Market to Market (June 28, 2019)

Jun 28, 2019  | 27 min  | Ep4445

Coming up on Market to Market -- Taking the next steps to get a trade deal done. Damage estimates roll in as flood waters roll on. A multi-state effort to stop the advance of an invasive species. And market analysis with Ted Seifried, 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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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 28 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell.

Farmers have been fighting the loss of markets and bad weather but there are those among us who feel confident enough in the nation’s economic future to make a few purchases.  ---

Consumer spending increased 0.4 percent in May.

Orders for durable goods declined 1.3 percent in May but, without orders for transportation, core durable goods rose 0.3 percent.

This data comes on the heels of first quarter GDP rising 3.1 percent to outpace the Fed’s benchmark of 2.0 percent. ---

Both China and the U.S. are hoping to avoid extending the trade war to a wider range of products. U.S. farmers continue to take the brunt of the battle even as MFP payments are being calculated.

A G-20 meeting between Presidents Trump and Xi is on the schedule against the backdrop of a Friday purchase by China of 544,000 tonnes of U.S. soybeans.

Peter Tubbs has the story.

The G20 meeting in Tokyo is the stage for the latest battle scene in the ongoing trade struggle between the world’s two largest economies.

President Donald J. Trump: “American success in the digital economy is based on free flow of data, strong privacy and intellectual property protection, access to capital and innovation. The United States is committed to sustaining this approach to digital trade.”

Both China and the United States are seeking to avoid extending the conflict or expanding the battle to a wider range of products. The Trump Administration has threatened an additional $300 billion in tariffs if negotiation demands are not met, which would increase the costs American consumers pay on a myriad of staple goods.

Many in the American business community have been consistently against the current tariff strategy.  U.S. agriculture has taken much of the impact as it remains cut-off from one of its top export markets.

Beijing has demanded that Trump lift all the punitive tariffs imposed on Chinese products. Many in China believe the purpose of the tariffs is to keep their economic development in check.

Chinese President Xi: “"We should build a fair, just, and non-discriminatory market environment. We must enhance the exchanges of technologies, personnel and information and maintain the integrity and vitality of the global industrial chains. We should promote advantage complementation and a win-win cooperation. We cannot develop with our doors shut, nor should we artificially disturb the market."

Even if a significant agreement is reached, U.S. negotiators want to keep a few duties in place to ensure that Beijing fulfills any promises made at the trade table.

For Market to Market, I’m Peter Tubbs.

Flooding has sidelined many barges along the Missouri and Mississippi rivers. Damage estimates from high water on the Missouri are expected to top $1 billion.

Further down the Mississippi River, the Port of South Louisiana - the busiest in the country - has more than double the usual cargo ships in port waiting for the water to recede.

Paul Yeager has more.

The 2019 flood event taking place along the Mississippi River is far from over, but – in many locations above St. Louis – the worst may finally be over.

A coalition of mayors who preside along one of the longest rivers in North America say the damage total is likely to be more than $2 billion. The total comes from losses in farming, manufacturing and navigation.

The Mississippi River Cities and Towns Initiative released a report this week, the worst damage was seen from Davenport, Iowa to central Louisiana. More water has passed under the Vicksburg, Mississippi River Bridge than the floods of 2008 and 2011 combined.

The flood season began as heavy snowmelt from as far away as Montana and Pennsylvania started flowing towards Big Muddy. The amount of time communities were above flood stage approached 200 days as heavy spring rains exacerbated the situation in the planet’s third largest watershed. This prolonged event has lasted longer than the Great Flood of 1927.  

Patrick Banks, Assistant Secretary of the Louisiana Department of Wildlife and Fisheries: "Well, in a normal year, we would see the river rise in the springtime. But this year, we had a strong rise in the river in December of this past year. So, we've basically been at flood stage on the Mississippi River since December of 2018."

This levee breach in Davenport came in late April. Continued spring rains delayed the river opening to navigation.

