Market to Market (June 14, 2019)

Jun 14, 2019  | 27 min  | Ep4443

Coming up on Market to Market -- The president takes a victory lap on E15. One Midwestern state looks to keep their communities on the map. And market analysis with Mark Gold, next.

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. 

And by Sukup Manufacturing Company, offering a full line of grain drying and storage equipment and steel buildings, Sukup Manufacturing is on a mission to protect and preserve your crop and the tools that produce it.

This is the Friday, June 14 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Delaney Howell.

Country legend Willie Nelson’s “Worry B Gone” may best reflect current concerns about the U.S. economy. ---

The Commerce Department said retail sales rose 0.5 percent in May and revised upward April’s number.

The government says inflation is under control. The latest producer price index reveals a 0.1 percent increase in wholesale goods.

And that’s translating to lower costs for gasoline, electricity and used cars. The Consumer Price Index also ticked up 0.1 percent. ---

President Trump has made promises to help rural America. He has followed through with aid to counter markets lost to tariffs and opened doors to the increased use of ethanol.

Biofuels are a hot button topic when oil and renewables cross paths.

Late this week, a bi-partisan effort was introduced in the Senate to increase transparency in the small refinery exemption process.

Those waivers have been a cloud hanging over the ethanol industry.

David Miller reports.

President Trump took a victory lap through Council Bluffs, Iowa, this week, to formally announce a promise he kept on E15.

President Donald J. Trump: “A few days ago, we lifted

— (applause) — right?  We lifted the restrictions on E15

 just in time to fuel America’s summer vacations.  We

 just made it.  (Applause.)  We just made it.  (Applause.)

The ethanol industry has spent the last decade pushing for year-round use of the 15 percent ethanol blend in motor fuel. It remains to be seen what kind of growth will be experienced in light of drags on overall sales including limited access at the pump, continued attacks from petroleum groups and small refinery exemptions or SREs.

Ethanol refiners and industry advocacy groups, like the Renewable Fuels Association, are among those who dislike how some SREs are handed out.  Their main objection centers on Fortune 500 companies being granted an exemption to avoid blending the predominantly corn-based fuel in the final product.

Geoff Cooper, President and CEO, Renewable Fuels Association: “We cannot afford to see this victory on E15 undermined by more exemption for small refiners from the RFS.  That's been a big problem for our industry the past few years. It has eroded demand. It has undermined the renewable fuel standard. If we put a stop to those exemptions in tandem with, uh, this E15 announcement today, we think things are pretty bright for the industry.”

Access to E15 remains a major hurdle for the industry expansion. In Iowa, the nation’s number one ethanol producing state, only 15 percent of the gas pumps can legally dispense E15 into all cars and light trucks built since the 2001 model year. According to FUELIowa  a fuel marketer and convenience retailer lobbying group, a retrofit for an existing station can cost up to $500,000.

The ethanol industry also suffers continued attacks about the efficiency and ecological benefits with the most recent coming from the Government Accounting Office. Emily Skorr is the CEO of Growth Energy, a biofuels trade association.

Emily Skorr, CEO, Growth Energy: “There's a wealth of data by national laboratories, USDA, Argon laboratories, EPA, others talking about the environmental benefits of ethanol. We know for a fact that ethanol reduces greenhouse gas emissions by 39 percent. And we know that farmers and ethanol producers are doing more with less.”

President Donald J. Trump: America’s farmers are not

just the keepers of a cherished legacy.  You are the

 guardians of a way of life — a great, beautiful way of

 life.  (Applause.)

And the day before the President ca me to Iowa the American Fuel and Petrochemical Manufacturers brought a lawsuit against the EPA. The suit did not request an injunction but did call into question the federal government’s authority to grant a waiver for E15.

Mike Naig is Iowa’s Secretary of Agriculture.

Mike Naig, Iowa Secretary of Agriculture: “...we know that there's still a lot of work to do to make sure that we're making, we've got the right policies and the right regulatory structures in place in, in, in Washington to make sure we can continue to support this really important industry. So we'll celebrate today and we'll be right back to work tomorrow, uh, making sure that we're advocating for this industry.

