Market to Market (April 19, 2019)

Apr 19, 2019  | 27 min  | Ep4435

Coming up on Market to Market -- What is ‘water’ passes a milestone for the administration. Taking to the air for a view and to enhance America’s bounty. And market analysis with Naomi Blohm, next.

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This is the Friday, April 19 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell.

The storm clouds cleared and sunnier weather emerged this week in America’s weather pattern and China’s economy. --

The world’s second-largest economy grew in the first quarter of 2019, reversing a slowdown -- despite a tariff war with the U.S.

Fewer Chinese goods landed on domestic shores as the trade deficit fell for the second straight month on a surge of civilian aircraft, cars and medicine.

Some of those same items helped push U.S. retail sales higher in March indicating a healthier job market.

The Federal Reserve’s Beige Book painted a moderate expansion picture even with trade tensions and severe flooding in the Midwest. ---

Several thousand Corn Belt acres remain under water from spring flooding.

This week, several senators journeyed to the heart of the damage and delivered sharp criticism to the federal agency that manages dams along the Missouri River.

Some of the same elected officials sent letters to the EPA over the Waters of the U.S. before a comment period ended.  

At the core of both issues is water.

Peter Tubbs reports. ---

With its comment period closed, the Environmental Protection Agency is finishing work on revised definitions of the Waters of the United States rule or WOTUS.

The creation of new terms were required by an executive order made in the first weeks of the Trump Administration. The order seeks to replace the 2015 version of the WOTUS rule with more definitive and narrower language.

The Waters of the U.S. rules build upon the 1972 Clean Water Act, which focused on pollution that was then being discharged into the nation’s lakes and rivers from single point polluters like industrial sites. The water quality of many rivers and lakes has improved in the succeeding four decades.

The EPA maintains that the majority of water pollution originates from “nonpoint source” origins: urban streets, agricultural land and rural areas. The Obama administration asked the EPA and U.S. Corps of Engineers to craft language to clarify an earlier rule. The result was what some have called language that could place many ditches, storm water control basins and wetlands under federal oversight.  

Under the 2015 rule, areas that were generally within the 100-year flood plane or high tide fell under federal control. These areas could include infrequent or seasonal bodies of water as long as they fed into a larger tributary.

The newly proposed changes would redefine “navigable waters” as bodies that could be used to transport “interstate or foreign commerce”, the continuous (contiguous?) bodies of water that flow into them, and waters that adjoin or connect.

The U.S. Geological survey estimates that 18 percent of streams and half of the wetlands under federal control in the 2015 rules would not be protected federally under the new rule.

Many rural streams and areas of occasional water flow after rain or snow melt would return to state oversight.

Agricultural groups generally support the narrower definition of the rule.

Zippy Duvall, American Farm Bureau Federation: “The new rule would put a stop to the federal agencies’ unpredictable and inconsistent case-by-case approach for determining jurisdiction. With past rules and regulations, farmers have found themselves under a cloud of uncertainty — or worse yet, subject to bureaucrats controlling what happens on the land where we make our living.”

Environmental and water quality advocates remain in support of the Obama-era rule.

David Hayes, State Energy and Environmental Impact Center: “The Trump administration continues to flout the rule of law with its decision to abandon Justice Kennedy’s ‘significant nexus’ standard, even though this standard has been upheld by the federal courts countless times already,”

The EPA is expected to finalize the rule at the end of the year.

For Market to Market, I’m Peter Tubbs.

Each summer aerial dare devils fly the skies dusting crops from dawn to dusk.

Some of those pilots have added more flights to provide a new way to assist in feeding the world - even as drone technology appears on the horizon.

Josh Buettner has our Cover Story.

Jordan Omstead/Pilot – Stardust Ag Aviation, Lamoni, Iowa: “Flying is the ultimate freedom.  You leave the ground and all your problems, all your worries, they’re behind you.  It’s you and the airplane.”

For Agricultural Aviator Jordan Omstead – Iowa is a flyover state – in the best sense.  After graduating from the Air Force Academy in 2006, Omstead spent time in Afghanistan and Iraq – in the military and as a private contractor, before returning home to pursue a childhood passion.

