Market to Market - December 15, 2023

Market to Market | Episode
Dec 15, 2023 | 27 min

On this edition of Market to Market ...

The U.S. looks for trade options in a global landscape. The devaluation of the peso’s impact on American producers. A look at USDA's effort to increase the practice of double cropping. And commodity market analysis with Dan Hueber.


Paul Yeager:  Coming up on Market to Market, the US looks for trade options in a global landscape. The devaluation of the pesos impact on American producers. A look at USDA's effort to increase the practice of double cropping and commodity market analysis with Dan Hueber 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.

Announcer:  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, December 15th edition of Market to Market, The weekly. Journal of Rural America.

Paul Yeager:  Hello, I'm Paul Yeager. Volatility in government reports has been replaced by more moderate movement of the economic snapshots. The Consumer Price Index moved higher by a 10th of a percent last month. The core reading without food and energy gained 3/10 of a percent. The wholesale price mark the producer Price index was flat in November after falling in October. Retail sales added another month of gains, this time by 3/10 of a percent. The Federal Reserve kept its key interest rate unchanged for the third consecutive month, even signaling three cuts of a quarter point each in 2024. The Department of Energy gave the renewable fuel industry a boost late this week, providing clarity for the sustainable aviation fuel credit.

Embracing the GREET protocol. The expansion of fuel qualifying under the RFS program includes biomass based diesel, along with advanced and cellulosic biofuels. A series of trade reports also deliver good news to American producers in another outlet for products. David Miller looks at some of the numbers and trends in trade.

David Miller: According to a recently released study by the Peterson Institute for International Economics, American engagement in the world economy has likely added 11 percent to the U.S. Gross Domestic Product.  Researchers with the independent nonprofit, nonpartisan organization say U.S. GDP would have been nearly $2 trillion below the $25.5 trillion mark recorded in 2022 without the country participating in global trade. The report also shows inflation between 2016 and 2022 as the main driver of the higher payoff. 

The white paper does show that trade barriers have contributed to an overall slowdown in trade as globalization has tapped the brakes. Over the past decade, countries like China have experienced a declining ratio of two-way trade to GDP, while the US ratio has been flat.

The report claims that more than 310,000 manufacturing jobs were “adversely affected” by increased imports of manufactured goods. Two-thirds of those jobs were in the manufacturing sector with the rest mainly in support services though agriculture and mining were also affected.

Other downsides in the data included an estimated 2.4 million domestic workers who lost their jobs due to Chinese imports between 2000 and 2011. Peterson Institute researchers say this is a small number when compared to a U.S. workforce of over 50 million. 

U.S. trade with China continues to suffer ups and downs. Earlier this week, a conflict over new phones produced by Chinese telecom giant Huawei Technologies brought strong language from both sides of the Pacific. Commerce Secretary Gina Raimondo warned of the “strongest possible” action to defend national security. The Chinese Foreign Ministry responded in kind.

Mao Ning, Chinese Foreign Ministry spokesperson: “The U.S. has repeatedly said that it has no intention of decoupling from China or obstructing China's economic development. It should put these commitments into practice. China will follow closely the developments of the situation and resolutely safeguard its legitimate rights and interests.”

Miller: China’s Permanent Normal Trade Relations status or PNTR has come under federal scrutiny. Various farm advocacy groups are concerned the U.S. Select Committee on the Chinese Communist Party might recommend revoking China's PNTR.     

In a letter sent this week by Farmers for Free Trade, a case was made for keeping China’s PNTR status. They believe removal of the status that smooths out bumps in the trade policy road will have a profound economic effect on American farmers, ranchers and food producers that would be felt for years. The letter goes on to state that China is the largest buyer of U.S. food and agricultural products and continued purchase of these products by China is critical to America’s farmers and rural communities.        

Among the groups also signing the letter were the American Soybean Association, the National Corn Growers and the Meat Institute.

For Market to Market, I’m David Miller.

Paul Yeager:  Farmers have a history of looking for new ways to improve how to produce food and fiber, conserving resources and stretching dollars is nothing new, But having one crop that can be utilized in various ways is part of the attraction to cover crops. Colleen Bradford Krantz reports in our Cover Story.

Colleen Bradford Kranz: When Russian forces invaded Ukraine in 2022, USDA worried about the possible impact on the global food supply and on already-high food prices.

