Market to Market - February 23, 2024

Paul Yeager:  Coming up on Market to Market - 

Lawmakers fan out for home districts leaving policy to the Federal agencies. 

We’ll recap the week of news. 

Taking an experiment in cover crops to the next level. 

And commodity market analysis with Naomi Blohm, 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, February 23 edition of Market to Market - the Weekly Journal of Rural America.”

Hello. I’m Paul Yeager. 

A win this week for ethanol. The Biden Administration approved the year-round sale of E15. However, the rule goes into effect in 2025 which drew comments from renewable fuel state advocates wondering ‘why the delay?’.

Secretary of Agriculture Tom Visack says waivers should be granted by this summer’s driving season.

A farming practice aimed much closer to the ground dates back to common acceptance in the U.S. from the 1860’s until about the late 1950’s. 

Cover crops have returned recently touting benefits that include improvements to soil health. 

The place where new adopters raise a skeptical eyebrow is when dramatic weather cycles hit -  in dry years, cover crops are seen to take precious moisture and in wet years termination could get dicey when the planting window is small.

Peter Tubbs looks at a region in Minnesota where the practice has returned in this week’s Cover Story.

A cover crop seeder moves across a standing cornfield in the late August heat. What began as an experiment has turned into a side business for a Minnesota farmer.

Andy Linder, Minnesota Farmer: “I got into it by attending a meeting and a field day and listening to people that were doing it, going out in the field with the farmer afterwards and, you know, show him, showing me what was happening in his field because of what he was doing. And I decided I wanted my farms to look like that, too.”

Peter Tubbs: The soil condition or tilth of the fields Linder seeded with cover crops began to quickly evolve.

Andy Linder, Minnesota Farmer: “First I saw the soil start to change. It became a little more aggregated, crumbly, you know, chocolate cake, cottage cheese kind of thing is what people use for terms. The weed pressure was less because of having that cover and not doing the tillage on the farm. Some of the more rolling slopes that we farm, the erosion was far less. So there's a lot of visuals that made me want to continue with it.”

Peter Tubbs:  Linder and his father began planting cover crops across all of their acres over three growing seasons. A change in the economics of his farm followed. Yields were steady, but margins improved after a shift in the cost of inputs. While the growing season required fewer passes across fields, different equipment was needed to maximize the efficiency. 

Andy Linder, Minnesota Farmer: “Yes. And if not profitability, less work because there's still a cost to putting the seed out there and doing the application. And especially today, with higher interest rates and inflated machinery, that equipment is expensive to own. 

Peter Tubbs:  The cost of machinery didn’t slow Linder’s adoption of cover crops. Originally dispersed by airplane, Linder is now on his second wheeled rig, this one built to serve as both a sprayer and seeder. The machine can seed cover crops into standing crops at an average of 50 acres per hour.  

But concerns over the cost of new equipment are only one of the hurdles the cover crop curious must clear before seeding their own fields.

The plan for this field is for the winter rye, turnips and kale to germinate before the corn harvest, and then grow until the snow comes in November. The growth should resume at snow melt and continue until the field is ready to plant in April or May, when the cover crop will be terminated. 

Linder’s purchase of equipment provides flexibility in his seeding schedule. 

Andy Linder, Minnesota Farmer: “And then the acres just kind of fell into place in the fall. And then, you know, through some trade shows and marketing and winter meetings promoting the machine, and it just kind of went from there.”

Peter Tubbs:  Once Linder and his father understood the improvements of the soil quality, the expansion of covered acres came quickly.

Andy Linder, Minnesota Farmer: “And then I try to associate some costs with each of our practices. And so even in corn mostly, you know, if I'm a little bit less on yield, I'm usually similar in profitability. My lenders also provided me with the same answer. They have a scorecard that they come out, you know, once a year and they say, okay, here's your farm and here's how you compare versus your peers. And, you know, yield was one thing that stuck out that, yes, you yield have less, but you are making the same or more money than your peers.”

Peter Tubbs: Experienced cover crop farmers emphasize the long term  when discussing benefits of covers, and also to manage expectations.

Andy Linder, Minnesota Farmer: “Some try it with looking for a yield return because typically that's how you know us as producers are sold products is use my product just get this many bushels and that's that's not what you're accomplishing with using cover crops and less tillage It's not a it's not a yield return. It's a profitability thing and then it's a soil, you know, keeping your soil on your farm.”

Peter Tubbs:  The financial risks to farmers can be minimized through cost share programs.  A split of the expenses of cover crop inputs can encourage producers to introduce covers to their operations. 

Southern Minnesota has seen growth in cover crops as a result of cost sharing.

