Market to Market - Mar. 25, 2022

Coming up on Market to Market -- Spring storm season opens with an outbreak in the South. Feeling the food shock waves thousands of miles from Russia’s attack on Ukraine. A land lease program that benefits schools in Colorado. 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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Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

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This is the Friday, March 25 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

The end of March brings to winter’s construction slowdown season to a close just as financial constraints of affordability strengthen. — —

New home sales were off last month by two percent. However, the average sale price topped $500,000 for the first time.

A sharp drop in orders for new aircraft pushed durable goods orders down 2.2 percent in February. The decline ended four months of increases.

When orders for transportation are stripped out, the core reading moved lower by 0.6 percent.

The world’s largest meat processor reported an annual net income of $4.15 billion or a gain of 345 percent year over year.   — —

Last week’s Drought Monitor revealed the highest percentage of the continental U.S. in some form of drought in nearly a decade.

The easing of dry conditions came at a cost in the South where a round of severe weather spanned several states.

Peter Tubbs leads off our coverage.

A tornado that threatened New Orleans caused extensive damage in St. Bernard Parish east of the city Tuesday night. A 25 year- old resident died when the storm damaged his home. 

The National Weather Service declared the tornado an EF-3 with wind speeds over 158 miles per hour. The storm damaged and destroyed hundreds of homes in areas that were still recovering from 2021’s Hurricane Ida and Hurricane Katrina which struck the city in 2005. 

The Louisiana storms followed a series of tornadoes that were reported early in the week along the Interstate 35 corridor in Texas. Extensive tree damage was reported across the region. A tornado near Austin forced shoppers to seek shelter inside of a WalMart store. There were widespread reports of people trapped in collapsed structures. Officials reported four injuries and one death in North Texas. Sixteen counties were declared disaster areas by Texas Governor Greg Abbott.

Tornadoes whipped across the Mississippi State University campus in Starkville pushing over trees that crushed multiple cars. A dozen counties in the state received damage. 

For Market to Market, I’m Peter Tubbs.

Russia and Ukraine account for about half of the global sunflower production.

War has disrupted the flow of seed and oil from the bright yellow and green flower along with other crops needed in the global food chain. 

Here’s Josh Buettner with more.

Roman Leshchenko/Minister of Agriculture - Ukraine: “Today, Ukraine has no choice.  We have to limit our exports to ensure our survival.  Because, we don’t understand when we’ll have the opportunity to start our agriculture season.”

This week, Ukraine’s Minister of Agriculture addressed the European Parliament on the issue of food security as Russia’s protracted invasion of Ukraine limped past the one month mark.  Continued attacks have left outlook for the embattled country’s winter wheat harvest stuck in the mud, while spring grain planting expectations have been cut in half from pre-war predictions.  Some local farmers have fled, taken up arms, or heeded government advice to plant alternative cereal grains, like peas and buckwheat, for local consumption.

Roman Leshchenko/Minister of Agriculture - Ukraine: “They are sowing under heavy shelling and dangerous occupied and mined areas under the risk of losing their lives.”

Comparative data from USDA’s Foreign Agricultural Service reveals Ukraine’s average corn and wheat production areas, encroached by Russian advancement – and Black Sea ports – where the “breadbasket of Europe” normally ships key grain and fertilizer to Africa and the Middle East – is besieged.  Ukrainian officials expect remaining port and farm infrastructure will be destroyed in coming weeks - warning a regional hunger crisis could ensue as supply is choked off and prices skyrocket worldwide. 

Dr. Joseph Glauber/Senior Research Fellow/International Food Policy Research Institute – Washington, D.C.: “Corn and soybean prices are real high too, so I’m not sure farmers will necessarily say ‘well let’s plant a lot more wheat’, when they’re getting equal or better returns from other crops.”

Former USDA chief economist and current International Food Policy Research Institute Senior Fellow Dr. Joseph Glauber says the situation in Ukraine and sanctions on Russia should coax out extra wheat exports from countries like India and Brazil, but it’s hardly enough to make up for 30 percent of global supplies being hindered by the consequences of war.

Dr. Joseph Glauber/Senior Research Fellow/International Food Policy Research Institute – Washington, D.C.: “Ukraine alonel is like 50 percent of the global share of sunflower oil exports.  In my understanding, those crush operations are not operating right now.  So there’s a lot of sunflowers that were harvested from the previous crop that haven’t been processed and haven’t gone to market yet.”

