Market to Market (January 11, 2019)

Jan 11, 2019  | 27 min  | Ep4421

Coming up on Market to Market -- Despite the shutdown, most of government is finding ways to be operational. Growing crops without sunlight to shorten the distance from field to table. Those stories and market analysis with Darin Newsom, next.

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This is the Friday, January 11 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell.

Lower energy costs are rippling through the economy as gasoline prices fell sharply for the second straight month due to lower demand and higher inventories. ---

AAA reported the national average dropped again this week to $2.24 per gallon.

Combined with cheaper airfare, the plunge helped push the Consumer Price Index lower by 0.1 percent.

When volatile energy and food sectors are removed, core prices rose 0.2 percent.  

The stock market surged this week as the S and P 500 Index rallied for 5 consecutive days, the best performance since September. ---

As the shutdown ran into record duration, portions of the government remained open.

A federal judge struck down a 2012 Iowa law making it illegal to conduct undercover animal investigations by gaining employment at livestock operations.

The IRS said they will still cut tax return checks during the shutdown.

USDA also will continue to give the food insecure a leg up.

The government spends $4.8 billion per month to assist 39 million children, elderly and disabled Americans dependent on nutritional support.

Colleen Bradford Krantz has our more.

State public health workers across the nation spent the past week reassuring those who receive food via federal assistance that the USDA’s nutrition programs are up and running despite the partial shutdown of U.S. governmental services.

Bruce Brown, Iowa WIC, Program Planner: “So far, the only affect that I’ve seen is concern and worry. We get calls here and at our local agencies from participants wanting more information about what they’ve seen, wanting to know if WIC is open. We are spending a lot of time communicating that we are up and open for business as usual.”

According to a USDA press release, the administration found the funds to continue supporting state-administered nutrition programs, such as SNAP – the food program for low-income families - and WIC – or Women, Infants and Children - at least through February if the shutdown were to continue until then as the White House and Congress struggle to agree on a budget.

In Iowa alone, WIC provides food, breastfeeding support and other services every month to 59,000 pregnant women, babies and children under age 5 who don’t have adequate food. By Wednesday morning, the federal government had sent the Iowa office and other state’s offices their shares of the newly pinpointed funds to ensure continuation of services through February. And because Iowa has also kept a healthy reserve fund, it could continue to operate WIC at least through March 7.

Kimberly Stanek, IDPH State WIC Director: “If the shutdown continued to go for a longer period of time, eventually we would not be able to provide all the services we provide now.”

One official said the three-week shutdown will eventually either be viewed as a minor inconvenience or a severe problem depending on how much longer it lasts.

Bruce Brown, Iowa WIC, Program Planner: “If the budget is passed tomorrow, I think we would look back at this as just an inconvenience and perhaps some unnecessary stress on our participants and vendors and our staff.”

Also this week, the USDA extended the deadline for farmers who had still hoped to apply for the federal government’s compensation for those affected by recent trade disputes and retaliatory tariffs. The deadline will be extended from Jan. 15 by as many days as local USDA offices are closed due to the shutdown.

Sen. Charles Grassley: “Some maybe have already applied and got their money so I don’t know how many are being affected… When soybeans are below the cost of production, it’s very important that they get it and it’s the direct result of government action that China has put tariffs on our product.”

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

Hydroponics. Aeroponics. Aquaponics. All are accepted methods of producing food without soil. Some are in confined spaces located a distance away from rural America. Many have achieved success while others have suffered dismal failure.

This has not stopped the entrepreneurial spirit seeking ways to feed more people, cut costs and reduce carbon footprints in order to give year- round access to certain foods.

Peter Tubbs reports in our Cover Story.

Tobias Peggs, CEO of Square Roots: “So there’s no doubt, and I hope that during the course of a year here, we would definitely inspire a number of the people here to embark on a lifelong journey to be farmers.”

