Market to Market - Feb. 11, 2022

Coming up on Market to Market -- The Phase One report card reveals a need for improvement. Early debate on the new Farm Bill includes familiar themes. The fight over water rights in the High Plains. And market analysis with Dan Hueber, next.

What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

Sukup Manufacturing Company -- providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing -- store now, profit later.

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.

This is the Friday, February 11 edition of Market to Market., the Weekly Journal of Rural America.

Hello, I’m Paul Yeager.

The bipartisan Ocean Shipping Reform Act introduced in the Senate this week looks to help American exporters in the international shipping industry. But the World Shipping Council calls the House version of the bill a “political statement of frustration.” -

The world’s largest shipping company A.P. Moeller-Maersk of Denmark says 2021 was the most profitable year yet with $18.7 billion coming in before taxes. 

Americans kept buying foreign-made products at a faster pace than domestic goods as the 2021 trade deficit set a record at $859 billion.

The Consumer Price Index moved higher in January by 0.6 of a percent. The core CPI moved at the same pace.

When you look at the year-over-year rate of inflation, the increase was 7.5 percent - the biggest jump in 40 years. —

A nearly two week old protest among truck drivers over Canada’s COVID-19 restrictions has now bottled up the Ambassador Bridge connecting Detroit and Windsor. The crossing carries 25 percent of all trade between the two countries and has forced the closure of some auto plants over parts shortages.

Restrictions on trade with another U.S. partner - intended to force a different outcome - has yielded a lower than expected outcome.

Josh Buettner reports.

This week, The Peterson Institute for International Economics lambasted the former administration’s 2019 Phase One agreement with China, which brought a halt to Trump’s Trade War, but failed to deliver by a December 31, 2021 deadline.

The D.C.- based independent nonprofit research organization says China bought only 57 percent of initial U.S. exports it committed to purchase over 2020 and 2021. (CHART HERE)

Trade officials brokered Phase One based on 2017 pre-trade war American export numbers.  But after 18 months of tariffs aimed at decoupling the two economies, Peterson Senior Fellow Chad Bown wrote US exporters had to dig out of a $13.6 billion hole first before China could begin chipping away at the extra $200 billion they pledged to purchase – effectively buying no additional goods.

Sen. Chuck Grassley/R – Iowa:  “Rather than crying over spilled milk, and I said that the virus might have something to do with it, but maybe even if we didn’t have the virus – Chinese aren’t known for keeping their word.”

While farm states suffered retaliatory Chinese tariffs in 2018 and ‘19, Trump directed tens of billions in taxpayer-funded bailout money to help level the playing field for agriculture.  But pandemic, recession, resulting supply-chain issues and inflation all sank the larger deal back-loaded for 60 percent purchase increases in 2021.

Though some tariffs carried over between presidencies, Peterson largely gives the current administration a pass, saying China was never on pace to meet the terms – even projecting overall U.S. exports would have been almost $40 billion higher over the past two years without the trade war or Phase One.

For Market to Market, I’m Josh Buettner.

The process to write the next Farm Bill has entered the phase questioning the current administration’s climate change plans.

Peter Tubbs, again, looks at the process from Capitol Hill.

The fact finding process of writing the 2023 Farm Bill continued this week as members of the House Agriculture Committee probed where the farm programs that serve rural America need to be adjusted. 

Several Representatives had questions about the Biden Administration's climate change initiatives.

Rep. Rick Allen, D- GA: “Why are we taking our eye off the ball on Feeding America in the most efficient way and the safest way? And all of this noise about climate change, I mean, like I said, my people are not talking about climate change.”

USDA Undersecretary Robert Bonnie: “When I go out in the countryside, I hear about drought, I hear about wildfire, I hear about extreme weather events and part of our effort to address those things is about climate change, as well as making U.S. agriculture more resilient.

Rep. Doug LaMalfa, R- CA: “How is the farmer supposed to look and so great? Here's another program for us to jump through because somebody wants to worry about carbon. Undersecretary, how's a farmer going to look at this?

