Market to Market - September 2, 2022

Coming up on Market to Market -- Floodwaters overwhelm the Cotton Belt.

Farm income remains strong despite a slight dip. Making a profit by taking data

into the digital era. And market analysis with Jeff French, 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, September 2 edition of Market to Market. the Weekly Journal of Rural America.

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Hello. I’m Paul Yeager.

Have the warnings about a looming recession entered the Chicken Little stage? Or is the assessment of rising interest rates, inflation and supply chain challenges expert-level news?

After July’s 526,000 new jobs, the market appeared to cool with a robust 315,000 jobs created in August.

Despite the number, the unemployment rate rose 0.2 of a point to 3.7 percent - as those without a job got back in the game.

Orders for factory goods rode lower by one percent in July on the back of a decline in aircraft sales.

Core capital goods, which are used to calculate business equipment spending in the gross domestic product report, increased 0.5 percent.

The Creighton University Mid-America Index declined to 55.5. A labor shortage and supply chain disruptions were listed as the big factors precipitating the drop in the nine states surveyed for the index.

Death Valley hit 130 degrees on August 16h. This weekend, the temps are forecast to be 120 or higher.

In parts of the East, clean up continues after high water from record rainfall rushed through towns and farm fields.

Josh Buettner has this week’s coverage.

This week, the aftermath of heavy rains and flash flooding in Mississippi prompted presidential approval of Governor Tate Reeves emergency declaration – unleashing federal assistance alongside state response efforts. 

Potable and non-potable water was distributed to the over 150,000 residents of Jackson already reeling from long-standing infrastructure issues – including a boil notice in place since July - after tests found cloudy city water could lead to health problems.

Gov. Tate Reeves/R-Mississippi: “As we as we work to fix the problems inside the plant, we are hopeful that we were able to be able to increase the quantity of the water, which will ultimately get the tanks more full, and ultimately lead to a scenario in which we can do the proper testing and actually produce clean water.”

Failures at one of two water-treatment plants plagued the capitol city with low water pressure – inhibiting showers, toilets and firefighting efforts.

The Pearl River crested just over 35 feet Monday, as farmers in neighboring Madison County saw corn, soybean and cotton crops devastated just weeks before harvest.  One producer says damage estimates for one of his better yields are in limbo as floodwaters loiter.

Cody Parker/Madison County, Mississippi:  “Before it was over with, you couldn’t hardly tell it was a cotton field.  Nothing but water.  And then we looked up and you see a deer swimming across the top of it.”

Elsewhere around the nation, flash-flooding and damaging winds in Michigan, Indiana and Virginia are blamed for the deaths of three people, including two children.  Hundreds of thousands of homes and businesses also were left without power.

And in drought-stricken California, firefighters are battling two blazes in rural areas of Los Angeles and San Diego counties, prompting evacuations in the midst of a scorching heat wave that could bring triple-digit highs through Labor Day.

Vanessa Salazar/California State University Northridge:  “I’m like super hot in here.  I feel like I’m going to have a heat stroke.”

For Market to Market, I’m Josh Buettner.

There are an estimated two million farms in the United States. About half are working to cover more than just their yearly bills. About 10 percent of those operations are responsible for nearly 80 percent of the sales recorded by the federal government. This week, USDA released their report on how well the nation’s farmers are doing financially.

Peter Tubbs has more.

This week, the USDA estimated national farm income will fall slightly compared to 2021, but it will remain 42 percent above the 10-year average.

Cash receipts from the sale of agricultural commodities are expected to surpass $525 billion, an increase of 21 percent compared to last year, driven mostly by continued high demand.  

While cash receipts are expected to grow, net income is projected to fall slightly due to high input costs and a 50 percent drop in direct government payments to farmers. Net farm income includes farm and non-farm income as well as government payments.

Production costs are estimated to increase over 17 percent for this year. A 44 percent jump in fertilizer prices is the primary driver of the overall move higher.  Adjusted for inflation, the increase in the cost of doing business in 2021 is the highest in nearly a decade.

