Market to Market (September 10, 2021)

Sep 10, 2021  | 27 min  | Ep4704

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Paul Yeager: Coming up on Market to Market the Biden administration addresses higher meat prices. USDA puts cash behind growing the number of meat packing plants after cleaning Ida's wake, what's next to help make way for grain and market analysis with John Roach. Next

John Roach: Probably five.

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Announcer: This is the Friday, September 10 edition of Market to Market the weekly journal of rural America.

Paul Yeager: Hello, I'm Paul Yeager, much of the floodwater from hurricane Ida has receded, but the damage is done high water contributed to dozens of deaths and the winds knocked down transmission lines that feed the new Orleans area at the end of the grain super highway, the ports in Southern Louisiana are trying to get back to receiving corn and soybeans via the Mississippi river. Those in the grain belt like Mike Steenhoek of the Soy Transportation Coalition have been monitoring the situation closely. My conversation with Steenhoek on Ida and infrastructure is the subject of our cover story. You still get worried about.

Mike Steenhoek: Well, the, the real big concern is when you've got a pretty seismic weather event in the Gulf of Mexico, right when our harvest season is coming online. So you've got all of this volume that soybean farmers and grain farmers are producing. You've got robust demand, particularly international, but then you've got this area of the country called the lower Mississippi river. That accounts for 61% of us soybean exports, 58% of corn exports by far the number one launching point for both commodities. And so all of a sudden, if you have a disruption at that area, supply and demand can can't connect and they just look at each other and the transaction will never occur. So that's the real concern, particularly as hurricane can see, season can certainly extend into the fall when our harvest comes online. And our export program really elevates

Paul Yeager: Severity is one thing. Is there a location from a grain belt perspective that causes more concern than another?

Mike Steenhoek: Well, you just look at our, our launching points for these, these commodities like soybeans, which is the number one ag export from the United States. So you look at the lower Mississippi river, which is number one, we've got 14 soybean and grain export facilities that are located along stretch of the river from Baton Rouge, Louisiana, past new Orleans into the Gulf of Mexico. So unfortunately that's also an area that's, that's that's suspect for hurricane activity. So you can have these kinds of disruptions. It is clearly that the profitability of farmers in the Midwest is so strongly linked to how functional our export capacity is on the lower Mississippi river. So it's very important for someone like me to be well acquainted with it. So even before the hurricane hit, uh, the big concerns that I had are yes, the facilities themselves, the storage facilities, but it's the conveyance system that links the storage facilities that ultimately is used for loading an ocean vessel. That's the, that's the more fragile elements of these export facilities that are along the lower Mississippi river.

Paul Yeager: It's just, It's not cheap to do either. And that's the hard thing to remember, uh, whether I'm writing a check to a checkoff, which is lobbying on behalf of a certain bill, or maybe I'm having a premium cutoff of my grain sold so that we can expand. It's just, someone has to eventually pay for it. If we're going to continue to use it.

Mike Steenhoek: When it comes to actually paying for it, it is expensive, but that makes it more incumbent upon us to, to make sure that we're, we're articulating the cost benefit. So there's the cost side. How big of a check you have to write to build a new road bridge lock, whatever it may be, but there are benefits to that. And that is the competitiveness of the American farmer and all of the, the ripple effects that result from that. You know, one of the things I like to, to underscore is some industries create the ripple effect. Other industries ride the ripple effect. And I think the best example of an industry that's like the, the, the stone getting dropped into a pond of water that creates the ripple effect is farming. And you think about it, it's not an accident that we've got all of these industries in the state of Iowa that flourish and exist in the first place, because there's a group of farmers that plant a seed in the spring and they harvest it in the fall. And because that activity occurs, there's all these other industries like rural lending, manufacturing, seed technology, all of these industries that would not exist if it wasn't for the farmer. So that's all part of that story. We need to tell that yes, infrastructure is expensive, but the benefits exceed that. And that's why it merits our attention.

Paul Yeager: Did Idaho highlight the biggest vulnerability and that's the port of new Orleans, or is there another one that we need to worry about even more?

