Market to Market - October 21, 2022

Coming up on Market to Market -- The damage done to agriculture by Ian comes into focus. The need for more grain to feed the world. An overview of the many efforts of feeding a fragile world. And market analysis with Naomi Blohm, 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, October 21 edition of Market to Market, the Weekly Journal of Rural America.

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Hello. I’m Paul Yeager.

The pace of home building is slowing. 

Single family home starts fell 8.1 percent to the lowest level in two years. 

Sales of existing homes slid for the eighth consecutive month and the lowest level in a decade. Buyers were facing higher borrowing costs, still high-priced listings and a tight supply on the market.

The Rural Mainstreet Economic Index added a fifth month of deterioration and being below growth neutral. The Creighton University survey dipped to 44.5.   —

The last five years have proven expensive in storm damage. Totals from NOAA cite a winter storm, four wildfires and two hurricanes as the most expensive period ever, totaling $765 billion in damage.

Just last month, Hurricane Ian swept across Florida. Exact costs are still being compiled, and some agricultural producers won’t have a firm handle on the extent of their damages for months. 

Here’s Peter Tubbs.

Florida agriculture is working through the damage from Hurricane Ian, which struck the state in late September.

The hurricane, which killed over 80 in Florida alone, damaged thousands of acres of the state’s $6 billion dollar citrus crop. 

Roy Petteway, citrus grower: "We're estimating at least 40 percent of our crop is on the ground and unusable and unmarketable. We're looking at maybe a 10 percent tree loss. And again, the trees are what will take even longer to determine. When we have trees that will all of a sudden rapidly die in the next six months to eight months-- those can be attributed then to either water issues, wind issues. When your ground gets very moist and loose, that wind comes in, shakes the roots, those roots are never able to reset themselves."

This grove in Hardee County is expecting losses of both citrus fruit in the near term and tree losses in the coming months. Damaged trees may also struggle during periods of drought.

This year’s citrus crop, which was estimated to be 30 percent smaller than 2021 before the hurricane, is expected to fall even further as farmers inspect their orchards and begin fall harvest. 

Florida citrus production was already under pressure from citrus greening, a bacterial disease that inhibits a citrus tree’s ability to process nutrients. The disease, for which there is no cure, has cut production by two-thirds over the past 20 years.

For Market to Market, I’m Peter Tubbs.

Norman Borlaug’s impression on agriculture around the globe was celebrated this week in Iowa. 

Borlaug’s breakthrough in wheat breeding spurred the Green Revolution. 

Now existing crops, inputs and infrastructure have been under examination even more in a post-COVID world. 

Here’s the first of two reports we have this week as Colleen Bradford Krantz kicks off our coverage.

The Norman Borlaug International Dialogue centers on the efforts to feed the world.

The U.S. is second globally in soybean production. The product’s many uses create value economically and nutritionally – but as the CEO of the American Soybean Association said in one of the panels, production can and needs to keep expanding.

Stephen Censky/CEO, American Soybean Association: “The latest global agricultural productivity report that just came out a few weeks ago from Virginia Tech using USDA Economic Research Service data really does show that we're off the pace in increasing productivity around the world and that means that we have to double down on our agriculture basic agriculture research in this country and around the world. And then we also need to make sure that we have the right regulatory regimes that welcome agriculture innovation,   companies can cross those because that will stifle innovation.”

One way to reach that goal is through genetics, the other may be to increase the use of fertilizers in markets around the world – already a costly input option the last 12 months. The head of The Fertilizer Institute, a U.S. trade group, told the panel 90 percent of fertilizer is consumed outside of this country and, while Russia’s invasion of Ukraine greatly impacted the global market, the war wasn’t the only major factor affecting price.

Corey Rosenbusch/President/CEO, The Fertilizer Institute: “I think it's more so related to global pricing dynamics, you take China, for example, that produces about a third of the phosphate and nitrogen in the world, and they blocked all their exports, most of their exports go to India, India is a huge consumer of fertilizer, and they don't have that supply anymore. And so that means they're having to go to the marketplace, they're having to procure from places they don't normally procure from. And so that begins to set a very high bar for base price. That’s just one example.”

