Market to Market (January 10, 2020)

Jan 10, 2020  | 27 min  | Ep4521

Coming up on Market to Market -- Two trade deals take one step closer to the goal line. The debate over protein levels in livestock feed. And commodity market analysis with Dan Hueber, next.

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This is the Friday, January 10 edition of Market to Market, the Weekly Journal of Rural America.


Hello, I’m Delaney Howell.

The on-again, off-again negotiations with China appear to be ON, again. The rumors and news in advance of the most recent announcement colored some of the economic numbers. --

The unemployment rate held steady at 3.5 percent as the boost from striking GM workers returning to the line begins to fade.

Only 145,000 jobs were created last month, well below the 200,000 the Fed believes is good for the U.S. economy.

The trade gap narrowed to $43.1 billion in November as the trade war with China continues to cut into imports AND exports. –-

After several false starts, Vice Premier Liu He, is expected to arrive in Washington D.C. next week to continue high level negotiations in the U.S./China trade war.

As plans are being made for Liu’s arrival, the USMCA has started moving through the Senate.

Paul Yeager has the story.

Senator Charles Grassley, R - Iowa: “USMCA will bring much needed certainty and real benefits to America's farmers, workers and businesses.”

The Senate Finance Committee started the new year considering the United States Canada Mexico Agreement. 

The measure passed the House in December. Senator Charles Grassley says American farmers are getting more reliable market access, which includes provisions aimed at wheat and dairy access to Canada.

The agreement could create new jobs and raise wages, particularly in manufacturing.

Part of the criticism of the 1990’s era North American Free Trade Agreement was the lack of provisions for the digital economy. The internet has changed commerce around the globe, but little language existed to regulate the trade between countries in the $1.3 trillion dollar e-commerce economy.

According to Grassley, enforcement flaws were addressed in the bill.

Senator Charles Grassley, R - Iowa: “The bill before us today has something in it for everyone. And it's not often that we can say that about an implementing bill.”

A long list of supporting organizations of the measure were entered into the record. But this is one of many trade actions in motion for the administration.

With USMCA at the five yard line, business leaders are hoping the trade agreement will make it into the endzone soon.

Joe Murphy, Executive Director, Iowa Business Council: “Businesses of all sizes and shapes don't like uncertainty, and not having trade deals or having trade deals in flux or in motion doesn't help as businesses are trying to plan for their future and trying to figure out how they're going to invest their capital into 2020. So the sooner we can get these trade deals agreed to and negotiated and signed, the better it will be for I was economy.”

For Market to Market, I’m Paul Yeager.

The Chinese New Year will be celebrated on January 25. In 2019, pork prices in China nearly doubled as supplies dwindled due to African Swine Fever and high tariffs on U.S. imports. In September of last year, import tariffs were lowered in an attempt to alleviate some of the pressure.

As Chinese producers continue rebuilding their herds, they will be looking to source their feed based on price and protein content.

Colleen Bradford Krantz took a closer look at how U.S. soybeans measure up in our Cover Story.

For decades, the soybean meal used in livestock feed was evaluated by the percentage of protein it contained. The higher the protein, the more the soy meal was valued as a way to grow healthy, strong livestock. So when studies pinpointed a slight but notable decline in U.S. soybean protein levels - 0.8 of one percent over 30 years to 34.3 percent - some livestock nutrition experts and plant breeders became concerned.

Hans Stein, University of Illinois: “The decline we see in protein concentration in soybeans, in soybean meal is a pretty big deal because it reduces the value and have to remember that pigs and poultry consume more than 75 percent of all the soybean meal that’s produced in the world.”

Jeff Thompson, a research lead for North American soybeans at Corteva Agrasciences in Johnston, Iowa, points out that, as yields have increased, the amount of protein produced per acre has actually grown. But he understands how the dip in the percentage in each bushel is problematic for livestock producers.

Jeff Thompson, Corteva Agrisciences: “So as protein concentrations go down, more soybeans need to be crushed. And that alters the feed rations, for poultry and swine in particular...The rate of decline has been slightly greater than the rate of decline say in Brazil. And the reason for that is temperature is also a component ...When temperatures are decreased, especially during seed development and maturity, protein levels tend to go down...”

While most of the expansion of soybean planting in recent decades has been to cooler climates of the northern U.S. the bulk of expansion in South America has been to warmer regions. Industry leaders acknowledge the lower protein levels could mean the loss of market share.

For row crop farmers, there is no direct financial incentive to focus on the amount of protein. When taking their soybeans to the grain elevator, farmers are generally paid solely on the number of bushels they bring in.

Morey Hill, Iowa Soybean Association Board of Directors: “You’ve got to look at what is gonna return for what I’m paying for the seed. … to see if we’re gonna, you know, be above or below the profit line.”

