Market to Market - November 4, 2022

Coming up on Market to Market -- Dredging helps but traffic is still slow on the Mighty Mississippi. Small and medium packers get an injection of cash from USDA. The future of the Farm Bill hinges on Tuesday’s election. And market analysis with Shawn Hackett, 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, November 4 edition of Market to Market. the Weekly Journal of  Rural America.

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Hello. I’m Paul Yeager.

The worker appears to be the must have item this approaching holiday season as employers are still putting up the help wanted signs in the window.

The economy added 261,000 jobs in October. 

The unemployment rate rose from a fifty-year low to 3.7 percent, up two tenths of a point. 

Factory orders increased last month by a tenth of a percent - bucking the conventional wisdom the economy is slowing. 

The trade deficit widened in October for the first time in six months as computer chips and consumer goods came into the U.S. and food and energy exports left the country.  —

Last year we all heard about big logistical challenges at ports of call in the U.S.. Now the transportation challenge involving boats and water is an inland one along the Mississippi River. 

Peter Tubbs reports on how river traffic is moving along with what little water is still there. –—

A dramatic drop in water levels on the Mississippi River is slowing the movement of goods along the center of the country.

Barge traffic is being limited to alternating traffic in some areas, as well as limits to the size and draft of barge groups.

Phillip VanderWeit, USCG: “We’re dealing with extreme low water conditions and certain areas. We haven't seen it this low since since the 80s or even before that. It's definitely created navigational hazards along the marine transportation system. But we've been working very closely with the Army Corps of Engineers who have put in a lot of work over the past decade in preparing for a situation like this.” 

The lower Mississippi River is currently limited to a similar barge draft restriction that is standard on the Upper Mississippi.

Paul Rhode, Waterways Council: “We're we're about 40% a little bit more than 40% right now in some cases half 50% so you know the industry is very resilient and working with the Corps to make sure that let's say the Corps is dredging 12 hours and then we'll stop for 12 hours so that two cue of barges and boats can get through. At its worst we had 2,200 barges directly impacted with 150 boats waiting. Depending on the duration, again, this could be an unprecedented disruption.” 

Little precipitation in the watershed means that low water levels will probably continue in the near term. 

Dennis Toddy, USDA Midwest Climate Hub: “Our problems on the Mississippi River are not only their time and space related because of widespread drought throughout the whole Mississippi River drainage basin and the time period that we've been in drought in this situation. The left hand side is percent of normal precipitation over the last 30 days. The reddest areas are less than 25% of average precipitation. And you can see looking on the right hand side for the last year, we have very dry conditions, less than half average precipitation throughout much of the plains, a little bit better in the Ohio basin.”

For Market to Market, I’m Peter Tubbs.

Consolidation can lead to concentration in an economic sector - see big producers of cars, soda pop and airlines. 

The meat packing industry has its own big four and the Biden Administration is trying to assist small and medium processors with getting a bigger piece of the market share. 

David Miller reports. 

President Joe Biden, United States: “I've said it before, and I'll say it again: capitalism without competition isn't capitalism. It's exploitation.” (date key January 2022)

In January, President Joe Biden announced the allocation of $1 billion in funds to advance expansion of small to medium-size meat packers and processors. 

President Joe Biden, United States: "Strengthening competition is good for all of us. Farmers and ranchers deserve a fair shake. American families facing high prices at grocery stores deserve a fair price to put food on the table.”

This week, the administration made good on its promise and announced the release of more than $223 million in grants and loans to help small and mid-sized processing plants expand or come back online.

The move is part of USDA’s multi-pronged investment approach that will assist producer-focused business models to help farmers and ranchers build small-scale federally inspected packing facilities, give locally owned processing plants the ability to expand and provide funds to reopen shuttered plants bringing jobs and revenue to rural communities.

According to USDA, four meat-packing companies control 85 percent of the beef market, four processing firms control 54 percent of the poultry market and four processors control about 70 percent of the pork market.

For Market to Market, I’m David Miller.

