Market to Market (November 8, 2019)

Nov 8, 2019  | 27 min  | Ep4512

Coming up on Market to Market -- Shorter propane supplies make for longer lines. A lawsuit seeking to curb farming practices moves ahead. The story of one agent who spent three decades catching agriculture’s bad guys. And market analysis with Naomi Blohm, 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)

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

(music)

This is the Friday, November 8 edition of Market to Market - the Weekly Journal of Rural America.

(music)

Hello, I’m Delaney Howell.

Harvest is still behind, prices have turned lower but farmers had a few moments of relief when encouraging words were released about the trade war.---

On Thursday, Wall Street rocketed into record territory as Chinese officials said all parties had agreed to ease tariffs.

The news was tempered on Friday when President Trump said he hadn’t agreed to anything.

When taking a longer view of the situation, the Purdue/CME Ag Economy Barometer rose 15 points in October as producers were more optimistic about current and future economic conditions on their farms.

As the trade war drags on, the trade gap has fallen as U.S. imports declined in September. ---

The USDA is planning to release the next tranche of MFP 2 by the end of the month or early December. Payments will help sooth some of the pain associated with the Chinese trade war.

While trade wrangling continues in Beijing and Washington, D.C., farmers are still faced with a harvest that is well behind the 5-year pace. As producers dodge one harvest roadblock after another, a new problem has appeared.

Peter Tubbs has the story. ---

Matthias Schwartzkopf, Energy Manager, Mid-Iowa Coop: “A normal fall isn’t this fall on the propane side of things.”

A difficult harvest season has been compounded by a new problem - soaring demand for propane that has outstripped the capacity of the supply chain.

Spring planting, delayed by rain, resulted in a late harvest. A cool wet fall created a wet corn crop making for billions of bushels that need to be dried with propane before storage.

Matthias Schwartzkopf, Energy Manager, Mid-Iowa Coop: “Normally we can deliver between 200,000 to 300,000 gallons of propane in the fall. That’s a good steady amount. This fall already we are over 900,000.”

Matthias Schwartzkopf is Fuels Manager for Mid-Iowa Cooperative in Conrad, Iowa. His five fuel drivers have been busy sourcing propane from 50-miles away and delivering it to customers. Twelve-hour waits to load at terminals have become common and deliveries have the drivers working 15-hour days. Demand is so high, State of Iowa trucking rules have been waived during the propane emergency.

While high demand and short supply has resulted in delays and short orders, there has yet to be a major increase in the price of propane. Currently, the price sits below the 2018 per gallon average.

Some producers have brought harvest to a stop as they wait for their drying systems to be refueled, a bottle neck most hadn’t anticipated.

Corn growers looking to dry wet corn also have to accept they are a lower priority customer. Home owners and livestock operators – neither of which can wait-out fuel delays when temperatures drop – are at the top of the list.

Deb Grooms, CEO, Iowa Propane Gas Association: “The whole upper Midwest, it’s also getting cold right now, a lot of my marketers are try to help also the homeowners, so there might be some short fills along the way to help everyone get some propane where it’s needed.”

The only good news is that each bushel of corn that is dried brings farmers and distributers one bushel closer to ending the harvest season.

Matthias Schwartzkopf, Energy Manager, Mid-Iowa Coop: “Everyone is in the same boat. I don’t think everyone is going to be in full capacity of deliveries that they make for the rest of the fall time. So we are just going to have to, day by day as I said, it’s going to be a new plan every day, and hopefully it’s the right one.”

For Market to Market, I’m Peter Tubbs.

In 2017, a major metropolitan water treatment facility lost a landmark lawsuit that alleged farmers were to blame for water pollution.

If the Des Moines Water Works had prevailed, it would have changed how farming was done in the United States. Many producers breathed a collective sigh of relief.

Two more groups have taken up the same flag and shifted their target from farmers to the State of Iowa.

John Torpy has more.

