Market to Market - Aug. 13, 2021

Coming up on Market to Market. One step closer to an upgrade for rural America.

A hotter, drier global weather outlook. Combatting the glut in the hemp market. And market analysis with Arlan Suderman, next.

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What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

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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 13 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

New census data released this week reveals 85 percent of the country’s population lives near an urban center. Regardless of your address, the rising cost of food and fuel will find you.  ---

The price of wholesale goods moved up 1 percent in a push-pull battle over rising gasoline prices and declining food costs. Even without those two volatile factors, Core Prices kept the pace rising 0.9 percent.

At the consumer level, prices in July rose 0.5 percent on those same influencers. After cutting out food and fuel, core prices rose only 0.3 percent -

Population migration shifts electoral maps and the political clout of one district to another.

However, the net population loss in rural America recorded in the 2020 Census doesn’t mean a loss of federal help.

Peter Tubbs has more.

Vice President Kamala Harris: "On this vote, the yays are 69. The nays are 30. The bill as amended is passed."           

On Tuesday, the United States Senate passed a $1.2 Trillion dollar infrastructure bill that was a centerpiece of President Joe Biden’s campaign.   

President Joe Biden: “After years and years of infrastructure week, we're in the cusp of an infrastructure decade that I truly believe will transform America.” 

The bill allocates funds to almost every sector of the country’s infrastructure, from roads and bridges to the electrical grid and connections to the internet. 

Bringing broadband to underserved households across the country will benefit every rural state. The American Farm Bureau believes that 25 percent of U.S. farms lack a direct connection to broadband, limiting the ability of farmers to access the latest tools and technology. The bill allocates $65 billion dollars to help run lines to rural households and also improve service providers connections to the internet. 

Bipartisan support for the bill came from advocacy groups as well. Both the American Farm Bureau and the National Farmers Union favored passage of the package.

Sen. Chuck Schumer, Majority Leader: “Today the Senate takes a decades overdue step to revitalize America's infrastructure and give our workers, our businesses, our economy the tools to succeed in the 21st century.”

For Market to Market, I’m Peter Tubbs.

Parts of the nation got a break in the weather on Thursday night as an estimated 8,000 fans took in a ball game at the iconic Field of Dreams in Dyersville, Iowa.

While fair skies and moderate summer temperatures favored those in the stands, for much of the country it was a short break from record temperatures. According to a recently released report, there will be more of the same in the years to come unless changes are made.

John Torpy has more.

A new U.N. climate report released this week underscores the significance of humankind's impact on global climate change.

Kim Cobb, Co-Author IPCC Report: "The new report pulls no punches in outlining the ongoing consequences of our rising greenhouse gases, emissions, and how these choices over the next few decades will lead to starkly different climate futures.”

The 234 scientists who helped author the report concluded the planet is warming faster than they predicted in 2013. According to the Switzerland-based Intergovernmental Panel on Climate Change, the earth’s temperature will rise beyond their previous forecast of 1.5 degrees by 2030. Based on the calculations in the report, the continued warming of the planet will increase global weather events like droughts, floods and wildfires. 

Ko Barrett, Co-Author, IPCC Report: “(Human influences are making extreme climate events, including heat waves, heavy rainfall and droughts, more frequent and severe.) What's new in this report is that we can now attribute many more changes at the global and regional level to human influence."

The report shows that even if countries across the planet make good on their pledges to dramatically reduce carbon emissions there are already some events that have been set in motion. 

Bob Kopp, Co-Author IPCC Report: "Sea level change around the middle of this century, around 2050, has largely been locked in. Regardless of how quickly we get our emissions down, we're likely looking at about 15 to 30 centimetres, or about six to 12 inches, of global average sea level rise through the middle of the century. On average, this would increase the likelihood of what used to be considered a once-in-a-century high water level more than tenfold."

The authors of the report say the key to slowing down the rapid warming of the planet is follow-through by countries pledging “net-zero” human-caused carbon emissions by 2050.

For Market to Market, I’m John Torpy.