As response plans were being formulated, the Risk Management Agency, the USDA unit that handles crop insurance, announced a plan it hoped would boost production inside the U.S. to offset any losses in the former Soviet Union’s breadbasket. They expanded and simplified 2023 insurance coverage for acres that were either double cropped – where one crop follows another in the same field in the same year – or relay cropped – where the two crops overlap.

Marcia Bunger, RMA Administrator, USDA: “We expanded double-cropping coverage into 1,500 additional counties…The expansion in ’23 was historic in my opinion. Farmers answered the call. Crop insurance agents did a lot of educating to farmers about what this was going to look like, crop insurance companies supported it, and RMA processed, as a result, 4,166 new requests for coverage in states where insurance for double cropping was expanded or made easier.”

Kranz: While the Southeast and Northeast have traditionally had slightly more acres double cropped – traditionally hovering around 8 percent – other regions, including the Northern Plains and the Midwest, lagged behind, usually below 2 percent.

Some farmers still aren’t eligible for double crop coverage, while others must continue to document three years’ worth of the practice before being considered. But the boundaries’ expansions made more producers eligible for the insurance, the cost of which is split between the farmer and taxpayers.

Marcia Bunger, RMA Administrator, USDA: “In states where double-cropping coverage was expanded or made easier, nearly one million additional acres of grain sorghum and soybeans were insured, representing more than a 48 percent increase in insurance coverage for the second crop compared to the 2014 through 2022 average.”

Kranz: RMA focused on second-crop soybeans and sorghum, which have short enough growing seasons to be planted after the winter wheat harvest. RMA Administrator Marcia Bunger, who farms with her husband in South Dakota, has been happy with the results so far and expects additional federal expansions to the program.

Marcia Bunger, RMA Administrator, USDA: “It’s such a new concept probably in those areas it got expanded to that, without the protection of crop insurance, it would have probably taken a number of years to evolve to this…Because we don’t have a crystal ball for weather, you need to be somewhat cautious because it costs money to put crop in the ground…. Farmers I think felt they could sleep at night probably a little bit better.”

Kranz: The extra acres may have been planted due to RMA simply providing farmers with a safety net but other factors were also likely at play.

Dry weather last year in some Midwest states may have harmed winter wheat and forage harvests, prompting some farmers to put in a subsequent crop. Other producers likely added wheat to their operations as predictions of higher futures prices came in the wake of the invasion.

Marcia Bunger, RMA Administrator, USDA: “Insured winter wheat acres were up over two and a half million acres - and that’s a 16.8 percent increase - in the area where USDA streamlined the coverage.”

Kranz: Linus Rothermich, who farms about 100 miles west of St. Louis, was double cropping before the federal program was expanded, but he has not added the double coverage just yet. He follows wheat or rye with Japanese millet, the seeds of which are planted by other producers who use it for hay.

Linus Rothermich, producer, Auxvasse, Missouri: “Here in Missouri if we grow wheat or rye, it is harvested in July, late June, early July. This was planted in the middle of July and it’s already almost close to being mature so it’s a really short season crop. So I can squeeze this in as a double-crop, and that’s where it really really works for me.”

Kranz: He stands by double cropping as a good practice, both for soil health and his bottom line.

Linus Rothermich, producer, Auxvasse, Missouri: “Because I’m raising two crops, I’ve got to raise a really really good corn crop to be as profitable as this is.”

Kranz: More than 300 miles to the north near Latimer, Iowa, Plagge Farms Inc. has been experimenting with double and relay cropping for four years. The family has planted soybeans following rye in the past and, this year, soybeans following oats. They also experimented with following oats with a sorghum Sudangrass-radish-turnip blend that a neighbor’s cattle grazed in the fall.

Landon Plagge, Plagge Farms Inc., Latimer, Iowa: “I don’t have a history proven with the USDA yet. They just came out with some new initiatives in the last year or so expanding double cropping to new counties and now we would be eligible for it so now I want to make sure I certify that I’m doing it now.” 

Kranz: For now, however, Landon Plagge is doubtful they will apply for the insurance anytime soon. He’s weighing the benefits against some of the program’s restrictions.

Landon Plagge, Plagge Farms Inc., Latimer, Iowa: “There’s a lot of restrictions on planting dates and crops that can be planted and how they are planted, which, we like to experiment and we are learning so much every year, it’s hard to fall into a program until we have enough experience to do it correctly.”

