Market to Market (August 23, 2019)

Aug 23, 2019  | 27 min  | Ep4501

Coming up on Market to Market -- Small refinery exemptions plague the White House. China drops the hammer in response to U.S. tariff threats. Pushback over grazing access on public lands. And market analysis with Dan Hueber, next.

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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. 

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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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This is the Friday, August 23 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell.

The U.S. is on track to go deeper in debt as tax cuts and the newly minted budget go into effect.–-

According to the Congressional Budget Office, increases to federal programs and a lifting of the debt limit will push the U.S. deficit over the $1 trillion mark by 2020.

The CBO also reported trade wars will cost U.S. households $580 a piece next year.

Fed Chair Jerome Powell is ready to cut interests rates but didn’t say when it would happen. Powell says trade wars have complicated the Fed’s ability to set rates which has contributed to a global economic slowdown. ---

The tariffs imposed on goods imported into the United States are not paid by countries like China but they are paid by the people who purchase those goods. The president acknowledged his Chinese trade policy might cause some economic pain and then, in a Friday morning Tweet, ordered all U.S. companies to find an alternative to China. The news put pressure on Wall Street and the Dow finished the day down by nearly 600 points.

Paul Yeager has the details.

As France prepares for the members of the G-7, and their protestors, a country not part of the contingent threw a wrench into the global financial machine. In response to recent threats by President Trump, the Chinese government will impose $75 billion in highly targeted tariffs. On September 1, if the U.S. duties are imposed, China will add 5 percent to the price of imported U.S. soybeans and another 10 percent to U.S. beef and pork. On December 15, another 10 percent would be applied to U.S. wheat, corn and sorghum. Peter Navarro, an advisor to the president, stated China’s response was anticipated and would only strengthen the president’s resolve.

As the crops in the fields in question mature, the White House faced another set of problems. At least two White House meetings focused on the backlash from last week’s reports of another round of small refinery exemptions. The President and CEO of the Renewable Fuels Association Geoff Cooper sent a tart-tounged letter to the EPA saying in part…

Such a crass statement is entirely at odds with the facts and demonstrates a woeful lack of understanding about the actual marketplace implications of EPA’s decision to approve SRE petitions…”

 

The RFA went on to add 2018 domestic ethanol consumption fell from 2017 levels, the first decline year-over-year in 20 years. And ethanol’s blend rate fell for the first time ever in the same time period.

Battle lines are being drawn between renewable fuel and oil industry states. Letters from elected officials on both sides of the aisle were sent to the EPA laying out reasons to support their point of view.

North America’s Building Trades Unions wants the EPA to stay the course citing RIN prices dropping from 90 cents in November of 2017 to 11 cents in recent days has allowed for some refineries to stay in operation and keep union employees on the job.

The president of NABTU urged the Trump Administration to continue lowering RFS requirements which they believe would help the president protect every manufacturing job. 

Before gaining the party’s nomination, Donald Trump campaigned on the issue of biofuels as well making campaign trail promises as far back as January of 2016.

January 19, 2016: Donald Trump, Then Republican Candidate for President: “The RFS, the Renewable Fuels Standard, is an important tool in the mission to achieve energy dependence for the United States. I will do all that is in my power as President to achieve that goal.”

Following his election, no less than two events in Iowa alone were held on expanding E15.

Those on the campaign trail seeking their party’s nomination saw an opportunity to present their ideas on the topic this week.

Joe Biden, Democratic Candidate for President: “Those waivers are a gigantic mistake. We should not be exempting, we should be insisting that these major oil companies in fact meet the criteria that is set.”

Beto O’Rourke, Democratic Candidate for President: “I would not hand out these waivers. The waiver process has been absolutely abused by President Trump, both the letter and the spirit of that law and the intent to take more gasoline and carbon based fuel off of the market and out of our air and replace it with what we're growing right here in Iowa.”

For Market to Market, I’m Paul Yeager.

The White House recently made a change to how federal agencies apply the Endangered Species Act which could shift how forest management is carried out.

Federal management has a big influence for those who use government land for their livelihood, or just for fun.

Josh Buettner has more in our Cover story.

Earlier this year, Congress passed the most sweeping land conservation bill in a decade.  In an age of bitterly divided government, leadership celebrated the extensive bi-partisan accomplishment.

Sen. Mitch McConnell/R-Kentucky: “The lands bill is the product of over 100 pieces of legislation addressing the management and preservation of some of our nation’s most precious natural areas.  It touches every state, features the input of a wide coalition of our colleagues, and has earned the support of a broad, diverse coalition of many advocates for public lands’ economic development and conservation.”

Some environmental and outdoor groups see the John D. Dingell Jr. Conservation, Management and Recreation Act – named in honor of the longest serving Congressman in U.S. history – as a win, particularly with its permanent authorization of conservation funding through fees collected from offshore energy producers who drill in federal waters.

