Market to Market (November 13, 2020)

Nov 13, 2020  | 27 min  | Ep4613

Coming up on Market to Market -- The implications of a ruling on overtime farm wages. A USDA report reveals less grain in the bin. The market responds in dramatic fashion. Market analysis with Sue Martin and Shawn Hackett, next.


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 have 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, November 13 edition of Market to Market, the Weekly Journal of Rural America.


Hello, I’m Paul Yeager.

We are recording this program on Friday the 13th. 

The last one? March. 

Since then we’ve seen a spike in COVID-19 cases, a drop in the economy and the first significant breakthrough for a vaccine. Our country’s economic, physical and emotional health all seem to be tied together.

The Dow Jones Industrial average hit 30,000 Monday on the news of Pfizer’s announcement but closed lower by the final session. 

The vitality of the economic engine in the U.S. hinges on the consumer. 

The prices consumers pay went unchanged in October. 

When the volatile food and energy costs are stripped out, the Core CPI was also flat indicating inflation remains modest.

The same was true for those making the goods as the Producer Price Index climbed for the sixth straight month. The 0.3 percent hike came mostly on more expensive food and gasoline. 

Taking out those two more turbulent factors, the core rate ticked higher by 0.2 percent.

Those reports come from the expansive federal Labor Department. At the state level, the scope of the agency also counts workers and their rights among their responsibilities. 

Last week, workers and how much they get paid after 40 hours in a week were at the center of a court ruling in Washington State.

Peter Tubbs looks at the implications of the order.

Overtime for agricultural workers is legal in another U.S. state.

The Washington State Supreme Court ruled last week that an agricultural exemption on overtime pay for dairy workers who work more than 40 hours is unconstitutional.  The decision was handed down on the grounds that the exemption granted special privileges to agricultural operations.

While the 5-4 ruling was specific to the dairy industry in Washington State, it could end up impacting overtime pay for more than 200,000 farm workers across the state.

The attorney for the plaintiffs released this statement:

Lori Isley, Columbia Legal Services: “We appreciate the Washington Supreme Court’s decision that recognizes that dairy workers have a right to the same protections as other workers in dangerous industries.” 

The Washington State Dairy Federation responded also responded to the court ruling:

“While we believe the court erred in its opinion, this case involves a state constitutional question, and there is no venue to appeal it beyond the state Supreme Court...Our advice is for dairy farmers to begin paying workers time-and-a-half for overtime immediately.”

The ruling makes Washington the sixth state with some kind of requirement to pay overtime to farm workers. The change could be particularly expensive because many of the crops grown in the Evergreen State - apples, grapes and hops among them - are labor intensive and perishable. Some of these operations also require manual labor for up to 11 months a year.

The minimum wage in Washington is currently $13.50 per hour and is climbing to $13.69 per hour in January of 2021. The new pay rate will push overtime wages to over $20.54 per hour.

Scott Dilley, Washington State Dairy Federation: “If we just took the overtime hours that people had been working and, and pay those at time and a half, uh, it could mean a cost of an additional $40 million a year to the dairy industry. Um, so there's that question. So people are going to have to start figuring out different shifts, um, you know, different rates of pay, how do they, um, and, you know, maybe how do they even, um, you know, save labor through increased technology.” 

Local dairies and state-level agricultural lobbying groups warned the ruling will mean increased labor costs, which could increase the pace of the installation of robotic milking systems that would cut the need for farm labor. 

Scott Dilley, Scott Dilley, Washington State Dairy Federation: “To wake up on a, on a Thursday morning and be told that, you know, the, the thing you've been doing for 60 years is, is wrong, was just, uh, uh, it was disheartening and very surprising, extremely surprising to take a step back.” 

