Market to Market (August 27, 2021)

Aug 27, 2021  | 27 min  | Ep4702

Coming up on Market to Market -- Opposition to Prop 12 hits another wall. Dairy producers get assistance to help the food insecure. The tally of wildfires and drought remains elusive as the physical scars emerge. And market analysis with Naomi Blohm, 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 27 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

There is a debate on whether rising inflation or the Delta Variant is the bigger drag on the economy. --

The growth of consumer spending slowed last month to 0.3 percent as restaurants were more popular than automobile dealerships according to the Commerce Department.

Moves in the housing market were tepid. For July, the trend was higher as sales of existing homes increased two percent. The National Association of Realtors reported the median price is approaching the all-time high set in June of $359,900. 

New home sales reversed a three-month losing streak when builders were addressing surging lumber costs and worker shortages. The sector posted a 1 percent gain in July.

Supply chains are still working out the kinks in the flow of products. New orders for manufactured goods fell 0.1 percent last month posting its second loss in 15 months.  ---

The food industry was forced in real-time to change distribution and destinations of many products at the start of the pandemic.

The hog industry is working on a logistics problem of its own as the enactment of a California law passed four years ago approaches.

Here’s Peter Tubbs.

Having survived another court challenge, California’s Proposition 12 appears more likely to influence every pork producer and consumer in America.

This week, the United States Federal Court for Northern District of Iowa ruled against the Iowa Pork Producers Association in their challenge of Proposition 12. The ballot measure passed in 2018 with two-thirds of the vote.

The measure installs minimum space requirements in the raising of all pork, eggs and veal sold in the state of California beginning in January of 2022. The space requirements for hog farrowing, egg laying and veal confinement operations are significantly higher than current practices. 

Analysts believe the Prop 12 rules could create two different pork markets in the United States, one with high prices in California and low prices in the rest of the country.

Consuming up to 15 percent of America’s pork production annually, California could find itself unable to source enough Prop 12 compliant pork to fill customer’s plates.

Unable to ship to the country's largest state, pork producers may create a glut of hogs that will fill the freezers of the nation's pork processing companies. With an estimated 4 percent of hog farrowing operations in compliance with Prop 12 rules, the industry would require several years to bring the binary markets back into balance. Some analysts believe the entire U.S. pork industry will have to adapt to Prop 12’s rules rather than run two separate supply chains.

Proposition 12 goes into effect on January 1, 2022.

For Market to Market, I’m Peter Tubbs.

USDA said Friday agricultural exports will continue at a record-pace this year and add to that growth in 2022. Record soybean, horticultural and dairy exports are expected to fuel growth next year.

The dairy industry also benefited domestically from government purchases to aid with pandemic food assistance.

Josh Buettner reports on the return of ways to help food-insecure Americans.

This week, USDA unveiled the $400 million Dairy Donation Program to reduce food waste and facilitate timely donations of dairy products.

Under the program, food and distribution non-profits will partner with eligible dairy groups to move product and some expense incurred could be eligible for reimbursement.

The International Dairy Foods Association and the National Milk Producers Federation both praised the effort as one more tool to help reach food insecure Americans.

The announcement came during a call with Senate Agriculture Committee Chair Debbie Stabenow of Michigan. USDA says DDP was inspired in-part by donations made by the Michigan Milk Producers Association in conjunction with the Food Bank of Eastern Michigan in response to 2014 water crisis in the city of Flint. 

DDP is part of a broader package to help the dairy industry recover from the pandemic and bolster new and existing efforts to build resilience in the face of future challenges.  USDA says additional announcements are forthcoming, including $580 million for Supplemental Dairy Margin Coverage for small and medium farms.  Full details for all efforts will be provided after regulations are published soon in the Federal Register.

For Market to Market, I’m Josh Buettner.

Forecasting is a challenge for meteorologists and economists.

This weekend, Ida is expected to elevate to a major hurricane and make land in Louisiana.

