Market to Market (May 31, 2019)

May 31, 2019  | 27 min  | Ep4441

Coming up on Market to Market -- The president threatens to slap tariffs on a major trading partner. High water and tornadoes sweep across the country.  

USDA boosts CRP acres and offers incentives to quit the program. And market analysis with Dan Hueber, next.


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This is the Friday, May 24 edition of Market to Market, the Weekly Journal of Rural America.


Hello, I’m Delaney Howell.

Thursday evening, the president took his well-worn tariff hammer and used it on the nation’s number three trading partner. Just days after dropping steel and aluminum tariffs, and hours after Congress received the USMCA, the president threatened Mexico with duties on ALL imported goods.

Mexico’s president has vowed to not fall for any provocation and says the use of coercive measures does not lead to anything good.

Peter Tubbs reports.

The president took a different approach on immigration, this time slapping a five percent tariff on Mexican imports, with more threatened.

The surprise news came just hours after Mexico's trading leaders pledged to move forward on passage of the USMCA, a major campaign promise of Donald Trump's. 

The White House is looking to slow the flow of undocumented immigrants into the United States. 

President Trump tweet: “On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP.”

Iowa's senior senator doesn't see a connection between the two story lines. 

Grassley: “Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent." 

Mexico is the country’s top customer of corn exports. No word yet on retaliation by Mexico. 

Economists were quick to point out that tariff costs are broad and shared. 

Chad Hart, Iowa State University: ”The tariffs would impact our consumers and their producers. But the idea is that they are likely to retaliate, often times with tariffs themselves, and that means its hitting their consumers and our producers. So in the end, everybody shares a little bit of the costs of a trade war.”

Ernie Goss, Creighton University: “And the idea is of course to incentivize the Mexican government to cease or slow down immigration. It’s not going to happen, it’s not going to work.”

The White House defended the plan saying the tariff move was expected. 

Sarah Huckabee Sanders, White House Press Secretary: “The President didn’t blindside his own party. If Republicans were not aware, then they have not been paying attention, I don’t mean that in a bad way, but the President has been talking about, we notified a number of members of Congress prior to the statement yesterday, at the same time, anybody in this country or frankly the world that says they are surprised by this has been living under a rock and not paying attention.”

For Market to Market, I’m Peter Tubbs.

The EPA approved E15 for year round use this week. It is yet to be seen what kind of impact this will have on prices.

Pennies matter, whether it’s on a bushel of corn or the price on a gallon of gasoline. --

Consumer spending slowed last month, rising only 0.3 percent.

Despite the decline, the inflation rate moved 1.5 percent higher.

And consumer confidence moved higher on positive feelings about jobs, wages and business conditions. ---

Currently, 83 domestic U.S. river gauges are reporting major flooding.

Some of those same areas had to deal with severe weather as tornadoes touched down from Idaho to Pennsylvania.

Paul Yeager reports.

During four 30-day stretches in 2003, 2004, 2008 and 2011 reports of tornadoes topped 500 and 2019 is likely going to be added to the list. Including this week, there have been 13 straight days of at least 8 tornadoes a day.  

The National Weather Service told Kansas broadcasters to use the strongest language possible to warn people of approaching storms. The storm system proceeded to drop tornados on the Kansas City metro area and just west near Lawrence. 

Rain was the other big story of the week.

Corn and soybean planting remained at historically slow levels as storm after storm kept tractors waiting to re-enter fields.

Several U.S. rivers are making life difficult for those near already swollen bodies of water that – in some cases - are reaching near record levels.

The Arkansas River is expected to pass a mark set in 1990. In Fort Smith, this neighborhood was only accessible by boat. The river in the border town with Oklahoma is twice the level it was ten days ago.

In the state of Mississippi, scenes like this have played out for the last four months. The epic flooding of today in the Delta rivals the great floods of 1973 and 1927.

Larry Walls, Mississippi Farmer: "This year I had planned on planting corn and I did not get a chance to do so because the water started rising back in February, and we did not get and opportunity to. I got the land ready but I didn't get a chance to get it planted before the water started rising back in February."

For Market to Market, I’m Paul Yeager.

In the three decades since the conservation reserve program began, millions of environmentally sensitive acres have been kept out of production. While the program has done wonders for preserving the land and increasing habitat for endangered species there have been some unintended consequences.      

Colleen Bradford Krantz has more in our Cover Story.

Missouri cattle producer Casey Nichols looks across the nearby fields his grandparents and parents once farmed. In every direction, the land that once bustled with farm activity is now enrolled in the federal government’s Conservation Reserve Program.

Casey Nichols, Bethany, Missouri: “Our home is completely surrounded – five acres completely surrounded - by CRP. And I mean in all four directions, and some directions for three miles.”

