Market to Market - July 29, 2022

Coming up on Market to Market -- Getting some outside the Beltway perspective for the next Farm Bill. A jump start for climate-smart practices in agriculture. A battle over capturing greenhouse gas in the Midwest. And market analysis with Mark Gold, next.

(music)

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

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

(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)

This is the Friday, July 29 edition of Market to Market, the Weekly Journal of Rural America.

(music)

Hello. I’m Brooke Kohlsodorf. Paul Yeager is on assignment.

Recession is defined as a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters. However, there are a growing number of economists from Wall Street to Pennsylvania Avenue saying the issue is a bit more complex and the situation may not be as dire.

While GDP HAS had a downturn in two consecutive quarters, the Personal Consumption Expenditures Index rose 7.1 percent, the same rate as the first quarter.

Excluding food and energy prices, the PCE index increased 4.4 percent.

Personal income moved higher for both non-farm proprietors and farm business owners.

The Fed, working to cool a red hot inflation rate of 9.1 percent and the threat of a recession added 75 basis points to the prime lending rate.

The uncertainty about economic conditions in the future is weighing on rural Americans. Farmers and ranchers are looking down the road for some kind of relief. One source might be the next Farm Bill.

As producers tell Congress what they’d like to see in the 2023 edition of the Bill, Peter Tubbs found out that, like politics, all farming is local.

Monday, the House Ag Committee held its fourth listening session of the year in Rice County, Minnesota. The previous session had occurred in the Western United States, and speakers there focused on water issues.

The Midwestern crowd shared several comments about tying subsidized crop insurance to conservation practices.

Gary Wertish, Minnesota Farmers Union: “You know, it's really a food security, rural development bill. There's a lot of you know, this is the only bill that really funds a lot of rural America. You know, it's not only providing farmers protection to keep them on the farm, but, you know, the example is giving a crop insurance. You know, the intent is not to profit off it. And the intent is if you go through a crop disaster to keep you on the farm.”

Richard Syverson, Minnesota Corn Growers: “First, crop insurance must be actuarially sound. All farmers who want to participate should be allowed to. This means no size limits or ties to other conservation programs like conservation that do not affect the farmers risk profile.”

Jim Kanten, Minnesota Corn Growers: “Keeping climate and conservation initiatives inside the conservation title makes the most sense, rather than tying them to crop insurance. We really need to stay focused on keeping farmers in business.”

Will Clayton, Pheasants Forever: “When we ask farmers, ranchers and forest landowners to implement conservation practices. They should be fully supported and appropriately compensated. These practices benefit all of society.”

Speakers were also concerned about the difficulty beginning farmers have in gaining access to the land.

Ed Terry, Randolph MN: “But young farmers can't afford $350 rent, $10,000 plus land costs with the high input costs. And you know, they just can't possibly compete with the mega farms that we're seeing.”

Kelsey Zaavedra, Amador, MN: “ In the next farm bill. We need to acknowledge that the playbook is changing and we need policies that recognize diverse models of how food is produced. And we need policies that support farm viability for young farmers and for farmers of color.”

Rep. Angie Craig, D - MN: “I think we've got to find a way to enable the beginning farmer to, you know, better be able to finance the land. Right. I mean, it is it's extraordinary just how much land costs in my congressional district.”

Rep. Cheri Bustos, D - IL: “I think what we heard today is don't mess with crop insurance. It's working. And there's real concern among our family farmers really to do anything to it. I don't I didn't see the comments as a resistance to conservation but just not to link conservation practices with crop insurance.”

For Market to Market, I’m Peter Tubbs.

Looking to give Americans some relief from high inflation rates, the Senate agreed to take up what is being called the Inflation Reduction Act of 2022. Over half of the $739 billion dollar package is devoted to climate change. This includes an injection of $20 billion into the rural economy for so-called climate-smart initiatives. The multi-billion dollar incentive package is expected to help pay for wind, solar and carbon capture projects.

While the concept of implementing climate change mitigation measures may look good on paper, the reality of putting them into practice includes assessing the impact on those around you. Josh Buettner has more in our Cover Story.

