Market to Market (June 8, 2018)

Jun 8, 2018  | Ep4342

Coming up on Market to Market -- Pork producers take tariff troubles to the court of public opinion. The president trumps the head of the EPA over E15. Mother Nature keeps farmers and ranchers on edge. And market analysis with John Roach, next.

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. Accu-Steel, offering fabric covered buildings specifically designed for the cattle industry since 2001. The next generation of cattle buildings. Information

This is the Friday, June 8 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Delaney Howell.

Even as the wrangling over trade tariffs continues to plague rural America the economic forecast remains sunny. --

The Creighton Business Conditions Index stayed above growth neutral for the 18th month in a row. The solid showing is considered to be a signpost for strong growth over the next three to six months.

This was echoed by the Purdue University/CME Ag Economy Barometer where those surveyed were optimistic about the future of the agricultural economy.

Factory orders were lower in April but the financial picture is expected to improve even with higher prices for steel and aluminum.

Those higher prices have been brought on by the recent implementation of tariffs on those metals. The response from affected nations has been surgical. Mexico placed a stiff 20 percent tariff on pork products. Producers were already pushing back against a 20 percent charge that China added to existing fees.

Paul Yeager has more in our Cover Story.

Thousands descended on the Iowa State Fairgrounds this week for the World Pork Expo.

As exhibitors made their way around the show ring, pork industry leaders made their case for U.S. producers to compete on the world stage.

Neil Dierks, CEO, NPPC: “The issue for us is access. If we can get into compete, we’ll compete with anybody. When you talk about trade agreements, the deal with it is, we’re looking at duties and non-scientific barriers that allow us to come to market and compete.”

Battered and bruised, the U.S. pork industry is on the front lines of several trade disputes. Members have made phone calls to National Pork Producers Council leadership even though President Trump has said he’s not going to leave agriculture out in the cold.

Nick Giordano, Global Government Affairs, NPPC: “We’re the biggest single sector in the U.S. that is taking it on the chin. I give a lot of credit to pork producers for being very measured and very patient.”

As late as 1995, the U.S. was still a net importer of pork. Last year, domestic producers shipped 27 percent of their product out of the country.

Nick Giordano, Global Government Affairs, NPPC: “The pork industry in some ways, you can say, pork has made rural America great again. We’ve been an engine of development for rural America. We’re taking a step backwards now with punitive tariffs in China and Mexico, but as I said before, ultimately we’ve got to be able to trade because we are in an extremely competitive industry.”

And as new markets like Argentina emerge, it is the existing destinations of U.S. pork - like NAFTA nations - that are some of the most important. If nothing else, NPPC leaders would like to see a continuation of zero tariff access into the Mexican market.  

Nick Giordano, Global Government Affairs, NPPC: “We’re taking water on fast, there’s a lot of blood on the floor, but we’re giving this administration the benefit of the doubt. They’ve said repeatedly they’re going to work with us, so we’re going to work with them.”


Paul Yeager, Market to Market: “Finding new markets for U.S. pork is priority number one. But at some point, it may have to resort to number two, and that’s eating its way out of the problem.”

Nick Giordano, Global Government Affairs, NPPC: “The best thing the general public can do is very simple. It is eat more pork. We’d really appreciate it. Because I’ll tell you what, our folks are being patriots here.” 

Trump administration officials from USDA and the United States Trade Representative’s office also had time to address attendees.

Ambassador Gregg Doud, Chief Agricultural Negotiator, USTR: “That’s our job at USTR, to have very, very frank conversations with other countries.”

USTR’s Gregg Doud says he’s been going non-stop since his confirmation in March. He says the president is concerned about two countries who hold 40 percent of the world’s consumers – India and China – and how those two nations refuse to play by rules.

Ambassador Gregg Doud, Chief Agricultural Negotiator, USTR: “China hasn’t even told us one thing they’ve been spending since 2010. Since 2010. So they want us to enter into these dialogs and discussions but they want to operate on a different set of rules. I think we’re going to provide more leadership in that area to provide in those discussions.”

