Market to Market (October 16, 2020)

Oct 16, 2020  | 27 min  | Ep4609

Coming up on Market to Market -- As harvest bounty rolls in, so too does the equation of a changing farm income landscape. Honoring the contributions to help combat global hunger. And market analysis with Sue Martin, 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, October 16 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager. The supply and demand chain has been reworked the last seven months as some habits and lifestyles change. --

The Consumer Price Index rose 0.2 percent last month driven by the highest price for used cars since 1969.

The core rate, where food and energy are removed, also rose 0.2 percent.

The measure of inflation before it reaches the consumer increased 0.4 percent last month as the price of food fresh vegetables and meat moved higher.

Americans spent more money on clothing, cars and sporting goods which helped drive retail sales to its fifth straight month of growth.

The Rural Mainstreet Index added to its streak of gains with a three point increase above growth neutral. The Creighton University survey reported bars and restaurants struggling most as commodity price increases countered losses. ---

As farmers make their way through their fields, candidates are making their cases for elected office. Usually, a reelection theme center’s on “are you better off than you were four years ago?”

One answer to that question includes how farm incomes are changing.

John Torpy has more.

Data from USDA’s Economic Research Service is forecasting net farm income to rise in 2020.

Despite trade disruptions and economic upheaval due to the coronavirus pandemic, farm incomes are predicted to grow by 22 percent from 2019 levels to reach $102.7 billion.

Dr. Todd Kuethe, Purdue University: ”This isn't like the income statement for a single farm. It's not like accounting. It's more like GDP. So it's a big measure of what is the value that the farm sector is providing to the economy. ” 

According to data from the consulting firm Agricultural Economic Insights, direct farm payments will make up 36 percent of net farm income in 2020. Even as the USDA numbers march upward, overall, income levels are down when compared to the highs of almost a decade earlier. In 2013, farm income totals rang the bell at just over $137 billion when a drought was gripping more than 30 percent of the lower 48 states.

Kuethe says, data collected from this year’s harvest will make its way into income forecasts further down the road. He also stresses the next set of calculations will include the Midwest Derecho, western wildfires and a looming drought. While farm income is predicted to rise, cash receipts for all commodities in 2020 are predicted to slide just over three percent to $358.3 billion. 

Dr. Todd Kuethe, Purdue University: “For example, the next one that's coming out is in December, on December 2nd, if we have a huge trade event or a huge weather event on the last couple of days after Thanksgiving, that won't show up yet into that forecast, because it hasn't shown up into the data that the USDA collects.” 

Reports next year also will include data from MFP payments issued to offset the trade war along with PPP and CFAP financial relief dispersed due to the COVID-19 pandemic. 

Kuethe says the tools used by the USDA tend to run on a conservative slope, leaving room for some good news for agriculture in 2020.

Dr. Todd Kuethe, Purdue University: “From February to September, the forecast for the U.S. improved by about five percent. Um, so it's gotten increasingly optimistic. So they're, they're showing a turn in expected farm income. So, uh, for example, um, with, with cash income, they're expecting it now to be 22 percent above what it was in 2019. So it's quite a rebound, um, but even more importantly, it's a 5 percent increase from what they expected in February.”

For Market to Market, I’m John Torpy

Friday marks the 75th anniversary of the United Nations World Food Day.

Since 1987, an event in Des Moines, Iowa coincides with the commemoration of the day known as the World Food Prize.

Gone is the pageantry surrounding the awarding of the honor, but not lost is the impact this year’s winner has on combating hunger.

Peter Tubbs reports in our Cover Story.

For Dr. Norman Borlaug, the struggle to feed a growing global population was a lifetime challenge.  Dr. Borlaug’s work in hybridizing rice and wheat that would produce in difficult conditions earned him the 1970 Nobel Peace Prize. He was lauded for saving more human lives than any other person who has ever lived. 

Dr. Borlaug helped establish the World Food Prize in 1986, and each year the award recognizes work that increases the production of food around the globe. The last 100 years has seen the greatest increase in food production since the beginning of agriculture, and has helped to propel the growth of the human population. 

But an increasing population demands a larger and higher quality diet, which places a growing burden on the world’s agricultural acres. The activities of billions of humans also increases the amount of carbon in the atmosphere which, according to climate scientists, is changing climates, adding difficulty to maintaining the yields of the world’s farms. 

The discovery that soils can be a solution to both of those challenges has earned  the World Food Prize for Dr. Rattan Lal of Ohio State University.

