Market to Market (March 5, 2021)

Mar 5, 2021  | 25 min  | Ep4629

Coming up on Market to Market -- Another hurdle for immigrant farm labor. The Mississippi River Improves its grades. And market analysis with Shawn Hackett, next.

(music)

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

(music)  

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

(music)

This is the Friday, March 5 edition of Market to Market, the Weekly Journal of Rural America.

(music)

Hello, I’m Brooke Kohlsdorf. Paul Yeager is away this week.

Everyone has felt some kind of pinch from the pandemic but optimism over returning to a new normal is increasing.

Last month, 379,000 jobs were created. Economists are mixed on when the rest of the 10 million jobs taken out by the pandemic will be reinstated.

The infusion of jobs lowered the unemployment rate to 6.2 percent.

Earlier in the week, Chairman Powell indicated the Fed will leave interest rates alone until employment numbers improve.

Despite the positive news, the trade gap rose nearly 2 percent in January and the trade deficit with China fell 3.2 percent.

Creighton’s MidAmerica Business Conditions Index stayed above growth-neutral for the 9th month in row. Rural America’s manufacturing sector expanded even with supply bottlenecks and a lack of people on the line.

One sector looking to replenish jobs is agricultural farm labor. President Biden met last week with Canadian Prime Minister Trudeau and this week, he continued his tour of USMCA countries.

Peter Tubbs reports.  

This week, the Presidents of the United States and Mexico met virtually to discuss the long list of issues that are simmering between the countries: trade, the coronavirus pandemic, immigration, and the national security of each nation.

Joe Biden, U.S. President: "The United States and Mexico are stronger when we stand together. There's a long and complicated history between our nations that haven't always been perfect neighbors with one another. But we have seen over and over again the the power and the purpose when we cooperate. And we're   safer when we work together, whether it's addressing the challenges of our shared border, or getting this pandemic under control."

The shared border was a focal point of the Trump Administration, which replaced roughly 600 miles of existing fence along the nearly 2,000 mile border during its tenure. 

American demand for farm labor over the last 20 years has risen, and the industry still employs half a million foreign born workers to harvest the nation’s fields and milk the country’s cows. Up to half of those workers emigrate from Mexico.

Maintaining a supply of inexpensive seasonal workers for agriculture has challenged previous administrations. The Biden White House has signaled a less provocative stance towards the country’s third largest trading partner.          

Mexican President Andrés Manuel López Obrador welcomes the lowering of the political

temperature.

Andrés Manuel López Obrador, Mexican President: “ I believe that our proximity will allow us to develop better in these times, to integrate ourselves as has been done with the treaty, for North America to complement itself, to integrate itself, economically and commercially. It will make us stronger.” 

For Market to Market, I’m Peter Tubbs.

The Mississippi River is a major lifeline and superhighway for Midwestern grain. The towns along the 2,340 mile stretch of water are responsible for creating more than $400 billion in commerce. As goes the river, so goes the livelihood of those holding the 1.3 million jobs along the route.

There is one group that feels a deep responsibility for what happens next along the banks of the mighty river and they take their job seriously.

Josh Buettner has more.

This week, the Mississippi River Cities and Towns Initiative held their annual Capitol meeting at the mouth of sea change in Washington.

President Joe Biden: “It makes us a helluva lot more competitive around the world if we have the best infrastructure in the world.”

Sharon Weston Broome/Mayor – Baton Rouge, Louisiana: “The renewed drive, by the administration, to arrive at a climate solution is something that we support in a broad sense.  But that drive cannot leave middle America behind.”

For nearly a decade, the regional mayoral assemblage has promoted economic and environmental security for riparian communities along the crucial inland waterway – and cultivated a bi-cameral Congressional Caucus able to champion policies beneficial to America’s largest watershed.

Senator Dick Durbin/D - Illinois: “The first thing we need to do is pass this American Rescue Plan for President Biden.  There is billions, literally billions of dollars coming back to your local governments, as a result of it.”

