delinquent agricultural loans rose in the second quarter of 2019 from 1.7 to 1.9 percent, a rate two and a half times higher than their low in 2014. The delinquency rate for farm loans in 1987 was over 8 percent.

While current conditions pale to those 30 years ago, the still FCA sees a creep of deteriorating financial quality in rural America.

For Market to Market, I’m Peter Tubbs.

One the nation’s largest ethanol companies has announced the production stoppage of cellulosic biofuels.

Project Liberty in Emmetsburg, Iowa will now switch focus to research and development.

The plant’s operator POET, cited EPA challenges with the implementation of the Renewable Fuels Standard as the reason for the change.

The president registered his comments on the topic this week in a meeting that included at least one farm state lawmaker.

Paul Yeager reports.

During the final days of the biofuels policy comment period by the Environmental Protection Agency, Iowa Senator Charles Grassley aired his thoughts on the proposal directly to the EPA from the Oval Office.

Sen. Charles Grassley, R- Iowa: “I expect to be carried out what we agreed to in the Oval Office on September the 12th. He can adjust his rules, according to the public comment, and I hope he gets thousands of farmers in Iowa and biofuel people and anybody else that wants to comment that we expect September 12 agreement in the Oval Office to be carried out in spirit as well as in word in the new regulation going out.”

Grassley says the president echoed the support for biofuels to EPA Administrator Andrew Wheeler.

Sen. Charles Grassley, R- Iowa: “I had a chance to tell him that EPA's had trouble even before he became director under Pruitt, and then under the EPA directors of the Obama administration, that they don't have credibility with the farmers because they think their tools of Big Oil, and that's what the suspicion is behind this. So even though Wheeler and the president are very sincere, that they're going to deliver the 15 billion gallons as the law requires instead of cut back by refinery waivers, they gotta write their rules that say exactly that. And they haven't done that.”

For Market to Market, I’m Paul Yeager.

In 2018, a Missouri livestock producer spoke to this program about his time behind bars for defrauding the government over cattle sales.

Less than a year after his interview, the subject of our story is again in trouble with the law - this time at the center of a double murder investigation.

You can find more on the topic in a special section of our website -- Market-to-market.org slash justice.

Colleen Bradford Krantz continues our series with part three of “Justice in Agriculture.”

Missouri cattle producer Garland “Joey” Nelson said he knew he was violating his Farm Service Agency loan agreement when, in 2013 and 2014, he sold cattle that were collateral without notifying government officials. According to court documents, Nelson, then 20, also hid some of the profits in a friend’s bank account, later moving it to his own, and he used alternate versions of his name to avoid detection.

During an interview last year, Nelson told Market to Market that he had gotten in over his head financially while trying to build a commercial cattle feeding operation. He ultimately pled guilty to fraud charges.

But after spending more than a year in the U.S. Penitentiary at Leavenworth, Kansas, Nelson was released in March of 2018, hoping to make a fresh start on his family’s farm near Braymer. Later in 2018, he told Market to Market that he’d learned some hard lessons about farm management.

Joey Nelson, Braymer, Missouri: “I can tell you all the things you don’t want to do when it comes to feeding cattle that way or loaning money from them, getting entirely too deep with somebody. I mean, it was a bad experience but I learned from it. I learned who you can trust and who you can’t trust, and just how far to go before things get too bad.”

Within nine months of making that comment, Nelson would, again, be under investigation. This time, for the July 21 disappearance of two Wisconsin cattle producers. Caldwell County, Missouri officials announced that human remains found on Nelson’s farm were believed to be, based on DNA tests, those of the missing men, Nicholas and Justin Diemel.

On October 23, 2019 Nelson, now 25, was charged with, among other crimes, two counts of first-degree murder in connection with the brothers’ deaths.

Sheriff Jerry Galloway, Caldwell County, Missouri: “Charges of murder are Class A felonies, which carry a range of punishment of life in prison, or death.”

