Market to Market (September 7, 2018)

Sep 7, 2018  | 27 min  | Ep4403

“Coming up on Market to Market…

Heavy rains and flooding strike fertile fields in the Midwest …

Fire scorches more acres across the West…

A lucrative export commodity with deep roots in rural America…

And market analysis with Darin Newsom, Next!”

Pioneer Hi-Bred International is a 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.

Hello, I’m Delaney Howell.

It’s a contrast of emotions for American job holders. On one hand you have what economists call “good job growth”, on the other hand, wages are struggling to keep up. --

Unemployment held steady at 3.9 percent as 201,000 jobs were created last month.

Wages are 2.9 percent higher than a year ago but inflation has eaten up the increase.

The Creighton Mid-American Index continued its seven-month rally. Bankers remain worried about the strong downward pull of tariffs on farm income.

Tariffs have had little impact on reducing the trade gap as imports have outrun exports so far this year. The running total is a record $261.2 billion.

Large portions of the Golden State are on fire. Property damage has topped $1 billion.

Those living in the nation’s midsection have seen the exact opposite of California’s tinder dry conditions.

Paul Yeager kicks-off our coverage.

The Corn Belt could be renamed the Rain Belt this week as inclement weather settled in from Michigan to Kansas --  leaving behind nearly a foot of water over a several day period.

Standing water was found easily in Sunflower State fields. Soybeans were already considered 77 percent fair to good and the rain only helped the pods in Kansas.

In Iowa, larger amounts of rain fell across more acres. Corn and soybean fields entering the home stretch of maturity were flooded as reports of 12 inch weekly totals were common.

The nearly-8 inches of rain that inundated in the northeastern Iowa town of Waterloo is already the tenth highest on record for the entire month.

Chicago experienced its rainiest Labor Day since 1912.

This Intellicast weekly precipitation map illustrates the area affected. The darker green regions translate as 4 inches of rainfall.

Similar amounts of precip were seen in the Gulf Coast as Hurricane Gordon made landfall midweek in Florida, Alabama and Mississippi.

Thousands were without power from the storm. As the hurricane weakens and moves inland, more farm fields in Louisiana, Arkansas and Missouri are forecast to receive substantial rainfall. Most of those same areas are currently in drought.

August set a record for heat in Las Vegas. The 94.4 degree average of highs and lows are the highest since record keeping began.

Farther west, explosive wildfires shut down dozens of miles on Interstate 5 near the California/Oregon border. The Delta Fire forced some drivers to abandon their rigs as the flames roared up the mountainsides.

Currently fire crews are working on 97 large blazes that have burned 1.9 million acres across 12 states. The nationwide total for the year is just shy of 7 million acres burned by 46,000 fires in all of 2018.

For Market to Market, I’m Paul Yeager.

Before the current trade war with China, some sectors of agriculture were already suffering tariff fatigue from the Asian giant. This includes U.S. pork exports which are operating under a 62 percent duty. According to the U.S. Meat Export Federation, exports have declined 22 percent so far this year.

Another niche market with strong roots in China was among those laboring under existing trade tariffs.

Josh Buettner has more in our Cover Story.

Will Hsu/Hsu’s Ginseng – Wausau, Wisconsin: “History has shown times where trade to China has been shut down…this industry was dead.  The demand, as income levels rise in Asia, is really coming from there. So to help farmers in Central Wisconsin, the best thing we can have is access to those export markets.”

Will Hsu is a second generation ginseng producer near Wausau, Wisconsin.  According to USDA, over ninety-five percent of the plant’s domestic cultivated origin is sprinkled across the Badger State – with Marathon County as the hub.  Wisconsin officials estimate one million raw pounds are produced there annually – with a yearly output valued at over $50 million. 

But 15 percent retaliatory tariffs from President Trump’s trade war with China have been tacked onto pre-existing duties and value-added taxes ahead of this year’s harvest. The move could leave growers feeling a pinch on an export-dependent, multi-year premium crop.

Will Hsu/Hsu’s Ginseng – Wausau, Wisconsin: “Very similar to France and Italy, which are known as the old world regions for growing wine…the taste and flavor of Wisconsin ginseng has been ingrained in people for the last 100 years.”

Overharvested in China after use as a pancea for millennia, a cousin root was unearthed in North America three centuries ago.