USDA Undersecretary Robert Bonnie: “This is voluntary and farmers can decide for themselves whether it fits into their, their own production and whether it provides value. Our interest here is actually providing value. Create new markets, new opportunities, new sources of income, and to de-risk it in a way that allows producers to step into that. It won't work for everybody, but we think it'll work for a potentially large slice of agriculture, stronger.”

Delivery of crop insurance payouts were also a point of emphasis.

Rep. Dusty Johnson, R- SD: “Secretary, I think the crop insurance system we've got has done a really good job from a customer service perspective, as well as making sure those indemnities get out in the field as quickly as possible. I know some have proposed eliminating the private sector based delivery system. Any observations on that?”

USDA Undersecretary Robert Bonnie: “I think the public private partnership is a great delivery mechanism, as you point out. We can move quickly. We can. You can turn on assistance very quickly. And that's very attractive.

The number of tillable acres that are enrolled in conservation programs such as CRP may be tweaked in the new Farm Bill.

Rep. Tracey Mann, R- KS: “In your mind, why is so much good, productive farmland ended up in CRP? And what is USDA doing to achieve the shared goal of reserving CRP for the most environmentally sensitive acres that that need to be in the program?”

USDA Undersecretary Robert Bonnie: “It's a voluntary program for producers. You know, landowners are going to enroll what they're going to enroll. But we can do things through targeted enrollments, continuous enrollment partnerships, through credit that can make sure we get those lands that are really environmentally sensitive.”

For Market to Market, I’m Peter Tubbs.

The temperature at kickoff inside the LA Coliseum for Super Bowl VII was 84 degrees. That record from 1973 could fall as this year’s installment of the game takes places six miles south in Inglewood.

A warm West is nothing new and neither are dry conditions. But the pairing has renewed a big clash over water rights.

John Torpy explores the debate in Colorado in this week’s Cover Story.  

Commissioner Kate Greenberg, Colorado Department of Agriculture: “At the Colorado Department of Agriculture we are eyes wide open that we are dealing with, with a real climate crisis. And agriculture is among the first impacted.”

Colorado Commissioner of Agriculture Kate Greenberg is well aware that this climate crisis has impacted farmers in the eastern part of the state. Each year, those farmers play a waiting game to learn how much water will be in their allotment. 

Marc Arnusch is a third generation eastern Colorado farmer working the land purchased by his grandfather who emigrated from Austria in 1952. 

Marc Arnusch, Owner – Marc Arnusch Farms: “The underpinning water supply that we depend upon year-over-year is from the South Platte River. And imagine not knowing what you could do on your farm, because you didn't know what your allocation was for water.”

The start of that waiting game goes back to 1923 when Colorado and Nebraska ratified a water sharing agreement involving the South Platte River. One section of this interstate compact allows Nebraska to develop a canal in Colorado to divert water from the South Platte River for irrigation on farms in the western part of the Corn Husker state. While the canal was never built, authorities in Nebraska are taking a close look at the idea.

Kevin Rein is the director of the Colorado Division of Water Resources. 

Kevin Rein, Director of the Colorado Division of Water Resources: “The compact recognizes that during the irrigation season, that is between April 1st and October 15th, we'll measure that flow. And if that flow is above 120 cubic feet per second, then there is really no action to take.

There is a hierarchy for water in the two states with Senior Water Rights, all operations with allotment agreements started before 1897, and Junior Water Rights, all those operators who started after that year. Drought conditions can interfere with the seamless allotment of obligated water as the Compact puts a priority on farmers with Senior Water Rights.          

Kevin Rein, Director of the Colorado Division of Water Resources: “If the flow drops below 120 cubic feet per second. Then Colorado needs to curtail water rights on the lower end of the South Platte. If we curtail those water rights, then we are in compliance with a compact during the irrigation season.”

One season of cutbacks in water allotments can seriously affect a farmer's bottom line. 

The agreement arranged between Nebraska and Colorado is one of nine interstate water compacts the Centennial state has with neighboring states.  

Commissioner Kate Greenberg,Colorado Department of Agriculture: Speaker 3: (10:14)“We're a headwater state, we're responsible for delivering water to many states and the country of Mexico down river from us, that adds yet another layer to our responsibility, uh, as a headwater state and to the challenges that we see, uh, with hydrological drought here in the headwaters.” 

