Market to Market (June 29, 2018)

Jun 29, 2018  | 27 min  | Ep4345

Coming up on Market to Market -- The EPA pumps out new blending levels, fueling a mixed reaction. Balancing windrows and butterflies takes more than just baling wire. And market analysis with Naomi Blohm, 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. And by Sukup Manufacturing Company. Offering a full line of grain drying and storage equipment and steel buildings, Sukup Manufacturing is on a mission to protect and preserve your crop and the tools that produce it.

This is the Friday, June 29 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Delaney Howell.

The Senate conducted pre-holiday weekend business by passing their version of the Farm Bill.

The measure, which supports farmers and ranchers, as well as providing food assistance, heads to a conference committee to hash out differences with the House’s version.

As lawmakers fan out across the country, some of their constituents are buying a new dwelling. --

New home sales jumped 6.7 percent last month, mostly on purchases in the South.

Consumers felt less buoyant about the economy in May, but the measure is still above average historically.   

Orders for long-lasting items fell 0.6 percent last month on dwindling demand for cars and aircraft.

Ethanol production rolled to a third straight week of gains - the highest in 26 weeks. --

The expansion in renewable fuel production is powering critics that are calling the government mandate for biofuel additives “outdated.”

Proponents of the homegrown product say the EPA has left ethanol running on empty.

John Torpy reports.

This week, the Environmental Protection Agency handed down new rules regarding the Renewable Fuel Standard, outlining clear winners and losers in the bio-fuels industry.

For conventional ethanol, EPA Administrator Scott Pruitt stuck with the status quo, proposing to keep the 2018 level of 15 billion gallons.

Some experts see keeping with existing productions levels could be a detriment to the ethanol industry.

Scott Irwin, Agricultural Economist – University of Illinois: “It is easy to establish that this was the most important policy decision EPA had to make for this rule making and it said “no way, no how are we going to listen to anybody and they are just going to charge ahead. If the zero reallocation holds, then this will be a major defeat for the ag interests and Senator Grassley.”

House Agriculture Committee ranking member Collin Peterson released a statement attacking the decision.

Rep. Collin Peterson, D – Minnesota “Our corn and soybean farmers are fed up with EPA undermining the RFS, and the harm being done by the Administration’s trade war. Enough is enough.”

Biofuels proponents argue the proposed target fails to leave room for future expansion of the industry. The Iowa Renewable Fuels Association, an ethanol advocacy group, says the 15 billion gallon mandate is a soft number due to the EPA’s controversial practice of issuing hardship waivers to some refineries.

Iowa Senator Charles Grassley agrees, and is concerned the actual amount of renewable fuels in the 2019 RFS will be closer to 13.5 billion gallons, which is a blow to farmers and hurts ethanol producers.

Senator Charles Grassley, R-Iowa: “We won't get much ethanol use because big oil does not want to use any product they don't control, and they don't control ethanol.”

There were a few renewable fuel producers who came out ahead under the new RFS goals. Advanced Biofuels, such as those derived from algae, saw a proposed increase of almost 600 million gallons for 2019. Standards for cellulosic ethanol were boosted 100 million and biomass diesel received a 330 million gallon bump.

The American Petroleum Institute, an oil industry trade organization, agreed with the EPA’s decision but believes the entire process is flawed.

Frank Macchiarola, API: “…the agency’s latest proposal for 2019 is yet another example – in fact it’s an annual example of a broken government program that needs a comprehensive legislative solution that includes the sunset of the program.”

For Market to Market, I’m John Torpy

Baling season is in full swing across rural America. In the Land of 10,000 Lakes, it’s just as common to see a bale along the highway as it is in a field.

Grassland in Minnesota has legislators and landowners debating the fate of more than 175,000 roadside acres.

Collen Bradford Krantz digs deeper into the important source of hay and wildlife habitat in our Cover Story.