A refugee from Pakistan as a child, the family of Dr. Lal had 1.5 acres of ground to sustain themselves near Delhi, India. That soil fascinated young Dr. Lal. After achieving academic success in India, Dr. Lal began graduate work at Ohio State University. After graduation, Dr. Lal was recruited to establish a soil science institute in Nigeria. His focus was on soil erosion and degradation, which is a common problem for small stakeholder farmers globally. A lack of soil carbon and organic matter limited production in harsh climates, and common agricultural practices also depleted soils. 

Lal’s experiments and research into increasing organic matter in soils led to techniques that reduced soil erosion through no-till, cover cropping and mulching while also increasing yields. Scientists from around the world frequently traveled to his institute in Nigeria to learn the new techniques first hand.

Dr. Lal began researching at Ohio State University in 1987. His work determined that restoring degraded soils through increasing soil carbon and organic matter improved soil health and also counteracts rising carbon dioxide levels by sequestering atmospheric carbon. The publication of his work in 2004 garnered international attention. The idea that climate change could be slowed through soil management changed the view of soil. 

Dr. Lal established the Carbon Management and Sequestration Center at Ohio State University in 2000. The Center studies the interaction of the atmosphere with soil. Dr. Lal has become one of the world’s most prolific soil scientists, with over 100,000 citations of his work.  

Dr. Rattan lal, Ohio State University: “I strongly believe that health of soil, plants, animals. People and ecosystems is one indivisible. 

Lal’s research confirms that growing crops from healthy soils produces more from less- more food from fewer acres, requiring fewer chemicals, less tillage, less water, and less energy. Reducing atmospheric carbon dioxide levels with better soil management techniques provides a path to slowing the effects of climate change. A career of soil research, resulting in soil management discoveries that improve the human condition, has earned Dr. lal the 2020 World Food Prize.

Dr. Rattan Lal, Ohio State University: “While the Green Revolution of the 1960’s were a great success, the soil approach ensures the long-term sustainability of agricultural systems, reconciling the need for increasing food production with the necessity of improving the environment. The specific focus is on the restoration of soil health, and the quality of water and air. Two billion people are malnourished due to a lack of micronutrients and a deficiency of protein. The current increases in global temperatures may reduce the economic yield of food crops, increase demand for irrigation water and other inputs, and accelerated risks of soil degradation through increases in environmental intensity and aridity. The 2020 Food Prize to me is a recognition of the importance of protecting the health of the finite and fragile soil resources through sequestration of soil organic carbon by adoption of soil conservation over the years. 

There is a strong need for a paradigm shift towards making agriculture practice part of the solution, and empowering farmer and land managers to produce more and more from less and less, by reducing waste, enhancing eco efficiency, restoring degraded soils, restoring denuded lands, and saving soil and water for nature. 

“The importance of soil, plant, animal, human and environment has nexus, and can never be over emphasised. It’s not a question of either/or. We must have both. It is critical to minimize out dependence on agrichemicals. As Mahatma Gandhi advised, “To forget how to dig the earth and tend the soil, is to forget ourselves.” It is essential to adopt the concept of eco intensification of agricultural systems, to produce more from less: less land, less agrochemicals, less tillage, less irrigation water, and less energy use, so we can save resources for nature.” 

Next, the Market to Market report.

The big three commodities reached closes that were significantly higher at some point during the week as different stories involving China and Brazil weighed on the trade. For the week, December wheat increased 31 cents while the nearby corn contract gained 7 cents. A big selloff on Monday pushed the soybean complex into catch up mode the rest of the week. The November soybean contract lost 16 cents. December soybean meal increased $3.80 per ton. December cotton expanded $2.28 per hundredweight. Over in the dairy parlor, November Class III milk futures improved $1.18. A mixed week in the livestock sector. December cattle shed $3.97. November feeders dropped 50 cents. And the December lean hog contract moved higher by $2.67. In the currency markets, the U.S. Dollar index gained 60 ticks. November crude oil expanded 34 cents per barrel. COMEX Gold fell $27.50 per ounce. And the Goldman Sachs Commodity Index declined 2 points to finish at 360.50.

Yeager:  Joining us now to give us some insight is regular market analyst, Sue Martin. Hello, Sue.

Martin: Hi there.

Yeager: While I was reading that, the word volatility came into my head. Volatility is probably the biggest word of this week and maybe all of 2020. But why has volatility come back into wheat? We look at China buying corn, maybe that is pulling it up, or soybeans have been doing well. IS it volatility that is moving wheat or is it it's just so dry in Russia or something else?

