Market to Market - July 22, 2022
Drought is forcing cattle liquidation in Texas, Congress discusses crop insurance changes, and Jeff French looks at the markets.
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Kohlsdorf: Coming up on market to market culling the herd to stay above water, using a scalpel instead of a sledgehammer on crop insurance world events could continue to boost some flower prices.
French: You know, it's been hot out
Kohlsdorf: There on market analysis with Jeff French next.
French: And I think that's,
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Kohlsdorf: Hello, I'm Brooke Kohlsdorf. Paul Yeager is on assignment this week. Saw record setting temperatures across the country and the globe. The blame is being placed squarely on climate change for cattle producers in places like Arkansas and Texas, the multi-year drought brought on by those conditions has brought more than a few farmers and ranchers to their knees financially in Texas ranchers escaping a potential landslide of debt. Put one sale barn into overtime with an auction that ended in the early hours of the following day. John tope has more on the fallout of the years, long drought on cattle producers in the south
Miller: I drilled some post holes last week, uh, getting ready to ship these cattle out. And I went down four foot. No moisture. None. It is just completely like powder.
Tubbs: Texas agricultural commissioner, Sid Miller describes the working conditions. He experienced moving cattle off his drought stricken ranch, Miller joints, many cattle producers, struggling with record setting drought and temperatures climbing over the century. Mark cattle producers across the south are experiencing challenges on multiple fronts. As drought, a dwindling feed supply and rising input costs are hitting ranchers hard at the bottom line in Texas, the dry conditions have depleted water reserves and forced cow calf operators to search nationwide for hay. Some producers are making hard decisions and selling off all or portions of their herds.
Miller: A lot of our livestock auction barns are in capacity. They can't take anymore cattle
Tubbs: Of the 254 counties that make up the lone star state 200 have been declared disaster areas due to the ongoing drought to make matters. Worse pastures with grazing potential are becoming fuel for grassland wildfires because of the hot dry conditions. Russell Boening is the president of the Texas farm bureau Federation.
Boening: It is, and it's tough. It's tough nearly in every part of the state. I mean, you can find small areas that maybe caught a thunderstorm or two, and they're not suffering quite as bad. But I think like 95 percent of the state is in some category of drought. So that tells you that, tells you the hu-the seriousness of the situation.
Tubbs: According to the us drought monitor, most of the Western us is working through some version of drought in the south drought classifications expanded in Oklahoma, Arkansas and Texas beaning notes. Recovery from this drought will take a long time.
Boening: We got a saying out here in the country, it doesn't rain grass. It, it, it rains, you know, and it's good. Don't get me wrong. The, the rain is welcome, but it takes a while for your pastures to, to, to rejuvenate and, and come back. This is gonna be felt into 23, 24 and 25. So even if it starts raining this fall
Tubbs: For Market to Market, I'm John Torpy,
Kohlsdorf: What had been a red hot housing market continues to cool as inflation and the threat of a recession splash cold water on the fire. Existing home sales fell 5.4 percent last month under the threat of higher interest rates and rising prices. Housing starts a leading economic indicator also slid 8 percent over June as builder confidence, declines, and the potential for a recession increases the Creighton university main street index stayed below growth neutral in June, as rural bankers revealed their worry over the effects of higher input costs and rising interest rates on the rural economy. Preliminary plans for the multi-billion dollar farm bill are being hashed out as the deadline for the next version approaches Congress is working on the details. This week, witnesses were called to Capitol hill to weigh in on the federally subsidized hedge against disaster.
Tubbs: This week, the house ag committee held a hearing on possible changes to the crop insurance system that subsidizes the prices farmers pay to ensure their crops against weather loss.
Scott: Kansas farmers have told me repeatedly that as we look at crop insurance, the next farm bill let's use a scalpel and not a sledge hammer. Uh, let's make some tweaks, let's work to improve it. Um, but let's acknowledge that what we have, um, is a good program.
Offerdahl: So crop insurance today is a critical part of the agricultural safety net. It's relied on by farmers, by lenders and by rural businesses in every part of the country, no U S D a program reaches more farmers and more crops and more counties than crop insurance,
Tubbs: Both members of the committee and witnesses, express concerns about proposals to use crop insurance, subsidy rates, to encourage adoption of conservation practices.
