Market to Market (January 1, 2021)

Jan 1, 2021  | 27 min  | Ep4620

Yeager:
Coming up on market to market

Yeager:
Leadership in the house. Agriculture committee looks ahead to the 117th Congress in a year, like few others. What stands out in 2020 and market analysis with Jeff French. Next.

Grantor:
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 tomorrow for over 100 years, we've worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell mutual agent today. This is the Friday, January one edition of market to market the weekly journal of rural America.

Yeager:
Hello, I'm Paul Yeager happy new year as the metaphorical ball drops on 2021, it will be out with the old and in with the new, when the clock strikes 12 on January 3rd, the 116th Congress will be history during the last hours of the session. The house passed another round of stimulus, but as of our taping Thursday afternoon, the call for $2,000 in direct payments was stalled in the Senate. By Wednesday, a new Congress will be sworn in a runoff election for two us Senate seats, which will determine the majority and the electoral college certification process occurs. The margin of majority is the slimmest since the 1940s and could foster cooperation in passing legislation. John Torpy reports on the optimism coming from the new ranking member of a committee, focused on those providing food and fiber.

Torpy:
When the 117th Congress gavels in January 3rd, the house agriculture committee's, new minority ranking member will be in a familiar leadership role. Markets allow hedges with the retirement of representative. Mike Conaway of Texas. The Republican leadership on the house agriculture committee comes from the Keystone state. Everyone, Glenn GT Thompson represents the 15th district of Pennsylvania and will become the ranking minority leader for the committee. Through 2023

Thompson:
Goal for the agriculture committee is, is to restore a robust rural economy. And quite frankly, begin to regrow population-wise rural America because without a robust rural America, every American's going to wake up in the cold, dark and hungry

Torpy:
Congressman Thompson was elected to the us house of representatives in 2008. He served as chair of house ag subcommittees and vice chairman of the full house ag committee in the 115th Congress today.

Thompson:
Certainly my family lineage where we're mostly all dairy farmers, um, uh, has really contributed to my, I think my passion for agriculture. And so, so I understand the pressures and some insurmountable things that farmers come up against. Sometimes

Torpy:
Thompson notes his previous work on farm legislation help set the stage for relief aid during the global pandemic.

Thompson:
Uh, the last farm bill, I actually was the chairman of the subcommittee for nutrition. And so a lot of the things that we had that we fell back on and were able to do for all these boats that were struggling and many continuing to struggling today, a lot of that came out of the 2018 farm bill

Torpy:
Thompson says, his experienced in the house ag committee and a slim majority by the Democrats creates a better space for compromise in 2021 and beyond.

Thompson:
So I'm really looking forward to working with the chairman. Um, he's a statesman, a gentlemen, I've served with him on the committee for, uh, well, this will be our 13th year together. And I think it's interesting. The margins are the smallest margin between parties, such world war two. I think that that just creates great opportunity for us to continue to do what we've always done best in agriculture. And that is to work together for the benefit of, of the American families

Torpy:
For market to market I'm John Torpy

Yeager:
COVID-19 will long be known as the dominant story of 2020. The virus impacted nearly everything in the world, including livelihoods in rural America, those who provide food from gate to plate. It was a real time audible in logistics to handle the changes in supply and demand. Peter Tubbs has our look back at the biggest stories of the 366 days of 2020.

Tubbs:
The COVID-19 virus first emerged from Wuhan China in December, 2019 and was carried to nearly every corner of the globe in the following months, various forms of lockdowns travel bans and restrictions were meant to flatten the curve, but they also slow the global economy still in March Congress and the white house approved billions of dollars in spending both to combat the spread of the virus and assist in treating its victims who required specialized techniques. The New York stock exchange dropped over 30% during a four week fall in February and March. The restaurant industry took an immediate hit that lingered for months after dining rooms went dark and less profitable. Takeout options emerged as curb service became the norm. Americans were now cooking for themselves and the food supply chain tried to adjust in real time. Empty shelves appeared where some food staples were snapped up. In addition to cleaning supplies and toilet paper sales at the meat counter jumped 50% Americans filled their freezers just as packinghouses were forced to slow or stop their lines. As COVID-19 outbreaks ran through slaughterhouses more than 1000 plants reported infections among their employees, many Packers canceled contracts on animals ready for delivery. Independent lockers absorbed some of the surplus, but prices for live cattle drop, even as demand for retail beef skyrocketed

Loy:
Early in the outbreak when restaurants were closing, or we saw run on beef in the grocery stores. And so actually box beef prices increased by a significant percentage. So that gap between what, uh, the, the producers were seeing was tended to follow the futures in terms of their prices and the box beef prices has been historically large.

