Market to Market (December 11, 2020)

Dec 11, 2020  | 27 min  | Ep4617

Coming up on Market to Market -- Looming drought snags the attention of farmers. A familiar face is slated to take the helm at USDA. And market analysis with Naomi Blohm and Matthew Bennett, 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, December 11 edition of Market to Market, the Weekly Journal of Rural America.


Hello, I’m Paul Yeager.

With consumers holding so much sway in the U.S. economy, each government report on spending, prices or employment carries weight.

The amount consumers paid in November edged up 0.2 percent as lower food prices were off-set by a gain in the cost of electricity and natural gas.

When the volatile energy sector is removed, the rate for Core CPI stayed the same at 0.2 percent.

Inflation appears muted in the measure of pressures before they reach the consumer. The Producer Price Index squeezed out a 0.1 percent gain.

Less energy was needed to heat homes last month as the entire planet just recorded its hottest November.

The European Union’s Copernicus Climate Change Service reported the mark even as a La Nina event is affecting weather across the globe. This is the opposite of traditional temperature records associated with La Nina. Normally, hotter temperatures are associated with an El Nino event. 

Peter Tubbs reports on the weather system’s impact on North America.

The specter of drought is haunting much of the United States as 2020 draws to a close.

Forty-five percent of the continental U.S. is experiencing some degree of drought, and meteorologists expect much of the country could see their conditions worsen in early 2021.

The National Oceanic and Atmospheric Administration’s Climate Prediction Center sees a La Nina as well established, increasing the probability the winter of 2020 will be cooler and wetter in the North and warmer and dryer in the South. The combination would set up the western half of the U.S. for severe drought conditions, adding to production challenges in an already difficult economic climate for agriculture in the region. 

David Miskus, Meteorologist, Climate Prediction Center: “So unfortunately that bodes badly for the Southwestern United States and we'll probably expand or develop drought across the Southern tier of States, even though it's been pretty wet in the Southeast with all the tropical systems that have made landfall, it looks like the rest of the winter will become dry.”

The winter wheat crop faces immediate challenges. Limited subsoil moisture combined with a lack of snow cover may limit yield potential in the spring. 

Western reservoirs which received some replenishment during the relatively wet years of 2017 and 2018 may be headed downward as precipitation goes elsewhere. 

David Miskus, Meteorologist, Climate Prediction Center: “The last couple of months, this is supposed to be the rainy season for the far West and really only the extreme Pacific Northwest has gotten any kind of decent precipitation so far this winter.” 


The current La Nina formed in September, and typically influences weather patterns for five to nine months, although some La Ninas have endured for years.

The Climate Forecasting Center issues its next three month outlook on December 17.

For Market to Market, I’m Peter Tubbs.

If Tom Vilsack is confirmed as Secretary of Agriculture, his second week back on the job would make him the longest-serving Secretary behind James Wilson, whose tenure ended in 1913.

The USDA of today is much different than it was for Wilson and Mr. Vilsack is about see how his view of the rural American landscape may have changed since he left the Department in 2017.

John Torpy has the story.  

This week, former USDA Secretary Tom Vilsack was asked by President-elect Joe Biden to reprise the role of leading the U.S. Department of Agriculture.

The former two term Iowa governor, who held the job for eight years during the Obama Administration, was part of a short list of candidates which included Rep. Marcia Fudge of Ohio, who is viewed by many as an advocate for food assistance programs including SNAP. Rep. Fudge has been tapped to lead the Department of Housing and Urban Development.

The National Farmers Unions noted Secretary Vilsack’s previous experience will help him in the role and added more work needs to be done to help protect family farms and expand nutrition assistance programs. The Iowa Renewable Fuels Association applauded the appointment and noted Vilsack understands challenges facing the biofuels industry.

Vilsack, no stranger to the challenges the office currently faces, will have to consider a diverse set of issues including food insecurity, climate change, carbon sequestration, and resolution of charges against USDA over discrimination by some black farmers.

