Market to Market - November 29, 2024

Paul Yeager: Coming up on Market to Market. Checking economic conditions. At Thanksgiving, the main street view with Ernie Goss. And the commodity view with Chris Robinson. Next.

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Announcer: This is the Friday, November 29th edition of Market to Market, the weekly journal of Rural America. 

Paul Yeager: Hello, I'm Paul Yeager. The economy was a major talking point of the November elections. This week, major snapshots on new home sales, durable goods and the government's preferred inflation measure are all slated for release. We are recording this episode before those reports drop, but there is still plenty to talk about as we focus on what might be next for the economy, for rural and Main Street America.  Ernie Goss is the McCallister chair and professor of economics at Creighton University in Omaha, Nebraska. Chris Robinson is managing director of agriculture and commodities at TJM and a regular market analyst on the program. We'll talk to the two of you in just a moment. But first, the numbers.

Following the first two trading days of the week for that shortened trading week, the nearby wheat contract fell $0.07 and the March corn contract lost $0.07. Ideal weather again kept expectations high for a South American crop. The January soybean contract was even, while January meal dropped a dime per ton. March cotton expanded $0.91 per 100 weight over the dairy parlor. December class three milk futures found $0.33. The livestock market was mixed. February cattle fell $0.50. January feeders put on 380, and the February lean hog contract gained $2.60. In the currency markets, the U.S. dollar index declined 53 ticks. January. Crude oil weakened $2.71 per barrel. Comex gold tumbled $84.10 per ounce, and the Goldman Sachs Commodity Index lost more than four points to settle at 541.65. Let's get going on this panel here. 

Chris, I'm going to get to you in a minute because I think you have a couple of things to say on this first topic, Ernie. Tariffs. There shouldn't be a surprise that we're going to talk about them. They shouldn't be a surprise to anybody that voted. We talked about inflation. We talked about the economy. This week the president elect got serious on tariffs made some major news with China Canada Mexico. What's this mean in rural America and Main Street America. If these tariffs come to fruition as promised by the president elect.

Ernie Goss: Well, apparently the bankers that we surveyed bank CEOs and rural areas of ten states, they don't think he's going to follow through. That is, they were very positive about President Trump. In terms of the elections, eight out of ten said yes to Trump and no to Vice President Harris. So, but the bottom line is they don't think he's going to follow through. They and but who knows who knows what is in his. If we knew, then it wouldn't work. He can't. And he's the negotiator. I'm not. But this is scary for an economist. We, of all the folks on this earth, believe in comparative advantage. In other words, don't be raising hothouse Iowa hothouse bananas. Raise soybeans in trade for the Guatemalan bananas.  That's what we think. Every since Ricardo, David, Ricardo and 19th century, England, that's how we see it. And this week, of course, he's talking about, raising tariffs. everything seems to be a response. His response is tariffs. You don't halt the illegal immigration across the border. Then we'll put tariffs on. Of course, that's a, that's a huge trading partner for Iowa. And this part of the country, especially in terms of corn, pork, soybeans.

Paul Yeager: And part of his citing is about fentanyl. And it's a drug issue. But immigration has been a thing. does that matter in this debate?

Ernie Goss: Well, it doesn't matter. But for an economist that's outside our area of expertise. But we're saying, well, how could this not be handled in a different manner rather than tariffs, because retaliation would be there. And it. where a lot of folks are saying, well, if he puts on a 10% tariff, that will increase our prices by 10%. That is dead wrong. Is, it's wrong. Now it will be higher prices, but how much depends on the competition from other sources. So the idea that a 10% tariff resulted in a 10% increase in price is just dead wrong.

Paul Yeager: You wrote today, tariffs would, we'd have increases. We'd have higher prices, retaliation, slower growth, fewer choices. And I add trade imbalance. I mean, those are all possible. That could happen.

Ernie Goss: Yes, absolutely. We have a trade imbalance already. Right. The U.S. runs a trade.

Chris Robinson: Could get bigger.

Paul Yeager: Is what I say.

