Market to Market - November 17, 2023
On this edition of Market to Market ...
Congress heads home after agreeing to keep the country open. The leaders of China and the U.S. meet in California. An in-depth discussion on one of America’s biggest trading partners. And commodity market analysis with Naomi Blohm.
Paul Yeager: Coming up on market to market. Congress heads home after agreeing to keep the federal government open. The leaders of China and the U.S. meet in California. An in-depth discussion on one of America's biggest trading partners and commodity market analysis with Naomi Blohm, 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 a Pioneer. Our name is our mission tomorrow.
Announcer: 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 17th edition of Market to Market, The weekly Journal of Rural America.
Paul Yeager: Hello. I'm Paul Yeager. The anecdotal stories about the easing of inflation were confirmed and some data points this week. Consumer prices were unchanged from last month and down to 3.2% and year over year. Readings. Lower fuel prices helped move those snapshots downward.
The measure of inflation before it hits consumers. The Producer Price Index was down half a percent in October. The year over year figure there was reported at 1.3% growth. Retail sales fell for the first time in seven months as falling prices for gas and cars moved the marker lower. A deal to fund the government was scheduled to end this weekend, which likely would have hampered travel plans ahead of Thanksgiving.
New Speaker of the House Mike Johnson used votes from Democrat House to pass an extension, irritating some of his own party, prompting an abrupt end to the legislative week, sending lawmakers home early for the holiday. Peter Tubbs reports on the extension. This week, the House voted to keep the United States government open for another nine weeks. On this vote, the ayes are 336, the nays are 95.
This week, the House voted to keep the United States government open for another nine weeks.
Rep. Steve Womack, R-Arkansas, Speaker Pro Tempore: "On this vote the ayes are 336, the nays are 95. Two thirds being in the affirmative, the rules are suspended. The bill is passed. And without objection, the motion to reconsider is laid on the table." Peter Tubbe: The Continuing Resolution was approved on a bi-partisan vote, but creates another potential government shutdown in mid-January. The Senate put its stamp of approval on the bill and sent it on to the President’s desk for a signature later in the week.
Included in the stopgap spending bill was language that extends the 2018 Farm Bill for one year. The Extension means that current government crop and price subsidies and programs will cover the 2024 crop year.
Sen. Charles Grassley, R - IA: “The positive is that the farmers will have the certainty of what they've had over the last five years of the 2018 farm bill. And and that's obviously not as good as if they could look ahead five years of what the program is.”
Peter Tubbs: The exact terms of the now delayed 2023 Farm Bill are still being debated by both the House and Senate Agriculture Committees. Among the contentious topics are additional spending on crop insurance subsidies for commodity crops. Roughly two-thirds of the price of crop insurance is paid by taxpayers, but many in Congress are asking for additional subsidies to encourage higher participation rates by America’s farmers. Negotiations are also focused on changing the calculations at the heart of the Agricultural Risk Coverage and Price Loss Coverage programs. The two programs provide financial protections against substantial drops in crop prices or revenues, and act as a safety net for a large percentage of U.S. producers.
For Market to Market, I’m Peter Tubbs.
Paul Yeager: The relationship between the US and China could easily be labeled as complicated. The trade balance between the two countries tipped the scales at $758 billion in 2022, with U.S. imports from China valued at nearly half of the total. Five big issues were addressed this week as the Premier traveled 12 hours eastward to meet with President Biden. David Miller reports.
David Miller: Late last week, representatives from the U.S. opened the American Food and Agriculture Pavilion at the China International Import Expo. This is the first official U.S. exhibit at the pavilion in the expo's history. As tourists and potential customers toured the displays, nearly a billion dollars in contracts were signed between Chinese buyers and U.S. producers.
U.S. trade policy continues to focus on increasing trade. This week, U.S. President Joe Biden and Chinese President Xi Jinping got together in California for their first face to face meeting in nearly a year.
After the high level talks concluded, Xi had words of cooperation and caution.
President Xi Jinping, China: “China never bets against the U.S., never interferes in its internal affairs. China has no intention to challenge or to replace the U.S.. Instead, we are glad to see a confident, open, and prosperous U.S.. Likewise, the U.S. should not bet against China. The U.S. should not interfere in China’s internal affairs. It should instead welcome a peaceful, stable, and prosperous China.”
David Miller: Xi added that if both superpowers see each other as competitors it will lead to misinformed policies, misguided actions and unintended outcomes. During the 4 hours the two were together, they discussed combating illegal fentanyl and reestablishing military communications.
Xi also met with U.S. business leaders hoping to get some clarification on what kind of trade might be possible as China expands its security rules.