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

Grain Markets were mixed overnight as traders continue to adjust to yesterday's USDA numbers. In light of the report, many are focusing on South American weather, demand headlines, and the holidays. March wheat skyrocketed the last two days of trade to finish higher for the week by 39 cents while the nearby corn contract added 3 cents. The weather report took the wind from the January soybean sails, resulting in a 3 cent loss. January soybean meal declined $5.20 per ton. March cotton expanded $2.53 per hundredweight. In the dairy parlor, January Class III milk futures improved 59 cents. A mixed week in the livestock sector. February cattle gained 85 cents. January feeders weakened a nickel. And the February lean hog contract fell $3.35. In the currency markets, the U.S. Dollar index gained 24 ticks. January crude oil improved 57 cents per barrel. COMEX Gold gained $3 per ounce. And the Goldman Sachs Commodity Index increased more than 2 points to finish at 391.50.

Yeager: Now here to provide insight are two of our regular market analysts Naomi Blohm and Matthew Bennett. Hello to the two of you. Naomi, I'm going to give you the first crack here at giving me your best tweet of the report. So this means keep it short and what were the headlines of Thursday's USDA report?

Blohm: Headlines were that the corn market for the report was just as it was expected. There were no big changes at all anywhere on the balance sheet. So that was expected and the market responded just neutral. For the soybean market they were looking for a more bullish report, looking for ending stocks to come in 169 but instead they came in at 175 million bushels, which is still down from the month prior, but not quite as much lower as what market participants were hoping for. And then with the wheat market, that is the one that stole the show. Lower ending stocks much more than expected, so that is what gave the wheat market a little bit of a lift this week.

Yeager: Matt, do you have a different set of headlines or is that how you saw the report?

Bennett: No, that's how I saw the report. Essentially I think that your bulls were maybe a little disappointed that exports didn't go up for either corn or beans, kind of a blasé report, but typically you see a blasé report in the month of December. I think it's just a lot of folks after November's fireworks wondered if maybe we'd get some excitement out of December as well. We didn't, which I think was as expected, I guess for me anyway.

Yeager: Is this wheat market stuck in a Brady Bunch moment, instead of being Marcia, Marcia, Marcia, it's Russia, Russia, Russia? Is there something else going on?

Bennett: I think with the wheat market essentially -- I'm sorry, Paul, it's showing Naomi right now. Is this right?

Yeager: Yeah, you're on. I see you. I hear you. We can switch back and forth. It's the way you watch it. It's the power of technology. And I know my Brady Bunch comment threw you, so that's what I know has gotten you off. But let's go back to Russia and the wheat market, Matt.

Bennett: Okay. Well, whenever you look at the wheat market, essentially Russia is saying they want to throw an export tax on. At the same time this Russian crop gets downgraded a little bit. But USDA is at 84. I've seen some private estimates all the way down, well under 75. So how much wheat are the Russians going to put out there? It's not a crop failure by any means, but Russia has been throwing a lot of wheat on the world market the last few years. So I think the wheat market is looking at a lot of different things. For instance, world carry might drop just a little bit, U.S. carry down at 850 right now, some are saying it could get under 800 easily and you're producing the kind of wheat of an over 2 billion bushel crop we've seen a lot of 50% stocks to use ratios the last few years, you could be looking at something well below that. Even though we're not going to run out of wheat any time soon, it's just a much tighter situation than what we're accustomed to.

Yeager: Naomi, do you see China sniffing around the market as also an influencer, maybe the weather dry in the Plains and other producing areas?

Blohm: It's multi-factors, building on what Matt said 22% of the Russian wheat crop is rated as poor because it has had poor germination and because it's so dry there and that is why they're trying to do the export tax. So they're trying to curb themselves back and limit what they're exporting. Chinese demand I think is strong and has the ability to get stronger because they're going to need the wheat as a feed substitute going forward. Even though China has half of the world's ending stocks of wheat, do they really, many people think that maybe some of it is out of quality of that in general because of the additional hogs that they're going to have there is going to be more demand. And when you look at the United States I've been hearing from clients that they are very concerned about the wheat that they have planted, it hasn’t germinated and the soil conditions are quite dry. So wheat might have a future for higher prices down the road. And I'm also keeping an eye on the spring wheat. I think it's undervalued. I think spring wheat acres are going to be in jeopardy this spring because of the higher price of soybeans so I'm keeping an eye on the Minneapolis wheat also.

