Market to Market - May 27, 2022

Coming up on Market to Market -- Secretary Vilsack answers questions on chemicals and CRP. Sorting out ports and global demand issues in Ukraine. The cost to repair after the flooding is gone. And market analysis with Don Roose, 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, May 27 edition of Market to Market. the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

The home may be where the heart is, but new units are forcing more ache in the pocketbook.

Sales of new homes fell 16.6 percent in April.

Economists cite rising costs of the new units as construction expenses have driven the median price up 21 percent in a year’s time. Rising interest rates also played a part in the decline.

Durable goods orders went up last month 0.8 percent. The orders at factories for longer-lasting items rebounded from a drop in March.

The new preferred measure of inflation, the PCE was up 0.3 percent in April and 6.3 in year-over-year measurement.

Inflation was also on the mind of U.S. senators in the agricultural committee hearing with USDA Secretary Tom Vilsack. 

So too, were comments reminiscent from the Nixon-era Ag secretary Earl Butz. 

John Torpy has more from Capitol Hill.

Sec. Tom Vilsack, USDA: ”The challenge would be for American agriculture to innovate.”

USDA Secretary Tom Vilsack was on Capitol Hill this week to answer a myriad of questions from the Senate Agriculture Committee.

Top of mind for committee members was USDA’s response to the threat of a global grain crisis. 

Sen. John Boozman R - Arkansas: ”I appreciate the announcement from USDA made this morning that will allow some additional flexibility for those with expiring C R P contracts.”

While Boozman celebrated the action, he urged USDA to take a step further to ensure an increase of acres for planting.

Sen. John Boozman R - Arkansas: “Speaker 1: (05:25)

One suggestion is looked to the past in the 2014 farm bill. Landowners enrolled in the conservation reserve program were given an opportunity to end their contracts early, without penalty. We should give serious consideration to this, to this penalty, free incentive again, until grain production returns to normal. I believe this flexibility would allow potentially millions of acres to return the food production. The world cannot afford for prime farmland to lie fallow.”       

Under a rule change announced Thursday, participants in the last year of their Conservation Reserve Program agreement won’t have to wait until October 1st to begin farming the CRP ground.

Sec. Tom Vilsack, USDA: “We're basically suggesting that they can now voluntarily terminate without penalty for those rules that are now coming, or those acres that are now coming out of the program. So that they'd be in a position to, to do work now.”

The one time rule change is aimed at increasing plantable acres, one of the ways the agency is addressing the forecasted world grain shortage.

Some on committee members voiced concern over the use of the herbicide Glyphosate, which some see as a needed tool on grain farming operations.

Sen. Cindy Hyde-Smith, R - Mississippi : “The U.S. Department of Justice recently took a new unprecedented position on glyphosate that could cripple the effective use of this very important ag product that we count on. If our farmers cannot use safe, common sense and effective products, what would happen to us crop yields?”

Sec. Tom Vilsack, USDA: “ We have to continue to look for ways in which we can invest in and encourage additional research and development, uh, on a wide variety of, of initiatives, including crop protection. Uh, we need to continue to work with our, our industry to make sure that innovation, uh, is in that we invest in innovation.” 

For Market to Market, I’m John Torpy.

The Biden Administration announced this week the establishment of the Indo-Pacific Economic Framework for Prosperity.

The White House is looking to stabilize trade and supply chain issues disrupted by COVID-19 and more recently Russia’s invasion of Ukraine.

World economic leaders met this week in Davos for the annual meeting and shared similar topics on the agenda. Those in the impacted areas are telling of the urgency of the current situation from the field. 

Peter Tubbs reports.

As the Russian invasion of Ukraine drags on, observers are concerned about the availability of grain from the region to feed the global population.                        

Kees Huizinga, Dutch Farmer in Ukraine: “There's still 25 million tons and grain and oil seeds left in Ukraine, that's a third of last year's harvest, so we already have a huge logistical problem.”