Protester: “No carbon pipelines!”

After rallying in vain against the Dakota Access Pipeline, activists in Iowa brought reinforcements to push back on a new proposal to transport a different hazardous material beneath the state’s fertile landscapes.

Jess Mazour/Sierra Club of Iowa: “Dakota Access, we did not win, with the Iowa Utilities Board, because we didn’t have the support of the landowners.  But because of Dakota Access, we saw the damage it does to the land.  People are now aware that this is not a good thing.”

Complaints of crop loss and soil issues have followed since 2017, when Dakota Access began pumping over half a million barrels of Bakken Crude per day across four Midwestern states.

The Midwest Carbon Express, the first of 3 similar proposals to seek final approval from Iowa regulators, would annually transport 20 million tons of liquefied CO2, captured as a by-product of corn-based ethanol production from plants in Iowa, Nebraska, Minnesota and the Dakotas, to sequester in an underground reservoir in North Dakota. 

The Iowa Utilities Board has final say on pipeline construction permits, and stakeholders who’ve dug in their heels fear the board will grant eminent domain again.                                

Dan Tronchetti/Greene County, Iowa: “CO2 is an asphyxiant.  CO2 is heavier than air and it can flow to low lying areas.  Based on a demonstration in Europe, with an 8 inch line, if there is a leak or rupture, every living thing within 1,300 feet will be dead in less than four minutes.”

According to IUB officials, as of mid-July, Boards of Supervisors in 25 of 30 counties affected have formally objected to the route over use of eminent domain.  Proponents prefer the voluntary easements they’ve secured from over 650 landowners so far – about 40 percent of the 680 miles needed in Iowa.

Justin Kirchhoff/President – Summit Ag Investors: “If you take a step back and say: ‘Why are we doing this project?’  It’s to make ethanol more profitable.  We think this will be as transformational as the original Renewable Fuel Standard was for Iowa landowners…and the landowners across the 5 states that we are operating in.  That ethanol plant is going to make more money.  That farmer is going to make more money long term.  It’s going to support land values and it’s going to support those local communities.”

Justin Kirchhoff is president of Summit Ag Investors, parent company of Summit Carbon Solutions, which has proposed the $4.5 billion pipeline.  Kirchhoff says an average ethanol plant stands to make an additional $15 million per year when partnered with Summit.  Summit claims the project will support 360,000 jobs and, in Iowa, generate $73 million in state and local taxes during construction and continue filling coffers during operation. 

Justin Kirchhoff/President – Summit Ag Investors: “I think the scar tissue of Dakota Access, in many ways, has actually brought out a lot of good, new regulation.”

A farmer himself, Kirchhoff says the Iowa Legislature and the Iowa Utilities Board have tightened up pipeline requirements - and Summit has vowed to cover lost yields.

The ethanol industry has been actively working to lower emissions for years.  Summit claims new federal climate priorities make their project viable.

Justin Kirchhoff/President – Summit Ag Investors: “If ethanol has the ability to get their carbon footprint lower than an electric vehicle, we need to take advantage of those incentives and build the infrastructure out and make them more competitive, long-term.”

According to global financial conglomerate KPMG, U.S. code section 45Q tax credits reward carbon sequestration, but also pertain to use in enhanced oil recovery, or fracking.  Summit denies their product will be used for fracking and say their petition for a hazardous liquid pipeline permit clearly spells out their intentions.

Dan Tronchetti/Greene County, Iowa: “The pipeline is supposed to be 4 foot deep, and most of my tile are buried 3-to-5 feet deep.  I can’t imagine that my tile system will ever work as good as it does today.”

Farmer turned activist Dan Tronchetti doesn’t buy it, pointing to a spring 2021 Bismarck Tribune article with Summit CEO Bruce Rastetter, a high-profile Iowa GOP donor, who said the company was exploring other gas injection options.

Opponents cry foul on myriad political connections associated with the pipeline, and blame such clout for sluggish review in the state legislature.