Scott: The proposals that come before this committee by groups on the far right and the far left that would effectively those farm families to purchase crop insurance are detrimental to the whole ag industry and the food supply of this country.
Fowler: Don't be tricked into pay limits. And AGI means testing on crop insurance under the idea that this will help small farmers because it won't, it will hurt them by raising their premiums and removing the good rest from the risk pool.
Tubbs: The new farm bill is due in 2023 for Market to Market. I'm Peter Tubbs
Kohlsdorf: On Friday, Russia and Ukraine signed treaties that will allow grains to flow from ports currently under blockade, due to the war between the two nations among the agricultural products that are expected to once again, be exported from Ukraine is sunflower oil. Despite opening the taps for the world's largest exporter domestic growers could still see a boost to sunflower prices. Colleen Bradford Krantz has more in our cover story.
Krantz: The 1980s farm crisis hit Southeastern South Dakota, just like it did the rest of the country bringing a severe economic downturn that affected many farmers in their communities. The EOR family of white lakes survived the crisis by relying on their father. Wayne's second income as a teacher, but they received additional help. When the elder Edinger planted a field of sunflowers.
Edinger: It was tough times in the eighties. Dad was luckily for us, you know, did a good job of forward thinking
Krantz: 40 years later, his sons, Charlie, and Chet still raised sunflowers dedicating about 15% of their row crop acres to the edible seeds.
Edinger: I would say year in, year out. They're one of our best money making crops. I mean, it is definitely challenging. Um, I think we live in a good area with our amount of rainfall or our climate and soils that, you know, we're, we're in that 20 to 24 inches of rainfall every year. So they're are a good dry weather hedge.
Krantz: The 2021 growing season offered a challenging dry weather test for many sunflower growing regions. And some may struggle this year as well.
Sandbakken: Weather is really just taking a dramatic turnaround here in the Dakotas and Minnesota. Uh, we went from extreme drought conditions to now where we're out of the drought, the high plain states, Kansas, Colorado, Texas, you know, obviously that's a different story. They they're in a very dry situation. Um, but a lot of the sunflower that's produced in those states is under irrigation. And so it's something that's not going to affect our yields as much
Krantz: U SDA estimated yields were down about 15% last year, but some industry leaders were happy. It wasn't worse.
Sandbakken: We did drop about 300 pounds an acre overall. Um, but you know, given the drought conditions that we faced, um, many areas only had about six inches of rainfall last year. So that still turned out pretty well
Krantz: With that loss in production and the Russian Ukrainian war affecting that sunflower producing region prices climbed in the spring and farmers responded by adding more acres.
Sandbakken: We're seeing a lot more sunflower acres. This here overall we're up 29 percent. The biggest reason for that is, is obviously the situation in Ukraine. Um, that's really created a lot more demand for sunflower products in the us, uh, whether that be in domestic use or, or in the export market, you know, UK, Ukraine and Russia combined, there are about 60 percent of all the sunflower oil production in the world and 75 percent of all the exportable sunflower oils. So, I mean, when you take that oil off the market, I mean, that just creates just a huge vacuum.
Krantz: During the COVID pandemic sales for sunflowers used as bird feed surged, as more people were home and looking for entertainment, sandbox and suspects, a fall report will show a slight reversal for bird feed types of seed.
Sandbakken: I think overall demand slipped a little bit, cuz I think people got out a little bit more the winter wasn't quite as harsh in a lot of our key markets. And I think people are still feeding birds, um, and probably, you know, to a great extent than they had the last few years,
Krantz: Sandbakken believes the us sunflower industry could easily support another half million acres of production on top of the estimated 1.7 million acres being grown this year, the EER brothers who now raise confection sunflowers for human consumption are based in Southeast South Dakota, which as of October, 2021 had received less than 14 inches of precipitation, seven inches shy of normal. Even with the reduced moisture, their sunflower crops still did well beating their five year average yield by 22%. Charlie says that anyone considering getting into sunflower production, however needs to be ready to work.
