Market to Market, September 23, 2022

Coming up on Market to Market -- The impact of higher interest rates on

farmland. Stakeholders work to correct issues in the 2018 Farm Bill. One stop

shopping for the overall health of your operation. And market analysis with

Matthew Bennett, 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 16 edition of Market to Market, the Weekly Journal of Rural America.

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Hello. I’m Paul Yeager.

Home is where the heart is, but also the majority of wealth for most homeowners.

Housing as a sector is a big component of the overall economy.

Housing starts were up in August as multi-family units led the sector.  However, permits to build declined, indicating a possible move lower next report. 

For the seventh consecutive month, existing home sales were down. This is the longest streak since 2007 as higher costs to borrow money kept buyers and sellers apart. 

The Federal Reserve raised the benchmark interest rate Wednesday 75 basis points.   The last time the cost for banks to loan each other money was this high was 2008.

The prospects are strong for another rate increase for November. If realized, that would be a mark between 4 and 4.5 percent. 

What that hike means for borrowers varies. 

Farmland is as much for agriculture, as it is for investing. The ROI on ground closely follows the 10-year treasury yield. . 

Randy Dickhut/Farmers National Company: Well, historically, the return or ROI on farmland kind of coordinates are as follows the 10 year Treasury yield. They kind of follow each other until here recently, when Treasury rates were below 1%. But farmland returns stayed about two and a half 3%. Now with the interest rates going up that Treasury rates going up, so will we see the return on farmland go up? You know, that's, that's one question. And that happens either by land values coming down, or the income going up. That's still to be played out for one. But where interest rates have gone so far on farm mortgages haven't really affected the farm prices a lot. 

Randy Dickhut (Di-coot spent more than twenty years with Farmers National Company, the nation’s leading agricultural landowner services company, most recently as senior vice president of real estate operations.  

Randy Dickhut: You know, some of the purchases of farmland are with cash only, or only a 50%. mortgage on it. So a lot of cash in the market, still working out for some people. But if those interest rates move up pretty quickly, and you know, significantly more, I think it will have an effect on land values, you know, one is for those having to borrow will get more cautious. Absolutely. And the second is, will you want a little better return? When you can go out and get a CD for four or 5%. You know, people start thinking of safe investments and farmland historically, but also we've got the inflation piece going on. And again, historically, real estate assets. Great, especially farmland are considered a good inflation hit. So you got interest gone up, but you got inflation hedge.

As Congress tries to squeeze in work around campaigning to keep their jobs, the Farm Bill process moves down the field. 

This week one of the House Agricultural committee held a hearing focused on conservation. David Miller reports. 

Michael Crowder, President, National Association of Conservation Districts 01:06:39 Crowder: “more boots on the ground”

This week, the House Agriculture Subcommittee on Conservation and Forestry met to hear about lessons learned from the 2018 Farm Bill.

The panel of witnesses told members the process to participate in federal conservation programs needed to be streamlined.

Iowa cattle rancher Shayne Wiese told the committee about his experience where he tried to get cost-share dollars for a new cattle watering system through the Environmental Quality Incentives Program.

Shayne Wiese, Rancher, Manning, Iowa Wiese, Iowa Cattlemen’s Association, “Now I applied and we waited and waited and finally we just had to bite the bullet and do it. I am one of the spoiled few in the cattle business that has a generational ranch that is setup with land, resources and capitol so I can do that process of buying that outright. Beginning ranchers and farmers don’t have that in the current state of the business.”  

Stakeholders also told the committee there needed to be flexibility in the Conservation Reserve Program and urged members to avoid a “one-size fits all solution” to emergencies like drought.

Nicole Berg, President, National Association of Wheat Growers: 01:18:52 “So then the farmers are led ‘Now what?’ I have no flexibility in the program and I need to make sure that I either get it established or I have to pay it back and, so, that becomes very difficult for farmers.”

One of the many concerns brought to the committee was the need for more Natural Resources Conservation Service employees and the necessity of providing them a competitive wage.

