Market to Market (January 31, 2020)

Jan 31, 2020  | 27 min  | Ep4524

Coming up on Market to Market -- One more signature on the bottom line.

What will El Nino bring next season? A prison dairy operation with outside benefits. And commodity market analysis with Elaine Kub, 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. 

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.   

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


This is the Friday, January 31 edition of Market to Market, the Weekly Journal of Rural America.


Hello, I’m Delaney Howell.

It was another week of trade deals and negotiations.

On Friday, Great Britain officially dropped out of the European Union three and a half years after a contentious vote. The United Kingdom begins an 11-month transition period where trade and security will be negotiated.

In the U.S., President Trump signed the USMCA trade agreement. The trade deal touches almost every sector of the U.S. economy. For rural Americans, a few sections may improve the farm economy.

Peter Tubbs has our coverage.

The United States, Mexico, and Canada Agreement, the sprawling trade deal known as USMCA, was formally signed by President Trump this week.

President Donald Trump: "This is a cutting edge, state of the art agreement that protects, defends and serves the great people of our country. Thanks to our pro-worker, pro-American economic policies, unemployment is at the lowest level in more than 50 years. It's great. (applause)"

As Canada and Mexico are already the largest trading partners of the United States, trade experts believe the impact of the agreement will be modest.

The signing ends two years of bluster and tariffs that clouded the view of business leaders throughout North America, uncertainty that may have helped slow industrial production on the continent over the last 18 months.The renegotiation of NAFTA, the 1994 trade agreement that reduced trade barriers and created an industrial block between the three countries, was a campaign promise during President Trump’s 2016 run for the White House. 

NAFTA slashed tariffs and sparked a surge in trade between the three countries. Critics believe NAFTA encouraged industry to move jobs from high-wage Canada and the U.S. to relatively low-wage Mexico.

The deal also gives American farmers more access to the Canadian dairy market. While USMCA leaves Canada’s managed dairy economy in place it will increase the market for U.S. dairy goods. While price continues to put the squeeze on the dairy sector, the size of the U.S. herd remains the same as the number of dairy farms declines.

Tom Vilsack, President and CEO U.S. Dairy Export Federation: (00:52) “So a good outcome for the dairy industry. There are basically three very fundamental parts of this. One, the Canadian market becomes a bit more open than it has been. Quotas have been improved and increased. Secondly, the elimination of what is called class seven. It's a way in which the Canadians price a powder, which is allowed them to export their powder, uh, at a significant advantage over everyone else. That's going to end.

And then third, uh, an opportunity for us to reopen, if not, not necessarily reopened, but an opportunity for us to preserve the Mexican market, which is our number one market, but to do so in a way that also protects our ability to sell cheeses that the European union is attempting to try to get a monopoly on the use of certain names of cheeses.

For Market to Market, I’m Peter Tubbs.

Canada is the last country left to seal the deal. The potential for more profits may help soften the blow of how much we pay for goods and services. --

According to the Commerce Department, U.S. consumer spending rose 0.3 percent in December.

Inflation matched that pace putting the annual increase at 1.6 percent - well below the Fed’s target of 2 percent.

GDP slowed in 2019 to 2.3 percent, a little more than 25 percent behind 2018.

The Fed left interest rates alone as U.S. economic expansion enters its 11th year - the longest on record. --

The weather across the Midwest this year can hardly be described as anything but typical. But the real question is always about what’s on the way.

Paul Yeager has more.

January’s winter weather events have left much of the Corn Belt under a blanket of snow. The depth varies in the Upper Midwest. The heavier amounts are in the eastern Dakotas, Minnesota and parts of Wisconsin.

The current precipitation added to late year’s rains which left few dry places as revealed in the most recent University of Nebraska Drought Monitor.

The autumn rain complicated harvest of corn and soybeans in the Grain Belt even prompting the National Agricultural Statistics Service to announce it will re-connect with growers in several states to help finalize acres harvested because so many fields were left untouched in 2019.

