Market to Market - August 23, 2024

Coming up on Market to Market - Transportation issues appear as harvest looms. How clothing manufacturers have survived in rural America while others unraveled. And commodity market analysis with Chris Robinson next.

What's next doesn't happen by chance. It happens when researchers and farmers work together to solve tomorrow's agronomic challenges. We're committed to creating what's next because at Pioneer, our name is our mission.

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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 fuel the world.

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For over 45 years, Steiner Tractor Parts has shared your love of antique tractors. New parts for old tractors. Learn more at steinertractor.com or at 877-559-7887.

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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.

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This is the Friday, August 23 edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

“The time has come for policy to adjust.”

Those were the words from Federal Reserve Chair Jerome Powell from the Fed’s annual economic conference in Jackson Hole, Wyoming.

Questions of by how much and how soon were not answered. The stock market responded with a rally to the news.

This could be the next obstacle remover in the battle against inflation.

But one hurdle was put back in place of those seeking approval for a project designed to move carbon across several states.

The South Dakota Supreme Court ruled in favor of landowners who said the builders of the Summit Carbon Pipeline wanted to perform invasive surveys against their will.

The project is proposed to be in some of the same areas that were going to be impacted by a rail strike in Canada. A long-lasting disruption was temporarily avoided before it wasn’t.

Peter Tubbs reports.

The stoppage of the Canadian rail system is in limbo.

Canada’s two major railroads, Canadian National and Canadian Pacific Kansas City, locked out their workers Thursday morning, bringing rail traffic to a stop across Canada. CN and CPKC trains in the United States and Mexico continued running.

As the largest trading partner of the United States, an estimated 25,000 rail cars cross the border between the U.S. and Canada each day. As the United States’ largest trading partner, maintaining a cross border system is important for economic growth.

Mike Steenhoek, Soybean Transportation Coalition: “Canada is our fourth largest export market for soybean meal at $614 million in 2023. Canada is the number one destination for U.S. soybean oil at $106 million. So, Canada itself is a very important export market for the U.S. soybean industry. On top of that, you have a lot of fertilizer that gets produced in Canada that we don't have the capacity to produce here in the United States, that originates in Canada and comes to the United States.”

Canadian Northern trains went back in motion Friday as the railroad and union entered arbitration. The union has challenged the constitutionality of the government’s action and has threatened to strike the railroad on Monday.  CPKC trains remain stopped.

An estimated $1 billion dollars’ worth of freight is handled by the Canadian train system each day. The railroads will operate under the terms of the current labor agreement until a new contract is signed.

Business groups on both sides of the border had asked for the government to force arbitration to minimize the economic impact of a transportation stoppage.

The last two years, U.S. farmers in the Upper Midwest have been impacted by another transportation issue - low water levels - limiting the shipment of grain and fertilizers up and down the Mississippi River.

This summer’s heavy rains have supported levels to allow for regular traffic patterns.

Mike Steenhoek, Soybean Transportation Coalition: “We have a significant harvest that's going to come online, which is good news. But you've got to make sure that you've got a supply chain that that can accommodate that. You know, the old metaphor that I like to use is you never want to be in the business of attaching a garden hose to a fire hydrant. We've got this significant harvest that's going to come online. You want to make sure that your supply chain can keep pace with that.”

For Market to Market, I’m Peter Tubbs

PROMPTER:

One of the vulnerabilities discovered in the United States during COVID was the amount of things no longer carrying the Made in the USA label.

Those that have stayed here before and after 2020 have faced challenges and have reason for optimism.

Colleen Bradford Krantz has more in our Cover Story.         

In the early days of the nation’s history, most clothing worn by Americans was made at home. Mass manufacturing of clothes didn’t take off until the late 1880s, rapidly growing into a booming industry centered in New York City. Apparel companies soon began to crop up elsewhere, including in distant rural communities with a nearby supply of cotton or with other industries whose workers needed certain types of clothing.

David Antosh, co-owner, Round House - Shawnee, Oklahoma: “We started in 1903. Shawnee, Oklahoma was a big railroad town at the time. It had two different railroads: the Rock Island and the Sante Fe railroads both met here. And the railroad workers needed something to wear and so we got started by producing jeans for the railroad workers to wear.”

In recent decades, however, the once-thriving U.S. clothing industry has undergone a disheartening historic shift. Thirty years ago, there were more than 741,000 production employees below the level of supervisor. That number has since slid over 92 percent. The job count hit a low point during the COVID pandemic, with just 49,100 apparel workers in April of 2020.

David Antosh, co-owner, Round House - Shawnee, Oklahoma: “Apparel manufacturing in the United States has always been important for rural America and it’s something that probably reached its high point in the 1960s and 1970s and since then we’ve really been losing a lot of apparel factories. The majority of them.”

