Market to Market (June 21, 2019)

Jun 21, 2019  | 27 min  | Ep4444

Coming up on Market to Market --Commodity groups press for a trade deal. One rural county cuts commuting time and reinforces the local economy. And market analysis with Naomi Blohm, next.

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

 

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

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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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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.

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This is the Friday, June 21 edition of Market to Market, the Weekly Journal of Rural America

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Hello, I’m Delaney Howell.

The Great Recession ended 10 years ago this month. The overall economy continues to improve even as rural America suffers under lower commodity prices. ---

The Commerce Department says the number of people breaking ground on new places to live fell 0.9 percent last month.

According to the National Association of Realtors sales of existing homes jumped 2.5 percent in May.

The Federal Reserve held steady on the rate charged to other banks. There is a school of thought there might be a rate cut in the near future.

All these factors helped drive the Rural Mainstreet Index above growth neutral. ---

Creighton’s survey is showing rural America is trying to shake-off the effects of trade wars, bad weather and declining revenues. For some farmers, all of it has been too much and they have chosen to cash it in.

While there’s little producers can do about the weather, they are pushing for a resolution to the nation’s trade troubles.

Paul Yeager has more. 

American farmers have struggled to get their 2019 row crops into the ground. Now that millions of acres are growing, the question turns to an uncertain future for the bounty nature will likely provide.

Several major trading deals and markets are in play. The list runs from NAFTA countries, markets vacated by the pullout from TPP and to sales with Japan and China.

Former Secretary of Agriculture, and current U.S. Dairy Export Council CEO Tom Vilsack, led a cavalcade of commodity groups in an Urbandale, Iowa restaurant. They discussed the importance of passing the U.S., Mexico, Canada Agreement, or USMCA, the nation’s number two and number three trading partners.

Tom Vilsack, CEO U.S. Dairy Export Council: “So having this agreement passed creates, optimism creates a hopefulness about the future, which is incredibly important for agriculture, and for the food industry.”

 

Iowa is a world leader in the production of many commodities. Many foreign destinations purchase products not regularly consumed in the States.

Matt Deppe: Iowa Cattlemen’s Association: “Trade is really important though to when you look at the gross value of a finished steer , when that steer is sold that gross value $323 worth of that value is because of international trade, when we get into the USMCA 70 of those $323 are from the USMCA alone. And then secondly, just as important for the beef industry, our number one value market is Japan.”

Drew Mogler, Iowa Pork Producers Association: “Trade is critically important for our industry, about 25 percent of our 25-27 percent of our product gets exported each year, Japan is our number one value market as well. But Mexico is our number one volume market. So about one in four hams in the United States ends up down in Mexico.”

Most of the commodity group representatives cite USMCA as the first priority. They are concerned that if a deal isn’t done soon opportunities could be lost around the globe.

Kevin Studer, Iowa Corn: “My farmers needed break. This spring has been a mess. We all know it we need, we got to get this anxiety off the table. Let's clear the deck on USMCA. Let's get our trade people be able to focus on getting China done. And let's just get these guys some certainty in the market.”

The USMCA needs approval in all three countries involved. So far, only Mexico has ratified the trade pact.

Also this week, the U.S. Trade Representative Robert Lighthizer faced members of the House Ways and Means committee.

Rep. Bill Pascrell, (D) New Jersey: "I know the White House is eager to finish a new NAFTA. They're trying to drive this thing across the finish line 100 miles per hour."

Rep. Richard Neal, (D) Massachusetts, Chairman, House Ways and Means Committee: "Are you supportive of the president's threat to impose those tariffs on imports from Mexico? What's the legal and policy rationale for imposing such tariffs? Do you think that the president's threat undermines or makes more complicated our efforts to pass the new NAFTA?"

Robert Lighthizer, U.S. Trade Representative: "So that would be yes, yes and no. So the, the, the original do I support? Absolutely I support it. Do I think it makes more difficult to pass USMCA? I hope not. I don't think so. There's no reason in my judgment why it should.” 

Canada’s Prime Minister Justin Tredeau met with President Trump late in the week. Both soon face re-election and, for some, the trade issue could be the deciding factor.

President Donald Trump: We work in particular on the USMCA. And we hope to have bipartisan support.”

For Market to Market, I’m Paul Yeager.

As rural populations shrink, local businesses continue to search for ways to expand the pool of employees.

A variety of campaigns are helping grow and keep a work force. Many of those plans focus on the benefits of small town living, proximity to work and steady income.

For one rural Midwestern county, it’s all about location, location, location.

Peter Tubbs has more in our Cover Story.

Ashley Reeves, Holdrege resident: “I love the house. There's tons of room. Um, I'm really close to the why I'm really close to work and I'm really close to 80 if I want to go anywhere in Nebraska.”