Huizinga moved to Ukraine 20 years ago and manages 37,000 acres of farm ground. The stocks of last year’s crops still in storage will soon be in the way of this summer’s harvest.       

The main logistical bottleneck is the closed port at Odessa. While the city remains under Ukrainian control, the Russian navy continues to limit shipping in the Black Sea to only Russian ports.

Huizinga: "I am really anxious, yeah. The only option to get the grain out of Ukraine is through the Black Sea ports. They have to be open, that's the only option."

The World Food Program is warning that an inability to distribute grain from the Black Sea region will lead to famine in dozens of countries, which could lead to political destabilization in multiple parts of the world. 

David Beasley, Executive Director of the UN's World Food Program: “People that are in serious food insecurity that are on the brink of famine? We have 49 million knocking on famine's door right now in 43 countries. I could tell you which 43 countries very well will have famine, destabilization and mass migration. There's only one solution to getting the food, the grains out of Ukraine. It's the ports, the ports in the Odessa region.”

For Market to Market, I’m Peter Tubbs. 

The Drought Monitor improved just over a point as heavy rains in some drought-plagued regions offered some respite this week.

The relief may be temporary - but other times heavy rains will lead to flooding, 

The impacts of high water often extend long after flood waters recede.

In another installment of Iowa’s Wild Weather, which can been seen now on IowaPBS.org, John Torpy looks at the long-tail of flooding. 

His report is our Cover Story.

The Floods of 2019 had a wide footprint across the Midwest and caused over $12 billion in damage between March 14 and March 31. For Hamburg, the town spent a million dollars on the first day of the flood, money the town didn’t have. 

Cathy Crain, Former Mayor, Hamburg, Iowa: “Now we were broke, broke. We had, we, we had, we had to, we needed money. And um, that's what we started doing very day of the flood. After we gathered our stuff up in city hall and moved to the, um, elementary school, I started, I started raising money, public fonds, or private funds because I knew we were gonna need probably 20 million to rebuild because of 18 foot of water. So far we've done, um, 18.6 million and uh, I've got another 20 to 25 that I'm asking for.”

The recovery process was slow going for Hamburg and surrounding communities. Flood waters refused to leave farm fields. Two more flood events occurred through the Spring and Summer of that year. Some farmers reported having standing water in their fields as late as September. The 2019 crop for many in the area was non-existent.

Cathy Crain, Former Mayor, Hamburg, Iowa: “I have to tell you, we first had to get over our tears because for us it's still emotional for us. We lost so much. And um, you know, people were losing their homes and their businesses, but we were losing our town and um, we had to get over that and suck it up the best we could during the day. We could cry early in the morning. We could cry at night, but suck it up and use it and do everything we can to help rebuild the town.”

 

2019 flood waters took a lot from Hamburg. Seventy three homes were ruined. Only 6 of the city's 44 businesses were able to open the day of the flood. 

Located next to Interstate 29, as well as being situated along a major railroad line, Hamburg has become an attractive town for agricultural businesses  like Manildra Milling Corporation, Bartlett Grain Company, and Agrivision Equipment Group. 

Tim Maher is the manager for Agrivision Equipment Group in Hamburg and says when the flood waters destroyed most of the downtown businesses and inundated nearby farm fields, many of the area farmers found themselves in a different role. 

Tim Maher, Store Manager, Agrivision Equipment Group: “Some of them were able to take some of their equipment and actually help with some of the rebuild out on the levee. So they were able to, to go back out and put some of their equipment to work and, and get a little bit of income off of that. We had to change our business because we went from supporting farmers to supporting more of a construction based business at that time. And a lot of our same customers, but, but they, they switched from being more farming, economics to, to more of a construction based business. And it, it really changed the way that we did business on a day to day.”

When the flood waters finally receded, the people of Hamburg began to rebuild. With help from numerous state, local and federal agencies the town began to take on its former shape. But, navigating the recovery process brought its own set of challenges. 

