Market to Market - August 5, 2022

Coming up on Market to Market -- Kentucky starts the recovery process after devastating floods. The federal government allocates billions to fight climate change. Container ships get a new port of call in the Great Lakes. And market analysis with Shawn Hackett, 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, August 5 edition of Market to Market, the Weekly Journal of Rural America.

(music)

Hello. I’m Paul Yeager.

The job market refuses to cooperate with conventional wisdom or talking points about a looming recession.

It was another robust month for adding jobs. In July, 528,000 new positions were created.

The unemployment rate moved down to 3.5 percent, the lowest since the pandemic struck in early 2020 which matched a mark set half a century ago. 

The Commerce Department said the trade deficit decreased 6.2 percent in June on record high exports of American natural gas, aircraft and foods sent abroad.

Now to the story of extremes.

The White House announced this week a plan to combat climate change on many fronts.

Hot and dry weather baking much of the Grain Belt is not news in August, but 14 inches of rain in 12 hours in Newton, Illinois drew some attention.

In Kentucky, the site of last week’s major rain that has been compounded with more this week, recovery is just beginning.

Peter Tubbs leads off our coverage.

Cleanup continues in Eastern Kentucky, where flooding killed 37 people last week. Over 1,300 people have been rescued by various agencies, with over 400 being rescued by aircraft. Several thousand residents are still waiting for power and drinking water to be restored.

Between eight and 10 inches of rain fell on the region in a 24-hour period as a series of training thunderstorms - storms that follow rapidly one after another - passed over the region. Another four inches fell on July 31st. 

The National Weather Service in Jackson, Kentucky reported its wettest July on record, with a total of over 14 inches of rain in the month.

 Water systems in multiple towns were destroyed, and multiple roads and bridges will need expensive repairs. Thirteen counties in Eastern Kentucky were declared disaster areas by the Federal Government. State officials are utilizing lessons learned when a series of tornadoes struck Western Kentucky in December of 2021.

Climate scientists suggest that heavy rain events are becoming more common as the earth’s atmosphere warms, increasing its capacity to hold moisture. 

For Market to Market, I’m Peter Tubbs and I’m Josh Buettner.

This week, the Biden Administration detailed efforts to respond to the kinds of flooding disasters in Kentucky and wildfires currently raging in states like California - which officials claim have been exacerbated by climate change.

Vice-President Kamala Harris: “Today, our administration is investing more than $1 billion through FEMA to fund climate resilient projects in 343 cities, towns and counties around our nation.”

Along with $160 million for flood mitigation assistance, the move doubles spending on the Building Resilient Infrastructure and Communities, or BRIC, program announced by the president last month as part of $2.3 billion in funding to support state, local and tribal projects which reduce climate-related hazards said to help spur extreme weather.

Drought has gripped a majority of the American West throughout the spring and summer of 2022, but biologists say decades of arid conditions and overuse have depleted the Rio Grande - one of North America’s longest rivers.  The U.S. Fish and Wildlife Service has been relocating silvery minnows, whose habitat is literally shrinking, from shallow pools of water adjacent to the drying waterway.  The government has stocked the endangered species in the past, but researchers say natural ecosystems are trending toward collapse.

John Fleck/Water Policy Researcher/University of New Mexico: “Climate change is coming at us so fast right now that it’s outstripping those tools that we have developed over the last few decades.”

Biden also declared a federal emergency last month after the U.S. Virgin Islands warned of unusually high amounts of sargassum, an invasive brown algae the United Nations attributes to rising water temperatures, nitrogen fertilizer and sewage runoff.  The seaweed has plagued a desalination plant there struggling to meet demand amid drought, can kill wildlife and has dented the Caribbean tourism industry.

So far, Jacksonville, Florida and Miami-Dade County have both received federal funds to alleviate flooding and beef-up infrastructure near areas which generate significant economic activity.

Vice-President Kamala Harris: “We can build a more resilient future.  That’s within our sights.  And in the process, yes, we will create millions of good jobs in the clean energy economy.”

The first grain tanker left a Ukrainian port in six months this week - signaling progress in easing a global food crisis. 

Then Friday three more ships left with corn bound for Ireland, the UK and Turkey.