As barge and tow traffic resumed, other long-term ecological impacts have been uncovered. The latest has fishermen struggling with their oyster catch as the amount of salinity in the water has become an inconsistent environment for growth.

Several states in the middle of the region have experienced the wettest 12-month period on record. A few locations have exceeded the record measurements established during the Flood of 1993.

For Market to Market, I’m Paul Yeager.

Invasive species have been a problem in the U.S. for decades. Those in the south have more than one story about Kudzu engulfing the mailbox. However, zebra mussels, Asian carp, and even house sparrows can be the cause of more serious problems.

A case in point, an insect intruder from overseas has become the focus of a multi-state effort to detect, control and eradicate an enemy with few natural predators.

Colleen Bradford Krantz has more in our Cover Story.

A Pennsylvania wildlife education specialist was arriving home after work one day in September 2014 when he noticed an unfamiliar inch-long insect on his garage door.

Dan Lynch sent a photo to other state employees and, within a day, three entomologists were on their way to his southeast Pennsylvania home. Their initial excitement at documenting the unusual insect – and dozens of its nearby peers – soon gave way to dread as the entomologists realized it was likely an invasive species that could cause economic or environmental harm.

Within days, the bugs were identified as Spotted Lanternfly, never before found in North America. Within six weeks, a task force had been set up and a quarantine area established. Within three and a half years, USDA would pony up $17.5 million to help Pennsylvania and neighboring states slow the spread of the sap-sucking insect that now threatens vineyards, orchards, hops and other agricultural products.

The manager of a private airport about 15 miles from the original site in Berks County, Pennsylvania shot this video in September 2018, four years after Lynch found the first Spotted Lanternfly.

Russell Redding, Secretary of Agriculture, Pennsylvania: Berks County, which if you look at Pennsylvania’s map, is on the eastern side, but it happens to be right in the very epicenter of agricultural production for Pennsylvania… What we realized pretty quickly is that everything that we have in Pennsylvania.”

Experts believe the Spotted Lanternfly may have arrived on a shipment of stone from South Korea the year before it was discovered. South Koreans also consider the bug to be an invasive species. The quarantine zones now include 14 counties in Pennsylvania as well as a handful of counties in Delaware, New Jersey and Virginia.

Russell Redding, Secretary of Agriculture, Penn.: “No one really understood the full impact of this in 2014 and I would say it was even 2016 until we fully realized what was happening as this population exploded… We still believe that eradication is possible. You don’t want to say that this pest is here forever. We accept that we’ve got to manage it… It has not spread nearly as fast as some of the Asian countries.”

The name of the once-unfamiliar insect, a native of China, Bangladesh and Vietnam, has essentially become a curse word in the southeast quadrant of the state. As an adult, the bug prefers to eat the sap of the Tree of Heaven, also an invasive species native to Asia. Officials and residents have worked to clear the unwanted tree but the insects also have been found feeding on more than 70 other species of trees and vines.

Beth Finlay, Master Gardener Coordinator with Penn State Extension, says as it feeds, the bug also defecates a sugary waste – known as honeydew - on the leaves, which often results in a leaf mold that interferes with photosynthesis. As a result, the affected plants lose the energy needed for fruit growth.

Beth Finlay, Master Gardener Coordinator, Penn State Extension: “The concern is that repeated heavy infestations year after year could begin to result in tree loss. For growers, especially of grapes and hops, which are much smaller plants, that kind of feeding can definitely deplete a plant rather quickly.”

Although the insects do not bite or sting, Finlay says many homeowners find them to be a major nuisance.

Beth Finlay, Master Gardener Coordinator, Penn State Extension: “If nothing else, you just don’t want to swipe these insects out of your iced tea… We get calls with very strange remedies: everything from kerosene to bleach to motor oil to shotguns. None of those is a good way to go about management.”

