Market to Market - April 19, 2024

Paul Yeager: Coming up on Market to Market - Trade talks come to the U.S. Senate committee room. Looking at how agriculture has reversed course on exports. And commodity market analysis with Chris Robinson, next.

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This is the Friday, April 19th edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

The consumer is still shopping - even with inflationary pressures in play.

Retail sales added 0.7 percent last month according to the Commerce Department. That’s two consecutive higher reports of items sold in stores, restaurants and at the gas pumps. Elevated mortgage rates kept a lid on home buying. Existing home sales fell 4.3 percent in March - the first decline since December. Some of the same pressures were holding back the Rural Mainstreet Index. The survey has been below growth neutral for eight straight months even with a more than 7 point gain last month as weaker commodity prices and higher storage rates weigh on bank CEOs in ten Midwestern states.

Many of those same areas in the survey have turned to global trade as ways to boost profits on the farm. We have two stories this week on trade. We’ll look at one specific sector directly impacted by foreign imports. But first, the U.S. Trade Representative was called to the Senate Finance Committee and the subject of free trade agreements dominated the q and a with lawmakers. Peter Tubbs leads off our coverage.

This week, the Senate Finance Committee met with U.S. Trade Representative Ambassador Katherine Tai, to discuss the foreign trade initiatives of the Biden Administration.

The current agricultural trade deficit was a frequent topic.

Sen Steve Daines, MT, R - “In the last fiscal year, ag exports declined by more than $17 billion and are forecast to continue to drop to a record low in the coming year.”

Amb. Katherine Tai, U.S. Trade Representative: “But we have run deficits before in the past, in the recent past. It happens from time to time. Part of The Factor is a strong U.S. dollar, but also really, really strong consumer demand here in the United States. Even with the downturn last year, 2021, 2022 and 2023 were a record setting year for U.S. ag exports at 173, 197, and then $179 billion. And I think that the drop, even for 2023 reflects growth from 2021 numbers.”

Sen. James Lankford, OK, R- “Are there any free trade agreements that are currently being negotiated?”

Amb. Katherine Tai, U.S. Trade Representative: “Since short answer to be responsive to you is no, we're not doing the big comprehensive agreements that are really great for AG and terrible for our industries, but we are nevertheless securing wins $21 billion in the last three years.”

Sen. James Lankford, OK, R- “The challenge of that is when it's non-FTA, there's no certainty on it and that executive agreements come and go with the administrations and FTA has some semblance of certainty. Are there other new markets on the ag side that are pending?”

Amb. Katherine Tai, U.S. Trade Representative: “Yes. So, there is the work that we've done with India across 12 tariff areas where we've opened up opportunities for tree nuts, cranberries. This is a little bit of test for me. I think it was blueberries, turkey, duck. We'd also worked on pork earlier with Japan. We've opened up with the beef safeguard. We've got ethanol, more ethanol going to Japan now.”

Sen. John Thune, South Dakota, R - “I'm on a bill that would create a free trade agreement with United Kingdom. They're one of our longest and closest allies. And there isn't a single free trade agreement that this administration has entered into.”

Amb. Katherine Tai, U.S. Trade Representative: “Market access can come more quickly, more effectively, more in more agile ways. If we are looking for those opportunities to score what we like to call singles and doubles to rack up the score that way, as opposed to tying up opportunities over the course of many, many years in FTA negotiations that sometimes don't ever come into being on that.”

Sen. John Thune, South Dakota, R - “How about the easier FTAs? How about the UK?”

Amb. Katherine Tai, U.S. Trade Representative: “I think there are no easy FTA is. I don't know if you followed, but the UK and Canada have been negotiating the FTA that they start negotiating because the UK won't talk. AG ad market access. And in fact, in the in the in the last years of the Trump administration in those negotiations, the UK had refused to put ag market access on the table. Ad market access is also something that has traditionally really frustrated our efforts at large FTA like exercises with the European Union.”

