Market to Market (August 20, 2021)

Aug 20, 2021  | 27 min  | Ep4701

Coming up on Market to Market -- Drought’s grip tightens as wildfires expand. The EPA bans the use of a pesticide on food crops. Renewed concern over an old livestock disease. And market analysis with Mark Gold, 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, August 20 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Paul Yeager.

The National Oceanic and Atmospheric Administration declared July of this year as the hottest month on record across the entire planet. This tops a seven-year streak starting in 2014 with each one a little hotter than the last.

Many federal, state and local officials use this data to point the finger squarely at human-induced climate change despite opinions to the contrary. The global battle against weather extremes has many of those same people sorting out what to do next. In the meantime, the nation is left to deal with the current events brought on by the weather.

John Torpy reports.

This week drought conditions expanded in the West and Midwest, but in the Southeast, remnants of Tropical Storm Fred caused flooding and mudslides.

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In the Southeast, forecasters watched large amounts of precipitation fall on Georgia and the Carolinas as Tropical Storm Fred dumped five to seven inches of rain and helped spawn more than a dozen tornadoes. Fred weakened to a depression before causing mudslides and power outages in the western parts of North Carolina.

Aided by above normal temperatures and hot, dry weather, wildfire conditions flourished in the West, creating new fires in Northern California.

Nat Sound Break

According to the latest U.S. Drought Monitor, extreme and exceptional drought levels continued to expand across Northern California, Oregon, and Washington. Drought conditions helped new wildfires take aim at mountain communities as The Caldor Fire consumed areas of Grizzly Flats.

Mark Ghilarducci, Director, California Governor's Office of Emergency Services: "It's important for all Californians to understand that the severity of how our climate driven conditions are altering the environment and are making these fires move faster and make them more complex and ultimately more dangerous than anything that we faced in the past.”

The town of Greenville was destroyed by California’s largest single blaze, the Dixie fire, which has charred almost 700,000 acres over 5 weeks. Wildfires in 2021 have burned almost 4.4 million acres nationally, a 46 percent increase from the same time last year.

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Across the Midwest, pockets of rain helped alleviate drought levels in eastern parts of the Corn Belt. But Iowa, Minnesota, and the Dakotas continued to slide deeper into drought. According to the latest USDA Crop Conditions Report, 62 percent of the nation’s corn crop is rated as good-to-excellent, seven points behind this time last year. Nationally, 81 percent of soybeans have begun setting pods. 57 percent of the 2021 crop is rated good-to-excellent, down 15 points from a year ago.

For Market to Market, I’m John Torpy

A combination of cuts to buying power and a COVID resurgence contributed to a drop in consumer purchases. --

Retail sales fell 1.1 percent in July as the number of people contracting the Delta variant increased and disease-related federal government assistance stopped.

Without the reduction in car and truck purchases, retail sales fell 0.4 percent.

For the ninth-straight month, the Creighton University Rural Mainstreet Index stayed above growth neutral even after dropping a little more than 1 point last month. Bank CEOs see drought, COVID-19 infections, Afghanistan, and negative views of infrastructure bills as big threats to expansion.

The Federal Reserve is slowly creeping up to the line on interest rates where it may start slowing monthly bond purchases. Lower interest rates encourage people like you and me to borrow and spend.

Keeping pests and weeds at bay and keeping everyone safe is all part of the job for farmers, ranchers and their employees. After a years-long legal battle, regulators have removed a pest control tool from more than a few toolboxes.

Peter Tubbs has more.

The Environmental Protection Agency announced Wednesday its intention to ban the insecticide chlorpyrifos in all food applications.

Originally developed as an alternative to DDT, the insecticide attacks the nervous systems of a variety of insects that attack food crops both above and below the soil line. The insecticide has been linked to health problems in children.

Residential use of chlorpyrifos was banned in the United States in 2001, and it is banned for all uses in the European Union and California.

In December 2020, the Trump Administration proposed extending chlorpyrifos authorization for 15 years. The Biden Administration has reversed that decision.

Agricultural uses of the insecticide have dropped 60 percent since 1992, and its use on corn has dropped almost 90 percent in the last 30 crop years.

For Market to Market, I’m Peter Tubbs.

Out West, the rise of an old livestock disease in wild animals has natural resource officials keeping a close watch in order to be ready for what might come next.

Colleen Bradford Krantz explains in this week’s Cover Story.

The near eradication of brucellosis, a costly bacterial disease that affected a large number of U.S. cattle herds in the early part of the last century, is one of the nation’s major livestock- and public-health triumphs.

Ryan Clarke, Veterinary Services, USDA: “It was very prevalent in 1934, when our brucellosis program began, when they figure maybe 50 percent of the herds were infected. The program began and they started testing for and removing those animals that were infected. By 1957, they reckoned about 13 percent of the herds were infected in the United States, like 234,000 herds. Then in the early ‘40s, they did develop the vaccine… In 2008, for the first time, there were no infected herds in the United States.”

