Market to Market - December 1, 2023

Paul Yeager:  Coming up on Market to Market. The EPA loses in court over small refinery exemptions. Water and land ownership collide in a Grand Canyon State debate. Poultry producers pivot after the latest outbreak of HPAI and commodity market analysis with Arlan Suderman, 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 tomorrow.

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Announcer:  This is the Friday, December 1st edition of Market to Market, the weekly Journal of Rural America.

Paul Yeager:  Hello. I'm Paul Yeager. The pressure on inflation keeps easing as the Federal Reserve weighs future action on the key interest rate, the government's preferred measure of the economy. The PCE remained unchanged a year ago. At this time, that figure was at 3%. Excluding volatile food and energy costs. The core price slow to 2/10 percent growth. New home sales fell 5.6% in October as the higher borrowing rate took a bite out of demand. Existing home sales reported last week were at their lowest level in 13 years.

For the 28th time, the United Nations convened the Climate Change Conference this week. Global leaders look for progress on addressing emissions, financial costs and vulnerabilities around the world. Ethanol is seen as one way to reduce greenhouse gasses and is renewable.  The Renewable Fuel Standard has helped with increased use of the biorenewable by requiring refiners to blend the fuel, but smaller refineries have asked for relief from that obligation claiming a financial burden.  Another court battle played out last week in this arena as Peter Tubbs reports. 

Peter Tubbs: 

In a recent decision, a federal circuit court ruled the EPA had invoked an “impermissibly retroactive” standard to hold a group of refineries to the terms of the RFS. The case centered on the EPA’s denial of six small refiner exemptions in June of 2022. The refineries argued to the court that they applied for the waivers based on previous EPA practices. The Biden Administration denied those waivers in an attempt to put more ethanol in the gas tanks of American drivers.  The U.S. Court of Appeals for the 5th Circuit was not swayed by the EPA’s argument that the Biden Administration had made its intentions clear to take a more skeptical view of Small Refinery Exemptions. The 5th Circuit handles cases from district courts in Texas, Louisiana and Mississippi.

Over the past three years, the EPA has been denying small refiner exemptions at a higher rate than during the four years of the Trump Administration. To receive an exemption, a petroleum refiner must prove the mandated levels of ethanol blending are causing them undue economic harm. Production of gasoline in the United States is down 5.5 percent from its 2018 peak of 187 billion gallons.

For Market to Market, I’m Peter Tubbs

Paul Yeager:

Foreign land ownership is on the rise. According to a Investigative Midwest report, land owned or leased by foreign individuals or companies has tripled since 2015. USDA records reveal 40 million acres have ties to owners outside of the United States as of 2021. According to federal government statistics, there are 893 million acres designated as farmland. Ownership is now coalescing with the long contentious issue in the West of water rights. Colleen Bradford Krantz reports. 

Colleen Bradford Krantz:

Large swaths of the water-intensive crop alfalfa sit between the mountains in the McMullen Valley just west of Phoenix, Arizona.  Over the past few years, the levels in the valley’s ancient aquifers have been dropping, leaving some wells bone dry. A few neighbors have been complaining since the Emirati agribusiness Al Dahara began farming about 3,000 acres several years ago.

Gary Saiter, chairman of the board and general manager, Wenden Domestic Water Improvement District: “In 1957, the water level below the surface where we're standing was 107ft. So in other words, you drill 107 ft to touch water. Today it's 542ft.”

Colleen Bradford Krantz :

Part of the state’s issue is not knowing the exact amount of water being pulled by the mega-users from the aquifers.  

Kathryn Sorensen, Research Director, University of Arizona Kyl Center: “In rural Arizona basically, you know, it's the Wild West and it's subject to the law of the biggest well. So whoever has the biggest well and pumps the most groundwater wins. So it is not regulated in any meaningful way.”

Colleen Bradford Krantz: 

Arizona’s governor yanked the state’s land lease in October for another La Paz County alfalfa farm, one operated by Saudi dairy giant Almarai Company.  Foreign and out-of-state owners of U.S. farms are not banned from farming in Arizona, nor are they prohibited from selling their goods worldwide. U.S. farmers commonly export hay and other forage crops to countries including Saudi Arabia and China. 

Colorado River diversion has long been a source of water for the state and curtailed allotments have also contributed to the issue of less water. In Arizona’s Cochise County, where landowners rely on groundwater, residents worry that the mega-dairy operated there by Riverview LLP of Minnesota could also deplete their water supplies. The company did not respond to a request for comment about its water use.

Matthew Hancock, Arizona farmer: “Regulation can be a slippery slope if not done properly. I think looking in an area and seeing what water is there and then adjusting accordingly with the proper experts and the proper knowledge, not just shooting from the hip, a political reason it maybe in the proper way of doing it.”

For Market to Market, I’m Colleen Bradford Krantz.