Tubbs:
That price gap would lead to record profits for beef processes. As the pandemic continued

Paustian:
Just in Iowa, we're, we're estimating that there's about 40,000 pigs per day, and better are not going to market. That should be the reality is it's just a drop in the bucket compared to the magnitude of the backlog that we're generating here.

Tubbs:
Dairy producers were forced to dump milk as processors lowered buying for places like schools that were suddenly closed.

Bauer:
We have sent a notice out to our farmers that we're looking for a 7% drop in milk. By April 15th, we have cranked up our plants to 100% after April 15th. We'll probably have to start dumping some milk.

Tubbs:
Some produce was left in the field as it had no buyer.

Perdue:
I want to be clear the bear store shelves that you may see in some cities in the country are a demand issue, not a supply issue.

Tubbs:
An April congressional relief bill sent $16 billion in direct payments to producers and another $2 billion to buy up excess farm products for food banks. The shift of school locations from buildings to bedrooms prompted districts to provide drive up meals for children who qualify for free and reduced meals that were unintentionally cut off from some of the only food they received during the day 23 million Americans found themselves unemployed, spiking demand at the nation's food banks.

Kreins:
We've been seeing our clientele go up in the past week and our volunteers have been staying home because of the coronavirus

Tubbs:
By August. The economy would need another round of relief spending from Congress, despite trade disruptions ahead of, and in 2020 farm incomes are predicted to grow by 22% from 2019 levels to reach $102 billion. According to data from the consulting firm, agricultural economic insights, direct farm payments will make up 36% of net farm income in 2020 a third wave of COVID-19 infections in the fall spread through the Midwest and rural States areas, which had largely avoided broad infections and deaths. As of late December, North and South Dakota had a COVID fatality rate, similar to New York and New Jersey States, which suffered early in the pandemic. COVID 19 stole momentum from an American economy that was a celebrating as it began the year, and look to improve after the signing of the U S MCA trade agreement in January. After nearly two years of posturing and tit for tat terrify ex the United States and China signed phase one of a trade deal, the trade pack, put a pause on the boiling struggle of issues between the two countries.

He:
Yeah, you may fall. This is a mutually beneficial and win-win agreement. It will bring about stable economic growth, promote world peace and prosperity, and is in the interest of the producers, consumers and investors in both countries that I [inaudible],

Tubbs:
The agreement required, China to purchase $40 billion in American agricultural goods in 2020 and 2021 as the year due to a close China was not on pace to meet their 2020 purchasing goal. Like most years, a weather event left a path of destruction in August, a storm packing triple digit wind speeds laid waste to Iowa's corn crop, the Derechos or straight line windstorm leveled. What was expected to be a record crop with winds topping 100 miles per hour, an estimated 10 million acres were damaged or destroyed in five States, along a 770 mile path.

Naig:
The damage is widespread and the damage is real. I've walked in fields that are absolutely laying flat. I've walked in fields that are half flat and corn is leaning over it's harvest is going to be a great challenge for folks.

Tubbs:
Hurricane season brought 30 total storms with an extraordinary 12 us landfalls during the busiest hurricane season on record combined damages were estimated at over $45 billion while the Southeast was pummeled with hurricane driven rain. The Western half of the country slid deeper into drought. The lack of moisture helped fuel massive wildfires across the West burning over 8 million acres. The political winds shifted against the white house in November, as Joe Biden won the popular vote by 8 million and by 74 electoral votes, the former vice-president selected former USDA secretary Tom Vilsack for another term in the same office in the depart from market to market. I'm Peter Tubbs

Speaker 5:
Next the market to market report.