 The Wisconsin men had previously sent cattle to Nelson to feed and sell on their behalf. Court documents say the father of the Diemels told officials the brothers had traveled in late July to Nelson’s Missouri farm to pick up a $250,000 check. They were not heard from again.

Those documents also say that Nelson acknowledged taking a rental truck used by the Diemels, and disposing of two bodies he said he found on his farm. In addition, a used rifle cartridge was found in Nelson’s clothes. He told officials he had been hunting small game. Nelson is being held in the Caldwell County Detention Center, pending a trial.

Dr. Michael Rosmann, an Iowa-based psychologist interviewed long before the men disappeared, said he should not comment on the Nelson case, never having met the young man. But, typically, in other, less-serious cases, producers who get in trouble often make decisions that were intended to keep their farm or ranch financially viable.

Dr. Michael Rosmann, farmer psychologist “I think there are some farm people who will resort to illegal activities to get ahead because they feel compelled to do whatever it takes to hang onto the land and resources needed to farm. And their motives aren’t always to hurt anybody but they end up hurting people anyhow.”

Occasionally, farmers who cheat federal programs or mislead consumers are accused of using the profits for purchases the government would describe as being for “personal enjoyment and pleasure.” In 2016, for example, an Idaho farmer was sentenced to three years in prison for selling regular alfalfa seed as organic. Court documents say he used the profits to buy an RV and a boat.

Dr. Michael Rosmann, farmer psychologist: “People will do things that they normally wouldn’t do just because their livelihood is under threat. And they’ll do what they think they have to in order to maintain the quality of farm operation that they’re accustomed to. Doesn’t make it right. It is just a factor that contributes to why this phenomenon occurs.”

In rare cases, some psychologists believe, those farmers who were charged have committed suicide to avoid either serving time in prison or facing the public shame. Rosmann says the data shows a shift away from older producers taking their lives.

Dr. Michael Rosmann, farmer psychologist: “Now, we’re seeing younger farmers from age 45 up to their late 60s as the most vulnerable for self-harm, and we’re trying to figure out why that is…Possibly it has something to do with a sense that I only have a few more years to succeed and it’s make or break time.”

During his Market to Market interview a year ago, Nelson described feeling badly for another farmer who was in prison because of the impact it had on his wife and children.

Joey Nelson, Braymer, Missouri: “He farmed and he was there for his kids every day of their life until that point, and you know his wife still has to farm.... She’s got to do it all by herself. They don’t think about that stuff.”

Nick Diemel, a 34-year-old from Navarino, Wisconsin, left behind a wife and four children. Justin Diemel, of Pulaski, Wisconsin, was 24.

In his interview, Joey Nelson described how he felt the day he was released in 2018 after spending 13 months in Leavenworth’s minimum-security satellite facility on fraud charges.

Joey Nelson, Braymer, Missouri: “You get nervous about everything you do from that point forward. Everything you go to do, you are like, ‘Okay, now can this be twisted or turned around where I might get in trouble for it?’”

For Market to Market, I’m Colleen Bradford Krantz.

Next, the Market to Market report.

Deteriorating weather conditions for harvesting remaining acres coupled with export reports helped boost the grain markets. For the week, March wheat increased 13 cents, while the nearby corn contract gained 7 cents. Headline trading between the U.S. and China did little to improve the market as the January contract fell 21 cents. January meal declined $8 per ton. March cotton weakened $1.84 per hundredweight. Over in the dairy parlor, December Class III milk futures expanded 21 cents. The livestock sector finished another week down as the February cattle contract lost $1.13 and January feeders shed $5. The February lean hog contract plummeted $4.35. In the currency markets, the U.S. Dollar index gained 31 ticks. January crude oil expanded 8 cents per barrel. COMEX Gold fell $3.90 per ounce.  And the Goldman Sachs Commodity Index improved almost a point to finish at 421.40. Joining us now to offer insight on these and other trends is one of our regular market analysts, Mark Gold. Mark, welcome back.