Will Hsu/Hsu’s Ginseng – Wausau, Wisconsin: “You don’t always find four prongs.”

Around the dawn of the 20th century, the wild root moved from forest to farm in Wisconsin, cementing trade partnerships in Asia and earning a gold standard reputation.

Paul Hsu/Founder - Hsu’s Ginseng – Wausau, Wisconsin: “Well, I’m the farmer.  He’s the brains, so works out as a team very good….Each notch is one year old.”

Originally from Taiwan, Will’s father - Paul Hsu - founded the core of the family business over 40 years ago after discovering unmet demand for the niche product in Asian-American communities. 

Enduring production challenges – including five years from seed to harvest and the need to secure new land for each crop because the root can never be grown twice in the same location - the Hsu’s bought into the supply chain. Their enterprise now includes several hundred acres under production and nearly 1,000 employees across the globe.

Paul Hsu/Founder - Hsu’s Ginseng – Wausau, Wisconsin: “Chinese…real warm.  It’s hot – yang, and American ginseng – yin.  So there’s two different functions.  Two species…”

Traditionally used in Asian cooking and medicine, American ginseng has even drawn accolades from the Mayo Clinic where a 2012 study revealed high doses can curb fatigue among cancer patients in chemotherapy.  And while farmed root has averaged $30-55 per pound, wild ginseng commands a much higher price. 

Paul Hsu/Founder - Hsu’s Ginseng – Wausau, Wisconsin: “Depending on what location, how good they are – 500, 600, 700 dollars a pound.”

The older the root, the more ginsenosides – active compounds within the plant that impart its elixir-like prestige – the higher the price. By state law, the original wild, woods-grown ginseng must be at least 10-years old before being extracted for sale. 

Private landowners like the Hsu’s recognize the importance of conservation and have developed their own ‘wild simulated’ strain, as part of the state’s multi-pronged approach to viability.

Will Hsu/Hsu’s Ginseng – Wausau, Wisconsin: “So this is kind of that in-between space, not quite wild, not quite farm-raised, that you see a lot of agriculture moving into.  So you can take any patch of woods, if you take care of it and do a good job of it, and turn it into this.  And in the wild, some of the best roots are 15-30 years old.”

Paul Hsu says he’s been paying diggers top dollar for over three decades to break the soil at certain times and only for certain root sizes.

Paul Hsu/Founder - Hsu’s Ginseng – Wausau, Wisconsin: “Very seldom do you have 60 year old roots, maybe on in 100 to 1,000.”

Over the years, the Hsus have worked to vertically integrate and navigate volatile market waters.  But for smaller producers laboring with razor-thin margins, staring down the barrel of a trade war can trigger a battle with anxiety.

Bob Kaldunsky/President - Ginseng Board of Wisconsin: “Eighty-five percent of our market is China. So yeah, it’s tied in. It’s hard-wired.”

Bob Kaldunsky heads up the state’s ginseng board, a quasi-governmental promotion group of active producers, funded through shade assessment – a tax on the farm structures that help mimic woods-like conditions for the fickle herb.

Despite strong demand, Kaldunsky says the number of ginseng growers in Wisconsin has declined over the past 20 years from over 1,000 to nearly 180.

Bob Kaldunsky/President - Ginseng Board of Wisconsin: “There’s 5 producers that produce 75 percent of the crop. And the balance, then, that’s about 175, produce the other 25 percent.”

As Ginseng growers weigh whether or not to plant, harvest, or rent, some fear ongoing trade tensions could lead buyers to cheaper sources in Asia and Canada.

President Donald Trump: “It’s going to be very hard for them to that.  We’re putting a lot of safeguards in.”

Trump’s announced $12 billion aid program for farmers affected by tariffs doesn’t sit well with producers like Will Hsu…

Will Hsu/Hsu’s Ginseng – Wausau, Wisconsin: “Especially for something so valuable.”

…who say for the long term, free trade is the right model.  Value-added products, infusing ginseng into all kinds of food and drink combinations – which are taxed and treated differently - could be one future path for the industry.

There are no forward contracts or futures markets for ginseng, and Hsu says within the last year returns have neared the cost of production. 

President Donald Trump: “Family farmers are the backbone of America.”

So as he and other growers adapt to new rules brought on by the White House, all must assess how long farmers who export 90 percent of their crop to China can weather the political storm.

