Market to Market - November 10, 2023

Paul Yeager:  Coming up on Market to Market, what's being done to minimize the damage from the latest HPAI outbreak. Higher inputs are replaced by another I-word in the I-states as a cause of economic concern. And an in-depth discussion on an emerging market for U.S. commodities. And we'll have the commodity market analysis of Ted Seifried next.

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:  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.

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

Paul Yeager:  Hello, I'm Paul Yeager. The National Turkey Federation estimates 88% of Americans will consume Thanksgiving turkey this year. That translates to more than 46 million birds. Now, in the key production areas, HPAI is again breaking out. But as David Miller reports, the size of the outbreak is dramatically different than it was nearly a decade ago.

David Miller: In February of last year, High Pathogenic Avian Influenza returned to U.S. commercial flocks after a several year hiatus. Producers in Iowa, one of the country’s top poultry producing states, have seen new cases in just the last few months.

Mike Naig is Iowa’s Secretary of Agriculture.

Naig: I don't think folks thought it was a surprise. I think we had done, I think we all had learned that there was a constant threat and end is to the question about whether or not our producers had been preparing and whether we had been preparing. The answer to that is yes. 

David Miller: During the 2015 - 2016 outbreak, Iowa recorded 77 individual cases of HPAI that impacted nearly 33 million birds. Egg prices spiked as the virus rolled over the nation’s number one egg producing state. Over the past two years in Iowa, there have only been 41 cases of Avian Flu, impacting just over 16 million birds. 

Naig: Now, what's that tell you? That tells you that farmers understood and did a better job on biosecurity. Keep what's outside, outside and inside, inside.

David Miller: USDA helps make producers whole by paying for a portion of the lost birds as well as the costs for cleaning and disinfecting when the animals are depopulated. The Iowa Department of Agriculture provides for emergency response expenses like PPE and travel.  Officials with USDA say the chance of HPAI- infected poultry entering the food chain is extremely low and that you cannot get Avian Flu from birds that have been properly cooked.  Naig says the turkeys that you see in the grocery store were harvested months ago and there is little chance of a shortage. 

Naig: This is a constant threat, as is African swine fever, as is foot and mouth disease. That is how we have to think of high path avian influenza. That's the mindset that our producers have to have. That's the level of readiness that we have to maintain here and at USDA is that it could happen literally now at any time.

David Miller: For Market to Market, I’m David Miller.

Paul Yeager:  COVID 19 tangled supply chains and rising inflation have been pushed aside by higher interest rates as the leading economic sentiment influencer. The benchmark interest rate in October of 1981 was 15 and a quarter. The last time it was double digits was November of 1985, and the last time the market was this high was early 2007. That cost to borrow money is where the rural economy is focused for 2024 asPeter Tubbs reports.

Peter Tubbs: Agricultural lenders see declines in 2024 farm profitability according to a survey of lender sentiment released this week.

Profitability is being viewed as likely for three-quarters of borrowers in the current farm year, and lenders believe that two-thirds of borrowers will be profitable in 2024. 

The costs of rising interest rates have become the largest concern for lenders, replacing input costs which dominated the balance sheets of the farming sector in 2022 and 2023.

Nate Kauffman, Federal Reserve of Kansas City: “..the strength in economic growth in 2021 and really even through 2022 and now this year has been pretty good and maybe even in some places stronger than what might have been expected.  So that that is supportive them that of an environment that that that has export activity in either direction. If we were to see for whatever reason a more significant economic slowdown whether it's in Mexico or the United States, some of that ties back to how we have to think about monetary policy and interest rates. We know that effects associated with increase in interest rates don't happen immediately. It can take some time for those effects to to play out.”

Peter Tubbs: The effect of the higher rates is expected to ripple through farm finances for the next three decades.

Jackson Takach, Economist, Farmer Mac: “So in Farmer Mac portfolio, we think very long term. So a lot of our ag mortgages are out 25 - 30 years and those farmers who refinanced at 21 and 22 have fixed rates that are good for a long time at very low, very attractive interest rates. So it's going to take a little bit of time for the real estate side or even the machinery and equipment and some of those intermediate term financings to really be impacted by the higher interest rate. You're going to have to wait till some of those notes mature and then they might start to see those creep up.”