A group of Senate Republicans expressed concern ahead of the meeting stating in part that there is no such thing as ‘healthy’ economic competition with China and that the United States should not throw any sort of economic lifeline to Xi after what they feel is the mess he made of the Chinese economy. Biden stressed the importance for peace and stability in the Taiwan Straits and objected to Beijing’s non-market economic practices. While there was little talk of agricultural trade, the two men resolved to continue working.
President Joe Biden: “Look, do I trust? I trust but verify, as an old saying goes. That's where I am. And, you know, we're in a competitive relationship, China, the United States. But my responsibility is to to make it make this rational and manageable so it so it doesn't result in conflict. That's what I'm all about. That's what this is about.”
For Market to Market, I’m David Miller.
Paul Yeager: Mexico is the number two trading partner of the United States, with the exchange of goods valued at more than $863 billion. Labor issues and border crossings have played into the economic activity of both countries. Also, in late 2020, Mexico's president banned genetically modified corn for human consumption. The Federal Reserve holds regional offices across the country. The Kansas City's offices in Omaha. Houses Nate Kauffman, who specializes in economic activity between the two countries. Kaufman's insight is our next MTOM m podcast. In this week's Cover Story.
Nate Kauffman: You know, I think the strength and not to overuse that word resilience, but the strength really does come by nature of how the economy has unfolded here the last couple of years following the pandemic. Consumers have been in a pretty good position to continue to spend despite the inflationary pressures, I think that are being felt not just in the US but elsewhere. And so as we talk about supply chains that are, yes, globally integrated in and following some disruptions of the past couple of years, more linked than ever, I think, to what you would see with respect to Mexico.
Paul Yeager: From an economic standpoint. How do you see the growers of the corn shifting? Do the United States does the U.S. farmers say, okay, I need to lean into this, or do they hold firm? And what does that mean policy wise? And you trying to make sense of it economically?
Nate Kauffman: What are the challenging things about answering that question as that? We have to start by recognizing that this is very much a global market. You know, corn can be produced that is produced in lots of places. South America has a growing presence, of course, both Brazil and Argentina. And so we'd have to better understand what the global market is in terms of demand for those products alongside, you know, the more conventional or traditional products. Because if it's possible that, for example, some amount of production is just shifted elsewhere and then the original product that was always grown in the US ends up somewhere else, and then we haven't really done much other than just shuffle the deck.
Paul Yeager: So what a change in policy with Mexico matter then?
Nate Kauffman: I think that it could matter as you talk about some specific products and certainly it would matter if ultimately what a change in that policy would lead to is a universal reduction in demand for for United States corn as an example. But if what happens is, you know, Brazil or Argentina fills that gap and, you know, neither Brazil nor Argentina can supply the rest of the world, then, you know, the global nature of that market would suggest that there would be other market opportunities elsewhere.
Paul Yeager: What are we sending to Mexico the most stuff besides corn?
Nate Kauffman: Well, from the U.S. economy perspective, a lot of the market back and forth between the U.S. and Mexico does have to do with transportation and vehicles. There's a there's been a pretty well-established supply chain where a number of parts, for example, produced out of the U.S. manufactured parts would go to Mexico for production as it relates to vehicles and then sent back this direction. So that's a that's a big industry. There's a number of other is electrical equipment and, you know, petroleum products. Of course, as you think about Texas and places further south, it's been a pretty broad trading relationship. But food and ag, of course, important for the Midwest and the region that we cover.
Paul Yeager: Do you see a certain sector of food and AG that's changed? I think the last time we talked was early pandemic time. And now that we're a little bit away from that, did we see are we accepting more Mexican grown fruits and vegetables in this country than maybe we used to?
Nate Kauffman: You know, generally what I would say is that we've seen a pretty noticeable increase both in exports from the U.S. to Mexico, but then also in reverse importing products from Mexico to the U.S. Some of that is fruits and vegetables, some of it as is as processed products. It could be food and beverages as part of that as well. So, yeah, there has been an increase in both places. We've actually been exporting more corn to Mexico in the last few years, in addition to some other things. Poultry products, of course, soybeans. There's more that's connected to, I think, energy also than what we've seen in the past. More pork is going to Mexico, I think, than what we were, you know, before the pandemic. So, you know, there's a number of opportunities. There are both directions that that we've seen an increase here lately.
Paul Yeager: What's the biggest storyline between the U.S. and Mexico when it comes to trade in the next 2 to 5 years?
Nate Kauffman: You know, I think a big part of it's going to come down to prospects for economic growth to continue to support that trade. Again, going back to what I mentioned earlier, 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, 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 at the Fed think about monetary policy and interest rates. We know that affects associated with increase in interest rates don't happen immediately.
It can take some time for those effects to play out. So if we were to see a more substantial, you know, macroeconomic slowdown, that would have certain implications for trade and I think Mexico would feel it in terms of their own economy. It's an economy that's dependent, to some extent on remittances from the United States. The strength of their economy is, I think, tied pretty closely to it, to what happens in the U.S..
