Market to Market - December 9, 2022

Market to Market | Episode
Dec 9, 2022 | 27 min

Winter snow and rain brings moisture to parched areas of the country. Economically, the trade deficit widens as exports slow. Plus a land lease program benefiting schools in Colorado. Commodity market analysis with Naomi Blohm.


Coming up on market to market.

Winter snow

and rain brings moisture to parched areas of the country.

Economically, the trade deficit widens as exports slow.

Plus, a land lease program benefiting schools in Colorado.

And commodity market analysis with Naomi Blohm, next.

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

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.

This is the Friday, December

The weekly Journal of Rural America.

Hello, I'm Paul Yeager.

The season of giving is part of the reason for the season.

However, trade is a different animal in the stable.

The US trade deficit widened last month as the strong dollar

and weaker global demand led to a 5.4% rise

in the mark reported from the Commerce Department.

Wholesale prices in November were up 3/10 of a percent,

the third consecutive gain in the producer price index.

And without energy and food, the core rate

rose 4/10 of a percent last month.

The year over year snapshot was down from 8% in October

to 7.4%.

The peak for that index was back in March,

when the annual rate was at 11.7%.

The Commerce Department says the latest figures

represent a shift in inflation from goods to services.

Now heavy snow and severe weather are in the forecast

for much of the country this weekend.


rain in the south has already fallen.

With more to come, the story in the Rockies and other

ranchland areas is still one of the need for moisture

to help recharge pastures and grazing areas.

Producers already faced many hurdles

in taking care of their animals,

as well as raising the next crop of ranchers.

A government program is helping

with opening the door to new blood.

John Torpy has more.

In our cover story.

The Rocky Mountains make a picturesque backdrop

for the daily routine of Nick Trainer, a fifth generation

cattle rancher based in Watkins, Colorado.

When he began building his own ranch a decade ago,

Trainor adopted a mindset that included holistic grazing.

His dedication to the concept helped him

find a unique leasing opportunity

designed to help the land, his ranching operations

and schools across the state of Colorado.

I leased several private ranches getting started,

and then when this lease came up, it was big enough.

I was scattered around on several different

smaller leases. This one

was big enough that I could move my family here

and and we could rent full time.

Trainor went after the opportunity to lease land

from the Colorado State Land Board.

The state agency owns roughly

by the Colorado legislature with leasing parcels of land

to agricultural and energy interests.

The length of the lease varies depending on

the specific type of agreement.

The rates are lower than private land leases,

but higher than the amount.

Federal government agencies.

The Bureau of Land Management

and Department of Forestry, among them charge for grazing.

Trainor leases land on the 24,000 acre

Lowry Ranch, located 30 minutes east of Denver.

His lease allows him to graze

depending on the breed.

The way this lease is structured,

you know, we've got a really good inventory on the ground.

And, you know, when

when drought events are coming,

like right now, we're already in conversations

about how those numbers need to be adjusted.

And, you know,

we talk through the problem and and come up with a

weather plan.

Rather than a normal tenant and landlord arrangement.

Leases with the state of Colorado

encourage the establishment of working

relationships between the lessor and the lessee.

My main responsibility is to do inspections

on our agricultural leases,

which is probably my favorite part of my job.

As we're we're going to go out and meet with our lessees

and get a tour through ranches and farms throughout Colorado.

Rachel Turner is the district manager

for the North Central District

for the Colorado State Land Board.

Turner's office encompasses

of Centennial State landscape.

As district manager, I do a lot of other things

like oil and gas and renewable energies.

Work a lot with the Forest Service recently

and anything and everything that comes in.

The Colorado State Land Board contains six districts

with a designated manager for each.

Currently, the Colorado State Land Board has roughly 7000

active leases, with over 2000 devoted to agriculture.

Turner notes

the lease agreements encourage teamwork between state land

board officials and the farmers and ranchers of Colorado

with a shared purpose of caring for the land.

We really rely on our agriculture lessees.

They are the knowledge base.

They know that land better than anybody else, he said.