Elizabeth Warren, MA, D - “What has been China's track record on meeting its WTO commitments that it made at that time and moving toward a liberal democracy?”

Amb. Katherine Tai, U.S. Trade Representative: “Senator Warren. This is one of the greatest disappointments, I think, in trade policy over the course the last 25 years. I've had a lot of conversations with members of Congress on both sides of the aisle around China's accession to the WTO and their descriptions of how disappointed they are in terms of their expectations is very deep.”

For Market to Market, I’m Peter Tubbs

Paul Yeager: Trade exports were worth more than $3 trillion in 2023 to the U.S. economy. Agriculture was six percent of the tally last year.

More value in those goods is coming into the country than out - running up a deficit of $773 billion.

Farm products, until recently, were helping reduce that shortfall by sending products like corn, soybeans, and beef overseas.

But that has changed a bit as Colleen Bradford Krantz reports in our Cover Story.

As it had in some preceding years, the United States in 1960 exported more agricultural goods to other countries than it imported. That year also kicked off an uninterrupted stretch of 59 years of agricultural trade surpluses.

Then, in 2019, the U.S. ran its first agricultural trade deficit in nearly six decades. Exports were still generally on an upward trend so few expressed concerns that imports had increased even more. But soon it happened twice again: in 2020 and 2023. With 2024 heading the same direction, a handful of ag and trade groups are speaking up about their concerns.

Katie Hettinga, Rethink Trade: “The 2023 ag trade deficit is the largest on record, at $16.6 billion in the red. And the 2024 deficit is projected to be nearly double that…The United States is becoming more reliant on other countries for its food supply.”

Rethink Trade is an anti-monopoly non-profit. Farm Action is a Missouri-based non-profit working toward a fair food system.

Christian Lovell, Farm Action: “Anybody in agriculture circles, they hear this adage you know: ‘American agriculture feeds the world.’ But when you actually look at the numbers, the truth is in terms of the food that you and I and we all eat, we’re not even really feeding ourselves.”

While a strong U.S. dollar plays into the equation, some are concerned that the nation’s international free trade agreements have helped some global companies, but may be harming U.S. producers raising more labor-intensive products such as fruit, vegetables, or livestock.

Christian Lovell, Farm Action: “When you look at a value basis, the fruit and vegetables are definitely a higher value crop and that’s what we’ve grown our reliance on importing those products…if we just converted one half of one percent of current U.S. farmland to specialty crops, we could have completely wiped out the deficit last year.”

The lamb industry has felt the impact of the trade shortfall. Large meat processors buying for U.S. consumers tend to choose cheaper lamb from places like Australia.

In 2022, Australia accounted for 75 percent of the $1.53 billion worth of sheep and goat meat imported into the U.S. That same year and halfway through 2023, U.S. lamb feeders endured 15 consecutive months of losses. And, unlike U.S. farmers raising many other single commodities, sheep producers don’t currently have an active government-subsidized insurance program.

The U.S. sheep industry has asked for a U.S. International Trade investigation into whether imports are causing substantial harm to the industry.

R-CALF primarily advocates for independent cattle producers but is trying to help the sheep industry as the export-import balance is relevant to both livestock sectors.

Bill Bullard, CEO, R-CALF: “We’ve seen more imports and consumers have not benefited. Consumers are paying record prices for beef at a time when imports are skyrocketing. So, what this tells us is this is a boon for the multinational meatpackers because they can source beef from other countries - 20 different countries - that do not meet the same production standards… While domestic production was collapsing, imports were increasing. In 2006, this canary in the coal mine, the U.S. sheep industry became the first livestock sector in America to be outsourced... If anyone wants to know the answer as to whether or not imports can destroy a domestic industry, you can see right here it has destroyed our commercial sheep industry. Today, 74 percent of all the sheep and mutton consumed in America is derived from foreign soil.”

Although U.S. sheep producers finally saw a glimmer of hope with positive returns beginning in June 2023, many had departed the business. Todd Hintz, who raises lambs with his wife, Peg, and their adult son, saw this in his region of northeast Nebraska.

