Market to Market (October 18, 2019)

Oct 18, 2019  | 27 min  | Ep4509

Coming up on Market to Market -- The renewable fuels industry gets whiplash.

The winner of the 2019 World Food Prize breeds new seeds to save lives. And market analysis with Dan Hueber, next.

(music)

Pioneer Hi-Bred International is a proud sponsor of Market to Market. 

(music)

Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today. 

(music)

This is the Friday, October 18 edition of Market to Market, the Weekly Journal of Rural America.

(music)

Hello, I’m Delaney Howell.

Ongoing trade wars with China, the EU, and India are weighing on the global economy. The effects of the slowdown could eventually hit Main Street. ---

The International Monetary Fund has cut its 2019 global economic growth forecast by 0.2 of a point to 3 percent.

China, the world’s number 2 economy, experienced a 3 percent slowdown in the 3rd quarter of the year.

Closer to home, Creighton University’s 10-state Mainstreet Index stayed above growth-neutral last month. The upward move got a bump from higher commodity prices but the results for most of the categories surveyed slipped lower.

Retail sales, the major component keeping the overall economy afloat, fell 0.3 percent in September.

Without volatile factors like autos and fuel, the index was even. ---

Many U.S. farmers continue to support the trade war with China. However, there is an increasing amount of anger being directed at how the EPA is hampering ethanol sales.

Commodity groups and ethanol advocates in Iowa, where the bulk of the nation’s corn-based fuel is made, are saying they are no longer “Iowa nice.”

Peter Tubbs reports.

Despite comments from the EPA to the contrary, representatives of the biofuels industry feel the Environmental Protection Agency has failed to keep promises made by the White House.

Craig Floss, CEO Iowa Corn Growers: (15:25)  “I would just say promise and deal made. We expect a promise and deal to be kept. That's all we're asking. It's very simple.” 

On Tuesday, the EPA released its proposed rule to reallocate biofuel blending requirements. The Agency chose to use the three year average of lost demand rather than the actual number of gallons waived. The new calculation, based on Department of Energy data, is roughly two-thirds of what was promised by the White House during a meeting on October 4th.

Grant Kimberly, Executive Director, Iowa Biodiesel Board: That’s what we are asking the EPA to do, that’s what we’re asking President Trump to weigh back in with the EPA to make sure that they follow through with what we agreed to.”

The EPA says the reduction – about 600 million gallons – is meant to adjust for future refinery exemptions, not to make up for previous waivers.

Since taking office, the Trump Administration has issued 85 waivers to small oil refineries, reducing the amount of renewable biofuels in the nation’s fuel supply by 4 billion gallons over 35 months. In 2018, the United States produced 16 billion gallons of ethanol and 1.8 billion gallons of biodiesel. During the Obama Administration, the EPA issued, on average, a single waiver per year.

Senator Charles Grassley, who attended the October 4th meeting with President Trump and EPA Administrator Wheeler, believes the fina  l rule will reflect the terms agreed to at that meeting.

Senator Charles Grassley, R – Iowa: “And I expect the President to keep his commitment, it isn’t only the President’s commitment, that’s what the law requires, it says 15 billion gallons in the law. So that’s where we are and I expect the law to be carried out.”

In the last year, 19 ethanol and 9 biodiesel plants have been idled due to low prices. Industry experts estimate that three-fourths of the plants still operating are losing money each day. 

The renewable fuels industry remains skeptical the EPA will follow through with the terms the White House agreed to.

Monte Shaw: (12:05) “We can't even get the EPA to follow a court order to follow the law. And we're supposed to trust them in 2021 to, to treat us right when there is a per, it's not like, it's not like there's no, not another viable alternative either, right?”

The EPA is having a public hearing at the end of October followed by a 30-day comment period.

For Market to Market, I’m Peter Tubbs.

Dr. Norman Borlaug, the 1970 Nobel Peace Prize winner, often lamented there was no category for Agriculture.