However, there is reason for cautious optimism. Other than that dip during COVID, the industry’s apparel manufacturing employment levels may have begun to level off in recent years, hovering around 65,000. What has been left behind is a kind of camaraderie among those who have survived a period when most clothing manufacturing moved overseas.

David Antosh, co-owner, Round House - Shawnee, Oklahoma: “The industry for American-made products probably is growing more and more amicable. More and more people see it as something that we want everyone to thrive in. So probably in the ‘60s and ‘70s, you had a lot more competition where people were fighting and actually trying to steal sales from other people. But we think it’s great when anybody that makes something in the United States has sales and we want to encourage other people to start a company.”

Today, over 98 percent of the clothing sold in the U.S. retail market is imported, the majority from Asia.

Round House, which has about 30 employees, survived by keeping expenses carefully under control. The company, which David Antosh owns with his father and brother, made it a priority to keep their American-made jeans and overalls affordable. They sell over 100,000 pairs of jeans annually, using 100 percent American-grown cotton. They don’t advertise and the owners can often be found working on the factory floor.

David Antosh, co-owner, Round House - Shawnee, Oklahoma: “We have employees here who have spent their lives working here and know how to make jeans as quickly and efficiently as possible. Because our whole goal is to make affordable American-made jeans. …We try to keep everything here at $59.”

Round House has found consumers are seeking out American-made clothing as it becomes harder to find. Over 90 percent of the company’s international sales are done in Japan, where customers are willing to pay for the heavier denim and the attention to detail.

Seven hundred miles to the north, Fox River Mills in northern Iowa continues to manufacture its socks and other apparel in the community of Osage, which has a population of about 3,500.

Bobby Warren, CEO, Fox River Mills - Osage, Iowa: “Fox River Mills is the oldest operating sock mill in the United States. So, it was founded 120 years ago, along the Fox River in Appleton, Wisconsin. And ended up here in Osage, Iowa, continually operating. Never stopped. It didn't stop for any of the major events that we've seen throughout our history. It continued to knit products. So, I'm very proud of that heritage, for sure.”

Warren says their niche market of specialty and high-quality socks - ranging from military to high tech to casual - as well as knitting products for other companies has helped them survive.

Bobby Warren, CEO, Fox River Mills - Osage, Iowa: “With the globalization of trade and trade agreements and the impacts of those through the 80s and 90s, we saw a lot… filter offshore…. And you fast forward to today, I think maybe only 3 percent or somewhere in that range of apparel is manufactured in the United States. So dramatic change, certainly a global economy, certainly a competitive open market, for the most part.”

Fox River relies on the town and surrounding area to keep their 170-person workforce strong as they turn out 5 million pairs of socks annually. In turn, the town counts on those Fox River jobs to help keep the area economically viable.

Bobby Warren, CEO, Fox River Mills - Osage, Iowa: “A lot of apparel manufacturing started in small-town America. You see a lot of that in the southeast: through Alabama, the Carolinas, you see small-town America with manufacturing plans that sustained those communities and sustained those families for many, many years…Some towns still have manufacturing but it’s just a fraction of what it used to be.”

Both Round House and Fox River struggle to find experienced workers in rural areas with smaller populations. However, smaller communities do provide some marketing benefits.

Bobby Warren, CEO, Fox River Mills - Osage, Iowa: “One example would be our ‘knit in Iowa’ is really the moniker that we claim; we’re made in the USA and we’re knit in Iowa and we're very proud of that heritage. And you can create, you know, an identity, which we have over the course of many decades that connects and resonates with many consumers.”

Both companies are hopeful due to the hint of a small resurgence in U.S. apparel manufacturing.

Bobby Warren, CEO, Fox River Mills - Osage, Iowa: “It's not huge but you're seeing a lot of smaller entrepreneurial operations that are coming into, in some cases abandoned locations that still have old equipment, and renovating that equipment and established brands and establishing a brand proposition around specialty.”

And should the U.S. apparel industry continue to grow stronger, Fox River and Round House expect to be right there, pushing the needle, for another hundred years.

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

Next, the Market to Market report.

The private industry crop tours dominated the social media headlines as a lack of fresh news kept the bulls on the hungry side. For the week, the nearby wheat contract lost 28 cents and the September corn contract fell 3 cents. China appeared to see value in the soy complex. The September soybean contract added 13 cents while September meal gained $2.90 per ton. December cotton expanded $3.54 per hundredweight. Over in the dairy parlor, September Class Three milk futures lost a dime. The livestock market was mixed. October cattle shed $2.60. September feeders cut 92 cents. And the October lean hog contract improved $5.47. In the currency markets, the US dollar index weakened 189 ticks. October crude oil fell 94 cents per barrel. COMEX gold gained $8.90 per ounce. And the Goldman Sachs Commodity Index dropped more than 9 points to settle at 531.95.