Michael Crowder, President, National Association of Conservation Districts: “In Washington State, a new employee would make $24,000 more if they worked for the state of Washington than the NRCS. So they’re losing engineers and other specific employees because there’s not enough funds to compete with the private or other federal agencies.”

More hearings are planned in the coming months.

For Market to Market, I’m David Miller.

Money disagreements can kill a marriage and a business partnership. Finding common ground to get solutions both parties can live with can come at a price of its own. 

When families are in business together - much of the same issues can fester and mediation is necessary to keep the farm afloat. 

In the state of New York, farm families that find themselves struggling to work together can access free help to solve both their operational and interpersonal problems. 

Peter Tubbs has our Cover Story.

Branden Brown, Trinity Valley Dairy: “It came down to in the end that either we were going to make changes or we were going to have to walk away from the business.”

In 2016, Brandon Brown and his wife Rebekah had reached a breaking point with the milk bottling plant they had built in partnership with Rebakah’s parents on their farm outside of Courtland, New York. As the business had grown, each household was expecting help from the other for daily tasks, and defining responsibility became a struggle. New York FarmNet was brought in to mediate the family’s disputes. 

Kate Downes, New York FarmNet: “And so farms call us for a variety of reasons. They could call for financial guidance and coaching. They could call us for emotional support and communication assistance and building better interpersonal relationships among the family. So we really get a variety of phone calls throughout the year.

The first call for assistance is often difficult, and producers frequently don’t understand where the problems lie.

Kate Downes, New York FarmNet: “Oftentimes folks call us asking for financial guidance because that's an easier question or an easier thing to ask for help for and with on a farm. (edit) 00;03;32;10 So if you know we get a call from a farmer saying they want financial coaching and analysis, but then we show up and see that, you know, the senior generation and the junior generation are fighting in the driveway. That's when our family consultants, they pick up on what's going on and they're like, OK, there's a little bit more going on here.”

FarmNet’s financial and family consultants work as teams, bringing different skills to the situation.

Kate Downes, New York FarmNet: “Our financial consultants have that farm business management. Some of them used to work in ag lending. They used to be farmers themselves and have retired. on.” (EDIT) Kate Downes 00;04;00;13  “So we help them work through the nuts and bolts of the farm business management stuff. And then our family consultants help with that social, emotional, interpersonal communication work because 97% of farms in New York are family owned and operated, and many of those family farms are multiple generations working side by side. And that's often where there can be disagreements and challenges and pressure points.”

Generational disagreements brought the Browns to their emotional limits.

Branden Brown, Trinity Valley Dairy: “So we when we first started our business, we came back to the farm from two different jobs, my wife and I. And from day one, we really never had anything in writing or what everybody's roles were. It was kind of assumed, well, everybody's roles are going to be. But, you know, as the business progressed and got bigger and we decided to do more things, you know, different roles shifted and responsibility shifted.”  (EDIT)

With help from FarmNet, they were able to sort out the details. 

Branden Brown, Trinity Valley Dairy: “So it it turned out to you know, it got us talking and we got to really see where everybody's heads were and like, what did everybody really want to do? We didn't really know where everybody really wanted to do and or where they wanted to be. So it kind of opened up a conversation and allowed us to keep that conversation going.”

The conversations allowed for a formalization of each person’s role in the operation and agreements on how work across the farms would be compensated. The improved communication allowed the Browns to expand the dairy herd and add cheese making to their Trinity Valley brand. 

According to Downes, on many farms, what might feel like financial problems are in reality communication problems. A reluctance to hand over responsibility to a younger generation can compound a farm's challenges.

Kate Downes, New York FarmNet: “So the family consultant picking up on those nonverbal cues can really help grease the wheels of open communication and building those interpersonal relationships and even helping the senior generation turning over the reins to the junior generation. Because the junior generation might be in their 60s and has never written a check or made an actual business decision for the farm. (EDIT) (1.35) “But in recent years we've actually seen more farmers, farm family members, farm employees calling us and asking directly for assistance with emotional support. And you know, some of those mental health challenges that everyone has gone through in the past few years.”