As many state legislatures work through the question of legalizing recreational or medical marijuana, farmers are able to legally grow hemp in all 50 states. A report from Statista shows CBD, one of the commercial products made from hemp, generated sales of roughly $5 billion in 2020. Even with the potential of billions in sales, hemp growers without a plan are struggling.

Josh Buettner has more in this week’s Cover Story.

Nearly a decade after Colorado breached the “green wall” of cannabis prohibition, over half of the U.S. has administered some degree of legalization, decriminalization or medical use for marijuana at the state level. 

The 2018 Farm Bill permitted nationwide commercial cultivation of weed’s industrial cousin, hemp.  A gold rush crashed that nascent market, and now a controversial method to mitigate the glut is pitting hemp against recreational pot.

Ashlee Bainbridge/Owner – Botanicanna, Galena, Illinois: “We started selling Delta-8 THC, and that was a huge source of our income.  I’m not sure where the hemp industry would be if we didn’t have Delta-8 right now because there was a mass oversupply and not enough demand.”

Jake and Ashlee Bainbridge farm, own and operate Botanicanna, a hemp store in Galena, Illinois - a state where legal marijuana sales began just last year.

Jake Bainbridge/Owner – Botanicanna, Galena, Illinois: “In 2019, so many farmers jumped into it.  There’s still excess material – biomass – from 2019, so being able to turn all that biomass into Delta-8 has really helped out the hemp industry as a whole, for sure.”

While touted as a potential food, fiber and fuel alternative, the big winner of hemp’s market infancy was cannabidiol oil, or CBD – sold as a health panacea in myriad value-added products. 

Hemp and marijuana are the same plant - cannabis sativa - but diverge legally by amount of THC.  Scientific authorities report natural Delta-8 tetrahydrocannabinol, or THC, is a rare substance in the hemp plant – around 0.1 percent.  Proponents say it’s more cost-effective for mass production to synthesize the molecule from raw CBD surplus in a lab process known as isomerization.

Ashlee Bainbridge/Owner – Botanicanna, Galena, Illinois: “Marijuana is high in Delta-9 THC.  We carry Delta-8 THC derived from hemp.  The Farm Bill states that hemp is anything under 0.3 percent Delta-9.  So basically, all these CBD stores started realizing we could carry Delta-8.  It’s not in the law.”

Jake Bainbridge/Owner – Botanicanna, Galena, Illinois: “It’s a lot less expensive than the recreational marijuana is.  You know, we’re able to produce it a lot cheaper…”

Ashlee Bainbridge/Owner – Botanicanna, Galena, Illinois: “…cheaper than indoor grows.”

On a chemical level, Delta-8 is an isomer of Delta-9 and has been described as “marijuana lite” - less potent, minus side effects like anxiety and increased appetite – with a lower price tag.

Ashlee Bainbridge/Owner – Botanicanna, Galena, Illinois: “You save big time.  This is a full gram cart for $40.  If you were going to go to a recreational marijuana dispensary, you get a half gram cart for $70, plus 40 percent tax.  Our tax is just 8 point 2-5.”

In light of murky messaging from the federal Drug Enforcement Agency about its legal status, some weed legal and illegal states have moved to ban Delta-8, citing health and fraud concerns.

Ashlee Bainbridge/Owner – Botanicanna, Galena, Illinois: “I think what it is, is we don’t have the high taxes, so the state’s not getting their revenue from legalization, and the dispensaries are not happy as well, just because all these hemp stores are selling THC.”

According to the National Institutes of Health, THC and CBD are two of over 100 identified naturally occurring compounds, known as cannabinoids, found in hemp and marijuana.  In all, some 540 chemical substances are reported present, but research has been hampered by federal restriction.

Chris Berry/Chief Operating Officer – Illinois Hemp Growers Association: “Legislating against specific cannabinoids is just the wrong approach in general.”

