Market to Market - October 20, 2023

Paul Yeager Coming up on market to market. Congressional actions remain muted, leaving the farm bill stuck in neutral. How solar is adding to the bottom line on the farm. And we will have the commodity market analysis of Shawn Hackett next.

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.

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Announcer This is the Friday, October 20th edition of Market to Market, The weekly Journal of Rural America.

Paul Yeager Hello. I'm Paul Yeager. The U.S. economy is driven by nearly 70% consumption. So when retailers have gains, the economy grows. Last month, retail sales were up 7/10 of a percent, according to the Commerce Department. This was the sixth consecutive month of gains in this report.

Paul Yeager There were fewer sales of existing homes for a fourth consecutive month in September. Surging interest rates and low inventory contributed to a 2% decline. The rural Main Street index dropped to its lowest level in 2023, with a reading of 44.4. The Creighton University based survey revealed a slower gain in farmland prices as well as equipment sales. The vote to find a new Speaker of the House has delayed much of the legislative process in Washington, D.C., while also creating uncertainty for key bills close to the finish line.

Paul Yeager Peter Tubbs reports.

Rep. Patrick McHenry No person, having received a majority of the whole number of votes cast by surname as speaker has not been elected.

Peter Tubbs Republican gridlock in the House has dimmed the prospect of the 2023 farm bill being finished in this calendar year.

Peter Tubbs The House will come to order.

Peter Tubbs The work of the 118th Congress has largely ground to a halt, while the Republican majority wrestles with the question of who should be Speaker of the House. Among Congresses unfinished work is writing the 2023 Farm bill. The 2018 legislation expired in September as Congress was focused on passing a 45 day, continuation of the federal budget. But the government continues to administer agriculture programs under the terms of the 2018 Farm Bill.

Peter Tubbs Failure to complete the 2023 Farm Bill or extend the 2018 legislation by December 31st would revert some programs to language written in the 1930s and 1940s. One member of the Senate Agriculture Committee expects an extension of the 2018 Farm Bill to buy Congress time to finish its overdue work on 12 large omnibus spending bills.

Sen. Charles Grassley And that's a major obstacle to getting a bill moving in the United States Senate. So I see by now, through the last half of October until Christmas Eve, that that we're not going to have time. Even if the House picks a speaker yesterday, that the House moves the bill, that we're going to be able to get anything done in the Senate.

Sen. Charles Grassley So I see a one year extension of the 2018 farm bill. I'm drawing conclusions as individual, Senator. But you can see with 12 appropriation bills that have to be passed between now and Christmas to fund the government. I hope I'm wrong because the farmers are entitled to more certainty.

Peter Tubbs The most recent House Farm Bill Listening session was held on August 2nd. The last time the full Agriculture Committee held a hearing on the farm bill was June 14th. On a related note, without congressional action, the federal government will also shut down on November 17th. For market to market. I'm Peter Tubbs.

Paul Yeager Plans for a multi-state CO2 pipeline project were scrapped Friday. Navigator CEO two Ventures announced they are canceling a bid to transport carbon dioxide from ethanol plants to underground sequestration locations. The Heartland Greenway project was hampered last month when South Dakota regulators denied the permit application. Points over land use, sustainability and who exactly benefits from these energy plans are frequent, and the model could be used for renewable energy projects elsewhere.

Paul Yeager This week, energy officials in Minnesota met at the state's Solar Energy Industries Association conference. Concerns were raised about the state's goal to be carbon free by 2040. One Success in Minnesota's quest to lower its carbon emissions involves adding solar capacity. Peter Tub's reports In our cover story.

Peter Tubbs A load of steel arrives on a November morning near Byrd Island, Minnesota. The seven acre site on the edge of town will host a 1.4 megawatt solar garden, enough energy generation capacity to power roughly 200 Minnesota homes. It is one of dozens of solar projects in Minnesota that fall under the category of community solar, where solar energy is sold directly to consumers rather than adding electricity to the general grid.

Lissa Pawlisch I think there are a lot of people who would really like to participate in solar, but for whatever reason, they don't have the right roof, they don't have the right money right now. They're not in an area where it seems tenable, but they really want to participate. They're watching clean energy happen around them and they they want to know, this is for me, too.

