Whey and Means in Wisconsin
According to the Commerce Department, the U.S. trade deficit fell nearly 30 percent in February to its lowest level since November of 1999. The correction marked the seventh consecutive monthly decline for the trade gap as the recession weighs heavily on imports.
The decline was paced by a 16.3 percent drop in crude oil imports, which fell to $10 billion… their smallest monthly tally in three years.
Exports of U.S. goods and services posted an unexpected rebound in February, rising by 1.6 percent to $126 billion. While modest, the gain marked the first increase in U.S. exports in seven months. The rebound was led by stronger sales of farm products including soybeans, rice and wheat.
While U.S. trade policy is a key factor in prices paid for domestic farm goods, so too are the scales of supply and demand. And no sector is more keenly aware of their impact than the dairy industry, which has ridden a roller-coaster of record high and low prices over the past few years.
Nevertheless, In Wisconsin, where the dairy industry has an annual economic impact of more than $51 billion, there were new signs this week that processors are bullish on the future.
Over the past five years, processors in the Dairy State spent $1.24 billion on upgrades to equipment and facilities. In the next five years, the National Agriculture Statistics Service expects that cheese processors alone will invest $392 million dollars. Nearly 90% of those investments will come from companies that produce over 5 million pounds of dairy products a year.
Processors also reported plans to invest $93 million in making whey products and $296 million in other dairy operations.
In January and February, 185 processing plants in Wisconsin were sent the survey, 68 percent responded. According to NASS, most of the money invested will go to buildings and processing equipment but companies will also invest in waste treatment and utility upgrades.
Red River Residents Brace for More Flooding
USDA decreased month-over-month U.S. and world corn ending stocks…
Domestic wheat stocks declined modestly, but global wheat stocks grew larger…
And U.S. and global soybean ending stocks decreased significantly, leaving little margin for a short soybean crop.
And with fieldwork already underway in some parts of the Grain Belt, weather conditions are shaping up to be the key factor in the markets. But for residents of the Red River Valley of North Dakota and Minnesota, Mother Nature already has made her presence known.
In 1997, more than 800,000 acres were enrolled in “preventive planting” due to flooding conditions along the Red River. More than 100,000 animals died due to the floods – forcing the National Guard to perform carcass removal. And the river city of Grand Forks was decimated.
The 2009 flood waters have largely affected the upstream river communities of Fargo, North Dakota and Moorhead, Minnesota.
This week, USDA’s regional director of the Risk Management Agency predicted flood waters could persist throughout North Dakota until late May.
Initial estimates for crop or livestock damages are uncertain and members of the North Dakota Agricultural Commission are urging USDA to approve rules that allow cow-calf producers to apply for emergency disaster assistance.
The National Guard continues to shore up dikes and temporary levees in anticipation of a 2nd crest of the Red River in mid-April
Missouri National Guardsmen Work to Win Hearts and Minds of Afghani Farmers
The war zone photo op yielded a stunning show of appreciation for the Commander-in-Chief from military men and women. That could prove to be critical as he tries to sell soldiers and the American public on grim prospects now facing them in Afghanistan.
Obama has pledged to deploy more U.S. forces in Afghanistan, making good on a campaign promise to intensify the fight against a resurgent Taliban and its al-Qaida allies.
Prior to the arrival of reinforcements though, a group of National Guard soldiers from Missouri has deployed agricultural weapons. As David Miller explains, the soldiers effectively beat their swords into plowshares to win the hearts and minds of farmers in Afghanistan.
On a cold January day in 2008, this group of Missouri National Guard soldiers is participating in a training exercise at Camp Atterbury in Indiana. Their convoy is attacked by other U.S. soldiers acting as insurgents, and their unit suffers mock casualties.The exercise is designed to prepare the men for a mission deep into the rugged mountains of eastern Afghanistan. Though heavily armed with state-of- the- art weapons, their mission isn’t to intercept the Taliban or find Osama Bin Laden. Instead, they will help Afghani farmers increase their crop yields, improve the health of their animals and add value to their raw agricultural goods.