The here is the Bedford-Stuyvesant neighborhood of Brooklyn, New York. On the edge of the parking lot of a former Pfizer pharmaceutical plant sit ten shipping containers. Each has been converted for growing hydroponic vegetables under LED lighting. Ten laboratories for aspiring agricultural entrepreneurs, growing food that is unique in product and location.

The brainchild of Tobias Peggs, Square Roots is a non-profit that aims to bring fresh produce to urban consumers by training farmers to build businesses in their communities. Each container has the production capacity of two acres of land and promises a better quality product by maintaining a consistent environment.

Tobias Peggs, Co-Founder, CEO of Square Roots: “obviously people are increasingly moving to the city, so we have to figure out how to farm, in those urban areas. Whether that is indoors in containers, or whether that is outdoors in more urban gardens, or greenhouses or whatever it is, the more food that is grown close to the city, the more access that people have to local food, the better.”

Square Roots mentors spend a year teaching the “How To” of business and hydroponic agriculture to classes of recruits who dream of becoming urban farmers.  Few of the entrepreneurs arrive with an agricultural background, so the learning curve can be steep. Farmer Josh Aliber spent his year learning to grow basil and build an audience for his cr

ops.

Josh Aliber, Farmer and entrepreneur: “I spent the first 2 to 3 months walking around from restaurant to restaurant in Manhattan meeting chefs. Learning about what they value, how can I improve my crops, and becoming a better farmer. The startup time was really hard.(EDIT) but it worked. Because the product we grow is so fresh, and you say I harvested this today, and they say ‘I’ve never tasted basil like this.’ “

Freshness is only one of the selling points for the Square Roots farmer. Growing crops unavailable in the wholesale and retail supply chain can help close a sale.

Josh Aliber, Farmer and entrepreneur: “A lot of these chefs have been in the culinary industry for 30 or 40 years, and as a brand new farmer, because I’m growing in a really unique environment where I can grow really unique crops, I can bring them things that they have never tried before. And the taste speaks for itself, because it is growing in the exact environment that it wants.”

The taste drives a solid price for produce. While a salad mix starts at $10 per pound, rare varieties of basil command $30 per pound at local restaurants. Each farmer develops a customer mix of restaurants and food retailers who buy in bulk, and individuals who purchase salad greens through a subscription model. The greens are handpicked and delivered up to three times a week.

Tobias Peggs, Co-Founder, CEO of Square Roots: “So we feel that the way that the product is priced is definitely mass-market, but every single day we work to improve the technology, make the system more efficient, that will allow us ultimately to bring down that price and ultimately fulfill the mission that the company has, which is to bring real food to everyone.”

The physical constraints of a Square Roots container farm limit the types of crops grown by each farmer to just the small and valuable. Salad greens, kales, sorrel, Swiss chard, and herbs are best suited to the vertical towers inside the farms. Crops grow quickly under the red and blue LED lighting optimized for plant growth. A footprint of only 400 square feet allows a farm to squeeze into tight urban environments and shorten the literal distance from farm-to-plate. Under LED lighting some crops go from seed to harvest in as little as 8 weeks. The container farm has operating costs of roughly $1000 per month, but requires only 8 gallons of water per day.  Once a crop rotation is developed, harvesting can happen each week, year round.

Josh Aliber, Farmer and entrepreneur: “So what we are able to do is to create unique environments for out crops in very urban settings. Today we are in Bed-Sty. I personally grow crops that you wouldn’t be able to find in an urban environment.”

The ability to simulate varied environments is another advantage of growing crops inside a container. If a variety of basil prefers a specific temperature, humidity or altitude, the environmental controls within a Square Roots farm can be set to mimic ideal growing conditions.

While the ability to grow a high volume of quality produce in a small amount of urban space has been confirmed, price is the next frontier. For urban container farming to scale-up and become affordable for a neighborhood, the cost per pound will have to decline.