Paul Yeager:  A flock of 1.6 million birds in Sioux County, Iowa, have been infected with avian influenza. This brings Iowa's total casualties for this year above 2022 levels. Recovering from losses is more than a financial one. For one Iowa producer, the loss has many aspects. David Miller reports. And our cover story.

David Miller:  

Nathan Hill has been an Iowa turkey producer since he was a young man.

Nathan Hill, Circle Hill Farms, Ellsworth, Iowa: “You know, this is a family business. My grandfather started in 1947. I'm a third generation. I have two kids back from college that are in this. And so, yeah, we're definitely in it for the long haul.”

David Miller:  Every year, Hill and his family, who produce turkeys under the name Circle Hill Farms, send nearly 800,000 birds to U.S. processing plants. But nearly eight years ago, Circle Hill Farms was a victim of the 2015-2016 outbreak of Highly Pathogenic Avian Influenza, or HPAI, more commonly known as Bird Flu.

Hill’s farm was among the more than 210 commercial operations across the country devastated by the virus. Producers lost more than 50 million birds nationwide.  The virus rampaged through turkey operations and chicken egg laying houses in Iowa, the country’s number one producer of chicken eggs. The annual production of 15 billion eggs was severely curtailed sending the price through the roof. In the end, more than 77 cases were found among Iowa operations impacting nearly 33 million birds. Clean-up and compensation for growers across the country cost the USDA over $910 million.

Barns were cleaned, new stock brought in and the focus went to stopping the spread of the virus. Biosecurity protocols were strengthened. Neighbors increased their vigilance, watching out for each other to prevent a new outbreak.  

Because of the 2015 experience, Hill implemented several biosecurity protocols and made sure his barns were tight against rodents or birds. HPAI remained under control for nearly six years until February of last year. Despite his hard work, Hill couldn’t escape the surge. 

Nathan Hill, Circle Hill Farms, Ellsworth, Iowa: “I've been unfortunate to have it both in 2015 pattern in facility and then in 2022, and in 2022, I had a neighbor that got it and I had a facility that was in close proximity and a few days later I broke.

David Miller:  He moved quickly to put the infected birds down and start clean up. Even going at the fastest pace allowed by federal rules, it was still nearly a month before he could restart activities in the barn. For some producers the quarantine and clean up periods can last up to three months.

Nathan Hill, Circle Hill Farms, Ellsworth, Iowa: So the biggest thing is, number one, the quicker you can get them put down, the safer it is for everybody.

David Miller:  Hill says the effect of the virus reaches beyond the barn.

Nathan Hill, Circle Hill Farms, Ellsworth, Iowa: “Obviously, financially it hurts you. But I think more than that, it's probably the emotional strain that it puts on everybody, not only me as the grower and the owner. It's my employees. It's their families. The things they have to deal with. …you know, as a farmer and a producer of livestock, you've been taught your whole life to, you know, take care of those, that animal. And so the hard thing is you sit, you spend your whole life caring for them and always trying to figure out ways how you can improve that. And then when you have to go through that emotion and put that animal down, that's that's a tough thing for a lot of people.“

David Miller:  During the latest outbreak, nearly 63 million birds have been affected in more than 360 flocks nationwide. So far, USDA has committed over $750 million for clean-up and compensation. Iowa accounts for nearly 50 of those affected flocks with losses of almost 18 million birds but for Hawkeye State producers those numbers are about half of the 2015 outbreak. 

Mike Naig is the Secretary of Agriculture for the State of Iowa.

Sec. Mike Naig, Iowa Department of Agriculture and Land Stewardship: "You know, in the 2015 outbreak, there was significant movement of the virus. Once it was in a commercial operation, and then we could connect dots between it spread between there were people, equipment maybe that was moving and it spread laterally from farm to farm. We largely have not seen that in the 22-23 outbreak.”

David Miller:  Producers can point directly to tighter biosecurity protocols like boot covers, changing outer clothes when going from barn to barn or restricting the movement of vehicles from one place to another. Scientists were able to trace the source of the infection to migratory birds.

Nathan Hill, Circle Hill Farms, Ellsworth, Iowa: "So now it's something that we're kind of living with every day." 

David Miller:  Officials with USDA say the chance of HPAI  infected poultry entering the food chain is extremely low and that you cannot get Bird Flu from birds or eggs that have been properly prepared and cooked. 

There has been some research into vaccines. Hill is still pushing the basics when it comes to prevention.

Nathan Hill, Circle Hill Farms, Ellsworth, Iowa: "… it's about limiting exposure. And so the more you can limit an outbreak and limit your exposure of it, then the higher chances are you you know, it's something obviously your going to have to live with."

Sec. Mike Naig, Iowa Department of Agriculture and Land Stewardship: “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 now, Hill and his employees will remain on guard against the virus. 

