Market to Market - Nov. 19, 2021

Coming up on Market to Market -- Renewable fuel leaders head to Capitol Hill. How COVID has increased the challenge of filling food pantries? Taking stock of wild weather patterns. And Market analysis with Elaine Kub, next.

(music)

What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

(music)  

Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

(music)

Sukup Manufacturing Company -- providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing -- store now, profit later.

(music)

This is the Friday, November 19 edition of Market to Market - the Weekly Journal of Rural America.

(music)

Hello. I’m Paul Yeager.

The House of Representatives approved the $1 trillion Build Back Better bill on Friday. The second of two high cost measures passed in as many weeks. The bill adds the social and environmental pieces to the current legislative puzzle.-- 

The longest labor strike for Deere and Company since 1986 ended this week with the approval of a new contract.

Retailers are looking to extend the holiday shopping season and customers are responding. Retail sales jumped 1.7 percent in October.

The Rural Mainstreet index from Creighton University rose in November to 67.1, the twelfth consecutive month above growth neutral.  

The price for a barrel of West Texas Intermediate Crude oil dropped to its lowest level since the end of September. --

After a campaign promise to the contrary, the Biden Administration opened part of the oil reserve in the Gulf of Mexico for drilling to the tune of $192 million in leases.

Even as the automotive industry changes lanes to building more electric vehicles, those who push for renewable sources went to Washington.

Josh Buettner has the story.

Rep. Glenn Thompson/R-Pennsylvania: “I must stress that the farmers, ranchers and landowners in my district cannot supply the world’s food and fiber without 24/7 access to reliable and affordable energy.”

This week, a House Agriculture subcommittee convened farm and energy interests to underscore the crucial relationship of renewable fuels to rural economies as lawmakers wrangle over the next phase in President Biden’s ambitious domestic agenda.

Rep. Cindy Axne/D-Iowa: “As Congress debates the Build Back Better Act this week, what kind of benefits can we expect from the billion dollar investment in biofuels infrastructure within the bill itself?”

Emily Skor/CEO-Growth Energy/Washington, D.C.: “It really would unleash the power of biofuels.  It gives us the ability to work with our retail partners to accelerate the market inclusion of E15, which is a lower-cost, lower-carbon, high-value fuel choice for consumers.”

Though this summer an appeals court nixed the Trump Administration’s 2019 approval of year-round E15 ethanol sales, lobbyists champion the Year-Round Fuel choice act, introduced in the House this summer, which would restore the executive order remnant.

Despite White House intentions to electrify the nation’s fleet, renewables advocates cite government reports that most cars will run on liquid fuels through 2050, but biofuels can bridge the gap for emissions targets.  Supporters lauded the Renewable Fuel Standard, which led to the buildout of over 200 bio-refineries across 27 states, with a 17 billion gallon capacity utilizing tens of billions of dollars in domestic crops, like corn, annually.

The committee was informed of the benefits of other renewables, such as solar, in conjunction with food production.  Participants expressed the importance of accountability as Congressional decisions percolate in rural areas.

Gary Wheeler/Executive Director/Missouri Soybean Association: “Whether it’s biodiesel or increased E15, it really boils down to resources being laser-focused – and making sure those dollars are being spent where they need to be spent.”

For Market to Market, I’m Josh Buettner.

Inflation has come to our holiday table as the price of this year’s Thanksgiving meal for ten is up 14 percent to $53.31.

Any increase in the price of food is extended beyond the holidays. This is adding to challenges for those already struggling to make ends meet.

Peter Tubbs reports on the inflation impact on those helping fill gaps.

Katie Fitzgerald, Feeding America, president and COO: "The increase in food prices is a real challenge for meeting the needs of people who are struggling to put food on the table across the country. Our food banks are seeing prices that are two to three times what they were just nine months ago."

The same inflation that is rippling across the economy is lowering the ability of the nation’s food banks to serve the nation’s hungry.

Katie Fitzgerald, Feeding America, president and COO: "Since the beginning of the pandemic, we saw a sudden and intense surge in demand. Last year in 2020. We estimate that 60 million - six zero - million people accessed the charitable food system in this country."