Martin: That's it, Russia is extremely dry and continues to miss rains, Ukraine catching some in the western portion of the country. But again, they're not totally up to speed either in wheat production. And then you have Australia who is coming back from three years of drought and the western side of the country is a little on the dry side but the rest of it is coming back. But their stocks were getting so low that they need, their domestic demand is quite large. So we don't hear a lot about Australia. And then you look at U.S. wheat and our hard red winter wheat, extremely dry. And so the combination of all of this and I think when you look at the quarterly stocks report we've seen global supplies of rice fall, corn and now wheat kind of bordering the thought that it might. Feed grains were down. So you've got 3 out of 4 that are down and the 4th one is the last domino to fall and you've got a good bull market.

Yeager: So the feed is one comment about that. But the fundamentals just don't seem to jive with the market at times. But I guess the question is, you just mentioned maybe the fundamentals aren't necessarily right. So is the wheat bull train leaving the station right now?

Martin: I think wheat's bull train left the station and is working on it. We're still a ways away from a wave 4 objective. KC wheat on Friday did meet a wave 3 count. And so many markets this year are doing wave 4's. We've seen rice do a wave 4 and have an outside range year, lower low, higher high. We've seen lumber and we've seen silver and sugar, all of those have had lower lows, higher highs for the year and then meet wave 4's on the top side.

Yeager: So are you making any sales right now in wheat?

Martin: No.

Yeager: You're holding. How much longer?

Martin: I would probably hold off until we get more into the winter, February, maybe March. I would be more interested then.

Yeager: Let's get to corn. China buying corn or at least the discussion that they are, is that really the big story here?

Martin: Oh, I think corn is - now there is the market where the train is starting to leave the station.

Yeager: So hop on board?

Martin: We should have probably already have been there. But December corn reached a wave 3 on Friday at, well it came within 2 cents, got to $4.09, $4.11 is the wave 3. And a wave 4 is substantially higher. Now, we're still technically in this sideways range. But here's the deal, in Brazil at the Port of Santos the premium being offered for corn was $2 over the board of December futures. That speaks to how tight the supply of corn is in Brazil. There is talk this week that China may have to import 20 million metric tons of corn. They have already showed up again this week buying corn, we've seen one cargo out of the Gulf that is labeled as heading to China with DDGs and then we don't hear much more about it. We expect China to be coming back in also for ethanol. Chinese corn prices reached $9.70 this week, an all-time record high. And China's poultry production expanded 18% in 2019, it's up another 8% thus far this year and in 2021 those numbers are going to hold. Then you have the endeavor they say by the end of 2021 that they expect their pork production to be back up to par. That being the case, are they going to step back in poultry production? No. They're going to keep it where it's at. But it's not just China, you have Vietnam, you have South Korea, Taiwan, the Philippines, that whole area is really in need of pork and of course proteins.

Yeager: And something to feed those animals that are being there. So I need to get to a question before you answer that because I don't know if this plays at all here. Bradley in Upland, Nebraska is asking, what happened to the carry in the corn market? It seems to have disappeared. Is that tied at all to what you're talking about?

Martin: Yes, the demand for corn is so strong up front, farmers are storing their corn out of the field this year for the majority of it, there's some moving but not an awful lot. And I think you have your end users worried, especially the processing plants like ethanol plants. Just in Central Iowa, Grand Junction I think it was, you had basically corn 4 cents over the board at $4.12 on Friday. You had other areas, Valero out of Fort Dodge 4 cents under. They're worried that this corn is going in the bins and once it does and it gets there the farmer is going to hang on tight.

Yeager: So how long are you holding?

Martin: Well, here's the kicker. The corn, I always thought December corn would take out the January high, which was $4.04 and three-quarters. In the last 50 years there's only been 4 years that that did not happen, so the odds were pretty big. But here's the kicker. Okay, wave 4, but you also have started to push through various trendlines on long-term data. And on corn when we start looking at pushing this, the contract high for this year's December corn is $4.23. FOB basis out of the Pacific Northwest is 95% booked already through the end of the year, Brazil's planting on beans running way behind, Mato Grosso, the largest producing state or province in Brazil is already maybe 11% planted, a year ago they were 47% planted. And then as a country Ag Rural today came out with their data and said as of October 15th, Thursday, that Brazil was 7.9% planted compared to 21.4% last year and 21.3% for the five year average. the later that crop gets planted the more concerning it is because then the safrinha corn, the corn that follows those beans coming out, doesn't get in as early.