Paul Yeager: The full discussion will be part of the MTOM release on Tuesday.
Announcer: Next, the Market to Market report.
Paul Yeager: Slow slowed export demand in wheat coupled with improving South American weather reports, inspired the trade for the week. The nearby wheat contract dropped $0.30 while December corn lost a penny. Mail rocketed higher early in the week before export sales failed to impress in the soy complex. The January contract shed $0.03 and December mail improved 340 per ton. December Cotton expanded by 240 per hundred weight. Over in the dairy parlor December Class III milk futures decreased $0.39. The livestock market was mixed as December cattle improved $.140, January feeders added $3.57 and the December lean hog contract fell 47 cents. In the currency markets, the US Dollar index shed 195 ticks. December Crude oil added $0.28 per barrel. COMEX gold put on 1880 per ounce and the Goldman Sachs Commodity index decreased 15 points to settle at five 5635.
Joining us now is regular market analyst Naomi Blohm. Hello.
Naomi Blohm: Hi, It's great to be back.
Paul Yeager: Good to have you here this week. Market, just whenever we think the worst could be in, we get another week like this. So I guess I'll just ask this question that has been the easy question for months. Is this still all about Russia selling the cheapest product or one of the cheapest products on the market?
Naomi Blohm: That's a big component of it. They definitely have enough to supply the world, even though different places in the world are not having record production. So there are still production hiccups with Australia now in France, with too much rain, Brazil just reduced their wheat crop. So the notion still, though, is that there's enough Russian wheat at cheap prices that it'll just get everybody by until we have more of a flip side of a story with larger production.
You know, as is the world goes, we are still using more wheat than what we're growing. And so we're seeing ending stocks continue to trend lower on a global scale. But the market is ignoring that for now, because I do think the other component of it is that world leaders do enjoy having cheaper priced wheat because that brings peace to the regions.
But there's not enough of a reason yet for the funds to exit those short positions. I'm curious if maybe as we get closer to the end of the year, if they finally start to do that, there's a seasonality of the wheat that starting in December, it has a tendency to start to grind a little bit higher. And if the funds would just exit some of those short positions, we could have a good 50 to 75% rally.
But we don't have the fundamental catalysts to make that happen yet.
Paul Yeager: We shall for months at a time on the graphics, we're about to head out of a very large range and head into a small range. Do you see that small range continuing? You mentioned December could grind a little higher, but do you see some type of wide swing either way ahead?
Naomi Blohm: Not in the next couple of weeks. We'll probably continue to be quiet range trade. And then like I said, heading into December, then I think we'll start to see things happen and things occur. But the again, it's just so bizarre because the global energy stocks are trending lower, but the world seems complacent or wanting to believe that things are going to be just fine. So unfortunately, that's just the cards that we're dealt with right now and probably quiet markets for a couple more weeks.
Paul Yeager: Corn moved higher. Is this an attempt to try to price something onto the market off the farm?
Naomi Blohm: Well, it's an attempt. Earlier in the week we had that rally to start the week and then prices finishing on support levels. You know, that corn market has just been trading sideways in a 30% range for four months now. And it is, of course, suffering under the reality that there's 2 billion bushel carryout. But what I loved on the most recent USDA report is that they increased export demand, they increased demand for ethanol, and they increased demand for feed.
So the friendlier story is there for corn because the product demand is there. And our export sales this week, 1.9 million metric tons were fantastic. And we are on track for USDA projections. So that demand side of the story is friendly. It's just that we have 2 billion bushel carryout right now. And so what we're going to be watching in the coming months is going to be the South American crop.
It's not perfect weather in Brazil right now because that could that could be a component going forward. And I think you're actually going to continue to see the exports actually pick up a little bit more than what people are anticipating now that the dollar started to retreat a little bit lower like wheat. I don't think corn's going to do too much of anything into the holiday week next week and then the week after.
But starting in December, usually corn has a pretty darn good rally throughout the month of December heading into the New Year.
Paul Yeager: Beans weren't listening to that. Don't move before Thanksgiving, business started starting the week, but then just fell apart. And I believe someone wrote the word Debbie Downer about this market because of the export sales. Not as good as expected. Yeah, you mentioned the exports in corn. Why was that export story not seen so positively in the bean market?
Naomi Blohm: Right. So we had export sales this week for beans that were just fantastic, almost 4 million metric tons. And it got us caught up to where we needed to be. So that's the point, though. We're caught up to where we need to be. As far as USDA projections go, the market on Sunday night rallied big because of dry weather concerns in central Brazil.
