Market to Market (June 7, 2019)

Jun 7, 2019  | 27 min  | Ep4442

Coming up on Market to Market -- The clock is ticking as another trade war looms. Planters roll as waters rise across the country. Cyclists seek common ground with cattle ranchers on public land. And market analysis with Elaine Kub, next.

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This is the Friday, June 7 edition of Market to Market - the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell.

Fighting a trade war on multiple fronts has started to weigh on the overall economy.

Only 75,000 jobs were created in May and the Labor Department has cut numbers previously reported for March and April. 

Despite seesawing job numbers, the unemployment rate has held steady at 3.6 percent.

The Fed says the economy is getting soft and is considering an interest rate cut to prevent the nation’s economic engine from stalling. ---

One-fourth of North American car production takes place in Mexico. This includes several versions of pickup trucks that eventually travel the gravel roads of rural America. The looming trade war has more than just automakers wondering what the price of goods will be in the near future.

Peter Tubbs has more.

A week of negotiations between Mexico and the United States have so far failed to avoid looming tariffs.

A tariff of 5 percent on all imported goods from the nation’s second largest trading partner are scheduled to take effect on Monday. Mexico exports $418 billion worth of goods annually and the U.S. imports 80 percent of the total.

Unlike the current trade dispute with China, the proposed tariffs are in response to a political rather than economic issue. An increase in illegal immigration from Central America, with Mexico acting as a conduit, has sparked a battle between the White House and new Mexican President Andres Manuel Obrador.

The Administration is asking the Mexican government to slow the flow of immigrants across the shared border, or tariffs on all Mexican imports will be imposed.

The Mexican government has taken a conciliatory tone in its public statements.

Marcelo Ebrard, Secretary of Foreign Affairs of Mexico: "We we are optimistic because we have a good meeting with respectable, respectful position from both parts. We, we have the opportunity, we have the opportunity to share our point of view explained why the Mexican position is like that we are following in regarding this issue.”

Automobiles, trucks and their respective parts are the lion’s share of Mexico’s export volume to the United States. Supply chains have grown more complex since the signing of NAFTA in 1994, and vehicle components cross the border up to 8 times before final assembly. Multiple tariffs charged on multiple crossings would inflate the costs of autos paid by the American consumer.

The prospect of a spiraling tariff war with the nation’s largest trading partner spooked markets and drew a cool reception from Republicans in Washington.

Senator Mitch McConnell, Majority leader, Republican – Kentucky: “We are not fans of tariffs. We're still hoping that this can be avoided, at the same time, it's way past time the president's request for assistance from our government be met.” 

Senator Charles Grassley, R – Iowa : “These talks will probably come to a resolution so that tariffs aren’t needed. And so I don’t think we need to deal with what the GOP in the United States Senate says. Now I have said that I didn’t agree with what the President on these tariffs. I’m not backing off on that. I don’t think it’s the right thing to do.”

A 5 percent tariff takes effect on Monday, June 10th, and will increase by 5 percent each month until the tariff reaches 25 percent. The additional duties will end when illegal crossings at the border drop.

For Market to Market, I’m Peter Tubbs.

UPDATE: Late Friday, after Market to Market was recorded, plans for imposing a tariff on Mexico were put on hold. President Trump stated “Mexico has agreed to take strong measures” on migrants.  The move will suspend plans for a 5 percent tariff scheduled to begin Monday, June 10.  

The president signed the Disaster Tax Relief Act of 2019 on Thursday. The $19 billion bill will help deal with many of the recent weather disasters.

More severe storms broke out in Oklahoma late this week continuing a spring trend as Paul Yeager reports. 

May was the second wettest month on record in several states. The trend has begun spreading across multiple time zones.

The National Oceanic and Atmospheric Administration reports the U.S. just finished the wettest 12-month period on record. Eighteen states set marks for the most rain and snow.

Record high water has yet to recede across Arkansas, Oklahoma, Kansas and Missouri.

Many of the same states had rainfall again this week as revealed in the weekly precipitation accumulation map.

High water is still making it through America’s waterways. Currently, 58 gauges reveal major flooding with much of it along the Mississippi, Missouri and Arkansas Rivers. The U.S. Coast Guard says 700 miles of the Mississippi, Illinois and Missouri Rivers are closed to navigation cutting-off barge traffic.