Roughly half of the farms in the United States do not depend on farm activities for their primary income, and result in the median farm revenue numbers are expected to show a small loss for 2022.

For Market to Market, I’m Peter Tubbs. 

Since the start of GPS farming, there has been a question of who owns your data from each pass that you make in the field. While all of the information about spray rates and yield numbers are valuable as a baseline for next year, more than one person has been asking about monetizing that information. I had the chance to speak with Purdue professor Allan Gray who is looking into how to help farmers make a little more from all that data in this week’s Cover Story.

Allan Gray:  There are digital tools that are becoming more and more available. And I think, over time becoming more effective at what they do to help us and in agriculture and in agribusiness broadly. In some ways, we're unique. I always hate to always hate to say it that way, Paul, look, we're a business just like any other business. And people say, Well, you have an agriculture is different. Well, it is. Why because it's personal, because everybody has to eat, because it's uncertain on the supply side. And it's uncertain on the demand side, okay, there's a number of reasons why we might be a little bit different than other industries. But by and large, we're the same as other industries. With our specific nuances. What's happened is that the digital space, particularly this bringing the tools and technologies to help us be better at managing the business, are just now sort of getting to the point where they begin to understand our nuances, so that we can apply those tools and techniques to make us better at decision making. At least that's my perspective,

Paul Yeager: I kind of lead you into what dial is before saying what is dial. It has a name, but give us a background on it.

Allan Gray: Yeah, so we're known as Dial Ventures now, but Dial itself was originally digital innovation, Agri- Food Systems Lab. That's a mouthful. And we're famous at Purdue for sort of taking mouthfuls of titles and then and then stretching them down to four letters that probably don't mean anything at all. But that's how we got to dial digital innovation, agri food systems lab, shortened a dial. But then as we continue to develop our concept around what we're going to do in digital innovation, we've moved to this sort of startup studio concept now and added to the name venture. So we're Dial Ventures, and we're a startup studio here at Purdue.

Paul Yeager: Do you have a specific customer in mind of who you're serving?

Allan Gray: For Dial? That's a good question. So, Dial serves the industry. So our job in our it's our job and dollars, a startup studio, is to create startup companies that will help digitize the ag and food system. Okay. Our primary customer for us is the industry itself. So lots of people will say, well, so startups are about disrupting the current industry that's there. And that's true, they do that, what we do is kind of flip it on its head a little bit and say, let's have the industry be involved from the start. And the development of the startup companies, recognizing that most of our colleagues in the industry struggle, frankly, to do much that's disruptive innovation. So we're trying to be the partner of the industry and says, Let us do the disruptive work for you. And instead of you being disrupted in that process, you're learning right along beside us as we create these disruptive engines. And you're an investor. So you're invested in these startup companies. And as they grow and mature, you're, you're going along with them, you understand what's happening, and if they become the right business for you. You can acquire them. Right, and they're now you're not disrupting you're not being disrupted anymore. You're part of that disruption, which, you know, Paul, we need I mean, I think McKinsey is the one who did the study of 22 industries, food and agriculture is number 22. out of 22, with respect to digitization of its industry, and this is the problem we want to solve. And our partners aren't well suited to do that the agri-food and agribusiness industry is very good at what it does. It's also by and large analog. So how do you turn it into a digital system and make it more efficient, more effective, more transparent, more traceable, all of the pieces of the puzzle that we hear the buzz around, that we want to try to solve where digital has an opportunity to solve that, but that's what we're trying to do. So who is our customer? Our primary customer is the end?

Paul Yeager: Well, I think at the farmer who does so much with a cell phone, are they a help to you when they've already adapted more of that digital sense of I can control things remotely, or I can control? I have spreadsheets? I mean, that's how I think of digital. I think a lot of people think of digital Am I accurate in my thinking of what digital means? Or am I missing the lesson?