Experts worry, however, that infected wildlife – particularly elk and bison in the Yellowstone National Park area - are slowly reversing some of that progress in cattle. The disease can cause cows to abort their calves and have milk production fall dramatically.

There is additional concern another strain of brucella bacteria that particularly affects hogs is being spread by wild boar in the southern United States.

Ryan Clarke, Veterinary Services, USDA: “Now, since 2008, of course, we’ve had a number of herds that have been infected, but they were infected by wildlife…. Back in the ‘30s, it was people buying cattle that were infected and those cattle infected their cattle. Now, that’s all gone. …but now it’s …wildlife coming into farms and ranches and aborting and passing the disease that way.”

Dr. Clarke, one of USDA Veterinary Services’ top experts on brucellosis, says livestock will sniff or lick the aborted materials and easily become infected with the resilient bacteria.

Brucella, the bacteria that causes the disease, also can be passed to humans - often through unpasteurized milk – and causes fevers and other symptoms that, left untreated, can become chronic.

With Brucella, which cost the livestock industry about $400 million annually in the mid-1900s, now nearly eliminated from U.S. pastures and feedlots, human infections have also fallen.

Ryan Clarke, Veterinary Services, USDA: “They’ve proven in a number of countries that if you can control it in animals, it’s controlled in humans also.” 

Because the vaccine currently used on cattle and bison isn’t as effective on wildlife like elk, scientists are working on a new version. There’s one problem: several types of brucella bacteria are included on the federal government’s list of possible biological terrorism agents. As a result, the bacteria falls under strict regulatory controls limiting study to the nation’s most secure scientific laboratories, like the National Animal Disease Center in Ames, Iowa.

Steven Olsen, National Animal Disease Center, Ames, Iowa: “So that meant… bio-level 3, containment for both laboratory and animal work and that’s expensive and most places do not have that capability so, for that reason, you saw the number of laboratories and scientists working in the large-animal hosts go down.”

Recently, some USDA officials have agreed with animal scientists it may be time to consider removing the disease from that list so researchers can work outside the lab. At a minimum, they hope research will be allowed near Yellowstone.

Steven Olsen, National Animal Disease Center, Ames, Iowa: “It’s still kind of a work in progress as I understand it...The agent is already running loose in those wildlife populations out there so you aren’t introducing anything into that environment that’s not already there.”

Dr. Olsen points out that, even with an effective vaccine for wildlife, finding a way to administer it to free-ranging animals such as elk would be problematic.

In Montana, state veterinarian Dr. Marty Zaluski, who has seen area cattle producers have to deal with the return of the disease, has been encouraging federal officials to move ahead with a policy change. If approved, two types of brucella bacteria could be removed from the select agents list. National security officials, however, are still weighing the pros and cons.

Dr. Marty Zaluski, Montana State Veterinarian: “There’s a fairly long history of nations wanting to weaponize brucellosis and use it as a bioterrorist weapon. I believe that certainly the USSR - the prior Russia - had a program. I believe this country looked at it as well ....I believe that historical record is really the reason why this agent was included in this list….But I would argue it’s misplaced.”

Zaluski says treatment and prevention of the disease has come a long way.

Dr. Marty Zaluski, Montana State Veterinarian: “If you are terrorist and you choose your weapon of choice as brucella abortus, you are not the brightest crayon in the box. We have a ready test for this disease, the incubation period - the time from exposure until illness - can be several weeks. We have a very inexpensive and effective treatment for this disease. Contrast this type of an agent to ebolla or anthrax... and it just doesn’t make sense to me.”

Zaluski worries that federal officials could, in trying to protect human health by keeping brucella on the list, inadvertently increase human cases by not allowing the scientific community a simpler way to study brucellosis in wildlife.

Dr. Marty Zaluski, Montana State Veterinarian: “My concern is that without interventions that are effective, brucellosis is going to spread throughout the entire contiguous range of elk in the Rockies and the Northwest. Based on a map I saw from the Rocky Mountain Elk Foundation, that includes anywhere from 10 to 12 states. And so I don’t know whether that’s going to happen in 20 years, 30 or 40 years, but ….the outcome… if we don’t develop better tools, is somewhat bleak.”

For Market to Market, I’m Colleen Bradford Krantz.

Next, the Market to Market report.

