Market to Market - Feb. 18, 2022

Market to Market | Episode
Feb 18, 2022 | 27 min

Bird flu returns to the U.S. Ethanol comes under attack in a new study. Remembering last year’s Arctic Intrusion. Market analysis with Sue Martin.


Announcer: Market to Market is everywhere you are. Subscribe to Market to Market on YouTube. Find us on the PBS video app to stream on demand and add our three podcasts on your favorite podcasting app.

Yeager: Coming up on market to market Bird, flu returns to the us Ethanol comes under attack in a new study. Remembering last year's Arctic intrusion.

Yeager: And market analysis with Sue mark, this max

Announcer: 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.

Announcer: 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. Look at manufacturing store now profit later

Announcer: Tomorrow for over 100 years, we've worked to help our customers be ready for Trust. And tomorrow information is available from a Grinnell mutual agent today. This is the Friday, February 18 edition of market to market the weekly journal of rural America.

Yeager: Hello, I'm Paul Yeager. Higher inflation is not consumers from shopping. Retail sales jumped up 3.8% last month. The mark in January is the highest since the commerce department started tracking the series in 1992. Now when the volatile auto sector is removed, the rate of sales still improved 3.3 percent. Wholesale inflation continued upward in January. As the producer price index jumped one percent from December and 9.7 percent in year over year reporting. Existing home sales rose 6.7 percent last month as buyers look to spend cash and take advantage of lower interest rates ahead of pending fed action. Those lower interest rates along with grain prices and exports contributed to a higher rural main street index. The Creighton university survey expanded to 61.5. China shut down the import of some us agricultural goods from two states on news of an H5N1 outbreak. Peter Tubbs reports.

Tubbs: This week, the United States department of agriculture confirmed multiple cases of the highly pathogenic avian influenza strain H5N1 in several commercial flocks across the country. After tracking cases of H5N1 along the east coast in wild flocks. The first case in a commercial flock of turkeys was confirmed in Dubois County, Indiana late last week. The first outbreak in U.S. poultry since 2020. The second set of cases were confirmed in the same county on Tuesday of this week. The combined flock of 53,000 birds have been euthanized. The other confirmed cases were among broilers in Fulton County, Kentucky. The infected flock in Kentucky was part of a 240,000 bird complex owned by Tyson Foods. All of those birds were destroyed to contain the pathogen. The National Veterinary Services Laboratory confirmed that the Indiana and Kentucky flocks were positive for the same strain of the H5N1. USDA also confirmed an outbreak in a backyard flock in Virginia, all of those birds, as well as any birds on neighboring properties were destroyed. China has banned imports of poultry from both Indiana and Kentucky in response to the break. The spring 2015 outbreak of H5N1 resulted in the slaughter of nearly 50 million birds over the course of three months. Damage to the agricultural economy was estimated at over $3 billion. The federal government paid producers $1 billion to cover expenses and lost birds. Two- thirds of the losses were in laying head and the egg laying industry took almost a year to return to pre outbreak production. According to the USDA this strain of avian influenza does not present an immediate public health concern. They further state that no human cases of H5N1 have been detected in the United States. For market to market. I'm Peter Tubbs.

Yeager: Another study over homegrown fuel generated a new round of debate and blow back over the research. In response, ethanol trade groups look to expand blending levels, moving forward, and to see their efforts paramount to getting to net zero emissions. Josh Buettner has our story.

Buettner: This week, a bombshell environmental study landed a haymaker to the Corn Belt, contrary to USDA commissioned research released in 2019. The new separate report published in the proceedings of the National Academy Of Sciences found the carbon intensity of standard corn ethanol produced under the us renewable fuels standard between 2008 and 2016, at least 24% higher than regular gasoline.

