Market to Market - March 22, 2024

Coming up on Market to Market -

Housing leads the economic snapshots.

China and rural America come under the hot lights of Capitol Hill. Working to connect that last mile of the digital divide. And commodity market analysis with Mark Gold, next.

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.

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Tomorrow. For over 100 years, we have 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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This is the Friday, March 22nd edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

For months the housing market has been suffering from low inventory, high prices and rising interest rates. Some of those factors have changed or we’ve just acclimated to the conditions.

Existing home sales reversed months of losses for a gain of 9.5 percent according to the National Association of Realtors. 

Mortgage rates fell to 6.74 percent from 6.88 last month.

The Federal Reserve met this week and the chair of the Board of Governors said the key interest rate will stay put as new inflationary pressures emerge. A follow up statement said three rate cuts are likely in 2024.

The latest Rural Mainstreet Index reveals another dip, this time by eight points to 38, as bank CEOs in the surveyed rural areas cited lower commodity prices as a factor in the decline.

Over the last decade, China purchased the world’s largest pork processor from U.S. owners, fought a trade war involving billions of dollars in tariffs and, most recently, bought $34 billion in U.S. agricultural produced goods. This has kept the foreign nation at the top of the list as America’s number one trading partner of farm exports. Now bills targeting foreign ownership of all those things are popping up across the U.S. The U.S. House Agriculture Committee convened a hearing this week to discuss these subjects and more, covering concerns on everything from semiconductors to seeds. David Miller reports.

This week, the House Agriculture Committee held hearings over the potential economic threats on rural America by China.

Witnesses focused on the difficulty of protecting intellectual property and safeguarding against cyber-attacks while simultaneously working to be a trusted trade partner.

Josh Gackle, American Soybean Association: “The sheer scale of China's demand for soybeans cannot be replaced. In farmer terms, one in every three rows grown in the U.S. is shipped to China to fill demand. Our farmers now face an increasing competition with Brazil and every export market, not just China. The trade war also damaged our reputation as a reliable provider of soybeans and soy products in global markets. The Section 3.1 tariffs and the retaliatory retaliatory trade actions have jeopardized our place in these markets and damaged in-country relationships developed over decades. At times, our customers looked elsewhere for their needs to avoid trade risk or excess duties.”

Rep. Frank Lucas, R, OK: “What is the correct balance between national security while also allowing the international investment in our economy? Let's just cut straight to the chase.”

Nova Daly, Public Policy Consultant: “Well, we have to keep our open investment policy that's been sustained since, I think President Carter on through now. That said, there are serious national security issues that are drawn from foreign investment. And Chinese actors have been interesting in the way that they've found vulnerabilities not only in our laws and the gaps that precede from it, but also in their capabilities to use in a fairly nefariously third-party actors to gain entrance and access to places where we have one of the spear needs in terms of our national security.”

Rep. Brad Finstad, R, MN: “Do you believe that food and agriculture sector is adequately prepared for and possesses the ability to respond to a major cyber-attack against our key suppliers in the ag industry?

Amb. Kip Tom: “No, we are not. I know we've taken major steps to protect this. From a private sector perspective. I appreciate any involvement that the government can be on this, but we're not doing enough yet today.”

Rep. Tracey Mann, R, KS: “Could China also be conducting espionage operations to acquire the very livestock genetics that American ranchers have spent decades developing?

Nova Daly, Public Policy Consultant: “I absolutely do think this is something that China would do. There's a reason why the Committee on Foreign Investment, one of the national security priorities, was U.S. biological information, U.S. person, biological information. And if that's something China is gathering for its intelligence, it's certainly because food security for China is imperative to their survival.”

Rep Jim Costa, D, CA: “How do you create a fair level playing field?”

Nova Daly, Public Policy Consultant: It's difficult and it's multi-faceted. And you just have to take it sector by sector, issue by issue in terms of making it a level playing field with China in terms of we've got to be smart in terms of what we address in China.

Rep Jim Costa, D, CA: “You acknowledge it's not a level playing field?”

Nova Daly, Public Policy Consultant: “It is not a level playing field. Absolutely. The Chinese of our state driven economy, they subsidize where they want to subsidize and they will destroy markets and U.S. production capabilities where they want.”