Jess Mazour/Sierra Club of Iowa: “Things like these pipeline issues are what remind us that our value systems are actually the same, it’s the political system that’s telling us we’re so different.”

Iowa Sierra Club Conservation Coordinator Jess Mazour says unlikely allies in the fight have been seeking an audience with the governor for over six months.

Dan Tronchetti/Greene County, Iowa: “Governor Kim Reynolds, in her response to Joe Biden’s State of the Union Address – She said you shouldn’t have to wake up…”

 

Governor Kim Reynolds/R-Iowa:  “…every morning and worry about the next thing the government is going to do to you, your business, or your children.”

Dan Tronchetti/Greene County, Iowa: “I’ve had a lot of sleepless nights worrying about what the Iowa Utilities Board is going to do to me.”

Tronchetti says any pipeline could be sold and assurances wiped out - and his insurance underwriters won’t guarantee him indemnity. 

Tom Dorr/Cherokee County, Iowa: “You know, when the ethanol industry first started…I was pretty skeptical.”

Retired Cherokee County farmer Tom Dorr says the benefits outweigh the costs, and, for better or worse, government and business are going all-in on capturing carbon.  A former president of the U.S. Grains Council, and USDA Undersecretary for Rural Development during the Bush Administration, Dorr helped provide funds to build out ethanol plants spurred by the RFS.  His family have signed easements with Summit.  Just like ethanol and wind turbines, he says pipelines are unique rural development opportunities that impact local schools, health care, real estate and workforces.

Tom Dorr/Cherokee County, Iowa: “All these things collectively create significant economic growth that I think…it’s not responsible to dismiss it.”

As Summit continues to seek cooperation, the Dakota Access controversy has provided a road map for all sides.  Critics say taxpayers subsidize the mandated ethanol industry and shouldn’t have to pay more to clean-up associated pollution.

Jess Mazour/Sierra Club of Iowa: “We’re going to fight the approval of it, and then if it is approved, we’re going to take it to court – and like we’ve seen in many other pipeline fights, then we’ll be fighting the construction.”

For Market to Market, I’m Josh Buettner.

Next, the Market to Market report.

The weather, economic news and the Russians shooting missiles at Ukrainian ports pushed the market higher. For the week, the nearby wheat contract jumped 49 cents, while the September corn contract sky-rocketed 52 cents. Predictions of hot and dry weather along with the prospect of biofuel incentives in the Inflation Reduction Act bumped the nearby soybean contract 53 cents higher. September meal rose 43.10 per ton. December cotton added $5.85 per hundredweight. Over in the dairy parlor, September Class III milk futures added 26 cents. The livestock market was mixed. October cattle shed 77 cents. September feeders cut $2.93. And the October lean hog contract put on 90 cents. In the currency markets, the U.S. Dollar index fell 80 ticks. September crude oil gained $4.12. COMEX Gold improved $41.70 per ounce. And the Goldman Sachs Commodity Index improved nearly 28 points to finish at 693.15.     

Kohlsdorf: And joining us now to provide some insight on all of this is Mark Gold. Welcome back.

Gold: Nice to be here. Nice to see you.

Kohlsdorf: Yeah, nice to meet you, Mark. We'll start with some big economic news that has been putting some pressure on the markets. We had earlier in the show that the GDP fell for a second quarter in a row and a lot of economists believe that this is sort of the mark of the start of a recession. How is this weighing on the grain markets?

Gold: Well, we've had a pretty good rally despite all this bad news. We had interest rates go up, we had the GDP and the grain markets still had a pretty good rally. So it hasn't had much of an effect. Is it a recession people are asking? Yes, it's a recession. And they may come back and change these numbers. They're always famous for the next quarter revising the numbers. So maybe the point nine isn't a point nine, who knows. But this is what we're living with right now. It is what it is. But I haven't seen it so far take a big toll on the grain markets.

Kohlsdorf: Yeah, wheat really had a rally this past week. What has been the main driver with this? Is it the news that Ukraine could start exporting grain again?

