Market to Market (August 9, 2019)

Aug 9, 2019  | 27 min  | Ep4451

Coming up on Market to Market -- China ups the ante in the trade war. A push to change your diet to slow a change in climate. A farmers market that cultivates customers on Capitol Hill. And market analysis with John Roach, next.

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This is the Friday, August 9 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell.

Many in rural America remain optimistic about their future even as the amount of trade with the now former top U.S. export market remains in question. --

Last month, the Purdue/CME Ag Barometer moved sharply higher as 78 percent of those responding believe the trade dispute with China will be resolved in agriculture’s favor.

The cost of doing business for those supplying rural America rose 0.2 percent in July as gasoline prices climbed higher.

When the volatile food and energy sectors are removed, Core PPI fell 0.1 percent. ---

President Trump’s threat last week for another round of tariffs on Chinese goods did not sit well with several sectors of the U.S. economy.

This week, the Chinese responded to the salvo with U.S. farmers, ranchers and consumers in the middle.

Peter Tubbs has more.

Both commodity and financial markets roiled this week after President Donald Trump proposed a new round of tariffs on imports from China. The Chinese government responded by halting all purchases of farm commodities from the United States. China is the second largest export destination for U.S. farmers.

Dale Moore, Executive Vice President, American Farm Bureau Federation: "Well, their announcement that they are going to basically stop importing all U.S. farm commodities products, to quote our president Zippy Duvall, when he said yesterday, it is a body blow.  And I don't know any other way to describe it.  It is a punch in the gut that is just taking away one of the most important and largest markets that we have spent decades developing."

The new proposed tariffs, which will take effect September 1st, will cover the $300 billion of goods imported from China not currently subject to tariff. The new batch of tariffed goods will cover more consumer products, raising prices for both importers and American consumers.

China also caused market drama when it announced that the Yuan would be allowed to drop to an 11-year low against the dollar. It has already lost 5% of its value this year. The President charged that action constitutes currency manipulation.

The Trump Administration is currently doling out its second round of tariff relief checks to commodity farmers, relief that could total $26 billion dollars once completed. The President questioned reports of producer unrest in rural America, and believes farmers are happy with the financial assistance.

President Donald Trump: “Well, you interviewed the wrong farmer, number one. Number two: Any amount that China sucks out, we’re making up out of the billions of dollars that we’re taking in. Remember this: Our country is taking in billions and billions of dollars from China.  We never took in ten cents from China.  And out of that many billions of dollars, we’re taking a part of it, and we’re giving it to the farmers because they’ve been targeted by China.  The farmers — they come out totally whole.  So you interviewed the wrong farmer, but that’s all right.”

For Market to Market, I’m Peter Tubbs.

According to USDA, one farmer feeds 155 people annually. Holding on to that number could get more challenging as the population grows and the climate changes.

A recent study by The Union of Concerned Scientists revealed the number of days topping 100 degrees will increase over the next 80 years. Those hot, humid days could impact crop production.

The United Nations piled on to the news as the planet’s population ticks towards 7.7 billion.

John Torpy has the story.       

The agricultural industry received an extra helping of bad news as a newly released report put farming in a negative light.

Over 100 scientists from 52 countries signed-off on a United Nations whitepaper at the end of this week. The Intergovernmental Panel on Climate Change concluded human actions on the land are increasing global carbon dioxide levels. In turn, the report reveals the higher CO2 levels are degrading the quality of the food being grown. Released this week in Geneva, the study concludes global temperature will increase over 1.5 degrees Fahrenheit in the next 50 years and could increase food insecurity worldwide. However, authors of the study say a change in human behavior may be the best plan to combatting the problem.

Jim Skea, Co-Chair, Intergovernmental Panel on Climate Change:” Some diets require more land and water and lead to higher emissions than others. For example diets that are high in grains, nuts and vegetables have a lower carbon footprint than those that are high in meat and they lead to better health outcomes."

For Market to Market, I’m John Torpy.

The National Farmers Market Coalition has declared that August 4 through 10 is National Farmers Market Week.

USDA figures show over 41,000 farms made more than $700 million worth of direct sales to consumers in 2015.

Recently, a special farmers market was setup in the nation’s capital where the outcome had less to do with making a profit and more to do with cultivating relationships.

Here’s more in our cover story.

According to the American Farm Bureau Federation, the typical American consumer is at least three generations removed from the farm. To close the gap, farmers and ranchers have found it all the more vital for rural Americans to “share their story”. 

During the Farm Credit Services annual fly-in event, held just a few short weeks ago in Washington, D.C., producers who use the financial institutions lending services were able to try their hand at engaging folks from both sides of the aisle about their farms and their retail products. 