The green area indicates wettest records for the region in 2019, while the red notes the warmest are where records occurred based on NOAA weather data. 

But what’s in store for 2020.

Elwynn Taylor, Iowa State University Climatologist Emeritus: “We really don't know what's happening but we do know that El Nino is our friend. And at the moment there's a weak El Nino going on. It doesn't matter. El Nino is El Nino. It has to do with weather conditions just off at the equator, just off of the west coast of South America.”

El Nino usually leads to wetter-than-average precipitation in the Corn Belt. If the adage “rain makes grain” is to be believed….

Elwynn Taylor, Iowa State University Climatologist Emeritus: “But we always feel better if the tiles are running before the season starts that means that we have all the water plants can use a little bit of excess in the soil. And that's, that's considered good news. At least for people that need tiles on have them. It's not good news for people that should have tiles and don't.”

For Market to Market, I’m Paul Yeager.

The number of dairy farms across the United States is in decline even as the number of cows in the herd remains about the same. Last year, Vermont lost 677 dairies and Wisconsin saw 551 of its dairy farms disappear.

But for one operation, the ultimate goal is trying to reduce crime. For decades, prison officials have tried varying methods to reduce the number of returning inmates and have found a winning combination. 

Peter Tubbs has more in our Cover Story.

Brad, Bureau of Prisons worker: “I've never had to teach people before and I've been, been able to experience that here so, so that'll help me out there. I was never willing to do it before.”

It’s easy to mistake this farm on the edge of Waupun, Wisconsin, for one of the thousands of dairy farms in the state. The reality is that the workers here are inmates in the Wisconsin prison system, and their tasks are two-fold: produce milk for other government facilities and prepare for their lives once they are paroled.  It’s as much a school as it is a farm.

Wes Ray, Director, Bureau of Correctional Enterprises:  “We provide inmate workers with opportunities they can use to better prepare themselves to succeed in the institutions and when they return to their families and communities. Those are opportunities to work, to learn and to earn.”

Maintaining a herd of 1,100 dairy cows requires 300 man-hours each day. Spread across two shifts and 33 inmates, the 400 milking cows are milked three times per day, and each animal yields 80 pounds daily, a rate above the industry standard of 66 pounds.

For the Wisconsin Bureau of Prisons, the milk is the primary revenue stream...the routine, a byproduct.

In accordance with Wisconsin Bureau of Prisons policy, current and former inmates are identified by only their first names.

Brad, Bureau of Prisons worker: “There's always, there's always that stuff, but to just go with each day and work through it and get it done and it's all about making the whole thing function, you know, I'm just a small portion of what really goes on here. So a lot of people out here doing a lot of different things and working together to get it all done, manage it appropriately.”

Prison officials believe the agricultural work - planting, harvest, and hands on with animals – prepares inmates for life after their eventual release. 

Former inmates confirm the experience being good for them on the outside. Fernando currently manages a retail store.

Fernando, Former Bureau of Prisons worker: “I liked it because it put me, Uh, it was like the discipline, you know, instead of just sitting around and not doing nothing, I put myself to, you know, uh, getting myself used to that way when I went back to society, you know, I was not going to be wasting time and you know, I'm doing something and doing something about my life with my life.”

Mark is now working in construction.

Mark, Mark: Former Bureau of Prisons worker:  “So another thing was good was even working with the weather because no matter what, if it's raining or shine and everyone has to be here at the farm and it's not a seven, like a seven to three job, it's a seven day a week job. 365. So to be here and to show up on time and, and, and stick it out and there's a lot of hours. I guess I learned people more than anything and uh, different people because when you're out here you have to work with a lot of different people, maybe people that you would never normally in your life be around and you can't exactly just walk away from them. So you better figure out a way to work with them and when you can work with them and everybody gets the job done together, it is pretty good.”

While many of the inmate workers walked in with job skills, Ray often sees the soft skills of seeing a job to completion and working with others, as the most valuable lessons learned on the farm.