Nathan Carr, Faribault County SWCD: “99% of the counties is corn, soybean rotation. So how do we get those guys interested in some cover crops? And then that growth started in about 2016, 2017 and has moved to where it is now, where we have over 5000 acres a year that we're funding.”

Peter Tubbs:  In his work for the Faribault County Soil and Water District, Nathan Carr helps landowners reduce erosion and improve the county’s water quality.

Nathan Carr, Faribault County SWCD: “Our goal is to have them kind of learn themselves how it works. So what we do at the soil and water is if someone comes in and they're interested in trying and cover crops, it's okay. If you want to do 80 acres we can cost or that will pay for 75% of it.  So then if we pay for 75%, that reduces their risk significantly to where they're able to try it. And then they can see if they get any return on investment or they could try it for three years and do it that way.” 

Peter Tubbs: The investment calculation is more than changing input costs. 

Changing tillage practices can be a slow process, especially when producers have legacy equipment designed to move the soil. 

Nathan Carr, Faribault County SWCD: “So normally in our area, we're doing, you know, making the soil black in the fall and then working it again in the spring and planting into that. So when we're doing cover crops, we're changing that whole tillage practice as well. So our incentive payments have been $55, you know, a year. We lock them in to do three years because you're going to have to change your tillage practice too. It's a lot of change there. So that $55 an acre is supposed to offset your risk.”

Peter Tubbs: One producer in a neighborhood can influence others to try cover crops on their acres. 

Nathan Carr, Faribault County SWCD: “It's if you drive around, it's almost like there's pockets of conservation. So it's almost like when you drive around, if one guy starts it, you start seeing a little bit more pop up around it. Andy Linder started doing some cover crops and this was back when I started about eight nine years ago. He started doing some cover crops and then all of a sudden you started seeing some of his neighbors do it.” 

Peter Tubbs:  Interest from neighbors led Linder to begin custom planting cover crops in the region. His company can also drill seeds into fields following harvest.

With improved profitability through lower input costs, and fewer passes across fields meaning lower equipment costs in the long term, cover crops are appearing on more acres of Southern Minnesota.

For Market to Market, I’m Peter Tubbs.

Paul Yeager: Low demand, strong production and growing conditions in much of South America and even oversold concerns played on the trade. 

For the week ..

The nearby wheat contract added 13 cents while March corn lost 17 cents. 

Despite sparks of higher prices, a lack of exports held back the soy complex. 

The March contract plummeted 39 cents and March meal fell $14.10 per ton.

March cotton expanded by $1.53 per hundredweight. 

Over in the dairy parlor, March Class Three milk futures went up 42 cents.

The livestock market was higher. April cattle added 35 cents. March feeders strengthened $3.55 and the April lean hog contract improved $1.97. 

In the currency markets, the US dollar index decreased by 34 ticks. 

April crude oil shed by $1.60 per barrel. 

COMEX gold increased $23.50 per ounce, and the Goldman Sachs Commodity Index lost more than two points to settle at 552-80.

Joining us now is regular market analyst Naomi Blohm. I won't say made fun of Jeff last week with a smile when we started, but it's been hard to smile. But we're going to start with something that has been able to make you smile. WHEAT How can wheat rally given the cheap product and the surplus or the amount that Russia is dumping on the world market right now?

Naomi Blohm: So what was interesting this week, we did see wheat to have a little bit of a short covering rally and that was more due to concerns about how the US might put those sanctions on Russia in response to some of their not nice activities that they've been doing.

Paul Yeager: And the two year anniversary.

Naomi Blohm: To the anniversary of the war. Yeah, absolutely. So we saw the short covering their prices are on support. And the thing with wheat is that in the world, we're still not growing enough wheat to meet demand. Global carry out continues to inch lower. But yes we are seeing Russia still cheapest wheat out there and continuing to undersell everyone else. But the wheat prices, especially the Chicago wheat price, has been trading sideways in about a 60 cent trading range for six months now. I think what's also interesting is that at the end of 2023, the funds were short over 100,000 contracts of wheat and very slowly they've been exiting those positions to where there are only about 60,000 contracts short now.

So if there is actually a piece of news that can make that wheat market work higher, the funds are in a really good position to quickly respond and quickly push prices higher. And from a technical standpoint, the more a market trades in a sideways fashion, the bigger the breakout is going to be down the road. You know, we're keeping an eye on our wheat crop here in this country. It's dry in the plains. There's not a lot of rain in sight watching in Russia and in China. It has been really cold there. So now we're going to be watching for signs of winter kill. So to me, it feels like the wheat market is trying to form a bottom. But we just don't have the new specific news to get it to just finally take up and rally.

