Market to Market - Dec. 17, 2021

Coming up on Market to Market -- Wind filled with snow, dust and tornadoes whips across the country. Moving on to the next phase after the unique December storms. A dairy embraces giving during the pandemic. And market analysis with Naomi Blohm, 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, December 17 edition of Market to Market, the Weekly Journal of Rural America.

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Hello. I’m Paul Yeager.

The Federal Reserve delivered news about the likelihood higher interest rates are coming in the New Year as one way to combat the rise in inflation. —

Retail sales moved 0.3 percent higher last month - even as prices rose and shortages at the shelves limited options.

When the volatile auto sector is removed from the report, the rate also trekked up by 0.3 percent.

Wholesale prices measured by the Producer Price Index - jumped 0.8 percent in November and contributed to a 9.6 percent gain over the previous 12 months.

Solid grain prices, low interest rates and growing exports contributed to the reading in the Rural Mainstreet Index from Creighton University. The report remained above growth neutral for the 13th consecutive month, but was lower than than the previous reading.--

The National Weather Service sent out warnings about pending severe weather and then advisories to those after the smoke they smelled in the air was likely from several states away.

The assessment portion of the severity of the storm is still in progress as the number of tornadoes reported is already over 100.

Here’s John Torpy with a look at what happened and what’s next.

Heavy winds brought destructive weather to numerous states over the past week.

Much of the Mid-South is still digging out from last week’s multiple tornadoes. The National Weather Service labelled one storm an EF4 twister, which spent roughly four hours on the ground as it moved across in western Kentucky. 

Megan Schargorodski, State Climatologist of Kentucky: “Generally with a tornado or a severe storm of that nature, they run out of energy with, within, you know, 30 minutes, max, it's usually not on the ground for a very long, but as you could see that it was on the ground, just eating up the fuel that it was, um, running into in the atmosphere and it just kept going. And uh, it's, it's incredible.” 

This storm cut a more than 200-mile swath across the Bluegrass state, devastating numerous farmsteads. In one of the worst hit farming communities, the future of the area’s 2021 harvest is in jeopardy.   

Commissioner Ryan Quarles, Kentucky Department of Agriculture: “There's one grain facility in Mayfield that has over 5.5 million bushels of grain stored in one center. I surveyed the damage myself. We're not sure how, or if we're gonna be able to market that grain, even as, uh, damaged, uh, by the storm because it's exposed to the elements and the unloading equipment, um, is simply not attached to the silos anymore. And we're afraid it could collapse.”

Commissioner Quarles added it could be a long time before officials have a true understanding of the damage.

Commissioner Ryan Quarles, Kentucky Department of Agriculture: “The Kentucky farmers are resilient people. Uh, they put community first. And I think that we're gonna see a recovery effort that is unprecedented because we have no choice that farmers are resilient people, and that we're going to come back stronger than ever before.” 

Late this week, the High Plains and the Midwest endured their own set of storms. Hurricane force winds pushed more than 20 reported tornadoes through eastern Nebraska and Iowa. With little more than barbed wire fencing to slow the 100-plus mile per hour winds, farmers and ranchers watched helplessly as the storms toppled farm buildings and destroyed equipment. The Governor of Iowa signed a disaster declaration for 49 counties affected by the storms.

Eighty mile per hour winds helped create Dust Bowl like conditions in Kansas . Portions of I-70 along with several state highways were closed in the Wheat State due to the dust storms. The wide reaching storms were responsible for leaving over 400,000 homes and businesses without power across Kansas, Iowa, Wisconsin, and Michigan.

Inclement weather also struck the West. Southern California endured drenching rains on already drought stricken ground, creating mudslides and flooding in some areas. 

In northern California, heavy snowfall blanketed the town of Redding and closed Interstate 5, a major artery linking California to Oregon. While the ample snowfall created headaches for travellers, it is a welcome site in the high Sierra mountains where snowpack is lacking.

For Market to Market, I’m John Torpy.

