Market to Market (October 11, 2019)

Oct 11, 2019  | 27 min  | Ep4508

Coming up on Market to Market -- An early winter slams the plains. The U.S. signs one accord as larger deals remain undone. The wind industry tackles trouble on two fronts. And market analysis with Tomm Pfitzenmaier, next.

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This is the Friday, October 11 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell.

The cost of many items tariffed by the Chinese trade war are already being charged to some consumers.  As time grinds on, a broader base may start picking up the tab. ---

What you paid for goods in the store aisle or online remained even as the Consumer Price Index was flat.

Without groceries or gas in the equation, Core CPI rose 0.1 percent.

The annual inflation rate is only 1.7 percent which has many economists wondering if the Fed will cut interest rates. ---

The U.S. and Japan signed a limited trade deal this week. The pact will provide a market for some American agricultural products cut-off from the Chinese market.

With the holiday season rapidly approaching, negotiations with the world’s number two economy had some movement at the end of the week.

Peter Tubbs reports.

U.S. and Chinese trade negotiators reached a tentative agreement this week, signaling progress in the 15 month trade dispute between the countries.

Multiple sources reported Friday that the Chinese agreed to additional purchases of ag commodities in exchange for a delay in tariffs that were scheduled to take effect on Tuesday, October 15th.  The $250 Billion in active tariffs were scheduled to rise from 25 percent to 30 percent.

The two sides are trying to reach agreement before tariffs kick in December 15th on $160 Billion of Chinese goods. These tariffs would be on top of $360 Billion in taxes that currently impact imported goods from China, and would, once enacted, tariff virtually every product the United States imports from their Asian rival.

China has stepped up purchases of American pork and grain in recent weeks, despite tariffs on incoming ag products that must be paid by Chinese importers. Retail prices for pork in China have been soaring due to African Swine Fever, which has forced the disposal of as much as half of the pig herd in China. Imports of American ag products still dramatically lag behind the pre-trade war pace.

Free-trade groups estimate that American consumers have paid $34 Billion in tariffs since the trade tiff began in February 2018.

For Market to Market, I’m Peter Tubbs.

A frost in October is no surprise but the powerful weather swings being experienced across the country are rarely welcome.

Josh Buettner has the story.

An early season winter storm blasted parts of the upper plains late this week.

Snow blanketed areas from Montana to Minnesota, with nearly 20 inches expected in portions of North Dakota and Minnesota. Any field work being done was abruptly suspended.

Following a small period of dry weather early in the week, combines were able to get into Iowa fields, but the conditions were less than ideal. Tracks were left behind in many fields as producers tried to get some of the crop out of the field before being stalled again by an approaching weather system.

Shortly after the window opened, rain came again shutting down harvest progress. Machinery remained in the field, waiting for the next opportunity to combine the crop. Corn harvest across the nation is more than 50 percent behind last year at this time.

The rain in the Plains would be welcomed with open arms in the South.

As indicated in the weekly Drought Monitor snapshot, a flash drought has settled into a region from Texas to Pennsylvania. The region’s cattle, corn and cotton crops have been impacted by dry conditions aggravated by record high summer temperatures. About 45 million people across a dozen southern states have felt the effects.

Georgia is among those suffering from the drought. Pastures in the Peach State are dry and the need for rain is vital.

Dean Bagwell, Georgia Farmer: "Looking ahead if we don't get enough rain and pastures doesn't recover, we'll be dipping in to winter feeding hay before time, or have to liquidate some cattle."

In the West, some customers of Pacific Gas and Electric started getting their electricity back. The California-based company shutoff power in some 750,000 locations due to high winds. Officials with the energy provider were concerned utility lines could be brought down and sparks from the live wires might start wildfires.

The power cuts could move to new areas as fires, not started by downed power lines, spread across overly dry regions of the state.

For Market to Market, I’m Josh Buettner.

Renewable energy remains a polarizing issue. Political and customer pressure has power companies moving renewables to the “front burner.”

Wind plays a big part in this mix as efficiency has increased and federal tax incentives help defer the cost of building infrastructure.

Farmers now grow wind turbines and wheat in the same field. However, the harvest has ranged from “good times” to “buyer’s remorse.”

John Torpy reports in our Cover Story.

Trouble for the wind energy industry began blowing into central Iowa in 2018. The controversy centers around a project that stretches across the adjoining counties of Adair and Madison. While the wind industry experienced smooth sailing in Adair County this was not the case for Madison.

The first front rolled across the Hawkeye state when a coalition of residents sued the Madison County Zoning Commission. The group wanted to stop construction of the Arbor Hill Wind Farm and be released from contracts. A district court dismissed the case against the 52 turbine operation in June of 2019. Unhappy with the court’s legal finding, The Madison County Coalition for Scenic Preservation, one of the groups that was part of the lawsuit, appealed the decision to the Iowa Supreme Court last August. The case has yet to be heard.