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

And I'm David Miller in Des Moines, Iowa, where foreign dignitaries, trade representatives, government officials, and members of private industry gathered to celebrate the awarding of the World Food Prize. Prior to the Laureate ceremony - a series of speeches and breakout sessions were held under the banner of the Norman E. Borlaug International Dialogue.

Kees Huizinga, Global Farmer Network, Ukraine: “Some time ago, for example, 1,000 hectares of arable farming. The energy you need from this, you can produce and transfer through hydrogen.”

Robert Coviello, CSO & Government Affairs, Bunge: “The food system has clearly gotten more efficient. It's, it provides safer, higher quality food at a lower price. But what we've seen over the past couple of years, it needs, it needs some improvement.”

Speeches were given by Secretary of Agriculture Tom Vilsack.

Sec. Tom Vilsack, USDA: “This is a transformational moment in agriculture. This is a transformational moment. This is a chance to do a lot of things that need to be done in agriculture, not just on climate, but as well, not just on productivity, as important as that is, but also on profitability. For the last 40 years or so, our focus has been predominantly on increasing productivity. That needs to continue, obviously, if we're gonna continue to feed a, a, a fragile world in the face of climate change. But we have to make sure that it is also not only sustainable, but also profitable

And USAID administrator Samantha Power.

Adm. Samantha Power, USAID: “In response, USAID is investing in the food systems that farmers, but especially women farmers rely on. Systems that weren't necessarily designed, weren't designed, with women in mind. Food systems include expanding access to new seeds, digital innovations and financial resources, as well as ways to store excess harvest and to prevent food loss.”

Adm. Samantha Power, USAID: “Well, our objective is to close our doors, um, and putting to, to one side our objective, the objective of the communities in which we work is to be self reliant. And I, I think the importance of what you might call customization cannot be overstated when it comes to seeds, fertilizer, and, and other inputs. And I think that there was in the past a little bit of a one size fits all, uh, approach, you know, by donors, by a variety of, uh, agricultural ministries, uh, you know, in places, uh, that were seeking to make their land more productive. I think now you see that there is this knowledge.

The week was highlighted with this year’s World Food Prize Laureate, Dr. Cynthia Rosenzweig, receiving her statue.

She received the honor for her pioneering work in modeling the impact of climate change on food production around the world.

Dr. Cynthia Rosenzweig, 2022 World Food Prize Laureate: “Food systems are emerging at the forefront of climate change action. We now know that climate change cannot be restrained without attention to the greenhouse gas emissions coming from food systems. But at the same time, food security for all cannot be provided without resilience to increasing climate extremes. As we move into this crucial decade of action of climate change, food needs to be at the table

For Market to Market, I’m David Miller.

Next, the Market to Market report.

Harvest pressure has found its way into the trade but wheat has struggled the most, even with combine season in the rear-view. For the week, the nearby wheat contract dropped nine cents, while the December corn contract lost six cents. The rapid pace of harvest has fed into China looking at U.S. soybeans as a viable option. The November contract improved 12 cents. December meal added $6.80 per ton. December cotton shrank $3.90 per hundredweight. Over in the dairy parlor, November Class III milk futures went up 71 cents. The livestock market was higher as December cattle added $4.65. November feeders improved $3.57. And the December lean hog contract increased by $6.88. In the currency markets, the U.S. Dollar index shed 126 ticks. December crude oil added 11 cents per barrel. COMEX Gold improved $11.20 per ounce. And the Goldman Sachs Commodity Index lost more than 7 points to finish at 626.05.

Yeager: Joining us now to provide some insight is Naomi Blohm. Hello and welcome back.

Blohm: Hi. Thanks for having me.

Yeager: Kansas City wheat. Why does it have to be such a pain in the rear of the wheat market?

Blohm: It is right now just a short-term anchor but I think that's a story that is going to continue to get friendly. And of the grain complex right now wheat, in my opinion, is oversold. It needs to be bought here at these levels. I think it's a pretty good buy.