High water remains a major problem in Arkansas. Homes are protected by make-shift levies and the fight to keep property dry is a never-ending battle.

The U.S. Army Corps of Engineers says more than 40 levees have been overtopped in Missouri in just the last two weeks.

The pattern limited spring field work opportunities, as both corn and soybeans remained behind the 5-year planting pace.

For Market to Market, I’m Paul Yeager.

It is a recurring conflict in the West where relaxing in the great outdoors comes up against those who use the land as part of their livelihood.

Our Josh Buettner discovered a place where conflict has been overpowered by coexistence and has more in our Cover Story.

Since its birth in the Old West era, farming and ranching have been tied to Grand Junction’s economy.  Now the largest metro area on Colorado’s western slope, recent decades have seen the region’s picturesque landscapes attract a new wave of stakeholders.

Janie VanWinkle/VanWinkle Ranch – Grand Junction, Colorado: “One of the challenges in the West right now is finding common ground between livestock producers and agriculturalists and outdoor recreation people.”

Typically running over 500 head of cattle on 12,000 acres of city-owned land, Janie VanWinkle, and her husband Howard, are accustomed to sharing resources and dealing with adversity.  Drought last year forced them to sell off around 20 percent of their herd.  While they rebuild, a downhill bike trail is looking to break ground and eventually cut through their ranch.

George Gatseos/General Manager – Over the Edge Sports – Fruita, Colorado: “This particular part of Colorado has been a pretty underappreciated part of the state for a long time.”

George Gatseos is General Manager of Over the Edge Sports in nearby Fruita, which has become a mountain biking mecca. 

The area boasts hundreds of miles of single track trails initially constructed on public land by volunteers led by the Colorado Plateau Mountain Bike Trail Association, or COPMOBA. The 30-year-old non-profit has five chapters and roughly 500 members. 

In 2016, the group’s $1.6 million “Palisade Plunge” trail proposal was given the go ahead by state government though no funds were allocated.

COPMOBA President Scott Winans says it’s not uncommon for a new trail to take a decade from concept to completion – and cites ‘responsible partnerships’ with federal, county, city and other community partners.

George Gatseos/General Manager – Over the Edge Sports – Fruita, Colorado: “To build a mountain bike trail, an example… We have to do a bunch of environmental studies, archaeological studies and it takes a lot time.  Takes a lot of money – thousands and thousands and thousands of dollars.”

Initial trail plans would have sliced through the heart of the VanWinkle’s lease with the city of Grand Junction. The ranchers were concerned that excess trash, trespassing and habitat disruption would be a problem. Despite some missed opportunities early on, all sides were eventually able to come to the table, mend fences, and reach a consensus.

Janie VanWinkle/VanWinkle Ranch – Grand Junction, Colorado: “They’re going to cut across the corner of that property and that’ll work for us.  And they’re comfortable with it to.”

The trailhead will drop-in atop scenic Grand Mesa, considered the largest flattop mountain in the world at over 11,000 feet, and end 32 miles below in the town of Palisade.  Some local business owners estimate trail users will generate a $2.5 million annual windfall for the region’s economy.  

Janie VanWinkle/VanWinkle Ranch – Grand Junction, Colorado: “It’s an epic ride…once in a lifetime opportunity is what I’m told.  I’m not a bicyclist.”

COPMOBA and others stress their eye-opening multi-year discourse has helped with community building between ranchers and cyclists.

George Gatseos/General Manager – Over the Edge Sports – Fruita, Colorado: “We both love the land.  Um, we use it slightly differently.  So that’s probably bound to bring some differences of opinion too, so…”

And the VanWinkles agree, even if sometimes it might be a tough pill for them to swallow.

Janie VanWinkle/VanWinkle Ranch – Grand Junction, Colorado: “In my opinion, it’s the mountain that loses.  All of us who live in Grand Juncton - in the valley - this is a place you can look up to and know that it’s pristine.  It’s…it’s special.  And I think it changes the flavor.”

All manner of activity on western public lands, whether biking, grazing, hunting or mining, to name a few, fall under the purview of the U.S. Bureau of Land Management.  Of the more than 245 million acres overseen by the federal agency – about 13 percent of the nation’s land – over 8 million of those acres are in Colorado. Grazing permits on public land are administered by the BLM and the U.S. Forest Service.  Federal numbers reveal livestock foraging activities generate almost $150 million annually in Colorado.