Gold: Thanks, Delaney. Nice to be here. I want to wish all of your listeners out there a very Happy Thanksgiving. I know many of us have an awful lot to be thankful for this year. I just want to pass on those greetings.

Howell: Well, thank you. That we do, Mark. We've got a shortened trade week next week, but there still was some stuff happening this week I think our viewers would like to be filled in on starting off with the wheat market. They had an exciting week for wheat markets as they go. Export sales were high, prices were high. What is going on there?

Gold: Well, the export sales were a little bit better than what they have been but still not a good number, a lot of competition certainly from the Eastern European countries. Chicago has now not only traded 90 cents over Kansas City but it's putting a dime or 13 cents higher than Minneapolis, which we never see. I don't know what in the 40 years I've been around the business that we've ever seen that. But at any rate it continues to be strong. It's ignoring what is happening in the corn and the beans and keeps chugging its way higher. Nobody really knows what the deal is. Is it because we're planning the lowest number of acres in 10 years? That may be part of it. But when you look at these huge world carryouts and the lack of real demand out there what's going on? I've tried to sell that Chicago/Kansas City spread a couple of times in the last month thinking that once we got into September it wouldn't last. Well September came and went, the spreads are still that high, it's telling us something is going on that most of us just don't see whatever that is.

Howell: It's a little bit of an anomaly here it seems like in the wheat markets.

Gold: But you don't want to stand in front of the freight train and it has certainly had its own strength in the Chicago contract and it just doesn't want to quit. When it does quit it will really give it up. But that might not be for a while because we don't know what the problem is out there. Who is paying up for this wheat? Is it that the wheat isn't out there? I don't think that's the case. But we'll see where we go. Maybe people are anticipating just a lower harvest with the weather that we're having, the lower acres, and maybe that's enough to push it higher.

Howell: All right, Mark, let's talk about the corn markets because they had a little bit of a different story this week it seemed. Weekly gains over last week but still just an interesting trading session. Is corn due to bottom out here at end of November, beginning of December?

Gold: I would think so. You look at the basis. You've got basis normally around harvest time we're looking at 60 to 90 under in a lot of places. Now we're looking at 10 under to 30 or 40 over. I heard one place was 90 over briefly. That's unheard of. Why would there be so much basis being built into this market? One bright trader I know made the point that the USDA way overestimated the 2018 crop. It's not out there. Elevators, ethanol plants have to bid up to get this corn and that is why we're seeing this strong basis. It's a field day for anybody doing any marketing. If you've got some puts on you're making money on the puts and in the case you've got a bin keeps making more money. So it has been a double edged sword on the good side for the American farmer for a change. My point would be they need to take advantage of it, this basis may not last all that much longer.

Howell: Well and that's perfect, you set us up here quite nicely for our social media question coming to us from Chad in Maynard, Iowa. He said, a corn basis contract decision needs to be made this week. Do you bite the bullet and price it or roll it?

Gold: I would bite the bullet. You could roll it. If you roll it and you've got the corn in the bin you've got to keep a put underneath you. Both have been working. But I would be inclined to take the money and run. Take some of that money, spend 10, 15 cents, buy back a call option because I really do believe, I don't know if it's going to be the 1st of December or the 1st of January, but when we get into that WASDE report in January I really think it's going to show that we've got more problems out there than anybody wants to admit to. The fact that as of last week we still had 24% of the corn unharvested, 3 billion bushels and the market just kind of turned up its nose at that. Well not only do we still not have the corn all in but the condition of that corn is getting worse every day. So it keeps me pretty friendly corn, beans and wheat for next year. But the timing has got to be right. And I really don't think that is until after the 1st of the year.

Howell: Mark, what is the story when you look at the soybean market? They were sub-$9 this week which is the first time in quite some time that we've seen that trade below that.