Widespread rain chances and a private estimate of a larger crop pressured the commodity markets. For the week, September wheat fell 48 cents while the nearby corn contract dropped 30 cents. An increased crop size prediction was not enough to off-set sales to China in the soy complex. The September soybean contract declined 79 cents. September meal shed $4.30 per ton. December cotton declined $1.18 per hundredweight. Over in the dairy parlor, September Class III milk lost 49 cents. An up week in the livestock sector. October cattle gained 92 cents. September feeders added $2.42. And the October lean hog contract improved $2.10. In the currency markets, the U.S. Dollar index jumped 100 ticks. September crude oil shed $5.71 per barrel. COMEX Gold added $6.50 per ounce. And the Goldman Sachs Commodity Index dropped nearly 34 points to finish at 493.45.

Yeager: Now here to provide insight is one of our regular market analysts, Mr. Mark Gold. Hello, sir.

Gold: Good afternoon, Paul. How are you today?

Yeager: I'm very well. And I wish I could say the same about some of these commodity markets. The wheat market down. A couple of factors from the outside looking in. A dry Russia you would think would improve U.S. prices, but it's not. There's some sympathy to other crops. What do you see as the big factor in wheat this week?

Gold: Well, I think as much as anything else fears of COVID, the strong dollar. We've moved this dollar back over 93 cents, which certainly doesn't encourage exports. There's still the Egyptians looking at buying Romanian wheat, Ukrainian wheat, there's more Russian wheat in back of that. So the world doesn't seem to be running out of wheat. The demand has been an issue. And some of these rains will certainly help regenerate some of the soil moisture for the planting of the winter wheat.

Yeager: Makes up those decisions which would lead to more what in the pipeline. So if I'm sitting around right now noticing I've done a 180 in 2 weeks, what do I do next week?

Gold: Well, to me there's still a lot of risk in this wheat market, particularly Chicago and Kansas City. The funds have come out of a lot of their positions. After tonight I think they're pretty close to even. But I think Minneapolis wheat still has a story. Knowing wheat is going to be in short supply, we know that, it acted pretty well today considering what the other markets have done. But overall I think we can see a selloff here. But wheat stocks are relatively tight and until we see some of the other countries come in we've got the dryness in Argentina, the dryness in Russia, Southern Russia had a little bit of rain. But there’s still going to be global tightness for this wheat crop. So I think buying the breaks probably wouldn't be a bad idea. But how deep is the break? I think it will depend on the corn and the beans.

Yeager: A lot of people came together this week to talk about crops and agriculture in general as they converged on the Iowa State Fair. I think you thought I was going to say something else. But that's what our Twitter question is, is about something else that came in. Shane in Nebraska, who I did have a chance to see at the Iowa State Fair, I hope you did well. Shane is asking from Bloomfield, Nebraska, how much impact does this Pro Farmer Tour have on the market?

Gold: Well, it has an effect, as we start getting these results in and if it's going contrary to what the market is thinking it certainly has an impact. If it's just confirming what we think is going on then there's less of an impact. But the crop tour today came out with the final of 177 against the government's 174.6. That's about 2.5 bushels more. Tack that onto the carryouts you could add 200 million onto the carryouts pretty quickly out here. And so I think the market has been sensing that the rains we have had have stopped the losses and helped a lot of the areas. The question has been pretty much the entire growing season, is it so bad in the Northern Plains states, South Dakota, North Dakota, Northern Iowa and Minnesota, is it bad enough to offset how good it is in a lot of other places? It looks net net, yes the crops are going to be down, but not as bad because what is happening south of I-80 is certainly bringing up yields.

Yeager: You wrote this week a couple of times discussing the way the market would respond. It would open up one direction and then reverse course heavily. The market was going that today again just like it had done the rest of the week but then came news leaked out about the EPA involving U.S. biofuel blending, possibly mandating their 2020 levels or there would be lower 2020 blending levels. What is that ethanol story doing to the corn market moving forward?

Gold: Well, with crude oil taking this kind of a drop, we haven't been this low in months in the crude oil, and that certainly questions ethanol demand that just puts more and more pressure on corn and if there's going to be a reduction in mandates it just doesn't bode well for the demand side of the equation out there. So the biggest problem I think with the corn market is the funds are so long even after today about 230,000 contracts. All the technicals point to this thing being lower and that the funds should actually be short, not long. So I'm not sure that the funds are done selling the corn. I think they've done a pretty good job lightening up on beans, wheat, meal and oil to some extent. But corn is still a problem in my opinion.

Yeager: You also wrote if we finished below the 100 day moving average, which I believe we did today, that is going to open the door maybe to some of the computers to kick us lower. Do you still but stock in that statement?

Gold: I do. We closed significantly, we closed just a quarter cent under it last night and significantly under it tonight so that's two days in a row. I would think we'd see more funds selling out here. Technically it's not a good signal. The 200 day moving average is down around $5, trendline support about $5.25, but I think both those targets are in play here. It's not that it might not be a bad move to buy something down there because there's still a lot of heat out here and a lot of dryness, we don't have the crop in the bin, so a harder break than we've seen here. If the funds can lighten up significantly then I think it's the time to take a look at the long side again.

