Market to Market (January 8, 2021)

Jan 8, 2021  | 27 min  | Ep4621

Coming up on Market to Market -- The new year could bring changes to trade policy with China. Despite a change in the calendar, food insecurity remains. And market analysis with Dan Hueber, 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, January 8 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

The day scheduled to certify the 2020 presidential election may end up being remembered for the other activities that took place inside the U.S. Capitol building when both the House and Senate went into lockdown when protesters made their way into the building.

Other government agencies remained at work this week and churned out some economic temperature readings.

The unemployment rate remained steady at 6.7 percent - the first time the mark hasn’t fallen since April.

For the first time in 7 months, nonfarm payrolls fell by 140,000.

Purdue University’s CME Barometer gained 7 points in December as farmers’ perception of the current situation on their operations improved.

Creighton University’s Business Conditions Index declined for the second-straight month, but did stay above growth neutral.

The trade deficit climbed to the highest monthly gap in 14 years as more goods came into the U.S. than left for other ports of call.

Despite an ongoing trade war, the trade deficit with China is smaller than it was at this time in 2019. The Trump Administration’s policy with China has featured tariffs. Now comes the question of what are the plans being made by the incoming team.

Josh Buettner takes a look.

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Critics charge the Trump Administration has “no strategy” to its China trade policy, but last month President-Elect Joe Biden signaled he would not immediately scrap the Phase One Deal with America’s largest trading partner, favoring a full review while targeting Beijing’s “abusive” practices.

But some claim the outgoing President’s team may have dealt Biden’s trade representatives a strong hand to play in ongoing negotiations.  The Wall Street Journal reports while tariffs between both nations remain elevated, agricultural trade with China increased last year.  And though woefully off-target from China’s pledge to purchase $200 billion in overall U.S. goods by the end of 2021, financial pundits say Trump showed a China trade crackdown doesn’t have to result in catastrophic economic fallout.

On the campaign trail, Biden charged Trump’s trade wars have hurt American farmers.  In the coming weeks, trade deals like Phase One and USMCA will undergo scrutiny as power changes hands in Washington.  Biden is expected to pursue a multi-lateral rebuild of U.S. leverage abroad by mending fences with traditional allies in Europe and Asia.

After taking office in 2017, President Trump pulled the U.S. out of the Trans-Pacific Partnership, the massive trade agreement negotiated by the Obama administration and 11 other nations to check Chinese influence in the Pacific Rim. TPP was never ratified by the U.S. Congress.  

China picked up the pieces and signed the world’s largest trade deal last November.  The Regional Comprehensive Economic Partnership includes 14 Asia-Pacific countries and excludes the United States.  Some trade groups see potential for an American pivot back to Asia reminiscent of Obama-era foreign policy aspirations. 

Biden’s plan hinges on bolstering domestic industry through massive investment in energy and technology.  While the new slim Senate Democrat majority could add weight, some hope a dash of bipartisan consensus - born from fallout over civil unrest in D.C. this week – will tip the scales. 

For Market to Market, I’m Josh Buettner.

USDA recently announced a fifth round of food purchases that will be distributed through the Farmer to Families Food Box Program.

The assistance will find its way into the hands that have been trying to solve an issue that’s been around a long time: food insecurity.

John Torpy reports in our Cover Story.

Food Assistance Client, Odessa, Texas: ” My husband got laid off last year in August and it took me a while to find a job. And even when I found one it wasn’t enough”

With the passage of the second Coronavirus Relief Act, billions of dollars are headed to help feed the hungry.

Michelle Book, CEO, Food Bank of Iowa: ”As we look at our distribution, um, in the fall months leading up to Thanksgiving, we've experienced a 30 percent increase in our distribution and that's pounds of food distributed.”

At places like the Food Bank of Iowa, those distributing supplies have become front line workers in the battle against economic hardship brought on by COVID-19.

Michelle Book, CEO, Food Bank of Iowa:” A year ago, we were distributing about a million, million and a half pounds of food a month. Um, today two to two and a half million pounds per month, a year ago, 30 percent of the food that we distributed was USDA commodity food. Today, it's a bigger number of pounds distributed. And 60 percent of that is USDA commodity food.”

Book relies on a number of USDA programs to help feed needy families around the Hawkeye state. At the onset of the coronavirus pandemic, food programs like The Emergency Food Assistance Program, or TEFAP, received additional funding which is helping private agencies feed the ever increasing number of food insecure families.

Michelle Book, CEO, Food Bank of Iowa: ”But that money is gone now. And there are more people living in poverty, more people that are poor right now. And there are more people living in poverty, more people that are poor right now paying their bills, meeting essential personal expenses is their priorities. So we do see coming into December, um, much more increased need for food assistance for those families.”