Following any hurricane, flood or wildfire the damage assessment becomes a challenge of how much financial toll was actually inflicted.

John Torpy has a look in our Cover Story.  

The ongoing drought gripping the country could have long term impacts on farming as well as those who depend on agriculture for their livelihoods.

Gloria Montaño Greene, USDA Deputy Under Secretary for Farm Production and Conservation: “We're working on providing immediate relief where we can, we're watching what this impact is going to be, just not during the drought months, but like, what are we going to have to provide? Where, where the, you know, there's going to be impacts of this in the late fall, early winter, even if drought's no longer in that respective part of the country.”

According to the National Oceanic and Atmospheric Administration, over 216 million acres of crops in the U.S. are experiencing some form of drought. In California alone, losses are mounting as hot, dry weather continues to starve Golden State commodities of water.

Sec. Karen Ross, California Department of Food and Agriculture: “So a lot of it in agriculture will be fallowing acres, wherever we can. We do have more permanent crops now because they're high value. Um, and we've already seen people pull out almond orchards and, um, some of the aging grapevines. Um, and so that will continue to happen if this goes on.”

Decreasing river levels and climbing temperatures throughout Northern California have had a major impact on the state's $1.4 billion fishing industry. Hundreds of thousands of salmon fry perished in the Klamath and Sacramento Rivers due to rising water temperatures. Adult salmon were also impacted, as the warmer waters in traditional spawning grounds made it difficult to lay eggs.

Sec. Karen Ross, California Secretary of Agriculture: “What can we do to help the fish? Because if we crash our ecosystems, that's not good for farming either. And we're very worried about a couple of different runs of salmon extinction. And we don't want that. None of us want to that's really mortgaging the future. We can't do that.”

To help save future generations, the California Department of Fish and Wildlife has trucked more than one million young Chinook Salmon to state and federal hatcheries until river conditions improve.

Northern California wildfires continued to grow this week, claiming 1.3 million acres. The cost of fighting these fires in the Golden state has climbed to $540 million dollars. 

The same hot dry weather impacting California also is generating wildfires throughout the Pacific Northwest. According to the U.S. Forest Service, the Bootleg Fire, Oregon’s largest fire this year, consumed more than 400,000 acres since it started in late July. The Oregon Forest & Industries Council, a trade association representing more than 50 Oregon forestland owners and forest product manufacturers, calculates that numerous heatwaves and a lack of rainfall have extended the 2021 Wildfire season by nearly two months.

Kyle Williams, Director of Forest Protection, Oregon Forest and Industries Council: (07:16) ”The drought conditions we're seeing and, and just the sheer speed and scale that these fires are, are reaching in such a short amount of time, end up creating situations where obviously the loss to the landowner. I mean, imagine right. You've invested 40 years in a corn field, you can't harvest it until year 40 and you're sitting there on pins and needles, just praying to God that it makes it to year 40 and it doesn't, and we don't have insurance for any of that.”

The Beaver State ranks first in the nation for production of softwood lumber. In 2019, saw mills manufactured over five billion board feet of softwood lumber according to the U.S. Forest Service.

USDA officials point to climate change as the common denominator for the catastrophic weather events in 2021. Emergency assistance programs are helping farmers and ranchers recover from flash floods, drought and wildfires with an emphasis on conservation and climate change.

Gloria Montaño Greene, USDA Deputy Under Secretary for Farm Production and Conservation: “(18:17) “This is impacting agriculture in many ways in drought and soil health, um, in temperatures, um, extreme weather. Um, so I think, you know, fire, I think these are all things. And so, um, we need to be addressing all of them, but like you know, where it's, it's a larger solution.” 

Across portions of the Midwest, the continuing  drought has slowed streams and rivers to a trickle. The latest U.S. Drought Monitor shows some relief in areas of the western U.S., while drought conditions were mixed across the Midwest with spotty rain showers and above normal temperatures. But despite rain gauges full of water, this week’s precipitation did little to ease drought conditions.

