Market to Market (September 4, 2020)

Sep 4, 2020  | 27 min  | Ep4603

Coming up on Market to Market -- Secretary Perdue gets a firsthand look at derecho damaged areas. Adjusting an agritourism business plan in the middle of a pandemic. And market analysis with Elaine Kub, next.

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What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

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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.

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This is the Friday, September 4 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

With less than two months remaining until the election, rural America is taking stock of what has happened over the past four years and the past four weeks.

Only 1.4 million jobs were created last month - the fewest since hiring restarted 4 months ago.

The increase helped drop the unemployment rate nearly two percentage points to 8.4 percent -- the first time below ten percent since March.

The Creighton Mid-America Business Conditions Index continued its rise above growth-neutral even as the COVID-19 pandemic continues.    

The move higher came before USDA estimated farm income which, if realized, will be almost 22 percent above last year but still more than 25 percent below the peak in 2013.--

Action with biofuels, recovery from recent storms and the threat of a looming drought are now directly in front of rural Americans. This week, one of President Trump’s cabinet came to the Midwest to look over the damage and offer some relief.

John Torpy has more.

On a windblown Iowa farm, USDA Secretary Sonny Perdue brought welcome news for those affected by the recent derecho storm that raged across the Hawkeye state.

Sec. Sonny Perdue, United States Department of Agriculture: ”I'm here to announce that Iowa is qualified for a Secretarial disaster, which will unlock the, uh, the USDA programs for America for Iowa farmers. So, I'm going to sign that right here, now. ….”

With the stroke of a pen, Secretary Perdue designated 18 Iowa counties as primary natural disaster areas. The move cleared the way for farmers impacted by last month’s derecho storm to apply for emergency loans with the USDA.

The signing ceremony was held after the Secretary took a helicopter tour of damaged fields and farms. Secretary Perdue was joined on the flight by Iowa Governor Kim Reynolds, U.S. Senator Joni Ernst, and Iowa Secretary of Agriculture Mike Naig. The new infusion of funds is in addition to $4 billion in disaster relief already allocated by President Trump.

Sec. Sonny Perdue, United States Department of Agriculture: ”I have the heart of a farmer as a farm boy. Sad. Somber. Sobering, uh, and, uh, uh, heartbreaking for people who put their sweat, blood and tears in the crop to produce it. Looking forward to good harvest almost to the point there, uh, beginning of harvest. And, uh, and then just, just devastation.”

Last month’s derecho ripped through seven Midwestern states inflicting devastating damage on farmers and ranchers living along the storm’s 770-mile path. Iowa received the brunt of the storm’s wrath. Overall, 14 million acres were smashed by the straight line wind storm with nearly 6 million of those acres either heavily damaged or destroyed.

But the real numbers are yet to be revealed as farmers plan for the upcoming harvest. According to officials at Iowa State University, corn that was damaged in the storm is susceptible to disease which could further cut yields.

Those crops that survived the storm, along with many other fields in the Midwest, are now in a fight with a drought. According to the U.S Drought Monitor, areas experiencing abnormally dry conditions have decreased slightly, thanks in part to heavy rains brought in by Hurricane Laura. However, over the months of June, July and August, the number of affected areas have expanded. Strings of hot, dry days with above normal temperatures have denied some crops rain that, in the past, might have averaged anywhere from six to 10 inches.

For some farmers, the storm damage and the drought are piled on top of issues in the ethanol industry. Corn growers and ethanol producers continue to press the federal government to stop granting small refinery exemptions, or SRE’s. The exemptions allow petroleum refiners to bypass federal rules requiring the blending of biofuels into gasoline. Petroleum refiners argue the hardship waivers are necessary as the global pandemic has crushed demand for fuel.

Sec. Sonny Perdue, United States Department of Agriculture: ”The obligation up here is going to be 15 billion gallons. Plus what's ever granted to equal and net of 15 billion gallons. That's what the law calls for. And that's what the president's committed, and that's what we expect.”