Gold: Well, I think it has been a couple of things. If I was sitting in this chair a week ago when the grains were on their lows and everything looked pretty miserable, if I would have told you soybeans, November beans would rally $2 a bushel, corn and wheat 75 cents a bushel, people would have said I was crazy and rightfully so. But what happened? That's what happened. Now, the wheat rallied because no sooner than the Russians signed the agreement on Thursday at some point, they were firing missiles into Odessa. So is the agreement for real? Nobody knows. Now, we do know that there's at least three ships ready to move out of port over the weekend and there is a fairly long line waiting to come in too. Now, do the Russians fire on those ships? If they do, wheat will take off again in a big way next week. Putin knows how to play these markets as well as anybody and I think that is part of what is going on out here. It looks like maybe as we saw a big break on Friday from Friday's opening to Friday's close in the wheat that maybe things are going to open up a little bit. We know, somebody came out with a comment today that Crimea has exported 50 times the amount of wheat that they would normally export at this time which tells me that the Russians are selling stolen Ukrainian wheat and they're selling it out of Crimea. So there is wheat coming to the market and I think that is going to continue to be part of the story. But as we know, we harvest wheat somewhere every month around the world. And as those supplies come in, things I think will make it a little bit tougher for the wheat market to rally. But if there's a missile on a ship any time soon, wheat prices will react to that in a positive way.

Kohlsdorf: Everyone keeps calling it a fluid situation and it is. So there are also reports that the EU and Russia, their yields are much less than expected. Will that also be weighing on the market?

Gold: Well, I think the EU has certainly had some problems. France has been burning up, Germany and Spain have all had some problems. The Russian crop isn't that bad. They're looking at record exports. So I don't see that Russia is that big of a problem. But the question is, who is going to buy it? How are they going to pay for it? Are they going to pay for it in rubles? That has been probably one of the biggest surprises in this whole Russian deal is after the war hit and two or three days later the ruble is nearly worthless, now it is significantly higher than before the war and that is because Russia is demanding payment in rubles and people are chasing around for rubles. But the fact of the matter is, whether it's Russia, the EU, we'll still be harvesting wheat around the world. Sooner than we would think the South American crops will be a factor. And we're going to be a factor here. I look at the crop ratings on winter wheat being around 30% good to excellent all year yet we're still going to have a pretty large crop considering the crop ratings. Now it's not going to be a great crop but people are talking about the yields on corn and beans right now, they're hurting no question, but the ratings are still 60. Maybe they'll drop below 50 here this week, I don't know. But the fact of the matter is we can still have pretty good crops even with low crop progress ratings on a weekly basis.

Kohlsdorf: That kind of brings us into weather, the long-term weather forecasts are showing really dry and very little rain and the models have all kind of had agreement on this. Is that the thing pushing corn right now?

Gold: Well, I think that has been the biggest thing for soybeans and corn since last Friday when we had those lousy closes. The forecast changed hot and dry into the first week to 8, 10 days of August. Not going to have as much of an impact on corn. But right here in Iowa next Wednesday you're looking at 104 degrees. That is fairly unprecedented. It's 97, 97, 100, 104 and then starting to come back down. The West Coast of the country they're talking about 109 degrees in Washington State. Idaho, Washington State, Oregon all having extremely high temperatures. Not that that's going to have a huge impact, maybe a little bit more on the spring wheat than anything else. But the heat, when you look at these forecasts, that is what made this market move. That is why November beans moved almost $2 a bushel in five trading days. But we have to keep in mind that the market knows this, it's in the market, I think it's one of the reasons we backed off today later in the sessions and we've had a nice run here. And weather forecasts can change as we all know. What looks hot and dry today -- the forecast I saw just this afternoon looked like there were good rains pushing through Kansas, Nebraska, Tennessee, Kansas -- Tennessee, Arkansas, Kentucky, all areas that needed rains. Now, they've had some flooding but the fact of the matter is some of the really dry areas are getting some good rains. So there's a little bit of a balance here and we'll see if the forecasts hold up.

Kohlsdorf: Well, and that kind of leads us to our Twitter question. So with the 2-week forecast ahead very hot and dry, even though there is some rain as you mentioned, all other fundamentals known where does the price go from here in the next few weeks? What about winter and spring prices?