For Market to Market, I’m David Miller.

The Federal government has a long legacy of subsidizing communications in rural and difficult to serve areas of the country. Most recently USDA established the ReConnect Program which helps bring rural Americans affordable high-speed internet. The Communications Act of 1934 created a support system for telephone companies in rural areas, helping to build copper wire infrastructure for hardline phone service, and keeping the monthly bill affordable. Dollars from the 1934 Act are still being allocated and have helped build fiber optic networks across the country over the last 30 years. 

Peter Tubbs reports on the progress in South Dakota for our Cover Story.

A contractor is plowing fiber optics into the ground in Covington County, South Dakota. This branch line will serve only two customers who, until now, have been unable to receive consistent broadband due to their distance from the nearest town.

Half of the project's costs are being funded by Connect South Dakota, an initiative of the State of South Dakota to connect the 31,000 households and businesses that have been the hardest to connect to existing broadband systems. By bundling both State and Federal dollars with capital and materials from local broadband providers, the gaps in South Dakota’s broadband map are being filled.

Across the state, rural residents have been able to take advantage of the improved broadband and make a business in an isolated rural area viable.

Emily Mueller, Business Owner: “Yes, I work from home. I have a home office. And so, I need service to always be going to. And it's been great.”

Emily Mueller runs an accounting business from her home office, which wasn’t practical before their residence was connected to fiber optics.

Along with her husband Mark, the Muellers operate Big Stone Pumpkin Patch on a farm near Big Stone City, South Dakota. Access to broadband allows the family to complete customer payments using mobile devices in real time at remote locations across their property.

Mark Mueller, Farmer, Big Stone City South Dakota: “Yeah, we have when we started our pumpkin patch in the fall, we've had no issues with losing our signal. When people are trying to pay, we need to be connected to services so we don't have to be offline and just everything syncing together works a lot better.”

Over $270 million dollars is being spent in South Dakota to go the last mile to make connections with consumers. Just the cost of trenching fiber optic cable into highway right of ways can exceed $15,000 per mile in challenging conditions, and even higher in more rugged geography. The cost of serving rural areas makes projects like this a non-starter for some internet providers that serve South Dakota’s larger cities and towns.

The matching funds using state and federal dollars can make a system expansion economically plausible.  For decades, USDA has provided money to improve broadband service in rural America, however, these projects in South Dakota will be completed with COVID-19 relief funds. Applications from locally owned South Dakota internet providers, which are mostly telephone co-ops, are using the injection of capital to extend service past their FCC defined service areas.

Kara Semmler: “The cooperative mindset is about serving communities and the cooperatives I represent saw the need, saw the opportunity, and like I said, they've delivered.”

The national providers that serve the larger cities of South Dakota rarely deliver service past the city limits, as the return quickly becomes a drag on profitability.

Tracy Bandemer: “And what was attractive to us is areas that adjoin us. So, if they're just right next door, we're interested in that area because there's efficiencies. We actually had already often had people coming to us wanting us to serve them, but it wasn't feasible with the cost of the fiber builds. So yeah, the Connect South Dakota program made a huge difference for these people. They wanted these people served. We wanted to serve them and the customer needed us.”

Interstate Telecommunications Cooperative of Clear Lake, South Dakota completed a 12-year project to replace all of its copper service lines with fiber optics in 2020. The Federal and State monies have allowed the coop to extend service to underserved customers outside their 17-county footprint, which includes three counties in Minnesota.

For practical purposes, dependable broadband is no longer an entertainment frill; it has become a required utility.

Kara Semmler: “Yes, absolutely. I think that is right on. It is a necessity. It's not a luxury. (edit) 00;02;40 So the opportunities, the payback to our citizens and our state is tremendous. Just like rural electric, just like rural water was years ago.”

David Hicks is a contractor who lives in Lake County, South Dakota, who also serves on the Executive Board of the Grant County Development Corporation. Businesses looking for new locations have little interest in sites without broadband.

