Market to Market - August 9, 2024

Coming up on Market to Market. Dry weather. Stokes fires in the west. While Tropical Storm Debby causes widespread flooding in the east. A roundup of new laws aimed at limiting foreign farmland ownership and commodity market analysis. With Shawn Hackett. Next.

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Announcer: This is the Friday, August 9th edition of Market to Market.

Hello, I'm Paul Yeager. The stock market is only one economic indicator of the U.S. economy, but recent news has likely given a few stockbrokers some heartburn. Eight years ago this month, the Dow Jones was at 18,000. Friday's close is above 39,000. And late last week through Monday of this week, the US stock market lost 2100 points. Now, some have blamed the drop on last week's abysmal US jobs report and rising unemployment rate. But the real culprit may be an increase in the prime rate in Japan. Investors dropped trades on what had been a cheap yen until the Bank of Japan promised to keep rates steady if the market remained stable. The doom and gloom at the beginning of the week has given way to a rebound. Nearly even with last Friday.                       As Smokey the Bear turns 80. More than 2.3 million acres have burned in wildfires this year. There are 91 large, active wildfires burning in the United States, with eight large fires burning in Colorado, Montana, Nevada and California. Contrast that with what is now Tropical Storm Debbie that ripped across Florida and several southern states this week and is making its way north. While the rain has reduced drought in some areas, the national picture shows a nearly four point increase in dry conditions. Peter Tubbs has more in our weather wrap.

Peter Tubbs:  What began as Hurricane Debbie was downgraded to a category one storm as it made landfall in Florida on Monday, delivering winds of 75mph. The weather system has taken seven lives since Monday. Sarasota, Florida sustained widespread flooding after receiving 11in of rain. Parts of Manatee County saw 21in of rain as a system moved through the area, once downgraded to a tropical storm. Georgia saw as much as nine inches of rain in a 24 hour period, which caused flooding in low lying areas. North and South Carolina experienced widespread flooding due to the system, which dropped rain at 1 to 3in per hour. Businesses in Bladen Borough North Carolina, saw extensive flooding damage. A middle school in New Common North Carolina sustained damage from a tornado spawned by the storm. Flooding in Florida, Georgia, and the Carolinas will continue to get worse as rainfall works its way downstream. Officials are encouraging those who live in flood plains. To continue to evacuate the area. The storm has spent the last few days drenching a good portion of the eastern seaboard with massive amounts of rain. The only bright light from the devastating weather was a reduction in the overall drought picture for the region. The Mid-Atlantic states can expect significant rain through the weekend as Debby crawls to the northeast. The potential for tornadoes remains in the region, in the mountains and out west. Fires continue to ignite in the tinder dry areas from Colorado to California, in the northern part of the Golden State. Firefighters battled the reawakened Park Fire, a massive blaze that exploded Monday and grew by as much as 20mi² in about 12 hours. The Park Fire, California's largest so far this year, has already scorched over 600mi². Firefighters were told during the morning briefing to focus on safety and be mindful of extreme fire behavior, including intense and rapidly moving flames. The park fire was allegedly ignited by arson on July 24th outside of Chico, and has destroyed 640 structures and damaged 52. For Market to Market. I'm Peter Tubbs.

Paul Yeager: Long before a Chinese spy balloon floated across sensitive military sites in the U.S., people were asking if investors from other countries should be allowed to own the land under our feet. In the last three years, those voices have gotten louder, leading to a rising number of states enacting laws restricting or banning certain countries from owning or leasing land. David Miller has more in our Cover Story.

Gov. Sarah Huckabee Sanders, R - Arkansas: “I’m announcing that Syngenta, a Chinese state owned agri-chemical company, must give up its land holdings in Arkansas.

 

In April of 2023, Governor Sarah Huckabee Sanders signed a high profile law that banned, among others, companies in China from owning land in  Arkansas.  In October of the same year, the Attorney General of Arkansas ordered Northrup King Seeds to divest itself of 160 acres of agricultural land. Northrup King is a subsidiary of Syngenta which is owned by the Chinese firm Chem China. 

This was one of the first actions taken under a wave of new laws sweeping across the country that added restrictions to foreigners' ability to buy or lease farmland. 

The Arkansas law prohibits certain foreign parties from owning public or private land where more than 50 percent of the ownership is controlled by a “prohibited foreign entity”. Violations of the law can result in foreclosure on the property if the land isn’t sold to a qualified buyer. There is also no grandfather clause in the law allowing for purchases already made in the state.

“Senate Bill 383 passes.”

Concern has been growing in many states about foreign ownership of farmland. Prior to 2023, 14 states had laws prohibiting or restricting foreign ownership or investment in private farmland. Officials with the National Agricultural Law Center at the University of 

Arkansas say the number of states with some kind of limit on foreign ownership is now 24.

