Market to Market - September 15, 2023
On this edition of Market to Market ... Congress returns to D.C. with several deals needing to be done. Renewable fuels get a boost. Several states navigate the pipeline regulation process. And, market analysis with Don Roose.
Paul Yeager: Coming up on Market to Market. Congress returns to DC with several deals needing to be done. Renewable fuels get a boost. Several states navigate the pipeline regulation process and market analysis with Don Roose next.
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Announcer: This is the Friday, September 15th edition of Market to Market, the weekly Journal of Rural America.
Paul Yeager: Hello, I'm Paul Yeager. The economy may end up in time out after this week's series of inflation reports, or at least in a cooling off period. Persistent higher inflation remains and consumers are paying the price. The Consumer Price Index for August was driven 6/10 of a percent higher, mostly on fuel costs.
Core CPI was up 3/10 of a percent when energy and grocery prices were removed. The Producer price index the cost of goods before reaching consumers also increased last month. The wholesale look was up 7/10 of a percent. Again, the gain was attributed to higher energy costs. Retail sales also rose 6/10 of a percent on the month because of higher gas prices.
While Congress was gone this summer and on their recess, issues remained and some priorities changed. Farm bills have traditionally been chances for lawmakers from rural as well as urban districts to work with each other and with the other party. The soon to be expired legislation is stuck in draft mode. Colleen Bradford Krantz reports.
Krantz: The House of Representatives returned to Washington, D.C. this week. The majority party in the House turned their attention to launching an inquiry into the impeachment of the president. Other major items in need of action the budget with a looming government shutdown and the expiration of the farm bill.
Sen. Charles Grassley - R - Iowa: If I were answering your question in July, I'd be very positive. I'm less certain now about getting a bill passed by the end of the year because we don't have the text yet.
Krantz: In the field, hearings were held and much of 2020 to an early 2023. But since then the bill has been stuck in the writing process. The lack of movement in the farm bill, which could top $1 trillion for the first time, is frustrating to representatives in farm states. Commodity groups have mostly united in a continuation of various safety nets like crop insurance for producers.
The biggest hurdles have been funding for the Supplemental Nutrition Assistance Program, where calls for major cuts are being made. However, an extension seems the likely course of action.
Sen. Charles Grassley - R - Iowa: Farmers and people interested in nutrition program, which is 84% of the farm bill. That means food stamps. You don't need to worry if we don't get a farm bill passed by the end of the year, we're going to extend the existing farm bill for one more year. Now, that isn't unusual for Congress to do that. What's been done many times on five year farm bills in the past.
Krantz: The last extensions were made in the two years preceding the signing of the 2014 Farm Bill. For Market to market, I'm Colleen Bradford Krantz.
Paul Yeager: About 13,000 United Auto Workers Union members walked off the job Friday after a deal with the Big three automakers expired. The targeted strikes are meant to give the union leverage in negotiations so that they can get back some concessions made a few years ago when the companies were in financial trouble. The U.S. automobile industry has also made some forays into electric and more fuel efficient vehicles, with mixed results in profitability.
Renewable fuel supporters have since expanded their targets for new markets of opportunity. Peter Tubb's reports.
Tubbs: The market for sustainable aircraft fuel continues to grow and the biofuel industry hopes it will replace biofuels usage as vehicles consume smaller volumes in the future. Secretary of Agriculture Tom Vilsack addressed the Growth Energy Annual Hill summit this week and addressed the Biden administration's support of the fuel.
Sec. Vilsack, USDA: Did you notice recently what he said about sustainable aviation fuel and who's going to produce it? Jose He said his view that in 20 years or so, 95% of it's going to be produced by farmers. So we're working on the modeling to make sure that there's a broad array of feedstocks that can qualify, including ethanol. We're spending our own resources at USDA to make sure the models where it needs to be. We're working collaboratively with all the agencies that have to be worked on to make sure that we have a unified approach on this. To back up the president's commitment. We understand this.
