Market to Market - Sep. 24, 2021
Extended dry conditions renew an old debate on water rights. Pushing through the pitfalls of urban farming. Market analysis with Ted Seifried.
Coming up on Market to Market -- Extended dry conditions renew an old debate on water rights. Pushing through the pitfalls of urban farming. And market analysis with Ted Seifried, next.
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This is the Friday, September 24 edition of Market to Market, the Weekly Journal of Rural America.
Hello, I’m Paul Yeager,
The taper may be close at hand.
Federal Reserve Chair Jerome Powell indicated this week he could start pulling back on bond purchases as soon as November.
The buyer may finally be hitting pause as the rate of existing home sales fell 2 percent in August. The inventory also shrank while median prices increased for the 114th straight month.
New home sales increased over July - but the rising prices are starting to sideline potential buyers of new units.
Benchmark U.S. natural gas prices are the highest since 2014. Tight supplies and strong export demand have impacted the marketplace.
One could argue weather extremes of temperatures and precipitation appear to be more commonplace. Take the West for example, much of this region is in its third year of drought.
Areas that depend on decades-old water rights to determine who has claim to the resource are running hot as continued drought has warmed up the discussion on if changes are needed.
John Torpy reports on the battle in Oregon.
Along the Deschutes River in east of Portland, Oregon, the consequences of the strict hierarchy dictated by the American West's arcane water law, "first in time, first in right" is punishing some farmers and their drought stricken crops.
Phil Fine, Oregon Farmer: "Basically we're in a severe drought. The natural flow in the Deschutes right now is less than anybody's ever seen it. Now, keep in mind we said that a month ago, we said that two months ago, we said that two weeks ago. It keeps going down,"
As catastrophic drought ravages the West, the irrigation districts with water claims dating back more than a century only have had to modestly reduce water use while districts just up the road with more recent claims have been cut off entirely.
Phil Fine, Oregon Farmer: "So North Unit Irrigation District is the junior district in the Deschutes Basin and basically in central Oregon. So what that means is, when it comes to the water, especially natural flow, we're last in line, because we're last in time."
To the south, automated sprinklers douse crops and cattle graze on green pastures as water pours through lush farmland, highlighting the water rights inequality for farmers in Oregon.
Matt Lisignoli, Oregon farmer, "This farm is in Central Oregon Irrigation District which has senior water rights. I feel extremely fortunate in my situation because we have had adequate water here. But being able to farm up on the North Unit Irrigation District, I also feel the burn and how it's hurt us up there as far as what we can and can't do. All of my crops up there were diminished as far as the tonnage and yield and quality because we had the water shut off so early."
After three years of punishing drought, the water rights issue in the Western U.S. has brought new urgency to controversial proposals that would allow farmers with excess water to "lease" some or all of their share to those in need regardless of what irrigation district they are in. Against this backdrop, the nonprofit Deschutes River Conservancy and the Central Oregon Irrigation District, which has some of the most senior water rights, are studying the feasibility of market-driven incentives.
Kate Fitzpatrick, Executive Director, Deschutes River Conservancy, “We just want to be able to move water around more flexibly on a voluntary, incentive basis. So if somebody wants to use less water in Central Oregon Irrigation District, for example, they should have an easier time letting North Unit Irrigation District or other junior districts pick up that water."
The idea of a "water bank" is part of a larger dialogue across the West about how to let the free market play a bigger role in water conservation and water-sharing as climate change fuels drought and farmers from Colorado to California run out of options.
Kate Fitzpatrick, Executive Director, Deschutes River Conservancy: "If we can find those win-win solutions, I believe that the Deschutes can be a model for the West as the West faces increasing drought and scarcity and population growth and all of that."
Phil Fine, Oregon Farmer: "The water marketing and leasing is just one of those tools, but it's something we can do now. It doesn't come at a huge cost, it doesn't take a lot of infrastructure, and it's something we can do now. And in North Unit especially, if we don't do something soon, we can't keep going on like this,"
But the idea hasn’t received a warm reception. Over the summer, large-scale efforts to spread water more equitably among agricultural producers in Oregon’s six irrigation districts was met with resistance as senior water rights holders were hesitant to send water to farmers with lower water seniority.
For Market to Market, I’m John Torpy.
The battle for land is a large and small acre issue. Just this month in Iowa at least three tracts of farmland sold for more than $22,000 an acre.