The two traits also tend to have an inverse relationship: as yield increases, protein tends to decline. A checkoff-funded study suggests farmers could earn an additional $7.70 to $12.96 per acre if they increased protein levels by 1 percent.

Morey Hill, Iowa Soybean Association Board of Directors: “In the 21st Century we’ve gotten so good at our technology… that we should be looking a little deeper as to what the meal needs to do for whatever we are feeding it to.”

Researchers and animal nutritionists are taking a deep dive inside the soybean and examining essential amino acids which generally increase as protein percentages move higher. Animals are unable to make these on their own and must consume them to grow.

A debate has arisen over whether the increase in the essential amino acids - lysine and methionine among them – slow a bit once a soybean moves beyond a certain protein percentage.

Ed Anderson, Senior Director of Research, Iowa Soybean Association: “This is a hotly contested subject, this whole thing about whether U.S. soybeans are high enough in protein. Can we compete with South American soybeans? Are Northern United States soybeans high enough in proteins to compete with southern U.S. soybeans? These studies, which are going to continue, are going to look at is: is it all about total proteins or about analyzing and determining the right amino acid balance?”

Some are already advocating that soybeans should be marketed by amino acid levels rather than overall protein.

Ed Anderson, Senior Director of Research, Iowa Soybean Association: “My bias based on the data I’ve seen and my understanding of biochemistry is that I think we are going to migrate rather quickly toward analyzing soybeans and the meal from soybeans at the amino acids level rather than the crude protein level.”

Morey Hill, soybean farmer and Iowa Soybean Association Board of Director member: “I’ve been on some trade missions – educational, you know – and that’s the first thing that’s always throw out: That our soy – our protein – is just a little bit less than that might be coming from South America or other sources. And so it’s a hurdle to get over to having to talk about something besides protein.”

Stein says this may change. Synthetic amino acids are becoming more commonly used in both Asia and the U.S., threatening soybean meal’s position in feeding livestock.

Hans Stein, University of Illinois: “The feed companies and the integrators can purchase individual amino acids and more and more of them, which means they need less and less soybean meal so I think that’s the biggest competitor... It would take the entire industry – but the crushers more than anyone else – to change how they pay the producer. If a producer is rewarded for delivering high amino acid beans, then the producers would start changing and start selecting those high amino acid beans from the breeders.”

At Corteva, where it takes seven years to develop and release a new soybean variety, researchers are focused on yield, and disease or pest resistance first. However, they are not discounting the need to watch protein percentages.

Jeff Thompson, Corteva Agrisciences: “We, in the research community really need to strike a balance between protein concentrations and yield. And what our goal would be or could be, would be to stabilize the decline in protein concentrations while continuing to improve yields.That would be a way that we could benefit both the animal agriculture industry and our farmer customers.”

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

Next, the Market to Market report.

The potential for conflict with Iran and commodity traders positioning themselves for Friday’s WASDE dominated the markets for most of the week. The report overpowered those factors in the final hours of the last session. For the week, March wheat gained a dime. The nearby corn contract had been trending lower but ended flat in the wake of the report. The March soybean contract whip-sawed its way through the week. A 13 percent decline in year-over-year soybean stocks helped add a nickel. March meal gained $2.30 cents per ton. Cotton continued a 7-week rally as the March contract gained $2.11 per hundredweight. Over in the dairy parlor, February Class III milk futures fell 6 cents. The livestock sector was mixed as the February cattle contract gained $2.70, March feeders put on $4.77 and the February lean hog contract shed $1.30. In the currency markets, the U.S. Dollar index was up 51 ticks. February crude oil dropped $3.97 per barrel. COMEX Gold added $10.10 per ounce. And the Goldman Sachs Commodity Index plummeted more than 15 points to finish at 429.15. Joining us now to offer insight on these and other trends is one of our regular market analysts, Dan Hueber. Dan, welcome back.

Hueber: Thanks very much, great to be here.

Howell: Dan, we had a couple of reports really that happened this week, kind of non-event maybe and I want to get to that here starting off with what happened in the winter wheat seedings this week. It seemed like that was a friendly sign for the markets but we didn't really see a lot of movement on Friday.

Hueber: And again, I don't think it was a major shocker by any stretch of the imagination. We're already looking at 100 year lows as far as acreage is concerned so I think that just really kind of reconfirmed what was out there. And you had a little mixed news from other parts of the world. We certainly know that there's major, major issues in Australia, but I think that has been kind of digested into the market, then you turn around and Argentina actually boosted, I should say the Buenos Aires Grain Exchange boosted acreage there just a touch. So all the two just seem to conflict with each other a little bit and left us a little flat footed, although the wheat market certainly has done well over the last month, month and a half. So I think it's finally starting to show life and recognizing that yes, there's not perfection around the world by any stretch of the imagination.