Lark: At this outset of this policy, a lot of folks were suggesting it sort of had three main goals of increasing energy independence of stimulating rural economy economies and providing, uh, an environmentally friendly, fuel alternative gasoline. And I think in hindsight, it probably did two of those things really well. Uh, but now we're seeing that, you know, corn ethanol is just not turning out to be the climate friendly fuel that a lot of folks at hope,

Buettner: University of Wisconsin scientist, Dr. Tyler Lark, is lead author of the study, which he says builds upon shared USDA data with aggregate land use changes, the increased manufacture and implementation of farm inputs and subsequent water quality degradation to drive his conclusions. The ethanol lobby tore into the findings, calling it completely fictional and erroneous. Alleging data was cherry picked and a rerun of previously debunked work blasting the track record of one of the study's funders, the national wildlife Federation for absolute hostility toward modern agriculture and farm-based products.

Grassley: It goes against everything we've been believing about biofuels since the late 70s.

Buettner: Stretching back decades, ethanol production got a shot in the arm with the RFS enactment under the Bush administration post nine 11 by requiring domestic oil refiners blend a percentage of biofuel into the nation's gasoline supply annually,

Grassley: 2005, 2006, and 2007, there was a close working relationship there since 2008. It's been back to big oil versus ethanol.

Buettner: The mandate incentivized farm state buildout drove up corn prices and spurred in almost 9 percent spike in cultivation expanding nearly 7 million acres into corn production.

Ernst: The folks across the Midwest, our farmers are producer responded to the call to Congress, and they developed systems that produce clean, reliable energy sources.

Buettner: Proponents say the program has eroded through waivers, small refinery exemptions and compliance deadline extensions under the past three administrations. But some view president Biden has broader efforts to decarbonize the economy as a way to get the RFS back on track.

Skor: Let me be clear. There is no path toward net zero emissions by 2050, without biofuels

Buettner: At a Senate committee on environment and public works hearing about the future of the RFS midweek, ethanol advocates may have unearthed common ground with authors of the controversial new report in that unleashing the power of next generation biofuels could be a more efficient on ramp for climate goals.

Skor: There are also, uh, technologies, languishing and EPA. There's more innovation that we can do to bring low cost low carbon fuels to the table, but we do do need some certainty and some predictability and for the regulations to keep up with the marketplace and the innovation.

Buettner: Under the RFS, Congress has set blending requirements through 2022. Without further action, the Environmental Protection Agency, which administers federal biofuel policy, will gain authority to impose reforms previously assigned to the legislative branch. EPA plans to propose 2023 requirements in May. For Market to Market. I'm Josh Buetttner.

Yeager: Two reports this week highlight the weather and climate. One by a hydrologist at UCLA ranks. The last 22 years as the driest in the past 1,200 years. The mega drought in the west set records for temperature and lack of precipitation. The other from the United nation says extremes and weather events are becoming stronger and lasting longer. A storm system moving across the south this week, elicited recent memories of the damage done in 2021. John Torpy marks the anniversary in our cover story.

Torpy: Earlier this month, freezing temperatures and icy roads were again, a topic of conversation in Texas. A winter storm swept across the region, reminding farmers ranchers about lessons learned from the Arctic intrusion that crushed the lone star state a year ago this week.

Galeazzi: Following the freeze, the immediate impacts that we saw were the citrus. All the oranges and all the grapefruit fell off the trees. And so we're talking millions of pounds of citrus just on the ground. Um, there was a cost associated with picking all of that fruit up. Only so much of it could go to the juice because the juice plant could only handle a, a fixed amount of capacity in a certain amount of time before that fruit went bad.

Torpy: The eight day cold snap left millions of people without power. Demand for natural gas, skyrocketed as pipeline infrastructures were damaged by the storm, the loss of electricity and reduction in natural gas supply left agricultural operations like greenhouses, poultry farms and dairies helpless against the freezing temperatures.

Miller: So all the plants froze the ice and snow built up on the greenhouses and they collapsed. Same thing happened, chicken houses, not only did they have loss of chickens, but when the ice, the heat went off, the ice, the snow built up on our chicken houses and, and many of those caved in. So we're, we're still trying to dig out of that.

