Market to Market (January 28, 2022)

Coming up on Market to Market -- Economic impacts of a fluctuating ethanol market. Pork producers sharpen their defense against viruses and the ballot box. 
A voluntary push for electronic identification in cattle. And market analysis with Elaine Kub. Next. 
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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.  
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This is the Friday, January 28 edition of Market to Market, the Weekly Journal of Rural America.
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Hello, I’m Paul Yeager.
Two ‘I’ words have dominated economic talk for months - inflation and interest rates. The two were big players in this week’s economic news. 
The Federal Reserve all but gave the exact date of when they’ll raise interest rates. 
The movement up contributed to the 11.9 percent rise in new home sales as would-be owners looked to lock-in prices before a hike. 
Durable goods orders fell for the first time in three months pointing to a pause in the order of items meant to last more than three years. 
Consumer spending dipped in December by 0.6 percent as Omicron and higher prices weighed on the minds of shoppers.
Prices rose 5.8 percent in the Personal Consumption Expenditures index compiled by the Bureau of Economic Analysis. The PCE measures goods and services purchased by consumers. 
Ford stopped taking orders this week for new Maverick pickup trucks. They did re-open reservations for their electric F-150 Lightning pickup earlier this month. Demand for both models is high, according to the automaker. 
Price is at the center of most consumer decisions. 
That was long a selling point for the renewable fuel industry. 
Peter Tubbs reports on these and other economic headwinds for the industry.   
The shift of the transportation sector from internal combustion engines to electrically driven vehicles was a popular topic at the Iowa Renewable Fuels conference in Des Moines this week. 
Seth Meyer is USDA’s chief economist.
Seth Meyer, Chief Economist, USDA “So, what we have is a very flat under current assumptions, a really flat use for ethanol going forward. I think there are opportunities. I think there are definitely opportunities. Some of those opportunities have been talked about here at this forum. You know, you talk about E15 changing the math, you talk about sustainable aviation fuel changing the math. So I think that there are alternatives. 
While the focus for the event was about increasing the marketplace for renewable fuels, there were discussions on how inflation, expected interest rate hikes and spikes in input costs are influencing the general condition of the rural economy. .
Ernie Goss, Creighton University: ”Right now, you got lumber prices rising at unbelievable pace, fertilizer prices for the farmers out there, the input costs that farmers are facing. And that's particularly important in this part of the country that's squeezing their margins because they have little control over the price they get for their corn or soybeans or wheat.”  
Goss, who authors the monthly economic snapshots MidAmerica Index and Rural Mainstreet Index from his desk at Creighton University, is finding optimism for the future among rural bankers.
Ernie Goss, Creighton University: 00;03;25;19 “Our surveys of bank CEOs in rural areas indicate that the we're still seeing growth. Unfortunately, the growth is probably not enough to compensate for this inflationary pressures, but it's still better off than some states.
Meyer sees high commodity prices as a way of helping to offset tapering government payments to producers for losses due to the trade war with China and supply chain chaos from the COVID-19 pandemic. 
Seth Meyer, Chief Economist, USDA 2:15 “A dollar from the government and dollar from the marketplace spend the same, but they feel different in your wallet..” 
For Market to Market, I’m Peter Tubbs.
The headlines around the hog market are of both the domestic and global variety. This week, the largest production state was the site of a meeting of industry leaders from across the Midwest. 
John Torpy filed this report. 
Attendees at the Iowa Pork Congress discussed a wide range of topics from farm security to profitability. 
Producers went over recent developments with California’s contentious Proposition 12. A judge's ruling this week delayed implementation of the measure for 180 days to allow officials time to iron out the fine details. The act mandates minimum space requirements for hog farrowing, egg laying and veal confinement operations. 
Dr. Jayson Lusk, Purdue University: ”Speaker 3: (08:39)
I think one of the challenges is just the uncertainty surrounding it. And do you make decisions to comply with California? So you have access to their market or not. And I think that headache of that uncertainty, uh, despite the fact that it, you know, maybe it was a bit of relief to some of the industry to have that pushed off a bit, it doesn't resolve any of the uncertainty. So I think we're still gonna have to live with that for a little bit.”
