Mexico Imposes Tariffs on U.S. Goods
On one hand, the National Association of Realtors reported Monday that sales of existing homes rose by more than five percent in February, tallying their largest increase in nearly six years. New home sales also rebounded unexpectedly last month, but remain well below last year’s levels.
According to the Commerce Department, orders for durable goods rose by more than 3 percent in February, ending a streak of six consecutive monthly declines.
Those developments were cheered on Wall Street where the Dow Jones Industrials wrapped up a volatile week Friday with a 5-day gain of nearly 500 points. That’s up nearly 20 percent from its low point on March 9th.
But, the Labor Department reports only Nebraska was spared from a rise in unemployment last month that took its toll in 49 other states. Nationally, the number of people claiming unemployment benefits now exceeds a record 5.5 million.
Critics of U.S. immigration policy claim an influx of illegal workers from Mexico is a critical factor in America’s unemployment equation. This week though, Secretary of State Hillary Clinton was south of the border negotiating with Mexican officials in hopes of averting a trade war.
The newly imposed Mexican tariffs on U.S. agricultural goods, ranging from a 45 percent tax on grapes to lesser percentages on onions and strawberries, raise concerns that a greater trade war could develop between the North American trading partners.
The current Mexican-American commerce dispute dates back to 1994 and the passage of the North American Free Trade Agreement.
Under NAFTA requirements, the U.S. agreed to grant Mexican trucks full access to its highways by January 2000. But domestic opposition to the plan led U.S. legislators to delay a pilot program until 2007.
More than fifteen years after NAFTA was signed, current Secretary of State Hillary Clinton hopes to resolve the dispute amid stark drug trafficking issues surrounding the U.S.-Mexico border.
Clinton and the Obama Administration plan to negotiate a new program for Mexican truck shipments on American highways. But the tariffs on more than $2.4 billion in U.S. goods are not expected to cease prior to President Obama’s mid-April visit to Mexico.
Milk Producers Ask For Help As Prices Plunge
An early spring blizzard dumped up to 17 inches of snow in Denver Thursday. Further east, heavy thunderstorms spawned tornadoes in the Midwest and parts of the South.
But the worst problem appears to be in North Dakota where the Red River broke a 112-year record early Friday morning by climbing 22 feet above flood stage in Fargo.
More than 1,700 National Guard troops contended with snow and sub-zero windchills this week as they assisted volunteers in sandbagging efforts in response to the devastating flood.
Even as Mother Nature wreaks havoc on the high plains, farmers in other regions are contending with a perfect storm of lower commodity prices and higher input costs. Among those hardiest hit are the nation’s dairy producers. This week though, the Agriculture Department intervened on their behalf.
The dramatic drop in prices has prompted the NMPF to ask the Obama administration for help. In response, Secretary Vilsack this week authorized USDA to purchase 200 million pounds of nonfat dry milk for the federal school lunch program and food banks. The action is designed to help bolster prices because the milk was purchased at a much higher federally mandated level.
Jerry Kozak, president of NMPF, applauded Vilsack's move and asked the Secretary to consider additional purchases of cheese and infant formula as well as resurrecting the dormant Dairy Export Incentive Program to help boost overseas sales.
The low prices and high costs have forced some producers to send more cows to the slaughter house. USDA reported that 262,500 cows were butchered in January of this year -- almost 44,000 more than a year ago. Unless prices improve, industry officials predict that 1.5 million of the nation's 9.3 million dairy cows could be sent to the processing plant.
Idaho Farmer Finds Success with Agri-tourism
According to the latest Census of Agriculture, the average agritourism operation reported income of more than $24,000 in 2007 – up more than 300 percent from 2002.
The endeavors rely heavily on a loyal support base and often capitalize on specialized marketing. A case in point can be found in Idaho, where one producer’s hospitality and marketing savvy add up to a solid bottom line. Laurel Bower Burgmaier explains.
MaryJane Butters, Moscow, ID –“No one knows what the future holds for agriculture. The farms are getting bigger and bigger, get big or get out. Everyone’s nervous about the bankers involved with their farm and we don’t quite know where we’re going with all this."
For the past two decades, MaryJane Butters has carved a life for her family in rural Idaho by taking a different trail from mainstream farming. Instead of the more traditional row crops or livestock production, she has opened her farm up to agri-tourism, as well as many other alternative enterprises.
MaryJane Butters, Moscow, ID -"It’s different kinds of things that diversification agri-tourism is a big deal now, inviting people to enjoy what you know, what you value very much which is your sense of place. So agri-tourism is something that farmers should buy into on some level.”
According to the Department of Agriculture, some 52,000 U.S. farms earn income from agri-tourism, which can take many forms. Some farmers and ranchers promote new crops or livestock while others focus on organic, educational or recreational agriculture. But there is a common theme -these niche marketers rely on what is available to keep the family on the farm and the farm in the family. Butters claims farming organically makes the most sense for her operation.