Yeager: Do you have a range on that Minneapolis contract?

Blohm: Well, right now we got up to about the $5.70 area for the nearby March and so it got through a short-term resistance area today, some moving averages. If it can push a little higher I think we can get closer to $5.80, at most $6, that would be pushing it. We need some news to really get it to happen. But it has got some good fundamental and technical chart support as well.

Yeager: Matt, are you buy, selling or holding wheat right now, any of the contracts?

Bennett: I guess in my opinion the wheat market is showing a little bit of flare here. But the people that I'm talking to like the profit margins that they see. So typically I look at it as a risk management, a hedging type situation whenever I get July Chicago wheat above $6 I like Chicago wheat in that area. Am I going to sell it all? No. But if I was going to be put on the spot buy or sell I'd say I'd be selling wheat whenever I get safely above $6 at least on a percentage basis.

Yeager: Naomi, let's go to corn for a moment. You talk about the report was not bullish for corn necessarily and bulls need fresh news. Are the two tied together specifically in corn or is that more of a factor in other contracts?

Blohm: With the corn market the biggest things that I'm keeping an eye on continue to be exports and ethanol. We have export sales at about 67% of USDA projections and the USDA thinks that we're going to be exporting about 2.6 billion bushels of corn so that is significant. So I thought it was prudent and smart that they didn't raise exports on this report, I thought that was really good. And then of course ethanol demand we've had ethanol inventories at a 27 week high just because we haven't been traveling for Thanksgiving like normal. So that is of concern. So I thought the USDA did a good job of not making any changes on the report. But going forward 1.7 billion bushel carryout with as tight as the soybean carryout is the market is well supported. $4 support continues to be great support for front month contracts. Deferred contracts the December is staying over $4 futures also. I still like corn market, it has potential, but we need obviously news to get it to spur over the resistance points.

Yeager: Is there a number after the 4 that gets us a flashing sign. You talk about $4 resistance. If we get below $4.10 do you start thinking about putting some sales in?

Blohm: Right now for the front month contracts there is really good support at the $4.10 area and then of course $4 below there. I think selling corn now at these higher values is just good marketing, it's good value, you just never know what could maybe come around and make prices turn lower. But at the same time I would say that the $4 point is just definitely major, major support. Unless that breaks I'm not overly concerned at this time. But I don't want to be complacent either because it's 2020 and I'm sure there's going to be one black swan lurking somewhere.

Yeager: Matt, you get to take that answer. Is there a black swan coming in corn? No, you don't have to answer that one. But do you see a black swan event as the biggest thing that could impact this market? Or is it some of the other factors that Naomi just laid out?

Bennett: There's no doubt that there’s always going to be something out there none of us are thinking about. So with that being said, just going along with what Naomi said, you've got as a producer to understand what these prices mean for your bottom line as compared to where we were at before the rally started. And so we came into the month of August and it was just blasé, frustrating, producers were worried about whether we were going to pay the bills again this year and then everything changed. Everything changed dramatically. And so I guess from my vantage point I can go along with the fact that the USDA stated 1.7. I'm maybe more in the camp that it's going to get tighter from here though. I think whenever you see China going up to 16.5 as far as how much corn they're going to import that is probably going to go on up I guess from my vantage point. Whenever I look at world stocks, for instance, they're still accounting for a heck of a lot of corn in China. They put 50 million metric tons out on their government auctions. I don't think the people that bought the corn was just going to put it in their storage facility and let it sit. I don't know why it's not coming off the world ledger. I think it's a tighter situation than what we're currently seeing both world and domestically. Does that mean we're going to rally through the roof? I'm not sure. That's a really good question. So as a producer if you sell some corn and then you keep a long bias on a limited risk basis I think that makes a ton of sense.

Yeager: Does it, Naomi? You're shaking your head up and down like you might think it does. Does it?

