Market to Market (September 20, 2019)

Sep 20, 2019  | 27 min  | Ep4505

Coming up on Market to Market -- Calling on the past to push the future of trade.

Biofuel supporters want less talk and more action. The wind industry hits resistance in a key state. And market analysis with Sue Martin, next.

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This is the Friday, September 20 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell. Despite threats of an economic slowdown and the potential for a recession the U.S. economy is showing signs of good health. --

Housing starts jumped 12.3 percent last month on a surge in apartment construction.

Existing home sales rose 1.3 percent - a 17-month high.

The Fed cut interest rates by a quarter point even with dissension among the board of governors.

Creighton’s 10-state Rural Mainstreet Index climbed above growth neutral as stalled Chinese trade talks reduced banker confidence.---

There was another campaign this week to get some trade momentum going. Speaker of the House Nancy Pelosi says the bill could pass but House Democrats remain concerned about the enforcement of labor and environmental laws.

Peter Tubbs has more.  

Sonny Perdue, U.S. Secretary of Agriculture: “Agriculture in this place, in this city, is the probably the least partisan issue that anyone can talk about.”

Thursday, four former Secretaries of Agriculture spoke in support of passage of the United States – Mexico – Canada Agreement, or USMCA. The update of the North American Free – Trade Agreement, known as NAFTA, has been waiting for a vote in Congress since late 2018.

John Block, Dan Glickman and Tom Vilsack joined current Secretary of Agriculture Sonny Perdue to endorse the new trade pact.

Dan Glickman, U.S. Secretary of Agriculture, Clinton Administration, 1995-2001: “That uncertainty would be much worse if we didn’t get a trade agreement with our partners, our neighbors, Mexico and Canada. After all, if we can’t work out with them, we can’t work out with anybody. Then farmers face really serious problems and anxieties.”

Tom Vilsack, U.S. Secretary of Agriculture, Obama Administration, 2009-2017: “Thirty percent of what’s grown, raised, harvested this year and every year from America’s farmers, ranchers and producers ultimately ends up in an export market. Not only does it help support farm income, a number of good-paying jobs.”

The elimination of Canada’s Class 7 dairy classification was singled out as a victory for American dairy producers. The U.S. had charged that the Class 7 classification had kept American dairy protein and powdered milk solids out of the Canadian market, depressing the global price for those products.

Tom Vilsack, U.S. Secretary of Agriculture, Obama Administration, 2009-2017: “So for U.S. dairy, we know from the ITC report that this is about $300 million dollars in additional business opportunity that can be created through the ratification and implementation of USMCA.”

Eight former Secretaries signed a letter in support of passage of the USMCA. Representing the last six Presidential administrations, and from both sides of the political aisle, the Secretaries argued that the USMCA is an improvement over NAFTA, and passage would give momentum to negotiators working on other pending trade agreements.

John Block, U.S. Secretary of Agriculture, Reagan Administration, 1981-1986: “The secretaries of Agriculture, both parties, are standing shoulder to shoulder, saying to the Congress, go ahead and pass this legislation. Because that’s the first step, that’s the first step, get that done.”

For Market to Market, I’m Peter Tubbs.

Last week the Environmental Protection Agency was cheered by rural America for revoking the 2015 Obama-era WOTUS rule. However, the EPA’s actions on refinery exemptions have spoken volumes to rural America.

Paul Yeager has the story.

The White House is again at the center of the debate on biofuels.

Late last week, farm-state representatives made their case to reverse the Environmental Protection Agency’s granting of 31 waivers for oil companies on blending requirements.

Iowa Senator Charles Grassley said what transpired in that session is a win for all sides in this discussion, but still wants a deal in writing.

Senator Charles Grassley, R – Iowa: “We left that meeting satisfied that if it comes out on paper, because EPA writing it and you know, I think a big oil has too much influence in EPA. But if it comes out on paper, the way that we orally had a discussion with the president and everybody seemed to be satisfied.”

Currently, the Renewable Fuel Standard sets the blending level at 15 billion gallons of corn or starch-based ethanol. However, that mark was missed in 2018 and has been short of the mandated goal since 2014 according to a report from the Congressional Research Service. What started at 4 billion in 2006 aims to hit 36 billion gallons of all renewable fuels by 2022.

The president has outlined support for renewable fuels such as ethanol. But as Senator Grassley said last week, not everyone in the Trump administration carries the same opinion as the president.

This week, oil state senators were going to get their turn at the White House to make their closing argument on the issue.  