Legal issues surrounding waterways in the Hawkeye state ran deeper this week as the Iowa Supreme Court announced it would weigh-in on a lawsuit between environmentalists and the State.

In spring of 2019, environmental groups filed a lawsuit against the State of Iowa claiming citizens’ rights to clean water were not met due to pollution caused by runoff from farm fields and hog operations.

The groups Iowa Citizens for Community Improvement and Food & Water Watch want Iowa’s highest court to set limitations on the use of nitrogen and phosphorus on farms as well as place a moratorium on continued construction of hog confinement facilities.

Attorneys for the State argue the case could put years of Iowa agricultural policy on trial and would greatly alter current agricultural practices.

Attorneys for both sides have 14 days to file their documents for review.

For Market to Market, I’m John Torpy.

Criminals who defraud the federal government cost taxpayers hundreds of millions of dollars every year. The Department of Agriculture bares a portion of this burden.

Illegal activities - from selling SNAP benefits to taking credit for a crop that was never planted - eat into the USDA’s bank account.

We’ve put together a special section on our website devoted to the topic at Market-to-market.org slash justice.

Colleen Bradford Krantz opens our three part series “Justice in Agriculture.“

In early 2005, a data analytics center hired by the federal government contacted investigator Don Doles with some unusual findings. He never suspected the information would kick off the biggest case of his career.

Within months, Doles would be placing hidden cameras and rushing for his pistol to save his life.

Doles wasn’t an ATF or FBI agent. He was in a job most might assume is a bit less dramatic: agricultural investigator with the USDA Office of Inspector General.

The information given to Doles sent him after a North Carolina crop insurance agent and a network of more than 50 people who had defrauded the federal crop insurance program of an estimated $100 million.

Don Doles, former OIG-USDA Investigator: “They don’t play. I mean it’s a lot of money. So farmers, especially these organized groups, don’t take well to local people turning them in. And so they can get violent…. I’ve had contracts out on me before.”

Doles, who retired after 29 years of agricultural investigative work, estimates the percentage of USDA cases involving wrongdoing are in line with those of other federal programs.

Don Doles, Former OIG-USDA Investigator:  “Most farmers are honest people and they just want to be…left alone. Funny thing is that … very little farming goes on without some sort of federal involvement now. Most of them try to do what’s right.”

Market to Market analyzed data from annual reports from the USDA Office of Inspector General and found a rough relationship between a drop in net farm income and an increase in the number of federal investigations and convictions.

By 2002, net farm income had dipped to the lowest point since the 1980s Farm Crisis. Within a few years, Doles and other investigators would be on the tail of Robert “Carl” Stokes, a Wilson, North Carolina crop insurance agent.  Stokes had brought together a group of area farmers who underreported their harvest to the government and quietly sold the hidden portions to complicit buyers.

Stokes’ company, The Hallmart Agency, came to the attention of federal investigators after number crunchers noticed an unusually high frequency of payouts. Doles called a friend at the Risk Management Agency, which oversees privately contracted federal crop insurance, and asked what he knew about Hallmart. His RMA contact said a man had reached out to him just the day before saying he had information to share.

Don Doles, Former OIG-USDA Investigator: “The next day, I caught a plane, flew up and met with him in the parking lot of a church and he laid out what was going on. And it was dead on. He provided us with 10 names of farmers he knew were involved and we went back and pulled the records and, sure enough, it was clear they were cheating the program.”

Understanding the dangers of going undercover, the man hesitated to get more deeply involved.

Don Doles, Former OIG-USDA Investigator: “He felt he was in danger because there were so many farmers that were involved. It turned out that the 10 or so names he gave us was just the tip of the iceberg.”

A Wilson-area farmer, who said he was unaware of the insurance fraud scheme at the time, believes the man’s fears were justified.

Freddy Daniels, Producer, Wilson, North Carolina: “I would hate to think I had to rat on a neighbor. That’s why I don’t like to know anything at all; because it’s a good way to wake up dead one morning.”