Mike Steenhoek: It, it really highlighted because so much volume goes out of that area, how seismic the problem would be if you had wholesale disruption there. Hurricane Katrina presented that to a 16 years ago, you know, there were farmers in the Midwest that all of a sudden saw the price that they were offered at point of sale in the middle of the country, a thousand miles from new Orleans, all of a sudden their price declined. Not because their supply had diminished in quality and not because there were no, there was no longer demand, but just all of a sudden the supply chain wasn't operating as it normally would be. And the whole phenomenon with agriculture is you've got these barge loading facilities on the inland waterway system, like the Mississippi river. And if these facilities can't move product out their backdoor, because say the port of south Louisiana is closed by new Orleans, then those facilities will not be willing to accept product via their front door because they can't move it out. And, and so what they do is they'll drop the price that they offer to farmers. And so, you know, my mind immediately turns when you see these export regions close or say, even the same phenomenon can happen is if you have an unexpected closure at a lock on the inland waterway system is all of a sudden that translates to less money in a farmer's wallet. So it has real relevance to an individual farmer.

Paul Yeager: What's the biggest priority in the next six months for you?

Mike Steenhoek: Well, it it's, you know, all of the above as kind of a scapegoat kind of question, but it really is true. You know, when you look at the journey from the farm to the ultimate customer internationally, it's comprised of a number of links, and you're always only as strong as your weakest link. And so there are challenges with our rural road and bridge inventory, our inland waterway system, our ports, you know, I always try to keep in mind that if your supply chain, if, if each link in your supply chain is made out of stainless steel, but only one of them is made out of a twisty tie, then you don't have an effective supply chain. Even if most of the links are strong. So you have to be attentive to each of those links in the supply chain. So for us to do our job appropriately, we're going to be very attentive to rural roads and bridges and the inland waterway system and our ports and the, you know, the moment we focus disproportionately on one, then the danger is that one of those other links could become the twisty tie. And then you don't have an effective supply chain.

Paul Yeager: All right, Mike Stena, appreciate the time.

Mike Steenhoek: Thank you so much. Hey, thanks for having me.

Paul Yeager: This is just part of the conversation with Mike Steenhoek. More can be found Tuesday with the MTM podcast in both video and audio form, subscribe and follow today to catch the full interview. What was thought to be last year is brief and intense. Coronavirus recession is still having a ripple effect on the nation's economy. Supply chain bottlenecks, along with fewer people on deck to handle the volume have led to an increase in what everyone is paying at the point of sale, the producer price index, which measures inflationary pressures before products reach consumers climb seven tenths of a percent. Last month when food and energy prices are taken out of the equation, core PPI increased six tenths of a percent. Despite the increase in prices, the Purdue CME ag barometer has remained positive due to what producers say is a good financial outlook and the cost of food. One of the volatile elements in the producer and consumer price index's, has been on the rise according to the white house over the past 10 months, half the increase in the cost of food can be attributed to higher prices for beef, pork, and poultry. For months, the Biden administration has been pursuing complaints about consolidation and price fixing in the beef industry this week, USDA laid out their plan to even the playing field. Peter Tubbs says more.

Sec. Tom Vilsack: I don't know what you call it, but what I do know is that our job is to make sure that that farmer gets a fair price and that the producer, that the grocery, when I go to the grocery store and I'm in the checkout line, I'm paying a fair price. I'm not paying more than I should.

Peter Tubbs: The white house and the USDA this week were decidedly more pointed in their initiative to address consolidation in the meat processing industry,

Brian Deese: I want to be very clear that the, um, the, the president's executive order directs the department of justice and the FTC to train their enforcement on potential illegal activities, including price fixing and price gouging. We are going to leave that to the enforcement agencies, uh, um, that's their appropriate role

Peter Tubbs: While the department of justice considers their next move, where it pertains to the nation's four largest meat processing companies, the USDA will focus on increasing the number of meat processors in the country.

Sec. Tom Vilsack: I remember talking to a producer the other day in council Bluffs, and he said, I don't get this. Mr. Secretary said, I just sold my cattle and I lost $150 a head, but the processor made $1,800 a head. How can that be?

Peter Tubbs: As part of president Biden's COVID-19 relief package, $500 million has been allocated towards support of new meat processors or those that are planning on expansion. The USDA also announced more stringent enforcement mechanisms through the Packers and stockyards act to limit meat, Packers ability to use their market power to lower prices for market animals. The white house also hopes that by increasing the number of processing options available to meat producers, a larger share of the profits from meat production will find their way to the farm.