Once abandoned city lots that were transitioned into urban gardens have become hot commodities as well as cities look to reclaim property to develop or sell.
Josh Buettner reports in our Cover Story on the challenges for those growing food in cities.
Monika Owczarski cultivates her inner-city community from the ground up through urban farming.
Monika Owczarski/Owner – Sweet Tooth Farm/Des Moines, Iowa: “Where we are standing was a redlined neighborhood.”
After moving into a historically underprivileged location near downtown Des Moines, Iowa, the young wife and mother also started the city’s first community fridge and pantry – kept afloat by volunteers who share her commitment to eradicate food insecurity.
Monika Owczarski/Owner – Sweet Tooth Farm/Des Moines, Iowa: “The main differences between urban farming and gardening are probably scale, succession and selling.”
The former social worker says fresh, chemical free produce should never be considered a luxury item. Her Sweet Tooth Farm accepts food stamps and other assistance, shares farm implements with neighbors, and operates, primarily, right next door.
Monika Owczarski/Owner – Sweet Tooth Farm/Des Moines, Iowa “When we moved here, this was Royal Park. The parks department actually still owns this space. We are stewards of this lot.”
Her push to convert the rundown spot to small-scale agricultural use impressed the city’s Director of Parks and Recreation, Ben Page, who says it’s a first in his department’s 125 year history.
Ben Page/Director – Parks and Recreation/City of Des Moines, Iowa: “She’s helped so many people. And I think it wouldn’t be a surprise if I tell you Des Moines is not a wealthy city. I mean, we talk about 80 percent of our kids on free and reduced lunch. Another goal of the city was to find ways to stop these food deserts, and to help people find local produce and healthy food. And you point to this as probably one of the successful things we started that movement with was Monika.”
Despite local accolades, Owczarski’s plan to expand from 1 to 3 acres was nipped in the bud this summer when another city division informed her they would not renew leases on 2 other parcels of industrial land she’d acquired - both unused since the 1970s.
Monika Owczarski/Owner – Sweet Tooth Farm/Des Moines, Iowa: “It’s quite a precarious position to be in. The explanation we were given is that the City of Des Moines just doesn’t have enough undeveloped land available for people. So they want to have it ready in case someone ever wanted to build on it.”
In a June email to the Mayor and City Council, Des Moines’ Director of Development Services stated efforts to redevelop, expand the city’s tax base and employment opportunities were behind the decision – reiterating such properties are intended for development purposes in the long term. Owczarski says officials offered up another piece of land, but she found it inadequate for various reasons.
Monika Owczarski/Owner – Sweet Tooth Farm/Des Moines, Iowa: “This might sound forward or blunt, but it is very easy to make a graphic or a hashtag about supporting local farms, or shop local, or even about healthy eating. It’s much more difficult to kind of put your money where your mouth is…and make decisions that potentially are not as lucrative, financially, for the city, but could be exponentially better for the community in real terms.”
While her initial model is rather unique to the area, nationwide many urban gardeners have run afoul of what they call myriad hazy provisions as local governments adapt.
Jennifer Zwagerman/Director – Agricultural Law Center/Drake University/Des Moines, Iowa: “When we talk about the laws and the policies that impact how we produce our food, who produces our food, urban agriculture is definitely a growing part of that discussion.”
Jennifer Zwagerman is the director of Drake University’s Agricultural Law Center in Des Moines. In addition to educating the next generation of attorneys, Drake publishes research and information on issues impacting food and farm production.
Jennifer Zwagerman/Director – Agricultural Law Center/Drake University/Des Moines, Iowa: “Zoning is probably the biggest thing. And you’re also going to need to look at tax issues. You need to look at business issues. How are you planning to operate? What changes if you expand?”
Just a few miles away lies a pocket of unincorporated county land, and another neighborhood farm – Dogpatch Urban Gardens – which also felt blindsided by bureaucracy in the recent past.
Jenny Quiner/Owner – Dogpatch Urban Gardens/Des Moines, Iowa: “Frankly, the hardships we faced, we almost shut down the business.”
Former high school science teacher Jenny Quiner now sells fresh, organic produce to restaurants, grocers, and at her farmstand. She says though diligent and proactive about local regulations, two years after startup, she faced around $75,000 in commercial storefront compliance requirements when Polk County officials updated her assessment.