Yeager: I think you even said this week it's on sale and a good deal.

Blohm: It is on sale and a good deal. Fundamentally speaking, even though the wheat market had this pull back recently it's because the USDA report wasn't quite as bullish as what people were thinking it was going to be and so that is what made the market pull back and we didn't have any big new dramatic news out of Russia. But the bottom line is that our ending stocks here for all wheat categories is still down substantially. And then global wheat ending stocks are trending lower as well. So with the entire state of Kansas in a drought, with 25% of the state in an exceptional drought, the wheat market at this level is, as I said, on sale, I think it's good value and I think the wheat market has every ability to work higher going forward.

Yeager: Saw the pictures this week on Twitter of people planting into dust. It's a lot of optimism for a big area that is in drought. If I'm someone in a big drought region, what am I trying to do?

Blohm: Well, my client out that way said he's planting for insurance at this stage of the game. And so hoping for rain, hoping it comes, maybe hoping for perfect snow potential precipitation later on. It's a dire situation out there with as dry as it is. So again, you know, you have the situation in the world, we have the Ukraine country that still is not going to be having replenished supplies, they're half of what they normally are. Russia now at one point said we have this huge crop but now for this next year they're going to be saying it's a little bit less. So we're not out of the woods yet on the supply situation and demand of course for wheat globally is still strong.

Yeager: What is a range here for the next couple of weeks?

Blohm: I feel like we have some really good support right now with where we're at. I would say for this next week barring something unforeseen from Russia or Ukraine probably about a 50 cent range for the short-term but ultimately I think we retest the highs from where we were just a couple of weeks ago and potentially can work higher. But again, that is dependent on global situations.

Yeager: On your drive, I'm going to take a wild guess, there were a few combines in the field in the corn market. A lot of pressure, a lot of crop coming. Yields we don't know yet. There is a tendency to think we're going to get a bigger crop. Is that that biggest pressure on corn right now?

Blohm: Corn market right now is under pressure from the conception that potentially Brazil is going to be a major competitor. But here's the reality with that, we have our corn crop that is still, in my opinion, likely going to be getting a little bit smaller and corn is stuck in a range right now because it's really trying to understand where the supply is at and it's wanting to make sure demand can pick up. Our export sales are a little bit slower right now. We might see the USDA bring that number down a little bit. But I think they also bring the yield number down a little bit and ultimately ending stocks stay unchanged, at one point 1 billion bushels. With Brazil picking up some business potentially here from China, that is only because Ukraine lost all of that production. So it's not like we're gaining more global production. Global corn ending stocks is actually reduced and Brazil was just able to only offset what Ukraine was doing. So that is something people need to remember. And the other part of that situation makes me feel that China is desperate for corn. And I think that is the underlying theme. Their crop is of course getting a little bit bigger. But even though they have been locked down for COVID, various rotating lockdowns for the last year and a half, their corn demand continues to grow even though they're locked down. So can you imagine how big their demand might be if they weren't on lockdown right now? And China I think is really trying to entice Brazil, make sure you're producing more because China needs it from both hemispheres. They realize this year because the entire Northern Hemisphere did not have a record crop that they were in trouble. So they're trying to entice Brazil to make sure that they're going to be growing more for them in the future.

Yeager: Potential people that they used to buy from didn't have the product so they had to go to the U.S., is that kind of what I'm reading you say?

Blohm: Well, I think that we're going to get some of their business but usually we had been over the past three years getting business along with Ukraine and so now they're saying, hey, if the Northern Hemisphere doesn't get these crops we need to make sure that we can get more availability from the Southern Hemisphere. So of course that would be Argentina, Brazil and South Africa. But they don't grow huge amounts of corn compared to what the Northern Hemisphere does.

Yeager: All right, let's ask about those that are in the combine or on it and they're wondering what to do. Mitch in Hull, Iowa wants to know from you, Naomi, how are you marketing corn right now off the combine? Are you storing? Are you selling? Are you doing some reownership?