Dr. Dennis Todey, Director, USDA Midwest Climate Hub: “(03:02) We have some deficits going back to last year that are quite significant, you know, on the order of double digit deficits in the way a precipitation. So when you have two or three inches of rain that moves the needle the right way, but it also still doesn't cut into the complete deficit.”

According to the latest USDA Crop Conditions Report, 60 percent of the nation’s corn crop is rated as good-to-excellent, four points behind this time last year. The nation’s soybean crop rates 56 percent  good-to-excellent, down 14 points from a year ago.

Dr. Dennis Todey, Director, USDA Midwest Climate Hub: “We need rain immediately for some of these soybean folks. Otherwise some of the soybeans are done. Uh, we have some soybeans that are very close to being done and with the heat we're having right now that may, you know, move them to, to, to, to sudden death. So it doesn't help them at all. Now on the off side, that rain does go into soil moisture. So that, that's the next thing we're starting to talk about is okay, If we can't help this year's crop, even if we do, we need to start banking soil for next year, soil moisture for next year. So the, the, the benefit of rainfall is as we start putting moisture in the soil for next year.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

The U.S. dollar weakened following the Fed’s announcement they will more likely than not begin tapering bond purchases. The lower dollar helped some of the commodities this week, as did a hot and dry weather pattern for much of the Grain Belt. For the week, December wheat added four cents while the nearby corn contract improved 17 cents. China’s interest and purchases in the soy complex were enough to overcome Friday’s trade lower. The November soybean contract expanded 33 cents. December meal lost $2.50 cents per ton. December cotton increased $1.70 per hundredweight. Over in the dairy parlor, October Class III milk futures declined 47 cents. Another up week in the livestock sector. October cattle gained 8 cents. October feeders added 80 cents. And the October lean hog contract improved $2.10. In the currency markets, the U.S. Dollar index lost 84 ticks. October crude oil skyrocketed $6.64 or nearly 11 percent per barrel. COMEX Gold expanded $35.90 per ounce. And the Goldman Sachs Commodity Index improved more than 34 points to finish at 527.65.

Yeager: Now here to provide insight is one of our regular market analysts, Naomi Blohm. Hello, Naomi, good to see you.

Blohm: Yeah, good to see you, good to be here.

Yeager: It's a far cry a difference a week makes. Last week everything is down, pretty much everything reversed almost the exact same course. Let's start with wheat. The story that we keep hearing about, I keep getting these messages from people following the Russia story saying it is being underreported on the dry conditions and the impact on the global stage. Do you agree with that?

Blohm: It's not only Russia, but let's start there because the drought there that they have had is so important to be talking about. Whether or not it's more or less than what we are aware of, that's what we'll find out I'm sure sooner than later through social media and through other reports. But Russia is one of the top five producers of wheat and they are the largest exporter in the world. So remember, the thing about the wheat story in general is that we have these huge ending stocks for years and years and years and if one country had a weather issue no problem because there's all these other countries who can make up for it. But this year is different. We have Russia with a drought, Canada, the United States, we have dry conditions now in Argentina and then in Europe, another large, large producer, the German crop is down 4% and in France they're having substantial quality issues. So between all of these things we have a lot of countries that are under producing and the demand for wheat has been there this whole time. So we're really digging into global ending stocks and global supplies. And then early next week the Canadian, they're going to be having their production report for wheat and for canola so we'll get an update there. But the wheat story I think is developing and if you're looking at a Chicago wheat chart there is substantial resistance at the $8 area. So either we're going to get some fresh news from the Canadian report next week and then we're going into first notice day and prices can re-test that high, or if we don't get some fresh news prices maybe just slide back down, but we stay in a long-term uptrend because it's not just the wheat that has the tight ending stocks, as you know, there's actually 9 agricultural commodities now in the Northern Hemisphere, 9 that have tight ending stocks.