Collin Ewing/National Conservation Area Manager/McInnis Canyon/Bureau of Land Management: “You expect that you’re going to see livestock grazing in those same areas and so I think a lot of the bicyclists realize that a lot of their trails actually came from cattle walking through this area.  And somebody decided to ride a bike on it.  You know, eventually it became a big sport and the BLM adopted those trails.”

Collin Ewing is the National Conservation Area Manager for nearby McInnis Canyons.

Collin Ewing/National Conservation Area Manager – Bureau of Land Management/U.S. Department of the Interior: “Some of these lands are just too dry or too rugged to make it make sense for farming.  So they were never homesteaded and they ended up being managed by the Bureau of Land Management for multiple uses.”

Twenty-one grazing allotments sit among the nearly 300 miles of trail and river access that bring 250,000 visitors per year to McInnis Canyons.

Collin Ewing/National Conservation Area Manager – Bureau of Land Management/U.S. Department of the Interior: “You’re seeing that a lot in the west now.  Ranching and mining towns that are still ranching and mining towns but also are inviting tourism into their economy.”

 

One of the BLM’s biggest challenges is accommodating multiple uses of terrain owned by all Americans.  In some cases, that necessity has become the mother of invention.

Collin Ewing/National Conservation Area Manager/McInnis Canyon/Bureau of Land Management: “So this is a bicycle cattle guard – so that the bicyclists don’t have to get off their bike to open the gate.  And so the gates don’t get left open.  So the cow stays in the pasture and everybody has a good time.”

Bicyclist: “Woooo!”

Many ranchers employ rotational grazing practices to regenerate pasture, but the VanWinkles say high visitor turnover can quickly degrade shared ground and leave regulars to blame.

Janie VanWinkle/VanWinkle Ranch – Grand Junction, Colorado: “We’re an easy target.  But in reality, it’s all of the uses and we have to figure out how we’re going to make that all work together.”

And toward that end, beginning next year, VanWinkle will serve as president of the Colorado Cattlemen’s Association, and likely be asked to weigh in on similar issues across the state.  And if fundraising goals are met by the end of July, COPMOBA will begin phase 1 of the Palisade Plunge. 

Janie VanWinkle/VanWinkle Ranch – Grand Junction, Colorado: “We were able to come up with a compromise and I think that’s really important no matter what we’re talking about…just understanding each other.  That’s a really important piece.”

For Market to Market, I’m Josh Buettner.

Next, the Market to Market report.

Trade talks, planting progress and private acreage estimates pushed the markets lower. For the week, July wheat slipped 2 cents while the nearby corn contract declined 11 cents. Improving weather conditions for planting pressured the soy complex. The July soybean contract dropped 22 cents. July meal dropped $9 per ton. July cotton shrank $2.49 per hundredweight. Over in the dairy parlor, July Class III milk futures fell a penny. Another mixed week in the livestock market. August cattle gained 22 cents. August feeders improved $4.12. And the July lean hog contract cut $2.58. In the currency markets, the U.S. Dollar index plummeted 118 ticks. July crude oil strengthened by 45 cents per barrel. COMEX Gold bumped up $34.10 per ounce. And the Goldman Sachs Commodity Index was even to finish at 406.35. Joining us now to offer insight on these and other trends is one of our regular market analysts Elaine Kub. Elaine, welcome back.

Kub: I'm happy to be here at this interesting time for the grain markets.

Howell: It is an interesting time, Elaine. Let's talk about that starting off here with what happened in the wheat markets this week. They really felt like they were kind of pushing everything else forward and then maybe had pulled back there because of corn and soybeans this week.

Kub: You're right. There was a day, I think it was Thursday, when wheat was in the lead. And I think if wheat was trading on its own it would have a bullish story to trade with dryness in Russia, there was some dryness in parts of Europe that were relieved actually by some rain this week, dryness in Australia which kind of doesn't matter but they're planting in the dust, which some U.S. farmers would have liked to have done. So there is enough of a bullish story for wheat to take the lead on certain days. But you're right, how much of the movement over the past two or three weeks, the upward movement in wheat, how much of that is due to its own story versus how much of it is following along with the U.S. row crops? It's really hard to judge at this point.

