Market to Market - April 12, 2024

Brooke Kohlsdorf: Coming up on Market to Market, the search for alternatives to rubber, broadening the battle against antibiotic resistance and commodity market analysis with Ted Seifried next.

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Brooke Kohlsdorf: Hello, I'm Brooke Kohlsdorf. For centuries, eclipses were met with panic that the gods were destroying the sun or issuing a warning of coming retribution. With modern science able to predict precisely where and when, Monday's eclipse drew crowds eager to experience a rare astronomical event and a moment of awe. But when the protective eyeglasses were put away and life returned to normal, Americans had their minds back on the nation's persistent inflation. The Consumer Price Index increased 0.3% in March to 3.5%, the highest rate since September. Housing costs and gasoline led the index upwards. Core CPI, defined as all items minus food and energy, was steady at 3.8%, the same as the February number. The Producer Price Index, a measure of the inflation at the wholesale level, increased 0.2% in March. The 12 month PPI rose 2.1%. Continuing price pressure in the economy, excluding volatile food and energy Corp. PPI rose 0.2% in March, which met expectations. The new inflation data dashed hopes of a drop in interest rates at the Federal Reserve's May meeting and kept the possibility of an interest rate hike later in the year on the table in 2022. The world's top rubber producers grew 14 million tons of the tough elastic polymer. Most of the world's natural rubber is grown in Thailand. However, with diseases killing trees, climate change, decreasing land availability and COVID wreaking havoc on supply lines, the cost of the bulk product has been driven higher. All of these factors have spurred a search for alternative sources that can be grown in the United States. David Miller reports.

In a Wooster, Ohio, greenhouse operated by Ohio State University, professor Katrina Cornish is working with plants she hopes will be used as a domestic source of natural rubber. Cornish is motivated by her concern that most of the world’s natural rubber is grown in Southeast Asia and political upheaval or disease could cut off the world supply. 

Katrina Cornish, The Ohio State University: "My job isn’t done until this is a permanent feature of the landscape. 

Cornish is raising dandelions and the desert shrub guayule in hopes of showing how these plants can make the U.S. self-sufficient in rubber production. Along with her team, Cornish has demonstrated that the stretchy rubber substance extracted from these plants can be made into common items like medical gloves and parts for trachea tubes.  

Katrina Cornish, The Ohio State University: People wouldn't be able to imagine the U.S. without having corn in it or soybeans in it. But I want see a U.S. that you can't imagine isn't a major rubber producer. That's what has to happen.”

Cornish is not alone. Private industry has also been working on the equation. In Eloy, Arizona, Bridgestone Corporation, the world’s largest tire and rubber company, has been operating its own research and development farm. Over the last two years the company has been looking closer at moving from research to production.

David Dierig, Manager, Bridgestone Agro Operations Guayule Research Farm: "On the average it uses a lot less water than crops like corn, cotton, alfalfa, wheat. All those crops use more water than guayule does. So it’s really kind of the perfect crop that will fit into a farm setting.

Arizona farmers are currently under pressure due to water allotment cuts but the alternative crops won’t attract producers if there isn’t any infrastructure in place and if the economics fail to support production. 

Katrina Cornish, The Ohio State University:"The technical challenges are pretty much all been overcome. So we know how to do this. The challenge is financial.”

For Market to Market, I’m David Miller.

Brooke Kohlsdorf:  Experts in the U.S. and elsewhere have been warning for years against the potential overuse of antibiotics in both humans and livestock. If antibiotics are used too often and too casually, the very disease causing bacteria they're designed to target can become resistant. It's similar to how weeds will eventually develop resistance to overused herbicides. In this week's cover story, Colleen Bradford Krantz looks at one group of animals that had been previously overlooked in the battle against antibiotic resistance.

For nearly a decade, the nation’s spotlight has shone squarely on livestock when it comes to antibiotic use in animals and concerns about resistant bacteria. While U.S. regulations implemented in 2017 helped drive down the sales of certain antibiotics for use in livestock by 36 percent between 2015, the peak year, and 2022, concerns about bacterial resistance have not eased.

