Market to Market - July 8, 2022
Summer storms pummel the Midwest. Moving the mark on line of sight for drone flights. Crop progress - more than just knee-high by the fourth of July. Market analysis with Ted Seifried.
Coming up on Market to Market -- summer storms pummel the Midwest
Moving the mark on line of sight for drone flights. Crop progress - more than just knee-high by the fourth of July. And market analysis with Ted Seifried, next.
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This is the Friday, July 8 edition of Market to Market, the Weekly Journal of Rural America.
Hello, I’m Paul Yeager.
The Federal Reserve states two objectives in trying to keep the economy stable - ‘A’ - low inflation and ‘B’ job growth. Only B in that equation is still on their side.
American employers added 372,000 jobs in June. A gain that will that likely keep the Fed raising interest rates.
The unemployment rate remained at 3.6 percent for the fourth consecutive month.
The number of people who quit their job in May hit 4.3 million, which is 2.8 percent of the workforce.
The trade gap contracted last month according to the Commerce Department. Increased exports of goods lowered the difference by $1.1 billion or 1.2 percent.
A week of July heat was broken up by severe storms in several states. The rain was welcomed by most, but the wind left its mark on acres in nearly a dozen states.
Peter Tubbs reports.
A heavy thunderstorm sparked a derecho over South Dakota, Minnesota and Iowa this week. Thousands of customers were without power Tuesday evening as downed trees littered the region. By week’s end power was restored.
The storm met the definition of a derecho, with a swath of damage of more than 240 miles and straight-line wind gusts over 58 miles per hour.
Thousands of acres of corn were flattened in South Dakota, Minnesota and Iowa as a result of the storm. While some will continue to grow, there will be lower yields and the crop will be difficult to harvest.
A small tornado struck suburban Cincinnati on Wednesday. 200 homes were damaged in the area, and 100,000 customers lost power.
That system’s heavy rain was little relief for most of the country, which saw the drought worsen in many states. Fifteen percent of the Midwest is now affected by drought, double the percentage a week ago. The western third of the country continues to experience extensive drought.
For Market to Market, I’m Peter Tubbs
Crop scouting is nothing new. But the tools to speed up the process are.
The use of drone technology is limited by federal rules.
Dave Miller reports on possible changes and the impact that would have on the industry.
Crop scouting with a drone isn’t a new concept. Pilots have been sending their unmanned aerial systems into the air over rural America for almost a decade. By law, the pilot must be able to see their aerial vehicles from lift-off to touchdown…that is until now.
As of early July, 230 waivers have been granted by the FAA allowing drones to fly out of line of sight of their pilots. These include inspection of high-voltage power lines, tracking of endangered sea turtles and inspection of railroad lines from New Jersey to points in the West. But the new rule may have far reaching implications for agriculture.
Arthur Erickson is the CEO of Hylio, a company that creates turn-key UAV solutions for autonomous crop spraying.
Arthur speaks: Like a lot of new industries, uh, the regulations are, I would say about 15 or 20 years behind where the technology actually is. And by that, I mean, 15 years ago, when the FAA made these, these regulations, they treated drones a lot like they treat just traditional manned aviation. But nowadays, drones are so advanced and so robust and intelligent that it makes a lot of sense to allow them to just go out and operate without pilot intervention. There's about four or five big regulations that we're kind of all waiting for by we, I mean the drone industry to, to pass or, or become looser for lack of a better word. And like every time you, you actually get one of these regulations overturned by the FAA or allowed as in like allowing flight beyond visual line of sight. It opens the fire hose up like a little bit more, fire hose being like demand to buy like ag drones or spray drones.
The FAA is still reviewing how it will roll out routine operations although it has signaled permission will be reserved for commercial applications and not hobbyists.
For Market to Market, I’m David Miller.
The knee-high fourth of July corn fields have been replaced by head high on most growing years.
2022 is different.
Delayed planting dominated for many producers including two we’ve chatted with already on this program and the MtoM podcast.
This week, we head to North Dakota and Kansas for this mid-season check-in for our Cover Story.
Cameron Peirce: I think, yeah, so the wheat was already in the ground. At that point, I think maybe we were deciding if we were going to go between cotton and sunflowers and soybeans, kind of what our mix was going to be. And we ended up doing a mix of cotton, sunflowers of us, soybeans and some dryland corn. So we got pretty good diversity this year. So we got some, hopefully we've got our risk mitigated. Right now it's turning hot and dry again. So I'm kind of glad we got the cotton in rotation.
Paul Yeager: How are you doing on moisture?