Allan Gray: Ah, yeah, so So I think those are the starts to digital. Those are some tools that are available to help us write spreadsheets or spreadsheets or our digital but they're not connected. Right. So the problem is that lots of people have spreadsheets, which means they have data So that's orphaned in different categories of the world. And they're not connected to each other in ways that actually create efficiency, effectiveness, traceability, transparency, those sorts of things, right? So, so we have some enabling tools there. But then our ability to connect that system is still pretty poor, frankly. And so. And if you talk with farmers like we did, we spend all day every day talking with farmers and others across the industry, they'll tell you, their number one challenge is the inter-operability of data. And it's two ways it's the data that was within my operation, that I can't even get those connected well, to learn from it and utilize that to help me get better. And then that data connection across partners is almost non- existent. And so when you can't get all that data and information connected, you can't now really employ effectively things like where I think digitization is artificial intelligence.

 

Paul: The full discussion will be available Tuesday wherever you get your podcasts and at our YouTube channel.

Next, the Market to Market report.

“Destinations unknown” were being reported in the daily export news that by some estimates totaled about a million metric tons but there is no clue about how much is headed for China. For the week, the nearby wheat contract added six cents, while the December corn contract held on for a 2 cent rally. Fresh news from the private forecasts predicting a record large soybean crop in Brazil helped push the November contract 41 cents lower. December meal dropped $10.80 per ton. December cotton contracted $14.47 or 12 percent per hundredweight. Over in the dairy parlor, October Class III milk futures lost 74 cents. The livestock market was mixed as October cattle improved $1.50. October feeders put on $1.55. And the October lean hog contract shed 62 cents. In the currency markets, the U.S. Dollar index increased 80 ticks. October crude oil shed $6.15 per barrel. COMEX Gold dropped by $25 per ounce. And the Goldman Sachs Commodity Index declined by more than 30 points to finish at 657.70.

Yeager: Joining us now to provide some insight on these markets, Jeff French. Hi, Jeff.

French: Hello, Paul.

Yeager: Do you wish you had a little more upbeat week to speak?

French: Can't have 'em all.

Yeager: You can't have 'em all. We come off Friday that certain crop tour, Monday it looked like we traded. We're also coming into the end of the week, or end of the month. What was the biggest pull on the wheat market?

French: Well, you saw -- the funds had a pretty big short position. They were betting for lower prices in the wheat and mid-week with the end of August they came in and covered those short positions. They were buying it back to close it out for month end. But also you have the U.S. dollar at 20 year highs. So they came back on Thursday and really slammed it down. We were down 40 to 45 cents. So you look at the wheat market though the last two months it has been in a pretty relatively tight range. It's about $1, $1.20 trading range. So until we can bust out of that either way I don't have a really strong conviction on the wheat. We had a lot of competition in the world, strong U.S. dollar, so any type of rally in the wheat probably needs to be defended. And you've had the trade here, they bought corn and then they sold wheat against it. They bought beans and they've sold wheat against it. And I think that pattern will continue here for a little bit.

Yeager: By more of the speculators, outside money? Who are you saying is doing that?

French: Yeah, that's the funds. They like to be long the corn, long the beans, short the wheat.

Yeager: All right, you've brought up the dollar a couple of times so I should just get this question out of the way because it is going to taint the rest of the discussion. Stephen in Virginia asked us via Twitter, he wants to know, why can we have such high prices with 40 year dollar highs?

French: Yeah, it's a great question. The last time we saw the dollar at these levels the commodity prices were definitely not at these prices. I think short answer it's just inflationary. There's been a lot of demand, a lot of outside money wanting to buy commodities to write it up in case this inflation continues. But I think as the dollar continues to move higher and it stays high long-term in my opinion it's going to have definitely a negative effect, especially on the export market.

Yeager: But can the dollar stay high for much longer? I mean, I guess anything is possible. But what are the elements that keep it higher?