While he appreciates how the CRP program has helped protect the Harrison County hillsides with soil types that easily wash away, he dislikes how the economic activity typically stirred up by production agriculture is disappearing in his immediate area.

Casey Nichols, Bethany, Missouri: “Our township is around 23,000 acres, give or take. And I did some rough figuring on the amount of CRP in our township and it’s around 8,100 acres. We are the second poorest township in Harrison County. The only township poorer than us has the most CRP.”

Nichols sees how older farmers, some no longer wanting to be out working every day, are holding on to the land longer than they would have in earlier generations.

Casey Nichols, Bethany, Missouri: “If it wasn’t in CRP, they would probably move on to something else… They would either rent it out to someone to farm or pasture or hay.”

About a mile down the road is one of the CRP plots owned by semi-retired grain and cattle producer Gerald Parker. The field was enrolled in CRP when Parker purchased it. He later re-enrolled, not being able to justify either the cost of adding terraces for row crops or fences for cattle.

The voluntary federal support package, introduced in the 1985 Farm Bill, was designed to boost commodity prices and protect the environment.

Gerald Parker, Bethany, Missouri: “It would pay for itself. …I didn’t put anything down into it so I just got my money back and it’s been very profitable.”

Five hundred of Parker’s 2,500 acres are in the program. As he’s moved toward retirement, Parker began to see his CRP ground as a nice retirement nest egg. But not necessarily as the best option for supporting a rural community’s economy.

Gerald Parker, Bethany, Missouri: “CRP is a good idea, but there’s a lot of downsides to CRP… It reduces our income that is made from farming. It reduces our labor force needed to farm….and so it cuts down our income made off the land.”

He also acknowledges how holding on to the CRP land may keep younger farmers out. To compensate, Parker has made a point of partnering with younger farmers in his crop and cattle production rather than selling or renting.

Gerald Parker, Bethany, Missouri: “Once you get ten years of CRP, all your ability to handle the cattle or row crops or whatever is going to be kind of antiquated….It is hard for a young person to get started.”

The Farm Service Agency’s Harrison County executive director, Brett Gilland, points out that the CRP program has a maximum allowed enrollment of 25 percent of a county’s farmland to prevent too much dependence on the federal payments. Harrison County has more acres – 63,600 - enrolled in the CRP program than any other Missouri county, but remains below that threshold at 19 percent.

Brett Gilland, Harrison County, Missouri: “We’ve got some really good, really high productive soils. We’ve got some land that isn’t that productive…It has been farmed but it’s also susceptible to erosion…That’s the kind of land that you know is usually a good candidate for CRP enrollment.”

Gilland said the payments made to the county’s more than 1,500 contract holder – most local, but about 18 percent living more than an hour away – amount to about $8.6 million annually.

The future outlook may shift with some changes included in the 2018 Farm Bill. The cap on CRP acres nationwide will be gradually increased to 27 million acres by 2023 from the previous 24 million acres.

The FSA will accept applications beginning June 3 for reenrollment of expiring CRP contracts. The only new applications being accepted this summer will be for continuous CRP, which is typically for smaller but more sensitive areas, like those along rivers or other waterways. Sign-up for general CRP, typically larger fields, will be opened in December. Previously, landowners received 100 percent of the county’s land rental rate for both categories. That will change.

Brett Gilland, Farm Service Agency - Bethany, Missouri:: “For general CRP, the rate is going to be based on 85 percent of the rental rate in the county, and for continuous CRP, that’ll be based on 90 percent of the rental rate in the county.”

Gilland says commodity prices are typically the biggest factor in shifting CRP enrollment. The typical 10- to 15-year contracts don’t allow farmers to make year-to-year enrollment changes without refunding the government’s payments plus interest.

While Parker is disappointed he will receive a lower percentage for land in the program in the future, he does hope the changes will discourage out-of-state landowners from buying land just for the government payments.

Some producers with expiring contracts may now be eligible for two additional annual rental payments if the land is sold or rented to a beginning or “socially disadvantaged” producer.

Nichols hopes this inspires retiring farmers to exit the program and hand off to younger producers, perhaps filling the surrounding pastures with livestock again.

Casey Nichols, Bethany, Missouri: “I can’t think of any young farmer that would want to come out here and buy a farm and just sit there and look at it… They don’t want to wait six years until the contract is up…. They want to be on it. They want their hands in it.”

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

Next, the Market to Market report.

Threats of a Mexican trade war failed to pull out the massive weather gains in the market. For the week, July wheat gained 14 cents while the nearby corn contract shot 23 cents higher. The soy complex was bolstered by poor planting weather. The July soybean contract skyrocketed 48 cents. July meal tagged along moving up $20.80 per ton. July cotton shrank 31 cents per hundredweight. Over in the dairy parlor, June Class III milk futures fell a dime. The livestock market felt pressure from higher grain prices. August cattle lost $4.87. August feeders shed $10.10. And the July lean hog contract cut $2.02. In the currency markets, the U.S. Dollar index improved 25 ticks. July crude oil declined $5.21 per barrel. COMEX Gold bumped up $21.10 per ounce. And the Goldman Sachs Commodity Index plunged nearly 20 points to finish at 406.30. Joining us now to offer insight on these and other trends is one of our regular market analysts Dan Hueber. Dan, welcome back.