Jordan Omstead/Pilot – Stardust Ag Aviation, Lamoni, Iowa: “I like to tell people I had to get out of the Air Force to start my flying career.  My dad was a pilot.  I grew up on a farm, so this is the combination of agriculture and aviation, so I get to be a part of all the attributes that I really love.”

USDA figures reveal the Hawkeye State, a national leader in corn and soybean production, planted about 23 million acres of both crops, combined, in 2018 – and valued north of $13 billion.  But pest, disease and fertility pressures can send farm revenues into a nosedive if left unchecked.  And that’s when barnstormers like Omstead take flight.

Jordan Omstead/Pilot – Stardust Ag Aviation, Lamoni, Iowa: “The vast majority of what we do is insecticide and fungicide.”

Aerial application, or crop dusting, began nearly a century ago in the U.S., and – like other wings of agriculture - has reaped the benefits of technological advancement.

According to the National Agricultural Aviation Association, a Washington, D.C. based industry advocate, over 70 million acres of cropland across the nation are treated from above every year, in addition to millions of acres of pasture and rangeland.

In Iowa, that amounts to a more than $214 million annual industry with the mix applied to around 5 million acres – according to previous estimates by the Iowa Agricultural Aviation Association.

Cliff Crowl/Owner – Stardust Ag Aviation, Altoona, Iowa: “We actually put it on better than a ground rig.  Because a ground rig, they’ll go out there in winds that we don’t work in.”

 

Cliff Crowl owns Stardust Ag Aviation.  He taught Omstead the trade before hiring him as a subcontractor, and will one day hand the business off to him.  Crowl, a Navy veteran, launched his career in crop dusting over 20 years ago – landing in Iowa by chance.

Cliff Crowl/Owner – Stardust Ag Aviation, Altoona, Iowa: “When I got out of the military I had a buddy who lived here.  So I flipped a coin and said Des Moines, Iowa or Little Rock…we went heads so we went with Des Moines.”

Though ground applicators might have a different take on best methods, Crowl says diligence is paramount to ironing out any shortcomings.

Cliff Crowl/Owner – Stardust Ag Aviation, Altoona, Iowa: “We do have some drift problems, but we are working with those and dealing with those constantly as far as the safety aspect of it.  I think the airplane does a better job and is a safer way of applying it.”

Critics charge all manner of spray applications are susceptible to contamination and runoff which can threaten the environment and human health

But aerial proponents point out all of their liquid pesticides are approved by the Environmental Protection Agency, and say they employ precision techniques.

Jordan Omstead/Pilot – Stardust Ag Aviation, Lamoni, Iowa: “Without getting into a lot of aerodynamics, just the forces coming off this wing are pushing the air behind the airplane down into the crops.  And the way we’ve got the booms positioned, they’re releasing that chemical into that air.  So it forces it down with it.  That said, the closer we are to the crops, the less fall time there is for that chemical to evaporate.  So we get as close as we can, safely.”

Omstead references the myriad safety precautions emphasized by the industry and his mentor, like preflight analysis, annual inspections, and scouting fields for people, obstacles, and other hazards.

Mark Hanna/Iowa State Extension Agricultural Engineer - Retired: “Safety is always an issue, just like with ground based application – that type of thing.  We want to make sure we are doing it correctly and well.”

Retired Iowa State Extension Agricultural Engineer Mark Hanna emphasizes the land grant university’s outreach efforts to local flight crews, while national training to calibrate equipment also takes place ahead of flight season.

Mark Hanna/Iowa State Extension Agricultural Engineer - Retired: “We spend a fair bit of time every year working with aerial applicators, doing a good patternation check off their aircraft - making sure that we’ve got some good uniform application.  Make sure we don’t have some of the things that might cause some off-target movement or drift on that aircraft.”

Over the past several years, Stardust Ag Aviation has seen a steady rise in customers seeking aerial cover crop seeding.  Released at a higher altitude than spray liquids, the boom accounted for up to 35 percent of the company’s business last year – up from 10 percent in 2017.   And for farmland like Iowa’s, which is highly susceptible to runoff, such a spread could create a pattern of benefits.