According to officials at the West Texas Food Bank, the number of people requesting food assistance in the western part of the Lone Star State is double what it was at this time last year.

Libby Campbell, Executive Director, West Texas Food Bank: ”… and this is where we've been since we've been hanging at about 1.2 to 1.3 million pounds of food a month./ So we served in October 14,006 households. Last October, we served 7,223 households.”

Just like her counterpart in Iowa, Campbell has come to rely on USDA programs like TEFAP to help her fill the gap for her clients.

Libby Campbell, Executive Director, West Texas Food Bank: …we serve 19 counties, which is equivalent to about 34,000 square miles of West Texas.

Campbell is conscious of how federal funding is one of the key resources that allows her to refill the increased number of empty kitchen cabinets. Without the recent infusion of federal funds, her supply chain would have been severely impacted. Even with the second round of assistance, Campbell notes resources won’t show up at the drop of a hat.

Libby Campbell, Executive Director, West Texas Food Bank: “So we are still going to see a food cliff. We're still gonna have to figure out what to do for January, February, and March until some of this stuff does start rolling in.”
To keep the food assistance supply chain moving at the federal level, food bank officials agree having experience at the top is key.

Representative David Scott, a Democrat from Georgia, has served on the House Agriculture Committee since 2003 and was sworn in as chairman earlier this week. Scott says the best way for the committee to help those who are food insecure is to listen to those who are directly helping the communities in need.

Rep. David Scott, D – Georgia: “They have to be brought in immediately and quickly to be able to tell us how we can make sure that we made sure that there is nobody in our country going hungry, let alone our children.”

Representative Glen Thompson of Pennsylvania, the newly elected Ranking Member of the House Agriculture Committee, points out that provisions in the Farm Bill have helped both farmers and food assistance recipients.

Rep. Glenn Thompson, R – Pennsylvania:
“You know, the program that we really set up to allow the purchase of excess agriculture commodities that farmers had. And with the disruption of the food supply chain, there were a lot of commodities there, unfortunately, were going to go to waste.”

An unintended consequence of COVID-19 school closings was the accidental cutoff of meals that some students rely on each day. However, a provision in the food assistance section of the first Coronavirus Relief package allows school administrators to provide meals to any child even if that child doesn’t attend the school providing the food.

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Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: “We’re so glad the USDA did extend that waiver…”

Jessy Sadler, Director of Nutrition Services for the Urbandale Community School District in Urbandale, Iowa, has seen meal distribution increase from thousands of meals, to tens of thousands meals.

Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: “So we took advantage of every waiver extension out there. So we did a lot of take and bake kind of meals. So all the entrees were frozen for the most part or shelf stable and then produce whether it's whole instead of slicing it or cupping it. And if it's canned, um, a lot of applesauce cups, a lot of whole fresh fruit, just for the sense of, okay, what's easiest, more convenient as well as efficient for our staffing to put together.”

Sadler notes one positive outcome has been the ability for her staff to increase the variety of what’s provided in each meal.

Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: ”The good thing that came out of it is we were awarded $14,000 and Cares Act money in regards to, uh, procuring local food. So we were able to get a lot of produce, a lot of, um, dairy items, cottage, cheese, eggs, um, yogurt. So we did a lot of that and we were able to provide it for families.”

With the global pandemic not slowing down in 2021, Sadler plans to continue using whatever tools are available to help those in need.

Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: ”Our goal is to feed every single student, every single child in the Urbandale community.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

Grain traders had an epiphany of sorts this week as 2021 picked up where the old year left off. Continued drier weather in South America was paired with the release of private estimates just ahead of a stack of USDA reports. March wheat lost 2 cents while the nearby corn contract added 12 cents. There was more investment in the soy complex, even as China cancelled some of its sales. Nearby soybeans jumped 64 cents.  March soybean meal went up $10.20 per ton. March cotton expanded $1.65 per hundredweight. In the dairy parlor, February Class III milk futures skyrocketed $2.18 or 13 percent. A down week in the livestock sector. February cattle lost 55 cents. March feeders dropped $3.43. And the February lean hog contract declined $1.58. In the currency markets, the U.S. Dollar index improved 13 ticks. February crude oil added $3.81 per barrel. COMEX Gold lost $54.90 per ounce. And the Goldman Sachs Commodity Index improved more than 19 points to finish at 426.05.

Yeager:  Now here to provide insight is one of our regular market analysts, Dan Hueber. Dan, good to see you.

Hueber: Good to be here. Thank you.

Yeager: I caught your attention with the word epiphany. We'll get to that in a moment. But it was something you wrote last week that I talked about last week and it kind of continued into this week and that was the wheat market and how it kind of seemed to be left out of the big rally. It had a run up, but then this week falls back down. It did turn negative 2 cents, but it didn't rally 64 cents like soybeans did. Why?

