Market to Market (December 21, 2018)

Dec 21, 2018  | 27 min  | Ep4418

(This program was updated to reflect that USDA officials will be processing Market Facilitation Payments for the first week of the shutdown.) Coming up on Market to Market -- A shutdown showdown puts more than MFP payments in jeopardy. Industrial hemp makes its way out of the shadows. A cattle producer convicted of fraud spends a year in prison. Those stories and market analysis with Mark Gold, next.

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This is the Friday, December 21 edition of Market to Market, the Weekly Journal of Rural America.”

Hello, I’m Delaney Howell.

The President made sure the lame duck Congress had plenty to do. The shouting was heard down the street at the Fed. —-

Interest rates were boosted for the 4th time this year as President Trump tried to legislate economic policy via Twitter.

The Dow Jones Industrial average endured its roughest week in ten years and December is on pace to be the worst since the Great Depression. The rate increase coupled with explosive debate over Presidential demands contributed to the volatility.

The Creighton University Rural Mainstreet Index has yet to reflect that tension. The index rose above growth neutral despite farmers facing income losses, the potential for more loan defaults and an increase in collateral requirements.--

One link in the chain of support for farmers and ranchers is the Farm Bill. The President signed the 2018 version but implementation is on hold.

Key to funding the nearly $1 trillion measure is a continuing resolution for the federal budget. A shutdown seemed inevitable when this program was recorded Friday.

Peter Tubbs and John Torpy have more in this week’s policy roundup.

One provision of the 2018 Farm Bill gave a boost to growers of a commodity with a rich history. Industrial hemp received legalization in the 2018 Farm Bill.

Producers will be able to budget production of this crop like any other on the farm as well as be eligible for crop insurance.

Industrial hemp can be manufactured into hundreds of products ranging from clothing to biofuels. However, the cousin to cannabis is more popular for its medicinal properties through the production of cannabidiol (can-uh-bid-i-all) or CBD oils. CBD is valued among the medical community for its numerous health benefits including the treatment of anxiety, arthritis, and chronic seizures.

The FDA will continue overseeing the growing business of CBD oil production which is predicted to earn over $1 billion annually for the hemp industry.

The 18-month journey of the 2018 Farm Bill concluded this week with President Trump’s signature on Thursday. But a change in USDA policy sparked controversy even before the signing.

The USDA has proposed eliminating waivers that individual states use to ignore work requirements for specific SNAP recipients. The rules come into play when the supply of jobs in a community falls below a certain level.

Under current law, able bodied adults without dependents cannot receive SNAP benefits for more than three months out of any three-year period without meeting certain work or job-training thresholds. This group represents less than 10 percent of the 40 million Americans who receive SNAP benefits.

Increasing work requirements was a goal of Republican lawmakers in the House during negotiations on the Farm Bill, and was dropped in the final days of talks in order to reach agreement on the package.

The new proposal is being interpreted by some as an end run around Congress.

All of this news was overshadowed by a White House threat to close a large swath of the Federal government over a failure by Congress to allocate $5 billion for the construction of a wall along the southern border with Mexico.

President Donald Trump: “I’ve made my position very clear. Any measure that funds the government must include border security. Has to. Not for political purposes but for our country, for the safety of our community.”  

A continuing resolution to keep the government open passed both houses of Congress this week, but President Trump announced Thursday morning that he would close the government until funding for the wall was allocated.

Over 800,000 employees deemed “non-essential” will be furloughed, and more than 420,000 will work without pay, including Customs and Border Enforcement and meat inspectors. According to USDA officials, Market Facilitation Payments will be processed during the first week of the shutdown.

The shutdown takes effect at midnight, Friday December 21st.

For Market to Market, I’m Peter Tubbs.

Few are immune from the frustration and fear that goes with having debts exceed income.

Those that benefit from USDA programs and defraud the government to solve their money problems can receive hefty fines or jail time. Cheating the USDA costs taxpayers millions every year.

You can find more on the topic in a special section of our website -- Market-to-market.org slash justice.

