Market to Market - May 21, 2021

Coming up on Market to Market -- Heavy rain floods the Bayou while the High Plains beg for rain. Beef packer consolidation comes under further scrutiny. Selling hogs on Facebook and surviving a derecho made for an eventful 2020. 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, May 21 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

You’ve heard it here before, “the cure for higher prices is higher prices.”

The high cost of lumber along with other supply constraints has slowed home construction. The rate of new builds dropped 9.5 percent in April, however the applications for building permits ticked higher.

Existing homes sales dropped again - marking three straight months of declines.  The number of properties listed hit a record low, driving prices to new highs.

Strong grain premiums along with low interest rates have propelled the Rural Mainstreet Index to a record high. The 78.8 reading marks the sixth straight month of improvement of the 10-state survey.

Much of the same region surveyed entered the week in need of a significant rain event.

Asked and answered.

John Torpy reports.

Tornadoes and rain swept across the South early this week leaving property damage and flash flooding in their wake. Governor John Bel Edwards declared a state of emergency across parts of Louisiana where the storms took four lives. In Arkansas, at least 15 people were rescued from flooded areas. More rain is predicted for the region in the coming days.

Despite late week precipitation, drought tightened its grip on several portions of the country. Across the Midwest, most of the rain fell in regions without drought.   Like here in northwest Minnesota which was in moderate drought, heavy rain fell Wednesday.

Farther west, high temps, which melted the snowpack at a higher than normal pace, have only served to starve the region of water.    

Meteorologists with the National Weather Service believe the Atlantic hurricane season will be busier than normal, but not as bad as 2020’s record-shattering year.

According to a recent study by the National Oceanic and Atmospheric Administration, 2020 was the second-warmest year on record. The NOAA white paper revealed seasonal temperature extremes have changed the global landscape for plants, animals and people.

For Market to Market, I’m John Torpy.

Sterling Beef Profit Tracker reported packer margins at $563 the week ending April 9. A year ago that figure was $325.

Concentration of the companies that slaughter cattle has long been a complaint among beef producers, and the issue has now gained more advocates in Congress.

Peter Tubbs has more.

This week, seven senators and eight representatives signed a letter asking Attorney General Merrick Garland to investigate “potential instances of improper and anti-competitive activities” in the live cattle and beef industry. The letter states there have been no public updates of a similar request made by the Trump Administration’s Department of Justice in May of 2020, and the members of Congress would like any investigations to continue. 

Packers saw record profits in 2020 as slaughter capacity dropped due to COVID-19 shutdowns. Live cattle prices dropped 25 percent at the onset of the capacity crisis, and have spent the past year climbing back to pre-pandemic prices.

The shift to boxed beef encouraged rapid consolidation in the 1980’s leaving the beef packing sector concentrated in the hands of four companies for thirty years.

According to the Department of Justice, the top four companies that control 80 percent of beef processing in the U.S. are Tyson Foods, JBS SA, Cargill and National Beef/Marfrig.

Representatives of the cattle industry met earlier this month to craft possible solutions to the concentration in the meatpacking industry. They include renewal of the USDA’s Livestock Mandatory Reporting system to track packer direct purchases, commissioning a public report on the Department of Justice’s investigation into the beef packing industry, and the development of new independent packers.

The National Cattlemen’s Beef Association is encouraged by the probe.

“It’s in the best interests of both producers and consumers for the Department of Justice to get to the bottom of the current market dynamics, and assess why they seemingly always result in producers getting the short end of the deal.”

Cargill declined to comment. Tyson Foods, JBS SA, and National Beef/Marfrig did not reply to our requests for comment.

For Market to Market, I’m Peter Tubbs. 

When the livestock packing industry made sudden changes to its production schedules in April 2020, many producers began a desperate search to find destinations for their livestock.

One Iowa producer tried tapping into the nearly 734 million Facebook users for help. By the time many of the pigs found a new home another Black Swan event arrived.