American ports have been pivoting in an attempt to relieve backlogs. Some of those new thoughts and methods for delivering goods have come to the Great Lakes region. 

Colleen Bradford Krantz reports in our Cover Story.

Chippewa Valley Bean Company, the world’s largest processor and exporter of dark red kidney beans, initially didn’t worry too much about the transportation disruptions tied to the COVID pandemic. Company executives assumed it would be a short-term problem.

But when a year had passed and their 75,000-square-foot Menomonie, Wisconsin warehouse was almost overflowing with Midwest-grown kidney beans they couldn’t ship to their customers, they became increasingly concerned.

Josh Bronstad, Chippewa Valley Bean Company: ““We have probably 20 loads to bag yet, but I'm out of pallets so I have to ship out before we can bag those.”

Traditionally, the company’s main export route was trucks to the Twin Cities, railcars to the Port of Montreal, and, ships to final destinations in Europe and other points around the globe. Delays during the pandemic’s first year were caused by labor strikes and work slowdowns at the Montreal port, by a shortage of shipping containers, and, after Chippewa Valley Bean tried to get product out of East Coast U.S. ports, by a months-long backlog in Chicago’s already overwhelmed container rail depot.

By the time two years had passed, the situation had gotten worse. The fall 2021 crop of dark red, light red and white kidney beans was arriving from the fields of Wisconsin, North Dakota and Minnesota, threatening to flood an already full warehouse.

Cindy Brown, President, Chippewa Valley Bean Company: “Now the container shortage is just really, really bad. We cannot locate containers at all. So we had a freight forwarder that worked with us and we just started bringing containers outta Chicago ourselves…Chippewa paid for that out of our own pocket. Okay. We're loading containers. Now we think we've got that problem solved…Wrong. CP Rail, because there weren't enough loaded containers coming into Minneapolis, they weren't taking containers back out.”

Brown says they assumed the limits on containers leaving the Twin Cities on Canadian Pacific Railway, which began around Thanksgiving 2021, would ease after the holiday rush.

Cindy Brown, President, Chippewa Valley Bean Company: “They didn't. It just slowed down. It slowed down through the first of the year. And it got to the point where CP was only taking 100 containers a week, 20 containers a day, out of the entire Minneapolis area. You know, that's everybody in North Dakota, that's Minnesota, that's western Wisconsin, that's Iowa. I'm like, ‘Come on, folks. What are you thinking? We can't live like this.’”

Finally, this summer, Chippewa Valley Bean found a stop-gap solution that may provide long-term relief for other Midwest companies facing similar shipping barriers.

That solution came in the form of the Port of Duluth-Superior. A place not previously known as a significant container-exporting location.

Jonathan Lamb, president, Duluth Cargo Connect: “The Chippewa Valley Bean shipment was our first export container move. We’ve certainly exported other commodities, but not containerized before.”

The Duluth Seaway Port Authority, a public entity working with a private warehousing company under the shared name Duluth Cargo Connect, had already spent about five years and $35 million on infrastructure improvements that would mean better rail-to-water service. They saw an opportunity to leverage those improvements by seeking federal approval to handle larger dedicated container ships for importing and exporting.

Jonathan Lamb, president, Duluth Cargo Connect: “Cleveland…had already been grandfathered in because they were doing a unique container program over there. No other port on the Great Lake side of the U.S. was set up for that so we went ahead and completed that regulatory step and added an inspection station here at our facility with U.S. Customs. That approved Duluth to be the second port on the Great Lakes to handle containers….A few years ago, it didn’t matter as much because the supply chain was pretty smooth in the world, right?.... But it’s significant because we can offer an alternative to the coastal ports.”

​A company called ​Nexyst​ had already been working on the development of field-to-customer shipping​ ​containers that will control humidity and​ ​temperature while tracking location​.​ Nexyst accelerated its​ modified container ​preparations once ​company founder Dennis Pap realized they might be able to help solve ​Chippewa's shipping problems using the ​Duluth port​​.

Jonathan Lamb, president, Duluth Cargo Connect: “Between him and then you take a Chippewa Bean that was really willing to try something new in their supply chain, you couple them with what we did to get set up regulatory-wise, it was the perfect recipe of everybody working together to create something new and different.”