But then as the week went on, prices set back two reasons. We were up near major overhead resistance on these charts, the $14 area. So it's big resistance for now. And with weather chances, rain and chances improving in Brazil, that set the market lower. So we're range trading for soybeans. We finished the week about 50, $0.60 lower from where we started and we're on support.
And so on Sunday night, if the weather in Brazil goes back to hot and dry and it has been 100 degrees and with a heat index, we're talking 130 degrees. So this is even if it's raining, it's not helping anything. The drought is still there. So Sunday night's grain trade is going to be definitely dependent on the Brazil situation and I think there is some pretty significant upside for soybeans.
And starting in December, usually those beans take off to the upside as well from a technical objective, if we can clear the $14 hurdle on those March beans, we're going to see $15. And I think that could happen by year end, especially with the weather in Brazil not being fantastic.
Paul Yeager: Well, that ties into one of the questions. Let's see, this came from Cordon in Illinois. Thank you for submitting this one. And it's do you think the delay in soybean planting and Mato Grosso is going to have a significant impact on production potential for Safari, a corn production, and could help us export potential on the tail end of the U.S. export season. And you can add both corn and beans because I think it impacts both.
Naomi Blohm: Yeah, and I love this question and is it is absolutely going to become top of mind in another couple of months. So right now this whole question is lurking in the background. But here again is the significance of it. So this being crop in Brazil is slow to get planted because of the dryness and a lot of it is going to have to be replanted.
So the slower its planted means, the slower it's going to be harvested, the slower its harvested. That means there's delay on the Safrinha corn getting planted. And remember that 70% of that Brazil production and this is the corn that gets exported to the world and it comes in just that niche time when the United States is running out of beans at the end of summer.
So yeah, it makes the point of if their crop is suffering from the beans, it is pretty good potential that the corn crop would suffer too, because that corn crop is grown right going into the start of their drier season. So that could be a reason for corn prices to rally later on. It could be a reason why we see corn export demand pick up and actually extend a little bit further into our season than normal.
So it is going to be the story to watch for 2024. It's that Brazil weather and the Brazil's soybean harvest and getting that Safrinha corn planted.
Paul Yeager: Dairy real quick dropped again 2.3% on the week. Is this a trend or a blip?
Naomi Blohm: It's more of a just we're stuck in the mud. We ran out of immediate news of any magnitude to get the market moving one way or the other for the short term. We saw the market more react to spot cheese prices, but the bigger catalyst is going to be on Monday when we have a milk production report.
The last milk production report showed production down just two percentage points, 0.2 percentage points. So we'll see what Monday has to say. We have holiday demand coming up. That's a good thing for the milk market and then also on the negative side, though, our exports are down 12% from a year ago. So that's negative. So that's why, you know, milk is just kind of stuck here for a little bit. And and we'll see what Monday's report has to say.
Paul Yeager: Cattle on feed on feed. October one, 101%. Fed cattle are placed on feed 104 Fed cattle market during October, 97%. What number stood out to you as the biggest?
Naomi Blohm: The placement number coming in at the 104 because that was less than expectations. And that feeder market has been just looking for a reason to finally get a corrective bounce. So I think on Monday you're going to see fat cattle and feeder cattle finally have a corrective bounce higher. But I don't think we're going to go back up to where we were just a few months ago because the notion is set that with these imported feeders coming into the country, that it's not fixing the situation, but it's not as dire as what it was.
What I was surprised to learn was that for the first three quarters of this year that our imports of cattle are up 19%. And so that helps to explain why we've seen prices start to come lower. Our exports have also been a little bit sluggish. We are behind our five year kind of normal place for this time of year, but domestic demand continues to be strong. So but good news is that the recovery bounce is coming. Monday should be a better day.
Paul Yeager: Hogs, though, they haven't had many better days.
Naomi Blohm: No, no. So they had a recovery bounce higher over the last couple of weeks. But now they've just been trading in a little bit of a sideways pattern. The notion there is that production overall for this fourth quarter has been a little bit larger than normal. The way it's a little bit bigger than normal. The bright point is that our exports are doing great.
They are better than a year ago. They are on track for the five year average. So that's a that's a nice component, but we've got plentiful supplies. So I think for the hog market, you continue to see it just trade lackluster in a continued sideways pattern until we get to know a little bit more news on maybe more global demand.
Of course, we're heading into winter so as virus season for some of these herds. So that's something to be watching and that is of concern in the back of my mind.
Paul Yeager: We're just getting you warmed up. We have some more questions for you. Okay.
Naomi Blohm: With that, I would think that would be great.
Paul Yeage:r All right. Naomi Blohm, thank you so much. Appreciate the time. That'll do it here for as we are going to pause this analysis and continue with our Market Plus section, that's where you contribute our questions and you can find both analysis and Plus on our website of MarkettoMarket.org.
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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.
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