Many producers are concerned about Prop 12’s impact on the nation’s pork supply chain and the prices paid by consumers. 
Gene Noem, President, National Pork Board:” Speaker 1: (01:13)what we found is that there's a, a pretty big drop in, uh, um, potential drop in consumption as a result of some of those folks that are not as economically well off.”
Producers also attended seminars on disease prevention, with an emphasis on African Swine Fever and last year’s outbreak in Haiti and the Dominican Republic. 
Gene Noem, President, National Pork Board:”Speaker 1: (04:22) What we've been doing is really providing resources to USDA and other experts that are trying to study the issue and, and really knowing how the disease works and how it travels.
For Market to Market, I’m John Torpy.
The animal ear tag is nothing new.
But making that tag electronic and trackable is a practice that is moving across the livestock community.
Colleen Krantz looks at the improvements in technology and push for a voluntary national system. 
This newborn bull calf has been given his identification. He is now Number 5 at this Winterset, Iowa farm.
His number will be used to track his birth date, vaccinations and weight as he grows. But when he is sold, and leaves his home farm, many of these records will likely be left behind.
Sixty miles away, at the JDH Wagyu farm near Villisca, Iowa, this newborn bull will be identified with a small button-like tag that includes a radio-frequency transmitter. When read using a hand-held wand, the radio-frequency tag will reveal his nationally unique electronic identification - or EID - number. His records, pulled into a spreadsheet, could easily travel with him to a new home.
Callahan Grund, U.S. Cattle Trace: “From back in the day when we hot branded cattle with the old cowboy wrestlers….we’ve identified cattle throughout history in different forms and fashions. And really started to incorporate electronic IDs in recent years, within the last 10 to 15 years.”
The 15-digit EID number would not only be associated with a birth date, birth location and health information, but could also be shared with USDA through a database to rule out or pinpoint affected cattle in case of a serious disease outbreak. 
Callahan Grund, U.S. Cattle Trace: “Of the top 10 beef-exporting nations in the world, only two of them don’t have a disease traceability system in place today. That would be us and India. And India mainly exports water buffalos….That does limit some of our markets …but, you know, even more importantly, I think is being proactive here to build a system, a tool that can be used to limit the spread of a potential disease outbreak – I think is really important when we look at not only our food supply, but really our livelihoods as producers.”
The federal government has, in the past, planned to require the use of electronic identification tags. It announced in March 2021 that it would again delay the most recent plans, but will likely return to the idea in the future.
In the meantime, U.S. Cattle Trace, the Kansas-based nonprofit where Grund is executive director, is trying to establish a voluntary national system for disease traceability.
Cattle producers have been concerned about the additional cost. The tags cost more than the standard ear tags, but the large investment is in the wand and associated computer gear. That equipment can begin around a thousand dollars and move quickly upward.
Dr. Marty Zaluski, Montana State Veterinarian: “There is also some legitimate concerns from ranchers that are afraid that having electronic IDs would just perpetuate and perhaps exacerbate their concerns over lack of competition in and consolidation in the cattle slaughter and processing and marketing environment.”
Dr. Marty Zaluski is more focused on the benefits that EID tags provide to nation’s livestock herd.
Dr. Marty Zaluski, Montana State Veterinarian: “It allows me to rule out producers and ranchers that may not be involved in a disease event. As an example, in the state of Montana, we were trying to find the source of a cow that was diagnosed with tuberculosis at slaughter… and because of the way that cattle and animals are…co-mingled and sold, that animal came out of a feedlot where there was a possibility of 99 possible sources where that animal could have come from… But if that animal had a tag that was able to be read at slaughter and then correlated to… her birth premises… you would have been able to hassle and trouble one premise instead of 99. ”
JDH Wagyu president Joe Hoye says although it took a little time to adjust to the EID tags, he now can’t imagine getting by without the system.
Tony Orstad, manager, JDH Wagyu: “As we scan it all that information comes to our computer. It has the weight on them and their tag number and any of their previous information we put in… It’s an investment in whatever you are doing, but the cost of the machine and wand versus spending hours typing up information and hand-writing information in and not typing in the correct numbers and weights, that can be costly mistakes down the road.”