Todd VanHoose, President and CEO, Farm Credit Services: “Probably the most important thing we're going to try to do is educate people about agriculture. Because if you look at Congress today, very few of them have a direct tie to agriculture. They don't understand the modern realities. A lot of them are supportive of agriculture. They had this good feeling about farmers, but they don't know what the reality of modern agriculture is in. So job one up there for us is explain that.”

The third annual event was hosted in the Library of Congress. More than 80 farmers and ranchers brought everything from pecans to maple syrup to put on display in hopes of spurring a little conversation. 

Todd Van Hoose, President and CEO, Farm Credit Services: “One of the things we try to stress is agriculture is not the same everywhere. And some of its big and some of it's small and some of it's commodities and some of it's really specialty products. And if you embrace all of that, you're going to start to understand agriculture as it exists in the world today. And you get a much clearer picture on what it takes to be successful out there. And that's the message we're trying to bring people.”

Attendees, which ranged from Capitol Hill Staffers to Lobbyists and legislators, were given shopping bags upon their arrival to browse the “marketplace.” They were encouraged to visit with the various vendors about their operations as well as take home a sample of the products on display. 

Lotsee Spradling and her husband Mike own the Flying G Ranch in Oklahoma. They’ve been running Polled Hereford Cattle since 1932. But In 1986, after Lotsee and Mike got married, they began growing Pecans. Their ranch produced nearly 1/10 of Oklahoma’s pecan crop last year.

Lotsee says there are just two things that consistently impact their family’s operation. 

Lotsee Spradling, Flying G Ranch Sandsprings, Oklahoma: “Mother Nature's the biggest. Um, probably politicians are the next biggest. Um, you have to be careful that you follow all the rules and regulations if they shut down a market. For us, China's been a big market for us with the trade things going on. That market has definitely gone from being booming to a trickle. (4:04)

Part of the objective for the marketplace event is to connect those producers and “give them a face” as VanHoose put it. Another goal is to give the producers a voice by sharing their thoughts and opinions with the folks who guide and create the legislation that impacts them. 

Lotsee Spradling, Flying G Ranch Sandsprings, Oklahoma: “First of all, we appreciate the free market we have. We definitely want to thank them for the country we live in, the marketplace we have that's prime on our list. But we also want to share our concerns about, um, some of the tariffs, both going both ways and also the group where with Farm Credit, um, is instrumental in keeping most of us a float because the local bank, whether even if you're in a rural town, the local banks do not understand agriculture anymore. The people that are renting and most of them are not born and bred rural and so they don't understand. So one of the things is we want to keep farm credit viable and make understand how essential it is to rural America for us to feed the world. 

The 116th Congress, which is currently on their August recess, is the most racially and ethnically diverse group the United States has ever seen. And, as the Urban sprawl continues, many in rural America have said they struggle to find the votes needed to elect leaders who are educated on the policy impacting their rural constituents.

Mark Yeager and his daughter Anna, have started making the transition over the past couple of years to give their business a face. They discovered more consumers wanting to interact with the people behind their products. 

Mark Yeager, Red Land Farms, Moulton, Alabama: “We're telling a story of our cotton that we're growing. ginning, picking the best we got out of what we make and turning it into a, a textile that you can't buy anywhere in America, not where, you know, where the field it was grown in.”

The Yeagers have been farming cotton since the early 80s. It wasn’t until 2015 when Anna moved home full-time, after a stint in the Big Apple, they decided to cut out the middle-man and market their cotton directly to consumers. 

Anna Brakefield, Red Land Farm, Alabama: “I fought like crazy to not come back to the family farm. Um, but my dad approached me in 2015 with this idea of taking the cotton that we're growing and making it into a consumable good that we could sell direct to consumer.” And I thought that that had such huge potential, um, in the day and time that we're living in right now.

Red Land Cotton, the business under which products from their Red Land Farms are sold, focuses primarily on textiles such as bedding and towels. Customer assessment of the product line, which includes a “Made in America” logo, have found the Yeagers selling their 100% cotton-based products at a premium.  

Over the past three plus years, Anna has focused on sharing those values that Red Land Farms brings into their textiles. She hopes that her fellow agriculturalists will someday be able to join forces to educate a wider swath of the public.

Anna Brakefield, Red Land Farm, Alabama: “I'm personally hoping to go around and meet a bunch of other farmers that are creating products and, and seeing how we might, could work together even, um, and collaborate like that.” (3:11)

Lotsee Spradling would agree that making the connection starts with one conversation at a time. 

Lotsee Spradling, Flying G Ranch, Sandsprings, Oklahoma: “We're face to face with another human being. And I have to eat, we have to make a living. It really is a nice connection”.