Peter Tubbs: Borrowers can expect to see tightening underwriting standards, and steeper loan terms as long as the interest rate environment remains volatile.

For Market to Market, I’m Peter Tubbs.

Paul Yeager: India took over as the world's most populous country in June of this year, topping 1.4 billion people. Cities are growing and the infrastructure is trying to keep pace. The country has shown they will fill the demand for commodities from multiple countries, including the United States. Jordan Fife recently returned from India on a business trip. He's president of Trading for Bio Urja, a global energy company based in India. Fife’s insight is our next MTM podcast and this week's Cover Story.

Jordan Fife/President of Trading, Biourja: There's so many people there. So obviously that means if they all start driving, there's huge demand there. They all start eating more proteins. There's huge demand there for agriculture and everything like that, even though a lot of India is vegetarian. There's other ways to get it in there. But they are emerging in a way that I think China has already happened. They're in that first wave of true industrialization over the last 10 years, how much they've invested in infrastructure and highways to link Mumbai and New Delhi and all that. It's truly incredible see, and then from an ethanol standpoint, obviously they only import industrials, right now they do not import fuel grade, if that were to ever change that is the the silver lining to every ethanol producers cloud right now, if India were to step in and say we want more FL, it would be a game changer. China used to import more. And now they're building their own ethanol plants. Currently, India has ethanol plants that make it from molasses from sugarcane. But it's just they don't have the infrastructure to do it. They could take more tomorrow, Modi, their Prime Minister has also increased the amount of ethanol they do take into their cars. They're not hitting it right now. But the fact that they're trying to do it is encouraging. So either one of two things is going to happen in my opinion, one, they eventually say you can import fuel or two, they say Hey, could you come help us build these things and show us how to run them? Either way? I think it's going to be good for us.

Paul Yeager: How long have a good for the US?

Jordan Fife: I don't think India is done growing? So really, the question is, how long will they keep expanding? And I think they'll continue to do that for the next 20. So 20 to 30 years. Now, if they can industrialize that much and they do grow sugarcane and everything like that, they could potentially start making their own. So it just depends on the industrialization, you're gonna need it near there populous areas, you're gonna need to build these plants in and around Mumbai, New Delhi, Hyderabad, where there's major metropolitan areas to make a dent, or they need to increase their, their ports cities to take in more and build tanks. It'll take some investment from somebody, but somebody's gonna get it right and probably make a ton of money. Do you see India importing more of our goods? Or our insight on goods? 

Paul Yeager: You talked about improving refineries, things like that? That's what I mean.

Jordan Fife: I think the insights are probably the easier way. And look, you know, if you look at America right now, the way it's trending, tech is kind of one of our biggest exports, right? That's more idea based than it is goods base, you know, we've kind of shifted a little bit from, from raw materials and everything like that, you know, to a more tech related economy. So I expect that that will continue to fall through. And it's easier, right. But the goods are harder, like you talked about, India doesn't need to improve their ports, they cannot intake in more if there's a bottleneck, so they need to work to the bottom with that, once they do that, I think there is a very good opportunity, again, to have some sort of trade agreement with them. Since they are again in Asia, that it's a natural drawl to China. But China is not really a huge exporter, either, you know, they're a large importer, as well. So it really comes down to Russia and into the Middle East. And that's going to be more oil based to begin with. As far as agricultural products go, I mean, in South America, they're going to try to draw off as much as they can, and then do as much as they can domestically. But I was there, I drove around in the country, I went to several farms. They've got a long way to go. I mean, they really are still doing like water buffaloes and plows. That's not facetious at all. That's just the way it is right now in a lot of places over there.

Paul Yeager: Is there any comparison India is to another country? Has there been somebody else that's followed? This template or somebody 50 years ago that, yep, here comes India. This is what happened in that country. 