Cathy Crain, Former Mayor, Hamburg, Iowa: “Economic development, Homeland security, the governor's office. Without them we would not be where we are now. Because we're just so little with, with no staff and to have staff that knows what to do in a disaster. We got that. But to have staff that knows what to do after it, Hey, I didn't even know what to do after it! I mean, you have to figure it out. That's what you have to do. 

Cuz every disaster is different.”

The first step for rebuilding from 2019 flood events was to stop the water from doing any more damage to the levees. The Army Corps of Engineers began work along the banks of the Missouri river with the help of area residents.

John Askew, Thurman, Iowa: ”When you are a local landowner on any of the boards, you know, you have a little bit of skin in the game. Which means it's not just, I'm just an elected official that represents not only myself I, I represent all my neighbors here too.”

John Askew is a farmer in Thurman, Iowa. He also is a trustee on the boards of the Pleasant Valley Levee District and a trustee for the Missouri Valley Drainage District. Both districts cover 34,000 acres from Thurman to Hamburg. (a map here)

John Askew, Thurman, Iowa: “When we, we had the catastrophic catastrophic event, we, we see the, the levee fall, fail. our, our job before that was mostly just watching, maintaining, communicating with our local officials and communicating with the Army Corps of Engineers of how things are holding up. Um, after that, it is, it is just a, it's like getting a fire hose in the face. It's just, boom, what do we do now?”

A strong working relationship between the local levee sponsors, trustees and the Army Corps of Engineers was key to getting work started on levee repair. 

Tod Tobias, Army Corps of Engineers: “So without the levee boards, the local levee districts, maintaining these to the core standards, the federal dollars can't come in and fix this.The sponsors have to give us all the materials to fix the levee. We provide the labor. They just have to say, ‘okay, here's the borrow source, go here, get it.’ And it's on them to work that deal out. The minute from there, I grab it, bring it down here and do what I need to do.”

The Army Corps of Engineers needed thousands of yards of material to rebuild the levees. During the flood, the Missouri River deposited tons of sand on farm fields in the area. As a levee sponsor, Askew found a way to help the Army Corps of Engineers and his neighbors at the same time. 

Tod Tobias, Army Corps of Engineers:”Through John’s help getting easements, we got into farm fields, scraped the sand off, built our core, and then we had to go find clay to cap it with that was also John found us to clay. And so then we capped it with clay, put our rock on. We're good. So it actually ends up being a win-win for the farmers one, they got their fields cleaned up of all the sand and two I put in the levee, so it helped me.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

Geopolitical developments influenced domestic movement in the trade. For the week, the nearby wheat contract shed 11 cents, while July corn lost 2 cents. Thursday’s action of a possible hedge fund liquidation overshadowed delayed planting in the northwest Plains region in the soy complex. The nearby contract improved 27 cents. July meal added $2.40 per ton. July cotton decreased $2.85 per hundredweight. Over in the dairy parlor, June Class III milk futures expanded 9 cents. The livestock sector was higher. August cattle put on 85 cents. August feeders increased $2.40. And the July lean hog contract enlarged by $2.73. In the currency markets, the U.S. Dollar index declined by 147 ticks. July crude oil strengthened $4.48 per barrel. COMEX Gold added $8.70 per ounce. And the Goldman Sachs Commodity Index improved almost 24 points to finish at 789.80.

Yeager: Joining us now to provide insight, our old friend Don Roose. Hey, Don.

Roose: Great to be back, Paul.

Yeager: Good to have you here as we head into this holiday weekend. There was always this standard of we have all these positions in place to hold us until Monday night's trade. In the wheat markets, lets start there, is the bottom in?

Roose: Well, it's a volatile market, Paul. And I tell you, this thing is moving very fast and you really had to be fast on your feet and knowledgeable with the technicals because we move, you hit some technical points with some of the fund buying and you move into over bought and over sold levels just very fast. So, is the bottom in? I think what this market is about is trying to sort out what the risk management is in the market as we're trying to figure out what the world supply is. And you alluded to it in the program that are we moving into a food crisis? It seems like in the wheat we have one problem after another. If it's not Russia/Ukraine, it's the Indian problem. So yeah, a lot of issues on the table.