Torpy: Even with 12 months of distance from last year's storm, Texas fruit growers are still recovering. Producers of the 2022 citrus crop are predicting a 70 percent drop in this year's annual harvest. A normal season's harvest can be 720 million pounds of fruit.

Galeazzi: Once we've finished the crop. And, and everything's been harvested, the farmers now know which trees have survived after a year and which ones haven't. So they're gonna be spending a lot of time going in, trimming off dead wood, uh, pulling out any trees that did not survive the trees, replacing those trees, a and just really focusing on bringing grove care health back up to where it needs to be.

Torpy: In the year since the Arctic freeze, some citrus growers left farming altogether, when their livelihood was frozen solid.

Miller: We lost trees. They won't be replanted. That land is, uh, worth so much commercial value in that area the state is expanding. So a lot of those guys are just gonna say, you know, I'm just gonna hang it up. Uh, so we're gonna have, we're gonna lose makers in the long run.

Torpy: Texas Agriculture officials predict. It will take three to four years for citrus growers to return to pre-freeze production levels. In the meantime, growers are adapting their operations to match a new climate model.

Galeazzi: What we're seeing is that people are adjusting their, their planting patterns to try to account more for the, for the, um, possibility of cold weather in late January through about mid-February

Torpy: For Market to Market. I'm John Torpy

Announcer: Next, the Market to Market report.

Yeager: The market seemed stuck on the treadmill of South American weather and Russian aggression. For the week, the nearby week contract was even while May corn improved 2 cents. China sent signals they're looking to reduce soy demand, but kept making purchases. The May soybean contract gained 17 cents. May meal lost eight 30 per ton. May cotton shrank by a $1.75 per hundred weight. In the dairy parlor, March class three milk future shed 31 cents. A mixed week in the livestock sector. April cattle cut 30 cents, March feeders declined 80 cents and the April lean hog contract jumped up by $7.17.  In the currency markets, U.S. Dollar index lost one tick. March crude oil dropped a dollar 92 per barrel. Comex Gold rose by $32.40 per ounce and the Goldman Sachs Commodity Index increased more than five points to finish its 643, even. Joining us now to provide some insight is Sue Martin. Hello, Sue.

Martin: Hi, Paul

Yeager: With wheat, we could easily just again, discuss Russia. Ukraine has that story. Has the market absorbed it and now looking for other, uh, fundamental news to move it, like say a cold snap coming to the plains?

Martin: Well, I think it depends on which market you're looking at. Uh, I think that, uh, the cold snap is affecting, I think it affected KC wheat on Friday. Uh, I think that, uh, yes, the Ukrainian-Russian geopolitical situation is an underlying support and you hear so much news and how much of it's true and how much of it isn't, you know, are starting to get used to that, but it has the market ebbing and flowing. There's a little bit of, uh, disruptions in the Eastern part of Ukraine. The, uh, dissidents that are really preferring to be Russian, um, and speak Russian are probably making a little bit of end rows here and if need be, Russia will try to protect them if they have to. Uh, but at the moment there's, we're kind of on a status quo. Um, so we'll see what happens.

Yeager: Because it's been an influence on all the markets, really corn and soybeans, to an extent, but let's very much, let's go back to wheat and wrap that one up. Uh, if I'm someone here in the states, we're, we're getting up on that acreage report, we know our winter weeds kind of in, we just hope it comes up. We just don't know. How do I protect myself right now?

Martin: I'd only do it with puts, uh, because I do think that we've got some bitterly, cold weather coming and, you know, wheat’s coming outta dormancy as we move into March and through March. And you know, when you're dry or dirt freezes easier. And, um, you know, that might allow for it depend on how cold these temperatures get in the 20s and they stay there. Uh, it might be that they try to freeze down into some roots. Um, I think that, uh, the wheat crop, this is one year that we're gonna find out, does it really have nine lives.

