Market to Market - March 8, 2024

Paul Yeager: Coming up on Market to Market - 

Flying sparks are blamed for Texas fires as the Grain Belt stays dry.

USDA rolls out a new rule for packers.

Plus an in-depth look at the livestock market with Ross Baldwin and commodity market analysis with Jeff French, next.

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Announcer: “This is the Friday, March 8 edition of Market to Market - the Weekly Journal of Rural America.”

Hello. I’m Paul Yeager. 

The State of the Union was delivered Thursday night by President Joe Biden. In his prepared remarks - the word farm was mentioned once, inflation and clean energy three times each and agriculture zero times. 

Employment was a more frequent point. 

As it was Friday morning on the latest jobs report from the Commerce Department.

Another 275,000 positions were created last month. The biggest gains came in health care and government along with restaurants and bars. Factory positions were off 4,000 jobs.

Unemployment did move higher by two-tenths of a point to 3.9 percent, the highest rate in two years. However, the mark is still below 4 percent - currently the longest streak under that level since the 1960’s.

The Business Conditions Index from Creighton University fell nearly two points to move below growth neutral. 

More winter-like weather returned to the middle section of the country late this week as snow fell across parts of Nebraska and Iowa. This system was not expected to create any snow depth - which for now is mostly limited to North Dakota and western mountain states. 

The early weather arrival of spring has renewed concerns about severe dry conditions in some sections of the country.

David Miller gives us the weather recap for the week.

Power lines are being blamed for starting the largest wildfire in Texas history. The blazes have burned thousands of acres, area ranchers have estimated several thousand cattle have been killed, and dozens of structures were destroyed in the Lone Star states panhandle.

Bill Martin, manager of Lonestar Stockyards: “if we get adequate rain on top of this and we don't have a lot of soil erosion, then the grass will respond really quickly. You know, they might have grazing this season, but for the next couple months, you know, they're going to have to feed them every bite they eat.”

David Miller: The dry conditions making those fires possible is symptomatic of the rest of the nation where just over 47 percent of the Continental U.S. remains gripped by drought. Recent rains in the west and southeast have helped reset the clock but other regions continue to be abnormally dry.

Some farmers in the Grain Belt are already working the ground. Iowa’s soil temperatures are warmer than the five year average for this week. Only one other time since 2000 has the soil been in the low to mid-40s statewide and that was 2017. 

An active weather pattern is forecast for the Southeast with winds, rain and tornadoes expected this weekend. 

For Market to Market, I’m David Miller.

Paul Yeager: Legislative farm policy is complex and can be difficult to navigate even before it enters political waters. 

This week the head of the Commodity Futures Trading Commission was in front of the Senate Agriculture Committee discussing derivative markets.

The U.S. Department of Agriculture added new language to the Packers and Stockyards Act.

Peter Tubbs has more on the latest policy delivery.

This week, the USDA released a new rule for the Packers and Stockyards Act, policies that oversee the meat industry in the United States.

The announced rule would prohibit retaliation from meatpackers towards livestock producers who discuss their business practices with other producers, form co-ops or other production groups, or who seek contracts with other animal buyers or processors.

The new rule would also prohibit deceptive practices in contracts between livestock producers and processors.

Jeff Kippley, President of The National Farmer’s Union, wrote this week: “Given the abundant evidence of price fixing and unfair practices in the livestock industry, it’s clear that maintaining the status quo won’t foster innovation, competition, or robust market oversight. It’s time to acknowledge the heavily consolidated and vertically integrated nature of the industry and enact rules that level the playing field for family farmers and ranchers.”

Peter Tubbs: The National Cattlemen’s Beef Association announced measured support:

“NCBA’s concern with this regulation has always been based in the rule’s unforeseen impacts to standard business practices. While we still have concerns about the unintended consequences of the rule, we are pleased that USDA has addressed most of our significant concerns between the proposed and final rules.” 

The final rule will be effective 60 days after publication in the Federal Register. This week’s new rule follows two other changes to the Packers and Stockyards Act which were announced in 2023. 

For Market to Market, I’m Peter Tubbs

Paul Yeager: A few of the grains finally closed above the twenty day moving average Thursday - only to be extended with USDA’s report Friday. 

For the week …

The nearby wheat contract fell 39 cents and the May corn contract added a dime. 

China went looking for soybeans this week, but not for the American grown product. 

The May soybean contract still added 43 cents while May meal improved $12.20 per ton.

March cotton shrank by $4.29 per hundredweight. 

