Market to Market (March 19, 2021)

Mar 19, 2021  | 27 min  | Ep4631

Coming up on Market to Market -- Another round of extreme weather smashes through the south. Drought continues to intensify across the nation. A job retraining program that focuses on hard and soft skills.And market analysis with John Roach, next.

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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.  

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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.

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This is the Friday, March 19 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

Weather is a frequent topic in our lives, especially this time of year.

Last month’s cold snap also slowed retail sales according to the Commerce Department. The rate dropped three percent in February.

The weather was one ingredient in the 10.3 percent drop in housing starts. Also in the equation are higher lumber prices and supply chain challenges.

The Federal Reserve foresees the economy accelerating quickly this year and plans to keep interest rates near zero through 2023.

The Rural Mainstreet Index has set a new record high since its launch in 2006. Nearly 70 percent of bankers surveyed reported an expanding local economy.

We have two reports about the weather and growing dry conditions in the U.S..

First up, the final full week of winter was full of tornadoes in the south while snow filled up the Rockies.

Peter Tubbs reports.   

A record breaking blizzard socked the Front Range of Colorado and Wyoming with up to three feet of snow this week. Large portions of Interstate 70 were closed in eastern Colorado by the heavy snow.

Residents spent the week digging out from under drifts that buried cars. Schools were closed and mail delivery was suspended in some areas.

Denver International Airport cancelled over 2,800 flights after 27 inches of snow blanketed the airport Sunday and Monday. Two hundred pieces of equipment were used to return the airport to normal service.

The snow was good news for ski resorts in the mountains, but the risk of avalanche increased in backcountry areas of the region.

Cheyenne, Wyoming received 30 inches of snow in the city’s worst blizzard since 1979. Interstate 80 between Cheyenne and Laramine was closed, as it was covered by four foot drifts along a 20 mile stretch of highway.

The Gulf Coast also saw heavy weather as storms brought dozens of tornadoes and hail to Texas. Late in the week, tornadoes smashed through Alabama. Damage to buildings across the state were widespread as light vehicles like campers were rolled into clusters by the high winds. Power was knocked out to 40,000 homes in the wake of the storms.

For Market to Market, I’m Peter Tubbs.

And I’m John Torpy.

A week with early spring rains and record snowfalls did little to ease worries over increasing drought conditions across several parts of the U.S.

According the U.S. Drought Monitor, abnormally dry areas are expanding across the Northern Plains, while the Southwest continues to see exceptional drought conditions that have a hold on that region since the fall of 2020.

Dr. Justin Glissan, State Climatologist of Iowa: “You can have droughts that exists for, you know, three or four months or a season like we saw in 2018, 2019. Um, or you can go multi-year, um, uh, uh, droughts. And that's what we're seeing in the desert Southwest, um, Colorado, Utah, Nevada.”

Dr. Justin Glisan, the State Climatologist of Iowa, noted dry conditions have been building across the country, but well saturated ground in the Midwest during the spring of 2018 and 2019 helped hide the visible signs of an impending drought.

Dr. Justin Glissan, State Climatologist of Iowa: “So last year we had an excellent planting window. In fact, early planting window, getting into April and May. We were planted, we were all ready to go. We had ample subsoil moisture. So as we started to get into flash drought conditions in May, into June, those subsoil moisture profiles were able to tide us over as we did start to dry out.”

In the Spring Outlook Report from the National Oceanic and Atmospheric Administration, released this week, forecasters predict drought conditions are likely to persist and expand throughout the spring season, which could become a problem for farmers preparing to plant.

Dr. Dennis Todey, Director, USDA Midwest Climate Hub: “If you are a row crop farmer and your soil moisture is in pretty decent shape, uh, maybe scale back, you know, maybe scale back some planting, planting rates or fertilizer rates or some things like that. Uh, if your soils are dry, definitely think very seriously about that, uh, that, you know, maybe changing some yield targets, definitely looking at your marketing strategy.”

Dr. Todey added increasing drought conditions that persisted throughout the winter in the Northern Plains and Upper Midwest could impact cattle producer feed needs, most notably in locations across the Dakotas.

Dr. Dennis Todey, Director, USDA Midwest Climate Hub: “If you're a livestock person, range land, uh, look at what your range land situation is like and make some very serious decisions and do some very serious thinking early on before you get caught and you're having to make short-term decisions that could hurt you even worse.”
For Market to Market, I’m John Torpy.

Fewer American workers are headed to the coal mines. Employment peaked in 1923 with more than 880,000 jobs. Just five years ago, the number was closer to 50,000.

As jobs and industries change, so too will some workers and their skillset.

Peter Tubbs looks at the job and personal retraining in our Cover Story.