Yeager: We truly are. Especially after that storm in December, we still don't a hundred percent know all of that. Let's flip to corn, uh, again, uh, dependent a little bit with Russia, Ukraine, but there's still that South American story that's underneath there, which is winning. Do you think in terms of having the most way over the direction?

Martin: I would have to say it's probably more the South American concern. Um, Argentina is number two exporter in the world, especially after, uh, Brazil had their issues. Last year. Corn to me is the evolving market. It's the one that still has a big story to write. And, uh, when I look at, uh, Brazil, uh, they're estimated at around a hundred, I think I, may, estimated at 113 million metric tons, USDA sitting at 114. Now, that's still a record crop far down from where they started. But it's still quite a bit over 87 million metric tons of a year ago. And everybody keeps ‘em remembering that. However, if the forecast remains--and you're planting Safrina now, and that's about 70, 75 percent of the Brazilian crop. So if you go dry through March and April, you're gonna have a market on fire. And I suspect it won't even take getting well into April. And then you look at Argentina. And of course today there was reductions in their production estimates. And even, uh, in the bean crop, you know, the good to excellent was dropping 9 percent. Um, you know, but they do have a forecast of rain, some pretty decent rains here by midweek of this coming week. And if those rains prevail, it could stabilize the crop for a minute. But, um, we'll have to see, because in January we heard that same story, looked back, and the rains were disappointing,

Yeager: Right. And then once you wrap up the months that you're talking about in South America, we're all of a sudden turned to it here and it becomes a story. Are we setting up, uh, for a, uh, that we've just begun to see a March higher in corn?

Martin: Well, I think this next week you'll have the USDA, Ag Outlook Forum. And, um, they'll tend to come out with the acres and, and they, they don't do too bad of an estimating of acres. Um, I tend to think we're gonna see a reduction of course, in corn acres. And so it's a matter of how much, so the trait's gonna be watching that along with the weather in Argentina and Brazil. And, but then here's the kicker, you look at the weather and we go into our weather. Now there's some varying forecasts out there. There are some who are talking bitterly, cold weather through March and April. I have my sources that I really like, and they're talking that we're going to be warmer, maybe cool in the first part of April, but then we turn warmer by the latter part of spring or the last half of spring, and then we're hot right on through the summer. So if that be the case, let's say that the ones who are talking cold weather are right, that's gonna be kind of a market mover too, because of the fact that it's gonna delay the planting and the ground, temperatures

Yeager: Slow the, the plant, once it gets into the ground.

Martin: Exactly. And then it slows you. And then you get into that warmer dryer period. And all of a sudden, there you are.

Yeager: With no root system to, to handle hot and dry

Martin: Exactly the corn market. To me, you look at what's going on and you know, you look at, um, uh, China, and this could even almost infringe on beans too, but you look at China and here's the kicker, back in 2019, we talked about COFCO, uh, showing up in the deliveries, taking the over 90 percent of the in fact, 90 plus percent deliveries of soybeans. Then now you get in and that's in ‘19, when they've had no bad weather, then you get into 2020, and they've had the most horrific weather. They were worried about the Three Gorges Dam going by the wayside, you know, breaching and, and worst flooding in a hundred years. Now, are we to believe the crops were good in that year, then you get into 2021 and they experience flooding again in and releasing waters from a lot of their dams that, um, basically were in country sites, farming areas. Now how can, how can, uh, the, the crops have been so good? And they said, they came out with 275 million metric tons, didn't show much of a reduction. But here's the kicker, in March of last year, the, uh, food and commodity reserve administration started to crack down or started to admonish, uh, the, um, state own grain enterprises or state own enterprises of the country, like Sinograin type of a thing. And also their supervisory managers of the granaries started to kind question 'em. Then, as you recall, we got in through, um, you know, the, um, um, pandemic in China and the government was saying last year, last summer, you know, asking people to really conserve their food, not to be so wasteful. Why did they say that? Well, one, I suspect their factories weren't running any better than ours. They had everybody locked up

Yeager: And the reserves that may have been there, aren't there anymore. Exactly. Given what you're saying, and I'm sitting here with maybe some new crop unpriced. Do I hold to given cuz there's a whole lot of story that could still develop in this new crop soybean?