Master Sgt. Larry Godsey, Marshall, Missouri: "...they made the announcement they were looking for people with an ag background to do this particular mission, to go over to Afghanistan and, and at the time, we thought help farmers, teach them how to farm. And because of my educational background I thought that would be an interesting mission to go on. I kind of, I kind of kept quiet about it. You know you never want to volunteer to go anywhere."
At the end of January, 2008, Master Sergeant Godsey, a 20-year veteran of the Missouri National Guard, left his wife and three daughters for a one-year deployment in Afghanistan. He joined nearly 50 other volunteers who made up the 935th Agri-business Development Team or ADT. Deployed to Nangarhar Province, the team would be less than 50 miles from the Pakistani border and Osama bin Laden's suspected stronghold.
The soldiers at the core of the unit were chosen because of their agricultural backgrounds. The military capitalized on Godsey's rank, education and current job as an economist at the University of Missouri Center for Agroforestry, and put him in charge of assigning projects to various team members.
The idea for the ADT was conceived by retired Missouri National Guard General Charles Kruse, now president of the Missouri Farm Bureau, Missouri National Guard General King Sidwell, and Director of the Army National Guard General Clyde Vaughn.
Lt. Gen. Clyde Vaughn, Army National Guard: "I can't tell you how proud we are of you. This is a huge priority. You stand right on the cusp of making a huge difference in Afghanistan. "
Though there are now Agri-business Development Teams from several states, Missouri's National Guard was the first to be tasked with improving the quality of life for Afghani farmers.
At first, the soldiers thought they would be teaching basic farming techniques but after arriving in Afghanistan things changed.
Master Sgt. Larry Godsey, Marshall, Missouri: "... those farmers had been farming the same way for 2000 years. They, they know how to farm. They're good farmers. ...We thought we were going to be more on the education side. We thought we were going to teach them how to become 20th century or 21st century farmers, but that really wasn't the case. "
The members of the ADT realized local farmers were way beyond the need for basic education and that techniques used on large U. S. farms would be inappropriate for the smaller operations terraced into nearby mountainsides.
Working with local and regional government officials, projects were identified and arrangements made with local contractors to begin construction. Each project was approached with the idea of replicating the job at another location. Funding for the effort came from money set aside to rebuild the war-torn country.
A variety of projects were undertaken including stocking a local veterinary clinic with new equipment, building a slaughter facility for local producers and working out the details for a fish hatchery. Not unlike U.S. farmers trying to capture more of the profits from their labor, the men of the Missouri ADT hoped their work would help break the cycle of Afghanis selling their raw commodities to nearby countries and buying the processed products back at higher prices.
Sergeant Russell Pierce, from Mayview, Missouri, a cattle rancher and row-crop farmer, was placed in charge of the fish hatchery project. After searching the internet for information he began work with the Nangarhar Fish Producers Association.
Sgt. 1st Class Russell Pierce, Mayview, Missouri: "Even when I started that, it's hard to get out of the, you know, 21st century American mindset where you're saying, 'well we need to, you know, get some electronics this and and, ahm we need to computerize that or get aeration pumps'... Their power grid is is very poor; to a point that they don't even count on it."
Some thought was given to upgrading an existing hatchery but it was determined the facility was in a flood plane and a new location had to be found. When the ADT left in late December 2008, negotiations for a new facility just outside of Jalalabad were in progress.
Once in Afghanistan, the ADT considered the knowledge they were imparting might be used to grow more opium poppies, the main ingredient in the illegal drug heroin. But after asking local farmers about the issue they were assured poppy growing was a criminal problem not an agricultural one.
Master Sgt. Larry Godsey, Marshall, Missouri: "With...world wheat prices what they were this past year wheat actually was more profitable than poppy. So that probably helped us I don't know...But I guess you have to look at it in terms of incentives. There's a reason why people grow poppy and, and typically they grow it, number one, either because that's the only alternative they have or, number two, is because they're being forced to grow it.
The focal point of the mission became water management for electrical power generation and irrigation.
To help bring electricity to rural regions of the country the team completely refurbished two hydroelectric dam. The generating plants now supply power to the nearby villages of Sengani and Omarkheyl and to the small grain mills installed at each dam site.