If the pandemic taught businesses anything it was how to pivot. Companies that could make wholesale changes in real-time, discovered they might have a chance for survival. 

John Torpy reports on one dairy that found a way to follow that scenario while helping others. This is our Cover Story.

In the spring of 2020, the COVID-19 virus cut the power line for the longest running economic growth period in U.S. history. Stay-at-home orders slowed economic growth to a crawl. According to the Congressional Research Service, between January and April of 2020, the nation’s businesses shed more than 22 million jobs.

In rural America, revenue streams for some small farms and businesses dried up.

Mike Naig, Iowa Secretary of Agriculture: ”What we saw was a need to help some of our specialty crop producers or on-farm processors with a marketplace there, the restaurants that they sold to the food service, uh, demand just absolutely fell off. And so what could be done to, uh, to help accommodate for that, you know, farmer's markets weren't able to function largely like they normally would expect. And so their marketplace was, was, uh, was significantly disrupted.“

One Iowa dairy saw the economy deteriorating and switched into survival mode. The owners of the small operation changed their revenue model to focus on serving those in need. As the only farmstead-based yogurt maker in Iowa, Country View Dairy found itself uniquely positioned to keep its production line moving and continue to service their markets in seven Upper Midwest states. 

As the pandemic spread, the company’s 17 employees began sending products normally destined for refrigerator shelves in retail stores, to coolers in food banks and schools across the Midwest.

Bob Howard, Marketing Director, Country View Dairy: “USDA came up with the Farmers to Family Food Box program, um, which really benefited us in that we were able to actually still use some of those bulk containers in our smaller sizes and ship it out to distributors in the Chicago area. And then they could distribute it through their areas of distribution there to get it. They create these food boxes for people in need.” 

Country View Dairy is a small farm operation located near West Union, Iowa. The dairy’s owners, Dave and Carolee Rapson, are first generation farmers who moved to the area in 2002 to follow their dream of owning a dairy. The Rapson family are members of the Mennonite religious order, and preferred to not appear on camera for this story.

Country View Dairy narrowed its focus and began supplying just its yogurt to food banks and schools. As they filled the orders from various federal food assistance programs, the Rapson’s realized their products were getting noticed in venues that had previously been out of reach.

Bob Howard, Marketing Director, Country View Dairy: ”Normally, we send yogurt to maybe a dozen schools and, and it was over 30 schools in Iowa./ Schools that we've never worked with in the past. So that was, that was great. In fact, it built some new relationships, uh, and we've got orders for this new school year, regular orders for some of these same schools. So it's been, uh, it's really been a good thing there.”

Some of the new connections were made when the Iowa Department of Agriculture began encouraging schools and food assistance agencies to purchase local food products. The agency hoped to keep businesses afloat that were hit hard by the global pandemic while simultaneously helping those who were food insecure. 

Mike Naig, Iowa Secretary of Agriculture: ”We use some of the CARES Act money to help try to, again, reconnect to, to connect producers with, with buyers locally. And one of those things was to incentivize or provide, uh, uh, some match dollars for schools to be able to buy local. And we know that many of our dairy producers in particular were, uh, uh, took advantage of that opportunity and saw a tremendous increase in their sales.”

Jessy Sadler, Director of Nutrition Services for the Urbandale Community School District in Urbandale, Iowa used USDA funds to help find local food products for her free meal programs.

Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: ”We received $10,000 through the CARES act money. It was a grant that we got awarded and we sourced that from Country View Dairy farm, and we brought the yogurt in and kids absolutely loved it. So we continue sourcing it. We're adding it to our summer meals and then starting next year, we're also going to add it to our breakfast menu.”

Sadler has continued to purchase Country View Dairy products even though USDA assistance programs have expired. Since March of 2020, her staff has handed out over 500,000 free meals at the seven locations served by the Urbandale School District.

Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: “We're providing free meals to all students. Free breakfast and a free lunch, but at the same time, we're focusing on the nutritional part of it. So we're providing all fresh fruits and fresh vegetables. We're making sure it's a hundred percent, whole grain.”

Sadler is using her recent purchasing experience as a template for procuring other local products.

Jessy Sadler, Director of Nutrition Services, Urbandale Community School District: “…that way we make sure that kids are actually learning what Iowa local food is. And we're promoting that part of our farm to school initiative as well/ Our plan is to make sure a hundred percent of the breakfast and a hundred percent of the lunch menu is only Iowa local sourced items.“

Howard is happy about the part Country View Dairy played in supplying food where it was needed and hopes the new relationships built during COVID-19 will continue.

Bob Howard, Marketing Director, Country View Dairy: 

”People are trying it for the first time saying, ‘Wow, this is, this is great yogurt.’ ‘I didn't know such a product like this existed out there.’ And, uh, a lot of these people have never been unemployed or they certainly have never gone to the food bank in their life. And things are, uh, things are getting, as things get better, they're going to find different jobs or maybe they get back, get to go back to their old position and be in a position to go to the grocery store and, and purchase the locally made items like that, that they find in the food bank box.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

The weather also played a factor in the trade, both domestic and globally, as different stories developed as the week progressed. For the week, the nearby wheat contract declined a dime while March corn improved three cents. Technical chart bulls were encouraged by action this week in the soy complex as soy oil helped the fundamental side of the ledger. The January soybean contract added 18 cents. January meal increased $12.70 per ton. March cotton expanded by $1.07 per hundredweight. Over in the dairy parlor, January Class III milk futures fell 47 cents. A lower week in the livestock sector. February cattle dropped $1.65. January feeders weakened by $4.63 and the February lean hog contract sliced off 23 cents. In the currency markets, the U.S. Dollar index added 48 ticks. February crude oil shed 85 cents per barrel. COMEX Gold gained $18.00 per ounce. And the Goldman Sachs Commodity Index lost almost 2 points to finish at 541 even.

Yeager: Joining us now to provide some insight is Naomi Blohm. Welcome back.

Blohm: Thank you.

Yeager: This weather story is what you've been writing about this week. We'll talk about South America weather and its impact on a couple of grains. But then we have this dual story developing in wheat. We've got moisture in the north but nothing in the south, throw in a whatever you want to call it, mini derecho. Wheat loses its life several times. How many lives did it go through just this week?

Blohm: Probably two or three. It was really painful to watch the images on social media to see the winter wheat crop throughout Kansas and how it had to endure the dust and the wind and the parched soils. And so coming in this week, Kansas wheat, Chicago wheat had had a nice correction lower, went down and tested some important moving averages and up trending lines and because of the storm I think that the wheat market had to do an about face to say, you know what, we were feeling comfortable that there was going to be more acres of wheat planted, but now we might be in trouble. The state of Kansas alone plants nearly 7 million acres of the winter wheat. And so we needed all of that acreage and we needed them to have a record crop this year because we still have every single category of wheat with tight ending stocks. So I think the wheat market is going to find support here between the Kansas market and the Chicago market. And we have already priced in the fact that Australia has a larger crop and that is why we had that correction lower. But now we're back to the point of oh boy, what are we going to have here in the United States? And that spring wheat market, the Minneapolis wheat market, continues to trade in a sideways pattern, $10 support, $10.60 resistance because it needs to make sure that it has the acres planted this spring.

Yeager: Do you anticipate -- I know it's early, we just don't used to have the weather system in December, we're used to freezes and thaws and ice storms and things like that. But wind, you saw the pictures you mentioned on social media, I did too. This wheat looked like it was shredded. Is that something it can grow back from?

Blohm: That's what we're all wondering. And so the market can't trade anything about it specifically yet because we are still under the assumption that you can kill wheat how many times and it does come back to life. So we'll have to wait and see how we come out of dormancy over the winter and see how it fares. But bottom line, the crop needs moisture, it needs to have adequate protection of some kind of a snow cover before we get into the hard chills of winter. So the wheat market I think is going to see volatility ahead and I'm looking for prices to have an increase higher as we head into the New Year.