Madison county resident Mark Stadtlander is part of the coalition that initially sued Madison County over the Arbor Hill Wind Farm.

Mark Stadtlander, Resident Rights Coalition of Madison County: “You know, green energy, wind energy, that narrative. I don't, I can't imagine anyone being against that and the groups not against it. It's the way that it's formulated. It's the way that it's communicated and it's the way that it's, um, put upon people that don't necessarily want it. We're more concerned about property rights and property rights for the people that are interested in having wind turbines and property rights for the people that are going to be affected negatively by it.”

 

The second storm front began building as the Madison County Board of Health brought concerns to the Madison County Board of Supervisors that wind turbines had potential negative health effects. Supervisor Diane Fitch drafted a proposal for a 22-month moratorium on any new renewable energy projects in the county.

Diane Fitch, Madison County Board of Supervisors:” I'm not in that ballpark of pushing anything through too fast. I think we need to think about this and really get it right.”

Supervisor Phil Clifton disagreed.

Phil Clifton, Madison County Board of Supervisors:” My position all along has been that it shouldn't take 12 months to get that done. It should have been in a period of more like five to six months.”

Over the course of three separate public meetings, people voiced their opinions about the Arbor Hill project and the proposed moratorium on new green energy construction.

Van Meter Resident:”I want you to know that I support wind energy. We have to, I live in a passive solar house. My heating bill for the winter is half of what it was when I lived in Des Moines for a house. Half the size. Solar energy and wind energy are absolutely imperative to this country. We cannot succeed if we don't do that kind of thing and I wish you guys would support it, support it strongly.”

Tanya Lamb, Adair County: “Our supervisors have finally placed a cap on the number of turbines with their County. We are infested with more than 550. This will happen to Madison County, if you don't act now.”

Days before turbine blades began spinning on an existing project near Mike Lamb’s Adair County home, he and his wife Tanya attended several of the neighboring Madison County Board of Supervisors meetings. The Lambs signed up to have wind turbines built on their property. The couple says they have grown to regret their decision.

Nat Sound Break at meeting -- Mike Lamb, Adair County:” I wish I could've got out of it, but I knew that I couldn't./I think it's just learning about the whole process and figuring out, you know, this isn't really what we thought it was going be.”

Mike Lamb, Adair County: “What constitutes a good neighbor? A good neighbor that signs an easement saying you're never going to be able to complain. Or a good neighbor that lets them have 60 acres to make their life easier. But then here they're making ours hell.”

At the end of the third reading, the board of supervisors approved a one-year moratorium by a vote of 2 to 1. Over the next 12 months, the board will craft ordinances dictating the placement of turbines in coloration to surrounding structures. The Madison County Board of Health suggested 1.5 miles between a wind turbine and a home.

Des Moines, Iowa-based MidAmerican Energy says the board of health’s resolution would hurt future wind projects for the company.

Adam Jablonski, Director of Renewable Energy, MidAmerican Energy: “I mean If you think about the way Iowa's laid out in the sections, you know square mile, they wanted a one and a 1/2 mile set back from every single house. Usually there is a house or 2 for every section so that would just eliminate all buildable lands. Practically eliminate all buildable lands. You would never build be able to site a wind project under those guidelines.”

According to the U.S. Energy Information Administration, 9 percent of the country’s electricity comes from wind. By 2020, that number is predicted to climb by roughly 20 percent. Texas, Oklahoma, Iowa, Kansas, and California are responsible for roughly 57 percent of the country’s wind energy generation. A mix of green energy popularity and federal production tax credits have spurred wind energy expansion upward.

MidAmerican Energy officials say more than half of the electricity they generate can be sourced to wind energy.

In the Adair county portion of the Arbor Hill Wind Farm, advancements in technology have brought the next generation in wind energy production. Crews have begun pouring foundations for turbines reaching a height of almost 500 feet with blades stretching out 240 feet. The new power generators will produce 4.2 megawatts of electricity, more than twice the amount of most existing turbines.

Adam Jablonski, Director of Renewable Energy, MidAmerican Energy:” MidAmerican currently has over 2,600 wind turbines operating in Iowa and we've been successfully citing and operating those since 2004./
You know, they aren't new in Iowa, you know, they're there, they're part of the Iowa landscape now.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

Weather, optimism over a potential trade deal and Thursday’s WASDE report moved the commodity market. For the week, December wheat jumped 18 cents while the nearby corn contract rocketed 13 cents. Good export numbers, a friendly report and potential sales to China bumped the November soybean contract 20 cents. December meal rose $7.10 per ton. December cotton gained $2.21 per hundredweight. Over in the dairy parlor, November Class III milk futures improved 68 cents. A mechanical issue at a packing plant helped push December cattle $1.37 higher and, despite a rally in the corn market, November feeders gained $2.87. Optimism over Chinese trade added $2.35 to the December lean hog contract. In the currency markets, the U.S. Dollar index moved up 49 ticks. November crude oil added $2.08 per barrel. COMEX Gold decreased $24.70 per ounce. And the Goldman Sachs Commodity Index gained more than 10 points to finish at 409.10. Joining us now to offer insight on these and other trends is one of our regular market analysts, Tomm Pfitzenmaier. Tomm, welcome back.