While unveiling their own plan to address presidential priorities, river town mayors and emergency management officials called on federal lawmakers for pandemic support and authorization of new natural disaster-related revolving loan funds.

Eric Letvin/Deputy Assistant Administrator for Mitigation/Federal Emergency Management Agency: “Safeguarding Tomorrow through Ongoing Risk Mitigation Act was signed into law in January.  So, bottom line, up front, FEMA cannot implement the Act until there is a Congressional appropriation to fund it.  What the Act does, as you mentioned, is - $100 million is authorized for fiscal years ’22 and ’23.”

The conference coincided with a new report card from the American Society of Civil Engineers, which upgraded the nation’s infrastructure to C-minus from a previous D-plus, largely due to bridge improvements.  But some were quick to point out the disparity of a ubiquitous framework in use decades past recommended lifespans.

Robert Gallagher/Mayor – Bettendorf, Iowa: “Sixty percent of the world’s grain ships up and down that Mississippi River and it comes from the heartland.  We fear, as a consortium of mayors up and down the river, that want to move all products to the world and continue to feed the world, that if we don’t invest, now, in our lock and dam infrastructure, we may be too far behind the curve to catch up.”

The importance of safeguarding an agricultural export market worth billions annually was evident, as were concerns over shipping competition from China and an expanded Panama Canal.  Assembled mayors say federal action would accelerate private investment and bolster industries from farming to tourism and beyond.

Robert Gallagher/Mayor – Bettendorf, Iowa: “We’ve got great partners in places like Wal-Mart and Home Depot that have agreed to help us if we can move the container on barge to fill those containers to come back up the river, but we’re really not going to get that kind of investment – until or unless – we can get some help with the infrastructure of the river.  It is the world’s largest working river.”

Pollution concerns, specifically the rising tide of chemicals from one-time use plastic products, also were a key component of the summit.  Partners in academia, along with international and philanthropic interests, launched a smartphone application to crowdsource solutions.

Barbara Hendrie/North America Director/United Nations Environment Program: “I’m thrilled today to be part of the formal launch of this initiative which is aimed at harnessing the power of ordinary people to become citizen scientists in their communities along the river to help us generate date for a plastic pollution map.  If you can’t measure a problem, if you can’t assess a problem, it’s very difficult to understand how to solve a problem.”

Aditya Ranade/Managing Partner – Two Degrees Adapt: “While the temperature figure gets the most attention, it has several cascading impacts.  Warmer air attracts more moisture, resulting in higher precipitation.  And this precipitation comes in a very heavy small number of events – so simultaneously raising the risk of drought and flood.”

Dovetailing with federal climate ideals, the virtual event culminated with mayors signing a memorandum of common purpose with Ducks Unlimited. 

Adam Putnam/Chief Executive Officer – Ducks Unlimited: “In addition to what it means to people, the Mississippi River valley is a vital migration corridor for 40 percent of North America’s waterfowl and 60 percent of all bird species.”

The Memphis, Tennessee-based world leader in wetlands and waterfowl conservation will help deploy natural infrastructure in 3 pilot locations – upper, middle and lower portions of the river - which creates habitat, improves water quality and mitigates flooding and other adverse weather risks to riverbank municipalities.

CEO Adam Putnam says partnerships are essential and those working the landscape can join his efforts with federal assistance.

Adam Putnam/Chief Executive Officer – Ducks Unlimited: “D-U really sees ourselves as a trusted partner to those farmers and ranchers to connect them with our partners at USDA to enroll them in those programs…and that ground that is not the best for agriculture – in many cases is the best for conservation and sustainability purposes.”

For Market to Market, I’m Josh Buettner.

Next, the Market to Market report.