Senator Charles Grassley, R – Iowa: “I shouldn't have to go back to the president and say anymore. If the President and the people advising him say we have a deal, we have a deal. And what better deal could you get and then the small refiners can get their waivers and we're going to get the use of ethanol what we were promised under the law.”

For Market to Market, I’m Paul Yeager.

In the 1970s, renewable energy was touted as a way to save the planet. Power companies resisted saying fossil fuels were the most reliable, cost effective method of producing energy.

Today, power producers like Mid-American Energy, have changed their tune. But, as producer John Torpy discovered, there are detractors to the energy giant’s work to employ renewables.

It should be noted that Mid-American Energy helps fund Iowa Public Television, where Market to Market is produced.

In recent decades, the number of whirling blades scraping Midwestern skies has grown steadily across the nation’s midsection. That growth may soon have to contend with the loss of a primary building block - the Energy Production Tax Credit.

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In the early 1990’s, the tax-deferred program passed through Congress, helping stabilize and expand the use of renewable energy. The credits helped companies like Iowa-based MidAmerican Energy invest heavily in wind energy production. In 2016, nearly half of the power provided to customers was produced by wind turbines. The company plans on making 100 percent of its power portfolio renewable by 2021.

The tax credits also spurred growth in the industry and helped wind power producers update aging infrastructure. MidAmerican officials say the credits made it possible to pay for the upgrades without passing the cost along to customers.

Spencer Moore, VP of Generation, MidAmerican Energy: ”… as we look at the project, the real benefit for our customers is that we're going to get a million, about a million megawatt-hours a year of additional energy out of these existing projects.”

MidAmerican, like other wind energy providers, is working on a tight timetable. With passage of the Bipartisan Budget Act of 2018, wind energy businesses may be witness to the curtain call for Energy Production Tax Credits. Wind energy projects starting construction by December 2019 are eligible for the full credit. Projects starting after 2019 will see the credit shrink by 20 percent per year until the program expires in 2022.

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Those companies working to expand their production capacity also face hurdles in communities where the towers are being erected. Some landowners charge that sight and noise pollution hurts property values as well as creating a potential health risk. Environmental groups contend the turbines are a threat to bats and birds.

However, according to U.S. Fish and Wildlife data, the number of birds killed by buildings is 1,500 times greater than the number of birds killed by wind turbines. Further, a 2014 National Institutes of Health study revealed noise and visual complaints had more to do with who was receiving economic benefit from nearby wind farms. And three university studies showed wind farms had no impact on housing prices.

In the town of Winterset, Iowa, residents on both sides of the wind energy discussion packed a Madison County board of supervisor’s meeting to capacity. At issue is a proposed one-year moratorium on new renewable energy projects.

The complaint centers around MidAmerican’s recently secured permission to build 52 new wind turbines in the southwestern Iowa county. These structures will rise almost 500 feet above the landscape, be 1,500 feet from the nearest home, and cost nearly $3 million dollars each. A large percentage of those living in the construction area signed a petition to delay the project.

Following a recommendation by the County Board of Health, county supervisors met to weigh the merits of the idea.

Alan Lange, Winterset, Iowa: “I do think that it's time to take a step back and consider the concerns that the community, that the community has brought forth.”

Some attendees showed their support for the wind industry.

Bonnie Halgen, Winterset, Iowa:” I just want to be the personal face of the 10,000 rural Americans who are working in wind and a time when more young Iowans are leaving our state, looking for good paying jobs. I think it's important the decisions that we make to help keep our young people at home.”

Other residents felt energy companies are pushing new construction through without giving local residents any time to ask questions.

Mary Jobst, Earlham, Iowa: “MidAmerican Energy claims they are a moral and ethical company that is obsessively, relentlessly at our service. A moral and ethical company, who is a good neighbor, does not force wind turbines on people who do not want them.”

Officials with MidAmerican Energy point out wind energy has a proven economic benefit for rural communities.

Adam Jablonski, Director of Renewable Energy, MidAmerican Energy:” We've got land owner participation. We've got, you know, over 2,600 operating turbines across state. There's more than 4,800 turbines currently operating across the state. Some more than two decades in a, we, we, we didn't know why there was an issue with this particular, you know, handful of turbines here. Um, so let's, we're coming just to make sure people get the facts when they're making their decisions.”

Some of those sitting on the board of supervisors worry the bigger structures will have an unfavorable impact and question the motivation of those who approved the project.

Diane Fitch, Madison County Supervisor: ”I think this is, weak kneed pandering politicians that buy into big corporate America and they have huge lobbyists and they're giving our money. It's our money. It's not their money. It's our money that they're taking and putting these up. I don't think it's fair.”