Yeager: Okay, so it's a tough spot. The volatility, it's hard to make any position. But any suggestions of what I need to be doing to protect myself?

Blohm: So, again like I said, I think the market is going to see a recovery bounce higher into the New Year and then at that point we'll stop and see where we're at with our relationship with Ukraine and Russia, we'll see where we're at with our production here and how things are looking around the world along with our exports and that big January USDA report too. So we'll want to hedge once we get prices back up on the higher side of things.

Yeager: Follow any of that same advice with corn?

Blohm: The corn market right now, today one more time knock, knock, knocking on $6 door and it was really important today that it was able to get through some recent short-term highs, but we can't close above that $6 mark. Now, once we can do that the potential upside from a futures standpoint on the March contract points more towards the $6.40 area, which would be a retest of the high from May for this March contract. But for the corn market to continue to move higher three things essentially have to happen. We have to have the dollar move lower. We need a friendly report in January. And of course keeping an eye on South American weather going forward too.

Yeager: Do you anticipate with corn, you saw in the story about Kentucky at one facility, we're talking millions of bushels. That is primarily used for feed in Kentucky, big poultry state. Any lasting impact that we'll see from that storm on grain?

Blohm: It'll probably be from a basis standpoint. And of course the basis in the southeastern corner of the country has a tendency to be stronger anyway. But I didn't realize that that corn might be forever lost. So it was interesting to hear that story today and that perspective. The bigger thing with corn and I've been adamant about this is that my opinion is that the old crop ending stocks are tighter than 1.25 billion bushels and I really want to see that number get smaller on the USDA report in January. And then for the new crop as long as we're staying near this 1.5 billion bushel mark or a little bit less that keeps the market supported as well. So the January report is of utmost importance. Right now I don't have any reason to see why prices would ever need to go higher than $6.40 because that depends on everything I just talked about, the dollar, the USDA report, South American weather.

Yeager: All right, you just said corn was knocking on the $6 door. Beans were knocking on the $13 door today. What was the significance of closing higher today if we could have gotten over that $13 mark?

Blohm: It sets the stage for a technical rally going forward. So, the soybean market has been able to close above and stay above the down trending line that had held us since the May high to the recent November low. So we're able to be above that. We closed above the 100 day moving average. That was a big deal. But $13 is still a big hurdle to get through. The market needs probably more news from South American weather or more demand news to get above that. Brazil has a big crop and we know that that's a reality. What I'm watching is not as much Brazil, but Argentina. Argentina is the world's largest exporter of soybean meal and soybean oil and when they have weather issues the United States has a historical tendency to become the recipient benefit because our exports of soybean meal and soybean oil start to improve and skyrocket and that is a really friendly demand story. We saw India come in twice this week and buy soybean oil from the United States. So there is interest there. There is demand there. Our crush is still fantastic. Our exports, they have been behind a little bit but they have the potential to keep moving. But again, it's Argentina soybean meal, soybean oil that has my attention more than anything.

Yeager: And you wrote about that this week and you did talk about the weather. We're still though talking about problems in Brazil, but problems in Argentina. So, given that story, how do I set myself up here for the remainder of 2021?

Blohm: Yeah, so I think you're not going to be able to have a nice sleepy Christmas, you're not. You have to be on your toes this week and next week because I think the volatility is going to be right on up there with either lighter trade, so that means bigger volatility or we're going to see weather markets really occur. Seasonally it's normal for the market to move higher into the New Year. So here's what you should be thinking about as a producer, if we can't get above this $13 mark in the short-term that might be a place where hey maybe I should move some of the beans that I have in the bin. But also at the same time, as long as we're staying well supported above that $12.50 and essentially the $12.75 area too, it gives us hope that maybe into the New Year we can make that leap above $13 because technically speaking if it can happen it will be a quick burst higher and $14 then would be the target. So you've got to be on your toes the next two weeks.

