Market to Market (June 18, 2021)

Jun 18, 2021  | 27 min  | Ep4644

Coming up on Market to Market -- Record temperatures roll corn growing on already parched ground. Adding teeth to a century old livestock rule. How one dairy operator changed gears to survive the pandemic. And market analysis with Chris Robinson, 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, June 18 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

Americans are spending money now on services and travel destinations and less in stores.

Travel is the new ‘it item’ as American’s take the wheel even as retail sales were driven 1.3 percent lower last month. Fewer auto sales also contributed to the decline.

The producer price index, a key inflation indicator, jumped 0.8 percent in May as wholesale prices were led by rising food costs.

Home construction rose 3.6 percent last month even with builders fighting high lumber prices. However, lumber has lost half its value since peaking May 10.

Creighton University’s Rural Mainstreet Index kept above growth neutral for the seventh straight month with a reading of 70. However, the rating was down from May’s record high.

Many Americans would appreciate temps in the 70’s. Instead, hundreds of new record highs were set across the country this week.

Now with drought conditions expanding, the lack of water is becoming more evident.

Peter Tubbs reports.  

Record temperatures swept across the western half of the U.S. this week, while much of the corn belt waits for rain to ease a growing drought.

Phoenix had multiple days above 115 degrees this week, and Las Vegas threatened records with temperatures above 110 degrees.

The drought across the western half of the United States worsened, as heat continues to dry out several states. 

Multiple wildfires in California flared up, taxing fire crews. The number of lakes and reservoirs that firefighters can draw water from for firefighting continues to decline.

Crops in the Midwest are struggling to grow as subsoil moisture is depleted and temperatures hit triple digits. Corn in some parts of the country is beginning to curl as the plants work to retain moisture in the short term. Meteorologists fear the trend is going to continue even as rain showers and thunderstorms pop-up across drought stricken areas of the nation.

Dr. Justin Gilsan, State Climatologist for Iowa: “We talk about dryness begets dryness, and wetness begets wetness. If you have no moisture for these thunderstorms to work off of, they won’t go in that region or they will just fizzle out. This is what we saw last year as drought conditions started to form.”

For Market to Market, I’m Peter Tubbs.

At least three lawmakers are wanting to sharpen the teeth of the century-old Packers and Stockyards Act.

This would be adding a new layer of oversight with the aim at helping the livestock producer.

Josh Buettner has our story.

Farm state Senators Mike Rounds, Jon Tester and Chuck Grassley recently unveiled bi-partisan legislation to address anti-competitive practices in the meat processing industry.

The Meat Packing Special Investigator Act comes on the heels of the Memorial Day cyberattack on one of the nation’s largest meat suppliers, JBS, who reportedly paid Russian hackers an $11 million ransom to get operations in North America and Australia back online.

The proposed bill will create a new dedicated office within USDA’s Packers and Stockyards Division to enforce anti-trust laws as they apply to the meat and poultry industries.

Lawmakers and livestock groups, among others, say corporate consolidation has led to a domestic business environment where just 4 major entities hold the reins of U.S. meat supply – a situation which they say puts farmers and ranchers out of business and drives up retails costs for consumers. 

For Market to Market, I’m Josh Buettner.

From adversity comes creativity and ingenuity. When a door closes, another may open or some will just build a new door. 

The Great Pandemic caused many operations and organizations to pivot to stay profitable or in business at all.

John Torpy documents a dairy that was able to do just that. This is our Cover Story.

In the spring of 2020, the COVID-19 virus cut the power line for the longest running economic growth period in U.S. history. Stay-at-home orders slowed economic growth to a crawl. According to the Congressional Research Service, between January and April of 2020, the nation’s businesses shed more than 22 million jobs.

In rural America, revenue streams for some small farms and businesses dried up.

Mike Naig, Iowa Secretary of Agriculture: ”What we saw was a need to help some of our specialty crop producers or on-farm processors with a marketplace there, the restaurants that they sold to the food service, uh, demand just absolutely fell off. And so what could be done to, uh, to help accommodate for that, you know, farmer's markets weren't able to function largely like they normally would expect. And so their marketplace was, was, uh, was significantly disrupted.“

One Iowa dairy saw the economy deteriorating and switched into survival mode. The owners of the small operation changed their revenue model to focus on serving those in need. As one of the only farmstead-based yogurt makers, Country View Dairy found itself uniquely positioned to keep its production line moving and continue to service their markets in seven Upper Midwest states.

As the pandemic spread, the company’s 22 employees began sending products normally destined for refrigerator shelves in retail stores, to coolers in food banks and schools across the Midwest.

Bob Howard, Marketing Director, Country View Dairy: “USDA came up with the Farmers to Family Food Box program, um, which really benefited us in that we were able to actually still use some of those bulk containers in our smaller sizes and ship it out to distributors in the Chicago area. And then they could distribute it through their areas of distribution there to get it. They create these food boxes for people in need.”