John Torpy has more in our Cover Story.

A little over a year ago, Market to Market visited Iowa hog producer and grain farmer Jacob Benda to learn more about how the global pandemic was impacting his operation. At the time, nearly half of the nation’s packing houses were closed and consumers were looking at a cut in supply. The situation put Benda and his father Brad directly in front of some tough decisions.

Jacob Benda, Benda Family Farms: “That awful realization of if you had to actually euthanize pigs to, you know, get to be able to take that next group of babies coming in or you would try and find somewhere to put them for a temporary holding. Um, there's so many, so many different things that you can do. And then, you know, ultimately if none of that can be found, then you have, you'd have to euthanize the animal.”

Benda had another idea. He turned to social media, and began reaching out to potential customers through Facebook Marketplace in a desperate attempt to find buyers for his hogs…and it worked.

Jacob Benda, Benda Family Farms: “It started off with, you know, friends sharing and then friends of friends shared it and the friends of the friends of the friends that shared it shared. And um, within, I believe two days it was over a couple thousand shares./If I was able to go through and actually respond to everybody on Facebook, I would have that building, that 1,200 head building, sold over probably twice.”

 

One year later, Benda says, the calls from people wanting to buy pigs directly from him kept coming even as the packing house bottleneck began to ease.

Jacob Benda, Benda Family Farms: “The traffic, as far as requests for people wanting to buy pigs, didn't slow down at all. I mean, it picked up quite a bit. I mean, I had to go through, I had to take down that pro for that post, you know, because it was just getting blown up out of proportion. Um, and uh, I've got, I sold all of the pigs that dad and I kind of pre-determined we wanted to let loose and, um, still had people calling and messaging all the time, wanting to know, Hey, can we have four or five? You know, we want to buy ten.”

Jacob Benda farms roughly 2,700 acres and raises 5,000 head of hogs annually with his dad and uncle on a farm a few miles north of Toledo, Iowa. Benda says farming during the global pandemic is getting better,  but he is still adapting his work flow to changing times.

Jacob Benda, Benda Family Farms: “You know, things have gotten back to normal, I would say more normal. Um, it's still a little bit of a, uh, not a nightmare with scheduling to getting pigs into the processor, but just more of a, instead of a, I could call up, you know, two weeks before now I need to be at least a month in advance.”

As the Benda operation settled into a new routine, one of the worst storms in the Hawkeye State’s history changed everything again. On August 10th, 2020 a straight line wind storm or Derecho levelled almost all of Benda’s corn crop.

Jacob Benda, Benda Family Farms: “I mean everything was flat, basically. It was just flat and, um, it was, uh, uh, kind of, uh, uh, like a blank stare, like what do we do now type of a thing. Um, and you know, it, we had the insurance adjuster come out and take a look and we, um, we got declared zero on all, but about, you know, ten percent of our farms, so just shy of a hundred and some acres. Um, and so we combined that. Disked the rest all underneath. And I mean, talk about, uh, talk about a sick feeling in your stomach, just disking up corn. I never ever want to do that again.”

All the corn lost in the storm had been slated for feeding the hogs he and his father were raising.

Jacob Benda, Benda Family Farms: “All right, so we've got to buy corn. Now. We don't have, you know, we feed about 50,000 bushels of corn for those pigs per year. And so we didn't have those bushels. So we had to go out on the market, start buying them. Well, you know, we got some bought, you know, not too long after that, when corn was still, you know, $3.90. /”It's like, Ooh, this is, um, costing us a lot of money now because pigs were still down low as far as price hasn't, you know, hadn't had moved very much. They were still not worth a whole lot. And then now we're having to put $5 corn into it, $5, 50 cent corn. And so that was, that was rough.”
The August storm also destroyed several buildings on their farm, causing the Benda’s to scramble to find shelter for their most recent delivery of hogs.