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

The USDA confirmed what many in the Grain Belt believed - there was less crop in the fields and in the bins. The bulls mostly loved the news. For the week, December wheat dropped 9 cents while the nearby corn contract improved 4 cents. Rationing entered the soybean market lexicon as higher export numbers lightened the stocks-to-use ratio. The January soybean contract jumped 47 cents. December soybean meal increased $5.70 per ton. December cotton contracted 16 cents per hundredweight. In the dairy parlor, December Class III milk futures declined 97 cents. A mixed week in the livestock sector. December cattle added $1.28. January feeders grew by $1.95. And the December lean hog contract was even. In the currency markets, the U.S. Dollar index increased 52 ticks. December crude oil improved $2.95 per barrel. COMEX Gold fell $69 per ounce. And the Goldman Sachs Commodity Index increased more than 11 points to finish at 364.25.

Yeager: Joining us now to give us some insight are regular market analysts, Sue Martin and Shawn Hackett. Welcome to the both of you.

Hackett: Hi, Paul. How are you? Great to be back in the studio.

Yeager: Good to see you, Shawn. Good to see you, Sue, as well. Shawn, I want to start with you on the wheat. I don't want to call it the loser of the market this week but there is a sentiment that it might the canary in the coal mine, of the commodity mine. Is it? Is it telling us something?

Hackett: Well, it's a little bit of a different market, winter wheat, because we've been running it up on drought in Russia, drought here in the Plains, but then it goes into dormancy and once it goes into dormancy how do you keep the bulls fed, this drought, weather market that it has been in? And when you lose that, you bring speculators out of the marketplace and that is kind of what has been going on with wheat, which of course corn and soybeans have not been driven by weather mostly, it has been the demand from China and obviously from downgrading our supplies here.

Yeager: All right, Sue, the question when it comes to the livestock market, yes, we were up on feeders, we were up on cattle this week. But is wheat going to gain any strength from say a cattle producer looking to supplement more expensive corn and they might be turning to wheat? Does that give it some hope?

Martin: I don't think so. I think wheat would have to become cheaper than it is. And basis Chicago wheat on the December contract I look for support to be around $5.60 to $5.75, right in there. If we were to take that $5.60 area I would be a little concerned. But I believe that the wheat market longer term is going to be a friendly one. Global supplies are tightening on wheat. However, rice stocks, which counter react with wheat, are tending to increase globally. So when I look at the wheat market it is kind of a market that is searching for demand right now. And again, I agree with Shawn, it's going into dormancy, and come February, March, it will be more important as to where we stand as to how dry we really are.

Yeager: Okay. So the question then becomes, if you see better days ahead are you holding on that market or are you selling something right now, Sue?

Martin: I think we have a chance to still take this market back up to around $6.60 basis the Chicago. And I Think that when I look at the wheat, you can see the attitude where there is buying of KC over Chicago. Now, that is an old spread that used to always see KC wheat premium, 50, 60 cents premium over the Chicago and I'm wondering if we are heading back towards a more old fashioned possibility here. But this market has a little work to do. And in the meantime, of course, corn competing with corn at the moment, we had a pretty bullish report on corn and then the market gives up. And that is not good indication. So that could help wheat continue to try to be weaker. I think the spreads are changing here.

Yeager: All right, Shawn, do you see any agreement or disagreement there?

Hackett: I agree totally on the KC wheat premium to Chicago wheat changing. When we look at the weather situation where it is most egregious is in the KC winter wheat areas of Russia and the U.S. and when we go into what we think is going to be a hot and dry spring and also winter kill events that could take place, we do think that spread is going to reverse itself and so there is an opportunity there.

Yeager: Sue, let's go to the report on the impact of the corn market. Do you -- was that a surprise to you for corn or were you more surprised by soybeans from USDA this week?