Yeager: Sound like you're Ferris Bueller's principal there when you say 9 times, Mrs. Bueller. But droughts don't end overnight, although it certainly tried to in corn country this week. There were some heavy rains, Northern Iowa, Southern Minnesota into Wisconsin. Is it too little too late to save that corn crop?

Blohm: For some of the corn crop it would definitely I think be too late because when you look at images on Twitter people have shown how the ears are developing and then they're cracking the ear in half. You can see the light test weight already in parts of Minnesota and Northern Iowa and parts of the Dakotas. So in some instances the rain is too little too late because the crop is already dented and it has matured so fast. But other parts of the Midwest I'm sure received that rain as beneficial. But again with corn market right now that market has been trading more in a sideways fashion where $5.50 is just holding us. The Dec contract can't get above $5.90. It's not going below $5.10 because, again, ending stocks are tight. So that theme is going to continue to carry the market as we go forward. And I'm so curious come September on that quarterly stocks report I really think the ending stocks in this country are a lot tighter than what the USDA is letting on and we ran into that years past where they weren't forthright enough and then bam, it caught up to them. And so now we have another situation. I don't know hardly any producers that have corn in the bin at home and then you hear about the elevators who have some supplies and then they say, no it's okay, but then there will be a flash buy in the middle of the week and they say okay, here's $1 over basis and we need your corn. So something is not quite adding up.

Yeager: Believe the social media of, how come I don't see any barges going down the Mississippi River, which goes to the story you're seeing. Here's another thing that might be going to what you're saying that is playing a factor and this question came from Phil in Dresden, Ontario. He's asking, the price of corn on China's Dalian exchange reached a new low for 2021 Friday at $9.75 equivalent U.S.. Phil is asking, has China successfully rationed their demand? And what does this mean about future Chinese corn imports from the U.S.?

Blohm: They may have short-term rationed it but not for the long-term because they did not have perfect weather there this year and so I think what they have been hoping and waiting to see and why they haven't been buying much corn lately is where is this U.S. crop ending up? But ultimately China is at the point where they need to now be importers of corn and I think you're going to continue to see that. U.S. corn export sales overall are actually at 30% of USDA projections and normally they're only at 15% this time of year. So China bought early ahead for this new crop year and I think that you'll continue to see that demand there, especially when the truth gets out that there's no corn here in this country for ending stocks. I am adamant about that.

Yeager: Throw the old crop story out. Let's talk new crop. If I'm sitting here going, I did get some rain, I might have some more crop than I think, what do I do?

Blohm: I would say make sure that you are taking advantage because most likely you are going to have a dollar profit right now per bushel because of where cash sales are right now and where the market is at. So make sure you're still rewarding the rally because not just because of the ending stocks story -- so here's what is going on. We've got all these tight ending stocks in 9 commodities, there's going to be a fight for acres in this country and in North America. But South America is already coming on board with more acres and if they don't have any weather issues this winter they're going to have record crops. The fourth thing in this is the value of the dollar and you led the show with that and it's so important because if you look at all commodities right now, all these commodities are starting to trade sideways, they're spinning their wheels, waiting to see where the demand is at and a lot of that depends on the value of the dollar. If the dollar can go lower that is going to be so fantastic for agricultural commodities, that would make the price of corn go up. But at the same time if we start to see the value of the dollar work higher, if the USDA doesn't make ending stocks tighter on the next reports, if they don't change yield too much on the next reports we're not going to have enough bullish news to keep the market going. So then that can make prices slip a little bit lower. So I would say you've got profit in front of you, make sure you're focused on that. But there is potential for the market to go higher for sure.

Yeager: Okay. Where I just said corn write the word bean, same questions. What is the bigger story? The weather, the dollar or the Chinese in soybeans?