Doud adds more tariffs will likely be coming that are unrelated to agriculture but have the potential to impact the industry. Trade practices relating to steel, aluminum and intellectual property are the administration’s three biggest complaints about the world’s 2nd largest economy.

The U.S. and Argentina have been talking about a trade deal since 1992 which highlights how creating policy is never simple.

Neil Dierks, CEO, NPPC: “But these kind of things take time to resolve. For instance, we talk about doing bilateral deals we all have to have a perspective here. You don’t start work on a Friday and get done the following Tuesday. They take time. And this is a long game view, in the long term, and be done exports mean opportunities for hog farmers, for rural America.”

Ambassador Gregg Doud, Chief Agricultural Negotiator, USTR: “In agriculture, we play offense on trade. You’ve got to continue to push to move forward on these issues. We’ve got to begin to negotiate with other countries in getting new deals.”

 David Herring, President-Elect, NPPC: Dave/President Elect of NPPC: in NC: “We’re going over some rocky times right now, but we’re still really positive. When you look at the metrics out there, there’s more pork getting consumed out in the world today than ever.  And there’s more demand for our pork. When we get through these rocky times, the capital that’s been put in the industry will be well spent.”

For Market to Market, I’m Paul Yeager.

The Farm Bill has gotten traction as the other shoe finally dropped when the Senate Agriculture Committee released its draft of the 2018 legislation. Markup is scheduled for next week.

The current Farm Bill expires at the end of September. Contained in the Senate version released Friday, is a renewable energy component. With oil hovering $40 below prices struck four years ago, energy and BIO-energy advocates continue to fight over their piece of the pie.

Josh Buettner has the details.

Sen. Charles Grassley/R – Iowa: “Don’t forget, the RFS was meant to encourage domestic production and use of ethanol, not to subsidize exports.”

This week, Iowa Republican Senator Charles Grassley praised President Trump’s decision to scrap an Environmental Protection Agency proposal allowing year-round sales of the ethanol blend E15.  The senator said the president was willing to allow an increased amount of the renewable fuel into U.S. gasoline but refused to approve the use of federally mandated blending credits on exports of the predominately corn-based product.

Grassley blasted EPA Administrator Scott Pruitt for diverting from the President’s stated intention to loosen summertime-only restrictions on sales of the higher octane fuel.

Sen. Charles Grassley/R – Iowa: “He’s ill serving the President of the United States and he ought to get with the program, or get out of the program.”

The purchase of the special credits, known as renewable identification numbers or RINs, has been a major sticking point between oil companies and ethanol producers.

Farm state lawmakers and industry advocates say they feel the head of the EPA has been undermining the Renewable Fuel Standard, or RFS. They point to controversial RIN waivers being granted to crude oil refiners that eliminate the obligation to mix ethanol into their portion of the nation’s gasoline supply. 

Ethanol industry promotion groups cheered the defeat of Pruitt’s most recent plan.

Monte Shaw/Executive Director – Iowa Renewable Fuels Association: “It would have ripped the heart out the Renewable Fuel Standard.”

Iowa Renewable Fuels Association executive director Monte Shaw said that while it’s back to the drawing board for year-round sales of E15, RIN exports could have slashed domestic ethanol demand.  But he added renewable fuels producers still have their work cut out for them.

Monte Shaw/Executive Director – Iowa Renewable Fuels Association: “You know, we’re now at the status quo.  And the status quo today isn’t even the same as the status quo in January because Scott Pruitt at the EPA has been granting these small refinery exemptions under very questionable terms.”

Two lawsuits have been filed against the EPA suing to rein in Pruitt’s use of waivers for the purchase of RINs. Shaw echoed Grassley, and others, that the agency’s administrator has failed to comply with a core campaign promise to rural voters about the RFS and energy independence.

President Donald Trump: “I will do all that is in my power to achieve that goal.”

Sen. Charles Grassley/R – Iowa: “A presidential appointee ought to be expected to carry out the president’s position. …and he still supports ethanol.”

For Market to Market, I’m Josh Buettner.

As of Tuesday, 95 percent of the corn and 75 percent of the soybeans have been planted.