Chris Berry is Chief Operating Officer of the Illinois Hemp Growers Association.  He says patchwork measures from state to state and different municipalities confuse consumers and law enforcement and it’s high time for the federal government to step-up with blanket approval to untangle the mess.

Chris Berry/Chief Operating Officer – Illinois Hemp Growers Association: “You know, food purity laws and all this other stuff are already out there to regulate these products.  We’re creating this separate framework and treating it like it’s not just another consumer product. There already are organizations, institutions, regulatory bodies that literally monitor and check every single item that you could potentially put into your body.”

Sen. Cory Booker/D – New Jersey: “People running for President of the United States readily admit that they’ve used marijuana!”

Last month, Senate Democrats backed a bill to strike down longstanding federal prohibition and allow all cannabis to be taxed and regulated…

Sen. Chuck Schumer/Senate Majority Leader/D – New York: “This is monumental.”

…though states could still outlaw its use.

Just west of Illinois, Iowa remains tenacious on prohibiting all forms of THC, but 2020 was the first year hemp was grown there legally since the World War II era. 

Colby Gardner/Founder – Iowa Hemp Company: “If I was told I could make Delta-8 out of this, we’d hit the ground running.”

Despite market saturation, Hawkeye State growers like Colby Gardner are pressing on in year two.  A processing bill didn’t make it through the state legislature until mid-season last year - becoming effective this past March. Gardner hauled his first harvest to Michigan and contracted with hotels elsewhere to produce hemp-based toiletries.  He plans to begin processing on his own and says vertical integration is the key to success.

Colby Gardner/Founder – Iowa Hemp Company: “I think that’s the difference maker.  If I simply went out there and grew plants, I could break even.  But it’s a lot more profitable to value-add and control those processes and understand the formulations.”

That’s similar to the approach taken by the Bainbridges, who, though recently denied approval to sell recreational marijuana amidst Illinois’ COVID-delayed, controversial second-wave license lottery, continue to expand market share.

They plan to apply again later this year for marijuana approval.  In the meantime, Jake has ventures in other legal states.  The couple also opened a second store in nearby Dubuque, Iowa. But only CBD is welcome there, not Delta-8.

Ashlee Bainbridge/Owner – Botanicanna, Galena, Illinois: “Not in Iowa.  Iowa, I believe, is probably going to be one of the last states to legalize, unfortunately.”

Whether states and the federal government ultimately button-up or end prohibition, the next iteration of the Farm Bill could close the cannabinoid loophole.  But those on the front lines agree hemp and marijuana are here to stay.

For Market to Market, I’m Josh Buettner.

Next, the Market to Market report.

After a several days of chopping around, a bullish WASDE and sales to China moved the commodity markets higher by the final session. For the week, September wheat jumped 43 cents while the nearby corn contract gained 13 cents. Bullish yield and ending stocks news in the report lit a fire under the soy complex as the September soybean contract moved 29 cents higher. September meal gained $1.80 per ton. December cotton added $2.62 per hundredweight. Over in the dairy parlor, September Class III milk gained $1.13. More mixed news in the livestock sector. October cattle gained a quarter. September feeders lost a quarter. And the October lean hog contract shed $1.07. In the currency markets, the U.S. Dollar index dropped 29 ticks. September crude oil lost 7 cents per barrel. COMEX Gold added $13.20 per ounce. And the Goldman Sachs Commodity Index put on nearly 2 points to finish at 527 even.

Yeager: Now here to provide insight is one of our market analysts Arlan Suderman. Hello, Arlan.

Suderman: Good to be back with you.

Yeager: So, Arlan, you got a little bit of rain last night or in the last few hours there in the Wheat Belt where you're at. But I'm guessing that is not why the market moved so dramatically in wheat. It is about weather, but the dry side of it. Is weather the only thing moving wheat right now?