Yeager: Joining us now is one of our regular market analysts, Chris Robinson. Hi Chris.

Robinson: Yes, sir, good to be here.

Yeager: This wheat market has had a run. I think the last time you were here in July we were higher. We're not that now. There is a story about the EU having a better crop than thought. There's Russia wheat on the market. What is your headline dominator in wheat?

Robinson: Four-year lows and that rally that we had this summer. We had a $2 rally. It looked like we were going to get something really going. There was no follow through. We've seen that for really two years since we came off the pandemic highs. I think that has been the hardest thing for a lot of producers to go through. We had that rally from '20 to '22. We're like okay, this is something real, inflation is here to stay and really for the past year and a half, two years, we've seen every rally fail, even with lots of fundamental reasons for it to not fail. And the last USDA report we came out with we're plentiful, we have plentiful supplies. Now we have relatively low supplies if you go back and look. But if you look around the world every time there is a rally somebody sells it. I'm a big believer that Russia, the Ukraine they were sandbagging all along. Every time there is a bid, they hit the offer. And I would probably continue to see that. Now they had a bad harvest in France, they had a bad harvest in -- France had their worst harvest I think since 1980 -- it hasn't moved the needle. So, when a market gets friendly news and it doesn't move the needle and obviously how we finished this week tells you that, it's telling you that the market still wants to reprice and that's why we hedge because we don't know where the bottom is going to be.

Yeager: September wheat has lost 5%, December wheat has lost 4%. Do you cut your losses before this thing gets worse?

Robinson: Oh, I think that if you've done nothing all year, you're in a situation where you have to sell you have to sell, but I work with a lot of clients and I'm like, we can't go back in time and say woulda, coulda, shoulda. Those were opportunities that were there. If you missed them, we've got to look ahead. So, if you're selling them absolutely look for an opportunity to resell them. We are at four-year lows. Anybody that will honestly look you in the eye and tell you oh don't worry, it's going to rally, don't believe them. We may be going back to where we were in 2014 to 2020. We were in this sideways trading range with not a whole lot of opportunity. That's my fear for producers.

Yeager: Someone wrote in a newsletter this morning, roll, roll, roll your puts. Corn specifically is top of mind. But I've got to say, Chris, there has be some optimism this thing hasn't fallen further in the last couple of weeks, right? Or am I -- your roll your puts sounds like we're headed lower.

Robinson: Yeah, and talk about corn. We had that one last rally in May, we got up to I think it was $4.96. We didn't get the $5 print, everybody was waiting for the $5 print. Well, look where we are today at $3.92. You don't have to do the math. So, you didn't have a whole lot of opportunity. Most people when we were at $5 maybe they hedged $4.80 or $4.75 so those are the puts that I was talking about rolling down, rolling them down, we broke a dollar, if you can roll them down. Why do you want to roll down a put? Because at some point, we're going to come in and I don't know what the reason is but we're going to have a 30, 40 cent rally so you have very, very expensive puts which have helped you, you don't want to see those go worthless. You want to see cheap ones go worthless, ones that are worth 10, 12 cents. And if you look at the big picture, if you look at the historical picture of corn there's probably another 25 to 30 cents worth of risk if we go down to where we were, again, back in that 2014 to 2020 area. So, look at that risk right there, you don't want to have -- when the downside risk is 30 or 40 cents at this point where we've already broke a dollar you don't want to have very expensive puts on. I'm not saying, it doesn't mean no puts, it just means make sure they're very, very cheap.

Yeager: New crop is a story, we talked about the private estimates that were out there. There's another chatter that goes a 30 bushel to the acre difference in Iowa corn prediction. Do you believe any of those tours, surveys, snapshots?

Robinson: I believe that everybody on that tour is doing their best to report what they see and we've talked about this a little bit in the break. You can have the right information and still be wrong with your outcome. So now when we're at four-year lows everybody is saying where's the bottom, where's the bottom? The bottom line is it's a big crop and we've known that for a while, especially after that last USDA, the carryout, especially for soybeans, is burdensome. We've had a good growing season here in North America. And it's just one of those situations where it's -- what is that 20 bushels extra going to mean to us? And we'll have to wait and see. And I think the proof will be in the pudding in the January 5th end of year number. That's when we'll have to deal with those numbers.

Yeager: Soybeans is a story that seems to get worse, then all of a sudden China shows up. What is the headline that impacted the most do you feel on the old crop this week?

Robinson: Old crop is going to be moving kind of separate from new crop. I think the bigger risk now is because we're going to be harvesting soon, the Chinese have done this, they've folded their arms for a while, everybody is well aware of that. They've been coming in here, they came in and bought three times this week, which is good. We were hearing rumors about it last week but they were confirmed this week. But at the end of the day, it's like well why wouldn't they be when we're at four-year lows? Of course, they're going to become more aggressive when we're at four-year lows. And we had the big drop in the U.S. dollar today. We're almost to one-year lows in the U.S. dollar. So, I wouldn't be surprised to see them step in and open their checkbooks. The question is can they buy enough to really drive up price because the supply is burdensome?