After all the voices were heard, the three member board of supervisors voted 2-1 in favor of a one-year new construction moratorium. The ruling must survive two more votes before it takes effect.

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

The commodity markets were mostly steady as demand bears pushed back against supply bulls. For the week, December wheat was flat while the nearby corn contract gained 2 cents. As the threat of a September freeze fades and Chinese trade negotiators backed out of a U.S. farm tour the November soybean contract fell back 16 cents. December meal lost $6.50 per ton. December cotton dropped $1.76 per hundredweight. Over in the dairy parlor, October Class III milk futures lost 50 cents. The livestock sector ended mixed as October cattle added $1.27. October feeders put on $4.62. And the October lean hog contract shed $6.13. In the currency markets, the U.S. Dollar index gained 32 ticks. October crude oil rose $3.25 per barrel. COMEX Gold rebounded $24.70 per ounce. And the Goldman Sachs Commodity Index jumped more than 16 points to finish at 419.85. Joining us now to offer insight on these and other trends is one of our regular market analysts, Sue Martin. Sue, welcome back.

Martin: Thank you, Delaney. It's nice to be here.

Howell: Sue, I'm glad to have you on the show today. There's certainly a lot to discuss. We're going to kick off our discussion with a social media question coming to us here from Tim in Crookston, Minnesota. He said, will the spring wheat crop become feed wheat?

Martin: Well, with all the rain that they've had one would think yes. But the crop is about 80%, 85% harvested. So I would have to say that there's a fair amount of good quality wheat still there. Reading various websites in the area it sounds like the wheat is in better condition or quality than what was originally thought. So I think that we'll have a good supply of quality wheat, milling wheat. But still it's too wet at the time to finish up harvest but they're on the downhill slide.

Howell: Well Sue, speaking of harvest, here within the next week or two we're going to start seeing a lot of combines rolling across the Corn Belt. When you look at the corn acres in particular how long until we have a yield estimate? And I also want to add in there, how long until the market starts to factor in those numbers that the combines are rolling with?

Martin: Well, it's going to be interesting because that is what is going to help drive this market if the yields are down as much as what some of the public thinks. The USDA, the WASDE was very quick to drop back in June and then they raised it a little bit and then dropped back here in September. But the bottom line is I think that we're going to see NASS, they're going to have a better handle on it as they get more into October. This heat that we're seeing is very abnormal for this time of the year and it is probably sort of a double-edged sword in Illinois and Indiana and Ohio, Wisconsin, Michigan. But it is bringing the crop along better. And your nighttime temperatures are staying over 70 degrees so that's transferring sugar into starch and that's putting weight into that kernel. So the fear of a frost/freeze, which would have killed the crop and stopped it right where it was at, is kind of passed for now and so the trade is looking at it that gee, we keep pushing this out a week and a week and a week that this crop just may make it home. Our weather sources believe that we will see, especially the eastern half of the U.S., enjoying a prolonged Indian summer and that is just about the way it seems like it's coming off. So for now the market is not getting fed any more positive news to push it. But if we fall back and then all of a sudden we start hearing the yields that is going to certainly turn this market around and give us another step higher. But for now $3.75 seems to be static.

Howell: Sue, for a while there we were talking about maybe the potential for $5 corn. Is that out of the question now?

Martin: I think for now it is. We need to see this market, first off do we take out last year's lows? No, I don't think so. That would be $3.42 and a half. But I will say underneath that there's a gap down to $3.38. I don't see that on corn where we've had wheat that did not make higher highs for the year came down and took out all the way back to 2015 the lows of the years in between so that weighed on corn and it's struggling because there's just so much wheat in the world and we've got Russia underpricing us, although they're going to be dealing with some pretty cold temperatures here in grain country, especially north of Ukraine, and then we've got France's wheat crop looking awfully good. So we have competition. And there isn't a lot of talk about Australia. But I think the market more than anything is just lacking news. And in the path of least resistance in that kind of environment it's going to be softer. So I think that when we look at the corn market I think we're seeing a subtle shift towards maybe the smart money kind of, as Shawn Hackett would say, start to maybe look at the long side but they certainly aren't full bore yet either. And the bean market is kind of the same way and we made higher highs this week --

Howell: In the bean markets.

Martin: Yes. And then closed the week, well we did I think in corn too, and then closed the week lower. So that is certainly going to portend to us that we'll probably see lower lows next week to start with.