For nearly two decades, the man credited with saving more than a billion lives, worked to launch what is now known as the World Food Prize.

Simon Groot, this year’s laureate and recipient of the $250,000 cash prize, typifies other winners who embody the importance of providing nutritious and sustainable food for all people.

Paul Yeager has more in our Cover Story.

The poor conditions brought on by the German occupation of the Netherlands during World War II lead to the Dutch Famine of 1944-45. Also known as the Hunger Winter, more than 18,000 died, leaving much of the country in declining living standards.

One village avoided much of the devastation because of work done by local farmers in the early 1800’s who saved high quality seeds. What was done generations before planted the idea of how important seed can be in the mind of one 10-year old boy – Simon Groot.

Groot, who survived the Dutch Famine, never forgot his childhood experience. The lasting impression from those dire times would later change the lives of millions.

What started as work with vegetable seeds brought the young Dutchman to the United States. He saw first-hand the technological innovations in agriculture. Groot would began a tour of other countries where the land was unfamiliar and not as productive for traditional seed varieties used in Europe.

During one trip to Indonesia, Groot found a version of his family’s cabbage strain. The leafy green had thrived in European weather conditions but was struggling to overcome the warmer local temperatures.

Through traditional plant breeding techniques, he created a hybrid better suited for tropical conditions. This eventually guided to his pioneering of localized vegetable breeding and seed production. As the seed quality improved, so too were the livelihoods of many farmers in Southeast Asia.

Simon Groot, 2019 World Food Prize Laureate: “The main tools to provide them with high quality sheets and the knowledge to make the best use of them. The real enemy of the farmers is lousy seeds.”

In 1982, Groot went into business with Filipino seed trader Benito Domingo to start East-West Seed. The partnership eventually led to the development of the Jade Star, a commercial bitter gourd which is a staple of Asian cuisine. Other seed varieties would come next. The marketing plan included introducing small, inexpensive packages of high quality seeds that could be used on small plots of land.

The increased yield led to increased profits for producers and improved nutritional options for local consumption.

Groot’s company continued to innovate and began offering training programs to improve farming practices. East-West now has a staff of 100, training more than 56,000 farmers each year in eight countries across Asia and Africa. Today, more than 20 million farmers in 60 countries plant East-West Seeds 973 varieties of 60 vegetable crops.

As Groot was awarded the 2019 World Food Prize, the pomp and circumstance highlighted his achievements in improving the lives of millions around the world.

Simon Groot, 2019 World Food Prize Laureate: “In this huge world of global agriculture. You have recognized the small guys, the vegetable farmers of Asia, Africa and Latin America. Therefore I'm very grateful to receive this award. This award goes to a agricultural scientists working on improvement of the major food crops. And now it's time to pay more attention to the vegetable crops that deliver high nutritional value.”

Groot was humbled by the award for his personal history and life’s work.

Simon Groot, 2019 World Food Prize Laureate: “But I'm just a simple seeds man who want to make a difference to farmers around the world, as my ancestors have done for their generations.” 

The future – Groot added – is the knowledge transfer that includes a more business side of farming.

Simon Groot, 2019 World Food Prize Laureate: “More income for the farmers and more healthy foods for the local and urban populations. We want to help the next generation of farmers to stay in the business of their fathers, and to develop new into innovations in farming, as well as basic entrepreneurial skills.”

As in business and farming, Groot says, relationships matter.

 Simon Groot, 2019 World Food Prize Laureate: “Looking back, our success has really come from sticking to our philosophy of the true friends of the farmer, because the small guys really do matter. And so the vegetables. Thank you very much.”

For Market to Market, I’m Paul Yeager.

Next, the Market to Market report.