Producers have been facing weather extremes -- either caught in the grips of a drought or under water.

John Torpy reports.

With record setting temps in both directions, heavy Midwestern storms, and extreme drought across the nation, Mother Nature is keeping farmers and ranchers on edge.

According to the National Weather Service, this past April was the coldest in two decades and May was the hottest on record, making for an uncomfortable start to spring.

Midwestern states have witnessed high heat and a steady stream of storms, bringing enough rain to slow planting in few parts of the Corn Belt. 

Rain became a welcome sight for producers in Kansas, where varying degrees of drought have diminished hopes for a stellar wheat harvest. Corn growers in the Sunflower State have turned to pivot irrigation and field flooding to make up for a lack of sub soil moisture that failed to arrive in the winter of 2017.

Severe drought now flows from southwestern Kansas through the Oklahoma pan handle, across New Mexico, and into Arizona. Water use in the southwestern corner of the Land of Enchantment has been restricted due to low levels in area reservoirs.

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

Weather, geopolitics, trade skirmishes and profit-taking took the wind out of the commodity markets. For the week, July wheat fell 3 cents, while the nearby corn contract plunged 14 cents. Trade tariff retaliation, coupled with concerns over North Korea and G-7 meetings, put pressure on the soy complex as the July soybean contract plunged 52 cents. July meal fell $16.40 per ton. In the softs, December cotton added $2.58 per hundred weight continuing a 4-week run where prices have risen 12 percent. Over in the dairy parlor, July Class III milk futures lost 19 cents. The livestock sector finished the week higher as the August cattle contract added $2.15. August feeders put on 95 cents. And the July lean hog contract moved up $1.93. In the currency markets, the U.S. Dollar index dropped 64 ticks. Crude oil slowed its slide losing 7 cents per barrel. COMEX Gold poured on $3.40 per ounce. And the Goldman Sachs Commodity Index fell just over a point to settle at 476.10. Joining us now to offer insight on these and other trends is our senior market analysts, John Roach. John, welcome back.

Roach: Thanks, Delaney, nice to be here.

Howell: It's good to have you, John. And as we transition here into talking commodities, it seems like they are being overshadowed by the trade that is going on. We've had a pretty bearish week this week. But let's start with some positive news for producers. We were talking a little bit before the show. Can you share what you see as this positive light coming for agriculture and for the economy as a whole?

Roach: I think that you have to realize that the economic growth that is occurring is really quite unusual. The now fed article that is published by the Atlanta Fed projects, not projects but estimates GDP growth forward using some of the same practices they do to do their reports and they're looking at something in the neighborhood of a 4.6% GDP growth rate in this second quarter. So I think the first thing we have to look at is to see that we really have strong economic growth in this country and that that's likely to spill over into other countries. And so I think we need to look out forward a little bit and realize that our economy is really accelerating here and we need to recognize that prices really aren't going down very much based on the kind of negative things that we had coming at it this week from tariffs.

Howell: Well it's refreshing to hear some positive news this week coming from you. Let's talk about wheat specifically. Out of all the commodities this week wheat has seemed to hold on and had strength through the end of the week here. Why?

Roach: The wheat market was never a favorite of the commodity spec funds, they were always short or have been short. That has changed over the period of the last month or so when they have come out of their shorts, they are now long in futures. And so we have a speculative buying group out there now, as long as this wheat market can hold up above the 20 day moving average we're likely to put some more money on top of the wheat market.

Howell: How much more money?

Roach: Well, we're headed right into harvest so it depends on what kind of weather we have at harvest and what we find. This next week we're going to learn a lot more about the winter wheat crop than we know today. We're into the harvest and we'll be far enough in, in some different areas, that we'll have some better ideas. But I think we take the wheat market back up to where the highs were if these weather conditions don't improve in this country, and it's a little late to do that, and we have weather problems over in the former Soviet Union and in areas of Western Europe too.

Howell: With that being said, just briefly here before we transition to corn, is the bigger story right now the U.S. weather market or the Russian/Baltic Sea/European weather market?

