Market to Market (November 2, 2018)

Nov 2, 2018  | 27 min  | Ep4411

Coming up on Market to Market -- Filling the bin with a load of soybeans and a dash of hope. The reality of farm life hits home as city life disappears in the rear view mirror. Those stories and market analysis with Don Roose, next.

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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. 

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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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This is the Friday, November 2 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Delaney Howell.

It’s the final hours before the mid-term elections. A few things polls don’t show -- the need for new clothes and cellphones has overpowered record tariffs and more Americans have gone back to work. --

The unemployment rate held steady at 3.7 percent in October – a 49-year low.

Last month, 250-thousand jobs were created – continuing an 8-year trend.

The trade gap hit a record $266 billion despite a quarter-trillion in tariffs.

That record was powered by a consumer base that is the most confident in 18 years.

Regardless, Creighton’s nine-state Business Conditions Index was pulled lower on a shortage of skilled labor and tariff pressure on rural America.--

Whether it’s a red or blue wave, trade remains a top election issue for farmers and ranchers. The U.S. has already abandoned the buying power of 500-million people and a combined GDP of $13.5 trillion by exiting the Trans-Pacific Partnership.

Paul Yeager has more on the landscape rural Americans are left to navigate before the election.

For the first time in three decades, U.S. farmers planted more soybeans than corn. As the nation’s soybeans come in from the field and head for the bins, U.S. farmers are left to wonder where their product will end up.

This chart from USDA reveals a dramatic fall off in U.S. soybean export sales to China - it’s traditionally the largest buyer of domestic beans. The peak came in the fall of 2017 at more than 2,000 metric tons. Sales to China over the last seven weeks combined failed to equal a single week of last fall’s soybean sales.

Thursday morning, Presidents Trump and Xi talked on several topics including trade. The soybean market immediately bumped up 25 cents.

Overall, soybeans are only a small part of the trade puzzle. The U.S. still sees intellectual property as a major sticking point between the two countries.

During a White House event Wednesday, President Trump reiterated the U.S. economy was growing on his watch and how he is committed to re-working trade deals.

President Donald Trump: “But they've taken advantage of us on trade. They've taken our money they've taken our jobs and we're stopping that. And we have to take care of I have the expression ‘America First’ and the fact is we have to start taking care of our own country."

The president continued to say China’s economy is softening.

China’s manufacturing activity fell to a two-year low in October as domestic demand weakened. The official Chinese government report added to the building pressure for a trade agreement with the United States. However, most of Asian giant’s economic challenges may be tied to slumping auto and real estate sales. Beijing tightened lending controls last year to help rein in a debt boom.

China’s Xi met with his Japanese counterpart Shinzo Abe late last week as the two countries look to find common economic interests. Abe told the group they need to develop a new level of a free and fair trade system. Earlier this fall, the U.S. and Japan agreed to launch bilateral trade talks. Japan carries the third-largest trade imbalance with the U.S. after China and Mexico.

For Market to Market, I’m Paul Yeager.

Voters in California will decide the controversial Proposition 12. The measure would have far reaching implications by requiring a cage-free lifestyle for hogs, chickens and calves.

Answering the demands of the marketplace are all in a day’s work for those on the front lines raising food to feed the world.

One couple in this fight has made the journey from city to country and is meeting those challenges head-on.

John Torpy has more in our Cover Story.

Earlier this year, Joni Embree-Meinders returned to the place which she called home nearly two decades ago. At the request of her grandfather, John Young, Embree-Meinders brought her family back to the Young Farms in Burrton, Kansas and got right to work…hitting the ground running...with a big smile on her face.

Joni Embree-Meinders, Young and Son Farms:”My heart is--this is home. And I'm surprised at how, how hard that hit me.”

In mid-June of 2018, wheat harvest was underway when Joni, Zach, and their children moved back to the small central Kansas town of 874.

Young Farms endured its share of dealing with Murphy’s Law as things that could go wrong…did. Mechanical problems plagued the operation during harvest. A long summer drought slowed the growth of their dryland crops. When rain finally arrived, it fell until just days before the start of harvest. The storms delivered all of Burrton’s annual rainfall in just 30 days. Embree-Meinders took all the problems in stride and embraced the steep learning curve.

Joni Embree-Meinders, Young and Son Farms: ”There's so much to learn. I've kind of put myself in his submersion program with everything. I read absolutely everything I possibly can. Everything that Grandpa tells me to look at or the guys that he listens to a read their articles and things like that. I've tried to get--read everything I can get my hands on. Some of it makes sense. Some of it doesn't.  But I figure if I just submerge myself in information at some point, I'll have a conversation with somebody that's going to make it all click. You know?”

