Market to Market - Dec. 31, 2021

Coming up on Market to Market – Record snowfall in the Sierras. Winter weather finally arrives in the Midwest. Trade, meatpacking and COVID dominate our look back at 2021. And market analysis with Don Roose, 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 31 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

This week is traditionally big on family and friends with economic reports few and far between. 

Credit card company MasterCard reported this week holiday retail sales were up 8.5 percent year over year and nearly 11 percent higher than 2019. 

Higher numbers were also found on thermometers in Alaska this week.

Kodiak logged a high of 67 degrees on Sunday - shattering the December record by nine degrees. San Diego’s temperature was seven degrees cooler. 

Winter arrived with authority in several locations this holiday week. 

Here’s Josh Buettner with a roundup.

While the Covid Omicron variant has dashed holiday cheer at airports since Christmas weekend, traditional travel delay conditions followed Santa’s sleigh into the Pacific Northwest and the Sierra Nevada with a prolonged arctic blast and record snowfall. 

Keith Hughes/West Seattle, WA American Legion Hall Post 160:  “The longer this goes on the harder it’s going to be tough on people that they…don’t have a place to get out of this.  So…”

Snow showers, from the Gulf of Alaska, blew into normally mild Portland, Oregon and Seattle, Washington – where up to 6 inches accumulated initially. 

Kaety West/Homeless: “We got a tent right down the street only like a block and a half away, and I’m not even willing to stay in it right now.  It’s just so difficult.”

Emergency shelters opened throughout Oregon and western Washington, with plans to continue through the New Year as plunging temperatures broke a 1948 cold record. 

Ron Shelton/Seattle, Washington:  “Work from home, hot chocolate…maybe a little bit of Baileys.”

Utilities reported several thousand customers lost power between both states as snow and icy conditions gloved up for round 2.  The National Weather Service reported daily cold records continued to surpass previous lows set back in 1968.

Following months of the most extreme drought in the Golden State’s 126-year archive, compounded by water shortages and wildfires, blowing snow froze traffic on key mountain highways in Northern California and Nevada.  Heavy snow added to a 17 foot accumulation at Donner Pass, east of Sacramento, prompting nearby UC Berkley Central Sierra Snow Lab to declare December 2021 the snowiest there since 1970. 

As the continued deluge extended road closures, scientists warned if the area doesn’t get another inch of snowpack in coming months, drought will persist into next year.

Ian Hoyer/Staff Forecaster – Gallatin National Forest Avalanche Center/USDA FS:  “The avalanche was triggered, and broke…came down, caught 2 of the riders – one of whom was buried in this hole where I am now.”

Snow in Montana, north of Yellowstone National Park, caused an avalanche 5 feet deep and 300 feet wide – killing two snowmobilers from Minnesota.

While early western weather woes played out, parts of the Midwest and Southern Plains, like Texas and Arkansas, broke yuletide records for unseasonable warmth – though things took a turn by mid-week as heavy precipitation and flood warnings were forecast in the Southeast.

For the first time in recorded history, Chicago, Illinois went an entire fall season without measurable snow, but over 200 plow trucks and 400,000 tons of salt were deployed as the Windy City’s snowless drought came to a close, along with 2021.

For Market to Market, I’m Josh Buettner.

We presented around 100 lead stories this year. A few themes stood out more than others. 

Trade was impacted by supply line strains while packer margins again came to the attention of Congress.

Peter Tubbs looks back at 2021 in our Cover Story.

While the political year opened with the chaos of an insurrection and attempted coup, the COVID-19 pandemic cast a long shadow over the nation’s politics and economy.

Chief Justice John Roberts : "Preserve, protect and defend."

Joe Biden: "Preserve, protect and defend."

Chief Justice John Roberts: "The Constitution of the United States."

Joe Biden: "The Constitution of the United States."

Chief Justice John Roberts: "So help you God."

Joe Biden: "So help me God."

Chief Justice John Roberts: "Congratulations, Mr. President."

On January 20th, Former Vice President Joe Biden of Delaware was sworn in as the 46th President of the United States.

