Market to Market - December 29, 2023

Paul Yeager: 

Coming up on Market to Market. What a difference a week can make. Rain, sleet and snow arrived to end the year. Also, the stories that made headlines in 2023. And commodity market analysis with Kristi Van Ahn-Kjeseth, next.

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This is the Friday, December 29th edition of Market to Market, the weekly Journal of Rural America.

Paul Yeager: 

Hello, I'm Paul Yeager. Getting to Grandmother's house for Christmas proved troublesome for thousands using the drive or fly method. Fog was just a small hassle compared to the thousands without power because of a rare ice system in the Upper plains. December turned out to be a record setter for the mid-Atlantic and Northeast for frequent rainstorms. Peter Tubbs starts our weather wrap in the mountains.

Peter Tubbs: 

More than 500 flights were canceled out of Denver, Colorado as blizzard conditions struck a region accustomed to high snow amounts. 

Travel was dangerous as you moved eastward. 

Snow closed roads in Kansas, South Dakota, North Dakota and Nebraska beginning on Christmas Day and extended for days. Nebraska officials closed parts of Interstate 80 on Monday as blizzard conditions settled in as travel was not recommended around the entire state. Semi-trucks were forced off the road while snow piled up on other stretches of pavement.

I-29 was closed in North Dakota from the system as ice was the major problem. 

The National Weather Service of Grand Forks has only issued five ice storm warnings over the past twenty years - this week’s system was the highest totals since the last 1990’s. One inch thick accumulations was common causing widespread power outages, tree damage and travel disruptions. Some snow remains on the Plains. 

The weekly precipitation map shows a lot of green from Texas north to Canada and most points East. And with moderate soil temps, the moisture soaked into the ground. The Drought Monitor did reveal some improvement by a point nationwide because of the moisture. 

For Market to Market, I’m Peter Tubbs. 

Paul Yeager: 

The year was 2023. California emerged from drought under feet of rain and its first tropical storm in 84 years, while much of the Midwest was dry. The courts helped redefine government policy, while Congress changed leadership stalling action on a key piece of legislation in rural and urban America. Here is David Miller with this week's cover story.

Multiple atmospheric rivers came ashore at the beginning of 2023, pummeling the drought-stricken West.  The coastal areas of California were slammed by high winds and rain as falling trees knocked out power lines in Monterey County.  Portions of northern California would receive more than 10 inches of rain across one weekend in January. The Central Valley was also hit with up to 12 inches of rain - stranding motorists and turning properties into islands. 

 After this wet start to the year, most of the Golden State emerged from drought and stayed that way for the bulk of 2023. 

January had an above average number of tornado watches and warnings. Over the next 11 months, 82 lives were taken by tornadoes in the U.S., just above the 30-year average of 70.

A continued dry pattern in cattle grazing regions of the United States forced farmers and ranchers to cut their animal numbers, reducing the size of the national cattle herd to levels not seen since 1962.

Reduced forage quality was a big reason why producers were sending heifers and breeding stock to slaughter.  

Derrell Peel Oklahoma State University: “Well, we've clearly liquidated the herd. In fact, if you look again at the USDA numbers nationwide, we lost over a million head of cows last year, which is the biggest in terms of absolute numbers, the biggest year over year decrease in the beef cow herd since like 1986.“

Wildfires broke out in Louisiana as dry conditions gripped the region beginning in June. By August, scarred land masses like this were common as more than 600 wildfires were reported. 

High temperatures threw a heavy coat over much of the West.  A stifling heat dome over Phoenix, Arizona finally broke after a 31-day streak with temps nearing 110-degrees. 

The Grain Belt wasn’t immune from high temperatures either, leading the central portion of the U.S. in the charge towards drought status. 

One of the hottest weeks in late August featured triple-digit temperatures and heat indexes that hit 22 states putting more than 126 million people under several days of heat warnings.  

For the second straight year, the Mississippi River dropped to record lows. By October, transport from St. Louis to the Gulf of Mexico had slowed to a crawl at the   peak of the grain transport season. 

The year started with inflation around 6.5 percent, reduced by half at year’s end. 

Congress held hearings on many topics including inflation, but little legislation was completed in 2023.

This House Agriculture Committee’s hearing in March focused on the rising cost of agricultural inputs, and where the 2023 Farm Bill could help provide certainty to America’s farmers.

