Market to Market (November 1, 2019)

Nov 1, 2019  | 27 min  | Ep4511

Coming up on Market to Market -- The EPA gets an earful from the renewable fuels industry. Fire sweeps down the West Coast as snow stops harvest in the Midwest. Farmers add value to their wares in an urban setting. And market analysis with Shawn Hackett, next.

(music)

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)

This is the Friday, November 1 edition of Market to Market, the Weekly Journal of Rural America.

(music)

Hello, I’m Delaney Howell.

You may have taken a break to help with Halloween trick-or-treaters this week. Your consumption of candy, both purchased and snuck out of the dish, is helping the economy grow. ---

Consumer spending gained 0.2 percent last month.

The unemployment rate climbed to 3.6 percent.

Even with the drag from the now-settled GM strike, 128,000 jobs were created in October.

The nine-state Mid-America Index rose 2 points above growth neutral despite shrinking inventories and worries over the trade war.

Gross Domestic Product grew at an annualized rate of 1.9 percent in the 3rd quarter.

The Fed is aiming for 2 percent growth and cut interest rates a quarter point as part of their strategy. ---

The White House says they are searching for a new place to sign Phase 1 of the U.S.-China trade deal. Their first choice, the Asia-Pacific Economic Summit in Chile’, was cancelled due to political unrest in Santiago.

Many U.S. farmers agree it was time to hold China accountable over trade but their domestic focus has turned to the loss of ethanol market share.

John Torpy has the story. ---

The Environmental Protection Agency got an earful this week from both the renewable fuels industry and petroleum refiners. At a public hearing in Michigan, ethanol advocates, oil industry representatives, farmers and politicians voiced their opposing opinions on a recently proposed EPA rule concerning Small Refinery Exemptions or SREs. 

Patrick Kelly, American Petroleum Institute: “The final standards must recognize it as simply not possible to go back in time and induce demand for a prior year. Increasing the implied ethanol mandate above 10% of the gasoline pool does not equate to more ethanol consumption."                                        Monty Shaw, Iowa Renewable Fuels Association: ”And that's not how the law is supposed to work. Those gallons are supposed to be redistributed to the remaining refiners that don't get exemptions. So in other words, 15 billion gallons is supposed to be 15 billion gallons. Even when you account for exemptions."

The bulk of the complaints focused the impact SRE’s have had on the ethanol industry. Exemptions are given to small oil refiners who declare a monetary hardship if they have to blend a certain number of federally mandated gallons of biofuels into their gasoline.                                      Pat Kelly, American Petroleum Institute: “The final standards must recognize it as simply not possible to go back in time and induce demand for a prior year. Increasing the implied ethanol mandate above 10% of the gasoline pool does not equate to more ethanol consumption."

 

In early October, after enduring numerous complaints from ethanol industry and farm state political leaders, a deal was struck with President Trump to restore the gallons lost over the past two years to SREs.  However, the rule presented by EPA in late October leaves nearly a third of the unblended 1.6 billion gallons on the table.

Emily Skor, CEO Growth Energy: For the past three years, EPA has granted 78% more exemptions than the department of energy has recommended. So that gives us very little confidence that EPA is going to follow through on this commitment."

Officials in corn producing states argue refiners have had ample time to adapt to working with ethanol.

Sec. Mike Naig, Iowa Secretary of Agriculture:"Well, look, first of all, the renewable fuels standards been around for a few years. And so this is not something new for any of us to be, to be dealing with, including the petroleum industry and the refiners, right? So I would argue that by now some 15 years into this, uh, that, that the industries need to have figured out how to incorporate ethanol and biodiesel into our transportation fuel system."

Since President Trump took office, 85 hardship waivers have been granted to oil refiners. During the Obama Administration, only 23 SREs were granted between 2013 and 2015.

For Market to Market, I’m John Torpy.

Fall weather continues to show signs winter is close at hand. On the Eastern Seaboard, high winds, thunderstorms and tornadoes knocked out power to 420,000 customers. And nearly the same number have been displaced on the opposite coast as Santa Ana winds whip up wildfires.

Paul Yeager has the story.

Wildfires are sweeping across California, sending thousands from their homes. Fires burned in several regions of the state with some outbreaks adjacent to major metropolitan areas north of Los Angles. The Ronald Reagan Presidential Library, in nearby Simi Valley, was threatened by the blaze.