 

An overdue shipment of 194 Nexyst containers of kidney beans went out of Duluth on the 453-foot-long Nunalik in May this year.

Jonathan Lamb, president, Duluth Cargo Connect: “Everybody was busy, but, at the same time, there was quite a bit of pride in seeing that happen. No doubt about it.”

Chippewa expects a repeat shipment out of Duluth or Cleveland this fall.

Going forward, Lamb says they don’t expect to compete at a scale with the much-larger coastal ports, especially considering that the St. Lawrence Seaway’s winter ice means the route to the ocean is closed two to three months each year. But officials with the ports of Duluth and Cleveland hope to serve regional customers like Chippewa Valley Bean when they are faced with a warehouse full of product with nowhere to go.

Jonathan Lamb, president, Duluth Cargo Connect: “We’re not gonna be an LA/Long Beach, you know. We’re just not. We’re not gonna be a Seattle/Tacoma, and that’s okay. I think our feeling is we have a unique niche service that we can offer here that’s probably a higher-end service, more customer friendly than you’d get through a bigger coastal port… We don’t expect anybody or want anybody to take all their eggs, all their product moving and put ‘em in one basket with us with us, but we can be a relief valve.”

Cindy Brown, President, Chippewa Valley Bean Company: “I think our Great Lakes are not being utilized as much as they might be able to…Whether it’s Cleveland being able to ship out of that area to go into Europe or it’s the Port of Duluth, I’m hopeful that will continue on because… we’ve got this whole pressure cooker of transportation issues and it’s one more viable route that relieves some of that pressure.”

For Market to Market, I’m Colleen Bradford Krantz.

Next, the Market to Market report.

First it was the heat, then it was the Chinese influencing the trade this week. For the week, the nearby wheat contract lost 32 cents, while the September corn contract sold-off 6 cents. Soybean meal led a late week bull parade that failed to off-seat early losses in the soy complex as the nearby soybean contract dropped 24 cents. September meal shed $4.90 per ton. December cotton shrank 61 cents per hundredweight. Over in the dairy parlor, September Class III milk futures declined $1.06. The livestock market was higher. October cattle added $1.65. September feeders improved $1.88. And the October lean hog contract put on $1.17. In the currency markets, the U.S. Dollar index strengthened 65 ticks. September crude oil dropped $10.14 or ten percent. COMEX Gold rallied by $9.10 per ounce. And the Goldman Sachs Commodity Index tumbled by more than 38 points to finish at 654.90.

Yeager: Joining us now to provide some insight is Shawn Hackett. Mr. Hackett, hello sir.

Hackett: Hey, Paul. Always, always a blast to be on this show in Iowa talking agriculture, weather and prices.

Yeager: Ah, the weather. We could talk about the weather all day. Let's talk about the harvest in the wheat market first and then we'll get to the weather in the other markets. We're about 81% complete according to USDA on Monday. Is this harvest pressure on the markets when it comes to wheat?

Hackett: I think it's more harvest pressure from the Russian harvest because that's the record crop that is coming, that is where the big exports are starting to kick in. Of course, Ukraine starting to make some shipments, psychologically it doesn't help the market. I think we're done with the harvest pressure domestically. I think it's really overseas that we need to get through a little more of that before we can see that back off.

Yeager: So is wheat the biggest, not going to say benefactor because that's not what you're saying, the loss is going to be impacted the most by these ships starting to leave Ukraine?

Hackett: I think it has been impacted. Remember, we came from $14 all the way down to under $8 so when you look at a percentage decline wheat has been the biggest one that has been hurt by these psychological shipments that may get larger. We're trying to figure that out, no doubt. But that is old news now priced into the market. We always need to look ahead.

Yeager: So, looking ahead, where are we headed?

Hackett: I believe the grain markets as a whole including wheat are carving a bottom here in August. We think most of the bearish news on strong dollar, bearish macro, bearish picture overseas has all been factored into this big decline and we think we're getting to a point where the market is going to start to price in some less bearish news ahead.

Yeager: Is it double digit news ahead? Are we going to be back over $10?

Hackett: Well, when I look at the wheat market I look at the drought that is in the winter wheat areas and I look at what planting is going to be coming up here in September and October and I'm really, really worried we're not going to be able to get that crop planted the way that we need and that could be the next major catalyst that takes this market and puts some weather premium back in.