While some insecticides work on the Spotted Lanternfly, experts are asking residents to simply crush them to avoid potential harm to bees or other non-target insects.

Beth Finlay, Master Gardener Coordinator, Penn State Extension: “Our concern from the beginning has been that if a couple of million households are turned loose with pesticides, we could create a bigger disaster even than the Spotted Lanternfly itself represents.”

Residents also can wrap sticky traps around their trees as the young insects are non-flying and tend to climb up the nearest tree trunk. Experts hope natural predators – like spiders and the Praying Mantis – may eventually reduce the number of Spotted Lanternflies.

Some vineyard operators have used chemicals to avoid dramatic declines in grape production. With 13,000 acres in vineyards, the state of Pennsylvania is the fifth largest producer of grapes.

Darvin Levengood, one of the owners of Manatawny Creek Winery in Douglassville, tore out one of his smaller vineyards in early May. A second, historically healthier vineyard also is struggling. Levengood suspects a bad-weather year in 2018 caused most of the harm, but the insects added insult to injury.

Darvin Levengood, Manatawny Creek Winery: “There’s not going to be enough grapes to go around. That’s my fear. We will probably buy grapes and juices to a greater extent than we did last year simply because we’re not going to have much of our own.”

Although Pennsylvania has spent roughly $3 million in addition to the money provided by the feds to slow the insect’s spread, Levengood is doubtful that the Spotted Lanternfly will be contained.

Darvin Levengood, Manatawny Creek Winery: “They are gearing up, they are spending a fair amount of money and trying to cover all the bases, and trying to find out what it takes to stop the spread of this thing … (cut to…) But I don’t see a lot of hope that it’s going to improve much in the next couple of years…I mean this is agriculture at its nastiest basically.”

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

Next, the Market to Market report.

The looming question of acreage lost to bad planting weather was answered on Friday when acreage and stocks reports were released. For the week, September wheat dropped 4 cents while the nearby corn contract plummeted 23 cents. Funds and private estimates of a bearish stocks report have been pushing the price of soybeans lower. USDA estimates a 10 percent reduction in planted acres. The news helped the August contract claw its way back to a 4 cent loss. August meal closed $1.70 per ton. December cotton gained 52 cents per hundredweight. Over in the dairy parlor, August Class III milk futures added 19 cents. Livestock was mixed. August cattle put on $2.12. August feeders expanded $3.17. And the August lean hog contract cut $1.90. In the currency markets, the U.S. Dollar index was flat. August crude oil gained 26 cents per barrel. COMEX Gold rose $11.00. And the Goldman Sachs Commodity Index increased almost 2 points to finish at 423.50. Joining us now to offer insight on these and other trends is one of our regular market analysts Ted Seifried. Ted, welcome back.

Seifried: Hi, Delaney. Thanks for having me.

Howell: Good to be here. Ted, give me some of your quick thoughts here, just overall thoughts about today's report. Was it what you expected?

Seifried: There's nothing quick about it. Okay, sure. Is it what I expected? I was one of the high guesses for acreage for corn acreage and it's simply because I understand what this report is. It's a survey that is taken in the first week of June basically. And in the first week of June if you looked at crop progress numbers we still had 30 million acres of corn to plant and 50 million acres of soybeans to plant. So basically this was acreage intentions 2.0, this wasn't a final acreage number by any means. So yeah, if you think about what we were thinking back at that time, MFP payments which are going to be done on acreage rather than by crop, that had guys moving more towards corn, the recent rally in corn prices had guys moving more towards corn. I'm not surprised that we saw a bigger corn number and a smaller soybean number. But it's a little bit hard to digest almost a 92 million acre corn crop given the weather that we've had. Now, the USDA is going to resurvey in the beginning of July and we're going to see that again on August 12th. We're probably going to see a much bigger number there. Now, the question is really --

Howell: A much bigger corn number?