Jenny Quiner/Owner – Dogpatch Urban Gardens/Des Moines, Iowa: “Initially we were deemed a farm stand, which kind of checked the boxes. My gut says the county probably thought that this will be a small thing that, you know, we’ll just kind of float… But we ended up being more successful and getting a lot of people through the door, which got more eyes on our business.”
Ultimately, Quiner was able to rally with community donations covering a portion of the funds via a wildly successful online fundraiser.
Jenny Quiner/Owner – Dogpatch Urban Gardens/Des Moines, Iowa: “That really was an uplifting experience.”
In a statement, the Polk County Board of Supervisors commended local food producers, particularly during the pandemic, and said they’re open to discussing unnecessary barriers to entry while maintaining fair rules to protect resident health and safety.
Jenny Quiner/Owner – Dogpatch Urban Gardens/Des Moines, Iowa: “The problem we dealt with was when we asked initially if we needed these things, we were told no.”
Quiner says those following in her footsteps should exhaust all legal advice before breaking ground.
Efforts in recent years by Iowa’s General Assembly to address urban farm zoning issues may have lost steam, but cities coast to coast have turned urban decay into bountiful harvests with support from federal grants through USDA. Others counter land issues which can be micromanaged at the homeowner association level are best dealt with locally.
Jennifer Zwagerman/Director – Agricultural Law Center/Drake University/Des Moines, Iowa: “The cities that have really worked to encourage this type of activity - they set clear definitions for what they expect. What’s an urban garden versus a commercial enterprise? They’re going to define that, so that when you’re thinking about entering this market, or becoming part of this movement – you know what it is that you need to do.”
In the meantime, Owczarski is faced with a setback in production, and may have no way to recoup the $10,000 she spent rehabbing soil on lots the city is reclaiming. But she says she’ll make it through with support from friends and neighbors. She plans to do her best avoiding similar issues in the search for new properties, but offers a word of caution.
Monika Owczarski/Owner – Sweet Tooth Farm/Des Moines, Iowa: “Unfortunately, bureaucracy moves a lot slower than the growing season.”
For Market to Market, I’m Josh Buettner.
Next, the Market to Market report.
Combine yield monitors appear to be across the board as harvest pressure and Russian rumors of rationing quotas on exports influenced the trade. For the week, December wheat added 15 cents while the nearby corn contract lost a penny. Harvest weather looked good as combines gobbled up acres while still looking for a fully reopened gulf to ship their product. The November soybean contract weakened 1 cent. December meal shed $3.20 per ton. December cotton strengthened $3.66 per hundredweight. Over in the dairy parlor, October Class III milk futures improved 16 cents. A green week in the livestock sector. October cattle increased 13 cents. October feeders expanded 97 cents. And the October lean hog contract added $1.55. In the currency markets, the U.S. Dollar index gained 15 ticks. November crude oil strengthened $2.01 per barrel. COMEX Gold lost $5.90 per ounce. And the Goldman Sachs Commodity Index improved almost 9 points to finish at 547.45.
Yeager: Now here to provide insight is market analyst, Ted Seifried. Hello, Ted.
Seifried: Hi, Paul.
Yeager: Lots of stories this week. Where do you want to start with wheat because I mentioned Russia off the top, we have dry but oh wait maybe there's rain in certain areas? What is the biggest story in wheat right now?
Seifried: For me it's the chart because I really don't think the bullish story in wheat ever really went away. But we had sort of a seasonal decline, harvest pressure, that kind of continued on. But just at the end of this week we sort of broke out of this down -- we've been in a mild downtrend since the middle of August -- just this week we broke out of that, it looks like there is some upside potential there. The thing that concerns me for the wheat is that now the dollar, we had the reversal lower on Thursday but then finding some strength on Friday, that dollar just doesn't seem to want to give up. So that could be a head wind for the week going forward. But you've got to say you really like the chart of wheat, December Chicago in particular, I think there's more upside potential. I'm pretty bullish on wheat right now.
Yeager: Okay, so we have about four Twitter/Facebook questions asking the same thing. What does oats know? Is oats impacting wheat more or a different market?