The general election on November 8th will determine all members of the House of Representatives and 34 senate seats.

The next congress is scheduled to take up the next version of the Farm Bill. 

Elections have consequences and I spent some time talking about the issues with University of Illinois agriculture policy professor Jonathan Coppess. He’s worked on Farm Bills as a staffer and now studies them as we discuss in this abridged version of the MtoM podcast. 

Jonathan Coppess: “A lot about what Congress will do  or can do that will be determined by this election, I think we have very stark differences and governing philosophy or ideology and direction and those things will have a huge impact on it.

Paul Yeager: Are there areas that matter more geographically where members come from and carrying weight in these discussions?

Jonathan Coppess: Farm bills are really regional, we have kind of this three part sort of Farm Coalition, we have the Midwestern corn interests, we have wheat interests in the western plains, in particular, and then the southern commodities, cotton and rice and peanuts. So a lot of foreign policy is sort of dictated by how those three interact or work together or don't work together or kind of the conflicts and negotiations around that. And then I think a lot about how that that coalition or that group of interests, then kind of our driving forces and getting a Farm Bill, particularly through committees, and then your bigger coalition really involves the Food Assistance Program and the Supplemental Nutrition Assistance Program, which has become it's always been very political has become much more partisan in recent years, and has been a hu ge challenge for writing the Farm Bill whenever there's this sort of partisan attack on it. So you've got the farm interest, you've got the low income food assistance, and you have conservation, which really is kind of a connective tissue between a lot of farm country and a lot of non-farm country because, you know, the impacts on natural resources like water, like habitat, and those sorts of things really come through the conservation title. 14:20

Paul Yeager: You're a policy guy, maybe not necessarily an election guy. However, let's put the two together. Is there a certain? I guess I don't put a certain party and charges one question, but a certain type of leader that could emerge in either one of these scenarios, if it is a red wave? Or if blue stays in power, on how maybe some of the questions that you just mentioned are answered?

Jonathan Coppess: Yes, I think what we've seen, again, using the most, the two most recent Farm Bill cycles as our kind of our example, or what we can work from, as the most recent history, in those cases, the House of Representatives in particular focused very much on budget cutting by Republican leadership. And when that is the case, obviously, the biggest budget item is SNAP. And so we sort of, you can almost see it happen, if we redirect to the, you know, to the budget, budget budget, how do we cut spending? How do we deal with deficits and so forth, then you just see it progress into well, then we've got to go after SNAP. And once you do that, it really complicates or nearly tears apart that coalition and then the votes that you need to get through. As I like to say that once you go down, you know, once everything's, you know, once everything's a budget issue, you know, it's kind of though, if all I have as a hammer, everything's a nail, it doesn't end with SNAP, I mean, they're going to look at farm subsidies, they're going to look at crop insurance and conservation, it becomes a sort of, we've got to cut, cut. And so it is a counterproductive policy discussion, a becomes very partisan, and it becomes, you know, very hard to hold together a coalition that is needed to get the votes in Congress.” 21:55

Paul Yeager: Those involved in agriculture think it's pretty important. But does that issue resonate with the regular voter, in all of these congressional and senate districts, that this is something that I don't see an ad for Congress or Senate on my TV that highlights so and so will cut everything in the farm bill or will bloat it? I don't see it.

Jonathan Coppess: You know it is sort of thinking through history, I think the last time we can we can kind of pinpoint where a farm bill policy may have had an impact on the election was probably 1954. For at least from the arguments from from a lot of the players at the time. So it's not you're not likely to see any, you know, political ads really focus in on this. And I mean, that's just the nature of a 30 second ad and that sort of brutal skim across the top of things that politics and campaigning kind of requires. But I think it's this this sort of governing philosophy that that matters. Are we thinking about policies and programs in the sense of, you know, we talked about inflation, for example, and inflation, inflation, inflation is a big issue. Okay, the follow on question is, well, how do you address it? What are the things that that a member or a candidate are going or say they're going to do to actually address inflation? How do you view it, you know, if it's all budget cutting, while program like snap will increase in an inflationary situation because the cost of food that's used to calculate those benefits is going to is going to go up to some degree And so I think I think there are those kinds of guides or guidance pieces that you get out of your 30 second commercial, like, if this is a candidate looking, looking at some of the partisan, you know, budget pieces, then you can imagine that they're going to challenge with the Farm Bill.

