Market to Market (October 25, 2019)

Market to Market (October 25, 2019)


Coming up on Market to
Market — The renewable fuels industry again
gets a double dose of information. U.S. farmers look for global
trade options in a political climate. And market analysis
with Elaine Kub, next. ♪♪ Pioneer Hi-Bred
International is a proud sponsor of
Market to Market. 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. ♪♪ Accu-Steel,
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of cattle buildings. Information at
accusteel.com. ♪♪ This is the
Friday, October 25 edition of Market to Market – the
Weekly Journal of Rural America. ♪♪ Hello, I’m
Delaney Howell. The U.S. deficit is now at its
highest level in 7 years. Fiscal Year 2019’s deficit
topped $984 billion, the fourth consecutive
year of increases. The usually stable housing
sector hit a bump in September as high priced
homes and fewer listings slowed the existing
market by 2.2 percent. Sales of new units dropped
slightly in September. Orders for big ticket
manufactured or durable goods retracted by the
largest amount in four months. A follow up now from
our 2018 “Justice in Agriculture” series. This week, the subject in
one of those of stories — a cattle producer who was
convicted of defrauding the government — has
been arrested again. The disappearance of two
Wisconsin brothers is at the center of this case. Garland “Joey” Nelson was
charged with two counts of first-degree murder in the
deaths of the men, who, according to court
documents, had come to collect on a $250,000
debt involving cattle. More on this story is
available at our website. Another legal matter
impacting two major industries is making its
way through civil court. Objections to the
Renewable Fuel Standard are still being heard by
federal appeals justices. Peter Tubbs reports. The Renewable Fuels
Association released redacted documents from
their 2018 lawsuit challenging the
Environmental Protection Agency’s issuing of
waivers of the requirement of gasoline refiners to
buy and blend ethanol into their fuel mixtures. The documents confirm some
of what the renewable fuel industry has
recently charged. The EPA failed to
determine if refiners were in economic distress
before extending waivers of the blending
requirement. In a 2017 meeting, the EPA
Administrator Scott Pruitt approved waivers over the
objections of career EPA staff. In the last decade,
the EPA has granted 94 waivers, with 85 being
issued in in the last 30 months. The waivers have reduced
renewable fuel demand by 1.6 billion gallons. Monte Shaw, Iowa Renewable
Fuels Association: “The EPA is currently under a
court order to give us back the 500 million
gallons of conventional biofuels they illegally
waived from the program back in 2016, and they
didn’t fix it in 2017, or 2018, and then in 2019 the
d not only didn’t fix it, they said they
weren’t going to. This isn’t how government
is supposed to work. When there is a law, you
break it and the Court says you break it, you fix
it, you’re supposed to fix it. You are not supposed to
have an executive agency thumb their nose at
Congress, and thumb their nose at the Courts.” The renewable fuels
industry has asked for the new rules to make up
for volumes lost by the issuing of waivers, and
for consistency in the rules moving forward. Monte Shaw, Iowa Renewable
Fuels Association: “If they do that, we’ll give
it the same applause that we did when they rolled
it out on October 4th. If they don’t, then it
goes from EPA rule to d Trump policy.” The President made remarks
about the RFS twice this week. During a Monday cabinet
meeting he suggested that the new rule was ready. President Donald Trump:
“Thank you very much, and I know you’re working on
these small refineries, getting that straightened
away so that it’s going to be terrific for
this oil refineries. They’ve been hurting for a
long time and we gave them waivers for this year and
that will, that’s helped them a lot. But I want you
to work on that. Make sure this small
refineries are happy and for the farmers, ethanol
now has been fully approved. We spoke with Joni Ernst,
we spoke with the, and very importantly, and we
spoke with Chuck Grassley and uh, the ethanol, the
whole situation with ethanol that has been
going on for so long for so many years. We have that now, where
it’s finished, approved, done, and we’re getting
things ready to sign.” On Wednesday, The
President spoke of the work that current EPA
Administrator Andrew Wheeler was doing
on the RFS rules. President Donald Trump:
“…and he’s right now working on small
refineries, getting them everything they need to
stay because it’s a highly competitive business. We want to keep them
really prosperous and keep them in business. Andrew, so I know you’re
working on that and he’s dealing with them, I think
this week and next week you’ll hopefully have
something for the small refineries.” The EPA will hold a
hearing in Michigan on October 30th to take
comments on the proposed rules. For Market to Market,
I’m Peter Tubbs. The U.S. Census Bureau reported
this week that U.S. agricultural exports to
China are at their lowest level since 2007. A trade war has limited
opportunities for American producers and has some
groups seeking new customers. And as Josh Buettner
reports in our Cover Story, those other markets
are also proving to be a challenge. As America’s trade wars
plow through friend and foe alike, U.S. farmers have watched
foreign markets for their agricultural
goods evaporate. Mark Mueller/District
3 Director- Iowa Corn/Waverly, Iowa: “We
can start the fight. We can destroy the
relationship that took years to build. But how to end that fight? This administration
doesn’t seem to have an answer.” Mark Mueller is a fourth
generation farmer in northeast Iowa. He has travelled the globe
as part of the Iowa Corn Growers Association,
exploring business opportunities for the
Hawkeye State’s top commodity. Mark Mueller/District
3 Director- Iowa Corn/Waverly, Iowa: “I
guess president Trump can declare that we will end
this trade war, but who’s going to want to
necessarily pencil a deal with him when you don’t
know that he’s going to follow that deal that
he himself signed? That’s what I’m
concerned about.” Critics charge trade
agreements have taken the scenic route under the
Trump administration. President Donald Trump:
“And let me tell you, if I wanted to do nothing
with China…” Despite the president’s
recent announcement China has agreed to purchase up
to $50 billion in U.S. farm products amidst the
current impasse, free trade advocates
remain skeptical. Virginia
McGathey/President – McGathey Commodities:
“The trade war was a big surprise to everyone. At first I think some
people thought it was a joke. And then we thought, okay,
there’s no way anyone’s going to take this down
the road because of the ramifications we knew that
it was going to have on our exports –
of everything.” Virginia McGathey is a
commodity broker at the Chicago Board of Trade,
and admits – despite the methods – alternatives
to some of Trump’s trade actions have been sparse. She adds that as the
nation’s top-notch agricultural efficiency
has allowed the U.S. to dominate global
markets, Chinese infrastructure
developments have ratcheted up competition. Virginia
McGathey/President – McGathey Commodities:
“We would have had this problem without
the tariffs.” Sec. Sonny Perdue/U.S. Department of Agriculture:
“We’re going to do the market facilitation thing
again this year and as you know, it’s $4 billion more
– 12 billion last year, 16 billion…You’re right to
acknowledge that’s not going to make
anybody whole.” Following two rounds of
federal payouts to farmers affected by retaliatory
tariffs from China, USDA chief Sonny Perdue
encouraged Farm Progress Show-goers in Illinois
this summer to develop new markets – prompting
some to recall one geographically convenient
port of call, which, despite controversy,
rests at the nation’s fingertips. Paul Johnson/Executive
Director, Illinois-Cuba Working Group: “All
markets matter. Right now, Cuba represents
a $2 billion market. The United States share
of that currently is less than ten percent.” Paul Johnson is Executive
Director of the Illinois-Cuba Working
Group, created through the state’s general assembly
in 2013 to promote agricultural commerce with
the Caribbean nation. Illinois helped facilitate
congressional trade reform with the Cold War nemesis
nearly 20 years ago, unleashing agricultural
exports which peaked in 2008 at $700 million. But credit issues tied to
the long-standing U.S. embargo against Cuba
eventually gummed up the works. Farm state lawmakers have
attempted legislative modifications, and
President Obama’s steps toward normalization
held risks. Paul Johnson/Executive
Director, Illinois-Cuba Working Group: “When
president Trump came into office, he rolled back a
lot of those initiatives. The rhetoric has
completely changed. They’re trying to increase
the embargo, tighten the screws between the
United States and Cuba.” Johnson says business
sentiments have been dampened by travel