Food banks that expanded their operations to meet the pandemic induced spike in demand are now facing price spikes across their food menu. 

The COVID-19 driven shocks to the labor market have slung millions of households into food insecurity for the first time. Banks from Iowa to Texas held outdoor drive up events to serve the hungry. While Shiloh Mercy House in Oakland is down from the peak of 1,100 families it was feeding each week during the height of the pandemic, 300 families still line up each Wednesday.

Jason Bautista, events manager, Shiloh Mercy House: "Our clients they're sharing with us that the rising food costs is something that is a huge stressor right now for them. It's something that they just can't afford."

Inflation in the food sector means families utilizing food banks may see smaller portions and fewer protein options, especially among beef, pork, chicken and peanut butter.

Ita Espinoza, food pantry client: "I come here because I need food for my family. You know why? Because the stores are very expensive - the food - and my money is not enough."

Delays in global supply chains are keeping canned goods from Asia, like fruit cocktail and pears, abroad due to a lack of shipping containers.

Planning around delays means buying further into the future, or making larger purchases than normal.

Wilken Louie, associate director of supply chain, Alameda County Community Food Bank: "The secret for us is really staying ahead of the pipeline. I used to commit to a purchase six weeks in advance of when it's actually needed, and now I've extended that that lead time to perhaps eight to 10 weeks."

Analysts believe the current inflation rate will continue well into 2022, meaning food banks will need to keep adjusting their budgets for many months ahead.

For Market to Market, I’m Peter Tubbs

Recent rains in the Pacific Northwest have helped ease drought conditions from Idaho through Montana and on into Washington and Oregon.

Nationally, there has been at least 50 percent of the continental U.S. in some form of drought since July 7th of 2020.

In this excerpt of John Torpy’s documentary Iowa’s Wild Weather: Drought, we see that the drier side of the ledger has a long tail. It’s the subject of our Cover Story

The state of Iowa ranks 2nd only behind California on the list of top 10 agriculture producing states. In 2018, Iowa’s agricultural industry was valued at just over $25 billion, according to the U.S. Department of Agriculture. In that same year, drought conditions began to creep into the Midwest, but its impact on Iowa agriculture would not be felt for another three years. 

Sec. Mike Naig, Iowa Department of Agriculture: “In the last year, 99 percent of the state of Iowa was in some sort of a drought classification.”

The drought Iowa is experiencing in 2021 got its start in 2018. Ample subsoil moisture from the three intervening wet years kept growing conditions stable as the chances for rain began to evaporate. .

Dr. Justin Glisan, State Climatologist of Iowa: “Fall of 2019, seventh wettest fall on record. We start to see west-central precipitation deficits begin to appear. Very small, but that's where we started to see the drought conditions.

Dr. Justin Glisan is the State Climatologist of Iowa. Glisan’s job involves collecting climate data for both weekly weather reports and the U.S. Drought Monitor. He also advises the Iowa Secretary of Agriculture on climatological issues impacting the state’s agricultural sector. 

Dr. Justin Glisan, State Climatologist of Iowa: “ And it's when you look at pictures of the dry pastures and the dust and the cattle, and you hear the stories of the farmers and ranchers that, that breaks your heart and, you know, um, but I mean, yeah, when you see D4 on a map, those are historic percentiles, meaning that we haven't seen these conditions in a hundred years.”

According to Glisan, different types of drought impact rural communities in different ways. A Meteorological Drought is one based on rainfall deficits, and lengths of dry periods. If the dryness continues, a shift to Hydrological Drought appears. Impacts to the overall water supply become visual as the level in streams and ponds gets lower. When those sub-soil levels decrease, an Agricultural Drought can set in; farmers and ranchers will see lower groundwater levels as reservoir levels recede. At any point along the way a Socioeconomic Drought can occur. According to the National Weather Service, Socioeconomic Drought occurs when demand for moisture exceeds supply as a result of a weather-related deficit in rainfall. Glisan notes climate change could have a hand to play in the increasing length and intensity of significant weather events. 