Officials with the Colorado Department of Water Resources note when drought conditions are low, these water sharing agreements rarely become a long drawn out issue.

 As D3 and D4 drought conditions continue for Colorado in 2022, farmers continue to worry about how much water will be available for this and future growing seasons. 

Marc Arnusch, Owner – Marc Arnusch Farms:We have a lot of competing interests for our water here in Colorado, not just amongst commodities, but even with the urban rural divide that we have here within agriculture, we try to add value to our of water, uh, whether that's, um, growing a value added crop, uh, being a little bit divergent in the marketplace, but here on our farm, we're trying to add value by creating markets.”

Creating those additional markets can be a struggle when farmers have to fallow fields and still attempt to make the remaining acres cover the loss.

Marc Arnusch, Owner – Marc Arnusch Farms: When we Idle acres, it's like a death by a 1,000 paper cuts, you know, we're, we're, we still have those overhead costs. We still have taxes to pay. We still have the carry cost of that land for, for that year. And yet we're not gonna have a crop until the following year, but it helps us be better managers. It helps us be better planners. And it helps us to think out two and three years, instead of just trying to, you know, provide that crop this year.” 

Marc Arnusch, Owner – Marc Arnusch Farms: “Drought is something that I've had to deal with almost my entire farming career that that goes with farming in the high Plains of Eastern Colorado. We rely upon snow melt. We rely a rely upon a lot of, uh, weather from time to time. So in the 25 years that I've been farming, drought seems like it's just right around every corner.” 

Arnusch and his family farm around 2,200 acres in what’s called Prospect Valley, a diverse agricultural area located 45 miles northeast of Denver. Arnusch has been forced to change the makeup of his row crop farm nine times to adapt to the changing climate.

Marc Arnusch, Owner – Marc Arnusch Farms: ”You know, water touches everything here in Eastern Colorado and, and the way our, our rules and regulations have changed over time in Colorado are really impacting my farm.”

Noting changes in the amount of available water, Arnusch has changed his business plan to growing certified seed wheat, certified seed grains for the spirit and beer industry, and value added feed ingredients.   

Marc Arnusch, Owner – Marc Arnusch Farms: “We're trying to be different in the marketplace. I, I wouldn't say niche, I would say value added, but the things that we do on our farm that are rewarding us and rewarding, the value of our water.” 

With a La Nina weather pattern currently calling the shots for the coming spring and summer, farmers and ranchers in eastern Colorado may have to continue the same kind of flexible approach.

Commissioner Kate Greenberg, Colorado Department of Agriculture: …as a state of Colorado it's complex and our agricultural community is at the front lines of all of those issues, climate change, persistent, ongoing drought, and making sure we are meeting our obligations to other states in the country of Mexico, uh, in a way that also helps preserve an advance agriculture.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

The USDA report pegged South America’s crop as smaller than earlier predicted and the market reaction was neutral. For the week, the nearby wheat contract added 37 cents while March corn jumped 31 cents. Thursday’s trade range for soybeans was dramatic touching highs before a big reversal following CONAB’s Brazilian bean production estimate. The March soybean contract gained 30 cents. March meal strengthened $12.70 per ton. March cotton shrank by $1.46 per hundredweight. Over in the dairy parlor, March Class III milk futures expanded 99 cents. A mixed week in the livestock sector. April cattle declined 70 cents. March feeders put on 13 cents. And the April lean hog contract moved $2.15 higher. In the currency markets, the U.S. Dollar index added 60 ticks. March crude oil advanced by $1.08 per barrel. COMEX Gold rose by $56.00 per ounce. And the Goldman Sachs Commodity Index bumped up almost 4 points to finish at 648.60.

Yeager: Joining us now to provide some insight is Dan Hueber. And Dan, you come in at a time when I'd say at 11:00 Friday morning I was all ready to say let's start with soybeans. But then there is a report of Russia is going to invade Ukraine, the market all of a sudden takes off back up, which was going to be a pretty flat day. We start with wheat because that initially was going to be the big reactionary commodity if an invasion happens. Is that still accurate information that that's the market to face the biggest impact?