Seifried: No, I'm sorry, a much different number there. The question is going to be is the soybean number going up and the corn number coming down? And I don't know if that's necessarily the case. I think really there's just a lot of prevent plant that's going to come out of that. You might see the soybean number come up a little bit. I don't know if it's going to be terribly bearish for the soybeans I guess is what I'm saying. But the corn number I think is going to come down. Even if it doesn't though, let's just say we have to live with 91.7. What is the yield going to be on that? And also how much of that is going to get harvested? Usually we use a .92 or .922% of harvested acreage, of planted acreage, now I'm thinking if we're going to stick with that higher acreage number that is coming down to like a .89 or so which is really going to lower harvested acreage and really lowers production as well. So one way or another we know we have a problem. Today's report was a shocker for a lot of people. It shouldn't have been, but it was. And now we have to live with it for a little while. But I think the market is going to kind of say yeah, this is not a real information, this is maybe what we were intending back in the beginning of June but it's not the reality of what we have now.

Howell: Okay. Ted, I think we've got a, you set us up nicely here for a social media question coming in from Dave in Madison, South Dakota. He said, how long will the market trade acreage before it peaks and waits for yield or has it already?

Seifried: Yeah, that's a great question, Dave. We were going to trade acreage until today and then now we start focusing on yield. But again with the resurvey and acreage, this acreage debate isn't going to go away any time soon. We're going to continue to be talking about this. But the focus will be more so now on growing season weather rather than planting season weather and what sort of yields we're going to get, the crop conditions, how our progress goes. The heat that we're getting right now I think is going to catch this crop up a little bit and I actually think that we're going to see crop conditions improve over the next couple of weeks. So that might temper some of the yield talk. But the fact of the matter is we've had a major problem this year. We've lost some production. It's just now it's the market's job to figure out how much production that we've lost and try to balance that out with price versus demand.

Howell: Ted, I want to talk soybeans specifically here. Lowered quite a bit, 80 million acres is what they're expecting. How does that change the soybean picture? Does it make us bullish about soybeans?

Seifried: Well, bullish is an interesting word. There's a lot of things for the soybeans that could be very bullish. Something else that is going on this weekend is you've got President Trump and President Xi in Tokyo talking about potential trade and I don't think we get a deal out of that. But there has been talk of lifting tariffs and if China lifts the soybean tariffs or agricultural tariffs and starts to buy soybeans and starts to buy pork that changes the game a little bit even though we have ASF and we know Chinese demand, I'm sorry China has ASF and we know that Chinese demand is cut back a bit, that would still be a big positive. 80 million acres of soybeans, wow, let's talk about yield. In my mind I think 45 is a pretty high benchmark to be looking at right now for soybean yield. And if that's the case on 80 million acres and we get Chinese business then yeah we could have a bullish market in soybeans. But there's a lot of what-ifs there. I don't think 80 million acres by itself is the path to a soybean rally. But lower stocks number today, the idea that yeah, maybe we can have a China deal, the idea of a lower yield, I think the outlook is more positive for soybeans than it was yesterday so that's good. And again, the question is going to be when we get to that August 12th report now is that soybean acreage number going to come up dramatically. So that might be sort of the wet blanket on soybeans for the time being.

Howell: Okay. And just really quick, Ted, we also know that the USDA is going to potentially change, or the soybean yield number in July. How much do you think they'll adjust that number?

Seifried: Yeah, good question, the 45 number is kind of the number I'm using right now and I think that would be a great target for them to start off with. To me that would make a lot of sense. So yeah, 45, again I think you take the acreage number with a grain of salt, that could go a little bit higher. That's probably the lowest acreage number we're going to see so I'm going to use like 82.5 and then use a 45 national average yield and that gives me a reasonable tight soybean carry, not tight but certainly a lot less burdensome than what we've been looking at, the billion bushel carryover plus. So a much more normal balance sheet and I think that's just sort of a sigh of relief for the soybean market and I think that allows for upside potential if corn wants to rally. I don't know if soybeans can do it by themselves short of a pretty awesome trade deal.