 For Market to Market, I’m David Miller.

The federal government is moving some USDA operations out of Washington, D.C. and into the Heartland. More than 500 economists and researchers will be transferred to the Kansas City metro area.

Every job matters when it comes to the economy of both urban and rural communities. The smaller the town, the more each paycheck helps the vitality of a region.

As our fourth and final installment documenting one family’s transition from the city back to rural life, John Torpy finds this to be especially true.

His report is our Cover Story.

As the Embree-Meinders family approaches the one-year anniversary of their move to Burrton, Kansas, Joni Embree-Meinders is just beginning to feel settled-in as the farm family faces tumultuous times. Low commodity prices, trade wars, and torrential rain have plagued rural Kansas farmers for several months.

A longer term problem facing Embree Meinders’ home town of Burrton, Kansas, and many other small towns and farms across the country, is a dwindling population. Upon their return, the Embree-Meinders family gained an up close view of what population loss looked like in their community.   

Joni Embree-Meinders, Burrton, Kansas: “I don't get welcome home, or welcome to Kansas, or anything like that. What I get is...we are so glad you're here.”

Nat Sound Break    

Metro population centers like Wichita witnessed growth of almost 15,000 residents between 2010 and 2018. In Harvey County, just outside of the Sunflower State’s largest city, the population decreased almost one-and-a-half percent, losing nearly 500 people over the same time period.

According to the U.S. Census Bureau, Burrton, Kansas has lost of six percent of its population since 2000. Population gains that rural areas do experience are often offset by an advancing mortality rate and general migration away from smaller communities.

Joni Embree-Meinders, Young Farms: ”What's going to happen to all these Farmsteads? Because people aren't moving out here. They're moving into town. Or leaving and not coming back. You know you never--what's going to happen to all this out here?

The exodus of rural populations has hurt communities in many ways. With fewer people spending money in town, fewer tax dollars come into community coffers. Rural businesses are already experiencing a customer shortage, which ends up hurting the bottom line and the future of small towns.

Nat Sound Break

When a farmer’s equipment breaks down, they count on making timely repairs to get back in the field as soon as possible. Near the town of Mount Hope, Kansas, Howard’s Incorporated has been helping farmers get back to work quickly for almost a century.

Jerry Howard, President of Howard’s incorporated:” We try to take care of the smaller farmers. And the needs of a big farmer. We don't sell any big machinery. We sell a lot of small machinery and we have about anything to fix anyone up.”

Howard prides himself on having parts on hand for countless models of farm machinery. He notes in the current economic times, farmers are trying to do more with less by keeping older equipment in good working order instead of buying something new. But for Howard, the number of customers visiting his store is declining.

Jerry Howard, President, Howard’s Inc.:” So many of our farmers are retiring and bigger farmers are taking them over and we have less and less young farmers./ I would love to find some young person with some ambition to buy it because my wife and I started this business with nothing. We've worked all our lives and I hate to see it disappear and it's going to be tough on the farmers when we do disappear./But I have no idea what the future holds.”

According to data from the University of Kansas, the number of people living in Burrton peaked in the 1980’s at 976. The population has been in steady decline ever since, hitting 874 in 2017.

Mayor Rodney Redinger, Burrton, Kansas: ”I don't see it different than a lot of a lot of other towns where you're trying to sustain businesses trying to recruit businesses, trying to sustain housing and roads and infrastructure.

/Ya try to run that balance of ‘what improvements can you make, what improvements should you make and in what order should those take place.’ because your tax base is small.

Shortly after being sworn in, Governor Laura Kelly, a Democrat, created the Office of Rural Prosperity in 2018. The group’s mission is to take a deep dive into rural Kansas issues to see where the most help is needed.

Gov. Laura Kelly, D-Kansas:” We put this office together so that everything that we do, whether it's policy or budget, is filtered through the lens of our rural community. And we'll be focusing on all the issues, hospitals, one of them. Uh, but we'll also be looking at housing, education, telemedicine and beyond.”