Hueber: Thank you very much. Great to be here.

Howell: Well, we certainly had a pretty strong week up until Friday in the grains markets. Let's talk here about what happened in the wheat markets this week. We put in the highest levels since mid-February I believe and pulled back on Friday. So, Dan, what does that sit our new resistance level at? And can we break through that?

Hueber: Well, realistically if you look on the, at least on the chart pattern here, what we had pushed back up against was what used to be support, unfortunately. We have of course been taken apart here over the last couple of months. But nevertheless this is a good sign, a good start. It is certainly being tagged along with the corn market. But in itself I think some growing concerns about what this wet weather is doing to the wheat production out there and then a second element that the Australian Weather Bureau, they put out some forecasts that the next three months look quite dry in that nation, so here it could be another year of tough production down there. So I think on a longer term stance yes we probably turned the corner, we finally have some better prices ahead for wheat. Short-term it might be difficult to really extend the rally much more than we did here this past week barring a real explosion in the corn market. And I guess that's the major caveat for everybody at this point in time.

Howell: That it is. And we've got to talk about that. I think a nice question here to set up that will the corn market explosion continue or happen, we've got Nick in Linn Grove, Iowa, sent in a great question. He said, how aggressive should one get on new crop corn? Where does Dan project best case corn planted acres and corn carryout for the '19/'20 marketing year?

Hueber: Certainly. We're really trying to determine those acres here at this point in time and really that's a large function of the market right now is trying to give people the economic inventive to plant corn later than you would on any normal given year and of course in some cases it just physically will not be possible out there. I really tend to believe right now that through either acreage shifting over to soybeans or going to the preventative plant route with crop insurance we're probably going to lose at least 5 million acres of corn.

Howell: And is that a conservative estimate for you?

Hueber: I would tend to think -- I've heard people talking about 15 million acres of corn, which is possible. Even as of last week when you looked at the nation as a whole we had 39 million acres to plant yet. Now granted I'm sure there was some progress made this week, would be interesting to see next week just how much did get put in. I would tend to think conservative. If that is correct, and I think you have to keep in mind as well that we'll probably see a little larger takeaway from the percentage harvested, normally years we're at 91.7%, 92% harvested acres versus planted. You could probably drop that down to 90% or under. But let's say if we are in that 87.5 million acre, every bushel you start reducing then from trendline, which the USDA now is at 176, you're going to peel close to 100 million bushels out of carryout. So we're starting with a potential of 2.3 billion. It doesn't take much of a yield hit, 4 or 5 bushels, and we're down to areas where again we're talking about not necessarily panic situation in the carryout in corn, but 1.5 billion is certainly not $4 corn anymore, that's probably $4.50 to $5 range.

Howell: Okay. So that sounds like maybe some upside potential there.

Hueber: Oh certainly. Again, the next two weeks are just absolutely critical. What we tend to get planted, one of the real challenges of course this year too is we're really not going to have great answers on this probably until October. Yes, there will be some good estimates out there, with the satellite technology today we're going to have a pretty good handle on what did not get planted, but really for the USDA to come up with official numbers we're months ahead before we actually see that come into print.

Howell: So, Dan, with all that being said, we've got the weather, we've got potential yield drag, we could see maybe harvest rallies, which doesn't typically happen. Do you think more producers are going to turn this year then to selling corn straight off the bins or straight off the combine?

Hueber: Certainly there has been a lot of resistance to sell for some good reasons as well. If you don't know if you're going to get a crop planted it makes it that much more difficult. We are certainly encouraging to producers if they haven't looked at options before, develop some option strategies, lock a floor in if you think you're -- leave the upside open, certainly there's a lot of good reason to do that. But by no means let yourself hang out there thinking that it has to go higher because there are certainly a lot of other elements at play, the strong dollar number one that continues to battle us on the international front. The trade war, of course that's not really a corn picture per se, but it certainly has an impact on the commodity sector as a whole. So the weather markets tend to be generally short-lived. They're one off events. When they happen -- this one is unusual, don't take me wrong. I've been in this business for over 40 years and I've never seen this kind of a wet spring. When you get a summer drought it's over and you might get just enough rain, you're still going to pull some yields out. If we don't get the acres planted there's no coming back at that point. So it is a little bit different. But that said, good business management says if you're looking at what looks like a return on investment use a strategy to ty to take advantage of that.

