Policy Leaders Launch Hypoxia Tour
The Conference Board's Index of Leading Economic Indicators was up for the fifth consecutive month with five of the ten indices in positive territory.
Sales of new homes posted a small increase last month. Even though it was the strongest report in 11 months the increase failed to meet market expectations.
Despite the encouraging numbers consumers continue to hold on to their money. Orders for durable goods declined 2.4 percent last month after posting an increase of more than four percent in July.
Even with many market indicators in positive territory trading on Wall Street this week was relatively flat.
And U.s. Government numbers show the average value of farmland declined four percent across the county this year. In the Midwest prime production land fell as much as six percent in value.
Drainage from that farmland has been blamed for several ills in rural America. Among them is hypoxia in the Gulf of Mexico. Much of the blame for what is now called the "Dead Zone" has been laid at the foot of production agriculture. But solutions to combat expansion of the hypoxic region are under development. This week a group of dignitaries visited the heartland to see what new weapons are being brought to bear in the battle against the Dead Zone.
More than one hundred policy makers, environmental leaders, and agricultural representatives descended on the Corn Belt this week, hoping to mitigate nutrient runoff from farmland. Members of the Mississippi River and Gulf of Mexico Hypoxia Task Force toured a series of Iowa operations varying from a traditional family farm to research facilities.
Many discussions centered on agricultural implications of the so-called “Dead Zone” in the Gulf of Mexico. The environmentally-ravaged region of coastal water has suffered for years under an annual algae bloom that chokes off oxygen and decimates sea life. Many researchers have traced the hypoxia zone back to nitrogen and phosphorous runoff throughout the Corn Belt. But, federal officials this week, assured Market to Market that Agricultural runoff is only one contributor to the “Dead Zone.”
Peter Silva, U.S. EPA, Assistant Administrator for Water: "One thing we haven't been able to address quite frankly is non-point source. And that is not just farming. That's you and me putting nutrients on our lawns, oil from our cars in to the street. I don't think we should be pointing fingers but everybody should take responsibility and that's why we are working with the farmers. Everybody know Hypoxia is caused primarily by nutrient runoff into the Mississippi and that is, by nature, due to agriculture."
Sec. Bill Northey, Iowa Dept. of Agriculture : "Generally, if you run into somebody that blames agriculture for all their problems then that means they don't know enough of the story. And that's really what we tried to do today. Show some of the technological issues and environmental issues that farmers face."
During their Midwestern Tour, Task Force members were coached on the merits of field management…
Dr. Matt Helmers, Iowa State University: “And as we see here if you just get some cover on your field it can make a huge difference in the amount of runoff in the nearby watershed.”
…And the nuts and bolts of modern harvesting equipment.
Sec. Bill Northey, Iowa Dept. of Agriculture: “And these pinchers pull those kernels off and throw the silage aside.”
After visiting an Iowa farm, Task Force members examined research test plots conducted by Iowa State University.
Prof. BLANK: “What we are really trying to do here is examine the water runoff from these fields and see what leeches out.”
ISU test plots match traditional corn planting alongside unfertilized prairie grass, and no-till corn hoping to measure the varying levels of nitrogen runoff and potential environmental impacts. But the newest nitrogen-mitigation efforts in Iowa focus on the Conservation Reserve Enhancement Program, or CREP.
Sec. Bill Northey, Iowa Dept. of Agriculture: "Producers really like a program like the Conservation Reserve Enhancement Program. It's a voluntary program where a group of producers can go together and say we want to proactively put this wetland in the landscape. It will reduce the amount of nitrogen that is leaving and increase their productivity. And its being done voluntary and not by regulation."
Funded by a joint USDA and State of Iowa partnership, CREP wetlands are strategically placed to filter a region’s agricultural inputs and simultaneously boost wetland habitat. Recent ISU analysis claims CREP wetlands can remove 40-90 percent of nitrates and more than 90 percent of herbicides from upper-lying cropland. While proponents of the wetlands pledge the efforts are a first step, some Gulf Coast representatives hope the efforts can be strengthened.
Bryon Griffith, Director, U.S. EPA Gulf of Mexico Office: "The evidence is still yet to be tendered that we can come together as clear cooperators and move beyond the studies. This is a success story. The question is can you scale it up to 6 million acres in Iowa. This is a scale issue."
Nitrogen-mitigation efforts received a boost this week as USDA Sec. Tom Vilsack pledged $320 million to curb farm chemical runoff. The plan to assist farmers and landowners throughout the Mississippi River watershed will be distributed over the next four years.
