Market to Market - November 11, 2022

Coming up on Market to Market -- A too close to call election keeps the balance of power in doubt. GMO exports may need a new port of call. Totaling up the damage from the new wave of HPAI. And market analysis with John Roach, 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.  

(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 11 edition of Market to Market, the Weekly Journal of  Rural America.

(music)

Hello. I’m Paul Yeager.

The look back is one story, the way forward is another. In the rearview is a snapshot of the economy that appeared late in the week.

The Consumer Price Index - the measure of what you and I pay for things - was up 0.4 percent, the same rate as in September. 

The core strips volatile items like energy and food and was half of what it was last month - down 0.3 percent.

The 12 month view of CPI was 7.7 percent - also lower than the annual rate measured in September. 

The core rate fell at the same pace. 

The look forward comes in the form of elections and is less concrete just days after the polls closed.

A few races are still too close to call and keep in doubt who moves into majority or minority positions.

Peter Tubbs has our election wrap up. 

An expected red wave arrived as a red ripple, and the Republican bid to gain control of Congress will have to await completion of the final tabulation and recount process.

 In the U.S. House, Democrats have been holding on to the narrowest majority in decades and Republicans needed to flip only 5 of the 435 seats to regain control. In midterm elections over the last 100 years, the President's party lost an average of 29 seats in each cycle. Republicans may fall short of that mark in this cycle.

Control of the Senate may have to wait for a December runoff in Georgia. 

Republican control of either the House or Senate Agriculture Committees could change the trajectory of the next Farm Bill. Republicans may put a damper on President Biden’s climate smart agricultural initiatives. Another attempt may be made to separate the USDA’s supplemental food assistance spending, commonly referred to as SNAP, from the remainder of the USDA budget. Attempts to decouple food assistance spending, which makes up the vast majority of the Department of Agriculture’s budget, from the rest of USDA’s coffers has failed in the past.

If the Republicans gain control of the House Agriculture Committee, Congressman Glenn Thompson of Pennsylvania would take over the gavel. Senator John Boozeman of Arkansas would be Chair of the Senate Agriculture Committee under a Republican majority.

On the state level, Missouri and Maryland each approved recreational use of marijuana. 21 states now allow recreational use by adults.

For Market to Market, I’m Peter Tubbs.

China, Mexico, Japan and Colombia all took more than 1 billion bushels of U.S. corn in 2021. 

The number two destination upheld a change in the type of yellow corn they’ll let in the country.

David Miller reports. 

In 2020, the Mexican federal government declared it would phase out the use and import of GMO corn by the end of January in 2024. Along with the draw down was a ban on glyphosate-based weed killers. At the time, it was unclear if any exemptions would be granted.

This week, Mexico’s president Jose Andres Manuel Obrador, re-affirmed this pledge to ban the import of genetically modified corn.

Supporters of the ban are concerned about contamination of native corn varieties and say glyphosate herbicides are harmful.

Last week, the National Corn Growers Association went to the Biden Administration for help. In response, United States Trade Representative Katherine Tai met virtually with Mexico’s Secretary of Economy late. The conversation included Tai stressing the importance of avoiding disruption of U.S. corn exports and asked for a return to a science-based regulatory approval process.

Last year, according to government data, U.S. producers exported 17 million tons of corn to the nation’s number two trading partner at a value of $4.6 billion. The bulk of that corn was used as livestock feed. USDA statistics indicate that over 90 percent of the corn grown in the U.S. is genetically modified.

Officials with the Biotechnology Innovation Organization, a U.S. GMO lobbying group, stated if the ban holds it could cost billions of dollars on both sides of the border and potentially create a food crisis for the Mexican people.

Mexico is considering direct agreements with farmers in this country as well as Argentina and Brazil. It’s been nearly four years since COFEPRIS, Mexico’s governmental health agency, has approved a new strain of glyphosate-resistant genetically modified corn.

For Market to Market, I’m David Miller.

New outbreaks of HPAI were reported this week in Wyoming, Wisconsin, Virginia, Ohio, Washington and Pennsylvania. 

Nearly every state has dealt with infections this time, but many things have been learned since the last big outbreak eight years ago.

Colleen Bradford Krantz reports in our Cover Story.

Experts warn the 2022 global outbreak of high pathogen avian influenza, or HPAI, isn’t over. While fall has typically brought about a resurgence as migratory birds begin their journeys to warmer climates, this summer also included what the World Organisation for Animal Health called an “unusual persistence” of the virus in wild birds.