restrictions and enactment of dormant provisions
within decades-old legislation expanding
legal rights to seek damages, in U.S. courts, for property
seized following Cuba’s 1959 revolution. Ambassador Jose
Cabanas/Cuban Ambassador to the United States: “It
will take probably years to know the outcome of
those lawsuits, but the aim is to freeze foreign
investment in Cuba.” Jose Cabanas, Cuba’s first
Ambassador to the United States in over 50
years, says current Congressionally-proposed
exemptions for credit under the blockade, Cuba’s
term for the embargo, would be a game-changer. Ambassador Jose
Cabanas/Cuban Ambassador to the United States: “The
policy that limits further bilateral ties simply
represents the will of a very small amount of
people in one particular state in this country.” Currying favor among Cuban
exiles contributed to Trump’s 2016 electoral
victory, which he rewarded with executive action,
much to the dismay of Johnson and others. Paul Johnson/Executive
Director, Illinois-Cuba Working Group: “We just
don’t agree on the solutions. And so at some point,
Cuban-Americans in Florida and the president of the
United States has to recognize that if this
policy hasn’t worked at all, and I would ask Cuban
Americans to, if they’re really looking for change
in Cuba, the best way to do that is not to continue
a policy that has zero impact in 60 years, but to
try to engage, to, to look for change.” A recent soybean expo in
Chicago gave producers an opportunity to highlight
the industry’s current patchwork alternative
to the Chinese market. Derek Haigwood/Chairman –
US Soybean Export Council: “We have Pakistan,
Bangladesh, Sri Lanka, Egypt.” Suzanne
Shirbroun/Farmersburg, Iowa: “Myanmar.” Dave Walton/Executive
Director – Iowa Soybean Association:
“Philippines, Maylasia.” Mark Albertson/Director
of Market Development, Illinois Soybean
Association: “Right now we need every market we can
get and Cuba is right next door.” Illinois-Cuba Working
Group members see a potential $300 million
market for soy as the island doubles
pork production. In addition to meal,
American wheat, rice and poultry are poised to
reap more benefit from 11 million mouths. The socialist nation also
imports 900,000 metric tons of corn annually. Mark Mueller/District
3 Director- Iowa Corn/Waverly, Iowa: “It
could be a very small market, but it’s just 90
miles off the coast of the U.S.” Mark Mueller joined an
envoy of commodity groups led by Paul Johnson
to Cuba in 2018. He sees potential for corn
exports by cultivating markets, not unlike how
China and other rivals were brought on board. Mark Mueller/District
3 Director- Iowa Corn/Waverly, Iowa: ” The
obstacles that would keep us from doing trade with
them are not physical but political obstacles. In the last 60 years we’ve
gone to war with Vietnam. And then we are now one of
their best suppliers of agricultural goods and
we’ve gone from mortal enemy to good friend and
close trading partner. Why not do it with these
guys who are, you know, a 45 minute plane
ride away?” For Market to Market,
I’m Josh Buettner. Drier conditions hampered
one crop, while helping the harvest of another. For the week, December
wheat lost 15 cents, the first weekly loss in 12
weeks, while the nearby corn contract
fell 4 cents. The soy complex
dealt with China/U.S. trade talks. The result was a 14 cent
loss in the November contract. December meal shed
$5.20 per ton. December cotton
declined 26 cents per hundredweight. Over in the dairy parlor,
November Class III milk futures gained 92 cents. The livestock sector
finished mixed as the December cattle contract
added $2.45, November feeders improved $2.53
and the December lean hog contract fell $3.02. In the currency
markets, the U.S. Dollar index
gained 60 ticks. December crude oil
increased $2.88 per barrel. COMEX Gold added
$12 per ounce. And the Goldman Sachs
Commodity Index added nearly 9 points to
finish at 415.20. Joining us now to offer
insight on these and other trends is one of our
regular market analysts, Elaine Kub. Elaine, welcome back. Kub: It’s good to be here. Great program and very
interesting times. Howell: There are a lot
of things to talk about today, aren’t
there, Elaine? Kub: Yes. Howell: Let’s kick it off
here and talk the wheat market. As we just mentioned there
the first time over weekly closes I think that it has
been down and I believe we just said in 12 weeks and
last week we had such a strong week for wheat and
this week it appears they did not continue
that rally. Kub: Right, if you just