Next, the Market to Market report.

Dry weather, a planned trade meeting and anticipation of Monday’s report helped the commodity markets with a strong finish. For the week, September wheat gained 9 cents while the nearby corn contract rose 11 cents. Prospects for a meeting between President’s Trump and Xi and short-covering before Monday’s WASDE pushed the September soybean contract 23 cents higher. September meal climbed $4 per ton. December cotton declined 52 cents per hundredweight. Over in the dairy parlor, September Class III milk futures added a dime. The livestock sector was mixed. October cattle cut $1.08. September feeders put on 22 cents. And the October lean hog contract rebounded $1.25. In the currency markets, the U.S. Dollar index declined 55 ticks. September crude oil lost 97 cents per barrel. COMEX Gold gained $55.10 per ounce.   And the Goldman Sachs Commodity Index fell nearly 7 points to finish at 400.35. Joining us now to offer insight on these and other trends is our senior market analyst John Roach. John, welcome back.

Roach: Thanks, Delaney. Thanks for having me.

Howell: John, I want to get just your quick headline caption here of what to expect for Monday's report.

Roach: Some price action following the numbers. We have such wide variety, a wide range of estimates on planted acres and on yield. But on planted acres alone there's a 6 million, little over 6 million acre range for soybeans and in corn it's a little over a 5 million acre range of guesstimates from the high to the low. And those are really wide numbers, a wide range of estimates and then we have similar kind of a yield estimate range. So we're all waiting to see what the USDA will tell us from a prevent plant standpoint and what actually got planted and what farmers intentions are.

Howell: So John, let me ask you this before we move onto our wheat discussion. Does Monday's report matter?

Roach: I think it matters a lot because so far the numbers that we've been looking at from the USDA, we knew the day they came out that they didn't have enough data to really be able to tell us because farmers planned on planting but then weren't able to and we don't know who did and who didn't. Now we're going to know that and so we're really going to have a pretty good acreage number. But we're not going to know about yields yet, particularly with the kind of weather pattern that we have right now. There's a pretty widespread area that is really missing out on rains and it's starting to make a difference out in the field. So the yield situation is still maybe not wide open but almost wide open. There's a lot of crop that is going to take a longer than normal kind of a growing season. And so we still have a couple more cards to play in this poker game before we know what we have.

Howell: Okay, wait and see game.

Roach: It's a wait and see game and I really think that for most we're going to need to see a combine monitor tell us what's in the field. And at that time we're going to have huge variability across one field and we're going to have huge variability from field to field and certainly from county to county.

Howell: Okay. John, when we look at the wheat market, let's put Monday's reports aside. Can September Chicago wheat break through its 200 day moving average here?

Roach: It's trying. We think so. We think that we had solid buy signals on wheat in the low trade here a week or so ago and we've come up out of that and we have attacked the 20 day moving average. We think that the spec funds will come back in and reown some of the wheat that they have sold out lately. But we've got to push that trend a little bit higher and we think that there's a good chance that we could do that.

Howell: And obviously the wheat market has been working very closely here in tandem with the corn market. Tell me, did we put in a reversal earlier this week in the corn market?

Roach: Well, that's what I would call it. The market came down and it was not able to move down any further and we reversed and came right up and we did it right in the midst of a buy signal. So the market is actually performing very well in here although all the news is about as negative as it can possibly be right now. That's wrong, not all, but certainly the demand side and the concern with the trade wars and so forth. We just had a lot of negative news come into the marketplace and the market quit going down.

Howell: John, walk me through the two scenarios here if we have a bullish report versus a bearish report on Monday for the corn markets. What could and might happen?

Roach: Well, if we were to have a bullish report we would likely jump up above what we call our green line 20 day moving average. We think that would trigger spec fund buying. Spec funds have been very strong sellers in the last three trading weeks and we think that they could replace those longs and carry the market on higher. On the flip side, if it turned out that the numbers were a negative number we'll be very quickly down attacking the lows that we've made here in the last week or so and may well dig further down into support. But I do think that the corn market has such uncertainty out here as far as yields are concerned and the bean market as well that it's very difficult to think we can take prices down very far below these recent lows. I think the users will accumulate corn as the market slides and I think farmers will shut their sales off completely and so I think the market will find support relatively quickly. I don't see a big washout, that's I guess what I'm saying.

Howell: Okay. John, when you look long-term then we've got a really great question, I think a lot of producers this has been on their mind, from Lexi in Iowa here. She said, how aggressive would you be in marketing the 2020 and 2021 crop? The markets are telling us not to grow beans in need of adding positive equity to every contract.