Country View Dairy is a small farm operation located near West Union, Iowa. The dairy’s owners, Dave and Carolee Rapson, are first generation farmers who moved to the area in 2002 to follow their dream of owning a dairy. The Rapson family are members of the Mennonite and Amish religious orders, and preferred to not appear on camera for this story.

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Country View Dairy narrowed its focus and began supplying just its yogurt to food banks and schools. As they filled the orders from various federal food assistance programs, the Rapson’s realized their products were getting noticed in venues that had previously been out of reach.

Bob Howard, Marketing Director, Country View Dairy: ”Normally, we send yogurt to maybe a dozen schools and, and it was over 30 schools in Iowa./ Schools that we've never worked with in the past. So that was, that was great. In fact, it built some new relationships, uh, and we've got orders for this new school year, regular orders for some of these same schools. So it's been, uh, it's really been a good thing there.”

Some of the new connections were made when the Iowa Department of Agriculture began encouraging schools and food assistance agencies to purchase local food products. The agency hoped to keep businesses afloat that were hit hard by the global pandemic while simultaneously helping those who were food insecure.

Mike Naig, Iowa Secretary of Agriculture: ”We use some of the CARES Act money to help try to, again, reconnect to, to connect producers with, with buyers locally. And one of those things was to incentivize or provide, uh, uh, some match dollars for schools to be able to buy local. And we know that many of our dairy producers in particular were, uh, uh, took advantage of that opportunity and saw a tremendous increase in their sales.”

Jessy Sadler, Director of Nutrition Services for the Urbandale Community School District in Urbandale, Iowa used USDA funds to help find local food products for her free meal programs.

Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: ”We received $10,000 through the CARES act money. It was a grant that we got awarded and we sourced that from Country View Dairy farm, and we brought the yogurt in and kids absolutely loved it. So we continue sourcing it. We're adding it to our summer meals and then starting next year, we're also going to add it to our breakfast menu.”

Sadler has continued to purchase Country View Dairy products even though USDA assistance programs have expired. Since March of 2020, her staff has handed out over 500,000 free meals at the seven locations served by the Urbandale School District.

Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: “We're providing free meals to all students. Free breakfast and a free lunch, but at the same time, we're focusing on the nutritional part of it. So we're providing all fresh fruits and fresh vegetables. We're making sure it's a hundred percent, whole grain.”

Sadler is using her recent purchasing experience as a template for procuring other local products.

Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: “…that way we make sure that kids are actually learning what Iowa local food is. And we're promoting that part of our farm to school initiative as well/ Our plan is to make sure a hundred percent of the breakfast and a hundred percent of the lunch menu is only Iowa local sourced items.“

Howard is happy about the part Country View Dairy played in supplying food where it was needed and hopes the new relationships built during COVID-19 will continue.

Bob Howard, Marketing Director, Country View Dairy:

”People are trying it for the first time saying, ‘Wow, this is, this is great yogurt.’ ‘I didn't know such a product like this existed out there.’ And, uh, a lot of these people have never been unemployed or they certainly have never gone to the food bank in their life. And things are, uh, things are getting,/and be in a position to go to the grocery store and, and purchase the locally made items like that, that they find in the food bank box.”

 

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

Algorithms and speculators made headlines while weather and policy debates factored into the trade. For the week, July wheat lost 18 cents while the nearby corn contract shed 29 cents. A record day for soybeans, lower, as the biggest one-day fall on the contract happened Thursday. For the week, the July contract plummeted $1.13. July meal fell $9.90 per ton. December cotton decreased by $2.74 per hundredweight. In the dairy parlor, July Class III milk weakened by 82 cents. A mixed week in the livestock sector. August cattle improved $1.52. August feeders added $3.85. And the July lean hog contract declined $11.30 or nine percent. In the currency markets, the U.S. Dollar index increased 164 ticks. July crude oil expanded 86 cents per barrel. COMEX Gold fell $108.10 per ounce. And the Goldman Sachs Commodity Index dropped by more than 11 points to finish at 519.30.

Yeager:  Now here to provide insight is market analyst Chris Robinson. Hello, sir.

Robinson: Hi, Paul.

Yeager: So, this dry story is a story across many grains. It might not be the story in corn or soybeans. But is it the story in wheat?

Robinson: For spring wheat, absolutely. The areas where you grow spring wheat they have been in a horrendous drought. Take a look at social media, you'll see some of these fields look like the surface of the Moon. It's the worst conditions for spring wheat I think since going back to '88 I believe. That is the last information I saw. So we'll see. And that's interesting, with all the volatility that we've had actually spring wheat held up pretty well yesterday if you were looking for yesterday being Thursday when we had the meltdown. Spring wheat held in there. So that was a sign of independent strength. And of course we had the correction higher today. So everything looked good. But I still think that has kind of been the real drought story and it's building. As far as corn it's building because the next couple of weeks we've got pollination, different parts of the country have got different levels of drought. Here in Iowa they've got some areas that are D1 or D2. So it's going to be very, very interesting. And that is why you see every 12 hours we have a whipsaw.