Larry Godsey, Marshall, Missouri: "They don't know who we were and by going into these communities and getting them electricity or getting them a wheat mill or a corn mill or whatever it's you know its winning the hearts and minds and that's what we were trying to do."
The one project Godsey and his team thought might help the most was the installation of check-dams to hold back spring melt water. The water would then be available for irrigation during the heat of the region's sweltering summers when the mercury often passes 130 degrees. Three optimal locations were found high in the nearby mountains.
To reach these sites, the team often would drive several hours and, once the trail became too rough for vehicles, walk several more.
Sgt. 1st Class Russell Pierce, Mayview, Missouri:"...I think there were times that we were in areas that were um definitely not exactly friendly to US Forces but because of who we were and what we were doing and the reputation that we um built quickly among those individuals over there. We got away with a lot of stuff we shouldn't have."
Gratification aside, ADT members are quick to count the cost of their mission against the benefits of their work. Despite the Pentagon's commitment of more than a million dollars Godsey continues to weigh the risks and rewards.
Master Sgt. Larry Godsey, Marshall, Missouri: "I enjoyed the mission, it was dangerous, it was challenging, um, it was frustrating at times, but it was one of those missions where you really felt like you were making an impact. And you're doing something for people and you felt like you're making progress. And so do I want to go back? Yeah, I'd go back. I don't know if I want to go back for another year but I'd go back."
For Market to Market, I'm David Miller.
Market Analysis: Jamey Kohake, Market Analyst
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For the week, May wheat lost more than 40 cents, and the nearby corn contract moved 14 cents lower.
The report was friendly to soybeans, and a gain of more than 10 cents pushed the May contract past the $10 mark, while the nearby meal contract was up more than $5 per ton.
In the softs, cotton held its head above water again this week as the December contract gained 66 cents.
In livestock, April cattle moved $1.47 higher. Nearby feeders were up $2.75. And the April lean hog contract was down $2.27 cents.
In other markets of interest, the Euro lost nearly 400 basis points against the dollar. Crude oil was down 27 cents per barrel. Comex Gold declined $14 per ounce. And the Goldman Sachs Commodity Index lost 3 points to close at 373-even.
Kohake: That is right, Mark. Exports are extremely strong right now in corn and in beans and I don't think that's going to lead us out of the recession right now but that is a supportive factor. Also today with the Dow closing back up at 8000 again Wells Fargo posted huge earnings which was a big surprise, a bank and the times we're in right now, just a big surprise. That started the buying off this morning.
Pearson: And you feel pretty good then about the equities going forward as these financials recover?
Kohake: I'm not bullish yet right now. The next two weeks are going to be a big factor as we see first quarter earnings being reported for the banks in the next two to three weeks. The Dow will have to fade that bearish news and try to stay strong. I think we are more range bound, 7300 to 8200 back and forth for another quarter yet.
Pearson: Let's talk about the commodities and the wheat market which has been under some pressure again despite the fact we've had some disastrous conditions for wheat in the southern plains.
Kohake: That is right. We had a solid freeze this week, we were below 30 degrees for about six to seven hours in central to southern Kansas and northern Oklahoma. The next day the market opened up higher probably by 30 minutes. Traders aren't wanting to buy weather rallies yet in anything. We saw just here in the last decade, fifteen years two freeze scares in wheat. In '97 Oklahoma lost a crop, Kansas ended up with a bumper crop and then two years ago it was just the opposite, central Kansas lost a crop so there's a lot of scared money, it's going to take another week and a half to really see how much of the crop is lost. Estimates right now are between 20 million and 70 million bushels.
Pearson: There's plenty of wheat worldwide so there's not that concern out there that we've had in the previous couple of years. As you look at wheat and going forward on prices let's talk about Chicago which is the one that we use here on the show but certainly the Kansas City market as well. What are your sales targets?
Kohake: $5.70 for July Chicago. We need to see some short covering to see that. Funds are short right now by 30,000 to 40,000 contracts. Wheat was lower every single trading day this week. We need to see some bullish news, some fresh exports which I think is going to be tough. U.S. wheat is still overpriced, pretty much every foreign country we're not picking up any big sales right now. For Kansas City wheat looking around $6.20 to $6.30. I still think you might see a round of buying come in, opt the freeze, maybe a week, week and a half out. Monday will be a big report out at three o'clock on the crop conditions and maybe we can get a boost off of that. Another key factor these exports, like you're saying with the world supply, is so cumbersome right now if the dollar would correct just maybe ten percent that would help out as well.