Hoye raises Wagyu, a Japanese breed where verifying age, birth premise and genetic line is particularly important to buyers. The American Wagyu Association, as well as organizations that support other breeds, retain much of this data, but the EID system allows for weight and pen location to be added to inventory spreadsheets. Hoye points out that hand-written records can sometimes be inaccurate. 
Joe Hoye, president, JDH Wagyu: “There’s lots of opportunity for error…You can’t see it properly or mud or who know what but at the end of the day, it’s much better with that electronic approach because it’s so positive that you know exactly what you do have. ”
Hoye doesn’t lose sleep over the fear that some producers have of being liable if their cattle are proven to be the source of an outbreak.
Joe Hoye, president, JDH Wagyu: “I think there’s a little bit of grace there but maybe I’m wrong. I could be wrong but at the end of the day, I think most people, most producers, try to do the best they can to make sure they know what they are selling. There’s always diseases that come up.”
Through U.S. CattleTrace, producers will continue to test the systems, weighing the pros and cons.
Callahan Grund, U.S. Cattle Trace: “From our perspective, we are all producers and we don’t want to mandate anything upon anybody that doesn’t want to participate in a program like this. We want good, proactive people that are wanting to build animal disease traceability system for the industry.”
For Market to Market, I’m Colleen Bradford Krantz.
Next, the Market to Market report. 
Easing tensions between Russia and the world let off the pressure valve wheat market. For the week, the nearby wheat contract increased 8 cents while March corn added 20 cents. The soy complex approached May of 2021 highs as South American production numbers moved lower. The March soybean contract jumped 56 cents. March meal strengthened $18.50 per ton. March cotton expanded $3.01 per hundredweight. In the dairy parlor, February Class III milk futures shed 33 cents. A mixed week in the livestock sector. April cattle improved $1. March feeders declined $3.67. And the April lean hog contract lost two cents. In the currency markets, the U.S. Dollar index increased 164 ticks. March crude oil added $1.88 per barrel. COMEX Gold dropped $46 per ounce. And the Goldman Sachs Commodity Index improved more than 13 points to finish at 622.80. 
Yeager: Joining us now to provide some insight is Elaine Kub. Hello, Elaine. 
Kub: Good to be here on a week when markets are up.
Yeager: Yes, you're not going to be on the Angie Setzer track of sending the markets lower. We'll see how that goes, right? 
Kub: Hopefully, fingers crossed. 
Yeager: I asked you before the show, biggest commodity and you said oil, we're not going to start with oil, we'll get to it. But oil has an impact on all of these markets. Let's start with wheat. Is oil and crude impacting wheat? 
Kub: Let’s say that they are both related by some commonalities, right? All commodities I think are benefiting at this time when there is so much inflation fear, like you mentioned at the top of the show. I think investors are piling into commodities as an inflation hedge and some of the geopolitical stuff that is going on, certainly the global oil markets are sensitive to Russia things and wheat markets are sensitive to Russia things, so they share some common things. 
Yeager: Natural gas up 24% on the week, that is all tied to it. But the question though that confuses me is, wheat has now backed off a little bit and the run up was allegedly about the Russia/Ukraine thing. So why has oil and crude, or crude and natural gas not moved in the same direction? 
Kub: Well, so the wheat thing actually, when I look at the influence of the Russia situation on wheat, I look at the Russian ruble. So for the longest time over the past couple of months there has been a lot of bearishness towards Russia's financial sector of course, if something happens, nothing has really happened yet, but the fear of that happening kept the ruble going down while the U.S. dollar was going up and both of those things together will put a weight on U.S. domestic wheat prices because Russia is such a dominant exporter. There's something like 35 million metric tons, which is 17% of the global wheat market, export market. So in this environment whereas you mentioned the fear sort of subsided here at the end of the week and the Russian ruble popped up a little bit you did see somewhat of a recovery. 
Yeager: Okay. Quickly, do we see a bounce back up or down? 
Kub: Well, what is Vladimir Putin going to do next? If we could predict that I think you could make a lot of money on not only wheat but a lot of markets, a lot of bond markets, a lot of markets are really watching those developments. 
