Market to Market (May 11, 2018)

May 11, 2018  | 27 min  | Ep4338

Coming up on Market to Market -- The White House gives the go-ahead for the year-round sale of E15. Fixing the vital network of locks and dams on U.S. waterways. And market analysis with Tomm Pfitzenmaier, next.

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This is the Friday, May 11 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Delaney Howell.

Inflation appears to be mild in the U.S. economy. --

The consumer price index rose 2.5 percent in April, the sharpest gain in 14 months according to the Labor Department.

When you strip out the volatile food and energy sectors, core prices inched up 0.1 of a percent.

The world market is trying to sort the impact on the oil market as the U-S declined to recertify the Iran nuclear deal. Crude oil prices topped $70 per barrel for the first time since 2014.

The cost of filling your vehicle is on the rise. According to AAA, the average price of a gallon of gas is up 45 cents from a year ago at this time. The June gasoline contract closed at a nearly 3-year high earlier this week.  ---

Higher prices at the pump usually translate to calls for alternatives to black gold.

Friday the president held a fuel efficiency policy meeting with auto executives.

As California officials weigh legal action over the freezing of requirements at 2020 levels, Corn State lawmakers continue to push the administration over the Renewable Fuel Standard.

John Torpy leads off our coverage.

The biofuels fight went to 1600 Pennsylvania Avenue this week as the battle over year round E15 sales and the RFS took center stage. The closed door meetings ended with both sides claiming victory.

Iowa Senator Charles Grassley is pleased with President Trump’s decision to allow the sale of E15 year round.

Sen. Charles Grassley, R – Iowa,” So we got the president, to order the EPA director to allow E15 year round that's very good victory.”

Some experts see a great deal of work ahead for biofuels. University of Illinois agricultural economist Scott Irwin thinks even with a green light, getting E15 the pump is going to be difficult.

Scott Irwin, Agricultural Economist, University of Illinois, “The very people that are fighting the RFS are the very people you're going to have to convince to be adding E15 in in their retail stations.”

One concession gained by ethanol proponents is the elimination of a cap on the price of RINs – the certificates blenders must purchase to prove mixing took place. The biofuels industry has charged capping prices would have limited ethanol’s growth.

The meeting also yielded a proposed change to how RINs are calculated. In a reversal of EPA’s previous position, the scheme would allow exports of ethanol to qualify for the program. This move could reduce the amount of RINs refiners and blenders would have to purchase to meet RFS standards. The change might push down ethanol demand and, presumably, the market price of all renewable fuels. If adopted, the measure would violate WTO rules and, potentially, spark retaliatory tariffs from American trading partners.

Agricultural groups described the export idea as problematic. The National Farmers Union is skeptical of the idea and the Renewable Fuels Association is equally troubled.       

Combatants on both sides of the issue will have to wait for EPA to put the final changes in writing. Administrator Scott Pruitt now insists his agency has the authority to alter the RFS after previously questioning if the jurisdiction might belong to Congress.

For Market to Market, I’m John Torpy.

Flood warnings were in place this week along the Mississippi River from the Minnesota border to St. Louis.

When the water recedes, the troubles with aging infrastructure will remain.

We first ran this story in January of 2017 and like the progress in repairs, very little has changed.

As John Torpy reports though, opposing forces of environmental groups and businesses have found common ground around helping the fourth longest river in the world.  

The Mississippi River is the lifeblood for agriculture in America. The ability for producers to compete on a global scale depends on healthy inland waterways structures. For decades, the intricate system of locks and dams has guided goods to global markets. 

During the years of the Great Depression, the United States Congress authorized the construction of locks and dams along the Upper Mississippi River. The system was designed as steps for river tows and other crafts to traverse from Minneapolis, Minnesota to St. Louis Missouri. Since then, barges travelling the vital shipping lane have increased in capacity allowing over sixty million tons of commodities to be moved annually down one of the most important waterways in the country.

Michael Tarpey, Army Corp of Engineers: “Many people working on the river are concerned that you know that there's a point of no return that we're not going to be able to provide the reliability of that industry has enjoyed for this 85 year history.”

But according to officials with the Army Corps of Engineers, the vast network of lock and dams has been falling into disrepair and they fear a major failure along the aging system is imminent.

Army Corps data shows shipping by barge can save $14 per ton. To ship the same amount by rail would require more than 240 rails cars or 1,050 semi-trailers stretching 14 miles down the nation’s highways. Those in the agricultural community, and officials along the river, see the efficiency of the system as a key to U.S. dominance in global commodity trading. 

In Davenport, Iowa, aging lock gates, crumbling concrete, and lengthy repairs plague operators. The Army Corps of Engineers in the Rock Island District points out that even though Lock and Dam 15 facilities are $400 million dollars behind schedule with repairs and renovations, in 2014 they were able to keep over $3.5 billion worth of products moving up and down the Great River.