When Ashley Reeves and her husband were shopping for homes in Holdrege, Nebraska, the supply of homes that met their needs was smaller than they expected. But they were willing to take the plunge because their alternative was to live in Kearney, Nebraska, a 45 minute drive away. 

Phelps County, Nebraska has a housing problem: despite a stable population, homes close to job opportunities are few and far between. The result is hundreds of commuters living in adjacent counties or commuting from cities like Kearney.

To increase the construction of new homes, the Phelps County Development Corporation created the Go Home program in 2017, which provides funds for lot preparation for new home sites, and rebates the sales taxes paid on purchases of building materials within Phelps County.

Funds from the PCDC program were used to build three new homes in Loomis, a town of 380. They are the first new homes built in the village since 2014.

Rehabbing an older home is also a hurdle for many buyers. Few want the headaches of doing the work themselves, but much of the housing stock in rural towns requires modernizing. PCDC provides forgivable loans for exterior improvements or the purchase of an empty lot. The organization also rebates sale taxes to contractors building or renovating a home priced as workforce housing.

Janet Boehler, NAS Realty: “There's a shortage of homes between $150,000 to $125,000, which is affordable housing, primarily for younger couples.”

That range is targeted at those working full time in southern Nebraska, and is a price that one or two incomes can support and often includes the space for growing families.

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The shortage of worker housing in Phelps County exacerbates another local problem: a lack of workers in general. The unemployment rate in the county hovers around 2 percent, which makes filling vacancies, especially jobs requiring specialized or technical skills, difficult to fill. 

The Phelps Memorial Health Center has filled openings for management and high skill positions using down payment assistance as an incentive.

Dan Wojtalewicz, Phelps Memorial Health Center: we will be able to basically say we'll give you $5,000 as a down payment assistance on that, on the house. “So being able to offer that with really an advantage for us to be able to utilize that as a recruiting tool.”

But the financial details of a home purchase can still be a challenge for workers weighing the merits of housing options. To encourage the move into Phelps County, the development corporation combines forces with local employers and matches down payments with up to $5000 to help close a sale.

The Becton Dickinson plant on the west side of Holdrege is the county’s largest employer, and runs three shifts per day making medical devices. Many of the 660 workers at the plant drive 30 to 60 minutes to work, often in challenging winter weather. Converting workers from commuters to residents can reduce absenteeism and improve the employee’s quality of life.

Lacie Wright is slowly unpacking during her first week in a house in Holdrege. For the past 15 years, her husband drove 30 minutes one way to work in Holdrege at BD. The move cut his commute down to 5 minutes.

Lacie Wright, new homeowner: “The program, the grant that we got was, um, my husband's company matched what Phelps County was gonna put down for, to help towards closing costs and it ended up being. So we had to put nothing down for closing costs. that kind of helped sway us more here.”

In less than a year, Becton Dickinson assisted 8 employees in purchasing homes in Phelps County with down payment assistance.

Brian Deakin, BD HR Manager: “I know there's an interest out there. This has been a popular program and, and um, and folks folks have have, um, there's been a great deal of interest about it. In fact, we'll probably award all the of the, um, targeted funds on this block quicker than the calendar year. We'll be down to do it because it's been that popular.”

Some of the technical jobs in the plant need short response times if there are problems - which are easier to solve when the employee lives close to the factory.

Brian Deakin, BD HR Manager: “ we don't have many people who need to be on call, but some of our technicians and folks like that, we like to have them be able to get in here within 15 minutes to half hour if we have a, an issue that they need to support and if they're living right here in the community.”

The dollars for these projects come from a portfolio of two dozen local, state and federal programs that focus on housing needs in rural America. Projects range from buying and destroying housing that has exceeded its useful life, to increasing housing for elderly and senior populations and expanding the general supply of rental properties.

The major goal is encouraging the construction of single family houses in the county to serve the working population. The county needs 170 owner occupied and 100 rental properties to be constructed by 2022 to meet worker demand.

The fully furnished Washington Square apartments were built on the site of a former elementary school in Holdrege. Local companies committed to long term rentals for their transitional staff to help solidify the finances of the project, moving the apartments from drawing board to reality.

Bringing new residents to the town of Holdrege and Phelps County at large keeps the economic momentum moving forward, tacking against the winds battering much of rural America.

Brian Deakin, BD HR Manager:” It's a great place to raise a family. It's, it. You don't have a lot of the challenges that you would have in a larger community.