Colleen Bradford Krantz has the final installment of our three-part series “Justice in Agriculture.“

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July 26, 2019 - The Caldwell County, Missouri Sheriff has arrested Joey Nelson in connection with a death investigation of two farmers from Wisconsin who have not been heard from since Sunday. Brothers Nicholas Diemel, 35, and Justin Diemel, 24 reportedly traveled to Missouri for business related to their cattle in Caldwell and Clinton counties. The Sheriff's Office has been searching the property of Garland "Joey" Nelson of rural Braymer, Missouri. Nelson was interviewed by Market to Market last year for a series about the intersection of agriculture and crime. Nelson served 13 months at the U.S. Penitentiary at Leavenworth, Kansas, for an unrelated crime. He was released in March 2018, and was trying to resume his cattle feedlot operation at the time of the Market to Market interview.

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Joey Nelson was on the top of the world when the first big loads of cattle arrived at his new Braymer, Missouri feedlot in 2013. The 19-year old had a government loan and was anxious to grow his operation.

Nelson’s supplier, Iowa-based Cyclone Cattle Company, was purchasing truckloads of cattle from drought-stricken southern states and sending them to Nelson, as well as others. It was only a short time, however, before Nelson was overwhelmed.

Joey Nelson, Braymer, Missouri: “They thought that they were gonna get rich off of this, and they didn’t have a place to go with them. So they just kept sending them here….Everything works until you run out of grass, or feed, or money. One of the three. … We ran out of grass first. So, you know, you went to feeding more and then the feed bills get bigger than the bill they want to pay….Then you run out of money.”

By then, the young farmer was trying to feed nearly 800 steers and cows as Missouri faced a drought of its own. Nelson’s debt grew to nearly $300,000.

That’s when Nelson made the mistakes that would land him in federal prison. He sold some of his own cattle without notifying FSA, a requirement when livestock is tied to farm loans, and failed to ask the sale barns to list the agency on the checks. Nelson knew he was violating the rules, but moved ahead, hoping to avoid a months-long delay that might follow a request to the federal government.

Joey Nelson, Braymer, Missouri: “I figured I had done something wrong by not going through the proper channel to sell the cattle…I mean you run out of operating money and if you want to keep the cattle alive, you’re going to sell something to feed them, to pay the feed bills.”

Court documents suggest that Nelson deliberately hid the sales by having checks written out using a different version of his name than is on his FSA loans. Some checks also were made out to a friend, the money later transferred to Nelson’s bank account.

Joey Nelson, Braymer, Missouri: “I’m not going to say that I didn’t sell some of the cattle that are on my loan note. Because we did. But we didn’t sell them to go buy a trip to Hawaii or anything like that.”

Occasionally, farmers who cheat federal programs or mislead consumers are accused of using the profits for purchases the government would describe as being for “personal enjoyment and pleasure.” In 2016, for example, an Idaho farmer was sentenced to three years in prison for selling regular alfalfa seed as organic. Court documents say he used the profits to buy an RV and a boat.

Dr. Michael Rosmann, an Iowa-based psychologist, says that, more often than not, producers who get in trouble with USDA made decisions that were intended to keep their farm or ranch financially viable.

Dr. Michael Rosmann, farmer psychologist: “Often, there is a misconception that farmers deliberately undertake fraud, if they do, only to make money. But that’s not the main reason… I think the main reason is farmers want to get ahead and they have made mistakes and they can’t bear to own up to them because it is an admission of weakness.”

In rare cases, some psychologists believe, those farmers who were charged have committed suicide to avoid either serving time in prison or facing the public shame. Rosmann says the data shows a shift away from older producers taking their lives.

Dr. Michael Rosmann, farmer psychologist: “Now, we’re seeing younger farmers from age 45 up to their late 60s as the most vulnerable for self-harm, and we’re trying to figure out why that is…Possibly it has something to do with a sense that I only have a few more years to succeed and it’s make or break time.”

Before Joey Nelson knew it, he was standing before a federal judge in Kansas City, being sentenced to two years in the U.S. Penitentiary at Leavenworth, Kansas.

Joey Nelson, Braymer, Missouri: “He said when he gave me the 24 months that he was making an example out of me to the agricultural community. And I thought, ‘Boy, some example.’ …You guys advertise your loans very hard…And this is what will happen if something goes wrong.”