Josh Aliber, Farmer and entrepreneur: “The fact that we are able to compete now, tells us that as we really increase production to bring the costs down, we are going to be able to produce food at a much more competitive cost that is better quality than is already existing in the marketplace.”

Until then, this farm incubator will continue to experiment with a food supply chain that can be measured in yards rather than miles.

Tobias Peggs, Co-Founder, CEO of Square Roots: “At the end of the day I think what the consumer wants is food they can trust, and that tastes really amazing. And if you know your farmer, you trust the food. Once you taste that food, you are won over.”

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

The shutdown suspended the major USDA report due today, but the markets traded anyway on lack of trade progress and weather. For the week, March wheat gained three cents and the nearby corn contract shed a nickel. Trade talks in Beijing failed to generate news of a breakthrough moving the March soybean contract lower by 11 cents. March meal dropped $4.40 per ton. March cotton declined 3 cents per hundredweight. Over in the dairy parlor, February Class III milk futures tumbled 24 cents. The livestock market rallied. February cattle gained $3.05. March feeders improved $2.07. And the February lean hog contract put on 70 cents. In the currency markets, the U.S. Dollar index lost 48 ticks. February crude oil rallied $3.63 per barrel. COMEX Gold added $3.70 per ounce. And the Goldman Sachs Commodity Index pushed nearly 15 points higher to finish at 402.30. Joining us now to offer insight on these and other trends is one of our regular market analysts, Darin Newsom. Darin, welcome back.

Newsom: Thank you, Delaney:

Howell: Darin, I know you're not a government's report guy.

Newsom: Really?

Howell: Yes. But we have a question here, a social media question I'm going to give you a shot to answer. Ben in Jesup, Iowa said, what is Watson trading on the absence of the USDA/NASS information and reports? What alternate sources of information are available? With so much new data analytics, what's an Algo to do?

Newsom: Okay, Watson goes back to something that I've written about a lot for the years. That was just my name covering, I borrowed it from IBM with the IBM Watson computer and I applied that to algorithm computer trade as a whole and over the years Watson has gotten, he has changed what he looks at as far as when it comes time for markets. And the idea here is that not so very long ago one of the key drivers of algorithmic trade was USDA. But that's just, I don't think it's the case anymore. And I think we get to prove that now with government shutdown, lack of reports and so on. So what are the algorithms looking at now? Well, each one of these trading firms use private research, data and information. And I think what we're going to see is a move away from the public, from the government, USDA, EIA and all of these things, and we're going to go back towards or we're going to move towards the private sector where you've got different companies, you've got all kinds of research companies doing all kinds of things using the latest in technology, something USDA simply doesn't do. And that is where they're going to get the information and that's going to be the data that they plug into these programs and that is what is going to drive trade, drive markets is the actual data, actual information that is alive in the markets at this time.

Howell: That was probably the most well-reserved answer I've heard from you when referencing the government and reports. Darin, let's talk about wheat, you're kind of our resident wheat expert. July KC hard red winter wheat contract came within 3 cents of its 2018 low this week. Why did we see it rally off of this low and now head lower?

Newsom: We're in that time of the year, one of the things we've got going on right now is weather has turned almost spring like and so you're going to get the, I'm not going to say it's the first concern, I forgot how many times wheat has supposedly died so far already, the winter wheat crop has died so far already. But what it looks like is the weather turned nice, spring like, there's going to be talk that it's coming out of dormancy, it's coming out of dormancy too soon, it's going to freeze again, on and on and on every year, it's just cyclical. So we get a little bit of a bump in here. If you look at the seasonal patterns for the July Kansas City wheat there's really not much to read into it. We are near a low here. If we can hold this ground, possibly break out, get some weather news to break us out I think we could actually see the July Kansas City contract rally a bit. I think the question is maybe all the acres in the Southern Plains got planted but what condition were they in? They got in late and had a lot of rain, a lot of bad weather as they were trying to get planted. So I think there's some concern. I think it could help support the wheat for short-term.