The market wrestled with weather in South America, a stronger dollar, and Chinese purchases from other markets. For the week, December wheat soared 24 cents while the nearby corn contract fell 7 cents. The soy complex cooled off in light of a more expensive dollar and a threat by China to retaliate if the U.S. passed a bill supporting Hong Kong protestors. The result was a 2 cent loss in the November contract. December meal cut $2.30 per ton. December cotton gained $1.28 per hundredweight. Over in the dairy parlor, November Class III milk futures lost 20 cents. The livestock sector finished mixed as the December cattle contract gained $1.48. November feeders shed $1.40. And the December lean hog contract lost $1.65. In the currency markets, the U.S. Dollar index fell 99 ticks. November crude oil declined $1.10 per barrel. COMEX Gold added $7.60 per ounce. And the Goldman Sachs Commodity Index lost more than 2 points to finish at 406.45. 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, we got a lot of great questions in this week on social media. And folks, you can always send your questions in to us, but do tune into Market Plus where we'll answer the rest of these questions on MarkettoMarket.org. Dan, the winner this week seems to be wheat and we've got a great question here from Anthony in Chicago wanting to know how long will Kc/Chicago Board of Trade wheat spreads stay inverted like this?

Hueber: Well, good question. Of course I guess until we actually start producing a better soft red crop we're probably going to stay with the inversion there. So we put some good hard red winter crops out there over the last couple of years and just not anything good in the soft crop and of course now with the issues we've had with some of the weather conditions already into the Northern Plains and those areas has raised a little bit more concern, not that that's necessarily a soft area, but as it stands right now the demand has not certainly overwhelming but again just a less available supply when it comes against deliveries and I think that will keep that spread continuing to be inverted for a while yet.

Howell: Dan, when you look at the wheat complex as a whole this week huge gains and usually they seem to be playing follow the leader with the corn and soybean markets. This week they seem to be the leader. What was going on this week?

Hueber: Well, like in any market when an extended move happens, and this is actually seven weeks in a row of higher closes in the wheat market now, you've got a lot of things that are working below the surface kind of simmering away and you needed a catalyst to really make it kind of take hold and start to move up and it does seem like that catalyst was the winter storms that came across the Plains, got people started thinking about potentially a little a little shorter crop as you move out in the next year and difficulty with getting the winter wheat planted. And then you started reminding people of well we've had a situation in Argentina where they not only have had extremely dry weather but they had some frosts that probably damaged the wheat crop down there and then of course we're reminded of what is happening in Australia, the third year in a row of serious, serious drought there. The Australian National Bank dropped their crop estimate down to 15.5 million metric tons from 19 last month. So one side of the coin we're certainly not at a critical juncture in wheat as far as world global supplies, those numbers are still quite large, but less than we thought a month ago or two months ago and of course that has helped stimulate these prices to move higher.

Howell: Final question for you, Dan, we hit $5.32 this week in the December contract. How much higher can we go from here? Or is this a point we feel comfortable trading in?

Hueber: Honestly I think we're probably stretching it out about as far as we can. In fact, we started putting out some recommendations that go ahead and reward this rally. It looks like we have, maybe you want to step in with puts instead of jumping in with both feet on the futures at this point in time. But certainly when you have posted this kind of a rally over seven weeks running probably a good time to step in and reward it, not that we're going to collapse and get into a big bear market, but you could certainly look at 30 days of downside pressure as we start thinking more about corn and bean harvest moving in the days ahead.

Howell: Let's talk about corn and bean harvests here starting out with the corn market. They only had one positive trading session this week. Is that an indication that there is no chance that corn is going to rally?

Hueber: Corn does have several obstacles right now, of course one we know the onset of harvest so we are looking at that time of the year where we're going to have the largest available supply that we'll have for the next 12 months, plus when you look at the export side we just can't seem to buy demand at this point in time so that's a drag there. And take step three, we have rallied over the last six weeks, about 16% of the corn market, we're pushing against $4 again so psychologically that is a difficult area of resistance. So yeah, I wouldn't be surprised if we could see several weeks of kind of back and fill action. As with wheat I don't think this is going to be the next bear market but we could just kind of fall back to find some demand, some end user buying once again and a big move is probably 20 cents but that's certainly not out of line at this time of the year.