Dr. Wendong Zhang is an economist and assistant professor at Cornell University.

Wendong Zhang, Assistant Professor - Cornell University: I think that, you know, the political, the political attention definitely is part of the reason why we are seeing a lot more, reaction, especially in the state legislatures. …many of the key sponsors, key legislators in their home states that the Chinese investments actually are quite low.

 

There are an estimated 1.3 billion acres of privately held agricultural land in the United States. Of that, foreign entities fully or partially own about 43 million acres according to USDA data. This is 3.4 percent of all privately held agricultural land and about 2 percent of all land in the United States. 

As of 2022, federal records show the largest foreign holder of U.S. property is Canada at 12.8 million acres, which is about 41 percent of all foreign owned U.S. land. Next in line is the Netherlands with 4.9 million acres, about 12 percent of the total. Chinese investors own less than one percent of all foreign-held acreage in the United States which is a little more than 349,000 acres.

The USDA’s Farm Service Agency tracks foreign land ownership under The Agricultural Foreign Investment Disclosure Act or AFIDA. Foreign owners of U.S. land, be it agricultural or otherwise, must declare their purchase within 90-days of signing on the dotted line. Failure to do so could result in a federal fine of up to 25 percent of the value of the land. However, the applications are reviewed annually and some critics say it could be up to two years before an application is reviewed.

North Dakota enacted new legislation on foreign land ownership in 2023. The measure may have been motivated by a 2021 purchase of land near Grand Forks by the China-based Fufeng Group. The company wanted to build a corn milling plant on the property. The problem was that construction of the $700 million plant would be taking place within 12 miles of the Grand Forks Air Force base. The purchase was appealed to AFIDA and subsequently reviewed by the Committee on Foreign Investment in the United States. While federal officials concluded they didn’t have the authority to rule on the land purchase, in a statement, the Committee did say that any construction was a significant threat to national security. The building permit was denied but the land remains in Fufeng’s hands. 

North Dakota’s new law adds to restrictions already in place since 1979 and gives powers to counties and municipalities to prohibit local development by a foreign adversary. The new measure specifically prohibits farmland ownership by China, Russia, Iran, North Korea and Cuba. Ownership of land by Canadians is clearly stated as being allowed.

Missouri limits all foreign land ownership to a total of one percent of all arable land in the Show Me State. Of the 27 million acres available, Chinese companies control almost 43,000 acres, about one and a half percent of the total. 

Iowa, which already had limits on the books since 1980, added tougher restrictions in April of 2024. Governor Kim Reynolds stated at the bill signing, “American soil belongs in American hands.”

Florida also has a ban on foreign land ownership by countries like China but there is a grandfather clause for land already purchased.

Zhang believes that there are potential consequences to these new laws on the U.S. economy. His concern is over foreign investment in renewable energy like wind and solar. 

Wendong Zhang, Assistant Professor - Cornell University: Foreign ownership interest is one coming from the renewable energy companies investing in US agricultural development. And so they're often driven by federal and state level tax, incentives. And so whether, whether the restriction on foreign investments could potentially slow down, achieving renewable energy targets, so that’s one of the things that the state government is also debating.

 

For Market to Market, I’m David Miller.

Announcer: Next, the Market to market report.

Paul Yeager: Short covering ahead of next Monday's was a report and good weather made for mixed results in the commodity markets for the week. The nearby wheat contract gained $0.04 and the September corn contract lost a dime. Reduced Chinese demand and optimal weather for this year's crop pushed the soy complex lower. The September soybean contract declined $0.30, while September meal dropped $22 per ton. December cotton improved $0.09 per hundredweight over the dairy parlor. September class three milk futures fell $0.35. The livestock market was in the red again this week. October cattle shed $0.93. September feeders cut $6.55, and the October lean hog contract decreased to 60. In the currency markets, the US dollar index lost three ticks. September crude oil improved $3.19 per barrel. Comex gold fell $1.80 per ounce, and the Goldman Sachs Commodity Index added more than five points to settle at 540.50. Joining us now, one of our regular market analysts, Shawn Hackett. Hi, Sean. Hey, Paul. Always, always my favorite place to be. You know that especially in nice weather like this. And I ordered it just for you. I appreciate it. The weather story is much bigger in corn and beans. However, wheat has had a weather story in some parts, but it's Egypt that was the headliner this week for many early on. Can foreign demand help us wheat producers and this market?

Shawn Hackett: I believe that it can. I mean, when we look at the short crop Russia Ukraine has had, France has had, I mean, a big, big hole in wheat supplies is out there. We have a large crop. We have supplies to sell. But I do believe that the way you're going to put a bottom in the grain markets, especially the wheat market, is to get that demand side factoring in. And I do believe it's already begun.

Paul Yeager: Again, supply and demand could be the story and will be a main topic for us this week. But specifically with wheat. Let's look at that deferred contract again. Able to hold a positive rally at the for the week. Good sign?