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

Friday was the first day of summer. Rains continue to keep the last of the unplanted fields just out of reach. For the week, July wheat cut 13 cents while the nearby corn contract lost 11 cents. An unknown number of unplanted acres and the prospect of a sideline meeting between Presidents Trump and Xi gave a boost to the soybean complex. The July soybean contract grew by 6 cents. July meal lost $7.90 per ton. December cotton dropped 19 cents per hundredweight. Over in the dairy parlor, July Class III milk futures added 24 cents. Livestock took it on the chin. August cattle lost $2.05. August feeders shed $1.85. And the July lean hog contract cut $5.10. In the currency markets, the U.S. Dollar index plummeted 135 ticks. August crude oil gained $4.95 per barrel. COMEX Gold rose $57.40.  And the Goldman Sachs Commodity Index increased more than 14 points to finish at 421.70. Joining us now to offer insight on these and other trends is one of our regular market analysts Naomi Blohm. Naomi, welcome back.

Blohm: Thanks, Delaney.

Howell: Naomi, we have no shortage of things to talk about again this week. I want to start here talking about the wheat market and what is going on, the parallel here between the corn market and the wheat market. We see if corn has some good days, wheat has some good days. But it doesn't seem to be vice versa. Is that the case that you're seeing?

Blohm: I would agree corn is leading the wheat market higher. This week though the wheat market kind of lost some of that upward momentum, part of it stemmed from Monday's crop progress report with the wheat being overall rated about 65% good to excellent. So the crop is there. What we're seeing though is that the winter wheat harvest is becoming behind because it's so wet and only 8% harvested. Normally we're 25% harvested. And most interestingly enough there's starting to be reports of a scab disease developing in Kansas. So that's something that we're wanting to keep an eye on because the quality is starting to become a concern just because of hot wet it is just out there right now. But looking at the big picture with exports we are still $20 a ton higher than the Black Sea region. So we're just not getting a lot of that export business. But overall for the wheat market I think as long as the corn and soybeans can stay firm to higher the wheat will hang in there as well.

Howell: Do you see any idea or the question that potentially wheat could be the primary feed substitute used in lieu of corn continuing its rally here?

Blohm: Absolutely. Wheat will be used as a feed substitute. That happened in 2012 during the drought. Wheat actually, the wheat demand for feed grew by 200 million bushels. And so we already saw the USDA increase wheat for feed demand on the June 11th report. And so I think you'll see that again in future months, the demand will be there for domestic consumption for sure just because of the situation that our country is in right now.

Howell: Which is kind of a scary one. Naomi, I want to compare historical years here because I know you pay a lot of attention to that. 1993, 1995, we had similar years. How would you compare this situation for the corn markets back to those two historically wet years?

Blohm: This is historically worse. This is a very dire situation and I'm waiting for the mainstream media to pick up on it. And in '93 when we had that cool, wet summer and just the late planted crops, corn yields ended up being 16% below the expected trendlines. Of course the market didn't quite figure that out until post-harvest. But that was significant and that led the market higher into the following year. Right now the USDA, they're being very forthright about the situation and for the corn market, on the most recent USDA report, they cut yield by 6% and that was a 10 bushel drop. IF we cut yield by 16%, similar to what happened in 1993, we have a whole new situation on our hands because it's not only just a yield drop, we have more acres that are going to come off from the planted side. And so that will be coming up next week, Friday's planted progress report, and then even again probably in the July USDA report. So this story is still beginning and there's a lot more that's going to be coming.

Howell: There definitely is, Naomi. And we retweeted a question that actually you posed this week. I don't think it was intended necessarily for Market to Market. But you said, can Brazil supply corn if there is a production problem in the United States? And not only can Brazil supply that corn, but what will that do to our domestic prices if we do start having to export from elsewhere?

Blohm: Yeah, some of my clients have been asking that question and in 2012 when we had the drought the corn for export dropped to 750 million bushels. Right now the USDA has us pegged at 2.15 billion bushels for exports for corn. So I think you'll absolutely see that number start to come down. And yes, Brazil with the big second crop that they have this year, they have the equivalent of 1.5 billion bushels that they are able to export. But I don't think that they're going to be just the biggest competitor. Keep in mind Ukraine will have some crop available as well. But then I think about China with this army worm that is in half of their country. And if you look at an image that I put on Twitter, remember the U.S. grows a third of the world's corn, China grows a quarter of the world's corn, and so the amount that is in Ukraine and the amount that is in Brazil it will help, but if we have the less acres that some people are talking about that's not priced into this market yet I think you could see us using up all of that Ukraine and Brazil corn between the United States and potentially what China is going ot need with this army worm. This is, again, a still developing story that has so much more to go and I think the USDA, again, they're being forthright about it, they're being proactive about it, they are doing everything they can to help the farmer right now because of the situation out there with how wet the fields are.

Howell: And the story has now changed to soybeans understanding this weather impact. It seems like this week they really led the rallies here in the soy complex especially, Naomi. Why was that the case?