looked at the chart, just the futures chart, it kind
of looks flat, kind of looks boring this week but
actually that’s not the full picture. Most of the interesting
things that are happening in the wheat market, and
there are interesting supply implications from
the weather and everything else, but really that gets
reflected in the cash market and in the basis,
the discounts in the premiums that folks see
at their actual elevator door. Howell: And is that the
explanation then for why basis levels are so much
different right now than what we see on
the futures board? Kub: Yes, and it really
matters about what type of wheat you’re
talking about. You’ve got hard red winter
wheat in the Southern Plains where you could get
a little bullish about the fact that it’s
getting dry. You look at the drought
monitor, there are starting to be dry spots
kind of looming up from Texas and Oklahoma. but really the concern I
think in the milling wheat space right now if for
hard red spring wheat and for Durham even
going up into Canada. In North Dakota and
Montana you’ve still got wheat that is unharvested. The latest crop progress
report showed 94% of the U.S. hard red spring wheat was
harvested already, which means there’s 96%
harvested, there’s 4% still not harvested
and this is the end of October. This is very, very rare
and at this point it kind of means that that’s
actually a loss. A lot of times late
harvesting doesn’t matter to a crop or doesn’t
matter to a futures market but in this case
I think it does. I think that at this point
you can kind of write that off as a loss. The actual crop insurance
date for that loss isn’t until October 31st but
effectively that wheat has been snowed on, it’s just
not going to be wheat that is going to end up
in a supply table. Howell: So will that give
us enough of a shock to the market or a surprise
to the market to add any sort of positive
premium back in? Kub: I don’t think so. I don’t think that the
futures market has or is going to reflect that
problem, not yet maybe in January something like
that, but at this point it’s just the actual
traders that are out there looking for good quality
wheat, wheat that doesn’t have any problems, any
molds or anything like that, and it just is
reflected as I mentioned at the elevator door. Howell: Elaine, the other
thing that producers are curious of is when are we
going to see the price implications for the corn
and soybean markets? We’ve got a question here
from Matt in Amherst, Wisconsin. He wants to know, has the
market priced this epic train wreck of wet corn in
the northern third of the Corn Belt? The dry corn is 23% with
most of it at 27% on up and that’s what was
planted halfway on. Kub: Right. It is a real mess and as I
mentioned a lot of times the futures market doesn’t
reflect bullishly if there is a late harvest because
the bushels are still there. And in a lot of cases for
this corn market that is true. I was driving down I-80
today and I saw lodged corn that was hit by wind
storms or storms that you’ve had here in Iowa
recently but eventually that corn will get
harvested, the bushels are still there, it
will just be a pain. It will be a mess to go
harvest and it will go slowly. I suspect this country
will definitely still be harvesting corn in
December this year. But eventually those
bushels do show up. They might be light test
weight if it was some place that got frosted
here in the northern part of the Corn Belt. They might have wet
problems like mentioned there and in that
case nobody wins. You don’t get a crop
insurance payment for having to dry down corn. You get crop insurance
reimbursement for damaged corn or anything like that
but having to pay extra to dry that down or pay the
moisture charges or pay the shrink at the
elevator, none of that ever gets reimbursed
for farmers. So you’ve got both the
elevator industry not receiving the corn that
they’re counting on and needing at this time of
year and at the same time you’ve got farmers who are
not going to really see the prices that they would
otherwise see, even from the strong basis. We have very strong basis
but once you back off those discounts you
don’t even see that. Howell: Well and I think
the other piece of the puzzle that a lot of folks
are curious about is I think the general
sentiment is we really won’t see that production
shown up in the reports until January. But if we do see some sort
of uptick in that we do not have great export
numbers as is. Will that just continue to
butt heads up against each other? Kub: Yeah, so the actual