Yeager: And it is geopolitical. We have Russia making contact with Brazil -- I'm sorry, China making contact with Brazil, which impacts Russia, which impacts India, everything is tied together. So how does the American producer sort this out? You talk about trying to sort the risk. How do they protect themselves right now?

Roose: Well, I think you have to watch the technicals and then be careful of the noise because these things move very fast. So I think a producer, what does he do? And I think that is both for the end user and the producer themselves, the producer make sure you protect the bottom line. When you have some breakeven levels then look at programs that you can use from risk management. If you want to stay away from margin exposure use some different tools. And for the end user I think you have to make sure and guard the crush because these are historically big prices, Paul, and we've had some other times when we had some black swans and the markets just fall out of bed. Now right now I can tell you the trade is positive, wants to be positive, thinks that the world supplies are impossibly tight. We keep running into one problem after another. If it's not our spring planting it's the dryness in India with wheat, the dryness in Europe. And we still are trying to deal with are we going to ship grain out of the Ukraine when their storage is full and they're going into harvest? So there's those types of issues that we've got to unlock Ukraine supplies somehow and I think that is going to be probably next week's trade and then the weather trade.

Yeager: Well, the weather has been a story in corn. We moved ahead of the five-year average on Monday's report of where we were for planting progress. We're still seeing this wet locked in though in North Dakota, South Dakota, Minnesota. They have been planting a whole lot more corn. What does it mean when they're not planting corn?

Roose: Well, just think about it, these markets are always about weather. I always say 80% of it is weather either here in the U.S. or around the world. And think about it last year, they were in a drought and we didn't know what was going to happen. And so now we've flipped to it's too wet. But I think what you have to say is now we still have in play what are the acres going to be? Are we going to get some prevent plant acres? Are we going to see acres switch? So this June 30th report I think on acres is going to be a big deal. But I think the trade is still trying to say that we're going to have 1 to 2 million more corn acres regardless, going to plant just what the yield is and we're probably going to see if we have maybe 1 to 2 million less soybean acres. But we'll see, Paul. And then we also have to get a yield.

Yeager: Well, okay, you gave me a number because I was just about to say, what are you hearing? Because there's always that head fake. It happens around the reports, it happens around I'm going to plant this, no I'm going to plant this, no I'm secretly going to plant this. Are there really big switch decisions happening right now?

Roose: I don't think they're big switches. Basically there's 180 million acres of corn and beans in rotation. I think we try and push those around. With the prices where we're at we're going to try and plant those. The prevent plant that we have you can still take prevent plant and then get 55% of your APH plant to a forage type of crop and then you can even decide whether you want to actually take that in plant or if you want to pay back the insurance. So there's just a lot of things that are in play here. But it's going to be a volatile market and next week I think you'll start the weather watch. We'll be talking about what's going to happen with the weather? I think we're kind of starting to say listen, I know we've got the Northern Plains, but I think we're kind of saying that the crop is basically sorta kinda planted. Now, what does it look like on emergence and how is it going to go forward?

Yeager: Well, and that's what we have coming out on Tuesday, it'll be delayed next week, we get I think our first look at crop conditions. And I just made a drive down to St. Louis and everything looked good in there and there was some water, they had moisture. What is that doing to the bean crop because I saw beans in the field too? Their number is going to go up for sure come Tuesday. What is the bean trade?

Roose: Well, I think when you look at the end of the week, the soybeans hard to believe that they're just off of contract highs. We went just a few cents off it. So Monday, Tuesday is probably going to be what does, can we push through those news highs or not? And China, are they still underneath the market buying soybeans? But we're over bought, we're kind of at the top end of the range, Paul. And what we've had so far is every time you get this market in a run if you're chasing rallies and chasing breaks it hasn't been real successful. So you try and use those tools around things to keep yourself managed.