Yeager:
We are producing this program on Thursday as the final days of 2020 we're anything but calm as corn closed higher. The last 14 Trading days, March wheat gained 14 cents. While the nearby corn contract skyrocketed 33 cents or 7% beans in the teens occurred on Wednesday. As a motion appeared to eclipse fundamentals nearby soybeans jumped 47 cents. March soybean meal went up 1530 per ton, March cotton expanded a dollar 92 per hundred weight in the dairy parlor. January class three milk futures lost 83 cents or 5% a mixed week in the livestock sector. February cattle moved to nickel higher March feeders dropped two Oh seven and the February lean hog contract added three 33 in the currency markets, U S dollar index weakened 32 ticks February crude oil added 12 cents per barrel. Colmex gold gained 1730 per ounce, and the Goldman Sachs commodity index improved nearly three points to finish at four Oh seven. Even now here to provide an insight is one of our regular market analysts, Jeff French, Jeff. Good to see you happy new year to you.

French:
Great to be here, Paul. Thank you.

Yeager:
So about Tuesday, Wednesday, the sentiment with wheat was going to be, what about me? What about me? And then we just takes off on its own. Was that because of a connection with corn and soybeans and the rally that they had had, or is there something else going on in that market?

French:
Well, I think, You know, it was, there was rains forecasted there Tuesday, uh, big rains, well, it looked like it fell on mostly Eastern Kansas, so we broke hard. Um, but it definitely was the third wheel, uh, this week. Uh, wheat did follow corn and beans. I think it was up 13 or 15 cents, uh, on the week benefited from a, uh, a weaker US dollar. uh, the dollars down here at a 32 month low. Uh, but you look at the wheat fundamentals. Uh, we did have some good exports, uh, but did the domestic pipeline right now is, uh, fully supplied. Uh, you know, we looked at wheat, uh, this week and we made some sales up here at five-year highs.

Yeager:
Chicago Goes at six year highs, Kansas city at one point this week, two year highs, Minneapolis has had its own story. Is there one of those contracts that you, you said you'd made sales? Was there one that you, uh, of what's mentioned that you would be making a sale?

French:
Yeah, we like the Chicago one. I mean, the stocks are the lowest there and, uh, uh, we liked that six year high, uh, and that's where we made the sales, but you know, the Kansas city, you know, a lot of interests there and selling that too as well, because, uh, there are some places that are dry. I mean, the wheat went into dormancy at, you know, seven year lows, but there's also some good weed out there. So I think you've got to look at it if it's profitable for you, uh, use the rally, um, get some food sold. If you've got a good basis, if not look at some downside protection at these levels.

Yeager:
When does the weather become the big story in wheat?

French:
You know, It's, you know, always going to be a story, but, you know, if we can get some moisture here in the next month, help it out. Um, and then we get into the, we'll see where that goes right now, but, uh, uh, you know, we'll see what it brings up here in the next couple of months.

Yeager:
You're supposed to have a very calm end of December 14, straight days, going up for corn. You ever seen anything like that?

French:
It's unprecedent, uh, corn, wheat and beans made their highs for the year during the last week of December. It's never happened, uh, in the history, uh, 14 days higher in the corn market. That's the longest winning streak since 1959. So, uh, 2020, it's going out with a bang and it's going to be remembered for many different things. Uh, but it's also going to be remembered in the agricultural market.

Yeager:
Is there one particular storyline that led to that history making event that the trifecta?

French:
Well, I think it's, um, a combination of just the funds getting along. I mean, we were down in the dumps, you know, for four or five months, uh, with the trade war with the virus, but then we saw, you know, China come back and they've been back here for the last two to three months. Um, you know, bringing these prices higher, uh, us dollar lower, that's helping out. Um, but yeah, this is unseasonable, uh, to rally like we have here during the, during harvest and then during the winter. And, uh, we'll see what 21 brings.

Yeager:
All right, so you have two ridiculously hard questions to answer tonight. The first one is this, how much higher does corn go? And the next, let's say the next month.

