Market to Market (May 10, 2019)

May 10, 2019  | 27 min  | Ep4438

Coming up on Market to Market -- Trade superpowers turn up the heat. The grocery list: A gallon of milk, a loaf of bread and an economics lesson. And market analysis with Ted Seifried, next.

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

Hello, I’m Paul Yeager. Delaney Howell is away this week.

Trade negotiations stand directly in front us but the wider view shows an economy that continues to receive high marks for its performance. ---

The Consumer Price index gained 0.3 percent in April with help from falling food prices and rising gasoline prices.

When those two factors are taken out of the equation, Core CPI climbed 0.1 percent.

The cost of creating those goods moved 0.2 percent higher last month.

The trade dispute with China did pull the Dow Jones Industrial Average 3 percent lower for the week. Across the Pacific, the Shanghai Composite Index grew more than 1 percent. ---

Before prices on Wall Street and LaSalle Street took a beating, President Trump took to social media to threaten China with more tariffs and deflated hopes of a deal. As the week progressed, the weekend tweet was put into context and the threat set the table for China’s visit to Washington.

Peter Tubbs has more.

The White House doubled down on its strategy of negotiation by boosting tariffs on imported goods early Friday morning.

The nearly year-long dispute with China over trade negotiations has led to making good on a threat to hike tariffs on items purchased by American manufacturers and consumers.  Over 6,000 different items, as varied as seafood, industrial raw materials, appliances and tractor parts, have been tariffed at a 10 percent rate since September of 2018.

The Trump Administration has now increased tariffs on the $200 Billion in Chinese imports to 25 percent.

At a Wednesday campaign rally in Florida, The President blamed the impasse on changes to the deal China requested earlier in the week.

Trump: “By the way, you see the tariffs we are doing? Because they broke the deal. They broke the deal. They broke the deal! So they are flying in the Vice Premier tomorrow, is flying in, good man. But they broke the deal! They can’t do that. So they’ll be paying, they broke the deal. Nothing wrong with taking in over $100 Billion dollars a year. $100 Billion. We never did that before.”

The billions in tariff dollars come from the checking accounts of American importers and manufacturers, and the increased costs are often forwarded to consumers. While the monthly trade deficit with China has shrunk to a five-year low, the trade deficit with the world grew $50 billion - 1.5 percent - in March.

The increased tension comes a week after both sides appeared confident that progress had been made in the negotiations. The Chinese delegation informed their American counterparts early this week that issues involving Chinese law were now off the table, a reversal of their earlier position.

Activation of the proposed 25 percent tariffs also brought a threat of added duties on all Chinese imports not currently tariffed. In response, Chinese leadership has threatened a broadening of its tariffs on American imports.

Midwestern grain producers have borne the brunt of the Chinese retaliatory tariffs. Duties on corn, soybeans and wheat resulted in a dramatic drop in agricultural exports starting late last year.

In a Friday morning flurry of tweets the President proposed using tariff revenues to buy surplus grain and donating it to food insecure countries. Analysts were quick to note that actions like this are considered dumping by the WTO.

President Donald Trump, Council Bluffs, Iowa, October 9, 2018: “With China, over the last 5-6 years, we’ve been losing 300-500 Billion dollars a year. Billion! Nobody knows even what the hell it is it’s so much. It’s ending, it’s ending.”

An aggressive stance on trade was part of the President’s campaign pitch, and remains an applause line at appearances.

Republicans are maintaining strong support for the White House even as their supporters bear much of the economic costs of the dispute.

Grassley:  “Well for every farmer there is a different answer. But until I start hearing from farmers who say that they voted for Trump and they are done with him, I haven’t heard that yet. I think that they have patience.”

Despite the setback, negotiations are expected to continue.

For Market to Market, I’m Peter Tubbs.

According to USDA, a food desert is an area with limited access to sources of healthy food - as measured by distance - to a store.