Howell: How much support are we talking about here?

Newsom: Wheat could be anywhere from 10 cents to 50 cents. Once it breaks out of its high that it's supposed to, if we look at the weekly close chart it's kind of bopping around here near the lows and if it starts to break out those previous highs I think it could run for a while. The problem is going to be finding enough buying. Bottom line is fundamentals are still bearish so we might get a bit of a spike but we're not looking at running out of wheat, we're not going to have zero crop of wheat this time around. So maybe get a quick rally, not going to be anything like what we saw this past summer, but farmers I think are going to be able to use it if they still have some to price heading into this summer.

Howell: Interesting. Okay, let's talk about corn. We had the Beijing trade talks this week and analysts have been fluctuating this rumor that if we get a deal with China it's going to add support to the corn market. First of all, do you agree with this statement? And secondly, why would that give us support?

Newsom: No, not at all. Analysts have no idea, reporters on TV have no idea. The talks aren't going anywhere, there has been no progress made and if there is it's just circumstantial. And how do we know is we look at the market. What are corn spreads doing? They haven't done anything, they're still sitting neutral, we've still got a neutral carry. They haven't turned bullish, they aren't turning more bullish. Soybean spreads certainly aren't turning more bullish, they're still bearish. So the reality of the market is there's not that much happening on the trade side right now. Early every week we see all the headlines that China is going to come in and they're going to buy everything the U.S. can grow. By the end of the week we realize the reality is it's not going to happen and it's not going to happen that week and it's not going to happen next week. This is a long, drawn out deal. So no, I don't think it's going to change all that much. We've already got strong demand for the U.S. corn market, that is what is really holding it up right now, pushing it up towards the upper levels of the upper end of its sideways trend, sideways channel. But is it going to break out and do great things? No.

Howell: Why not?

Newsom: It doesn't have any reason to. We've still got gobs of corn on hand. We're going ot plant plenty of corn again for next year. This trade war, all this trade spats that we're in aren't just going to go away and they're going to stay around for a while. So if we continue o the pace that we're seeing exports at this time we could push higher but it's not going to be one of those game changing things where we're starting to talk about $6, $7 corn. I just don't see it right now.

Howell: Okay, I want to talk about beans because you had an interesting thought in your newsletter this week. You said, you don't think we're going to hit 1 billion bushels of soybeans in carryover. Why do you see that happening or not happening I should say?

Newsom: Well, because I hate to speak ill of the dead, but the USDA is crazy. They never know what we have. Their last estimate was 955 million bushels of ending stocks. And let's say that's the high. Well the last 10 years USDA has averaged overestimating ending stocks by the time we get to the September quarterly stocks number by 41% and that's just an average. So if we take 41% off of 955 we're down in the 560, 570 million bushel range. And that seems to fit in better where the cash price is right now. If we look at comparing ending stocks to use and trendline for cash price, national average cash price, saying that we drop down to only, "only" 560 million bushel, which is still too many and still ending stocks that are too large, but that would explain why cash is holding in right here. So what it's saying is the market is smarter, it knows that we don't have 955 million bushels, we never did have 955 million bushels leftover. It was an imaginary number, kept the market down for a little while but it has rallied, now it has stabilized about where the cash market probably should be.

Howell: Why then do we see the markets still trading with this in mind, that we're going to hit a billion bushel carryover, analysts continuing to say we have this huge carryover number?

Newsom: If we were going to hit a billion bushels, number one the spreads would be beyond 100% full commercial carry and we would see the cash market in the $5 range like I talked about I think it was last summer when it still looked like we could get there. But it just doesn't exist right now. And the market is what is telling us because it's not acting that way, analysts like myself we could talk all we want about 955 to a billion bushels, the market doesn't believe it. The market seems to be in that 500 to 600 million bushel range.