Martin: I was not surprised that the USDA WASDE lowered feed usage. I was not surprised that they increased the exports. I was surprised at how much NAS lowered the yield. Now, I've always kind of compared this year on corn to the year 2010-2011 and that year was another year where we had corn yields drop from August into September, October and November. And that year they dropped again in January. So we may be looking at that same similar situation. I think that corn is in a good demand market. Finally we had WASDE increase exports to China and it was long overdue. I'm wondering, there is a tendency for WASDE to overestimate demand, or I should say underestimate demand, in the November report and in more than not in the last 10 years. So when we come into the final, the market I think after this report was like letting the air out of the balloon. It's like okay, now what do we look for that has got to be bullish? Well, the only thing you've got going here is South American weather and how late the beans are going to get planted, how dry does Argentina remain because they are number 2, they vie for number 2, number 3 exporter of the world in corn. And the other thing will be as to how when we get into the turn of the year, how do we -- I think the market will pick back up because we're looking at a report and they're going to have that same attitude will yield drop again.

Yeager: Shawn, are there other bullish tendencies out there other than what Sue mentioned or do you see the same --

Hackett: There is an air pocket up here. We've traded Chinese demand, we've traded lowering the U.S. supplies at least for now, weather in South America is just not mission critical yet. When that becomes mission critical mid-to-late December -- we're coming to year end and capital flow and speculative capital likes to sometimes exit to finish off a good year if they've had one. And so it's a time to be careful about a setback here and a pause in the market from a move since August.

Yeager: I'll ask this question before I get to our Twitter question. Is this a topping signal or is this a pausing signal right now?

Hackett: We think it's a pausing signal. We don't think this is a major top or the top, we just think it's a pause. It's a time for the market to absorb the move, to kind of let time pass y and reset the bar for another move higher. We're pretty bullish on weather in 2021 and so we think this is a pause to higher levels.

Yeager: I'll let you both take a crack at this one. Mike in Dyersville wrote us on Facebook, thank you for that. You can also hit us up on Twitter. Mike says, I sold cash corn $4.06 thinking the gap in Dec futures would get filled. What are the odds of that gap being filled? And now what do you do for reownership? Shawn?

Hackett: Well, the most important question is, is it time to reown? We don't think it's time to reown. We think the time to reown would be sometime in December when we've had a more formidable correction, when the speculative funds have taken some of the profits off, we talked about the COVID, there's talk that we might shut down again, there's a lot of things that could come in to scare the speculators out of the market. And even though we've had a little bit of a setback in corn, we don't think it's anywhere near enough to say, someone should go back in and put risk back on. We think it's time to wait to do that. 

Yeager: Sue, do you agree?

Martin: I tend to agree with Shawn. The one thing we noticed this past week was, and it is based off of the commitment of traders report, the bullish sentiment index reached 90%. The last time it reached that was back in 2012. So it's extremely high. You have the funds as heavy long. Granted, they haven't been long for a very long period of time compared to normal. But that would say you've got to have some caution here and that could also be another reason why we got that bullish news and in the same day we started giving it all up. That is not usually a good sign, almost makes it look like we have a double top over us. But we do have an outside range year going and that opens the door for more possibility as we move into 2021.

Yeager: All right, Sue, let's move to soybeans here. 4.2% gain, that is a 47 cent gain on the January contract. That is more than 90 cents in two weeks. Do we have another 90 cents in the next two weeks out there?

Martin: I don't think so. I feel that when I look at the beans we've thrown a lot of bullish news at this market. Now, I'm not going to say that we can't push higher as we move into January, I suspect we will. But right now China is staying very quiet and it is because of the uncertainty as to who is going to be President. I think they've got a game plan going for either one but if you've noticed Xi Jinping has not reached out to President-elect Biden to congratulate him. He's waiting. And I think that when we look at the market here, 90% back, it’s estimated 85% to 90% of the Chinese hog herd is back up to speed. But that says to me that have got a huge need for corn and soy meal. And so I can't be bearish here but on the same token we have to remember we're coming from $7.80 low on a lead contract of beans in 2019 to not far from the 2016 high being on the January contract of $11.82 and Jan contract is now lead contract as of today. So we've had several wave 4 counts and $11.47 was one, we do have on the January contract $12.03 and a half, $12.05 and three-quarters, those are counts that we could meet. But on the same token this market has had a nice move, it can have a chatter, but when you've got a stocks to usage ratio of around 1.9%, 2%, the market is not going to be able to break down and hold it. I think the end user is going to be ready to cover his needs.