Jordan Fife: I would put it as the one that I would put it with, and maybe I'm completely wrong, but it feels like it is our neighbor in South Mexico. You know, they had, they've really come along, obviously, you know that if you look at Mexico's refining, you look at their agricultural, you look at their infrastructure, you look at telecommunications, you look at the internet, everything is you know, I don't know the last time you're in Mexico. But if you go to a developed area of Mexico, it very much feels like you're in the United States. If you're in Cabo or Cancun or any of those, you're in the United States with a nice beach, right? Safe and everything like that. It's got its problems, but what country doesn't. But I would say it's probably like a 50 year ago, Mexico, where it used to be much more rural. And now we're seeing a lot of consolidation in Mexico City and all these other cities, Monterey, you're seeing this consolidation and a willingness to work with us with the United States. They're obviously one of our largest trade partners. So yeah, I would hope that it goes that route.

Paul Yeager: The full discussion will be part of the MtoM release on Tuesday.

Announcer:  Next, the Market to Market report.

Paul Yeager: We are producing the program on Thursday in observance of Veterans Day. A higher corn crop and demand emerged from this week's USDA report. For the week. the nearby wheat contract added $0.08 while December corn cut $0.09. South American weather and a big China purchase support of the soybean complex before big loss followed the USDA report released on Thursday.

The January contract shed $0.08 and December meal improved $7.80 per ton. December cotton shrank by $3.10 per hundredweight. Over in the dairy parlor, December Class three milk futures decreased $0.22. The livestock market was lower as December cattle lost $9.53. January feeders sold off $14.82 and the December lean hog contract fell $0.30. In the currency markets, the US dollar index added 91 ticks.

December crude oil sold off $5.40 per barrel. COMEX gold dropped $37.80 per ounce and the Goldman Sachs Commodity index decreased more than 23 points to settle at 558.10. Joining us now, regular market analyst Ted Seifried. Hi, Ted.

Ted Seifried:  Hi, Paul.

Paul Yeager:  You know, wheat has been one of these dogs for quite a while.

Ted Seifried:  Yeah.

Paul Yeager:  In the last couple of weeks. It's put together a little bit of a pick me up. Is the party over, or does it keep going?

Ted Seifried:  Are we saying party to the downside over? Or is the pick-me-up over?

Paul Yeager:  The pick me up over.

Ted Seifried:  Yeah. You know we closed over the 50 day moving average on Wednesday for the first time in three plus months. That's a positive sign. You know, there are some positive signs to say that, hey, wheat might be trying to bottom here. But Paul, I feel like we have this exact same conversation every month and a half, I come here.

And yet we've not had any significant rally. Like I said, first time mover closing over the 50 day moving average in quite some time. By the way, we had been over it one other day in the middle of I think middle of October. But then we didn't close, we closed below it. Either way, there are some signs of life finally.

I don't know if we have a fundamental reason to go sharply higher at this point. Maybe a corrective bounce, but we just saw on a USDA report today, you know, growing balance sheet, growing carryover for the US, not by a whole lot. They made some small tweaks on the demand imports came in a little higher, 10 million bushels higher.

Again, it's just we're lacking anything to get really excited about in wheat. And keep in mind, I mean, this is almost three years into Russia invasion of Ukraine and we haven't seen this big influx of of our exports. We haven't seen, you know, super tight domestic or global balance sheets. We've been able to just kind of get through it and prices haven't needed to go sharply higher.

So I don't know. I'm hopeful. I'm optimistic. I guess the best thing I can say about wheat is that maybe the selling pressure has subsided for now. But again, I'm not doing jumping jacks about a sharply higher wheat market in the near term.

Paul Yeager:  Any cause to do jumping jacks? I mean, it's a it's a lower week in corn, of course. But is there any reason to celebrate there?

Ted Seifried:  Yeah, no, I see there's really no jumping jacks for Ted this week.

Paul Yeager:  Kind of like your last appearance.

Ted Seifried:  Yeah, I know, I. I'm sounding like a broken record. I feel like Paul, but, you know, we had a USDA Wasde report today. Today's being Thursday. Happy Thursday, Paul. It was not a good report. Now, I think there's going to be a number of analysts that say this was sort of a ho hum report. I don't see it that way.

You have yields going higher and both corn and soybeans bucking the trend that we had been in, you gave 1.9 bushels back to the corn yield. now we're just under 1.75, which is significantly better than where the corn crop was last year. Previously, we were talking about that this corn crop being worse than last year. Now we have a record producing corn crop.