Howell: Okay, final question for you, we've got to talk a little bit about acreage. We saw this week China approve five different GMO crops, two of which being canola varieties, I think two soybeans and a corn variety. When you look at the Dakotas in particular, South Dakota, North Dakota, those are key soybean areas that have been affected by the trade war with China, do you see any acreage switching there to canola or other crops?

Newsom: I certainly think it's a possibility. I haven't had the chance to get up into the Dakotas and visit with folks up there like I did last winter but I do think that we could see some switching over. Most of what I've heard so far this speaking season is that everyone is going to pretty much stick with what they had. But if they've got an opportunity and it works to go in with canola instead of soybeans and they've got a good market for it yeah, I think we could see some acres, not a huge amount, but I think we could see some acres shift in the Northern Plains, certainly pulling away a bit from the soybeans.

Howell: All right, let's talk feeders. Why do we continue to see heavier weights in the feeder cattle market? Is it weather related or is there another factor going on there?

Newsom: Could be weather related because really we don't have any threatening weather at this point. It's pretty nice.

Howell: -- I think is a lot of what I've heard.

Newsom: Yeah, so I think overall that is helping to all add weight to it. You've got still relatively cheap cash corn. So there's a lot of things coming together right now to keep the weight on the feeder cattle market.

Howell: And where are we heading from here in the feeder cattle market? Let's say the next month to two months.

Newsom: I'm probably the wrong one to ask because last week I thought I saw a top in the live cattle market and so we went to new highs this week so that was a brilliant call on my part. Feeders are kind of following the fats. Feeders got a little bit of support in here with the lower corn market, didn't do much, corn drifted lower this week, helped support feeders a little bit but most of the support spilled over from the live cattle market which just continues to run, continues to be driven by a strong cash market.

Howell: Absolutely. However, this week we saw pretty quiet cash markets. Why was that?

Newsom: We're coming up on a slower time of demand. We've still got summer ahead of us, we've had this spring like weather where maybe it was able to extend some grilling seasons in parts of the U.S. but by and large I think what we're looking at here over the February, March timeframe, Jan, Feb, March or at least Jan, Feb probably a slowdown in some domestic demand. Not going to go away, I still think we're going to see good demand, but just see it slow down a little bit and then we'll start getting ramped up for spring again.

Howell: With the slowdown in domestic demand that you're anticipating do you also anticipate stockers and packers to follow suit?

Newsom: I think you're still going to see a good solid market for them because if we look at these cattle on feed reports you're still having a lot of marketing of the cattle so I think they're going to continue to pull some smaller cattle up. So I think it's going to still be a very solid market. I think as we look ahead they're still planning on plenty of demand coming into 2019.

Howell: All right. What about when we look at the hog market? Plenty of demand there continuing the same story?

Newsom: The hog market is crazy. I would think so. It always seems to leave everybody scratching their head, we've got all these problems in China and all this and all that, why haven't we seen the hog market just take off? We've got solid demand, it seems to come in waves and die down a little bit and then the prices fall. I think we're still going ot be okay. I'm not a huge hog bull, should surprise nobody that I'm not bullish something. But I do think the market can continue to stay at least firm in here. I think the cash market is going to continue to hold the support.

Howell: What are we looking at, quick thoughts here, resistance levels. Let's talk February lean hogs in particular.

Newsom: I've got to admit I haven't looked at the charts this week, I really don't know what price is up on top of there. I would right now Feb, if I'm looking at moving some cash keep a close eye on the Feb contract. But if I'm looking out to my spring production really start focusing in on that April contract.

Howell: All right, Darin Newsom, thank you so much.

Newsom: Thank you, Delaney.

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 MarketToMarket.org. Join us for another M-to-M podcast. This week we talked to a former FFA national officer about life on the road promoting agriculture. Check it out at MarketToMarket.org/podcast. Join us again next week when we'll look at eastern oyster farms looking to rake up new markets in the Midwest. 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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