Blohm: It depends on your basis  in your area. Some folks their basis is just extremely attractive so they're getting over $7 corn. So some folks there are making sales off the combine because it's just really good numbers. For those who are storing because that is a viable option as well, at this time I'm not overly worried about markets falling apart, again because we were just talking about the global scene being friendly. But I would say if you are making some sales off the combine here do be open to reownership because the corn market is in a sideways pennant formation in the bigger picture on weekly charts. It's also in a short-term uptrend. It just needs something to light the match. And the upside we could see $8 corn again come spring, not necessarily anything right now. But the supply situation is still so dire, we didn't get ourselves produced out of it this year. So I think we're going to see the competition for acres again already for next year and the demand for corn overall is strong.

Yeager: Well, I'd ask you a range question. You just kind of answered it there in corn. Let's talk about the acreage issue. We haven't discussed that in the bean market yet. Beans are supposed to be the winner, things all kind of thrown off this spring. Is the bean crop there to produce enough to quench and fill enough orders?

Blohm: The soybean crop I think right now we're still really trying to understand that. I would say that the number that the USDA has right now might be able to waver a little bit. I don't think it's going to get bigger though just based on people who I've been talking to over the past two weeks. I also don't know that it gets much smaller though either. So it's a little bit of a wait and see game. And that's why the soybean market has been in a sideways range. I remember the last time I was here in August soybeans were at like $14.25 or getting close to $14.50 and here the January contract again right at $14. For two months this market has just been stuck. We're waiting to see what we're going to have for our demand numbers. Our export sales are ahead of schedule. And I think the whole world right now is just waiting and hoping that South America does have that record crop and we are pricing in that record crop right now. So if they don't produce what they're hoping that they're going to be producing that would make the market work higher for prices come January or February, just like what happened last year.

Yeager: And what is the basis story on beans compared to corn?

Blohm: It's a little bit of a different story I think just because corn of course so deficit out west but with the beans because of those August rains it feels like there was maybe a little bit more soybeans available than people though. But again, not a record crop. So the demand is there. We're going to see demand of course continue to grow for soybeans because of the processing facilities that are going to be coming online. And so the soybean story long-term is still friendly. But we just flat out still don't have anything to get us out of our trading range yet. But if you're selling beans off the combine look at reownership strategies because if South America does not have that crop this market has every reason why it could go higher yet.

Yeager: And when you talk about the pennant range what do you look at for ranges here in the next we'll say three weeks since we're still harvesting this crop?

Blohm: Absolutely, so for the next three weeks I think soybeans are in a 50 cent trading range, maybe 75 cents at most, $14 on this January contract, really good support. $14.50 is going to be resistance and it will take some news to get us out of that. Now do remember we have two larger pieces of news coming up with the export situation in Ukraine and getting that corridor to stay open so that is early November and then that railroad strike is mid-November and that is going to be something that could effect the soybean market.

Yeager: Well, how about the cotton market? We had a question, John in Churdan, Iowa -- sorry control room, I'm putting you on notice here -- John wanted to know, Naomi, should I buy all my cotton-made gifts soon or is it too late to avoid pricing and quantity upticks?

Blohm: So I am friendly to cotton yet for the longer haul and if you are looking to secure your needs for Christmas I would say go ahead and buy your socks and t-shirts that you're looking to get just because you have to think of it from the standpoint we're going to see potential increase in production coming out of India. But the Pakistan floods were just absolutely devastating. And our weekly export sales are showing that. We sent cotton to Pakistan, to Egypt, to China. So China is still looking to be getting their facilities and their clothing facilities up and running again soon. I don't think China had a fantastic cotton crop this year either. The recent selloff on cotton was technical, the funds are selling it and that is also a market that it's a little overdone. And they're already talking about cotton production acres being down 10% next spring. So here again, those 9 grain and oil seed commodities with tight ending stocks that we talked about a year ago at that time still is an issue. So we will see the competition for acres come again and I think cotton is cheap right now. So I'm waiting and watching for a bottoming signal but I would be ready to be jumping on board as a buyer once we see one.