French: Well, it's the Fed increasing interest rates, bringing the money supply out of there. So yeah, I think in my opinion the dollar is going to stay high here. And you just see it, you look at the big long-term chart. When it moves, it moves and it stays strong or weak for an extended period of time.

Yeager: All right, in corn, we don't export -- the dollar is more of an influence on wheat. Or is it as big an influence on corn?

French: It is. The exports right now, we're not getting weekly export sales here.

Yeager: Has that messed us up?

French: Well, we've had a big supply side rally here with the private analysts out there bringing down the size of this crop. We've seen two of them here in the last week. They differed in the size of that crop. But yeah, we've had a big rally up on the supply side but now without the exports from the USDA we're not seeing where the demand is. So yeah, I think it brings into a side of uncertainty and markets just don't like uncertainty. So yeah, we've set back here but again, look at $6.49 on December corn. As long as we can hold $6.49 I think we can move higher. But a close below $6.49 -- and we're coming in seasonally. This is September now. Harvest is coming at us very quickly and seasonally September is a weaker time for grain prices. And historically you look at right now the first week of September, corn prices right now in the last five years are $1.50 over the average. So we're coming into harvest at extremely high prices.

Yeager: We do have a question that is very similar to that that we'll bring up in Market Plus. There's our little tease for that show we do on YouTube or in podcast form. But I'll ask you, we're showing the March contract. How does one protect themselves if -- let's just ask it the two directions -- I have a really good crop, it has rained, I don't want to tell anybody -- or I'm really poor and I don't want to say how bad it is? What are those two extremes supposed to be doing right now?

French: Well, seasonally right now you want to be long the December and short the March. I think the farmer right now is pretty flush with cash. So that and with the shortness of the crop in the Western Corn Belt, I think the bushels that they have, they're going to hold onto those pretty hard. So the basis is going to have to do the work to work the bushels out of the farmer's hands. So buy the December, sell the March against it.

Yeager: That basis, I keep hearing there's some ridiculous basis levels out there. I mean, it's like politics, it's all local. Are there certain pockets that you see are stronger than others right now?

French: Oh yeah, it's the Western Corn Belt, it's the western feeding regions. And the basis is going to have to do the work pulling the corn from the east to the west. And it's going to be tough. It's going to be strong hands but at the end of the day prices are good, you've got to move it off farm and you can always replace those sales with a call option on paper.

Yeager: Soybean market didn't quite have near the rally because according to these estimates there's a big crop out there. Is that the only influence on this market right now?

French: That's a big one. Another big one this week was one of the bigger cities, not the biggest, it was only 20 million people in China, locked down. So that was a big market influence. But technically you had the, until Friday morning you had the bean market below the 20, 50, 100 and 200 day moving averages. So that's really negative. And these funds look at that technical trade as very important. So I liked Friday, we came back, it was an inside day, we did come back and close above $14. But you start closing below $14, it's a pretty quick trip down to a $13.50 area.

Yeager: Why would we do that? Why would we close lower so quickly?

French: Seasonally September, harvest coming at us and we've got a record bean crop, in my opinion, coming. Farmers are undersold. Brazil we just learned they're expected to plant 104 million acres of beans, just Brazil, this winter. So if one thing I'm negative on it's definitely the beans here. But again, good prices. If you don't want to sell, get some protection down low here. You've got it here for the next 25, 30 days October contract can keep the prices locked in here through harvest.

Yeager: So do something before harvest.

French: Oh yeah, absolutely. These are good prices. If you don't want to sell it, get your risk on paper.

Yeager: Because let's just point to the cotton market and how quickly things can change. Week after week after week we saw this price trend up. Then this week I believe the term is elevator shaft?

French: Yeah, it hit the elevator shaft. It was down every day this week. It was down $15 on the week. It closed below the 200 day moving average. Fundamentally cotton has a very bullish story but this is a perfect example of money flow. And money flow will trump fundamentals every single time. And right now the the cotton market is searching for buyers and they're simply not there. 20 year high in the U.S. dollar also contributed to that. But to me it looks like cotton wants to go back in that 95 cent area. That's kind of where we broke out and started rallying from. So yeah, not a good look at all.