Yeager: In corn, there's a couple of technical issues going on. If we can break $6.40 on that March contract, we didn't, but if you can break some certain technical things we're poised to go even higher, right? 
Kub: Yeah, and it's amazing because honestly you can think of some bearish things that happened in South America, the South America weather story was sort of bearish fundamentally for both corn and soybeans and yet prices did keep going up. And I think it's related to what we talked about at the start of the segment here, just the overall demand or aspiration to get it long in commodities as an inflation hedge. 
Yeager: All right. So, what am I doing right now? Am I selling a good percent, a small percent of maybe this new crop?
Kub: Well, I don't feel a lot of urgency for it because I Think these prices are well supported and I don't see major danger in the very near future of them falling apart, especially the South American, we're worried about getting more rain there and things really turning bearish, but the Brazilian second crop of corn, the planting and the weather there really hasn't improved it very much, it's sort of beyond hope in some cases. So all of these bearish news weren't even able to bring prices down. So I don't know, I think you just kind of let it go and see what happens. 
Yeager: However, if I have a strong local basis right now how can I say no to something like that? 
Kub: Yeah, the basis actually is in danger of weakening just seasonally and also from a transportation aspect. There has been the colder weather and we did see some poor rail service metrics. And so we did see some transportation problems, slow service and that does tend to push back against farm origin prices through the mechanism of weaker basis. 
Yeager: Soybeans sound like an auctioneer. I have 14. Can I get 15? Can I get 16? Where does this train stop? 
Kub: Well, they're still underpriced in relation to corn, in relation to canola, in relation to palm oil, in relation to basically any other of their comparative markets. You might even say they're still underpriced but it doesn't mean that they're necessarily heading to $16 or whatever crazy number you just threw out there. 
Yeager: Right and I'm not saying -- but all of a sudden a dollar in a week, in two weeks. And the chart continues to move higher. So I guess I'll ask you this question, if South America has a smaller crop for the American producer what do I do? 
Kub: Yeah, you know, you want to sell these prices before everything collapses in March or April. But I don't think you necessarily want to be pulling the trigger today because there's still the chance for things to churn a little bit higher. 
Yeager: But is there a chance I should maybe take advantage of some of this move? 
Kub: Sure, and not only that, but think of 2022 when you don't have quite as high soybean prices and 2023 even, $12.40. This La Nina story that has supported not only some dryness in North America but certainly the dryness in South America this winter has been supported by the La Nina phenomenon, which is 67% likely to continue for the next couple of months. But then we'll probably neutralize. That is the latest thinking from the climatologists. So it's not forever. We're not going to have this bullish support forever. 
Yeager: All right, we've talked about grains so that means we need to set or help at home. We're going to ask Chris in Wisconsin's question and let's keep the three commodities we just talked about in mind as we talk about this. As we turn to 2022 crop budgets and marketing plans, with the higher input cost, do you feel we need to rally or maintain these levels to calculate higher revenue protection guarantees? 
Kub: Not necessarily. There's definitely profit. You can lock in your input costs today, assume that they will be available in the spring and make a dollar and a half, $2 in profit even. And looking at the University of Nebraska put out their crop budgets and even considering the cost, the extra fuel costs which is higher, about twice as much as it was last year, even with the center pivot irrigation, you're looking at maybe for corn an extra 50 cents for bushel on your cost of production. So that sounds like a lot but when you consider how much higher the new crop futures prices are there is profit in there. I don't think necessarily that the markets need to even do anything to make anybody plan corn or there is some narrative that people would avoid corn because of the higher fertilizer costs, it's still more profitable to grow corn. 
Yeager: Well, yeah, especially the price. And we have a couple of questions about that we'll get to in Market Plus. But I want to move to livestock. You were commenting about your drive and looking at these animals out there. Let's start with live cattle before we get to feeders. What do you see the underpinnings right now of this live cattle market? 
Kub: Yeah, live cattle market sort of is what it is, didn't have great exports but the cash cattle stayed pretty steady this week, $137 for southern live dress deals and that is pretty much right in line with where the futures are and I think it's kind of stuck there when you look at the choice boxed beef sort of topping out here and staying fairly neutral. There's only so much that consumers can ultimately pay for that beef and I think we're sort of finding that neutral level. 