Nathan Hill, Circle Hill Farms, Ellsworth, Iowa: “There's nobody to blame in these type of situations… And so, you know, this time of year, both in the spring and now in the fall, when these birds are migrating back and forth, that's when you really start have to have to be on high alert."

For Market to Market, I’m David Miller.  

Announcer:  Next, the Market to Market report.

Paul Yeager: Three year lows in corn and wheat were reached this week as export sales picked up on those reduced prices for the week. The nearby wheat contract added $0.26, while March corn improved $0.02. South American weather again kept the market moving as the dry pattern somewhat broke. The January contract shed $0.06 and January meal lost $21.40 per ton. March cotton shrank by a $1.57 per hundred weight. Over in the dairy parlor January Class three milk futures decreased $0.15.

The livestock market was mixed. February cattle shed a $1.85 January feeders subtracted $4.90, and the February lean hog contract improved $1.32. In the currency markets, the U.S. Dollar index shed 25 ticks. January crude oil dropped a dollar per barrel. COMEX gold put on $63.60 per ounce and the Goldman Sachs Commodity Index fell almost five points to settle at 551.50.

Joining us now, regular market analyst Arlan Suderman. Hi, Arlan

Arlan Suderman: Good to be with you again, Paul.

Paul Yeager: Good to see you. Let's start in your backyard, this wheat thing. A lot of the people that have been on the show in recent weeks have had to hear me ask almost the same question. How much lower can we go? Did last Friday finally put it in that low? And if it did, why?

Arlan Suderman: Well, maybe we've tried to put in a lot of lows and each time we end up at new lows. And I think it's important to understand if you try to correlate US wheat prices with US supply and demand fundamentals, the correlation is extremely low with figure. A correlation of 0.7 or higher is strong and we get correlations 0.1, point two depending on the time period.

So it's very low. It correlates better with Black Sea fundamentals or with European fundamentals, because Black Sea sets the price and once they run out, then it goes to Europe. The demand does. And once Europe's run out, then they come to United States. And the Black Sea right now has lots of wheat. Ukraine is able to ship. Russia is able to ship now.

When you actually go back to your question, it looks like Russia has finally found a plateau price for now anyway. It looks like may hold. And so if that's the case, perhaps we find a sideways trading range now for a while until we can try to build a story for support.

Paul Yeager:  But if you look at the four month chart, which we show here, it looks like it's been pretty sideways for that time period too. So when you mentioned Black Sea Regions, the story always becomes, well, what happens now? Are we, has the market fatigued on what's happened warwise in that region?

Arlan Suderman:  Of fatigue is a very good way to put it, because we've gotten tired of the headlines, so to speak, wary of the headlines. And it used to be that a headline of a missile attack, drone attack on port infrastructure would bring a sharp rally. No longer does a ship getting hit by a mine in the water no longer brings a market response.

And so the market is assuming that Europe is going to work with Ukraine to keep its agriculture flowing. That means keeping exports flowing. Russia has been unwilling to directly attack ships, although ships have been hit by running into mines or by an errant missile. But they're not targeting those ships per se. And so now we have military escorts of ships, etc., in land routes.

We're going to find ways to move overland as well. The markets are not going to care until or unless we get to that point where Ukraine has both the capability and the willingness to shut down or to curtail exports coming out of Russia. And we're assuming that's well below 50% odds now at this point at some time. That may happen in the future, and that will be a game changer for both the wheat market and the crude oil market both. But for now, that's a distant thought in the markets.

Paul Yeager: Corn has moved a little bit closer to wheat. I don't know which one's pulling which right now, but again, almost same question we've had wild movement. But if we maybe stuck that point in the red point at the bottom of this corn chart.

Arlan Suderman:  Yeah, that's a big, huge speculative position. Short positions sold positions were in the wheat market. Corn was also building up significant short positions with wheat kind of stabilizing. That allows corn to stabilize a little bit. There's not a bullish story in corn until or unless we see a short suffering a crop or winter corn crop in Brazil, that would be well down the road. And so we're we get short covering rallies periodically, but that's about it from a fundamental standpoint.

Paul Yeager:  Safrinha, you mention let's talk South America. Where is the biggest influence right now? Is it a corn story here in the United States or a soybean story?

Arlan Suderman:  It's a soybean story now. Big corn later. I mean, every time I talk to our Brazil people about the soybean crop, they'll say, yeah, but it's the corn crop that we're concerned about. The safrinha crop, which is where they plant right behind the soybean harvester, plant corn for produce through the winter months. And so if that crop is short, that would increase our exports of corn in the next marketing year, so a year from now.