Some commodity analysts are bullish soybeans as Ukranian oilseed supply is disrupted, while the U.S. ethanol industry continued to push back on recent media reports linking domestic biofuel policy to Russia’s dominant wheat stocks.  The Renewable Fuels Association said wheat’s decline at home was baked in well before the federal Renewable Fuel Standard boosted corn-based ethanol, and acreage, and that next generation biofuels are an essential bridge to national climate goals.

President Joe Biden: “We’re in the process of working out, with our European friends, what it would be, what it would take to alleviate the concerns relative to food shortages.”

President Biden pledged over $1 billion in humanitarian aid this week while on a trip to Europe, and another $11 billion over the next five years to address global food security as a result of the war.  Additionally, NATO allies ratcheted up another round of sanctions on Russian individuals and entities including 40 Russian defense companies and more than 300 members of the Duma – Russia’s ruling legislative body.

For Market to Market, I’m Josh Buettner.

Several national farm organizations penned a letter to USDA Secretary Tom Vilsack this week asking for CRP acres to be released for planting this year. The goal is to stabilize the uncertainty of products coming from Ukraine and Russia.

The demand for acres is global.

A government program in Colorado aims to use leases as a way to help producers in several stages from just starting out to being ready to hand-off to the next generation. And there is an added benefit.

John Torpy has more in our Cover Story.

The Rocky Mountains make a picturesque backdrop for the daily routine of Nick Trainor, a fifth generation cattle rancher based in Watkins, Colorado. When he began building his own ranch a decade ago, Trainor adopted a mindset that included holistic grazing. His dedication to the concept helped him find a unique leasing opportunity designed to help the land, his ranching operations, and schools across the state of Colorado.

Nick Trainor, Owner Trainor Cattle Company: “I leased several private ranches getting started. Um, and then when this lease came up, it was big enough. I was scattered around on several different smaller leases. This one, um, was big enough that I could move my fan family here and, and we could ranch full time. ” 

Trainor went after the opportunity to lease land from the Colorado State Land Board. The state agency owns roughly three million acres and is tasked by the Colorado Legislature with leasing parcels of land to agricultural and energy interests. 

The length of a lease varies, depending on the specific type of agreement. The rates are lower than private land leases, but higher than the amount federal government agencies, the Bureau of Land Management and Department of Forestry among them, charge for grazing. 

Trainor leases land on the 24,000 acre Lowry Ranch, located 30 minutes east of Denver. His lease allows him to graze 400 to 900 cattle annually, depending on the breed. 

Nick Trainor, Owner Trainor Cattle Company: “The way this lease is structured, you know, we've got a really good inventory on the grass and you know, when and drought events are coming like right now, we're already in conversations about how those numbers need to be adjusted. Um, and you know, we talked through the problem and, and come up with a, with a plan.”

Rather than a normal tenant and landlord arrangement, leases with the state of Colorado encourage the establishment of working relationships between the lessor and lessee.   

Rachel Turner, District Manager, Colorado State Land Board: “My main responsibility is to do inspections on our agriculture leases, which is probably my favorite part of my job. That's where I get to go out and meet with our lessees and get a tour through ranches and farms throughout Colorado.”

Rachel Turner is the District Manager for the North Central District for the Colorado State Land Board. Turner’s office encompasses 480,000 acres of Centennial State landscape.

Rachel Turner, District Manager, Colorado State Land Board: ”As district manager, I do a lot of other things. So I work with oil and gas and renewable energies, um, work a lot with the forest service recently and anything and everything that comes in.”

The Colorado State Land Board contains six districts with a designated manager for each. Currently, the Colorado State Land Board has roughly 7,000 active leases with over 2,000 devoted to  agriculture.

Turner notes, the lease agreements encourage teamwork between State Land Board officials and the farmers and ranchers of Colorado with the shared purpose of caring for the land.

Rachel Turner, District Manager, Colorado State Land Board: “We really rely on our agriculture lessees. They are the knowledge base. They know that land better than anybody else. Um, like I said, they, many of 'em live next door or have been on the land since be, well, some of them before statehood.”