Two new carpenters learn mortise and tenon techniques in the wood shop at Coalfield Development in Huntington, West Virginia. They have recently joined a three year program with Coalfield that will teach them more than practical carpentry skills. Originally a general contractor, Coalfield found that employees had needs beyond a paycheck.

Brandon Dennison, CEO, Coalfield Development:  “But as we hired our first crew, we realized that the life challenges our crew members were facing and that the people of southern West Virginia generally are facing are just very, very overwhelming: financial challenges, health challenges, physical health and mental and emotional health challenges.” 

Workers at Coalfield Development’s multiple businesses work an unusual week: 33 hours at their job, 3 hours of personal development classes, and 6 hours of community college. All on the clock.

Brandon Dennison, CEO, Coalfield Development: “One person at a time, you know, we're not going to bring in a hundred people for a week long seminar. It's crews of three to five, but we really get to know them. We really get, we earn their trust, we trusted them and they trust us. And we just work through life challenges as they arise one by one, until slowly but surely we see a person start to really reverse a generational poverty cycle, which is transformational for our region.”

One of Coalfield Development’s companies is a t-shirt manufacturing and printing business. The shirts are made from recycled plastics, and customers can order individualized designed that are mailed directly to their homes.

Barbara Mason previously worked in fast food, but now helps design and print shirts. She finds the personal development classes helpful in her life away from work.

Barbara Mason: SustainU: “Well to me they're kind of like therapy. Um, they really help with our everyday, everyday work, material and stuff like that and really helps us all through struggles like budgeting, stuff like that.”

Much of Appalachia and West Virginia is struggling economically. While the unemployment rate is under five percent, the contraction of the population since 1950 has stunted economic growth and opportunity. For a century coal mining was the largest and highest paying industry. But mechanization and cheap natural gas has reduced the number of coal jobs in the state by 85 percent, leaving a region struggling to reinvent itself both economically and psychologically.

Brandon Dennison, CEO, Coalfield Development: “It is a powerful industry, but it's employment base every decade after decade has, the trajectory has been very clearly on a downward trend. And so, uh, we are working on economic diversification because we have to, if, if our communities are going to survive. And so coalfield development is trying to pioneer and model what a diversified, more sustainable economy can look like.”

The very home of Coalfield Development is part of the reinvention. A century old factory on the west side of Huntington, West Virginia is slowly finding new life. Coalfield is renovating the 90,000 square feet to house its businesses as well as other businesses and nonprofits from the area.

The building provides lots of work for the construction side of Coalfield Development, which leads to personal and educational improvement opportunities for the staff.

Drew Endicott, Coalfield Development: “Yeah, well, I started out, I came straight out of, uh, a coal dock. I was a Sample man. And, uh, my building construction from teacher and high school. He just called me up one day and asked me if I wanted the job and said, well, I'm looking for one. So he sent me to Brandon and I was the second hire Coalfield ever made. I've seen you grow. Just, uh, just like realizing like, it's not just us, it's everybody. It's like community. It just teaches you a lot about respect, uh, volition. I mean, just all the grit, just everything. And I just, it's just nice that there's a company out there that does this stuff.”

The businesses under the Coalfield development banner have spun up organically as needs have been identified. The group has also opened businesses growing vegetables and teaching small-scale farming techniques, as well as a solar panel installation company.

Ultimately, employees have gained benefits from the 33:3:6 model, moving towards higher work skills and better life habits.

John Ratliff, Coalfield Development: “Because when I've worked five or six different jobs, I haven't found the right one for me. But, uh, when I came in to coalfield, coalfield has taught me what actual respect was because I'd never had a childhood, uh, grow up like at when I entered Coalfield. Coalfield taught me everything that I needed in life and Coalfields the job for me. So I've been with them for about eight months. I learned everything from Coalfield.”

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

Next, the Market to Market report.

China booked nearly 121 million bushels in U.S. corn this week while meeting with U.S. officials in Alaska. Diplomats offered sharply different and pointed views of one another in the first meeting since Joe Biden took office. For the week, May wheat lost 12 cents while the nearby corn contract jumped 19 cents. Better weather in South America and China’s pledge to cut back on meal in their feed rations weighed on the soy complex. Nearby soybeans needed a 24 cent gain in the last session to improve 3 cents on the week. May soybean meal added $7.20 per ton. May cotton shrank by $2.88 per hundredweight. In the dairy parlor, April Class III milk futures declined 67 cents. A mixed week in the livestock sector, April cattle lost 60 cents. April feeders dropped $3.80. And the April lean hog contract expanded $2.85. In the currency markets, the U.S. Dollar index gained 25 ticks. April crude oil decreased $4.01 per barrel. COMEX Gold added $19.90 per ounce. And the Goldman Sachs Commodity Index fell more than 21 points to finish at 471.40.