Nelson, now 24, believes FSA loans are not only important, but critical to keeping American farmers in business. He does wonder, however, if young farmer with loans should have a greater degree of oversight and guidance.

Joey Nelson, Braymer, Missouri: “I thought, well, at the worst-case scenario, I’ve done something that I broke a rule on a loan. I didn’t commit a crime. I didn’t go out and rob a bank or anything like that. I mean, I broke a contract…Well not when it’s federal. You’ve committed some sort of fraud…. They said I’d set out from day one to do this. All I can tell you from day one is that I didn’t know what I was doing.”

The parent company of Cyclone Cattle Company, the Iowa feedlot that had been sending Nelson loads of cattle in 2014, filed for bankruptcy in April of 2018.

Although he spent 13 months in Leavenworth Camp, a minimum-security satellite facility, the time there still convinced Nelson to always dot his I’s and cross his T’s.

Joey Nelson, Braymer, Missouri: “Just imagine being ripped out of everything you’ve know and thrown into a complete and total different place…You go from working 12 and 13-hour days to just sitting around…Your world just comes to a stop… They let you out early if you got a drug case because you’ve got a problem… And, well, I’ve got an addiction too, I guess, gambling: a gambling addiction to playing farming. And you know, they didn’t offer me a treatment course for that.”

Nelson was released in March of 2018 and is trying to move on with his life. He now farms with his mother, who has had her own operation for decades. Nelson says he has learned some lessons the hard way.

Joey Nelson, Braymer, Missouri: “Anybody that’s young that wants to get bigger, it’s faster is always a better way. Well, not necessarily. It can catch up with you.”

 

For Market to Market, I’m Colleen Bradford Krantz.

Next, the Market to Market report.

Traders were hard-pressed to find any holiday cheer in the markets as China’s buying left a lot to be desired and money headed to the sidelines. For the week, March wheat fell 16 cents and the nearby corn contract dropped 6 cents. Chinese purchases are failing to keep pace with market expectations as the March soybean contract slid 16 cents. The March meal contract lost $1.50 per ton. March cotton plummeted $6.42 per hundredweight. Over in the dairy parlor, January Class III milk futures gained four cents. The livestock market has the winter blues. February cattle added 30 cents. January feeders cut 23 cents. And February lean hog contract tumbled $3.37. In the currency markets, the U.S. Dollar index lost 46 ticks. January crude oil crashed through the $50 threshold losing $5.88 per barrel, shedding more than 11 percent of its value. COMEX Gold put on $16.70 per ounce. And the Goldman Sachs Commodity Index nose-dived more than 25 points to finish at 380.20. Joining us now to offer insight on these and other trends is one of our regular market analysts, Mark Gold. Mark, welcome back. And a Merry Christmas early to you.

Gold: Merry Christmas to you and all your viewers out there. It's great to be here. Thanks.

Howell: It's great to have you on, Mark. We certainly don't have a shortage of things to talk about this week and I want to start here with a social media question looking at the greater economy as a whole and how it impacts the commodity markets. We've got Stan here on social media. What is the impact of the falling stock market to the grain markets?

Gold: Well, it makes people a little bit more nervous when you see what is happening in the stock market. I personally think it's a little bit positive for the grains. We've had such high levels in the stock market, a lot of money in equities, and now they're starting to roll out of it. Now, what are they going to do with that cash? We see a lot of money managers thinking about looking at what is cheap around the world and certainly some of our commodities here in the U.S. are cheap, we believe at some point they're going to be coming in. We saw the funds go from about 40,000 long corn to 90,000 in a week. That is telling me some of that market money is coming out of the stock market, coming into commodities. But they're not going to just jump in and buy willy-nilly, they're going to look for breaks. But I think ultimately the cheaper the stock market gets it may be friendly towards commodities.

Howell: To follow up with you about the corn in particular, is that why we saw so many people liquidate those long positions?

Gold: Well, I think what we saw here during the week was just a lack of any real positive developments. We had some good export numbers. It wasn't enough. March corn hasn't been able to close over that $3.91 area and with what happened with wheat and with soybeans the corn took a little bit of a dive too. Now, we went down and fed the gap in both the corn and beans that have been there about three weeks since the G20 Summit. We closed back over the gap. I think we closed over it today. But the corn market has an underpinning to it here and we still, most traders are still hoping that we see the Chinese come in and buy some corn as well as soybeans.

