Market to Market, September 30, 2022

Coming up on Market to Market -- Hurricane Ian leaves a path of destruction across Florida. A third pass at a law protecting animal producers is sacked in court. As harvest begins in earnest, we check the progress. And the impact with market analysis from Angie Setzer and Chris Swift, 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, September 30 edition of Market to Market, the Weekly Journal of Rural America.

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Hello. I’m Paul Yeager.

After a year of rising inflation, a growing chorus is concerned that the Federal Reserve’s attempts to take the steam out of inflation, may force a recession. 

Durable goods orders, the measure of spending households make on items that are intended to last, fell slightly in August. 

That fall was countered by a 1.3 percent rise in Core Capital Goods, investment by businesses to make consumer products, suggesting that businesses are continuing to fill orders from their customers.

The Personal Consumption Index rose 0.6 percent in August as consumers continued to spend in the general economy. Core PCE, with volatile food and energy removed, also added 0.6 percent in August. 

Ian was the first hurricane to make landfall in the U.S. in 2022. Millions were without power initially and more than a dozen were killed in the storm. 

Ian came ashore in Florida on Wednesday as one of the strongest hurricanes in U.S. history.

The category four system slammed the western Florida city of Fort Myers before moving northeasterly across the Sunshine State.

When the clouds cleared, aerials showed the wide-spread damage to homes. Boats thrown like toys across harbors and into inland areas.

Major infrastructure damage was done to roads, bridges and access points to islands. Here at the Sanibel Causeway, the entire road crumbled under the storm surge. More than 6,000 people live on the barrier island.

Ian’s forecast pushed orange juice futures higher in anticipation of the storm. The full extent of damage to the fertilizer and beef cattle industry is still being assessed.

Those who rode out the storm were fortunate enough to tell the tale of survival.

James Burdette, North Fort Myers, Florida, resident: "I stayed here as long as I could until I got scared for my life and went across the street in a brick home, which the three little pigs, they built them out of block, it's supposed to stay. Mine was build out of sticks. It didn't last too long when the big bad wolf come and puffed it away. But I literally watched my house disappear with everything in it right before my eyes."

The system moved back over the Atlantic Ocean and has regained hurricane status Friday putting all of South Carolina’s coast on alert.

Gov. Henry McMaster, (R) South Carolina: "Doesn't make much difference whether this comes in at hurricane strength or below it, storm strength or somewhere on the line. It's going to be blowing strong winds. It's going to be all over the state at different levels, as you can see if you go and look at those maps. But we know we're going to have a lot of water."

For Market to Market, I’m Peter Tubbs.

The question of whether animal rights activists can legally photograph or record living conditions in farm animal buildings has been debated for more than 30 years. While activists paint themselves as “whistleblowers”, agricultural interests describe the activists as “trespassers” at best and “terrorists” at worst.

A federal court this week weighed in on one of the many laws aimed at criminalizing these activities. David Miller reports.

A law prohibiting undercover recording inside Iowa’s animal production facilities was overturned in federal court this week. U.S. Southern District Court Judge Stephanie Rose determined the measure violated the right to free speech under the First Amendment.

Five groups including People for the Ethical Treatment of Animals and Iowa Citizens for Community Improvement sued the state over what they call an ag-gag law. The groups claim the law endangers workers and keeps the public from seeing how farm animals are treated.

Lawyers for the state argued intruders could track in disease and unfairly portray livestock practices. They also contended free speech was not violated because the 2021 law applies to speech on private property where the First Amendment’s protections are significantly diminished. They said the interests of the farmer override any free speech concerns of the animal rights groups involved in criminal trespass.

A spokesperson for Iowa Citizens for Community Improvement, hailed the decision as being a huge win for food workers and advocates in Iowa.

The state may appeal the decision to the 8th U.S. Circuit. A spokesman for the Iowa attorney general's office, which represented the state, said they are still reviewing the decision. The governor’s office did not return Market to Market’s request for more information.

This was the third version of this type of law passed by the Iowa Legislature in the last decade to be overturned in federal court.

For Market to Market, I’m David Miller.

Next, the Market to Market report.

Despite disappointing early returns from the combines, the grain markets were mostly sideways waiting on Friday’s USDA stocks report. For the week, the nearby wheat contract added 41 cents, while the December corn contract gained a penny. The country’s pile of soybeans was larger than traders anticipated. The November contract sold off 61 cents. December meal dropped $20.30 per ton. December cotton shrank $7.20 per hundredweight. Over in the dairy parlor, November Class III milk futures lost 9 cents. The livestock market was lower. December cattle shed $1.50. November feeders cut $3.62. And the December lean hog contract decreased by $6.57. In the currency markets, the U.S. Dollar index cut 77 ticks. November crude oil improved 86 cents per barrel. COMEX Gold added $21.00 per ounce. And the Goldman Sachs Commodity Index increased by almost 2 points to finish at 606.80.