Wes Ray, Director, Bureau of Correctional Enterprises:  “We like to say they learn general work skills, how to get to work every day to get through the day in spite of challenges with people and equipment and to get work done, to be persistent and not just spend time.”

Milk processing takes place a few miles away at another Bureau of Prisons facility in Waupun. The facility packages milk in half pint boxes and five gallon bags, and also produces over 28,000 gallons of ice cream and sherbet each year. The dairy products are sold to government facilities in Wisconsin and Minnesota, and the revenues support the larger mission to train inmates for future jobs.

Charles: “On the outside. I'm a cook but it was nice to see the other part of this and I am actually from the third dairy state. So this is something that I can try to, you know, go into out there and you know, like a transferable job skills. So just learning something different and coming out of this with a new job skill was pretty good for me.”

While the Bureau can only bid for work from other government agencies or non-profits, it is expected to be financially self-sustaining. Profits are spent on improving the operations of the various facilities.

Wes Ray, Director, Bureau of Correctional Enterprises: “We submit a number of bids and we are not the winning organizations, so we have to learn from those losing bids, modify our product, modify our prices, modify our delivery schedule and get back in the game. And the next time we get a bid.”

In addition to fulfilling the dairy needs of Wisconsin state government, inmates who work for Correctional Enterprises return to prison at a lower rate than those who do not perform work outside the prison walls. While only a few percentage points over the average, more than two-thirds of Correctional Enterprises employees never return after being paroled.

Wes Ray, Director, Bureau of Correctional Enterprises: “So we have a .690 batting average and we're excited to talk about that.”

Some former workers on the dairy farm find work within agriculture, but most transition to other jobs in the Wisconsin economy. For those who have been through the program, the lessons learned on 1,500 acres in Central Wisconsin are about life as much as agriculture.

Fernando: “I mean, a lot of the guys never had even worked in a farm and by them coming here, they learning that it's okay to get your hands dirty and do something for, for the right cause.”

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

To say the commodity markets took it on the chin this week would be an understatement. The Coronavirus and good harvest weather ran the bulls out of LaSalle Street. For the week, March wheat dropped 20 cents and the nearby corn contract lost 6 cents. The Wuhan Coronavirus combined with reports of good weather in Brazil slashed the March soybean contract by 30 cents. March meal fell $7.30 per ton. Cotton dropped $1.90 per hundredweight. Over in the dairy parlor, March Class III milk futures declined 42 cents. The livestock sector suffered the most this week, as April cattle shed $4.62, March feeders cut $2.93 and the April lean hog contract lost 16 percent of its value, plummeting $11.85. In the currency markets, the U.S. Dollar index declined 42 ticks. March crude oil fell $2.66 per barrel. COMEX Gold added $13 per ounce. And the Goldman Sachs Commodity Index plunged more than 18 points to finish at 387.35. Joining us now to offer insight on these and other trends is one of our regular market analysts Elaine Kub. Elaine, welcome back.

Kub: Thanks for having me.

Howell: Elaine, it was definitely a rough week this week for the commodity markets. Wheat especially had a step back this week. Was it following the corn and soybean markets? Or was there something else that pulled it down this week?

Kub: Well, I think in that benchmark Chicago contract I think we could make the argument that it was due for a correction anyway. That has been such a high flying rally that has been going on and when you look at the intermarket wheat spreads it's a little bit nuts how high the Chicago prices have really gone. At the height there Chicago had a 5% premium over Minneapolis hard red spring wheat, for instance, and historically it should have a 15% discount. So you could say that benchmark Chicago contract was just pulling back for other reasons, statistical arbitrage reasons, and certainly just the overall commodities, everything getting sold this week.

Howell: And corn definitely sold off this week as well. We saw it test some key supports around that $3.75 mark in the contract here, futures contract. Do you anticipate it to break below that number?

