Market to Market - November 25, 2022

Market to Market | Episode
Nov 25, 2022 | 27 min

We’re taking a deep dive into the economy and see what might be in store for the commodity markets. Chris Robinson, one of our regular market analysts sits down with Creighton University economist Ernie Goss.


Paul Yeager Coming up on market to market, a deep dove into the rural economy and how it impacts the commodity markets. We bring in regular market analyst Chris Robinson and Creighton University economist Ernie Goss. Next.

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Paul Yeager This is the Friday, November 25th edition of Market to Market, the weekly Journal of Rural America. Hello, I'm Paul Yeager. We are recording this episode ahead of the Thanksgiving holiday to allow our producers and crew to enjoy the holiday with their family and friends. Before we tape the show, there were some headlines to get to. They include losses in crude oil as well as the potential of a rail strike.

Paul Yeager And the ongoing battle in Ukraine and Russia over exports. Let's begin, though, with the closes for the week. As of Tuesday, the nearby wheat contract was down $0.12, while the March corn contract fell $0.11. Sideline talks between the U.S. and China, as well as low water levels on the Mississippi River, held the soy complex to limited gains. The January soybean contract improved two pennies, while January meal dropped $1.10 per ton.

Paul Yeager March cotton decreased $1.36 per hundred weight. Over in the dairy parlor December Class three, milk futures plummeted $0.49. The livestock market was higher as February cattle added $0.58. Feeders put on $0.90 in the February lean hog contract was up $0.53. In the currency markets, the US dollar index gained 25 ticks. January crude oil climbed $1.16 per barrel, COMEX gold dropped $18.10 per ounce, and the Goldman Sachs Commodity Index was up almost 11 points to finish at 627.70.

Paul Yeager Back now to provide some insight at the table, our regulars Chris Robinson, frequent guest Ernie Goss. Gentlemen, good to see you both to be here. Chris, we'll get to you in a moment. You know how this whole commodity market thing goes. So we'll start with Ernie. What's the state of the rural economy as we sit here tonight?

Ernie Goss Not good, at least according to our survey of bank CEOs and rural areas to ten states, average community size is about 1300. And Iowa was included in that survey each month. And the bankers six straight months the index has been below growth neutral, but it's sort of bifurcating. That is the farm economy that's farmers are doing reasonably well.

Ernie Goss In other words, their cash positions are pretty solid. Bankers have not asked for any more up front money on loans or more down payments or whatever you wish to call it. And they're when you look out, they're saying farm loan defaults are not going to be there at least their judgment. But when you turn to Main Street, that's a businesses on rural Main Street, as we call it.

Ernie Goss Not good there. It's dry cleaners, leisure, hospitality, hotels, motels, restaurants.

Paul Yeager And I'm familiar with your surveys, but one thing that always comes up when I read them is I look at more. How do you differentiate between sentiment and cold, hard numbers?

Ernie Goss The cold, hard numbers? Well, it depends on what you mean by cold, hard numbers. I think even even the Bureau of Labor Statistics numbers. Are they really cold, hard? Are they from a sample? They're from a sample. So cold, hard numbers. We typically we don't integrate those in, as you call them, the cold, hard numbers, because these these are this is for the month of November.

Ernie Goss The latest numbers, BLS. Bureau of Labor statistics. We won't see those numbers for the states until the end of December. So we have to do some of that.

Paul Yeager And so many government reports are look back and look forward. Do you consider years more of a look forward?

Ernie Goss To a large degree? Some of the questions are looking forward and that's part of the sentiment the bank banker's sentiment. Now, these are not they're speaking sort of for the farmers, and it's it's the lowest we've seen since the pandemic. In other words, the sentiment drops significantly after the pandemic began in in March of 2020. And then it it revived after that.

Ernie Goss And now we're back to those levels of the pandemic when the pandemic began.

Paul Yeager Chris, is that line up with what you're hearing with customers in rural America?

Craig Robinson I think the biggest thing everybody's kind of concerned about is what's going to happen with interest rates. I think that's really what it is. And well.

Paul Yeager Up.

Ernie Goss L.Z..

Craig Robinson Yeah, right. Yeah. There you.

Ernie Goss Go. I mean, see, the Federal Reserve, Jay Powell even gets miffed. You can see him visibly angry when somebody said, well, we think you're maybe going to pivot. Are you going to cease? And he says, Read my lips. No, we're raising rates. So didn't mean to interrupt.