For generations, Minnesota farmers have made a habit of mowing and making hay from the grass growing in roadside ditches. But since 2016, state officials have been increasing awareness of an existing but largely unpublicized or unenforced law that had, since the mid-1980s, required farmers to obtain permits for such work.

Jed Falgren, Minnesota Department of Transportation: “There has been a great emphasis on understanding what all the different benefits are that occur in the roadway. And probably the largest has been the expansion of interest in pollinator and monarch butterfly… That escalation had people coming to our department and asking us to step up enforcement of the statutes that were in place.”

State transportation officials say boosted enforcement guidelines would have required farmers to have, among other things, a $1 million liability insurance policy with the state listed as one of those insured.

Grant Breitkreutz, Stoney Creek Farm, Redwood Falls, Minn.: “It was shocking to us that the permit had been on the books for a long time and never been enforced or really dealt with….We had never heard of it, period.”

Grant Breitkreutz used to bale hay on 120 miles of roadside ditches in the early years of his cattle operation. The work returned more than 700 additional bales a year for feeding his cattle during the winter.

According to state officials, the 1980s-era law was originally designed to give the offspring of ground nesting birds, like pheasants, time to hatch and move on before the ditches were mowed. But since the measure was rarely enforced, farmers mowed and made hay in the ditches in late June and July as they had done for generations.

State Rep. Chris Swedzinski, who farms in southwest Minnesota, was frustrated with the ban on mowing and baling the ditches before August 1, and was among the legislators who, last month, successfully placed a second one-year moratorium on all enforcement.

Rep. Chris Swedzinski, Minnesota State Legislator: “When someone goes in the ditch, we are the ones that fix the ruts and plant the grass in those spots. We’ve done this for 80 years…We think the department is just wrong to put this red tape on farmers when the system has been working great for years.”

 

Swedzinski is frustrated the state’s roadside maintenance costs may increase if the work done by farmers in exchange for hay is delayed until late summer. Various interest groups met over the past year to discuss the best strategies, but the debate remains unresolved.

Tina Markeson, Minnesota Department of Transportation: “Ideally, we’d have a vegetation management plan and do the maintenance to get the desired results we want. I’m not saying haying isn’t part of that. It’s a tool that can be used but needs to be at the right time.”

But defining that ‘right time’ is where much of the dispute lies.

Krist Wollum, Minnesota State Cattlemen’s Association, president: “That time of year, especially a year like this, any grasses that you are haying, as they mature and ripen, they become woody and dry and have less feed value and are less palatable for the animals.”

Neighboring South Dakota requires farmers in certain counties to wait on haying ditches until after June 15 or July 10 at the latest. Iowa allows those with a permit to bale hay along certain roads after July 15.

Minnesota farmers worry that leaving ditches unmowed until August could lead to the maturing, seeding and spreading of noxious weeds.

Grant Breitkreutz, Minnesota State Cattlemen’s Association, vice president: “When we don’t mow, invasive species take over – namely Canadian thistles are a big problem around here – and spread into our fields out of the ditches.”

But Minnesota officials say state maintenance crews would mow ditches earlier in the summer on a case-by-case basis. Farmers harvesting hay also have, at times, inadvertently hampered state road crew’s efforts to manage weeds.

Tina Markeson, Minnesota Department of Transportation: “They go through and put down herbicide and no more than two hours later, there’s a farmer going through haying it.”

Proponents argue that several species, including the monarch butterfly, whose numbers are dwindling, have lost too much tall-grass habitat in Minnesota. The state did lose about 700,000 acres of CRP ground between 1992 and 2012. However, over those two decades, much of the rural land went to new development, which increased by roughly 400,000 acres. The state also saw a slight increase in forest and pastureland acreage while cropland decreased slightly.

Farmers argue that unmowed ditches may mean motorists fail to see approaching deer and other wildlife, creating the potential for more accidents.

Many established producers also worry that younger and smaller-acreage farmers will take the brunt of the delayed hay harvest.