One of his first Executive Orders withdrew the permit for the Keystone XL pipeline, which would have added capacity to pipelines delivering Canadian and U.S. crude oil to distribution points in the Gulf of Mexico. Environmental groups had argued that the pipeline crossed environmentally sensitive areas and wasn't needed in a petroleum market that has struggled with overproduction.

President Biden also issued orders ending new construction on the Mexican border wall, a focal point of the Trump Administration.

The rollout of the COVID-19 vaccine, which began in December of 2020, accelerated in the spring of 2021. But vaccinations quickly became political. Just over 60 percent of Americans have received two doses of a vaccine.

An economy that rapidly slowed when the pandemic struck in 2020 reopened in fits and starts. Workers whose jobs disappeared in 2020 were cautious to return to the workforce for both economic and medical reasons. Employers struggled to coerce staff back into the labor market, and resorted to raising wages to fill jobs. 

Companies that saw revenues and profits drop in 2020 reported record earnings in 2021, as pent up demand fueled strong sales. 

The high demand for everything from cars to cuts of beef drove inflation to levels unseen in 40 years. The cost of housing, used cars and fuel led the spike. Oil prices doubled from pandemic lows, but without the production and shipping problems that plagued the rest of the economy.

Justin Tupper, Vice President, United States Cattlemen’s Association: ”When the big four can have all that captive supply, so they do not have to compete for those cattle, then they can push down the prices.”

Meatpackers saw record profits in 2021, as their margins have risen 50 percent and net profits 300 percent since the beginning of the pandemic. Tyson saw record profits in 2021 despite shipping fewer pounds of meat compared to 2020.

Live cattle prices are up roughly 10 percent since the beginning of the pandemic.

Vice President Kamela Harris: “Congratulations Mr. Secretary.” 

Tom Vilsack returned to the USDA as Secretary of Agriculture. Vilsack, who served 8 years under President Obama, targeted the meat industry during his confirmation hearing.

Sec. Tom Vilsack, Nominee, Secretary of Agriculture: “I think we need an alternative processing opportunities. Why not, just from the competitive standpoint, but also from a resilience standpoint. We found that when one or two processing facilities, uh, shut down during COVID, that it just, it, it created havoc in the market. We can't have that.”

Senator Chuck Grassley of Iowa introduced a bill in May to mandate that beef slaughterhouse purchase half of their animals on the cash market.

According to cattle market researchers,  slaughterhouses currently purchase less than 30 percent of their cattle supply on the cash market, and are approaching cash purchase rates seen in the poultry and pork markets.

This is the eleventh time Sen. Grassley has proposed this bill during his tenure. 

In September the USDA created a $500 million dollar pool to start and expand small meatpackers in the US. The assumption is that more smaller slaughterhouses would lessen the pricing power of the four largest meat processors.  

The meatpacking industry opposes government involvement in their market.

Moving food and goods from the factory to the retailer was also a struggle in 2021.

Jon Samson, American Trucking Association:  “Our economist looks at the number of 80,000 short after the pandemic.” 

A shortage of truck drivers was often cited as one reason for supply shortages that spiked the cost of goods. Federal trucking rules were loosened during 2020 to facilitate more efficient movement of truck traffic, and the industry hopes those rules can remain more liberal.

But while recruiting the next generation of drivers to the industry is a challenge, the shortage cited by the industry is only a 2 percent gap. 

A crush of goods trying to enter US ports has been another pinch point in the economy. The complex dance between ships, ports, trucks and railroads has struggled to keep up with the increased volumes. International shipping companies reported the highest profits in a decade as rates to ship goods from Asia to the rest of the world skyrocketed.

The weather was very different across the country. The East and Southeast saw above average moisture as eight tropical storms and hurricanes made landfall. $70 billion dollars of damage made 2021 the fourth most expensive hurricane season on record.

The western two-thirds of the country saw below average rainfall. Another winter with under average snowfall left western rivers and reservoirs with low water levels. Grazing in the West became more difficult while many ranchers reduced their herds as pasture quality declined. The long term forecast holds difficult decisions for cattlemen.