Others remain skeptical of the new measure.  Though the law restricts over 370,000 acres from mineral extraction, the Trump Administration has promoted mining, oil and gas development on western public lands in the past.  The acting Director of the Department of the Interior’s Bureau of Land Management also has, previous to his appointment, advocated selling off federally owned public lands the agency oversees.

President Donald Trump: “This law will give countless Americans the chance to enjoy the natural wonders of our country.”

The Public Lands Law establishes five new national monuments, expands several national parks, and protects millions of acres and hundreds of miles of wild rivers from sea to shining sea.   

Arlene Jackson/National Park Service/Colorado National Monument: “The only way that you would see cattle grazing is if in the executive order or in the enabling legislation that Congress put together.  If there was a specific mention that cattle were okay, in this site, then you would see it.”

Many ranchers in the American west employ public lands to feed their herds and livestock grazing is mentioned several times in the law’s accompanying documentation.  While pre-established rights are largely grandfathered in, land swaps and other government acquired terrain in the future could allow officials to let federally issued grazing permits expire.  Some ranching advocates say legal battles – which take time and money – could be a cattlemen’s only recourse if they are forced to prove they possess the Congressionally-mandated original surface occupancy and cultivation rights. Those same ranchers fear an uphill battle against what they describe as decades of bureaucratic moves and sue-and-settle litigation which has muddied the winding trail of legal precedent.

For some making their living on or near public lands and have been among those pushing back against perceived government overreach for years, the new legislation is more of the same.

Mike Skidmore/Owner – Butte Propane/Truth Or Consequences, New Mexico: “Back in 2010, the United States Forest Service began doing a reassessment of the way they manage the forests and everything, and they began to close roads that they deemed were not necessary for access to the country.  Now there are over 4,000 miles of roads closed in the Gila National Forest that were open.”

Mike Skidmore owns Butte Propane in Truth or Consequences, New Mexico – which caters primarily to farmers who use the fuel to power irrigation pumps for watering the region’s arid cropland.

Nearly a decade ago, Skidmore, a proponent of multiple use western land policy, formed Keep Our Forest Open, a non-profit group opposing what they describe as natural resource bureaucracy.  Claiming a registration roll of almost 2,000 people from across the Southwest, the organization has scrutinized actions taken by the U.S. Forest Service using its legal powers to append Congressional wilderness designations. The special classification keeps forested and rural areas in primitive conditions.

Since the enactment of the legislation, 1.3 million acres have been designated as wilderness under the Conservation, Management and Recreation Act.  Close to one-third of the nearly 3 million acres in southwestern New Mexico’s Gila National Forest had already been classified as wilderness decades before the new law passed.

Mike Skidmore/Owner – Butte Propane/Truth Or Consequences, New Mexico: “Only Congress can designate a wilderness, but they’ve been doing this by fiat by saying we need to close this road because there’s an endangered species or water issue or whatever it is.  All kinds of people use the forest.  And more and more they’re trying to crowd people out, including ranchers.  They’ve reduced their grazing allotments.  They can’t run as many cattle.  And that’s one of the reasons we’ve seen these larger forest fires.”

Skidmore and others claim the US Forest Service’s transition from managing timber reserves to protecting wildlife habitat leaves fuel for forest fires in place.  Many across the Southwest believe that grazing cattle on federal land helps mitigate fire risk because livestock eat dry brush and grasses.

In a statement to Market to Market, the U.S. Forest Service Southwestern Region concurred with Skidmore on Congressional authority, adding that the inventory of Gila Forest lands are currently being evaluated for further wilderness suitability, but that it is a public process which allows citizens to help shape future outcomes.

Officials also pointed to what they described as well-publicized road closures in 2015 which were the result of a travel management decision aligning the agency with the National Environmental Protection Act.  But through collaboration with communities in and around Gila, those revisions have resulted in tweaks to corresponding systems, allowing the opening of some roads and closure of others to suit resident needs.

For Market to Market, I’m Josh Buettner.

Next, the Market to Market report.

Results from the U.S. crop tour were eclipsed by new Chinese tariff fears and President Trump’s order for all U.S. companies to immediately look for an alternative to China. For the week, September wheat gained a nickel while the nearby corn contract fell 11 cents. Renewed threats of higher tariffs compounded losses in the soybean market as the September soybean contract dropped 24 cents. September meal lost $5.00 per ton. December cotton dropped $1.92 per hundredweight. Over in the dairy parlor, September Class III milk futures lost 41 cents. The livestock sector ended mixed as October cattle gained $1.35. September feeders put on 87 cents. And the October lean hog contract shed $2.70. In the currency markets, the U.S. Dollar index lost 50 ticks. October crude oil shrank 82 cents per barrel. COMEX Gold put on $13.10 per ounce. And the Goldman Sachs Commodity Index fell nearly 3 points to finish at 393.35. Joining us now to offer insight on these and other trends is one of our regular market analysts Dan Hueber. Dan, welcome back.