Yeager: You've had a chance to survey some of the corn market here in Iowa this week. Those that live it see it out their back door. You drive by it at 80 miles an hour it looks the same everywhere. As I said to you before we taped, the lawns are the only thing that is different. What is really out there right now in corn?

Hackett: My impression of the crop, and it's always based upon temperature because temperature is the most important factor in determining whether yields can make trend or not, we've been too warm this summer yet again, over two degrees above normal. That means trendline yield crops are not possible, still okay, not the worst crop ever, but not a trendline yield crop, something in the mid-170s but that's not enough to put big ending stocks back into the U.S. supplies and put that buffer stock that we've been lacking for the last couple of years. That means to me, once again like wheat, the corn market is going to be carving itself a low here as we move to the other side of this.

Yeager: Carving a low. How much more low do we have before we hit the scalpel's edge?

Hackett: I think that mass liquidation event that we had, that big macro where all the speculators were selling and everything was crashing and we got corn in that mid-$5, $5.60 area on December corn, I really feel that mid-$5 area is going to be very, very hard to find a reason for the market to spend much time below that.

Yeager: Are we going to be able to get back up to $7 on corn on new crop?

Hackett: I think there's a really good chance that we will. With the lack of building stocks here in the U.S., La Nina is still with us, it's hanging on, we know it has not been kind to South America crops the last two years. We're going to have some of those tentacles coming in there in the first growing season. The market is going to worry about all of that like it has and I think that puts some weather premium back in and provides a reason for that kind of a price level to be had.

Yeager: We have a question that came in, Shawn, via social media. Greg wrote to us via Twitter -- and you're always welcome to do it @MarketToMarket. Shawn, he wants to know, for those of us with a few gambling bushels left, should we close our eyes and just sell it or be ready to pile new crop on top of it?

Hackett: Well, as you know, Paul, the last time I was on the show on April 29th I was a bear and I'm usually more optimistic about things and I said the time to really make sales and get the job done was in May. I don't believe the time to make aggressive sales is now unless you absolutely positively have to do it. What your question is telling me is someone who doesn't actually have to sell, he can hold off for a while and wait for some better times. I don't believe selling here in August is going to prove to be a good time to monetize farm income.

Yeager: So you could be telling those that did sell everything and had nothing left to sell, you probably made the right decision?

Hackett: Everyone who has sold at higher levels, you've done very, very well and I think you made the right move. But if you still have some, and farmers always have some, they didn't know the crop size or that sort of thing, I think you're going to get a better opportunity in the fall to do something smarter.

Yeager: The Chinese were interested in U.S. grain. The bean market jumped dramatically on Thursday but we had dug ourselves a pretty big hole earlier in the week. Why?

Hackett: Well, we had all this heat that was supposed to come in, we talked about this before the show, 105, 110 degrees and then all of a sudden the weather models backtracked and said nah, mid-90s. And the difference between a mid-90 temperature and 105 temperature for soybean during pod filling in August is dramatic. That took a lot of that excitement off the table. At the same time, when we talk about what is going with Taiwan, Pelosi's visit, the geopolitical things that are going on there, if they are ultimately going to go into Taiwan, and let's say that's what they're ultimately going to do, I would think they're going to want to get their inventories up really high before they do.

Yeager: But why does that rumor come out? The Speaker had barely been gone from Taiwan and all of a sudden there's these whispers of China is buying. That is an actions word thing there that was confusing to me.

Hackett: We always say, I always say don't listen to what the Chinese say, always watch what they do. They said a lot of things on TV but what they did was they bought U.S. grain. I think that says a lot about where they're really at.

Yeager: Okay, so they bought it but normally if they say they're going to buy the market rallies. But if they're trying to buy, they don't want to buy a rally, they're trying to say we're not interested.

Hackett: I think they're aware that U.S. crops are not going to be as good as they should have been. And I think they are aware of their intentions. They probably have a much better idea what they're going to do with Taiwan than I do. And if they are looking at longer term and thinking we're way off from the highs, Paul, these are some of the best prices we've seen since last year, why not starting making some bids now while the getting is good?