By 2006, the man had changed his mind and agreed to work undercover. Doles and his team then asked the informant to infiltrate Stokes’ crop insurance crew.

Don Doles, Former OIG-USDA Investigator: “We would put a microphone and a small recorder in his pocket and later on we used a camera – it looked like a button…Well he went down to the place called Liberty Warehouse and the owner there said, ‘Yeah, I’ll provide you with these false invoices for your tobacco sale, but you gotta pay me.’”

For Doles and a fellow investigator, one arrest took a sudden violent turn.

Don Doles, Former OIG-USDA Investigator: “Well, we got there and he took off for his cab of his truck. Well, I am right behind him and we get to the truck cab and he’s reaching into the center console and, when he did, I put the pistol up behind his ear and I said, ‘If you reach in there, I’ll kill you right where you sit.’”

 

Shortly after Stokes’ arrest, the informant died of natural causes, never knowing the web of convictions would involve 57 people in multiple states.

Robert Higdon, Jr., U.S. Attorney, Eastern District of North Carolina: “In order to carry it out, it required people willing to break the law at a number of levels.”

Stokes, who served nearly two years in prison, lost his home and his insurance business. He died in 2016. While Stokes’ wife didn’t defend his actions, she did say local farmers weren’t a “bunch of lambs” being led to slaughter.

Todd Glover, a Wilson farmer, was surprised about some of the producers who were involved.

Todd Glover, producer, Wilson, N.C.: “The farmers were struggling to make money and things were really tight back then, like they are today... And I think that caused some people to do things that they normally wouldn’t do.”

Robert Higdon, Jr., U.S. Attorney, Eastern District of North Carolina: “Every farmer in every country where this occurred, whether they know it or not, was victimized because their insurance premiums went up.”

Don Doles, Former OIG-USDA Investigator: “Honest farmers were screaming, ‘Yo, you gotta do something. You’ve got to stop this. They are killing us. They are running the rent up on us and we can’t stay in business.’”

Next week, we look at a case where the courts ruled in favor of a farmer.

For Market to Market, I’m Colleen Bradford Krantz.

Next, the Market to Market report.

Rumors of progress in the Trade War, grain sales to Asia, and a Friday WASDE made for volatile grain markets. For the week, December wheat lost 6 cents, while the nearby corn contract dropped 12 cents. A brief news flurry over trade negotiations and confirmed sales to China did little to fire up the soy complex as the January contract closed 6 cents lower. December meal jumped a dollar per ton. December cotton improved 49 cents per hundredweight. Over in the dairy parlor, December Class III milk futures plummeted 59 cents. The livestock sector finished mixed as the December cattle contract lost 28 cents. January feeders gained 9 cents. And the December lean hog contract shed 32 cents. In the currency markets, the U.S. Dollar index skyrocketed 115 ticks. December crude oil gained $1.20 per barrel. COMEX Gold plummeted $47.50 per ounce. And the Goldman Sachs Commodity Index gained more than 3 points to finish at 418.65.  Joining us now to offer insight on these and other trends is one of our regular market analysts, Naomi Blohm. Naomi, welcome back.

Blohm: Thanks, Delaney.

Howell: Naomi, we had a big report come out on Friday and I want to talk about it commodity by commodity so let's start here with the wheat market in particular. We lost 42 million bushels. Did that do a lot to change wheat's story?

Blohm: The surprise in the wheat was that reduction in production overall and that was because the spring wheat numbers were reduced and then the harvested acres were reduced. Almost a million acres of harvested acres came off the balance sheet. So that was supportive. We're thinking about the crops in North Dakota and Montana specifically but in a sense part of that was factored into the market already. And then what the USDA did on the demand side, they reduced the demand for wheat for food and for the seed category. So when all was said and done the balance sheet didn't budge too much and we still have wheat carryout of over a billion bushels. It is down from the October month number, but it's still a billion bushels of wheat. So the market didn't really trade too much on it. We were hoping for something friendlier in a sense. And then on the global side of things there was a reduction in Australian wheat and Argentina wheat, however the Black Sea region made up for those losses. So again, not too much when all is said and done.