Drought conditions drove massive fires in the West throughout the year. 7.8 million acres burned in the United States, which is 5 percent above the 10 year average.

Despite dry conditions through much of the corn and bean belt, the grain harvest was large. Both corn and soybeans delivered the second largest crops on record. The huge crops were met by high global demand, which supported high grain prices and strong local basis. Yet net farm profits were expected to decline compared to 2020, as multiple years of high government payments to commodity growers grew to a close.

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

Grains rallied on weather reports before selling off at the end of this holiday-shortened trading week. For the week ending Thursday, the nearby wheat contract dropped 32 cents while March corn declined a dime. A little re-balancing coupled with mixed reports of moisture in South America impacted the soy complex. The March soybean contract weakened two cents. March meal added $3.20 per ton. March cotton expanded by $5.22 per hundredweight. Over in the dairy parlor, January Class III milk futures improved 84 cents. A mixed week in the livestock sector as February cattle added 35 cents. March feeders gained $5.25. And the February lean hog contract lost 53 cents. In the currency markets, the U.S. Dollar index added 6 ticks. February crude oil expanded $2.85 per barrel. COMEX Gold improved $4.30 per ounce. And the Goldman Sachs Commodity Index gained almost 12 points to finish at 569-even.

Yeager: Joining us now to provide some insight is Don Roose. Hey, Don.

Roose: Paul, great to be back. Thank you.

Yeager: We usually start with wheat, sometimes we go with something that is not as, or a much bigger deal. Wheat was the big deal this week. We have Egypt and Jordan buying, not normally buyers of U.S. wheat. What else is playing in that factor of impacting the trade?

Roose: Well, when you look at the wheat market first of all, Egypt is the biggest wheat buyer in the world. So I think they thought we hit some value finally. But if you look at the wheat market really, November 24th we topped out on wheat up around $8.80. We dropped a dollar and a quarter. We rallied 50 cents. And then this week again technically we came back down under some pressure. So it's a market that is struggling and we had bigger wheat crops in Australia, bigger crops in Argentina and it was the wet weather, weather market rally again that put the top in the wheat market in November.

Yeager: There was also a little chatter this week that maybe there were some people who went into the holiday week last week on the long side of Russia/Ukraine thinking that something was going to happen and it didn't. Was that also at play here?

Roose: Well, I think when you're looking at the geopolitical, the two geopolitical things we have going on is Russia/Ukraine. If Russia would invade Ukraine of course that would probably be very positive to the wheat market, Russia being the largest wheat exporter. It would be an unreliable supplier. And the other geopolitical is China with Taiwan. So yeah, I think it gave us a false support for the market. But funds are now short wheat pressing the market and the trend is your friend and the trend is down.

Yeager: All right, the trend is down. So what are you hearing that people are maybe doing? Are they selling something before it gets below $7.50?

Roose: Well, I think where we're at right now the end user, the millers if you will, they are scale down buyers. The other side of it after this big break, the producer is on hold, I think took advantage of some of those rallies, and now we're a bit oversold, Paul. So these markets have been where you don't chase breaks, don't chase rallies and they seem to come and go for that chance.

Yeager: That sounds like some sage advice there, don't chase. But I have a question here that came via Facebook. Roger in Hancock, Iowa asked us this question this week. He says, now that corn has broken through $6, will that become support on the selloff after the reversal at the high last week?

Roose: Well, yeah, that's a good question because we struggled to get over $6 in March wheat. Once we got over it we powered up close to $6.17 on March wheat, $6.40 remember is the old high. So it is a market that structurally started to change and there's no carry in the market so movement picked up and consequently I think it's a market that was a bit mature, turned into some sell signals and technical route was onto the downside to end the week.

Yeager: Right. Why such a dramatic change on Thursday?