Howell: So, Elaine, we hit the $5 mark or is hovering right in there. How much higher do you think we can chug along here over the next couple of weeks, especially if we continue to see maybe unfavorable weather?

Kub: Yeah, in the U.S. wheat market I don't believe that it would be justified to go much above that $5 level because look at the condition ratings, they're actually really beautiful everywhere except Ohio where that soft red winter wheat has experienced some of the same flooding and wet problems that the row crops have. So that is why we see this interesting price differential between the hard red winter wheat and the soft red winter wheat. That's not completely unusual over the past five years. But generally speaking, especially for the hard red winter wheat, the condition ratings are beautiful, this rain makes grain sort of thing that I hate to say, but it does work for the winter wheat this year.

Howell: Okay, it does work for the winter wheat, not so much when we talk about the corn and soybean markets. Let's talk corn first here, Elaine. They pulled back very drastically this week. We still didn't have extremely favorable planting progress report on Monday. Why did we have this spark down in the corn market?

Kub: Yeah, that's a very important question. Rain makes grain but only if you can get it planted, if the rain doesn't stop the grain from getting planted, and that has been what has happened in corn. Why we don't have continued bullishness through this week I think is perhaps related to the fact that there is a WASDE report coming up next week and that shouldn’t matter because those numbers, there's no way the USDA will be able to fully incorporate any sort of acreage projection or reality because nobody knows what the reality is or will be until we get another week or so of weather forecasts. We just don't know. But it may be the timing of that report is such that if anybody, any speculators or funds would otherwise be willing to start making bullish bets, they have pulled back all of their bearish short bets, but we haven't seen that we know of yet any big build of bullish bets. They may be waiting for that report to get out of the way and then the timing of it would allow that to move forward again next week.

Howell: So we've got the WASDE report coming out. As you mentioned they're probably not going to touch acreage at this point. But do you think they will adjust yields?

Kub: They would have a justification to adjust either one of them and they do take weather into account as they make these numbers. I'm just saying that there is no real number yet, even individual farmers couldn't give you an exact number of acres of corn or soybeans that they will have planted at the end of this planting season because the end of this planting season is July, this goes on and on until people get too scared about fall weather, about hot weather in the summer. This late planting makes it impossible for us to know any acreage number right now even if you wanted to put it on a supply and demand table.

Howell: Okay, it makes it impossible to know it, but I'm going to ask you an acreage question because we've been asking every analyst kind of as they've been coming back to the show. We've got another planting progress report on Monday. We've had a pretty good week in most of the Corn Belt this past week. So coming Monday what do you think we're going to see for the planting progress report? And what do you think we're going to see as your final estimates here for corn and soybean acres?

Kub: Okay. So over the past seven days there have been some pockets of the Corn Belt that weren't completely flooded with new precipitation. There is more precipitation in the forecast for this weekend for Illinois and Indiana which are very wet. And I've taken a pretty extensive road trip through the western Corn Belt myself and where it is dry everybody is going like crazy, spraying and doing everything else. So in those pockets there will be I think some progress to take us above that 45% number, or 67% number, take us up maybe towards 80%. I'm not real confident about that. And I'm not of course real confident about an acreage number either. But we knew even at the end of May that 33% of the corn acres were still unplanted effectively. Not all of those have come in there. So my number has always been somewhere between 3 and 33 million acres left unplanted to corn by the time this is all done. But that's a pretty big range. But the point is that it's going to be much bigger than anything we've ever seen before in the history of the U.S. growing corn. It's not going to be a normal 3 million acres just from a slightly wet year with some flooding in some river bottom ground. This is widespread problems in big swaths of the Corn Belt just from not being able to get it into the fields. So you're looking at something more like the 6 to 10 million acres lost in corn.

Howell: And is that a conservative estimate?

Kub: I don't think that's conservative. I think that is sort of the conventional wisdom at the moment and I don't take any quibble with that.

Howell: Okay. Let's talk about the soybean markets. They also pulled back this week. I believe they still have two gaps left to fill. Will they fill those two?

Kub: That is something that these markets like to do. But if you start to get really bullish about corn prices because of lost planting, then you look at the forecast and this upcoming prevented planting date for soybeans is now coming up, now the same story that we've been saying about corn hasn't suddenly been solved by really good, dry, sunny weather everywhere. So Illinois, for instance, only had 21% of their soybeans planted last Sunday. Like I mentioned, they've got more rain in the forecast this weekend. So if you lost 80% of Illinois soybean acres now you start to get just as bullish about soybeans as you were about corn and the market hasn't yet, obviously the market has not, but I think fundamentally that argument could be made.