Aaron Dunlop, Army Corps of Engineers: “Now it's more critical than ever that we make infrastructure investments in the Lock and Dam system because frankly there is no other way to move this kind of volume of commodities throughout the US.”

The case is the same on the Illinois River. At the Waterway’s Dresden lock and dam, the repair bill has reached $300 million dollars and is years behind schedule, but the facility manages to push $7 billion dollars’ worth of commodities through its gates annually, making it the third busiest lock and dam in the nation.

For businesses that make the Mighty Mississippi River their office, infrastructure upkeep is a must. In La Crosse, Wisconsin, Brennan Marine has been running on inland waterways across the country for almost a century. The company employs close to 100 people in Wisconsin, and about 400 nationwide. From lock and dam repairs to environmental habitat projects, the company has worked with the Army Corps of Engineers for more than eight decades, experiencing the struggle between what needs to be repaired and what will be repaired.

Adam Binsfeld, Brennan Marine: “The budget that the corps has to work at within any given year isn't enough to even scratch the surface of what is required with the aging infrastructure. You just gotta get creative.”

In an effort to help alleviate high costs associated with lock and dam repairs, and improve how quickly repairs are completed, owners of barge and tow companies along the Mississippi river imposed a fuel tax on themselves.

Adam Binsfeld, Brennan Marine: “When we got the fuel tax increase it went from $0.20 to $0.29 and that will have significant impact on speeding some of these projects that are critical today that weren’t going to be funded for 15-20 years.”

Over a decade ago, federal officials began to look at the issues facing the Upper Mississippi River Basin. Congress tasked the Army Corps of Engineers with studying the U.S. lock and dam system and submit plans on how to confront the problems that might interrupt shipping. The Army Corps came back with the Navigation Ecosystem Sustainability Program or NESP. 

The legislation ended up uniting shippers and environmentalists - two groups that normally sit in opposition to one another. Both found common ground somewhere between getting 60 percent of the nation’s crops flowing down the Mississippi and keeping the river open as an essential migratory flyway used by 40 percent of the nation’s waterfowl.

Gretchen Benjamin, The Nature Conservancy; “This was the first time we were going to really look at how do we put the two pieces together and walk in harmony together to try and get the river to a sustainable point for everybody, people and nature.”

The key to the measure was a dual purpose plan that called for every dollar spent on river infrastructure to be matched by a dollar spent on the environment.

While the measure passed in 2007, the work proposed was never funded and the plan to revive the Upper Mississippi River remains on the table. However, both parties continue to pressure the point on Capitol Hill.

Michael Tarpey, Army Corps of Engineers: “Environmental groups and navigation groups, along with labor unions are supporting it. They’re annually going up to Congress and on the behalf of of NESP and you know lobby with Congress to support it. So it's a unique program when you look at it from that perspective. You don't have the navigation environmental groups at each other's throats, but they're actually working hand-in-hand to promote something that they see as a benefit to the river.”

While the Army Corps, environmental groups, and the navigation industry continue to fight for a sliver of the federal funding pie, time continues to tick away on the nation’s locks and dams.

Aaron Dunlop, Army Corps of Engineers: “So it really has long-term effects for the economy and has long-term effects for the nation as a whole that I think a lot of people just don't realize.”

Gretchen Benjamin, The Nature Conservancy: “We need to figure out how to have the river work as a healthy organism at the same time and that's really where we're getting to today.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

This week’s USDA Supply and Demand Report surprised traders moving much of the board red. For the week, July wheat plummeted 28 cents, while the nearby corn contract lost a dime. Thursday’s report on soybean carryout was well below trade estimates and impacted much of the soy complex as the July bean contract plunged 34 cents. July meal tumbled $15.10 per ton. In the softs, nearby cotton weakened $2.28 per hundred weight. Over in the dairy parlor, May Class III milk futures gained a 14 cents. The livestock sector was out of sync in the cattle markets this week as the June cattle contract added $1.58. August feeders fell $2.43. And the June lean hog contract increased $1.57. In the currency markets, the U.S. Dollar index was even. Crude oil finished above $70 with a 98 cent expansion. COMEX Gold advanced $6 per ounce. And the Goldman Sachs Commodity Index improved 13 points to settle at 484.45. Joining us now to offer insight on these and other trends is one of our regular analysts, Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Delaney.

Howell: Tomm, we of course had the WASDE report come out this week. When we look at it from a wheat perspective, the production for winter wheat came in higher than what the trade was expecting. Do you think the USDA is going to have to lower that number at some point with the weather that we have been seeing?