movement of corn right now or the sales business of
corn has not been great. Rail movement in this
country this past week is down 20% from average
levels, the inspections, the export inspections
are down 31% from average levels. So we’re not seeing the
seasonal movement that we would expect to see this
time of year and part of that is because it’s not
coming and it really depends very microlocally
what your basis bids might be. There were certain
processors that really boosted and strengthened
their bids this week and were as strong as they
have ever been this harvest season. But then right here on
Thursday and Friday they weakened back out again
because there’s a few dry days where they are
expecting to see harvest progress actually made in
their local little area and they’ll see
that corn come in. Nationwide, eastern Corn
Belt you’ve still got basis bids at a co-op
level at 25 over 35 over very strong because they
don’t have the acreage, you’re still basing these
outlooks on the prevented plant scenario we’ve got
back from spring that we’ve been talking
about all summer. So exactly, there’s
two competing things, everybody needs that corn
but the corn is wet and so the actual prices received
are not what folks want them to be. Howell: Okay, Elaine,
let’s transition and talk about what is going on
in the soybean story. Friday was a horrid day
for grain producers, maybe not so much for end users,
but losing 13 plus cents I think it was. What was going on in
the soybean market? Kub: Well, the timing of
it, it was pretty steady all day until the
afternoon and the timing of it coincided with this
trade war scenario, some sort of rumor that maybe
parts of the agreement that might happen
between the U.S. and China might have maybe
been agreed upon, maybe. take that for
what it’s worth. but apparently it’s worth
13 cents lower in the soybean futures as a
disappointment of not getting what they expected
to see or we don’t really have the details of what’s
in it, hard to say, but I imagine it’s tied to that. Other than that you’re
looking at a fairly bullish scenario if
you look globally for soybeans. Howell: A bullish
scenario why? Kub: Well, we have seen
prices rallying a little bit or at least staying
stronger and we’ve seen the dollar come down,
every sort of piece of news that you get coming
out of South America right now could be pointing
in a bullish direction. You’ve got an election
coming up in Argentina this weekend which has
been driving the value of the Argentine peso down
and really encouraging the domestic farmers in
Argentina to be planting as much soybeans or as
much exportable crops as they can. Brazil on the other hand
has had their currency move upwards and that is
traditionally bullish and I think that’s the more
important influence here rather than that
bearish Argentine peso. It’s bullish because they
had a vote on some pension reform that is finally
getting done and any time the Brazilian real starts
to go up their FOB prices for soybeans at their
ports are as high now as they have ever been in
the calendar year 2019. So the expectation is that
China might actually start coming to the U.S. for some of that export
business so that’s great. And then you’ve also got
the weather, which is not ideal. They’ve got enough showers
in Brazil to keep planting going. I suspect right about now
as we’re recording this they’re probably about a
quarter planted in their soybeans but there has
been enough of that dryness that if you ever
do get that South American weather forecast really
dry up it could become quite bullish for
soybeans, you could see the March contract start
moving back towards $10 and I think that’s a
number that folks kind of play around with. Howell: Are we going to
see that March contract move towards $10 here in
the next couple of weeks or is that something else
that’s going to be kicked down the line until
January or so? Kub: If we saw some sort
of details from this trade whatever with China that
was really favorable it could become bullish fast. But we’ve been saying that
for the past 18 months. And so I wouldn’t hitch
your star on that wagon necessarily. The timeline for seeing a
$10 sort of number on the March contract I
think is more like a December/January kind of
argument and if and only if you started to have
much drier weather in South America. Howell: Okay. Elaine, let’s
talk live cattle. We had the cattle on feed
report and I want to get to that here in
just a moment. But on Thursday they had,
or maybe it was Friday, had a reversal that closed