Peter Tubbs Minnesota has more solar capacity in the community solar category than the entire country combined. The result of legislation signed in 2013.

Lissa Pawlisch I think the fact that there is not a cap on how much community solar can be developed is a big part of that magic formula. But because there's not been a cap, it has really allowed that private sector development to continue as long as there are households who want it and area available to do the development. It has grown just leaps and bounds in a continuous way.

Peter Tubbs Statewide, there are over 400 community solar sites, generating over 825 megawatts of electricity, while 28,000 community solar subscribers purchased the solar energy. Only 14% of the energy is used by residential customers. Called community solar Gardens, the legislation encourages the use of a commercial or government purchaser as an anchor subscriber. This helps those planning solar gardens to acquire financing for the project and provides a pathway for the purchase of energy left over as residential subscribers come in and out of the program.

Peter Tubbs The Minnesota Code for Community Solar also requires the energy generated by a garden to be used by a subscriber in the county of generation or an adjacent county. The rule has resulted in a surplus of landowners in some areas interested in leasing acres that lack enough potential customers in the immediate area to justify a project.

Reed Richerson, COO, US Solar: Electrical wires don't stop at a county border. There is a disconnect because there's waitlists of people that want to subscribe to these projects or wait lists of people that want to host it on their property and there's just this artificial barrier in between that says that you too don't line up.

Peter Tubbs When community solar developers propose a solar project to a landowner, they focus on the consistency of the project.

Reed Richerson, COO, US Solar It is similar to the residential subscriber message. It's to take control of the value that you can generate from your property. You know, if we're approaching a farmer landowner, we are likely proposing to only occupy a portion of their property and we can offer typically higher rates than can be earned through traditional agriculture. But we're not prohibiting the continued use of agriculture.

Peter Tubbs Landowners interested in hosting a community solar garden are drawn to benefits that are both financial and structural. Many solar gardens are placed on sites that are often difficult to farm or are of marginal quality for row crops. Leases can result in income that is a multiple of potential crop income in a given year, and that rate is guaranteed for up to 25 years.

Peter Tubbs Solar’s impact on Minnesota agriculture has been limited. Less than 20,000 acres of solar projects have been completed in the state, a small footprint compared to the 1 million acres of Minnesota farm ground that are in CRP and a sliver of the 25 million acres devoted to agricultural production in the state.

Reed Richerson, COO, US Solar Solar panels are pretty good neighbors, and once you visit solar sites or or even have one in your community, you tend to start to realize that they're they're quiet once they're installed.

Peter Tubbs Many solar projects use cover crops rather than hard surfacing, which can improve soil quality. This can both limit erosion and filter runoff, which can improve the water quality of nearby lakes and streams. Many of these areas benefit from being grazed, which can provide another revenue stream for the landowner. The solar industry is also experimenting with growing row crops and vegetables beneath solar panels, Finding both yield increases for the crops and performance improvements in the panels.

Peter Tubbs Community Energy futures of Minneapolis has spent the last decade building community solar gardens as a co-op, focusing on residential customers for the majority of their electricity volume working in urban environments. They have sited solar gardens on the roofs of structures like churches, government buildings and a parking ramp in downtown Minneapolis. A government or nonprofit acts as the primary buyer of the electricity, while the majority of the electricity is sold to residential customers.

Peter Tubbs Xcel Energy, which services 3.7 million electrical customers in eight states and is the primary electrical provider in the Southern half of Minnesota, issues a credit to residential customers who purchase electricity from community solar gardens. Community Energy Futures has been seeking out households with lower incomes to join the co-op and help them earn discounts on their electric bills.

Pouya Najnaie, Policy and Regulatory Director, Cooperative Energy Futures Luckily, being in this state there are you know, people like I mentioned that just get co-ops right away. They don't have to put panels on my house. I don't have to pay anything up front. I might be a renter. My house might be shaded. Maybe I need a roof replacement and I can't afford it right now.

Peter Tubbs Solar garden developers say most subscribers will see electrical rates drop when they sign up with a CSG. And once the installation costs are covered, consumers will enjoy static electrical rates for up to 25 years.