Kranz: But he will keep an eye out for some of the fine-tuning of the program that Bunger says is still coming, and plans to continue double cropping regardless.

Landon Plagge, Plagge Farms Inc., Latimer, Iowa: “Last year, I actually planted crops on our farm here in northern Iowa nine months out of the year and harvested crops four months out of the year. So it really spreads out our workload and diversifies our farm significantly so we aren’t as exposed to weather risks such as the drought this year….I think the changes RMA are doing is good and will open opportunity in the future.”

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

Announcer:  Next, the Market to Market report.

Paul Yeager:  Argentina’s change in the peso valuation, along with some improved South American weather forecasts and export buying influenced the trade.  For the week .. The nearby wheat contract lost 3 cents, while March corn also shed three cents. Argentina’s economic sea change and technicals influenced the soy complex.  The January contract added 12 cents and January meal improved 90 cents per ton. March cotton shrank by $1.65 per hundredweight.  Over in the dairy parlor, January Class Three milk futures lost 46 cents. The livestock market was higher. February cattle gained $3.62. January feeders put on $5.60 and the February lean hog contract strengthened by $2.92. In the currency markets, the US dollar index lost 146 ticks. January crude oil added a quarter per barrel. COMEX gold increased by $16 per ounce, and the Goldman Sachs Commodity Index added a little more than 1 point to settle at 533-45. Joining us now is regular market analyst Dan Hueber. Hi, Dan.

Dan Hueber:  Hi, How are you today?

Paul Yeager:  I'm all right.

Dan Hueber:  Good.

Paul Yeager:  If we wouldn't have had yesterday with exports, sales, export sales, we would have had a pretty bum week.

Dan Hueber:  Oh, exactly. Exactly.

Paul Yeager:  Why were exports, why was the US wheat in such demand?

Dan Hueber:  Well, of course. I mean, you can attribute 75% of those sales yesterday to China or last week to China. And again, they've been a fairly substantial buyer really over the last 2 to 3 weeks. As far as us, we sell. And I think competitively we're there in the world. I mean, the U.S. has got the product at this point in time where we're competitive to elsewhere in the globe. You know, of course there is you know, Russia now is basically kind of feeding their satellite nations in Africa and places like that. So, I mean, we are the market for the wheat. And I can say we're China has been in here taking advantage of that.

Paul Yeager:  Why was was China only looking at price and why they were interested in the US.

Dan Hueber:  Or, you know, not that there isn't a little bit of goodwill there too, but I mean, yeah, it's been unusual to see them in our wheat market. So I think price still has to be the dominant factor. But there could be a little a little bit of goodwill thrown in there as well. So, yeah.

Paul Yeager:  We like gifts that this holiday season. Absolutely. Are there more gifts to come in wheat?

Dan Hueber:  I you know, I think the wheat market is probably the of the three corn, soybeans, wheat, wheat is the one that probably got the best looking picture right now, primarily because of the resurgence in the demand. I don't think we're going to get carried away, but I think there is one more probably one more fairly could be substantial rally between now and the end of the year.

Paul Yeager:  So, oh, Dan, you have to define substantial.

Dan Hueber:  Now, substantial, equal to the one we just the one we saw probably 30 days over the last 30 days. So, I mean, to to take us back into, let's see, Kansas City up towards the $7 mark I don't think is unreasonable. Okay. Yeah.

Paul Yeager:  Corn wise, Yes. You're not as optimistic about that commodity why?

Dan Hueber:  Corn is you know, even though there's been fairly reasonable demand sale wise over the last few weeks, it's certainly not making up for lost time and we're certainly not shipping it as we should be at this point in time. So I think corn is probably going to get tugged along with what the wheat does. So if we does rally, corn is not going to be breaking at that same time. But same token, we're just range bound. I mean, we've been really in this pattern for for weeks and weeks and weeks, and I don't really see us coming back out of there for the time being.

Paul Yeager:  Few minutes ago we mentioned the aviation fuel story, those types of renewable fuels that didn't really mention corn ethanol anymore. But is there success with the cousins going to help corn?