Seifried: Yeah, I said it on another show earlier in the week, oats is the new GameStop, right? It's been incredible what is happening with the oats. I can't say that it wasn't fundamentally triggered because it was, but I don't know if it is fundamentally justified to be doing the things that it has done and the sort of volatility that we've seen. But what it really feels like in the oats is that somebody is caught short, commercial shorts potentially. And so that sort of short squeeze, it happens in commodity markets, it happens in stock markets apparently sometimes too. It doesn't seem terribly rational to me. But, that being said, oats certainly haven't really known where the corn has been going. Corn hasn't really reacted to it. But think about where wheat is grown, specifically that spring wheat crop, and we know what happened with that. Think about where oats are grown, you know what happened with the oats crop. Supplies are tight. That's the bottom line. Demand is there. So you're going to have strength in markets that have that fundamental backdrop.
Yeager: Wheat, we're looking at the March contract now, up 15 cents. Does this thing have more? What is a target higher?
Seifried: Yeah, 40 to 60 cents. I think we can get back towards and maybe test the previous highs. Depending on what is happening with row crops I feel like those highs could be taken out. But like I was saying, a lot of that kind of depends on what happens with the dollar, right? If the dollar is going to continue to gain strength and break out to new highs that would be a pretty significant head wind not just for the wheat but for all export, well commodities as a whole, but exportable commodities in particular.
Yeager: Corn and soybeans pretty even in their movements this week and the old theory of wheat pulls corn along didn't seem to hold this week. You just did a drive, you went over a lot of areas, a lot of beans are out of the field. Is there much corn out?
Seifried: I didn't see a whole lot of beans out of the field for sure. Coming into this week we had 10% of the corn crop harvested, 6% of the bean crop harvested. I know there has been progress made, it just wasn't on my drive. I saw two combines on my way here today. Now, there were some showers in the area and I think maybe guys saw that on the radar and said, okay we'll wait. I don't know. But I was really kind of surprised to see how many, I didn't see more open fields. I don't know what's going on with that. But I do feel like it will start happening in earnest in a big way over the weekend here and into next week and we will and we do, we can take out a lot of the crop in a very big hurry. So I'm not terribly worried about that. The question that you're probably going to ask, and that everybody keeps asking is, was that September 10th low that we had from the USDA report, was that our harvest low? And I don't think so. There are some things going on with this crop, especially with corn, disease pressure, tar spot, maybe this corn crop isn't quite as good as what we were looking at when we were out on crop tour. This crop seems to have gone backwards a little bit and I'm lowering my corn yield a little bit. That being said, our export sales for corn for the last few weeks have been really bad, I mean really bad. We did have a fair amount of sales on the books because we had that 10 million metric ton sale to China quite a while ago. So coming into the last month and a half the sales were kind of there but they have really tailed off. And that makes you wonder, why have global end users kind of turned their back on U.S. corn right now? It's not like they've got a lot of other outlets in the rest of the world, problems that we saw with the safrinha Brazilian second season corn crop there should be a lot more business coming to us. And I think ultimately there will be. I'm not terribly worried about that demand in the long run. But this is global end users saying that they still think there is more downside potential, they still think there is going to be more cash pressure coming from this harvest and they'll be able to buy at lower prices.
Yeager: Okay, you didn't see much in the field. I've seen a lot of beans coming out. Is there harvest pressure on that yet, on the soybean market?
Seifried: Yeah, same thing. I think you saw it on Monday where we opened and beans were under a pretty significant amount of pressure. There was a couple of different reasons for that. But one of the big ones for me was, yeah, we sold a lot of beans over the weekend and that cash pressure was hitting the markets on Monday. That will continue to happen. Now, ever year we get into harvest and we expect cash pressure, right? I don't think this year is different in the sense that we shouldn’t expect that, I just don't think we're going to get as much cash pressure this year as we usually do and part of that is because a lot of times the bulk of the cash pressure happens very early in harvest or just before harvest because you're moving all the old crop out of bins to make room for the new crop and that hits the market and then puts a lot of pressure on us. We didn't have a whole lot of old crop leftover this year. So we didn't have that. Also, you had a lot of really good prices all year throughout the growing season to sell. So a lot of the corn and beans coming to town during harvest have previously been priced so there's not new sales happening there. Now, you're always going to have some bushels that haven't been sold, you're going to have some bushels, especially in soybeans, where guys are finding better yields than what they were expecting and so there will be bushels that are pressuring us from a cash perspective. But I think we'll get past that sooner this year than we normally do. I don't think we're far, although I don’t think the harvest lows are in, I don't think we're far from harvest lows in either a price standpoint or from a time standpoint.