Many of them live next door or on the land

since some of them before statehood.

For Trainor leasing with the Colorado State

Land Board has been a major benefit for his operation.

It's more of a partnership,

and that's what makes it work.

And, you know,

that was one of the really

appealing things to me whenever they put the RFP out there

was, you know,

if it was structured correctly from the get go that,

hey, we're going to work

together to meet these common goals

and, you know, by and large

and I think they'd say the same thing.

It's been a huge success.

Many lessees have deep family roots in Colorado,

with some lease agreements stretching back decades.

That dedication to the land,

coupled with the ranchers devotion to community,

helps the state land board

with the other half of its unique mission.

One of the biggest benefits of working with the state

the rent goes directly back to the school kids,

and that's one huge benefit that their lessees

really appreciate because they know what's going

back into their community and it's being used for good.

Since 1876,

funds accrued from state land board leases have been allocated

to the states building excellent schools today or best program

through the Colorado Department of Education.

School districts can apply for best grants to help offset

costs for construction projects and school improvements.

To date, the best program has awarded

over $1.6 billion in grants.

The nearly century and a half year old program has

been labeled

a lifeline for rural communities like Brush, Colorado,

which was searching for a way

to replace two aging schools

with a limited amount of resources.

and said we need essentially

a $60

million middle school, high school,

and the state will pay for half of it.

Would you pay for the other half?

With the funds from the best program,

the Brush Community School District was able

to build a state of the art combined middle and high school.

The grant also helped the district

find additional funds to provide

new avenues of learning for students.

You know, there are a lot of vocations out there

that don't require a typical four year or six year

college degree.

And so we

we were very intentional about our what's called CTE

career and technical

aid programs and making sure that we're

providing our students opportunities

in as many different areas as possible.

Open In 2019, the New Brush

School boasts a fully certified USDA kitchen

and multiple skilled labor and technical platforms.

The school aims to help the community

thrive while educating the next generation.

Whatever we can do, we need to do

because otherwise we are unintentionally failing

the next generation that's going to be taking care

of you and me and and running our world.

Trainor, Wilson and Turner all agree that whether you are

a cattle rancher leasing state land,

a state land board employee taking care of the land,

or an educator striving to provide the best

learning experience the entire community wins in the end.

It's not only today's schoolchildren, but

we're properly managing land for future generations as well.

For market to market.

I'm John Torpy.

Next, the market to market report.

USDA issued a supply and demand report on Friday, making

few changes to corn export stocks and acres for the week.

The nearby wheat contract dropped another $0.27,

while the March corn contract fell $0.02.

Soaring meal and export sales combined

to boost the soy complex.

The January soybean contract added $0.45, while January

meal improved $47.50 or 11%.

March Cotton Well, that shrank by to 2.25 per 

hundred weight. O ver in the dairy

pilot January Class three, milk futures weakened $0.77.

The livestock market was mixed as February cattle lost $0.33.

January feeders put on a dollar 48

and the February lean hog contract cut 6.43.

In the currency markets, the US dollar index added 20 ticks.

January crude oil plummeted $8.56 or nearly 11% per barrel.

COMEX gold gained a dime per ounce, and the Goldman Sachs

Commodity Index was off

more than 38 points to finish at 576.95

Joining us now is regular market analyst Naomi Blohm.

Hello. Hi, Paul.

You're a brave soul, I have to tell you

that weather wise, you know,

this is it gets crazy this time of year.

But moisture is a part of this system and it's coming to air.

You were in South Dakota.

What are South Dakotans saying right now about this wheat crop?

Well, as far as the wheat goes,

everything needs just more moisture, period,

no matter where you are

throughout the Midwest or the southern plains.

And so that continues to be a theme.

We've got the winter wheat crop rated

pretty much the poorest in history.

It's so dry.

And I think soon the market's going to realize that

and come back and trade reality.

This recent selloff that we had

was just bullying by the funds and just selling it short.

Right now we're at fair value.

The U.S. is competitive against the world

and with the USDA report, they didn't

really make any changes to U.S.

production numbers overall and the global numbers,

not a lot of changes there either.