Over in the dairy parlor, April Class Three milk futures fell $1.07.

The livestock market was mixed. April cattle gained $2.25. April feeders put on 37 cents and the April lean hog contract declined $2.25. 

In the currency markets, the US dollar index fell 132 ticks. 

April crude oil lost 17 cents per barrel. 

COMEX gold increased $129 per ounce, and the Goldman Sachs Commodity Index bumped up more than four points to settle at 560-85.

Joining us now are market analysts Ross Baldwin and Jeff French.

Ross: Baldwin: Thanks for having me, Paul.

Jeff French: Great to be here.

Yeager: We're going to start with you, Jeff. A report today from the government, a little bit of initially nothing and then it was something. What happened?

French: Well, it was yeah, it was a pretty quiet report. I mean, it was for the corn and beans, if you look at it exactly the same as last month. The only change on the corn balance sheet is they lowered the on farm price $0.05 down to 475. They did raise the wheat carry out by 15 million bushels on a reduction on the exports. But yeah, not too much news, not really a, you know, big mover in the market. But we did see some things happen that were positive. We had corn and beans close above the 20 day moving average here this week. On the beans, that's the first time that we've seen that since November 22nd on the corn. That's the first time that we've seen it since December 15th. So that was a good sign. You know, it's one day. I'd like to see some follow through next week. But this is the first time that I would say in three or four months that the funds will be not as comfortable being short record amount of contracts down here.

Yeager: Does that add to the volatility then?

French: Yeah, You know, it's been kind of a steady, pretty orderly sell off, but we've definitely turned a corner here. Again, it's one day and I want to see some follow through but the technicals and seasonally we should be grinding higher here. But you know, we'll get into planting. They might work at lower during that if we get clear window during planting. But, you know, it's one of those days that we've been looking for and it's definitely a good sign. So good to see.

Yeager: In the wheat market, the big story again is Russia dumping. Really? You could probably use the word dumping a product on the market, lowering the global picture. How long can that continue? And do you see it continuing?

French: Well, it's gone longer than I anticipated. I mean, they're selling below $200 a metric ton right now on the world market. You know, Egypt tendered this week, Bulgaria actually one that contract. But then Egypt came out a couple of hours later and canceled the tender. You know, most likely it's going to go to Russia. It will be a private transaction. But also on the wheat, we had two cancellations out of China, of U.S. wheat. You know, U.S. has bought anywhere from two or excuse me, China has bought anywhere between 2 to 3 million metric tons of U.S. wheat. They've canceled four cargoes so far. That was a big market mover. But on Friday, we were able to close higher after making new lows for much of the day. We actually had a key reversal higher, but we missed that by about a penny. So it's one day it's extreme oversold. But when a market does not move against bearish technicals and fundamentals, maybe the sell offs over. So we need more to confirm that.

Yeager: Watching the weather piece, looking at the drought monitor, looking at wheat growing areas, is there any advice you have for U.S. wheat producers and what they should be doing right now?

French: Well, wheat country right now, I mean, last year this time, 50% of it was in drought. Now it's down about 15%. So there has been moisture. Moisture is going through right now. But yeah, it's a long growing season ahead of us, but the conditions are some of the best that we've had here in the last five years.

Yeager: You mentioned corn over the 20 day moving average Thursday, but we also have to deal with Brazil's weather not threatening and playing on the market. Do you contend that the movement at the end of the week is a technical one?

French: I do. And again, I go to that fund position. You know, they were short 340,000 contracts two weeks ago. We've come down, made our low right there right before March 1st. Right there on that John Deere low when all the payments are due March, March 1st. So it looks good. I think we can rally this May contract up to 448 and a half. There's a double top up there, but it's going to be a grind. I mean, at the end of the day, we still have a 2 billion bushel carry out that will weigh on this market. But you have the funds with a large short position and that door is only so big if everybody wants to exit.

Yeager: So, Ross, I guess the question then becomes in the livestock sector, can the livestock sector, did it already contribute to eating into some of this demand and carry out that Jeff's referring to?

Baldwin: I don't. Given the 15% stocks to use, I don't know that the livestock sector, we have the amount of animals in this country to eat and the carry out in a meaningful way that we're dealing with on the corn side of things. But yeah, there's no question. I mean, we're feeding quite a few cattle right now.

Yeager: Jeff, do you need livestock to contribute more to this situation?

