Market to Market - May 28, 2021

Coming up on Market to Market -- Shedding light on the complicated nature of trade with China. An old mapping grid put to use in new ways. 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, May 28 edition of Market to Market, the Weekly Journal of Rural America.

Hello, I’m Paul Yeager.

A delivery delay for items like appliances and furniture have compounded the challenges of building a new home. If it doesn’t come, you can’t build it.

Sales of new homes fell 5.9 percent in April as the high costs for building materials like lumber, copper and PVC pipe have driven up prices.

Orders for durable goods dropped 1.3 percent last month. Some of the fall was attributed to the lack of computer chips for vehicles which slowed auto production.

Consumer spending kept its streak of gains alive with a 0.5 percent improvement in April. Growth in the airline, hotel and restaurant sectors drove the increase.

Goods from China fill U.S. store shelves. But getting more American products like agricultural goods into China has proven to be a challenge for years.

Just this week, U.S. trade representative Katherine Tie reiterated she was reviewing the current agreements and tariffs.

One member of the Trump team, who spent more than three years as the Ambassador to China, is shedding light on the complicated relationship between the two economic giants.

Josh Buettner reports.

Amb. Terry Branstad/Former U.S. Ambassador to China/Former Governor of Iowa:  “One of the big things for Iowa was the commitment of the Chinese to make major purchases of agriculture products.”

This week, Trump Administration Ambassador to China, and former Iowa Governor, Terry Branstad was the keynote speaker at the China & Trade Symposium hosted by the Hawkeye State’s Corridor Business Journal.  The virtual and in-person event took a deep-dive on the farm state region’s crucial ongoing business links to what panelists describe as a complicated, misunderstood economy set to eclipse the U.S. in just a few years.

Mary E. Lovely, PhD/Professor of Economics - Syracuse University/Senior Fellow – Peterson Institute for International Economics:  “I think people think that companies are exporting…producing over there to send back.  You know, on net, U.S. companies send back less than 12 percent of what they produce in China to the United States.  They’re mainly producing there to capture sales and that creates businesses here, in the home office, in R&D and in other places.”

China experts from academia and the business world forecasted inevitable reforms will cement the Asian nation’s financial stability and lead to a flurry of investment opportunities.

Seema Shah/Chief Strategist – Principal Global Investors:  “Overtime this is all going to progress, and I think, increasingly, it’s just one of those areas that – if you want to make any return – you simply cannot ignore the largest economy in the world.”

While concerned President Biden has yet to name his replacement, Branstad remained hopeful the new administration will enforce milestones reached under Trump.  Claiming he helped open the door for increased exports of other farm commodities, like ethanol, Branstad said tackling Chinese subsidies for state-owned enterprises should be a top priority going forward.

Amb Terry Branstad/Former U.S. Ambassador to China/Former Governor of Iowa:  “I think China only recognizes strength. So I think we’ve gotta be tough.  We’ve gotta be strong.  I think using the tariffs, as difficult and unpopular as it was, got their attention.  It finally got us the Phase One trade agreement.  And I think we’re going to have to insist on fairness and reciprocity and call them out when they do things that are inappropriate.”

For Market to Market, I’m Josh Buettner. 

Years ago, when the post office needed more than Rural Route 2 to deliver your letter, the unnamed road outside your place became 270th street. The first time firefighters unfamiliar with the area made a rescue, the benefits became clear.

The goal of streamlining how to pinpoint the exact location of someone in need of assistance is gaining ground with the formation of the USNG Institute.

Colleen Bradford Krantz has more in our Cover Story.

Lydia Mink, who had traveled from the Twin Cities in January 2013 to visit her grandparents in Silver Bay, Minnesota, headed out for some cross country skiing on a particularly sunny afternoon. She had been skiing for nearly an hour, following the trail maps she occasionally found, when she became disoriented.