lower than what they were trading in on the day. Is that just a
short-term correction? Kub: So that rally on the
futures market has been pretty steady. I think if you look since
the September 9th low we’ve been adding an
average of 50 cents to that front month
contract every day. It has been a pretty
steady rally. So to see it pull back
here on the futures chart, fine, these things happen. Cash market wise
it’s still strong. We saw $110 trade live
basis, that’s a $2 improvement over last
week, $5 improvement through the month, so
that’s still churning higher and I think there’s
still the potential for the cash market, the
actual market that is being traded out of the
feedlots, to continue higher because the packer
margins are still there. There’s still room for
this market to keep moving higher. Howell: All right, Elaine,
share with me your cattle on feed report. Was there anything
noteworthy there that our producers that are
watching should be aware of? Kub: Not really. You should be aware that
it was a non-event. The report showed 1% less
cattle on feed than last year at this time which is
exactly in line with what the analyst expectations
were going into the report. So that means you don’t
expect any sort of a futures reaction when
Monday shows up. But it does suggest that
there is going to be good appetite through the month
of October and November for feedlots to actually
go out and buy these feeder cattle. When you start looking at
the feeder cattle market it adds some strength or
at least some stability to that, that there is room
in there for them to go in now in the season where
these cattle are actually going to finally start
moving in the feedlots, that that appetite
will be there. Howell: What does the
appetite look like for the lean hog markets? We continue to have these
strange swings of limit up one day and then maybe
limit down the next. Kub: Well, that again
is a trade war story. It really is. You could argue bullishly
or bearishly based on demand scenarios and
certainly the large supplies that we know
and we have seen in this market for the past
several months. Slaughter numbers are huge
and they continue getting huger. You’re looking at more
than 490,000 head every day so this is a lot of
pork being put onto the market. But it just cannot be put
on to the market at much higher prices because
you’re still looking at that 62% tariff
from China. So price wise there just
isn’t the ability for that market to move higher. Howell: There isn’t
perhaps when you look globally, but domestically
is there the ability for prices to move higher? Kub: Well, that’s the
expectation as we move out six months. I feel like every time I
come on this show it’s always well six months
down the line hog prices are expected
to move higher. But we see that if you
look farther out to July/August sort of
timeframe you look towards the $90 level. Howell: But that’s
usual right? That’s the seasonal
rally anyways. Kub: Right, so in the
near-term no, I don’t think there’s any reason
to feel very bullishly about hog prices. Howell: So let’s not look
at the summer months because those are maybe a
little usual to the higher prices. Let’s look at some of
the deferred contracts relative to now. What are the levels that
they feel comfortable trading at? Kub: That $80 level for
your spring contracts, that seems to be the price
level just chart wise where it seems to
be consolidating. Howell: Okay, Elaine Kub,
thank you so much, always a pleasure. Kub: Thanks, Delaney. Howell: That wraps up
the broadcast portion of Market to Market. But we will keep this
conversation going on Market Plus where we’ll
answer more of your questions. You can find it
on our website at Market-to-Market.org. We’ve been filling our
Instagram Stories feed with some of the best fall
images in rural America. See what we mean at
IPTVMarket on Instagram. Join us again next week
when we’ll see how farmers in one area are getting
exposure in a new way to sell their wares. So until then,
thanks for watching. I’m Delaney Howell. Have a great week! ♪♪ Market to Market
is a production of Iowa Public Television which is
solely responsible for its content. Pioneer Hi-Bred
International is a proud sponsor of
Market to Market. 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. ♪♪ Accu-Steel,
offering fabric covered buildings specifically
designed for the cattle industry since 2001. The next generation
of cattle buildings. Information at
accusteel.com.

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