French: Absolutely. I mean, we've seen on feed numbers and they're going to continue to grow. I mean, the second quarter is expected to see the largest numbers of cattle that we'll have to deal with. But yeah, I mean, we all take it. I mean, the hog herd has been decimated here the last 18 months.

French: We'll see if that's able to grow. But absolutely, we need all the demand that we need. We need to grow corn demand by probably 4 to 500 million bushels here this next year.

Yeager: That can't all be done by livestock. It's going to have to be something else. We're going to have to see. I mean, you mentioned China earlier. China's not been a big buyer of corn in the past. Occasionally they dip their toe in. Did we get low enough to attract their attention?

French: Well, we haven't had any confirmation of it. I mean, the exports have been solid. I mean, they have been good. I mean, you have right now Mexico being our number one buyer. I mean, Mexico right now, they have 17 million metric tons on the books. I mean, that's more than they've ever had on the books right now. And all that non-GMO talk is out the window. So price will definitely bring out demand. No question about it.

Yeager: All right. Let's start with cattle for a minute, if we could. Ross, when you look at this situation, one of it's always that ying and yang two things.

Cattle have continued to be strong by our live cattle, continuing to rally.

Baldwin: The sheer fundamentals of the market that we have. Just underlying the underlying support. You have all cattle and calves in this country. We saw in the January inventory report it's the tightest since the early 1950s. The U.S. cowherd is the smallest since the early sixties. So we moving forward every month that goes by really for 24 and even out into 25 and 26, potentially the numbers get smaller, which does back into the earlier question. I mean, we do not have enough livestock in this country for, you know, to create 4 to 500 million bushels of corn demand. But these numbers and we saw it in the cash market here this week, cash was solidly higher. We've had cash trade, call it to 2 to 3 higher when how many people are looking for it to be that much higher.

And it boils back to the tightness in the cattle markets.

Yeager: Are you seeing the Packers be aggressive in some of their bidding right now?

Baldwin: We saw them very aggressive this week. And the interesting thing is, over the last three weeks, we've really seen the Packers ratchet up on slaughter. And this week, this week was below 600,000. Again, I believe that makes the third straight week of less than 600,000 head slaughter, which is I mean, that's a meaningful cutback. This is a time of the year that demands it's not our peak demand season, but we're getting closer and closer. And so the fact that they have slowed their change speeds is dramatically as they have. And cash is putting on 2 to $3 this week. I think that shows you the tightness in this country and what's very interesting to me is the live trade was 185 to 187 this week. Dress trade was extremely wide to 92 on the low end majority took place at 295 and there was some as high as 300, 300 dresses as high as we traded last year. Call 188 189 live the highest we got to last year. We're back within a stone's throw of last year's highs. And I think that shows you the tightness in the Fed market.

Yeager: Jeff had answered this question a couple of weeks ago when he was here, but I asked if we were stalling out for another run higher. I'll ask you the same question.

Baldwin: Fat cattle futures. Yeah. So we got up as close as we've been to that gap on April Fat's we talked about earlier, looked like in the first 30 minutes of trade today we would go fill that gap. It's open at 19027, I believe the high today was one 8995 and we failed had a reversal April cattle, I believe June cattle. They did hold their 20 day they held yesterday's low. They still don't look bad technically. Have we stalled out? I think we need to see cash probably get up to that 88 for April two to get going up to the 190. So I'm not super bullish. April futures just for the moment.

Yeager: Let's go to feeders for a moment because tied into what Jeff had said and what you about said, where do you see any hold back in the lots right now? Is there anybody or are they trying to sell into profits that are up there?

Baldwin: No question ranchers are selling and the profits that are out here, it hasn't taken very long. And you have feeder cattle prices across the country back near the all time highs. And so we are moving feeders into these feedlots. And I think you're going to see that. And the next cattle on feed report, we will see aggressive placement placements. Now that is a little bit of shuffling numbers around from last month where placements were really light. It was due to the weather that limited sale barn runs this next month. Cattle that would have been sold in January, they're getting sold in February, but we are aggressively selling feeder cattle

Yeager: I want to ask Kurt, in Ohio, we've got a question. Go ahead, Jeff. 

French: Well, that placement number, as we talked about, I mean, when you broke it down per state, you had Kansas and Texas down 15% and then Iowa, Minnesota, South Dakota during January, where they actually increased numbers on the placements. So I don't know how that math all works out with the weather that we saw.

Baldwin: Correct. And the interesting thing for like, say, Kansas, I believe they were 77% placement on the January one. They did not have good weather and so it was they weren't moving and then wanting to play something just given what the conditions were doing but it was some wild numbers.