 

FarmNet receives over 300 calls each year seeking assistance, and can have as many as 800 open cases at any one time. The group serves farmers in all 66 counties, including the five boroughs of New York City.  

But with dairy earning nearly half of New York State’s agricultural receipts, it’s not surprising that dairy farmers form the largest share of FarmNet’s clientele. The daily demands of milking cows can create a special kind of stress.

Enabling families to communicate their thoughts on the operation can help a farm move forward both financially and into the next generation. 

Kate Downes, New York FarmNet: “So really for us, what we love to see when a farm family, quote unquote, graduates from farm, that is a family that can have a functional business meeting you know, as in, everybody has a turn at the table and everybody gets to speak their mind and they're allowed to speak their mind and that those generations who might be working side by side are working well together.”

The renewed partnership at Trinity Valley facilitated expansion on both the dairy and packaging parts of the business. A robotic milker was added, which reduced labor costs for the farm. An on-farm store was opened, which captures some of the retail dollars that had been going to the company’s wholesale buyers. A corn maze on the farm has become both a source of tourism dollars and serve as a marketing platform for their milk and cheese products to the 10,000  visitors each fall. The Brown’s are working on acquiring a nearby farm, adding another herd to milk and more acres for   forage.

For FarmNet, turnarounds like Trinity Valley are common. Downes believes their clients consistently improve their operations using the agency’s consultants. In a typical year, their group serves over 700 farm families. FarmNet also receives an additional 300 calls annually from struggling farms across the state.

The families that operate Trinity Valley see the assistance they received as invaluable.

Branden Brown, Trinity Valley Dairy: “We realized that with Farm Net and we've gained that skill set, I guess you could say, and we've just used it over the last six years and we've been able to expand the business and grow the business and different avenues that we never thought we would ever be in. So it's been just that little step six years ago has made all the world of difference of the health of our business and the future health of the business.”         

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

A new round of threats from Russia cast a big shadow on the global trade. For the week, the nearby wheat contract added 21 cents, while the December corn contract lost a penny. Some profit taking and reduction in demand due to COVID shutdowns slowed the soybean complex. The November contract shed 23 cents. December meal gained $1.60 per ton. December cotton shrank $6.75 per hundredweight. Over in the dairy parlor, October Class III milk futures declined 40 cents. The livestock market was lower. October cattle dropped $1.25. October feeders cut $2.90. October lean hogs decreased by $4.27. In the currency markets, the U.S. Dollar index put on 284 ticks. November crude oil dropped by $6.31 or 7 percent per barrel. COMEX Gold lost $33.90 per ounce. And the Goldman Sachs Commodity Index fell by almost 26 points to finish at 605 – even.

Yeager: Joining us now to provide some insight is Matthew Bennett. Welcome back, sir.

Bennett: Absolutely, thanks for having me.

Yeager: So, Matthew, I read a whole lot of down part of that market. The wheat market, given the story out of Russia both more threats, more crop, we're dry in this country, what was the biggest pull higher this week?

Bennett: I think the main thing is more tough talk I guess out of the Black Sea region. You wonder are these stocks of wheat, first of all, are we going to be able to get them out on a regular basis? Second of all, what's going to be the prospects of a big Ukraine crop moving forward or let alone Russia? So there's just a lot of unrest there, there's a lot of talk that you could have major issues there for a multiyear type situation instead of it maybe coming to a head very quickly and this thing getting over with fast. You hear a lot of stuff going on in Russia with people getting called into the Reserves, it's just, it doesn't sound good and all that certainly is going to play a role in the wheat market, probably one of the bigger issues in my opinion.

Yeager: Do we have a range, $9, $9.50? What do you see?

Bennett: I think if you get substantially over $9 for producers that have seen that with July, I know some have stepped in to hedge some, I have no issue with that. I don't see us getting wildly out of control to the upside. To me this is a chance to hedge off some risk. But at the same time I want to stay flexible. I can see the potential for some sort of a blow off type rally at some point if you continue to have the issues that we're seeing and we, for instance, don't get a lot of wheat planted in that part of the world coming up but at the same time you've got to be careful as a producer to not take what is a very profitable situation, latch a hold of it at least to an extent and then keep yourself flexible for an upside rally.