Dr. Justin Glisan, State Climatologist of Iowa: “As climatologists, we use the last full three decades, um, to give us a baseline to compare weather events, climatological events, uh, was this the driest year on record? Um, how strong was this tornado outbreak versus other outbreaks that we've had in the past? Um, was this the, uh, the most destructive Derecho that we've seen across the state?/ We can see the mega-drought in the Southern part of the United, South Western part of the United States.”

One asset climatologists rely on to study drought patterns is the U.S Drought Monitor. A tool multiple federal agencies are responsible for creating, the weekly report uses data from USDA, the National Oceanic and Atmospheric Administration, and the National Drought Mitigation Center. Climatological data is collected to calculate the severity of drought across the country. 

Drought monitor information is broken out into 5 different categories. Abnormally dry, which shows areas that may be going into or are coming out of drought, and four levels of drought. Moderate (D1), Severe (D2), Extreme (D3) and Exceptional (D4).

Dr. Justin Glisan, State Climatologist of Iowa: “All those moisture variables that we use. Subsoil precipitation, hail, humidity, outside temperature, stream flows. All those, we want all of those things to point towards one category and more often than not, they don't, that's where to get discrepancies.

Created in 1999 at the University of Nebraska-Lincoln, the U.S. Drought Monitor has many purposes. The USDA uses the drought monitor to trigger disaster declarations, the Farm Service Agency uses it to help determine eligibility for their Livestock Forage Program, and the Internal Revenue Service uses it for tax deferral on forced livestock sales when ranchers have to sell cattle due to drought. State and local officials use the drought monitor in conjunction with local data on dry conditions to trigger drought responses.

According to the National Centers for Environmental Information, drought ranks third as the most destructive natural disaster in Iowa. From 1980 to 2021, severe drought caused nearly $20 billion in damage.

Besides the direct and indirect economic impacts, drought can spur other disasters. The dry conditions can create an ideal breeding environment for invasive insects like grasshoppers and locusts. Drought can increase wildfire risks like what the Western U.S. experienced in 2020 and 2021. And extended dryness can change ecosystems, altering farm production practices. 

Iowa Secretary of Agriculture Mike Naig acknowledges a correlation between climate change and a rise in extreme weather events.. 

Sec. Mike Naig, Iowa Department of Agriculture: “We know that weather's changing. Uh, we know that in a, in a state like Iowa, we're seeing me seeing, uh, an increase in temperatures. We're seeing a more frequent, higher intensity storms and weather events that are, that are more persistent when it's dry, it's dry when it's wet, it's wet. And those are things that we have to deal with on the ground. And what does that mean for a producer? Well, again, it's about how do we manage the land appropriately and do we have the right risk management risk mitigation tools in place for them from a policy standpoint?”

By August of 2021, 83 percent of the state was in some sort of drought, with over one-third of Iowa experiencing severe to extreme drought. Those conditions took a toll on farming and agriculture. One tool rural communities have been promoting to slow a drought's impact is conservation.

Sec. Mike Naig, Iowa Department of Agriculture: “The incorporation of things like cover crops and reduced tillage, no, till those are things that help with soil health and prevent soil erosion, they help with holding water in place. We've got some innovation that's coming in the conservation space around drainage, water management. How do I take some of that water? Get it off the land when I need it to dry out, but hold onto some of it and use it for irrigation when I need it. That's a piece of innovation that we're actually demonstrating and piloting in the state of Iowa today.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

The individual wheat contracts have minds of their own as Kansas City took the lead this week, reflecting drier conditions. For the week, the nearby wheat contract added 6 cents while December corn shed 7 cents. The bulls came in mid-week on export news, but lacked fresh information to keep running much higher. The January contract improved 19 cents. December meal added $9.70. December cotton expanded $1.53 per hundredweight. Over in the dairy parlor, December Class III milk futures strengthened 73 cents. A mixed week in the livestock sector. December cattle improved $1.40. January feeders expanded $3.20. And the December lean hog contract shed $2.13. In the currency markets, the U.S. Dollar index improved 91 ticks. December crude oil decreased $4.80 per barrel. COMEX Gold dropped $16.50 per ounce. And the Goldman Sachs Commodity Index fell almost 14 points to finish at 567.50.