Weather in South America, rumors of buying by China, and positioning before next week’s WASDE made for volatile markets. For the week, as of noon on Friday, May wheat lost 7 cents while the nearby corn contract fell 8 cents. Renewed Chinese buying and a lack of rain in Argentina made for a late week surge in the soy complex. Nearby soybeans improved 18 cents.  May soybean meal dropped $6 per ton. May cotton shrank $1.63 per hundredweight. Over in the dairy parlor, April Class III milk futures gained 15 cents. It was all down arrows in the livestock sector. April cattle fell $1.17. April feeders dropped $3.75. And the April lean hog contract shed 7 cents. In the currency markets, the U.S. Dollar index skyrocketed 117 ticks. April crude oil increased $4.35 per barrel. COMEX Gold weakened $33.60 per ounce. And the Goldman Sachs Commodity Index added more than 12 points to finish at 490.25.

Kohlsdorf: Now here to provide insight is one of our regular market analysts, Shawn Hackett. Hi Shawn.

Hackett: Hi, Brooke. How are you?

Kohlsdorf: Yeah, doing well. Thanks for being here.

Hackett: It's always a blast to be on Market to Market.

Kohlsdorf: And be here in person.

Hackett: Absolutely, yes.

Kohlsdorf: Doesn't that feel good?

Hackett: It's way better, yes.

Kohlsdorf: Well, we'll start with wheat. So wheat has been chopping around a little bit this week. We heard that the weather was good in Ukraine but there are concerns about the drought here in the United States. Where is that push going to come from for wheat to go up?

Hackett: Well, as you know, we had a couple of winter kill events in Russia and here so the market had that initial surge of excitement and of course you never really know what winter kill is going to do until you come out of dormancy which we're starting to do now. We think some of these crop condition ratings that we're going to start to get from the USDA and show how bad the crop is actually coming out of dormancy could be the initial trigger and we do expect a dry summer, or spring growing season for winter wheat that could be another additional catalyst. So we're really constructive KC winter wheat for those two reasons.

Kohlsdorf: Okay. What is pushing the prices lower?

Hackett: Uncertainty right now, we're just in a pause. The market is just uncertain. Most winter kill events are a lot of fanfare, they don't deliver as the wheat always seems to come out of it. But we think it's different this time. I know it's a statement you shouldn't be saying, but we do think it is, we think that the extreme cold against lack of snowfall this particular time did a lot more damage than the market was expecting.

Kohlsdorf: Okay. So we're talking about corn now. We still have concerns in China about the swine fever. There's weather issues in South America. The Chinese look like they're buying again but the market is headed down for the week. So what is going on?

Hackett: The corn market is kind of stuck in a place where we're going to get this acreage report coming, we think we're going to have a very, very good planting season. You get out of the gate early and fast, more corn acres than not. And the market is just sort of saying, we've sold so much to the Chinese and we have so much undelivered supplies, we haven't shipped, we have so much to ship. I think the market is a little worried that let's get those shipments out, let's show that we're going to move some of this corn we've sold before we get excited about new demand from China.

Kohlsdorf: The WASDE report is coming out on Tuesday. Is part of the price drop leading up to that?

Hackett: Well, the last report if you remember everyone was expecting a drop-off in ending stocks and we didn’t get it and it really disappointed the market. And the corn market has been kind of struggling ever since. So there is hope that maybe the USDA will drop corn ending stocks by increasing the demand. We're not really so sure that they're going to be willing to do that. We think they like to make more aggressive adjustments in the April report. We're kind of agnostic on Tuesday's report delivering a bullish signal so we think the market is kind of sensing that maybe we shouldn't get too excited about that report.

Kohlsdorf: Do you think the Chinese are stockpiling corn?

Hackett: We don't think they are. If they were stockpiling corn, if they really were adding extra corn they didn't need we wouldn't see the corn price domestically in China as high as it is. We really think they just got themselves in to a bind. They had a terrible crop last year from those historic floods and they'll never tell you that. The cash market in China tells you they got really in a lot of trouble. And all these ships waiting off of the Brazil coast to catch the soybeans, they're going to do the same thing for the corn once the second crop corn comes to the market. So we think the market is telling us they're not stockpiling.

Kohlsdorf: Okay. Soybeans, so we saw the market kind of go all over the place. They were up on Tuesday and then they were down. Is there anything to feed the bulls? Is this rally done?