Yeager: Let's move over to corn for a minute. That is going on basically in your back yard, the harvest. What are you seeing so far?

Bennett: Pretty good yields. In my part of the world we've had really good weather. You don't have to get 20, 30 miles away and people maybe weren't quite so fortunate. But we've had all the rainfall you'd ever want and so some of the yields that we've seen have been some of the best that we've seen before. At the same time there again is going to be a fair amount of folks that have some challenging yields. A lot of the yield reports that we're getting throughout the countryside are it's pretty good but maybe a little bit disappointing. I think we're hearing a little bit different story whenever it comes to beans. But for the most part the early yield reports on corn I'd say are average maybe to a bit disappointing depending on exactly where you're at.

Yeager: You're not a scientist or a data scientist but you do watch the commodities. The data that you see anecdotally, looking at technical resistance, we're talking $7 technical topside, where does this corn market, what kind of range do we have on it?

Bennett: The thing is, is it sure seems going up and above that $7 level, maybe the $7.25, $7.26 area where you've got a gap is maybe going to be unlikely at this point. I think a week ago after the report and you saw some of the strength in beans kind of pulling corn with it, I had to think maybe there was a chance to get up there and I'm not saying that there's not at this stage of the game, but some of the macro fears, the global fears, recession if you will, makes me think that it's going to be a little bit tougher road to get up to those sorts of levels. And so one way to put it, I think people have asked me, what are you doing with corn either that you've already got contracted or maybe that you're selling at some of these quick ship levels? It's hard for me to reown $7 corn, it just doesn't seem right. And I'm not saying we can't go on up from there but I certainly feel like that's got to be a pretty stiff level of resistance.

Yeager: We have a game we're going to play in Market Plus in just a little bit, Matthew, where I'm going to ask you basically a follow up to that question. But before we move on to beans, with corn even until today we were lower pretty much on a lot of the commodities. Was there any specific reason for that close lower today?

Bennett: I think corn you look over in the wheat market obviously struggling as well, I think whenever it comes to corn it's just along with everything else, you look at energies, you look at the dollar rallying sharply, we're looking at really as high as we've seen the dollar since the Euro came on board. And so it's extremely stiff resistance for commodities whenever you see that kind of strength. We're already the most expensive corn on the world market. And so I think that it gives just a reason for the bears to step in and sell this. But at the same time we're still tight domestically and even the world numbers are tightening up. You look at this last USDA report that it makes me think we're going to have some good support under this market at the same time.

Yeager: Again, another question but this time we're going to go to it. Let's discuss the dollar, you kind of alluded to it a little bit. This question came in from Randy in Cresco, Iowa and this one via Twitter. He wants to know, is the U.S. dollar the sleeping gorilla for 2022-2023? He says, inflation is feeding the bulls. Is the dollar going to feed the bears?

Bennett: That's a great question from Randy, a good guy. I think that it's a tough question to answer. The thing is that you've got some major differences and the question actually answers some of what I'm saying here is that essentially you've got this huge tug-of-war. And so I think as a producer what you've got to understand is these two different dynamics in the markets should make you want to at least quantify some worst case scenarios in the event that the dollar making our corn so expensive on the world market makes exports even smaller than what the USDA suggested they'd be. At this stage of the game we're running well behind the pace that we need to meet their goal, which their goal is a trimmed back goal. They took 100 million off this last report. And so absolutely, I want to at least quantify worst case scenario and in the event that this corn stays so expensive on the world market and we have a hard time moving it out for export.

Yeager: Let's move over to beans because you did -- what you just said applies to this bean market and it is also similar to what we talked about in both wheat and with corn. This price though is $14. Is that both good and bad for bears and bulls? Is that a technical thing or just a mentality?