Yeager: ow here to provide insight is market analyst Elaine Kub. Hey, Elaine.

Kub: Hello, Paul.

Yeager: There's this little thing about inputs that has been dominating the discussion. We think a lot of it when it comes to corn. But you're going to tell me here in a moment that it has a little more to do with another crop and that is what we usually lead off with in wheat. Why?

Kub: I don’t know about more. Here in the United States it is a problem. We have a new record high anhydrous price, retailers are at $1100 a ton and urea is at $832 a ton. So I’m not suggesting that the United States fertilizer situation is not concerning, but it's maybe solvable by next spring. If you think of the reasons why we have shortages here, there was hurricane damage at the fertilizer plants along the Gulf. That is solvable, those will probably come online. But over in Europe and the Black Sea region where there is a lot of wheat production that fertilizer problem is much more persistent, it is because the fertilizer plants have shut down because natural gas prices are just so high. So these very high natural gas prices, that is something that is, I don't know, solvable by Vladimir Putin. But how much do you want to risk on that? So the concern for what, and I think this is largely the reason why we saw wheat prices go up, even in the Kansas City contract, following the European wheat futures contract which hit a new record high this week, those concerns are that the winter wheat crop in that potion of the world has gotten off to a poor start. Not only is it dry but also this concern about the fertilizer. How much fertilizer is going to be put on that? What kind of yield drag are we going to see in 2022 because of this influence?

Yeager: All right, so $8.23 is how we finish this week. Does this thing have another leg higher or are we right at the top?

Kub: I don't know that we're at the top forever, but I think it's possible for the next couple of months we might not see a new push to a new high because globally speaking Australia is harvesting a more or less bumper crop. So these -- that are coming out to the market -- especially the Asian -- buy wheat they will be able to find new supplies coming out of Australia for the next couple of months or so. But once we get past the Northern Hemisphere's dormant period for winter wheat and we start looking into spring problems again I think there could be continued bullishness in wheat even into 2022.

Yeager: It seemed at the end of each day the commentary about the corn market was that it either followed wheat or it followed soybeans. Why was it not following its own instinct and moving independently?

Kub: There's really not a lot going on with corn right now. And you're absolutely right, it's these outside markets that are the exciting ones this week, it's the European wheat contract, it's Malaysian palm oil driving up edible oil prices and soybean prices. So corn doesn't have a whole lot going on for itself. Harvest is just about done. We probably put in our harvest low. What else do you want to say about corn? What can we even say?

Yeager: That is true. What more can you say other than we look like we've leveled off and hit into a little bit of a range. Do you agree?

Kub: I absolutely agree with range-based trading for corn for the foreseeable future.

Yeager: How long does that future last? End of the year?

Kub: Well, yeah. There is certainly an argument to be made that if the funds go through and rebalance their commodity positions because they have grown long in commodities to get this exposure to inflation hedges it is possible that you get towards the end of the year and they may have to sell off some of that commodity exposure just to rebalance their portfolios.

Yeager: Okay. The soybean market, you mentioned a couple of the outliers that impact it. Meal was a part of it towards the end of last week, beginning of this week. But meal, is that the only story in soybeans? You mentioned the harvest in Australia for wheat, there is about to be a harvest come online in South America. Help me out.

Kub: Yeah, South American weather is always going to be important this time of year. But right now it's not problematic. They have been seeing showers every 5 to 7 days and that has continued to be called for in the forecast. So no big problems, no big bullish problems from South American weather to draw a story from. And soybeans I think it's more of that Malaysian palm oil that I talked about. Now, you mentioned soybean meal and that is the biggest part of the soybean crush. But lately you could take a $12.60 bushel of soybeans and turn that into $8.70 worth of soybean meal and $7.65 worth of oil. So the meal is still the driver, that is still the biggest part of the crush as it always is. But 46% of that crush is coming from the edible oil, the soybean oil. That is very unusual and that is almost certainly driven by the correlation between edible oils of all kinds, particularly that Malaysian palm oil that I mentioned is at a fresh record high just today actually. And at 59 cents a pound that is equivalent to the soybean price we're seeing here in the United States.