Hueber: Thanks very much, great to be here.

Howell: Dan, I want to start off the show today, I think we've got a lot of social media questions that came in talking about the crop tour results. Did the market care this week that we had all of these?

Hueber: I certainly wouldn't say it didn't care and granted any crop tour is an estimate. I do think it probably would have had a little more impact, particularly after the results came out last night, had there not been some of this other news and round 2, round 3, whatever it is of the trade tariff that has hit us yet again. But yeah, I think it was a verification for a lot of people in the trade that those USDA numbers that were issued earlier this month are just not even in the ballpark as far as what reality looks like. So as we move out into August and maybe of course start feeling a few cooler temperatures and maybe a little more realization that we've got a lot of crop out there that is probably at risk yet and the numbers that we have factored into the price are probably not realistic, or at least in my opinion not realistic, that it should start supporting us. And getting past this period of just constant bad news throwing at the market I think is going to be enough to say we'll look back a month or two months from now and say geesh, that was kind of a ridiculous period, we probably never should have been there. That's how markets trade sometimes.

Howell: Yes, that's right. Dan, since you mentioned some weather issues there we've also had a good question sent into us this week that I'm going to throw in early in the show. Coming into us on Twitter from Kendall in Treynor, Iowa. How much frost premium is priced into the market especially considering the forecast for below normal temperatures heading into September?

Hueber: I would say viewing where we are in the price range for the year, zero. we're realistically down to lows, what were the lows of the year. Yes, we're better off than we were maybe into last fall, but realistically yes we have maybe factored in a slightly lower crop because we know the acreage is not what it once could have been. And even the USDA numbers did show a reduction in yield. Maybe not realistic as compared to what's out there. I would say there's absolutely no premium in the price right now trying to factor in any potential of a frost.

Howell: When you look at the wheat markets obviously the story is a little bit different there, they have been following pretty closely in tandem with the corn markets, but they had a pretty substantially higher export sales for this past week. Why didn't the market care?

Hueber: Well, of course wheat is still not going to be the dominant player, it's not going to be the dominant market out there. I wouldn't say it didn't care. The losses were significantly less if that can be called a good thing. But losses were not quite as bad in the wheat but I think that whole psychology of worrying about trade, the whole psychology of seeing a strong dollar week after week just continues to weigh on the wheat market. It was really in a retracement mode. We're not back down to the lows we even saw in the spring. We're probably closer than we should be. That said, we had a pretty good wheat harvest it looks like across Europe, the Soviet Union, the eastern block, those areas look like a pretty good wheat harvest too so there's still quite a bit of competition out there. But the U.S. is certainly not burdened with quite the kind of psychology that we're faced in the corn and the bean markets as this point in time. But that said, all of these markets are kind of under the burden of all the external factors at this point in time.

Howell: Yes, definitely. And when you look at the corn market it seems like maybe potentially they have been probing for a new low or a new bottom? Is that what you're seeing?

Hueber: Well, I think we're down testing lows. Not that there is a great justification why we would need to go to new lows but sometimes you do it just because you can, you want to in essence test the water out, see what's left down there. But I really think we have reached a point beyond value. I think the value investors have already looked at this and said, enough is enough. It's just a question mark of when do we start stimulating some buying from bottom pickers, maybe the shorts that just kind of recognize that with the amount of risk we have out there yet, I think we estimated there's somewhere around 8 million acres of corn that was planted after June 1, which really says we've got a tremendous amount of acreage out there that is at risk for even a normal frost let alone an early frost. So like I say once we get the calendar to roll over into August those things will probably -- I should stipulate as long as we're not hit with some other kind of an external, a new trade war, a new threat here or there, those factors will start to come back into play in the minds of traders and start providing value back into the prices once again.

Howell: When you look at the corn and soybean markets, we just keep kicking this can further and further down on yield and acreage and what is actually going to get harvested. When you look at marketing of new crops do you see a short window for corn and soybean prices to be break even or maybe where corn was earlier this month?

Hueber: I would tend to say we're pushing it down far enough late enough in the year that no, I think the marketing window is probably going to be a little bit wider than it would have been had there just been a normal bounce up in to early July, something like that. We almost did that but of course that got reversed with the acreage report and what not. No, I guess I kind of tend to believe that if we finally come to the recognition that the crop is shorter than what has been factored into the marketplace at this time it's probably going to be more of a gradual turnaround and granted there's always that risk at this point in time. Yes, if there was a frost situation I'm old enough to remember what happened in 1974 and we saw those late season frosts and of course the market really didn't get excited until late September, October in that year and truly for anybody in the physical trade that's the last thing you want. It is a miserable situation handling off quality corn and that's exactly what we'd end up with too.