In response, the European Union in 2022 created greater powers in Europe that would allow them to withhold certain medically important antibiotics from animals. The European Union didn’t focus only on livestock, but included man’s best friend as well as their feline counterparts and other companion animals. 

Dr. Jennifer Granick, associate professor, University of Minnesota, College of Veterinary Medicine: “We don’t have those restrictions in the United States right now but there is concern that if we don’t take very good care about the way we are using antibiotics, that we are going to have problems not only with treating our veterinary patients, but in human medicine as well.”

Pets have not been a primary focus of the U.S. Food and Drug Administration when it comes to preserving the effectiveness of antibiotics, particularly those also used to combat disease in humans.The FDA declined Market to Market’s request for an interview but sent a written statement that said: 

“To date, the majority of FDA’s Center for Veterinary Medicine judicious use policies have been focused on food-producing animals. However, as part of FDA’s first 5-year plan for Supporting Antimicrobial Stewardship in Veterinary Settings, CVM intends to develop and implement a strategy for promoting antimicrobial stewardship in companion animals.”

 Researchers say that more than 60 percent of the roughly 1,500 known pathogens that affect humans can be transmitted between animals and humans.

Dr. Jennifer Granick, associate professor, College of Veterinary Medicine, University of Minnesota: “It is pretty new that people are starting to evaluate antibiotic use in pets. I think the reason why food animals have been the focus so long is because they are large so the actual amount of drug per patient is more for, say, a cow than it is for a tiny little Chihuahua. But the thing about companion animals that I think people are starting to key in on is that they share the same environments that we live in. So we have cats and dogs living in our house. We have cats and dogs oftentimes living in our beds too. They sleep with us. We share ice cream cones with them. So the interactions between those animals and humans is actually a lot closer, which means that we are likely sharing bacteria sort of in and on our bodies with those animals much more closely.”

Dr. Granick is one of three women behind the Antimicrobial Resistance and Stewardship Initiative at the University of Minnesota’s College of Veterinary Medicine. The campaign, partially supported by an FDA grant, provides information to vet clinics and performs research related to antibiotic prescription practices in pets. 

As bacteria mutate or adapt to survive treatment, certain antibiotics are at risk of becoming ineffective. At the University of Minnesota’s small animal vet clinic, which handles some of the state’s more complicated cases, they have seen a dramatic increase in pets with infections associated with resistant bacteria.

Dr. Jennifer Granick, associate professor, University of Minnesota, College of Veterinary Medicine: “I certainly have seen that in practice where the human has an antibiotic-resistant infection and a dog that lives with that human comes into us and has an infection in maybe a different location of the body, but with also the same organism, the same resistant pattern….So the closer we are in contact with those animals, the greater the risk. And we’re not going to get rid of our pets, right? They’re part of our wellness. So what we need to do instead is be really careful about how we’re treating our pets because we have to recognize that we’re not just treating the pets, we’re kind of treating the whole household in a way.”

If pet owners are desperate to heal a sick cat or dog, however, Dr. Granick says they may pressure veterinarians to prescribe antibiotics that may not be the best answer.

Dr. Jennifer Granick, associate professor, University of Minnesota, College of Veterinary Medicine: “We created a handout that they can utilize and alter as they see fit, but the headline of the handout that goes home with the pet owner is: ‘Your pet does not need an antibiotic today’ with an exclamation point. It’s like a celebration, you know.”

One southern Minnesota clinic that has collected data for the university’s research is Heartland Animal Hospital in Owatonna.

Dr. Anna Wildgrube, Heartland Animal Hospital, Owatonna, Minnesota: “There’s a lot of buzzwords associated with large animal production, a lot of those being: antibiotic resistance, antibiotic use, your meat being safe or not safe. And, of course, everything that’s in the food chain is safe because of the withdrawals. And the producers are going to meet those withdrawals… So the challenging part is when you transfer that down to dogs and cats. Dogs and cats aren’t in our food chain… so it makes it a lot different for people and they don’t realize that antibiotic resistance can happen – or antibiotic abuse to be truthful – can happen in the small animal world as well.”

Dr. Wildgrube says they are happy to get university updates on the best practices for treating various illnesses, particularly if an antibiotic has been proven unnecessary.