So going forward, I'm thinking wheat has a recovery

bounce here.

Our export market is actually on target

for USDA projections

as far as what our export inspections have been doing.

So it's not that it's a big bearish story

all of a sudden, it's just that

the funds have come in and sold it off.

Seasonally, wheat futures do have a tendency

to start to work higher now into the new year.

You know Sue Martin, right?

Sue sat in that chair

last week and said, if you haven't sold yet on wheat, why?

Why, why sell now?

Wait, because you've missed your boat.

Are you in that same boat?

There will be a recovery bounce

here for the wheat story and the global wheat numbers.

We had Argentina with lower crop,

the Canadian crop is still lower than normal,

but the Russian crop is what's a little bit larger.

And so the USDA accounted for that.

We're still in a situation where it's not that

every single country right now has perfect production.

There's hiccups along the way.

And then we'll have to start

to think about the northern hemisphere

and production there soon enough.

All right. I'm going to make you stick your neck out here.

What are some ranges on wheat as a whole?

Let's say three months.

What are we looking at for a range?

Well, I think very much so.

We'll see a recovery bounce back to the $8 area.

That would be just a simple 50% retracement

from the recent move that we've had.

So I'm looking for that to happen

and then it'll be

just trading sideways a little bit between $8, $8.50

until we get a better handle on what's happening in the world.

What did USDA say in the report, in your eyes on

Friday about the corn market?

Not any big

surprises because we knew that corn exports have been lagging.

We've been talking about it for two months.

So the USDA acknowledged that today.

And that's the only reason

that the ending stocks grew a little bit.

But, you know,

we're still dealing with tight carry out 1.2 billion bushels.

I don't recall a year where we started the year

with that kind of a tight carry out.

I think you're going to start to see the corn exports pick up

in terms of more countries will be coming on board.

It's not that we're totally out of whack

with the world production numbers or world prices.

It's just that the end users are only buying as they need.

I can understand that.

And so the dollar

has been coming back recently, settling down a little bit.

That should help with our corn exports also.

And what China has been buying from Brazil is only making up

for what they used to buy from Ukraine.

So I don't feel like we're have a sad story there.

I think that the corn market is still a friendly story overall.

I feel like that market's going

to have the ability to work higher.

And actually, if you look at March

corn futures 15 out of 15 years, the market works

higher from this December USDA report into January.

And the average rally

has been about $0.47 over the past 15 years.

So I'm very much still optimistic.

I think that the corn price right now is fair, valued,

maybe a little undervalued and needs to come up a little bit.

There was a story this week that caught your attention

that you weren't necessarily thrilled about,

and it spilled out directly to the corn market.

The Wall Street Journal.

On the Fed's actions, do you think corn

was the biggest impact on that headline?

Well, I think

So the headline was that the One Wall Street

Journal analyst and writer was saying

that the interest rates are going to continue

to work higher and even higher than what

the Fed had been saying, closer to 5%.

So that headline sent crude oil.

That headline made corn

prices work a little bit lower just on the thought of,

you know,

the Fed is going to throw everything

at this to try to make demand, not increase.

And I can understand that.

But the reality is that we still have tight supplies,

and you can't fix that unless Mother Nature fixes it.

So I'm again, optimistic going forward,

but the higher interest rate will come back to that

because that is going to be a factor

for the latter part of the year.

But right now, the market, I think, is really due

for a recovery bounce.

You mentioned the tight supplies a couple of times.

I also seem to remember you saying not too long ago

they were like six or eight factors.    Nine.

And you're making tight supply sound like five of these nine

right now for corn.

Yeah, it's we have ethanol demand

that's actually staying strong overall.

It really is.

Our feed numbers are going to be there.

It's not like it's going to be a sad story here in America.

I mean, for Pete's sake, in southwest Missouri,

they are paying still over $8 to try to find any corn.

They are so desperate to find it.

The western plains, of course,

that is going to continue to be a friendly story

just because of how little production they had.

