Market to Market (December 27, 2019)

Dec 27, 2019  | 27 min  | Ep4519 | Transcript

Coming up on Market to Market -- The wind energy industry gains credit and presidential attention. The boom and bust cycles of the emerging hemp industry.

And commodity market analysis with Tomm Pfitzenmaier, next. 

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

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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. 

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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This is the Friday, December 27 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell. 

Hope. Joy. New beginnings. This is more than your Christmas Eve sermon, but rather the markets approaching the turning of the calendar. --

The optimism of a phase one trade deal with China propelled stocks further into record territory. 

The ramifications of the 17-month-old trade war are still being felt in the manufacturing sector. Orders for big-ticket or durable goods slid 2 percent in November. 

The sale of new homes increased 1.3 percent in November, as lower interest rates pushed up purchases and prices for the dwellings. --

The president is spending much of the holiday week at Mar-a-Lago. Prior to his settling in, he spoke about 12 miles away to the Turning Point USA’s Student Action Summit. 

His remarks on wind energy garnered attention, just days after the renewable industry scored a victory for 2020. 

Peter Tubbs reports. 

One of the winners of the spending package approved by Congress before the holiday recess was an extension of the tax credit for wind energy. The credits for wind turbine projects were set to begin a step-down process in the new year, but now will extend through 2020. 

The credit equals 2.3 cents per kilowatt hour of new wind generation capacity in projects that are completed by the end of 2021. The extension of the credit was needed to cover wind projects that did not break ground in 2019, but are expected to be completed by the tax credit deadline. 

At his last speech before Christmas, President Trump made the case for reducing support for wind energy.

31:30 Donald Trump: “I know windmills very much I've studied it better than anybody I know it's very expensive. They're made in China and Germany mostly very few made here almost none but they're manufactured tremendous if you're into this tremendous fumes gases are spilling into the atmosphere you know we have a world right? So the world is tiny compared to the universe. So tremendous, tremendous amount of fumes and everything. You talk about the carbon footprint, fumes is spilling into the air, it's spilling. Whether it's in China, Germany, it's going into the air. It's already there everything right?

The American Wind Energy Association, an industry trade group, issued a fact check blog post following the president’s remarks in Florida on several claims of expense, job creation and wildlife. 

Energy analysts contend that electricity from wind is the cheapest form of energy in many parts of the country, and that the cost of generating each kilowatt hour has dropped by as much as 70 percent since 2010. 

The wind energy industry cites 500 U.S. factories that make components for wind turbines, employing 25,000 workers. The Department of Energy estimates that more Americans work in wind energy that coal mining. 

Roughly 9 percent of the electricity generated in the United States come from the wind, and the percentage is expected to grow in 2020.

However, residents in some states where wind generation is booming have filed suit to stop further expansion of the industry. The Madison County, Iowa Board of Supervisors issued a one-year moratorium on any renewable energy construction in October of 2019.  

For Market to Market, I’m Peter Tubbs.

One of the main missions for industry specific trade groups is to find markets for the commodity they support. 

A recently approved crop and their farmers have launched the U.S. Hemp Growers Association to help business development and research.  

One of their first orders of business will likely be expanding export markets amidst global trade wars.

As Josh Buettner reports in our Cover Story, the boom and bust cycles are playing out quicker than anticipated. 

Mike Smith/President – Western Slope Hemp Growers Association: “If you just get into this industry because you want to throw some magic seeds in the ground and people are going to bring you wheel barrels full of money, it’s not going to happen.”

As founder of Colorado’s Western Slope Hemp Growers Association, Mike Smith scored front row seats to a historic shift in American farm policy.

Mike Smith/President - Western Slope Hemp Growers Association: “Ever since federal legalization, it’s gone crazy out there. You know, everybody and their brother wants to grow hemp now. About 20 percent of them know what they’re going to do. So there’s a whole bunch of people that are brand new to it that they have lots of questions and everything.”

