Market to Market (August 3, 2018)

Aug 3, 2018  | 27 min  | Ep4350

Coming up on Market to Market -- Leadership picks teams to beat a Farm Bill deadline. Firefighters battle back against out of control fires in the west. Commercializing the next generation of cover crops. And market analysis with Elaine Kub, 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 at accusteel.com.

This is the Friday, August 3 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Delaney Howell.

The nation’s annual deficit is approaching 5 percent of GDP – nearly a TRILLION dollars annually - as tax cuts come into play and the economy surges. --

The unemployment rate ticked down to 3.9 percent as 157,000 jobs were created last month. This is below the 6-month average but economists remain impressed.

The Fed has been tracking the numbers over the last few quarters and left interest rates alone.

In a snapshot of Midwest vitality, the Creighton Mid-America Economic Index fell 4 points but continues to point towards growth. -----

President Trump has threatened an additional $200 billion in tariffs on Chinese goods. China has prepared a $60 billion counterstrike that’s expected to increase the squeeze on U.S. agriculture.  

As both sides continue their international shoving match, a host of domestic issues are waiting in the wings. Among them is the 2018 Farm Bill which is expected to have a healthy debate of its own.

Peter Tubbs has more.

The House and Senate voted send the 2018 Farm Bill to conference committee this week, as the document trudges towards a final vote in Congress. The current Farm Bill, which was signed in 2014, expires at the end of September, 2018.

The most contentious fight of the conference will be over the future of SNAP benefits. In June, the House passed an amendment requiring those receiving benefits to 20 work hours a week to qualify for SNAP monies. The Senate later defeated a similar amendment to its own version of the Farm Bill.

Cotton growers may benefit from the current versions of the Farm Bill. The crop insurance title includes continuation of the Agriculture Risk Coverage/Price Loss Coverage insurance programs for cotton at the current rate, an item threatened in earlier editions of the measure.

The Senate version seeks to limit total farm subsidies to large farms as well as containing payments to farmers, spouses, and a single farm manager.

Congressman Michael Conaway, Chair of the House Agriculture Committee, is optimistic that a compromise bill can be reached.

Senate Agriculture Committee Chair Pat Roberts is looking forward to starting the process and providing certainty to U.S. farmers, families and rural communities.

The National Farmer’s Union asked House leaders to include language in the bill to “mitigate the harm of the significant and lasting market disruptions” brought on by the nation’s current trade disputes.

With the August recess shortened to one week, Congress will return on the 13th to work on differences between the two bills.

For Market to Market, I’m Peter Tubbs.

 

Forest fires in the West are a common occurrence but the intensity and frequency have been on the rise in recent years. California Governor Jerry Brown, has called the increase “uncharted territory.”

John Torpy has more on fires in the western U.S. that have crossed over the billion dollar mark in damages and brushed aside 6 lives.

Record setting heat, coupled with years of drought, have led to the growth of numerous wildfires in the west—leaving charred homes, businesses, and firefighting budgets in their wake.

Random storms have brought little in the way of relief for parched portions of the western United States. According to the U.S. drought monitor, areas of Colorado, Utah, Arizona and New Mexico share the driest part of the country.

NAT Sound Break

In the Pacific Northwest, rainfall levels over the past six months have been half of what normally falls in the area, setting the scene for more than 40 wildfires in the region. The National Interagency Fire Center put the call out for firefighters from Australia and New Zealand to help fight the blaze that has scorched more than 300,000 acres.

In northern California, the Carr fire has taken 120,000 acres while simultaneously burning through one quarter of the state’s firefighting budget, just one month into the Golden State’s new fiscal year.

For Market to Market, I’m John Torpy.

In 2025, Minnesota Governor Mark Dayton hopes the state reaches his goal of improving water quality by 25 percent. Dubbed 25-by-25, the strategy puts more than $350 million towards the objective. The plan includes incentives for the creation of buffer strips and encourages changes in tillage practices.

The initiative has sparked a new venture that explores something beyond just planting cover crops.

Josh Buettner has more in our Cover Story.