Corey Rosenbusch, The Fertilizer Institute: “So prices have come down in some cases half the cost of what they were last year. 

At that time, prospects for a new Farm Bill were still high. But changes in congressional leadership found legislators on a budget precipice.  They changed focus from passing a Farm Bill to putting a continuing resolution in place to keep the government open until mid-January of 2024. 

By November, a stopgap spending bill was approved with language extending the 2018 Farm Bill  for one year. The continuation means that current government farm safety nets and food assistance programs will be covered well into the 2024 crop year. 

In August, the 18-month old war between Russia and Ukraine continued to rage. A deal brokered between the two countries by the U.N. and Turkey providing protection for ships carrying Ukrainian grain through the Black Sea was broken by Russia.   

Water was at the forefront of several legal fights in 2023. 

The Supreme Court greatly reduced the authority of the Environmental Protection Agency to enforce the Clean Water Act. The Court held the Act covers only wetlands “with a continuous surface connection” to those waters, and that the Agency is not allowed to police discharges into some wetlands, even if they are close to other bodies of water.

The new WOTUS definition from the Biden EPA arrived in early September, calling for unpermitted development to be allowed in many wetland areas across the country.

The legal battles continued as small refinery exemptions played out in lower courts with a ruling saying the EPA had invoked an “impermissibly retroactive” standard to hold a group of refineries to the terms of the RFS.

The case centered on the EPA’s denial of six small refinery exemptions in June of 2022. The officials with those refineries argued to the court that they applied for the waivers based on previous EPA practices. The Biden Administration denied those waivers in an attempt to put more ethanol in the gas tanks of American drivers. 

The U.S. Supreme Court, in a 5-4 ruling, upheld California’s right to require pork sold in the state to meet minimum humane standards under Proposition 12. The measure was originally passed by California voters in November of 2018 with 63 percent support, and has been challenged by industry groups as violating the Commerce Clause of the Constitution. Multiple courts had disagreed and the high court put an end to the legal fight.

A similar law was under scrutiny in Massachusetts. Question 3, which imposes certain spacing requirements  for sows, bans the sale of pork that doesn’t comply with the rules. Passed in 2016, it was supposed to take effect 30-days after the Prop 12 decision. Enforcement of the measure remains in limbo.

Governing bodies also had their say on carbon pipeline construction projects in 2023. 

In August, The South Dakota Public Utilities Board unanimously voted to deny Navigator CO2 Venture’s application for construction of a CO2 pipeline. The basis for the denial was the application did not satisfy multiple required criteria. The proposed pipeline would have transported CO2 from five ethanol plants in South Dakota for sequestration underground in Illinois. 

Summit Carbon Solutions Midwest Carbon Express was also denied permits in North Dakota. The prospective operators of the nearly 2,000 mile long pipeline vow to refile their petition after making changes called for in the ruling. 

Highly Pathogenic Aviation Influenza returned to the U.S. in large numbers.  More than 210 commercial operations across the country have been devastated by the virus. Nationwide producers lost more than 50 million birds  in 2023. 

Sec. Mike Naig, Iowa Department of Agriculture and Land Stewardship: “This is a constant threat, as is African swine fever, as is foot and mouth disease. That is how we have to think of high path avian influenza. That's the mindset that our producers have to have. That's the level of readiness that we have to maintain here and at USDA is that it could happen literally now at any time. 

Wholesale egg prices topped $5 per dozen to start the new year on significant reduction in egg-laying flocks because of Avian Flu. By month’s end the price had dropped to below $2 per dozen.

For Market to Market, I’m David Miller. 

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Next, the Market to Market report.

Paul Yeager: War uncertainty in Ukraine, coupled with a wetter forecast in Brazil influenced the last week of trading for 2023. For the week, the nearby wheat contract added $0.12 while March corn lost $0.02. An earlier than usual harvest in Brazil helped form trade in the soy complex. The March contract shed $0.08 and March meal declined $5.10 per ton. March cotton expanded by  $1.24 per hundredweight.

Paul Yeager: Over the dairy parlor Feb class three milk futures improved $0.15. The livestock market was lower. February cattle fell $0.03. March feeders cut a $1.30 and the February lean hog contract dropped by $3.37. In the currency markets, the US Dollar index lost 42 ticks. February crude oil declined $2.06 per barrel. COMEX gold improved by $11.20 per ounce, and the Goldman Sachs Commodity Index lost almost 12 points to settle at $536.35.