MaryJane Butters, Moscow, ID -"I've probably been involved in organic farming my entire life because we grew all of our own vegetables and sewed our own clothes, a very self-sufficient family. My father subscribed to Organic Gardening. In fact, when I left home, my present was a subscription to Organic Gardening."
Considered an organic pioneer, Butters has found success on the land while maintaining environmental integrity. MaryJanes Farm is nestled in the stunning Palouse region of northern Idaho, where for 22 years, Butters has raised everything from bees to chickens to garlic to wheat. She's even raising crops for biodiesel to fuel her pink Mercedes Benz.
MaryJane Butters, Moscow, ID –“I’m like a good farmer. You have to diversify. You have to, if one crop fails, you try something. You get up the next morning, you try something else. We have a very diversified farm here.”
Recently, Butters started offering local residents something she calls the Country Club. She describes it as "a piece of her farm for their very own."
MaryJane Butters, Moscow, ID –“The Country Club was my answer. I tried the farmer’s market for years. My husband enjoyed the social aspect of it, but we didn’t make enough money. Then, I moved into the CSA program and I think it’s a fascinating concept, but it didn’t work for me either. I still felt people were not connecting enough with their food. I didn't just want to drop it off on their doorsteps.
Andrika Kuhle, Moscow, ID -"I am a supporter of trying to eat what's grown nearby and especially having kids, knowing where food comes from. Food really doesn't come from a grocery store. That's where most of us get it, but it really does grow!"
The $100 seasonal membership buys people a "key" to the farm. Members have access to the farm from dawn to dusk seven days a week and are able to pick a large variety of fruits and vegetables at market price.
Andrika Kuhle, Moscow, ID -"Many people have farm fantasies. Everyone wants their farm, but it's cost prohibitive sometimes. They have other jobs. So I want them to experience the aesthetic, the romance of the farm. I think it's a model other farmers could use."
Another element to Butter's agri-tourism empire is a chance to stay off the beaten path in her Bed & Breakfast. She offers visitors unique wall tents, where they can experience rural life in a rustic environment with no electricity or phones. And, she created the "Farmgirl Connection," a website that brings women across the country together.
MaryJane Butters, Moscow, ID –“The old farm clubs that women formed years ago, I decided to create that version online and it’s exploding. There are thousands of women on there chatting.”
One of the most successful aspects of Butter's business is her line of organic backpacking foods sold online and in camping stores across North America. The organic food is easy to prepare for outdoor enthusiasts, something Butters says she dreamed of having when she lived in Idaho's backcountry several years ago.
MaryJane Butters, Moscow, ID –“That is actually our biggest source of revenue is our food business. It’s a big part of our budget. We probably do a million dollars worth of food every year from that little daylight basement over there…All of it’s done right here. The food is mixed here. It’s packaged here and shipped from here. I invented the recipes for the foods and the labels.”
Editor and author are two more hats Butters wears. She has her own nationally distributed magazine called MaryJanes Farm, and her most recent book is entitled MaryJane's Outpost that came with a $1.35 million advance.
Though Butter's agri-tourism enterprise may not fit mainstream farming models, she has created a business that promotes sustainable farming and traditional family values while maintaining that ever-important bottom line.
MaryJane Butters, Moscow, ID –“Do what it is you love and let the money follow, truly. Take those risks and especially for women entrepreneurs, we’ve kind of been disenfranchised all the long in agriculture. We’re better risk takers and that’s why we’re the fastest growing people, group of people buying small farms and we come up with imaginative ideas like the bed and breakfast, Country Club, etc., that kind of female energy. I think it’s important to follow those whims."
For Market to Market, I'm Laurel Bower Burgmaier.
Market Analysis: Virgil Robinson, Pioneer Hi-Bred International
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For the week, May wheat fell more than 40 cents, while the nearby corn contract lost nearly a dime.
Soybeans also were under pressure, as the May contract posted a loss of 35 cents, while the nearby meal contract was down more than $16 per ton.
In the softs, cotton gave back more than a third of last week’s advance as the May contract declined 51 cents.
In livestock, April cattle moved 88 cents lower. Nearby feeders were off 25 cents. And the April lean hog contract was down $1.28.
In other markets of interest, the Euro lost more than 400 basis points against the dollar. Crude oil was down 34 cents per barrel. Comex Gold declined $33 per ounce. And the Goldman Sachs Commodity Index fell more than 6 points to close at 367.50.
Robinson: Thank you, Mark, nice to see you.
Pearson: Good to see you. Let's talk first broadly about what's happening worldwide in the commodity world. South America is harvesting, we've got China buying trying to stimulate their economy some more, challenges to wheat yields here in the United States and overseas. Broadly as you look at this market right now as we get ready to approach that planting intentions report what do you see?
