Market to Market - Dec. 10, 2021

Coming up on Market to Market -- Pushback on RVO standards. No-snow November becomes Dry December. New tenets talk transition for one farming operation. And market analysis with John Roach, next.

(music)

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.

(music)

This is the Friday, December 10 edition of Market to Market, the Weekly Journal of Rural America.

(music)

Hello. I’m Paul Yeager.

The drumbeat of inflation has been sounding in the headlines for months and on Friday, it reached its loudest in forty years. ---

Consumer prices rose 0.8 percent in November on higher prices for housing, food and fuel. Without the jumps in food and gas, core CPI moved 0.5 percent higher.

Year-over-year, the inflation rate jumped 6.8 percent - the biggest move since 1982.

Purdue’s Ag Economy Barometer shed five points in November as producers keep a pessimistic view about the current and future outlook of the agricultural economy. ---

After missing a deadline last week, this week, the EPA came out with several year’s worth of RVO standards.

Peter Tubbs has this follow-up. 

The Environmental Protection Agency this week released its long-overdue proposed rules for renewable volume obligations for 2021 and 2022. 

Emily Skor, Growth Energy: “Typically, we get EPA proposing renewable blending requirements for one year. This proposal includes three years, 2020, '21, '22. When you look at the totality of the proposal, it really is a mixed bag for the industry.” 

For 2021, the EPA estimates the RVO would be set at 18.5 billion gallons of renewable fuels. The 2022 RVO would rise to 20.7 billion gallons. 

The EPA has struggled to estimate renewable fuel demand as the economy recovers from drops in fuel demand caused by the COVID-19 pandemic. 

The agency also proposed reducing the total RVO for 2020, from 20 to roughly 17 billion gallons, a drop of 10 percent.  

Emily Skor, Growth Energy: “So what the agency did for 2020, and they've never done this before. Two years after they finalized requirements for 2020, they go back and they reopen up and they wave, they wave 2.5 billion gallons of obligations for conventional corn ethanol. So what they're saying to every single refiner is you have been building your business practice and making your decisions for two years on a set of obligations. We're going to lower those and they've done it for every single refiner in the sector. This is unprecedented. It is far beyond EPA's authority to do this, and it's unwarranted because the RVO has a built in mechanism that already accounts for fluctuations in fuel demand.

Renewable fuel refiners and blenders are concerned that the EPA could in the future retroactively change other RVO limits, introducing more uncertainty to the renewable fuels marketplace. 

In a separate action, the EPA is proposing to deny the small refinery exemptions of more than 60 small refineries. Many of the exemptions were approved by the EPA during the Trump Administration, and were contested by the renewable fuels industry as allowing the petroleum industry to avoid the tenants of the Renewable Fuel Standard. 

Emily Skor, Growth Energy: “They're proposing to reject the remaining small refinery exemption requests. So what they're saying to the oil industry is, in essence, we're going to give you a little bit more time and a little bit more of a pass for 20, 20 and 21. But you've got to get your act together in 2022. And what we're signaling is we set the target at 15 billion and there's not going to be any waivers or any chance to escape that obligation. 

A public hearing on the proposed rules will be held on January 4th.

For Market to Market, I’m Peter Tubbs.

A major weather system is parked over the Pacific Ocean - bound for a wide swath of the West Coast. 

This event - no matter how much rain falls - will not change the narrative around drought. 

The No-snow November in Denver, Colorado to now a Dry December is adding to an already precarious position. 

Here’s John Torpy.

The mega-drought gripping Western U.S. states has climate officials looking to the mountains and asking, “Where’s the snowpack?”

A La Nina weather pattern has delayed winter’s arrival in Colorado, pushing storm tracks destined for the Mile High City further north into the Pacific Northwest and Canada. The unseasonably warm temperatures melted the record for the longest period before a measurable snowfall was recorded in Denver.

Climate scientists are concerned about how the late arrival of snow at higher elevations will translate into spring runoff. The Western U.S. is stuck in its second year of a megadrought.

According to the U.S. Drought Monitor, concerns about the lack of snowpack in the west pushed officials with the California Department of Water Resources to announce zero water allocations for 29 agencies that contract for water through the state Water Project. The move will cut back water used for agricultural purposes and only allow use for health and safety.  

Nat Sound Break 

North of California it’s the opposite problem. The National Weather Service reported a series of wet storms, also known as Atmospheric Rivers, brought nearly 20 inches of rain to Washington state. Between September 1st and November 30th, the storms caused rivers and streams to escape their banks across the Evergreen state. 