David Hicks: “It either has it or it doesn't. So, you're you can't really pitch one that doesn't have the Internet service. I mean, that's if you don't have it, you better figure out how to get it or they need to go somewhere else and they don't even consider it anymore.”

Valley Queen Cheese Plant in Milbank, South Dakota is increasing its capacity, which will require workers to move to the area for jobs, and raise demand for milk in the area. Both prospective workers and future milking cows need the internet in their daily lives.

David Hicks “Because we got a lot of big dairies looking at South Dakota right now that want to get to this area.  We have a cheese plant expanding, um, and they are required all that same stuff and good internet. I mean a lot of that stuff is handled online anymore or it's linked. The cows are linked.”

Mark Mueller believes the efficiency of his farming operation has improved with the broadband connection.

Mark Mueller, Farmer, Big Stone City South Dakota: “I've we've tried to implement technology on our farm, adding monitors. We've had a yield monitor for years, and now we're able to sync our iPads and other technology as we just pull up next to our house through our shop to download the information online.”

Broadband providers are averaging 70 percent sign ups along the new broadband lines but encouraging property owners to take advantage of the service can be challenging.

Beyond the financial costs of expanding broadband service, a stable connection to the internet is now viewed by many as an expectation. The Federal government has prioritized daily mail delivery to every address since the founding of the country, and the communications mandate has expanded into both voice and data connections.

Tracy Bandemer “I think back to the days of the telephone, you know, when it was said everybody should be able to have the same service in the United States. And so that's when support was started to be received. I don't see that any different. We're all United States citizens. We should all have the same opportunity to have good broadband support.”

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

Yeager: The European Union’s tariff considerations on Russian wheat boosted the outlook for U.S. producers. For the week, the nearby wheat contract added 26 cents and the May corn contract gained three cents. Both meal and oil contributed to the upside in the soy complex before the gains were erased Friday. The May soybean contract lost 6 cents while May meal improved $4.40 per ton. May cotton shrank by $2.42 per hundredweight. Over in the dairy parlor, April Class Three milk futures fell 42 cents. The livestock market was mixed. April cattle added a quarter. April feeders cut 63 cents. And the April lean hog contract declined $2.35. In the currency markets, the US dollar index strengthened 104 ticks. May crude oil added 4 cents per barrel. COMEX gold rose $3.10 per ounce. And the Goldman Sachs Commodity Index lost almost a point to settle at 574.20. Joining us now is regular market analyst Mark Gold. Hi, sir.

Gold: Nice to be here again.

Yeager: You know, this wheat market has been looking for a story. Did you see tariffs as part of the playbook that might give it some optimism?

Gold: I didn't see those tariffs coming, but it doesn't surprise me once it's there. And it hasn't been etched in stone yet, but it should be. And certainly, there's two thoughts here, they want a healthy European farmer, the wheat prices it will help the U.S. as well, but the other thing is taking income away from the Russians for their war against Ukraine. So, I think it's a two-pronged attack and I think it's worthwhile to do and I think it's going to really kind of change the dynamic of this wheat market because Russia has just been dumping so much on us.

Yeager: And that has been the story weeks and weeks at a time. Now, this weekend the story is about weather. We shift to some rain and some snow and colder temperatures on the U.S. crop. What does that mean for the market?

Gold: I don't think too much right here right now. But Iowa, where we're sitting here today, it has been a very dry state and some of the worst drought in the northeast part of the state. It looks like we've had some pretty good rains here today, maybe over the weekend into Tuesday could get some more rains, so I think that put a little bit of pressure on the beans. But overall, it's way too early to be talking a weather story. We've had phenomenal, phenomenal winter weather. Spring weather it was good up until this week. We got cold, had some snow. But we're still in March.

Yeager: In your state of Illinois, we always hear Matt Bennett last week said he had heard about people south of him, south of Champaign already planting. Are you hearing some of those same stories?

Gold: Not in Illinois, but it doesn't surprise me. You buck up against the insurance date, which is about April 10th, and are guys going to risk it going in early? If the weather is there, some guys will do that, there's no question about it. But I think with this last cold snap they're a little bit more inclined to wait, see if we can warm up back into the 50s and 60s and then they're just going to be gangbusters planting corn.