Dr. Anna Wildgrube, Heartland Animal Hospital, Owatonna, Minnesota: “As veterinarians, we need to balance people’s expectations of their problem, as well as offering solutions to the problems. And it’s not always to reach for antibiotics.”

Pets are not the only overlooked group of animals. Wildlife can be carriers or victims of resistant bacteria.

Dr. Anna Wildgrube, Heartland Animal Hospital, Owatonna, Minnesota: “What would be great if it were to happen coming down the road would be suggested guidelines for antibiotic use as veterinarians… as far as having a duration of antibiotic and an antibiotic choice that would be most appropriate for the condition you’re seeing.”

Recently, a couple veterinarian groups have begun work on specific guidelines, at least for specific conditions among dogs. 

Wildgrube says antibiotics are critical to controlling certain illnesses, and the cost of losing that tool is too high.

Dr. Anna Wildgrube, Heartland Animal Hospital, Owatonna, Minnesota: “If we didn’t use antibiotics in the world, there would be a lot of death for people and for animals.” 

For Market to Market, I’m Colleen Bradford Krantz.

Announcer: Next, the Market to Market Report.

Brooke Kohlsdorf: The April WASDE report made minor revisions to U.S. and global grain stocks but provided little support to the grains. For the week, the nearby wheat contract dropped $0.11 and the May corn contract found $0.02. A downward export forecast in the WASDE report took the wind out of soybeans sales. The May bean contract lost $0.11, while May meal climbed $11.30 per ton. May cotton shrank by $3.62 per hundredweight. Over in the dairy parlor made class three milk futures rose $0.80. The livestock market was down. June cattle dropped $0.57. May feeders cut 398 and the May lean hog contract fell $3.67. In the currency markets, the US dollar index jumped 170 ticks. May crude oil softened $0.93 per barrel. COMEX gold rose $2530 per ounce and the Goldman Sachs Commodity Index was up $4\ to settle at 603.90. Joining us now is regular market analyst Ted Seifried. Hi, Ted.

Ted Seifried: Hey, Brooke. How's it going?

Brooke Kohlsdorf: Yeah, I'm doing well. Thanks for joining us. Okay. So, yes, we've been talking about these two reports that came out this week, one from inside, one from outside the market, the Consumer Price index and the WASDE. Was there anything in the WASDE that caught your attention? Any takeaways?

Ted Seifried: It wasn't a bullish report. Right. And we have corn and soybean charts that are really looking for something bullish in order to kind of extend the springtime rally. And the report was, not it? Now, we might've had something on Friday that that changed that. But the report itself was rather bearish. The carryover numbers, both domestically and globally, came in above expectations. Notably, the soybean carryover came in well above expectations. There were some weird sort of bookkeeping being done there by the USDA, lowering seed demand, lowering residual demand, reducing imports, reducing exports. But when you put it all together, where a 340 million bushel carryover in soybeans go back to the beginning of the marketing year, and there was a lot of talk of know possibility of a 180 or 160. Well, it's gone the other way and it continues to sort of grow. The trend is for a higher soybean carryover. So it's just not that silver bullet that we needed to turn markets around or to extend the springtime forecast. The fact that the U.S. is very reluctant to lower the Brazilian soybean production number is a frustration point for a lot of people. There's a lot of discrepancy between, you know, Brazil's reporting agency CONAB other private analysts, and then the USDA kind of doing their own thing. But you can kind of understand that because the USDA's had to go back and revise the Brazilian numbers higher in the last four years and by significant amounts. And I think because there's just underreported acreage happening or ridge happening in Brazil, I think that's really centered around the northern arc, the northern port areas, those were acres that they had proliferated. But then weather kind of precluded them from getting good yields. We thought they had kind of moved away from that, but it seems they've come back to that. That's my best guess. But either way, the U.S. is being very stubborn about staying at 155 million metric tons. Soybean production number for Brazil. And again, that's coming to the frustration of a lot of the would be soybean bulls out there.

Brooke Kohlsdorf: You sort of answered this question already, but one we were going to ask from one of our viewers was who do we trust CONAB or the USDA, or does it fall somewhere in the middle because they did have such different numbers? Yeah.