Hueber: Well, for the day certainly. And again, uncertainty just breeds people taking risk off, people who are end users who need product will tend to cover themselves in fear of something of that nature. Again, let's hope it doesn't happen next week, but on the same token I think if it does we're not going to see necessarily that big of a market reaction. So you go back 8 years ago when the similar thing happened when Russia went into Crimea, markets panicked, we had a lot of uncertainty. Is it going to disrupt exports? And within a day or two we had pretty well settled down even after the invasion.

Yeager: Prior to Friday there was a report that Russia is poised to make billions and billions of dollars on crude oil on all of this run-up.

Hueber: Oh certainly, there's already been I think the official Russian energy agency posted record profits here this last year. So absolutely this has been a real boon for them and realistically had we not seen this kind of inflationary push in the commodities in the last year they might not have had the wherewithal to really even stage such an event.

Yeager: Let's finish up wheat and kind of put a bow on it and actually talk about it because we're talking about all these geopolitical things going on with it. What are you doing right now in this, if I've got wheat still hanging around?

Hueber: You know, when you look at the wheat market really for the last 8 weeks now we've really gone nowhere, it's just a back and forth market, it kind of gets tugged around with what happens with the corn and beans where the big story of course has been driven by South America. I tend to still look at where wheat is. When you're hovering around the $8 mark by no means should that be considered a poor price to take. I still think you sell into this market, both old and new, if you have the old and do some pricing on the new. The fundamentals on wheat they changed dramatically in the last year but they have really kind of stagnated. In fact, the reports out this week if anything were a little bit higher world carryout than was expected. Australia looks pretty good at this point. So not really looking at any real major trouble spots other than some possible winter kill in the winter wheat or in the U.S. wheat. So I think you still take advantage of the prices where they're at right now.

Yeager: We are talking weather when it comes to corn. South America crop, USDA as we mentioned lowering the estimate. What is that doing to corn specifically, the South American weather?

Hueber: Again, nobody has really done dramatic reductions in the South American crops yet. The Brazilian beans are coming out, the early beans are coming out at a pretty rapid pace. Yes, the yields are not necessarily what people would have desired or expected initially but that also means that the second corn crop is getting around pretty readily. The weather in Southern Brazil still a little bit iffy, at least for the next 10 days. But beyond that at least the weather forecasts I've read say that starts to clear up again. So they really could come back with a fairly decent second crop. And even in Argentina, the crop is pretty well planted down there at this point but in the major growing regions not necessarily as adversely impacted as maybe the markets would make us think at this point in time.

Yeager: What are we doing here on the new crop side for corn?

Hueber: Similar thing, you're pushing the $6 area. I think when we look historically, yes we know nearby corn is more in the $6.50 range, but $6 corn traditionally that is an exceptional price level. Really this is the only second time in history we've been in this range. Granted, we know inputs have escalated pretty dramatically. But here again I think at $6 you need to start looking at what kind of return am I looking at in my operation? How do I lock this in most effectively including your inputs costs? If you're making money I think you just need to sell into it. When you get emotional in markets like this no one realistically knows, one, how big the damages are in South America, and two, just how high is high. Have we really factored it in already? The action this week would probably say no, we're still in that process of trying to adjust to those lower crops. But that said, nobody knows how to pick the high. You have to look at your profitability and make your decisions based on that.

Yeager: Well, let's take Glen in Ohio's question right now because it is related to both corn and for sure what we're going to get into soybeans. Glen wrote is via Twitter and this is what he says. If we take into consideration the current rate of inflation in our economy, factor in the foreign countries and exchange rates that we compete against, how far out into the future should a producer hedge his costs and sales to offset the potential downside risk?

Hueber: Of course, 2022 is a slam dunk. I think you can pretty well lock in whatever your costs are for 2022. You know, granted, you don't know exactly what your profitability would be as far as yield wise. Crop insurance is going to lay a pretty good foundation there. I don't see any reason not to be a relatively aggressive marketer there. Looking out to 2023 I think you start dabbling there. Inflation is an unknown. Granted we can't say anymore that it is transitory. The Fed said we can't use that word anymore. And it hasn't been, it has hung on much longer than anybody anticipated. But really when you look at some of the elements that have been pushing inflation higher such as used car prices, it's probably not as direct of an impact as we'd like to say when we see the headline 7.5% inflation. But we know the Fed is ready to act and may act even more aggressively than we might anticipate with some of the rate hikes. We're almost certainly going to see a rate hike next month. And keep in mind that once you start seeing rate hikes what does that do to the dollar? Well, it tends to make the dollar go higher, going to make us a little less competitive on the world market. So it can be a negative impact.