For Market to Market, I’m Josh Buettner.

Delaney Howell: President Trump has yet to drop the hammer on nearly $500 billion dollars in tariffs. The commodity markets chewed on this fact in private harvest projections. For the week December wheat plunged thirty four cents while the nearby corn contract rose 2 cents. Private yield estimates helped push the November soybean market lower during the week only to return to the starting line by the final session. Soybean meal went the opposite direction, as the December contract gained $9.80 per ton. December cotton shrank 23 cents per hundred weight. Over in the dairy parlor, October Class III milk futures lost 19 cents. The livestock market finished on an upward note as the October cattle contract rose a dollar 17. October feeders put on three $3.82, and the October lean hog contract added $5.22 on news of further outbreaks of African swine fever. In the currency markets, the US dollar index bumped up to 25 ticks, crude oil fell $2.05 per barrel, Comex gold retracted 6:30 per ounce, and the Goldman Sachs commodity index dropped nearly eight points to settle at 460.85. Joining us now to offer insight on these and other trends is one of our regular market analysts Darin Newsom. Darin, welcome back.

Darin Newsom: Good to be back. Thank you, Delaney.

Delaney Howell: Let's start off here with some wheat discussion during- you're a big wheat guy. Were you surprised this week when Russia did not cut their wheat exports?

Darin Newsom: Oh no, I mean, you never know what's going to happen on the global wheat market. You know, there's all kinds of stories. Nothing surprises me anymore, you know, the fact is world still isn't looking, isn't still, isn't knocking down the U.S door to buy wheat and they're certainly not going to anytime soon. Um, but you know, the more interesting aspect of the wheat market to me is probably as was talked about in the piece earlier, the rain that we saw across Kansas, I think that's going to change the, you know, the possible. I think that's going to add to the likelihood that we see more acres planted of hard red winter from the folks I've been talking to. You know the price here recently we saw, we saw July futures for 2019, rally over $6, get up to about $6.40, something like that. There was your opportunity to price, now you've got the moisture. So they were planning on putting more acres in, got the price that they wanted. Now they've got the moisture that they needed. I think they're going to be there. It's going to be a very busy fall for planting wheat.

Delaney Howell: How many more acres are we talking about Darren? And my second part of that question is where will they pull those acres from?

Darin Newsom: Most likely looking at the prices of the other markets you could lose. You could lose some corn acres. Most likely you're going to lose more soybean acres. So particularly, you know, if we move out of the southern plains into the northern plains, uh, and we look at the hard red spring wheat, I think you're going to lose more soybean acres because it's just soybean, soybean market is a disaster up there. You can't move anything to the PNW right now. Uh, you've got basis just collapsing at this point and harvest isn't even here yet. Um, so I think you're going to lose some soybean acres up north. You're going to lose a mix of corn and soybean acres in the southern plains.

Delaney Howell: Darren, final question for you. Is Chicago December closed below the 200 day moving average since, uh, which was the first time since July 18th I think. What's that signaling to you for the December contract?

Darin Newsom: Absolutely nothing but what it does, what the bigger picture of the December Chicago contract tells me is it wants to go lower. I mean, we're in a down trend right now in the wheat market. We had our, we had our spike top. We got up into the upper percentages of its price distribution for the last five, 10 years. Sellers hit it. It's got nowhere to go. Still got bearish fundamentals, you know, the market's going down.

Delaney Howell: Okay. Darin, rain is also a big factor right now. When we look at the corn crop, what do you think that's going to do for this year's crop in particular?

Darin Newsom: $8? No, not really. I don't think it's going to do anything. It's going to be a little wet for awhile, but I look at the spreads and right now we've got a twenty six cent carry from the December contract out through the July and depending on what your full commercial carry is for that time frame, you're looking at almost at 66 percent of full commercial carry out to over 70 percent full commercial carry, so it's just. It's a bearish situation right now, so I don't. I don't know what production is going to be. I don't know what yield is going to be. I don't know where we're going, when we're going to get in the fields.

Delaney Howell: No guesses on yield?

Darin Newsom: I don't care. That's the thing I. I simply don't care and the only thing I'm concerned about is “what is the market's opinion.” Corn hasn't been able to rally, as you mentioned it, it moved two cents this week and that's just what it wants to do. Seasonally, it puts in a low in early October. Spreads are bearish basis, relatively bearish. I don't understand why people want to get so excited. It rained, you know, unless it completely washed the fields away and the corn is just not there anymore, we're going to get in and we're going to harvest the corn at some point.