Yeager: This is a little bit of a tie question to both of the things I've just asked. But Kurt in Iowa had a question, With the cow herd as small as it is, how much more upside remains in live cattle? Will the Texas wildfires have any meaningful impact on prices?

Baldwin: So how tight the numbers are? How much upside is there? I really think when you get as we work out and I'm probably more optimistic, Q3 and Q4 of this year further out down the curve because that is when the numbers tighten and if there are going to be the months that go above the magical $2 number that everyone continues to talk about, it will be those deferred contracts down the road. How high can we go? I do think we can make a run down the road above $2. I, i know there's some analysts in the market and I have a lot of respect for some of these guys and they're expecting some prices to work well into the $2.

Yeager: Okay.

Baldwin: The second part of your question, the Texas wildfire. Yeah, I mean, our prayers go out to everybody that's dealing with that. Absolutely devastating. The number that I have heard, the cows that have been losses pushing 20,000 head there. It's gut wrenching to hear something like that because I've seen ranchers interviewed that have lost their entire cattle, heard that they've spent the last 20 years say, building up to. So it is absolutely devastating for the producers that are involved in that. But in the big picture for the markets, I don't think it has a huge impact on the markets. The crazy part is, though, is we we can't we're not in the position to lose 20,000 head of cattle. As with what things look like right now.

Yeager: The small numbers that you referred to. Yep. All right, Jeff, you get to start with the question here as well. Tom and Kevin kind of asking the same thing here. Online beans going up. Are we in a dead cat bounce?

French: You know, I think we go up here. I mean, Brazil is over 50% harvested. So I think a lot of that harvest pressure, we've seen it. And you just look at the last three weeks, we've held that 1150 area. It's kind of been a magnet where, you know, we go below it and then we come right back up to it. And then today's action, you know, close and $0.30 off the lows from the day above the 20 day. This chart is pointing higher. We've got to get through the $12 mark. We'll probably test 1195. But if we get above that, we could probably see 1240. That'd be a dollar off the contract lows of the move. And that's where I'd be looking to make some sales are.

Yeager: Yes, I was away from most of the agriculture world last week, but I had time to see some chatter on Twitter last Saturday, Sunday about these charts, all looking like, why aren't they going to go higher again? I asked you that technical question. Is this a technical move right now?

French: Yeah, I think it is. But also seasonally, you make it low, you know, right into February, into March, we start to get into some weather and some planting. And then at the same time, how much more can they throw at this market? I mean, they've thrown everything and, you know, how long are the funds going to stay? Record short this crop as we enter the growing season, I just don't see it. And again, I said it before. I mean, this is the first time that they're going to feel a little uncomfortable over the weekend being short all these contracts.

Yeager: Let's move, if we could, Ross, in the last couple of minutes here about hogs, because we've seen the meal be attractive for exports. We've also seen the pork product be attractive to exports. What do you see in hogs right now?

Baldwin: The hog futures markets had a heck of a rally. I mean, it had been such a tumultuous year. 23 had been for hog producers here domestically. And the Chinese hog producer went on the better part of two years losing money. So we've been in a slow liquidation mode between the US and China and the Hog market clearly put a bottom in a while ago. I know that's an obvious statement, but we've had a heck of a rally and it's how much about like corn recently, how much more bearish news could you throw at it while there was some liquidation going on. So looking at the hog fundamentals are kind of interesting because exports have been solid. Mexico's been a very aggressive buyer of U.S. pork. China's been a buyer of U.S. pork. And when you we also look over to China, they're there feed prices, meal and corn prices are at three year lows. And so it China did come out here a week ago, I believe it was last week, and they started saying that their hog herd is smaller than it had been. But I think when people have been looking at some of the things occurring across the hog market and China's milk prices and their corn prices, they were already starting to wonder what is going on with China's hog herd. So I do think, I think we still got time to work through this. But when you look at summer month hogs back over a dollar, June, July, I mean, they've got as high as a dollar, $3 for I think we're building and there is a hogs have a story here. I mean I do think it's more the last half of the year where this thing gets exciting. But it also it does make me feel a little encouraged with high priced beef. If the hog market can get a story and get these prices working higher.

Yeager: And I'm encouraged he can fill right to the very end of things. Ross, thank you so very much. Jeff, thank you as well. I appreciate it, gentlemen.

Baldwin: Thanks, Paul.

Yeager: 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, Hog producers hope for better times ahead.

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

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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