So the grain needs to still go west.

The basis is going to take up and make that,

but we're going to have to see a competition for acres yet

the spring because those nine grain and oilseed commodities

still in this country have tight supplies.

So I'm again, I'm optimistic for prices

as we head into first quarter, starting second quarter.

And then the tune might change a little bit,

but it's really dependent on Mother Nature.

Well, hold on the acreage.

The big question maybe to the marketplace

and also until 2023, but we know it's coming.

So I guess I'll ask about corn

as you look to that December contract, do you see that

trading in a range that we've been used to

in the next three months, six months?

Do you see it going higher?

What pushes that range and where?

What is that range in corn? Yeah.

So for the short term, what's going to happen for that

Dec 23 contract is that it's going to be

dealing with the spread trading.

I feel like you're going to that's

how people are participating

with corn right now, either buying July, selling December

or some people are buying December 23, selling

December 24, just doing the spread trading.

And so when there's not a lot of dynamic market movement,

spread trading is sometimes what takes over going forward.

I feel like that December

to work higher again.

It needs to make sure

that it's going to be have the acres that it needs.

The input costs are still overall higher

and farmers are going to need incentive

to want to price that mark that crop

and get it in the ground next year.

So I feel like the new crop prices have the ability

to go to 6.50


only if the weather turned sour in South America.

But again, my bias is that the market is still going

to be able to work a little bit higher here

in the first quarter.

That spread trading is also going on in soybeans right now.

Soybean, soybean meal, soybean oil.

Right. And that was a big factor for the markets.

And with soybeans, you know, the USDA, no changes for the U.S.


And I think that was okay and that was smart.

But the surprise was that they made no changes

to the Argentina production in spite of the horrible

drought that's happening down there.

The USDA is doing their jam where they just kick

the can down the road for one more month.

Can't say I blame them.

And it's a little early in the season,

but right now only 11% of the soybean crop

in Argentina is rated as good to excellent

because of that drought.

And so for the world scene

or pricing in record production,

it's priced into the market right now.

So if we see weather issues continue in Argentina,

if something starting suddenly isn't perfect in Brazil,

you're going to see the soybean market work higher.

This meal, though, is what drives the complex higher

as a whole.

Who wants meals so bad? Well, the demand is there.

I think from the feed standpoint,

we still have plenty of hogs right now. We have the


producers trying to establish things and the demand is there.

And I think what you're also going to see

is our export demand pickup because of the drought

in Argentina.

As you know, Argentina is the world's largest

soybean meal exporter and soybean oil exporter,

and they're not able to do that as much as they'd like.

So I think you're going

to see our soybean meal market export market pickup.

Do you see meal having much more legs to the rally

or are we just getting started here?

I think it's going to be kind of quiet

and cautious for just a little bit

and going back into the spread trading between meal and oil.

And there's some opportunity there for traders

in the short term

and then waiting to see about the weather in South America.

All right.

We've talked about the big three.

I want to get your take on

what do you think is going to be big in ‘23?

Glen asked us via Twitter,

Thank you, Glen, for this question,

which is what's the greatest opportunity we have today

that we should be capitalizing on for 2023?

So the opportunity is actually, I think, going to be coming

within a month to two months, and that's going to be

pricing your new crop and being aggressive on it.

The mentality of store your grain and ignore

is not going to work for this next year.

So when we have a push higher into the New Year,

producers need to use that to market for their new crop.

Corn and beans both.

Be aggressive on your forward contracting more than probably

you've been in years past

because this higher interest rate thing is going to come in

and haunt us.

I think for the latter part of ‘23.

And if we end up having

wonderful weather

in the United States

this summer, futures

prices are going to start to plummet lower.

So that's your opportunity is forward contracting

get make sure that you're understanding

different put option strategies

as we go forward again and protect that value.

Maybe even think about going out to ‘24.

So it's short term bullish, longer term defensive.

No more store and ignore.

Wrote that one down. Yes. Okay.

Another question, this one's about dairy.

And this one came from Adam in Wisconsin.