For Market to Market, I’m John Torpy

If you’re running a business that relies on customers to come in the door or past the farm gate, the pandemic has been particularly hard on your bottom line. But one challenge can open the door to opportunity. Nathan and Talina Ryder left the worlds of television news and the hospitality industry to try their hand at farming.

The couple has had to switch-up the business plan on their CSA-style operation and, along the way, provided a much needed service to their down-state Illinois community.

You can see the entire interview with the couple from Golconda via next week’s M-to-M podcast.

Tonight, we feature them in our Cover Story.

Nathan Ryder: we are a 10 acre diversified farm operation. We're not organically certified, but we try to grow things as organically as possible. You know, and really, we want to gear ourselves towards agritourism. Like we want to have people come out and see how their food grows and visit with animals and enjoy themselves and share this kind of slice of heaven that we have, you know, with them, so.

Paul Yeager: So how did agritourism look in 2018 and 2019? If I would come out on a Saturday for a visit What did it look like at your place.

Talina Ryder: Small in the beginning?

Nathan Ryder: Yeah, very small. You probably have the place to yourself and do it have one on one personal tour around through the garden and to see the chickens and you know, you would get to hang out for a long time. So yeah, we're coming into this this season, we're expecting things to be a little busier, we know people have been cooped up. And there's a lack of activities for people to do, especially in COVID. And so we're almost a little like on edge right now about influx of people that we might end up with at the farm. And so like everything will just roll with the punches, and I'm sure it'll be a learning experience for us and we'll grow from it.

Paul Yeager: So, well, what were the big changes for 2020 because of COVID, or were they more because of the lessons you've learned in '18 and '19 and knew you needed to move the mums like you said, from here to there.

Talina Ryder: I think it's been a mix of both. I mean, we learned a lot of things that we wanted to do differently. Business wise like from getting to know our clientele better who buys mums? When do they buy them? How do we get them ready before the Walmart has them ready, you know, all of that stuff. But then everything kind of like changed when COVID happened because everybody needed food. Like there were no eggs in the grocery store. People were nervous about how how well farms were going to do and they didn't know if they were going to have produce, you know, is the grocery store going to have produce in the summer? Like, I don't know. Let me buy your CSA share. Um, and so we use kind of like, adapted as best as we could to what the clients were asking for what the customers wanted. We saw that we sold out of our CSA shares, we were like, Oh, well, let's add more. Can we grow more? How much can we do?

Nathan Ryder: Definitely pushing ourselves out of our comfort zone in terms of growing before we were ready to grow, you know, before we would have done it ourselves. And so for that that's kind of been a silver lining, I think in the whole COVID pandemic for our business model is that it's forced us to rethink things. But you know, Talina had to spend hours upon hours, sort of retooling our website and our e-commerce platform and putting products online and setting it up so that people could schedule a time to pull up into our driveway and pick up stuff that they'd already paid for. We had all of a sudden expand our refrigeration capacity. So we had the ability to hold stuff for customers, aside from our normal pickup days, so yeah, it's there been a lot of interesting growing points this year. And I think that's part of the reason why we're so like, you know, exhausted

Talina Ryder: in a lot early on. Yeah. 

Paul Yeager: So at what month Did you notice that you needed to make these changes, I mean, March is when a lot of the country started to head into that lockdown mode. So was it late March, April, May, when you notice he needed to make a change.

Nathan Ryder: It was almost right away. I mean, I think there was probably about a week just like everybody else. There is a week of sort of shock and awe. Yeah. Is this really happening? Like what's going on? And then, from that point, I think, yeah, we knew pretty quickly, like we had to step it up.

Talina Ryder: Yeah, in March, our soap sales went through the roof. And we were even offering to deliver eggs and soap to elderly people who couldn't get mobile and come to the farm and get what they needed. But I mean, our local grocery store had no eggs for weeks and weeks and weeks. And it's spring, chickens don't lay a whole lot of eggs when it's that cold still. So you know, we were selling eggs as fast as they were laying them and delivering and getting them ready for pickup and it was just right away. It was they were like Where's the produce? And we're like, it's still cold. You have to wait.