Gold: Well, if I knew that I'd be long retired by now. But I can say that we put a lot of this into the market early, we react early, the media is on top of it so all the news is there and you see these forecasts and the heat dome and certainly if the weather holds hot and dry next week we could move higher. If the funds want to add to their long positions in corn and beans the can certainly do that. Where do we go fall, winter? I think whatever crescendo we hit, we'll hit it really in the next week or 10 days is my guess unless we get to the third and fourth week in August and those predictions are hot and dry and the models were all in agreement with that. We make the beans in August. We don't make the beans in July. We're still in July. Yes, it's going to hurt. We're pretty much getting through pollination now in a lot of the areas so heat isn't going to have as big an effect on the corn but on the beans that could be a different matter. So if we do get hot and dry those last two weeks of August we could certainly move them higher.

Kohlsdorf: Yeah, is the heat dropping any notion of record crops with beans right now?

Gold: Well, I still think you could have a pretty good bean crop. Are we going to be 150 something, excuse me, 177 on the corn yields? Probably not. I saw one estimate yesterday 175 but we've had some rains and now it's going to get hot and dry again. Is that going to hurt it again? I was talking to somebody at a conference today and he was betting on 170. I don't think we're going to go that low, I really don't, unless it really gets furnace hot and virtually no rains. But it's still a weather market, we're still in July and August and we're still subject to the heat.

Kohlsdorf: Yeah, all right well we'll move on to cattle. So, temps yes in the triple digits expected this week. Is the cattle market feeling the effects of the heat?

Gold: I think there's no question about it. We've moved a lot of cattle into the system to get them off the feed. There's no feed in a lot of areas so they've got to bring these cattle in. We know that there are some losses out there. Black cattle can't handle this heat so they're going to slaughter. As we push forward, where are we going to get the numbers from forward? We saw that the cattle numbers themselves are a little bit lower than a year ago. We did see placements a little bit higher than were expected and that put the feeder cattle market under some pressure. But as much as anything else the feeder cattle market has been following the corn market. The corn breaks, feeder cattle rally, the corn breaks, we get the rallies, if corn moves higher we see lower feeder cattle prices. But overall the charts don't look all that bad to me in either cattle or feeder cattle. The boxed beef demand has been strong. Cash prices up to $145 in Iowa this week. So those are good prices. Yeah, it's $137 in Texas, it's $138 in Kansas, there is a big disparagement between northern and southern cattle and I think that is because those southern cattle are coming into market. But once that gets cleaned up I think we can see futures and cash prices move higher around the country.

Kohlsdorf: Okay, well you kind of answered my question about what is kind of pushing the feeder market around, higher corn prices. With recession concerns, how much is this going to impact consumer demand? You have a minute.

Gold: Well, I like to think that the demand is going to stay pretty strong for beef. The stock market, we talk about recession, but the stock market has been on a pretty good rally the last three days after the interest rates were announced, after the GDP. We're moving significantly higher. That is telling us that the market is less concerned about a hard deep recession. It may be a smaller long-lasting recession. And that I think is a little bit friendly for the markets because everybody has been so bearish maybe that is what we're seeing out here. So even with recession I'm hopeful that the cattle market can stay and stay good and see some good demand out here. Stock market is strong, people have money to buy more beef.

Kohlsdorf: All right. Thank you, Mark.

Gold: Thank you, it's a pleasure to be here.

Kohlsdorf: Yeah, nice talking the markets with you today. All right, well we will continue the conversation with Mark and answer more of the questions you’ve submitted in our Market Plus segment. You can find it on our website of MarketToMarket.org, in podcast form and on YouTube. All of these resources are free. It’s hot out there, we talked about that a lot today and it is for much of the country. You can help us see how your summer is going with a few shots from around the farm. Post a few pics, tag them @markettomarketshow and then give us a follow. Next week, we look at how container ships get a new port of call in the Great Lakes. I’m Brooke Kohlsdorf. Thanks for watching and have a great week.

(music)

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

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

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

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

(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)