Yeager: That brings up a good point. I guess, Shawn, I use the word rationing to start, that's not a big widespread discussion at this point, but if I'm somebody sitting on a bunch of soybeans and I've seen 90 cents in 2 weeks, could maybe get -- Sue wouldn't take my bait for 90 cents in the next 2 weeks -- but you could see what she is laying out going higher. How long do you hold? How long do you keep that bin locked up?

Hackett: Well, what we have been saying and what we think is the right approach is to make sure that you obviously sell the bushels that you have to sell to keep the farm going, that's so important, because there can be a break at any moment in time and you don't want to be in a situation where you've got to pay the bills at the next low in the soybeans. Second thing is, if you cannot store your soybeans and you have to go pay commercial storage, we would say those are the bushels we would be looking to take advantage of this rally and sell. But we would not look to sell anything beyond that right now because Sue was correct in saying, when you're that tight if the weather in South America gets worse, if the U.S. weather gets worse, we could have a wild situation next year and the bushels in the bin could really be an asset to the farmer this coming season.

Yeager: And you have to sit here and think because the discussion that we had six months ago, eight months ago, we had two ifs out there, if this weather happens or this. We did have two weather events on top of what we had for COVID that may have impacted end user demand, however far you spread that out. So that is something that was there underlying. The if is possible. We've also seen years when the ifs don't become possible.

Hackett: That's right. Things could go well, things could go perfect, things could go perfectly right and you cannot look a gift horse in the mouth and say I'm not going to take any action at all but we would take measured action with the bushels that we described at this point. We still think there is likely to be more room to be more aggressive at a later date.

Yeager: Sue, are you selling more than what your cash needs are right now in soybeans?

Martin: No, if you have cash needs right now we would recommend selling. I go back to the year of 1980 and it was one of those on the analog study that I've talked about repeatedly that in years when November beans made new contract highs in September, they tended to make higher highs again all the way into November. And of the 8 years out of the last 50 that this occurred, only 6 of them, I shouldn't say only, only 2 of them failed from the September high, the other 6 went on to make higher highs of course into November, which we have seen. Out of those 5, 1 of them then peaked, that was the year of 1980, and then the market fell back. Now, I've been saying this year is following 1980's path. However, we have to keep one thing in mind. What we have coming up in front of us that we didn't have back then is the Chinese demand and the phase 1 agreement and they are having food inflation and FAO talked about the food inflation in various categories and the veg oil tight supplies. China is going to not back out on phase 1, I don't care who is President. What they will do, especially with the uncertainty that is going on in Brazil and Argentina where the weather is drier in the center and south and they aren't catching the nice general rains, rains are about half of what they would be in measureable amounts and you're a half a month out in ending November. Now you get into December and you've got to start questioning -- and I don't think China will cancel and switch cargos out of the U.S. back to Brazil, I don't think they'll cancel any U.S. cargos, I think even though they may be a little front end loaded there is too much uncertainty in front of us and I think it's, they just have to have a sure thing right now.

Yeager: Right. Shawn, before we recorded I asked you about an acreage battle. How does cotton shake out in all this right now because is cotton going to be a loser if you are in an area that could plant corn or plant a soybean right now?

Hackett: I believe it is the loser. Number one, it's not a necessity so when we're looking at a situation where the global economy is still very rough, discretionary purchases of which cotton represents is not a high demand item and we see demand being an issue there. So we're looking at a soybean situation, like Sue said, demand rationing potential, very tight supplies, China not looking to take any chances, weather on the table, that market wants to get extra aces to guard against another poor weather year and cotton has - we are not tight in the cotton market by any stretch of the imagination.