Paul Yeager: You m ight be in southern, might be in extreme Southern Illinois, but it's not that warm. They are growing produce in March.

Talina Ryder: No, it was not not okay. I mean, we were putting up a high tunnel to I mean, we had just got all of our materials for a high tunnel and so well Nathan was not working his off farm job and we were like, okay, let's get that high tunnel up and see how soon we can get the first produce out of it. And our first thing was potatoes. Yeah. And but I mean, we just keep adapting and keep pushing in. 

Next, the Market to Market report.

Paul Yeager: The market played give and take much of the week in price discovery over the impact of dry conditions and overall demand. For the week, December wheat improved 2 cents while the nearby corn contract declined a penny. The soybean complex paid closer attention to the weather forecast. The November soybean contract continued higher, this week by 18 cents. December soybean meal improved $7.50 per ton. December cotton contracted by 9 cents per hundredweight. Over in the dairy parlor, October Class III milk futures rallied again, this time at a $1.21 gain. A mixed week in the livestock sector. October cattle fell 45 cents. October feeders declined $1.68. And the October lean hog contract jumped up $6.18 or nearly 12 percent. In the currency markets, the U.S. Dollar index rose 33 ticks. October crude oil declined $3.20 per barrel. COMEX Gold sold off by $30.70 per ounce. And the Goldman Sachs Commodity Index fell nearly 12 points to finish at 348.20. Joining us now to give us some insight is one of our regular market analysts, Elaine Kub. Elaine, good to see you again.

Kub: Good to be here.

Yeager: Let's start with wheat, Elaine. We talk about price discovery. First you're up, then you're down. Then you're up, then you're down. How much longer does this continue? And is it going to go up or down?

Kub: Well, it's up overall and I think one of the driving forces of that is shortcovering from the funds. You do sort of look at all of these grain contracts and a lot of the ag contracts generally are sort of drifting upwards, that seems to be the general direction. And you think that might be some bullish sentiment but I think it's just that shortcovering and the removal of risk. You mentioned the dry weather, that dry weather is there for wheat also, so you could make a bullish case here in the United States right before hard red winter wheat planting season gets started because of all that dryness, particularly the long-term drought in Colorado. But honestly I don't think that's what it is, I just think it's part of the largest complex, and like I mentioned, the risk removal, people just don't want to be short in this environment when everything else is going up.

Yeager: So if you're $5.50 now on that December contract does that have, are you making a sale yet?

Kub: Well, sure, fine. It's not a terrible price. But I think the motivation for selling wheat right now is more logistical. I think there's better opportunities for storing corn honestly past December when you look at the spreads, particularly in the Chicago contract you mentioned. The spread from December to March is only I think 8.5 cents so you've got better opportunities to put corn in your bins and get rid of the wheat before harvest.

Yeager: Well, corn was actually pulled higher by wheat on Tuesday, but you mentioned some jitteriness in corn. There's concerns in China among the people there at least to one report this week, it's food inflation. It has climbed to its highest in over a decade. Is that pulling this corn market higher?

Kub: I think a lot of the rumors out of China are the idea that they might be moving their supplies around or their stockpiles around. That food inflation is more of a factor for pork prices I think is still lingering from the 2019 African swine fever issue that they had there. But it has been very positive for the U.S. corn market to see export sales going to China. That has been a huge boost to corn and a big fundamental story for soybeans of course but also for corn. We just started a new marketing year here on September 1st and already looking at the new crop commitments, export commitments of corn it's at a record high level. So we have nothing but positive things to say about exports right now and China is the big player there.

Yeager: So the question then becomes, are you selling right now? We've talked about counterseasonality for the last couple of weeks. Are you buying into that? Or has that kind of started to evaporate? Do you sell going into this harvest I guess is my question?