Lydia Mink, Shoreview, Minnesota: “I remember going against my better judgment or my natural intuition thinking that I would take a right …And that’s where everything went wrong.”

Her fear increased when she saw prints in the snow she was certain belonged to wolves, which are known to live in the area.

Lydia Mink, Shoreview, Minnesota: “It was getting pretty dark… And it was really quiet and all the other animals aren’t around, you know. Am I being followed? And my mind started kind of playing with me.”

Mink soon reached a wider snowmobile trail, where she discovered an unfamiliar blue-and-white sign. Having a decent cell phone signal again, she was able to answer a call from Lake County rescuers.

Audio from call: Lydia: Hello? Rescuer: Is this Lydia? Lydia: This is is…. Rescuer: … I’ve got help on the way there and they are glad to come up there and get you so I don’t want you to move around too much…. Lydia: Now I’m at, it’s an emergency location.There’s two big four-digit numbers. It’s 2766 and 3955. Rescuer: That is perfect because you know what that is? That’s a GPS coordinate for my rescue guys coming in. Of all the signs out in the woods right there, you are probably at the best one. Lydia: Okay. Phew.

 

Lake County, along Lake Superior between Duluth and Canada, includes nearly 2,000 square miles of wilderness and 900 miles of trails. In 2011, SharedGeo, a Twin Cities-based nonprofit, worked with the county to create better location markers. The signs they created showed a series of numbers representing a location under a system known as the U.S. National Grid, or USNG. It was one of those blue-and-white signs, now standardized for national use, Lydia Mink found that day in the forest.

B.J. Kohlstedt, Former Lake County (MN) Emergency Management: ““We often have people on snowmobile trails and if they get lost or injured, they’ll call 911 on their cell phones. And the dispatcher will ask them, ‘Okay, where are you?’ And honestly, they say, ‘I’m somewhere between Two Harbors and Canada. You know, this is about a hundred miles.”

The U.S. National Grid is essentially the same geolocation system the U.S. Military has used since World War II. Locations can be conveyed using just the last eight-digits instead of the 11 needed with latitude and longitude. Those numbers can be conveyed in three different formats, as well.

While triangulating cell phone signals can help locate lost callers, problems arise in rural areas with few cell towers. USNGApp.org keeps accurate location information even without cellular service by using satellites to establish a location.

B.J. Kohlstedt, Former Lake County (MN) Emergency Management Director: “The accuracy of that …app is 30 feet, the size of this room.”

Stephen Swazee, Sr., a retired airline pilot and chair of a Minnesota emergency preparedness committee, is a founder of SharedGeo. Swazee and others have spent countless hours over the past decade trying to get federal, state and local jurisdictions to use the U.S. National Grid.

Stephen Swazee, Sr., SharedGeo: “Approximately one-third of all response calls in the United States at this time go to a location without a street address…When you have a disaster, who shows up but individuals from outside the community. They don’t have working knowledge of that area in a way that they can respond to someone telling them on a headset, ‘Hey you need to go down to Joe’s bar and hang a left.”

In 2015, FEMA issued a directive saying it would use USNG as its standard geographic reference system. The directive grew, in part, out of the difficulties related to locating stranded or injured people in the aftermath of Katrina in 2005.

Stephen Swazee, Sr., SharedGeo: “It would be ridiculous to think that the lack of communication about location did not result in people getting injured or killed.”

Still, many emergency response teams have not yet trained their personnel to use USNG.

Stephen Swazee, Sr., SharedGeo: “The U.S. Fire Administration in 2013 did a survey to find out how many entities out there were actually using U.S. National Grid in their response efforts. Two percent was the answer.”

 

The Twin Cities metropolitan area is one exception. At the South Metro Station, emergency responders primarily use street addresses, but have had occasional incidents where it has paid off to know USNG.

Mark Erickson, South Metro Fire Department, chief of operations: “It is a very simple, intuitive tool.”

