Market to Market - December 8, 2023

Market to Market | Episode
Dec 8, 2023 | 27 min

On this edition of Market to Market ...

Agriculture steps in the spotlight at COP28. Crop insurance comes under attack over its price tag. A homegrown industry at the crossroads of commerce and conservation. And, commodity market analysis with Elaine Kub.


Paul Yeager: Coming up on Market to Market, agriculture steps in the spotlight at COP 28. Crop insurance comes under attack over its price tag. A homegrown industry at the crossroads of commerce and conservation. And the commodity market analysis with Elaine Kub, next.

Announce: 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.

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Announce: This is the Friday, December 8th edition of Market to Market, the weekly Journal of Rural America.

Paul Yeager: Hello, I'm Paul Yeager. The Federal Reserve has long made clear they are looking for a soft landing on inflation in the United States. Friday, another part of that target came into focus with reality hitting home. Employers added 199,000 jobs in November, more in line with pre-pandemic norms, according to the Labor Department. The unemployment rate dipped to 3.7%, close to the five decade mark reported back in April. This figure has been below 4% for 22 consecutive months.

Farmers sentiment is on the rise, according to the latest Purdue University CME Group AG Economy Barometer. The index rose five points to a reading of 115.

The Biden administration issued a final rule last week at reducing methane emissions, targeting the U.S. oil and natural gas industries. The announcement came at the United Nations Organized Climate Conference of Parties, or COP the 28th edition is being held in Dubai, where the assembled nations are working on plans to reduce greenhouse gas emissions. David Miller reports.

David Miller: If everything goes according to plan, the reduction in GHGs is expected to hold worldwide temperatures at 1.5 degrees Celsius over pre-industrial levels. 

Developed and developing nations have joined together over the last 28 years to sign non-binding agreements with the promise to hold the line on activities that could raise the planet’s temperature. Enforcement of the policies is largely based on peer-pressure among nations.

Despite critics who say there has yet to be ambitious action, the assembled nations are working on ways to reduce the amount of greenhouse gas emissions in the agricultural arena. As a way to codify the idea, representatives from 140 nations have signed on what is being called the Declaration on Sustainable Agriculture, Resilient Food Systems and Climate Action. The signatories include the world’s top three emitters of GHGs - the U.S., the European Union countries and China. 

With the goal of achieving new policies by 2025, the declaration includes public support to promote an increase in income, reduce greenhouse gas emissions, and bolster productivity, livelihoods and nutrition. 

Behind the declaration is $2.5 billion in aid to help farmers make the transition to more sustainable, climate friendly agricultural practices.

Elizabeth Nsimadala - President, East Africa Farmers Federation: “We need to make sure that adaptation remains prominent in the outcome of COP 28. We need to make sure that agriculture targets are included in the global goal for adaptation”.

H.E Mariam Almheiri - Minister of Climate Change, UAE: “This is truly is a historic moment for food systems and will really raise the profile of agriculture and climate in all these respective countries.”

David Miller: The United States government is focused on promoting Climate Smart Agriculture to help reduce greenhouse gas emissions and feed a hungry planet. 

Secretary Antony Blinken - U.S. Department of State: “We’re also working with partners to rethink what, where, and how we produce food, in the context of a changing planet.  Our goal is for farmers, for ranchers, to be able to sustainably achieve bigger yields of more nutritious crops, at lower costs, using less land, producing lower emissions.”

For Market to Market, I’m David Miller.

Paul Yeager:

As agricultural committees held hearings on the next Farm Bill, one theme seemed universal - leave crop insurance in, allowing for a safety net for producers. A report this week on crop insurance cast an unfavorable light on large producers. Here’s Peter Tubbs.

Peter Tubbs: Subsidies for crop insurance cost over $17 Billion for the 2022 crop year according to federal government statistics. But there is a study that suggests lowering the subsidy rate for high income farm operations could save taxpayers hundreds of millions of dollars each year. 

The Government Accountability Office, an independent agency within the federal government, released a study this week that analyzed the costs of crop insurance subsidies to farmers and the payment of administrative fees to insurance companies that sell the policies.  The report found that the top one percent of crop insurance policy holders received nearly 15 percent of the payouts made in 2022, coming in at a little over $2.5 billion.

Taxpayers subsidize an average of 62 cents for each dollar of crop insurance purchased. Unlike other agricultural programs, there are no income limits to access the insurance subsidy.