Howell: It certainly has seen a lot of strength lately, Dan, and I think that cues us up nicely here for a question from Darren on Twitter. Funds appear to be heavily short in spring wheat. Will this market blow up at some point?

Hueber: Well, of course that's probably going to be more of an impact in the spreads. They've been short in the spring and long or at least reducing shorts in Chicago. So I think ultimately yes, they're going to have to come back out of those spreads. Maybe we'll start finally to bring the relationship between Chicago and Kansas City back into something a little more reasonable. But here again too the whole delivery process in the wheat has become a little bit skewed over the years. So are those spreads more of a function, or are the relationships more of a function of the way the spec wants to trade the spreads? It's a million dollar question that I guess the market is going to tell us here soon.

Howell: And Dan, I think final question has got to be where are we going to head from here? Are we going to break through that next resistance level and head higher?

Hueber: And longer term I like what I've seen in the wheat recently, I think we've got some higher ground to come. That said, we're pushing back up against summer/spring highs. I think it's probably going to be challenging right at this point in time without something very positive today in this report it's probably going to be tough to push it through at this point in time. But I think as we move out more into the spring certainly I think this wheat market is going to -- traditionally wheat should be the one that kind of leads the way out when it comes to the grains and I think it's finally starting to show those colors right now.

Howell: I think producers are home are probably hoping that it pulls the corn markets higher. But corn did not have any sort of an event going on in this week's report it seemed. Why did we see so much sentiment placed or importance placed on this week's report to have it be kind of a non-event?

Hueber: Well, the report itself of course is kind of the final word for this last production year, although immediately after the report was released the government said, well it's not really the final word because we're going to resurvey the Northern Plains.

Howell: What do you make of that?

Hueber: There's probably some minor adjustments later but I really think even down the road we probably, granted we keep saying this is going to be the harvest, it's going to push it down the road further, it's probably going to be the September grain stocks before we have a great handle on last year's crop because I don't think we've adequately reflected some of the quality issues that are out there. And you'll probably start seeing that in basis levels in certain parts of the country because in the Upper Midwest and the Northern Plains we've probably got a lot of grain that will not make export grade. So there's going to be a lot of interesting moves along there. But actual crop size, yes, I think we're probably going to be well out almost to new crop before we finally get a great handle on what happened this last year. Yes, the USDA finally adjusted the acreage, harvested acreage down a little bit more, maybe not adequate enough. It was a little bit surprising to see them boost yield on corn a bushel. But that said, when you look at the world stocks, world stocks were all reduced on ending stocks. We're going to be under 2 billion. Psychologically that is a good number for the U.S. so now we'll start to refocus into what kind of acreage can we look at for 2020.

Howell: It's crazy that we're in 2020 but it's crazy that we're talking about acreage for 2020. Dan, what about when you look at the March and also the December contract. We've got $3.85 in the March and $4, a little over $4.02 in the Dec.

Hueber: When you look at that $3.85 I think that is kind of the base, even over the last two or three weeks we've gotten down to this $3.85 level and it looks like a point of value. The market tries to push below there and we snap right back up to that level. Even today that is where we kind of came back for the close. So I think that is a foundational level let's just say, we're going to need something to stimulate us to carry us up and away from there but I think when you look at that $4 December corn I think we're trying to keep enough incentive there that we don't start losing acreage as we come into the spring. So is there a lot of upside potential from $4? Probably nothing, a 5% rally is probably going to be a great gift here at this point in time. But until we get a better handle on the planted numbers in late February from the USDA and then ultimately the prospective plantings at the end of March we're probably going to keep it in this $4 plus range for December corn.

Howell: Dan, looking at the soybeans they also had an increase in yield. It was just a half a bushel per acre. But again, I think that poses the question, why did the USDA change it in a way that producers weren't expecting?

Hueber: Well, realistically this report is partially surveys from producers, part of it is surveys from grain elevators and what they came across so I guess I'm not going to pick too much on how they came up with the number. I'm sure some of it is also statistical analysis. It's history technically now. It was not enough of a shift on any of those numbers to really upset the market. And of course with the soybean market we can immediately now go back to start talking about China. We haven't talked about China for three or four days now, we need to talk about China again.

Howell: I'm sure we certainly will in Market Plus. But I've got to ask, is it Chinese driven or something else that has continued to spur the cotton markets higher?

Hueber: Good question. Certainly I think optimism and there could be some more business coming into China there. Also it could be just a situation we for so long were under such pressure, you never really seem to adequately reflect what was happening in production. And yes I think it's certainly a combination of both, weigh a little bit heavier towards the Chinese or potential Chinese situation. But there's a market that is certainly one of the commodities that seems to be leading us out of the doldrums here.