Yeager: Okay, you mentioned Twitter. Let's just bring the elephant in. It's full yesterday on Thursday of oh my gosh, it's 101, 102, 99. But yet we drop a limit down. So to me that says it's not a weather market. Was I reading something wrong? What is the mover in corn?

Robinson: For corn I think, well what happened on Thursday we probably won't know for a week or two, but something out of the ordinary happened to have a move like that and then also you see today the recover we had. That was something, I've been out here since 1990, I think we had one other time between that timeframe when we had a limit down and a limit up day. So I think there was something else going on there. I don't know if it was forced long liquidation by somebody or somewhere or just everybody that had been bent the one way got out all at once. That is the double edged sword with computer trading, when it starts running it runs, and it's different than when the pits were open because people would calm down where the machine just goes.

Yeager: The algorithms they don't know, they don't care.

Robinson: They don't understand emotion.

Yeager: Yeah, they see value and they're trying to capitalize on that. Okay, the weather picture is something and you talk about maybe something was amiss. Let's play conspiracy theory for a while. Russia, China, Biden policies, one of those three things? China changing their plan on what they want for the state companies?

Robinson: Yeah, that was the interesting thing. About a month ago they said they wanted to curb speculation, right, and nothing really happened. That was actually when we had our first dip in corn, we had that little whipsaw down to $5 and came back up to $6.28. But certainly on Thursday it was just a little article and the state leaders said that they were interested in seeing the long positions of anybody in their state owned companies that had long commodities outside of China. Well, 12 hours later is it a coincidence that you have this huge meltdown? I don't know. But it sure was, it just seemed like unending selling. And to finish the day down limit and then as soon as we open up to come off it seemed like it was certainly something was amiss. So we'll see what is down the road.

Yeager: So what do we do? New crop, what are we doing?

Robinson: For corn?

Yeager: For corn. How are we protecting ourselves?

Robinson: First of all, nothing beats a good cash sale. I was on a few months ago and we were talking about boy, it's going to be really nice if we get to see $4.30 corn, because for the past three or four years that was the magic number. And I think that certainly a lot of people when we got to that level a lot of people got some cash sales done thinking that that was going to be, if you look back at the past six or seven years that was a really good level to not let it get away, same thing for $10 beans. And this year was different. And we talked about it back then. We started seeing extreme volatility, it really took off after the March acreage report when that number came out and that set up for what is coming at the end of the month. What happened to those acres? Well, we're going to find out on the 30th. So, $4.30 became a good price. Then I think people started looking, well how high can it go? And this has been one year I Think after seven years of not really having volatile markets where it's really, your only defense against making what you think is a good cash sale turned into one that you regret is you had to reown it after the sale, and the only way to do that is either you buy calls to reown it on paper after you make a sale or you look for an opportunity to buy the futures back if you want to do it that way. But you have to reown it to stay in the game. And I would say in the next two or three weeks with the volatility we have and we're having 30, 40 cent moves overnight, if you make a sale because it makes good sense to your bottom line think about reowning it. And the nice thing now is with these shorter dated options you don't have to spend 25 cents or 30 cents or 40 cents. You can get a nice position on for 10, 12, 15 cents and stay in the game. So I think that is the number one thing, if you make a cash sale stay in the game.

Yeager: Okay, let's move to soybeans and I'll come back to a weather question in a moment. The soybean story, it is similar in some instances but there seems to be something else going on. What is it?

Robinson: Demand, and also we've got the tight carryout. Everybody knows that.

Yeager: But if this biofuels policy changes and the exemptions return or stay in place that we had in the previous administration that might eat into some of that carryout.

Robinson: Absolutely. But I think the big what if is China. China started buying beans from us back during the Trump administration and then low and behold we had an $8 rally, $6 to $8 rally depending on which contract you look at. That is a tremendous move, right? So that demand is really what has been underpinning everything and we saw it today. We were talking about it before we sat down. We had a dollar break in beans and low and behold 8 cargos left the Pacific Northwest going to China. So if you've got 1.4 billion people to feed that is going to be something that we're going to have to reckon with and with a tight supply no matter what happens with the Ren I think that is what is going to be the overall driver. And again, are we going to grow a 4 billion bushel crop this year? If we have any hiccups in the weather. If we don't then we really have a problem and that is why you see this price rationing.

Yeager: Well, we have a question about the weather. We have several questions about the weather. This is Matt in Clara City, Minnesota asked us on Facebook, you can only trade a forecast so long. Drought worries in June. Is a correction coming in soybeans? Is this the correction?