Jacob Benda, Benda Family Farms: “They'd been there about a week. And, um, the, uh, with the whole incident, uh, we lost about 10 from the storm. Um, they had to spend the night that first night in the open. then the following day, we were able to find a, uh, uh, open building up in Marshalltown and actually get those pigs moved up there.”

The storm's impact was felt well into fall, as debris from the hog building added headaches during harvest.

Jacob Benda, Benda Family Farms: “And so when the neighbor was, was combining that field, a couple of us went and would basically walk in front of the combine while he was combining each pass where that whole, you know, debris field was./ It made harvest very interesting, you know, for what we did harvest.”

And with all the solutions to the headaches of 2020 now on his resume’, Benda is cautiously optimistic about what lies ahead for the 2021 growing season.

Jacob Benda, Benda Family Farms: “Looking back now, seeing where we are at now, seeing where commodity prices are now and going back six months/, It makes, it just makes a guy wonder even more going forward. Okay. Is where we're at now, Is it sustainable? Is it going to sustain this way or are we just building a bubble on a Hill to fall back down on? Um, so I mean, it just makes a guy think more and yeah, it's one more thing to keep you up at night. So no big deal.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report. A wheat belt tour revealed the potential for a large bounty while China made major U.S. corn purchases. For the week, July wheat fell another 33 cents while the nearby corn contract added 16 cents. Big China sales, more acreage and rainfall weighed on the soy complex. The July contract dropped by 60 cents. July meal lost $19.60 per ton. July cotton expanded by 39 cents per hundredweight. Over in the dairy parlor, June Class III milk decreased by $1.27. An up week in the livestock sector. June cattle increased $2.38. August feeders put on $2.55. And the June lean hog contract gained $5.50. In the currency markets, the U.S. Dollar index fell 29 ticks. July crude oil dropped $1.56 per barrel. COMEX Gold improved $38.70 per ounce. And the Goldman Sachs Commodity Index declined almost 8 points to finish at 506 even.

Yeager: Now here to provide insight is regular market analyst Naomi Blohm. Hello.

Blohm: Hello.

Yeager: Wheat tour. Do you miss going on tours? You went on your own tour this week to get here.

Blohm: Yeah, absolutely, it was nice to see the planting pace across Wisconsin and Iowa. But you're right, that Kansas wheat tour is, they found a lot of yields.

Yeager: Was there any surprise there because you always talk about you can kill a wheat crop six times or whatever. But when you get rain, and let's face it Kansas has gotten a lot of rain this week, the majority, and so have other parts of the belt. So is that what has really put a lid on any rallies right now?

Blohm: For the short-term that is definitely part of it because we were I think maybe expecting to see a little bit of yield reductions. However, just because they did find the yields like 10 bushels better than the USDA numbers that definitely is going to put a lid on things for now. Part of me gets curious now that they've had all this rain do we start to hear about the wheat maybe getting vomitoxin or some kind of a poor quality condition down the road. But for now it's putting a lid on price. Wheat futures overall have done a nice correction on long-term charts here just like corn and soybeans. 50% correction retracement numbers. And so I think we're going to find some support here going into next week but we don't have any fresh news to make us rally. Things to be watching around the world though, Northern China is actually a little bit wet and chilly and Southern China is getting too much rain again. And then over in Russia they are actually in the upper 80s and 90s and haven't had a lot of rain. So that might be something to watch down the road. But as far as wheat goes that crop tour definitely put a lid on prices.

Yeager: So looking at an extension of that retracement are you in a position either near or say on the September contract to be, are you ready maybe to book an order here soon?

Blohm: Here's the deal with all of these grains with the correction that they have had we're at a major kind of a teeter-totter point for everything. We're either going to see the market find enough news to propel and work higher and make the next leg higher for the Elliott wave technicians like the final leg on the upside or we're going to see prices drift a little lower. So the next week to two weeks is very telling and so we'll just kind of wait a little bit and see what that has to say.