Brian Earnest, CoBank: “We are seeing… cases of HPAI showing up through the summer months this year, which is atypical. The suggestion here is that we may see this be endemic in at least wild flocks moving forward. Looking at Europe, what they are seeing for their poultry flocks: they’ve had the worst case of AI on record there this year.”

In the U.S. so far, flocks in 46 states have had confirmed infections during 2022. Fifty million birds have died or been euthanized. In the last two weeks, two egg producing facilities in Wright County, Iowa had to euthanize more than 1 million laying hens each. Smaller commercial turkey and chicken flocks in Minnesota, Pennsylvania and Mississippi were also hit.

Regardless, poultry remains safe to eat, and experts say humans must have close and prolonged contact with birds to get sick with what are typically mild symptoms like fatigue.

Brian Earnest, CoBank: “Egg producers have seen the largest impact from an overall depopulation standpoint, then followed by turkeys. I think roughly 7.5 million turkeys have been depopulated… so around 3 percent of … the total annual production.. And more of a minimal production impact for birds that are produced for broilers production or chicken production as consumers see it.”

One export official says that the last major high path bird flu outbreak, which hit the U.S. in 2014-15, provided lessons that have helped minimize the current outbreak’s financial impact on commercial operations.

Greg Tyler, president, USA Poultry & Egg Export Council: “At that time it affected about 50 million birds, and it was a loss to the industry of about $4.2 billion. Exports alone was about $1.3 billion in losses. Fast forward seven years to 2022, and we’ve started having more HPAI outbreaks, it has hit a larger area of the country, it is across all four flyways… The damage that we have faced this year has been about $1.7 billion. Compare that to 2015, where we were hit with $4.2 billion.”

After the last outbreak, the USA Poultry & Egg Export Council worked with USDA to seek changes with world trading partners. The resulting “regionalization agreements” shrank the geographic area that would be shut down in the event of an outbreak.

Greg Tyler, president, USA Poultry & Egg Export Council: “These agreements are so that, if we have an outbreak in a particular county in a state… some countries used to ban the entire U.S. and now they are only banning the state or even down to the county level and in some cases just a radius around the site where the infection took place. So that has helped us to keep product flowing from the United States. And this year, despite the challenges that we’ve had with HPAI, we are expected to hit a record number of exports of $6 billion.”

Consumers are still seeing an effect at the grocery store, but not so much with chicken meat as with turkey and egg prices. The lingering effect of COVID-related food service shutdowns, which dropped demand for sliced deli meat, are also at play for turkey. 

A West Liberty Foods plant in Mount Pleasant, Iowa, that processes turkey and other pre-sliced deli meats will be closing in 2023 after 20 years in operation. Other plants owned by the company will remain open.

Brian Earnest, CoBank: “You are seeing fresh tom breast meat rising to levels it’s never been before, up above $6.50 a pound, whereas typically that’s been sitting around $2 a pound prior to 2020. So some significant price pressure for the consumer for turkey meat in general as a result of both the consumer transition but now high-path AI kind of folding in on top of it… This time around...we have seen a really sharp increase in shell egg prices and it really hasn’t eased despite some seasonal lull that we typically get in the summer months. From a production standpoint, they have depopulated flock to equal a little over 30 million so far… But we are still seeing cases like in Iowa, for instance, where we have some larger flocks being depopulated… It puts volatility in the market.”

The deaths of wild birds from HPAI – now numbering at least 400,000 – are also getting attention worldwide. At the same time, a global conversation has begun over the possibility of vaccinating domestic flocks.

Greg Tyler, president, USA Poultry & Egg Export Council: “There are vaccinations that are available. And, of course, that’s been a touchy subject for exporters because if we vaccinate here in the United States, we are basically taking ourselves off the export market because a lot of trading partners will not accept product from a country that vaccinates. That’s become a hot topic lately is whether or not industries around the globe will start using vaccinations. The Europeans are looking at that to try to protect their flocks because it is very costly.”

But the World Organisation for Animal Health is warning that vaccinating birds will present some challenges. Birds can still get infected and show no symptoms, making surveillance of the disease more challenging and possibly allowing silent transmission.

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

Next, the Market to Market report.