Cameron Peirce: We had, believe it or not, we had before, like, our wheat crop was just super dry. All winter, all spring, at the end of May, we had 10 and a half inches over two weeks, two and a half weeks. You know, a lot of our crops thought they were back, you know, where you are in Iowa or Indiana or, you know, thought these growing conditions were as great and they were not working on a root system whatsoever. And then as typical the Kansas heat in the Kansas wind hit them. And it was rough on some, some places, I mean, the corners turning yellow, it didn't have a root system, it couldn't get to the water, it just looked like it was just looked like a major drought. But even though like you know, four inches down, there was all the moisture it needed and just hadn't written down into it yet. And but I mean, you know, it's, it's, it's doing better now. So we got harvests through we didn't have a rain during harvest, we had a sprinkle, I think but outside of that we got all the way through harvests without any any breakdowns. We didn't get any hail or bad weather. So we got all of our wheat out. It was not that great. I mean, you know, better than what we expected, probably because I kind of had my expectations set pretty low. So but it was it was it was average or or just a little under. So you know. But yeah, so we're working on getting some double crop sunflowers put in right now. All the full season stuff is is completely in.
Paul Yeager: How's the crop look?
Paul Thomas: Variable?
Paul Yeager: That's not what you're supposed to say you're supposed to say good everywhere. Where's that optimism?
Paul Thomas: Well, the optimism would be there's no poor crop. Variable more from stage of planting. We, you know, had that snowstorm and, and then we received significant precipitation throughout the rest of April and into the middle part of May, that really delayed drills and planters and everyone's field work significantly throughout our whole state. From our standpoint, we really thought around Memorial Day weekend that we were going to have at least 25% of our farm and prevent plant that there was just no way we were going to get into it. We missed a major system that went through just about 20 miles to the east that started raining. And we miss that. And really was pretty fortunate for our farm. We ended up getting close to 95% planted and seeded one of the, you know, challenges with you know, seeding into those overly wet conditions that that occurs as you put it in in less than ideal conditions. So there was some furloughs not getting close, there was, you know, some certainly compaction issues that that we've seen, you know, in those tire tracks and Coulter's, and, you know, so it wasn't a perfect stand out perfect emergence, but we've stayed fairly moist, and the crop has seemed to compensate for it quite well. And I but in general, a, you know, the crop looks pretty good. corn and soybeans, there's, you know, certainly got to feel optimistic about the potential. But you also are really concerned about how late this crop is and how small it is. And, you know, certainly going to need a very warm July and August with, you know, sufficient preset and then a late fall,
Paul Yeager: and you're gonna probably need the heat units.
Paul Thomas: we are significantly behind where we should be.
Paul Yeager: Is there an ideal temp for you 87, 90, 92 that is best for growing in your area?
Paul Thomas: You know, we, we have such long days. So, you know, obviously, we don't like seeing that temperature go much above 85 degrees, but in our long LinkedIn days, it's typical in the month of July and into August that you know, you have four or five hours that are in the 90s.
Paul Yeager: I seem to remember in our earlier conversation, it was in in the pictures that we showed you had things hooked up, ready to go and seed and you were like, Well, I'm not really sure if we should. At the time, it was like Yeah, we're good. Our window. Was there anybody Did that actually put something in on that one afternoon in April where it was good to go? And how does that look?
Paul Thomas: So I would say there was probably two afternoons and literally two afternoons that some land did get seated. And it was spring wheat, the fields that I've seen that it gets seated in that little window, and they actually look phenomenal. Yeah, they're the best looking crops around. And sometimes that isn't the case. You know, when you lay under snow for 10 days, and then you just, you know, that cool wet conditions and all that but no, the crop came through that, you know, really, really well. So whenever you drive by the neighbor's fields that did do that. It you certainly wish they would have pulled the trigger, at least on a few acres on that.
Paul Yeager: The full discussion with Paul Thomas and Cameron Pierce is available now on our YouTube channel as the MToM podcast. New episodes come out each Tuesday.
Next, the Market to Market report.
A holiday-shortened week compressed some volatile moves as the commodity market moved lower on improved weather conditions before rallying by week’s end on new forecasts. For the week, the nearby wheat contract gained 46 cents, while September corn ran 14 cents higher. A record-setting U.S. Dollar seemed to hang over the soy complex as the American product was more expensive on the export market than the Brazilian product. After a volatile week, the nearby soybean contract gained 4 cents. August meal added $9.20 per ton. December cotton fell $1.85 per hundredweight. Over in the dairy parlor, August Class III milk futures lost 55 cents. The livestock market was mixed. August cattle dropped 65 cents. August feeders shed $2.77. And the August lean hog contract put on $6.20. In the currency markets, the U.S. Dollar index jumped 191 ticks. August crude oil lost $3.31 per barrel. COMEX Gold cut $68 per ounce. And the Goldman Sachs Commodity Index fell almost 25 points to finish at 694-even.
Yeager: Joining us now to provide some insight is Ted Seifried. Welcome back, Ted.
Seifried: Hey Paul, thanks for having me.