Yeager: A little play there but also a little play in the market. Sue, let's move to livestock in the sense of the cattle business. We've talked about the input costs with some of these feeders. We also talk about what that end user is, what the consumer is looking for at the grocery store. Which one wins out in the cattle market right now?

Martin: Well, for one thing in the cattle market, we have been pushing end users, or feeders, to be locking up their feed needs into June of next year, probably even into July of next year for corn. We feel that if you get a corn futures contract down to $3.80 it's a gift. We think that long-term we've looked at years ending in a 1 and there are many times that the market will rally into -- I'm not saying higher highs or anything, I'm just talking very generically -- where do the highs come in, where do the lows come in? And the highs tend to be May, June more so, not May, June, July and August. And I think we're looking at if you come into, our weather sources are telling us ahead that we're going to see a cool spring next year and then we'll see where we're at with production. But the market is going to be very tenuous, especially when you have a producer that is aggressively sold in beans in the U.S., 80%, you have the farmer sold about, well Data Grow said 53%, Ag Rural says 65%. And that is an aggressive sold position when you're looking at soybeans. Then you look at that crop that has to get planted and out so they can get the safrinha corn in, well there's another situation that is going on in corn and it's called the sugar cane. Sugar cane production in Brazil is expected to be down and it's also expected to be down in India. Those are your two largest producers in the world. And that could mean with Brazil's ambitious usage for ethanol, they could have to maybe switch away from sugar cane and use corn. They're going to be tight supplied.

Yeager: All right, I need to get Shawn, your take real quick on cattle. I answered more of a feeder question -- but cattle market going into today 11 to 12 days up. Bubble popping?

Hackett: We've got a very, very strong smart money algorithm buy signal a few weeks back that we alerted our customers to, to make purchases, and we've had this big rally. We have started to falter at resistance here so probably the market is set up for a pause, like we talked about, but it still looks to us that we could work our way higher into the end of the year before any more damage could be done.

Yeager: Up this week in beef. Hogs even. But it has an upside, it has been having an upside. IS that continuing?

Hackett: The hog market we feel very differently about. The whole basis on the hog market was that the Chinese were going to buy record amounts of pork, which they have, but now their supplies are rapidly growing in China, their prices are falling and we think we're looking at peak exports to China for pork. And so that says to us that we need to be careful about our U.S. hog price because if we lose a lot of that demand that we've been counting on there is no one readily available to take it up and our smart money algorithm has turned quite a bit bearish here in the last month and prices have start to set back. And so we're very much cautious and we think hog producers need to be making sure they get some cash priced here and don't look a gift horse in the mouth, that we've had a pretty good run.

Yeager: Sue, you get about 15 seconds on hogs, like normal. Do you agree with Shawn?

Martin: No.

Yeager: No, good.

Martin: I'm very friendly to hogs. I think that the break we're getting -- and by the way hogs closed one tick higher for the week, one tick. But if they take out this week's low of %63.60 that will be disappointing. But you get the month through $67.60 on the December contract and I think it opens the door to take out the highs. I believe that when I look at my long-term data it has turned positive. I have to be bullish. I just think demand is awful important.

Yeager: Sue, I want to hear more about this in Market Plus. Thank you. That's Sue Martin. That's Shawn Hackett. Thank you both for sitting in today, appreciate it. That will do it for this installment of Market to Market. But we will keep the conversation going in our online-only segment that we call Market Plus. You can find it on our website of Going back to school never goes out of style. We continually update our Market to Market Classroom project. We have collaborated with vocational agriculture teachers to help with the basics of commodities, government and the history of agriculture. Visit to go back to school. Next week we'll look at how rural, urban and downstream parties have joined together through an innovative nutrient exchange program. Thanks for watching. Have a great week.



Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa PBS which is solely responsible for its content.

What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  


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.


Grinnell Mutual Insurance