Rep. Chris Swedzinski, Minnesota State Legislator: “I have a neighbor down the road from my main farm who works in town as a plumbing and heating guy but loves agriculture, and bought this land to raise a few goats with his wife and some cattle and he, quite frankly, doesn’t have the land to go out and just put up hay for the winter.”

Todd Thompson, who farms near East Chain, Minnesota, does harvest hay from the ditches adjacent to his land, but wouldn’t be heartbroken if he lost the option to mow earlier in the summer. If he had to spend several hundred dollars for a new insurance policy, he would stop haying ditches.

Todd Thompson, producer, East Chain, Minn.: “You are in a tractor and it’s on an angle and something could break down, you could tip over. …It’s hard and it’s dangerous.”

As the interested parties debate the issue in the coming year, Minnesota will be under the legal microscope.

Tina Markeson, Minnesota Department of Transportation: “A lot of other states are watching Minnesota this year to see how everything is handled.”

For Market to Market, I’m Colleen Bradford Krantz.

Next, the Market to Market report.

Pre-USDA report positioning, trade non-negotiation and weather all factored in the commodity markets, which mostly rallied Friday. For the week, September wheat fell 3 cents, while the nearby corn contract declined 7 cents. USDA reported more soybean acres than corn for the first time since 1983. The market initially rallied Friday, but reversed course to end another brutal week, as the August soybean contract lost 37 cents. August meal tumbled $9 per ton. In the softs, December cotton continued to fall, losing $1.38 per hundred weight. Over in the dairy parlor, July Class III milk futures lost 9 cents. Much of the livestock sector rallied late week as the August cattle contract added 83 cents. August feeders put on $2.13. And the August lean hog contract improved $1.07. In the currency markets, the U.S. Dollar index gained 17 ticks. Crude oil rocketed higher by $5.57 per barrel. COMEX Gold weakened $16.20 per ounce. And the Goldman Sachs Commodity Index added 16 points to settle at 487.10. Joining us now to offer insight on these and other trends is one of our regular market analysts, Naomi Blohm. Naomi, welcome back.

Blohm: Hi, thanks Delaney.

Howell: We had a big report day today. We had the acreage report as well as the quarterly grain stocks report. So let's just take it overall here. What were your thoughts about the report?

Blohm: At least the report wasn't bearish, so that was the biggest takeaway from the whole thing. Looking at the big picture, the quarterly stocks numbers all came in truly as anticipated, nearly right on the average estimates for all categories, corn, beans and wheat. As far as the acres go, wheat acres were up about a half million acres from the March estimate, soybeans also up just over a half million acres from the March estimates and corn acres up a million from the March estimates. But all of these things were expected, the corn number a little bit larger than what people were looking for but within the range of expectations. So because there was not any big surprise the market was able to find some short-term footing and at least not plunge any lower for the rest of the trading day for the day.

Howell: Absolutely. And going forward we've got some big dates coming up here with tariff deadlines. You said earlier you were a little nervous to be on the show tonight because a lot of producers are watching July 5th, July 6th we have tariffs going into effect with Canada. I want to take a social media question here when we look at exports and tariff news that's coming here in the near future. Paul in Columbus, Wisconsin said, with the recent price drop happening will exports increase before those tariffs go into effect?

Blohm: That's a question that I was wondering today and for the past few sessions as well. We did see some export sales this morning before the USDA report came out but it was nothing that would just make the market rally in and of itself. We're hopeful maybe early next week we'll see something come to life, but at this point it doesn't feel like that's going to be the case. It continues to be a showdown between countries of the world and it's going to create more market volatility all next week and potentially the week after that as well. So we have to watch every day for the freshest piece of news that can come from it.

Howell: Let's talk about news that's going on in the wheat markets. Egypt announced that they were having lower harvested acres than they expected. Will that give the U.S. some opportunity to export more wheat or will they be looking more to the Black Sea region and Russia for their needed wheat supplies?