Pouya Najnaie, Policy and Regulatory Director, Cooperative Energy Futures All these reasons build up that momentum and what I'm finding a lot of time is like the CSG momentum in general for community solar gardens is growing big time. We just need to do more catching up on like, hey, CSG is are great, but look at this model of CSG. Look at the co-op model versus the model you're getting.

Peter Tubbs With another 400 megawatts of community solar projects in the planning stages. Developers in Minnesota look to continue that momentum. For market to market. I'm Peter Tubbs.

Announcer Next, the Market to Market report.

Paul Yeager Harvest is more than halfway complete and the market appeared to bounce off seasonal lows. For the week, the nearby wheat contract added $0.06 while the December corn contract rallied $0.02. Good crush news boosted the soybean complex as the November contract gained $0.22 and December meal improved by $33.90. December cotton shrank by $3.66 per hundred weight. Over the dairy parlor November Class three.

Paul Yeager Milk futures increased $0.67. The livestock market was lower December cattle lost $2.12. November Feeders cut $9.35 and the December lean hog contract sold off $3.50. In the currency markets, the US Dollar index gave up 45 ticks. November crude oil gained a $1.49 per barrel. COMEX gold expanded $50.50 per ounce and the Goldman Sachs Commodity Index added more than five points to settle at 650.

Paul Yeager Joining us now, regular market analyst Shawn Hackett. Shawn, good to see you again, sir. You too, Paul. You have some positive news in some fronts, but I think the overriding question is, is this positivity short term or are we in a long term trend in commodities right now?

Shawn Hackett Our belief is that the commodity complex has made a turn, a slow turn up, meaning that we've gone from 18 months of going down to starting to work up two steps forward, one step back. So we think it's a long term turn, but it's not going to feel good in the beginning like we saw with grains. We have a big break out in a retrenchment that you're going to see some of that action in the beginning.

Shawn Hackett But we do believe a lot of the cycles and factors are pushing more inflation in commodities for 2024.

Paul Yeager Inflation and commodities, maybe not inflation in general.

Shawn Hackett Correct. We always talking about commodity inflation, which is different than headline inflation. That's correct.

Paul Yeager Wheat, though, that's been fighting a couple of numbers. First, it was to stay above five and then all of a sudden six. Looks like it's a possibility. Do you see six as a return in the near future?

Shawn Hackett I believe are the days of staying under six on this RW wheat, for example, is we're on borrowed time for that. We look at South American production, you look at Argentina and Australia combined. I'm thinking 40 million metric tons of production. They could be up to 60 if they had a good crop. So we're still talking about a significant decline in southern hemisphere production.

Shawn Hackett When you're going to start to impact supply demand going forward?

Paul Yeager Australia has some rain. Global numbers are going up. So when you say short lived, how short is this window?

Shawn Hackett I think the windows actually longer term because those are the short South American crops they're ready to harvest. That's done. And when we look at dry weather in Russia, Ukraine, one of the driest planting seasons we've seen in at least five years, we're going into dormancy and some pretty nasty conditions in Russia, Ukraine. And of course, that's what's really been keeping this market back.

Paul Yeager Yeah. What do you see about the Black Sea region as still being a headline driver? Because I think the last time you were here, we talked about fatigue in that and that is that's still a factor.

Shawn Hackett I think. I think we're at fatigue. I think we're now moving on to just looking at weather and supply and demand and the things that we typically look at. I don't know if this Middle East conflict with Israel is going to, you know, instigate or that situation further because there's a lot of moving pieces. But overall, we think are moving on to more of a fundamental story and less of a geopolitical story.

Paul Yeager Corn market this week. You positive on it long term?

Shawn Hackett I am.

Paul Yeager Why?

Shawn Hackett Well, when I look at weather for South America, specifically Brazil, all our weather work says that we're moving into what's called an El Nino mordecai, which is a central sea surface temperature Pacific warm based winter El Nino. When we get that, it means the northern half of Brazil, especially Mato Grosso, can get very hot and dry. Right now, the Amazon is having a failed monsoon season.

Shawn Hackett So when I look at that, crop production in Brazil could be way, way off at a time that our production was a huge disappointment from what we thought it was going to be. Meaning many of the market, those are going to be at the beginning of the season.

Paul Yeager You're saying disappointment domestically in our corn.