Yeager: Well, Thursday was a huge pop in soybeans and then kind of came back to just a standard under a dime range trade. Are those high days done?

Roose: Yeah, I don't think so. I think those wild days, the big swinging markets, I think the producer has to prepare himself because I think those days are ahead of us because we do have very tight world supplies and we were counting on South America to bridge the gap, then we were counting on the Black Sea, we know what happened there, counting on Europe and we know they're dry, counting on India and they turned dry. Now we're counting on North America. Well, it's wet in Canada and we've got issues here that aren't perfect. So, we just can't buy a break. And what we see in the marketplace, talking about breaks, is the end user every time we get down to support, get a little over sold, boom they pop up and support the market again. Now, we know as we move deeper into the season this risk management tries to come out of the market a little bit.

Yeager: Well, $17.32 is what we closed on the July contract. Is $18 done? Is that a possibility?

Roose: Yeah, we shoot for these big round numbers. If you can pop through this make new highs you'll get -- remember everybody that would be short has a loss and then scrambles on in $18. But what we've had, Paul, the end user does not want to chase the market. But basis levels very tight on corn and soybeans. The producer is basically sold out except for his gambling bushels. And the supply starts in August again on soybeans here.

Yeager: Let it ride is what it sounds like many are doing. Let's move to livestock quickly here, the cattle market. Again, you mentioned the rain in Texas and Kansas, it's going to be too little too late for some of the pastures immediately. But what does that do long-term for the cattle market? 

Roose: Well, the cattle market has been a disappointment for the bulls and for the cattle industry because we really never did get the big run during the grilling season, it was a tough grilling season, we didn't get the run to the upside on the demand for whatever reason during Memorial Day, Mother's Day. So I think it's a market now, Paul, you're going through and you're going to have bigger numbers through the summer, the demand is shaky, exports are good but the domestic demand is a little bit shaky. So the placement figures that we had on the last cattle on feed report kicked the bull story down the road again probably into the middle of the fourth quarter. So that is the cattle market. You know we keep grasping for, we’ve had four years of liquidation and the trade keeps looking for two to three years of a bull market.

Yeager: Is it time to expand a herd? Am I going to buy some feeders this next week?

Roose: Well, I tell you one thing, if you look at it from a cycle standpoint we usually run three and a half years up, three and a half years down. So we're poised for a bull market. It's not going to be the supply side. If we stumble it's going to be because of the demand side. Interest rates are rising. Consumer spending is slowing. They're getting more selective. They're buying down on their protein needs. So it's not necessarily a one way bull market so use risk management there too.

Yeager: All right, demand for beef maybe not as strong. What about the demand for pork? We know demand for poultry is high. What about for pork?

Roose: Yeah, you talk about poultry, chicken breast I think are at an all-time high here, they surpassed 2014 so even chicken. But your questions about the pork, the pork disease issues pushed us to the upside, export demand just continues to flag, it's just the opposite of the beef. So our domestic demand has to pick up the pace and the domestic demand a little bit concerned of from a risk management standpoint we're seeing people if you can get some rallies, $2 to $4, risk management makes sense, probably going to expand the herd, breeding herd 1%, maybe more in June. So this liquidation phase, lack of expansion may be coming to an end on the hogs.

Yeager: All right. Guess what else is coming to an end? Our time. Thank you, Don Roose, good to see you.

Roose: Thank you, Paul.

Yeager: We'll continue this discussion in Market Plus. We have a whole lot of questions that we're going to answer from you, as I said we'll answer them in Market Plus so join us, you can find that free on our website of MarketToMarket.org. And information comes from all different sources and we've compiled many of the stories that we are reading into a Flipboard magazine called Market to Market Reading Material. Click on the red and white F on the home page of MarketToMarket.org. Next week, we look at the shakeup of a niche market. Thank you so 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)