Edinger: Insects can be a challenge. Um, seed weevils, sunflower MOS diseases can be a challenge if you're in a wetter climates, um, they may not be a good fit for you. Um, Blackbird are one of the, our biggest challenges here. If you're to start raising sunflowers, I would probably start with, with the black oil variety. That way you can kind of get a feel on, on how to raise them any other production issues you might have with them before trying to go towards a more specialty option.
Krantz: Once their sunflowers are harvested, the Edgar's edible seeds are delivered to advanced sunflower in Huron, South Dakota, an hour's drive to the north advanced sunflower handles about 120 million pounds of sunflower seeds. Annually. The seeds are cleaned sorted by size roasted salted or flavored, and sometimes de hold nationally about 20% of oil variety, sunflowers are exported.
Dale: The us was primary area where the selective breeding was done to move 'em from wild to something we could use for snacks and oil and that, but now some other countries have gotten into producing sunflower seeds. So there's been a shift in the last 15 years.
Krantz: Sunflowers are typically contracted ahead of time by companies like advanced. And this year, many are offering prices much earlier.
Dale: Sunflower is not a price leader, it's a follower. So if corn and beans go down, sunflowers, go down and if they go up sunflowers, go up, we have to pay a competitive price to get the, to buy the acres some years it's a struggle. And some years it's pretty easy.
Sandbakken: There was just a mad frenzy that the first two months during the war, um, a lot of people were trying to, you know, buy up as much as they could. And they, you know, getting as much oil on the books as possible for delivery. Then we sort of went into a transition period where, uh, for those who could not buy sunflower oil, they probably switched to another oil. I think there's going to be a, a big resurgence in demand for oil, uh, because a lot of, a lot of buyers are on the sidelines right now, waiting for them, you know, to see what kind of a crop we're gonna have this year
Krantz: For Market to Market. I'm Colleen Bradford Krantz
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Kohlsdorf: The weather, spec funds, and the agreement between Russia and Ukraine, allowing exports from black sea ports helped sink the grains. For the week, the nearby wheat contract dropped 18 cents. While the September corn contract cut 40 cents. Cooler temperatures and predictions of rain pushed the nearby soybean contract 32 cents lower. September meal fell $4.90 per ton. December cotton adding $2.18 per hundred weight. Over in the dairy parlor. August class three milk futures were even. Livestock market continued its move higher. October cattle added $3.45. September feeders put on $4.80 And the October lean hog contract improved 3 73. In the currency markets. The us dollar index plummeted 133 ticks. September crude oil held steady. COMEX gold, improved 1760 per ounce. And the Goldman Sachs commodity index fell almost seven points to finish at 665 20. And joining us now to provide some insight is Jeff French. Welcome back, Jeff. Thanks for being here.
French: Thanks for having me.
Kohlsdorf: All right. We'll start with some international news we heard earlier in the show and we've been talking about, uh, the agreement between Russia and Ukraine, allowing those ports, those important ports to reopen. That news coupled with wheat prices plummeting below pre-Ukraine prices, those two things together, where is this market headed?
French: Well in the short term, it's gonna be under pressure. And, and the wheat actually earlier in the week, uh, was up about 50 cents. Um, we thought we were finding a bottom because we had an Egyptian tender that we came in. Uh, one of the cheapest prices out there, uh, in the world. Now the tender did not include Russia, uh, or the French Matif wheat. Um, but the Egyptians canceled that tender on Wednesday, uh, siding high prices. So, uh, wheat quickly reversed, uh, plummeted down. We are 85 cents come Friday lower than the Wednesdays high. So 18 cents lower on the week doesn't sound that bad, but from where we came from, uh, the charts look terrible right now. We, we close down at seven month lows. The funds are short, the wheat, meaning they are betting on lower prices. And I expect with the last week of July next week, uh, I expect these prices to move lower. I mean, you look at last year's prices, we're still 80, 90, uh, cents above where we were last July. Uh, so I just think there's more room to the downside of here in this wheat crop.
Kohlsdorf: Is part of it that Russia is now saying there are reports that it has a bigger crop than it expected. Is that part of what could continue to bring it down?