Nat Sound Break

There was a glimmer of hope for rural population growth in 2017. According to USDA data, an improved labor market, higher incomes and an improving real estate market helped numerous counties stop a six-year decline in population. However, an increase in retirements and migration to metro areas led to population growth only breaking even.

Lt. Governor Lynn Rogers, (D)—Kansas:” We really want to help local communities decide what is prosperity to them. Some, it might be opening a community center or a place for coffee. Others, it might be moving them on to the next step. You know, they've had a multiple year task of putting in housing and tourism and agribusiness. Um, and so we want to work with local communities.”

Lieutenant Governor Rogers will be leading a group from the Office of Rural Prosperity on 12 city fact finding journey across Kansas that begins in June and ends in late August.

Rodney Redinger, Mayor, Burrton, Ks:”It's amazing to watch the communities pull together. People come out of the woodwork to, to help each other out. And I love that about, about Burton in lots of other small towns, you know, is just that sense of we care about each other, you know, and get things done, that whole thing. And hopefully that's something that like I can pass onto my kids. Just that spirit of giving back.

As for Joni and Zach, they have stopped working on the Young Farm and have taken off-farm jobs. The couple hopes to set themselves up to eventually own their own operation. Until then, they continue to have their sights set on a future in farming that includes a pathway for their children.

Zach Meinders, Burrton, Ks:” It's like Joni said before, it's really for the kids. So if that opportunity is what they want to be able to do which, Colby that's his main focus, so if that's what they want to do at least that opportunity is there for them when they get older.”

For Market to Market, I’m John Torpy.   

Next, the Market to Market report.

Corn traded in territory not seen since May 2014 as the USDA came to the realization the 2019 crop may be in trouble. For the week, July wheat jumped higher by 34 cents while the nearby corn contract rocketed up 37 cents. Spec funds joined weather in running the soy complex higher. The July soybean contract improved 41 cents. July meal gained $11.20 per ton. July cotton increased 41 cents per hundredweight. Over in the dairy parlor, July Class III milk futures added 21 cents. Another mixed week in the livestock market. August cattle gained 98 cents. August feeders declined $1.72. And the July lean hog contract fell $2. In the currency markets, the U.S. Dollar index reversed course and gained 106 ticks. July crude oil lost $1.39 per barrel. COMEX Gold was mostly even. And the Goldman Sachs Commodity Index decreased a point to finish at 405.25. Joining us now to offer insight on these and other trends is one of our regular market analysts Mark Gold. Mark, welcome back.

Gold: Thanks, Delaney, nice to be here.

Howell: We've had quite the week in the grain markets especially. Let's start off here chatting about the wheat market. Is the wheat market primarily being rallied at this point because of the rallies going on in the corn market?

Gold: It has been a couple of things. The rally in the corn market has got the funds nervous. They came in short 40,000, 50,000 contracts of wheat. I think they have since covered most of that. We have the dryness in Australia, we have the dryness in Russia, so it's not that we're running out of wheat any time soon but it was kind of a me too thing and the funds didn't want to take any bigger losses than they've taken. So it looks like they came for the wheat as well.

Howell: Okay. And tell me, Mark, just a little bit here, the KC Chicago intermarket spread pushed to a new low this week. What does that indicate to you about the wheat markets?

Gold: Boy, I think it indicates the funds were heavily short Chicago and they had to come for Chicago wheat, it has been very strong, relative to the other markets and I think we're going to continue to see that here for a while. If the funds want to get long they'll generally come to Chicago first and then Kansas City so there may be some more upside here. But the wheat, we're not running out of wheat, we don't have good demand, the dollar is still strong, so the wheat probably isn't the star of the show right now.

Howell: It's not the star of the show. I would say corn is hands down the star of the show at this point in time.

Gold: No question about it.

Howell: Let's talk about the corn markets because we have just been chugging along, we broke through another area of key resistance this week. So Mark, my question is, I don't think it's if we'll hit $5, I think it's when will we hit $5?