Howell: Sue, there was definitely no shortage of news for the soybean markets on Friday with the announcement of the Chinese canceling their U.S. farm tour. Monday do we rebound from our poor closes on Friday?

Martin: Well, if we do I don't think they'll hold because I do think that this week's lows are going to be tested and come out. We thought, you've got such a huge key reversal month going in beans and so we kind of expect that maybe we'll hang onto a decent monthly close at the end of the month because we're going into October and we have anticipation. I feel like we're just doing a dance with the Chinese. They must have needed to buy more beans and needed them cheaper so they just pulled back away and President Trump was saying we want a deal not just on agricultural buying, we want it across the board. And so they kind of turned around and said, well we're not going to go visit your farms. Well, that was behooving them more than it was us anyway. So I'm not sure. The trade looked at it as oh, things are going bad again. But to be honest I just think it was a dance and a ploy and there's rumors that they have bought two to three cargos of beans today out of the Pacific Northwest. But the other thing is that they're also inquiring about offers out of Brazil and so for another two to three cargos there. So we'll see what happens. But it's just, I just call it a dance, it's manipulation.

Howell: It is. Sue, when you look at the soybean situation, China out of the picture, based off of last week's report has the soybean picture changed for you with the change in the carryover or ending stocks?

Martin: I think that the bean yields aren't going to be what everybody expects. I think this heat is bringing them on too quickly. It's helpful if you're catching rain along with the heat, that might help. But I think the crops are being pushed and I don't think that's a good thing overall. I think demand is very good for soybeans besides China. If there's one good thing at the end of the day about this it's that we have looked elsewhere for other buyers around the world and solidified ourselves being more diversified. In the meantime China was already staring to do that before these trade tariffs ever went into effect. So it's all a lot of psychology. We'd love to have Chinese buying back and in full force. It may be something that we have to earn back. They're going to use it to their best advantage.

Howell: Yes they will. And we've seen that continued on with the trade talk disputes. Sue, let's talk about what's going on in the livestock markets. In particular, give us the update from today's cattle on feed report. Anything to note there?

Martin: Well the placements number was the positive number. It was down at 91% as of September 1st and that was a lot lower than the average guess. The average guess was I believe around 94. And that is down I want to say about 8% from a year ago, something like that. So that is a positive towards February cattle. In the meantime, the marketings number was right in line with the lower edge of the guess, which was only 98% to 99%, so 98%. And then the on feed number was at 99, just right under 99. So I would call the report pretty friendly actually. But the one thing I will say is as we move forward in cattle going into the first quarter of next year it would be nice to be bullish because of the fact that we've got very good economy, demand for proteins is very good and we're seeing that in cow slaughter. Cow slaughter is up dramatically from a year ago so that's a plus. But in the meantime I think that we have to keep one thing in mind that's different this year possibly, we won't know yet until we get there, but a year ago remember our winter was horribly awful with vortexes and snows and that type of thing and bitterly cold. If we're not quite like that this year coming up then that is going to mean that cattle will gain weight better and be moving more aggressively as opposed to getting backed up or whatever.

Howell: Okay. Sue, we've got to of course talk about the lean hog markets. It seemed like last week they had some wind in their sails. This week they pulled back 9%. Is a turnaround not in the cards for the lean hog markets?

Martin: I think the hog market first off, when we look domestically the hog producer is basically expanding or planning to expand. In the meantime so is the Canadian hog producer because they're looking at exports being better this next year and they too because of Chinese ban on their pork they are making inroads in other markets. The U.S. is still their largest importer or buyer of their pork and beef. But in the meantime the producer because of probably optimism with the thought of getting some more business down the road from China they are expanding. And so sow slaughter is down pretty decently from a year ago. I think in August we were down about 4.7% and we dropped dramatically in July and in June. So I think that that's a little concern because we're certainly going to see more pork production and also more numbers coming. In the flip side though, the demand for pork I think is going to still hold good and our export markets if we could get something going, after all the U.S. has a beautiful product, virus free, I would have to think that should at some point China will need it and they've got their lunar new year coming around so they're going to be buying pork. They wouldn't have included pork in this rollback of tariffs if they hadn't have planned on it.

Howell: Absolutely, Sue Martin I'm going to cut you off there. We're going to keep the rest of this discussion for Market Plus.

Martin: Okay.

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. Harvest season provides some great opportunities for photos. Search IPTVMarket on Instagram and keep track of what we capture in the field. Join us again next week when we’ll look at the flipside of spring’s bomb cyclone in one region of the country. 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. 

 

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