Market to Market - July 5, 2024

Coming up on Market to Market. A mid-season economic snapshot from Rural and mainstreet America. Ernie Goss and Chris Robinson are here in studio for discussion and analysis. Next.

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Announcer:  This is the Friday, July 5 edition of Market to Market, the Weekly journal of Rural America. 

Hello, I'm Paul Yeager, the midway point of 2024 and the July 4th holiday allow us an opportunity this week to take stock of what's unfolded in the economy and in the commodity markets. We have our panel that will speak with us in a moment. But first, the markets we are producing this program following Tuesday's trading session and before the actual holiday and the limited sessions that surround that day for the shortened week, the nearby wheat contract added $0.08 and the September corn contract improved a penny. Decreasing crop conditions appeared to win over the tepid export market and the soy complex. The August soybean contract gained $0.17, while August meal strengthened $4.30 per ton. December cotton shrank by a penny per hundredweight over in the dairy parlor. August class three milk futures weakened $0.44. The livestock market was mixed. August cattle shed $0.33. August feeders put on $1.80, and the August lean hog contract increased $0.28. In the currency markets, U.S. dollar index fell nine ticks. August. Crude oil expanded $1.44 per barrel. Comex gold lost $1.40 per ounce, and the Goldman Sachs Commodity Index was up more than seven points to settle at five 8480. Joining us now are two regulars to the program. Ernie Goss is the McCallister chair and professor of economics at Creighton University, based in Omaha, Nebraska. And Chris Robinson is managing director of agriculture and commodities at TJM and a regular market analyst for the program. Chris, good to see you. Good to see you. I don't get to ask you the first question. I'm going to go to Ernie first. Okay. I know that's a little different. Ernie. Let's look at this report of yours. You give me I keep saying almost for consecutive months everything's below growth neutral. It's below 50. It's been that way for a while.

Ernie Goss: Yes.

Paul Yeager: Do we continue? Do we think we're going to see more months added to that below? Growth neutral.

Ernie Goss: I think we will. Paul is sort of like if you take a handsaw and turn it upside down and put it in front of you, that's what we're seeing. Like it's up and down, up and down, like the points on the handsaw, but it's always pointing downward as well. The economy is that way. We've been seeing it, vacillating up and down, up and down, up and down. But right now the main Street economy, the rural Main Street economy, which we survey, these are bank CEOs in rural areas in ten states, are telling us that the agricultural economy is weakening. And even the rural businesses on rural Main Street are also seeing weaker economic conditions. And as a result, I'm going out on a limb, just to be clear it away. Right now the Fed's going to reduce interest rates. I mean and they're going to say it's because they've whipped inflation. No, they have not whipped inflation. But the economy's weakening. That's not just the agricultural economy. It's the manufacturing economy. It's residential housing. It's the commercial real estate. We're seeing too much weakness out there to hold on these interest rates. And that's true across the nation.

Paul Yeager: Is that cut going to come before the end of the year? Is it going to come in this next meeting this next quarter?

Ernie Goss: It will not. That's in my judgment, is that that's July 30th, 31st in September the 18th, 17th and 18th, they meet again. That's when the cut will come. And it could be a 50 basis point cut and a half a percentage point. Most, the expectation would be a quarter point. It could be a half a percent.

Paul Yeager: Your rural Main Street. Look, there's a lot of factors in there. but it always kind of seems to be that it's tied mostly to commodity prices. Absolutely. Is that the biggest reason for this fall in your survey?

Ernie Goss: Absolutely. It's, we're seeing it. You're seeing. And if you look at the prices right now, commodity prices, and we're talking about grain primarily, in my judgment, livestock is a different matter. But in terms of grain, you are seeing this weakness. And that's coming from a weak global economy, a strong dollar which is hurting exports. Exports have declined year over year from 2024 for the first, first five, six months compared to the ‘23. Exports are down, agricultural exports are down. And that's causing some real pain out there right now. And some of it, again is tied to the high value of the dollar. But also the Chinese economy just can't get out of its own way.

Paul Yeager: So you're thinking the federal policymakers, the federal dollar, policymakers, they're not seeing a soft landing. They're seeing a landing that needs some help.