Kub: I think looking at corn sales for the 2020 marketing year you've got to just look at the price. $3.60 futures. If this was February and you knew that you were going to have $3.60 futures going into harvest you would not be complaining too much, that would not be a terrible scenario. And because we still have such ample stocks, such ample supplies, which we're going to see again in next week's WASDE report, the market is going to get a reminder that there is not really a shortage of corn or feed grains globally or certainly in the United States. Because of that it's hard to get real excited about hugely better opportunities and if this is a price where you can make a profit yeah, harvest you tend to dwindle lower so maybe it's not a bad idea.

Yeager: So this is more of a grouping than a bullish trend ahead?

Kub: Yeah, I think the outlook for corn prices I would say is neutral. It's not perhaps urgent to be locking in prices but it's not a terrible idea either.

Yeager: Do you like that March price at all, $3.68 and a half today? Are you selling that at all or are you holding?

Kub: Well, again, there is better carry opportunities in corn than in some of the other markets, so yeah if you've got the opportunity to store it on-farm, capture some of that carry, move into the later marketing seasons into 2021, yeah that's a good way to capture that.

Yeager: Elaine, we know you love basis questions so we made sure that Aaron in Ocheyedan, Iowa sent us one. Here's his question that he gave to us via Twitter. It's asking, what is grain basis going to do once combines roll/ One rule of thought is harvest pressure and farmer's lack of prior selling will really widen things out while another thought is at least here, he's in Northwest Iowa, the drought and derecho yields will keep it tight. What do you think?

Kub: Well, I have been worried about weakening basis throughout the United States as we go into harvest just because we have such sort of oppressive supplies that are likely to come certainly in some areas of the Corn Belt, Indiana for instance they're looking at record high yields, we could have just a lot of corn to handle, you could get into the gut slot of harvest and really have basis weakening. But, all basis is local and I think Aaron's question is really relevant to right there in the center of Iowa right now where it really is that question where you might not have the supplies, you might have a local scenario where the market might really be scrambling for corn and you could start to get a tightening. But I think right now what we're seeing the expectation from the elevators in Central Iowa is more regular sort of basis levels, something right about close to your studio there or maybe even up by Boone or thereabouts, those elevators or 45 under the December for October/November delivery. That's pretty normal and I think it might be a little bit wide, might be a little bit of a reflection of the struggles that the elevators themselves had, the damage they had from the derecho. So I think Aaron is right to point out that it could really go either way. We're going to need to get into harvest to see those effects. But right now my bias would be towards weaker basis or the danger of weaker basis as we get into harvest.

Yeager: Say we get an inch of rain over the weekend or Tuesday, Wednesday. Corn it doesn't really matter. Is it going to save a soybean crop that needs saving in some parts? Or is there enough acres out there, Elaine, on soybeans that are doing okay and a rain is not going to, they don't need it as much?

Kub: Yeah, it depends, it depends where that rain falls. I think some of the soybeans were so dry during August and they probably, the plants were shutting down to a degree where it might be too late. We might certainly be seeing early harvest going on for soybeans and for corn. But at this point you look at the pod filling there is still the chance for some of these soybean fields to continue to pod fill. But my concern going into next week is not necessarily whether or not the areas that need rain get rain, but whether the areas in the northern part of the Corn Belt get frost. I think that was maybe just, not a rumor, it's part of a weather forecast that may or may not happen. But I think that was a motivator to some of the higher prices we saw here on Friday.

Yeager: It's like you were listening into Phil and I having a conversation before we started, we were just talking about that frost if we were to get it here. It wouldn't matter in the dry area but if you've got a good crop you are worried about that. So, I guess I ask you on soybeans, we talk about price discovery, it was up, it was down, there was a huge swing, I think it was 50 cent swing in three trading sessions to start the week and then we move higher at the end. So I guess my question, Elaine, is are we going higher? Are we in a bullish trend?

Kub: I think yeah, we are seeing some higher prices. Apologies for the dog.