Suderman: That is the primary thing. Demand is good overall globally. But we've got sharply lower production estimates now for some key production areas of the world, major exporter nations and Russia primarily where USDA dropped their production estimate from about 85 million metric tons down to about 72.5 million metric tons. Canada saw its production drop sharply as well about 7 million metric ton drop there. We're still anticipating more declines in the hard red spring production estimate for the United States when we get the small grain summary estimate out on September 30th, which will include our first look at abandonment this year. Right now USDA is just looking at the yields of what is being harvested and not at how many acres may not get harvested and we think that may be close to record high this year. As far as what doesn't get harvested we had a freeze hurt the crop in Brazil, we're having some dryness in Argentina. So there's a number of factors now impacting major exporting countries, reducing the supply and while we have a lot of wheat in the world we really don't because 60% of that surplus wheat is in China and in India where they’re really not exporting countries and you look at the major exporting countries, those supplies are getting tight.

Yeager: Let's move to corn because, and I know wheat was a huge mover 6% this week, but the corn was the one that kind of stole some headlines from USDA. Arlan, you're supposed to take August off and this report has the last couple of years turned into be a major market mover. Are you surprised by that?

Suderman: Well, I think everyone was surprised at how big of a drop USDA made in the corn yield for this August report. I think we need to be careful about interpreting that and I think the market was to some extent. We got the initial reaction that shut prices up to the top of the technical trading range but then the human factor was unwilling to push above that or push through it so we're still in that converging triangle formation that we've been in all summer long, a lack of confidence. USDA built this yield estimate around a subjective farmer survey and satellite data. So there's a wide range of possibilities -- USDA came in at the lower end of that. The September estimate is going to be done, follow a totally different process. Yes, it will include the subjective farmer survey and satellite data but it's going to really focus on the objective field sampling. And that is really being determined yet right now is how much depth of kernel do we have? That makes a big difference on the weight of the ears, the weight of the grain that they take off of each sample plot area. And so the September report may get a higher yield estimate or lower depending on growing conditions here over the next few weeks across the Midwest.

Yeager: And this report was data, the data cutoff was August 1st and if you look at the rain, just like we talked about, rain makes grain and there has been a lot of it that has fallen. And so September could be in a big surprise. So if I've got some December corn that I'm thinking what do I do, what do I do?

Suderman: Well, when you look at the corn balance sheet I've been saying for quite some time we're fine as long as we stay above 174 bushels per acre because that will give us enough yield in order to meet current projected demand. We're getting awfully close to that. So while my bias is higher going forward for the September report our estimate was closer to 177, 176.9 to be specific from our customer survey, there's not much margin for error. So if USDA does slip it below that 174 we're probably going to need higher prices to ration demand. My current bias is that we're probably above that, no need to ration demand and the highs may be behind us. But like I said, very little margin for error.

Yeager: So what am I watching? What are my signals here to help prepare myself?

Suderman: Well, first of all I'm drawing a line across the highs that we've seen this summer, it's a descending line and I'm drawing a line below the lows that we've seen and it's an ascending line. And those two are coming rapidly together. But we do have some time to play within that. And if I see it break below then I know that downside risk is going to be significant because that is going to trigger the computers to start selling, momentum goes to the downside. If it breaks to the upside that means we're going, the computers are going to trigger buy orders go to the upside because everyone is watching this. And so that is what I'm paying attention to right now. And frankly also keeping track of the weekly crop ratings. I know how farmers love to cuss and discuss those, but they really do give us some sense of an idea of how the crop is doing. But that pays less and less, that makes less and less importance going forward because those crop ratings really can't tell what kind of depth of kernel we're getting. We really found that out in 2017 and 2010 in the opposite direction.

Yeager: You mentioned in corn a little bit of the rationing and that is something that we kind of -- are you ready to say we had rationing in soybeans in the last year?

Suderman: Well, we did, particularly in the crush side of things. I'm not convinced that we rationed on the demand side as far as exports. But we certainly did on the crush side. I think we're going to see some export rationing over the next few months for China related to the problems they're having in their swine herd. But we certainly did slow crush. USDA is projecting rationing in the new crop year because they're trying to work their balance sheet to make the math work to keep us at 3.5% stocks to use ratio. The USDA has really projected to us that they think a 3.5% stocks to use ratio for soybeans is minimum pipeline supply. So as they reduce production they assume that demand will be rationed to keep that ending stocks at a 3.5% stocks to use ratio in the coming year.