Pfitzenmaier: Thanks, Delaney.

Howell: Tomm, we had a lot of news that came out here right at the end of Friday when we were beginning to tape Market to Market. The first being this alleged, rumored trade deal between the U.S. and China. We've got a question here from Ryan Peterson that came into us via email. He said, what are the potential upsides if China comes back with a trade deal? And what are our resistance points? But I want to add to that, since we do have now this rumored trade deal, what will the markets do to react to this opening up Sunday night into Monday?

Pfitzenmaier: Well, to some extent it's going to depend on quantities obviously. They promised to buy 5 million metric ton of beans up to this point and they've bought 4.8. So that's going to be the question, is this agreement, are they going to go ahead and buy more than that 5 million metric ton? 15 to 25, you hear that talk. Pork, obviously they need pork because of the problems they've got over there with their pork herd. So, again, we need quantity. We had a good export, really good export number in pork Thursday and yet the market didn't react all that much to it and recognizing it was for kind of distant purchases, but still. I think that hog market is kind of geared up for that. We had a nice rally in the grains, particularly on Friday. So it will be interesting to see if that is a sort of buy the rumor sell the fact kind of a thing when we come in Sunday night and Monday. It's going to be interesting. Certainly good news is good news. You can't deny that.

Howell: And hopefully the market rallies at least on positive sentiment from this news.

Pfitzenmaier: Correct.

Howell: But on Friday as you mentioned there all the grain markets closed exceptionally strong. Tomm, tell me what happened in the wheat markets? Why did they close up for the day?

Pfitzenmaier: I think it was a mix of this weather going across, bad weather going across the Northern Plains. It certainly had an effect on the wheat. There's some talk that the wheat yields haven't been what they hoped they would be and then I think the dry weather in Australia and Argentina sort of played into that too. Everybody seemed to be a bit excited about the prospects of this trade deal with China and then the wheat market kind of got caught up in that too. December wheat has got up I think $5.08 is where we closed and $5.10's resistance. So we're right up against it in the wheat market. It's going to be, there's still a ton of wheat in the world and despite all these problems it's going to be hard to make headway. But if we break up above that there might be a little more go to it.

Howell; Absolutely. Tomm, when you look at the corn market they also had a great day on Friday. But Thursday they did not react very positively to the WASDE report. Friday were they trading the WASDE report or something else?

Pfitzenmaier: I think it totally ignored that and we're right back trading, again whether there's a lot of concern that that weather is going to cause some problems for the corn crop, still a fair amount of corn that has not matured yet and there's threats of frost being imminent. So I think that was -- and then for some reason there was talk about China. Well, China is probably not going to buy any corn but they might buy some ethanol, they might buy some DDG's maybe. So I guess it's supportive of the corn market in that respect. If anything reacted, overreacted, it might have been the corn market a little bit on Friday. But we'll have to see. The weather is still an issue, still a lot of people in the farm community that don't believe, the USDA bumped yield in that report on Thursday and a lot of people don't think that was appropriate. So that was probably in the mix. They saw that hard break on Thursday and viewed it was a buying opportunity and came rushing in there to get some stuff, especially end users, get some things covered. So that was probably part of what was going on Friday too.

Howell: So with all these weather issues kind of coming to the forefront now with snow and a lot of rain, delayed harvest, is this the beginning of our potential harvest weather rally?

Pfitzenmaier: It certainly could be. I think there's a little more up in corn for sure.

Howell: How much?

Pfitzenmaier: It's going to take a yield break because that carryout that they came out with Thursday, it shows that there's plenty of corn around. And then you start looking ahead and South America is probably going to have a decent crop. We have to assume they will. And then we've got 19 million acres of prevent plant of corn that's going to have to, is that going to come back into production in 2020? So with a 1.9 billion bushel carryout I don't know how you really need to go, especially there was a drop, 150 million bushel drop in our export, there's a 50 million drop in ethanol production. Well certainly a rally in corn isn't going to help that situation any. So while I think there's probably some up here I would kind of use these rallies as a chance to get it caught up on sales, especially since the basis is so good. I talked to a lot of guys this week the basis was unbelievable, especially if you can get it to them quick. So I think there's going to opportunities going to be presented here and you kind of need to keep your eyes open for them.