Yeager: Well, it used to be if it was over a dollar it was always a big deal and we stayed above that for a long time.

French: Yeah. And historically over $1.20 even more rare. So when it's there you've got to take advantage of it.

Yeager: So it's a lesson for what could happen quickly if things change just enough in the wrong area.

French: Oh absolutely, absolutely.

Yeager: Okay, livestock, live cattle. You talked about the Western Corn Belt. What are you hearing about feedlots out there? Direct sales? Cash sales? Which one is winning out and influencing the cattle market the most?

French: Well, we had kind of a rough week until Friday. We've been trending lower since the cattle on feed report was kind of a little negative. But the trade is going into here -- I know we're not into the fourth quarter here yet -- but if you look historically at the kind of market when you're in a bull market, the fourth quarter is usually always higher than the previous third quarter in a bull market. So I'm really friendly cattle fundamentally. But you've got to look at the general economy. And look at the S&P 500 and put a chart up of the stock market with the cattle. It is almost tick for tick. So watch that stock market. If the stock market closes and the S&P below 3600 definitely get some downside protection in the cattle.

Yeager: Rabobank this week said their beef report relied, the global beef market remains strong with most beef retail prices trending upward from the previous quarter. At what point does the consumer come into this to influence the market not as much maybe something else?

French: Well, I think it's happening right now. People are making choices. But at the end of the day, if you want to go out and have a steak you're going to go out and have a steak no matter the prices. Now, you might not be doing that as often as you would like but people are going to continue to want beef. And globally meat demand is continuing to expand.

Yeager: So what about feeders? We're looking at that chart right now, again another one of those trends, but this one has been a downtrend in the short-term. How does that extend to the long-term?

French: They're expensive still and they've had a little bit of a downturn because of the rally in the corn. I'm kind of in the position that the corn might have some pretty good resistance in this $6.70, $6.80 area on the December board. So yeah, I like the feeders here. Again, you're going to have tremendous demand here on the feeder cattle and with lower prices I think we could advance up.

Yeager: Is the hog market moving mostly on that China news, export issue?

French: Maybe a little bit but the hogs have been trending lower for two weeks. And today we actually hit a two month low on the October contract. We closed the gap that had been open since July 5th on the daily charts. We have more hogs coming. We're going to have 8% to 10% more hogs in the fourth quarter compared to the third quarter here. So we do have more of a supply. What's going on with China, that is a major issue on the demand side. So I still like it in this 95 cent, 96 cent area. We have pretty good support there. But I want to see it trending higher. I'm not going to buy this thing as we're going to continue to make new lows. I want to see a trend, two, three, four days of moving higher.

Yeager: All right, real quick as we close, crude oil. $86.99, below $87, still below $90. Direction of crude right now?

French: Well, it doesn't look good. It looks like lower. But as a country right now we are pumping about 15 million barrels per week. We have the capacity to go up to 20 barrels per week. If we did expand our capacity we would be back down to $70 very, very quickly. But yeah, it looks like we're going to head lower.

Yeager: All right, Jeff French, try to put a smile on as much as you can but it was tough this week. Good job though.

French: Thanks, Paul.

Yeager: Thank you. That's going to do it as we put a pause on this analysis. We'll continue with Jeff and answer more of your submitted questions in our Market Plus segment. You can find that on our website of MarketToMarket.org. That's both in podcast and also in YouTube form. All of these resources, they are free. Pods are filling and corn is starting to mature. So how close are you or any of us to harvest? We'd like to see how things are going for you. Post a few pics on Instagram and tag them MarketToMarketShow and also give us a follow. Next week, we look at new approaches at handling mental health emergencies in rural America. I'm Paul Yeager. Thank you so very much for watching. 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.

(music)