Blohm: I would say logistically they'll probably continue to stick with Russia just because it's closer. But what it does do is emphasize the point that little pieces around the world are showing some issues with production. Russia's production is down a little bit and then today the reason the market rallied before the USDA report for wheat was because we found out French production is now lower as well. So we have all of these little pieces of production falling a little bit globally and so the market is trying to find some support. And then we'll see that as we go forward with finding out for sure what our winter wheat harvest is and how the spring wheat can develop as summer continues.

Howell: Absolutely. Let's jump over here into the corn markets. With the acreage report, was that any surprise to you? I know we talked a little bit about it at the beginning of the program but I want to really dive into the report with you.

Blohm: Yeah, as far as how the acres came out it wasn't a surprise to me. I was thinking definitely like a half million more acres, the million mark surprises me a little bit. I think the biggest thing right now though to focus on besides trade is what is happening with the crop with all of the excessive rain. It's not just too much rain from the standpoint of it's too much rain for our crop to grow but think about the nitrogen that is getting washed away, think about how the roots are shallow and not able to penetrate deep into that soil with this excessive heat coming. On my drive here yesterday the corn is tassling across I-80 and while it looks fantastic there are some shallow roots out there and we'll see how production ends up being with the loss of nitrogen as we go forward.

Howell: What does your balance sheet look like for corn moving forward?

Blohm: Looking forward we still have smaller U.S. supplies, smaller global supplies. That keeps the market supported but we need to have additional demand news and now we have to essentially wait until harvest to know truly what is out there or not. The market has been trading in 180 bushel yield on corn.

Howell: That was my next question.

Blohm: Yeah. And I think that's a bit premature. I would say trendline is appropriate at this time. But with the photos that we're seeing across social media it'll be interesting and of course we have to just wait until harvest. But I think 180 is a little high.

Howell: Okay. What about when you look at a price point here? Where do we sit price wise? We put in a low of about $3.60. Is that our low for the summer or are we going to have to wait and see with weather and tariffs and all those other factors going forward?

Blohm: We do have to wait and see. I would say for the next two weeks it probably is a low and we hopefully can see a recovery bounce or a weather scare bounce or that type of a thing. But we need some positive trade news in order to really see this market come back to where it had been.

Howell: I think the big trade news question sits in soybeans. So let's take it there next. With the tariffs going into effect on July 6th, without any last minute changes or negotiations, has this already been fully factored into the market? Or should producers expect to see some price volatility on July 6th?

Blohm: You're going to see price volatility all next week. And what makes me the most nervous is that today the close beans finished about 4 cents lower, which you wouldn't think is much, but they posted a bearish outside reversal and technically speaking now it poses the possibility for prices to go and retest the low from the catastrophic fall that we had recently. So that could be another 20 to 30 cents just to even retest those levels before it can find some sure footing. It's like we've gone bungee jumping and we are still waiting for our cord to tighten and we haven't even had that happen yet. The tariff issues are what is threatening this market and until we can get it figured out unfortunately the market doesn't like uncertainty and the funds are going to stay short. So the tariff thing needs to happen sooner than later.

Howell: So with that being said, what should producers be doing over the next week here to prepare for that news and prepare for that to go into effect?

Blohm: Continue to keep an eye on your local cash markets in case basis levels maybe can improve in some capacity. It may be worthwhile with how the market finished today to buy some August short-term puts just in case this continues to fall apart because if the market can bounce, I think a lot of people have beans that have been sold, if the market can bounce we can do more with new crop sales but the risk still is the downside until this gets figured out.

Howell: Okay. Let's take it over here and talk about the cattle markets because they actually had some optimism today here at the end of the week. We finally got some good news. We were limit up in both live cattle and feeder cattle. What's going on there?

Blohm: We had some great cash news that happened today. So cattle in Texas was trading at $107 and so that was able to lift the cattle market limit up today for those front month contracts, which was great because we had a cattle on feed report this week, which was showing large supplies, the largest June 1 number since 1996. So we have the supply of cattle, which we have known and it has been priced in, but thankfully domestic demand has been fantastic and our exports are up 13% year over year. And so we have a perfect demand situation, which is offsetting the increase in production and we're going to see going forward the cattle market continue to trade in more of a, kind of like a little bit of a sideways back and forth type of pattern.