The full conversation with Jonathan Coppess is available now on our YouTube channel and where you get your podcasts.

Next, the Market to Market report.

Black Sea blockades dominated nearly every day and market. The nearby wheat contract added 19 cents while the December corn contract was even this week. The soy complex felt outside market pressures in addition to the actions of Vladimir Putin. The January soybean contract improved 62 cents. December meal lost $5 per ton. December cotton expanded $14.82 per hundredweight or 21 percent. Over in the dairy parlor, December Class III milk futures rallied $1.56. The livestock market was lower. December cattle shed $1.35. January feeders cut 75 cents. And the December lean hog contract dropped by $3.12. In the currency markets, the U.S. Dollar index added 17 ticks. December crude oil gained $4.53 per barrel. COMEX Gold improved $36 per ounce. And the Goldman Sachs Commodity Index surged almost 28 points to finish at 664.80.

Yeager: Joining us now to provide some insight, Shawn Hackett. Welcome back, Shawn.

Hackett: It's great to be in blustery Iowa.

Yeager: Oh, you bringing this cold weather to us. Just keep it where you're at. At least we're not snowing yet. You'll be home before it starts to snow.

Hackett: That's true, that's true.

Yeager: We're getting some much needed moisture in wheat territory. That's a very important thing I'll ask you second. But first we need to talk about Vladimir Putin. How much longer do his actions, words and sayings carry weight in this wheat market making it as volatile as it has been this week?

Hackett: I think this last week's rope-a-dope we're calling it really hurt his credibility. I think the next time something happens there we're going to be reacting less and less and less, kind of like with the trade war we acted, started to act less and take it less seriously. I think whatever happened this week it was definitely suspicious of some kind of manipulation that I don't think is going to go down well with the market going forward. I think they're going to focus more about weather and those kinds of things and less about what is going on over there unless something really happens that is an escalation from before.

Yeager: Major weather system coming through wheat areas that need it. You saw in the piece just a few minutes ago about the departure from normal. So if you get normal in Texas, Oklahoma, Kansas, are we still planting in dust? Will these bins bust? Or are we going to go bust on the market?

Hackett: Well, we have the worst rated conditions I think ever since 1986. We still can benefit from rains, we still could get some plantings done, we can still improve conditions going into dormancy. But still when you look at starting conditions and ending yields it really still matters what happens after dormancy. We're pretty encouraged that we're going to have an early spring with some decent moisture as we get more of an El Nino pattern this coming season. So I think this will definitely take the edge off the worry in the winter wheat market.

Yeager: What do I do to lean into this volatility then?

Hackett: We've been saying to our customers for months any time you get this geopolitical fireball that goes up in the wheat market and you get this premium on we want to be cash sellers, we have been cash sellers and then we try to avoid being that when they take that premium off. I think that is going to continue to be the strategy until we move into some other kind of a pattern.

Yeager: Corn was pulled along for the ride a little bit, finished the week even. How is that possible anymore?

Hackett: EKG of a rock we call it is the pattern we've been seeing. And prices had been weak before this week and that was dragging corn down, you have the wheat market dragging the corn up. But we do think we're going to enter a different phase for corn. December is coming and we're very worried about Argentina drought and losing acres that they're not planting now, they're going to switch over to more soybean acres. We think there's going to be some kind of a weather reaction rally in corn when we go into December. So I think this sleepy, quiet EKG of a rock market can wake up.

Yeager: So you're not buying into the if it gets to $7 sell?