Embree-Meinders continues to tap her grandfather’s knowledgebase. She relies on his years of experience to help navigate issues both on and off the farm.

John Young, Young and Son Farms: ”When I started this procedure the first of the year, I didn't know we were going to become involved in a trade War, which is making it more difficult. There's going to be problems you know in any business./ I'll continue to try to transfer anything that I might have learned in the in my entire life to her and she's very receptive./She's just very enthused about the entire thing, which I'm happy about.”

Joni Embree-Meinders, Young and Sons Farms:” I've got a lot of personal drive and my "whys" are huge for this operation. And so it makes, it makes it fun and easy. I'm interested I want I want to learn more.”

 

Joni and Zach Meinders drive to move back to the farm was fueled by a longing for their children to have the same chances they had growing up.

Nat sound break

Lucy and Colby have settled into the Burrton Unified School District, which has a smaller student body than the one they were used to in Des Moines, Iowa. The kids are learning a smaller student body creates countless opportunities.

Lucy Embree, Burrton, Kansas:”I've learned that it's easier to make friends here. If someone comes in everyone's accepted here because I mean it's just such a small school that everyone knows everyone.

Colby Embree, Burrton, Kansas:”I think that when somebody comes then they're like hey! And they just welcome.”

Joan Simoneau, Superintendent, Burrton Unified School District:”Kids here, first of all are not going to fall through the cracks. We're gonna know all, you know we're going to know all about them very quickly.  And, kids in Burrton, if you're standing upright and can take a good breath, can play basketball, football, volley ball, run cross-country. Be the president of their class, be part of the K club, Shake Hands Association for Youth, and do FCCLA, 4H, you name it./A lot of opportunity for kids here.”

Dwindling populations are a common thread across rural America. Younger generations are leaving the farm to seek new prospects in larger population centers. Coupled with advancements in farm technology, the number of family owned farms are becoming few and far between on the rural landscape.

Joni Embree-Meinders, Young Farms: ”What's going to happen  to all these Farmsteads? Because people aren't moving out here. They're moving into town. Or leaving and not coming back. You know you never--what's going to happen to all this out here?

According to the U.S. Census Bureau, Burrton, Kansas has lost of six percent of its population since 2000, making Joni’s journey back to the family farm a unique move in rural America.

Joni Embree-Meinders, Young Farms: “It's been nice because I don't get welcome home or welcome to Kansas or anything like that. What I get is...we are so glad you're here./ The fact that we're coming back to continue something that's been set for a long time it is I think appreciated in a community.”

For Embree-Meinders, every day is a good one. Despite any hurdles the day may bring, she notes that with every sunset, she has no regrets about her family’s move to rural America.

Joni Embree-Meinders, Young and Sons Farms:.”This is a faith journey. One hundred percent. I've prayed about this more than I have prayed about anything in my whole life. And I can tell you that, there is no question in my mind that things are not going to work out. I think that it's, not going to be easy. And there's going to be hurdles, there's going to be stumbling blocks, there's going to be people that let you down there's going to be all of that and it's all going to be okay.”

Joni Embree-Meinders: ”I'm closer to my grandpa now than I have been my whole life and he's an amazing man. And I'm really honored to get to learn from him in this setting.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

A phone call between world leaders, lackluster exports and election week eve moved the commodity markets mostly higher. For the week, December wheat gained 4 cents, and the nearby corn contract rose 4 cents. The January soybean contract added 30 cents as President Trump told the nation he had discussed trade issues during a phone call with China’s President Xi. The December soybean meal contract bumped up $3.70 per ton. December cotton finished 26 cents higher per hundredweight. Over in the dairy parlor, December Class III milk futures lost five cents. The livestock market was mixed as the December cattle contract shed $1.32. January feeders put on a nickel. And the December lean hog contract grew 20 cents. In the currency markets, the U.S. Dollar index improved 21 ticks. December Crude oil fell a $4.45 per barrel. COMEX Gold lost $2.50 per ounce. And the Goldman Sachs Commodity Index plummeted more than 17 points to finish at 450.70. Joining us now to offer insight on these and other trends is one of our regular market analysts, Don Roose. Don, welcome back.

Roose: Great to be back, thank you.

Howell: Don, I want to quickly move here through wheat and corn because I think the bulk of the story this week was definitely in the soybean markets. But let's talk about export sales in the wheat markets. We had very strong export sales this week. What led that?

Roose: Well, I think the wheat market is very much, it's a world market much different than corn and soybeans. And I think what we've found is we just hit some real value. When you get below $5, close to $3.90 a bushel on nearby wheat we're really very competitive and that is what we have found in the world. Egypt, the buyer that really likes to buy very cheaply, they even bought from the United States. So that really is what sparked the market a week ago up 18 cents. We had a little follow through but then quickly, Delaney, when you rally 20 to 30 cents we're uncompetitive just like that and we back off again. So we really need Russia to quit selling wheat in the world market as aggressively as they are and to stabilize the market.