Shawn Hackett Meaning the production was lower? Yeah, most people thought we were going to have this big, big crop. As you know, we were against that. We said we're going have more of a drought cycle. Below trend line yields, that's exactly what took place. And and so despite what everyone says is a 2.2 billion bushel carry out, well, that's assuming if you believe the USDA demand we don't we think demand's going to surprise to the upside.

Paul Yeager You do? Yeah. And where is that coming from?

Shawn Hackett It's going to come from better demand from China. It's going to come from better demand from ethanol, from making renewable diesel out of ethanol. There's a lot of factors. We think it's kind of interesting. When corn is $6 and $7, everyone thinks demand is gonna stay strong and it doesn't. And when we're under five, everything's in demand is going to stay terrible.

Shawn Hackett But ultimately, low prices always bring in more demand. We find other ways we can make those cattle heavier. We make the pork every year. We add those weights and improve the feeding demand.

Paul Yeager Well, and I thought China was coming into corn, but no, I wrote that down in wheat. So China is going buying for grain right now.

Shawn Hackett Well, they they haven't buying our RW wheat for the first time in a long, long time. They've been buying our soybeans, obviously, for corn. They've been preferring to buy Brazilian corn because it's available and they prefer to buy it from them when they can get their hands on it. But the demand from China has actually been pretty darn good.

Shawn Hackett It's just that a lot of it has been down in Brazil, but we're starting to see that shift a little bit.

Paul Yeager Good crush in soybeans. Is that the big driver?

Shawn Hackett Well, certainly the crush is going to be strong. We know the renewable diesel is there. The plants are opening up. You know, that's going to continue. And if you look at the bean meal explosion in price this year, in the last two weeks, something we warned about to our customers could happen, suggesting that the meal demand side equation. A lot of people on the end user side are not covered.

Paul Yeager Do you cover right now before it goes any higher?

Shawn Hackett Well, we already made a recommendation a few weeks back to aggressively do that. We're at $3.70, $3.75. I'm not sure I would chase the market at this moment, but I would look for any breaks in meal into the end of the year to gain physical coverage on the end user side.

Paul Yeager Well, we have a question as we take a look at the harvest. It kind of ties in to that question. And it came from Matt in Iowa. He had a question for you, Shawn, via our Facebook page. Should we reward the rally in soybeans and sell out of the field or do we hold for higher prices?

Shawn Hackett The issue I have right now is that we have high interest rates. We have a high carry in the soybean market. If you're looking at storage costs, how much is it going to cost you to hold that, you know, hold soybeans into, let's say, March or May? I'm not sure soybeans at a price that works is something I would hold off on if I need to raise some cash.

Shawn Hackett I think selling the cash and then using some re ownership strategies at a much cheaper cost to me makes a lot of sense. Remember, you can take that money and get rid of some high cost debt as well. I mean, there's a lot of reasons. I'm thinking selling out of the field in soybeans is probably a better way to go and look for opportunities to re own.

Shawn Hackett If we're correct about this Brazilian weather problem, we should see some better marketing opportunities as we go forward.

Paul Yeager Do you anticipate carry in this market will differ much from what USDA has guided? Do you have signals that are telling you that not as much out there, Shawn?

Shawn Hackett Well, the way the way USDA operates, it just won't go below 180 million metric. I mean, there's only 180 million bushels and not going to go lower. So whatever or even that zero, it's going to be 180 million bushels of carry out. So I think the number is much smaller, but they're not going to say that. And I think the corn numbers are much smaller in terms of ending stocks.

Paul Yeager What do you think of the cotton numbers?

Shawn Hackett The cotton numbers? The problem with cotton is we've had these terrible crops all over the world, but we continue to have this gnawing worry about how higher rates a restrictive monetary policy and some of this weak demand that we're seeing globally on the retail front is going to mean for future cotton demand at a time by the way, harvest lows in cotton tech tend to occur in November, not in October, like they do for grains is about a month delayed.

Shawn Hackett So at the time of the year that farmers are looking to pressure the market and get that those, you know, get those bales out and get some cash home on the farm. So it's a tough time for maybe the next 30 days, but we think the market can dig its heels in from there and go higher after that.

Paul Yeager In in dairy, we finished the week up almost 4%. But you're telling me that's not the full story in dairy in the few days they've had? What's going on?