Dan Hueber:  Well, you know, it certainly can't help. It can't hurt. But no, I think most of the emphasis is going to be on the bean oil and whatever vegetable oil product. We can get into that into that arena. And again, there's where you can see growth down the road. And, you know, granted up to this point of the year, the strength in the bean market has been more concentrated on meal. But but realistically, because we know we've got good meal prices everywhere in the globe right at this point in time. So people love our beans so they can crush them in the meal. So ultimately, you know, that leads to an oversupply meal. And I think we're already here have kind of reached that that juncture. So if beans have much hope in the future, it's probably going to be oil oil driven.

Paul Yeager:  So that's really the only driver of the bean market.

Dan Hueber:  Moving, I think moving forward. Moving forward right now, granted, we know South America's not made yet yet whether problems could develop there, but we seem to have kind of gotten over the hump on some of the weather issues in South America. And without that, you know, it's going to be pretty difficult to sustain rallies in the bean market for anything like the time.

Paul Yeager:  So you're finding plausible information about weather in Brazil to make you think we're sideways.

Dan Hueber:  Soybeans on soybeans sideways to lower.

Paul Yeager:  Sideways to lower. How much lower? I did want to ask you about oh.

Dan Hueber:  You know, I don't you know, and again, granted, we always have we have to throw our growing conditions in. It's not going to be that much longer. We're going to start talking about acreage and weather for the U.S. in this coming year. But without a major upset out in South America. You know, from where we stand here today, unless it just turns dramatically worse from here, then, you know, I think you're looking at 60, $0.80 more to the downside.

Dan Hueber:  Wow. I mean.

Paul Yeager:  Yeah, you know, I agree.

Dan Hueber:  This scheme of things, it's not huge. I mean, it's a but still.

Paul Yeager:  But it's significant. So. Right. Do I cut my losses and make some sales Then before the end of the year.

Dan Hueber:  I, I think any any rallies you do you get a bounce you you sell into it. You know I just don't see where we get carried away to the upside of the market.

Paul Yeager:  So okay, we've danced a little bit around this piece of string, but I want to first start with the dollar and a question that came in and what what's impacting here. This is from Gerry via X and he says, With rates falling, are we see will we see strength in commodity prices due to a weaker dollar.

Dan Hueber:  The it it eliminates some resistance, let's put it that way. I mean if the dollar does and against the dollar is psychologically broke this week, you know certainly. Well you know again it's been in a down pattern for the several weeks. But the extra pressure this week came because of the the announcement. Yes. That we're probably going to see some rate cuts next year. You know, I guess I tend to think that more emotional than anything that's realistic. And we're still the best economy in the world. And what I think you're leading into, of course, is now you've got Argentina, who in essence, haft their currency in relationship to the dollar. Now, granted, they had a terrible crop last year, didn't get off to a great start this year, although things have improved pretty dramatically over the last several weeks.  I mean, they're going to be increasing competition all the time. So it's it's you know, people go to the lowest denominator and it's going to be Argentina if they have the product available.

Paul Yeager:  And that's what we think is likely to happen initially or long term.

Dan Hueber:  Well, I think long term, if you know and granted, you know, nobody knows exactly how things are going to turn out there. But I mean, that country has suffered for years. And you're not just crop production wise, but I mean I mean, the programs of the Peron for years have just hamstrung that nation. And if it is truly opening up as a free market, you know, it's probably the the remedy they need to kind of get things back on footing. And they have all the potential in the world to really increase production, but have been, again, hamstrung by government policies and export restrictions and that type of thing. And, you know, this could really open up a whole new world, not that they'll ever necessarily keep pace with Brazil just because Brazil has more land mass, but, you know, they have some very productive soil and the technology could improve dramatically. So they could be a force to reckon with.

Paul Yeager:  Which U.S. commodity will be impacted the most here in the next six months to 12 months because of the peso and the changes in Argentina.

Dan Hueber:  Well, you know, of course, the their cup of tea has always been bean products. So it's probably going to come in the middle of the oil markets. Okay. So, yeah.

Paul Yeager:  Cotton this thing again, like so many things tied to a range, we've shrunk the volatility, right? Why?

Dan Hueber:  Well, partially part of the end of the year, partially that we're coming to reality of the world is looking at adequate supplies and really kind of a stagnant demand based on the cotton market. So hard to really say much optimistic about it. In fact, if anything, I'd say we're probably looking at lower prices.

Paul Yeager:  So you're not another pessimistic market outlook.