Robinson: Well it depends. We seem to have every 48 hours a correction, which again, we didn't see this for six or seven years. It's like, I was talking to one of my clients and I said, it's like being Rip Van Winkle, you didn't really have this type of volatility for six or seven years and you get lulled to sleep and now it's something that we haven't seen and certainly with electronic trading. So I would say this, I would say number one, if you do make a cash sale if it's a good price for you think about reowning it because who am I to sit here and say, no there's no way beans can go to $20, whatever, pick the price that is the most upsetting to you if you're a bear, just pick a number out of the thin air. The only way to stay in the game after the sale is to reown it. I wish there was some other way to do it. Unless you have psychic abilities and can tell me where the high is going to be that is the only way you can stay in the game. So I would say that. Then how do you play these markets? Well, if you've got unpriced grain when the market rallies $8 from the bottom, we had an $8 rally in new crop corn, somewhere along the way you should be protecting that grain. You could protect at $10, you could have moved it up to $12, you could have moved it up to $14. But at the end of the day you're in charge of what level you want to protect and I think that holds true. We've seen it time and time again where we've had very, very inexpensive protection that has blown up in 48 hours and then 48 hours after that it's back to being very, very inexpensive again. So there is a way to protect yourself. You've got to get your risk on paper. That is the reason the CME and the Board of Trade were all built. There is somebody there willing to take your risk, let them have your risk.

Yeager: Well, the risk in the livestock market, the cattle market, we're coming up on July Fourth, you didn't get processed this week, it's not going to be in the store in time. The price doesn't seem to reflect that we're having issues or anything slowed at the packer.

Robinson: No. That's the thing, there is a disconnect there, especially when you go to the store. But if you look at fat cattle, live cattle, we've got really, really excellent prices right now if you look at where we've come from and it has held in despite concerns about is the reopening going to continue. At the end of the day you've also seen something else we're talking about where this whole inflation trade. There's just a large part of the financial community wants to own physical commodities and they don't care if they own corn, wheat, beans. And that is something when you're starting to see a kind of sustained demand from not really the speculative funds, but the index funds, the index funds whose job it is to protect against inflation. You're somebody that says, I'm worried about inflation, you buy the index fund, they buy the basket. And there was some thought too that that's one of the reasons that we rebounded so hard after that sell off was that the index funds stepped in and bought that because their job is to protect against inflation and if inflation is at 2%, are we going to go back to 1976 and 8% inflation? If it is, the only way to get in front of that are these index funds. So that may be something that we haven't dealt with for years because we haven't had inflation so that might be a support.

Yeager: Are you expanding your feeder cattle to buy into maybe this inflation is going to be good for me?

Robinson: Feeder cattle, take a look at the long-term charts. We're at five year highs and that is something you've got to take advantage of. And we've seen multiyear highs on all these commodities, seven to eight year highs in corn and beans, if we get back up to where we were with crude oil at the height during the Trump administration it was $76.90, we're $4 away from that today, that's 5%. That is going to be a seven and a half year high. So you're starting to see that commodities across the board are at six to seven and a half year highs or back to where we were in 2014, 2012, that is the area. Is that going to last? I hope so.

Yeager: Also multiyear highs, the hog market.

Robinson: Seven year highs.

Yeager: Falling off that a little bit. Have we seen the high in hogs? I haven't pinned you down on that question yet.

Robinson: Have we seen the high in hogs? I hope not. A year ago at the bottom of the pandemic we were at 18 year lows and that was a horrendous time to be a hog producer. So I'm on the side of the producer, I think that the market is giving you a great opportunity to protect these prices and you can reach pretty far out to actually June or July of 2022. We haven't been able to say that for a long, long time. When these prices get high like they are the typically super expensive protection gets cheaper and cheaper. So it’s something to keep an eye on. And guys always say, well what can I do? What can I do? The only way to protect yourself is to get your risk on paper because otherwise you're just exposed to all the risk. So you don't want to let a $53 rally, we just lost $10, you don't want a $53 you lost $10, you don't want to see it lost another $10 or $15 so set a hedge. Setting a hedge does not mean you're getting bearish.

Yeager: You're being smart.

Robinson: You're being smart and if you do it right you can keep the upside open.

Yeager: All right, Chris Robinson, I appreciate the insight. We'll keep it going in Market Plus. How about that?

Robinson: Thank you.

Yeager: Good to see you. That will do it for this installment of Market to Market. We will talk more in Market Plus, so join us. You can find it on our website of MarketToMarket.org. There is also this thing called YouTube and it has something for everyone including full episodes, stories and our Market Plus. Subscribe by going to our page of youtube.com/markettomarket. Next week, we look at the possibility of eradicating famine.  Thanks you so very much for watching and 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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