Pearson: So, we're really dependent on seeing some outside forces come together here. Despite the fact we've got some potentially disastrous issues here in the United States plenty of wheat worldwide leaves us maybe under some pressure.
Kohake: That is right. I think if you saw rallies right now funds are short and they're going to stay short, they might cover half of them but I don't see them getting long right now unless something would happen like you're saying the dollar or beans and corn would put a new leg in higher.
Pearson: Let's move right over to that -- let's talk about the corn market and what you see happening on that front. Some really friendly reports that have come out of the USDA of late for corn. Obviously there's always going to be concern about spring planting and what happens there but could these be our highs for the year in corn in the next four to six weeks?
Kohake: They very easily could be. We had a very disappointing trade this week. We've been running up for the December contract at $4.36, $4.38, can not push through it, came close this morning on a bullish report with the carry out and good exports up over one million metric tons and couldn't do it again and sold off with a close, very, very soft close. Margins are poor right now, that's one factor and there's just no follow through buying at all in the market. We get a bullish report and all you see is profit taking, there's no new money pouring in. I think a guy needs to add on some sales up around $4.35 and push through it yet again in the $4.50 area but right now it looks soft to me on the charts.
Pearson: So, if you're not a gambling man at this point and you still have old crop corn what would you be doing?
Kohake: I would be basing that off the May contract. $4.07 is a key point there. We hit $4.05 I would be pricing some again in the cash market. Basis levels are still relatively tight and I would take advantage of that on any type of sharp rally.
Pearson: What are your targets for new crop corn sales?
Kohake: I think it's going to be dependent on the next two weeks with the weather, if we stay wet south of I-80 or not, the next six to ten days there's a chance of rain about every 48 hours south of I-80 across the plains and if that does stay true and we do stay cool I think you can see maybe $4.50. But anything above that I think you need sustained weather problems up north. Farmers are reluctant right now, traders, speculators and hedgers to really get too aggressive on the long side of reowning or just speculating because we've seen the crop being planted as late as May 10th and still end up with extremely beneficial yields.
Pearson: We sure have, our genetics have improved all of that. Talk about soybeans then, the flip side of this. We get some wet conditions there's going to be a strong shift to soybeans one would assume. So, if that scenario does happen or we do see that long string of very wet days when we start this planting some shift to soybeans could add to those acres and it looks like next year, barring huge movements of demand, we could have a lot of beans leftover couldn't we?
Kohake: That is right. I think the numbers are underestimated by at least one million right now and that was just from the abandoned acres, the five to seven million that was not reported a week and a half ago and also the soft up north and North Dakota estimates 500,000 upwards of one million acres might be lost up there. That is yet to be seen. I think $9.20 to $9.50 is a great spot to be 20% to 40% sold. I wouldn't sell rallies right now. It's a tough market to hedge. The basis is roughly about 50 cents lower across the Midwest right now so about $8.75 on the cash market and you take that or come in and buy some puts or sell the board but there's no really good trade right now to hedge with beans, the put options are 60 cents to a dollar and who wants to spend a buck this early in the year to buy a put. So, I would use an HTA or forward contract and sell the cash and then maybe come back and buy some calls later if we don't get the acres or we have a big weather rally.
Pearson: So, using some kind of an option strategy just to cover yourself but go forward in the cash market to make sales.
Kohake: I would have used the cash market. I don't like spending a dollar for a put and you can come out and sell calls but I think take the basis right now and do an HTA or forward contract and then come back in later and maybe reown it with some calls if we don't get the acres, if we dry out and get the corn planted on time or if we start burning up this summer and we have to reown it with some calls.
Pearson: We always talk about barring weather problems -- let's say we have weather problems, we get into a dry summer and no one is talking about that yet but obviously we've had the huge rains up in Minnesota, North Dakota, we've had kind of a changing El Nino, La Nina. What is your weather forecast?