French:
Oh, we'll see. I mean, it's, it's, it's overbought. Um, there is a gap on the March contract up there at five Oh five. You look at the continuous chart. Uh, we might go and try to fill that also there's, um, some resistance up at the five 22 area. Uh, can we go see there? Uh, we'll have to see the funds are long 350,000 contracts. Uh, that is, you know, if you look at historically that's very high, they've been long 400, 7,000 contracts before back in 2011, so maybe they continue to add to that. Um, but I think, you know, we go in here to a three-day weekend. Uh, you know, we kind of calmed down, we see what Monday brings if we can close higher on Monday new contract highs. I think that would be a very good sign.

Yeager:
We'll talk about Argentina in the corn market and market plus, but let's start with Argentina in the soybean market right now, the strike, uh, in the soybean area, uh, resolution reached on Wednesday, but the market didn't really seem to use that as a factor to slow any rally. Was there something else?

French:
Well, I mean, it's still going to be a week before they get the product out there. Um, but you look at what is going on in the world. I mean, China right now has all time high meal prices, $516 a ton. So they're scrambling. Um, you know, what we got to look at now is the product that we have got purchased from the U S here in the last two weeks because of the, uh, strike down in Argentina, do we see cancellations? Uh, you know, that's going to be on everybody's mind, uh, but products are short. You know, maybe these countries need them. We'll have to see, but, uh, uh, what a good way to fill up, you know, end up on the year there.

Yeager:
in the look back piece that we just said, we talked a lot about the look back. One thing that could have been, could have been in there was this about corn and soybeans, uh, corn in April, it was $3 corn beans in April eight Oh eight. Corn has gone up 55% beans have gone up 61% that's before today. So those numbers are higher. The question on beans, where I got to put your feet to the fire, okay. We ran through 11, we ran through 12th, we got to 13. Do I get to keep saying teens beans in the teens for awhile and which team

French:
I think it's going to be tough. I mean, seasonally, uh, is going to be tough. Now, 1407 is a pure Fibonacci 62% retracement level. So, uh, from the 2012 highs at 1794 to the 2019 lows at seven 90, a bushel, um, 1407 is a 62% retracement. We got the 50% retracement here yesterday at 1290 blew through that. Um, but I think it's going to be uphill. I mean, uh, Brazil going to have beans ready here by the 1st of February. Uh, does China need to secure product for some quick ship beans here in the next two to three weeks? I think that we'll be telling them, or do they wait it out and, you know, wait for the Brazilian beans to be ready because Brazil is still, I mean, it's been dry, but they're still getting some rains. I mean, it's not as dry as it says down in Southern Brazil or Argentina, but most of the private forecasts that are still have the Brazilian crop at a record level, 130, 131 million metric tons. So they will have beans for export, uh, is just if China can wait the next five to six weeks to get those beans that are ready.

Yeager:
All right, we get a lot of Twitter and Facebook questions, also some on Instagram. And this one comes from Mitch and a whole aisle in the Northwest part of the state. He says the soybean corn price ratio has hovered in the two seven to two eight range historically to five is more typical. What's your expectation on this, on both current and new crop, will corn move up to buy acres or can we expect to pull back on beans soon?

French:
So you look at new crop right now, uh, corn $4.30 beans, $11.10, that the ratio was 2.56 to one. Uh, I I'm in the opinion that beans, uh, for 21 need to gain at least six to seven and a half million acres. So I think personally, uh, that ratio goes out to 2.75 to 2.8 to one. So I think beans gain on corn here to secure those acres. Uh, you know, it's my opinion that we're going to plant 90 to 91 million acres of beans. So that would put the new crop bean in that 1120 to maybe 1135 area. Um, you know, that's where I'd probably want to start making some, uh, sales there.

Yeager:
You mentioned acres, and that's the hot topic that we're going to have something to talk about. I guess it's the hot stove league of commodities instead of baseball, uh, in the cotton market specifically, uh, they've been on a run-up pretty much all of 2020, again, continued and extended this week, but are we really, are we going to have as many co uh, cotton acres next year? Does cotton lose out in this, uh, acre discussion of trying to get to 90 and 91 million acres in corn and soybeans?