Yeager: Now here to provide insight is our senior market analyst, John Roach. Hello, sir.

Roach: Hi, Paul. How are you?

Yeager: Good to see you as always and I look forward to our discussion here where imagine that, we're going to start with weather and its impact on the wheat market. We got rain in the Plains, we got snow in the High Plains. Is this a weather market only in the U.S. wheat market right now?

Roach: No, it's really several different components. Certainly weather is a big part of it. What does our winter wheat crop look like and we had some very lifesaving rains this week and so that helped the crop and hurt the price. The other thing that is happening is we're seeing our major competitor, one of our major competitors, Russia, offering wheat at cheaper price levels out forward than the current market. I talked to some international traders today and there were some offers out between $40 and $45 a ton cheaper out of Russia for new crop delivery in August than what prices were trading at currently. And so the worry about what's ahead from not only the U.S. production but around the world is coming to the trough here right now. We think that there's plenty of demand out there. We think the market will stage a nice recovery in here. But we are concerned about the Russians' willingness to discount their new crop wheat.

Yeager: Because it wasn't that terribly long ago that Russia said, we're not going to export anything, and that changed the market. So if you're expecting a rally, am I sitting for how long before I look to make a sale in nearby or deferred months of wheat?

Roach: Well, the market has taken the fall and so we're already down into an area, on our system we actually have buy signals on wheat. And so we're accumulating wheat for those people who are buyers of wheat understanding that there's some risk in here because we're heading right into the new crop growing season and developing and harvest actually. So we have those concerns. But we think the market can rally.

Yeager: So a buy. Is there an area or window I'm looking at before I maybe make a sale?

Roach: We don't look at the numbers so much as we look at the market momentum and movement and we end up generating in the neighborhood of six to eight, ten sometimes sell signals per year and a similar number of buy signals. And we're just patiently waiting for that to happen rather than looking at a price level. But if you push me into it, notice that we've been in this huge range really across all of our grains for some time and now we're clear at the bottom side of it, particularly on wheat, but we're at the lower side on several other markets too. And so we think from this bottoming phase that we ought to be able to get 25, 30 cents back pretty easy.

Yeager: All right, speaking of sell signals, you had one of them on corn this week. How long -- that's a very specific question, I know sometimes they're shorter or longer. But what kind of steam do we have in this corn market?

Roach: Well, it's a little bit of a mixed bag. Yesterday the steam was gone in a hurry so we had a sell signal in the morning and by the afternoon it was gone because the market declined away from the price levels. And now today it's right back again and so we'll be putting out another sell signal or we'll just be extending the one we issued yesterday, we'll be extending that on Monday and we think that people should be looking at their corn situation very carefully and recognizing they have old crop corn perhaps and they certainly have new crop coming on and we think there will be 3 decent sell signals here during the growing season and we think that this one that we're in right now is the first one. We're already worried, we already listened to the comments from the weather people here earlier in the show, we're worried about the new crop, we don't have the subsoil moisture in a lot of areas although we did get some relief this week there. We have to raise a big crop this year and we found out again this week that the demand is very solid and not only is it solid from China but we're also doing good sized business with more routine kind of customers.

Yeager: What do you make of the Chinese purchase this week, John? That's a big purchase, record purchase. Is that -- obviously still fulfilling Phase 1. But actions speak louder than words. When they're buying that indicates to me that they're in need, right?

Roach: Well, I think what they told us some time ago is, well we won't need it. In fact, some of the people that we get reports from argued all along that the Chinese would not take the kind of big bushels that people were talking about and these were mainly China-centered people. So their publicity was we're not going to take all that. At the same time they're telling their people, we need to conserve food, we're going to run out of food if we don't conserve it. And then they've been on a completely different path if you listen to what is published domestically in China. So we've all been waiting to see which way is it going to be? Is it going to be the well we're not going to do much more or we're going to more? And this week we did a lot more business. And we're now starting to eat into our surpluses and surpluses are good. But from a farmer standpoint if you start to eat into these surpluses much further you start to talk about concerns about supplies and so forth. And again, talking with international traders, people want to see the U.S. crop growing and in a really good condition before they say okay, everything is all right because if we have a good crop it's a completely different picture than if we have any kind of problems at all. And even with just sort of normal kind of crop yields supplies will stay tight. We think the Chinese want a lot more and we're on that side of the fence.

Yeager: Okay. Well, that kind of opens up a little bit of a question we got from Phil in Dresden, Ontario and it's a little bit about the carry in the market and it's a little bit about what you had said earlier. He said, the December 2021, March 2022 corn futures spreads are widening a bit meaning that there is some carry in the market. Such a difference from what we became used to in the old crop corn market. How defensive should farmers be in selling new crop corn or is this just a head fake, John?