Sec. Tom Vilsack: No, I think the fact that we are put $500 million on the table and basically have begun a process of reaching out to states, uh, to farm organizations, to philanthropic organizations and asking the question, what could you do with this resource that would allow us to significantly increase processing capacity in this country in places where we know there is a need for this, where there are not competitive markets, uh, and the reaction to this has been quite favorable

Peter Tubbs: From Market to Market. I'm Peter Tubbs.

Announcer: Next, the Market to Market report,

Paul Yeager: Ida and market positioning kept the market lower until the final session. When the government said there will be more corn soybeans and cotton in 2021's harvest. For the holiday shortened week, December wheat fell 38 cents. While the nearby corn contract lost 7 cents. The slow Louisiana port reopening kept the soy complex in check the November soybean contract shed 6 cents December meal added a dollar 50 per ton. December cotton subtracted 52 cents per hundred weight. Over in the dairy parlor, October class three milk futures added $.57 cents. Another down week in the livestock sector, October cattle dropped a dollar 37, October feeders shed $4.75 and the October lean hog contract plummeted seven, 13, or eight percent. And the currency markets, the us dollar index added 55 ticks, October crude oil improved 64 cents per barrel, Colmex gold sold off $40.70 per ounce. And the Goldman Sachs commodity index decreased more than two points to finish at 531.30. Now here to provide insight as market analyst, John Roach. Hello, John. Hi Paul. So this report today, we had a, I don't know if you want to call it a leak earlier in the week of where maybe some of these things were going, what did you see in this report that on the, on the, uh, the high levels seemed bearish, but the market took it as bullish. Why?

John Roach: Well, we've seen the market sell off because of the hurricane, um, damage that the golf that you excellent coverage on that by the way. And, uh, and the market, uh, uh, sold off more than what the fundamentals changed in today's report. And so we had people waiting to buy if the fundamentals were not too burdensome, they weren't, and the market rallied right back. It's interesting. Uh, I last, I was last on the show, Paul in June, uh, June 4th and, uh, the following week was when we printed the high in the soybean market and the second highest level in corn. And we had strong sell signals today. I'm back on. Um, and, uh, I think we might've printed the low in this market here over harvest, and we have strong buy signals. So the market's actually, uh, performed today, uh, very, uh, uh, very nicely. I think we, we liquidated, uh, down to lower price levels and found the buyers.

Paul Yeager: Lots of people are asking about that low. We'll get into that in a moment. Let's start with wheat on a specific part of this discussion, that one, uh, numbers wise, 38 percent, 5 percent, it's hot, it's dry returning to some of the, uh, what's about to plant some wheat again, is why is that pull the market negative?

John Roach: Well, they, um, uh, that we had, uh, it's a bigger numbers than what people are anticipating, uh, not substantially bigger, but just a little bit bigger numbers. And again, it's a market that's rolled over and was in a hard downward slide. Uh, and, um, uh, and so when the numbers were released, we continue to push on further, uh, but then bounced. And, um, uh, the numbers really didn't vary all that much. Uh, and, uh, we think that we've market is getting itself positioned for a move higher as we move on through the, the rest of the season.

Paul Yeager: It's quite a low. Do you think we've stuck the low in wheat?

John Roach: Yes. I think we suck the low back some time ago. We've moved up a long ways we've had, and we've had positive fundamental developments, uh, and, uh, and strong demand. And, uh, but then we've, we've just had a pullback here. And, uh, and I think we should recognize that that's what it is. This is a pullback in, uh, in a bullish wheat market. Uh, and, uh, we need to have, uh, a good production levels around the world because supplies are relatively tight

Paul Yeager: In the corn market. John, we had the lowest mark in two months at one point this week. Um, we did finish lower on the week. So we're going to keep that streak again. I sound like a broken record. Do you think the low is in here in corn?