Yeager: In dairy last week a significant move, not as much this week. What is at play there?

Blohm: Strong export demand. Cheese prices have been strong. We're still also trading the last milk production report, which we have been seeing milk production trending lower and now on Monday we've got the next milk production report coming up. So if we see that production is still trending lower, if we see that we would now have maybe five months in a row where the cow slaughter numbers are getting bigger and bigger and bigger, that maybe would be enough to get us to climb over that $20 price hurdle. But $20 is such a very significant, significant resistance level that we're waiting for Monday and waiting to see what that report has to say. But our exports of butter are phenomenal. Our exports of cheese have been really fantastic as well. And of course domestic demand at the holidays is really good too.

Yeager: Live cattle we've seen a little slower action at the sale barns. Is that seasonal or something else?

Blohm: To me it feels like maybe that holiday demand has been met. And the pullback seemed like it was a little bit more technical in nature because we had gotten up near the highs from summer, so the pullback seemed likely. I think in the very short-term we're going to see cattle prices start to trade in a sideways pattern, the February contract is well supported at $136. On the high side $140, $141 is the resistance area. Ultimately long-term I'm still quite bullish to the cattle market. The demand is strong. I did read though that China has said that they are going to start to allow imports of Brazilian beef again. And so that might be a little bit of a competition for us but at the same time we have just a strong export demand market anyway that it might be okay that they're going to be allowing imports of Brazilian beef, maybe the appetite is finally there in China that it's a constant demand thing, not a short-term thing and they need to have beef imports from us and them, maybe Australia too.

Yeager: We'll go back to feeders in a moment. Let's stick with China and the story in the hog market. There was a report late today I think or maybe yesterday that China is whispering about levying tariffs on pork in '22 over supply issues.

Blohm: Yeah, they're saying that they have essentially been rebuilding that herd enough that they don't need to, they're kind of waving a flag of we don't need to import maybe as much product because our herd is rebuilding. So I don't think in my opinion that that's a big deal for our market because we have been dwindling our export to China anyway. So they're going to still be importing some pork in some capacity. How much of course is the question. What I want to point out though on the hog market is that on a monthly chart we're in the process of posting a bullish key reversal. And the hog market has been consolidating, consolidating and we're seeing production numbers come down, the weights are coming down so it feels like something is lurking in this hog market to make it want to see prices go higher. My fear is that with a lot of people traveling this winter and heading into the Caribbean and cruises and island hopping, of course there is fear that African swine fever makes its way back to the United States. Of course we don't want that and I know our nation's pork producers are doing a fabulous job of safeguards and precautions. But that is lurking in the back of my mind. But technically the hog market is actually starting to look pretty good.

Yeager: Final 30 on feeders. Are you expanding a herd? Are you going to go buy some feeders right now?

Blohm: Personally, no, I'm not.

Yeager: Do you advise anybody to?

Blohm: The feeder contract has also been starting to trade into a little bit of a sideways pattern. We're in a wait and see mode. A lot of it of course depends on pasture conditions, depends on the price of feed going forward. I think the demand is going to be there though.

Yeager: All right, Naomi Blohm, thank you so much. Good to see you. And real quick on the dollar. If you had to set a point where we need to see friendly for agriculture where does the dollar have to be?

Blohm: We need it to go below 95. That is what we're watching for.

Yeager: Okay, all right. Thank you very much.

Blohm: You're welcome.

Yeager: That will do it for the TV installment of what we call Market to Market. We'll keep this conversation going in Market Plus so you can join us there. Find that on our website which is MarketToMarket.org. Facebook may feature some strong opinions, understatement of the year, but we do try to bring solid content with pictures and stories from our work here. Follow our efforts at MarketToMarketShow. Next week we look at how fishing led to winning the World Food Prize. Thank you for watching and have a great week.

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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.