Yeager: Joining us now to provide some insight is Angie Setzer and Chris Swift. Welcome back you two.

Swift: Thank you very much.

Yeager: Good to see you. Let's start with you, Angie, on wheat. I'm looking at how this market shrugs off a higher dollar. It tries to shrug off, we don't know what's going on in Ukraine and Russia. What is the range and the driver of this market right now?

Setzer: Well, wheat is a big driver -- the dollar has been a big driver when it comes to wheat and obviously the situation in the Black Sea continues to remain a wild card. Russia's crop size continues to increase just about every day. I think they're up to 101 million metric ton. And of course folks are arguing about whether or not that includes a third of Ukraine's wheat or not and this and that and the other thing. But the reality is the market kind of removed all of the war premium when we had the grain corridor announcement and things of that nature, we basically reverted back to the prices that we had seen prior to the invasion on the idea that we were going to see, I think we maybe thought okay, well this will kind of simmer as a conflict for a while in Eastern Ukraine and it won't impact the movement of grains and things of that nature and so you saw the markets really back off. And suddenly when Ukraine kind of did the counter offensive you saw things change greatly. And so now here we sit, we wait to see what Russia is going to do this weekend, how far they're going to move to enforce their "annexation" of those territories. 18% of Ukraine's territory falls under what Russia says is theirs now. And so basically we've kind of escalated the situation. The idea I think the market is factoring in that the grain corridor shuts down at the end of November. And so we try to trade from $7.40 to $10 or so or something of that nature? I think it will be awful hard to test old highs without some sort of continued weather issue elsewhere. But this wheat market is going to stay stout, everything is going to stay stout, just on the uncertainty and the unknowns of what Putin's next steps will be.

Yeager: The USDA report today kind of a put a little jolt into wheat. Why?

Setzer: Production came in 128 million bushels lower than what traders were anticipating, which is surprising to me as a soft wheat trader over here. Our wheat spreads are probably the widest that we had seen or at least were at harvest time providing the best opportunities for carry that we had seen in quite some time indicating that demand was a lot less than what the current supply structure would have looked like, at least at the harvest time. So I was a little bit surprised to see soft red wheat lowered. But all wheat classes were lowered. Even Durham was kicked down 10 million bushel. And so that really caught traders off guard and by surprise and that combined with Ukraine kind of asking to join NATO today and possibly further intensifying the situation that we're up against in the Black Sea and then of course coming into the weekend with Russia announcing the annexation, those three things combined we were off to the races.

Yeager: What about in corn? That report put positive, more green for the end of the week. Harvest condition, it's going to happen in a hurry here. What's the early returns?

Setzer: So far, and people probably won't want me to say this out loud, but I’ve heard a lot of better than expected or at least as expected. So the areas that were exceptionally dry and very hot and were dry land and sandy bottoms or whatever, that was exceptionally poor. I think some folks have been caught off guard, I think some of the yields have been better than expected across a good portion of Illinois, hearing a lot about ear weights and things like that going a long way. But it's very early. And some of our worst yields always are in the start of harvest. So of course maybe this is better than expected. We'll have to see how it carries on going forward. But so far yields as or maybe even a little bit better than expected. But super early.

Yeager: What do you think on range wise here given that as we look forward on this contract? We're right now below 7. Is that our top?

Setzer: I think without something else pushing us. Now, if we see Russia do who knows what this weekend, that remains the wild card. I think that keeps us kind of, I think at least until we get the USDA October numbers. So we're going to be waiting to see what the USDA has to say, we're getting a lot more information, a lot more use of the ear weights and things of that nature to give us a little bit further insight into what they think yield will be. And so I think unless we see something change in the Black Sea situation or we see something significant change with yield outlooks in the October report, I think we could be range bound $6.50 to $7 for a while. But I do, I am nervous about the strength in the dollar and the slow export pace and the macroeconomic headwinds that we're facing. At some point I keep thinking we're going to come in and folks are going to kind of pull the plug on this thing. Now, the USDA has kind of continued to give us reasons as to why and it's not the USDA obviously, the supply is less than what we were anticipating. But we've just got to kind of keep an eye on it and the fact that we're a dollar some higher and it could move quickly with everything that is going on in the outside markets but until then, yeah, I think we remain pretty tightly range bound and try to figure out which direction we have to go from here.

Yeager: Chris, it sounds like she's been reading some of the stuff you've been writing. You talk about that higher dollar, you talk about the economic headwinds. What's the cattle producer think in you when you hear what Angie just said about some ranges?