Ernie Goss: They do. It's not a landing you want to make in any plane, or are in at least the plane I'm on. Are you or your own? It's going to be a harder landing than we expected. They've been. The lag effects are just getting longer. This is that we've had five, 5.25% increase over the last couple of years. It's just now hitting and it's hitting hard and it's hitting agriculture again. Well that's part of part of what's going on agriculture because we've got equipment farm equipment sales for example. Those have to be financed of course.

Paul Yeager: Well Deere and Company had another round of layoffs and Caterpillar has had some, some struggles as well. Those are always the big leaders, in that sector and is that, you know, the old thing, I think in the recession days, was the - if one catches cold, we all get sick?

Ernie Goss: Absolutely. And, and I have to say, and this was an advertisement for our bank CEOs who are taking the survey. Know for some farmers say, what the heck does a banker know about farming conditions? The banker does know about purchasing equipment. And 12 of the last 13 months, that index has been below growth neutral for the purchase of ag equipment. So they're resorting to more used equipment, repairing old equipment. So is being tough. Look no further than the Moo ETF. That's an exchange traded. Exchange traded stock. And it's on the move. It's down about, from $90 to $70. And, John Deere is a part of that index ETF.

Paul Yeager: Well, Chris, do you have clients that aren't buying new equipment. They're buying used if they can buy it?

Chris Robinson: I haven't heard any stories like that. I think most people are concerned about the fact that we are at three year lows in the commodity prices. Corn, we beans, to get specific foods. That's close, very close to three year lows. And I think that's caught a lot of people five footed. I think the interest rate, what it cost to borrow when you, if you go buy something new that's going to slow people down, it's slowed everybody down. You know, we've gone from 0% to, yeah. So these, you know, 5% interest rate. So it has slowed down the economy. And agriculture is based on, to large part, borrowing, especially for you're buying a half million dollars, $1 million piece of machinery that's going to get financed. So, yeah, I think that a lot of people are concerned and, we're hoping that we would have had a better first six months, and we have had a difficult start to the year. We broke sharply early. We had a look like we might have a rally. we had a 50 cent rally in corn. We had about a $1.30 rally. And in, soybeans, we had a close to a $2 rally in wheat. And just in the last month, it's all gone away. So that's been a hard piece.

Paul Yeager: Guess I've never asked this directly, but what is the impact on commodity markets, specifically commodities? If the Fed lowers or raises an interest rate?

Chris Robinson: Well, part of the reason we had the big rally between, 20 and during the, pandemic is all that new money came in and we had inflation and a lot of the financial community wanted to own commodities. And if you look at that, just in general, they wanted to own everything corn, wheat, beans, cotton, silver, everything you could get your hands on that's gone away now. Now people are less concerned about that. So even though you still have some commodities like copper, which is at all time highs pretty much across the board, all commodities have backed off. And I think that kind of ties in what you were saying. China's economy is slowed down. and again, that I think had a big impact in our exports. And it's you're right. If one person gets sick, everybody kind of feels it. And, that's what's going on here with our economy right now.

Paul Yeager: Do you see, Ernie, that China or. I guess I'm going to go back to housing. I'll get to China. Okay. the housing sector, when you mentioned the metals and the lumber and that was part of that pandemic issue, the build, the housing market itself, is always one of those big markers of the overall economy. Isn't there a little bit I mean, median price keeps going up. The inventories have not. And do we see anything that's going to help jump start or does the housing market need to jump start?

Ernie Goss: The housing market is not going to jump start. You talk about inventories go into reventure.com. They track inventories at the zip code level. They're in Florida Georgia, Tennessee, California. Not so much in the East coast inventories are up dramatically of the houses. I mean we're talking about investment companies that went in buying and now they're going and selling. I saw I've tracked some of the houses or recently you're seeing prices drop as much as 15-20% in Florida. Now we're talking. So the problem is not so much in this part of the country, but nonetheless we're going to see prices of housing come down. And it just cannot go on like this. And as Herb Stein once said, if something can't go on forever, it will stop. That was Nixon's chief economic adviser. That's true. Still true today.