Yeager: If you took a four day weekend and skipped Tuesday, you would be like what was all this the sky is falling business on Tuesday?
Seifried: Yeah but I get the feeling that when you looked back at what Tuesday did you'd be a little bit concerned. But wait a minute, Tuesday was just an extension of what had been happening the previous two weeks. The switch kind of flipped after Tuesday meaning the selling pressures had subsided and that selling pressure wasn't necessarily coming from weather, although that did have a part of it on Tuesday, but it was this inflation off like we've talked about. Inflation off has been running rampant for the past two weeks, it came in on Tuesday, but then Wednesday they weren't really doing it and the markets were kind of quiet. Thursday we were kind of poking at it to see if they were going to do it and we started climbing and they didn't. And then Friday we really kind of were able to run with it a little bit. So the question is, Paul, is this inflation off trade, is it done? What was that two weeks about? Did they achieve their mission and then now are stepping back? Have they changed their minds? Or was this a period of time where they realized the markets are very oversold and I'm not just saying corn or soybeans or crude, really all of them, I'm saying these markets are really oversold, let's take a pause, allow them to recover a little bit before we unleash round two. I don't know. I don't know what the answer is to that. We're going to find out fairly early next week I think. But it was nice to see that recovery. You had corn and soybeans kind of recover right to the key areas that you would expect a corrective bounce to get to. They actually closed right at or just above key resistance points that were just recently key support points. It was a good look to the chart at the end of the day on Friday. But like I said, next week is going to be very telling.
Yeager: Well, technicals are one thing that maybe took over is what you're saying, maybe not the fundamental news. Let's talk about some fundamental news in wheat. Chinese buying some wheat. Is that the driver there?
Seifried: It's certainly friendly and that is where a lot of the strength on Friday came from. There was also rumors that China was in the market for some corn too. And actually we did see China in the market for a small amount of new crop corn when we saw export sales on Friday. But yeah, the other thing going on for wheat too is that we are now more than 50% past harvest, through harvest. And with a short crop like this you figure the harvest pressure is going to come early but end early as well. So I think we've gotten past the bulk of the harvest pressure in wheat. And if we're not doing this commodity wide inflation off dance I do feel like wheat is in a position to have a little bit of a bounce and kind of spurred along by the idea that China might be in the market for some U.S. wheat.
Yeager: You mentioned that they might be in the market for some corn. Only a 2% gain this week in corn.
Seifried: Only but what we were down?
Yeager: Considering how everybody was crying on Tuesday --
Seifried: It was miraculous that we were able to recover and close positive on the week. After Tuesday it felt like that would have been an impossible outcome but we did it and it wasn't a reversal higher week. We certainly didn't get over last week's highs. But we were able to recover to a slightly green bar on a weekly chart. That is really impressive. I don't think it necessarily means that the lows are in. But it was impressive, it was a nice bounce. It was a better feeling at the end of the day on Friday than what we had certainly on Tuesday.
Yeager: All right. So Mitch asked us online, he said, is this a buying opportunity right now?
Seifried: Wow, Mitch, proceed with caution. Here's the thing about that. You want to say that for the last two years anything that we've seen of this nature has been a really fantastic buying opportunity and funds have taken advantage of that as well. But then you've got to think, the old adage high prices are the cure for high prices. Well, that hasn't been the case, at least not for the last two years. At some point that will be the case again. But the reason it hasn't been so far is because of this underlying inflationary current. Inflation allows markets to stay at high price levels for extended periods of time because people are still willing to pay these higher prices for the products that these raw commodities make, i.e. beef for example, or ethanol or energies, really anything. People are paying that. But as soon as that demand destruction occurs at the product level and inventories start to back up and you don't have to use as many inputs to replace that inventory, then we do in fact have demand destruction occurring at these high prices. Think back to 2012 when we had record high prices in grains, we didn't have the same inflationary climate and we created demand destruction that lasted for four or five years. It took a very long time to build that demand back, to buy that demand back with low prices. At some point that is going to happen again, Paul. And when we see things like we just saw the last three weeks with the inflation off trade, that gives you a very good clue into what will happen when in fact inflation transitions from a 8% rate to zero or below.
Yeager: So you're not necessarily saying a trend, this is a signal of what could come?
Seifried: Again, we'll see how --
Yeager: I just want to make sure I'm getting what you're saying. I need to move to beans for a minute because they too caught heavy lower, didn't quite recover like the others. Why not?