Delaney Howell: So what should producers be doing if they're sitting on some old crop here, not getting excited about now a new crop, what should they be doing with that old crop that they're holding onto?

Darin Newsom: If they're still holding old crop, they probably, they probably got a problem on your hands because basis is going to continue to weaken at least for the next 30, 40 days as we presumably get started in harvest and, and uh, you know, we still have some decent exports going on. Seems like it really isn't supporting basis all that much. So I think there's going to be a problem if rolling that old crop into new crop, usually not a good thing. I don't know that we're going to have a lot of opportunities over the next, over the first 30, 90 days in this, in this new crop market. If they're still holding it, they're probably waiting for something bigger down the road,

Delaney Howell: Bigger such as-

Darin Newsom: Bigger rally. Uh, you know, right now we've got the December contract, say in the $3.40, $3.50 range, if I recall, probably as cash somewhere in the $3.10, $3.20, something like that. Uh, I could be off on those, um, you know, I wouldn't expect much of a rally. Uh, you might be able to pull futures back up close to $4. Not anytime soon, maybe late winter. And then depending on if we're able to build any export business and keep demand underneath this market, we might be able to tighten basis up once we shut this. Once we shut the bin doors tight, uh, in, uh, you know, at the end of harvest.

Delaney Howell: Darin, we did test $3.69 this week in the December contract. If we break through that, what's your next upside potential target?

Darin Newsom: I think the next upside for me, I think we're somewhere between, we got supported around $3.50 and resistance at $3.90. It's really until we break through that $3.90, I just, it doesn't, doesn't tell me anything right now. I mean just moving sideways is what corn likes to do, so I think if we can get up past that $3.88, $3.90 range on the Dec corn contract, at that point it would tell me it would indicate that corns trying to move into the next wave and the words wave three of the five wave uptrend, which would actually look pretty good right now because that would tell us that, you know, maybe we finally start to have some demand. Maybe we have some investment buying coming back into the market.

Delaney Howell: A little bit of optimism there. Just maybe-

Darin Newsom: I hate to do that, but yeah.

Delaney Howell: Darin, let's talk about soybeans. Not so optimistic here. We've got a good question coming in on, on Facebook this weekend. Folks. Thank you so much for your questions this week. I'm going to take credit that it was because of my birthday wish. Um, we've got Richard in Bell Eagle, Tennessee. He said if storage fills up and beans remain, what is the best strategy with, with balance?

Darin Newsom: Yeah, if I think we could see storage fill up this year and if we look at, if we look at the structures of the market themselves, again, we just talked about how the corn spread is upper 60s to low 70 percent a full commercial carry. If we look at the soybeans and we've got it out in the mid 70s to maybe getting close to 80 percent full commercial carry, at that point, it's do you have it? Do you have it hedged? If you don't have it hedged, you probably just going to have to let go of the the the extra bushels that you've got of soybeans, guys, basis is going to be bad. You know the market's telling you that there's too many soybeans on hand with both basis in the spreads and the way the futures market's going. So if you don't have room for your beans, most likely it's going to force some sales around harvest. Number one, it might help find a location for some. Number two, you just want to have to worry about them anymore.

Delaney Howell: With all those factors being said, do you think that the USDA should continue cutting Chinese demand?

Darin Newsom: I have no idea what USDA can or will do. Ah, yes. I think you. I think I think we're going to see China's demand continued to get trimmed back, but I think we're going to see other demand in other areas pickup because China's just going to simply buy our soybeans from countries who is not in a trade war with and so we're just going to have more middlemen pop up that's not necessarily going to help basis because everybody's going to want their cut, but it is going to keep us moving some of our soybeans, so demand still going to be there. I just don't see it supporting the cash market that much.

Delaney Howell:    Do you still see $5.20, $5.30, $5.40 being a realistic cash price here if, if trade negotiations don't get resolved?

Darin Newsom: I think so.

Delaney Howell: And, and how soon do you think we'd see those?