For Trainor, leasing with the Colorado State Land Board has been a major benefit for his operation.

Nick Trainor, Owner Trainor Cattle Company: “It's more of a partnership. Um, and that's what makes it work. And, you know, that was one of the really appealing things to me whenever they put the RFP out there was, you know, it, it was structured correctly from the get go that, hey, we're gonna work together to meet these common goals. And, you know, by and large, and I think they'd say the same thing. It's been a huge success.”

Many lessees have deep family roots in Colorado, with some lease agreements stretching back decades. That dedication to the land, coupled with the ranchers' devotion to community, helps the State Land Board with the other half of its unique mission.

Rachel Turner, District Manager, Colorado State Land Board: “One of the biggest benefits of working with the state, /The rent goes directly back to the school kids and that's one huge benefit that their lessees really appreciate cuz they know what's going back into their community and it's being used for good.” 

Since 1876, funds accrued from State Land Board leases have been allocated to the state’s Building Excellent Schools Today or BEST program. Through the Colorado Department of Education, school districts can apply for BEST grants to help offset costs for construction projects and school improvements. To date, the BEST program has awarded over $1.6 billion in grants. 

The nearly century and a half year old program has been labeled a lifeline for rural communities like Brush, Colorado which was searching for a way to replace two aging schools with a limited amount of resources.

Bill Wilson, Superintendent, Brush RE2J School District: “In 2016, we went to our voters and said, we need a, essentially a $60 million, middle school and high school, and the state will pay for half of it. 

With the funds from the BEST program, the Brush Community School District was able to build a state of the art combined middle and high school. The grant also helped the District find additional funds to provide new avenues of learning for students.

Bill Wilson, Superintendent, Brush RE2J School District: “You know, there are a lot of vocations out there that don't require a typical four year or six year college degree. And so we, we were very intentional about our what's called CTE career and technical coed programs, and making sure that we're providing our students opportunities in as many different areas as possible.”

Opened in 2019, the new Brush school boasts a fully certified USDA kitchen, multiple skilled labor and  technical platforms. The school aims to help the community thrive while educating the next generation.

Bill Wilson, Superintendent, Brush RE2J School District: “Whatever we can do, we need to do because otherwise we are unintentionally failing the next generation, that's gonna be taking care of you and me and, and running our world.”

Trainor, Wilson and Turner all agree that whether you are a cattle rancher leasing state land, a state land board employee helping take care of the land, or an educator striving to provide the best learning experience, the entire community wins in the end. 

Rachel Turner, District Manager, Colorado State Land Board: “It's not only today's school children, but we're properly managing land for future generations as well.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

The market appeared to put war headlines in the rearview mirror and turn attention to weather patterns ahead of next week’s two big government reports. For the week, the nearby wheat contract added 39 cents, while May corn gained 12 cents. Seed oils and profit taking faced off for traders this week in the soy complex. The soybean contract expanded 42 cents. May meal strengthened by $10.90 per ton. May cotton jumped $9.04 per hundredweight. Over in the dairy parlor, May Class III milk futures gained 86 cents. The livestock sector was higher as well. June cattle improved $4.43. May feeders expanded $1.60. And the April lean hog contract moved $7.67 higher. In the currency markets, the U.S. Dollar index rose 55 ticks. May crude oil skyrocketed up $10.33 or 10 percent. COMEX Gold lost $30.30 per ounce. And the Goldman Sachs Commodity Index added more than 45 points to finish at 766.10.

Yeager: Joining us now to provide some insight is Elaine Kub. Elaine, we could just discuss numbers and make everybody's jaw drop.

Kub: Those are exciting numbers.

Yeager: Well, they're exciting but they have to be tempered. When you look at wheat, we easily could discuss Ukraine but it looks like weather. But let's start with when the mainstream press starts writing about wheat does that mean that the rally is over?

Kub: Not, not necessarily because you're right, I've been noticing that more headlines, more stories suggesting that investors get into commodities, which they should have been doing six months ago as sort of an inflation hedge. But if you continue to attract more of that money you could continue to attract more long interest and higher prices. It's not a politically popular thing to do when you get speculators driving up the prices of food for people in the grocery store. But it's something I'm sure a story we're going to continue to hear about.

Yeager: We mentioned the drought monitor earlier. It is still dry. There was some relief in the wheat areas of the United States. Too little too late?