We are taping this program early to allow our staff to observe Veterans Day. The nearby wheat contract lost 44 cents while the December corn contract cut 28 cents. USDA raised corn and bean yields with little change to stocks this week. The January soybean contract shed 39 cents. December meal sold off $16.30 per ton. December cotton decreased 55 cents per hundredweight. Over in the dairy parlor, December Class III milk futures rallied $1.17. The livestock market was higher. December cattle added $1.43. January feeders improved $2.07. And the December lean hog contract expanded by $1.90. In the currency markets, the U.S. Dollar index dropped 269 ticks. December crude oil lost $6.26 per barrel. COMEX Gold strengthened $75.30 per ounce. And the Goldman Sachs Commodity Index weakened more than 26 points to finish at 638.60.

Yeager: Joining us now to provide some insight, our senior market analyst Mr. John Roach. Hey, John.

Roach: Hi, Paul. How are you?

Yeager: I'm all right. The wheat contract though not all right. This has been a fall. Normally we have been looking at the dollar in comparison, the dollar falls but so does wheat. Are those two done being tied to each other?

Roach: Well, they certainly are tied to each other but they don't have to be tied immediately on that day. The other side of the issue is the wheat market has been under pressure here, we've had the Black Sea region, Ukraine with their grain corridor able to ship grain, shipping it at a faster pace than what was anticipated. And, as you can imagine, when you're holding an inventory in a war zone you're trying to move it as quickly as you can. And this week when that corridor opened back up we started to see the movements. There's 90 ships, there are almost 90 ships that are lined up ready to load and a lot of that will be wheat that is coming out. And you also have Russia with a very big crop and they're doing the same thing, they're moving it out quickly when they get the opportunities.

Yeager: And let's not maybe look too far past the rains falling in Argentina also contributing to the global stack. Is that part of it too?

Roach: Yeah, it certainly is. The biggest problem we have in Argentina is they really are struggling there to get enough rain. But they did get some rain and so the wheat market -- and we have some rain forecast into the southern part of our winter wheat belt and so we're getting a market that is coming under pressure. We actually have buy signals on wheat here the last, I think we're about three days into a buy signal. So what we're recommending to customers is now is the time, if you want to come back and reown wheat for any reason, now is the time to be a buyer of wheat. Utilize this selloff in order to pick up some inventory.

Yeager: We could go completely about what your buy signals mean. But I guess I want to ask what is the bottom range of this wheat contract? Because to me with your buy you think an end is in sight possibly for this fall?

Roach: I think so. I think we're not far from that bottom and my concern is look at your wheat rating here in the United States, we're well below the percentage of the crop rated good to excellent compared to normal. I think we're 21% or 22% in poor quality and we have a Black Sea region that although their crops are pretty good this year, the Russian crop particularly, the Black Sea region is going to struggle in order to raise this size of crop next year. It will be very hard for Ukrainian farmers in a war zone to be able to come up with the money and come up with everything they need in order to raise crops. So we think we're at the stage here where we're getting a lot of the bad news into the marketplace right now.

Yeager: You also have a buy signal in corn. Today we ended I think five straight days in a row of lower closes. How much more low do we have in this?

Roach: Well, we're right down on the support level and the market needs to hold right in here. We've been in a really broad trading range and we have expanded to the lower side of that trading range here this week. And it needs to hold or else we're going to run into some more technical selling. But same thing, we think that as you're wrapping up harvest in the United States, you're getting a push into the market, we also have the Mississippi River that is low and causing problems with shipments and you have export business that has been really, really slow. And we think we're looking at kind of all the bad news right now and we think the news can get better as we move on into the winter months.

Yeager: Well, we maybe did get a little bit of good news this week. The rail strike that was potential for November 19 has been pushed a couple of weeks later into December. Is that enough to start a little more positive news, John?

Roach: I think that helps and we've also seen some moisture and we've seen the barge rates relax a little bit on the Mississippi and until we have some opportunity here maybe to get some shipments increased a little bit. But you have to make a harvest low somewhere and we think that we're in the process of doing that.

Yeager: All right, well Shane in Bloomfield, Nebraska has a question for you, maybe not necessarily about the harvest low but just about the low in general. He's asking, $7 corn may as well be $3.50 corn with record inputs. And he's asking, should producers sell grain and buy the inputs like fertilizers and chemicals this fall or wait until spring for grain sales and input purchases? And he's saying all of this with attention to interest rates.

Roach: I think that the purchase of fertilizer, the prices have come down some but we think that it can come down some more actually so we're slow in buying spring fertilizer needs. And we really don't like to sell corn this time of year. When I look at the calendar in November it's the wrong time of year to sell corn. We have to raise a crop in the Southern Hemisphere and right now we have Argentina with the dry conditions and they're only about 25% planted and when you look at the corn exports the combination of South American exports are bigger than United States exports. And so Argentina is an important supplier to the world and they've got a problem starting and we won't know about the Brazilian crop until, it's the second crop mostly, we won't know about that until the spring. So it's not time to go out and make sales out of fear, if you will, in my opinion. So we're actually on the other side. We're thinking if you're in the livestock business or if you want to reown corn that you sold earlier that you couldn't store this is the time to be doing that.