Yeager: All right, so are you seeing a rally coming in our future here for new crop beans?

Hackett: I do.

Yeager: How big?

Hackett: Look, I think the soybean market can rally I think a couple of dollars here from where we are. We already had almost a $2 rally on the hot and dry weather. We could tell quickly this market was willing to respond to anything going wrong. We get anything going wrong in South America at all with a short soybean crop here in the U.S., it wouldn't take much to think we could put that premium right back on.

Yeager: All right, we're in a bearish trend in the cotton market. Is that going to continue?

Hackett: The U.S. crop looks so bad and the Indian crop is looking not as good. I just don't see how this market, even with the worries over end user demand because of the economy and all of the slowing down, all that stuff, I just don't see how this market is going to find a way to go below 85 cents where it has already been. I think we're going to find that the demand will be good enough there to handle the lower demand that is coming. So, hurricane season is coming, lots of times we get weather spikes during hurricane season. It's been quiet so far. But August 15th to October fires things up, it wouldn't surprise me if we could get some of that volatility to the upside here.

Yeager: We'll get your dairy take in Market Plus. I want to move to the cattle market. Is this a seasonal rut that we're in? Or is this only responsive to grain?

Hackett: Well, certainly the feeder cattle market obviously clearly reacting to lower corn prices that we've seen. But when you look at the chart of the fats we actually broke over at $149 in that December contract, which was really an important benchmark for us on the charts. It looks to me like we might be shifting finally from this herd liquidation cycle that we've been in forever to maybe moving into this herd rebuilding cycle that takes these animals off the market while demand is looking for it and maybe, just maybe the cattle producer is going to get the upper hand against the packers.

Yeager: Did you just review your April comments and say -- because you said, if I remember correctly, Shawn, August you see a rally in livestock and here we are, we've had a rally in livestock. What is the rally -- which one is going to have a bigger rally, the feeder market or the live cattle market?

Hackett: The feeder cattle market always has the bigger rally at the beginning of a major move in the cattle complex when you're going through herd rebuilding cycle and it has outperformed and I think that will continue to be the case. The second half of a move in the cattle complex, the fats take over the leading edge. So I still think if we're looking at performance, the feeders are still going to be the super charger here for a while.

Yeager: What about these sales of hogs to China and Mexico? What does that mean for the hog market?

Hackett: Well it's good news. We looked at the hog price in China, I think we mentioned this last time, and it has been continuing to strengthen. We looked at copper prices in China strengthening, lumber prices in China strengthening. So although we've been worrying about demand from all the shutting down of these 500 million people, the domestic prices, they say demand is coming back like we should expect to see a resurgence of demand for things like pork, meat proteins and chicken. And I think that getting that Chinese demand back when we still have very low animal feeding units based upon the last numbers from the USDA spells a good tailwind for higher prices heading into the fall and into the fourth quarter.

Yeager: So we have the story about the trade deficit reducing. Food was a big part of it, foodstuff what we produce in grain country, but also what we produce in the livestock country. Global exports you say higher. What about the domestic demand? Because let's talk about the chicken wing, that has fallen in half. You mentioned lumber, that has fallen dramatically. What is our domestic demand in 30 seconds going to do here in the rest of 2022?

Hackett: The market has already priced in a much weaker U.S. demand story. I believe that is the past. When I look ahead and I look at what I'm seeing from leading indicators like copper, like the inverted yield curve and what we heard from the Federal Reserve that they're going to now be on more of a data focus, I think we're looking at a better looking outlook for demand going forward than we currently priced in.

Yeager: Shawn Hackett, thank you so much.

Hackett: Thank you, Paul.

Yeager: Appreciate the time. I'm going to put a pause on him for just a moment because we're going to keep this analysis going and talk to Shawn and answer more of your questions, it's right over here, that you submitted for our Market Plus segment. You can find that on our website of MarketToMarket.org in both podcast form and also on YouTube. By the way, all of these resources, they're free. And speaking of podcasts, because that's what you do in them, you speak, we have three for you to consume, follow and share, the Market Analysis, Market Plus and the MtoM provide new episodes each week. And next week, we're going to look at the fight over water rights in the high plains. Thanks for watching. See you later.

(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)