Hackett: When you're dealing with 120, 130 million bushel carryout, every little tiny adjustment either way makes the market go up 50 cents. So it's very, very hard from one day to the next to know which way the market is going to -- the weather is a little bad, no the weather is actually good, demand was a little disappointing. So we just think we're stuck in a very volatile sideways trade into the springtime on soybeans. We don't expect this pattern to really change until we get further in and see what kind of acres we actually get planted here in the U.S.

Kohlsdorf: Would a drought help or hurt beans?

Kohlsdorf: Well, a drought of course would help. But the way our natural climate cycle algorithm is projecting we're seeing a drought and a hot and dry pattern mostly into July with August backing off. That means corn could get in a lot of trouble with yield. But soybeans could get bailed out. Soybeans could rally on the worry but we think the actual crop problem could be in the corn market. So we think the corn market could drag the soybean market up, not the other way around this time.

Kohlsdorf: How do the exports look for the rest of the year?

Hackett: Well, I think it's going to be based upon the kind of production we expect to see in the U.S. We already know South America is going to be probably not top end. We don't know how far below top end but it's not going to be the bin buster crop we had last year. So everybody wants a big U.S. crop. If it looks like that crop is going to make it then they'll back away and say all is well. But if it looks like we're going to come up short as we believe we are then pedal to the metal again. Last year exports picked up in August when they realized our crop was going to come up short. That could be another trigger for them to come in and buy aggressively again.

Kohlsdorf: Okay. So we'll move onto cotton. You're our cotton expert, or at least one of them. So cotton is down. Is the battle for acres playing in or part of the reason for this?

Hackett: No doubt and it was just a few months ago that they were going to lose a lot of acres because they were way down and then they had this incredible run on this endless demand from China because of the policy of not buying China labor cotton which means the Chinese had to buy cotton from us to make the clothes to sell to us because if not we wouldn't take it. So it was this forced demand that just kept the market going up. And now it looks to us like cotton acres could be flat or even up a little bit. So that is a big, big change. And March, the cotton market tends to like making highs in March ahead of planting season. I think they've done enough to do what they need to do on acres. And then it comes down to what will Mother Nature do in the state of Texas is really what counts.

Kohlsdorf: What about the dollar right now? Is that going to impact demand for cotton?

Hackett: A stronger dollar, which we've been seeing in the last few weeks, always on the margin creates some headwinds to exports. Of course, if you need it you need it, no matter what you pay what you have to pay. But on the margin we've been dealing with a tail wind all last year that the dollar was going down and that was creating this inflationary wave. Well, that's kind of come off a little bit. We've seen copper got hit really hard and there's a lot of selling from speculators on this stronger dollar policy because right now these interest rates on the long bond have gone up and it's worrying the market that that could maybe create some capital flows into the U.S. that creates that strength in the dollar that we've been seeing. So that is something to monitor. The Brazilian Real, by the way, got crushed this past week and that is always, always inverse correlated to the grain price because Brazil is such a dominant exporter. So the weakness in the Real is not a helpful sign for the grain markets to get their act together. That keeps them kind of in check, which they have been.

Kohlsdorf: All right, well we'll move onto meats. They were kind of mixed. Live cattle there was some Chinese buying this week but the market finished lower. So is it the dollar? Is that part of the problem?

Hackett: Well, I don't want to say China is going to buy our pork because the dollar is strong or weak on the margin. I just think they bought so much pork from us, their supplies have grown a lot. I know we've heard some ideas that ASF is coming back. But the bottom line is their supplies are up way larger than they were a year ago. Their exports are coming off where they were a year ago and the U.S. producer has geared up to sell them all this pork and we really worry that we could have kind of a problem in the back half of the year that too much supply is going to chase too little demand if the Chinese really back away as we think they could. We could be making a pretty important high here going into April.

Kohlsdorf: What about U.S. or consumer demand?