Craig Robinson No, I think that's absolutely true. And I think that that's probably the biggest concern even for farmers in general. If you're borrowing costs are going to go up. We know that the core inflation has gone up 7% or 7.8%. But I think it's going to be the number one thing farmers are looking at is how much of their inputs gone up are their rates are there.

Craig Robinson If they're paying cash, rents, are those going to go up? And, you know, that's going to be a, I think, a big worry about for a lot of people, because you've got to know what your bottom line is. People don't know where their bottom line is. They get nervous. They get nervous, they don't spend money. And then we talk about the, you know, the R word.

Craig Robinson Are we going to be are we going to have a recession? And, you know, what would that mean to the farm economy?

Paul Yeager Well, I'll ask you both this question. $30,000 per acre was a sale recently in northwest Iowa County, in Sioux County. Doesn't sound like anybody's concerned about interest rates there.

Craig Robinson No. And a lot of those sales I, like most of them, are cash money, which tells you a lot about that. And I think that's a strength. I think we'd be in a different situation if this, you know, people were borrowing money to go do this because then that's that's I think that will probably make the bankers nervous.

Paul Yeager Does 30 K make a banker nervous?

Ernie Goss They absolutely would. But as Chris is saying, they're not lending on that. Those are cash sales you had. I mean, you better be raising something other than corn and soybeans to make those numbers work. They don't work unless you're moving Disney World into that is coming into that area and that's not going to happen.

Paul Yeager So you mentioned interest rates. Let's also discuss the news of the week. The rail strike again, another union voted down. That's another one. There's still another one that approved. We have this river movement of grain issue impacting basis up and down the upper Midwest. Impact of the rail strike long term or at least immediate term.

Craig Robinson Well, it would be negative. I mean, if you can't move the product, you need to go. It would probably drop and then you're probably going to see big moves in basis. I think the closest thing we saw was during the early part of the pandemic where all the grain was they could move the grain up in Canada. Right?

Craig Robinson It was just sitting there because they could move because the railcars it was they were making more money, filling them up with oil. So all that grain sat there. So I would look to that. What happened with those prices up there that that's the biggest risk. And, you know, is it going to come down to that the ninth hour or whatever, however, it's going to come?

Craig Robinson It's I think it is on December 9th. I'm going to decide, I think, what would be a negative for the whole country, not just but really affect a lot of farmers negatively.

Ernie Goss I mean, I'm in the belly of the beast. Omaha, Nebraska. Nebraska, in terms of per capita rail workers, most in the nation and we're talking about four unions out of 12 voted it down and they're not going to cross the picket line if there's even one or two unions that still are negative on it. They're not. I don't think they'll cross the picket line.

Ernie Goss So back to Chris's issue there.

Paul Yeager So the worker, my understanding some of the reasons are voting no is not over pay. It's not, but it's over working conditions. Right. Remember this sentiment not too long ago was the worker had the advantage. Does the workers still have the advantage in this discussion of rail.

Ernie Goss At this point in time. They do and they they will. I think there's going to be Congressional intervention and we're talking about around December the third to the ninth is that you're going to have the strikes there. And I think we'll see Congressional intervention this time. And I don't I don't think we should I think this should be settled.

Ernie Goss And but there may have to be binding arbitration, for example. But I don't know if there will be an agreement to go to binding arbitration where you have to accept the outcome of this panel.

Paul Yeager A lot of trains go into Mexico with beef, with corn, with Parts.

Ernie Goss What about ethanol?

Paul Yeager Ethanol.

Ernie Goss Biggest and biggest ethanol producing state in America and the second biggest in Nebraska. Ethanol goes by Rail 

Paul Yeager And it ends up in New Mexico. But Mexico recently said we're not going to take anymore of this GM corn, 24, 24. They're buying a whole lot of U.S. goods. Right now. Ernie, if I'm in Mexico, am I concerned about this rail strike in the United States trying to get a lot of stuff in?

Ernie Goss Oh, absolutely.

Paul Yeager Before things change.

Ernie Goss Absolutely. It's not just the rail, but you're talking about trucker shortages. We were 80,000 truckers short about, say, four or five months ago. We've made some of that ground up. We're talking about loading docks where the products are not coming in as fast as they should. They're not going out as fast as you should. So this compounds it.

Ernie Goss When we asked the the our bankers about one of the biggest concerns, they have supply chain disruptions already. This is before the impending rail strike. So this, as Chris said, we're talking about $2 billion a day cost. But it's going to be across America. But it's going to be centered I won't say centered, but focused here significantly.

Craig Robinson Yeah, that's a risk.

Paul Yeager We talk a lot about China and Brazil. We're going to start adding Mexico to a greater concern right into the corn markets lately.