Howell: Dan, the USDA also announced this week that they are going to resurvey some acres because of that winter storm in North Dakota and Minnesota both. How much will that affect or change the story for corn?

Hueber: Well, the acreage has been a topic of discussion and debate all year long, particularly with how many acres were really taken for prevent plant this year. You have to imagine they're going to reduce the acres some in November but I think realistically we have to look to the January report which then they will go back and look at all of the acreage and there is where we could ultimately find some interesting surprises.

Howell: So it's going to be a January/February report time until we maybe see some bump higher here?

Hueber: Well, possibly. And again you get into the fourth quarter of the year often times unless there is a major issue with the harvest prices tend to drag just a little bit. We have other things on the mind, people are kind of getting ready for year end. So yes I wouldn't be surprised it is going to be after the first of the year before we see something really solid happen once again.

Howell: The question a lot of producers I've talked to this week and we've got a good question that sums it up is the basis levels, how we've seen basis so much different than what is going on on the futures board. We've got a question here from Jacob in West Central Illinois. Why are basis levels the highest since 2012 and improving through harvest while the market is dull and choppy?

Hueber: Sure. A combination of factors, one the late start to harvest. Anybody who is within the export channel does of course have obligations they need to meet, they're not seeing those bushels move back in, I think farmers of course did a great job of kind of holding onto old crop inventory and for numerous reasons, it all depended on the individual farm operation. But I think you're tending to see now in areas where harvest is starting to pick up those basis levels begin to slip back forward. I know even in our area where harvest is really just starting this week we saw the basis on corn slide back a dime. So they know those bushels are there. But on the same token they've got to keep the pipeline full if they can and right now that pipeline has been anything but full.

Howell: Dan, we had some big news at the end of last week that producers were probably hoping would give a little positivity to the markets this week, specifically in the soybean contracts, and that is the Chinese trade agreement, this phase 1 agreement that we've been starting to hear rumors about how this will work now. But Monday's trade we didn't really see the commodity markets react favorably including the soybean markets. Why did they not rally on that?

Hueber: Not unusual to have a typical buy the rumor sell the fact, not that they necessarily sold the fact. In fact when you look at the underline in the market funds were massive buyers again this week in the market but really not enough to lift us up over and above where we've been. And I think realistically even though that was great news, yes it looks like we maybe have a phase 1 of I shouldn't say a trade agreement, just a truce I think it has been called here at this point in time, but the numbers that were thrown out immediately sounded marvelous, $40, $50 billion worth of product. But when you start looking back at past purchases it really kind of seemed unrealistic. And of course nothing was really defined. Is that going to be a year? Is that going to be spread over several years? I think the record purchases by China in any year was back in 2013 of around $28 billion and of course we had $17, $18 beans at the time and $6 corn so the value of the products we were moving were significantly higher. So here again I think it's back to that kind of wait and see attitude. It's encouraging news. But I think there's also more and more people I believe are beginning to kind of sense the attitude that China, even though it is hurting them, they posted today as you reported earlier the slowest growth in 27 years, although it's still 6%, but yes it is making an impact but with the issues that are happening in Washington right now you might have the Chinese willing to kind of wait things out just to see who is in the White House after November this next year.

Howell: Yes, that will be interesting to see. Dan, the other thing I wanted to ask about the soybean markets was this bull market that we continue to see. How much steam is left in their sails in the soybean complex?

Hueber: In the soybean complex, interestingly enough, and again this kind of flies a little bit in the face of what we noticed or at least the announcements on the trade deal last week, China was really a very active buyer in Brazilian beans again this week, bought another 8 or 9 cargoes of beans, they bought about 10 cargoes last week, so they're certainly not rushing back in. The sales we saw today, of course a little reduction from last week, still at 1.7 million metric tons of the solid but of course half of those were China. If China steps away from that market again we're back to some pretty discouraging export sales. So as with the corn and the wheat markets here right now we're probably kind of pushing this into levels that might be difficult to move any higher than we have already.