Kub: Not really. And actually we've seen corn be pretty resilient. And that $3.75 that you mentioned is a notable number. I think it should continue perhaps to continue bouncing along between $3.75 and $3.90. And there's reasons for that. Whereas soybeans and hogs and a lot of crude oil certainly, stock markets, a lot of these markets really have legitimate reasons to be worried about a global economic slowdown or a slowdown in Chinese consumption patterns. Corn is not that market necessarily. Domestic demand of U.S. corn is not going to be as affected as some of these other markets so I think it makes sense for corn to be a little more resilient.

Howell: I suppose because China doesn't import a lot of U.S. corn would be the factor behind that?

Kub: Right. We did see one good export sale announcement on Friday here to South Korea. That was good news and there's certainly not going to be price wise competition from Brazilian corn going forward. So export sales can only really improve for U.S. corn but it's not a China story, no.

Howell: Elaine, usually this time of year seasonally we see corn and soybeans have a little bit of a rally or have some strength here. Is that going to be the case at least for the corn market?

Kub: Well, I know that producers are certainly interested in what happens in February to these new crop prices for corn and soybeans because this is when we start to set reference prices for crop insurance. Whether or not a rally can happen this is not good timing for this global economic, fears of a global economic slowdown. To have that happen in February is really rough for our timing and it could certainly persist because you've got certainly until February 3rd, perhaps until February 9th until the Chinese economy even starts to pretend to get back to normal after the Lunar New Year holiday. So the timing of how long the information flow of trying to figure out how long this epidemic lasts or when the epidemic, the Coronavirus epidemic would peak, we've certainly got at least two more weeks of worrying about it and keeping that worry priced in the markets.

Howell: And speaking of headlines I know the USDA, there's been rumors that perhaps they would adjust the February 11th WASDE report to show Phase One trade deal whatever purchases that China is going to buy. Do you think that will happen?

Kub: Well, I don't know and I honestly think some of that trade optimism was already in the January round of reports. They lifted their expectations for average cash prices, farm level prices for soybeans to $9 even in the January report without a lot of justification in the actual tables. So I think some of that optimism was already in there in January and certainly it's within their purview to continue to price more of that in there but I couldn't point to specifically where on the table that would come from, no.

Howell: Okay. Elaine, as Brazil continues to be a strong competitor of the U.S., I know this is a question you wanted to make sure we answered during the main program today coming to us from Doug in Iowa. What is the bean price equivalent here to the Brazilian bean price?

Kub: Well, and the reason we wanted to talk about it is because it's so important to the day-to-day futures prices is what is going on in Brazilian soybean prices. So all of the soybean markets, including the daily and futures markets in China, have come down since the Lunar New Year began and since this Coronavirus epidemic --

Howell: And they haven't been open, right?

Kub: No, they haven't. But the U.S. futures and Brazilian FOB cash level prices have fallen about 6% so you've got an equivalent price in Paranaguá of about $9.38 per bushel. In New Orleans, Louisiana you're talking more like $9.28 per bushel. So price wise you could make the argument that the U.S. wins but it can't, it has to follow along with what the Brazilian price does and I think that is exactly what we saw on Thursday when soybean prices dropped double digits, 16 cent losses, that was certainly a continuation of the selling and the lower trend that we saw all week because of the Coronavirus. But why that day specifically I think it's due to the Brazilian currency. That currency lost almost 1% in that day alone, down to almost its record low of as low as it has ever been. And any time that value of Brazilian soybeans keeps on going lower the U.S. futures have to follow along because of that tight price relationship between the two cash prices.

Howell: So do you anticipate seeing prices continue to fall?

Kub: That drop in the Brazilian real didn't really have a good justification. There's some thought of them lowering interest rates next week but I think it's more just the currency traders, the Forex traders being very bearish on Latin American markets and in emerging markets in general this entire week through this Coronavirus thing. So I think there's a lot of potential for that Brazilian currency to snap back up, to maybe hit a low and snap back up. So if anything we might say that it would be a reason to see some suddenly bullish movement in soybeans. But not to say that I'm suddenly bullish in soybean prices generally until we see this Coronavirus thing pass through.