Gold: Well, there's still an if out there. It has been very strong. I think we're going to go higher. As I've said many times on this show we generally make our highs the last Friday, Thursday or Friday of the month, so we could do it on the Thursday, we might do it on the Friday when we get the acreage numbers. But the corn has been spectacular. I think we're worth more than it is today and we had a pretty nice day here today. We've blown through all the resistance for the near-term, $4.45 was a big number, $4.55 was another big number depending on December or July, and we just blew through those today. And the market looks awful strong here. The funds are now long I'm guessing 150,000 contracts of corn. There's some talk about a squeeze in the July contract. We've seen the spread go from 20 under to I think it was 7 under at one point today. So the market is moving. We like to see the demand pick up a little bit, the export demand has been soft. Ethanol demand has been good. But this is all about how many acres have gotten in and what is going to be the yield drag on the acres that have been planted.

Howell: I want to come back to the yield and the yield drag question. But we have a really good question on social media this week from Matt in Amherst, Wisconsin talking about that export problem or piece of the puzzle. He said, at what point does demand destruction show up to the party in these grain markets?

Gold: Well, that's a great question and it will eventually show up. The higher we go the more -- look at the exports, we're not exporting a whole lot of corn, the feeder cattle market is certainly telling us that corn has moved higher, it's going to continue most likely to move higher. At some point we will see a switch in demand but I don't think, when you look at a long-term continuous chart on these grains, particularly the corn, we've had a four year base here that has been broad, wide and now we've just kind of shot up. But if you look at where we’ve shot up to there's a lot of room left on the upside. So back to your question about $5 corn, I think we've got a reasonable shot at $4.85 to $4.90 somewhere in that range, $5 will be a big psychological spot but I think we can get there.

Howell: I think that maybe part of the question that still remains about will we hit $5 corn is really the acreage question and then also of course the yield drag question. We saw WASDE report this week and the USDA adjusted especially the yield. Mark, do you think they're going to have to come down a little further even?

Gold: I do and I think they're going to have to come down on acres planted and I think they're going to have to come down on yield. It's unprecedented that the USDA on this report made these kind of changes. We've never seen that before. But this is an unprecedented situation, even unlike '93. '93 we got the corn in the ground, then we had the flood, but the flood stayed right along the Mississippi River and there wasn't this broad base that we're seeing out here. So this is a different ballgame out here. We know we had 15 million acres left to plant last week. I'm sure we've had a couple of good days around the country to plant. Is it going to get washed out in the next couple of days? They're talking about three to six inches of rain in Illinois, Indiana, Ohio, parts of Pennsylvania. So a lot of it could get washed out again. We believe that the prevent plant acres are going to be somewhere around 10 million. The government says 3 million. We think they're off. They had taken the yield down by 10 bushels to the acre. Maybe on the corn that's out there it's okay but the crop rating I thought was ludicrous and I think that's going to start to come down if they blend in all the unplanted acres. If they're just going to look at the acres that are planted and say, well the crop looks like it's in pretty good shape, well yeah the stuff they got planted looks okay in a lot of spots, but I think we're losing more and more production. We're going to have to get to a certain price here but we still have big carryouts and then there is that demand factor from your question, that is going to start to back off at some point as well.

Howell: So, Mark, I've got to probe just a little bit harder here. Those are a lot of bullish factors for the corn market. Demand aside how can you not say that we'll hit $5?

Gold: Well, I don't want to be the guy on TV that says corn is going to $5 --

Howell: That's not $8, that's still a --

Gold: It's still a good spot, no question about it. But what's important for your listeners to understand is maybe we do go from $4.60 to $5. Does that mean they shouldn't be marketing between here and $5 and let's wait until everybody gets to $5 before we do something? No. So, these things, as I said I think six months ago here these markets can turn on a dime and it took them until May 1st to do it but when they did it they turned on a dime and rallied this corn market over $1, the beans over $1, the wheat $1. Can we turn the corner again and flip the switch the other way? You bet we can. All it takes is one presidential tweet to send this market south in a hurry or the weather gets better, we get the crop in the ground, I remember myself and a lot of people thought the wheat crop back in February, March and April was done and we couldn't understand where they're getting these 60%, 64% good to excellent ratings out here. The American farmer does a great job and even though we've only got 80% planted if we can get to 90%, 95% and still have a good crop production can go back up and again, at these high prices demand will start to wane, particularly with the dollar as strong as it is.