Todd Hintz, Sundance Farms, Meadow Grove, Nebraska - “We have had I think within 20 miles, we have lost four lamb growers, or sheep farms. Some of them, I think the work was too much, and then some of them, the low prices kind of pushed them out.”

The nation’s 2023 lamb crop was the smallest on record, with just over 3 million head.

Todd Hintz, Sundance Farms, Meadow Grove, Nebraska - “Last year we were at the $2 break point - was our break - just because alfalfa and corn and then feed costs were so high…If you have to buy everything, you probably weren’t making any money last year…I think more and more people will be leaving. The work is hard and you have to be dedicated and when you have the highs and the lows, the cycles of making money or losing money, it seems like when you have one bad year, it takes two years to make up for the loss.”

Iowa sheep producer Tony Vorm and his wife work other full-time jobs, but their Katahdan hair sheep operation is profitable as they have focused on breeding stock - which garners higher prices - as well as slaughter lambs.

Tony Vorm, Turbine View Farms, Nevada, Iowa: “We’ve seen a lot of increase and decrease. Lambing is seasonal. Pricing is seasonal. Easter and ethnic holidays are the peak season. But also, we’ve seen some volatility like last year, prices were really low. But the year before that, prices were at all-time highs.”

Vorm wonders if the U.S. should consider supporting its own producers more.

Tony Vorm, Turbine View Farms, Nevada, Iowa: “We import a lot of lamb that we probably could import less and use more from here. So that sometimes drives the price down, I think. We import so much that we’ve got a surplus.”

After years of lobbying started by American Grassfed Association, which was concerned about misleading labeling, USDA last month finalized a new rule for Country of Origin labeling saying that all meat products sold with the “Product of USA” label must be derived from animals born, raised, slaughtered and processed within the U.S.

Bill Bullard, CEO, R-CALF: “We’re not against imports. Imports are important to our economy…What we need to look at is when those exports exceed the threshold where they begin to destroy our domestic supply chains and render us dependent on foreign soils for our food supply, then we must take action. And we’ve long passed that in both the cattle and sheep industries.”

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

Next, the Market to Market report.

Yeager: Attacks between Iran and Israel have upended many markets while Argentina appears to be the biggest influence in commodities. For the week, the nearby wheat contract lost 6 cents and the May corn contract shed two cents. South American harvest kept pressure on the soy complex. The May soybean contract fell 24 cents while May meal cut 70 cents per ton. May cotton shrank by $3.93 per hundredweight. Over in the dairy parlor, May Class Three milk futures added $1.37. The livestock market was higher. June cattle improved $4.20. May feeders put on $7.80. And the May lean hog contract gained $2.35. In the currency markets, the US dollar index increased 21 ticks. May crude oil lost $2.91 per barrel. COMEX gold rose $36.20 per ounce. And the Goldman Sachs Commodity Index was down 15 points to settle at 588.90. Joining us now is regular market analyst Chris Robinson. Hi, Chris.

Robinson: How are you doing, sir?

Yeager: This Iran/Israel, had a couple of questions, had a couple of texts today about this wanting me to ask this. First blush, you look at the wheat market and think, oh and crude, but it's more than that, isn't it, on influencing the commodities?

Robinson: Absolutely. It's hard to hedge or predict an event like that, how it will be felt around the world. Obviously, the two easy ones to look at were crude oil, but also the stock market. People don't like that type of big uncertainty and you also see moves in the bond market because if people get it's called flight to quality, you don't want to own stocks, you want to own bonds. So, it is a very quick reset. And you saw that last night, I was driving out here last night when it all happened and I pulled over to the side of the road for a while because I was getting some phone calls. But fortunately, things have calmed down and it was a good way to end the week.

Yeager: Volatility was the story of the last two years. We seem to have had less. We're more rangebound. Let's look at wheat specifically. We're kind of flirting with that 50-day moving average and we can't seem to break any way out of that. Is there any reason to think volatility is coming back to wheat?