Paul Yeager: How has Wheat been able to shake the problems The other two commodities of corn and soybeans have been having? Because last week and the week before, the two were much tied, much more tied together. Has wheat finally separated?

Naomi Blohm: Yeah, I think there was some spread trading going on between those commodities. And so the wheat though, again it's it's the funds, it's the slow and it's like watching Andy on Shawshank Redemption when he's slowly chiseling out of his cell and then, you know, at the yard he's dumping out the cell parts and it's like what the wheat market is doing, slow exiting by the funds. Like, nobody watch what we're doing, but we're actually exiting those positions. Meanwhile, they're distracting us by the sell off that they're doing in the corn and soybean market. So something is brewing with wheat. Something is going to be happening.

Paul Yeager: Put the pin and all the Shawshank gifts that are going to come. I'm going to come back to that in a moment. But I need to start with a question about corn and soybeans that I think pretty much is the elephant in the room that we haven't talked about. This one comes from Matt in Iowa, and he wants to know, are we still circling the drain lower on grain or are we close to putting the plug in the sink and perhaps bounce higher?

Naomi Blohm: I think the plug got put in the sink this week. We had option expiration today, Friday with the March grains. And a lot of times prices have a tendency to gravitate lower. We're also dealing with farmers having to do price or roll with their grain contracts, basis contracts with first notice day approaching next week. Now, the biggest thing for corn right now, two things that I'm watching. We all know that the funds have a hefty short position, but now it's at a record amount. And the last time they were short over 300,000 contracts was 2019, 2020. And the thing to be aware of is that they went short their most amount and then they stayed short for another 2 to 3 weeks. And then the slow exit began. And then finally the news occurred to get the market to respond and then boom, we went higher. So from a fundamental standpoint, we have the funds severely short in the marketplace. Now, from a technical standpoint, and if you look at a continuous monthly chart, front month chart of corn futures, if you look at a continuous monthly chart of just the December corn futures, with the benefit of hindsight, there was huge pennant flag formations on those chart charts, which then pointed to the downside. Now, today, with March corn hitting $4, that was the downside target for the March contract for the December corn. That pennant flag formation suggested that we go to $4.50 for the downside target and we hit it today. So now I think we're at the bottom. We're going to probably just stay here for a while. But I think the worst is behind us. And now we're going to start to look for some news to get us to go higher.

Paul Yeager :Okay. You wrote today the similar thing, but to me, I read it as we're falling, we've stopped. But I took it that you think there's possibly more room to fall? But what you just said sounds like we might be stabilizing before going higher.

Naomi Blohm: I think we're going to stabilize. It's. We're at that point, we hit the downside targets. There were not a lot of sell stops that got triggered below the $4 level today. And so we're going to be watching now. We're going to be watching for weather in Brazil. So they've got that crop and a crop over half planted in another month. We're going to really be watching the weather down there. We're having our farmers here, you know, thinking about contemplating their planting pace for the spring. And is there going to be any last minute switching of acres? The market has, in my opinion, I think we've priced in enough bearish news to last us. So think of it from an opposite perspective. If market prices were higher like they were two years ago when we had $8 corn, all the news was bullish, all the charts were getting overbought, the funds were record long. And that was the point where, you know, you couldn't find any piece of bearish news and prices surely were going to stay higher. And then everything started to fall lower. So now we're at the opposite side of that spectrum where we've hit technical downside targets. We've got the funds with a record short position. We've priced in all the bearish news you can get everybody and their brother is bearish right now. So now is the time to start to be thinking proactive of like if people are making cash sales right now, for whatever reason, you're going to want to be thinking about re ownership opportunities, because by the time the market turns around and rallies, we're already going to be up $0.30 before we realize, oh, that was the low. So start to be thinking, you know, both sides here where we know the news is still negative. We know it's going to be hard to see $6 corn for quite some time. But we're also, I think at the bottom now.

Paul Yeager: The $3.99 is going to scare some people for sure what we closed out on Friday, but let's look at beans for a minute because do you see some of the same scenarios formulating around beans?

Naomi Blohm: Yeah. So with the beans, they hit their technical downside target lower. We're back in testing the May 2023 lows. The markets oversold. Funds are short, large amounts. So we're pricing in a lot of that negativity. So now what we're going to be focusing on for the future is the new additional demand for the renewable fuels for the biofuels. The USDA is slow to address the growing demand that's going on there. They have to take baby steps on each on each report. But that demand is there and it's growing. We are seeing with Brazil, we know that their crop is smaller than what the USDA is saying. The USDA just has to print it. It's kind of known information for sure, but, you know, it's not as big as what they were saying. And here in our country, I do still think there's going to be a lot of less switch for acreage, because when you look at how the cotton price lately has just been screaming higher and is actually at the highs of 2022, now you have a cotton market that says, hey, don't forget about me. And a lot of those producers in the South might be wanting to plant cotton instead. So I think we're at the point where we're going to be, you know, near the low. We just got to get some news to get this market to move higher.