Howell: Absolutely. Let's get to that here in just a moment. But let's talk about Russia. When we look at the wheat markets they have been kind of playing around with us here saying, oh we're going to curb exports, then we got news saying they actually are probably going to increase exports.

Gold: Leave it to the Russians, they know how to play the game as well as anybody.

Howell: Is that what they're doing here is just playing games?

Gold: I think it's just playing games, that's all it is. When you can move a market 30, 40 cents and you've got privy to that information you can make an awful lot of money very quickly. So I think all they're doing is setting us up. People got excited, saw a little buying by the funds, covered some of their short positions and now on Friday they come out and say, not only aren't we going to cut it but we may increase it. And the wheat fell a good 10 cents today so certainly not a help.

Howell: So let's talk longer term here. Russia is going to, let's just assume they do increase exports. What is that going to do for the wheat markets worldwide and specifically for U.S. wheat producers?

Gold: Well, I don't think they're going to increase it. We saw the Egyptian tender this week and they didn't take any Russian wheat because they were priced out of the market, which tells us the real effect is they may be a little tighter than what they're letting on. But they want an opportunity to sell some wheat at higher prices so they floated these rumors. Long-term I see some problems here in the U.S. with the production on the wheat crop. It basically got mudded in and a lot of places, Kansas, Oklahoma, a lot of problems out there. Now it's very early obviously in the growing season but I think ultimately if we can get the dollar cheaper, see a little bit more demand, maybe the Chinese come in and buy some wheat as has been rumored, I think the wheat market could have some legs. But again, we're going to see these selloffs, somebody is going to come in, the foreign demand is going to buy it cheaper, we'll rally again and then we'll see what kind of crop we have.

Howell: Mark, when we have a stronger U.S. dollar that means usually exports are a little bit weaker than normal. But we just hit a marketing year high in corn exports. Why did we see such strength?

Gold: Well, I think people got a little bit nervous in here, the funds have been buying it and the number that we saw on Thursday morning was double what people were looking for. So it's interesting that we get these hugs numbers yet we don't see it in the daily reports on the flash that is supposed to come out. But the totals were huge. The dollar had backed off a little bit, maybe a penny off the highs, but then came right back again on Friday. I don't think the dollar is, it has to be a long-term effect in the dollar. We have to see the dollar get down to 90 cents before we really see a major pick up in exports. On a day-to-day basis countries are going to buy it regardless of what the dollar is, as long as it's competitive they're going to come and buy the grain they need. And the world still needs grain.

Howell: Absolutely. I want to jump down here to soybeans because we definitely have a lot to talk about there as well. I think the big question, and we got a lot of social media questions this week, is lay it out for us. China is now king of giving us the olive branch, making some soybean purchases, but how much do they really need to make in purchases before we see some sort of substantial impact in the markets?

Gold: Well, let's be clear, the Chinese learned this game as well as anybody from the Russians. Now, the Chinese, they have hinted that they're going to buy 6 to 8 million metric tons of beans. Are they going to make that announcement? No. What they're going to do is disappoint people like they've done over the last 10 or 12 days, the market breaks, they're going to step up and buy it and then we see these sales. They're nobody's fool and they're not going to reach up and buy highs, they're going to wait until it's going to be lower and when they disappoint the market they know they're going to be able to buy it at cheaper prices. I think right now at this point they probably have bought a little over 3 million metric tons. So if it's 150 million off the carryout, we're still at an 800 million carryout, it's still one of the largest, it's in the year of the largest carryouts ever. We're going to need to see another 4, 5 million metric tons before that needle will really move on the carryouts which would give guys add that to maybe 4 million less soybean acres now maybe we've got something we can talk about out here in terms of the soybean market. But 3 million metric tons doesn't really move the meal, it's nice to have, we know they're in the market, they know they want the grain, so hopefully there's another rumor that they'll take another 2 million maybe by Christmas Day. They probably won't do it by Christmas Day, they'll wait until after Christmas, the market will be disappointed, they'll buy it again. They're nobody's fool.