The report also estimated that reducing the subsidy for the operations in the top 1 percent could save over $15 million annually and have little effect on the actuarial soundness of the program.

Proposals to place income limits on insurance subsidies face a skeptical audience in Congress.

Sen. Charles Grassley, R - IA: “I feel that we shouldn't take any chances with hurting crop insurance, whether it's for big farmers or small farmers, because I'm hearing the same message from any size farmer we have in Iowa.”

For Market to Market, I’m Peter Tubbs

Paul Yeager: The lumber industry has been involved in many booms and busts. The commodity takes longer to grow and pivoting is hard. Over time, the regions producing large amounts of timber have shifted and those left behind have to change direction for their operations. Josh Buettner reports in our Cover Story.

Cole Spurgin/Moravia Hardwoods LLC: “Timber is like any kind of crop – corn or beans – it just has a lot longer life cycle than a year-to-year crop.”

Josh Buettner: Professional loggers would like Midwest farmers to glance up from their fields to what they see as an overlooked resource.

Cole Spurgin/Moravia Hardwoods LLC: “The best advice I can give a landowner is, if they have a current or growing timber stand, don’t just put it on the backburner.”

Josh Buettner: Cole Spurgin procures logs and timber for his southern Iowa family business, Moravia Hardwoods – in operation since 1968.  He harvests several species, like oak, cottonwood and cherry, but says Iowa, Missouri and surrounding states’ crown jewel is high quality black walnut, which accounts for 10 percent of global lumber exports. 

Cole Spurgin/Moravia Hardwoods LLC: “We’re after the trees that have very few limbs on them, because we are using them for grade lumber, flooring lumber, stuff like that.  So we don’t want knots and defects.”

Josh Buettner: USDA analysis reveals U.S. hardwood exports have more than doubled over the past 30 years – cracking over $1 billion in annual revenue. Spurgin says demand surged during the height of COVID, driving lumber prices the highest he’d ever seen.

Cole Spurgin/Moravia Hardwoods LLC: “It’s rotten in the center of it.  There’s an evident hole there that that tree is dying.  On its way out, there’s a big tree somewhere suffocating it.”

Josh Buettner: Spurgin says the industry is selective and sustainable…

Cole Spurgin/Moravia Hardwoods LLC: “Livestock are very hard on trees.  Stumpworm showing there.”

Josh Buettner: …though if it’s invasive species or weather, loggers will always battle Mother Nature.  Key, he adds, is proper management, to help tree stands grow faster and realize potential profit sooner. 

Cole Spurgin/Moravia Hardwoods LLC: “Step into your timber, and every so often, harvest the large, mature trees that are ready to come out to give room for the littler trees to grow.”

Josh Buettner: According to Iowa State University Extension and Outreach, some 3 million of Iowa’s total 26 million acres of cropland are forests – with 85 percent under private ownership.

Greg Heidebrink/District 2 Forester/Iowa Department of Natural Resources: “That’s where we come in, to help private landowners manage their woodlands.”

Josh Buettner: Iowa Department of Natural Resources District Forester Greg Heidebrink gives recommendations for habitat, hunting ground and recreation.   He also marks timber sales and helps coordinate equitable transactions between sellers and loggers like Spurgin.

Greg Heidebrink/District 2 Forester/Iowa Department of Natural Resources: “We have, quite honestly, some of the best loggers in the world in the state of Iowa.  But you, as a landowner, have to understand that that logger’s job is to buy your very best trees for as little as they possibly can.  That’s business.  I compare that to me going to the sales barn to buy cattle.  If I’m at the sales barn and there’s nobody else in the seats, I’m probably not going to stop the sale and say: ‘I’m not paying enough for these cows.’  Well, that’s what a logger’s job is.  So it’s up to you to get somebody on your side.  Whether that’s a private consultant, or it’s a district forester, to help you through that process.  And try to bid those trees out so you have some competition.”

Officials say Iowa was a sawmill mecca during the second half of the 19th century.  One-third of the nation’s lumber supply, log-harvested from old growth forests in Minnesota and Wisconsin, traveled by river and rail to sawmills on the Mississippi River before recession and deforestation doomed the region for generations.  But modern sustainable forestry practices rose from the ashes.

Greg Heidebrink/District 2 Forester/Iowa Department of Natural Resources: “I’m standing in a clear cut that was done in the early ‘80s.  So if we look around, we have some fantastic trees coming.”