Paul Yeager: So you're saying maybe more of the cotton story is a little bit more of a buying acres? Not a we're out of U.S. cotton story.

Naomi Blohm: It's a lot of things. It's low ending stocks. It's that the acres are lower than years past and they need to increase those acres. The export demand has been pretty solid. And actually, when you look at the global economy, you know, it's not perfect, but people are still buying things. They're buying clothes. So that demand is there. And there wasn't perfect weather in portions of India and China last year. So they were needing to be relying on some imports. So cotton does have an underlying friendly story and that's why we have cotton prices up near 95. I mean, we haven't seen that again since 2022. And the funds they had been just four weeks ago short like 2000 contracts and cotton, and now they're long over 70,000 contracts. Just in four weeks time they switched it around. So there's some of these, I think some acres switching happening that the market needs to wake up about.

Paul Yeager: March Class three milk up two and a half percent this week, a harbinger of more to come.

Naomi Blohm: We had a milk production report this week and it showed that production was down 1.1%. This is the seventh month, seventh month in a row that milk production has been down and domestic demand for cheese, domestic demand for milk is just kind of constant. What's been nice is that the global dairy trade auction has had increases like this the past six weeks. So there is some supportive news there. It's the front month class three milk futures are up near their $18 level with some of the summer months near $19. So it's been a wonderful recovery bounce. We have 76,000 less dairy cattle than a year ago. So, I mean, we are seeing lower production in general. So that's supportive under the market. I'm not sure what is going to be coming in the future. A lot of it depends on are these production numbers going to stay low or now? Are milk prices high enough that they start to produce more milk again? But we'll see. But it's the one thing to keep in mind is that the classroom milk prices are up. Here's a short term resistance area. So they're going to need some new additional friendly news for prices to go through that. Or we might see a little bit of a pullback. But overall, the fundamentals have shifted to a little bit more supportive.

Paul Yeager: Cattle on feed came out Friday afternoon. A couple of numbers stood out to me, but I'm just a person who has questions. What did you see in the report?

Naomi Blohm: So the on field number was expected near 100%. The placement number, they were looking for a lower number, like closer to 88, and it came out near 93%. So that's going to weigh on the market on Monday. The market, a number came out pretty much as expected, near 100% with the cattle prices on the feeder cattle prices, they know they've had a nice recovery rally here in 2024, gaining back a lot of the losses from late 2023. So now the question is, you know, we know this the story is friendly for cattle and we know that the supplies are still tight going forward. But I don't think that today's report was enough to justify any additional push higher next week. I feel like it's going to be, you know, enough to justify prices where they are. But to me, there wasn't anything over-the-top friendly about it. So we'll see if we see a little profit taking next week. That's going to be what I'm keeping an eye on.

Paul Yeager: The Hogs have been a story, I think, since the last time we talked, even just a month ago that's turned into a little bit of a rally and yes, a smile. Does the smile keep going up?

Naomi Blohm: So the hog futures prices and when you look at charts, they're up near some major overhead resistance. They have had a wonderful run higher here. Our exports, they're not, you know, top notch, but they're not too shabby. And we have high production numbers right now. Slaughter numbers are running high. The weights are actually a little bit lower than a year ago right now. So the demand is there, especially with the signs that the production numbers are running so high. But we're also up against this major resistance on a chart. So it's going to take over the top from the news to get it to go higher. We're going to be watching the export markets to see if it's export news that can take it through resistance. Otherwise, you know, we might see a simple price recovery. But the hog market has been, you know, just kind of that surprise shining star in the marketplace that, you know, had a nice rally and none of us are really looking for it.

Paul Yeager: And in the final seconds between cattle feeders and the hogs, is there any of those, do you think all of those have maybe hit highs for the near term?

Naomi Blohm: Yeah, in the short term or.

Paul Yeager Short term, yeah. 

Naomi Blohm: I Mean, yeah, Yeah, in the short term I do. So I think that we could maybe see a little bit of profit taking next week. But again, the underlying fundamentals are still supportive. So I'm not looking for anything like a crash and burn.

Paul Yeager: Thank you. Naomi Blohm, good to see you again.

Naomi Blohm: Good to see you. 

Paul Yeager: Thank you so much for your time and insight. Naomi Bloom. 

Hold on here, we are going to pause this analysis and continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus on our website of markettomarket.org.

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Next week, we look at the ticking clock on a resolution over water.

Thank you so much for watching. Have a great week.

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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: 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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