Mark Hanna/Iowa State Extension Agricultural Engineer - Retired: “Cover crop has some distinct advantages, particularly for water quality.  It helps keep the soil in place, but another thing it does is it uses nutrients down in the soil, and particularly nitrates.”

Some see growth areas for conservation and precision agriculture as food production increases to serve a growing global population.  Going forward, Hanna says it’s possible the industry could see benefits in overlapping technologies like drones working in tandem with manned aircraft.

But for Omstead, it’s easy enough today to map routes to customer fields and mix things up with his favorite playlists all from his cell phone.

Jordan Omstead/Pilot – Stardust Ag Aviation, Lamoni, Iowa: “It depends on…kind of the day and my mood.  Sometimes there’s some classic rock in there, sometimes there’s some Beethoven…just a little bit of everything.”

For Market to Market, I’m Josh Buettner.

Next, the Market to Market report.

The markets deflated as trade news diminished and drier weather patterns returned. For the holiday-shortened week, July wheat plummeted 20 cents while the nearby corn contract dropped 2 cents. The South American crop got larger and the amount of news from the U.S. and China negotiating table got smaller.  The July soybean contract fell 15 cents. July meal lost $4.80 per ton. July cotton declined 59 cents per hundredweight. Over in the dairy parlor, May Class III milk futures weakened seven cents. The livestock market ended mixed. June cattle added $1.23. August feeders put on $1.98. And the June lean hog contract shed $1.75. In the currency markets, the U.S. Dollar index gained 55 ticks. June crude oil lost a penny per barrel. COMEX Gold dropped $19.10 per ounce. And the Goldman Sachs Commodity Index fell three points to finish at 449.15. Joining us now to offer insight on these and other trends is one of our regular analysts, Naomi Blohm. Naomi, welcome back.

Blohm: Thanks, Delaney.

Howell: Naomi, we've got a holiday-shortened week this week, Easter celebrating for some of the folks. Do we have anything to be positive about after the week that we had in the grain market especially?

Blohm: It was a tough week to get fresh news mostly because of the shortened holiday week for sure. Starting with the wheat market, the bigger pieces of news this week that pushed that marketplace so much lower, we had our U.S. crop ratings come in at 60% good to excellent for the wheat that we have here. That's a pretty good start for the year so that pressured prices lower and then we came to find out that the Russian crop, again, is getting larger. And so of course they are a big global competitor and a big supplier to the world for wheat and just the more fact that more wheat is out there in the world just is pressuring prices lower. We're at the point where we're probably going to see the Kansas wheat futures and the July Chicago wheat futures retest the lows from a couple of months ago. But then I think we find some sure footing at those price points. We'll be very competitive against the world prices at that time and I think we'll find some support there.

Howell: Okay. Naomi, as you mentioned we had the progress plantings or the planting conditions report come out this week. With spring wheat delayed, planting was pretty significantly delayed, are we going to be able to catch up? Or do you see some of those acres switching?

Blohm: That is what we're all trying to really keep an eye on and watch. The thought is that there will be some that maybe goes to prevent plant acres because the snow is still up there in North Dakota. So whether it gets planted for soybeans or the spring wheat we have yet to be seen. The other thing threatening the wheat market is with China now cancelling their canola needs from Canada, will China then switch those acres to spring wheat? Something that is kind of in the back of my mind though regarding China and their wheat, they grow about 120 million metric tons of wheat and everything that they grow they use. There is no room for any error in crop. And actually what I didn't realize is that for the past eight years China actually imports small amounts of wheat every year. So now I'm wondering if China is going to be having more acres going to soybeans, it's supposed to be 16% more acres going to soybeans, and think of all the acres that they plant there, that's less wheat acres then in China to be planted, that's less corn acres in China to be planted. So maybe they are trying to get other parts of the world to plant more wheat because they want to have something in their back pocket so they don't have to go to Russia to negotiate any wheat purchases in case they have a weather issue this summer. So that's something that was just in the back of my mind and I'll be watching that as we go forward.