Pfitzenmaier: The crop condition ratings have improved a little bit too so I guess I'm not sure they're going to make too much of an adjustment. To be honest with you, I think we spend too much time talking about the production of wheat and not enough time talking about the lack of demand for wheat. Others, especially Russia, are offering wheat at substantially lower prices than we can sell it for so I think we're going to continue to see miserable wheat exports, probably going to be some talk about spring wheat and whether we get it planted or not and whether it's late and what the impact is on that and that might be supportive for a while. It looks to me like wheat is going to pull back a little bit. We closed under $5 in the July wheat, Chicago wheat this summer, on Friday. I would guess you’ll see it pull back another 20 cents or so, around $4.76, should find pretty good support. That rally we had following the wheat tour probably was the rally to get old crop wheat finished up and maybe even start on getting some new crop sold.

Howell: Are we going to see anything here that could add some support to new crop corn? What is it going to take to add a story into the market?

Pfitzenmaier: For corn?

Howell: For wheat.

Pfitzenmaier: Oh, wheat. I actually think that probably corn is one of the things that could give wheat some support. You can put together a somewhat friendly scenario for corn and if that happens I think it will be supportive to wheat. Other than that you're probably going to make a trading range from, like I said, $4.76 to $5.26 and I don't see anything that's going to happen on the horizon to shake it out of that really.

Howell: Okay. So that's just something to continue watching. Let's talk about corn because you did bring it up there just a second ago. The USDA slashed Brazil's corn production to 87 million metric tons. Do you think they're going to have to continue to lower that number?

Pfitzenmaier: They might. We keep thinking they're going to get rain in their safrinha growing areas and it doesn't quite happen. So yeah, like I referred, that's one of the factors that you can plug in as being supportive of the corn market and the reason why I don't think you want to get too negative despite the weak close we had on the corn market on Friday. But yeah, that's something to watch. They lowered the crop but everybody kind of thought they were going to. So the big buzz on the corn market is they dropped that new crop world number to such a great degree. Well, 12.5 million metric ton of that was because of the drop in the U.S. carryout. 20 million of it was because China, some futzing around with Chinese stocks that we really don't know what their stocks are anyway. So I don't know if you want to put too much in that. And obviously the market closed lower afterwards so the market didn't put much stock into it either.

Howell: Absolutely. I want to go back here for just a second to talking about Brazil because you mentioned in your newsletter this week that if we continue to see some of that lack of moisture in Brazil we would see some support in prices. Was there a specific futures month or price level you were looking for some support at?

Pfitzenmaier: Well, I think the support is going to be probably in the July, which is, if the world starts to get worried about supply they always run in and buy the front month. May went off the board so July is it now. We may pull back to a little ways under $4 but I don't think very far and I'd certainly under $4 start to accumulate long positions in corn. We've got a reduction in acreage in the U.S., we've got sort of late planting, we've got the Brazilian situation, we've got export sales that have been quite strong although export shipments haven't been very good. But all that I think is going to be supportive of the corn market. Now, maybe we're not going to go up to the moon without crop problems this summer and I don't want to get in too big of, make too big of a deal out of the late planting because that doesn't necessarily mean we're going to have reduced yields. But it's all stuff that is sort of lurking under the corn market I think.

Howell: Okay. Before we get to our social media question I want to ask one more question about your new crop strategy. What would you recommend for farmers looking at new crop right now?

Pfitzenmaier: On corn -- I guess I'm not in a big hurry to sell. If you're wanting to get started selling I would stay up in that $4.25 to $4.30 area just tucked under last year's highs. The one thing about this corn carryout is the projected new crop carryout is around 1.7 billion bushel. Well that's where we were at from 2014 to 2016, the trading range during that period was $3.25 to $4.25. So you get up, we're all excited because it's so much less than it was last year, but it's still kind of where we've been --

Howell: And we have seen strong yields.

Pfitzenmaier: So that's why you don't want to get too carried away without big weather problems this summer to take us up through those levels. Now, if you start getting above last year's highs then maybe you buy some calls or do something to take some defensive measures of some sort.

Howell: Well, I think this social media question will fit right in here then. Matthew in Napoleon, Ohio said, if the U.S. Corn Belt does see adverse weather around pollination but we happen to plant 1 million more acres of corn than the trade guesses, could we still see a jump in prices?

Pfitzenmaier: It'll be pretty muted. A million acres would make quite a difference. It's going to take a 4 to 6 bushel per acre drop to really get the market too excited. And the trade is still looking at least year saying, we had a pretty wild variety of weather conditions and still grew a record crop. So it's going to take quite a bit to convince them that the crop is ruined. And an acreage increase like that is really going to mute whatever kind of a rally you can get. Now maybe it means you can get to $4.40 or $4.50, I certainly wouldn't say that's not possible, but getting beyond that it's going to be difficult.