Roach: Well, I don't think defensive is the right way to approach it. I think that the right thing is to sit back and thing okay, what's likely to happen? And what our experience tells us is we're likely to have some weather scares and so find a system that does a pretty good job of telling you when a weather scare is getting extended, which is what we've tried to do, and then when our system says go ahead and pull the trigger, which it's saying right now in corn, that is not a defensive play, that's a we're selling part of the new crop and we're willing to take this kind of price level for part of it and we're going to sell more on the next sell signal and more on the next sell signal and by the time we get to the third one all the bushels that have to go to town, they need to have a price on them already. All the bushels you're going to be able to store, if you want to gamble longer no problem. We're still going to have to raise a big crop in South America next year. So the big weather concern this year may not be America, it may be South America, and that starts in November.

Yeager: What about the South American weather and its impact on the soybean market? Volatile again was the story of the week.

Roach: The impact is almost finished. They're getting into the latter part of their harvest and the people there continue to argue that the crop is still sizeable, they are not pulling their numbers down even though the reports are scary and still wet and can't get it harvested and so forth. We're getting past that. The pipeline is now full. The ships are lined up. What we're going to talk about his how substantial the demand is going to be. We're going to have week after week of unbelievable quantities moving out of Brazil and we're going to tax the logistics I think all around the world, we are currently, I don't think that changes, in order to try to get the maximum amount of crop moved to where it wants to go.

Yeager: So are you selling right now or are you holding?

Roach: We're selling into corn, we've got sell signals. We're waiting on beans, we're hoping for a bean sell signal next week.

Yeager: Okay. Livestock, today cattle on feed, it's been a really up and down report there as well. What did the report say? And what does that mean for the market moving forward?

Roach: It basically told us that the numbers the traders thought were in front of them are and right now we have quite a few cattle that are finishing, we had cattle that got delayed due to the weather conditions and we had a lot of cattle placement coming into this time, we've just got a lot of cattle we're working out way through and we're a little bit behind in the marketing of them. We think that we'll run out of this frontloaded supply and run into better slaughter numbers, smaller slaughter numbers as we move on into April. We also think that at about the same time the benefits that we're going to get from the vaccines that have become available and the numbers of people who are feeling better and feeling safer to go out, we think those numbers are going to ramp up. They're talking about by April 1 100 million doses have been delivered, that's a third of the American, not quite but almost a third of the American population. So the people who really want to get the vaccination and have been worried and staying home and so forth, we think that really clears in the next 30 to 45 days. This last report on gasoline usage was down 12% from last year. So whatever that equates over to reduction in demand at the restaurants and so forth is going to be replaced with people who are so happy to get out and to be able to do something and we know a little more of that down here in Florida because we've had a little faster progress with the vaccine and it's amazing. People come down to see us from the Midwest and they can't believe it, they say it's normal down there. Well, I'm not sure, but it's certainly busy and it's about to be busy everywhere I think.

Yeager: I've seen a lot of pictures from people in the Midwest down in your neck of the woods this week celebrating spring break that they did not get last year the way they wanted it to. Real quickly on feeders, John. There's a little bit of a story someone told me about the basis on spreads indicating that there could be some swings coming, a major swing coming in the feeder market. Do you buy into that?

Roach: We think that if the corn market does not take off and run then the feeder cattle market will. If the corn market does that will put a lid over on the feeder side. But we think the feeder supplies are right, we saw the market stronger this week. We think we have stronger prices ahead.

Yeager: All right. In the hog we've got significant discrepancies between what China is producing, what they're wanting in the hog market. Again, you talked about having what sources you believe in China. What are you believing about China's impact on our domestic market of pork?

Roach: I think that although they're claiming to have worked their way through the ASF, they're still well behind on numbers and they're still struggling with that. We think that the export demand is good. Export sales this week were excellent, although interestingly enough to Mexico, they were the biggest buyer. And we think we have a good demand out forward and we have some smaller supplies. So we're positive on the hogs. However, we also have sell signals. We're selling into the summer hogs here and we're selling a little into the fall. We do 80% of summer hogs and up to 30% of fall.

Yeager: All right, John Roach, thank you so much. Good to talk to you. We'll see you in Market Plus. That will do it for the installment of the TV show we call Market to Market. As I just said, we will talk more in Market Plus so join John and I there. You can find that on our website at MarketToMarket.org. And our YouTube channel is more than just a place to watch our full program, Market Plus and our stories. It is a chance for you to see our work on any device at any time. Join the thousands who have already clicked subscribe at youtube.com/markettomarket. Next week we check out some cattle producers using electronic animal ID's. Thank you so much for watching. Have a great week.

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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.

 

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