Robinson: To wheat, no. Wheat has been just in a two year decline every time that we've had a fundamental story, and we've had plenty of them with Ukraine, it's pretty well documented that we've got very low stocks, there's other countries in the world that have low stocks. We just got done with a supply and demand, that data is all out there. The problem is there's still a lot of grain that has come out of the Ukraine. In fact, there's been a lot of stories about that, a lot of the Western European farmers are not happy about all the grain that has been coming out of the Ukraine. So, it has put pressure on wheat. And we've been in a two-year decline. We look like we might be trying to turn the corner, but we've had a lot of false starts in the last year and a half and I think a lot is going to depend on what happens with the corn crop this year as to what happens with wheat. I think if anything is going to turn wheat around it's going to be an issue with corn.

Yeager: We've had that though where there's been some weeks where one, it's like it's the en vogue thing to say and then it's not. So, tell me why these two are going to be paired moving forward.

Robinson: Well, we're heading into the growing season. There was no issue with the wheat growing season so far. We'll see what happens when it actually gets harvested. But these markets need a story because we're in a situation where whether or not you believe it or whether you agree with it or not, the market is telling you that everything is oversupplied and price is what matters. And when you look at the price decline that we've had in the grains in the last two years, that has been the number one issue. Also, the demand has pulled back. There were some stories out today where China is actually importing less than they have in the last four years in some certain categories. So, we had a demand-driven market, we had an inflation-driven market, those two kind of dual flames have gone away.

Yeager: You could argue that that's the China less interest in buying is what is influencing the stories we saw about trade. But I want to get to corn for a minute because there was some bullish news that came from the administration today on Friday as we record about E15. Is that a long-term bump for corn?

Robinson: Well, initially it's a good thing and it may have already been baked in. If you dig deeper into the story they've done it for the past two years, they're just extending the time now into the summer. But, like everything else, every little bit helps, it helps our demand, it will continue to be a support for corn demand. It still takes a third of our crop. A lot of people forget about that, we grow 15-billion-bushel crop, 5 billion of it goes to ethanol. And any increased demand is supportive, especially when you've got corn sitting here at call it a three-year low, 31-month low, depends, but that's really the issue. And we're going to have to watch how that comes out here in the next three or four months.

Yeager: Let's talk that front month real quick before we get to the December contract. When you look at the near-term when we're trading in that, again, 50-day moving average, but again, on the lower side of things, any reason farmers should pry open the bin door and sell some of that?

Robinson: Well, we had a little bump on the acres report and it didn't last. It looked like we were going to turn the corner on that. We had a nice 20, 25 cent rally. Every time we've had a rally it has not had any legs. So, I remain in the camp that I think it's an SOS market, you want to sell on strength. I'd much rather sell into a 25 or 30 cent rally than wait and sell it as we make new lows. Everybody has got a different approach, but I really do not like to sell into lows. But I've told you this before, when I was down in Houston at Commodity Classic, a lot of people were in a situation where their bankers were saying hey, you need to sell some of the grain you're sitting on. If you have to sell it, sell it, bite the bullet, get it done, but boy, with the situation is right now you could go out and reown that corn for pennies on the month out through June, July. If we have a market at least you'll get compensated. So, I would highly recommend that. If somebody feels like they have to sell corn, not because they don't want to, but you better reown it.

Yeager: Real quick on that December contract, we saw some planting get started and then it rained. Is rain going to put a damper on that December contract?

Robinson: Well, if you're a bull you want to hope for it. But are we having big planting delays? No. I think if you look at the bigger patterns the crop is probably going to get in and we'll have to just deal with it as it happens.

Yeager: Let's go to beans. We did finally get a small bounce off the monthly lows as we look at that South American harvest. Again though, that's a heck of a lot of crop coming into the world market. Any chance on this May contract we can reverse course?