Robinson: Our securities markets did in fact close pretty well and have a pretty good month going here.
Pearson: Capital markets recovered nicely here.
Robinson: A lot of analysts will be I think speaking relatively well about the behaviors month over month of many of the markets you just mentioned including energies, gasoline, ethanol. It appears corn futures, soybean futures, even with today's declines are in line to have a pretty good month. So, I think the attitude -- this is just one snapshot of a whole host of things we could discuss, have turned a bit more positive. Perhaps it is the perception of the stimulus program in conjunction with other major countries or major economies trying to stimulate their economies. So tonight's conversation is a little more upbeat than we've had in times past.
Pearson: They always say the equities markets leads the general economy by six to nine months so hopefully that means the recession that we're going through hopefully will start to clear itself away by 2010.
Robinson: Often times the futures markets will proceed the physical change in a market by several weeks or several months. So, I think that is one of the important features of tracking and watching the futures markets as closely as we all profess to do.
Pearson: Well, let's talk about these markets in particular that we track. First up is wheat. Wheat, corn and soybeans, cotton, all the ones that we track a lot of evening up this week, not a lot of new positions because everyone seems to be so focused on this report Tuesday.
Robinson: Well, to speak to the issue of wheat the hard red wheat areas have had a change in weather pattern and another is forecast next week. So, many are equating this behavior to what developed last year where the crop was highly suspect during the month of February only to be improved, much improved through the month of March and I think that's kind of the same behavior that we're discussing tonight. When you look at the balance sheet, the old crop balance sheet in wheat it's difficult to find anything there that's terribly bullish. So, having said that I would suggest, again, when there are short covering rallies for whatever reasons they are most likely intended for producers to take a look at selling what remains in old crop and perhaps creating floors or making even new crop wheat sales.
Pearson: Would that be obviously a way to slide this week in anticipation of this report but if we do get a bounce of ten, twenty cents what are you looking for?
Robinson: I think old crop wheat should probably be sold and if there are those who wish to retain ownership expecting or hoping for some type of change in behavior maybe an option strategy would be appropriate for them. Again, I think at a minimum creating price floors particularly if one's crop budget supports creating a price floor with the opportunity for additional price advances moving forward is always a pretty good strategy at this point in the calendar.
Pearson: I talked to some friends of mine up in the Red River Valley and they said that spring wheat number is going to shrink up there with all the flooding they've had. Any thoughts on acreage on wheat?
Robinson: Well, overall all wheat acres will be down and we could lost potentially an additional million acres of spring red wheat due to the circumstances in North Dakota. But even given that with the carry in from last season and the amount of competition globally it's difficult to get wildly bullish on wheat and wheat prices. So, proceed accordingly, be conscious and cognoscente of your crop budget at all times, protect those margins when the opportunity arises and preserve equity moving forward is probably the key theme tonight.
Pearson: Continuing with that theme let's talk about the corn market and, of course, we talked about this March intentions report and it is intentions and we've seen in the last couple of years some big swings between the end of March and June. So, again, it's a snapshot, like you say, of what's going to happen. What are you looking for out of the report?
Robinson: Well, in that context let's just make this notation -- in each of the last five years from March survey to final number corn acres have actually been underestimated in March and have grown larger with the exception of last year due to weather difficulties and just the opposite in soybeans. So, let's keep that in the back of our minds as we think about the number coming out here Tuesday afternoon. And, again, analysts are all of the opinion, or at least the majority, corn acres will be down year over year and the average estimate is off 1.5 million acres while bean acres will grow year over year in the vicinity of about 3 million.
Pearson: Depending, of course, where we come out and it's still early in the game but our first look here about what 2009 is going to look like. From a marketing standpoint, from a making sales standpoint for producers are we going to be in the zone to make sales here as people get ready to start planting?
Robinson: Old crop?
Pearson: Old crop and new crop.
Robinson: I think old crop, again, if we accept the old crop corn balance sheet at face value it's difficult to build a bullish case unless some phenomenal event should occur moving forward. Again, the $4 mark basis old crop futures -- I'll define those as May and July -- has provided pretty substantial resistance in each of the last couple of efforts there. So, I think anything approaching $4 would represent an opportunity to finish up old crop sales with perhaps the exception of a small amount just for the speculative end of things. And in soybeans, again, $9, $9 plus in the old crop soybean market has provided pretty significant resistance. So, at a minimum I'd create a price floor on that opportunity and for those that have maybe more than 50% of last year's production I'd make a sale.
Pearson: What are you hearing from people about the on-farm storage? The corn that's actually in farmer's hands is still quite substantial is what I keep hearing.