Blohm: It's equally important because when we are looking at the soybean crop out there, as you know, crop is made in August and the weather has been horrifically hot, some places got rain, some places didn't so we still don't know what is out there. In Wisconsin we have multiple reports of white mold. So this is becoming an issue. And the Chinese have been buying 14 out of the last 17 business days, just buying little bits here and there, just trying not to ruffle people too much and get them to notice, but they're in the market. So the one thing about soybeans that I have noticed is that last week they put in a bearish reversal on a weekly chart so maybe that was the market trying to say that it's a little bit tired. But so far this week the market didn't totally fall apart, we're going into first notice day, and seasonally soybeans and corn usually find their low in the early September timeframe. So that is why the market has been at this tug-of-war as far as prices in all of these commodities because the long-term fundamentals are still friendly yet short-term it's mixed and we need to see where the exports are. And again, it comes back to the value of that dollar also.

Yeager: All right. The dollar maybe not as big of a story in the live cattle market but there's a whole lot of people who have entered the live cattle market, a whole lot of people with new entry in contracts. What is that telling you about live cattle?

Blohm: Yeah, the open interest has been increasing, there has been more people coming into the market, especially when we had that friendly cattle on feed report saying how the placements have been lower and lower than expectations. So the market still is in a beautiful uptrend for live cattle futures. We had a big push higher earlier in the week and then had a pull back and I think you're going to continue to see that pattern where we'll have a price spurt higher, the market pulls back and trades sideways, but overall that long-term uptrend continues, demand is great, the beef demand is record for exports right now, record amounts. And so there is just this demand for our product. Packers are still making a killing and the cash prices just kind of hanging in there. So I'm still friendly to cattle for the longer picture.

Yeager: What about for dairy?

Blohm: For the dairy markets a little bit of a different story. So, in the dairy complex we still have overproduction. Now, it has been trending lower and so that is the good news, so trending lower on production but prices just can't get out of the $17 range and some of the deferred contracts starting to actually trend a little bit lower but the export market there has been phenomenal. So if we get this lower dollar boy that is going to help immensely. But the dairy market just needs some fresh news. It has been spinning the same story for months.

Yeager: The government buying? You talked about that I think a year ago, that was a help. Is that going to be enough help for the dairy market, this new government round?

Blohm: Yeah, good question. I'm not sure because it's a slightly different program than before. So we're not sure what it all entails yet but something to watch.

Yeager: Hog market, ridiculous today because of a limit up move right towards the end of the day. What is happening?

Blohm: Multiple things. We have hogs futures trading at a substantial discount to the cash market, so the futures have been wanting to climb higher. Just like the other commodities, hogs have been trading in a sideways pennant flag formation and with today's close they were able to almost close above the down trending line. And so people really worried about the African swine fever that's in the Caribbean and making sure it doesn't come to the United States. And then also we had news that the USDA attaché has said, you know what, that hog production in China isn't quite as robust as what they've been trying to play it off as. So that news also came out this week. So if we can get some more friendly news for the hogs we can finally see that market take another push higher, but we need that news to come up next week.

Yeager: Is the news of, you mention ASF, is that a hold your breath moment for the industry watching it, Dominican Republic and Puerto Rico if it crosses one border to the other?

Blohm: It has been a hold your breath moment for the hog complex for a couple of years. Remember how they canceled the one hog get together in Des Moines, so that was canceled because of the fear that there would be a spread and then of course COVID happened. And so now it's always a question of is it going to come to the United States and when and are we ready to deal with it when it happens?

Yeager: Always something to see, isn't it?

Blohm: Always.

Yeager: All right. We'll talk about an anniversary in a moment in Market Plus. Thank you, Naomi.

Blohm: Thank you.

Yeager: That will do it for this installment of the TV show we call Market to Market. We will talk more in Market Plus, hope that tease gets you, join us there. Find that on our website of MarketToMarket.org. Class is always in session at Markettomarket.org/classroom. This section of our website provides modules on innovation, entrepreneurship and the Farm Crisis the updates with new material each and every week. Next week we will look at how scientists are working to repel rabies. Thank you 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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