Joining us now is regular market analyst Kristi Van Ahn-Kjeseth. Kristi, good to see you again.

Kristi Van Ahn-Kjeseth: Yes, great.

Paul Yeager: I know you saw those pictures of the storm.

Kristi Van Ahn-Kjeseth: Yes.

Paul Yeager: And you missed most of the ice.

Kristi Van Ahn-Kjeseth: Yeah. By the time it got to us, it was moisture. So but my sister does live in Fargo. And so when she came back, you could get to Fargo, but you can get anywhere past that. And that's when the ice really happened. But, you know, you woke up in the morning and it was icy. But by the time it melted and honestly, things there's not a drop of snow around us.

Paul Yeager: You have had more moisture in that region of the world and we had more moisture finally falling in the southern wheat belt. Is that having any influence in the trade of wheat this week?

Kristi Van Ahn-Kjeseth: I don't think too much. I think wheat is probably focusing a little bit on those outside factors. It really looks like things in Ukraine and Russia are really ramping up. Sounds like maybe kind of the hottest strikes you've seen from Russia since the start of this war. So I think that's impacting a little bit more. But I think when everything shakes out, the moisture that's come in for winter wheat country is going to be that damper on it, that you're going to kind of say, hey, we can get here. But remember, there's probably a decent crop coming because of that moisture.

Paul Yeager: Late in the week, you kind of mentioned Ukraine as a story that became back to a little more of the serious mode of things. Are you anticipating that that will be a major factor moving into the first quarter of 24?

Kristi Van Ahn-Kjeseth: Yeah, I would say that if if there was going to be these big items that really push the market for Russia, Ukraine is probably going to be one of those items. We know that there are issues there. Really all the risk premium has been taken out of that because grain has still been able to flow out of there. It's really you look at tenders there cheap out of Russia when you come to their wheat. So it's put a damper on it. But now you're kind of bumping that back up and having that escalation. I think it'll play into the first quarter of the year.

Paul Yeager: Lower dollar for I think three weeks in a row for the week doesn't seem to be helping wheat. Why not?

Kristi Van Ahn-Kjeseth: No, not quite yet. But I think you'll get there. I think eventually that US Dollar is really going to make an impact on our markets and we need it to. Right? We're coming into Corn's hottest export season, right? So soybeans kind of had their story. They got through their uncertainty. But moving forward, I anticipate that U.S. dollar making a big impact on corn as we enter our big heavy export season.

Paul Yeager: It's almost like, you know, the pattern, what we're going to do, let's get into corn. This is an old crop question that came in this week via social media. And this is from Seth in Iowa. And he wants to know what is the best strategy for commercially stored corn in the current market?

Kristi Van Ahn-Kjeseth: Yeah, I think this is a great question and something that needs to be talked about. I think you take it two different ways, like are you paying storage on your crop or are you not paying storage on this crop? If you're coming in here and you're looking at it and you're saying, Hey, I'm paying X amount of cents a month and it seems to be a little bit on the spending side because of interest rates the way they are right now.

There are some options to come in here and say, hey, if basis is good, you're not happy with the price. Let's look at some options because corn options are really, really cheap when you look at them. But if you're not paying storage on that, if you're on free DP, I would be tempted to kind of just wait it out a little bit to see what we can get but I do think that some sort of risk stance should come before January 12th. That's a big report with a lot of data and so I would do something to protect that before then.

Paul Yeager: This airs before the market opens in the new year or so. We won't have a chance. So in those first 12 days of ‘24, what am I doing with my old crap corn? What's a good strategy?

Kristi Van Ahn-Kjeseth: Yeah, I think really there's multiple ways to look at it. Is it on the farm or is it at the elevator? Are you paying storage? Are you not paying storage? Corn right now has a lot of flexibility around it. I think that there's not a lot of traders that are active right now into the corn market either. So I think corn has its moment to shine if it wants to moving forward.

Right. So there's a lot of things that have to line up for corn. But when you look at it, corn has its good export season like I said, coming up, you have not really even tapped into the story for us safrinha crop in Brazil, that gives you some ability and there's a lot of numbers that come out quarterly stocks, I think will be a big focus number for corn come January to see where we're using that.

So there's a lot of moving dynamics. But I think the biggest thing is just to make sure you don't like carry decay happen in the market. We initially started to see that where the march corn started to slide down to December perked back up. But it seems like we're really struggling to get through that 4.80 mark for March Corn But if we can get above that target $4.93, $5.03.