Shawn Hackett: It's a very good sign. If you look at the trading pattern of wheat, it's actually showing a very credible bottoming pattern for an extended period of time. It looks to me like the first market that's going to be ready to kind of turn up and confirm a lull. Remember, we put the winter wheat crop away. We're about to put the spring wheat crop away. That's usually when you have maximum selling pressure that alleviate. And then we can lock up the rest and have the buyers come get it. It's a better days ahead. I really, really like wheat here. I think that it's a fundamentally solid market, and I think it's going to be a better market later on in the year.

Paul Yeager: I've heard this question over and over for weeks, and I haven't sat here in a while. So I have to ask Matt and Iowa's question to you, Shawn, are we in the basement or are we still in a free fall? Lower. When it comes to corn and beans.

Shawn Hackett: We know that typically, harvest lows typically occur in corn in the back half of September for soybeans the first half of October. Not every year, not every time we're in the window where we would expect the floor to be seen. My view is if you look at and there's a lot of people that are suggesting, for example, that the corn is going back to three and a quarter, because that's what that was, the low that we had back in the, you know, 2012 to 2020 when we had a lot of corn. My problem with that thinking is this we printed so much money and spent so much money inflating the monetary system. Post Covid, I don't believe that we're going to be able to get ourselves back down to that level. I think we're going to make a higher floor. We can argue it's 375, 390, but remember, 175 used to be the floor before the great financial crisis, and then it became three. I just don't think apples to apples analysis here is going to work out. I think we're going to make a higher level when it's all said and done.

Paul Yeager: But does corn start with three for the foreseeable future?

Shawn Hackett: I don't believe so. I really believe we have to do like we just did with wheat. You have to get the farmer who hasn't sold to sell and move the grain and create the pressure out the basis, all those things that they're going to do. But once that's been done and we lock up the corn in the bins, remember Russia, Ukraine down probably 20% year over year and Brazil corn crop down 15% year over year. Nobody else has a good corn crop. We have a lot to sell. So like wheat, I think we're going to be able to sell a lot of wheat to those that need it.

Paul Yeager: On the new crop side of things with corn. You were in Indiana. You said things look good. I was in Missouri. I've been in lots of parts of Iowa, Illinois. Things look really good. What's that tell you again? We slipped below that for this week.

Shawn Hackett: I mean, it's just a question of what is going to be the price that clears the inventory, right? The floor price. I'm thinking 185 plus or minus the bushels where we're going to find up, wind up with the USDA. If you run those numbers with maybe some lower harvested acres, a little better demand and maybe some lower oil crop, I don't think we get past 2.3 billion bushel carryout for corn for next year. Stocks. The usage of around 15% is similar to past over supplies. I just don't think that we need to do too much more to the downside to clear the inventory.

Paul Yeager: Is that the same story in soybeans for you?

Shawn Hackett: Soybeans, unfortunately, is different, even though Brazil had lower yields and a lower crop, they planted so many more acres that their production was not off that much. They also carried more soybeans into this year than we thought they had. So I don't I can't say that I'm excited about what I see for demand for soybeans going forward. The catalyst that I see potentially is there's talk that we might ban imports of palm oil from China. That has been taking a lot of demand away from being oil. And if that were to get triggered here later in the year, that could create a windfall demand for buying oil and get those being crushers higher. I think that's one of the big catalysts fundamentally beyond Brazil weather that we might need to look at. because I don't think export demand is going to be at

Paul Yeager: On new crop. Arlen Suderman of StoneX tweeted this week, that kind of caught my attention. He said, don't focus on the 15% of the crop. That's bad. Look at the 85. That's good. He's meaning more corn. But the same can be said about beans. Like I said, lots of good beans. New crop side. What are we going to do with all these beans?

Shawn Hackett: You know, my feeling is, is that soybeans going to need to get direction from corn and wheat? That's the fundamentally bullish story outside the US. I think you need to get corn and wheat going on a demand driven move higher, and it will drag soybeans up for grudgingly. The good news for soybeans is that Brazil currently has some soil moisture and the lowest two percentile since 1950. If rains do not materialize during the planting season, their acres are going to be down and their development is going to be way off. That could be a weather catalyst. I know that's not you always want to hear it go away for weather, but it could be a real legitimate weather catalyst for soybeans as we get later on in the year. Right now, La Nina does not look like it's going to form. It's going to stay neutral. And that's bullish for drier weather in key Brazil soybean areas.

Paul Yeager: We do have a weather question we'll get to in Market Plus that's similar to that. But let's go to the demand side of the ledger that you talked about. And wheat and and corn and beans. Does China come through if if it's dry in South America, do you get the sense they're going to be interested in American beans?