When the Mile High State legalized recreational marijuana in 2012, opportunistic hemp producers followed suit by reaping the nation’s first harvest in over 50 years – helping to spur national lawmakers toward eventual action.

Sec. Sonny Perdue/U.S. Department of Agriculture: “As mandated by Congress, our program requires all hemp growers to be licensed and includes testing protocols to ensure that hemp grown under this program is hemp and nothing else.”

The 2018 Farm Bill uncoupled hemp from pot - reversing decades-old Congressional action which had made both strains of cannabis illegal at the federal level.

Mike Smith/President - Western Slope Hemp Growers Association: “Botanically speaking, it’s all cannabis sativa-L. It just has to do with the THC level. These are considered industrial hemp because they have 0.3 percent THC or less. This exact same plant, if it had 10% THC in it, wouldn’t be qualified under the hemp program. And so 700 acres in Colorado last year tested hot and essentially had to be destroyed.”

According to the Brightfield Group, a hemp industry analytics firm, roughly 285,000 acres in the U.S. were planted into hemp this year, a 72 percent increase over 2018.  

Mike Smith/President - Western Slope Hemp Growers Association: “You can plasticize it, but you can also make wood pellets…”

With projections of a $26 billion industry by 2025, proponents like Smith predict a day of reckoning with big oil and big ag over domestic food, fuel and fiber markets.

Mike Smith/President - Western Slope Hemp Growers Association: “Right now, these stalks in Colorado are worth 45 cents a pound.”

But even with its multi-purpose potential, insiders say the infrastructure for an American hemp revolution is lacking. The crop’s initial buzz has already created a glut, and is labor intensive - as high quality cannabidiol oil, or CBD, is extracted from hand-harvested stock for the lion’s share of profits.

Linda Bestland/Advanced Wellness - Grand Junction, Colorado: “It’s a miracle component that we should all add in our diets as far as I’m concerned...in our everyday consumption.”

Linda Bestland is a wellness professional in Grand Junction who recommends CBD supplements for a broad range of health concerns.

Linda Bestland/Advanced Wellness - Grand Junction, Colorado: “People use it for anxiety, epilepsy, stress, cancer…It’s an anti-inflammatory.”

Bestland says CBD is one of many molecules, or cannabinoids, present in the plant. Yet another is what makes cannabis so controversial: Delta-9 Tetrahydrocannabinol, or THC.

Linda Bestland/Advanced Wellness – Grand Junction, Colorado: “Our CBD has 0.1 percent THC. But it’s not enough THC that it’s going to get you stoned...where there’s too much THC in the body.”

Distillate and isolate blends can minimize or eliminate THC, but in Colorado, Bestland to is free to tout full spectrum CBD.

Linda Bestland: “You get everything, your terpenoids and your flavonoids actually walk hand in hand with THC and CBD.”

Despite many embracing the oil as a panacea, The Food and Drug Administration has only approved one CBD-based drug. Last month, the federal agency warned 15 companies they were marketing CBD products in ways afoul of federal law. Absent oversight, many U.S. physicians have been sidelined as eager consumers wade into unregulated waters.

Julie Stumph/Laboratory Chemist & CBD Consultant: “There’s a lot out there that’s junk. I had somebody bring me a bottle of material to test and there was essentially no CBD in their bottle.”

Julie Stumph is a chemist and consultant for the CBD industry involved in growing and extraction.

Julie Stumph/Laboratory Chemist & CBD Consultant: “High pressure CO2 is injected in the system and with pressure and temperature, it becomes a liquid and CBD and all those other cannabinoids dissolve in that liquid and get extracted from the vegetation.”

CBD production’s purity and traceability standards are shared by the local organic farming community. Peaches, plums, pears and a host of other tree fruits thrive on the Western Slope. USDA statistics reveal an over $14 million annual fruit and tree nut industry in Mesa County, Colorado alone.