Tubbs: The industry is aiming at producing 2% of the aircraft fuel used in the United States by 2026. By some estimates, their own usable fuels industry would have an opening in the U.S. marketplace totaling 35 billion gallons. Cost may be a drag on the shift to what acceptance of the biofuel. The current spot price for sustainable aircraft fuel is 35% more expensive than JET A-1. The primary fuel used in aircraft
For Market to Market. I'm Peter Tubbs.
Paul Yeager: Taking an idea to reality can be a long process. When four and a half billion dollars is the price tag and covers 2,000 miles, the effort to get to completion is substantial. Aligning landowners, corporate interests and governmental requirements is a balancing act three companies have been attempting in trying to secure approval for new CO2 pipelines. David Miller focuses on the Summit project that is under the microscope in the Green Belt. His report is our cover story.
Tim Baughman, Farmer - Denison, Iowa: “When will Summit realize that we don’t want their pipeline scam.”
For more than a year, a group of landowners and activists have been pushing back against the permitting and construction of the Summit Carbon Solutions CO2 pipeline. If it gets the greenlight, the project will stretch across 2,000 miles of five Midwestern states. Tim Baughman, Farmer - Denison, Iowa: “No eminent domain for private gain. No eminent domain for private gain.”
As testimony continued this week over the 672 miles of the Iowa portion of Summit’s Midwest Carbon Express, the South Dakota Public Utilities Commission denied the Iowa-based company’s request for a permit.
voice of Kristen N. Edwards. Staff Attorney. South Dakota Public Utilities Commission - “Staff filed the motion to deny the permit after it became abundantly and undeniably clear that Summit cannot obtain a permit at this time. And it makes little sense to go through the motions of a three week evidentiary hearing and all that would follow without a compliant route that can be permitted.”
Edwards says she did not perceive the denial as the end of the road for the 469 mile portion of the pipeline. A move by Summit to drop a request for an exemption to recently changed county ordinances put them in a position for that denial - some of those county rules changed in the last 6 months. In a statement from Summit, the company says it will refile for the permit. Summit officials also say 73 percent of landowners in the Mount Rushmore state have signed voluntary easements for the pipeline.
Monte Shaw is the Executive Director of the Iowa Renewable Fuels Association, an ethanol industry advocacy group.
Monte Shaw, Executive Director, Iowa Renewable Fuels Association: “I'm not an expert in the South Dakota law or process, but obviously we're disappointed. Didn't even get a hearing that seems a little odd to me. I don’t really know why they denied it, but you know, hopefully, it's something that can be addressed and then we can find a path forward.”
Summit is already appealing an early August denial of their permit by the North Dakota Public Service Commission. The three member panel says the plan for the 320 miles of pipeline failed to meet its burden of proof to show the project will produce minimal adverse effects on the environment and upon the welfare of the citizens of North Dakota. The Peace Garden State is the final destination for sequestering the C02 gathered along the route. A spokesperson for the company says they have 70 percent of the easements needed to begin construction.
In Minnesota, a short section of the 150 miles of pipe was approved for an environmental impact study. The Minnesota-based rural environmental advocacy group CURE asked the Minnesota Public Utilities Commission to defer any action indefinitely due to the denial of Summit’s permit in North Dakota. Depending on the completion of several studies and a public comment period, the Minnesota PUC could decide on whether or not to issue a route permit as early as next summer. In Nebraska, the carbon capture company is negotiating with each county where the 320 miles of pipeline would run. A recent press release shows 50 percent of the land owners have signed easements.
According to Summit, the pipeline will carry 18 million tons of CO2 annually, and pull the equivalent of 2.6 million vehicles off the road while lowering the carbon footprint of the 30 ethanol plants participating in the project.
Summit, and other carbon capture companies like it, are in position to receive a portion of funds from the Inflation Reduction Act of 2022. The Act provides the largest climate-related investment in U.S. history, with close to $370 billion dedicated to renewable energy. Included in the package are tax incentives to sequester carbon. To take full advantage of those tax incentives, construction has to begin by the end of 2025.