Shawn Hackett: If we really going to supply problem? I mean, we've never seen subsoil moisture in Brazil like this before. I mean, think about starting March in the United States was the lowest 2% of moisture. If we really, really get to where that crop could be way, way off, they're going to come and buy soybeans in the United States in a major way. We have to get there first. The other thing that I think is very important is they started printing a lot of money in late July. If you look at a correlation between commodities and money printing in China, there is a like an 85% correlation between the two. And it typically impacts those markets they import the most. Wouldn't surprise me that if they kept printing money the way they are, and it looks like they're going to, we could see better demand for things like crude oil, things like cotton, things like soybeans, things they need a lot of. Then we might find that they buy a lot more from us.

Paul Yeager: Is that part of the reason cotton had a run up this week?

Shawn Hackett: That, plus the flooding in the southeast was really devastating for some of the cotton areas down there. Certainly the combination of both of those, I think, is what drove cotton, and I think cotton is going to see more of that kind of flooding the further on we get into the hurricane season.

Paul Yeager: Live cattle, any more is tied to economy overall and Friday into Monday. Tuesday we really took a bath here in live cattle. Is there a sense that they still are tied together? And with a rally in the stock market at the end of the week, that is going to be the savior?

Shawn Hackett: Well, we had a big rally today. And I think this was, you know, kind of the market's a little relieved, but any time the cattle market looks and sees the stock market crashing and sees economic numbers crashing for consumers, it's you know, that's a that's going to trip the switch. It did trip the switch as speculators sold heavily. However we did not break through important technical support. And we did bounce this week on a Friday close. I don't think that the cattle market's going to get out of hand unless things unravel much, much more than they already have.

Paul Yeager: And feeders have been always kind of more tied to the S&P. Does that trend still hold in in these recent developments.

Shawn Hackett: No question that that trend is going to hold.

Paul Yeager: And we're going to be tied to monetary policy. The fed has a, the Jackson Hole meeting is coming up here on August 22nd, where all the smartest financial guys and oil get together and tell you how they're going to save the world. And then we got the fed meeting in September where supposedly they're going to start cutting rates.

Shawn Hackett: Very, very important metrics or something like the feeder cattle market that's waiting for that.

Paul Yeager: But the markets, just like in commodities, there's always this. It's baked in because they expect it. Are we already in some of this trade turning because we expect a rate cut?

Shawn Hackett: Well we've been expecting a rate cut all year long and that hasn't happened.

Paul Yeager: But not like now. Not like now.

Shawn Hackett: Yeah, I mean now I think I think the market really believe strongly that it's going to happen. The question is is it one and done or is this going to be a methodical process of continuing to do so? I believe they're going to be much more accommodative monetary policy, especially going into the elections. I think they're listening to what Trump is saying about wanting to control the fed. And I think they might want to do everything they can to make sure things don't fall apart heading into the elections, if that has any sway on how people vote.

Paul Yeager: Hog market. I was at a hog show today. there were some smiles, but there were also some concerns. Which should they be thinking more of right now?

Shawn Hackett: The hog market is a little different for me, and we know we have cheap pork cutout prices. We know people don't want to eat pork. It doesn't as flavorful as it was before. Having said that, I really believe if we're going to get rid of the oversupply in the marketplace. China's pork price is at a one year high. Their hog prices at a one year high. We're seeing indications that their pork supply is going to get very, very tight. And we've seen a couple of export numbers here in the last month that showed some bigger numbers. I think that's going to be the story that eventually takes the hog market off the doldrums and takes it higher. Without that, it's really, really tough sledding because we can only sell so much to Mexico and we just have too much domestic for domestic demand that we currently have.

Paul Yeager: I'll have another pork chop on a stick if that helps. I'll take one for the team. Thank you. Shawn, good to see you

Shawn Hackett: Thank you, Paul.

Paul Yeager: All right. Appreciate it. We are going to pause this analysis, continue our discussion about these markets in our Market Plus segment. You can find both analysis and plus on our website of markettomarket.org. We are getting ready to kick off our 50th season later this month. As part of that celebration, we are taking the MTOM podcast on the road on August 12th and August 15th. You can find us at the Iowa State Fair in Des Moines, Iowa. Check out our Facebook page for more information. Next week, we'll take a look at new regulations that shorten the path for the genetically edited seeds. Thank you so much for watching. Have a great week.

Announcer: 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.

Announcer: Family owned and operated for more than 60 years. Sukup manufacturing is a full service provider of grain handling, storage and drying equipment, helping farmers feed and feel the world. For over 45 years. Steiner Tractor Parts has shared your love of antique tractors. New parts for old tractors. Learn more at Steiner tractor.com or at (877) 559-7887. Tomorrow. For over 100 years.

Announcer: We've worked to help our customers be ready for tomorrow. To trust in tomorrow. Information is available from a Grinnell Mutual agent today.

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