Dr. Don Wyse/Department of Agronomy, University of Minnesota /Director – Forever Green Initiative: “They’re using the same principles on the development of these species as they would on barley or wheat and other crops that are being developed.”

Dr. Don Wyse is spearheading an initiative to revolutionize food systems, create rural jobs and improve soil and water quality – by commercializing conservation.  The University of Minnesota’s Forever Green Initiative is engaging over 60 faculty, graduate students and researchers - along with USDA and corporate partners - around a suite of 13 underdeveloped winter annual, perennial and native woody crops.

Dr. Don Wyse/Department of Agronomy, University of Minnesota /Director – Forever Green Initiative: “The land grant universities took on the grand challenge of producing hybrid corn.  We believe its equivalent to that.  And now the tools are there to actually develop these new crops in a relatively short period of time.  And because of the biotechnology that’s currently available, we’re talking about domesticating some wild species within a decade rather than 150 to 200 years.”

Spurred in part by state efforts to reduce nutrient runoff in the Upper Mississippi River watershed, Forever Green’s agricultural supply chain collaboration is devising markets for a host of new value-added cover crops like pennycress and camelina that fit into traditional farming rotations.

Dr. Don Wyse/Department of Agronomy, University of Minnesota /Director – Forever Green Initiative: “You could put it in as a relay crop…. plant soybeans into this crop earlier in May, and then harvest the camelina and allow the soybeans to come through.”

From the St. Paul campus, Wyse points to a handful of affiliated projects sprinkled across the Land of 10,000 Lakes.

Gregg Johnson/Associate Professor – University of Minnesota Southern Research and Outreach Center: “The benefit is you’re getting two sources of oil off of this field instead of just one.”

At the University’s Southern Research Center in Waseca, Associate Professor Gregg Johnson is implementing the new approach.  

Gregg Johnson/Associate Professor – University of Minnesota Southern Research and Outreach Center: “One of the keys is flexibility, right?  So we want to be able to give growers options. We want to have a portfolio of choices that we can give them to match their operation or match markets – however they might evolve.”

Johnson works with the Agricultural Utilization Research Institute, a nearby non-profit, that helps refine and develop new uses for agricultural products – like cold-pressing camelina.

Alan Doering/Senior Co-product Scientist/Agricultural Utilization Research Institute: “There you see the oil starting to come already.”  

Senior Co-product Scientist Alan Doering says businesses are interested in the plant for cooking oil, bio-based plastics, alternative fuel, and livestock feed.

Alan Doering/Senior Co-product Scientist/Agricultural Utilization Research Institute: “It will sell very similar to soybean meal but maybe at an 18-20 percent discount just because it’s a little lower in protein.  But what makes up for some of that is the camelina meal still has a high level of energy in it, so that brings the value back to it.”

Camelina’s high flashpoint makes it ideal for biodiesel production.  

Ron Fedie/Senior Research and Development Scientist/ SarTec Corporation: “Here you can see the methanol on top and some biodiesel on the bottom.  And then we’ll distill that off, that methanol, and have our biodiesel samples.”

Back near the Twin Cites, SarTec Corporation evaluates the viability of several different biofuel feedstocks.

Ron Fedie/Senior Research and Development Scientist/ SarTec Corporation: “We’ve done a bunch of different oils including camelina and pennycress.”

Senior R&D Scientist Ron Fedie’s findings have helped determine whether these new sources can be scaled-up for mainstream use.  But Fedie says variables like temperature and pressure aren’t the biggest hurdles to turning a profit.

Ron Fedie/Senior Research and Development Scientist/ SarTec Corporation: “More, it’s availability and can we get enough of it in to, to merit 10,000 gallons a day.”

Curt Anderson/Chef – Evansville, MN: “There’s many health benefits now to this camelina oil.  You should take a look at it.”

Local chef and PBS television personality Curt Anderson was approached by Forever Green to evaluate camelina oil in his kitchen.  

Curt Anderson/Chef – Evansville, MN: “I have rice that I’ve cooked, and I’ve got some potatoes that I wish to fry…  So using the camelina oil, I just need to get me a few drops in the pan. When you smell this, it has a nutty-ish, grass aroma…  My friends, here comes the steak part of it…See how it sizzles? The oil is holding up wonderfully, and you would definitely see that difference in lower quality oil…  That’s as good as I could expect from any other oil that I want to pair it up against.”