Ted Seifried: Wow. So the age old question and I know there are some of my counterparts that will take every chance that they can to talk poorly about the USDA and how they work. But, you know, honestly, they do the best they can. And I really think of any reporting agency in the world that the U.S. is probably the gold standard. I think you have to go with the USDA number. At the very least, that's the number that we're going to use on our balance sheets, both domestic and globally going forward. But you also look at like what the exports are coming out of Brazil. And then if you take the CONAB numbers in previous years, it just doesn't jive because the export numbers, the raw export data is really very, very large. And it suggests that CONAB’s underreporting. So again, I think you have to go with the USDA number. At the very least, that's what we're using for the reports going forward. That's what we're using for all of our balance sheets.

Brooke Kohlsdorf: And what the trade uses. Please. Okay. All right. We'll move on to wheat. So we've been shopping around. Is it going to take a weather story to push the market?

Ted Seifried: Oh, you know, wheat is always a very global commodity. I mean, there are so many countries that that grow and export wheat. So wheat is very sensitive to the US dollar. So interest rates, things like that can have a big effect on it. Certainly conflicts. Right. I mean, the Russia Ukraine situation was going on for a really long time and that continues to have an influence on wheat. Now we've become a little bit more jaded to the daily comings and goings of that, but that's certainly a factor and sure, weather. But I'm going to say, I think broad crops in particular corn direction, might have the biggest impact on wheat going forward. If corn can find a reason to rally, I think that would be the biggest benefiting thing for wheat. If you look at this last WASDE the report, the domestic balance sheet. You saw an increase in corn feed demand, but a decrease in wheat feed demand. If corn prices start going up, that could filter some of that feed demand back to wheat, maybe shrink that carryover a little bit. And again, I think that would be a beneficial thing for wheat.

Brooke Kohlsdorf: Okay. So what's going to be that corn rally.

Ted Seifried: Is a great question. I mean, we did see the USDA cut carryover a little bit. They added 25 million bushels to both exports I'm sorry, to feed demand and to ethanol demand. But at the end of the day, that only brings us to a 2.1 to 2 billion bushel carryover. It doesn't get us below that 2 billion bushel carryover. We need something, some sort of bigger influx of demand than what we've seen. To get that carryover to a point where we can say it's tight enough that we need to see higher prices, that we need to start demand rationing. The other option would be a 2019 type of planting delay issue where we're just not going to get 10 million acres of the corn crop in.  And unfortunately, while we can talk about how wet it's been, how much rain we've gotten in the last ten days or so, the extended forecasts don't really support that idea. And also in states really early, we got a lot of time yet to plant corn. And I saw a lot of corn planters, not a lot, but I saw five or six corn planters going on my way here today. And we got a lot of rain last night. I was really actually shocked to see that. Now, there must have been some pockets that got missed as I moved further west, I was not expecting to see anything, but I did and that was impressive. I also I know of that. I was getting a report on the way here from a guy in central Illinois saying that if they stay dry for a couple more days, they're going to be getting after it as well. So that planting, you know, it's amazing how quickly we can get plants in nowadays given any sort of window, which, again, if you look at the extended forecast, it looks like towards the end of this month we'll have those windows. Yeah.

Brooke Kohlsdorf: And it's been hard for farmers because they've wanted to they've been saying for maybe a couple of months they could actually start planning but had to wait.

Ted Seifried: Yeah. Yeah. There's a lot of risk in that. I mean yes, just because the weather is nice in February doesn't mean that we can't get another, you know, damaging frost and things like that. So it's been prudent for them to wait. Yeah.

Brooke Kohlsdorf: Sure. But it's been hard for some of those farmers. So. Okay, let's talk about beans, because we're continuing to see Brazil be our main competitor. They're taking a lot of our business with China. So how does that play out?