Howell: Okay. What about the corn market? That seemed like a little bit of a surprise to the markets. And I want to note too that right at eleven o'clock Central Time when the report came out it was unavailable for people but yet the corn market seemed to rally anyways.

Blohm: Right, I think it was about almost a 10 minute delay for that report coming out but then the corn market spiked about 10 cents during that time. So that was a little weird. And the friendly part on that report was the yield reduction. So the trade was looking for a yield reduction but we came out with a number of 167 and that was a little bit lower than the average estimate. So that was friendly. There was no change to harvested acres on this report. But the demand side is what got hit and that was negative for the marketplace because we lost demand in every category, ethanol exports was a big one and in the food, seed and industrial category so there was a lot of demand lost there. So ending stocks were reduced from last month but not as much as what trade was hoping for so that is why the corn market didn't do too much overall today. The good news though is that the December contract was able to stay above $3.75, that's a very big support area on the daily charts. So as long as that can happen we should be able to stays in a sideways trading pattern going forward. But if for some reason $3.75 gives way unfortunately that could be a re-test of the lows from summer. So really keep an eye on corn going forward in the next week or two.

Howell: Naomi, would you say that the December corn chart right now is a sideways trading pattern? It almost looks like corn is turning into negative territory.

Blohm: The chart would actually make you think it was negative and this report today at first I was thinking oh boy, here we go, we'll be limit down by the end of the day, but because of that yield number being so friendly that's enough to give the market some hope going forward and especially with as delayed as this harvest is. That is giving us some support as well.

Howell: Naomi, the other big story that is going on this week is, as we just reported there, the propane transportation issues. ADM released a story late Wednesday, Thursday afternoon saying that for certain locations farmers under 19% or less moisture they'd allow free drying. Does that indicate to you that they need the corn right now?

Blohm: That's absolutely what it says and that was in Illinois where that announcement had come out. And so yeah, there is high demand for corn right now because the marketplace is not used to this delay. We're 50% harvested, normally we're 75% done and normally Illinois is pretty much wrapped up by now. So the demand is there and with the drying being so slow, not only because of the delay in getting the propane, but also because it's so cold outside, it's just taking so much longer. So we're going to continue to see this harvest drag out unfortunately and that is also something that should keep the market supported. The other thing that is not being talked about and needs to be addressed is the test weight issue because that is lower than what the market is trading right now so that is really something that traders need to be mindful of going forward.

Howell: Naomi, it sounds like there are a lot of things that could be supportive for the corn market. So I feel like a broken record asking this almost every week on the show, but it's like when is the market going to care? When are we going to start to see that factor into prices?

Blohm: Yeah, I would say realistically as we get closer to January, as we get closer to that final USDA report number, until then it makes sense to me that the USDA is doing more of a baby step in terms of how they are talking about the production side of things because we really don't know. So hopefully the January is when the truth comes out. But in the meantime seasonally prices should start to work higher in December so that would be supportive too.

Howell: Naomi, tell me about the WASDE report as it relates to the soybean market.

Blohm: That was the one that was a little bit more bearish because we were anticipating that we would see the reduced harvested acres come in, we were anticipating seeing lower yields and we got neither, nothing. So it was absolutely unchanged from the October numbers and that was the bearish surprise on there. And then add to it the USDA reduced demand for the soybean crush. So ending stocks ended up increasing when we all thought that they would be decreasing so now we have ending stocks at 475 mill on bushels, which was up from 460 last month, still a lot better than where we were just a year ago, by all means, but I'd really think forward we're going to see that yield number come down for soybeans. With producers I'm talking to it's just quite variable as far as what is out there. And then we still need to I think see the harvested acre number come down too.

Howell: And the other question I had was the USDA said that they were going to adjust the Minnesota and the Dakotas’s acreage number. Was there any indication of that in this report?