The largest fire in the Golden State is sweeping across wine country in Sonoma and Napa Counties. According to the National Interagency Fire Center, the Kincade blaze has grown to more than 76,000 acres in size. In an attempt to reduce the fire danger, Pacific Gas and Electric has cut power to hundreds of thousands of customers.

For 2019, 4.5 million acres have been scorched in 44,000 fires. That’s less than half of last year’s reach at this same date and the smallest amount of acres burned since 2014 – behind the 10-year average pace.

Conversely, a pair of winter storms delayed the already slow harvest of 2019. Snow left only a small trace on some acres, but other operations were stopped in their tracks and will take a few days to get back in the field.

The 2019 harvest for soybeans is 16 points off the 5-year pace while corn is 20 points behind the average.

For Market to Market, I’m Paul Yeager.

Outdoor farmer’s markets are the typical path for adding value to produce. Reaping that extra profit often comes at the cost of taking valuable time to operate a stand in a busy downtown area.

But, as Peter Tubbs reveals in our Cover Story, there are a few venues that cut out everything but delivery time.

“Those are great for Baba Ghanoush, parmesean, all that.“

A Tuesday morning negotiation over eggplant is part of the routine at The Wild Ramp in Huntington, West Virginia. The 3,000 square feet of floor space has the feel of a carefully crafted specialty grocery store. The reality is that this is a hybrid farmers market, open six days a week, where products are sold on consignment.

Kelsey Abad, Manager, The Wild Ramp: “So the wild ramp started a consignment style farmer's market where producers still maintain the ownership of their product while it's here in store. They set their prices, how they want to see their products sold. And then our staff and volunteers are the ones that merchandise and do the communication and the marketing on behalf of all our producers so farmers can get back out to the farm and do what they do best. And then we get the opportunity to communicate their story to our customers.”

Calvin Hall is a retired coal industry manager, and raises vegetables in a low tunnel an hour east of Huntington. 

Calvin Hall, Farmer: “Well, the wild, The Wild Ramp gives you the ability to come in, bring your produce. They're here all the time. I'm back home doing work and it's a great thing for our extra produce. If you raise very much produce, you've got to have more than one outlet.”

The ability to sell produce away from a standard farmer’s market fits into the part-time nature of agriculture for many in the region. Even the name of the market, The Wild Ramp, is a nod to the wild leek common to Appalachian forests.

Rural Appalachia is challenging land to farm. The steep hills and narrow valleys often limit agriculture to poultry and eggs, grazing and vegetable crops. Less than 5 percent of West Virginia is considered harvested ground by the USDA. Because of the shortage of farm ground, the majority of farmers in West Virginia work part-time in agriculture. As a result, three out of four farms in the state have an annual gross income of less than $10,000. 

Each farmer that sells at the Wild Ramp stocks their products when they are fresh. Items that are packaged, like berries, get barcode stickers. Loose items have companion price sticks that the purchaser takes to the register, matching the produce with the farmer who brought it to market. 

Unique items attract shoppers who know they can find produce that won’t appear at the grocery store down the street.

Kelsey Abad, Wild Ramp  Market Manager: “So we try to encourage people to use sustainable practices while they're farming and also to go outside of the box to try and grow some more heirloom varieties, things that are either different colors, different shapes, different sizes than you would see in a conventional grocery store as a way to kind of carve out a little niche for themselves and be able to charge a fair price for their product and also educate consumers on just the Cornucopia of options that are out there.”

Kelsey Abad, Wild Ramp  Market Manager: “And local for us means 250 miles. So everything in our store, whether it's fresh produce, jams and jellies, dried products, even our beer and wine section is all sourced within 250 miles. And about 70% of our products, they're actually within a 50 mile radius of our store. Um, so we're not just local as the USDA defines it, but local for us is much closer to home.”

Park and Lacy Ferguson both work full time while managing their farm near Wayne, West Virginia. While eggs, broiler chickens and beef cattle are all sold directly to consumers, their most profitable product is seasoned salt. Flavoring local salt dried from underground brine, the Fergusons add the herbs, peppers and mushrooms that grow on their farm for a lucrative, shelf stable product.

Park Ferguson, Farmer: “Well, the, The Wild Ramp is really great for us because we work full time and because we add value and have a lot of shelf stable products, uh, so it's really convenient to take things there at a time that works for us and to know that our things can sit there for a while and they're gonna move, uh, you know, eventually. Uh, so it's really nice, a really nice outlet for us to be able to take things there.”