Swift: Well, when we look at we put $30 on the feeder cattle index this past summer and now going forward there was expectations of maybe being able to expand if the drought broke. And now that those expansion ideas are at least put off until the spring of the year, now we have to contend with higher corn prices. And as she stated, in the overall economy there's some significant headwinds that have been impacting the beef market and we've seen some shifts in that as boxed beef has fallen under 250 now, we've already seen the packers start to cut back kills. They're trying to keep that margin from eroding as fast as they can and right now it has been a pretty quick erosion. So anything that they can do to slow it is probably going to back cattle up and maybe not have them bring as near highs as what they have been.

Yeager: We have an interview coming next week, Chris, with a producer in Oklahoma talking about the cattle story. In those drought areas, they don't really have many options when you're talking about reduced kill. What are they going to do? And what does that do to this live cattle market?

Swift: I think it drowns it a little bit lower when we talk about the inability to not be able to market those cattle. And we've seen a little bit of an increase in our weights, our cattle weights. So they have not trying to bring pounds off of them, the higher feed costs have not done anything to knock more pounds off. And in all honesty if we think about it we do have a little bit fewer cattle out there. So to put more weight on those cattle until you get to a point where it starts to turn them backwards, I can see that coming more and more, the packer wants more beef and having to buy fewer cattle.

Yeager: I want to go back to something you said at the beginning when you talked about the feeders, those producers who were looking to expand. If they could on that feeder market, why did they put a pin in that? And why or who can expand with an anticipation of maybe in a quarter or three we might see a little more demand for beef again?

Swift: Well, a couple of things we have to go through is we have to be able to get hay production and pasture conditions back up to a level that will support winter grazing and winter feeding. So until we can get those, and that was an aspect, there was a lot of hope that maybe some of the drought would break and cause that but it just didn't. And so now we're going to have to work through the rest of the next three or four months feeding those cattle at an exceptionally high price of input cost and somewhere around January or February we should get enough of a weather forecast 90 days looking out to see if we'll be able to expand then. And if you start to see cattle producers or cow calf operators they'll come in, they'll start holding cows back again, they'll start holding heifers back again and hopefully be able to expand sometime in the year of 2023 or 2024.

Yeager: Tat's a long time to wait. We'll see how that shakes out. Angie, I want to come back to beans for a minute. This is the one that the report really put a cold water -- we were kind of as we mentioned sideways. Good news was bad news here. Right?

Setzer: Well yeah, the USDA came out and increased ending stocks for the crop year by 32 million bushels above what traders were expecting. And so when we're talking about corn and everyone's like well we saw 135 million bushel reduction and you're talking 30 million and we were only up 8 and you're going to tell me a 30 million bushel increase in ending stocks means that we go down 45 in beans and I will say yes because our ending stocks were supposed to be 240 million bushel and they were 10% larger than anticipated. And so I think when it comes down to it we ended up understating the bean crop last year, we had a lot of folks that kind of argued that that might be the case. Does that mean that we're understating the bean crop currently this year? Because many would argue that in a lot of places August weather was better than August weather last year. And then we have the Brazilian crop. We're looking at the potential down there, now granted I'm going to preface everything I say right now with we're a third year of La Nina in the fall so we have no idea what is going to happen weather wise. But the start to the Brazilian crop in most areas has been good to the Brazilian soybean planting. They're 2% planted so it's not like we're a third in or a half in or something of that nature, it's very early. But the rainfall is expected to continue to come. The dryer conditions could happen in the south but so far so good. We're talking the potential of over 900 million bushels of additional production coming out of Brazil this coming year versus what we saw a year ago. So you're kind of looking at that worry. We saw that increase in carryout, we've got a worry over what demand looks like with the macro conditions that we're facing and what happened with Argentina's soy dollar and that huge influx of beans that we weren't anticipating coming into the global pipeline. So we have a couple of those things and then we get this USDA number. And so I think a lot of the speculators that have been in this market are kind of like okay, well the bean story is over until we see something happen in South America. And so that doesn't mean we go to zero. We have a gap just below where the market is at around $13.50 on the November board. I think we go to test and fill that. Of course, depending on what happens over the weekend, because we just never know, the bean story is a lot different now than what the corn or wheat story even is simply because of the fact that we kind of have managed to right the ship and we have significant carryout for old crop that is going to increase our carryout for new. The potential is folks are thinking we could see a production increase coming for new and a lot of folks are arguing that you could see demand cut. And so it just kind of snowballs.

Yeager: We might have another issue here at hand, Angie. And it comes in a question from Glen in Ohio. He of course wants to ask you about oats. We'll save that for Market Plus if we want, just a fun joke from Twitter this week. Glen says, we previously were concerned about the railroad strike and now we worry about the river barge system. With inflation, high interest rates and little carry in the market, why would a producer choose to store and ignore?