Robinson: Well, we tried again today. That's the 50-day moving average, I write about this every day in a letter. We need to get over that 50-day moving average. It's such a silly thing but it gives the financial community a reason to stay short because everybody knows they're short. They're just following the trend. It's not nefarious. The market is moving lower, they're moving with the market as it goes lower. If the market turns, they will gladly cover all those shorts. And I think that is your bullish thesis. We've got to get something to get these guys to cover their shorts and that will be the start.

Yeager: Okay. That's the technical side of things. Let's talk fundamental for a moment. Jim in Illinois asked us on Facebook -- thank you for the question -- is there any fundamental out there on the horizon that could rally this corn and bean market?

Robinson: On the horizon fundamentally? We're coming off of pretty tepid exports, not terrible, but tepid. They were kind of on pace. I think if that market was to wake up, it's always darkest before the dawn, that would be something that I think would catch people's attention. What is hurting that is the rise in the U.S. dollar. The dollar has just bumped up, it had been drifting lower, it bumped up with the concerns about inflation. So, that is something that we're going to have to overcome. But yeah, if there is a demand story out there that will probably raise its head sometime in the next two to three months.

Yeager: In cattle, you wrote this week, we've had four years of puts versus hedges. Which one has won?

Robinson: Puts. Puts. Go look at the pandemic lows for, I call it fat cattle, for live cattle and feeder cattle both. We've been up and to the right and that is the perfect market for someone to have used puts. Yes, if you have a hedging account, you really don't want to lose money in it, right? But if you're doing things right you want to lose money in your hedge, you want to make money in the cash market. So, anybody that used futures over the last four years, you left so much money on the table it's not even funny because, unless you were psychic which nobody is, every time you sold futures you capped your profits. But if you had a put, you paid for the put, the price keeps going higher, you lose value in the put, but you make the money in the cash market, which is what we're here to do.

Yeager: Do you see that trend continuing?

Robinson: We had a cattle on feed today and it was a little bit bearish for the front months, probably a little bit supportive, especially if you look at the numbers out into the fourth quarter. My guess is Monday we'll open higher. It just depends on how we settle. But that market continues to be a nice bull market. The problem is we've had these nasty corrections, which have caught a lot of people off guard. But if you look at the big picture, which I always tell guys to do, we're still in an upward trajectory when you look at those weekly and monthly charts.

Yeager: On feed 101, placed on feed 88 and then fed marketed 86. Let's get to hogs for a minute. You wrote a little bit about the technical trade for hogs. You don't see fundamentals playing as much of a factor there?

Robinson: No, fundamentals it's been a good really gift for producers because we bottomed out in December and we started hearing stories about certainly the Chinese cut the size of their herd, if you look at other countries around the world, they have a smaller herd than what they probably want to have. So, it has benefited the U.S. and you've seen it in the prices. We had a tremendous 20 cent rally from December to March. The problem is then we get these corrections, these nasty corrections where we lose what takes four months, we lose 40% of it in three days and then everybody does what they probably shouldn't do and they sell into the break. But again, all these markets have been really case studies for why if you're a producer and you want to hedge, some people don't want to hedge, if you don't want to hedge don't hedge, but if you want to hedge the put has been your best friend because it has let you stay long with a floor so then when we have these corrections you don’t feel like oh boy, I have to make a bad decision down here. So, I still think that the cattle herd is too small, that's a big long-term story that's not going to go away tomorrow. And we've continued to have really good demand for our hogs.

Yeager: All right, Chris. Thank you so much. Appreciate the time.

Robinson: Thank you.

Yeager: Chris Robinson. We are going to pause our Analysis and continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus at our website of markettomarket.org. As plant '24 rolls on, prime Instagram season is here. We will post some of our own images and share your best work on our feed of @MarketToMarketShow. Follow along today. Next week, incentivizing farmers to protect a natural resource. Thank you so much for watching. Have a great week.

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Market to Market is a production of Iowa PBS which is solely responsible for its content.

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.

(music)

Announcer: Tomorrow. For over 100 years, we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.