So it's a long tail on that story. But on soybeans, the question is how much has excessive wet in the south and excessive dry in the north curtailed production? And I get wary of all the doom sayers who are out there. Maybe it's my age because I've seen so much happen over the last 40 years. But if you look back at the history of Brazil production and look at National Deviation from trend over the last 30 years, they've only seen a deviation from trend of 10% or more twice.

Once was 11% and once is 14% in the year. That's been most like this year in weather patterns is the 1516 growing season for soybeans. And in that year we saw an 11% below trend for a center west district. We saw 41% below trend for the Northeast, where that's not as concentrated planning in the South was like 9% above trend and nationally they were 8 to 9% below trend.

So let's just say this is a 10% below trend year that would be 147 million metric tons. Our team came out with a production estimate today from a customer survey. So what the farmers are telling us nationally of 161.9 million metric tons, down 3.1 from last month. Now that may come down some more, but that's still several million metric tons above a record crop.

We can go down all the way to 147 million metric tons without the necessity to increase US exports because of increased production elsewhere and because of demand. And USDA has a demand inflated right now on the balance sheet. And so it's going to take a while to really necessitate rationing demand with higher prices.

Paul Yeager:  Well, then let's tie that question to this one that came in from Saskatchewan. Ken in Saskatchewan wants to know, Arlan, We keep hearing we need low prices to spur demand. Are the prices low enough to spur demand yet?

Arlan Suderman:  Yeah. And I spoke to a group of Brazilian farmers last night and they were asking, you know, what's it going to take? Are we going to see a decrease in demand continue? And I said, well, the surplus supply is always create new demand. We're very innovative in the industry. We will create new demand, but it does take some periods of pain.

Are we there yet? No. Now that's not saying we're going to go there, but I don't think we're there at that point of the next big innovation right now on the corn side. But certainly that opportunity is there. If we could simply get the White House to agree to the formula that would be favorable for ethanol, for sustainable aviation fuel, then you'd have this whole new demand sector there. We're not we're not there at this point.

Paul Yeager:  Let's get to a demand story of a different ilk, and that is in the livestock market where we're moving past Thanksgiving. We're into that Christmas. But live cattle keep having this story of is there demand? Is there not demand? Is it still tied to everything in the stock market, is it not? That chart tells me not good things.

Paul Yeager: What's it telling you?

Arlan Suderman:  Well, the funds had built over 100,000 net long positions contracts eight weeks ago, eight, nine weeks ago. They've dropped it down probably below 25,000 now. So they've really liquidated and we've seen the price come down as a result. And that was largely because we pulled so many cattle forward because of the weather that we squeezed them all and feedlots are full.

That's why we one reason we've seen the feeder cattle market collapse. Feedlots in western Kansas are full. There's not room for any more right now. And so we've got this compaction of supply right now. By doing so, we've created a bigger hole down the road. Furthermore, we're still liquidating cows. The last weekly data showed 83,000 cows slaughtered. That's the biggest for the year.

And we're still liquidating this cowherd. Now, maybe we only contract on January one. Inventory report only shows a two and a half percent contraction versus a four and a half, you know, 6 million, two and a half million versus four last year or something like that. But it's still a significant contraction. We haven't started to rebuild. When we rebuild will tighten it up even more.

It comes down to demand by the consumer export demand has already been rationed. How much is consumer willing to pay? We're starting to see some of that happen now. Move down the value chain.

Paul Yeager:  And there's been sales in the hog industry, too. I mean, I keep watching some of the pork prices at the at the grocery store keep dropping. Have they already gone through this situation?

Arlan Suderman:  They have to a great extent. Now, the next few weeks are going to have some of our biggest slaughter of the year totals coming through. We're right in the middle of it now. We got another 2 to 3 weeks to go with these big slaughter numbers and entities is up even with that, we're seeing very heavy carcass weights.

Same thing as in cattle. We're seeing record stair weights, carcass weights, record of heifer carcass weights. So we're putting a lot of meat on the system. Once we get past the first a year, we should start easing that up.

Paul Yeager:  We have some very specific livestock questions that we will get to in market marketplace. But before you go all in quickly on cotton, this again sounds like a broken record. I think I say the same thing. You're going to tell me the same thing about it.

Arlan Suderman:  Deflationary commodity market right now, situation, same thing in cotton. We've come down now we're consolidating sideways. Demand is simply a problem. It's a soft demand economy struggling.

Paul Yeager:  Does anything change that here in the near term?

Arlan Suderman:  No, not until we get the global economy to really pick up. China has been picking up purchases lately, but not enough to really make a difference.

Paul Yeager:  All right, Arlan, I'm just getting started. I have a whole lot of questions. Some of these are very detailed, so we'll get to those in a moment. But just hold for right now. Thank you, sir. Arlan Suderman. And please hang on here because as I said, we're going to pause this chat, continue our discussion about the markets in our market Plus segment, you can find both analysis and plus on our website of MarkettoMarket.org. 

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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 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.

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