Josh Buettner: Heidebrink says state forestry and all associated ties are worth around $5 billion to Iowa’s economy.  Value-added endeavors have helped push the envelope.

Mike Paul/Swan Creek Cabinetry/Boone, Iowa: “Our company starts with the lumber that we receive from a primary sawmill, dry kiln operator, and we start by ripping it up into strips that we further cut to length and machine and try to turn into a finished product.  It’s just a very different scale of equipment and a lot more fine…You know, a logger might measure to the foot, a cabinetmaker might measure to the /64th.”

Josh Buettner: Mike Paul founded Boone-based Swan Creek Cabinet Company, fresh out of high school, nearly 35 years ago.  He grew up in the sawmill business, grading and stacking lumber.  While his primary market is residential kitchen cabinetry, with all parts manufactured at his shop, business to business manufactured components and moldings account for a quarter of sales.

Mike Paul/Swan Creek Cabinetry/Boone, Iowa: “We buy hickory.  We buy walnut.  We buy cherry.  The quality of Iowa hardwoods is very good.  The primary manufacturers in the state…there are several very, very good ones…It’s a great resource and it's very local. Our two main suppliers are within two hours of here, so it makes freight, inbound, very workable as well.”

Mike Paul/Swan Creek Cabinetry/Boone, Iowa: “There’s a lot of relevance in being able to take wood, a natural resource, and turn it into something that someone can use.”

Josh Buettner: As rural America eases the lingering sting of the coronavirus, unknowns remain, but optimism is in heavy supply.  Producers work to fill supply lines with various raw commodities and finished products, and stewards remind timber landowners of the crucial link between conservation and commerce.

Greg Heidebrink/District 2 Forester/Iowa Department of Natural Resources: “We really encourage them to put a plan together.  That plan is so important.  It’s your road map to successful forest management.  It’s that follow-up work that is so important - making sure that we have good trees coming.”

For Market to Market, I’m Josh Buettner.

Announce: Next, the Market to Market report.

Paul Yeager: Government estimates in South America and the US capped the movement from China buying American wheat. For the week, the nearby wheat contract added $0.29 while March corn went up a penny. South American growing conditions improved, influencing the soy complex. The January contract lost $0.21 and January mail dropped $8 per ton. March cotton expanded by $2.08 per 100 weight Over in the dairy parlor January Class three milk futures improved $0.03.

The livestock market was mixed. February Cattle cut 340. January feeders put on $0.87 and the February lean hog contract subtracted a dollar 12. In the currency markets, the U.S. Dollar Index gained 96 ticks. January crude oil dropped 324 per barrel. COMEX gold fell 7070 per ounce. And the Goldman Sachs commodity Index fell more than 19 points to settle at five 3225.

Joining us now, regular market analyst Elaine Kub. Hi, Elaine.

Elaine Kub: Hello, Paul.

Paul Yeager: This wheat story. Last week it seemed like maybe the corner had finally turned. Two consecutive weeks of nearly the same identical adds to the market. Does that mean we've put the low in and we're headed higher?

Elaine Kub: Possibly, but maybe not for that reason. I mean, I think that we might have an opinion about that just for the grain sector broadly, but not wheat specific. We did still see some daily sales being made to China. So that's good. But I mean, wheat doesn't have a lot of a North American story at this point. We've got our last big look at the conditions for the winter wheat crop before it goes into dormancy. And it said 50% good to excellent rating, and that's better than last year. But of course, Kansas is still largely in either moderate to extreme drought. So, you know, we're just unknown and we just kind of have to paddle along here for the next few months.

Paul Yeager: So the Black Sea story is still alive and well, or is there other global issues at play here?

Elaine Kub: I think the driving factor for U.S. wheat prices is whether China continues to be a purchaser. And maybe that because these daily numbers aren't perhaps enough to overall influence the the marketing year as a whole, but it's enough to keep some interest in that market.

Paul Yeager: All right. So I guess right now, if I look at a chart and I'm a U.S. wheat producer, am I pulling the trigger and selling any?

Elaine Kub: No, I wouldn't. Not at these prices.

Paul Yeager: All right. Corn-wise, again, some positive days and then a USDA report that doesn't really change things. What did you see out of the report today?