Craig Robinson Yeah, we they've been our best buyer, you know, and China has actually kind of backed off corn. They've been pretty good buyers, soybeans. But in general, our exports for corn are behind where they need to be behind where they should be are be one of describe it not not as as strong as they had been. And then we just had this cattle on feed where the we found out how small the hurt is that's going to affect demand for for corn.

Craig Robinson So I think that's something to watch too. And it's nice to have Mexico continue to buy corn. You did mention the fact that there's concern that they aren't going to take our GMO corn at some point down the line. In my opinion, I could be wrong, but in my opinion they'll they'll find a solution to that because at the end of the day, it's something that they need.

Craig Robinson There's obviously the issues with, you know, GMO versus non-GMO. But I at the end of the day, I think if they need the corn, they're going to figure out a way to do it.

Ernie Goss But what about the inflation and Biden's inflation and deficit reduction plan, which calls for 40% reduction in CO2 emissions? And you're talking about emissions from ethanol plants. And if that moves to 40%, they require that to move down by 40%. That's costly to corn. So we need some more forward looking than we've seen in the past in terms of GMO corn, but also in terms of ethanol, the CO2 emissions.

Paul Yeager I know you watched the show on a regular basis, and so I'm putting you on the spot where you use that in a promo. John Roach was on. You've seen John Roach on the show a time or two, he said on Marketplace a couple of weeks ago. He cited inflation as the biggest reason his energy tied not necessarily for a global story.

Paul Yeager Do you fall into that camp as well? That part of the biggest reason inflation is going up so high around the world is because of energy and maybe some of the Biden policies spreading to other parts of the globe.

Ernie Goss Absolutely. That is a big, big part of it. But oil is coming down, has come down in price. And I think long term, I'm not as concerned about that. I'm concerned about the policies that are coming out of Washington, particularly as it affects this part of the country. And we're talking about, again, climate change legislation or some call it climate change legislation without knowing, without understanding the differential impacts across the nation.

Paul Yeager Another policy is the farm bill. We just had an election where we'll have a split Congress.

Ernie Goss That's good, by the way.

Paul Yeager That's there's many who think that's good. What do you see about a farm bill? How that a split Congress shapes that piece of legislation?

Ernie Goss I think it's going to be good for the farm bill that's going to come out. I think there's going to be voting favorably. But I would like to see more of a long term solution to the part this part of the country. And that means those of us who are we're high user of of energy and the-

Ernie Goss In other words, when we talk about climate change, they think about on the east and West Coast. But right here is we're big we're big users in terms we're driving greater distances. We're talking about Iowa is the center, the center of renewable fuels, renewable energy generation, whether it's ethanol, whether it's wind turbines, all that.

Paul Yeager You also got our political ads to watching from your TV, saw the same things.

Ernie Goss But I didn't get my check on that one.

Paul Yeager Chris, let's start with the wheat market quick here. Dry continues to be the story. Domestically, we have an agreement, an extension to allow port exports in Ukraine. What's the biggest mover on wheat here in the short week?

Craig Robinson You know, it's interesting. There's so many reasons to be want to be bullish wheat. Fundamentally, we've got tight stocks. There's concern that we are planning in you know, dry to dry or to find out if enough fertilizer actually got hit the ground because it was so dry. I think that's going to be the talk for the next three or four months.

Craig Robinson And then we also have what's going on in South America. Are we going to have another drought watch down there? We you know, it was interesting, the best cash sale opportunities producers had really came, unfortunately, out of what was going on in Ukraine. You can go back and look every spike that came out of that part of the world was short lived and and had no legs.

Craig Robinson Right. We just had about a month and a half ago, we had a $2 rally to hour and $2.20 rally. We're right back. We've given back half of it today. Of course, it's the middle of the week, but we're for especially for Kansas City, hard wheat, It's sitting right at a kind of a critical level. You've got Chicago wheat in $8.

Craig Robinson You've got KC wheat at $9. If those levels fell, you could see more long liquidations. So people want to be long, but if they don't get paid to be long, they won't stay forever. And I think that's the concern. As we finish the end of the year, we're into the holiday markets. You see the type of whippy actions we had every night.

Craig Robinson You go to bed, it's a ten or 15 cent trading range. So I would be very, very careful getting too bullish or too bearish here. But we got key levels coming up here that have to hold for we.

Paul Yeager Just don't sleep, Chris. That's the that's how you do it, right? You gave out sleep for Lent or seven years ago.

Craig Robinson There's a three there's a 3AM push. You know what? I'm I'm almost to the point where I'm going to wake up at three, but I refused to do it so far.