Yeager: Dairy up 3.5% on the week. Why?

Blohm: Well, we were anticipating the milk production report that came out and unfortunately the milk production report Thursday afternoon was a little bit negative, milk production up 1.5% and for milk that's a big deal. But now we've had three milk production reports in a row showing production increases. So that is going to weigh on the market prices. I think we'll see deferred contracts show that going forward. It wouldn't surprise me if those Class III futures and deferred contracts just nudge a little bit lower. But the good news is demand is strong. Cheese demand is fantastic. Of course where I live right in the heart of cheese country, married to a guy in the cheese industry. I can tell you with confidence the cheese industry is good.

Yeager: Is that insider information? Are you going to get in trouble?

Blohm: Um, well I didn't reveal the company name and I didn't exactly say how good things are. But things are good there and our export demand is strong too. Exports for butter, exports for cheese still above year ago levels. So that part the demand story is friendly.

Yeager: It's been good too for the cattle on feed and the livestock industry the last couple of weeks. Everything has been up across the board. Let's start with live cattle.

Blohm: Live cattle pushed higher in anticipation of the cattle on feed report that did come out this afternoon as expected so no big surprises there. Cattle prices were Dec fat cattle up to the $152 mark. That is resistance right now and because the report was not over the top bullish probably see a little bit of a setback. But we saw nice cash cattle numbers this week, Kansas $148 up from $145. We saw $150 in Minnesota and Iowa. So the cash demand is there, the choice select spread probably some of the widest it's been at over $30 and so the demand is there for high product and so far consumer demand is strong. Exports still number one that they've ever been for this time of year. So it is still a supportive story for cattle. I don't know, like I said, the report today wasn't over the top friendly to get the market to rally substantially higher next week.

Yeager: And placements were down 4% below 2021. No surprise there either.

Blohm: That was what we were expecting. It just continues to show a friendly story going for 2023.

Yeager: Hog market finally have turned it around. But why? And can it sustain?

Blohm: Yeah, so that market had a huge what we would call a V bottom on a chart. So all of a sudden, boom, things start to go higher. I think part of that was because we had African swine fever in three countries of Europe. We saw our cash markets improve. Our domestic demand is okay. Our exports though still behind the five year average. But what we did see this week was China coming in and being a buyer on our exports because our pork priced here is still way cheaper than what they're doing in China right now. So we're seeing them come in and be a buyer. Where the hog market got up to today, again a resistance level on charts. I don't know, it would take a really friendly cash market story next week, it would take another round of really good exports next week to have the market to have a short-term reason to work higher. So it wouldn't surprise me if we see maybe a little bit of a pullback next week. But the hog story is starting to get a little bit friendlier so that's encouraging for our farmers.

Yeager: Friendly for how long?

Blohm: Well, what I'm curious is if we see African swine fever flare up again in China. So that is something to be mindful of. I would say in the bigger picture here right now that the hog market maybe starts to go into a sideways trading range for about a month. We're going to want to see where our export demand is, we're going to want to see what the African swine fever is doing in Europe. Is it spreading anywhere else? But ultimately it's a better story than what it was. It doesn't have a reason to be over the top bullish though quite yet.

Yeager: Not quite yet. All right, Naomi, I appreciate your time and insight. Thank you so much.

Blohm: Thank you.

Yeager: And that is going to put a pause on this analysis. And we're going to continue with Naomi and answer more of your submitted questions. I have more right here. We're going to do that in the Market Plus segment. You can find that on our website which is MarketToMarket.org. And the show is in both podcast form, it's also on YouTube as well as our website. All of these resources are free. Now harvest may be the best time to get caught up on podcasts and when you have some time in that cab dial up one of our three offerings. You can find them there on YouTube. We have the Market Analysis, Market Plus as well as the MtoM. Follow to stay in the know. Next week, we are going to look at one dairy producer's search for additional revenue streams. Thank you for watching. Have a great week.

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

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

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

(music)  

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

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