Elaine Kub: Yeah, not a thing like barely any market reaction as far as how many cents it goes up or down by the end of the day. And really not much changed on the supply and demand table either for the United States. Anyway. We're still looking at that same yield. And when you look at the carry structure of the market, the contracts that are going out into 2024, we certainly get the sense that the market and the end users certainly believe in these numbers from the USDA that there is an abundance of corn out there at 175 effectively bushels per acre, and that may change as we get into December and January and we get some some measurements from surveyed measurements of how much supply is really out there. But for the time being, this is what the market is trading.

Paul Yeager: And we had, what, six or seven days up and then kind of fell. CONAB estimates come in and say a little tech took a little top off that. Do you buy the whole the corn is going to benefit more from a dry South America story?

Elaine Kub: No, no. I think that we see the biggest reaction in the futures markets in the soybeans rather than the corn, when the day to day forecast weather forecast changes for South America. That has been the case for the past several weeks. There has been more volatility in the soybeans and certainly in the price ratio for what is effectively old crop soybeans to corn. Now, it's it's these present these nearby contracts that you have the big boost for soybeans that they are overpriced compared to corn. So it's being priced into soybeans, certainly more than corn.

Paul Yeager: So as you look at let's go to December 24, that's the chart there. We have seen these margins shrink in terms of ranges. I'm sorry, shrink. What is that telling you? That we are more side to side than hugely up or hugely down?

Elaine Kub: It's good. I mean, compared to some other markets that are not experiencing that right now, we should be grateful. And you can also see it just sort of in the overall volume of what's being traded. It's relatively quiet. We have moved past that harvest time frame when there's a lot of commercial activity going in there and hedging as they're buying, you know, from the farmers or hedging needs for the for the upcoming year. So just it's just a quieter market at this time of year. And seasonally, that's okay. You know, we have a period of time where we might put in a harvest low and move up from here.

Paul Yeager:  Always the question right where wins that harvest low? I'll try not to ask it this way. Let's go to beans, because that's what's next in the lineup. We always talk about that. So you look at again, the pressure from South America and but then there's this meal story, then there's an oil story, then there's gradual weather improvement, then there's a lot of factors here. Which one stands out to you as the headline?

Elaine Kub: Well, I mean, we have to talk about the waste report. That's really the only thing to take away from the watch report this week or today. Was that the USDA did drop their Brazilian soybean production number to 161 million metric tons. And, of course, as you mentioned, CONAB, certainly you can find other private estimates that would give you a different number one way or another, but recognizing that there has been that much damage to the crops prospects already, that is significant. Again, the market didn't really react in any big way and it's still a record large crop of soybeans from Brazil. And it's still definitely the dominant crop in the world. But it's a recognition that there is going to be some top taken off of that market. And we need to continue to watch as that weather forecast changes from day to day.

Paul Yeager: However, I feel like there's almost a Jerry Maguire moment here where I need to say, show me the money with with soybeans, but show me the damage in South America, because they're as as it was said last week and the week before and the week before that, there's these oh, "it's the worst crop." "Oh, no, it's not so bad." Who do you believe?

Elaine Kub: Well, you can believe physical reality, the satellite. There's satellite evidence that certainly in areas of Mato Grosso, areas of Bahia, they are below normal conditions in their vegetative index. Down in the south, it's a different story. So it's a mixed bag. Certainly, it depends on what part of Brazil you're looking at. But some very dominant soybean producing areas have received damage.

Paul Yeager: Okay. So say say the tops taken off in Brazil. What does that mean for China and U.S. producers?

Elaine Kub: Yeah, there's I mean, I think yes, I don't know exactly. We don't know because it's it's a it's a developing situation as the next few months go on. But I think there's certainly potential as we get into February, March of 2024, that you could see price wise, US soybeans are looking competitive. They need they need a lot of work to catch up to the export paces that we'd like to see here that would be comparable to even last year, but I think that certainly could happen.

Paul Yeager: So what is a signal that something might happen in those months that you're talking about?

Elaine Kub: I don't I don't guess I don't have a signal and I don't want to get too bullish either because these prices where they are right now, I think there's such a temptation to hear somebody talking about dry weather in Mato Grosso and think, well, I'm just going to put this on deep and maybe leave a market order out there for $14. And if the market doesn't get to $14, I'll never sell the market may never get up to $14. It almost made it there a couple of weeks ago and didn't make it because I bet there's just so much sitting out there waiting for that price tag and it may never come like, let's not get too bold up here just based on what may happen.