Ted Seifried: Yeah, they're doing it on corn now, too. That's a big concern. Yeah. You know, Brazil's always been a bean behemoth, right? A and the bigger problem is, I think we're in the process of watching Chinese soybean demand start to come back down throughout our careers. We've just expected soybean demand from China to be there and to be growing or at least constant year after year after year after year. And it has been. But I think we're getting into a position where China really wants to become less dependent on global soybean imports, both US and Brazil, but particularly us. And they're doing things to make that happen. One, they're changing their feed rations to be less soybean meal intensive and to be more corn intensive. They've imported a record amount of corn even after having what they call a record corn crop, or at least probably a pretty decent corn crop. So they're using more corn, but they're using less soybean meal and they're now approving GMO soybeans to be planted, which could potentially and probably will increase their yields dramatically. So what happens if Chinese soybean demand drops 20%? That's 20 million metric tons. That's going to be a big, big problem not only for us, but for Brazil. And just we're going to have a lot of extra soybeans in the world. So we need this second coming of demand, this new demand form for soybeans in the form of biodiesel, in the form of sustainable aviation. And that outlook is good. The problem is it takes time. You have to encourage or entice the infrastructure to be built. The crushers need to have reason to go out and build these facilities. Right. So I'm worried about what happens for soybean demand, soybean export demand here over the next couple of years. Now, the good news is that it should help crush margins really significantly and it should help to build that infrastructure. But again, it could be an awkward transition period here for a little while.

Brooke Kohlsdorf: Between the time between now and when those facilities get built, you mean? Yeah, the infrastructure. Okay, so let's move on to cattle. The bird flu continues to be a story they had a bad week. Cattle did last week. They're kind of more on solid ground this week is the bird story, bird flu story going away any time soon or is it going to stick around?

Ted Seifried: So I think the theme of the last couple of weeks for the cattle market or the cattle complex really has been uncertainty, right? When you have something like that where you have bird flu affecting bovine affecting humans, it really makes you question, it makes the market question What does that mean for the cattle herd as a whole? Are we going to have to see callings and things like that? And the answer is we don't know. So what happens is you have your speculators, your large speculators, your funds, they go running for the doors and what are whatever positions that they hold at the time. And at the time, they were really level. They were long, they're buying cattle. So that means that they were selling out of their positions. I don't think it's going to have a profound effect on the cattle industry as a whole, but that doesn't mean that it can't have a profound effect on markets in the meantime because of that uncertainty. Now, on Friday this week, we had more uncertainty coming from a completely different arena, and that is global conflict, specifically in the Middle East. And then again, you have your speculators running for the door on long positions. So you've got a very nervous market when it comes to the cattle complex that has really manifested itself in the form of, you know, sharply lower days. And we've had a big downside breakout on the chart. I think we're pushing past what I would consider fair value in cattle. And I think over time we will get back to some higher price levels again. But that does not mean that the selling is necessarily Overbrook.

Brooke Kohlsdorf: Okay. All right. We've got a minute left, so let's talk about feeders. We've got just a little bit of time. What do you think about that market?

Ted Seifried: Yeah, you know, the old saying that the feeders of the leaders and from a percentage standpoint, they're the ones that stand to have the bigger gains or bigger losses. And some of the bigger losses, especially on Friday, were happening in the feeder cattle complex. It did not leave you with a good feeling on the chart there at the end of the day on Friday. Again, fundamentally, I can see some higher prices further on down the line. But for right now you have to be worried that there's more downside. I think the really interesting one is hogs. You had that big outside reversal down day on Wednesday. You followed it with a higher day on Thursday. But then it really came apart on Friday again, because of that uncertainty. You wonder if it wasn't for that event on Friday, how that hog chart would have ended the week. But we have what we have now and we'll see how next week plays out.

Brooke Kohlsdorf: It's always interesting to watch, isn't it?

Ted Seifried: Sure is.

Brooke Kohlsdorf: Ted, thank you.

Ted Seifried: As much as you.

Brooke Kohlsdorf: Get your insight. All right. We are going to pause this analysis and continue our discussion about these markets in our Market Plus segment. We've got a lot more to talk to Ted about. You can find both analysis and plus on our website of Market to Market.org. Instagram season is kicking into gear as Plant 24 gets ready to roll. We'll post some of our images and share your best work on our feed of Market to Market. Follow along today and next week. Livestock producers fret over the National ag Trade Deficit. Thanks so much for watching. Have a great week.

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