The 2022 IRA raised the tax credit for storing carbon underground to $85 per ton. With Summit planning on sequestering up to 18 million tons of CO2 annually, they would be eligible for $1.5 billion in tax credits each year. The entire project is expected to cost $4.5 billion dollars. There are still multiple concerns among the groups objecting to the Midwest Carbon Express.
Steve Kenkel, Chairman, Shelby County, Iowa Board of Supervisors: “I don’t know about you, I don’t want my grandkids someday, if these C02 pipelines are in an unzoned maze within my county, jeopardizing their way of life to wonder ‘what the hell was Grampa thinking’.” These range from soil compaction in farm fields to pipeline ruptures. In response, Summit’s Chief Operating Officer Jimmy Powell says there is a schedule for inspections of the line to stay ahead of any problems. The company is also talking with local fire departments about what to do in the event of a line break.
The Sierra Club, a grassroots environmental advocacy group, has expressed worry the CO2 will be used for fracking which could put more oil in play and increase greenhouse gas levels in the atmosphere. Powell has stated there are no plans to use the sequestered carbon at this time.
The main sticking point for landowners along the route remains the potential use of eminent domain. This week, the Sierra Club’s attorney in Iowa asked Micah Rorie, Summit’s Vice President of Land and Right of Way, if there was any undue pressure being put on landowners.
Wallace Taylor, Sierra Club Attorney: "Do you think at some point, maybe, they feel like, you’ve just warn them down and they’re just going to sign and easement?”
Micah Rorie RoryVice President of Land & ROW, Summit Carbon Solutions: “So, I understand your question. I find it almost insulting to an Iowa landowner to think that would happen. This is their ground, noone’s disputing that. They’re extremely educated about their ground. They’re mindful people.”
Testimony in Iowa is expected to be completed next week. According to an IUB spokesperson, a final decision on a permit will be made at some point after that but there was no speculation on any kind of a timeline.
For Market to Market, I’m David Miller.
Announcer: Next, the Market to Market report.
Paul Yeager: As combines rolled this week. The variability in yield has both endorsed and contradicted the USDA report. The bearish market reaction has evolved to inside range trading for the week. The nearby wheat contract increased $0.09, while December corn lost $0.08. The soybeans sell off, met resistance at the bottom of the 200 day moving average. The November contract sold off $0.23 on the week and December. Meal shed 930 per ton. December Cotton found $0.53 per 100 weight over in the dairy parlor October Class three milk futures dropped $0.80. The livestock market was up. October cattle improved 370. October feeders put on 533 and the October lean hog contract added a 160. In the currency markets, the US dollar index rose 26 ticks. October crude oil improved 371 per barrel. COMEX gold increased $3 per ounce and the Goldman Sachs Commodity Index increased nearly 15 points to settle at six 2090. Joining us now is market analyst Don Rose. Hey, Don.
Don Roose: Thanks for having me back, Paul.
Paul Yeager: Don, this wheat market, we hit a bottom. Maybe we rallied, then we fizzled. Are we going back down? Well, I tell you, that was the one bright spot of the whole grain market this week, wheat and soy oil. But the wheat market, we did have a report on the 12th on Tuesday that was positive, took the world, ending stocks down 275 million. We tried to press lower on the wheat market. Remember, in June, we topped out at $8, dropped to 570 on Tuesday, had a hook reversal. You know, our stuff, we were in a six week downtrend sell signal that reversed. So that's a positive sign technically, Paul.
Paul Yeager: Globally, there's weather issues developing again. But not in the United States as much as Russia, Ukraine having drought conditions. Who knows what's going on in China? China not a big wheat producer, but what impact is that going to have on us here in the United States?
Don Roose: Well, I think that may have been the start of it. As you're alluding to. Canada had a dry drought situation there. Big wheat producer, but Australia's in a drought. Argentina's droughts continuing. And then we had the Ukrainian Russia war. It looks like Ukrainians going, Ukraine going on the offense. So the uncertainty with the the wheat market there. Remember, Russia is the largest wheat seller and exporter in the world and they've just been clearing wheat at any price. So we got to get them to stop production.