Kub: Not enough. It's not too late. In Kansas where there's something like 25% good to excellent ratings and 36% poor or very poor ratings as the wheat is coming out of dormancy, all of western Kansas is in drought. 70 some percent of the entire United States' winter wheat crop is in some sort of drought and some of it is exceptional drought. So yes they had some precipitation but they need more. And I don't know -- the long-term outlook doesn't necessarily provide it. There's still the ongoing La Nina and the ongoing chances of continued dryness.

Yeager: So given that there doesn't appear to be any end in sight with Russia and Ukraine and this dry story here and I know we're not the only three areas that produce wheat but that story doesn't appear to be going away any time soon, how do you take advantage of positioning yourself?

Kub: Yeah, let it ride. If you're a United States wheat producer we have not seen the export business come to the United States yet. The last weekly export sales report was not super exciting for any of the grains. We haven't seen tenders come from the Middle East or North Africa to the United States yet. But yeah, if the Ukraine and Russia thing continues to go on we're not going to make it all the way to 2023 without having to get some new customers here in the United States.

Yeager: Is the market done buying acres? Let's talk corn.

Kub: Oh no, it's not done. We're just getting started.

Yeager: We have a week to go before the report anyway.

Kub: Right, the prospective plantings report coming up on Thursday. And corn is the favored winner here, you're talking 92 million acres is what they last said in the February outlook, could be more by the time this prospective plantings report comes out because the market prices for new crop prices have continued to favor corn over soybeans, even over some of the other crops, but not necessarily the specialty crops. You mentioned sunflowers earlier in the show, your canola 2 million acres or more of canola could be in play, cotton is very profitable, you mentioned how big the jump in cotton was this week. That's old crop, but even the new crop at 110, that is going to buy some acres of cotton. There's a lot of things that are coming in that could pull some of those acres away from the corn and the soybeans, but corn is still the winner.

Yeager: So even though a report might say something on Thursday there's still the I have to actually put that seed into the ground and we won't know for a while?

Kub: I have to put that seed in the ground and I have to fertilizer it. Now, I hope that most farmers have locked in some fertilizer prices and are not just waiting to see how much higher fertilizer prices go because they're about five times what they would have been a year ago. But that plays into the decision of what you're going to plant. Is it going to be a high fertilizer intensive crop like corn? Or are you going to try and skimp on some other crop that may be able to get by with less fertilizer? So it's very much still in play.

Yeager: And that was a story we did a couple of weeks ago talking about maybe this is the year you don't put that extra 10% safety net on your field. Let's go to soybeans for a moment, Elaine, because you mentioned sunflowers and that seed oil debate. Is the soybean producer paying enough attention to the global seed oil picture? And how does that help make a decision?

Kub: Yeah, and I think we've talked about it on this show is that ordinarily the soybean crush is led by the meal prices, by the feed prices. But lately as of about October of 2021 and onwards the oil part of it is a bigger proportion. It's about 40% of the soybean crush comes from the value of the oil itself. So as you continue to see Malaysian palm oil hit new record highs that is sort of the benchmark of global edible oil prices but soybean oil in the United States and in Chinese futures follows right along, sunflower oil, canola oil, every kind of oil, they are all highly correlated and tightly related. So when you have sunflower oil, 50% of it ordinarily comes out of Ukraine to the global export markets and without that things are very tight, things are very expensive, very motivating.

Yeager: Very expensive when it comes to the Brazilian real. The currency level there I believe it's at one point this week the highest in 21 months. So we haven't even mentioned South America yet. We're five minutes into this discussion. Again, as a soybean producer if I'm holding any old crop do I keep holding?

Kub: Yeah, I think you can, especially you mentioned the Brazilian real and that doesn't automatically plan to higher U.S. prices but it allows U.S. prices to go higher in competition. If China has to pay more for Brazilian soybeans they can then afford to pay more for United States soybeans. Everything coming out of South America continues to be pretty bullish. They've had some precipitation but the ongoing La Nina means that they don't have enough precipitation. Argentina cut their corn projections again. So it all continues to be bullish. I can't come up with a bearish thing to sort of temper this yet.

Yeager: And not in cotton either.

Kub: Right. China continues to buy.