And then Adam asked you on Twitter,

Naomi, this isn't the same dairy industry of ten years ago.

It seems that the margins get squeezed too much.

The sellouts, retirements and lack of expansion

will put a cap on output.

With the recent up moves in soybean meal

and the drop in Class three, where is the natural floor

in dairy prices?

I agree

with the things that he said as far as we're

not going to probably see a lot of dairy expansion anymore

just because, you know,

trying to get rid

of manure is an issue

and making sure you can spread it on fields.

And then the retirement thing, all of that, those are factors.

We have had recent production increases for dairy

on the last four USDA reports for milk production.

I think part of that was because feed was available

in like Wisconsin, we had a good growing season

and you're not going to see the big increases in production.

I totally agree with that.

And our dairy exports are staying strong.

So I think we're going to be at a point

maybe of equilibrium and we're there right now.

Right now, $19 is big support for the dairy market.

And I would be surprised if things fell below that

would take demand destruction, something of that magnitude.

So I would say right now $19 is a good floor.

You would think $18 below that also.

But with feed prices overall still high

dairy and milk prices should stay firm as well.

Cattle lost this week.

The back story is kind of a tough one there. Why?

I don't know what happened there.

It was just very dynamic.

It was almost like it was trying to

decide, was the holiday demand met?

Was it not met?

Where was the demand flow?

And so that was a

very volatile week for the box beef

and for the cash market that way.

So I think when you look at the February contract,

we've got resistance at $157, supports that $ 153

the beef cattle exports are phenomenal, second best ever.

And the USDA said that they felt that that's

going to increase and continue, especially to Asia.

So that is a friendly story that way.

And of course, we know we have low supplies.

It's just a question about demand

here in the United States going forward.

As long as people have jobs, I think

that demand stays strong.

I feel like the

the cattle market continues to be a supportive story.

I don't know that we have a reason right now

to just take off and rally higher

because we know there's less animals coming.

We know that there's less animals available

for the new year.

But again,

we have to just

wait and see where the demand actually ends up being.

Same story in feeder market.

Yeah, the feeder market has actually been

trending a little bit higher.

It goes two steps forward, one step back

and then two steps forward again.

So with the demand, I think that is going to be there

and the placement numbers that have been low,

I feel like the feeder story

is going to continue to slowly work a little bit higher and

I think if there was a way that you could

make sure you had feed and the ability to,

you know, just get into that, I would I would do it.

I feel like the

complex is going to continue to be supportive going forward.

We talked a little bit about the meal side in this hog

market, but hogs this week, it's a heck of a loss.

That's a 7% loss. Yeah.

So we had cancelations on our export sales this week

and that

really weighed on the market and actually our exports are also

below our five year average.

So the worse that they've been since 2018 and U.S.

production is

kind of at a higher level.

So it makes sense to me that we saw that pullback.

But we are heading into winter

and that's usually when we start to see some sort of herd

health issue occur, purrs, that kind of a thing.

So I think the setback might be a little bit more

because the demand again has been tapered off.

But we'll see what winter does with production.

How long do you see that pullback then?

So the three month story is six.

Months, then maybe like another

week or two, because there's any time

it has a pullback, the buyers are happy to step in.

I don't think it's a negative story at all by any means.

It's just it's a big rangebound market.

Now we're just going to go back down to the lower end.

All right, Naomi, I appreciate your time.

Thank you so. Much for having me.

All right.

It's Naomi Blohm

and we are going to put a pause on this analysis

and we're going to continue our discussion about the markets.

We have lots of great questions from you right here.

We'll do that in our Market Plus segment.

You can find that on our website of market to market dot org.

We have it in both podcast and on YouTube.

So podcast from audio,

YouTube video if you want all of these resources are free.

And a reminder, the email machine is still on for you.

We'll take your feedback, story, ideas and general commentary

at the inbox of market to market at Iowa

Next week we look at the changes in focus for overseas

shipping from major ports to the Great Lakes region.

Thank you so very much for watching.

Have a great week.

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.

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.