Shawn Hackett Their dairy situation where we had we were down in 13, 13 and a half in July, the worst losses in the history of the dairy industry. The herds are contracting, production is contracting. Demand has been very, very weak up until the last two GDT auctions out of New Zealand, which are cash prices. We've seen huge surges in milk powder, huge surges in other milk derivatives and that kind of gotten this hand-to-mouth attitude here in the US excited up maybe, you know, they ought to get some extra coverage and we've seen this market get excited again.

Shawn Hackett Having said that, when we're looking at class III, class IV prices, $19 to $20 for a hundredweight we think is going to hold this market back through the end of the year. If we see that price get into the nineteens like we are now, I think producers should reward that rally for now.

Paul Yeager As we recorded this program Friday afternoon, news was released from the governor of Iowa that there had been a return of avian influenza in Buena Vista County. That's a high and this is on a turkey farm. What does the outbreak we knew we anticipated this would happen again. There's been cycles in these countries that this would return. What does this do to the whole protein complex?

Shawn Hackett Well, I mean, to the extent that it causes a chicken shortage, you know, it would mean demand for alternative proteins. It obviously means if it's really, really bad that you have some reduced demand for feed domestically until we get things going back the other way. It's unfortunate that we continue to have to deal with these animal disease problems here and elsewhere, but it just seems like it's a ongoing annual thing that we have to deal with.

Shawn Hackett The market is used to it. It's not like this is a surprise anymore, like we don't know how to handle it, so the market will move forward, but it is an obstacle to it moving forward hand in hand, in heart to heart.

Paul Yeager Cattle on Feed report came out on Friday. It was already a tough week given a couple of things. Is it going to get tougher after this report?

Shawn Hackett Well, there are estimates. We came in at one on one, which was above the high end estimate on catalog feed, which came in, I think $106, which was above the high end on cattle placed on feed and the market things were $89, which was slightly below the low end. It's hard to construe that anything other than a super bearish cattle on feed report probably the first real bearish report we've had in a very long time.

Shawn Hackett Cattle have been weakening. We're very negative. The cattle price, the cattle market into the end of the year and it could carry over into the first quarter. Those beef cut out prices are starting to fall for two months in a row downward, and I think sticker shock might finally take that consumer and retrench and say, we're just going to hold pause, you know, pull back on that and look for something different.

Paul Yeager Translate that into what we need to do. If we're a cattle producer right now.

Shawn Hackett We have an advocate of getting these prices locked in through the spring. Don't mess around. These are good margins. The market always will surprise to to the downside when you least expect it. You don't want to have to sell cattle when it's not profitable.

Paul Yeager Not very profitable in the hog industry either. Right now.

Shawn Hackett No. The pork cartel price to as of today's close back at December 2020 price levels. That is astonishing that we have anything that's back to the 2020 price level very hard to get the hog industry going when no one's buying pork at that level. Obviously, the California dislocation has a lot to do with it. But, you know, the lack of Chinese demand is another issue.

Shawn Hackett And even though Mexico has been a big buyer of our, you know, pork supplies, it's been not been enough. And it's hard to see a quick remedy that other than to say can the cheap price finally bring the consumer back. That's the hope that that we get that back for for the holiday demand season.

Paul Yeager I think I saw another analysts say the floor had a trap door in hogs. Do you think this has room to go lower?

Shawn Hackett I think short term it does. Okay. Don't until the pork, the cut the pork cut price improves. I think we still could have further to go market. The hog loves to overshoot anything reasonable in your mind. I'm not sure we're done yet, Paul.

Paul Yeager All right. Thank you, Shawn.

Shawn Hackett Thank you.

Paul Yeager Good to see you. That's Shawn Hackett. We want you to hold because we are going to pause this analysis, continue our discussion about these markets in our marketplace segment. You can find both analysis, which we just finished and plus on our website of market to market dot org, we were producing the Marketplus and Market Analysis podcast before the concept was mainstream.

Paul Yeager Stick with us with those two or season eight of the MTOM podcast. Next week, agriculture's heavy hitters gather to discuss World Food Policy. Thank you so much for watching. Have a great week.

Announcer Market to Market is a production of Iowa PBS, which is solely responsive for its content. 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 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.