Paul Yeager: So December corn, though, does it concern you if, say, next week we dip below $5?

Kristi Van Ahn-Kjeseth: It does, yeah. So not only December ‘24, but December ‘25. So I think a lot of people don't want to focus two years out. There's a lot of things that can happen between now and December of ‘25, but you have two of those years that have above $5 futures. And when you look at a chart, December ‘25 is actually at that top end of the range where if you look at any other charts of corn, it's a much different situation.

So really focusing on those two and seeing where your your break evens are because I think a lot of producers might not like lower fives, but it's profitable. And if you haven't started, I know this time frame is not the best time frame seasonally to be selling corn this far out. But I do think you know just responsibility wise is something that you could look at.

We saw this year get to a 40 cent carry, so let's say we're getting $5.10 on the board, get a 40 cent carry that's $5.50 out to July. And so it's those type of things that you really have to work through. The last few years, it's been easy to make some marketing decisions. It's been fun to make those marketing decisions.

You couldn't really do anything wrong. This is where you have to kind of put some things together and really think through some processes.

Paul Yeager: Can you make mistakes in soybeans, too? Right now?

Kristi Van Ahn-Kjeseth: I don't think so. I mean, not for old crop soybeans. I know it's not $13.80, I know it's not $14. But where you look at it, you know, most of this is profitable. I think also it gives you that ability to extend cash flow and not pay those high interest rates and maybe buy you some time if you're holding on to the corn and wheat.

That's the way we viewed it. I am concerned with soybeans. So if you're going to consistently close below $13. So we've gotten, you know, a little bit of teases below that $13 mark. And then you see it come back. And it's kind of like that game. How many times are you going to break the ice before you really explode lower below that?

Paul Yeager: The holidays are always a good time for family to get together and hear different strategies from people. There are some who told me over the last few days I haven't sold yet. I missed my chance.

Kristi Van Ahn-Kjeseth: Yeah, we're talking corner soybeans or soybeans. No, I don't think so. You know, as long as we hold $13, I think that you really have those targets of $13.40-$13.80. The issue that I'm looking at for soybeans right now is that we've worked through a lot of the problems. So we know that they're not going to have as great of a crop in Brazil that we initially thought they would have.

However, you put Brazil and Argentina together, it's going to take something drastic to change the dynamic year over year and give you a less of a problem.

Paul Yeager: However, I, I struggle to find valid, confirmable, reliable information out of South America. How do I sit and watch to know what's credible? You see the tweet of someone going through a field saying, this is terrible. It's, you know, it's zero, right? How do I make sense of any of this? In my plan, let’s say for new crop decision making.

Kristi Van Ahn-Kjeseth: Yeah, I think social media can sometimes be the death of of marketing. Right. That when you're consistently seeing somebody portray the same message I think you should be a little bit aware of that. You know if you're consistently bullish or you're consistently bearish, I think people need to look at that and say, Hey, am I getting that full spectrum of news that I should be looking at?

And then when you come in here into the next direction and kind of look at and say, hey, what is the difference between, you know, Brazil and Argentina? Last year, Argentina did not have that crop. It came out this week that the crop ratings are through the roof for Argentina. Granted, they're just wrapping up their their planting progress.

So, I mean, it's a little bit of a different situation. But the the conditions that are there right now are spelling a good crop there. You put those two together, it's got to take some drastic, drastic cuts in Brazil to change that dynamic coming out of South America to be worse year over year.

Paul Yeager: Do you anticipate I mean, this is both a corn and soybean answer, I guess. Right? But the early harvest on beans tell you that there is a rally coming here in beans or corn.

Kristi Van Ahn-Kjeseth: I don't know if it really tells me much of that. You know, I'm not anticipating that. I think what I'm looking at right now is that Brazil is such a drawn out process for harvesting that we're just starting to get the first sets of tidbits as far as that harvest progress, those yields. And we're going to get a lot of it over the next two months. And so it really gets spaced out.

Paul Yeager: Let's go to livestock, as this has been quite the story, to see this market deteriorate into Christmas and now all of a sudden we digested that cattle on feed report rather quickly. Yep. What did that tell you?