Paul Yeager: And here's the interesting note from the week. If we we do end up with what is projected, it would be the first decline in global production in five years. So if I'm someone looking at pricing right now, what am I what's a good thing I should think about?
Don Roose: Well, I think for an end user is probably the best chance to be pricing more than a producer from trying to look for a place to sell. It looks like, Paul that we've hit or were I actually it looks like we scored a seasonal bottom on wheat. I think it's just a matter of what we do to the upside. You know, after you drop, what, $2.30 during the summer, it looks like the upside, the risk is to the upside, not the downside.
Paul Yeager: You talked about this report, the corn market, those who were out combining, we've been looking at fields are screaming, but no way is this accurate. What are you saying? What the market tell you?
Don Roose: Well, it's what the market is telling me is it's not sure. And since August 15th, we haven't gone any place. We've been in basically for 73 and a half to a 490 trading range type trading range. I think what we're really waiting to see is what the yield really is. Remember, we dropped the yield in the last report. We're still over last year, if you can believe it. They still have Iowa at 200 bushel average yield. Our record is a 204. You know, it looks like the yields coming out of the field so far, those were running into disappointing a bit in Illinois, Iowa, Minnesota, Nebraska, and probably better in Ohio and Indiana. But it's early yet. The combines will tell. And I think the other thing we really need, Paul, is for the end user to step up and start to secure supply.
Paul Yeager: Yes, that's been a discussion for people sitting in your chair the last couple of weeks. Nobody selling anything. What are they waiting for? What should they be waiting for?
Don Roose: Well, the producer down at this level, I mean, with insurance where it's at, he has no advantage in selling anything. You know, in fact, actually probably buy some courage calls in case it would happen to go up and cover some of the insurance to the upside. But there again, it looks like the corn market, Paul, that we're trying to see if we are in the process of forming a seasonal low. We'll see about 90% of the time we scored in the last ten years, a low between the 1st of August and the middle September.
Paul Yeager: I'm guessing the early harvest is going to give us an early return of how good or not so good this crop is. Do you buy into that scenario? And if you do, what should you do?
Don Roose: Yeah, and usually short crops gets more small, crops get smaller. It looks like this yield What? We've had three reports in a row that the yields gone down. So we're on a direction in the corn and soybeans on that. But you know, from a producer standpoint, at these levels, I think the biofuel people are want to secure their supplies. The feedlots want to secure their supplies. Just a matter of when. What you've seen historically, Paul, is you reach this point where everybody gets nervous at one and starts to chase it. You know, producers not selling.
Paul Yeager: Yeah. All right. So in this being market, because some of that same scenario, but we're still dealing a tiny bit in places where this crop is still developing. Rain could fall. Or have we passed that window where weather really matters to the soybean market?
Don Roose: Yeah, You know, usually this time of year we're worried about do we get an early frost? Well, I think that's behind us. So, no, I don't think rain does a whole lot from here any more. Harvest next week and start to get a little more aggressive in the week after that. But, you know, I think there again, on beans, we're trying to see at what point do we score a seasonal low.
Paul Yeager: You talked about this, just a tiny bit in your opening comments, but this is a question that came from my friend Phil in Ontario, and he wanted to know, Don, soybean oil and meal sales have been reasonably buoyant lately and USDA did reduce soybean yields slightly. How much hope is there for soybeans to lead grains higher, especially with the prospect of a 163 million metric Brazilian soybean crop about to be planted?
Don Roose: Well, you know, I think he hit the nail on the head. It's harvest time here and we'll see if the end users buy stuff. Brazil's in you know, they're in their springtime, so they're just planting now. They're going to raise a 5.9 billion bushel of being crop or 4.1. So I think what we're really looking at, does Brazil have any issues? Does our crop get smaller going forward and the government, remember, they're continuing to reduce the yield, but they're reducing demand. Maybe the demand is not as bad as the government says.
Paul Yeager: Where do you anticipate the demand coming from, though, if the government if it's different than what you're saying?