Bennett: Whenever we came out of the report, I guess the way I want to answer it is this -- we went back up over $15 and we showed that this market simply didn't want to spend any time above $15. We pulled back but it seemed like we don't really want to race below $14 at the same time. So you look at the bean market and you ask yourself, where's the values, where's a safe place to be? And I think what you have to understand on beans, you've got two different dynamics going on, a very tight situation here in the U.S. as we speak currently and I say that because the 50.5 yield certainly could change a decent amount I think in October. What we're hearing on early yields is that some of these beans are awfully good. But the difference is that the world situation is different than domestic. Domestic is very tight. We're going to add around 10 million tons to the world balance sheet according to the USDA numbers and I've got to think that there's a fair amount of merit there. We look towards South America, the Brazilian producer is going to come at us with more acres yet again this year and if La Nina isn't as prevalent as what it has been these last couple of years, we know it's still hanging around, but if it isn't as prevalent we've got to think that you could be looking at 145, 150 million ton crop. So two different dynamics, world versus domestic. And once again, I've got to think a person has to be very cautious as to assume these beans are just going to stay supported for perpetuity.

Yeager: Let's move to the livestock. Cattle on feed came out just before we recorded today. A couple of numbers right on what they were before but there was one number that jumped out. On feed and placed both at 100. But it was this marketed in August at 106. Is that the number that jumped out to you?

Bennett: It sure looks like a big number. A lot of folks were expecting marketed to be fairly high. I think whenever you look at this cattle fundamentally you're going to be losing numbers moving forward. Yes, you've got the cold storage report showed significantly higher stocks, I think 24% versus what we were at a year ago, but at the same time I think a lot of folks are holding on to some of this meat and I think you're looking at people expecting that you're going to see just markets continue to get better as far as the cattle prices go. The problem is going to be profitability for the producer. And so feeding high cost grain is certainly going to be a major headwind and I've got to think that it's going to be really tough over the next six to eight, ten months. But I do feel like for the cattle producer you're going to see some real good profitability come in as long as you get a decent crop out of South America and/or the U.S. in the next twelve months. And if that happens I've got to think that profit margins could be quite robust for those producers.

Yeager: And it is that major tug-of-war, that profitability and if you can hold out. Do you know of anybody that is in a position who might be able to hold out a little longer than somebody else?

Bennett: Yeah, the thing is there's going to be a lot of folks I think that see this coming and you've got to assume that you've got the opportunity moving forward to do well in this environment. But at the same time it is going to be a capital intensive situation. If you don't have your feed costs hedges it's certainly going to be tough. And quite frankly over the last several months there hasn't been very many good opportunities to do so. And so on a day like today in the corn market I think there's some cattle producers that are quite happy to see that kind of trend and they're probably hoping to see more yet. The only way that you're probably going to see that is if maybe this U.S. crop tends to grow just a little bit, which is certainly a possibility, but it's not something I'm banking on currently.

Yeager: Is the hog producer looking at the same market and thinking the same thing or are they different?

Bennett: Whenever you look at the hog producer the bottom line is if you don't have really good export sales it's tough to sustain the hog market to get up to those triple digit type numbers. And so of course you've got front month again well in excess of December so you've got a pretty good inverse there. But at the same time you've also got the cash market fairly strong. And so I've got to think you're going to get some support in here for hogs. But the only way you're going to get a sustained rally in my opinion is you're going to have to see really strong export sales moving forward.

Yeager: Right on cue, Mr. Bennett. You ended right on time. Thank you, sir.

Bennett: Absolutely, thank you.

Yeager: All right, we'll talk to you in a moment because we're going to put a pause on this analysis and continue with Matthew and answer more of your submitted questions in our Market Plus segment. Find that on our website of MarketToMarket.org in podcast form and also on YouTube. All of these resources that I mentioned are free. And thank you for helping us hit a milestone on our YouTube channel as more of you are finding the show, the Market Plus and our stories that are available each and every week. Join our family by subscribing to the feed of Market to Market. Next week, we're going to keep going on this crop harvest report, check in with that. Thank you so much for watching. 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.

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