Ernie Goss: Yeah, it will get bigger. And those most of those are negative outcomes. Now again you don't negotiate by saying, well we're flexible. No you this is a hard line. But he did implement tariffs into that in his first term. And those were carried over in the Biden administration. So again these aren't positive signals from my vantage point or any other economist.

Paul Yeager: Well, Chris, that was exactly what we were talking about before we started rolling is these tariffs that Trump had put in place. Biden kept in place. Yes. So in a sense, we've adjusted to it. So what does tariffs mean on the commodity trade?

Chris Robinson: Well, I'd say specifically with South America Mexico takes a tremendous amount of our corn. They've been actually the best buyer of corn in the past two months. And a lot of people think they're anticipating. They don't know what the tariffs’ going to be. So they've bought a lot of corn. Now corn's also at a four year low. We have prices that are depressed.

So it's you know not unusual for somebody to say okay this is a good level for us to try and load up. So that's been one supportive thing. And you've seen it with old crop march against new crop. That spread came up $0.30 in the last month. And a lot of that was what I would call pre buying probably from Mexico. And we've seen on the flip side with China trying to take our soybeans, they really don't take a lot of our corn. they have just I was just reading this morning. They've basically stopped saying they want to have anything bid after the 12th of January, because they're going to wait and see what happens. And they're in a situation. China's in the situation there. Their economy is slowing down. They're in trouble. They've been printing money, trying to stimulate the economy. They've been they haven't been on the sidelines, but they have not have been as aggressive with our soybeans as possible as they have been in the past. And part of the reason is we've got a big, crop that's coming, coming, that's been planted in South America. So at the end of the day, the tariffs are I think they're baked in. I think they're at least for the next 2 or 3 months. It is a futures market. I think we've already seen the market address for that. And we'll have to see where the rubber meets the road after January 20th.

Paul Yeager: You said a phrase in there. that is money in the economy. Inflation.

Ernie Goss: All right.

Paul Yeager: Printing money, putting it in them. What's the state of inflation?

Ernie Goss: Is higher than the fed would like to see. It of course is short term interest rates. But when the fed raise rates they've raised rates by 75 basis points three quarters percent since September. Beginning in September, now in November. And this is not this is not good. I mean, why are they why are they reducing rates? We asked our bank CEOs about the December meeting and 65% said no to another rate cut. In other words, these rate cuts are not doing the job. And there is a real concern about inflation, particularly if you add on tariffs as well. And we have some other issues here for farming that I haven't heard discussed is a longshoremen strike which May 17th eastern Gulf coast ports in early January. That may happen. We've got the farm bill which is languishing in Congress. Of course these are these are tough, tough, potential, issues of real concern for agriculture. I mean, here, Creighton guarantees. I don't like guaranteeing, but I get paid the same amount. But the same amount every year that we deserved as well. that I don't get big raises, but anyway, I don't have to. My income's pretty stable. This volatility in that we're asking farmers to live with this. And this is really, really tough when you add on this tariff the potential for tariffs. because there will be retaliation, there's no doubt about it.

Paul Yeager: Mexico's president said basically a nonstarter and is very upset. You already mentioned, but let's discuss the comparative of currencies. Then the dollar is high. I seem to remember an economist at this table telling me a long time ago that a lower dollar is better for the farmer trying to sell goods.

Ernie Goss: I mean, that's another.

Paul Yeager: They don't have a low dollar right now, Ernie, but we have comparisons with what's going on in Canada and Mexico. What's that going to do to our trade.

Ernie Goss: Not good, not good. I mean, the dollar is very low, in my judgment, is probably going to continue to rise against the global currencies now against the Canadian dollar. The Mexican peso. That's a different story. But nonetheless this is our currency, it will rise. And that hurts me when you're talking about tariffs and a dollar, stronger dollar. And that works against manufacturing. That works against agriculture. And that's what we survey at Creighton University every month to month, every month, twice, once a month. We do that with manufacturers and with banks, with agriculture Bank CEOs.

Paul Yeager: Chris, I'm going to ask you a question that came from Tim in Minnesota. That kind of ties into the first two things we've talked about here. Tim wants to know. I know crop prices are low right now, but should I sell now before the tariff war kicks in? I hear that's for something that it's going to kick into high gear.