Yeager: All right. I've got something here, Chris Robinson write, another analyst, this is going into today -- corn took 8 weeks to rally to $1.88, roughly 40 trading days. In just 8 days we gave back 62% of that rally or a drop from $6.28 to $5.20 and three-quarters yesterday. You talk about this teeter-totter. I feel like are we on the downside of that totter or is there something underneath that table that we just don't know yet?

Blohm: Well, his point is true. It's a 61% retracement on these charts. So on the corn rally that we've had since August there have been four major rallies along the way, each rally had a 50% to a 61% Fibonacci retracement correction. That is exactly what this market has done right now to a T. So going into this next week if we can find some additional fresh news, the market is going to start to find some bottoming chart action and that will be good going forward as we start the month of June and have new fund activity come into the marketplace. So, again, with the wheat, with corn, with soybeans, everything is at a really kind of a hinge point right now. So we need some fresh news soon. That would help to resume that uptrend that's for sure.

Yeager: What fresh news was the fact that China was buying some corn, way off the charts this time of year for them, is that something that you see continuing?

Blohm: We do think that China will continue to be buying corn. They bought the equivalent in two weeks of 425 million bushels of corn. So that is essentially one-sixth of all of the new crop demand for exports. So China gobbled it up in two weeks. We expect that to continue, not just China, but other countries as well. What I think is most curious to me is that China is buying that corn now versus waiting until harvest to traditionally see a better price. So I'm thinking maybe the Chinese crop between all of their grains is, again, worse than what we thought or maybe they're thinking that prices here are going to rally higher just because of how tight the ending stock situation still is for old crop and potentially even for the new crops.

Yeager: And I agree with that. I'm not here to break down the markets. I just see normally China tries to buy a dip or force a dip and buy that. But to be buying where we're at right now to me does signal, you talked about it in wheat the rain problems there. So on this new crop side, there was some rain this week in some areas that needed it. We're still a long way to go on this crop, nowhere near ready for pollination. What are you doing to protect a price here? Are you making a sale on this new crop right now because we're still at great prices?

Blohm: Absolutely, still great value, still great prices. Going back to this technical chart action give the market a little bit of a week or so to see if we can find some strength and footing here to take another leg higher. But if you are thinking that you want to protect some value make the cash sale, look at reownership going out into getting through 2 USDA reports in June and then of course pollination in July. And one other thing to emphasize with the corn market is that there had been rumblings of high, high planted acres for the June 30th report. So I got really curious, I looked back at history and to have such a big jump to go from 91 million acres up to 96 or 97 would be unprecedented. If you look back at the last 17 years, 12 out of 17 years the USDA does do an increase in acres from the March report to the June report. But the average increase is only 1.1 million acres, not any big gigantic jump. So if it is a smaller number like 1 or 2 million acre increase we have zero ability to have any weather issues at all this summer because it would just make that new crop carryout that much tighter and give market prices that much support going forward, which I think could be something that China is watching. I think they are very well aware of that whole scenario.

Yeager: Well, they taught us trading, as Don Roose likes to say, we learned trading from the Chinese. So in the soybean area let's stick with your question about acreage. Do you see acreage expanding? And how much does it need to expand from USDA in March to USDA report in June on soybeans?

Blohm: Yes, I see expansion for acres from the March numbers to the June numbers. And again, looking back at the last 17 years history has shown us that 9 out of those 17 years the acres do increase and the average is 1.2 million acres. So again, not big numbers. There was one year, 2014, where there was a 3 million acre increase but that was about it. Otherwise it's pretty tame and tepid. So again, I don't think we're going to see these huge acre increases, which just puts more awareness onto the weather here in the United States and of course around the world as three-quarters of the world is grown in the Northern Hemisphere.

Yeager: You talked about a couple of technical things. We had two days this week below the 10 day moving average which was significant and from a technical standpoint if we keep putting on a third and a fourth, we get into that trend, do the computers start screaming this is headed lower?