Roose: Well, I think the biggest thing is the market was really loaded to the positive side. It was very similar to our 4th of July type of weekends, wasn't going to rain, not going to rain, the crop is small, getting smaller and then you get spooked by a little bit of moisture. So a minor change in the weather forecast, it was a little bit predicted. But a lot of liquidation came on, on rain makes grain theory.

Yeager: Rain is also an issue in the soybean complex. South America, we have a question that we'll ask in Market Plus about the weather in South America. There is differing reports. You read that some are having too much rain, can't get the crop out in their first harvest. Others haven't had rain in weeks and weeks and weeks. What's the story?

Roose: Well, I think that is the big story in the market because we need South America's crop to buffer the short crop that they had last year and then our crop was not quite as short. But where we're really at is we have a high pressure system. It's big country, it is from like Canada all the way down to the southern part of Texas. We had a high pressure system that set up around southern Brazil, Paraguay is in between it. And then you've got that ring of fire where you're getting too much rain up in the north. By the way, we're going to start harvesting soybeans in the far north next week. We'll see if it's too wet. But those high pressure systems moved around just a little bit this week. And so it provided some moisture in Mato Grosso into southern Brazil, if you will, the dry area and parts of Paraguay. It looks like that's going to continue for the next five to six days. The real question mark is, does that high pressure stick or not? And this market is probably as good as the next forecast.

Yeager: Given what you said, we normally in January that window starts to close on what we can get rid of here in the United States. Have we missed the boat on sales to the high side of this?

Roose: Well, from an exporter standpoint our export sales slowdown greatly because you're right up to the competition with Brazil. That is on soybeans. Then on corn, Argentina remember they start harvesting in March. So you are putting bigger world supplies in the marketplace and that is what put the top in the wheat market when Australia got a big crop followed by Argentina and you got more wheat in the world market. And so that, really we dialed in an awful lot of premium, Paul. And the technicals broke down mid-week and the structure of the market was just poor with big carries in the soybean market and basis levels encouraging producers to move cash grain and I think they've been doing it with no carry in the corn market.

Yeager: I haven't heard you mention China at all in that. China hasn't really been buying much U.S. beans. Have they already shifted their attention to South America as well?

Roose: Yeah, they have shifted their attention to South America. So our window has changed for us. And bringing up that, we has a phase 1 which really powered us to the upside because they were buyer after buyer of soybeans, on corn, on a lot of commodities last year. They met about 83% of their commitment here on phase 1, phase 2 looks like it's pretty well dead. But you bring up China, remember last year it was China that had a short crop, Brazil had a short crop, we had a minor short crop so it was an all-in, a year ago we forget nearby corn was $4.50 a bushel. Now we don't think it can get to $4.50 a bushel.

Yeager: But things can change quickly. What are those big factors, either it's corn or soybeans, that could dramatically change? Because if you look at the spike that we just saw in that soybean chart, the air can come out in a hurry.

Roose: Yeah, you take the stairs up and the elevator down in this business because it's an all-in, all out. And I think the big things that you have to remember, what put us on our knees 20 months ago was COVID, that's still roaming around, that is a big issue that you have to watch out for and I think that is the fear for the producer. What if you take 50 to 75 cents off the corn market? What if you take a buck, buck and a half off the soybean market? What does that do to your bottom line? And you can do it pretty fast so make sure you know where your targets are from breakevens and what you need to do.

Yeager: Pick up the phone and put some protection on just as a way to guard yourself, right?

Roose: Yeah, exactly. I mean, can you live with the market if it sinks 50 to 75 cents on corn? Can you live with the market if it sinks a dollar to two on soybeans? Sure, the upside is there, but it's almost the opposite of last year. We've been going up since 13, 14 months, 15 months now and last year we were going up, now we've already got an all-in already in. Can it continue? Inflationary environment, low interest rates. COVID is back. It's the hype, it's the run, you've got land values, machinery, everything is just up, Paul.

Yeager: So was cattle this week, so were feeders, but we'll start with cattle. Kind of Tuesday was a big day for the cattle market. Why?