Roach: Well, the trouble I have with doing that is that first of all I'm in the wrong time of the year. The market peak was 50 cents or more ago and I'm just coming off of buy signals. And so talking about selling it's sort of like violating every rule I know. And when I look out and talk about selling next year's crop at price levels that really don't have much of any profit in them where we still have to go through a growing season in this country in the next month, we have another growing season in South America and then another growing season for the U.S. before we have to sell some of that 2020 crop. So the whole idea that we're rushing out to sell things because we're scared to death, in my years of doing this business that is the biggest mistake you can make. You make sales because it makes sense to make sales and your signals and your indicators are telling you to do that. And right now we don't have that. What we do have is fear and the fear is what is driving people to make what I think are very --

Howell: Rash decisions?

Roach: Rash, that's a good for it, rash, rash. I think it's a rash decision to be selling out of fear for this next year.

Howell: John, was it fear or something else that enticed some strong closes on Thursday and Friday in the soybean markets?

Roach: I think it's the realization that the spec funds are already heavy shorts and I think as the market started to gain some momentum they had to come in and cover up some of those shorts. And I think that we really have very few people who want to sell any soybeans right now, there's too much uncertainty. So when the buyers come to the marketplace and there's really not sellers on the other side prices have to rally, they have to go up and find the seller.

Howell: Right. And were there any weather concerns built in there as well or is the weather concerns more pertaining to the corn markets?

Roach: I think it's very much pertaining to the bean market. I met with a group of people west of Oskaloosa, Iowa, southeastern Iowa, which is kind of a garden spot, but they haven't had rain now for several weeks and their crops are starting to deteriorate a little bit in the areas where the lighter soil is and beans really need good solid August rains in order to bear big yields or good yields and we're just not getting it.

Howell: John, I've got one more really good social media question I want to just squeeze in there so we can talk about a little bit of the South American competition that's going on. We've got Phil in Dresden, Ontario @agridome on Twitter said, he's reading reports that higher prices and premiums for Brazil soybeans since the recent increase in U.S. tariffs have momentarily stopped Chinese buying of Brazilian soybeans. At the end of the day with global soybeans is it about the lowest price?

Roach: It usually is about the lowest price. The buyers around the world go to who has the cheapest offer. However, political decisions come in there as well, particularly in a centrally run economy such as China. And when the boss at the top says no, don't buy any, then price is not what's most important. However, the other people in the world will come to U.S. soybeans rather than pay the premium to take Brazilian soybeans. So there's a certain amount of that shifting that occurs. But one of the things that people need to notice, soybean oil has just pushed up to the highest level in two years in China. Their crushing process has slowed down. Their meal has stockpiled a little bit and so they're running short on oil and we're seeing a pretty strong move in palm oil as well. So the oil market can help carry the soybeans a little bit and that may be the thing that people are missing this week is it's oil that has led this market up.

Howell: John, when you look at then the relationship between the soybean markets and the hog markets obviously direct correlation there and in China in particular. Are we going to see China follow through on U.S. purchases of pork? We saw the U.S. pork cutout values at their highest levels in two years.

Roach: Well, this week we saw business to China and business to of all places Australia where apparently they have sold out their pork supplies that they're having to reimport from the United States. We're also seeing meal demand to go into poultry all around the world that is helping to fill that protein gap left by the pork shortage because of the African swine fever. So it's interesting how the movement of commodities goes on around the world and we're seeing that export demand showing up for pork.

Howell: And when you look at the export demand for pork in particular, Australia sells to China or whoever sells to China and then turns to the U.S. as a customer. Is there much price action or price opportunity missed out if we're exporting it to other countries besides China?

Roach: That's a good question. Whenever you have a market that is restricted, particularly when it's a large buyer that has done the restricting, it definitely changes the economics and it's not as an efficient market if you will. So that means that somebody is paying too much and it just, that's just how trade is when you get into inefficient situations and particularly when you're running into some short supplies.

Howell: So your next fourth quarter here estimates for the hog market and let's throw in live cattle too since we didn't get to touch on that much. What are your outlooks for those two markets?

Roach: We think we have bigger supplies coming ahead. We think the market can bounce up but we think that we'll put more tonnage, particularly on cattle, as we move into the fall. And so we think we're going to have some tough sledding here as we move through the October, November, December timeframe.

Howell: Okay. John, I'll save feeder cattle for Market Plus. Thank you so much for joining me.

Roach: 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. Using Twitter allows you to stay 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 explore how the U.S. leather industry is searching for new markets. 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.

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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. 

(music)

Sukup Manufacturing Company – providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing, store now, profit later.      

 

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