Howell: Well, and speaking of the market being disappointed, we definitely saw that seeing the lowest close since November 29th which was just prior to the G20 Summit. Now with these lower prices is that enticing to the Chinese to come? Or do they still want them to be lower?

Gold: No, I think they want the beans. I think there's some issues in Brazil, they want a little bit of a backstep, they want to build their supplies a little bit. Parana in Brazil has been very dry. They're supposed to get some rains. But I think the 5 to 6 million metric ton range is a good target and I think we'll get there. That does knock these carryouts off of these incredibly high levels and it sets us up for at least the possibility if there is a problem in South America that we could see a much better soybean market.

Howell: Yeah, position ourselves to take up some of that demand. Let's talk about live cattle. We're heading into the holiday season here. Seasonally this is a time when people are eating a lot of beef and a lot of pork. After the New Year what do you expect to see in the live cattle markets?

Gold: Well, we've had a nice rally in this market with contract highs in the cattle. Once we took out the $118 level on the cash our projections are for $122. I think we can probably get there maybe by the end of next week. We tend to make our contract highs the last Friday of the month so we're a week from the end of the year, that last Friday, we could see our highs there and then maybe back off after the New Year's buying. We know the New Year's buying is going to be behind us pretty quickly here, maybe we sell off a little bit and then we decide what this market is going to be. I have seen over the years, in the 40 some odd years I've been in the business, where we make some highs in the cattle market in December and then we start to back off and certainly some of the spreads don't work as well. So that could be the situation.

Howell: Is that the situation for this year from what you're seeing?

Gold: From what I'm seeing I wouldn't be surprised. If we can get to $122 between now and next week sometime I think that's enough for this cattle market for the time being and then maybe we back off a little bit.

Howell: Okay. Let's talk about the cattle on feed report here. I want to make sure I get the numbers right. We had feedlot inventory up 2%, placements were 5% below 2017. Is that indicating a replacement problem for 2019?

Gold: Well, there's talk about the weights more than anything else and that going out to April we see the prices really strong back to April and I don't disagree with that. The placements were down so much because a year ago numbers were so big. So to get that kind of a drop isn't that unusual. The marketings were solid. I've been saying the cattle market is only as good as this stock market. I am surprised that the cattle market has held up as well as it has relative to what the stock market has done which has been trouble for that market. Now, can we last another week in this cattle market? Yeah, we can and if we can continue to see the Dow move lower then I think cattle you need to be thinking about getting some hedges on, sell some cattle, buy a call if you think there's more upside or at least have some kind of put to protect the downside.

Howell: Absolutely. We also had the quarterly hogs and pigs report this week come out. Compared to last quarter we were down a little bit yet we still have quite a bit of pork in cold storage. So what is the longer term outlook for the hog market?

Gold: Well, the longer term outlook is what is going to happen in China? Are the Chinese going to come for the pork? We know that there's been more cases of the African Flu showing up. They need the pork. They want the pork.

Howell: This is kind of their time of year when they consume a lot of pork.

Gold: So longer term, which is why I think we're seeing the back months at a $20 premium to the nearbys, because we believe that they're going to want some pork. And everything tells me that this pork market, we thought once the December cattle went off the board we could see the rally. We haven't seen that. We have broken because of the concerns about demand because of the African Flu situation. But I think longer term this hog market is okay. There's been a natural resistance in the hog market at $90 so if we see the April get up to $90 is that a good spot to buy some puts for the spring and summer? Probably is. But let's hope we can bust through it again. We've done it one other time and that is when we had the virus scare, the PED virus scare, so hopefully we can do it this time on demand rather than something else.

Howell: All right, Mark Gold, thank you so much.

Gold: Thank you.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at MarkettoMarket.org. While you’re there, take a look at the additional material for our Justice in Agriculture series. You’ll find info graphics and short clips that didn’t make it into the broadcast. Join us again next week when we’ll explore how one farmer is using the richest soil on earth to combat food insecurity. So until then, thanks for watching. I’m Delaney Howell. Have a great week and Happy Holidays!

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Pioneer Hi-Bred International is a proud sponsor of Market to Market. 

Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today. 

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

 

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