Brian Olesen/Plum Daisy/Colorado Mountain Jam – Palisade, Colorado: “Marijuana was made legal in Colorado a number of years ago. I voted against that legislation. I would vote against that legislation again.”

Brian Olesen was a high school English teacher before his orchard fruit operation in Palisade took off, buoyed by accolades for the company’s organic, locally grown and processed jams and jellies. Despite his opposition to marijuana, he has grown hemp the past few years and extracts CBD - having found a dual bounty with crossover appeal.

Brian Olesen/Plum Daisy/Colorado Mountain Jam – Palisade, Colorado: “We had a gentleman come and wanted to infuse CBD into jam. He found us on the internet...came and spoke to me. I found it to be just an extraordinary, intellectually challenging, you know, opportunity. Very, very exciting.  It’s an exciting industry.”

As miraculous health feedback pours in, quality controls make it easier for federally-insured banks to work with the nascent industry.  Some on the Western Slope says it’s only a matter of time before corporations roll in and smaller farms shift to a boutique model – but federal changes also have allowed early adopters in the Mile High State to loosen up from business structure contortions engineered to stay afloat during prohibition.

Mike Smith/President – Western Slope Hemp Growers Association: “Just a bunch of lies. As you can see here, it’s an assassin of youth. So all of this was made to basically scare the public. They’ve just been banned from this because of lies, that’s all.  Those lies are gone now so let’s get it going!”

For Market to Market, I’m Josh Buettner.

Next, the Market to Market report. 

The gifts of optimism and spec fund buying in the wake of a trade deal moved much of the commodity markets higher. For the week, March wheat gained 14 cents, while the nearby corn contract added 2 cents. Bean oil demand added to trade confidence to lead the soy complex higher as the January soybean contract added a penny. January meal declined $2.50 per ton. March cotton gained 96 cents per hundredweight. Over in the dairy parlor, January Class III milk futures fell 27 cents. The livestock sector was mixed. The February cattle contract improved 90 cents, January feeders rose $1.27 and the February lean hog contract dropped a dime. In the currency markets, the U.S. Dollar index fell 72 ticks. February crude oil improved $1.37 cents per barrel.  COMEX Gold jumped $34.90 per ounce. And the Goldman Sachs Commodity Index expanded 7 points to finish at 440.30. Joining us now to offer insight on these and other trends is regular analyst, Tomm Pfitzenmaier. Tomm, welcome back. 

Pfitzenmaier: Thanks, Delaney. Good to be here. Good to end up the year. 

Howell: We have a lot of end of the year questions and big picture things to look at here. But really I guess a big picture thing and a lot of questions we got in this week on social media, Tomm, was dealing with the wheat market so I want to kick off our discussion today coming to us from Roger on Twitter. He said, the July 2020 KC contract has had a very good rally. Is this time to sell some of next year's crops or should we wait until after the January acreage report when wheat should have a 110 year low in acres? 

Pfitzenmaier: Well, it has had a nice, all three of the wheat categories have had a nice run up here. Maybe there's another 15 to 20 cents, Chicago wheat maybe back up in that $5.73 area which was the summer high. As far as how you play the January report, I'm kind of one of those guys that likes to play both sides of it so I'd probably sell some ahead of it, especially if we stay up at these levels and then you're running the risk here because a lot of people think that report is going to be friendly, the markets rallied in anticipation of it being friendly, so that always makes me a little uneasy, especially if we continue to do that right up into January 10th. So if you have a nice rally ahead of time I'd sell some and then if it's friendly then clean it up and sell the rest of it. As far as new crop, next year if you're selling old crop it's certainly a good time to start sticking your toe in the water and selling some new crop too. 

Howell: When you say some, Tomm, what are you talking here? 20%? 50%? 