Hackett: Well, remember the last time we were on the show in early August we were very constructive thinking we could have a rally in late September. We have been making cash sales. It's a good price. There's a lot of good cash basis in the country. I'm not saying not to make cash sales but keep some powder dry for December. You never know what a weather market is going to do or how far they're going to take it but I would want to have some ammunition to make cash sales in December.

Yeager: How about December of '23 which is our first question we're going to ask? Phil in Dresden, Ontario wants to know, Shawn, with all the volatility and uncertainty in world grain markets should farmers refrain from pricing new crop 2023 corn? With Dec '22 at $6.84 and Dec '23 at $6.28 that's quite a bit of difference. Or should we be paying more attention to it?

Hackett: Well, our general view is we're going to have a much more favorable weather growing season in 2023. El Nino is going to be coming. We expect we could have a record production season. That low $6 price level which does not look attractive today may look very attractive come next summer. So once again, just like anything else you shouldn't go ahead and sell your entire crop right now but getting some cash sales on the books at this price level I think is not a bad idea.

Yeager: But by how much? What more range are we talking? I guess I did say $7 earlier. You're saying below $6 is something we could see if weather grows well or if weather happens and impacts us well next year?

Hackett: Well, in 2021 we got down under $5 for a little while there before we rebounded and then last year we got into the mid-$5 so there's no reason to think that we wouldn't find our way back into that mid-$4 to mid-$5 range with a big crop, big ending stocks. Obviously there's the currencies and other things that may determine how much lower or where it goes but there's no reason to believe why we couldn't see -- looking at some of the things like cotton, the downside could be considerably more than we might think.

Yeager: Which market or which commodity has the biggest influence on outside markets? You kind of teased it a little bit there with corn. Is it corn or soybeans?

Hackett: Right now I Think that the soybean market with today's news is taking a leadership role in outside news. Today we got pretty strong news that reopenings or the zero COVID policy from China may start to ease or come to an end. And we saw soybeans really react strongly today whereas corn and wheat really didn't react that much. So I think that if that story gains traction, the dollar reversed today, the Chinese currency really moved higher, crude oil was up a lot, cotton was almost limit up, I think there's something going on with this and this could shift who the leadership role is. Soybeans might have that newfound sensitivity to international news.

Yeager: I guess take my first question about wheat, cross out the name Vladimir Putin and put President Xi in there, influencing the soybean market. Does it hold the same weight that it once did in soybeans?

Hackett: I think now that he has been indoctrinated as ruler for life apparently he is now in a position to take strong action and I think when he says something or he makes a statement about something I think we need to take it very seriously now. Before I think it was very much iffy about things but I think he's going to be very clear, very direct and I think they need to get some food into the country. I think they're a little short.

Yeager: All right, so the range on we're at $4.69 is what we closed on Friday in the March contract, what is our range right now for the next three months?

Hackett: On?

Yeager: On soybeans, March soybeans.

Hackett: Well, I think that if they are in the reopening phase and we have this weather scare, which also would impact soybeans, I think the range is going to be something along the lines of maybe let's say 15.5 on the upside to 13.5 on the low side depending on exactly how the weather plays out. I do think this reopening story if it really gains traction can help the soybeans quite a bit here.

Yeager: And I did not say 14, I meant to say 14 earlier, sorry to throw you off because that's why you were looking at my kind of funny. China also is a big thumb on this cotton market. Last week major drop, this week major rise. Why?

Hackett: Cotton was up to $120 was trading at the highest premium to Chinese cotton prices in history we lost the business, we came crashing down worried about the economy. Then we got back to a more normal relationship, business coming back and then we get this news that they might reopen. Of course that is phenomenal news for purchases and that sort of thing and we're starting to move back. However, the cotton price in China did decline considerably since U.S. cotton was $120. If you work the math, 90 cents a pound would get us back to a very high level relative value level. And so we're thinking that probably puts kind of a ceiling on the market based upon that relation because exports to China really roll the U.S. price.

Yeager: So a ceiling of we're not getting back above $100?