Yeager: Because we gapped lower on Monday and there is a thought that the bears have maybe taken over that market. 
Kub: Well, you're right and from the week you sort of look at the chart and it looks scary. But as I mentioned, the cash cattle business, the actual profit margins that are there, they continue to be, the same fundamentals continue to be in place. 
Yeager: Feeders, we have a couple of things coming up on that. The big story has been it's so dry the feeders are coming off the pasture early, they're going to go into the lots. Is that the narrative you hear? 
Kub: So what is really interesting is on Monday the USDA is going to put out their January 1st cattle inventory report and then we will finally get some hard numbers on not just the cattle on feed that are in the thousand plus head feedlots, but also sort of the back yard feeders, the people who are more likely to balk at the $6 corn, who are more likely to be feeding these feeders when the corn is cheaper, when it's $3 and you’re trying to put some value added in there. So I think that the market will finally see some hard numbers to demonstrate, as you mentioned, the supply tightening that has happened in the feeder cattle market and will continue to happen in 2022 and 2023. The breeding herd just isn't there anymore. 
Yeager: That is the story, Chris Swift talked about it last week. He's like, the report indicates we don't have those calves coming. And how long does that take to or will it get resolved? 
Kub: Yeah, well you look at the futures board and as you mentioned it was not great this week, things really collapsed there in the nearbys. But you look past April, you're still seeing feeder cattle prices at $165 or higher. It's just sort of a seasonal thing here of when the buyers are going to get out there and want to see those calves coming onto the market. 
Yeager: We have a group of young farmers that are watching our show that we're going to have question and answers with in a moment and I know that there is an old adage of sometimes the younger farmer gets in and expands with the livestock. If anybody is sitting there watching this right now, should they be looking to buy some calves? 
Kub: Yes. Yes. Buy mine. 
Yeager: Buy yours. We'll get the number after the show. Okay. Let’s flip over to the hog market. That one didn't look good for a while. Does it look good in the future? 
Kub: Yeah, we had actually quite a strong export progress this past week and for the past several weeks. There has been good move, of course obviously moving the product to Asia, the cold storage report was supportive, everything is kind of supportive for hogs and not only that, but like John Torpy's story mentioned, the Prop 12 thing has been delayed so at least that is one axe over the neck of conventional hog production that has been at least delayed six months. 
Yeager: Well, and that was a thing I had written down to talk to you about. What was the role of Prop 12 in the market? 
Kub: It could have been -- nobody really knew and it could have been a disaster here in January, we would be feeling it now if it was really being enforced in California grocery stores. So for right now it's a reprieve. 
Yeager: As we wrap up here, when you discuss all of these things that we just have, which market do I need to be watching the most closely over the next let's go 30 days? 
Kub: Well, I want to say oil but I'll shift a little bit and say that Malaysian palm oil, which is really the leader of the global edible oil sector and that is really what has been leading in some of the cases in the past several months the soybean crush and that is sort of the underpinning of the value that is coming out of our fields. So if we can keep consumers able to pay these prices for edible oils and other cereal grains then we can keep on rolling. 
Yeager: Is there any influence by the higher U.S. dollar on any of the things you talked about that we need to be concerned about? 
Kub: Yeah, and especially the pork exports, the beef exports, I do wonder especially those beef exports that were a little disappointing this past week, I wonder if the stronger dollar wasn't or hasn't been part of that or won't continue to be more of that as we go forward. 
Yeager: Okay. Elaine Kub, thank you so much, always appreciate the time. 
Kub: Glad to be here. 
Yeager: That will do it for this installment of the TV show we call Market to Market. We're going to keep talking in Market Plus so you can join us there. Find that on our website of MarkettoMarket.org. There are no snow days in our Market to Market Classroom. We have modules on the role of government, science and technology and the 1980s Farm Crisis available at MarkettoMarket.org/classroom. I was so excited to say slash. Next week, we look at the cost of expanding the use of medical marijuana. Thank you 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. 
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.  
(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.