Howell: Okay, we've got to move on here to soybeans. I know corn has definitely been the leader this week. Soybeans have also had a pretty good week, Mark. Is it weather related or because of the spec funds?

Gold: Well, the spec funds are still short, maybe not after tonight. They're getting pretty close. They had been short 60,000, 70,000 I think coming into the week, I think they've probably done a pretty good job of covering that. They're still short the bean oil. I think they're short 50,000, 60,000 contracts of oil. That could be a push up. But today the oil was the drag on the market. The meal remains strong, the funds are long a little bit of meal now. But the beans, if we only had 15 million, we had 15 million corn unplanted acres, we've got 35 million unplanted bean acres as of last week. Now, we've got the rest of the month to get the soybeans in and I think there has been a lot of work done today, tomorrow, but then we gt the rains again tomorrow, we get another three inches it looks like during the week. Is that going to get washed out again? We don't know. But the USDA made a very poignant comment that said, we're not adjusting beans now because we don't have the data to back up either lowering the production or the acres or the yield. In my opinion, both are coming down in a big way. We're not going to plant everything they think we're going to plant and the yield drag is going to be significant in my opinion. And everybody wants to be short beans because of the billion bushel carryout out here. But you can knock half a billion off of that in a quick heartbeat and have a market again that takes you back to $10 or $10.50.

Howell: Okay. Let's save that for Market Plus. Folks, you can of course find that online at IPTVMarket.org. Okay, so live cattle markets, will cash be able to strengthen? Or are the grains impacting that way too much at this point?

Gold: Well, the corn is certainly pushing the feeders down, it's pushing the hogs down. The fats have hung in here but at lower prices. The cash market has been a little bit soft $110 to $112 this week. Generally in the next month or so we should start seeing the numbers of cattle on feed start to come down where I don't know how many months it has been where we've seen bigger and bigger numbers every month, we think that's going to turn around. That doesn't mean that we couldn't have another $4 or $5 risk in this cattle market, particularly if the corn does go to $5 you're going to see lower cattle prices in my opinion. It has been a horrendous grilling season so far.

Howell: The weather has just not been cooperating.

Gold: It has been terrible. So that has put some pressure on the cattle. The demand isn't there. Unfortunately this beyond meat, I'm not going to eat it, but it seems to be getting some headlines and the stock seems to be doing okay. Is there a shift in taste? Perhaps. I hate to see it. But it seems like the millennials love the stuff.

Howell: I think there has been a change, that's for sure, that's definitely something to continue to watch. Mark, let's end our show here of course with the hog markets. Are they looking for a short-term low here?

Well, we've done a pretty good job of breaking this market hard. We're getting into some support areas, another $2 to $3 down. We had a pretty bad signal on the charts tonight on the close. But sometimes it's a one or two day thing and we can come back. But I think $80 hogs are fair as long as we don't wind up with any African swine fever here. If that should hit then it's a problem. So as a risk manager would I still be rolling down puts, keeping those puts in place, taking money out of it when we can? Yeah, but we still want to have a floor in, in case there is a surprise out there.

Howell: Okay, hopefully we don't get that surprise. Mark Gold, thank you so much.

Gold: 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 Market-to-Market.org. Facebook allows you to keep track of many interests including those in rural America. You can find our links and photos at IPTVMarket. Join us again next week when we’ll explore how one state is filling a vital need by expanding its housing stock. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

(music)

(music)

(music)

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.

Market to Market is a production of Iowa Public Television which is solely responsible for its content.

Pioneer Hi-Bred International is a proud sponsor of Market to Market. 

 

Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today. 

And by Sukup Manufacturing Company, offering a full line of grain drying and storage equipment and steel buildings, Sukup Manufacturing is on a mission to protect and preserve your crop and the tools that produce it.

 

More from this show

Grinnell Mutual Insurance
Sukup
Accu-Steel
ICN