Paul Yeager Let's go back to corn talked a little bit about Mexico big buyer again does that help the U.S. market when they keep buying in? They've always been buying, but they're increasing.

Craig Robinson What also to the percentage compared to anybody else. Now they're becoming more important. So, yeah, especially for corn, because our corn exports are lower than they need to be. And again, this is all going to come every month. The USDA has got another report sooner or later, they're going to start to actually grind through the numbers and say, okay, we have not had the exports that we thought we would have.

Craig Robinson Therefore, it changes the carry out. So I think that the December report probably not that big a deal, but certainly the January 12th report where we get the final number is final production. That's going to set the tone on a lot of ways. And unless there's a weather issue, there could be some downside risk for the grains.

Paul Yeager Moving to, let's say, the end of the year. You kind of talk about, you know, the up and downs whipsaw moving forward, the January 12 in between. Say, I just had my Thanksgiving meal with family and I had to listen to someone say they sold on a rally. What do I do to try to capture anything of my pride and some of my money back?

Craig Robinson Well, this is a bit a year where if you haven't had your orders resting at the elevator, you missed them. Some of these spikes have been there for literally minutes or hours. They haven't lasted. There has been no follow through on any of these rallies. I would say this if if you're storing anything, you need to get a floor under it, you need to have your risk on paper, putting a floor under is not bearish.

Craig Robinson It's not calling a top. But you need to protect that revenue moving ahead to next year. You still got you look at Dec 23 corn already. You look at November 23 beans. Those are still good levels. You've got Dec 23 corn well above six bucks, kind of teetering there at 610. But that's a key level.

Craig Robinson And then you also have had multiple times were a new crop. Soybeans, they can't get above $14, can't get above $14. So if you're saying what's your risk looking out the rest of the year, you can point to the summer lows. Right. We actually have had a nice rally since those summer lows. And so if I'm looking out as a road map saying, okay, what am I worried about, I would start with those lows.

Paul Yeager All right. Quickly on beans, I received a lot of messages about Brazil and challenges there. Is that going to impact the soybean market here any time soon?

Craig Robinson Oh, absolutely, because they're not only have plenty of supply, but they're around $0.80 cheaper. So every time that there is a possibility that somebody might want to buy US from our U.S. port, it's cheaper in South America. So I think that's going to continue to be pressuring our prices up here.

Paul Yeager Ernie, what does the in your states when what do they pay attention to when it comes to global stories and how they make decisions? Is it Brazil? Is it China? Is it Mexico? Is it. No, I just care about me.

Ernie Goss Oh, I don't think it's that way. I think back to Chris's earlier point about inflation, your point about inflation and how it is affecting interest rates. Interest rates are a big issue going forward. And I think I think I'm very happy that people sort of listen to us, but they need to really listen to what those on the open market committee, the interest rate selling committee of the Federal Reserve and I don't vote on that committee needs neither do you or Chris.

Ernie Goss And they're going to they're they're telling us they're raising rates so but looking at that another issue regarding particularly corn I think is a barge traffic down the lower Mississippi. There's some real issues. There are some real issues there that's reported and by our bankers. They also talk about drought conditions, particularly west of the Missouri in in our survey.

Ernie Goss That would be, of course, Nebraska, Kansas, Colorado and Wyoming. And, of course, in upstate north of North Dakota and South Dakota, not as much Iowa, of course, but also land prices. We ask about farmland prices are continuing to grow despite these weaker farm conditions. And we asked the bankers look into 2023 and they're saying they're going to see a plateau, most of them, some even said decline, about 20% decline in farm land prices.

Ernie Goss Now, we'll wait and see if that happens in 2023. But farm and the farmers saying, well, I don't sell land, I sell what's on the land, and they're there. And we're all thinking, well, you've gotten rich.  NO, you sell corn, soybeans, other things. But those are things they're talking about, particularly and again, the supply chain disruptions, labor shortages.

Ernie Goss I mean, the farmers are in this part of the country, aren't big users of labor that would be off the farm, but they still it still makes a difference.

Paul Yeager Oh, yeah. I mean, it's hard to find somebody to run the grain cart or help at the harvest in addition to those that maybe in the vegetable area it's a whole lot different. So it's also in the dairy market. I'm not going to ask a dairy question. Let's go to live cattle first. But in the livestock market, labor is always a story.

Paul Yeager There. But drought is also been a big topic. What do you see live cattle? What headwinds do they face or they got the wind at their sales? Right now they have their.