Setzer: Yeah, I have zero issue with storing. That is our money maker. There is a ton of cash carry in this market structure if you look at basis strength going out. There's an example that I saw come through last night of almost a dollar in cash carry just to hold beans from now to the end of November. So that pays for itself. And that's what I kind of argue with my customers is if you are going to be storing, you need to be having a plan in place, especially with soybeans and know what kind of market you're selling into. If you're selling into an export market be careful. Logistics are terrible, barge freight is awful, we're really going to struggle on the interior here as we work our way through harvest, especially with two weeks of wide open progress. And so if you are going to store I'm all about it. But don't ignore it. Make sure you have a plan. Be aware of what your cash flow needs are. Pay attention to what your market structure looks like. And know when you're going to want to move at least a portion of that grain because storing and ignoring in a market structure like this could be absolutely catastrophic.

Yeager: Chris, it sounds like -- you're not next to the Mississippi but you're in that region that sees the drought and sees the shipping concerns that Angie talked about. What is the region discussing about shipping because it's a big part of your economy?

Swift: It's a huge part of it and a lot of it because we are going to be deficit of corn in the southeast this year, we have a significant poultry operation in the southeast, a small amount of pork and a tremendous amount of hobby farming. So we have significant corn needs and generally the state of Tennessee can manage the majority of our domestic needs through the Tennessee crop but that's just not going to be the case this year. So when the rail strike started a couple of weeks ago the concern became how do we get enough corn down south here without the rail system? And what we have found is we have ample plenty of loading capabilities but very small capabilities of unloading. So unless we have a rail that can pull into a major elevator where they can dump that, we're in pretty bad shape as far as trying to truck enough corn around this area to get it to all the regions we need to.

Yeager: I saved the worst for last, Chris. This hog market, seriously, $10 in two weeks. Is this over? It this selloff done? Please tell me yes.

Swift: The volatility has been very immense and we got some information yesterday on the hogs and pigs report showing a percent down on everything. So that is multiple quarters in a row that we've seen of hog production go down. But yet we still produce a lot of pork and we're not expected to export a lot of pork to China any time soon. So unfortunately I think with the decline in the index, some of the cutout losing, especially in the ham markets that it may still have a little bit more to go.

Yeager: More. How much more?

Swift: It's tough to say. The seasonal tendency lasts until the end of October. So you could see another $5 to $7 lower, that wouldn't be surprising.

Yeager: All right, so what do I do to protect myself then in that situation?

Swift: In the hog market, put options are always the one to look at right there because it will limit your amount of risk that you have to suffer through. And due to the recent volatility and price decline you might not do anything. Another $5 to $7 lower by the time you pay a premium for an option that doesn’t leave you a lot of room to the downside.

Yeager: All right, Angie, let's close with cotton for a minute. We asked Chris a regional question, I'm going to ask you a cotton question here. His region, it rained, but maybe not as bad. But what's the deal with $7 this week selloff? Why?

Setzer: Yeah, I think cotton really is going to struggle on the macro side, especially with continued fears over what's going on in China and some of these other things. We're really kind of seeing an overall global economic slowdown that is pretty much unavoidable. I think one analytical group is pointing at like 90% odds that we see a global recession. So I think that is really going to weight on it. Obviously we saw, we have dodged the bullet with Ian not hitting the southeast areas and things of that nature. And so I think cotton stays supported for a lot of reasons that are fundamental. But I think it is an easy market to push around for the reasons that it was easy to ramp up, it's also going to be easy to sell off in the sense that it's not a very actively or very deeply traded market. And so if you see the sort of speculative interests leave on the idea that the macroeconomic setup is less than desirable then I think cotton tends to fall victim to maybe larger moves than what it should based on the fundamental outlook that it has.

Yeager: All right, Chris, I'll close with you. Angie kind of touched a little bit about some of those issues with the dollar and the headwinds there. 30 seconds on the dollar. Have we put the high in on that?

Swift: Maybe not. I tell you, it's a big bull market and without some kind of intervention from another country, which we kind of saw or heard news of that this week, that China may try to intervene in their currency markets a little bit, but until the U.S. stops raising rates the dollar is probably going to continue to go up and our Fed tells us they're going to continue to raise rates.

Yeager: All right, that's our friend Chris Swift and Angie Setzer. Thank you, friends. We'll talk to you in a minute, hold on. Okay, we're going to put a pause on this analysis. We'll continue with Angie and Chris and answer more of your submitted questions, great ones coming in Market Plus. Find that on our website of MarketToMarket.org in both podcast and YouTube form. All of these resources, they are free. We can't all be goddesses on Twitter like Angie. Follow our musings on Twitter @MarketToMarket. We'll keep you informed with our links to content. Next week, a look at the challenges facing the livestock industry in the Southern Plains. Thank you for watching and 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)

This is the Friday, September 30 edition of Market to Market, the Weekly Journal of Rural America.

(music)