Yeager: You know what they say about assume, right? That could make us seem like that in a hurry. If I have soybeans right now that have a whole bunch of pods but not a lot in them am I selling right now?

Suderman: I think the key is what is happening locally because that’s going to impact the basis. If you're in an area of the country that has good corn and soybean production that is going to flood the market with corn and soybeans then you're probably going to be facing some weaker basis and that should impact your pricing decisions. If you're in some areas that have been very droughty you're probably going to see good strength in the basis continue for a while and that gives you a little bit more time to watch the chart signals on the board and to pay more attention to the board.

Yeager: I want to mix a little bit here in the livestock sector. We talked about corn but this is a feeder related question and this is a viewer question that came via Twitter. We always appreciate those. AJ in Decorah, Iowa, actually his came via Facebook. What are your thoughts on the strength in feeder cattle despite the strength in the corn market on Thursday?

Suderman: Well, the feeder cattle market took great stands responding to the premium in the forward curve of the live cattle futures market. That continued optimism because they're looking at the strong demand for product and thinking if we just get past this current packer capacity issues then the feeder will have more leverage and we'll have higher cash cattle prices. We've been thinking that all summer long. It hasn't happened yet. That optimism is still there. The cattle market runs on optimism. Hopefully for the feeders it will happen at some point in the future. But right now it still has not and we've been at basically $119 to $121, occasionally a little bit firmer than that in the southern plains, since April or something like that. And so we haven't had it. So those deferred contracts keep working their way lower to meet the cash market as we go forward. Hopefully we will get that leverage, we will get some higher capacity in our processors, be able to move more cattle through and we'll see those feeders get a bigger bite of what those packer margins have been recently topping an estimated $700. But for now it's not.

Yeager: Live cattle wise we have, as you mentioned, still some weight issues, some processing speeds. We have other things, the consumer now maybe isn't going to be going out as much depending on how you interpret this Delta variant. We're trending higher in cattle. Is that a trend in the direction you see us going?

Suderman: Well, the demand for beef has been strong. It has just not translated to cash cattle prices. That demand I expect will continue to be strong. And I'm like China where they stay at home because of COVID, they eat less meat, in the United States we found out during the pandemic that people really used those government checks and bought more higher cuts of meat and they increased consumption of beef and pork. So that is a positive. And so we're not too worried about domestic demand right now as long as consumer sentiment can hold up. Now, we saw a big drop on Friday in the consumer sentiment index because of the higher COVID numbers once again. That number comes from the University of Michigan and its analysts believe that that was an emotional reaction. So they don't necessarily think that that's going to result in a decrease in consumer buying but if we get a second month of those lower consumer sentiment numbers then that is probably a time to worry that the consumer is going to start pulling back on those higher cuts of meat.

Yeager: And is the consumer going to do the same in the hog market when they go to the store?

Suderman: Yeah, that's very similar. With the hog market we had some other risks here. First of all, decreased export demand to China right now because of COVID, like I said in China they stay home and they are tightening the restrictions to try to clear up COVID so that China can have full stands for the winter Olympics in February when they host. So they're cracking down more. So that is a risk near-term to pork, although we think down the road it will mean more exports. But --

Yeager: I will let you answer the but in Market Plus. I'm sorry, Arlan. Thank you. That's a tease we call it. That will do it for this installment of Market to Market. We will talk more about hogs and answer your questions in Market Plus so join us there. Find that on our website of MarketToMarket.org. We are part of the millions of minutes of podcasts created each week so subscribing is key to not missing an episode of the Market Analysis, Market Plus and the MtoM. If you're planning to binge, say watch a few, listen to a few and you haven't been back for a while, resubscribe, check your subscription where you get your podcasts. Next week we will look at renewed concerns over an old livestock disease. 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.

What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

(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.