Twenty five dairy cows come in for their evening milking at Laurel Valley Creamery near Gallipolis, Ohio. Each ounce of milk from this herd of Guernseys will go into the making of nine varieties of cheese, which is sold locally to restaurants and retail customers. The ability to add value on the farm allows the Nolan family to remain small and financially stable. 

Celeste Nolan, Dairywoman and cheesemaker: “It shelters us a lot from commodity dairy. So instead of selling milk for less than it cost to produce it, I add value to the milk, um, by turning it into cheese. And then for the most part determining my own price. I haven't sold any milk on the commodity market and eight years, and I don't know what the milk price is, which for uh, for a dairy woman is unheard of. “

The consignment model of the Wild Ramp is attractive to producers of finished food as well as vegetables.

Celeste Nolan, Dairywoman and cheesemaker: “It's so much easier to sell cheese at the wild ramp than it is to sit at the farmer's market. I'm just taking cheese there once a week and letting them keep the hours as I can do. I can make deliveries at the wild ramp and three or four restaurants and drive the hour each way in the same amount of time that I could set up at a farmer's market.”

The Wild Ramp has a mobile truck to sell produce at locations around the city, and has added a commercial kitchen to create prepared foods from produce nearing the end of its shelf life. Preparing products that are less seasonal gives the market items to sell during the winter when the volume of produce slows.

But perhaps the most valuable product created at The Wild Ramp is producer time.

Lacy Ferguson, Farmer: “The biggest handicap we have is time, aside from finances and you know, it's, you kind of have to decide, am I going to go to the farmer's market for eight hours or am I going to sit, um, you know, on the side of the road for eight hours, or am I going to be out in my garden working, which is why I got into this, you know, this is what I wanted to do. So it's just been a really great model for us.”

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

Even with weather, potential sales to Asia and a weaker dollar the commodity markets were relatively quiet. For the week, December wheat lost 2 cents, while the nearby corn contract gained 3 cents. Dry weather in Brazil and potential sales to China did little to fire up the soy complex as the January contract closed two cents higher. December meal improved 60 cents per ton. December cotton dropped 67 cents per hundredweight. Over in the dairy parlor, November Class III milk futures increased 68 cents, to a 5-year high. The livestock sector finished mixed as the December cattle contract added $3.45. January feeders improved $4.40. And the December lean hog contract fell 48 cents. In the currency markets, the U.S. Dollar index declined 57 ticks. December crude oil shed 47 cents per barrel. COMEX Gold added $2.90 per ounce. And the Goldman Sachs Commodity Index was flat to finish at 415.30. Joining us now to offer insight on these and other trends is one of our regular market analysts, Shawn Hackett. Shawn, welcome back.

Hackett: Hey, Delaney. How are you? Hopefully we don't spook the markets today on Halloween. That's the best I've got.

Howell: Okay, well we appreciate your attempt at a little Halloween humor. Shawn, let's talk here about the wheat markets this week. They have had a couple of exciting weeks and now it seems that they are relatively flat. Is the December wheat contract due for some sort of retractment here?

Hackett: Well, this time of the year we're normally looking at Russia. What does Russia's crop look like? What do the exports look like? And what we're seeing is that in the month of October their exports are down 14% over last year. The ending stocks in Southern Russia which is where all the exports come from are down 20% from two years ago and down 13% from a year ago. So even though last year we were looking for those exports to come off, it looks like this year they actually are going to come off and with improving ruble it looks like the U.S. is going to get a lot more business. And we've seen some very good exports here the last couple of weeks. So we think the wheat market has some decent upside into the end of the year because of that.

Howell: Even if the U.S. dollar has some strength here do you still continue to see the wheat market have some upside potential?

Hackett: Right now we see the dollar going down. It looks like it's rolling over. We had the Fed Reserve say they're going to do QE4, lower rates. Everything says the dollar actually looks like it could be topping out. So we don't really see a lot of strength in the dollar into the year end. It's always possible but we're assuming flat down dollar and that is good for wheat exports.

Howell: What about corn exports? They have been just awful the past couple of months really. How does the U.S. dollar impact our corn market?