Seifried: Yeah that's a good question. Like you were saying in the intro, the U.S. dollar being strong makes it more difficult for exports. I don't know, the funny thing is that the beans are the ones that still have that really potentially shockingly bullish story. When we saw the shockingly bullish acreage report, which I think is the most bullish acreage report we've seen for soybeans of all time and it might actually be one of the most bullish reports that we've seen for soybeans period for all time and yet 24 hours later we're $1.07 lower than the spike high that we created within 30 seconds after the report came out. That's bad news and it also means that we're not actually trading the individual market fundamentals. That was something that was a much bigger animal, a much bigger gorilla. But soybeans, with that new acreage number if I put that in the current USDA balance sheet that should give us a 145 million bushel carryover. That is really tight. Now, the USDA won't do that because they'll cut out some demand. The average trade guess is 211 million bushels. But even then that's with a 51.5 national average yield. If you cut one bushel off of that, if that 210 is right, you cut 1 bushel off of 51.5 all of a sudden we're back to 130. This is as bullish if not a more bullish soybean potential situation than what we've been trading for the last two years on this entire rally. So the soybeans do still have explosive upside potential if we don't have this change in the overall climate of the markets, which we've been seeing signs of that, Paul.
Yeager: All right. So Rob in Illinois wants to know, and he was paying attention when you said three weeks ago, Ted warned us that prices could fall quickly due to the fears of the recession, which you've already discussed. Is that story behind us now or is there still substantial downside risk? You've kind of covered both of those. This is the question I need you to answer right now though. What targets do you have for new crop sales between now and harvest?
Seifried: I think you, hopefully you're 50% to 60% sold to this point. But if you're at zero and let's say for the sake of the question we're at zero, wow, I think you've really got to pay attention on Monday. If you can't follow through on the very positive days that we had Thursday and Friday, I think you've really got to get fairly aggressive on making some sales. Now, you can use call spreads and reownership strategies to reown that opportunity to the upside. But there is a tremendous amount of risk to the downside. If you think about what happened in 2008 when very similarly a lot of these commodity markets put their highs in, in June, by the time we got to the end of the calendar year some of these were 70% off of their June highs. In particular, if you think about soybeans in that timeframe, we were over at $16.50 in June, we were at $7.83 by the time we got to December. Corn was at $7.99, got to $3.05. These are the things that can happen in an inflationary bubble burst. And I'm not saying for sure that is what we're having and that we're looking at but there's a lot of cracks in the foundation, there's a lot of concern and you just saw what the managed money thinks of that, they're worried about this too.
Yeager: All right. You have brought up several things that are in the questions that we're going to get to in Market Plus, the online version. I need to get to livestock for a minute, Ted, because again when I asked the buying question, you could take that as a livestock issue, also a reownership issue. But let's talk live cattle. We have the big holiday behind us now. This is a lull time. The market reflected it this week.
Seifried: Yes the market did kind of cool off this week and cutouts were actually not too bad. For me I thought they traded fairly well. But look, in that big slide that we had in corn, feeder cattle couldn't really respond to that and the feeders in a good live cattle rally the feeders are the leaders is the cliché we like to use and that disappointment in the feeder market once we had corn going higher Thursday and Friday you really saw that pull back. The outlook is the same. If we're talking about a recession, if we're talking about a slow down in the economy, if we talk about people not being able to spend as much money, then beef, currently fairly high priced beef is going to be one of the things that might get cut out of the budget. So that's the concern. I think the fundamentals are there from a weights are lower than the five year average, corn prices are getting a little bit cheaper so you think there's fundamentals there that could provide a rally if we're not worried about this recession and stock market being down 22% on the year in the first half having one of the worst first halves in decades, if we're not worried about the demand side of things I really do feel like cattle can go higher. But that's a reflection of the fact that we're concerned. Hogs is a much different --
Yeager: Hogs did go higher this week.
Seifried: Okay. So, once again, we're looking at the same thing because when you go to the grocers and you look at high priced beef and you're like wow, that's starting to really cut into my budget, you look next to it and you see very well priced comparatively speaking pork chops, another very yummy alternative. And you say, huh, I think I'll take those pork chops. And I think what you're getting right now is a lot of speculators thinking that there is going to be a rush towards pork as people start wanting or needing to spend less money. So pork actually seems to be coming up as the recessionary trade. That is the lesser cost substitute that people might move their demand buying habits towards. Packer margins aren't really all that great. You don't really have a whole lot of fundamental reason to say cash is going higher but hogs need to go higher. What you do have is you have the idea that pork demand could spike if we are getting into a recession.
Yeager: And I'll ask you about poultry and how that plays into it in Market Plus in a minute. All right, thanks Ted. We are going to put a pause on this analysis and we'll continue with Ted and answer more of your questions that you submitted in our Market Plus segment. You can find that on our website of MarketToMarket.org, which it's in podcast form and also on YouTube. All of these resources, by the way, are free. You never have to go back to school if you don't want to leave. We make it easy to be a career student with our Market to Market Classroom project. Check out the modules offered in entrepreneurship, government and history at markettomarket.org/classroom. Next week, we look at challenges for improving water quality. Thank you for watching. Have a great week.
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