Hueber: When you look just at the sheer fundamentals of wheat compared to corn or soybeans, not to mention the demand situation, there's not an issue really at this point. When you look at the global stocks of wheat, you look at domestic stocks of wheat, there is nothing that is going to really push prices that much higher unless you continue to elevate them along with corn and beans. So, certainly there will become a price point where corn becomes too expensive or maybe soybean meal becomes too expensive, you'll feed a bit more wheat, we're maybe kind of at the border of that. But the availability of wheat should be good. The winter, the acreage is probably not going to improve significantly or grow significantly over last year if any. But that said, Russia, Ukraine have had some issues but still looks like a pretty good crop. Australia looks great. Argentina is just into wheat harvest. So we don't have to worry about where the next bushel of wheat is going to come from.

Yeager: We have good stocks. So losing acres might become a bullish story, or at least a necessary story that was needed for a while. So, when you start to see a tick downward is it time to pull a sale right now in any of the wheat markets?

Hueber: I think particularly if we're looking out at the new crop at this point in time if you're getting geared up, you think your wheat looks pretty good, you're certainly over the $6 mark so it's hard to argue with booking in that kind of revenue. Maybe you don't go 100% because, again, we don't know what is going to happen when it comes to spring planting. There is certainly going to be a battle for acreage as we come into the spring. But I don't think you're probably going to lose that many acres of wheat here moving forward from what we've done already.

Yeager: The big battle will be between corn and soybean acres, seeing where they can grab extra ground whether it's cotton or wheat.

Hueber: I think you throw cotton into that mix as well. You've seen the cotton market of course accelerate along with corn and beans knowing that as we get into the spring we're going to see who puts the best dollars out there to get the acreage out there this year.

Yeager: But the cotton price though, as you said, has been going up. Is it going to continue that trend, especially after Tuesday, if it would on prospective plantings lose or an acreage discussion lose acres, would it send this market even higher?

Hueber: Well, if we lose some more production possibly so. And I think that is the next here is do we see China really step up their buying of cotton. They have been a pretty consistent buyer for the last six months to begin with. So will that continue on? And if that is the case we're going to have to have cotton at least maintain the acreage we had last year which might be a difficult challenge against beans.

Yeager: Which one looks to have a better '21, corn or soybeans right now?

Hueber: I would say it's somewhat of a tossup. Yes, I think right now your corn/bean ration, it's a little bit favoring beans as compared to where we were a year ago at this time. So you would tend to think that we could start attracting a few more bean acres out there. But the big, as it has been for years now, the 800 pound gorilla in the room is China. How much demand is out there? We know they have been a substantial buyer of beans now over the last six, seven months. But on the same token, I really should say since August when they really started coming back into the bean market, but there's a lot of discussion that they could, with that expanding hog herd over there, could be substantial buyers of corn as we move into next year. So I think we've got a bit of a tossup here as we move into the end of March.

Yeager: Is China buying corn one of the biggest surprise of late '20 to you in this?

Hueber: I think it surprised everybody a little bit that they came this quickly back into the corn market. But if you can believe the numbers they have published as to how they have rebuilt that hog herd I guess it shouldn't be shocking. They are supposedly back to 90% of the pre-African swine fever production levels, which is just phenomenal that they could expand that fast. I think I read a week or two ago there was one single operation, I think it's a -- pork company was going to have one farm, 89,000 sows and basically put that together within a year, which is astounding really.

Yeager: And that is going to be a story that we hear moving forward that will impact the hog market. Well get to that in a moment. With corn specifically, there was a little bit of a bearish story on ethanol, one of the longest ethanol plants in the United States announced it was done. It has become a tough margin for the ethanol producer. Does ethanol become a loser here for the near-term?

Hueber: Well, it certainly doesn't have the kind of story it did throughout the 2000s and the 2010s. Crude oil of course is going to have a major play within that. And we've actually seen the crude oil market really recuperate pretty well particularly from the disaster lows that we saw back in the spring. Saudi Arabia this week agreed to cut back on their production a little bit further so that really helped stimulate that market. So that, if anything that could help restore some of the profitability to the ethanol market if we could get that raw price up there a little bit stronger than where it stands here today.

Yeager: We finished Friday below $5. How much above $5 looks to be on that corn number and how long?