For Market to Market, I’m John Torpy

Beth Hoffman spent much of her professional life covering agriculture as a journalist. She’d later transition into teaching before deciding to make the move home to her husband John’s native Iowa and dive into farming. She’d keep the pen and paper handy, documenting the evolution of getting access to the land, turning ideas into realities and the adaptations along the way in a new book.

I spoke with Hoffman about the often difficult discussion of transition. Our conversation is part of the next MtoM podcast and also this week’s Cover Story.

Beth Hoffman, Author – Bet the Farm: We started having that conversation, having the conversation with Leroy, about how that transition might actually work. Because as many of your listeners know, it's a very difficult thing as you know, very difficult thing to transition the farm and figure out how is the next generation going to be there. When all of the value of the farm is in the farm? There is no 401K sitting there waiting for Leroy to go play golf in Florida. We have to actually we have a lease with him so that he can afford to live comfortably in his golden years.

Paul Yeager: Transition is one thing - transition to something non-traditional, or what he was used to was a whole another. Do you think that the biggest friction at first was that it wasn't the transition? It was the transition to what you and John had in your mind?

Beth Hoffman, Author – Bet the Farm:  Well, I think it's both, you know, because that handing over power, and, and being in a position where you've been in control of something, whatever it is, for 50 years, and all of a sudden, you're going to take a back seat is very scary, I think, you know, but to anybody. But yes, us doing something different. And especially me, never having been living on a farm having a good job somewhere else was this actually going to even happen? Let alone like what we were proposing to actually do. So, you know, I talked about in the book where the I started, he started asking us about what we were going to do. And I said I don't you know organics and you know, some some very innocent things like organics and food grade grains, and he went out and got this hole that had been left, you know, it was like maybe an inch was left on it. And he said, “This is what organics is, you know, do you understand? Do you want to be laboring battling weeds every day of your life?” And yeah, I was taken back. Because did I really want to be battling weeds every day of my life? You know, that was not something I probably actually wanted to do. But of course, that's not what organics really is anymore.

Paul Yeager Right? And then but again, it's that transitional Yeah, I'm sorry, generational view of a topic and the way someone comes from, this is the way I've done it. Yes. And I think this is what you're talking about. But in reality, we're somewhere in between? Yeah, I want to go back to the transition part, because we're coming into the holidays. And I And I've had this, we've had past episodes, where we've talked about having that conversation about the transition, is the holidays a good time to So mom, when you think you're gonna leave the farm or Dad, you're done. Yeah. I mean, how do you how did you approach it? And how would you do it differently? Now?

Beth Hoffman, Author – Bet the Farm: It's a very difficult conversation. And I think part of the problem is, is that nobody is that clear about what the legacy where they talk about that a lot in transition, you know, when you go to a workshop, let's say, and you're like, let's get the legacy, what you want this farm to be down. And I think particularly when it's been a commodity growing farm, you you function in such a year to year fashion. First off, and second of all, like you haven't built a brand or something the farm isn't an entity that is worth value, or has a vision outside of like its corn pseudo suitability rating for the land. And so there is no vision, there is no like, what do we want in 10 years versus, you know, like, let alone 100 years from now. And I think that that is really where a family, you could have that conversation on just like, you know, in 100 years from now, what would we want this to look like? And just having people, you know, discuss it in a way that's maybe not like, are you done, I'm going to code? Are we ready to switch hands? Now? I'm ready to take over. But what do we all want this to be? And maybe there's not, then at least you know, is there consensus in this group of people? Is there are we have we never even thought about it? Is it? Where are we on completely different pages, because that's important to know where you're starting.

Paul Yeager: And you're bridging gaps of people who are on and off the farm out of the city out of the state, maybe in some cases out of the country. But everybody's entitled to the same share. So sometimes you have to have coalition before you can go to the patriarch or matriarch of the family. Yeah,

Beth Hoffman, Author – Bet the Farm: I mean, I heard a story in my reporting time, like covered transition a bit. And there was a story about a guy who was 65, who had worked on the farm with his dad for 40 years or something at that point. The parents passed away and all the other siblings wanted to sell the farm and he was just out I have a job at 65 years old because he was the only one who wanted to keep the farming couldn't afford to buy it for market rate. So, yes, you have to build, you have to build some kind of consensus, but also I think it's important to be questioning, like a lot of families just want to hold on to the land, period full stop, like we just want the farm. Why do we want the farm? Like what is that, you know, could you keep two acres and have a cabin and be able to go out there and have memories about what that was like and then allow the land to transition to somebody who wants to be on it and farm it and care for it? Because in this state in Iowa, we have more than 50% of the land is now rented out most of that one year leases. Why is the person who's renting the land gonna care about how much fertilizer roads off of the land or how much chemical you know input is affecting the bird life on your on the farm? It's just they don't you know, if you really care about the land, maybe keeping it is not the best thing for it.