Howell: Okay. Ted, before we slide into talking about the livestock markets the wheat markets they could serve as a feed source for those livestock markets this year. At what point do corn prices and forage issues turn wheat into a viable option?

Seifried: I think we're already kind of there or we were there before the price reaction that we saw here today. But wheat was down almost as much or more. I think we're there really and with the amount of wheat that we have it should be a viable option for feed. Now it really depends on who is using what and who is willing to change rations and things like that. But it is an option. That being said, how much of an increase are we going to see in wheat for feed? Well, it's certainly not going to be 100 million bushels or more, probably not. So it's something that we're start chipping away at that wheat carryover for next year, this year is over. For next year is it going to turn wheat into a bullish market? Probably not, not unless we see corn really get into severe price ration mode.

Howell: Okay. Ted, we've got a question here following up on that forage issue from Matt in Amherst, Wisconsin. He said, cattle forage seems to be a huge issue in many areas. At what point will there be more cattle liquidation in both beef and dairy? And how will that affect the beef markets?

Seifried: Okay, so we can do like 15 minutes on that question.

Howell: Well, you have 1 minute.

Seifried: It's a really good question. You're already kind of seeing that a little bit with the lower placements number. When do we get to the bigger marketings number? I don't know if we're quite there yet. Take states like California, big dairy states, major forage issues. So milk production has been dropping, cattle for milk production have been dropping, this could be a bigger thing. We're not quite there yet but we are starting to already see sort of the effects of that and it could lower dairy production, it could lower beef production. But at the same time we probably need a little bit stronger domestic demand as well to really make that a big deal.

Howell: Ted, feeder cattle markets. Is the low in yet for us?

Seifried: Today was a good day, a good reaction to a big drop in corn prices, and I would say that before today we were starting to say what I would call sort of bottoming formations on the charts for both live cattle and feeder cattle. I would like to say that the rally that we saw in feeder cattle today would put a point on that and say hey, the low is in. But I'm very curious to see what corn does here over the next few weeks and keep an eye on that. So the two are going to work in tandem. But transitioning to the live cattle market I really like the look of the live cattle chart. I would like to see the feeders be the leaders to the upside. I hate clichés but that's a good one. I think live cattle have a chance to start going higher, especially as we get warmer temperatures and July 4th holiday and we really do get into the grilling season in earnest because we haven't really been able to do that yet. But I like the outlook for domestic demand for protein as a whole and I like the look of the chart of cattle. I think boxed beef prices can start to creep up as that demand creeps up, cash prices go up, and we can go higher in cattle. So I'm bullish cattle right now.

Howell: Okay. And finally we've got to talk about what is going on in the hog markets. Does this tiff between the Chinese and the Canadians give the U.S. an opportunity to slide in there and export some more hogs?

Seifried: Maybe. Right? Because if China is not buying from us then we just have more Canadian pork coming over our borders and further increasing the supply that we could potentially have. So if China is buying from us then that's a great deal. But Canada is going to have to have an outlet for their pork as well. So if they're not going to China then it could be coming our way and that’s part of the reason why we've been under pressure in hogs. But it was nice to see China on the export sales, although not huge numbers, but it was nice to see them on for last week. And everybody I'm talking to over in China is saying that it is really reaching crisis point right now and they are expecting our pork prices to skyrocket some time fairly soon. They're surprised that we've come down as much as we have and I kind of feel the same way. I feel like this is a realizing market and fairly soon we're going to start realizing that ooh boy, there's something going on here.

Howell: All right, we'll pick that up in Market Plus. Ted, thanks so much.

Seifried: The pleasure's mine, 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. When you subscribe to our YouTube channel you will get notified when the program and Market Plus are online. Find us at Market to Market. Join us again next week when we’ll explore how hay exporters continue working to recover from a dockside dispute. 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)

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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