Yeager: Corn is the topic of the majority of questions this week, Mark. But I want to start first with this sideways action that we've been having. Do you anticipate or see anything that will break us out of sideways?

Gold: Well, certainly there are a couple of things, if the weather stays rough in Argentina, they keep losing crop size according to our estimates, and at StoneX they keep a pretty good track on that. It looks like it's going to be decreasing. So that is something to keep an eye on. The safrinha crop in Brazil, they've had some rains, it has been dry, it kind of goes back and forth. But they're still going to have a pretty good-sized crop. But overall, there's still the driving force in the corn market is the funds. They're still short 250,000, 260,000 contracts of corn. When are they going to cover? We just can't get the charts to turn quite friendly enough. If we could close the nearby corn, the May contract over $4.46, we got up to $4.45 and three-quarters overnight, if we could close over $4.46 that would be, in my opinion, a good push for the funds to say okay. Now, I heard today some people thought the funds had been big buyers and covered a lot of these short positions. I haven't seen the commitment of traders report yet, but I haven't seen it on my daily accounts, but something is going to shake these guys out at some point.

Yeager: Well, and those who are still sitting on old crop, I've heard you talk about it a little bit, hold on for those in the back of the pew. But let's ask this question Mike in Iowa wrote and wanted to know from you, Mark, this has been a nice little rally on the corn off of the lows. On unpriced old crop, should we sell into this before the report, which would be next Thursday? And if we sell, what would you recommend to do if the report was bullish?

Gold: Well, I don't want to play that game of what's going to happen if it's bullish. What I would say is we're in a 40-cent rally in corn. It has been a nice little rally. We actually took the opportunity to sell a little bit more, just another 5% more, old crop. We don't have much left. We actually sold some beans. We sold some new crop beans. Haven't quite gotten to our levels on new crop corn yet. But the question is, would I be selling before the report on this rally? Yeah, I would certainly let go of some, reward the market. But I think you have to make the decision, if you wait until after the report and it's a bullish report, any option trade you're going to look at is going to be a heck of a lot more expensive than it is before the report. I would say if you're going to sell it and take advantage of a 40-cent rally, spend 10 cents, buy some kind of corn spread, a call spread to keep you in the game. If it's a bearish report, yeah, you'll lose the dime, but at least you sold some corn at good prices.

Yeager: It sounds like you're saying, a little bit of action on corn. But I'm also curious about soybeans. Given what happened on Friday, the dramatic downturn, going into a weekend does that give you cause for concern for soybeans moving forward? Gold: Not really. We've been up a buck a bushel roughly after the rally on Wednesday night. We gave them back 20 cents of it. Okay, the markets need to correct. I don't see anything fundamentally wrong. I see some positives. Again, the funds are heavily short beans. They're short an awful lot of meal and oil. So, that could be positive. What I see is the crush going through the roof and the estimates for the next couple of years is a huge increase in the crush. I believe the USDA is going to have to up the crush number on the supply and demand reports coming up in the next month or two. And I think they could be as much as 50 million bushels out from where the numbers should be, which could take the carryout from 315 down to 265. The other thing is we don't have all the Argentinean crop in yet. The Brazilian crop, the USDA says 155. I say, nonsense. I don't think you can have so many Brazilian people boots on the ground right there coming up with estimates from 140 to 148, 149, in that range, some even lower than that, and expect that the 155 is going to hold. I don't know why they aren't being more aggressive on that. They generally would usually start this month, we didn't see it. Hopefully in the reports coming ahead they're going to get that into line. So, I think there's a couple of bullish things out there, plus the funds being short, that could maintain the rally. So, this 20-cent break doesn't bother me all that much.

Yeager: But are you saying that the window on any bean news is shrinking? We're only down to a couple more stories that could happen to influence this? Is that what you're saying?

Gold: Well, we'll get into planting season, we'll get the acreage numbers --

Yeager: Yeah, before we get to that.

Gold: We'll get the acreage numbers, we'll see the stocks numbers. I think corn stocks are going to be a pretty big number. I don't want to venture any particular guess. But I think the American farmers is still holding a lot of corn. They have sold some on these rallies, but not a lot.