Kohake: Short term wet and cool and I think we're going to end up with decent weather. I think once we get past the next ten days we are going to be planting. Missouri was three percent planted as of Monday. We'll see a new report this coming Monday on how much we're planted. But I do agree with you on the forecast where kind of an identical weather forecast as we had last year, wet spring and then warming up. But like you were saying earlier the high birds are just way too strong right now and they can pretty much handle any type of drastic drought or a decent amount of rain.
Pearson: One way or the other it's going to happen. Cotton acres are down. What is your outlook for cotton?
Kohake: I would take advantage of this cotton rally right now and I would make some sales in the cash market. We're going to be turning over bottom the charts. We've had a nice five to seven cent rally in cotton and I would take advantage of the 50 to 51 cent cotton.
Pearson: Take advantage of that. Let's talk about the flip side and that is the livestock front and the fed cattle market. As you mentioned we're seeing this strengthening in the equity markets, maybe a little bit better confidence out there on behalf of consumers, we're getting them back into restaurants and maybe ordering some steaks.
Kohake: I think that is turning the corner. I don't think it's there yet. The big factor is demand right now in both feeders and live cattle. I've been bullish cattle for about three weeks. We had a nice blowout today to the up side. I think you're going to see profit taking in the middle part of next week. We have our monthly cattle on feed report next Friday, I'd say Wednesday or Thursday you're going to see a little bit back down. We've had a two cent rally in the cash market too over the last week and that helps spur the new buying today. Longer term I think we'll see a minor pullback but I think there's still plenty more up side. I would not hedge cattle real heavy in there, I would wait probably three or four weeks, wait for a pullback and then see if you can put new highs in again and try to hedge it then.
Pearson: What is your price target as we go into the third and fourth quarter of 2009 based on what we're seeing right now which is hopefully a little bit better in the way of consumer confidence and the smallest cow herd since 1950?
Kohake: Right, I'm still looking at low to mid 90s some time middle to late summer and I think the demand in the economy will be back halfway okay by then to keep it supported. Exports are good right now and beef delivery for more than 22 days out is the highest that we've had since 2002 so that's bullish too. And also if you look at the cash rent now last week traded 85, this week some 87s. All the cutouts have to do is rally about seven to eight bucks and the packers will be back to break even and I think it's very easy to do in the short term. On the spec side I would buy the breaks pretty heavy right now.
Pearson: Okay, and you mentioned the demand for feeder cattle. We've seen that market strengthen some particularly out in the country.
Kohake: That is right. Demand is picking up, supply side is what I'm looking at for live cattle and feeder cattle and I'm bullish in feeders too. As long as the Dow stays supported, 7800 to 8200 in that range, I think the feeder stays supported. We've had some speculation and some numbers being reported the cattle lost in North Dakota and down from the blizzard we had in southern Kansas, western Kansas a week and a half ago and that hasn't really affected the market a whole lot but I think longer term, summer to fall I'm bullish short term feeders. On any type of pullback I'd buy it.
Pearson: Could increase the numbers out there too with the weather we had down south. Real quick over on the hogs fewer farrowings is what the intentions are, do you think that's going to happen? Are we going to see these hog numbers start to improve?
Kohake: I do, I think we will see it sometime coming in late this month, late April coming into May and we'll see about an eight cent to ten cent rally. I don't think we're going to see 90 cent hogs like we had a year ago. I think more low to mid 80s is a very achievable target. Right now the market is having trouble with the futures being higher priced than the index so there's no reason for the packers to bid up right now so we're kind of in a standstill, range probably not doing much. Two dollar, two cent pullback I would buy into the July, August, October hogs and look for a six to ten cent rally.
Pearson: All right, take advantage of that as it occurs. Jamey Kohake, as usual, great to have you with us, appreciate your insights. That is going to wrap up this edition of Market to Market. If you'd like more information from Jamey on where these markets just may be headed visit the Market Plus page at our Web site. You'll find streaming video of our program and you can download audio podcasts of our Market Analysis and our exclusive Market Plus segments free at our Web site. And be sure to join us again next week when we'll examine efforts to preserve Pennsylvania barns. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
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