Gold: Well, what is happening is the oil has taken over the leadership role in the beans. That is never a positive sign in the beans in my opinion and the meal has been taking it on the chin. The soy oil has been so strong because of what is happening in Malaysia, there is talk about the Malaysians adding palm oil into their biodiesel type situation and the Malaysian palm oil has gone through the roof. That has dragged the U.S. soy oil market up with it. So as the spreaders are buying oil, they're selling meal. The meal is the bigger share of the bean complex so the beans have been moving lower. The other obvious part of that is the Chinese. There's no deal. They keep pushing whatever deal was going to be done by the end of the month now it's maybe next year. The President is going to delay maybe putting new tariffs on. But we have no deal. Until we actually get a deal I think the markets are going to be a little bit on the defensive. But again, after we turn the page in the next year and we're looking at a political year, an election year, does the President want to lose the farm vote? No way. So I think he will be compelled to do something positive for the American farmers out here.

Howell: Mark, turning our attention to the protein markets there was just kind of a dumpster fire this week in the live cattle and feeder cattle complex, especially on Friday's trading session. What happened?

Gold: Well, I think everybody was getting set for the cattle on feed report. They were talking about 112% on the placements which would have been the highest on any October number in years.

Howell: And that was such a large trading range.

Gold: And the Feb cattle hung in there, the December cattle hung in there, until Friday it was really looking pretty positive. We've had a $20 rally. But then today the feeder cattle gave it up $4 at one point in the feeder cattle, that dragged the fats down with it. I think that was all in anticipation of this report. The report came in 110% rather than 112% so it's still a big number but it's not as bad as people had been thinking and certainly some of the early estimates were even quite a bit higher. So are people going to look at it and say well it's not as bad and we can rally it from here? Or are they going to say it's still a big number, we've got a lot of cattle coming in? I don't know the answer to that. I do know if we start closing the nearby cattle over $121 it's a very positive sign. As a risk manager would I be spending $3 on a put on a $21 rally out here? You bet I would just to protect the downside. Today it worked, gave you a little bit of an edge, but long one can we break this $5 or $10? I think we could in a hurry.

Howell: Okay. Mark, finally we've got to talk about what is going on in the lean hog markets. $63 for so long, they've been trading underneath. This week they touched $60 and potentially I think they might have touched $59 there too. Why is there still such a discrepancy between the cash and the deferred contracts?

Gold: Well, it's all really about China. When we don't have a deal with China it makes it very tough. The Chinese bought a lot of Danish pork, that really kind of put a kibosh on the hog market. I'm still convinced, maybe I'm way off base on this, but I think one of the things the Chinese will buy is the hog market. They have depleted their supplies 50%, they need the protein, they want the protein and I think they're itching to get something done to get more pork. And I think it will be American pork they come for.

Howell: So it's really just the deferred is built in, there's some premium built into the deferred because we're still banking on being able to export U.S. pork?

Gold: And I think that is going to happen one way or the other. The world needs it and in particular China and if there is a trade deal to be made I think the hogs will be a big beneficiary of that.

Howell: Mark, how much upside potential will get added into those deferred contracts if and when we see that agreement?

Gold: I would think $20 fairly quickly. If you've sold hogs out here, would I be buying some call options back to keep the upside open through April and maybe early June, something in that nature? I would because again after the 1st of the year I think this thing can turn higher. We've done a lot of damage in that hog market and people say well the Chinese are going to be ramping up their hog production as well. I agree with that. They want to ramp it up. But what is that going to take? It's going to take a lot of meal and a lot of corn to do it.

Howell: Mark, we'll continue this discussion in Market Plus. Thanks so much.

Gold: 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. We have some exclusive content with our Justice in Agriculture series. Search market-to-market.org/justice to see more. Join us again next week when we’ll crack open a wild North American crop. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

(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) 

Sukup Manufacturing Company – providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing, store now, profit later.   

 

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