French: Yeah, I mean it it's just, uh, you know, they really piled on it. I mean, you got the us dollar at 20, 22 year highs. Uh, you got the Ukrainian wheat that's expected to flow here. The, the agreement says within the next few weeks, uh, and their goal is to ship 5 million metric tons, uh, a month. So you're talking about 200, 250 million bushels coming out of those ports, uh, during the month. So it is gonna relieve the pressure here and, and remember this is the future's market. So, uh, the funds and the prices are getting ahead of potentially. Now things can change next week. Uh, you know, there's plenty of minds out there in the sea. Uh, so I don't know if we're outta the woods yet, but, uh, right now it looks like wheat once ahead, lower initially in the short term.
Kohlsdorf: Mm. All right. Well, moving to corn, um, corn and beans, we are seeing the lowest trade since January what's driving? It is the, the recession, the weather a little bit of both.
French: I, I think it's it. It's, it's definitely the weather. I, I mean, uh, we are gonna be cooler and there's better chances of rain. Um, um, but also it's, it's just the general selling of everything. And I think you have to lump wheat in there. Uh, cuz when you have wheat down 30, 40 cents per session, it's, it's, it's awfully hard for those grains, uh, uh, to rally. And we saw that same thing with the beans. I mean the beans were higher on the week to begin, uh, come Wednesday and then we closed, you know, almost a $1.00, $1.10 Off those highs. So the charts don't look good. We made fresh lows, um, for the year going-dating back to January, uh, both in corn and beans. Now beans showed some life. They did close above $13 here Friday. Uh, but you start closing below that $13 for two consecutive days. Uh, I think it could be a pretty quick trip down to the low twelves.
Kohlsdorf: And they usually corn and beans tend to trade lower this time of year traditionally, right.
French: Seasonally. They do. But I mean, it depends on weather, but I mean, if you look at seasonally the last two weeks of July, if you sell the grain, it's typically a winner. But uh, um, you know, it's definitely working out here this year. Um, and I expect us, you know, depending on, if the rains are above expectations over the weekend, uh, you know, it definitely looks like we're gonna be cooler. Uh, you gotta think the, the lows of the year are, are sight and that's $5.42 in the December corn and that's $12.74. So we're knocking on the door now. Uh, if those prices don't, uh, hold, uh, we could be sharply lower from here.
Kohlsdorf: Okay. Well what about soybeans? They've also seen, um, a seven month low. How much of that is weather?
French: Well, it, it definitely incorporates into, but you know, we haven't seen until this week, uh, we haven't seen a Chinese flash sale in beans in, um, over two months. So demand has been light. Uh, but then there's also a report out here later this, uh, this afternoon that, uh, Brazil, and I know this is a long way off, but Brazil is expected to have another bumper crop, maybe even 20% bigger than last year. So, uh, there is gonna be expansion out there. $13 beans are still historically a very high price commodity. Uh, and there's gonna be people willing to grow.
Kohlsdorf: Okay, cotton. We were talking about that earlier today. It's a sad story down in Texas where, um, the drought continues to rage war against cotton. Will we see prices because so much of the cotton crop has been ruined? Will we start to see prices take up a little bit?
French: Yeah. I mean cotton, I mean that is a commodity about, uh, you know, you look at money flow versus fundamentals. Cuz I mean you look fundamentally Texas, it's the biggest cotton producing, uh, state in the country. It produces about 40% of our crop and it it's, it's a disaster. I mean, there's gonna be a lot of cotton acres that are zeroed out, uh, in west central Texas. And uh, you would think prices would move higher, but the money flow right now in commodities, uh, they do not want to own commodities that can change quickly. Uh, but again, you gotta remember cotton is a global commodity and if there's gonna be problems with recessions through some of these bigger countries, uh, it's gonna be, be hard for cotton rally.
Kohlsdorf: Hmm. Sad news for cotton farmers then. Um, so let's move on to cattle, Texas. And we saw the story Texas in, um, some other states, a lot of the farmers there have had to just get rid of some of their herds. They just don't have the feed. They don't have the grass there. Um, does this explain what we've been seeing then in the markets?