Howell: Which could take quite a while. I mean, bullish prices, is it going to take a couple of months until we see some sort of snap back from that?

Kub: I think we'd want, the global markets would want to see some evidence that the epidemic has peaked and I don't know how long that would take. Like I mentioned, certainly we need to get everybody in the Chinese economy back from the Lunar New Year holiday and back to work and see how the epidemic plays out that way.

Howell: Elaine, let's transition our attention to the livestock markets. They had a rough week this week as well. Looking at the live cattle markets we've seen April now drop below the front month contract here in February. What's going on there?

Kub: Live cattle didn't have a really high volume of trade going on. I think the feeder cattle and the hogs contracts there was a lot of speculative selling, short selling going on. But I didn't see that happen so much this week in the live cattle. So some of that was actually just speculators just stepping back and allowing strange things to happen. The cash market too was weak I think based on when you have everything else in the economy, all of these other commodities being weak in a week, you'll have the cash cattle traders taking that excuse to push things back. We saw Nebraska prices about $2 lower than last week, dressed prices about $4 lower than last week. So there was certainly weakness in the real cash market that sort of followed along with that weakness that you see in the futures market you mentioned.

Howell: Elaine, the USDA cattle inventory report also came out today. Did that add any clarity to the cattle complex?

Kub: It was pretty close to expectations, 94.4 million head, which is lower than last year at this time but that's more of a dairy story, I think the liquidation of the dairy story. When you go and look back at the cattle on feed report honestly you're looking more at an expansion. We saw slightly higher numbers on last Friday's cattle on feed report. So I think numbers wise or supply wise you're looking at a fairly stable picture overall and instead you just need to stabilize demand or at least the perception of demand in the global economy.

Howell: And rounding things out today, the lean hog market was unfortunately the sore loser this week dropping 16% week over week, all Coronavirus related?

Kub: Yes I think so. I mean, it was a series of limit down days and expanded limits and I mentioned that the total open interest in that was actually growing a little bit day-to-day, which suggests to me that this wasn't traders thinking oh no, I need to get out of my positions. I think this was folks coming in here and short-selling those prices just based on the Coronavirus headlines. And I know how the livestock industry feels about speculative short-sellers, but I honestly think that is what the evidence is pointing to. The good news from that is of course that then it could be a fairly quick recovery once you discover or once the market steps back and realizes that the Chinese people will continue to eat. They may not be as big of economic participators, they may not be going out to the movies, they may not be having their Lunar New Year fairs, but they will still be purchasing food to eat. The grocery stores are still open, the soybean crushing plants are still open and the appetite for pork, which of course is huge in China, and all other foodstuffs, that is still in place.

Howell: Okay, I'm going to push you a little further, I know you said it could be a fairly quick recovery, but will it be?

Kub: No, I wouldn't necessarily step in and start buying hog futures on Monday. I wouldn't do that right now. I would wait for this epidemic of short-selling to work its way out. At some point we will run out of people who are willing to sell at these prices.

Howell: And, Elaine, I think the last question I want to end with here is on Sunday we see the Dalian futures re-open. China is going to be the big factor here to watch especially for our U.S. ag commodities. What do you anticipate to happen at the beginning of that time?

Kub: I honestly suspect it will be a little bit brutal. They've had a week of fearful attitudes throughout that country and that will have to get priced in, like you say, immediately on the open for their stock markets, for iron ore prices, copper prices, all of the commodities that reflect economic activity in that country I suspect will have a hit on Monday.

Howell: All right. Elaine, we'll continue this discussion on Market Plus. Thank you so much.

Kub: 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 Facebook allows you to keep track of your favorites including those from rural America. You can find our links and photos under MarketToMarketShow. Join us next week when we’ll look at what’s being done to help with the truck driver shortage. So until then, thanks for watching and have a great week!


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. 

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.   

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


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