Rural Health Care Cooperatives Get Another Look
The U.S. Congress has been working for several months on how to make affordable health care available to all Americans. The House managed to overcome enough of its differences to pass comprehensive legislation but the Senate has reached an impasse. To say the least, the measure has been a magnet for controversy.
One option being considered to get negotiations started again involves organizing groups of people into health care cooperatives -- a model familiar to Rural Americans. A practical application of the concept can be found in Wisconsin where farmers and factory workers are capitalizing on their numbers. Art Hackett explains.
In the fall of 2007, the Farmer's Health Co-op was soliciting new members in town meetings such as this one in Reedsburg.Among the coop's first members were Jim and Connie March who operate a dairy farm near Dodgeville. Connie March said the couple had health insurance but had been shopping around for a better deal.
Connie March, Dodgeville, Wisconsin: "Because it was getting so expensive and they weren't covering our children past the age of 19."
Two years later, the March's son Travis is still covered since he lives and works on the farm. Jim March says word has gotten around that the family is in the Co-op.
Jim March, Dodgeville, Wisconsin: "We've had several calls about knowing about it...in the area. I'm sure there are others looking into it."
To join the Co-op, the March's had to make a three year commitment putting up a deposit they would lose if they dropped out early. With the end of that commitment approaching, Connie says she's planning on staying.
Connie March, Dodgeville, Wisconsin: "They do the preventatives...I had a physical this year and they paid everything but the deductibles... It's still cheaper than it was with the other insurance company. Two years ago? Than it was two years ago so that's a good thing."
Cathy Mahaffey is the Co-op's Executive Director.
Cathy Mahaffey, Farmer's Health Co-op: "We’ve done some surveys. We've found that 80 percent of our members either said premiums didn't increase or that they actually went down. But sixty five percent said their benefits improved."
The Co-op started out covering about 2,200 people. Since then, it's grown about 18 percent. Mahaffey says the economy has held back growth as has competition from Badger Care, a State of Wisconsin program for the uninsured.
The Co-op doesn't just cover individual farmers. It also covers companies like that support agriculture like Alpine Foods, a cranberry processors in Nekoosa. (graph)
The firm started five years ago, processing bulk cranberries for sale to bakeries.
The founder, Jonathan Smith, hoped to grow by developing new uses for the cranberry. Among them, hand lotion containing oil from cranberry seeds. As a start up company with only two employees, insurance was prohibitively expensive.
Jonathan Smith, Alpine Foods: "I was lucky enough to have a wife with a job that did provide it. When she quit working, it was just the family and I, we had to risk it until we could find group insurance."
Christine Sohns is Alpine's chief finance officer. Prior to the Co-op, she relied on COBRA benefits from her former employer.
Christine Sohns, Alpine Foods: "I knew it was going to be ending soon and it probably would have been a situation of whether I would be able to continue with Alpine food are go to another company where I had to get insurance."
Today, Alpine Foods uses the Co-op to offer insurance, albeit a plan with a high deductible, to their 25 employees. They're expanding and marketing a new product, Berry Bits. Smith says they don't have the cranberry's sour taste, or the calories from the sugar often used to mask it.
The company's big enough they might be eligible for conventional group coverage but Sohns says they still prefer the Co-op.
Christine Sohns, Alpine Foods: "We could get comparable insurance at the same price but with a lot less as far as benefits go...as far as coverage. And that's what I was concerned about, getting good coverage for the employees."
The Co-op offers insurance to individuals and firms which might otherwise go uninsured. But its plans have seen rates increase since it began.
The Co-op's original enrollees were hit with a seven-point-nine percent rate hike in January 2008 and a nine-point-eight percent increase a year later.
In comparison, Wisconsin's Commissioner of Insurance reports the average health plan for a small business in central Wisconsin saw increases of seven percent, and two-point-four percent over the same years.
The catch is that most members would have to be covered by individual plans which are often more expensive and don't cover pre existing conditions.
Cathy Mahaffey, Farmer's Health Co-op: "What we're seeing is double digits for those individuals...we think we're doing better than what these folks could accomplish on their own."
In April of 2010, the Co-op will face its first real test. The original members will be able to drop out and collect the deposits they posted when they joined.
Cathy Mahaffey, Farmer's Health Co-op: "That was the payment that they made to secure their commitment for three years and we said if you stay, you'll get that money back. And they'll be receiving those checks in 2010. We believe that because of the premium increases, which have been in single digits, the benefits, the satisfaction surveys show very high satisfaction rates, we feel we'll keep a high percentage of those."
For Market to Market, I'm Art Hackett.