Yeager: It becomes a domino effect. And how is that affecting U.S. soybeans right now?

Martin: Well, U.S. soybeans have been very good. Now, we've done a wave 4 on the November contract in the weekly chart, this year's November contract. However, and we're kind of staggering and I've always thought November beans were following the year of 1980 and I always thought corn was following the year of 2010 and they both are. But the year of 1980 we stuck a low in on September 29th after having made higher highs, contract highs, and then we took off and moved on into October. In the last 50 years there has been 8 years in which we've had the same situation and 6 of those years marked new contract highs and fell back but hose lows, those secondary lows, were in by the 14th of October. Well, who knows when you've got a weekly wave 4 going, the market is chattering here. But here's the other thing, the market I think on the soybeans when you look at Brazil and you're looking at how premiums are, their supplies are extremely tight in corn, their bean exports are next to nil, their supplies are sold out, I've talked about the Great Grain Robbery and I'm very convinced that we have that and you've got it going here but this time around it's a whole new spin, it's in Brazil as well. And you have weather situations there where they're drier than normal, you've got the U.S. ending the growing season and harvest season drier than normal. So we're going into the next growing season and if China sees, they may be front end loaded, I think China needs every bit of what they're taking. But when they go into the turn of the year, if it continues to not be as wet as what the rainy season normally is for Brazil and they know we're dry, they're not going to let go of any crop, they're going to keep buying.

Yeager: I've got to get you pinned down real quick on soybeans because do you think that -- is there a reason to hold on for this thing to go higher given what you just said?

Martin: I think there is. I continue to feel that we're going higher into the election.

Yeager: I’ve got to get to livestock because that too has cattle this week down $4, the consumer into that market, but also the feeder that is coming, there's a whole lot of factors. What do you see as the biggest factor right now in cattle?

Martin: Well, you've got a couple of things. One is exports yeah, overall for the year they're up a little bit, but lately they have dropped back, weekly export sales were down 31%, we only shipped out 1% better than the 4-week average. You've got the product getting a little bit ahead of itself. Usually the last two weeks of October are better. This time around I think feeders, first of all, started the lead down. If we can get through this phase and start to stabilize we should then start to try to see something better going forward. But we're seeing imports of beef come up substantially and that is something we just don't need especially when you have carcass weights higher. And are we backed up on numbers? I'm not so sure about that. I think the restaurants, that is the other thing that's start to hurt us a little bit here is that the restaurants major, the old saying was as goes the stock market so goes the beef market or cattle market, but this time around there's a little different spin.

Yeager: This year you can throw all those phrases out, nothing seems to make sense.

Martin: I do think next year is going to be better.

Yeager: So for feeders or cattle or both?

Martin: Both.

Yeager: Okay. So what do you see in feeders moving ahead here in the next month?

Martin: Well, that market is still struggling pretty hard. The price of corn is not going to help it. But in the meantime I think that as we move forward to the turn of the year, I think we're going to strike some lows in here, get cheap enough and then try to catch a turn in this market and maybe conversely right about that time catch a little correction in the corn. But then we try to move up, traditionally January is a high and then you turn down, I believe April is going to be much better this coming year than what we were this year.

Yeager: April was tough, it was also tough in the hog market. Do you buy that theory of people leaving the hog market, going to the cattle market, sell a hog, buy a cow instead?

Martin: Well there's another thing I wanted to make a comment is, the concern over this election and the volatility that could erupt from it has got traders, even feedlots, booking their cattle ahead and hedging. It also is creating, because clearing firms, or let's put it this way exchanges have already told clearing firms that they're going to raise margins on many markets, especially S&P, the dollar, stuff like that, silver and gold. But they're going to probably do it in other markets too. And because of that managed money as margins go up they have a ratio they have to follow, they're starting to settle down and you're seeing long liquidation in the cattle market at this time.

Yeager: You get 5 seconds. Are we done with hogs going higher?

Martin: No.

Yeager: We'll keep going with that. Sue Martin, thank you so much. That will do it for this installment of Market to Market. We will talk more in Market Plus, you know we're going to talk volatility and hogs and other things. Join us there.  You can find it on our website of MarkettoMarket.org. The harvest pictures have been outstanding to see on our Instagram Feed. We may share some of yours, especially if you tag us with our handle of MarkettoMarketShow. You can also give us follow if you’re not doing so already. Why aren't you following us? Next week, we’ll learn more about monumental impacts on western stakeholders. 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.  

(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.

 

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