In one case, a man, woman and young child became lost while boating in the backwaters of the Mississippi River as an evening thunderstorm approached.

Mark Erickson, South Metro Fire Department, chief of operations: “We checked with the cell phone companies and they were able to get his location to within about an area of 10 square miles so it didn’t do a whole lot for us. … I said can I sent you a text message with a web address on it, and go to that web address and take a screenshot of what comes up and send the picture of that screen back to me…Within two minutes, I had a picture back from him that really told me where he was within about 10 meters.”

Despite such successes, the nation has a long way to go before the grid is widely adopted.

Stephen Swazee, Sr., SharedGeo: “This is like planting a tree. This is not like flipping a light switch. Ultimately we need leadership from the top … in order for us to have this standard. Otherwise people continue to be off doing their own thing.”

For Market to Market, I’m Colleen Bradford Krantz.

Next, the Market to Market report.

Another week, another round of volatile trading days as old crop sales and rainfall pushed the market around. For the week, July wheat fell 11 cents while the nearby corn contract slipped 3 cents. Corn and wheat pulled the soy complex along this week as traders tried to find the value of the commodity. The July contract added four cents. July meal lost $3.40 per ton. July cotton shrank by 70 cents per hundredweight. Over in the dairy parlor, June Class III milk decreased by 85 cents. A mixed week in the livestock sector. August cattle dropped $2.33. August feeders shed $2.35. And the July lean hog contract gained $2.80. In the currency markets, the U.S. Dollar index fell by 1 tick. July crude oil added $2.59 per barrel. COMEX Gold improved $21.20 per ounce. And the Goldman Sachs Commodity Index gained by 15 points to finish at 521-even.

Yeager: Now here to provide insight is regular market analyst Don Roose. Hello. Don.

Roose: Hello, Paul, thanks for asking me back.

Yeager: If I took the week off and didn't pay attention and I come and read these closes on a Friday afternoon as we sit here I would have thought it was a pretty slow week. But this limit up, limit down business, is that getting old yet?

Roose: Well, I'll tell you, it's a volatile market. Really what it's telling you is that this market is really trying to sort out where are we going to go from here, what's going on and the stakes are very, very high as we're trying to analyze the balance table going forward. So tight supplies and uncertain going forward, Paul, that is really volatility.

Yeager: Well, in wheat the volatility came in the weather. Kansas has just had an incredible amount of rain in the last week. That is something that has now pushed the crop into an area of having to deal with disease possibly, wheat disease. Is that all of a sudden a player in this market?

Roose: Well, I think what we're really talking about is we're getting close to harvest. We're harvesting in North Texas right now. But as we get too much rain, we get too much feed wheat and so it's going to be a little bit of a buffer. I think we were looking to feed a lot of wheat anyway. But it looks like the crop is going to be huge regardless of the disease, 80 to 100 million bushels more than what we thought. So a pretty big deal. What happens with the disease? We'll find out going forward.

Yeager: So what do we do?

Roose: Well, I think from the wheat standpoint we're going into harvest. To be overly friendly going into harvest is always a question mark. The crop has to be getting smaller not bigger and it is big. But the wheat this time is getting support from the corn market as we really are trying to feed more wheat. So that is a supportive factor. So goes the corn, so goes the wheat. I don't think you'll keep that differential on the spread too different as we go forward.

Yeager: All right, so you could use these three words -- I have to give Chris Robinson credit, one of our analysts for these three and talking about corn. Are we dealing with a correction, a collapse or a catastrophe? Which one was it this week?

Roose: Well, I think it depends which side of the market you're on, first of all. But what we're really doing is taking risk premium out of the market. We had a, very quickly we had a $1.38 setback on the corn. December corn hit $5, big support, there is a gap on December corn at $4.77 and a half which is a long-term target. We crawl back up over $5.50 on the week, didn't end too poorly. But trends are up again and we've had these huge runs in trends, Paul. Is that going to continue? And after Memorial Day weather is going to be a big deal.