Paul Yeager: Well, when you say Nixon, that gets us back to the 70s, and it's always kind of a discussion we have here. Are we headed? Are you seeing things reminiscent of what we did see in the 70s with I mean the inflation's not the same number it was, but it's relatively high to what we've experienced. Are we in that period where we need to, we’ve got bigger warning signs ahead?

Ernie Goss: Certainly not in agriculture. And I didn't live in this part of the country during that period of time. But nonetheless we are seeing slower economic growth. We're in my judgment, we're going to see negative economic growth, meaning a recession. The inflation part of it. Probably not. Now, that depends a lot on the elections. So I had this horrible dream the other night. I fell out of the bed. That was such a bad dream about the elections. I dreamed somebody won. No, sorry for that.

Paul Yeager: Well, I think there's many of Americans that think kind of that same thing.

Ernie Goss: Yeah, but both candidates, the chief candidates are talking about spending. They're not saying explicit spending more money. That's increasing the debt. They're talking about erecting barriers to trade. That's not what this economy needs. We do not need an increase in tariffs. I mean, when it's a point when you got to grow bananas in Iowa, you know, we grow soybeans, wheat, corn, livestock and export it and trade it for corn, for our bananas. That's what we need to do.

Paul Yeager: We're going to get to exports in a minute. But Chris, I need to get to the wheat market because we are watching a geopolitical issue, as always there. And that hasn't changed. This wheat market. But now it's the weather in Russia and Ukraine that's influencing the wheat as we're having harvest in the wheat belt in this country, which is the bigger mover on the market right now. Well, here at home we're having a good harvest. Yields are going to be higher. And that's probably going to be reflected in the next, the July 12th report. So we'll see that July 12th as far as the rest of the world. I mean, I was just reading today that actually now Russia is starting to say their yields are a little bit better.

Robinson: There is some concern coming out of France with Metis where they've had hot weather there. And that's part of the reason we've had a little bit of a bounce, but we've had it we had a tremendous rally and then a tremendous collapse. We haven't seen a collapse like that in wheat, where we looked like we were actually going to really start something, a nice rally. And, I think it's going to be something that a lot of farmers are going to be scratching their head off for, for a long time, because I know a lot of analysts, myself included, were surprised at the severity of a correction. We're basically right back down at three month lows, four month lows. But, I think that, now, the number one thing I will be watching is what are the yields going to be here at home. Is that going to be put more pressure because it's another case where we may be producing more of what currently the world wants less of. And that means potentially lower prices.

Paul Yeager: Oh, you're talking wheat. But you could also talk about the corn market. And I want to get to our question really a carry over from last week. Shamus in Iowa wants to know if there's so much corn in the beans. Why is basis good. And end users say it's getting hard to get and find?

Chris Robinson: Two reasons nobody wants to clean out the bins in 100 degrees. A lot of guys are still finishing up planning. So that's probably two together. the other is, if you look at the numbers that we were just given on, the last report on farm storage is 3 billion bushels. That's 800 million bushels more than we had this time last year. Okay. That's that, you know, that's a big number. And that's kind of are they going to adjust that? We'll see. Now, the good thing is the basis in the areas has some $0.50 over. So if people want it they will pay up for it. So instead of fretting about why the basis is higher, look at where the flat price is. And if somebody is willing to give you $0.50 or a dollar over that, you know, take advantage of that, because the basis that may change as we get further on in the year.

Paul Yeager: It's got a new crop on corn because there's still this acreage of people are planting, like you said, but there's this major, major thought that and fear we're going to dip below four and stay below four. Do you see that coming to fruition?

Chris Robinson: For a new crop? Corn? We got down to $4. We were back to the June 2021 lows. In October, November this year we were at $5.12. So we've come down to $1. A dollar a bushel is, it's a lot of money. When we grow a 14 billion bushel crop, all that revenue is, is, you know, going to be missed. And, historically, when we get in trends like this now, the managed money and they're just trend followers, they just go with the trend. They will start looking at old lows. Will we get their the contract low for December corn 24 is I believe 396.5 Don't quote me but it's right down there. That may be the near-term risk. We may go down there and take a look at that, as we move through July. So, you know, we do have some issues with too much rain. We are going to find out if any of those acres in those, flooded out areas can have an impact at this point. Those are the kind of straws we're reaching at, given the carry out that we have and the current trend that we have.