Paul Yeager: Because there are some regions of the country that had good crops. Yes. And that are sitting in and maybe there's a pile or two somewhere.

Elaine Kub: Yeah, that and that's certainly true if we if we go back towards corn. Yeah, that was the big crop. Lots of acreage that's certainly acknowledged in the areas that did have decent conditions. Maybe not record breaking conditions, but there are areas that had good yields and are struggling to get the stuff move. There is a lot of it out there, in some places.

Paul Yeager: We could have spent the whole discussion on livestock, but we need to start with a question that kind of sets the tone of everything that's been happen. And Scott in Montana wants to know, Please explain in simple terms, if possible, the rumors of risk protection programs being behind the drop in live futures.

Elaine Kub: I love a conspiracy theory. I don't I'll say that. So he's referencing the LRP insurance programs, which are effectively a put option for for livestock producers to get some financial protection based on how the futures markets behave. They don't necessarily pay out on what the cash market is doing. And we can certainly talk about all of the ways that the cash market is really much more resilient than the futures have been these past couple of weeks. It has been certainly the volatility in life in cattle prices, feeder cattle prices and live cattle prices have both been driven by volatility in the futures market and specifically coming right out of Thanksgiving. That Friday, out of Thanksgiving, there was just very, very little volume of trade and things just get really streaky when there's nobody to step in there and catch that falling knife. So whether or not it was the LRP program itself involved in that, I don't know. And obviously you would never be able to find that level of data in the CFTC reports.

Paul Yeager: But we always seem to have some type of a conspiracy story in these livestock markets. So if I'm that producer who might not be someone who made protections or maybe I am someone who did make protections and I'm getting burned, what do I do?

Elaine Kub: Oh, you wouldn't be getting burned if you made the protections. You're sitting pretty, right?

Paul Yeager: But I've read from someone say that they are getting burned even though they made the protections.

Elaine Kub: Well, the damage is that it does spill over into the actual cash market. And this is just a really unfortunate time. If you're, you know, a cow calf operator that's going out and selling calves. Now, in this timeframe, we are seeing some bearishness spilling over into the cash market. And that's that's bound to happen if you have a sale barn where folks are sitting there and watching futures drop $10 over the week, of course, the cash is going to respond in some ways to and to go to the live cattle piece. The actual boxed beef prices are turning lower, about 10%, $10 per hundred wait since Thanksgiving, maybe $50 lower, 408 400 weight since the mid-June high. So there is some fundamental real bearishness behind this. But overall, prices have not fallen apart to the same degree.

Paul Yeager: Do you anticipate further falling apart either in live cattle or feeders on the future side?

Elaine Kub: On the future side. Oh, certainly. I mean, I think you should anticipate anything.

Paul Yeager: Do you anticipate it falling apart in cash then?

Elaine Kub: Not really. I, I mean, because there is that sort of turning lower from the wholesale beef market. And I think the Packers have this sort of bearish momentum. I believe it. Sure. You could have some some more losses certainly in the next couple of weeks. But ultimately, the overall supply and demand of this market, this picture there is still that, that fundamental scarcity and the power that feedlots have and cow calf operators have when you go into 2024.

Paul Yeager: What's overhanging of the lean hog market?

Elaine Kub: Well, I mean, it's just kind of grim times profitability wise. Certainly when you when you think about you've mentioned soybean meal prices as well, that could actually be a buying opportunity. Right now. You have to look at soybean meal at $400 a ton and think it could be going back up to $500 a ton and this could get worse before it gets better. But the lean hog price is the actual negotiated lean hog prices that we're seeing right now. They're kind of bumping along support that we've seen tested three times already in this past year. And maybe maybe that will hold. Maybe $70 is sort of a limit.

Paul Yeager: All right, Elaine, thank you. We'll keep going here in just a minute. All right. All right. Stand by. That's Elaine Kub, everybody. Thank you very much. And hold on, because we're going to pause the analysis, continue our discussion about these markets and our market plus segment. You can find both analysis and plus on our website of markets to market talk.

Greg wrote us this week telling the stories of his first time watching market to market. And now we want to hear more of yours. Drop us an email to market to market at Iowa Next week, a look at USDA's effort to increase the practice of double cropping. Thank you so much for watching. Have a great week.

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

Announce: 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.

Announce: 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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