Hueber: I guess Uncle Sam will give us a lot of help on determining that come Tuesday. I'd say picking highs I guess could be somewhat of a fool's game. I don't think we push dramatically above $5 at this point, not that we couldn't get into the teens. But really when you look at the corn situation even if the USDA drops us down to a 1.7 carryout, which was being discussed for the report next Tuesday, it's certainly not a panic situation with the corn market. It's a dramatic change from where we were, and of course we went back a year ago and you probably wouldn't have had people talking about 3 billion bushel carryouts in the corn market. So very justifiable why we are at the $5 level for the first time since 2014. But really extended through here, particularly after a market that has really been rallying straight higher, very few corrections since the beginning of August, it's difficult to think we're going to get something bullish enough to really extend that move from here. So it's probably, if it's going to happen it's going to have to come with a little more surprise buying from China.

Yeager: I have a question that came via Twitter. When is it time to start selling new crop beans? Have the South American weather patterns been the largest driving force or not?

Hueber: I think they have been the, I would say dominant, but possibly equal to the Chinese demand. The combination of the two have certainly, if one kind of slacks up a little bit, until this morning we finally had a sale, an outright sale to China on the overnight. But they have been in and out of the market. Those are very shrewd traders. They know time to back away if things get a little bit heated. But when they backed away this year then you had South American weather kind of pick up the slack. So I think the combination of the two have really driven us to where we are. When you look at that new price your $11.60 futures range, that's easily $11 beans for a lot of people walking out of the field. Boy, if you as an individual are thinking about increasing your acreage I would certainly look at locking that in. Tempering it a little bit between here and the end of March when we get the acreage numbers and maybe you could say into spring it's difficult to really imagine prices coming apart, that we won't have several opportunities to make sales in these ranges. That said, I don't think when we have all of this bullishness going on we tend to forget that unusual things happen. A year ago today did anybody predict what was going to happen in the year 2020?

Yeager: Let alone the last six months. Since July has even been a major story. I need to ask you real quickly in soybeans here, you talk about an epiphany. At what moment is the realization that maybe the good times are over and we have got to head to the exits?

Hueber: Again, you probably can't really come apart just in the respect that we can't do anything at this point to encourage demand at least until we have a better handle on what is really going to be harvested in South America. Granted, we started seeing some bean harvest a week ago. By mid-January we'll see that pick up and some of those early beans are probably going to be some of the worst beans in Brazil, but it is going to be available supply. So psychologically that is on the market. One other key element in there that I think we have to keep in the back of our mind is throughout most of the last year we've had a declining dollar making our prices more competitive around the global stage. The dollar itself is reaching the levels that we have supported at a number of times in the past so we may not have that extra bonus that is keeping us competitive in the world market.

Yeager: I've got to get real quick in the livestock market because the cattle had a retracement this week, a 38% correction and then the technical, those that watch the technicals seemed to jump back in at exact moment. There's a lot of pressure on that livestock market right now. When does that end?

Hueber: It's not the time of the year to see a big move in the livestock market so I think really starting we need to get out towards better weather before you see that recuperate. Now granted, any time you start pushing these dollars back out into the hands of the public with the most recent stimulus bill that is always going to be a slight positive or some kind of a boost for what could be on the sales of meat products and things of that nature. But I think yeah, in the cattle market you probably start to have to look at spring or summer before you see anything better than what we've had.

Yeager: And then the feeders it's going to continue to have that pressure on the feed price, right?

Hueber: Absolutely, as long as corn prices stay like this that's going to be a weight hanging on top of that feeder market.

Yeager: So again hold out for a little bit longer if you can?

Hueber: I guess I wouldn't be in any kind of a panic mode. But on the same token we have pushed up to areas that for the last 12 months have stopped the cattle market, have stopped the feeder market. I think if you see returns to those levels certainly it's worth taking advantage of and locking that in.

Yeager: In the hog market we talk about China. How much longer before that impacts U.S. production and U.S. sales?

Hueber: Well, I think a few weeks ago you probably already had a lot of people thinking with the rate they're expanding in China we’re not going to see them remain as a substantial buyer. Then they surprised us a week ago with some pretty massive purchases on the weekly numbers. We're pretty much absent this last week though. So I would tend to say seasonally we tend to move prices higher into the spring and summer. But looking out into those spring and summer prices, any time you're in that 83 to 85 cent range on summer hogs that has been traditionally a pretty good price and has capped rallies outside of the most exceptional years or two years ago when we really started seeing the panic of the African swine fever. So here again we might have priced a lot of that in already into the summer months and then if we see China back away it might be tough to sustain those numbers.

Yeager: Dan Hueber, good to see you.

Hueber: Pleasure to be here, thank you.

Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus. We're going to talk about dairy this time so join us there, you can find it on our website of MarketToMarket.org. Now, whether it is winter, spring, summer or fall all you have to do is follow our feed and we'll be there with you from scenes from rural America. Give us a follow @MarketToMarketShow or just tag us in your images so we can see some of your finest work. Next week we'll bring together a panel of analysts to break down the numbers contained in several major government reports. Thanks for watching. Have a great week.

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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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