Yeager: Do you see the same story developing in the soybean market, demand and weather squaring off?

Gold: Well, the weather is certainly, you make the beans in August and we've had some good general rains around the country in August, which I think is pushing up the yield. Pro Farmer came out with a 51.2 a bushel point two above the USDA. I think that's a reasonable number and the charts, again, look weak, the funds are still long. I think it's still a bit of an issue, they're still long a fair amount of oil. So I don't see where the strength is going to come from. How do you address a market that you have a really bullish report on the 12th of August, you have Chinese buying and Mexico buying over 2.2 million metric tons of beans this month and we're closing on our lowest levels of the month? So something is fundamentally wrong with this market that I think farmers need to pay attention to.

Yeager: All right, what do you pay attention to then to see what changes because is there a technical signal coming because you're kind of indicating maybe the fundamental signal isn't jiving? So is there a technical thing coming?

Gold: Well, I think when we closed under the day before the reports came out, which we've done now in the beans and the corn, I believe that is pretty significant. It's telling you that whatever news you built into it has been rejected and despite all the huge exports in the beans we're not reacting positive, we're acting negatively. We're down 75 cents for the week. So that certainly doesn't bode well in my opinion.

Yeager: The livestock producer begs to differ. They had a little better week. Let's start with live cattle. What is the reason for that movement higher?

Gold: Well, we've seen the trade in the north $127, $128, south they hardly get over $122, $123 in that range. Boxed beef through the roof again, we were up another 3.14 to 3.44 in change. We've got to increase the slaughter out there. Now, some people think that some of the local locker plants may be ramping up for more production, which would be good. We need to see the October cattle close over $130. We've come up against it a number of times. We've seen August cattle, excuse me, October cattle in the last couple of days up 90, down 90, up 90, down 90, up 90 again today but we can't close over $130. If we close over $130 I think it will be an indication that the prices in the south are too cheap. Packers are making good money out here. But we need to do something about that boxed beef and the cure for that is picking up the slaughter rates. So hopefully we can see plants going back to full production, get the boxed beef prices down, increase demand at the counter and hopefully the packers have money, there's still margins in these cattle to pay up for more cattle.

Yeager: Well, and we quote the near contract in live cattle, but if you look at December that moved to a contract high. Does that tell you something about what is to come?

Gold: Well, I certainly think it's an indicator. The market doesn't want to break. I think it's just trying to bide its time. I don't see anything in the cattle on feed report tonight that is going to make a big difference. Placements were one tick over what they were looking for, marketing is on, feed came in right on the averages. So I don't know that there's anything there that is going to help the October cattle gap open over the $130. If we do close it over there that's positive.

Yeager: Real quickly here when it comes specifically to feeders, you kind of talked a little bit about it already, but is this heat influencing anything of this feeder market?

Gold: Well, certainly pasture is rough, guys have seemed to want to feed more corn. I think demand for corn will be up. But with the corn prices lower it's certainly helping these feeder cattle prices. So that to me long-term is a plus for the cattle market.

Yeager: The hog market we continue to discuss exports to China. They're buying beans. Are they still buying pork?

Gold: They have been. But once the August hogs went off the board they were right at $109, $110 in that area, the question is will the October try to get up to that level? The best they've done this week I think was 91 cents. We're still a long way away. But if demand continues to be strong I think we can move these hogs a little bit higher, particularly if the cattle do well as well.

Yeager: Is that really the only help to the hog market is the cattle market? Or is there a feed issue?

Gold: No, China is the big issue there. Certainly cattle help but China is going to be the big issue. We need to see them continuing to buy pork. While we've said 100 times that there's nothing more beneficial to the American farmer than a hungry Communist with a dollar in his pocket. So hopefully we'll see them buying more.

Yeager: I've got to say I think that's a new one. I don't think I've heard you use that one before. That's good.

Gold: You haven't been around enough.

Yeager: Maybe they're talking to me at the same time when you say that every time.

Gold: Yeah, maybe.

Yeager: Real quickly, this is a yes or no. Is the dollar going higher or lower next week?

 

Gold: I would have to say higher. It's a tough call but I would say higher. It has acted real good all week.

Yeager: Okay. Thank you, Mark. We'll continue that discussion in a moment. Thank you, sir.

Gold: Thanks, Paul.

Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus, so join us there. You can find it on our website of MarketToMarket.org. We are part of the millions of minutes of podcasts created each week, so subscribing is key to not missing an episode of the Market Analysis, Market Plus and the MtoM. If you’re planning to binge a few, and you haven’t been back for a while, re-subscribe where you get your podcasts. Next week, we’ll look at the economic impact of this season's drought and wildfires. Thank you so very 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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