Hackett: Well, obviously if we get those vaccines going and people get confident and we go back out and we grill and we go to restaurants that is going to be good for all meat demand. But at this price level for pork relative to beef, relative to chicken, it's kind of like the pork market is pricing itself out a little bit. We worry that maybe it has done too much of a good thing, that it might give away some demand to these competing meat supplies.

Kohlsdorf: Okay. What about the feeders? What is going on with that?

Hackett: This constant concern over the corn price and the corn price going higher is always a detriment to the feeder market. We really worry about the feeder market later in the year because if we're correct about a drought cycle and that the July being really, really hot and dry during pollination and we get the corn market to have another wave higher it's really going to set the feeder market back. So we think they could still have a little bit of a runway here maybe into April or May before the corn market gets going again. But once that trigger gets going we think the feeder market could be under a lot of pressure. We'd be looking to be sellers this spring.

Kohlsdorf: Okay. So with hogs they ended down this week. What could drive the market higher?

Hackett: Well, if the Chinese after they're done with these holidays, they come in guns blazing and buy a whole bunch again maybe to refill some of their temporary stocks that could certainly give the market some short-term confidence. That certainly could be there. We're not anticipating that. We just think the market when you approach that 90, 95 cent area on the June contract it's going to be really hard to get over that hump without something dramatically changing with what we are currently looking at.

Kohlsdorf: Okay. So we want to talk to you a little bit about dairy as well. So in one of your weekly reports you said that dairy may blow the top off prices in 2022. So what do you think though in the short-term?

Hackett: The government support of U.S. pricing gave a lot of return to the dairymen in the back half of last year and that has gotten production growing in excess of 3%. That is bearish especially into the seasonal strong production period into April, May and June. However, the rest of the world didn't have that support and they're growing production minimally. We're looking at GDP price, which is the international auction price for dairy, skyrocketing with whole milk powder prices jumping double digits this past week. There is a shortage. Fluid milk prices are going parabolic into this week. So we have a big, big shortage outside of the United States. So once we get through this bulge in production in the U.S., we're pretty excited that the back half of this year into '22 could, we will be able to feed that shortage because we're the only ones that have excess milk to supply. So it will be a really good period for dairy producers to make really good returns on the farm.

Kohlsdorf: Yeah, they've had so many struggles that it would be nice to see them --

Hackett: For sure -- and it would be nice for the real market to give them that money instead of the government doing it. Always prefer the real market to do it. And so I know they would appreciate that.

Kohlsdorf: Yes, for sure. All right. I want to go back to grains and talking about the battle for acres between corn and beans and wheat. Where do you think this is all going to settle?

Hackett: The big thing in the last few years has always been those fringe acres, we're just loaded with corn, loaded with corn and we've been able to plant these big corn numbers every year. With the price where soybeans are versus the price of corn and the shortage we have in the U.S. we think the majority of those fringe acres are going to go to soybeans even if we have a good start to the planting season. The corn is going to be corn, they're going for corn, prices are good. But to lose all those fringe acres, which are considerable, especially in the Dakotas, we think the corn acres could actually disappoint, not be as strong as we have been accustomed to seeing them and we think this is the year, soybeans need the acres, they want the acres, they're screaming for the acres and the fringe acres are going to give it to them.

Kohlsdorf: All right, thank you for your time and your insight, Shawn. Great to have you on the show.

Hackett: Thank you, Brooke. Thank you so much.

Kohlsdorf: Well, that will do it for this installment of Market to Market. We will be talking more in Market Plus so join us there. You can find it on our website of MarketToMarket.org. For the next two weeks we are involved in an important part of public television, it's called pledge time. Many of the stations that carry this program may shift when we're on, but the message is clear. If you value the work done on this program, please consider supporting the work we do with a financial contribution to your local PBS station. Next week we will check out the long-term effects of damage done by snowstorms that hit the winter vegetable crop. Thanks for watching. Have a great week.

(music)

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.  

(music)  

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

 

 

Grinnell Mutual Insurance
Sukup
Accu-Steel
Pioneer