Howell: Do you still make that argument even with, I know it's kind of like a broken record here, the huge carryout that we have and the production that is going on in Argentina and Brazil? Does it still create a bullish fundamental?

Kub: I think more bullish than is currently being reflected. We still see wide carry spreads in the soybean market all the way out to 2020. The commercial side of the market still feels very, very comfortable about soybean supplies, which made sense in the world when we had the trade war and we weren't selling very many of them to China. But we're selling some, we do see sales being made to China in the export sales report, so it's not nothing. And we still have a domestic soybean industry, a livestock industry that needs to eat soybean meal. So I feel, in my opinion, that the market has lots of room to reflect more bullishness than it is reflecting right now.

Howell: Okay, let's continue this discussion, we'll table it for Market Plus. We've got to talk about the livestock markets, especially I want to start here with feeders because sometimes it gets the short end of the stick. But have August feeders put in a bottom?

Kub: They might have. Now, you look at the chart, they could still get drug down by the general bearishness of the livestock sector. But the feeder chart itself does, like you mentioned, they have a little bounce there and it looks kind of like a bottom. The other beautiful thing that is working in the favor of the feeder cattle market is all this rain that's not good for planting has been very good for pasture conditions and hay conditions if you're not so wet you can't get the hay created. So the feeder market I would be a little more neutral to favorable that they might have put in a bottom.

Howell: Okay. If they have put in a bottom are they going to see some uptrend here or trade in maybe a rangebound?

Kub: It depends on what is driving the whole cattle sector downwards. And I don't honestly know if it's an economic thing or if it's a worry about the cost of corn. So if the feed grain prices continue going up I wouldn't expect to see a bounce in the feeder cattle where you'd see October much above $140.

Howell: Okay. What about in the live cattle markets? They're having similar issues I'd say.

Kub: Yeah, they've been on a pretty serious downtrend here through the last half of May, down about 15% in the futures. Now, the cash market hasn't fallen as much but it has also pulled back. And as you look forward to the next couple of weeks or through June and July I feel the packers are pretty comfortable about the supplies that they know are going to be coming into them. So that pullback that we've had, that 10% to 15% pullback, is probably going to be maintained for the next six weeks let's say.

Howell: Okay. Let's talk to round out our discussion about the hog markets. We've seen China come in, they have been making pretty substantial export sales each week now for a couple of weeks, but we've got this looming potential tariff thing happening on Monday with Mexico, who is of course one of our big pork trading partners. What happens when we open on Monday, Elaine?

Kub: Well, the bearishness and the gloom in the hog market is of course somewhat related to the Mexico problem but that's just guessing about what sort of retaliatory tariffs they might take on us. You wouldn't even have to have that gloom. You could have gloom in the hog market just from the domestic side alone because the industry tried to get so ramped up on this idea that there would be these huge exports to China this summer and that hasn't happened yet. And we talked about this, every time I come on here we think maybe six months down the line, six months down the line, it just doesn't happen and it just doesn't happen. So domestically you have these very high prices that have depressed the consumer when they go to the grocery store and you've got lots of supply, high prices and lots of supply is not a winning formula and so that is why we've seen hogs have such a downtrend.

Howell: And will we continue with this downtrend?

Kub: There may still need to be room for that to come off, especially if the Mexico story becomes worse.

Howell: Opening up the trade here on Monday, we don't know yet what the retaliation will be, but let's say Mexico next week issues and says pork is going to be part of the retaliation against the U.S.. Then what is the new scenario for downwards?

Kub: It continues downwards. I wouldn't have a price target for you. But I will point this out, is that currently the front month lean hog contract is still higher than it was when we started this year. So it's not like we're at some bottom level of support on the chart. There's still lots of room on the chart for it to keep going down.

Howell: Okay, Elaine Kub, thank you so much.

Kub: Thanks.

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. Using Twitter allows you to keep in the loop with just a few characters. We share news, pictures and behind-the-scenes information on our feed of @MarkettoMarket. Join us again next week when we’ll explore how one Midwestern state is trying to help small towns revitalize their local economies.  So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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