Dan Hueber:  Pessimistic market outlook.

Paul Yeager:  If anything, save it.

Dan Hueber:  You know, you don't really point you even there. You look at Brazil, Brazil, some of the problems they had with the acreage of soybeans getting planted, that's probably going to shift over to cotton. You might even see a little of that in Argentina. So you, boy, without a major, major weather event down there, pretty difficult to think we're going to hold prices here.

Paul Yeager:  Okay, Livestock. Okay. We know the headlines. You wrote a lot this week about technicals.

Dan Hueber:  Okay.

Paul Yeager:  But what is dominating in this livestock Is this is there another story afloat? I'll start with life Cattle first.

Dan Hueber:  Live cattle are, of course. I mean, they're a victim of their own success over the last few years. Success, meaning high prices. And you know, you just reach the point. I think the consumer pushback against it, the export market pushed back against it and, you know, once you make those changes, they don't reverse easily. You know, once the consumer starts buying more pork, starts buying more poultry, it's not easy to go back to beef, particularly when you look at the price discrepancy between the two. So, yes, we've probably beat the cattle market down over the last 30 to 60 days, far enough that we're due for some recovery. But, you know, and unless we can really stimulate the demand at the retail, but again, you know, recoveries are probably going to be somewhat limited.

Paul Yeager:  That the holiday period, we kind of do shift our diets to a sense of we eat different things. Are there any of that at play to.

Dan Hueber:  Well, you would, if anything, it would tend to be hams this time of year. And of course, the buying always happens earlier than you know it just the week before Christmas to begin with. But but you know the pork market. Yes has definitely struggled again in the last week. I think the the action we saw the last two days I think is is definitely encouraging.

Dan Hueber:  So I think if there is one market that we could probably look out into the first two quarters of 2024 and say we could have some higher prices is going to be in the pork.

Paul Yeager:  So if the hog market has this potential, is this just a Well, I want to see the chart because I'm kind of curious how it. Yeah, it it we ended up with a decent day on Friday, but we're still close to that mid 70 range. We're still on the low end of this thing. So sure, 82 was a good price. Any chance that can come to fruition here? And in the first half of 24.

Dan Hueber:  Oh, maybe towards the latter half of it. In the latter half of the first half, I guess I want to define that. So it's which, you know, you're you're probably already out there to a certain extent. The in the the June contract. So but you know, just from a seasonal standpoint that is generally a pattern we look at is a little bit higher in the spring summer and then go through the whole process in the fall again.

Paul Yeager:  So I want to wrap up livestock with feeders here because again, that is a market that has, I think you said a victim of its own high prices, that the same story There it is.

Dan Hueber:  You know, and again, psychologically, if we do see corn stagnant, be under pressure, that should keep a certain amount of demand in the in the feeders. But if if if feedlots are losing money, it's going to be difficult to really say there's going to be overwhelming amount of demand from the feeder market.

Paul Yeager:  So do you subscribe to any outside story of insurance payments or someone, some big client on the wrong side of a trade that's maybe happening here with cattle or feeders?

Dan Hueber:  Yeah, well, you know, insurance payments, of course, it's just like any other risk management tool, I guess certain amount of people use my I've never I've never seen where they have, you know, really embrace the volume and there to make a big market swing. You know and again I I'm not going to go so far to say it's influencing the market again. I come back to the point where I think after after the better part of a half of a year, of higher into record prices on pork, I think, you know, there's where there's where the the issue is coming back and fall, too. So.

Paul Yeager:  All right, Dan, thank you for your time. We have some more questions for you. We'll get to those in a minute. Okay.

Dan Hueber:  Pleasure. Sounds great, right?

Paul Yeager:  Dan Hueber thank you very much. And hold it there, please, because we are going to pause this analysis, continue our discussion about these markets in our MarketPlus segment. You can find both analysis and Plus on our website of Our YouTube channel is updated twice a week with our Market Plus, our stories and the MtoM Show podcast. Follow today and know when we post and be the first to watch our content by heading to MarkettoMarket. Next week, a look at the latest winner of the World Food Prize. Thank you so much for watching. Have a great week.

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

Announcer:  What's next doesn't happen by chance. It happens when researchers and farmers work together to solve tomorrow's agronomic challenges. We're committed to creating what's next because at Pioneer. Our name is our mission

Announcer 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.