Yeager: It's like we're on a Zoom meeting.

Kub: This happens all the time, right? She knows about higher soybean prices. But, we are going higher and I think it's fundamentally based on these export sales that I talked about, record high soybean sales also at this time of year. And we see that and it may or may not be able to continue much higher than where it is right now. But it is based on fundamentals and I mentioned the feed grains, the wheat are in a lot of shortcovering, just removal of risk. But in the soybean market it is fundamental commercial traders covering those export sales, that is what is moving the soybeans higher on the days that you see the double digit higher days and it's also the funds experiencing that story about the exports but also the damage that we received during the dry August and the potential damage that we might receive from this frost. All of these are fundamental stories that are really legitimately pushing that soybean price higher.

Yeager: It's always not what's happening in your back yard but in many other back yards across the key growing area. Good point there, Elaine. Let's move to the livestock complex. In cattle this is usually one of those slow down times where the lots are kind of slowing down, the trade not real active this week, except heading down. Is that a cause of lower volume or is there something else under foot?

Kub: Well, it couldn't have lasted forever. We saw prices where I think cattle owners and cattle feeders were happy when you had $111 live and $150 feeders but it couldn't go up forever and it couldn't last forever and it's pretty typical to get a high put in there in July or August, August in this case, and we have just been moving lower for the past three weeks. It's still not terrible. I don't think that cattle owners should feel terrible. The feeder prices themselves are still slightly higher than they were last year at this time. And everybody is kind of making money. The market fundamentals are still there to keep it from perhaps falling apart. I don't think, for instance, that we'll see live cattle prices fall below $100. We saw cash cattle trade this week at $102 and $103 and hopefully there's just not enough room or willingness from the feedlots to sell much lower than that.

Yeager: You stole one of my questions. I was going to ask you on October 1st are we going to be above or below $100 and you answered that one right there. So feeders we just showed the chart while we were talking. Are we still feeling the effects of that cattle on feed report or is there something else going on?

Kub: Yeah, and you mentioned about the time of the year also is that we're just still about a month out from the big runs through the sale barns, the calf crop just isn't ready yet and we haven't had a chance to really test what the feed yard's appetite is going to be for those calves. When we do test it there have been a few sales here and there, there seems to be good demand, moderate demand for steers. So I think it should be able to maintain this level and not too surprising that it has fallen through the past three weeks.

Yeager: In the hog market, is $60 a reality next week?

Kub: I think very possibly, very possibly. The fundamentals behind that market is, again, it's exports but you're seeing the cutout values, the ribs, the hams, those kinds are really leading big jumps this week. So it wasn't just a fluke, it was a speculative bubble, it was a real price appreciation for pork and for hogs themselves. And I think it is possible for that market to churn a little bit higher, it wouldn't have to get too much higher to hit that $60 level that you mentioned. Yeah, let's aim for it I guess.

Yeager: Well, it's not that far away. I lost it here, $59.83 is where we closed on Friday. So it's without shouting distance at least. I'll close quickly here on the cotton market, Elaine. That is one that has been waving at us and now it looks like it's waving lower. Your best 30 seconds on cotton.

Kub: The chart looks kind of mild, doesn't it, like it's just moving higher along with the rest of the ag commodities. However, I don't think cotton has yet really factored in some of the dryness in the United States, poor conditions, only 44% good to excellent and some of the exports. The export story that has been boosting soybeans and pork, you could make the same story for cotton and the chart has not put it in yet.

Yeager: Elaine, thank you for allowing me to put cotton in right at the end and the rest of the discussion. Thanks, Elaine. That will do it for this installment of Market to Market. We will talk more in Market Plus so you can join us there. Find it on our website of MarketToMarket.org. Now, the entire interview with the Ryder family will be the next M-to-M podcast. You can find it, along with other extended interviews, on our website. Next week, we’ll look at how ranchers are living side-by-side with a returning predator. Until then, thanks for watching and have a great week.

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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.

What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

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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.

 

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