Market Analysis: Darin Newsom, Market Analyst
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For the week, December wheat lost 8 cents, while the nearby corn contract moved more than 16 cents higher.
Even with concerns over wet weather in the southern region of the United States, beans finished lower. For the week, November soybeans lost 15 cents and the nearby meal contract fell 80 cents per ton.
In the softs, cotton lost almost all of what it gained last week with the December contract dropping nearly $2.65.
In the dairy market, Class III Milk futures continued their upward trend for another week with a gain of 22 cents.
In livestock, October cattle gained 50 cents. Nearby feeders were off 42 cents. And the October lean hog contract was down 85 cents.
In other markets of interest, the Euro lost nearly 56 basis points against the dollar. Crude oil fell $6.47 per barrel. Comex Gold dropped from last week's record high falling almost $20.00. And the Goldman Sachs Commodity Index lost 29 points to close at 440-even.
Newsom: Thank you, Mark.
Pearson: Interesting week as usual in the commodity markets. The energies are under some pressure. There’s a feeling that there’s may be a glut building up in gasoline inventories. Things still not running a hundred miles an hour in terms of the economy. But as we pointed out at the beginning of the show, a bit of an improvement. When you look at all this and you look at the global franchise that we have to deal with in agriculture globally, what are your thoughts? A little bit stronger dollar? Is that here to stay, Darin?
Newsom: It certainly could be. I think this week was very important in the dollar. You know, we got through another Federal Reserve meeting where they didn’t change the fed fund interest rates. And initially the dollar reacted by going down, but it was immediately met by solid buying. We’ve seen that both on Thursday and Friday following through. Now what this means if we’re trying to turn this dollar around and if all of a sudden the dollar is finding favor with foreign investors, it’s going to start to put some pressure – possibly start to put some pressure on commodities. We saw it in the gold market, as you mentioned. Sharp sell off Thursday and Friday in gold. Crude oil crashing. Gasoline starting to weigh in on its bearish fundamentals. This could very easily spill over into the grains before it’s all said and done.
Pearson: All right. With that in mind, let’s talk first about what’s happening in the wheat market. Again, it’s been a long, slow pull for wheat. We’ve got quite a divergence from protein quality up to the north. There’s a lot of factors going on here. But it seems like the bottom line, Darin, from everything I’ve read and from everything you’ve told me is that there’s a lot of wheat out there.
Newsom: There’s a lot of wheat in the world and we’re still dealing with that. We tried to rally the wheat market throughout the balance of the week. Friday took it all away. I think we’re going to continue to see this situation until we get closer to the new crop because, you know, we’re hearing Argentina is going to have greatly reduced acres. They’re going to go more into soybeans. Australian crop up for question right now with the estimates that are coming in there. It could be reduced a bit. So there are some factors on the horizon that could start to weigh on this wheat market that could possibly help bring some support to it.
Pearson: All right. So that’s some good news for producers. We got the crop pretty much put away for the most part. The market always has to bid up to get it back out. So is that going to be our selling opportunity?
Newsom: I think so. A lot is going to depend on what the dollar does, because if it starts to rally, there’s not going to be that much demand for the U.S. product, so we’re going to be watching that very closely. But if we get a rally, I think it is going to be an attempt to get some of these supplies out of producer’s hands.
Pearson: What kind of a price do you see on Kansas City to make this happen?
Newsom: It’s going to be a very limited rally. If we can get 40, 50 cents out of this market – I know we rallied 20, 30 this week and then took it all back off on Friday – but if we can get 40, 50 cents here over the fall, early winter, I think it’s going to be met with some pretty good sales.
Pearson: Let’s talk about the corn market and what you see happening on that front. Harvest slow. It’s going to be a late harvest. We knew that. It’s late putting the crop in. It’s late taking it out. It’s been a cool, wet summer for the most part around the Corn Belt. So we have a while to go here before we really get into the thick of it. But some of the early stuff – some of the field openings that we’ve heard, certainly some of the chopping that’s been done, it’s been pretty encouraging for this big crop.
Newsom: It has been. We’re getting mixed signals coming in out of the early results, but certainly the yields could possibly be there that everyone has been talking about for eons with this thing being so slow. But what’s interesting to me is the reaction in the spreads this week as we’re starting to get into the fields. Yes, it’s delayed. Yes, we’re starting to see some demand coming in, but we’re seeing those spreads, December to March and so on, actually starting to weaken. The carry is coming out a little bit, so there is some uncertainty over the actual size of the crop as we go forward. This could easily change. We could see the pressure start coming back in on the December contract. But I find it interesting the movement in these spreads while the December contract was able to rally up towards the higher end of its sideways range up in the $3.30, $3.40. So it will certainly be interesting to watch over the next couple weeks as harvest gets into full gear.