Chris Robinson: I think that given the marketing here that we have, which is very, very difficult, we didn't have a whole lot of opportunities. And the fact that we are at or near a four year lows, I would say if you could, if you don't need to sell it, I would hold on to it, but I wouldn't hold on to it without a hedge, because I'm not going to sit here and say, corn can't go another 30 or $0.40 lower if these tariffs, turn out to be a problem. We've already seen big volatility in soybeans in the last two months. We've had a $1.50 rally excuse me $1.20 rally than $1.20 break. Now we've had. So the, especially the soybean market, like that's the most sensitive and most volatile. So I would have, would advise that if, if you don't need to sell it, wait and see if we get a recovery. But what you don't want to do is store it and not have a protective floor, because then you have an asset that's losing value. And then probably if you wait, wait, wait, you'll probably do it. A lot of people do. Well, they'll make an emotional decision and sell it when they feel like they have to or they have no other choice. So if you're going to store it, store it, but keep a floor under it.

Paul Yeager: A market analyst at this table this week, Chris, said that last year at this time we had a high rally at the end of the year and it can and are high for 2024 was in January. So think I mean, seasonality is one thing annual year to year. It's not there. Every year is different. However that change your answer at all.

Chris Robinson: Well because everybody's going to wait for a June or July rally. We had a little bit of a rally this summer, but it was kind of fizzled. That's why 2024 was so difficult. We had our best prices, especially for soybeans. You know, in December, January, and then, with corn as well. We opened up. We were above $5.02 I think, for the first day of January. I remember we open up the January 2nd and we actually gapped open lower. That was the high $5.02 and corn all the way until May. And then in May we couldn't even get a $5 print. So I hope we don't live through that again. I would, dare you to find anybody out there who thought that was going to happen, but, when you have these, you know, big problems we've got we're well-supplied. Okay? There's plenty of corn and beans out there. That's part of the problem. You've got concerns about demand with what's going to happen with China and now with Mexico. So you have all these worries, and I think the market is we could be in a sideways to lower, market type action, kind of like we were in 2013 to 2020. You go back to look, we corn traded in about a 50 cent range for a couple of years. So it could we could get back into that type of market. While the market's trying to figure out what's going to happen with demand, what's going to happen when the U.S. dollar, the U.S. dollars, a two year highs, that always makes it more difficult for producers. And then the flip side, I think is, you know, we touched a little bit earlier on interest rates. If borrowing costs stay high, some farmers don't worry about borrowing costs. They're liquid enough. They don't worry about it. But for a younger farmer, for somebody that's just starting out, they have higher interest rates for your operating loan. That is a big factor. And I think that's something that it gets, kind of swept by the wayside. in many cases.

Paul Yeager: Ernie, the global climate conflict in Russia and Ukraine has weighed on wheat but we are, we've had this threat of nuclear war for the last couple of weeks, much more louder than it has been. What is the impact of a threat like that on an economy? Is that more of a country global? Not as much a regional impact on an economy when there's something like that going on in Ukraine?

Ernie Goss: Well, agriculture is a global industry, a global sector. And you do feel it telegraphed right back here to the midsection of the country. And our, our, bankers are telling us, yes, is  having an impact. And we're seeing it with the good news foreign. Bring some good news to the table this month. Our index, the, the rural Main Street index, rose above growth neutral for the first time in 15 months. Now, on the flip side of that, agricultural equipment sales, as you're saying, operating loans, the down for the 16th straight month we're seeing we asked the bankers about, looking at farm land prices. What do they see ahead, 2.7% decline over the next 12.12 months on 12 months on average. So that's what we're seeing. And the question is why is the fed reducing interest rates? Back to your question earlier. Well, one theory one potential is that they want to we are talking about a deficit of $36 trillion. The U.S. Treasury, deficit, our interest expense, the federal interest expense is like this. Well, if you lower the interest rates the fed does, then that's less of a burden on the federal government. That's one potential, outcome.