Blohm: That's a great question. So yes, a lot of those technical things come together between moving averages, Bollinger bands, MACD lines, stochastics. And so those are things that we are all watching right now and the funds are watching those as well. So again, that is why as I was telling you these markets are at this teeter-totter point because of all of these technical indicators. So they're all screaming and trying to figure out are we going to be a buyer here or are we going to be a seller? So we do need a little bit more news over the next week to two weeks to justify another leg lower or a resumption of the uptrend.

Yeager: Okay. We always like to ask you a dairy question and this week is no different. Gary in Michigan is asking, will milk prices soften as we start taking first crop hay off the fields? Basically is herd reduction over now that the dairymen have "made it" to the coming crop year?

Blohm: So, with the milk market right now actually what we've seen is lower prices because we just had a milk production report come out this week and we were thinking that because the grain prices were higher and because we were getting lower on hay supplies and things like that that we would maybe see production work a little bit lower and the opposite happened. We had milk production up 3.3% which is huge and so that is going to weigh on prices. So going forward for the rest of summer now we're all still waiting to see are we going to see milk production at all taper down a little bit just because of these higher values of feed? So that is something the market is watching. But in terms of have we seen any herd reduction? Actually no. On this report this week we found out that there are 13,000 more head of cattle than the month prior. So we haven't really seen too much of a reduction just in the short-term. From COVID a year ago things are different and we're kind of back into the full swing of things. Milk prices maybe are going to be a big softer here just because of this big milk production number that came out. But ultimately things still in the long-term uptrend just like the rest of the commodities are.

Yeager: Another report on livestock, cattle on feed came out today. What was the surprise or take away from that report for you?

Blohm: Well, cattle on feed the on-feed number came in at $105, the placement number at $127, the marketed number at $133. All of those either at or above expectations. And the thing to remember about this month's report is that it is kind of skewed because it reflects a year ago as we were coming out of COVID. So the bigger thing with the cattle market to be watching continues to be our exports. We had phenomenal exports this week, the best ever, and that was partly because the Netherlands was a big buyer and at first we thought, well is that a type or what's going on there? But here is what is going on with the Netherlands, they actually normally buy from South America or from Australia or New Zealand, and Argentina as you know, no more exporting of beef for 30 days. So we're seeing other countries come ot the United States. And then with New Zealand they have a quota system that they are implying right now and so they are saying we'll only work within our quota system and not do anything more. So now maybe we're going to see some buyers who maybe would buy from us but not to the extent that they had been showing up. So with the cattle market it has been in a short-term sideways trading range. Keeping an eye on those exports is really important for right now because that will be determining demand and prices going forward.

Yeager: Exports have been strong in the hog market as well. But another $5 this week.

Blohm: Yeah, it's amazing how the July contract, the August contract, new contract highs, that is the only market that hasn't had a huge correction. So it is all about the exports there and it is kind of like a repeating record. Every week we say, well if the exports slow down watch out, the prices will fall. But the demand is still there.

Yeager: It's still there and we haven't even hit the peak grilling season, which we talk about with beef, but pork, we grill both of those things. But who knows. All right, Naomi, I'll stop because if I keep asking this question you'll never have a chance to answer. Thank you so much.

Blohm: Thanks for having me.

Yeager: Good to see you Naomi Blohm. We will continue, I heard there's some questions from Wisconsin that are very tough coming to her in Market Plus because we are done here on the TV show and we will have Market Plus. Find that on our website of MarketToMarket.org. Now, a reminder, information comes from all different sources and we have compiled many of the stories we're reading into a Flipboard magazine called Market to Market Reading Material. That is the logo on your screen. Click on the capital F that looks like that on our homepage of MarketToMarket.org. Next week we look at an old mapping grid being put to use in new ways. Thank you so much for watching and 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.

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.