Darin Newsom: Probably buy within the next 90 days and I know we're sitting in $7, $7 something, $7.60, $7.70 range on the average cash price. You know, on the soybean chart looks similar on the soybean futures chart, it looks similar to what we saw in corn where it's still holding, its previous low on its weekly chart, but on the cash we actually went to a new low here so far in September. So that would indicate that it wants to continue to go down. So can we quickly blow through the $6? Yeah. In fact we're hearing some stories up in the northern plains where cash is already in that, you know, already in the $5 range in the upper $5. So could the market in general go there? Yeah. If we have a 4.5 (billion bushel) crop and we're staring at, you know, the possibility of 5 billion bushels of totals supplies and we don't know where it's going. I think we've got more room to the downside over the next 90 days.

Delaney Howell: Darin, I want to continue soybeans and on Argentinian and South American production during market plus, but we're going to move on here until the live cattle markets maybe a little bit more of a bright spot. Um, when you look at markets overall, does the stronger US dollar make you nervous about beef demand moving forward?

Darin Newsom: You know, we're entering that time of year where beef demand starts to slow down any way. You know domestic demand starts to slow down, you know, export demand could stay firm dollar is certainly going to come into play. I'm not, I'm not overly impressed with the charts right now. We've had a nice little short term bump. I'm not, we haven't broken out of anything yet so it still looks like we're trying to roll over and go lower long term. So you know, this could be a problem. We've still got supplies. Every time we see a, every time we see a cattle on feed report it's still five percent larger than the previous year and so on and so forth. So the supplies are still out there and I think that's going to- when domestic demand starts to slow down here over the fall and winter, I think that's going to start putting some pressure on the cash market. Again.

Delaney Howell: What should producers be looking to do then in the wake of that pressure?

Darin Newsom: If we get some bounce, if we get some bounces in here and you know we've had some weeks where we've seen some rallies, you know by all means get some October, gets some December, maybe I'm going out to the Feb and start to get some of those locked in on the idea that we're going to see some seasonal pressure in this and we still have ample supplies of beef around.

Delaney Howell: The last thing I wanted to touch on here, and we talked about, you alluded to it just a little bit there, but fourth quarter we've got a huge supply. We're still sitting on, I think the USDA projected a drop of 550, million pounds heading into first quarter, which is a huge drop. I think maybe the largest on record. Has this already been factored into the market?

Darin Newsom: If it has, it didn't do much because the monthly chart still hasn't moved. Again, the monthly chart looks like it's still rolling over and may want to go down for a bit. So if this has been built in, if anyone believes that at all, then it really didn't have much of an impact on the market.

Delaney Howell: Okay. Let's move on here quickly to feeders. Reversal higher on Tuesday. Can we follow through and test new highs?

Darin Newsom: Oh, we certainly can, but mostly no, but much like the live cattle market that just doesn't have. It just doesn't have any longterm support in this. I mean feeders are kind of goofy and that they'll post a lot of the post, a lot of short term signals on daily charts and so on, but they don't really. A lot of times they don't amount to much because it's a very thinly traded market so we'll see if we can get some follow through over the next couple of weeks, but I'm not looking for any huge bullish break at this point. Now, what could help support the feeder matter market is if corn breaks down, instead of going up through $3.90, if corn actually breaks down, cash, corn breaks down, that could provide some support to the feeder market.

Delaney Howell: Makes those input costs a little cheaper. Darin, your thoughts on the African swine fever, are they going to have an impact on the US prices?

Darin Newsom: You know, they could, but which way? It could be argued either way. Number one, you know it's going to reduce some of the supplies of Chinese pork, so naturally you'd think, hey, they're going to buy from the US. Well, we're in a trade war with them so they may not buy more from the US. So if all of a sudden the supplies of their pork are going down and they're having to kill some of their herd, the soybeans that we're shipping to other places, that is then finding its way to China may not happen. So while it could be argued it's going to be bullish, it could also be argued it's going to be bearish and right now being me, I'm going to take the bearish side.

Delaney Howell: Of course, of course. Our Darin Newsom. Thank you so much. Always a pleasure.

Darin Newsom: Thanks Delaney.

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 Check out our youtube channel. Tell everyone you've clicked, subscribe at Join us again next week when we'll explore how the battle plans being made to fight the opioid crisis in rural America. So until then, thanks for watching. I'm Delaney Howell. Have a great week.

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Pioneer Hi-Bred International is a 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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