For those living in rural America, just putting a meal together may require a journey of an hour or more - one way.

There is one Midwestern community that has found a way to cut the travel time from grocery store aisle to dinner table while teaching a lesson.

Peter Tubbs reports in our Cover Story.

The weekly grocery delivery from North Platte has arrived at the Circle C Market in Cody, Nebraska. Six students from Cody- Kilgore High School help unload the shipment and stock the shelves and coolers. These students are the only employees paid by the market, which is part of why a village of 150 residents can support a grocery store.

April Lambert, Cody resident: “We try to get all of our groceries in Cody as much as we can because we know that the store is important to the town and we know that we appreciate it being here and if, if the store wasn't here, we might not have the opportunity to live here.”

The small supermarket is a non-profit. More significantly, it is a joint project between the Village of Cody and the Cody-Kilgore school district. The business teacher at the high school oversees the store in addition to her teaching duties, while the students preform the majority of the labor and management jobs.

Riley Jones, Circle C Employee: “I stock shelves, I deface shelves, I help people out, I make sure the store is presentable, facing, defacing, just helping out.”

Students earn a paycheck for each hour worked as well as academic credit hours. But responsibility for managing is handed to anyone who is ready for the burden.

Bentley Jenkins is the current Purchasing Manager, and also programmed the point of sale system that is used to check out groceries.

Bentley Jenkins, Purchasing Manager “It's kind of hard and our point of sale system, we don't have to inventory totally up to date yet so we can't just print off and then go from there for ordering we have to walk around the store, see what we need and kind of guess. So that's a little tricky.”

While the selection at the Circle C can’t compare to a full-service grocery store, the time savings justify choosing from the limited selection.

April Lambert, Cody resident: “Well, if the store weren't here I would have to, you know, drive to Valentine once a week and get groceries. It's about 38 miles to drive there and then load up on everything and just the storage and planning for all that would be pretty hard with little ones.”

The majority of groceries arrive on Thursdays in time for households to stock up for the weekend. The 63 students of the Cody-Kilgore school district are on a Monday to Thursday calendar, which saves on transportation costs for the district and frees students for ranch work on Fridays. But the lessons learned on the job extend past the basics of business.

Elizabeth Rosefeld, Circle C Employee: “I’m really learning people skills, because I don’t really like to talk to people very often unless I’m working, because then you have to be nice and all that. Which I’m not very good at.”

The 480 residents of the school district are spread across 550 square miles, making it one of the least densely populated districts in the state.

The Circle C is the result of a volunteer effort begun in 2008 to return retail food outlet to Cody, which had been without a local grocery store since 1995.

The market has purchased much of its infrastructure used. One cooler and the checkout stand came from a store in Valentine that was closing. Other coolers and shelving came from another store in Valentine that was remodeling.

A USDA grant funded the initial construction of the store, which was built using straw bale techniques that date back to the 19th century Nebraska prairie. The straw walls are thick but also energy efficient. The store uses $600-$800 per month in electricity, almost all goes to running the large coolers.

Under its present structure, the store is sustainable month-to-month, and has become a community hub where neighbors meet for a few minutes out of their day. 

John Johnson, Cody resident: “…You've got to have a bank, you need a grocery store and you need a school to start with. And we've got all those now. And we just got some young people becoming more involved and you know, you know, a small town like this, you're either surviving and you're dying. And neither one of those options was okay with me because you know, you need to be a town of destination, not want to stop over.”

Summer reduces the sales volume by 50% as residents make fewer trips into Cody. Many households have second homes in town for the school year, with the primary home on the ranch elsewhere in Cherry County.

A commute of 50-miles or more are common in northern Nebraska, and many households have planned meals a week or a month at a time due to the effort needed to buy groceries. The Circle C provides the luxury of only having to plan out a few days.