Howell: When you look at the soybean markets are we seeing a cap put on what we could potentially see here for a rally because of all the trade war stuff like what came out this Friday?

Hueber: It certainly has been the case all year long and you can make the case that why haven't beans broken further than they have earlier than they have. If there has been any bright spot in the acreage situation it has been with fewer bean acreage numbers recorded than the trade really anticipated all spring and summer long. That said, with basically China out of our market, well yes they did have a few beans for new crop in the purchases here this week. But for all intents and purposes they're going to be out of this market. Even with the news we had out of South America that looks like they think they can pretty well supply the Chinese market right through the fall because of the less demand, because of the swine fever situation in China, it really puts a lid, even with some weather issues it puts a lid on what we can do to the upside of bean prices.

Howell: What about in the cotton markets? How much of an upside or downside potential do we have there? In the cotton markets.

Hueber: Actually cotton is one of those markets that yes, we have been in a very long downtrend here, even more so than in the grain markets. I really think as we move out into the 1st of September here we're probably, where you look at it on the extreme to the downside, we're matching lows we haven't seen for three to four years. I really think the cotton market could be one of the first to merge out of this long downtrend here.

Howell: That sounds like good news for cotton producers.

Hueber: Let's hope so, yes.

Howell: Dan, we had the cattle on feed report come out on late Friday. Anything to report there or anything noteworthy?

Hueber: Again, I just got to look at the report very briefly there but really nothing noteworthy. Granted I think one of the major things, of course we know the situation with the packing plant in Kansas really kind of put a nail in the coffin of the cattle here in the last couple of weeks. That said, the other element is we continue to at least maintain the numbers, a slight increase in the numbers. And when you have,, it was not a great grilling season so not great on the demand there and now you've pushed the retail side of the beef market quite high because of what has happened in the packing industry. And then you back it up with a slight reduction in overall exports this year which I think that was looking like it was going to be the bright spot for all the meat industry possibly earlier this year, that yes this could be a potential of a decent year to pick up exports and we have gone just the other way around. So it has just been here again one disappointment after another and the whole psychology of restricted trade and what that's doing and of course now you build in the additional concerns of is the economy teetering on the edge of moving to a recession, which tends to make people maybe spend a little bit less on those items as well. So it has just been a calamity of errors, a calamity of issues this year that have kept us under pressure.

Howell: When you look at the Tyson fires, obviously those were early-to-mid last week. In the aftermath then we saw cash discounted $6 to $8 with live and feeder cattle. Are we seeing recovery from that yet? Or how long will that take?

Hueber: The futures maybe are coming down to meet the cash at this point in time. But yes, they're going to balance out, but again it may not be because cash rallies significantly off of here. We might just see futures come down and meet them and both of them kind of move sideways until we still see some demand build up again.

Howell: Dan, you also mentioned something there about a recession, that we're possibly heading into a recession, concerned about it, right. With beef being usually a premium cut do we see consumers then turning to pork as maybe a viable option?

Hueber: Absolutely, I think you look at pork and poultry both. They are very price competitive compared to beef at this point in time. So if I think the dollar or the consumer is out there trying to stretch their dollar that's probably where they're going to go with their spending money on what kind of protein they want to have in their meat diet.

Howell: And interestingly enough China has been obviously increasing some of their protein demands because of African swine fever. But I read something this week that said they're trying to speed up the distribution process of some of those subsidy dollars for the hogs culled by African swine fever. Does that indicate to you that maybe China is not going to start importing big shipments of U.S. pork?

Hueber: Well, they may not bring in big shipments of U.S. pork period with the current environment there. When you look at their pork numbers as a whole I think they were up about 36% on the year to date. So it's not that they aren't trying to pick up pork and granted it's not coming from the U.S. or at least, I'm sorry I should step back a little bit. Our pork exports to China are up fairly substantially this year but it's certainly not the lion's share of what they have brought in. Now, of course what China, they're trying everything they can to increase that production, try to bring production back, and it isn't necessarily pork. I think in some situations they have just gone into what were hog facilities, filled in the pits and now they're putting chickens in to try to get some meat production back there. They have in some instances really tried to press the pork, increase of their pork production restarted and then had secondary outbreaks of the swine fever. So realistically as far as rebuilding their herds you're probably looking at a multiyear process at this point. So it's not going to be a quick change around, which should keep the door open on imports.

Howell: All right. Dan Hueber, thank you so much for joining us.

Hueber: Certainly. 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 explore how the mushroom capital of the world is working on an upgrade. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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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. 

(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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