Howell: Definitely. Well let's talk about the soybean market. We definitely know that the weather market has been driving the corn markets. Has weather been a problem yet for the soybean markets with the later planting dates, the new varieties or the shorter season varieties?

Hueber: You have to say yes and no. Is it a critical problem? Not at this point in time. Certainly if it really continued on and this weather situation never improved yeah, it could be counterproductive for bean production. Right now I think the rally itself is almost counterintuitive. Realistically yes we're going to see more beans, more acreage come away from corn and back into the bean market. Yes it's early enough in the year that we could still look at some fairly substantial bean yields. And when I look at the bean market trading back plus $9 in the new crop beans, it's really looking at a gift horse. So I think you really as a producer, particularly if you're thinking you need to switch acres, you need to take advantage of that and get some beans priced.

Howell: And how much more upside potential do we have here? We pulled back Friday. We've got this new announcement with both Mexican tariffs and now China has retaliated as well. And we have a really large U.S. and global ending stock. Is it really that much upside potential for soybeans?

Hueber: Personally I think it's rather limited. Like I say, we had maybe potential to take Nov beans, if we were really fortunate we could coattail up with corn on some additional rally in corn, maybe get it back towards that $9.50 area, but boy it's difficult to come up with a scenario on soybeans that you would actually call bullish because it's not only domestic supplies that are pushing a billion bushels, you have South American supplies that are at record numbers on a combined basis, and you have to look at the threat that we have South American countries that are developing stronger and stronger alliances with China especially and they're going to do all they can to push production higher again this year as well.

Howell: It's definitely going to be a wait and see game. But we have to address the feeder cattle market. Dan, we've got some young cattlemen watching up tape the Market to Market episode today. So tell me what's going on there. We had two limit down days. On Friday we used the expanded limit even in the feeder cattle and we haven't seen that in quite some time.

Hueber: Right. And of course the live market has been in a free-for-all really for the last 30, 45 days. I think a lot of that is just kind of playing catch-up. We had a great price over the winter months but it all related to the poor weather and really pretty substantial demand. But of course once you took that market down it just really started eliminating that demand for the feeders. Initially when the fats broke feeders looked like they could start turning higher. But I really think one, concerns about the economy, not really seeing the kind of pick-up in demand nor the pick-up in export demand. I think there was a lot of hope when we saw Japan open the doors to U.S. cattle again, we've seen some business come up there. Psychologically that hasn't happened and I think has disappointed the market and now this rally in the grains I think was just that last nail in the coffin that really pushed the feeders to the downside. And yes, we're probably reaching the end of the rope where we've gone to the extremes but certainly it's going to take some time to rebuild the demand in there once again.

Howell: And not only that, from a domestic standpoint grilling season really hasn't had a chance --

Hueber: It hasn't even begun. Talk about a delayed everything this year. The summer months have not been for anybody out there.

Howell: And when you look at transitioning into the hog markets we haven't really seen the pick-up in exports that we were expecting, we're not really seeing a strong grilling season yet. Is that what is playing into the hog markets right now?

Hueber: Certainly. And I guess I'm a little surprised the hogs have, really if you look at the last two weeks we've seen fairly substantial purchases by China and I really thought that would kind of breathe a little of life back in there but so far has not. And of course weighing against that is certainly we're looking at 3% to 4% more hogs on production this year in the U.S., a fair amount of competition from other countries but I still can't help but believe that the latter half of the year, particularly from the export scene, is going to play out pretty favorably to the hog market.

Howell: With that being said, Dan, the latter half of the year what can we expect for prices in some of the deferred months to come as we near those?

Hueber: Deferred --

Howell: In the lean hog market.

Hueber: In the lean hogs, well here again too when you look at the prices we did push up to before we took this recent correction here, those are fairly, some of the highest prices we've seen in four or five years. I would think we have an opportunity to at least go back and revisit those levels. If you would have asked me 30 days ago I would have said this could have been kind of a hogs/ethanol moment because we just, when you have a nation that potentially is losing 80 million, 100 million head of hogs --

Howell: Especially the number one producer and consumer.

Hueber: In both cases. And really this problem of course has not ended there. I think I read just this morning that now we have cases detected in North Korea, not that they're a large hog producer, but this is not going to go away for some time. So I think that's really going to shift that trade around to where, again, I think that's -- are we going to go back to the levels we were 2014? I don't know if I want to go quite that far yet. But I think the potential certainly exists.

Howell: All right. Dan Hueber, thank you so much.

Hueber: My pleasure. 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 Twitter remains a great way to get a good thought out in a few words. For us, 280 characters allow sharing of links to our stories and photos. You can also leave us a question for the analyst of the week. Give us a follow @MarkettoMarket. Join us again next week when we’ll explore how a diverse set of western stakeholders are seeking common ground on public lands. So until then, thanks for watching. I’m Delaney Howell. Have a great week!



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