Yeager: And things can disappear quickly. Let's take a look at Thursday's bean market as an example. So if you are watching what happened on Thursday, you take a lunch, come back. How am I protecting myself when I'm way into the 16's?

Hueber: Exactly. The other aspect there is markets never ever find a peak because the news turned bearish. It happens just because we have basically adjusted for whatever the supply and demand fundamentals are out there, we have basically over compensated for where they should be and they turned down in their own way. The news is almost always going to be the most bullish when you find a peak in the market and I haven't found anybody yet over the last 45 years I've been in the business that can accurately tell us exactly where that's going to be.

Yeager: Only one person hits the top, right?

Hueber: That's the one who is liquidating, getting squeezed out of a short.

Yeager: We have to finish beans in Plus but I need to get to the meats because they are still being dealing with their own things. Feed costs, live cattle, the processing. What do you see happening in that market?

Hueber: Of course we've had a pretty explosive rally in both cattle and hogs as of late. This is really the highest we've seen April cattle -- in fact, on spot cattle we haven’t really had spot cattle above $142 for years so we've actually taken that level out. I don't think it's necessarily unrealistic to see things move up towards the $150 range. In the hog market, an explosive rally in the hogs over the last four to five weeks pushing $107. Interestingly enough we look back historically and the last time we had April hogs above $147 we pushed all the way to $120. Now, not saying that has to happen again but I think part of it is demand, part of it is inflationary, part of it is compensating for the increased input costs that we have to deal with at this point.

Yeager: I think hogs, that is at least $7 here in the last two weeks that we've moved and if we're going to $120, that's $18 to go, that is a heck of a run. So if I'm a hog producer am I expanding right now if I can?

Hueber: Well, I don't know if I would base my decision on what is happening today.

Yeager: And it takes a while.

Hueber: But I think if it works in your cash flow and you have the wherewithal and you don't have the neighbors that are opposing you, why not? I think the demand for meats is going to remain pretty solid as we move forward.

Yeager: What about in the feeder cattle market if I had that opportunity to go to the sale barn tomorrow and make a purchase?

Hueber: My outlook on the fats into this year I think is still pretty strong. So I think yes, if you have an opportunity to have some more cattle out there than certainly there is going to be a market for them.

Yeager: All right, as we wrap up in the final seconds here, cotton. Is this still a little bit of a selloff this week but we're still in incredible territory, they bought all their acres?

Hueber: Well, I don't think they bought the acres. I think that is the thing we've got probably another 60 days before we really determine who is going to win the battle for acres this spring. So cotton has been acting a little bit sluggish, particularly in the last two weeks here. But that said, it's difficult to imagine that we're going to really get much pressure here at least until we have a better handle on what the acreage battle is.

Yeager: And is this a weather or a trade issue right now that has been running cotton?

Hueber: I think it's -- to the rally to this point? Oh, I think it has been trade. I think the demand has been solid enough. But now it's a question mark, can we keep the acreage up there. And I think a lot of people to the south would tend to want to stay with cotton if they could over soybeans.

Yeager: We'll continue your thought process, we'll get back to soybeans and I've got a couple other questions that I think you're going to enjoy. Thanks, Dan.

Hueber: Very good.

Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus with Mr. Dan Hueber so you can join us there. Find that on our website of MarketToMarket.org. And a little secret of the show, what you just heard is our Market Analysis and is available in podcast form and so will the extra session that is not on TV, our Market Plus and Tuesday's conversation around topics that we cover is on the program we call M-to-M. Follow all three today to stay in the know. Next week, the push to end famine. Thank you for watching. Have a great week.

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.

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

What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

Sukup Manufacturing Company -- providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing -- store now, profit later.

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.