The bright spot in corn is that we're able to add to the demand figures. 25, 50 and 50 for a total of 125 million bushels going back into the demand side of the equation, offsetting some of that 170 million bushels increase in production. So you only, only have the carryover increasing by 45 million bushels, but it's an increase in balance sheet.

Increase in carryover, we're well above 2 billion bushels. And now when you look at demand, roughly 7 million bushels above where we were last year, you wonder how much more demand we can add to that balance sheet. How much more demand could we even buy at lower prices? There's just a limit to how much demand you can you can recapture in one year to the next when you have as much demand destruction as we had last year.

Demand creation is a much more difficult thing to do. Lower prices are only part of that equation because you also have to regrow that need. So, you feel good about the demand side of the equation. It's just the overwhelming massive 8 million acreage, 8 million in harvest that increase from one year to the next. That increase in production is just we can't overcome that and we're going to be above a 2 billion bushel carryover.

I don't see a pathway to get below that.

Paul Yeager: Demand doesn't just come out of nowhere though.

Ted Seifried:  No.

Paul Yeager:  So why does it seem like that was a surprise?

Ted Seifried:  The USDA has a thing where when they add to production, they really like to try to find ways to add to demand. We'll get to that in soybeans in a second, by the way. But I think everything they're doing is justified. You know, we are our export program is good. It's not amazing. This is not the time of the year where we need it to be amazing.

But for the time of the year, our export program is good. Ethanol, We are grinding a lot of corn. Ethanol stocks are rather low, comparatively speaking, so we're using a lot in the blend. That's really good news. Ethanol profit margins are good. So I see that demand growing demand there justified. The feed and residual category. I mean, that's the slush bucket, right?

I mean, you never really know. That's just sort of their residual is the keyword there. But I think that higher demand is justified. I just don't know how much higher, higher can get from where they have it right now.

Paul Yeager:  Maybe it comes from where our question is and let's go with Tony in Nevada. And he wants to know, Ted, this week China was a big buyer of beans. Do you think they will come for corn next?

Ted Seifried:  Hi, Tony. You know what? They haven't. I'm not sure. You know, their corn crop wasn't stellar this year. There seems to be a need for corn for China, but they are really looking at the Ukraine that's sort of been there for for a long period of time. In fact, I think it goes back into the early 2000s. They've had a deal with Ukraine to buy at least 5 million metric tons of corn every year.

And at least it's been more than that in most years. And Ukraine still manages to get corn shipped. And most of that corn, by the way, is going to China or good percentage of it, more than 50% of it. So between that and the new relationship that they have with Brazil on corn and given Brazil's really rather good corn crop that they had last year, I'm not sure they're going to need to come to us for corn and they're reluctant to do so,

So far kind of tells me that they probably won't. And if they do, it's probably not going to be any big amount like we had seen like during the Trump negotiations of more bushels coming or, you know, them buying more agricultural goods. Well, that was great. But since then that's really tailed off for corn specifically.

Paul Yeager:  But China did come knocking for beans this week. Yeah, that's the difference there.

Ted Seifried:  Well, you know, China just has this overwhelming need for beans, right? They can't grow anywhere near they import close to 100 million metric tons of beans every year. So obviously, they're going to need some of that from us. China came here for the first time since 2017 to sign their ceremonial nonbinding purchase contracts of 5 million metric tons.

And these sales that you're seeing on a daily flash sale, I believe are just a reflection of that. We've known about these for two weeks. And if you add the six days from Friday and then Monday, Tuesday, Wednesday, Thursday, each one of those days we saw flash sales to China or unknown destinations. If you put all that together, it's 2.98 and change is just under 3 million metric tons.

So hopefully there's that extra 2 million metric tons out there. But this is not unaccounted for on a USDA balance sheet. This is not a big shock. The timing of it is surprising only because it's later than you would have thought you kind of would have thought you would have seen this about a week ago.

Paul Yeager:  You're saying the timing of the purchases is is what you're referring to?