Pearson: Now, you mentioned earlier the stronger dollar and the impact it could have. Exports to date, are we ahead of the game on corn?
Newsom: Actually holding pretty well in corn. The sales have been doing relatively well week in and week out. A little bit short on the shipments, and that’s a key number is that we start shipping these numbers that we’re selling, particularly as we talk about soybeans later. But corn really holding together really well. We have seen some pick up in demand as the market got down into the low threes on the futures. Really did something to spark some buying interest.
Pearson: Obviously the frost scare a week ago is still fresh in a lot of people’s minds. All the forecasts are now showing pretty decent conditions through the first week of October, but there’s a lot of people who are saying, well, this crop in the northern Corn Belt, it’s not going to be ready by the 10th or 12th or 15th of October so we still have a longer way to go.
Newsom: We do. As we were out making the rounds for trade shows this summer, some were saying they were going to have to hold off until early December before they saw their first frost. Jokingly, that’s not going to happen. But we have a ways to go. This market I think is going to be very interesting. I think we’re going to continue to see these spikes. The market is going to remain very nervous. Yes, we’ve pushed the possible frost scare back into October but as you said we’re behind. So the market is going to stay nervous, and I don’t think it’s going to want to crash until we know for sure or we have a better idea that what’s being projected in yield and production is actually out in the field.
Pearson: What do you think about E15 for ethanol? Is that going to be a factor? Are we going to see that demand start to step in? There’s some concern out there in the ethanol world, obviously, as we hit this blend wall that we need to increase the blend and what that would mean for maybe additional ethanol production going into ’10.
Newsom: Ethanol is a key component and it’s been what’s really kicked this demand driven market in gear since about 2006. So as we start to ratchet up, the percentages that we’re supposed to see in the gasoline blend is certainly going to help the corn market. Anything that we can do to continue to move that number higher, as we see that number get pushed higher, is certainly going to continue to build this demand market longer term.
Pearson: What should a producer do at this stage of the game?
Newsom: Very difficult to say. Again, we’re in the low threes. I don’t really want to sell down in here. We still have a risk of great crop being out there, pushing the market lower. But I think we have more up side potential in this market because of we don’t meet these yield and production estimates we’re going to find ourselves – and if demand actually comes in as strong as expected, we’re going to find ourselves in a tightening supply and demand situation.
Pearson: Okay. It could play into our hands for a big yield battle for 2010.
Newsom: I think so, yes.
Pearson: All right. Of course, soybeans is the next obvious thing to look at. As you look at this market, which has hung in there pretty well – soybeans have hung in there pretty well. Pretty good demand. China is a big factor there. We’re trying to raise the hackles of the trade with the U.S. and China. What’s your take on that?
Newsom: Well, nothing is going to happen right now because the U.S. is still the only exporter in town. Of course, Argentina is not going to export anything because their poor crop last year, due to drought. Brazil is basically out of the market at this point waiting for their new crop. So until we see what’s expected to be record production coming out of those two countries, I think we’re going to continue to see the Chinese demand for U.S. beans. But if we look at the shipment numbers week in and week out, those are really starting to come down. A lot of factors coming into play. Of course, the wet weather in the delta shutting down harvest, basically a seasonal lack of demand at this point for shipments. But if these shipment numbers and inspection numbers every week stay low, I think it’s going to create a great deal of concern that we’re not going to meet these demand numbers that were projected. As we get closer to the South American crop coming on board and being sold into the cash market I think that’s going to displace U.S. shipments and it’s going to cause a problem in the second half of our marketing year.
Pearson: All right. So what should a producer be doing at this stage?
Newsom: I would certainly be using these rallies here that I think we can still have off tight supplies here in front of this delayed harvest. I think e should use these as some selling opportunities, still ready the market in the nines, low nines right now. So, if we can get 50, 60, 70 cents on this market, I think we start making some sales.
Pearson: All right. You mentioned worldwide and you mentioned South America. Of course, we’re just starting to see what their plantings are going to look like. What’s your early feel? Are we going to see beans all over the place, wall-to-wall beans in Brazil and Argentina?
Newsom: I think so. I did have the opportunity to travel down to Brazil this past summer and certainly the feedback that we’re getting that the acreage is going to be much larger than what’s being anticipated by USDA right now. Then if you add in the possibility of ideal growing weather, which is something Argentina hasn’t had for a year, year and a half, and southern Brazil as well, it certainly looks like production could be larger than what’s being anticipated and certainly change the world supply and demand situation.