Howell: Okay. Let's move on here to talk beans. Let's talk WASDE first here right off the bat. U.S. ending stocks were 135 million bushels below the average trade estimates. Why did ending stocks come in so much below that? And do you think the USDA was correct with that estimate?

Pfitzenmaier: Heck no they weren't. If you look at that, what has been in the news, ever since you started doing the show all we've talked about is Brazil, right, and China and all the demand we're going to lose because of that and then they come in and they increase our exports 225 million bushel for next year. How is that possible? They're going to have to be assuming that everything is going to be rosy with China and that they're going to run in and buy our beans rather than Brazil's for that number. That's why we saw beans down 33 cents. They reacted positively for about two and a half minutes after that report came out and that was the end of it. Everybody kind of went whoa, wait a minute and started selling beans again. So no, I don't believe that new crop number at all.

Howell: And you kind of took the next question right out of my mouth here. But I'm going to ask you to speculate for just a moment because you mentioned the trade problems we've been having, Brazil's problems, and they increased exports 225 million bushels year over year. Is that at all possible for us?

Pfitzenmaier: Yeah, it's always possible.

Howell: Is it likely?

Pfitzenmaier: It's highly unlikely. Even look at this year's old crop, everybody is a little uneasy by the fact that we've got, we've had fairly good sales, their sales aren't that far off of what the USDA said, but we aren't shipping them out. And at some point we're going to have to start shipping these beans out or there's going to have to be cancellations or some of those sales are going to have to be rolled into next year. So I don't know, the crush numbers were good, we're crushing the heck out of beans, meal demand, meal exports are great, so that part of it I think is pretty solid. But that export number I think is pretty suspect, especially if we don't get something resolved with China here in the somewhat distant future.

Howell: Absolutely. Really quick here before we move onto meats I want to talk about crush and bean oil. The USDA has only raised crushing 5 million bushels year over year, but we have had strong increases in exports. What does that say to the producer that is sitting at home?

Pfitzenmaier: I think meal has been the driver in this bean market and meal exports have been great and that is strictly driven by Argentina. Argentina crushes a lot of beans, exports a lot of meal. Obviously their crop was terrible. The peso is dropping. They've got a high interest rate. So the beans the farmers down there are sitting on they're not parting with so all that crush demand is going to the U.S., as a matter of fact Argentina has been a decent buyer of U.S. beans to buy to crush. And that generates a lot of bean oil so you're seeing all this downward pressure on bean oil. Now I think that trade is getting a little overdone. You saw bean meal kind of drop off a little bit on Friday. That bounced bean oil back as they unwound some of those spreads. So I think you're going to start to see that stabilize a little bit. But I think the crush demand for beans is going to be solid.

Howell: All right. Let's jump here and do a lightning quick round with the meats. We've seen pretty soft cash prices lately. With the large inventory we have headed to slaughter do you expect those to continue to soften? And if so, how much?

Pfitzenmaier: Hogs?

Howell: In cattle, I'm sorry.

Pfitzenmaier: Oh, in cattle. Well, the big dilemma in cattle is you've got June cattle down there at $107 I think we ended the week, cash cattle trading at $120 after April went off the board and everybody is trying to figure out how that's going to get resolved. We've got big numbers coming at us but the producer is certainly incentivized to stay current, keep those weights down. Export demand for beef has been quite good. Everything reads as the economy is quite strong, that should help beef demand. So I guess I think June cattle could work their way up toward the $109, $110 range. I don't expect more than that. I think eventually you're going to see the cash market come down to those kind of levels.

Howell: Okay. Really quick let's take the same question in pork because we have seen a huge discount here to the cash prices to the futures but we are slowly closing the gap. What are you looking for moving forward? Continued closing the gap?

Pfitzenmaier: Yeah I think so. I think you're going to see July hogs maybe up in that 80, 81 area. And they had a pretty decent trade this week. So having said that I think those October, December hogs you get them up in the mid-60s and you probably need to be a seller.

Howell: You need to be making some sales. We've also had some high pork cutout values since March 20th. Really quick, where do we go from here?

Pfitzenmaier: I think that's going to continue to be strong too. Again, back to the export demand for pork, better than it is in beef and it's pretty good in beef and domestic demand is good for pork as well so I think you're going to continue to see those cutouts pretty solid.

Howell: And we're heading into grilling season. Tomm Pfitzenmaier, thank you so much.

Pfitzenmaier: Okay, thanks Delaney.

Howell: That wraps up the broadcast portion of Market to Market but we will keep the conversation going on Market Plus where we'll answer more of your questions. You can find it on our website at While you're there, click on the link to our Flipboard Magazine Market to Market Reading Material. Our producers assemble several stories daily into one convenient location for news impacting rural America. Join us again next week when we look to the skies for vital aerial applications. 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.

Wherever your operation takes you, or who you share it with, we'll be where we've been all along, with you from the word go. 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.


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