While plant oils occupy a large share of Minnesota’s initiative, Dr. Wyse also points to advancements in nut crops, fruits and herbaceous mixtures that may help farmers in the difficult choice of what to grow.  

Dr. Don Wyse/Department of Agronomy, University of Minnesota /Director – Forever Green Initiative: “American Hazelnut was never developed as a major nut crop in the Upper Midwest.”

Wyse believes his work may add to the lifespan of a number of crops like kernza - a perennial wheat useful in baking, brewing, forage and biomass.  

In the shadow of Norman Borlaug, Father of the Green Revolution, Wyse says Forever Green might allow farmers and end users to share the mantle of good stewardship.

Dr. Don Wyse/Department of Agronomy, University of Minnesota /Director – Forever Green Initiative: “The food industry wants a new story.  They would love to bark at this idea that if you plant kernza, the intermediate wheatgrass, for wellhead protection across rural America, and if you buy this product, that product is protecting that water supply.  So consumers can participate in protecting that landscape by purchasing that product that carries those different outcomes.”

For Market to Market, I’m Josh Buettner.

Next, the Market to Market report.

European drought, strength in the wheat market, and rumors of back room dialog helped move the grain markets higher. For the week, September wheat rose 26 cents, while the nearby corn contract finished 8 cents higher. The soy complex started the week higher as new buyers took over Chinese market share. But by the final session, the September contract fought off rumors of an escalation in the Chinese-U.S. tariff battle to hang on for a 16 cent gain. September meal failed to push-off the news and lost $1.20 per ton. December cotton shrank 22 cents per hundred weight. Over in the dairy parlor, September Class III milk futures were unchanged. The livestock sector finished mixed, as the October cattle contract gained $1.52. September feeders added 85 cents. And the October lean hog contract shed a dime. In the currency markets, the U.S. Dollar index increased 50 ticks. Crude oil dropped 40 cents per barrel. COMEX Gold fell $9.50 per ounce. And the Goldman Sachs Commodity Index lost nearly 2.5 points to settle at 461.90. Joining us now to offer insight on these and other trends is one of our regular market analysts, Elaine Kub. Elaine, welcome back.

Kub: Hello, Delaney:

Howell: Elaine, we had some interesting news happen in the wheat markets this week. An, we're going to say undisclosed news source, mainstream news source, had a headline that sparked an almost near limit up day here in the wheat markets. Is that going to limit our potential moving forward for another rally?

Kub: Well, and it wasn't just this week and it wasn't just that one day. The European wheat prices have been rallying for weeks now based on that exact story, the idea that there is very hot, dry weather in Europe. Earlier in the show you guys mentioned the fires here in the United States, very dry areas in the U.S., but it's really more than that. It's Australia too, some portions of the Australia wheat crop are quite dry and they are paring back their production estimates. But really that spark this week, the thing on Thursday that really caused the top to go into that European wheat chart was the Ukrainian Ag Minister saying that they would restrict sales. And it turns out that's not the truth. That was a false headline. So they had to clarify it but they still will not have as many supplies, wheat supplies to export as usual because they legitimately do have very poor harvest results in Ukraine, in Russia, in Germany, in Poland, in France, pretty much everywhere on that continent. So that is a real thing that is happening on that European wheat chart and it went to a high of, I don't know, 215 Euros per metric ton, which in U.S. dollars and cents that's like $6.96 per bushel. So we would still have room, we have not matched that penny for penny that rally that we've seen in the European wheat prices, but certainly we have seen a rally. The KC wheat contracts have rallied 27% based on that arbitrage of the European to the U.S. wheat prices.

Howell: With that being said, we have all these issues as you just mentioned in the European Union and Russia and Ukraine, what is that going to do for our U.S. wheat market? Does that open the door for more export sales?