Hackett: Well, it always makes us more competitive but you have to kind of remember what the Brazilians did. They front ran a trade deal with China and the U.S, six fold increase in exports year over year is what they have been doing, they kind of shoved all this corn in the market and the market just has too much corn, it has to digest it. And so we've been feeling the impact of that. The good news is that is behind us and as we start whittling away those inventories the U.S. is going to start getting business, especially with a weaker dollar coming up. So we're optimistic we've seen the worst for exports for corn and we're going to see better times ahead.

Howell: Well that is good news for producers sitting at home. Shawn, I want to turn our attention to acreage because we've got the November WASDE report coming out next week. They are going to be adjusting the corn acres in Minnesota and North Dakota and some of those areas that have been really affected by weather. What do you see that doing for the WASDE report then? And what do you see that doing for impacts into the market next week?

Hackett: It all depends on what the expectations are already built in. We're already 40 or 45 cents off the lows so a lot of expectation is built in. For sure we've always felt that harvested acres will be coming down anyway. So we think they're going to come down. But probably the market has dialed in lower acres in this report, we don't think there's going to be surprise there, especially with corn near resistance at $3.90, $3.95.

Howell: If we can break through that resistance level, Shawn, what is your next target?

Hackett: Well, the next target is $4.15, $4.20 and that's really the longer term barrier that we briefly got over in June when we had the weather scare and then came right back below it. So that would really be the longer term resistance if we can break through this midterm resistance at $3.95.

Howell: Shawn, I want to turn our attention here to both corn and soybeans because we've got a good question come into us on Facebook I believe from Shane in Bloomfield, Nebraska. He said, the market seems to be suppressing this problem of snow and harvest delays on top of the planting delays that we had. Should producers be selling cash grain now to take advantage of strong basis and then reown the grain on March contracts?

Hackett: Well, whenever you have a strong basis, we do have strong basis, we've had strong basis for a while, you always want to reward the market that is worth rewarding. And so whether you sell cash we'd definitely be locking in doing basis contracts. We still think there's upside to corn going into the end of the year, as we said, with better exports, lower dollar. But we don't think the basis is going to get much better and we do think that farmers ought to be locking in that basis now, that's a really good opportunity for the long-term.

Howell: For both corn and soybean locking in that basis?

Hackett: Corn for sure. Soybeans not as much. We think the corn basis is really the one to be doing right now.

Howell: Okay, turning our attention to more heavily on the soybean market, we see the November and January spread continuing to tighten up a little bit there. What is that indicating to you?

Hackett: Well, the ending stocks were supposed to be a billion, then they went down to 600, now we're 450, a little more adjustment we're at 350 and so all of a sudden you start looking at what is going on if the Chinese start buying more soybeans as part of a trade deal and I think the market is concerned that we might be getting ourselves too tight and we just didn't plant enough acres this year and that is a consequence of that.

Howell: How much upside potential does that leave us then?

Hackett: In the spread or in the price?

Howell: Let's say in the price.

Hackett: Right now the $9.50, $10 is going to be a really hard barrier to get over, we don't think we can get over that without something new coming out to take the market higher. We think that is going to cap any rally attempt and it has thus far.

Howell: Is the Chinese trade deal, is that enough to move it? Is that enough of a catalyst so to speak?

Hackett: Well, as always we need to know the details of what it says. It was supposed to be 50 billion, then it was 20 billion, then we're not sure. I guess it could be if it's a surprise that they have bigger numbers in here than we think. But unfortunately we just don't know, we'll have to wait and see. But I don't think it's going to be enough right now.

Howell: Okay, Shawn, the cotton market really took it on the chin this week, I think it was a 67 something cent loss this week. Was it all due to the U.S./China trade negotiations falling apart? Or is there something else impacting the cotton markets?

Hackett: Well, if we rally from 55 cents up to 65 cents, which is a big resistance level on the chart, so that was a logical place for the market to stake a step back, we had some uncertainty on trade, the market is just kind of looking at all the economic data and saying maybe we've done enough for now, why don't want take some chips off the table. Farmers are harvesting and so they have some fresh supplies they need to price. So I just think it was more of a technical factor than anything else. We're still pretty bullish this market going higher. It's an economically sensitive market. It likes to look ahead and with the Fed doing QE4 and lowering rates it usually means better economic activity a year from now.