Robinson: Quite a bit of it and in that context, again, there is a carry being offered in the futures market, corn futures market. So, those that do have corn on-farm, unpriced there is an opportunity here, I think, to capture a little better price by selling that carry, making sure you have quality grain as well here, we don't want to be surprised by a quality issue moving forward.
Pearson: That can be very expensive.
Robinson: Yes, it can but you can capture something of a carry and as we move into the planting season, the full tilt of the planting season the basis traditionally will narrow providing you an opportunity to attach a basis to that futures fixed price and improve the price from what is being offered today to something better in the late spring, early summer of 2009.
Pearson: Let's talk about soybeans and what you see happening there. That's going to be another key number. And, like you say, everyone is anticipating a bigger bean number.
Robinson: Cross currents, Mark, give me an illustration. China in this week's export sales report pretty active buyer of both beans and soybean oil while in the same breath, assumedly now, rumor has it they are releasing a quantity of beans into the northern part of their country to relieve margin pressure. So, talk about cross currents, buying here and releasing in-country reserve beans in the country itself. We have an inverse in the soybean market, old crop values are valued at a premium to new crop and as long as you and I have been around the grain markets we know that over the course of time the laws of supply and demand traditionally will correct that inverse. So, it's a matter of timing here before that occurs. If we see the kind of soybean increase acre wise in the U.S. that is currently being projected, they all happen to yield at trend or better, a year from this summer we could be talking about an inventory in the U.S. that is twice or even better than twice what we have today. So, please be advised, again, analyze that crop budget and when you have the opportunity to capture some margin don't hesitate to do that. I think it's pretty good business. Or worst case scenario create some kind of a price floor at or near break even if you wish to see what develops over the course of the next many months regarding weather and other macroeconomic events.
Pearson: So, look at an option strategy there but with an eye towards 2010 we may see some pressure as those inventories build.
Robinson: I would agree and, again, let's keep in mind historically what traditionally happens in inverted markets. They traditionally, based on laws of supply and demand, change and move into a carry situation at some point in time. So, I can't precisely tell you when but let's remember that as we move forward here.
Pearson: Let's talk about cotton for just a minute. I've been down south a lot lately and it seems like they're a lot more enthusiastic about soybeans right now than cotton.
Robinson: Well, both old crop cotton and new crop cotton values are beneath loan values so it would be kind of silly for me to suggest selling either or both at this point in time. I think best case scenario, or worst case scenario, however you wish to look at that, I guess I would wait patiently here. Let's get a read on acres and if cotton acres do decline pretty significantly year over year and there is some type of weather concern, which traditionally there is at some point in the crop cycle, it should provide a better opportunity to make a new strategy given what we know tonight.
Pearson: Let's shift gears and talk livestock, a lot of red ink in the cattle business, we talked about dairy earlier in the show. I've talked to a lot of dairy producers here in the last month really under water, a lot of pressure compared to last year. Fed cattle first, what do you see happening going forward for 2009?
Robinson: Again, talk about cross currents here. Lower production and lower prices, very difficult to rationalize that. But, again, demand is a problem and trying to forecast demand is very, very difficult in this kind of an environment. But I do sense because of numbers, because of supply push at some point prices are likely to begin creeping higher and I think that will commence in the second and third quarters of this year. So, as we visit tonight I see no good opportunity regarding the futures market and regarding short hedges so at this point I would reconcile myself to a wait and see attitude with the opportunity I think of better live prices in the second and third quarters of 2009.
Pearson: And keeping that in mind a small calf crop too, as you mentioned a reduced herd. On the calf side what do you see there?
Robinson: Well, I think if we're correct here in our assumptions about improved demand and smaller numbers feeder cattle prices are likely to ratchet higher in an irregular manner over the course of the next many months. If I were in the business of procuring feeders I would make sure I had a supply procured either physically or with some kind of an option strategy.
Pearson: Hog market, what do you see?
Robinson: Hogs I think, again, the supply push will take an effect, smaller numbers, smaller tonnage, improved price second and third quarters of 2009, something into the mid to upper 40s is what I would project.
Pearson: Nice to move up to where we've been and on that positive note on hogs we'll call it good for this week. Big planting intentions report and we'll have all that for you on next Friday's show. I want to thank Virgil very much. That's going to wrap up this edition of Market to Market. If you'd like more information from Virgil on where these markets just may be headed visit the Market Plus page at our Web site where you'll find streaming video of our program and you can download audio podcasts of our Market Analysis and our Market Plus segments absolutely free right there at the Market to Market Web site. And be sure to join us again next week when we'll examine a unique crop rotation system that is uniting farmers and environmentalists. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
Market to Market is a production of Iowa Public Television which is solely responsible for its content. Funding for Market to Market is provided by Pioneer Hi-Bred ... working to provide growers with local knowledge and support to help get the right product into each field. Pioneer ... science with service delivering success.