Roose: Yeah, the cattle market I think it put, a lot of these meat markets if you look at them, the cattle in contract highs, of course had a little bit of a setback, feeder cattle in contract highs, hogs in contract highs. Part of it was the inflationary environment, the premiums are into the market here with the grain moving to the upside, you need a higher value from a breakeven. But we started to take a little bit of that grain premium out of the market to end the week, started to bubble up here talks of some of the packer concerns maybe with COVID again bubbling up a little bit. The cash market feels like it has kind of stalled a bit. But really from the first quarter to the second quarter usually supplies, or fourth quarter of this year to the first quarter supplies drop. About 75% of the time, 70% of the time you put your top in cattle in March. So we'll see if that seasonal holds. We put a little weather premium in on the weather changing a bit and then we took it out a little bit towards the end of the week.

Yeager: Well, feeders have some of those same factors. Let's start with the feed side, the grain issue. It seemed that the feeders rallied on the day that the grains dropped. Those hadn't always been in concert the last six weeks. Why were they this time?

Roose: Well, I think it was more of a true type of a market. One, we're close to contract highs, you still have some technical buying in it. But then the corn market came under pressure and the feeders did move to the upside. So we're probably going to have the feeders with the winter wheat conditions where they are, you're probably going to have pasture cattle come off the wheat early, probably going to go into the feedlot earlier. Fourth quarter cattle, if you look at it there up around $144 for the fourth quarter, the government is saying $130 to $134, so we've got some premium in the market out there and I'd challenge everybody to remember risk management strategies out here because this thing can change, agriculture is cyclical so you have to keep that in the back of your mind.

Yeager: Is there anything about flipping the calendar, new year, January is always, I know there's these old trade sayings that things happen, you've mentioned a couple already. But is there anything in particular about January that we have to re-evaluate or prepare ourselves in livestock or grain for that matter?

Roose: Well, I think in all of these markets we're going to see an asset class rebalance out here. We're seeing some of the equity market money come into the commodity market. Will that continue? We've blown a lot of stuff up. There's just a lot of things that are disproportional out here, Paul. You've got depreciating assets like machinery that are appreciating. You've got interest rates at zero. I think the fear next year is can you lose some of those type of things that don't seem right? Could interest rates go up? The government is saying it's going up three times next year. What does that do for your bottom line? And it's a dicey, dangerous market out here with a lot of geopolitical things out here in the world also. You've still got a lot of disease and a lot of countries trying to expand agriculture production.

Yeager: Same with the hog market because that has become a hot bed in a couple of areas that are developing. We still call China a developing country. But what is going on in hogs as we see the chart roll this week? It's a high we haven't seen since November.

Roose: Yeah, the hog market, we had that quarterly hog and pig report and it was basically positive, even when you get out to the March/May farrowing intentions. Of course, that one can change yet with the sows. But down 2%, so I think when you look at it it's a market that is putting some grain premium in. China is non-existent as far as a buyer on pork as their herd has expanded. So got to be concerned of hogs up around $100 is a target for the summer months.

Yeager: Okay. So China is not buying. Are domestic shoppers going to be stocking up? Let's go back to COVID. If we're worried about whatever impacting the meat business, are we going to start stocking up here on anything?

Roose: Right. You know, in fact, actually that's a good point because really underneath the market has been very, very strong domestic demand for all the meats, pork and beef. We've got China back up buying U.S. beef, they have been our biggest buyer here, even in the face of Brazil back exporting again now. But it has really been the domestic market that has really held together. Mexico has been a big buyer of our pork, our neighbors. So that's a good thing. So, yeah the hog market fundamentally is probably a little bit toppy.

Yeager: All right, Don Roose, good to see you. Thank you so much for your insight.

Roose: Thank you, Paul.

Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus so join us there. Find that on our website of MarketToMarket.org. We've pinned a lot of stories on weather this week on our Flipboard magazine. Each day we put stories we're reading as producers of the show and those that you might find interesting. Search Market to Market Reading Material on Flipboard. Next week, we look at the decline in CRP acres. Thank you so very much for watching and have a great week.

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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.  

(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.