Howell: Okay. And as we go forward it seems that wheat has been pulling down corn and soybean prices with it. Is that the case?

Blohm: Absolutely the case. It's the wheat prices pulling things lower, it's the funds just being relentless about selling. And why not when there is a theme of global surplus for grains? So path of least resistance continues to be lower. And we're going to, unfortunately, probably see that continue until the trade deal gets done, which now there's new hope that there will be a resolution the last part of April into the first week of May.

Howell: Let's talk about the funds there for a little bit because on the last roundtable discussion I made this note. You said, technical objective met to the downside or until we can get some friendly fundamental news. That is maybe when the time would change for those funds to get out of their short positions. Has the funds story changed then?

Blohm: No, and so since I was on the show last the funds became bigger sellers again. They are record short almost in these commodities. The piece of news that is going to make them want to exit the positions I think primarily hinges on the trade deal, but then also around planted acres. And it's of course a little too soon to be talking planted delay, that's not until Mother's Day, that's when the market would kind of get a little bit more excited about that. But we're also heading into month end and for them to show profits on books they need to exit some of those short positions, buy them back so they can actually have the profit on the books.

Howell: Okay. Naomi, when we look at the corn market they didn't have quite as bad of a week as the other grains but they did put in a contract low in the July month at $3.64. Have we set a new trading range for corn?

Blohm: Sideways trading range. Unfortunately, technically speaking we're on some bigger support lines on the daily charts. If those fail, the May and the July contracts could point to about another 15 cents lower. It would be the final stretch to the downside. And the December contract has big support at $3.83. If that price support fails, then technically speaking the downside is closer to about $3.60. So it's something to be watching this week because if we can't get any fast news, any good news, anything good for price movement to the upside, still the path of least resistance could be lower. But it would be a short-term move because just remember these funds are short almost 300,000 contracts of corn and when they're this short they don't stay this short for too long. We just need that catalyst. So if you're an end user and you need to buy corn or if you're a farmer who is looking to reown corn make sure you have your order sitting at those technical targets to the downside so that way they can get hit because we'll probably be down at those price points for maybe one minute of one day and if your order isn't there for reownership or for an end user to be a buyer you're going to miss it and that's going to be cheap corn.

Howell: Do we still need a catalyst even with, when you account for seasonality? Usually we get some seasonal rallies in April and May in the corn markets. Are we going to follow those normal patterns with everything else going on?

Blohm: I do think that we will. Something else for corn that is a little bit more supportive, it will be a bit of a segway tie into the hogs as far as feed demand there from the U.S. market and from the Brazilian market and from Europe. They are going to be, we're all going to be in a competition to see who can get pork over to China the fastest. And there's already talk that in Brazil they're wanting to increase their hog production, they're wanting to increase their poultry production. And where the hog and the poultry production is at is located in Southern Brazil. And where the second crop corn is in Brazil is up in the northern part of Brazil and logistically it's a challenge to get it from the northern part down to the southern part. And so we've heard that they're going to actually, it's easier to import like a boating vessel. And so maybe that would be a demand for our corn to go there. So there's little things that could kind of trickle in and like I said, with China planting less corn acres this year they don't have room for error if there's a weather issue down the road, nor do we, and I really don't think that they're finding all that corn from ten years ago is true either. So I think there's more to the story.

Howell: Okay. Let's talk soybean markets here. We've got a good question to kick it off with Jeff in Lincoln, Nebraska. He said, what do we do with the soybeans that we haven't sold yet, old crop and new crop? Do we wait for the Chinese trade deal to get completed before we sell additional?

Blohm: I would say if you have old crop at home, again the path of least resistance is going to be lower, so if you're thinking about selling maybe do it now if you're in the situation where you need cash flow. If you can hold off for summer or hold off for a trade deal it might pay off from that standpoint. But I would say the technical downside on beans or the risk because of the less that we're going to be feeding for hogs globally puts more pressure to the downside. And, again, with China planting 16% more acres they're trying to keep the theme of plentiful soybeans around the world. So the hog situation in China really has taken any bullish tone out of that soybean market because there's less soybeans that are going to be needed for feed. But one thing that is interesting about China is that even though their first quarter imports of soybean product themselves have been down, their edible oils, so that could be like palm oil, it could be canola oil, it could be soybean oil, those edible oils are up 48% in the first quarter. So they still need the oil and they're betting on Indonesia and Southeast Asia to not have any issues with palm oil production going forward. So I thought it was a little interesting that they were so ready and quick to pick on Canada with the whole canola thing when they're betting on good weather for the palm oil production.