Howell: Okay, a year from now is a little bit further out there but it does give some producers a light at the end of the tunnel. But I think really the winner of this week's market has to be the dairy market as we saw there just in that cover story. Some producers are looking for alternatives to make ends meet. But $20 milk, five years, that is crazy. What is going on?

Hackett: That's an outstanding price and everything that could go wrong a year ago, everything is going right today. Three things are really going on. We had very, very poor production in the U.S.. It made the cheddar production go down to flat. Cheese prices based upon cheddar price and cheddar fundamentals which is the Class III price and the dry whey price. So that has caused this tightness in the cheese market for cheddar, not other cheese, but for cheddar alone has been driving the market higher. Secondly, we've had weather problems in New Zealand. This is the time of year that New Zealand is the primary exporter of milk powder and other derivatives to the Chinese and the rest of the world and they have had very, very cold, very wet weather, production is going to be flat for the year during their peak production instead of being up. So now there's concerns that as China binge buys into the end of the year they're going to drive up the milk price. And lastly, we have been hearing some things that African swine fever has been causing dairymen locally in China to cull their dairy cow herds to sell into the beef market which has been soaring and that production could be hurt there which may mean that the Chinese will be even larger buyers into the milk market just as New Zealand is not going to have as much as we thought. So it's a perfect storm and we think we can still spike trade this market even higher into the end of the year before we might kind of exhaust this market to the upside.

Howell: Well and that was my next question, Shawn. We don't get a lot of dairy folks on so I've got to take advantage of you since you’re here. Are we going to see some sort of hangover effect so to speak for the dairy market after this all plays out?

Hackett: Absolutely. We see some early bearish warning signs, in the month of September U.S. production was at 1.3%, cheddar production was at 1.2%. It's the first time we've had an up month for the entire year like that. So it's already telling you we're starting to get the response domestically for these high prices. It's not enough yet to make a difference but once we get over what we have to do here there's going to be a hangover and so dairymen should not look a gift horse in the mouth too long because it might just go away on us.

Howell: Okay. We also had big moves this week in both the live cattle and feeder cattle markets. Shawn, I want to ask first about the April live cattle contact. Are we into putting some seasonal highs here?

Hackett: Seasonal highs really take place in the first quarter so we do not think we're anywhere near a seasonal high. When we look at the cattle market we're coming off that Tyson fire spike low and we’ve been running the market higher. As you know we follow smart money capital flows in ag markets and what is amazing is this entire rally up there's been almost no smart money selling which is very, very unusual and suggests this is not just a tradeable rally, this is a order rally and it has been. April has clear resistance at $130. We don't see any reason why we can't go there first before there might be some pause in the market or some retrenchment from a big move so we still think there's more upside to be had here.

Howell: $130 is your target in live cattle. What is your new target in the March feeder cattle contract?

Hackett: The feeder market has a wall of resistance in that $155, $160 area. We would just think that is likely going to hold the market back on any kind of rally attempt so it's not as big of a move as let's say the live cattle market but we still think the market moves smartly up from here. But that would be, has been a long-term target that did hold the market back last year around that level.

Howell: All right, Shawn, your quick thoughts here on the lean hog market. We've seen jumps in weight three weeks in a row. We've seen dismal prices again in the hog market. Where do we head from here?

Hackett: Endless supply, endless demand and there we go. We're stuck in this violent trading range based upon whatever wins out in a given week and until we get to the first quarter when pork production domestically is going to start to come down it's going to be very hard to sustain a rally beyond the trading range. So that's where we're at and it's frustrating, at the same time it's understandable.

Howell: What is the trading range that you're watching let's say for the February chart in particular?

Hackett: I think our top side you're looking at something like 70 cents, something of that nature, and a 10 cent range, we're looking for kind of a 10 cent back and forth range that we've been stuck in and it's really hard for us to see us getting out of that until we get closer to the end of the year when the Chinese tend to binge buy ahead of their holiday season and that is when the markets start to worry about these tighter supplies coming into the first quarter. But it still could be a slog for another 30 days before we get there.

Howell: Okay, Shawn Hackett, thank you so much, always a pleasure.

Hackett: 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. We’ve been filling our Instagram Stories feed with some of the best fall images in rural America and we added a behind-the-scenes look at our production day. Find us at IPTVMarket on Instagram. Join us again next week when we’ll see how one agent spent three decades investigating ag-related crimes. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

(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. 

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