Groceries are priced 35 percent over their wholesale cost, which is still competitive with stores in Valentine. But while the store pays students $30,000 annually for hours worked, those margins won’t cover the salary of an owner or manager- Circle C only survives as a non-profit educational project. Cody lacks the population to support a for-profit store.

Non-profit status allows spending in other areas- like college scholarships for student employees tied to the number of hours worked in the high school career. Scholarships can reach $600 per semester. But sometimes students have to warm up to the job.

Bentley Jenkins, Purchasing Manager “When I first, when I was hired, I did not want to do this job. My, my parents forced me to have it, Oh - it will be a good experience for you because my older brother, he was the student manager his last year of high school, so I was like, I'm going to hate it. I do want to it. I ended up loving it. So it’s kind of funny.”

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

The trade dispute with China, wet weather, and the WASDE report all were unfriendly to the commodity markets. For the week, July wheat dropped 13 cents while the nearby corn contract plummeted 19 cents. Unresolved trade negotiations with China and lower export sales cut the legs from under soybeans as the July contract plunged 33 cents. July meal lost $10.90 per ton. July cotton fell $7.23 per hundredweight. That's almost 10%. Over in the dairy parlor, June Class III milk futures lost 31 cents. The livestock market remained mixed. June cattle lost 98 cents. August feeders put on 45 cents. And the June lean hog contract shed $3.07. In the currency markets, the U.S. Dollar index lost 12 ticks. June crude oil retreated 41 cents per barrel. COMEX Gold added $6.30 per ounce. And the Goldman Sachs Commodity Index sank nearly seven points to finish at 434.70. Joining us now to offer insight on these and other trends is one of our regular market analysts. His name is Ted Seifried. Ted, welcome back.

Seifried: Hey, thanks for having me.

Yeager: Good to have you here. So it's not very welcoming though when I'm going to open up and make you do a quiz right away. Pop quiz right off the top here. And it came from one of our viewers that you and I both talk to quite a bit and that's Glen in Bryan, Ohio, @glen_newcomer. And he's got a question for you of what had the greatest impact on the markets this week? Reduced production from planting delays, so weather? A new USDA commodity purchase program that has been talked about? Or a trade or not trade agreement with China?

Seifried: First of all, hey Glen, how's it going? Wow, I think it's extremely obvious which one of those things had the biggest impact on the markets this week and that is by far and away the trade deal. I mean, go back to last Friday, we went home thinking --

Yeager: We had roses.

Seifried: Yeah, we were all but certain that we were going to get a deal done this week, it was going to be announced on Friday, all was going to be well. And then over the weekend we got the tweets with the additional 15% going on the 200 billion and oh boy, Sunday night was just terrible. As the week went on it just continued to get worse. We hear sort of why Trump did that because it comes out that oh China came in and revised the --

Yeager: Scratched out a whole bunch of stuff on the agreement.

Seifried: All the stuff, all the stuff we really needed. And then China Wednesday says we're going to retaliate. And then we say we're going to retaliate to your retaliation and it's like being on a recess school yard, two guys about to get ready to fight is how that feels. So that did not go well. Then we had the WASDE report which was surprisingly bearish, I'd say especially for corn. That didn't help us end the week on a positive note at all either. Wet weather, we really want that to kind of drive the market now. We're just not there yet. And after looking at this WASDE report today how much does it really matter because if we're looking at a 2.4 billion bushel carryover for corn next year, I've done the math, you can take away 2 million acres and 2 bushels an acre on yield and we're still right at a 2 billion bushel carryover. We need a weather problem.

Yeager: We do. And I'm going to go to wheat first because in wheat country we got a lot of rain, Kansas, Oklahoma, flooding in Texas. They finally got to plant some in North Dakota and parts of South Dakota. But the market just continues to fall. Is this thing going lower or have we hit a bottom?