Martin: Yes. Um, I I'm recommending that when people price stuff this year, because we still have the U.S. to go through and I think we're gonna be the frosting on the cake. But, um, when you go through that, uh, pricing, one, I would not tie up basis because if we have a weather market on the tie up of south America, our basis is gonna be ballistic. So I'm recommending buying puts or doing put spreads and you'll have to talk to your broker, um, for the recommendation of those spreads and you have to manage those, but it'll help cheapen your cost. The other thing is, if you go to the elevator and you're bent marketing and, and I get it, you know, $6 futures were right at $6 on Friday, 5 99 a quarter, whatever I, you know, I have to say, okay, if you wanna do a percentage, lay some groundwork and maybe do hedge to arrive. But to be honest, my favorite would be more doing put spreads.

Yeager: Okay. I need to get to livestock. Let's go out of order for a minute on hogs. This has been a seven, almost $11 run in the last three weeks. Does this have more steam in it?

Martin: I think it does. Um, the hog market, you know, here's the kicker on hogs one, you look at China and I think they have around 355 million head of hogs. And I know they have like 43.8 million sows And you know, those sows have gotta be bred. And in the meantime, prices have been dirt low. You take the eight largest producing entities in China for pork, and they've lost combined $8 billion plus in this past year. Then you look at the mom and pops who are the biggest percentage of producers and look at them how much they're losing. You know, there's going to be a liquidation, which will put a lot of product onto the marketplace. So once we start to see pig prices base out and stabilize we'll know that that break is probably over with, but there are looking at expanding poultry production and that's a, a corn and meal user.

Yeager: Yes, that they need some feed

Martin: And they're looking at expanding and increasing beef production, cuz they're getting a good taste of us beef. So they're looking at that. They're not gonna expand the pork industry. So when I look at what they're doing and God forbid, if they down with avian bird flu, but they're looking at trying to increase proteins in their country and they're doing, going to do so by 2025, that tells you there's gonna be a good need. And if their granaries are empty well, but the pork industry, the hog market, not only are we looking at the demand around the world because you had liquidation going across parts of Europe, but you look at the US, we've had PRRS. We've had PED virus. We've had ASF, you know, it's uh it's and that's on top of the liquidation we went through in 2020.

Yeager: Okay. Hold the thought on hogs. Let's go to beef real quick in the last 45 seconds. Uh, the, the feed price has been hard for a lot of these feeders to handle. Is there any relief for them or any strategies they can do?

Martin: Well, there's no relief for in my, in my mind, you know, my glass is half full. So I would have to say some, well, you know it, cattle prices can't go up because corn prices are higher. Normally the old fashioned way that was true and may still be. But the thing is, is it rationing the use of corn? Are they slowing up buying feeder cattle? No, they are not. Last year. Corn got to $7.75 And it didn't stall a thing. So here we are. And we're seeing cattle because of the dryness in pastures and cattle country coming off of grasses into the feed lots. We're gonna see heavy placements in, you know, in our next report.

Yeager: More to come. I always have to interrupt. I'm so sorry. I know, I know. We'll continue it though to say thank you, Sue. We'll continue it in Market Plus. Because that's gonna have to do it for this TV show. Market Plus available on podcast forum also on our website of market to Hey, we wanna let you know that we are coming up to the pledge season. Uh, if we're public television stations like this one are asking for your support. We may also be airing in different time slots to accommodate changes in schedule. So if you value the work of this program and your station, please consider making a gift of support now. Next week, the first indicator of the winner in the looming acreage battle. Thank you for watching. Have a great week.

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

Announcer: What's 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.

Announcer: 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. Look at manufacturing store now. Profit later.

Announcer: Tomorrow for over 100 years, we've worked to help our customers be ready for tomorrow Trust and tomorrow information is available from a Grinnell mutual agent today.