French:
I, I think, you know, time will tell because, uh, every cotton producer out there is looking at $11, new crop beans and wondering, you know, how many acres do I switch? And cotton will have to rally. I mean, new crop cotton, isn't in the 73, 70 half 73 and a half cent range, I think, to secure and get enough acres in that cotton. I think you need to see that new crop cotton in that 78, maybe 79 cent level, uh, old crop cotton goes to that 78 to 80 cents. I mean, the USDA has, in my opinion, uh, overstated this cotton crop, uh, the production, and also understated the demand we've seen. We've seen the excellent demand added to China here all year on the cotton. So I think cotton, uh, makes a run in that 76, 78 cent range.

Yeager:
Let's switch over to livestock. There's a couple of overlapping stories there, but, uh, in the live cattle market specifically, this has been a big change in fundamentals have been happening here recently in the last month, taxing packing capacity to, uh, we've had some production issues, but we've also had non production issues. Like we thought we have. What's the biggest story in live cattle as we flip the calendar to two 21 for you.

French:
Oh, I think it's going to be continue to be slaughter capacity. I mean, uh, the number one way to kill a livestock markets or have prices really to decline is slow to kill chains. Um, but you know, you look beyond that. Um, we're going to have some numbers to deal with here in the first January and February. I mean, it's, it's, we're going to have some big numbers to get through, but you look beyond that. You look into the first quarter of 20, 21 second quarter. Um, the numbers are going to be pretty tight. I mean, we've had three consecutive months of 88, 89, 90% placements compared to last year. Uh, so those numbers are going to be tight. Also the vaccine, hopefully many Americans have it by mid summer restaurants get opened up and there is plenty of pent up demand. So I, I look for that cattle market, uh, this summer and in April to be pretty good. I could see April in that one 25 and in June up in that one 20 area

Yeager:
On the feeder side, the feeder has a pretty heavy weight on this feed issue. Uh, when you talk corn price, they're going to have to have a pretty sharp pencil to succeed in 21?

French:
Yeah, the feeders are, I mean, it's going to be difficult. Um, you know, th this corn price is definitely going to take a chunk into there. And also, I mean, the feeders are a little bit overpriced here. I mean, you got them up here in this $140, $143 area. We're selling $112 fats here right now. So I think they're a little bit overdone. They they've come a long ways off the lows that we saw three months ago, but you look at August up there at one 50, uh, you know, that probably needs some downside protection there.

Yeager:
This hog market. I can't let you go without asking about this $3 33 cents, a five percent rally. That doesn't make sense?

French:
Two month high, and it's a premium to cash. So the market is telling us, you know, maybe the cash is going to come up here. I mean, it's at quite a premium, but huge exports in the port complex. Um, but also you look at what's in the freezer. I mean, right now we have tenured low supply of pork in the freezer. Uh, the hog numbers, it's the first time in five years that the hog numbers are lower than the previous year, obviously what we went through and the industry here. But, uh, you know, China is it's going to need hogs here for probably in the next two to three years. Uh, you know, I like the June contract in this 83 cent range. If we close below 79 cents that opens the door to lower prices. But, uh, uh, I like the pork complex right now.

Yeager:
All right. Real quick. In 10 seconds, the dollar, does it have much movement lower?

French:
Yes, I think it does. Uh, watch it below 88, then it's going to fall off a cliff down to 83, maybe 82, but, uh, yeah, the dollar looks extremely weak to me.

Yeager:
Alright, Jeff French. Good to see you. Thank you so very much for the insight. Appreciate it. Great to be here. All right. 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 that on our website of market to market.org, the beauty of winter may be hard for some to see, but we do find some images and share them on our Instagram feed. Make following our feed of market to market show as one of your resolutions in 2021. Next week, we'll look at the fight against food insecurity in the new year. Thank you so very much for watching. We'll see you later.

Announcer:
[inaudible] market to market is a production of Iowa, PBS, which is solely responsible for its content.

Grantor:
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 tomorrow for over 100 years, we've 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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