So what does it mean for all of us? It means that we're probably looking at longer, higher interest rates for a longer period of time. Now they're low. Now they're almost at the target level for the fed. But long term I'm looking at long term. Longer term I'm looking at mid part of 2025. Interest rates beginning to move higher. And of course and again what's the Negan the signal that look at what happened to long term interest rates. When the fed reduce short term interest rates. They went up. Mortgage rates went up. Why? Because investors seeing more inflation out there and they came down because of the fed. What the Fed's actions on the short end.

Paul Yeager: I want to go back to part of your survey region. There's a lot of small manufacturing companies that make ag equipment. There's a lot of farmland in those areas that you survey. What is the impact of a lower priced implement, a lower priced farm that's selling? Yes. that will help our economy in the sense of a grand scheme, but doesn't help those people trying to sell that piece of tillage equipment or sell that farm. What's the impact? Who has to pay the price to get us back to where we think the target should be?

Ernie Goss: Oh, absolutely. Another factor. I don't mean to introduce something else, but some of the area we're talking, states, talking about, well, you can't sell your farm land to an outsider. So the Chinese now, that's in other words, is this whose land is this and what the disposition of that land. And it's the farmers and there are, you're right. It has an impact on the, across the rural mainstream economy. Retail sales, for example, housing prices, for example. And those are I don't mean to be so down right now. This sounds like, well, that's the economist’ job. We take away the punch bowl when the party gets started. You know that's our job. But nonetheless. But look at long term long term. And Chris you know this is better than I. The long term is you couldn't be in a better place. And the best place on the best in the global economy than here long term. We're good as gold. And that's going to be because agriculture is good as good as gold. But this is a tough time right now.

Paul Yeager: Are you talking in the country or in the region of, of the grain state region?

Ernie Goss: The region, region. That's a lot that I'm looking longer term. Farmland prices have come down some, but I expect long term they haven't come down as much as farm income has come down. As much as the economy's cooled.

Paul Yeager: We've touched a tiny bit on corn, but you're shaking your head. Do you want to answer one of those or do you got some?

Chris Robinson: Well, I think the one thing to remember is a lot of these, I'd say 95% of the land sales out there, it's cash deals.

Ernie Goss: Yeah.

Chris Robinson: Now they'll finance their, their, combines and things like that. But most of the land is being bought for cash. That's one positive thing. It's not like it's highly leveraged at this point yet. So that may be something that may be a positive thing if you're trying to look for something positive with the fact that I would say, I know you probably know these statistics better, but from what I understand, after being in this business for 25 years, most of that land is owned outright, which is, you know, interest rates can do this and do that. That is the real wealth of this nation.

Ernie Goss: That's right. And the question comes up always is, is this a return to the 1980s? And the answer is no. No it's not. We don't see that farmers entered this weakness with much better cash positions. And as you said earlier, Chris, about exports and farm, input prices have leveled off. We've seen fuel prices come down. We've seen short term interest rates come down. So the our index moved above growth neutral for those reasons also yields yields are pretty darn good across the region.

Paul Yeager: I suppose we should actually talk about commodities. Chris I just realized we need to get a couple of things, covered here in wheat. you saw an incredible, turnaround in this this this the health of the crop. It's gone from not very well to very well. What's that mean for the market long term?

Chris Robinson: Well, it's another negative because again the market's well-supplied. And you've talked earlier we've been worried about Ukraine for over 1000 days. Right. And I think the market remember the markets the futures market. And that's one when you look at wheat wheat is at or near four year lows here in the U.S., I would say that, for both Kansas City hard bread and also Chicago, the price to watch for better, for worse, for the next 3 or 4 months is $5.50. $5.50 wheat is still pretty good. I remember wheat be no, go back years ago, there was a lot of cheap, a lot less expensive than that. So $5.50 is the big level to watch. Why aren't we are at $6 or $7? Because the demand is not there yet. There's no fear yet. There's no fear of inflation yet. So if you're going to talk about wheat, that's how I would say that but yeah, the fact that we discount all this moisture and the crop looks the best it's ever looked. Well, that looks if that's the case, we're going to have more. We're producing more of what the world wants less of right now.