Blohm: I think it does because we've seen that anything can happen with marketing, with how prices move. So if you're moving grain, if you're making cash sales, the basis continues to improve for a lot of places, if you do have the money flow you're making better sales than you have been at and again, the stars have to continue to align in order for prices to continue to just march higher. We do need bad weather in South America, we need it to stay dry here next spring and summer. We need China to keep buying and the dollar to stay low. So if you can make sure that all four of those things are going to happen, great, you know what the market is going to do. But the reality is, make some cash sales if it is a good profitable point for you. And like Matt said, we are able to help you with reownership strategies if it looks like the market may be going higher and you could do fixed risk strategies and have some upside potential to capture.

Yeager: Naomi, you bring up a great point because I seem to remember not that long ago listening to the analysts on this show say, if this happens, if this happens, if this happens. But I don't know if we can hit black or red twice in a year. That's a lot of ifs. So I think you've got good advice there about put some sales on the books. So, Matt, I'm going to flip to you now for a question when we move into soybeans. Is CONAB a bigger deal with what Brazil reported, a bigger impact on soybeans than what the WASDE was yesterday? Which one had a bigger effect on that market?

Bennett: I don't know, I would say CONAB probably had a bigger effect. Whenever you look at WASDE it seems like they trail CONAB a little bit. I've got to think that USDA is a little lethargic in making big adjustments and maybe they're not comfortable making those adjustments in Brazil. You talk to private folks down there and they're down around that 126 to 128 level, some of them are, and so I think this Brazilian crop has certainly been hurt here in the first crop in some areas. Now, other areas obviously are going to be doing well. We know how that is here in the U.S. We saw extremely good soybean yields for the early beans that were planted that were able to get past critical stage before you got into that dry period in August, whereas some of the later planted beans, as we saw in the November report, certainly took a hit because you had that huge yield drop between October and November. So I think that you could see some real wide disparities in Brazil as well. A lot is going to be, we're going to learn a lot as we move forward. But I think CONAB probably had a little bigger impact.

Yeager: Naomi, you've sent out a lot of charts this week and there's a couple of them that got my attention. One of them you said you talked about the lowest estimate that we've got in 7 years. Does that concern you?

Blohm: As far as ending stocks go?

Yeager: Sorry, in ending stocks, yes.

Blohm: Yeah, so where we're at right now for ending stocks and more specifically the stocks to use ratio, we're at 3.9% on a stocks to use ratio, obviously lower than last month, second lowest in the past 20 years. So that is significant. So what is remaining of the crop, the stocks to use ratio it really does matter. And so that is going to keep the market well supported going forward until we have any idea that potentially we do have multiple additional acres planted next spring and a bountiful crop coming. But until then it's going to keep basis probably tighter on soybeans and also keep those front month contracts supported overall. So it's very important to watch that and monitor it. But again, as of this moment we don't have specific news to get the bean price over $12. But, at the time too, great support at the $11.50 area and then ultimately below there at $11.

Yeager: Well, you just took part of my answer from this following question but I want to give this one, it came via Twitter, Bradley in Nebraska was asking this over there in the Upland area. He says, following Thursday's report for USDA would it be wise to start marketing some of 2021's corn and soybean crop? So, Naomi, you just gave me some prices. You think it's wise to market some soybeans right now?

Blohm: For next November for new crop, absolutely. New crop is at the $10.50, $10.25 price area. It has been trading in a sideways range. It's better than anything you probably started at this year so it would be a good place to get started for next year, absolutely, a 5% sale, 10% sale I think is a prudent thing to do.

Yeager: Matt, any wider sale mark right now, more than 10%, 11%? Are you with Naomi on that new crop?

Bennett: Yeah, actually officially I'm at 20%. But what I've done here is I have set a floor under the market. So set a floor under the market and then maybe sell a call above the market, $1, $1.20 above the market so I have a little bit of room to run, a little bit of flexibility in that strategy. Obviously I'm capped out but I'm only capped out on maybe 20%. And so I do like setting a floor under these prices. Like Naomi said, these are really good prices compared to what we've seen in the last several years. You look at the yields we saw this past year in the last couple, three years, if you have an average crop and you're cashing in anywhere close to $10 on your cash price out of the field, that's a heck of a good winter and I want to lock in as much of that as what I can.