Seifried: I'd like to say it would be a good time to find some bottoms in a lot of these markets. Wheat, you look at the production numbers, they came in a little bit less than expected today. However, ending stocks were bigger. That's a demand problem. We know we have that. We've got a strong dollar. It's very competitive. Yeah, spring wheat is having a really hard time getting in so keep an eye on that. At some point that might become more of a story. But as a whole it's really tough to get excited about the wheat market simply because we have oversupply of really everything and a big component of wheat demand, or part of it, is feed. Well, if we've got a lot of corn around to feed it's going to be tough to boost that category. Really we need exports. And, again, the strong dollar really gets in the way of that.

Yeager: Well, the export story will be something we talk about in soybeans. Real quick, do you make a sale, I'm sorry, do you make a buy if you're an end user on wheat now?

Seifried: I think wheat has the best looking chart at the moment so I think from a chart perspective yeah, I think you have to be thinking about that. Fundamentally I don't know, if it needs to go higher it might just be sideways.

Yeager: All right. Corn, we were at 23% planted on Monday, we don't think a lot got added. If you agree with Scott Owen from the University of Illinois he had math that said there's no way we can be at 50% which would be the projection for this week. We're behind. The saying rain makes grain is the worst thing that somebody wants to hear right now if they're in corn country because there's rain everywhere. What is going to jumpstart this market?

Seifried: Well, on my drive over today, Northern Illinois, the I-80 route I saw no progress, nobody out in fields and a whole lot of standing water. It's going to be a little while. Yeah, the forecast this week got a little bit better. There's a window of opportunity a few days out. But it's a very tight window and I don't know if much is going to get done. That is definitely going to become more and more of a thing. That will now that we've got the trade deal not out of the way but the expectations for a deal this week that didn't happen, we factored that into the market, I think we factored in almost certainty that we're not going to get a trade deal probably until November or at least November of 2020. So now that these things are out of the way --

Yeager: 2020?

Seifried: Well, there's a significance to that date, Paul.

Yeager: Yeah, I know.

Seifried: So, we've gotten that out of the way, we've gotten the WASDE out of the way. Now I think we need to start paying more attention to weather. But that WASDE really took a lot of that weather oomph out because again at a 2.4 billion bushel carryover in corn we need to lose some acres or yield or both to really put us in a position where we have a reasonable carryover once again.

Yeager: And we will see how acres might shift to soybeans and put further pressure on them as a continued thing. But in the soybean market is this a matter of too much doom and gloom? You've got a couple of horrible combinations if you're trying to sell this market right now of huge carryout and maybe more acres. That doesn't equal higher prices.

Seifried: No, it doesn't. I will say this, the funds are record short soybeans right now and this is an odd time of year for that. We hit 12.4% on the relative strength index. That suggests that we are not only oversold but we are in an extreme case of being oversold in soybeans and it is maybe the most extreme case I've seen in really any market. We don't stay down there very long. It doesn't necessarily mean sharply higher prices but it should mean some stabilization at some point and I'd say relatively soon. But it's really tough to get excited about soybeans right now without a trade deal. That is the thing that can make soybeans exciting. Aside from that we've got to look to weather. But there too if we're adding acreage and looking at a billion bushel carryover in soybeans we've got a lot of weather cushion so it's got to be a very significant weather issue.

Yeager: We had soybeans below $8 for a time this week. The last time we've been below that was December of '08. It has been a long time. And then I was telling you before we rolled looking at charts on this date in 2017 soybeans were at $9.63 the July contract, but the 2018, so just a year ago, we were at $10.03. What is the biggest change between 2018 and today on soybeans for you?

Seifried: Well, aside from we've doubled, more than doubled, well doubled the previous record carryover that we've ever seen and we're in a trade deal or trade war at this point, I'm going to call it a trade war, we're in a trade war with our number one customer, our number one customer that bought 84 million metric tons of soybeans last year, the number two was the EU and it was around 15 million metric tons. There is no close comparison. There is no other one that can come close.

Yeager: Okay, we have to get to cotton and normally we save this one but this was a 10% loss and sometimes they are ones that see extra acres go to them. What is going on in that market?