John Roach: Well, I think there's a, I mean, I, it's hard to say definitively, okay, this is it, but, but think about where we are here for a moment we're just beginning corn harvest. And we ended the, the season, this last season with a relatively tight supply of corn in the bin. So now we're starting into the field and I can tell you farmers don't like this price. So farmers will deliver the grain that they have sold. And some farmers may be selling some grain out of the field at these kinds of price levels, but not very many in my opinion, and not for a while yet. Uh, we just barely getting started. And I think the buyer's going to be more nervous in here, uh, than what the seller is. And so I think that these prices could well be the low for the season. If not, we can, we can spend some time here at rally back up and move relevant. And then maybe we come back one more time and put the real low end. It's too hard. It's too hard to look that far into the future. Right now I can just look into the immediate future and an immediate future. The buyer's not going to be able to buy very much corn next week. Uh, farmers will be in the field, but there's not going to be much for sale. And I think the buyers get nervous.

Paul Yeager: So we have early returns, early, early returns, Indiana, Illinois, having good harvest. Uh, there always seems to be no matter how dry it gets. I know that people that don't have rain on their corn and the rain they got last week was an uh, they called it an insult basically. Um, how do you balance if you're someone John, that didn't have that crop that they, the others have? How do they protect themselves?

John Roach: Well, uh, it's, uh, it's hard to do. I mean, it, it's hard to go do anything that allows you to recoup for losses in the field. I mean, there's, we could try to do something in the market, but it's hard enough to take care of bushels when they are in the field, as far as the market's concerned. So, um, my suggestion for people is that most people mark their crop lower too quickly. In other words, their yields lower. So in may, when I was on or in June, when I was on in the market was so high, people were afraid to sell it because they were afraid they were going to have a half a crop, but for a lot of people, um, they're not selling the second half of the crop. Anyway, they're just selling the first half and the first fourth, or first 10% or first 20 percent. And you have to do that in the midst of bad weather. If you want to get good prices, if you want to, if you want to wait until, you know, for sure your crops out there, we, you, you can do that, but you're going to get cheaper prices, right?

Paul Yeager: When we get into soybeans, John, um, and this is true in corn a little bit. I noticed that the overnights seemed to perform better, uh, more positively higher than, than the day trading session. Was there any particular reason for that this week?

John Roach: Hmm. I, I don't know that I would have a reason the day, the night session is dominated more by the buyer side of the marketplace. I mean, we move halfway around the world, uh, and, and China's been an active buyer. And so that may well be the reason we're seeing more, uh, uh, price strengthened the overnight than we are during the daytime. But what we are seeing is we're seeing big market moves. Uh, w we had it at the drop of a hat. We can move a market, 25, 30 cents a bushel. Uh, and, uh, these are big markets we've been saying in our office. This is a Superbowl of markets, and I don't think it's over yet. Uh, we have to raise a big crop in Brazil and we might, but we also might not. And so, uh, until we start to feel some comfort out of south America and we're feeling comfortable now, but we must maintain that because they're just now starting to plant.

Paul Yeager: Well. And that has been a discussion the last couple of weeks about protecting your soybean interests in the United States against that in south America. What is some advice for soybean producers in the U S

John Roach: At, uh, at this point in time? Uh, we're down on a buy signal. So the people we're talking to are the people who did make the sales at the higher price levels back through the, uh, the, uh, part of the year, uh, we're buying those bushels back. So my suggestion to a farmer who's made heavy sales, uh, who's, who's not quite happy. Uh, they'd like to own, they'd like to, uh, to have some of those bushels back, go get them. Uh, that would be my suggestion, if you want, if you want these, any bushels back, go get them. Uh, and, uh, and you hold onto them until we see what's going on down in south America. Uh, and, uh, and, and we anticipate that we'll have some price improvement as we move through the fall. And we worry about their crop.

Paul Yeager: We talked earlier, you mentioned it about the port issues in the Southern United States. Those are slowly coming back online. Do you see that giving support to beans in the coming week?

John Roach: Absolutely. We're going to open up, uh, uh, you know, every day we're going to have the capacity to move a few more bushels through and a few more bushels through we're going to, and when we get down the road here, six to eight, six or eight weeks, we're going to see some huge export shipments going out. The numbers are going to look big as we try to catch up for what we've missed.

Paul Yeager: Cotton had a bullish trend, but finished lower on the week. Uh, that story has been about acreage and crop. What do you know about cotton this week, John?