Blohm: I didn't see anything. And so they said if needed they would announce that information so I guess it wasn't needed is the only thing I could think of.

Howell: Okay, I guess it's something we'll have to continue to watch. Naomi, I've got a social media question for you. As you look at what's going on in both the grain and livestock industry, outside of those too though, should producers be looking at locking in energy, fuel, etc.? And what strategies would you recommend? Prepay? Options? Futures?

Blohm: So whatever you can do in your cash market definitely be looking at it. Overall the propane cost in general, as the show had reported, it is still lower. It's higher in the past couple of weeks because of what has been going on. But I would do what you can do to lock that in going forward. Global demand I think can pick up. China this week actually did a deal with Saudi Aramco to lock in crude oil needs from them. So to me that says that the demand is still going to be there in general for energies so lock in cash first, always do that first, and then if you needed to do anything with reownership then you could look at call options or futures depending on your risk tolerance.

Howell: Naomi, I'm going to take one more social media question. Looking at the dairy market this week they pulled back 58 cents. We've got a question here from Gary Rasmussen on Twitter. Dairy prices are finally looking up. Any hurdles in the near or distant future?

Blohm: So the quick recap on the milk price is that for 13 trading sessions the cheese market just kept running higher and so the Class III futures milk prices was following up with it. The November contract was able to get over $20, December contract got also to the $20 area and then on Thursday of this week the black barrel price for cheese crashed and it was about 7 cents lower and so then that was the cue for milk prices to just have a quick recovery lower but it was almost limit down, 75 cents. And so that was a little bit of an aggressive correction. But going forward what we need to keep an eye on of course is the cheese demand because in general it's really good domestically and then I think with our export markets to keep an eye on that as well between what we export for dairy products to China and Mexico. And then the next milk production report I'll be very curious to see if the production has just maintained or if we're going to start to see it decrease a little bit because of the less animals. And then also with the feed issues and the feed quality issues too. That will be something to watch. So front month contracts this may be about as good as it gets but I don't think it's going to just totally fall apart. Deferred contracts have yet to be seen what they can do.

Howell: It was been an exciting time for a dairy producer that's for sure. Naomi, looking at the live cattle market, that February contract seems to be hovering around that $126, that contract high. What reason, if any, could break us through that?

Blohm: We would need to continue to see boxed beef prices continue to rally. We also would need to see the cash price continue to go higher as well. Right now the futures contracts are trading at a premium to cash and seasonally this is the time of year that we would see a correction lower for a few weeks. So I'm cautious right now and I think I would take more of a defensive posture for the next few weeks. We've traded in the fact that fourth quarter production was actually smaller than third quarter so that is what the market has rallied up this far. But going forward it's a little bit more of a tepid tone I think because production is looking to increase as we head into the New Year. But we'll have to of course keep an eye on demand and our exports too.

Howell: Are you cautious when it comes to the feeder cattle market?

Blohm: I am, I am. Actually the demand has been really strong there too and the feeder cattle have had a nice rally over the past few weeks. But just like the live cattle market when you look at the futures prices they're starting to consolidate, they're starting to decide if they have enough reason to work higher or not and a lot of times the path of least resistance may be a little lower. So I would keep an eye on that. What I'm watching on the January price is $145 so that's a really big support area to be aware of.

Howell: What is the support price right now for the December lean hog contract?

Blohm: We're looking at 62 to 63 right now and that marketplace it's the heavy, heavy production for fourth quarter which is dooming us in a sense. The exports have been better to China but they haven't been that great to Mexico, South Korea, so keep an eye on that.

Howell: Okay, Naomi, I'm going to cut you off there. We'll continue that discussion in Market Plus. Thank you so much.

Blohm: Thank you.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. We have some exclusive content with our Justice in Agriculture series. Search market-to-market.org/justice to see more. Join us again next week when we’ll explore how one farmer prevailed in a six-year battle with the U.S. government. 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. 

(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.     

 

Grinnell Mutual Insurance
Sukup
Accu-Steel
ICN