Ted Seifried:  The delay between the ceremonial signing and when we're seeing the flash sales. But not only that, you do feel like these purchases could have happened maybe two, three or four weeks ago rather than now. You do kind of wonder if the weather concerns that we're seeing in Brazil in particular, are maybe fueling this a little bit more. But whether they'll go up and above that 5 million metric tons that they ceremonial ceremonially signed for, I don't know.

Yeah, I think they'll beat that number. But I don't I don't think that this is going to be an extra 5 million or even 3 million metric tons above and beyond what they had originally intended to purchase. And I don't think their needs are quite as strong as what they have been in the last few years because of their hog herd.

They're having to for whatever reason, we can talk about that in hogs, but they're thinning out their hog herd. There's a lot coming up to marketing at first. Their crush margins aren't good. I don't see a really strong need for soybeans in China right now. They might be able to get by to the Brazilian crop. A lot of that is going to depend on what happens with Brazilian weather.

Paul Yeager:  Basically a yes or no on this one. If I didn't sell beans early in this week, did I miss my chance for a rally?

Ted Seifried:  It's a weather market, I would say yes. I think likely it will start to rain in Brazil at some point.

Paul Yeager:  Let's get to livestock because it was brutal again, live cattle, December, they gapped lower on Monday. Then they kept going down. This is falling off the charts to a point. Is this just technical or is there a bigger story here?

Ted Seifried:  You know, a lot of analysts want to say this is all because of the cattle on feed report that we had, you know what, three weeks ago. But this started before that. There's a lot of things going on. There's a lot of concern about the overall economy. There's a lot of strength in the dollar with rising interest rates that you mentioned earlier.

There's a lot of concern. And that means that, you know, the funds, the speculators that have really enjoyed being the long run bull market that we've had in cattle are changing their tune. And when you have this mass exodus for the doors, you're individual speculator gets completely run over margin calls mount got to get out right. And then you have this disassociation.

A lot of people will say that the cattle market is broken. And what we've seen in the last couple of weeks and today in particular, kind of really proves that point. You have cash cattle trading at a premium to futures for the first time since COVID. Is there a good reason for that? I mean, you still have cash cattle trading in the 180-181 range.

Why are we breaking futures as hard as we are? And it's a money flow thing and it is disassociated from what's actually happening in the physical market. And that is frustrating. What it will do, though, is it improves backpackers margins. It will offer them an opportunity to continue to pay cash prices in the one eighties or higher range.

The question will be what is the American consumer do? Are we going to pick up our demand if we see lower prices at the grocery store?

Paul Yeager: Well, and the appetite for the demand has started to wane. You're starting to see those stories start to emerge. But I guess then in the feeder story, it is a little bit of the same because you do have some long positions being vacated. Is that the only factor in that market?

Ted Seifried:  We have more animals out there than we really thought possible, and there's for a number of reasons for that. Obviously, feeder cattle coming from Mexico was something that that we didn't see coming, at least not in the size that it did. So I will say the fundamentals I think have changed a bit since from where we were or what our beliefs were,

Our thoughts were, say, three months ago. But I don't think they've changed as much as what the markets are reflecting. You would think that at some point we will find some ground and find some footing and start to come back a little bit. I would see I don't know if we're going to see new highs in cattle from here on out.

I'd say that the long term bull trend is broken at this point, but a retracement back up towards those highs I think would be justified. It's just when you start trading outside of fundamentals, like I feel like we're doing right now, you have to let the dust settle before you get back.

Paul Yeager:  We’ll pause for a moment. We'll get your hog comments in Market Plus. Thanks Ted.

Ted Seifried: My pleasure, Paul. Thanks for having me.

Paul Yeager: I appreciate the time. Hold it there, everybody, because we are going to pause this analysis, continue our discussion about the markets in our Market Plus segment. You can find both the analysis and plus on our website of markettomarket.org. 9,000 of you have found our YouTube page and we'd like to keep the party going by bringing more of you into the tent.

Follow us at Market to Market for the first look at the program, the Market Plus and the MTOM Show podcast. Next week, a look at the economic relationship of one of our biggest trading partners. Thank you so much for watching. Have a great week.

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: 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. 

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.