Kristi Van Ahn-Kjeseth: Yeah. I think when you look at cattle and feed, it was, you know, you kind of got bits of information that you could pick because you got cattle and feed and cold storage, right? So you could pick out things that you wanted to play into the friendly parts, you could pick out things that you wanted to play in the bearish sentiment of it.

But I think everything kind of trumps it. And you come and you talk about kind of interest rates heading maybe towards a cut. They were pretty adamant on seeing that happen. You talk about some new recent highs in the stock market in the Dow. All of those things should be friendly to the cattle markets. The charts are starting to look really good.

We have not confirmed upside price currently out for both live cattle and feeder cattle, but we're getting really close to that in the charts look really good. Possible positive divergence. So if we could probably get, I would say anywhere from $2 to $5 higher next week, you really do open up those price targets. That gives some topside, you know, price counts to those markets.

Paul Yeager: What's my strategy then?

Kristi Van Ahn-Kjeseth: Yeah. So right now we kind of moved aggressively after that cattle and feed that nasty one. And then we've been a little bit patient here. We started to look at some calls to possibly sell into your deferred contracts are starting to hold some premium that we're looking at, but we're really being patient to see if we can activate those price counts to the topside. And I think next week will show us a lot of that.

Paul Yeager: Feeder wise, again, it's a story of we had it in the weather, story about, you know, re sell off in those herds and now repopulate. Right. What are you anticipating in these cattle on feed reports moving forward.

Kristi Van Ahn-Kjeseth: Yeah, I think there's so many places you can take this. But one of the biggest things is that besides this ice storm that you've had, you've seen some really favorable conditions. I think you're going to start to see some weight being put on for cattle and you're going to see some retention. But I think that retention can cause holes down the road.

And so I do think that overall over the next year, you have that friendly bias that's into the cattle markets. But one thing we need to know is that it seems like there's plenty of beef in Brazil, there's plenty of beef in Mexico, and that's going to be a constant battle for us. I think the big thing to focus on is, you know, are we going to have this good condition moving forward on the outside factors for us demand and right now, whether you believed it could happen or not for a soft landing, I think the signs are pointing towards it being actually something that we could feasibly see, and I think that would be helpful.

Paul Yeager: In the hog market. I'm going to guess, I guess the hog producers ready to see ‘23 go away.

Kristi Van Ahn-Kjeseth: Yes.

Paul Yeager: Do we have a better chance of a repeat in ‘24 or a whole different story?

Kristi Van Ahn-Kjeseth: Yeah, you know, this is a little bit on the tricky side. So you have multiple stories for hogs. I think one of the things hurting hogs the most is managed money has been aggressive sellers of hogs and sometimes you just can't fight that. So they're near record short holdings either. It's been brutal, but that ends up being a little bit on the friendly thing because you're going to say how many times are they going to continuously short this market?

So hopefully they ease up on that. You see them go more towards a neutral stance, but the prices out your deferred contracts right now for hogs, seasonally, they're supposed to get a little bit of bounce. We haven't seen them, but they're decently holding their values. And I think that's important to look out to those summer contracts and see where those prices are right now. But on the flip side, nearby cash is not doing anything to be a friend to hogs right now.

Paul Yeager: Now you're talking like an economist on the other hand. On the other hand. But on the other hand, for the hog producer, do you see is this a short term thing that they just have to kind of work through in a year, or is this kind of the new normal?

Kristi Van Ahn-Kjeseth: Yeah, I think it's something we're going to battle for a while. The waits you look at litter count, I think that's one thing that's hurting this market as well. Weights with some more seasonal weather. It's been warm in the majority of places. I think that's going to be a constant battle as well. Freezer stocks are ample. So you're going to have information that consistently is weighing on hogs. But to me, those deferred contracts look pretty good right now.

Paul Yeager: All right, Kristi, thank you so very much for your time. I appreciate it.

Kristi Van Ahn-Kjeseth: Thank you.

Paul Yeager: All right, Kristi Van Ahn-Kjeseth everybody. So hold on there, though. We're going to pause this analysis, continue our discussion about these markets in our Market Plus segment, you can find both analysis and plus on our website, which is markettomarket.org. Our YouTube channel is quite the place. There's updated content two times a week with our Market Plus, our stories, and our MTOM show podcast. Follow today and know when we post and be the first to watch our content by heading to YouTube.com/markettomarket. Next week, we'll look at the high school class work, returning dividends to the community.

Paul Yeager: Thank you so much for watching. Have a great week.

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