Pfitzenmaier: I guess to get started 20% to 25% and then kind of see how the winter goes. The Russian crop was fairly decent. We're probably going to have a decent crop. There were some problems in Argentina and Australia which have been supportive. But the world is fairly well supplied with feed grains so we're not going to get too carried away. We've had nice short covering in all the grains and once that is cleaned up the upside is probably somewhat limited here. 

Howell: Tomm, how are you handling the January 10th WASDE report here in the corn markets? Are you playing it the same way as you are with the wheat?

Pfitzenmaier: Pretty much, yeah. The corn market you can make a case for whatever you want. If you want to be bullish you can say the funds are going to continue to cover shorts, the crop is not out there, the acreage is going to be down, the yield is down, USDA is way off on their numbers and all that is friendly. On the other hand, the South American crop is good, the USDA doesn't tend to be off that much, we're probably going to plant the heck out of corn next year. So how much do you really need to pay up for? And then you get in the mix the potential China business. Well, they buy 4 million metric tons, 6 million, something like that, so they aren't big buyers of our corn. If their hog herds are really decimated like they say they are I don't know that they need to buy a lot of corn. I think if they buy anything it's probably going to be ethanol and DDG's. So if we rally up, especially if you get March contract to run up in that $4 range I'd certainly want to have some corn sold ahead of that especially with the basis as narrow as it is in a lot of areas. I'd probably also step into some new crop. That should probably pull new crop up in that maybe $4.05 to $4.20 range or up in there and I would probably be a little stronger maybe up in the 30% to 35% sold on new crop on corn if that happens. 

Howell: And Tomm finally how are you handling this report for the soybean markets? They have had a great week this week really until Friday where they seemed to take a step back. 

Pfitzenmaier: Yeah, you've had short covering. Again, that's short covering in China, that is basically what is going on there. It is pulled up by bean oil. As you alluded to earlier bean oil has had a very good week. You've had the Malaysian palm oil hit three year highs this week, that pulled it along. You had some legislation for biodiesel that was supportive for bean oil. So there have been some positives there. The crush levels have been supportive of bean oil. But bean oil led bean rallies don't generally go that far so I'd be a little cautious about the bean market. As you said, that market is generally driven by meal and meal closed down $2.50 this week. So we're kind of getting up to fairly lofty levels, maybe there's some more short covering that can give that some more, South American weather even there is great. So then you're back to what is China going to do? How many beans are they going to buy? Are they going to switch Brazilian beans to U.S. beans to make it look like they've hit their $40 billion target? If South America has a great crop, Brazilians have a great crop, which is kind of what is happening here so far, and Brazilian beans are a lot cheaper than U.S. beans are, how much are Chinese going to be willing to pay up just to have an agreement and make the two Presidents happy? I guess I'm a little uncertain that that's going to go as well as the trade maybe thinks it is at this point. So a lot of uncertainty there but we've had a nice rally. Granted, we were only up 14 cents this week but we're 60, 70 cents off the lows so we have had a nice pop in the bean market, maybe a little more, another 15, 20 cents in that market too and I'd guess you're going to exhaust most of the buying ahead of the January 10th and then we're back to how much crop is out in the field, how are they going to count that,  yield, all that stuff, which is a big uncertainty in both corn and beans. 

Howell: So it sounds like moving past the January 10th report really the biggest factor is U.S./China trade negotiations. 

Pfitzenmaier: That is my perception. They've got two years on this agreement. That doesn't mean they have to go run out next week and buy everything. They can sit and massage the market, they can sit and wait and see if Trump gets re-elected. There's a lot of moving parts to all that and it doesn't necessarily mean beans have to go to the moon right off the bat. Maybe they will eventually because of their buying but I don't know that it necessarily has to happen quickly. 

Howell: Yeah, doesn't have to happen tomorrow. 

Pfitzenmaier: Correct. 

Howell: The other market that seems to be benefiting from the U.S./China trade negotiations in phase one here is the cotton market. Tomm, it seems that we're in an upward trend here. Is that due to continue? 