Seifried: Well, there is extra acres going to cotton down in Texas, it's a very good cotton producing area. But go back to the trade war, there again that dominated the markets this week. You have a trade war with your number one client and you're going to see lower prices. Now, cotton today was really running into some very key support, trendline support if you go back to November of last year. From a technical perspective I was lifting a few shorts here this morning. We'll see how that works next week. But I think today was a good day to lift some shorts because, again, this was a panic week. Next week probably won't be such a panic week. And a lot of these markets might stand to try to recover a little bit.

Yeager: Famous last words, not a panic week next week. All right, live cattle. The cash is the premium to the futures right now. The packers have their story. You've got all sorts of things happening there. You've got this meat alternative coming in that is getting some headlines. What is the leader of this movement?

Seifried: Well, the leader had been the funds exiting a long position because they had been sort of piggybacking the cattle position along with the hogs position because of ASF and everything like that. And unseasonably we had been strong, but given the weakness in pork and again the seasonality of cattle, they exited and they exit in a hurry when they do that. It just seems like they always do that in the cattle market. So we were just sharply lower. We had gotten very oversold there too. Now it feels like we found some footing. As we get closer to our peak demand, grilling season, now is a good time to be a little more optimistic. Like you said, that discount is not necessarily normal at this time of year. I see some upside potential in cattle. It would help though if the hogs can turn it around.

Yeager: All right, hogs, hold that a moment. Quickly on feeders, any optimism on them? They were up this week just a little bit.

Seifried: Yes, yes. I think feeders have held in much better than really everything else. Yeah, upside potentially but we need to get the live cattle moving as well.

Yeager: All right, hogs. Again, back to China where we saw a huge run up there in the hog market, now all of a sudden we've seen that thing. Are we back into where this should be? Is this all African swine fever? Is that done? Is this we've replaced? What's the story?

Seifried: Well, it's far from being done. ASF I believe is going to be around for a few years. But they have somewhat slowed the spread. I'll also say that they had imported a fair amount of pork to sort of satisfy their near-term needs. That being said, we've seen video this week on Twitter, Twitter is a wonderful drug, of Chinese customers standing at a butcher shop and all the shelves are empty and they're bringing in the whole carcasses, which is their thing, and they're basically cheering this. And there is a lot of demand there in China. But there too the hope was to get a trade deal, get the 62% tariffs that they have on U.S. pork out of the way, and that would inspire a lot more pork exports. The last two weeks of pork exports have been really disappointing to see, or to not see China on the list. If they liked it at 98 why don't they like it at 88? That's a problem. But yeah, I think China will be around. We've heard talk that Smithfield, the Chinese company, is revamping some of their plants, or one in particular, to send, to specifically produce for China. So I think there will be, we'll see a lot more business with China on the pork. A trade deal would help but even without that I think we're still going to see some strength in the pork.

Yeager: You were reading ahead on some of our questions that came in from Twitter and Facebook about Smithfield and pork and we will discuss that in just a little bit. Ted Seifried, thank you so very much.

Seifried: The pleasure's mine, Paul. Thanks for having me.

Yeager: We will continue that discussion. In fact, we have a whiteboard, we're going to have some Ted picks coming up in a little bit. But that will do it for this edition of the broadcast portion of Market to Market. We will keep the discussion going on Market Plus and you can watch it, listen to it, download it on our website at MarketToMarket.org. Now, when you subscribe to our YouTube channel you will get notified when the program and Market Plus are online. You can find us @MarketToMarket. Join us again next week when we'll explore how an economic matchmaker is linking new owners with established rural businesses. So until then, thanks for watching. I'm Paul Yeager. Have a great week.

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Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa Public Television or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

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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. 

Accu-Steel, offering fabric covered buildings specifically designed for the cattle industry since 2001. The next generation of cattle buildings. Information at accusteel.com. 

 

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