Paul: Hoffman continues the discussion about the commodity treadmill, taking a new path in agriculture and the experiences with government bureaucracy. The full discussion will be released Tuesday as part of the MtoM podcast. 

Next, the Market to Market report.

The USDA report came and went with little reaction from the trade. Ending stocks for wheat were increased while the supply and demand tables remained the same in corn and beans. For the week, the nearby wheat contract fell 19 cents while March corn added 6 cents. China did return to some buying of U.S. grain, but it was meal that led the soy complex. The January soybean contract added a penny. January meal improved $8.20 per ton. March cotton expanded by $2.03 per hundredweight. Over in the dairy parlor, January Class III milk futures jumped $1.11. A mixed week in the livestock sector. February cattle shed 87 cents. January feeders added 75 cents. And the February lean hog contract sold off 47 cents. In the currency markets, the U.S. Dollar index lost 1 tick. January crude oil skyrocketed higher by $5.98 or nine percent per barrel. COMEX Gold declined $1.90 per ounce. And the Goldman Sachs Commodity Index improved almost six points to finish at 542.10.

Yeager: Joining us now to provide some insight is senior market analyst John Roach. Hello, John. Good to see you.

Roach: Thanks, Paul, nice to be here.

Yeager: Let's start with that wheat thing. We talk about carryout is up, there's better crops in some other places, two big pressure points. Is there a third out there on wheat right now?

Roach: I think we've seen most of the pressure. The crop is up a little, not much, and we still have a growing season to go through and we have dry conditions. The crop is not rated all that high in the United States and the demand is pretty strong. So we actually have buy signals on wheat and think the wheat market can stage some recovery here.

Yeager: Well, wheat has been on a good run. When we see the charts we see higher. So you're telling me there's some upside. How much upside?

Roach: Well, we never know how much. But we should be able to go back to the highs or near the highs that we saw here just a month ago. The key of course is going to depend on what the weather looks like as we move through the growing season. And will the demand continue as strong as it has been? We think the demand will. We think that it's a food crop and we have enough supply chain issues that we just don't think that people are going to shy away from having an inventory of wheat so that they can have bread.

Yeager: All right. This following question that I'm going to pose came via social media, it came in from Facebook. And it ties to wheat, it also ties to corn in an extent. Justin in Ithaca, Michigan is asking, has the tension between Ukraine and Russia had any impact on the grain markets? Could it in the future? And what would you expect to see?

Roach: I'm not sure that it has had any impact so far. But we saw China buying out of Ukraine this week and we could certainly have some issues. But at the moment I think that it's business as usual. We've got to pay attention, of course, because that is a fluid situation.

Yeager: There's always a geopolitical aspect of many things. Let's go to the south of the United States in Mexico, a big buy of U.S. corn this week, a record of sorts. What does that mean for the corn market? Are we going to need more than Mexico to be buying U.S. corn?

Roach: Well, right now we have extremely strong profits in the ethanol business so we're crushing more corn for ethanol than was expected. The government didn't raise the estimate on this monthly report but we think that they will. The Brazilians are out of corn. We're worried about the corn, the full season corn in the lower part of Brazil. That's a small percentage of the total but it's still the first corn in South America and it is being damaged right now. It depends on who you talk to, some people think it is being damaged a little more than others. But at the moment we are definitely threatening that crop.

Yeager: We're pushing $6 in corn. Where are you wanting to make a couple of sales?

Roach: We actually triggered a sell signal in corn this week. We have the best basis levels that we've had and the futures price has come up and gotten into an overbought position. And so we started making sales on corn this week at the end of the week. And we're suggesting that farmers get 30 to 60 days cash flow covered off of this round of sell signals.

Yeager: You mentioned ethanol when we started this discussion about corn. The government came out with some levels, maybe not as favorable to the ethanol industry, renewable fuels industry. Is ethanol still a big part of the corn story? What is the percentage makeup do you think right now, John, of what impacts the market on a week-to-week basis?

Roach: On the cash market, for farmers it's a very big part of it. It sets the market in rural America. The ethanol processors tend to be the strongest bidders and that is the closest market for most people to go to. And so yes, it is a very important part of the pricing structure. And, again, processors are working very hard to run their plants at full capacity with these kind of profit margins.

Yeager: All right. In beans, it was the soy meal, that is another processing aspect of it, China buying. Is the window shutting on China having an influence on the U.S. market? I think you wrote this week, let me get this right, the U.S. has been the only store in town and that window is about to close. Do you stand by that statement?