French: It, it definitely translate to it. I mean the, we had the cattle inventory report, uh, come out, uh, this afternoon came out as expected, the, the herds two to 3 percent, uh, lower than this time, last year that was expected. And it is it's, it's based on weather. I mean, there's been herd liquidation, we're going on herd liquidation now for four consecutive years. Uh, so you know, right now we're in the dog days of summer, typically it's the slowest demand time of the year. Um, but if we can hold this $134, $136 area in the cash market, I, I think we're putting in a summer low. Uh, we do have plenty of cattle to work through here in front. Um, but my expectations, the cattle are setting up to be very strong for probably a couple years. If the stock market can hold, if the economy can hold together, because if that stock market starts slipping, it will drag the cattle down there with it. But fundamentally, fundamentally the cattle have a very bullish story.
Kohlsdorf: Okay. What about feeders? Um, is the feeder market still reacting to corn's lead?
French: Yeah, somewhat. Um, but also, you know, you, you had the funds, they were, they were short feeders when corn was going up, uh, they were really pressing 'em down. They've obviously switched back now. They bought back all their short positions and actually they're going along. So, uh, Friday was a very, uh, impressive, close, um, most contracts close at four or five months highs. Some of the deferreds actually made new li life of contract highs. So, uh, there's definitely some spec play coming in. And a lot of that was probably getting in front of this report. Uh, we also had the cattle on feed. The placement number actually came out about 4 percent higher than expected. So you might see a little back and refill here, uh, come Monday. But again, fundamentally the cattle have a bull story. Uh, we just need to keep this economy going.
Kohlsdorf: Okay. All right. And we'll finish with hogs, our recession fears, helping with demand. It's a lot less expensive to buy pork at the grocery store, the meat counter than beef. I hear that all the time from people it's so expensive to buy beef.
French: Yeah, no, no question. And, and you see that in the cash market, the cash market in the hogs is absolutely on fire. Uh, we have many reports of $125 up to $130 cash hogs selling here. So, uh, we have closed in the August contract 12 days out of the last 15 days higher. So, uh, the chart looks, I mean, it's a little bit over bought, but if these cash prices hold in here, these, this future's, market's gonna move higher, but, uh, absolutely on fire here and, uh, the charts look good and I expect hogs to move higher.
Kohlsdorf: Okay. And we'll have time in market plus to talk a little, little more about that cattle on feed report that you were talking about that was just released. So I wanna hear more about that and a few other things as well. All right. Well looking ahead to next year, should farmers be locking in their feed, needs their fertilizer this year now, or should they be waiting
French: Well on, on the feed needs? Um, I, I wouldn't do the physical right now. Um, you know, we've had a $2 break, um, but the momentum is still lower. Uh, if you wanna buy some call options and to protect the upside, I have no problem with that. Um, but the actual physical feed needs, uh, I'm in the camp that, you know, we could see, uh, lower prices come here this fall. I mean, there's still a lot of grain out there, uh, that has not been committed, had it's not been priced. Uh, so I think we could see some more harvest pressure to the downside, the fertilizer, uh, you know, I'm in the camp that, you know, we've seen our highs in a lot of these commodities for a long time, um, maybe years, but we'll have to see what the weather does. Uh, so I am holding out on the fertilizer. Now, if you wanna buy some natural gas calls, uh, to ride up in case there is further rally. Um, but we're at multi-year highs right now. So, uh, I'm gonna wait, I'll put my risk on paper and wait buying the physical needs here for right now.
Kohlsdorf: All right. You unpack a lot. Thanks for joining us today, Jeff. Appreciate it.
French: Yeah. Thanks for having me.
Kohlsdorf: All right. Well, we will continue the conversation as you just heard with Jeff and also answer more of your submitted questions in our market plus segment. You can find it on our website of market to market.org in podcast form. And of course on YouTube, all of these resources are free. Corn is silking and soybeans are setting pods, post a few picks of your crop and then tag them market to market show and then give us a follow. All right, next week, we look at the battle over capturing greenhouse gases in the Midwest. I'm Brooke Kohlsdorf thanks for watching and have a great week.
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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. Sukup manufacturing store. Now profit later
Announcer: To tomorrow for over 100 years, we've worked to help our customers be ready for tomorrow. Trust in tomorrow .information is available from a Grinnell mutual agent today.