Kub: Yes, absolutely. Now, if we saw confirmation of that, already the hard red spring wheat is definitely the star of any weekly export sales report. But if we would see confirmation of more export business, particularly for the hard red winter wheat, that would be very interesting to wheat basis. But so far in the spring wheat where we're just starting to see harvest really heat up the merchandisers have really resisted, not really, but to some extent they have resisted that rally with wider futures spreads and weaker basis because they know they're going to get more bushels, a larger crop this year than last year, obviously for the acreage increase if nothing else.

Howell: Okay. Elaine, I want to move on here to the corn markets. We closed above the 50 day moving average for the first time here. Moving forward are we going to continue to see some strength in the corn markets?

Kub: I think the corn market's potential to continue higher is based not really on any bullishness here in the United States because I think we're about to see this next week there is another WASDE report, a supply and demand report coming up that is very likely to increase the USDA's yield projection for U.S. corn and I think that is legitimate.

Howell: Okay. Let me ask, interject here and ask about that. What do you expect to see on the WASDE report?

Kub: Well, there's private estimates somewhere in the 177 bushels per acre range and I don't think those are necessarily crazy. The condition ratings are very good, higher than 70% rated good or excellent and that's not even as good as was seen in 2014 or 2016. So I think those are real. I think the condition ratings are good despite the little pockets that do have the dry weather or the drowned out spots. But I think supply wise in the United States it's bearish at the moment but there is this matter of the feed grains in Europe, that same hot, dry weather in Europe, China is starting to get some dryness in their corn production. So the global feed grain supply and demand situation could start to get more tight and we could start to see some strength in that corn market.

Howell: Okay. We touched on a couple of important issues here. We got some great social media questions in this week so I want to get to one here from Lexi in Iowa. With a fast maturing corn crop, decreasing corn exports and record breaking yield predictions, will the growing U.S. ethanol industry offset some of those macro issues that are being figured into the market?

Kub: That is the one bright spot, we are seeing that. Over a million barrels a day keeps on being reported for ethanol production in the United States and it is being exported. I can't pull the numbers off the top of my head but our exports to Brazil, other South American countries, have definitely increased year over year, to Canada, there's a lot of potential for ethanol exports to maintain the strength in that ethanol market and in corn demand for ethanol. But price wise the supply here is still the thing that is going to be keeping that from getting crazy.

Howell: Okay. Let's do a quick price point here. December corn contract, what are you expecting it to be at? We've touched above $4 now again? Are we going to see another harvest low? Or do you think we've kind of factored that into the markets already?

Kub: I think it's entirely possible that any upward steps that we see in the futures could be taken away by weaker and weaker basis as harvest gets closer, as this big harvest gets closer.

Howell: Okay. Elaine, let's move on here to the soybean markets. We started the week out really strong, we were putting some cents on the board, then we pulled back here towards the end of the week. What happened?

Kub: Sort of rumors giveth and rumors taketh away. The soybean market just rejoiced when there was even a hint that the U.S. and China might start to talk about normalizing that trade relationship. Soybeans shot up 28 cents. And then when it turns out that might not be the case, it's just sort of give and take on any given day, what is the rumor on that day. So, until something changes I think the soybean market will sort of be stuck in this range. I think it has found a neutral range to trade in, somewhere above $8.22 and somewhere below $9.22 on that new crop November contract. So I think we might just be bouncing along here until and unless something changes.

Howell: Okay. You opened the door on tariff news and I know you follow a lot of geopolitical stuff going on so I want to get your opinion and thoughts on this. President Trump had the ability to put or enact tariffs on August 1st. Now he has threatened potentially to put some more on September 1st. Why didn't he enact them on August 1st as opposed to pushing them off another month?

Kub: I cannot speak to the decision making process behind that. I don't know. But the thing that the market responds to is that China responds with retaliatory tariffs against soybean oil, against liquefied natural gas. Those are things that will affect commodity markets absolutely. So nobody really seems to be winning in this trade war at this point in time.

Howell: I want to talk about liquefied natural gas. In the oil markets, did the oil markets respond to that news since I think it was China's number one importer of gasoline, it said no more, we're not going to take U.S. ethanol and gasoline anymore?