Paul Yeager: Let's go to beans, because some of those same factors are in play when it comes to acres. Let's get to old crop quick. Are you seeing any reason that there might be some selling here? 

Chris Robinson: Well, everybody's short right now. We just, we had a $1.30 rally. We've given it all back. Now. I think there's still most of the money that is coming in on the short side now is coming in on the November side. So I would watch that the August, Sept, Sept, November spread. But we've already seen new crop corn. Excuse me, new crop beans dipped below 11. That's going to be the fighting line. Yeah.

Paul Yeager: And that's the number I wanted to point out. Again. Same question like it was for corn. Is below 11 a concern for you.

Chris Robinson: Yeah absolutely. 11. And then they start doing kind of what we did in wheat where people say what's the old oh what's the old low in the kind of can be a self-fulfilling cascading thing. And, it's something to definitely be concerned about. And that's why this is a year where you've got to be. We've talked about this all year, back and back in November. It was like, you want to defend $5 corn, and at the time, $12.50 beans. Now we're talking about defending $4 corn. And, you know, $11 beans.

Paul Yeager: We'll get to livestock now, Ernie, what's the Main Street shopper thinking right now? Are they, do you hear anecdotes of any shopping habits changes as the consumer tries to curtail spending?

Ernie Goss: We're seeing retail sales, and we do survey the bankers about retail sales on rural Main Street. And we do a survey, another survey of manufacturers in the same states. And this week, I mean, we're talking about, like we talked about, for example, back to Christmas, back to Christmas. And it was a big hubbub. 4% growth. Well guess what the inflation year over year was about that or a little bit more. It was another year. Negative. So we're hardly we're we're in terms of adjusted for inflation retail sales are down and they're moving down on rural Main Street. They're moving down in the rest of the economy. That is adjusted for inflation. So the cut that 67% of our economy of course is the consumer. And it's looking weaker. And we're the problem a lot. One of the big problems is debt. We're all covered up with debt. The government's covered up with 35 trillion that our federal government $35 trillion. We're talking about a credit card debts at record levels. And there's just under the money that was given to individuals, as I say, given provided in the two stimulus packages and the IRA, that money's basically gone as far as the consumer is concerned.

Paul Yeager: So that becomes at the grocery store, a little less wiggle room. So choice of meats, changes steak to more hamburgers.

Ernie Goss: Absolutely. In our survey, though, in terms of the livestock, producers doing much better than those who depend solely on grain, but they're usually doing both, but nonetheless, yes, you're switching, you're going to be switching. We're going to see more of that. But of course, this week is a high watermark for livestock sales. Oh, like I say, meat sales. Yeah.

Paul Yeager: Because we're trying to grill in the middle. So we're going to do that between the show and Plus, I don't know if I told you that. Did you bring something to share. Forgot to say tha…

Ernie Goss: Just just my economic whatevers.

Paul Yeager: Your economic tables, that's your table. Chris, when we look at live cattle, listening to Ernie in what the consumer is thinking, that doesn't seem to be impacting the cattle market too much.

Chris Robinson: Now, we've continued to see strong demand from packers. Even though we had the issues, we had the sort of the December debacle. We went down there in December and things were looking pretty dire. We've gotten all that back where $0.18 to $0.20, 100 weight higher than that. And, even though when we had the April issue with the bird flu, which kind of hammered everybody, we came back strong. So that's always a sign of strength when the market gets bad news. And it is interesting that, you know, people are anybody that has to go grocery shopping. You know, I think they have made the choice to, you know, what kind of beef am I going to get? So to see prices as high as they are now, I've been telling people this for a while. We're at eight month highs. It is a gift for producers. At some point you don't want to be standing there going, what happened? How do we miss? You know, if there's a we could very easily go back down. It doesn't take much to turn this market. My biggest concern with the, livestock market, especially the cattle market, the stock market, stock market seems like it's never, ever, ever going to correct again if it ever does. The first thing these guys do, if they cannot sell. On if S&P futures, they always sell live cattle on feeder cattle. So I always tell my clients that are ranchers that is the big what if. And it's very odd. We've just gone vertical for two years. We've had a couple 6 or 7% corrections and this market just keeps coming. And if you talk, if you talk to them, if they're going to do a half a percent rate cut, that is going to be some interesting timing right there. Because is the market going to rally or is the market going to break? So as far as, cattle producers, you're giving a gift right now. Please take advantage of it.