Paul Yeager: Speaking of producing a lot, corn, you basically have said hold as best you can. Let's go to beans then quickly. because, we've had we still don't know if the August low is going to hold. We'll know soon enough. Right? Is what you said this week. But we still have this huge crop in South America. Doesn't sound like a good recipe right now, ahead.

Chris Robinson: No. And that's why you're seeing, right now. I'm already looking ahead to 2025. New crop soybeans are $10. They just went under $10. You know, and they came back. So we're holding. So that seems to be the level $10 new crop beans, about $4.30 new crop corn. And if you're if you're a, farmer producer, you've already got to be looking ahead to those prices.

Paul Yeager: Are you locking any sales in at $10.12 here on that November contract?

Chris Robinson: No, no, I would be defending it because literally 3 or 4 weeks ago we were $11. So we've gotten a couple dollar rallies. I think that that's the most difficult thing for producers to do is to reward rallies when they come. Because every time you get a dollar rally, you think, okay, this is the start of something, here we go. We're going to go out to $13. This time last year we were at $13 beans, and now we're here at ten.

Paul Yeager: And people were complaining then.

Chris Robinson: That 13 wasn't.

Paul Yeager: Enough and that. But so that shows how quickly things can change.

Chris Robinson: They can change. So I don't think you get aggressively bearish. You don't sell down here unless you have to, I think, you defend, defend, defend. I think you've got to make sure you know at what level you're actually making money. There's an old expression I like to say nobody needs practice farming, you know. And so you need to know where your numbers are this year.

Paul Yeager: Cattle has to deal with an issue again with Mexico, but that's not trade related. That is diseases from something. So what is the biggest is that the black swan that's happening to this market.

Chris Robinson: It's if you want to look at the silver lining for the AG complex, it's kind of it has to have been cattle not only recently but over the last four years.

Paul Yeager: And but you're tense. You're saying we still have another. You still think it's silver lining higher in cattle.

Chris Robinson: These are, we are at or near record highs. It looks like we're going to make a run, especially in feeder cattle with the disease problem. And now, with, they've stopped imports of beef from Mexico. It's 1.2 million had that possibly. Now are they going to close the border for two weeks, two months longer? Nobody knows. But that's the reason because we kind of had a bearish cattle on feed last week. And then we got to open higher and it was on this news that there's this parasite. And they don't want it to get up here. So and that's a positive for U.S ranchers.

Paul Yeager: And that's about a 1.2 million head of cattle or something like that that moves across the border.

Chris Robinson: So that means all that demand is going to come out. Has to come from North American ranchers.

Ernie Goss: That Iowa pork to Mexico. Yeah. I mean, you know, another issue.

Paul Yeager: Well, I was going to ask you about livestock for a minute at the grocery store. When it comes to these prices, I mean, the consumer prices, the consumer is still shopping. Absolutely. But it's not all tied to higher prices on everything from what the report said last week. Right.

Ernie Goss: Right. we've got consumer debt at record levels. So the mystery is how to, how to retail sales. How do these prices continue? How do we have still strong demand at the retail, at the consumer level? And the answer is I don't know. I mean, it should not see this kind of strength in, say, steaks or beef and pork and, and poultry. I think we're going to pay a price at some point in time. Now, here we are entering. Of course, we've Thanksgiving and of course we've seen their what we've seen. They're now looking ahead to the Christmas season and the holiday season that, is looking reasonably good. But when you factor it, take out inflation. Still not that strong. I'm sorry. The idea that this has been strong consumer is overstated. The you take out inflation. It has not been that strong. But I think a huge issue is that the high in the 20% versus the 80% in terms of income, those who are in the 20% have been benefiting from a financial market. Talking about the housing market, those who own homes, as opposed to those who are trying to get into a home.

Paul Yeager: Ernie, you get the last. That was the last word that was issued. That was it. Ernie Goss everybody. Thank you so very much. Thank you, Chris Robinson. Good to see you. We'll keep going here in a moment. All right. So hold on hold tight everybody. Because 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. This week we released another installment of our Grain Marketing class. In the third podcast offering that we have here. That's the MTOM Subscribe today at your preferred podcast provider next week, keeping tabs on the decision makers and connecting readers. Thank you so much for watching. Have a great week.

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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: 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.

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

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