Yeager: Naomi, right about an hour before we recorded Tom Vilsack was introduced as a chance to be Secretary of Agriculture again, still has to go through the confirmation process. Sonny Perdue has led a USDA effort for a big food buying program, the box program, dairy was a big part of that. That ran us up tremendously over the last few months, fell off a little bit, now we're starting to see some light at the end of the tunnel. What is that light?

Blohm: Well, I'm wondering if the market is excited about Tom Vilsack because of what he has been doing with the dairy exports right now and so he is familiar with the industry. The dairy market, as you know, we had $24 milk this summer because of the cheese buying program and then with the cheese buying program and the farm to family program coming to an end at the end of 2020 the milk price plummeted, December contract going down to the $15 area. But meanwhile when you look out at the 2021 prices they have just been patiently sitting at the $16 level because they know that milk production right now is still really near record large. So we have a lot of milk out there and we need the demand of the farm to family program. So Mr. Vilsack, if you're watching, please make sure it continues. It is really good for not only the American dairy farmer but of course for just America as well as a lot of people are still out of work. And so I'm wondering if those deferred contracts are thinking that we're going to see the cheese buying continue and that's why actually we started to move a little higher this week with even the March contract today getting up to $18.

Yeager: Matt, the word in the live cattle market is volatile. Again, it has hit at the other market so why not the live cattle market. How long does this volatility last?

Bennett: The interesting thing is we're still range bound. You look at this $110 to $116 area in February and basically we can't break out of that. You see boxed beef prices off a little bit but then cash prices are off a little bit, margins are still good, so packer margins are good what are they going to do, they're going to go through as many cattle as what they possibly can and it's a good thing because there's plenty of supply out there. I'm still the same way that I've been for a long time, I guess I can't get super friendly to prices until I get out past maybe the 2nd quarter. I think whenever you start to see the numbers a little more favorable in my opinion you can look a little bit higher beef cattle, I think fats probably in that $115 to $120 range later in the year is very believable but before that I just don't see it.

Yeager: In the feeder market, Naomi, there's a little bit of spillover with what's going on in live cattle, but you also have that feed input cost that has really been a concern for those on the balance sheet. Is that going to be the big weight around the neck of the feeder right now?

Blohm: Well, that's a great point and so in Southwest Wisconsin this week there is a sale barn that had 650, 700 pound feeders going for $148 to $150, not cheap. But the demand is there. And so people are buying these feeders. And if you do the math on the feed cost and assuming you can lock in feed prices where they are right now you need for a breakeven come June or August you need $114, $115 and so the market needs to deliver on that in order for those feeders to be profitable. I have a friendly view for live cattle prices heading out into 2nd, 3rd quarter, similar to what Matt was saying and keeping an eye on the June contract I think that there is some technical momentum building there and with the production expected to be lower because of that low placement those deferred contracts have a lot of fundamental stability and support and also keeping an eye on as dry as it is in the Plains, out west, and the drought that continues to grow there I think the cattle story still is a story that has got some bullish momentum to it in the deferred contracts.

Yeager: Matt, I'm sorry to the hog market, 15 seconds because I want to talk about expansion in the market when it comes to China. But in 15 seconds where are we headed on hogs?

Bennett: I have a hard time getting friendly the hog market if you're going to give me 15 seconds. I just can't do it, I think especially when you're talking about expansion. I don't think China is the only place that wants to expand on pork production and so it's tough for me to get friendly.

Yeager: I apologize for the shortness. We will get more of it in Market Plus. That's Naomi Blohm and Matthew Bennett. Thank you so much to the two of you, appreciate your time. That will do it for this installment of Market to Market but we will talk more in Market Plus so join us there. You can find it on our website at You helped push us past a threshold of support on our YouTube channel. Thank you so very much for joining our club. There's still time to join us as the benefits include knowing when we have posted new videos of the program, also the same with Market Plus and stories that you have seen on air. Search Market to Market and click subscribe today. Next week we'll look at a Christmas tree farmer, how they're battling the drought. We'll see you next 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.  


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