Howell: Absolutely. It's going to be interesting too, Dan, do you see any cotton pulling acres from corn, soybeans or wheat?

Hueber: Well, it would be easy to think we could pull it away from soybeans if we do not find something very substantial when we ultimately find out what this phase one deal is going to entail. But certainly in the South, granted cotton is a very expensive crop to plant, but here again too if it can rotate some bean acreage away that would make economic sense at this point.

Howell: Dan, the cattle complex had quite the week, especially in the feeder cattle complex, adding $4.77. What was going on this week?

Hueber: Well, here again too I think it's the situation where the grains are dead, if we're going to find usage for grains it's going to be walking get to market through the livestock sector. Demand stays pretty solid. We're not seeing the slaughter numbers. I guess my caution there is that I think packers are continuing to lose margin and I don't think we're too far off the point where they're going to start cutting back on hours, trimming whatever they can do to start pushing those margins back in, get the weights a little bit heavier. So for right now I guess if you can put animals in and hedge them off and you make money you go ahead and continue to do it and I think that here has certainly helped that feeder market out.

Howell: Live cattle they have been trading in a range here, they did add some this week. But do you see them breaking out one side or the other?

Hueber: I think it's going to be difficult. Unless we see one of the caveats there, if we see the dollar turn lower, sharply lower, I think you could really start to stimulate some exports. The dollar is teetering on the edge. I think we probably have seen a high but we haven't been able to completely push it over the edge just yet. But when you look at the cattle market for the last month now we have reached up to these highs, we have not been able to back away from them, but on the same token we can't seem to stretch any further and I think you've got a lot of price competition with poultry and pork both. So it's going to be pretty difficult to see the cattle move higher without seeing the other meats come up and be a little less competitive I guess.

Howell: I've got to say, my follow up question to that then, Dan, is how long can we stay sustained at these higher levels?

Hueber: Here again I guess it has been almost a little bit counter seasonal the way we have stuck in here. So I'm surprised we've stayed here as long as we have, let's put it that way, so if it was my risk out there in the feedlot I think I would be risking that we're not going to stay here very much longer and go ahead and get things hedged up.

Howell: Okay. Dan, we've got to talk about the lean hog markets. We're still seeing a big gap between the cash and the futures. Are we going to see cash catch up with the February contract in particular?

Hueber: Not that we won't catch up some but you have the proverbial problem in the livestock market that so many hogs are under contract, the packer doesn't really have to get out there and get very aggressive with them. They're pretty comfortable knowing that when you look at the hog and pig report how many heavyweight hogs are out there right now. So I think we're going to look at historically wide basis levels just as an ongoing problem here at this point in time.

Howell: And not even only the cash is so much cheaper or so much at a discount compared to the futures but the spread between February and the deferred still is also very --

Hueber: A little bit wider but that is probably not as unusual as what we're dealing with in the cash market. But certainly when you look out in those summer months we're up towards what have been the high side of the market for the last several years. Granted maybe we'll finally see something come to fruition here on more pork going out of the country. And it has, we've seen a nice pick up on particularly the exports to China. I think last week China now has displaced Japan as our number two customer, Mexico still stands there as number one. But here again, without seeing some kind of further problems elsewhere, granted there are stories this morning that Germany is a little bit concerned because there was I think 18 miles from the border there was a case --

Howell: African swine fever, right.

Hueber: -- showed up in Poland. So those type of things can certainly disrupt the logistics of the livestock market. But we almost with 3% more hogs again this year we're almost going to need to see something like that to really think prices can get much better than they stand today.

Howell: Dan, I want to end our discussion last week on the show we were sitting in a position where we thought we don't know what is going to happen between the U.S. and Iran. Is this going ot be some sort of black swan event for the market as it sits today? I know things can change. But are we factored out of any more risk off things in the market?

Hueber: I think the risk off is probably taking care of itself at this point in time. Granted, yes something could turn for the worse there. We don't know what is going to happen with this downed airline, although Canada seems to be more impacted than we are on that one. But that said, yes it is certainly a volatile situation. The tone seems to be that neither country really wants to escalate it further than it has. They have each kind of made their points. Granted, on one side of the coin of course you did accelerate crude oil for a while which has turned down since. You certainly accelerated gold to the upside, which has really lifted up that commodity index over the last several weeks. And here again rising tide lifts all boats so maybe it's not bad for all commodities.

Howell: Dan Hueber, thank you so much.

Hueber: Certainly, my pleasure.

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 I'm Delaney Howell. Thanks for watching.


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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. 

Sukup Manufacturing Company – providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing, store now, profit later.   


Grinnell Mutual Insurance