Howell: Don, do you think Russia is going to back off?

Roose: I do. I think they will. So far they've sold about 16 million metric tons of wheat, a year ago 13 million metric tons. I think they're really trying to push wheat out very aggressively and they've had some real quality issues with the crop towards the end. So I think it's a matter of time. I think as we get closer to December I think we'll see that change. That is our bet right now.

Howell: So, Don, as this high export sales number this week, is that going to be a continuing trend for the wheat markets?

Roose: We think it will be. We think that really that's what the wheat market is about. Can we clear more wheat through the export front? And we'll see. Week by week we expect that to pick up so yeah we're a little optimistic.

Howell: Now, when we look at the corn market and the export sales that went on there this week, not so impressive. Why have we continued to see slow export sales in the corn market?

Roose: Well, wheat doesn't make a market in the export front, that's for sure, because so far year to date we're actually very strong, we're up 28% over a year ago. We expect that to continue. Remember, Brazil and Argentina had basically a drought last year, they had a short crop. That is our market until we get deep into next winter. So that's a plus. Ukraine wheat, or corn, is about 14 cents higher than we are so that is a bit of an issue. But we think the export front is positive on corn and we think that is probably on setbacks going to be a supportive factor.

Howell: Don, let's talk about the harvest and the harvest pace we've seen here over the last couple of weeks. I thought there for a while producers were going to be in the fields a lot longer, we had a lot of wet weather. Now we're definitely picking up pace. The harvest crop, the harvest conditions report is coming out and definitely ahead of pace. How is that affecting this year's markets?

Roose: Well, I think the one thing that we're finding out and we're going to find out on the November 8th crop report next Thursday, that's going to be a big deal, but yields are very good in some areas but other areas are really variable. And I think what you have to say with the crop, the yield probably in the northern Corn Belt is going to be less, that's our bet, that's what we're looking for. And a variable crop usually adds up to lower yields so we think that we're probably, with the rain we had and the late harvest but that it was a yield issue particularly in the wet areas.

Howell: So what do you think the USDA is going to put out then for a national yield?

Roose: Well, we think it's going to be under 180, the number was 180.7 before and we think it's going to continue to ratchet down all the way into the final report in November. We won't get a report in December. But we think that is the underlying catalyst that is going to provide support on breaks along with the exporter wanting to buy corn and the feed usage being strong.

Howell: Don, what about storage? Should producers be looking to pay for commercial storage at this point if their bins are getting filled up during harvest?

Roose: Well, I tell you, that's the number one question. What should we do? If we harvest do we pay for it or not? Definitely the basis levels as wide as they are you'd like to hold onto your cash and the carries in the market are huge, 26 cents between December and July, that's almost 3 3/4 cents a month carryout there. So you'd like to take advantage of that but you really have to crunch the numbers. And if they don't work for you, and that's iffy, then I would go in and buy some options to protect yourself to the upside. I wouldn't want to lose ownership at these price with the strong underlying support of the market.

Howell: Okay. Don, here we go, soybean markets. It has been a whirlwind of a week and we're going to start it off here with a bit of a political question that came in on Twitter it looks like here. What's the odds Trump's tweets are perfectly timed midterm election ploy to garner votes from producers?

Roose: Well, one, it was the Trump bump, there's no doubt about that because you had a tweet that pushed the market to the upside. But I think it's not only here in the U.S., Asia, China the day after the tweet, they trade overnight where we trade during the day, they actually pushed the stock market to a three week high. Their economy is really suffering. So I think it may be politically timed but at the same time it looks like where there's smoke there's fire and it looks like the pressure really is on China. It looks like things are gradually working to us.

Howell: So Thursday we had a huge day, I think up 30 cents, traded maybe in a 40 cent range on the day. Then Friday we closed up again. Don, where do we head at the beginning of this next week?

Roose: Well, I think the market has some strength underneath it, turned our technical trends up so we think, I think what's going to happen is the soybeans, the trade has been so negative, the funds really got caught short soybeans, they're still short about 50,000 probably, they were short 70,000 when coming into Wednesday. But I think what we found when soybeans get down nearby beans close to $8.40 if you think about it we're about $2.40, $2.50 under Brazil soybeans so that's almost the whole tariff. So $8.40 you have good support. I think the trick is how far do you move to the upside with a carryout even if China comes back in the market that's probably still over 800 million even if the yield sinks. So I think that's the trick. When July beans get up around $9.40 that is going to be a tough area also from a resistance to $9.50.