Craig Robinson Wind at their sales right now. We were at five and a half year highs. You know that's something that and this last cattle on feed report you can look at the deferred months of deferred months go out June July August of next year. They're all at or near contract highs. So the market's telling you that it's trying to price in less supply and continue good demand.

Craig Robinson You know, repeatedly we've been told up recession people are going to stop spending this. I think haven't really seen it. Yeah, it hasn't kicked in yet. Fortunately, you still have people, you know, going out and and paying up for certainly premium cuts of meat. So that hasn't completely hit yet, which I think is a blessing. But yeah, if you just look at the charts and if you look at the supply and demand numbers we just got from the cattle and feed, you know, it's you can't rebuild the cattle herd like you can the hog.

Craig Robinson It takes a while to replace, you know, 2 million animals.

Paul Yeager Takes a while. Feeders, I believe I'm going off memory 94%. That catches up, though eventually some. But do you see a sign? I was told by a cattle person last week that they said once you start to see some retention, that's a good indicator for the market. Do you subscribe to that?

Craig Robinson Absolutely. But at the end of the day, we have to deal with that the prices, too. And I think that for too long we've been trading price and not really fundamentals. This may be the year we finally get back to trading fundamentals. And if you look out again, it's the deferred months. It's not what's happening currently right now.

Craig Robinson It's that's a problem and it's like I said, it's not going to be fixed overnight. And so if you're if you're a cattle producer, if you're a cow calf or if you're, you know, raising fat cattle, these are great prices. Take advantage of them. You know, historically, you know, you don't need a big road map to go and see that these are worth protecting.

Craig Robinson And if our inputs are expensive, this is going to be the year where you've got to keep your pencil really sharp about what it's costing you to get from point A to point B 

Paul Yeager Hogs. Let's close with them for you. Do you? Let's see. As we closed on Tuesday, up a little bit, back above $90, still a good price.

Craig Robinson Yeah. And there's a little bit of a spread there between new crop and the four months again have a nice bit out there. You know the number one thing you have to worry with hogs, I think is if there is any return to any sort of, you know, the viruses that we've had, something like that. So that's always a risk.

Craig Robinson But the second thing I would look at, too, is you've had a continued interest in the financial community. They want to be long lean hogs and they're long live cattle. That's probably, you know, it's almost a force of nature. Those guys change their mind and they decide to start liquidating those positions. And we've seen that just recently in the Hogs.

Craig Robinson You know, we had a $17 break. Now we're right back up with the at the time the top of that move. So what I've been trying to work with producers and told them is like when you get these good prices, sometimes they're not going to last for two or three months. Certainly I'm not here sitting saying they can't go higher.

Craig Robinson But when they give you the gift, when they want it so bad that they can't stand it, make sure that you let them have some or protect it because it might not last.

Paul Yeager All right, Ernie, hold on before you chime in to that. When you hear Chris say something like that and you're a banker in Norfolk, Nebraska, and you hear that, is the siren going off of what something's about to happen? Or do you think that you're four, four or five, six month decline here is has been the indicator of troubled times ahead.

Ernie Goss In the short term, I think long term, we're good to go and mean long term, meaning the second half of 2023. The first half is going to be a bit dumpy. But I also like to raise the issue of Xi Jinping and China. The markets being closed down, the economy is being closed down. He's under pressure to open that economy up.

Ernie Goss And what that means to soybean and pork particularly, I think that's going to be good. So I think we're looking at that. The bankers are looking in that closed economy. The value of the dollar has been very strong until recently is cooled down. That's good for agriculture.

Paul Yeager I'll follow up with China in Market Plus. You good for that.

Ernie Goss I am going.

Paul Yeager To stick around. That's certainly got some great university. Chris Robinson, regular market analyst. Gentlemen, good to see you. Thank you so much for enjoying one of these years of this turkey talk. I'll bring turkey that's going to do it for this show. We will put a pin in the discussion and continue in Marketplace which is available free on our website at Markets America dot org.

Paul Yeager Now we're also going to see a whole lot of great images from rural America. You know, we talk about the harvest and the planting. Those are all pretty well really like to see what creative and what things are going on in your farm. Now posted on Instagram Tag us at Market to Market Show. We'll put it in our stories feed and you can see some of the great images from around the world.

Paul Yeager Next week, we are going to take a look at transportation of the commodities on the nation's rails and inland waterways and continue our discussion like we always do each week here on Market the Market. Thanks for watching. Have a great week.

Announcer 2 Market to Market is a production of Iowa PBS, which is solely responsible for its content.

Announcer 1 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.

Announcer 2 Tomorrow for over 100 years, we've worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

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.