Yeager: Before we move to livestock, do you see acres changing dramatically next week, corn or beans?

Gold: I think the corn will be up from 91 million to 92, 93. I think the beans, some people are saying it's going to be bigger, I don't see that. I think we're going to lose some acres into cotton. And I just think that farmers are going to plant more corn that beans.

Yeager: Cattle on feed came just before you arrived.

Gold: It sure did.

Yeager: There was one number, placements, absolutely highest number since the series began in 1996. Placements were up 10%. What does that tell you?

Gold: Well, it tells me that, you know, Friday's lower prices in the feeder cattle market down $4 to $5, I hate to be the conspiracy buff out here, but people don't sell that kind of quantity if they don't know something. So, was this report leaked somehow? I hate to think so. But, boy it sure seems coincidental. At any rate, I think the report, we broke $4 or $5, there's probably a little bit more on that kind of a number. But the cattle market is still tight and futures haven't been responding to the cash market. There's still plenty of demand despite the economy. So, I think if we were down hard on Monday or Tuesday that might be a good buying opportunity again.

Yeager: In feeders?

Gold: In the feeders.

Yeager: What about in cattle? You talk about demand. I guess it's kind of what I said at the beginning of the show, have we just acquest to this is the high price?

Gold: Well, certainly the boxed beef price has gone through the roof out here. And the futures, they responded on Thursday, we were up $2, $3 around the country. We don't have a lot of cattle out there. The on-feed numbers aren't huge. So, there's been this disconnect between the futures prices and the cash price. The cash market keeps telling us that there aren't cattle out there. And there's plenty of speculators out there willing to sell rallies in the cattle market. What would I be doing? I made the recommendation over the last week, when you're at these kind of high levels, not buying a put seems to be an opportunity missed out here. We went up in the April cattle, filled the gap at $190.27 to the penny, we've backed off since then, haven't been able to approach back. So, until we close over that $190.27 in the April, I think you've got to be a little careful out here.

Yeager: I know not every soybean crushed goes to feed hogs, but some does. Does that have any correlation to you in what is happening in hogs right now?

Gold: Well, the hog market, you look at the bad months in hogs, we were at contract highs earlier in the week, we have since broken $4 or $5 off of that. But, in general, I think that we're going to be feeding a lot in hogs. Ethanol demand is going to keep growing, in my opinion. I think when it's all said and done, electric vehicles are not going to be the thing that a lot of people think they are. And I just bought a new car and it's gas and I'm happy it's gas. So, more directly to your question, I don't know how much that -- but the cheaper corn prices, they're going to feed it, no question about it.

Yeager: Do you see -- hogs have had this rebound of sorts and then sell off, it's like up one week dramatic. That is about one of the only things that has had dramatic moves lately. Do you anticipate that continuing?

Gold: Well, the hogs can be a very volatile market. Going back to the old billing market, that was the crapshoot in its day, but the hog market has been equally volatile. And the spreads, when you had such low prices on the winter hogs and the higher prices in the back and then the back months leading the way higher out here, that volatility I think in the spreads is going to continue.

Yeager: In the dollar as well, we've moved almost 200 ticks in two weeks higher, not usually good for exports in the United States.

Gold: We had the break earlier in the week and then we came storming back. I think the last I looked it was 50 ticks well over $104 again and that's never a good sign for the grain market or the export market. We need to see that dollar back under par, which is $100, and that might stimulate some buying.

Yeager: All right, Mark, appreciate your time and insight. Thank you so much.

Gold: Always nice to be here. Thank you.

Yeager: Good to see you. Mark Gold, everybody. We're going to pause our analysis and continue our discussion about these markets in our Market Plus segment. You can find both analysis and Plus on the website of markettomarket.org. We are so close to our goal of 10,000 YouTube subscribers. Help us cross that threshold and you can stay current on new releases from us in our episodes, our MtoM podcast, as well as new stories. Hit subscribe at youtube.com/markettomarket. Next week, sorting two major government reports with a panel discussion. Thank you so much for watching. Have a great week.

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

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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.

(music)

Tomorrow. For over 100 years, we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

(music)

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.