Hackett: I don't think so and I really don't believe, I think those days are gone. We have the tightest supplies that we've seen in a long time. But that relationship with the cotton price in China is really going to rule where we modulate that.

Yeager: Cattle market, that has been a -- we talk about a constant worry or handwringing of what are we going to do with the holidays? What are we going to do with the food on the table? What are we going to do about this live cattle market? Where are we headed?

Hackett: In the feeders I'm worried because if I'm right about corn and a weather scare in December that means a higher corn price is probably going to keep these prices down on the feeders. The live cattle market I think we have enough beef to get through the holiday season. I'm worried delayed reaction of monetary policy, there's a 36 month reaction delayed to when it impacts economic activity. When you work the numbers we could be heading right into that November, December timeframe with a brick wall of demand with very, very high beef prices. I just don't think the current cattle price can maintain this level right now.

Yeager: So when is this November, December, this of 2022?

Hackett: Yeah.

Yeager: So we're facing it right now.

Hackett: My belief is the first rises that we saw are going to start impacting the market in November and December and then they continue to escalate as you go forward.

Yeager: So the top of that chart for four months, we're not going to see that for a while? Or we're going to go up higher?

Hackett: Right now I believe we're making a top where we are right now in the live cattle market and what we're going to be rolling over and correcting into the end of the year. I really find it hard to imagine when we have ample supplies and we have this brick wall of demand that we see coming that we're going to be able to maintain the buying of live cattle at these prices. I'm worried about correction into the end of the year.

Yeager: Okay, you touched on feeders just a little bit, I want to circle back up here. If December is when we could see a rise in corn, am I buying as much as I can for feed needs right now?

Hackett: Well, I think for your short-term needs, yes, I think this is the time to be looking at getting some done and protecting against that near-term potential move higher. The longer term picture, as we discussed earlier, I'm kind of on a negative side on corn on a longer term. So this is not a time to go buying long-term needs. Make sure you've buttoned up your short-term needs.

Yeager: Okay. Hog market, a couple weeks in a row we had a little life but it's back to that trend lower. How much lower are we headed?

Hackett: Well, I still am in the camp that says that China needs to buy pork before the holiday, their New Year holiday season. We think they're going to come in strong to buy -- either way if they reopen or not the hog price in China remains very good, the pork price in China remains very good. There is a pork shortage and I think we're going to get some very good business now into the end of the year and we're going to drive the price back up again.

Yeager: But so many times I hear someone sit in your chair and they say, that is already factored into the market. How is that not factored in already?

Hackett: Well, I don't think it is because we've only been seeing some of the business just recently and prices really when you look at the chart haven't really done anything. So to say that there's expectations built in, well that would be the case if we were near the highs or we had a big move. We've been pricing in no one expects really anything to happen.

Yeager: And I guess I'm asking, we expect at some point China was going to reopen and that's why I thought maybe the market would go a little higher.

Hackett: Well, it has been my thesis and other people's thesis's that when Xi came out of this Congress meeting that he would begin the process of reopening and it looks like maybe that is happening. There's nothing bad about that for pork demand and for pork exports to China. So I think there is a runway here. If we can get some follow through next week, watch the Chinese currency, if it can break over 14 resistance that to me says that this story is for real.

Yeager: And guess what, Shawn, we have to go from one runway to another. We're going to take off to the end of the show. Thank you, sir.

Hackett: Thank you, Paul, appreciate it.

Yeager: That is Shawn Hackett and we're going to put a pause on this analysis and we'll continue with Shawn and answer more of your submitted questions in our Market Plus segment. Find that on our website of MarketToMarket.org. We have that in both podcast and in YouTube form. All of these resources, they are free. The first quarter of school session is in the books but we are still adding to our classroom portion of our program. Each week new content is added to the commodity markets and other sections of the site which can be found at MarketToMarket.org/classroom. Next week, we'll take a look at the scope of the latest HPAI outbreak. Thank you so very much 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.

(music)

This is the Friday, November 4 edition of Market to Market. the Weekly Journal of  Rural America.

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