Yeager: Still great prices if you look at it historically. All right, real quick, Glen in Ohio asked some great questions, he asked three. We're going to just do one of them but we're going to show you all three. Glen is asking, should producers be more concerned about protecting the value of the '21 crop or should they be focused on hedging some of the '22 crop?
Seifried: Hey, Glen. Yeah, so you should be pretty far along in this current crop, or the crop that we're getting out right now. When I'm talking about new crop I'd like to see guys 10% to 15% sold on both corn and soybeans but I'm going to stress soybeans a little bit more because I'm a little bit worried about those input costs and how that might affect acreage for next year. So do be paying attention to next year, 10% to 15% is where I'd like to be. For old crop if you're not 60% or 65% sold I really feel like you should be. Now, that being said, you do want to take something into the spring and summer months because we have the potential to have some very tight balance sheets and some fireworks once again, just very similar to last year.
Yeager: That is one of the Twitter questions that we'll ask in Market Plus. Someone was asking you to reignite one of your earlier debates with yourself. I want to go to the livestock market. Cattle on feed and hogs and pigs report today. Let's start with the live cattle. As much of an impact there today's report? Or is it more in the feeder market?
Seifried: Placements was the big one. That placements number came in a bit higher than expected. Actually all the numbers came in higher than expected including marketings, which is kind of offsetting to some extent. But the on-feed number was higher than expected, but there was a very tight range and even though it did come in above the higher end of the range it still wasn't that far off and I don't think that is going to have a profound effect on the markets. The placement number is the one that bothers me. So yeah, I think it's a bigger deal for feeders. Either way it was not a bullish report overall and this might be bad timing for a bearish report. I'm hoping that we'll be able to shrug it off. For me, even though boxed beef prices have come down pretty significantly in the last month, I still think domestic demand is going to be very strong. I'm still optimistic there's more upside potential. I still think that there is more room for cash to trade higher, packers margins while not as good as they had been are still really rather good and I think domestic demand stays very strong. So I'm bullish cattle to an extent. I didn't like the report that we saw today. Moving over to hogs.
Yeager: We'll get to hogs in a minute. I want to follow up with cattle for a minute. You mentioned the domestic side of things. There's all these different COVID stories of we're going back into more of a cocoon for some to live and not eat out and do more at home, but we're also exiting grilling season, we're doing more of the in-home. What does any of that tell you about the cattle marketing moving forward before now and Christmas?
Seifried: Well, I do think that if we are staying away from restaurants we will be grilling longer than we normally would be. So I think we might be able to extend the grilling seasons --
Yeager: Tailgate season.
Seifried: Tailgating season, absolutely. And a warmer than normal outlook for the month of October. So hey, we might be able to push that further back. But you're right, seasonally that demand starts to tail off until we get into the holidays. As far as shut downs and what not, everybody needs to eat, we're going to find a place to do it whether it's at a restaurant or doing it at home. We figured that out last time. Demand will stay there.
Yeager: Hogs report. This one, what do you think?
Seifried: Well, we had about not quite 2 million less hogs out there than what we thought so that's pretty friendly. Hogs held back for breeding was very friendly. So I think that's a pretty bullish report. But it comes at a time where I think hogs got undervalued. I didn't really see the justification to come off the highs as much as we did in hogs and now you have something like this and we were already, at least on Thursday for the deferred months and then on Friday for the October contract, breaking back out to the upside after a period of basing. I think there is more upside potential in the hogs. Again, I think we had gotten too cheap. So I think this report helps facilitate that and then put that on top of China saying that they want to cut their hog herd down to 41 million instead of 45, a little over 45, which is where they're at right now. That doesn't necessarily bode well for soybean demand. However, there's less hogs in the world both here and in China. That is a pretty bullish scenario in my opinion.
Yeager: Bullish not bearish because there's not more hogs to eat that?
Seifried: There's less hogs, less hogs. It's bullish for hogs, not necessarily for soybeans.
Yeager: Gotcha, okay, see I'm trying to listen, Ted, I truly am. Thank you. But they're also telling me it's time to go. Thanks, Ted.
Seifried: Hey, the pleasure is mine.
Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus so join us there. Find that on our website of MarketToMarket.org. This time of year is great for agricultural action shots. Whether you are unloading grain, waiting in the cart or on auto steer in the combine, snap a pic and tag us on Instagram. We'll also post some of our images there as well. Search MarketToMarketShow and give us a follow. Next week we look at the fight to keep ASF off shore in the United States. Thank you so very much for watching and have a great week.
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