Kub: Yeah, I think the place to watch will really be the oil companies themselves. That will really affect their profitability, their ability to export a byproduct of the oil drilling. So that is the place to watch for that. But again, it's so much up in the air. One hopes that some of this will get resolved.

Howell: Absolutely. Elaine, let's move on here to live cattle because we've had kind of a roller coaster week. Again this week we closed pretty well on the day here on Friday. We've had a decent bounce in export sales as well and after our marketing year low I think what was it two weeks ago, where do we go from here?

Kub: It was a nice boost today in the futures and it again was just that cash business that developed very late here on Friday. So the live cattle market is strong because when those supplies do get offered to the packers they want to make their $300 per head profit margins.

Kub: That's what it pencils out to be roughly at this point in time. So they do want those supplies when they come on market. And fortunately, as you mentioned, this is one market where exports are not bad news, we do not have terrible disasters in beef exports. So I think the line for beef for live cattle anywhere is just good, steady strength.

Howell: Let's talk a little bit about packer margins and boxed beef prices. We’re at the lowest levels since December. Packer margins are getting a little bit thinner. Is cash going to soften with all that being said?

Kub: It could, especially seasonally we're going to start to see that happen. A lot of it really depends on what happens to the supplies, the cattle that have been on feed and have been held on feed longer. As they come to market, let's say in September, a lot will depend on that and a lot will also obviously depend on the strength of the U.S. consumer, whether the retail consumer continues to feel optimistic enough to go and buy those beef prices.

Howell: Is that the reason that futures are trading at such a discount to the cash right now?

Kub: I don't think so. I think that's possibly a reflection of the supplies, the cold storage supplies that people can push off -- well a wall of beef, let's call it that.

Howell: Absolutely. Let's talk about feeder cattle. When we look at weather that is affecting not only the commodity market and the grains, it's also affecting or seems to be affecting the feeder cattle markets. What's going on there? What are your thoughts?

Kub: Yeah, I think there's very strong resistance for the October feeder cattle contract. I don't think we're going to see that be able to break above $155 and it's not there now. But I think that has been built onto the charts and that will certainly be the case if corn prices build any sort of a rally or weather rally as we get through the summer. I think feeder cattle have the potential to move lower.

Howell: Okay. Even with the reversal on Wednesday, do you see us, we're in an upward trending channel right now for feeders, but you're not optimistic that long-term we're going to stay in that channel?

Kub: No because it's a much more neutral outlook I believe for the feeder cattle based on what can people afford to feed given I think the prices of feed, the prices of producing these cattle has been built into that market and we've seen that resistance, like I mentioned, at the $155 level and I just don't think that you're going to be able to find somebody who is going to come in there and want to buy those supplies at a higher price than that.

Howell: Okay. Elaine, let's wrap it up here with the hog markets. Export sales have held up pretty well in the hog markets as well. At what point do we start to see these strong export sales reflected in our futures contracts because they're still just not doing as well as we would anticipate them to?

Kub: They're doing very poorly. What is the word for a nose dive in hogs? Perhaps it's a snout dive. It's just going down and down and down. You see the actual cash market going down 40, 60 cents every day, the index going down a dollar a day and the futures just have to follow that cash news. However, they have pulled back 25% and it could be a scenario like soybeans where the market pulls back because of tariff news or because we have sold very little to Mexico. You mentioned good export news but it doesn't come from Mexico and it doesn't come from China right now. So it could be that the futures market pulls back to a certain price and decides that we have priced in the tariff news and maybe it can form a bottom and bounce back up just like soybeans did.

Howell: Just like soybeans. Elaine, I want to continue the hog discussion in Market Plus, but that's all the time we have today.

Kub: 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. Market to Market may be airing in different timeslots due to fundraising on PBS. So, if you find value in our program, please consider making an investment in a service that provides you with the news and market analysis you’ve come to know and trust. Join us again next week when we look at a partnership between a Midwest dairy producer and an East Coast dairy giant. 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. Accu-Steel, offering fabric covered buildings specifically designed for the cattle industry since 2001. The next generation of cattle buildings. Information at accusteel.com.

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