Pearson: All right. It can make for an interesting 2010. Let’s talk livestock for a minute. Fed cattle market. The first – or the last quarter of 2009, your thoughts?
Newsom: I still look at these numbers and I still look at the spreads and it looks like this market should be finding some support. The problem is it just simply hasn’t. The cash market refuses to turn around. It’s just grinding down around the low to mid eighties. We really need to see strength coming from the cash market to be able to build this market up, this futures market up. I still think there’s a chance in the fourth quarter to see a bit of a kick up. One of the problems is going to be if the Dow turns lower in October, which is what it’s threatening to do, it’s what’s being talked about, that’s certainly going to bring another level of pressure into the livestock market and kill any potential of a rally that we might see in the fourth quarter.
Pearson: Restaurant traffic is so important to beef, dairy, pork, chicken. Let’s talk about the calf market. Can you make it all work right now? You’ve got $3 corn, sub $3 corn in some areas tonight.
Newsom: You know, visiting with the cow calf guys, you do get a mixed story. Some are saying that it’s not a great time, but they’re still making it work. Others are saying that this is just really not working at all, this low price of live cattle – fat cattle is just really putting the clamps on some calf sales and everything else. So a bit of a tough read right now. I think a lot of it depends on where you are and how well you’re doing at locking things in. Certainly it looks like going forward if corn can stay down and the cattle rally, it certainly will be a help in the fourth quarter.
Pearson: All right. Let’s talk about the hog market. USDA hogs and pigs report released Friday afternoon. As you go forward in the hog business – and again, you talk about trying to find support, that’s been an industry that’s really been straining its eyes trying to find it.
Newsom: It has. And, again, we’ve come down to too many supplies. At this point all this talk about liquidation just doesn’t really look like it’s occurred that much in the market. We had all this slow down in demand, and we put those two things together, combined with the economic hard times that the hog industry has been facing, and this thing just continues to grind lower. Just as with the cattle market, we’re going to have to see the support begin in the cash market. It hasn’t happened yet. Looking at the future spreads it doesn’t look like it’s going to happen any time soon, meaning that unless it gets some outside help from some other market for some other reason, this market should continue to grind lower through the fourth quarter.
Pearson: All right. So, continued pressure on pork. Not good news for producers out there. Longer term, again, we’ve been waiting to really see from the slaughter numbers just what the sow number looks like and the number has been creeping up a little bit. It’s perceptible anyway. But is it enough?
Newsom: Possibly because, visiting with other analysts looking at the market – the deferred market, it’s looking like as we get into 2010, there could be some signs of hope in the hog market. Now, I don’t want to overinflate those. We’re still going to be starting from a very bad point in this market where we could possibly drift to in the fourth quarter. But it certainly looks like the first quarter, possibly early second of 2010, we might see this thing start to turn around a bit.
Pearson: All right. Well, that’s some good news, hopefully, out there for those who are still around. Let’s talk the dairy industry. We’ve seen this milk price move up a little bit. That’s somewhat encouraging. Is this liquidation – are these dairy cattle starting to pay off for us, or is this some demand?
Newsom: I think so. I think we’ve got both sides. We saw them everyone going back into school, and seasonally that brings demand back into the milk market. We’ve had liquidation of some of the herds. You put those two things together and we have been able to rally this market. You’re still in the $13, $14 range. Many are saying that’s still well below break even, but if we can continue this trend and if we can push higher over the first quarter of 2009, I think we could start to get back to some profitable levels in the dairy market.
Pearson: All right. Well, with that in mind, Darin, we’ll put it to stop right there. We appreciate, as usual, your insights. I want to thank you so much for being with us. That will wrap up this edition of Market to Market. . But if you’d like more information from Darin on where these markets just may be headed, visit the "Market Plus" page at our web site. Before we go, we want to alert you to a special Rural Economic Summit we'll be taping in Shenandoah, Iowa on October 22nd. It's the first of four special "road editions" of Market to Market we'll produce over the next year examining the rural economy. We'll assemble a panel of experts and you're invited to join the discussion by submitting your questions to our blog at the Market to Market Web site. But we want to get the conversation going by asking you the following: How has the economic downturn affected you and your community? Visit the Market to Market Blog and make your voice heard. And be sure to join us again next week when we’ll learn how small towns are betting on casinos to ensure money "made in rural America stays in rural America." Until then, thanks for watching. I’m Mark Pearson. Have a great week.