Yeager: Well, you speak of trends. In 2021 there have been 4 weeks with sales of 4 to 7.5 million metric tons each. So not only are we talking big supplies, we're talking big sales. The Chinese, we did a story earlier about China and those trade relations. Ambassador Branstad has talked about that before on this show. You've said it on this show before, the Chinese know what they're doing when it comes to trading. Is that what may have happened Wednesday?

Roose: Well, in fact that is exactly what happened on Wednesday. The Chinese are really able to now, because we're focused on so much, move the market around. One of the trading arms, COFCO, they went to work and cancelled, they put out a rumor that they were going to cancel or move some old crop to new crop. Well, instead as the market sank they went to work and purchased some corn. So a pretty dicey situation. But you talk about exports, in one week China bought 225 million bushels of corn this last week. That's 9% of our total export pace. But they still have over 400 million bushels of corn of old crop yet to ship and that is really going to be the question mark. Do they ship it? Do they roll it from old crop to new crop? So there's a lot of unanswered questions, which is adding and subtracting risk premium from the market.

Yeager: Let's talk new crop here. Are we locking in -- are we resetting our risk? Or are we looking back at what we missed right now?

Roose: Well, I think from a product standpoint what you're really looking at is make sure that you manage your margins because these are prices, even though we sank back from the top these are still prices that you could have only dreamed of last year. It's just amazing. But $6.38 was the high on December corn around the first of the month. And I think what you're really looking for is can we challenge that area again? You're probably going to need some severe weather to go through that. I think if you walk forward the first crop rating of the year is going to be Tuesday, probably going to be lofty, and then as we walk forward we're going to look at what's going to be the acres on the June 30th report. There's about a billion bushel swing if you calculate it out on the high to low acres so far. So that's a big swing, a big miss.

Yeager: Soybean is in that market. Is that weather related? Or is it also like corn, China influenced?

Roose: Well, it is, again, influenced by China. But we have a big competitor, South America. And South America basically is providing all the soybeans to China at the present time. But the crush in China is actually a negative right now. So the real question market, are they going to take all of the beans that they have actually purchased, they could be 120 million bushels less than what they say they're going to take, so roll them into new crop? From our standpoint the basis level has set back on soybeans, that really actually set the top in. But that is going to be an issue as we go forward with China.

Yeager: With my new crop what are my options right now? What is something I should be doing with prices where they're at?

Roose: Well, I think the first thing you should do is look at your margin. What kind of margin do you need to pay your bills? I think that is the first thing. How big of a gambler do you want to be? But we've got insurance under the market, lofty, but you can also buy options underneath the market that up your insurance rate, leave the upside open if you want to. So there are some alternatives that you have from a producer standpoint. The good news is most of these things, all of these things that you do, are profitable. You’re working with areas that are profitable for the producer. So incremental sales on rallies, can never go wrong. I think the real question you have to ask yourself if you're a producer, Paul, do you think we're in a new era of price discovery? Or do you think that we're going to go back to the old price discovery again? I would say it's going to be eventually more of the same when the party ends. We always say you take the stairs up, the elevator down. And look how fast the market dropped from $6.38 down in a month.

Yeager: That's what we just talked about this week, you and I, that exact same thing. I was thinking of you as I was communicating with you. So we talk about price discovery. Cotton apparently had had some of that, it had pulled higher, but now it just seems to be still kind of trying to find some focus. Has the market figured out that that peak is in in cotton?

Roose: Well, the cotton, they're still having trouble planting all the cotton. That's the thing, probably going to lose some acres there and really not that great of a sign when you have positive news and you don't really respond to it. It's kind of like the same news is old news. So I would say that it's a market that a lot of these commodities, Paul, whether it's the grain market, the lumber market, the cattle market, it's this inflationary stimulus buying that is kind of COVID starting to crack getting back to a normal I would say.