Blohm: Monday's crop progress report showed that the soybean crop is only 77% planted, so 19 million acres are not yet planted and everybody's prevent plant date was last week or this week. 19 million acres yet in this country. So just two weeks ago we were expecting that all of those corn acres that weren't going to get planted were going to become soybean acres. And now you're up against extreme deadlines with the calendar dates and now we're going to probably see soybean acres dwindle. If you take 2 million acres off that doesn't really do too much for the ending stocks picture. But suddenly if you take 5 million acres off then you have actually a soybean story that becomes friendly and if we can get a trade deal done with China things are really going to start to look up for the soybean market and the grain market in general.

Howell: Naomi, technically the November new crop contract made a gap on Monday overnight, or in the morning, I can't remember for sure, but will they go back and refill that gap and maybe correct short-term here some of the rallies we've seen in the soybean markets?

Blohm: That could very well be. What I'm watching more specifically on the November price is $9.25. That is really good support. As long as weekly charts can stay above that price level, $9.25, it opens the door for $9.70 to be the upside target and that was the high from earlier in the winter and that would be a retest of prices. I think we could see that happen next week depending on what we have the planted acres report next Friday, also we have quarterly stocks next Friday, so that along with Monday's crop progress information it's going to be a really volatile week going forward. So just be ready for anything.

Howell: Okay. Naomi, we've got a great question this week from Gary in Stephenson, Michigan. He said, due to a forage crisis, will milk climb high enough to make the new milk problem obsolete before it gets out of the gate? And I also want to add to that, this is going to or could be a potentially huge issue for all livestock producers and maybe adds the idea or the option for producers to switch some of those conventional acres then to be planted as forage.

Blohm: It is a crisis and the marketplace is picking up on it and the milk futures price is definitely aware of it. We have producers who are scrambling to find feed, to secure it for summer, to secure it into fall. First crop hay just coming off and it's not necessarily the best that they were hoping for. And so the milk market is starting to rally because of the feed issue. And the USDA just yesterday said hey, for prevent plant acres you can still get your prevent plant acres, but if you wanted to put some cover crops on those prevent plant acres you can now harvest them as silage by September 1st and normally they wouldn't allow you to do that. That's how desperate the situation is for feed. We have producers who are actually going to farmers and asking hey, can you plant something on your acreage even though you're going to have a cover crop because they just need the feed that bad. It is Wisconsin, it is Michigan, it is parts of Minnesota, it's a lot of places. And so, again, USDA on the ball and they are being proactive about it making sure that we have feed for our livestock.

Howell: If I'm a livestock producer we haven't had very good markets, especially in the live cattle and feeder cattle markets. Should I be concerned at this time that I maybe haven't locked in some of my feed needs with grain soaring higher and now this forage crisis?

Blohm: Well, if you're a feedlot probably so, but the other hand of this is that our pasture conditions are the best they've been in probably 10 years because of all this rainy weather. And so you're seeing that with even driving here I could see the cattle out on the hillsides where they're grazing and the grass is tall, it is tall and it's beautiful and lush. So for some the higher prices are going to come into effect sooner than later, but those who are able to have their cattle out in pasture it's a little bit of a different story. Today's cattle on feed report was neutral overall for expectations, the on-feed number 102%, placement number came in at 97%, the marketed number at 101%, so a lot of those things are expected. I think seeing the market prices for cattle start to make a low for right now but we just don't have that reason to have a big move higher yet.

Howell: Okay. Naomi, in the hog markets is there anything driving us lower besides the lack of Chinese demand?

Blohm: Yeah, so what's interesting there is that production is up 10% from a year ago. That is the overriding factor right now. But our exports are still good overall. We can pick up a little bit more Chinese demand, maybe we can get that with the G20 Summit coming up and more Chinese negotiations. But still a lot of production for the hog market and that is the bigger factor for it, prices have moved lower overall recently.

Howell: And where is our floor going to be here? Let's talk July hogs in particular.

Blohm: Oh I think actually we're seeing it. I think we are right about there. But again, not seeing any big reason for the market to have a move higher. I think maybe if we can see some price action this week with the grain markets, if we can see some traction with trade news, I don't think it gets much worse, but maybe start to move into a sideways trend until we can get some news.

Howell: And the news being I assume just a U.S.-Chinese trade deal? Or is there any other news that could spark us higher?

Blohm: Well, definitely the trade deal, but we are hearing, again, the African swine fever starting to spread into even more parts of Asia and Southeast Asia and so that is becoming again another big indicator and a big factor in the market. So hopefully our export demand can go beyond just China and into the other parts of Southeast Asia and maybe just other places in the world. It's the exports, we need that to get it going again.

Howell: Absolutely. Naomi, we're going to save talking about live cattle and cotton for Market Plus. Thank you so much for this discussion, it's great.

Blohm: Yeah, thank you, Delaney.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. 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 a multi-state effort to stop the advance of an invasive species. So until then, thanks for watching. I’m Delaney Howell. 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.

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. 

 

(music)

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. 

(music)

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

(music)

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.

 

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