Roach: Well, we have the only soybeans really available right now. The Chinese have already purchased their December needs, they have purchased a good chunk of their January and February needs, but they're not going to be able to get soybeans really shipped out of Brazil. Maybe they start to see some in February. But the likelihood is that it's going to be a little later. The stocks are tight in all of South America and so the first grain that gets harvested will stay domestic, the processing industry there is robust as well. And so they won't let those first beans get away. They'll instead stockpile, well fill their pipeline, and then it starts to ship overseas. So the opportune time here is when we start to see the harvest in Brazil but it hasn't progressed far enough yet to get that pipeline filled. So we think we have that opportunity. We're suggesting that we've got another 30, 60 day window here where we're able to take advantage of that tight supply and it's also the weather risk period. So if you think about it compared to America, this would be the July/August timeframe where you're worried about the crop and you need the moisture in order to keep it coming. And the moisture is good, the crop is in excellent shape, except for the small area in the southern part of the country. So I'm not suggesting we have a problem there but if there is going to be a problem it will show up in the next month and a half.

Yeager: And if we have the amount of grain, if it is a good growing condition we're going to have a whole lot of grain on the market. So not only are we going to have the South Americans for competition, we're going to have a lot of it. So if I'm a producer looking at the next 30 to 60 days, John, you talk about making cash sales at certain points to protect myself, give me a couple of stops on where I should be thinking about signs of making a sale?

Roach: Well, I think right now on corn we have a sell signal and now is the time to be doing that. We know U.S. producers will start to make sales after January 1st when it's a new tax year, we expect to see sales pick up a little bit. We also are very near a sell signal in soybeans. We think we will trigger that early next week. We need a little higher market to do that. So we're willing to sell into this market with an eye toward getting the bushels sold that you were holding for South America risk. If you go beyond February, now you're having to count on something in North America or the Northern Hemisphere where you're having to count on something new coming into effect. And certainly with inflation and some of the other situations going on in the world we could have something new come at us. But at least at the moment I'd like to have inventory pretty well whittled down here by the time I get past Valentine's Day.

Yeager: Hard to predict the unknown, but we always try. I always make you do that question. Livestock industry, it's starting to get to that point where it's a little slower. What is driving the live cattle market right now?

Roach: The cattle market is being driven by high prices on beef. If you look at imported ground beef coming into New York it's at the highest price level it has been. So world prices are high, U.S. prices we think will move higher as we move along, and so we're optimistic in the cattle market.

Yeager: What about live cattle? I'm sorry, the feeders, we just showed the lot there, I was getting involved in the feedlot. Would we be expanding right now? Would you be adding to your herd on the feeder side?

Roach: If you're able to, if it makes sense with your business plan, yes, because we think that the profitability that was squeezed away from the producers and given to the packer, we think that the packer will be passing some of that profitability back. The numbers are going to be smaller in the first part of '22 compared to '21 and demand we think is going to continue to be strong. And so we think that the market improves and we think that flows into the producer's pocket this time instead of the packer.

Yeager: Encouragement there for those who are feeding. Feed costs though continue to be a story. If corn rallies, traditionally the feeder market drops. Are you still seeing that as the case?

Roach: That's still the case. But when you look right now at what we call the cattle crush, which is the price of feeder cattle, the price of corn and the price of fat cattle, if you go out to September all of the months between now and there are at least at this 70% of their max when we compare it to history. So we're well over 50% compared to historical norms and with high corn prices, cattle feeders tell me that is the best time to feed cattle because high corn prices keep a lot of people away from the marketplace and allows them the opportunity.

Yeager: Interesting way to look at it. Quickly in the hog market, it has been a hard one to find any news to prop things one way or the other. What are you seeing?

Roach: Well, the numbers are smaller than what they should be. We're not slaughtering the kill that should be there. And the weights are up because of that. We think that that will rectify itself and it will improve. The USDA said the first half of this upcoming year we'll have 4% fewer hogs, in the second half we'll have 4% more. So the first half of the year we're optimistic, we think prices will be better.

Yeager: All right, sounds good. We're going to talk inputs and Contango in Market Plus, John. We'll see you in a minute.

Roach: Thank you, Paul.

Yeager: And that will do it for the installment of Market to Market. We will talk more in Market Plus as I mentioned. We're going to talk about Contango and take your questions. Find that on our website of MarketToMarket.org. Facebook does offer a wide variety of experiences, us included. We want to hear from you on the pictures and the stories that we post on the social site. Follow our efforts at MarketToMarketShow. Next week, we take a look at a family dairy navigating the pandemic by helping those in need. Thank you for watching. Have a great week.

(music)

(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.

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.