Paul Yeager: Let's get to hogs to close up livestock there. That is one that that market has turned and it's almost like one is against the other right now. Yes. Any. Does one give you any indication there's a change coming?

Chris Robinson: No. I mean, I think that there seems to be, you know, solid demand. But there was, we had a tremendous rally beginning of the year. And just in fact, the caught the professional traders completely off guard. The managed, money, they were long 95,000 contracts at the top back in May. And this between May and this recent low, we've given back the entire move. And his friend of mine, JD in Indiana, he always likes to say hogs trade like they trade like they ice skate. Hogs are very, very difficult trade. And this has been a classic example now right now where contract lows, the funds are all short. So hopefully they haven't wrong and we can rally. But I would watch that spread between cattle and the lean hogs.

Paul Yeager: You concerned about anything he's saying Ernie?

Ernie Goss: Well Chris was talking about the stock market. The stock market is the ten of the S&P 510 stocks have led this. We're talking about overall a weak stock market. And you're talking about between my my expectation of a rate cut on September the 18th before between now and then I think we're going to have a stock market adjustment. Now may call it a correction, but there's too much fluff in those stocks right now. Again, they're we're talking about price earnings ratios. In many cases the price of stock for the earnings of the company.

Paul Yeager: Do you see any thing in particular that tips us off that this is happening? Is this someone who goes on vacation in the Hamptons and they're talking amongst themselves and somebody says it's not good. And then that's when they come back into the city and sell. Is that how that starts?

Ernie Goss: We sort of never know until it's. And looking back on, for example, the last time 2008 was a significant, downturn, it was because of residential housing. Housing, these, these tranches of housing, that's what the downturn there. And I think this time it's going to be related to, real estate and the commercial real estate already there. But the domino is starting in Florida. Look at the inventories in Florida of houses for sale that's spreading in Georgia, Tennessee. And we're not going to see so much of it here. But down in particularly in Arizona, Texas. And that's what we're going to see. And it's going to scare some folks. And once it as Chris is sort of saying, once you once it begins, it's like a dominoes falling very quickly. So what I would expect between now and September the 18th would be a weakened stock market because the economy is going to be showing weakness. Look at the jobs report for the for next jobs report.

Paul Yeager: And we're going to look to you and market plus and to you as well Chris Robinson good to see you Ernie. Thank you as well. Thank you. Appreciate it. We are going to pause this analysis and continue our discussion about these markets and our market. Plus segment. You can find both analysis and plus on our website of Market to market.org. The audio format is integral to our distribution of our coverage of rural America. One way is to get the word out is through our MTM podcast. The weekly offering is a conversation with those in and around agriculture, as well as weather and energy. Subscribe today wherever you get your podcasts! Next week, we check in with our 2024 producers with the Knee High for progress report. Thank you so much for watching. Have a great week.

Announcer: Market to Market is a Production of Iowa PBS, which is solely responsible for its content.

Announcer: What's next doesn't happen by chance. It happens when researchers and farmers work together to solve tomorrow's agronomic challenges. We're committed to creating what's next because at Pioneer our name is our mission.

Announcer: Family owned and operated for more than 60 years. Sukup Up Manufacturing is a full service provider of grain handling, storage, and drying equipment, helping farmers feed the world. 

Announcer: For over 45 years, Steiner Tractor Parts has shared your love of antique tractors. New parts for old tractors. Learn more at Steinertractor.com or at (877) 559-7887.

Announcer: Tomorrow. For over 100 years. We've worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

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