Roach: A combination. We have to have the northern hemisphere raise big crops. We've started out the year with Brazilians and Argentina, the South Americans raising about 20 million tons less soybeans than last year and about 25 million tons less corn. So in the northern hemisphere we've either got to make up for those bushels that are lost or we have to take them out of our carryover and that is what will end up happening. We're going to have to pull our carryover down, tighten our surpluses and so it means we have to have good crops in the northern hemisphere because if we don't we could eat all the way through our surpluses. So the market is going to be paying attention to the development of crops really in all of the northern hemisphere and right now we have parts of the western United States and parts of Europe that have got problems.

Howell: Okay. Let's take a social media question here off the top because as I mentioned earlier we saw corn plunge quite a bit this week and we had a great question come in about the December corn contract from social media. Jeff in Lincoln, Nebraska said, has the high in December corn futures been put in already?

Roach: I think there is a shot that it could be. We may have had the worst of our weather concerns and we may have had the worst of our concerns about tariffs and stuff like that. We may be at the worst of that right now. And next week we could come in and get good rains, make the crop come along well, in which case we'll put more pressure underneath of it. Or we could straighten out things with the tariffs. There's a lot of different possibilities and a lot is going to come to a head here this next week. And so I'd say there is a shot that we already put the highs in but we're going to have to have good growing crops through the whole season. And to be able to get that you have to have almost perfect weather. So I think there is, it's possible we've put the highs in, but I would not bet that we put the highs in. I think people are actually getting too bearish in here. We have buy signals on corn, soybeans and meal and spring wheat and so we've been counseling our customers to slowly, not quickly, but slowly make feed purchases and accumulate inventory, buy calls maybe for some of the grain that you've sold, those kind of things because we think that we're really dealing with the worst of the information right now.

Howell: Okay. Let's move on to beans here because they had a big story as well this week. We closed under $10, I think it was under the 200 day moving average. Why did we see that happen in the bean markets this week?

Roach: The biggest thing that happened was the real weakened initially and then turned around and actually closed up sharply today. So the currency move has really made a difference in bean pricing around the world. And when the real weakened that allowed Brazilian farmers to go ahead and make sales at a favorable exchange rate and that allowed them to be able to make sales.

Howell: And is that part of the reason we saw such low export numbers this week for soybean sales?

Roach: It's usual that we would see small sales for soybeans this time of year. This is the time of year when all the business goes to South America and we get very little. And so it doesn't make any sense for when they're trying to push politically to shoot themselves in the foot by helping the bean market. So no, my bet is that the Chinese are doing everything that they can do to make the bean market look as bad as they can.

Howell: Will we continue, or will we see the USDA, or soybeans hit USDA's expected target here then towards the end of the marketing year?

Roach: I think we'll see the bean market come back. I think prices, again, are down into an area that it's just too cheap here. Farmers don't have very many beans to sell. We're just liquidating the spec trader. The spec funds built large positions and took the market up to the highs, we saw some peaks here in the last couple of weeks, and now we've been liquidating those long positions out. This week the liquidation, we liquidated about 130,000 contracts of crop markets. And so those are lots of bushels being sold by speculative traders who we can be mad at them except they're the ones that gave us the high prices we had two weeks ago. And so you can't be too mad at them. And now they're giving us cheap prices for livestock feeders.

Howell: Let's go on here quickly into cotton because they've been a positive story in the markets over the last couple of weeks. How high can we get here in the July cotton contract?

Roach: This 93, 94 cents per pound area is going to be a tough spot. We were up there once, backed off and now we're back up pressing in that area again. We think we're kind of moving into a tough spot there. We're getting a sell signal in the cotton market. We had one here a week and a half, two weeks ago and now we're generating another one.

Howell: So producers should potentially be looking to make some sales.

Roach: It's time to be pricing some cotton, yes.

Howell: Okay. Let's transition here into the livestock markets. We've seen a $300 plus packer margin and I just generally, is this helping or hurting the cattle markets?

Roach: Well, it's helping the cattle market. It allows the packer to be able to bid and to pay some of those dollars back out to the grower, to the producer.