Yeager: Okay. More grains in Market Plus coming here as we look at the March contract. I want to move to cattle on feed report. I'm going to read real quick, cattle and calves on feed was slightly below 2020, placements 2% above and marketings were 5% below. What else am I missing on that cattle on feed report?

Kub: Yeah, the cattle on feed report was, it was slightly above the expectations. So that would be considered to be a bearish situation but it's not big enough to be a problem. And it's lower than it was a year ago. So we should be fairly confident that the bullishness we've seen in the cash cattle market this week, we saw prices go up another $1 and a live basis in the South at $1.33 and that is a follow on from last week. These are good and probably sustainable prices.

Yeager: All right, so the feeder market, which we're talking about here right now, the futures closed over the 50-day moving average at one point this week. Can we continue to hug that line? Are we headed above or below that 50-day, maybe 100-day moving average?

Kub: It's hard to say because of the historical price range here. You look at feeders, April feeders at $165, that is generally a good selling opportunity. But if you're looking in the near-term actually at the sale barns this month we've seen the big fall runs come in and demand is considered very good. The feedlots want to get their hands on feeder cattle, especially the higher quality ones that they know that they could turn into prime beef. We've seen not enough prime beef come on the market in the past couple of weeks, especially right now when the packers are trying to get animals into the chain to make holiday feasts coming up for Christmas.

Yeager: Well, cattle did gap higher Thursday, their highest since September 3rd. What is the significance of that?

Kub: Yeah, there's been a lot of volume of trading. This last couple of sessions this week there was a huge volume of futures trading, unusually high and it is very possible in these markets, which are relatively small, relatively illiquid that you can get gaps like that, you can get big days. But fortunately they are backed up by bullish moves in the cash markets as well.

Yeager: Is there any way that a new plant announced west of St. Louis had anything to, any bullish news for cattle? Or is that just too small of a story?

Kub: I think yeah, the cattle markets anything with price transparency, the moves in the market to share that knowledge has been helpful and I think that has been a big reason why we have seen success in the cash cattle market this week.

Yeager: And one last thing on beef, sorry to stick with this, Brazil they're having, the NCBA has called for a ban on Brazil fresh beef. Any impact here too on that?

Kub: It would be contentious, it would cause ripples through the industry. But I don't think that it's a threat necessarily when you've got the fundamental strength of consumers want to go to the grocery store, they're not phased by these prices, China is not even phased by the prices. Export sales to China this week were humongous. If it continued at this pace China would be a bigger purchaser of U.S. beef than South Korea next year. So nobody is phased by these prices. It's a profitable industry to be in. And I don't think that little things like that should be enough to knock it off of its course.

Yeager: And here I went and asked all these 12 beef questions and I left such a tiny little time about hogs. Real quick, we'll talk about it in Market Plus, but give me the quick 10 second story.

Kub: Not as much bullishness as beef I'm afraid. The export story was kind of poor this week and so I think we're just going to head towards the doldrums.

Yeager: All right, thank you, Elaine. I appreciate the time there trying to fill us in on that market. And we will continue that discussion and answer more of your questions in Market Plus. Thank you so much, Elaine.

Kub: Thank you, Paul.

Kub: That will do it for this installment. We'll have Market Plus in just a moment. You can join us there. Find that on our website of MarketToMarket.org. And we are always looking to include more of you in all of our offerings including audio on the go. We have three podcasts that fit the bill, the Market Analysis, which you just heard, the Market Plus recorded after the TV show and the M-to-M conversations and behind-the-scenes information from the production of this program. Follow all three where you get your podcasts. Next week we look at bringing a discussion about the state of the world economics to our holiday table. Thank you so much for watching. Have a great week.

(music)

(music)

(music)

What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

(music)  

Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

(music)

Sukup Manufacturing Company -- providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing -- store now, profit later.