Howell: Okay, what are you looking for that range for the sideways?

Blohm: I'm bottom side a buck even, on the upside maybe like $113, $114 and it's going to be up and down, back and forth in there until we find out who is going to blink first in terms of the larger production winning out or can demand stay as strong as it is now heading into the third quarter.

Howell: Right, and heading into the third quarter that's when we usually back off the grilling season. The 4th is kind of that price or that time of year when we back off. Do you think that's going to hold true for this year too? We've had wet weather, not necessarily warm weather. What are your thoughts?

Blohm: Yeah, I think demand is going to actually hang in there and be okay in terms of hamburger and ground meat and things like that and steak. As a mom who does the shopping for back to school that's where the extra slush money is going to be going sooner than later. But in the short-term the demand is there and it's strong as long as the economy keeps progressing like it has been.

Howell: Absolutely. And you had an interesting thing, I noticed the slush comment was from your newsletter this week, you had another interesting comment that I wanted to make sure and ask you about as we transition to talking pork here. You said, the pork complex is seeing a potential reduction in exports. We've got the Mexican tariffs, the Chinese tariffs coming forward and we're going to potentially see some of that meat flooding the U.S. domestic market. With that being said, will consumers opt then to buy pork or will they continue buying beef?

Blohm: My response is there's not a substitute for beef. There's not. So as long as there's enough economy being strong I think that beef in and of itself is going to just have its own demand. Now there does come a point if the gasoline prices continue to rally with crude oil breaking out to the upside this week and depending on your back to school situation there might be a chance where if it's on sale at the grocery store I would maybe buy a little bit more pork just because then I can give more money to my kids' school needs. But overall demand for pork domestically has been all right and our exports have been good driving front months and that's why that front month is higher. But the all hogs report that came out this week showed that all hog production is up 3% and, again, another large June number, the most historically large June number of hogs in history going back to the 1960s. So that's why those deferred contracts plunged off the cliff and had a breakaway gap lower this week on the markets.

Howell: You mentioned exports, I want to talk about that really quick in the pork markets. We've seen really strong exports, we had really strong export numbers this week. We've got the looming tariff deadlines in the future. Will we continue to see strong exports? Or do you think we're going to see them fall off the cliff immediately?

Blohm: That's what we're watching. One out of four hogs is exported in this country. Of what is exported, half of that goes to China, Mexico and Canada. So it is a big deal. Half. It's important to watch it and monitor it because that is what is going to affect the hog market more than anything.

Howell: We haven't really seen the hog markets react yet to the tariff and trade war threats. Is this the week that we will probably see some reaction, this coming week?

Blohm: Yeah, the next two weeks for trading and for world negotiations are historic. It is a historic time to be in agriculture and just being mindful of politics and all of those things. So it's going to be volatile and be ready for it.

Howell: Really quick I want to get your quick 30 second thoughts here on the dairy industry.

Blohm: The dairy industry had gotten prices up to $17 because export demand had been so good, milk production numbers a .8 increase, which was actually the least amount we've seen, but production is still up. Demand had been so strong but the tariffs is what made that market fall apart and crumble. But since the fall back has happened cheese prices have started to pick up and cheese buying has picked up, which lifted that milk market in the short-term. But here again, it comes down to the tariffs.

Howell: All right. Naomi Blohm, thank you so much for your insight today.

Blohm: Thank 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 iptv.org/mtom. Do you need a break from social media? Resort to the traditional email to send us your comments on the program. Address your message to markettomarket@iptv.org. Join us again next week when we explore new shipping concepts with an aging infrastructure system. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

(music)

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. And by Sukup Manufacturing Company. Offering a full line of grain drying and storage equipment and steel buildings, Sukup Manufacturing is on a mission to protect and preserve your crop and the tools that produce it.

 

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