Yeager: In the bean market we have a USDA report that came out this week, they talked about there was a little change in yield production and ending stocks. But come Thursday when we recorded this, Thursday was a tough day. It doesn't seem to be fallout from USDA. What seems to be the fallout here in soybeans?

Roach: Well, interestingly enough today's decline took us out of the sell zone. We've been selling beans all week, started last week actually selling beans, cleaning up the beans you couldn't store and selling beans in order to make cash flow needs with an idea that the market has some pressure coming. The crop is going in, in pretty good shape in Brazil. It's a great big crop according to the current estimates if they get it all planted. There's liable to be some kind of weather worry at some point. But at least right now the Brazilian crop is in really good shape and so that is putting pressure on the market as we're wrapping up harvest in the United States, again with the problems of the river and the Argentine bean crop still has a long season to it yet. So it's really, although it is not getting planted as rapidly as normal, there's still plenty of time to get that done. It's a little more dicey with corn in Argentina.

Yeager: Did those who have bull party decorations, are they putting those away right now? You mentioned that we're not going to be selling as much now. What is a range here on beans? Is this bull event done?

Roach: Well, I think it is for a moment. Today's break took bean prices down below the 20 day moving average. By our way of thinking that puts it into an official downtrend. We're not down near the low of the trading range on soybeans. So we think that the market has some room to the downside and it could be 20 to maybe as much as 50 cents a bushel, although that's maybe a little bit, stretching it a little bit. But it certainly has that kind of possibility to it. Everything in the bean market over the period of the next 90 days is going to depend on what happens in Brazil and their crop.

Yeager: Okay. You kind of teased it a little bit, you knew we were going to talk livestock. You've done this show a time or two. Livestock up this week. People seem to be taking advantage of buying opportunities. You mentioned -- I asked you about the dollar and the direct correlation, lower grain doesn't always mean higher livestock, but December cattle this week did okay. Why?

Roach: We think that they deserve to be okay. This is a time of year when we tend to have a stronger cattle market. In fact, November is kind of our optimum time to be putting hedges on in the spring or for spring cattle. We're not doing that yet. We actually were buyers of cattle expecting higher prices. The exports have been good, although the USDA lowered their export forecast in the report on Wednesday that we've been running well ahead of what expectations were. The numbers are tight out forward we think and to give you an idea about what the market thinks, what we call the cattle crush, which is the results if you buy feeder cattle, buy corn and sell fat cattle, is running somewhere about 95% of the best that it has been in the last 10 years. So there's some optimism there in the marketplace and we think it's justifiable. We think the cattle market moves higher. One of the things in the livestock industry to remember is that protein supplies and prices there's comparisons here. And so we talked about the problem with bird flu and prices have moved up substantially. We think that cattle prices, although it doesn't really go straight across like that, it has more impact on pork prices, it still has impact on protein.

Yeager: Okay. What about the protein called hogs? Where do you see that? Because China keeps saying we're going to stick to this zero COVID policy. That doesn't sound like reopening to help the hog market.

Roach: When they come in and buy they buy quite a little bit and then they disappear for quite a while. They have been selling pork out of their inventory and yet the prices there are record high. And so we think that they'll be into our market. Demand has been a little bit sluggish for pork but we think it will come alive. We also noticed that the weights are down from last year which is unusual to have lighter weights this time of year as you're coming out of the summer and you put the fresh feed to hogs and normally we have a problem with weights and we're not having that. We're very current in the hog industry. The packer margins are a little bit tough in here but, again, we think we have increased demand out forward and less competition and so we're optimistic of the hog market.

Yeager: All right, thank you so much, John, appreciate the time.

Roach: Thank you, Paul.

Yeager: All right, we're going to put a pause on this analysis and we'll continue with John and answer more of your submitted questions in our Market Plus segment. You can find that on our website of MarketToMarket.org in podcast form and also on YouTube. And all of these resources, they are free. We also leave our email inbox open for you to write about your thoughts on the program, ideas for stories or just general correspondence. The address is markettomarket@iowapbs.org. Next week, we'll look at drones delivering an unusual package. Thanks for watching. Have a great week.

(music)

(music)

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

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

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

(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)