Don Roose: Well, I think it's mainly from the export front. You know, Brazil's exporting 3.5 billion bushels of beans. Next year, we're supposed to be 1.8 billion. So, I mean, if we can steal just some of their business in if they have weather problems, we could easily do that. So watch Brazil. They're just starting to plan for September 15th was the first time they could plant beans.
Paul Yeager: I sound like a broken record. When I moved to the protein complex, especially live cattle. Just when you think we've hit the top, we go higher. Triple top means nothing is what our friend Chris Robinson said today. Do you buy that?
Don Roose: Well, you know, I think where we're really at and we're in the classic run blow off type of market, we're $8 corn or $18 beans were, you know, 15 or $10 wheat. It's a market that it's over. When it's over. The packer Paul still chasing these cattle on Friday yet you know across the corn belt there were some cattle traded for the winner at two oh to two or three you know big time basis over big time numbers. And we also, you know, usually think that the commercial knows all. Usually the commercials are the last one. And so it's a bull market, there's no doubt about it. But the consumer's going to decide where the top is.
Paul Yeager: Is the bull still in control of the feeder market?
Don Roose: Well, the feeder cattle market, as you know, had a bright spot just because the grain market's been moving lower. The fat cattle in those back months have been moving higher. So if either one of those things change, there are gaps below the market, which are targets on the feeder cattle, about 20, $25 lower. But, you know, you need some kind of a chart top. It's foolhardy to try and pick a top because you don't know where it is, but it's a market that you would have to say it's very mature. This is the kind of run that I think the Bulls thought could happen more so next April. You know, time frame. But we're doing a lot of it in already, Paul.
Paul Yeager: So we're accelerated six months.
Don Roose: I think that's the risk is that you know in for you know the cattle guys out here when your break evens are 196, 197. Who would ever heard on new cattle coming in. The risk is if if anything happens you know there's big money can be lost.
Paul Yeager: Well, the hog market, the losses stopped this week. Is this just temporary?
Don Roose: Well, the hog market is, you know, the opposite phase. We're in the liquidation phase. The slaughter or the liquidation was at a 14 year high in the summer this year. So I think the liquidation means that in 2024 we have a better chance for some better prices going forward. Paul,
Paul Yeager: Let's close with crude because of its impact on a number of things, is $100 back in the sights?
Don Roose: Well, the good news is that for the grain markets, petrol, grain and so we have that bit underneath the market. But yeah, I would say, you know, it's, you know, 90 to 100. Seems we're back to that sweet level again. You know, that looks like the target area.
Paul Yeager: And if you were betting on the dollar to keep rising, would you bet that?
Don Roose: Well, I hate to bet against the government, you know, for against the U.S. and where we have a lot of debt, but we're the best of the worst. So I would bet, you know, stay with the dollar. But it's it's dicey. There's a lot of people that are questionable on it.
Paul Yeager: You're the best of the best Don Roose. Good to see you. Thank you.
Don Roose: Thank you, Paul.
Paul Yeager: All right, Don Rose, everybody. Thank you. Please, Don, hold tight because we are going to pause this analysis, continue our discussion about these markets in our Market Plus segment. You can find both analysis and plus on our Web site of market to market technology. As you head to the field this fall, take us with you. We want to make sure that you are kept up to date on commodity market analysis and news around agriculture. With our three podcast offerings. Two of them come out on Friday and the third the M Tom is released Tuesday. Subscribe or follow where you get your podcast today. Next week we look at the nation's first almost forgotten female veterinarian. Thank you so much for watching. Have a great week.
Announcer: Market to Market is a production of Iowa PBS, which is solely responsible for its content.
Announcer: What's next doesn't happen by chance. It happens when researchers and farmers work together to solve tomorrow's agronomic challenges. We're committed to creating what's next because at Pioneer. Our name is our mission.
Announcer: SUKUP manufacturing. Celebrating 60 years of innovation as a family owned and operated manufacturer of grain storage, drying and handling equipment out of Sheffield, Iowa. Learn more at SUKUP.com.
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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