Yeager: But another question for me though is, if they're buying does that indicate that maybe the low is here or close by?

Robinson: I would say we're probably nearer the bottom than where we were two weeks ago. But to play that game of okay we're going to stop here, it's kind of a little late. The horse is out of the barn. And is there more risk? Yeah. If $9.50 new crop beans fails, the next thing they're going to do is try and push it down to $9. So worst case scenario I'd be worried about soybeans with an 8 in front of it.

Yeager: Okay, well that kind of leads to my question. Ben in Iowa wanted to know, sent me an email, down, down, down go the grains for months on end. Is there a low price point where you would advise lifting hedges on December '24 corn and November '24 beans because the upside has potential?

Robinson: I'm a big believer after doing this for 30 years and watching people kind of blow themselves up being wrong in their opinion, you keep your protection on until you sell that grain. The day you sell the grain then you worry about getting out of those puts because we just witnessed that here with this big horrendous selloff we had in wheat. I work with clients who are like well it's broke so far, let's sell those puts. Okay, and then they would sell some wheat but then they would also, then it would break again. So, rather than speculate with your hedges, keep your hedges on, your risk is real and you use the tool to prevent your big ideas from hurting you. So, like I said, my biggest concern is that we're going back to where we were 2014, 2020, narrower ranges, not a whole lot of opportunity and it's going to be a grind and a fight.

Yeager: Cotton real quick, big rally, can that sustain itself?

Robinson: Big rally off of contract lows and after just getting hammered again earlier. So, I think that 70 cents is a big level, it's a big psychological level for a lot of producers. It has been a good recovery bounce. I don't know if it's going to have legs. I think that's a China trade as well. I'm still a seller of rallies in cotton.

Yeager: Cattle on feed came out right before we recorded. Numbers were I think you told me bearish. Here's why. On feed 101, placed 106, marketed 108. Which number frightens you the most?

Robinson: The placements. There's more out there and that is a bearish report. Now we've had a lot of bearish reports in the four years, pull up a chart of live cattle or feeder cattle and it looks like Nvidia. It has just gone straight up into the rate. So, we're overdue for correction. We're starting to get a little bit of a disconnect between the stock market and cattle. That was my big worry thing there because the stock market we had a correction, that has rallied back and you had continued pressure in the cattle, especially in the deferred months. It's not about what's really happening right now on the front months. I realize the cash market is strong, boxed beef is good. But if you look out in those deferred months, April, next year, they've all turned. And again, it's a futures market, it's not a right now market. If I'm a cattle producer and I've been kind of banging the pots and pans for the last month, not protecting cattle here, in my opinion, is like not protecting corn when we were at $7.50 or beans when we were at $16 because it's nice if it lasts but you're going to want your protection on for when and if it does have a bad correction. So, you're starting to get a little bit of turn and this cattle on feed is another one. We'll see how we trade on Monday but I'm more concerned about where we're going to be three months from now, four months from now than where we're going to be really maybe even two or three weeks.

Yeager: And where we're at in hogs is two weeks of gains. Is there a third on the horizon?

Robinson: I think part of that was a little bit of spreading between the cattle and the hogs as well. But again, if you look at big picture with the hogs, hogs had just had a pretty terrible selloff, 18 cents a hundred weight between the highs and the lows just recently. So, we're coming off those lows, we've had a nice almost a halfway back trade. If you read my letter, I talk about that, that's a very common thing. So, if we do get to that halfway back of that 17 cents a hundred weight that just lost it's an opportunity for producers to do some hedging. I think a big part of what happens with the price for lean hogs, if we start to get any real pressure in the cattle, which is what my concern is, it might bring the whole protein complex down. And again, I can't say that enough, the one commodity in the ags that has done well regardless for the past four years has been cattle and my concern is that it's going to turn and catch up with what everything else has done, which is come back down to where we were in 2022, 2021 prices.

Yeager: And we've come to the end of our discussion. Chris, good to see you.

Robinson: Good to be here, thank you.

Yeager: Thank you very much. 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. We've concluded our time at the Iowa State Fair but still have something to share with you as we enter our 50th season. We recorded two new episodes of the MtoM podcast there. Subscribe today to hear some of our history and the outlook for agriculture from two of our regular Market Analysts. Next week, we'll start our series of look backs at the first 50 years of this program. Thank you so very 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.

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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)

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 fuel the world.

(music)

For over 45 years, Steiner Tractor Parts has shared your love of antique tractors. New parts for old tractors. Learn more at steinertractor.com or at 877-559-7887.

(music)

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.