Howell: Let's talk about one other factor that I know you've definitely been watching that is impacting the soybean markets right now and that's the Brazilian presidential elections. We had a, I think he's been called a Trump type of president just elected recently in Brazil. He is very vocal and open about saying he wants to renegotiate and look at Brazil's relationship with China. what is that going to do for the soybean markets here long-term?

Roose: Well, the one risk that we have is he is a person that is probably less environmentally friendly. I don't mean that in a negative way but I think he's going to relax restrictions, that's what he wants to, from an acre standpoint. So I think it's going to be easier for the farmers to expand acres. And unfortunately soybeans are Brazil and Argentina both are on a path to expand acres and at the expense of us. But a lot of countries still want to sell soybeans to China and I think they're probably going to still continue to be pretty aggressive in that arena.

Howell: Would it ever make sense for President Trump and President Bolsonaro to join forces and change the way out here for soybeans going into China? What would that do for the markets?

Roose: I think if you look at it, it seems like that is the administration's goal is to try and work, look at what we did here just in North America, we kind of teamed up with Mexico, with Canada to try and push China in a direction and I think that is probably the goal. And I think maybe it can work out positive. It seems like we're exporting more of our acre soybeans to South America and more corn acres to the U.S. so we'll see. I think we still have to compete by ourselves in the end.

Howell: Final question for you, Don, in the soybean markets here. Looking at the G20 meeting coming up here at the end of November, beginning of December, will that cause another spark in the markets?

Roose: Well, I think we have a number of things that are going to cause a spark. The elections on Tuesday a spark, the report a spark, and then like you said the end of November we're going to have the G20 meetings. There's already optimism that there's going to be talks that something positive comes out of that. At least the relationships from a trade standpoint seem to be building a little bit. But if you look at it we only have about 10 to 12 weeks where we have to export soybeans pretty aggressively otherwise South America takes the competition.

Howell: Yes, and the other export market that has been hit dramatically by this trade war is definitely cotton. They had a net sales reduction this week. Is this changing the patterns here and signaling bleak demand for cotton producers?

Roose: Well, I think when you look at it from the cotton standpoint maybe very much like soybeans we're very dependent on China from an export standpoint, actually in the world they kind of dominate what happens. And so yeah, I think it is an issue and the cotton market sank from up around 90 down to around 76 and I think that is part of the reason. We have some wet weather, some weather issues. At first it was too dry in the cotton, then too wet so quality down. But I think the feeling is the acres could be up next year.

Howell: Okay, let's save that for Market Plus. Don, let's talk about live cattle next. Rumors are trickling down through the pipeline that packers are in a position to pay higher for live cattle inventory. Do they have any incentive to do that?

Roose: Well, since I've been in business quite a while the packers are making over $200 a head right now and they have been that for a while. But I've never seen packers have a margin like this for this long ever. So it's unbelievable.

Howell: Why are they having such a strong margin right now?

Roose: It's, number one, it starts with the beef demand. They couldn't have that kind of margin if there wasn't demand. The consumer confidence is at an 18 year high and so beef demand is unbelievably strong and that has really allowed them the margin to push beef up and then pay the feedlots just enough to keep the margins at $200. But it is surprising, I'll admit.

Howell: Don, let's touch base here just briefly here on the hog markets. Last time you were on I think about a month ago for the panel we talked about the African swine fever. What are your thoughts today about where we are in that issue?

Roose: I tell you, the African swine fever continues to spread. Part of the problem is China is a dominant issue. They raise 50% of the world's pork. 47% of those hogs are raised in back yard situations. You think about it, how do you control that when you're raising two or three sows at a time? So it's an issue, it's spreading and the trade definitely, we're $3 a hundredweight off of the last summer highs, supplies going to be up 5% over a year ago, fundamentals are flat negative, we're $20 over what the government says we're supposed to be on average. So it's a big premium for the African swine fevers in the market. Is it going to be realized? That's the question mark really.

Howell: Right. And I think that is the question a lot of producers are seeing is will we see some sort of drastic correction and pull back from that $20 premium that we're sitting at right now?

Roose: Well, from a risk/reward standpoint I think producers should be looking at these as opportunities, make some sales, if you think it's a poor sale buy some insurance to the upside. But you're at profitable levels across the board, you're well over what the government says, you're going to be 5% over what we had last year from a production standpoint so it all adds up. If anything fails we're right back to the downside hard so be careful.

Howell: All right, Don Roose, thank you so much.

Roose: Thank you.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at iptv.org/mtom. While you’re there, check out the Classroom. This virtual schoolroom allows you to explore the science, technology and business of agriculture. Join us again next week when we’ll explore how one non-profit agency is feeding millions with food from overlooked sources. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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Market to Market is a production of Iowa Public Television which is solely responsible for its content.

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. 

(music)

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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