Yeager: That's possible after the year we've had? There's normal on the horizon? I like that. This is a discussion, I want to save a little time because you like the livestock. We like to ask you some questions and Ryan in Byron, Illinois -- he asks, Senate ag leaders spoke in regards to promising a hearing in the next work period on what is going on in the livestock industry, especially the cattle market. Ryan is asking, Don, what signal does that send to the marketplace/

Roose: Well, it's frustrating for the feedlots, for the cattle. If you look at the cattle, the feedlot operator, the cow-calf operation, their breakeven losing money and then you look at, they're handling these cattle for a long time, months and months. Then you look at the packer, he handles cattle for a few hours, maybe a few days, and he's making $850 a head right now and month after month making just these huge margins. Consolidation, Paul, that's the problem. We have 3 big packers. I think the focus is on them heavily, there's no doubt about it. And they could share, they could go to work and pay $50 plus a hundredweight more and still have a breakeven or profitable. So we're stuck at $118 to $120 on cattle. Those cattle numbers do start to tighten when we get into August and maybe we'll get the shoe on the other foot.

Yeager: Well, you have a couple of factors. We mentioned weather. You've got 39% of U.S. pasture conditions were rated poor to very poor. So if you have those cattle come onto the market at a time when the packer can't process because they're having problems getting workers you're going to make this problem worse. I should say, let me ask it this way, have we seen the worst? Or is there more danger ahead in cattle?

Roose: Well, we think that we're working through the big numbers. I think that is the big thing. We do have a lot of feeders outside of the feedlot just because of the high cost so those will come to the marketplace sometime. But all that, the COVID, the lower placements, it all adds up to as we get into August we should get into that bullish cattle cycle. All of next year the government is saying we're going to be down 2% on cattle versus up 1% on hogs. So we should have a little more of a positive window. The hay acres as you talk about it are the lowest hay acres since 1908. So that's a feed issue. 

Yeager: That is a feed issue. And that feed issue on the feeders, did you have a lot of cattle producers calling you on Thursday morning before the market opened saying I need to buy a bunch of corn?

Roose: In fact, you're right. The end users have been buying the break. And that brings up are we really rationing, how much rationing are we doing as we're going lower? And that is going to be a dicey situation. We're going to find that out in the June 30th stocks report. Did we ration and how much did we ration?

Yeager: Hog market though, they're singing a different tune. They just keep going. Is there any top in sight for this market?

Roose: Well, the hog market made new contract highs again. And the real issue with the hogs is the disease issue that we had. So the supplies are just tighter. And then China just continues to be a huge buyer of hogs, the second largest buyer just behind Mexico. So I think the problem is China's hogs are making new lows, their weights are heavy. At what point in time do we switch and they slow down on their imports and our supplies grow? That is probably going to come in the fourth quarter.

Yeager: And then all of a sudden we're stuck with more product. But is there any countercyclicalness to say the cattle market that the hogs are taking advantage of or might be hurt because of things you have mentioned already?

Roose: Well, the cattle market looks more positive next year, the hog market looks more negative next year. But this demand that we have had has just been record large, very strong. It's due to the stimulus. It's due to the money that the consumer has right now. So we've had a lot of distortions in the marketplace, a lot of them just due to some of the government action. So we're forced to unwind some of those as we go forward.

Yeager: Don Roose, thank you so much. Good to see you.

Roose: Thank you, Paul.

Yeager: That will do it for this installment of Market to Market. We will talk more with Mr. Roose in Market Plus. So join that. We'll also answer your questions. You can find that segment on our website of MarketToMarket.org. And information comes from all different sources and we have compiled many of the stories we're reading in a Flipboard magazine called Market to Market Reading Material. There's the logo. Click on this capital F that you see on our home page of MarketToMarket.org. Next week we look at the legal battle over California's livestock housing rules. Thank you so much for watching. Please 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.