Yeager: You mentioned the old crop and the new crop. So what is the big story? Is there a difference between the two?

Kub: Yeah, so the old crop is $130, something like that, and the new crop is maybe $110, still a highly motivating price to get more than 13 million acres of cotton planted. But what you'll notice there is that is an inversion. It's like every other agricultural commodity crop if you look at the futures board it is inverted, which means higher nearby prices than deferred prices, always a signal that the market desperately wants this stuff, the end users want to buy it, they want to get it in their hands.

Yeager: Let's play an end of commodity quiz with Tom in Wisconsin's question here, Elaine. He asks us via Twitter, as risk grows with price inflation, are there any new or different signals to look for when marketing commodities?

Kub: Not necessarily, I wouldn't say there's new signals. But what he may want to consider is that as you have higher prices, you mentioned the percentages that each of these markets have gone up in the past week, if you're talking about $17 soybeans a 1% move on $17 soybeans is a lot bigger than a 1% move on $9 soybeans. That's just arithmetic, it's geometric Brownian in motion as you get larger numbers, you get larger movements. So it just is more expensive for people to hold their hedges and pay margin calls and it's just more stressful to participate in these markets. I don't know that there's different signals, but it's a different experience for folks.

Yeager: So is understanding geometric Brownian. That's a good one. Let's go to feeders. Cattle on feed today I believe the headline was 1%, up 1%. What is the big story in feeder cattle? You want to talk about this.

Kub: Yeah, so that sounds like it could be sort of a bearish number and I think some of the packers have sort of been playing for time, steady cash prices that you saw this week, in the expectation of a neutral sort of cattle on feed report because this was right in line with expectations. That was the highest March feeders number on record ever. But the reason we have so much cattle on feed now is because those are heifers that are not going to be in the breeding herd next year. So it's just kicking the bullishness down the road for ensuing years. So, why then -- you think about the reason why feeder cattle right now are pretty pressured at $160 or thereabouts. It's because of the high feed prices. But if you look into the October or November contract for the babies that are on the ground now that are going to be marketed this fall, those prices on the futures board are more like $185. So what is the difference between feeder cattle on the nearby versus feeder cattle in October and November? The feeder cattle trader, the futures trader are the only people who seem to think that corn is going to be cheaper in the fall. The market itself doesn't even think that. It is still highly inverted even into the 2022 crop. So to me that suggests that there is a market inefficiency there and that is an opportunity for folks to be selling. If you've got babies on the ground right now I would certainly be considering selling those futures at $185 using an LRP contract, insurance policy, whatever or a futures contracts, however you want to do it. I think that is a market opportunity to lock in that price.

Yeager: We need to discuss hogs. We didn't even really mention the big story. Mexico is having some health issues with a lot of their herds, they are buying up a lot of U.S. pork. Does this run impact this price move higher? Again this week up -- we're at $125, 6.5%.

Kub: Yeah, it's a contract high now and I did look at, if you look in the July 2014 contract that is the highest and that got up to $134. So just from a chart perspective there is room for that to move but that's not necessarily your limit. Folks may continue to be willing to buy pork at these high prices, the pork cutout continued to rise this week. The U.S. consumer, the grocery shopper is not even needing features to bring them into the grocery store and buy pork. Folks want to buy this meat. The world wants to buy the meat. China wants to buy the meat. I mean, there's just not a lot that we can say to sort of pull that back at this point.

Yeager: Except add inventory somewhere but it's going to take months to get through.

Kub: Yeah and we haven't seen, the herd really had not been building when you look at the March 1st numbers.

Yeager: We will save cattle, live cattle because there's a couple of parts there we need to talk about, a specific story out of Kansas City last week that was talking about don't buy beef at the barbeque place. That's our tease we'll mention in Plus. Elaine Kub, thank you so much.

Kub: Thanks, Paul.

Yeager: All right. That will do it for this installment of Market to Market. We will talk more in Market Plus so join us there. Find that free on our website of MarketToMarket.org. Your loyalty on YouTube is amazing. We keep reaching milestones as more of you keep subscribing and ringing that bell for notifications of new content. Don't miss out and head to youtube.com/markettomarket. Next week it is panel discussion time as we talk stocks and acres. Thank you for watching. Have a great week.

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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.  

(music)  

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

(music)