Howell: The other market that had maybe a couple of past exciting weeks here was the cotton market. We've seen them put in some recent highs. Has the story changed for cotton?

Hueber: Slowly. I don't think we have any major changes there but finally after we were down for 63 weeks overall in the cotton market. But really this is the first time in that 63 week period we've seen enough price action to really sit there and say yes we probably have a low in place. The gains over the last few days were coming grudgingly. I think we spiked up to 65, 85 earlier this week in the December futures. We're approaching that level again here today and I think yes we could probably say we've got a bottom behind us. The lows are in but we need to start to see that demand redevelop before we can really accelerate much higher and probably as well need to move past this harvest period to get psychologically the market geared up for looking at demand in the future.

Howell: It also seems like the lows are in for the December live cattle contract. They're back to summer highs now. So how much higher can we climb?

Hueber: Here again the reaction today was a little bit disconcerting. Maybe part of that is reflective of the issues at the packing plants again this week. That said I think the surprise, just when you would not expect demand to develop in the livestock industry we're starting to see it from the Asian markets, I think South Korea now has really stepped up purchases of beef and again of course they're having their own concerns with African swine fever at this point. There's really I think a lot of optimism that Japan could become a stronger buyer of beef again now that we have this trade package in the works. So again it's counterseasonal as far as when we would normally see demand in these markets but I think that is certainly what has lifted us up to these levels. But here again be wary, cattle, hogs, either one, we have reached into levels that have been tough resistance before. You look out into the summer months next year of the hogs we're back to what has been the upper side of the market for a number of years. So probably not time to get overly greedy on what the upside could be.

Howell: Well that's the question too about the lean hog market I wanted to make sure and ask was we continue to see strong export sales, we continue to see China coming to the table, but we lost $1.65 this week compared to last week in the lean hog market.

Hueber: Here again too most of those sales are going to be down the road. We still have an adequate supply of hogs coming in on the market at this point in time. We know we have 3% more hogs around so we're going to have to continue that pace. The exports are great but we need to keep those moving forward to really start to see price recovery here.

Howell: And looking out a little longer term we continue to see the U.S. ramp up hog production. But let's say China doesn't come to the table and continue making these huge purchases. What does that do for the lean hog market story?

Hueber: Well, China is going to be buying hogs from someone, they may not necessarily buy them from us. I truly think one of the most encouraging things we saw this week was now Tyson joined JBS and Smithfield in basically saying we don't want to kill hogs that have been fed reactamine and that has been one of our obstacles in the export market. China will not accept hogs that have been fed that, not that we're ever going to move hogs into the European Union but of course they capture that market because it is not a substance that is fed there. So I think those things evolving in the hog industry really does open up the door for a much better export scene for us in the years ahead.

Howell: Dan, talking about exports, the U.S. dollar is of course a factor that plays right into that, lost 99 ticks this week. Where are we headed from here?

Hueber: I guess for us in the ag trade a great sign that we saw it come down. And the dollar absolutely of course has, the moves recently I think have been more panicky about the world economy, the dollar has been the safe haven in there. One of the catalysts this week which doesn't necessarily mean it's going to be completed but the Brexit package that the EU and Britain supposedly have agreed to I think restored a little bit of faith in some of those other currencies. And once it tips over, it's like any market once you move over the edge you'll tend to kind of -- so I've said for months and months that is our major obstacle. Even back in the summer months when the prices were moving up that really kind of capped off the rally. So that could be great news.

Howell: Thank you so much, Dan Hueber.

Hueber: Certainly, thank you.

Howell: As promised we'll keep this going in 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 explore how a trade war could pry open a shuttered market. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

(music)

(music)

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa Public Television or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa Public Television which is solely responsible for its content.

Pioneer Hi-Bred International is a proud sponsor of Market to Market. 

(music)

Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today. 

 

Grinnell Mutual Insurance
Sukup
Accu-Steel
ICN