Howell: Make some sales it sounds like in the corn market. But in the soybean market it seems like there is some upside potential there. Are you recommending folks to make sales at these levels? Or do you think we have some room to go to the upside?

Pfitzenmaier: There's a big carry from November to July so we've been looking at selling the July. There's a 45 to 50 cent carry out that far, which is a nice carry. So I guess we're thinking that if you can get July soybeans up in that $10 maybe $10.25 area, which I think we close around $8.85, something like that, or $9.85, I think that kind of a 30 to 50 cent rally from here is something that needs to be sold. The Brazilian farmers have been selling heavily into this rally. All this does is incentivize them to plant more acres of beans. So there's some headwinds coming. And we have to remember 460 million bushel carryout substantially lower than what we had a year ago but still the second or third highest carryout we've had in history. So it's still plenty of beans. I don't think you want to let yourself get too caught up in this. Like I said, we've rallied almost a dollar off the September low so to some extent some of this has been factored in. Now, if the Chinese come in and buy 25 million metric ton then there's probably going to be some more up in it.

Howell: Monday's trading day as we mentioned is going to be an interesting one with if nothing else this psychology for the market. How much of a rally should we reward coming into the trade on Monday if we see that in the soybean market?

Pfitzenmaier: I don't know if that will happen Monday but 35 to 40 cent rally I'd certainly be making some sales on.

Howell: Okay, Tomm, let's talk about the meat markets. Live cattle, I've got to ask, how much higher will they go?

Pfitzenmaier: I think you can see February up in that $120 to $122 which would be$3 to $5 higher than this. At some point we're probably going to have a correction. The market has gotten a little ahead of itself. I'm looking for a one to three, maybe four dollar correction and I certainly would want to be a buyer of cattle on a correction like that. But I think overall we're going to tend to work higher in the pork and the beef market. We've got pretty good fundamentals in terms of demand and the pork market not so good because there's a heck of a lot of pork being produced, but I think beef is going to be all right.

Howell: With these potential rallies and some of the rallies we've already seen in the corn market the feeder cattle market still continued to push higher this week. How much of a cap though are we going to see with corn prices potentially rising?

Pfitzenmaier: Well, if corn prices rise -- feeders have, like you said, the corn market hasn't done anything for the feeder market. It has really been the fat market that has drug it along. If that starts to stall out, unless corn prices drop sharply I think you're going to get November feeders are $144, $145, you get them up in that $148 to $150 range I think they're going to struggle to go much farther than that.

Howell: Tomm, the other question I wanted to ask this week about the feeder market is, it looks like there is a premium being built into the cash market right now with the deferred contracts below the price of cash. Why is that going on in the feeder cattle markets?

Pfitzenmaier: Apparently there's some optimism that corn prices are going to stay weak, the only thing that makes sense to me. And like I said, there's, I think you can't discount the fact that China is in the mix of this cattle industry too and the deferreds on pork and beef are up a little bit and I think that is incentivizing and encouraging the feeder market as well. It doesn't take much to encourage those feeder cattle guys anyway. So you get a couple of good things like that going on and it's going to be supportive.

Howell: It seems that the lean hog market, as you mentioned, has not found a lot of support from the recent Chinese purchases. Tomm, do you think that we will factor those in at some point? Or has the market factored all of that in for now?

Pfitzenmaier: Well, we have factored a bunch of it in, I think that's part of the reason you see the responses being muted. It's kind of a conundrum in the pork industry because we're producing a ton of pork, a lot of it, and we had record production the other day, there's a lot. So the industry is geared up for sales to be made to China. If that doesn't happen or gets drug out we've got the futures market substantially above the cash market --

Howell: Because of the Chinese trade stuff?

Pfitzenmaier: Absolutely it is, they haven’t bought enough to boost the cash market but the traders are anticipating that they will and have rallied up the futures market. So at some point that's going to have to get reconciled. Now, it keeps getting, everybody thought well in October. Well, it hasn't really happened to any great degree in October and it keeps getting pushed back here. I don't know. Obviously timing is everything in all kinds of markets and that's certainly true in the hog market here.

Howell: And which do you see happening, cash coming to meet the futures or vice versa?

Pfitzenmaier: Well, if the Chinese demand shows up the cash market is probably going to have to come to the futures. If it doesn't, futures are going to drop to the cash market. Basically it's a pretty simple equation and if the demand comes, perfect, if it doesn't we've got problems in the pork industry.

Howell: And it's all Chinese dependent you think?

Pfitzenmaier: I think it is, yeah.

Howell: Okay. Tomm, we're going to continue this discussion in Market Plus. Thank you so much.

Pfitzenmaier: All right, thanks.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. Facebook allows you to keep track of many interests including those in rural America. You can find our links and photos at IPTVMarket. Join us again next week when we’ll profile Simon Groot, the recipient of the 2019 World Food Prize. 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. 

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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. 

(music)

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

 

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