Howell: So the 16% in acreage shifting that China is claiming to do, do you believe that they will actually do it? Or do you think it's them trying to manipulate the market as is the case maybe with finding corn in the reserves?

Blohm: That's a good point, I hadn't thought of it. It did come from a source within China, one of their actual legitimate sources, but I hadn't thought about that. That would be interesting to see going forward.

Howell: Yeah, it will be for sure. Naomi, let's talk just quickly here since you are kind of our dairy expert, anything changing there or anything new to report for our dairy friends?

Blohm: Yeah, so actually the cattle market as far as dairy goes, we have seen the milk prices on an uptrend and that has lasted actually for a good month. And we have milk prices now in the low 16's to mid-16's for most summer contracts. And so that also has been because production is down overall. The last milk production report showed .2% increase and that is the smallest increase we've had in a long time. They are definitely having larger slaughter numbers so we're seeing animals, just less animals overall, and milk prices are firm and the global dairy trade auction prices have increased eight out of the last ten weeks and so that is saying that demand for dairy and dairy products is strong. And I'm kind of wondering if China is going to be in need of protein because they're not going to have it from the hogs, maybe we can send powder over there, maybe we can send other dairy products to help fill the void that they're going to have for a need of protein. So hopefully that will be more affirmative for our dairy prices. There is also a drought in New Zealand so their production is going to be a little bit lower. And some economists actually from UW-Madison were talking that they maybe were thinking that they could see $17 milk for later on this summer. So for most people though it's breakeven and they're finally getting back to a breakeven or a small profit and we have to make sure that we don't see overproduction again. That's the most important thing.

Howell: That's the key there. Naomi, cattle on feed report dropped on Thursday afternoon. We're taping a little early because of Easter. Is there anything to report there? And how are the markets going to open after that report came out today on Monday?

Blohm: The on feed number came in at 102 so that was just a little bit higher than expected. The placement number came in at 105, must a little higher than expected and then the marketed number was at 97. So everything as expected, no big surprises. If anything the market may have just a simple setback or a correction but the cattle demand right now is so strong. Boxed beef values were the highest they've been since like 2017. So the demand is there. And we still have the question of how many head of cattle were actually lost in Nebraska in the flooding and in the blizzards and we don't totally know that yet. But the cattle market overall I think will be able to continue to defend its uptrend. We might have a little bit of a setback or a correction but that's a strong market, that's a friendly story because that demand is strong and our exports have really been nice for the cattle market as well.

Howell: All right, Naomi, we're going to save our social media question related to the cattle industry for our Market Plus edition. Your quick thoughts here, was this week's closes for the hog markets a correction or a sign that maybe we've priced in all of the African swine fever disease for now?

Blohm: I think that for the moment we've priced in the swine fever. Now we're at the point where we have to see week by week, we need to see China buying. If we can keep seeing China buying it keeps the market supported. But there's going to be a lot of volatility along the way as we try to get our hands wrapped around this even more.

Howell: How did you feel about this week's export sales number?

Blohm: It was a little bit lower than last week but it was still, we're still exporting to China and I think too, holiday week, we're wrapping up Easter and things like that, so it didn't really phase me too much. It was maybe a point of contention for the market to have a reason to have a setback or some profit taking. But overall the theme is there that China is buying from us in spite of tariffs and I think that continues and I think it's going to be a big part of our tariff and trade deals.

Howell: All right, Naomi Blohm, thank you so much.

Blohm: 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 Market-to-Market.org. ‘Tis the season to post great images of spring planting. We’ve already posted a few of our own on Instagram. Take a look at IPTVMarket. Join us, again, next week when we look at how the fishing industry is trying to balance economic and environmental concerns. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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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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