John Roach: Uh, cotton market has been up at the top side and it finally did, it had a pullback and, uh, uh, here, uh, after the report today, um, uh, but that's a strong market, uh, and we still have, uh, the uncertainty out there. I mean, lots of rain and lots of, of, of damage and flooding and so forth through a lot of that country. And until we really know what we've, what we've got out there, we, we really won't know. And so the market still has some risk premium that it's trading.

Paul Yeager: Conversely, it's plenty dry in the west. And that leads us to our social media question of the week. And this one comes from Jack in Montana. He sent it via Instagram to, us John says, is the sell off that's happening of mother cows up here in Montana, North Dakota, South Dakota, Wyoming, and Southern Alberta due to the drought the same size, if not bigger than the drought in Texas 10 years ago, could this lead to a skyrocketing of cattle prices in the following years?

John Roach: Uh, that's an interesting connection. Um, um, we think the cattle market is, um, it's been pressed down here pretty hard, and we think the market's due to rally. Um, I don't know that I would, uh, um, the weather issues and the dry conditions. I mean, we we've got reasons for higher prices, uh, but, uh, uh, I'm not sure that I would focus in on the Canadian weather problems.

Paul Yeager: Okay. What do you think about BSC on the market in Brazil? The two cases down there was that an influence this week?

John Roach: I'm sorry. I missed that.

Paul Yeager: The BSC reports in Brazil this week, the two that were down there, did that have any impact on us cattle markets?

John Roach: Sure. Something, something was certainly negative across the board. We, we thought mainly it was mainly a spec fund or fund kind of selling that was going into the market. I mean, it was just a heavy drain on that cattle market. If you look at that chart, that's it, that's a nasty looking chart. Uh, and, um, uh, we think it's maybe overdone, but, uh, something caused a lot of people to hit the panic button button and liquidate out. And, uh, uh, and, and the BSE may well have been part of that issue.

Paul Yeager: In the feeder issue. I mean, we're looking at almost $10 in two weeks here on feeders. Is, is there any relief coming for a feeder right now?

John Roach: Uh, we have buy signals on feeder cattle. We think that, uh, that you buy this weakness in here and, um, uh, our one worry is that make sure you have your feed covered because that's the part that could catch you.

Paul Yeager: In the hog market, big drop there as well. John, um, are you buying the hogs right now?

John Roach: Uh, we have buy signals on hogs, but we're, we're reluctant. We're reluctant to lift hedges. We have w we have pretty strong heads positions on, and we're just a little reluctant we're w w we're just don't have the numbers coming through. The USDA said we would be having. And so that's worried us. And so we're, we're a little hesitant here to take off hedges, but we are, we do have buy signals and if a person is looking for a spot to buy, uh, our system would say, this is time.

Paul Yeager: Buying. Okay. And then also trying to cover feed needs as well.

John Roach: Well, on a feed side for certain, yes, we're in a buy signal on corn. Uh, we're headed right into harvest. And one thing you have to be careful about to basis. There's a lot of difference between corn today in corn a month or two or three weeks from now, but the futures component of it is what's most attractive. Uh, the basis we'll, we'll likely get better or cheaper for the livestock feed buyer. The basis will get worse or get better. You can buy the corn cheaper. That's what I'm trying to say. Uh, and so, uh, uh, that would be the position I, I want to get my corn accumulated. One of the things people are forgetting about here in grain and an agriculture net is that, that when we have world, uh, tensions, uh, with the possibility of maybe something, the things just maybe kind of heat up, that's the time when people want inventories of food, uh, it would, it would, uh, uh, we learned a long time ago that, uh, when you start to have those kinds of, of, uh, uh, dif difficulties around the world, people want their supply chain covered. We learned here in the last year, the supply chain is a big issue

Paul Yeager: Did, and I do want to continue that discussion of market. Plus I'll let you go for just a moment. Thank you, John, that will do it for this broadcast installment, sorry, John, for market. Plus, we will talk more in Market Plus, as I mentioned, and you can find that on our website of Market to Market.org, and just because harvest is starting, doesn't mean you can't keep up on what's happening with Market to Market. Check out our YouTube channel by searching Market to Market and ring the bell to subscribe. Next week, we look at advancements in tracking insects and diseases that threaten crops until then, thank you for watching. Have a great week.

Announcer: Market to Market as a production of Iowa, PBS, which is solely responsible for its content.

Announcer: 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

Announcer: Tomorrow for over 100 years, we've 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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