Pfitzenmaier: All the things I talked about with corn and beans are certainly true in cotton. Cotton is Chinese driven, funds have been short that market too and covering to get out of it. Again, maybe there's a little more up in it. I wouldn't be hanging around too much longer in the cotton market, any more than I would those other two markets. 

Howell: All right. Tomm, we've got another question here. Chinese demand is the continued trend even when you look at the livestock sectors. We've got a question here from Ryan in Dike, Iowa wanting to know, is China buying enough beef already to push the live market higher? 

Pfitzenmaier: Well, demand for beef has been pretty good. How much of that is Chinese I guess I'm not sure. Certainly that is a component and a lot of that gets funneled through Hong Kong and other areas so it's a little hard to tell. I'm optimistic the cattle market. I think you can see February run up into the $130 range but that is my optimism really more related to winter weather and invariably you have something in January and February that gets the cattle market wound up. I don't know, my concern on the beef side is they supposedly really need pork and they haven't been buying pork in the quantities that we thought they were going to. So how much are they really going to pay up for beef? I think there is some underlying support there but I wouldn't rely on the beef market taking off here based on Chinese business. There could be some up but you get those second and third quarter June cattle up another $3 or $4 I think you'd have to start looking at selling those too. 

Howell: Tomm, when you look at the feeder markets we put in a gap in the January contract earlier this week. Why did we make that gap? 

Pfitzenmaier: That was somewhat impressive to me given that normally that is an inverse, that feeder market is inverse of the grain markets and the grain markets were up and yet you still had the feeder market, that to me relates back to optimism in the fat market. Now the fats were, like you said, up 90 cents this week so it wasn't like a moon shot but there seems to be a lot of optimism that the beef price is going to get better over the winter and I think that is relating back to the feeder market and prompting people to sort of pay up for feeders this week. 

Howell: And as you mentioned there we've been waiting in anticipation to see if China will buy this big supply of U.S. pork. Starting January 1st though they're going to remove those tariffs on U.S. pork. Is that going to be the window of opportunity that we need? 

Pfitzenmaier: That's what we're hoping. We thought all last fall that their cold storage would be diminished and that really didn't happen. Now they think that their cold storage will be depleted by the middle of the winter here and that that's going to generate more pork demand. I guess that remains to be seen. The market has really factored in big numbers for a while. We've taken a lot of the air out of the market. So there is some room on the upside. But that is totally what it's up to because cold storage and U.S. cold storage has actually started to pick up some here both on the bellies and hams were depleted because of the Christmas trend to consume a lot of ham. But if they don't show up to buy a lot of pork we've got too much pork on hand. So I'm expecting the pork to be rangebound. 

Howell: What is the range that you're looking at, Tomm? 

Pfitzenmaier: The high of 73 to a low of 63 probably somewhere in that range unless we have some news that breaks us out of that. So the pork market, I was just looking at my charts before I left the office this afternoon, it's really overbought. It's right on the verge of turning over here. So if something doesn't show up on the demand side I'm afraid we're in for a little bit of a correction here over the next couple three weeks in the pork market and then maybe we can have a run with some Chinese demand showing up in January or February. 

Howell: And Tomm, just quickly before I let you go, is there a sweet spot for where we need to see exports hit in the hog market? 

Pfitzenmaier: That's kind of a moving target because our production keeps increasing so they have to keep increasing more to offset our increase in production. So to be honest with you I don't have an exact number on that but I'm sure there is one but I don't know what it is. 

Howell: It's a moving target. That's a great answer, I love that. Tomm, thank you so much for joining. 

Pfitzenmaier: Thanks, Delaney. 

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. Facebook was full of holiday pictures this week, including one of our staff. Find out what else we share by liking our new page’s name, MarketToMarketShow. Join us next week when we’ll look back at the biggest stories of 2019 in rural America. So until then, thanks for watching and have a great week!

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

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

(music)

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. 

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. 

(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.     

 

Grinnell Mutual Insurance
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