Howell: But are we seeing that money trickle back out to the producer?

Roach: A little, a little. We'd have a lot tougher market right now if the packer was not making good profits. But we think the market has got some room to move up a little bit more here. We're not far away from a sell signal in cattle so we're looking to be putting some sales here in the next dollar to two dollars higher. But we're not really pessimistic in this market here. We think, again, we've got a lot of pessimism circulating.

Howell: We definitely do. So what are you looking for, for cash prices over the next week?

Roach: I would think we could, we had a pretty strong cash market this week, it took a long time to get it developed, finally at the end of the week. I would think we could maybe do another dollar or two dollars higher this next week. We're very current and, as you say, the packer has got plenty of money.

Howell: They definitely do. Have the August live cattle put in their lows yet? I think we hit below $100 here back in May.

Roach: Probably have, yes. We think that that bottom that we made in the cash market is probably the bottom.

Howell: Is weather affecting the live cattle markets at all? Or is it mostly in the feeder cattle where that's being the main story?

Roach: In the feeder cattle, you've got a lot of the areas that are awfully dry where they have feeder cattle, and so but feeder cattle prices are still very strong. It's hard to buy the feeders and make them work. So we're not having pressure put on the feeder cattle because they're having to move them off of pasture. We're able to, as I say, they're being held pretty tightly.

Howell: When you look at the feeder cattle charts it looks like they've kind of just been moving in this sideways pattern, a pretty tight trading range. Do you anticipate that to continue over the summer months? Or do you think we will get another seasonal rally?

Roach: Well, I think we could get a seasonal rally but it will really depend upon corn. If the corn market continues to decline yes, feeder cattle will be the beneficiary. But if the corn market doesn't get the kind of weather it needs here in this next week and it starts to stage a recovery, feeder cattle prices will weaken.

Howell: Is there any reason for us to see over$150 here in the near term contract months?

Roach: I don't see it. It's always possible. But we're going to have to have something more positive come along than we have right now.

Howell: Okay. We of course have to end on hogs. We had the World Pork Expo this week in Des Moines, Iowa and a lot of pork producers were here and got a few words from them that we have to make sure and talk about hogs in this week's program. So of course we had big news with Mexico this week announcing a tariff. What is that going to do for our hog markets? We haven't really seen them react price wise this week.

Roach: Well, I think that's the thing that is important. Markets will usually tell you if you'll pay attention. And so if you get a lot of bad news, which the hog market has had a lot of bad news, but the market doesn't go down or maybe it goes down a little bit, it doesn't stay down, it tells you that the biggest money, the smartest money is betting on prices to recover some and that's the way we closed the hog market today. We closed the hog market today strong, the cash hog market is very strong. It makes a person believe that either they're going to find a solution to the tariffs or that maybe they don't think that there will be such loss of business. I'm not sure exactly. But the market is telling us don't be too bearish in the hog market right now based on just the way we traded this week.

Howell: So if we haven't made sales yet should we be looking to make --

Roach: Patience, patience, just have some patience here. Don't sell in the midst of bad news. It's a whole lot better to wait and sell when there's a little bit of good news around. And what the market is telling you today is there's going to be some good news around or else the market is just clear wrong. And I've learned over the years that when the market is telling you something better off to pay attention. And so right now unless you're already planning on getting stuff sold, be patient here for a little bit.

Howell: All right. John Roach, thank you so much for your insight today.

Roach: Thanks, Delaney. Nice to see you.

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 The M-t-o-M Podcast just passed episode 100. Join Paul Yeager each week for a behind the scenes look at the program with our producers and analysts as well as a few movers and shakers in agriculture. Subscribe today to be in the loop. Join us again next week when we explore how cash-strapped firefighters are preparing to face another season of tinder-dry conditions. So until then, thanks for watching. I’m Delaney Howell. Have a great week!


Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa Public Television or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

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. Accu-Steel, offering fabric covered buildings specifically designed for the cattle industry since 2001. The next generation of cattle buildings. Information


More from this show

Grinnell Mutual Insurance