Market to Market - October 7, 2022

Coming up on Market to Market -- A pair of guilty pleas involving a Missouri farmer. A dry three-year stretch makes history for California. Taking cattle to market for drought and economic reasons. And market analysis with Sue Martin, 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)

This is the Friday, October 7 edition of Market to Market, the Weekly Journal of Rural America.

(music)

Hello. I’m Paul Yeager.

Two may help one in the fight against inflation.

The unemployment rate dropped back to the 50-year low of 3.5 percent while employers added 263,000 jobs in September. 

Those figures may give the Federal Reserve more evidence to keep raising interest rates to fight persistently high inflation in the United States.  

Now to the courts.

The new session of the Supreme Court opened with Sackett v. EPA - a case involving environmental protections against property rights as defined in the Clean Water Act. 

Next week, National Pork Producers v. Ross, known otherwise as California’s Prop 12’s oral arguments will take place.

In a criminal court investigation that drew the attention of many in rural America, proceedings may finally close the chapter on a Missouri farmer’s future. 

Colleen Bradford Krantz reports. 

Garland “Joey” Nelson, a Missouri feedlot operator accused of killing two Wisconsin brothers, entered guilty pleas in the past week to two counts of first-degree murder.

The Caldwell County Prosecuting Attorney’s office in northwest Missouri said Nelson, 28, of Braymer, admitted to shooting 34-year-old Nick and 24-year-old Justin Diemel, Wisconsin cattle producers, on July 21, 2019 at Nelson’s family farm. The brothers had traveled from their Navarino, Wisconsin homes to the Nelson farm to confront Joey Nelson about a $215,000 bad check he had sent as payment for cattle Nelson was feeding for the Diemels.

Nelson admitted during last Friday’s hearing that he shot the two men, placed their bodies in barrels and burned them. He dumped the remains of one in a pile of cow manure, and the other in a mineral supplement bucket that was located in November 2020 inside a trailer sold to a man in Nebraska.

Although the possibility of the death penalty had previously been mentioned, a Missouri circuit judge sentenced Nelson to two consecutive terms of life imprisonment without the possibility of parole. A number of other charges were dropped.

On Tuesday, Nelson also changed his plea in federal court to admit guilt on fraud and firearms charges. He will be sentenced for those federal crimes in March 2023.

It won’t be the first time Nelson serves time. Nine years ago, he sold some cattle without notifying FSA, a requirement when livestock is tied to farm loans. Nelson was interviewed by Market to Market nine months before the Diemels were killed for an unrelated story about what it was like to serve time in prison for an agricultural crime. He had spent 13 months at Leavenworth Camp in 2017 and ’18 as a result of that first fraud case.

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

The largest U.S. barge company, Ingram Barge, said they won’t be able to make good on some deliveries and have declared force majeure on the lower Mississippi River scope of business. 

This is impacting more than 100 shipments involving many (of the ?) company’s tows of grains, fertilizers and metals.

Prolonged drought has become a larger nationwide story in 2022.

California, which is the world’s fifth largest economy, is again dealing with drought. 

The last time any part of the state emerged from the parched conditions was April of 2021. 

The pattern has continued as the water calendar flipped last week. 

Peter Tubbs reports.

The past three years have been the driest on record in California, according to data dating back to 1896. Although the just completed 2022 water year was slightly wetter and cooler than the 2021 water year, it was still 24 percent below the historical average of precipitation. The state’s reservoirs are at 69 percent of their historical average. 

With a third year of La Nina expected in 2023, water analysts are pessimistic about the state’s water reserves in both the near and long-terms. 

Jeanine Jones, drought manager, California Department of Water Resources: "This is our third drought in this century. And we have definitely been seeing more droughts and increasing impacts this century as compared to the last century, reflecting our transition to a warmer and drier climate."

The California Department of Agriculture estimates that more than 500,000 acres or 5.5 percent of irrigated land has been fallowed for the 2022 growing season. More acres may need to be left vacant to direct scarce water supplies to water intensive crops such as nut crops.

Jeanine Jones, drought manager, California Department of Water Resources:  "We can't just continue thinking of drought as something that happens occasionally and we go about our normal way of life once the drought is over. We really are transitioning to different conditions that we need to plan and adapt for."

Heavy pumping of water from underground aquifers has caused more than 1200 wells to run dry for both residential and agricultural users. Fewer than 100 dry wells were reported in 2020. 

Elaine Moore, Chowchilla resident and farmer:

"We've had to drill a well on our property, but this is the first time the boys have had problems with their well. So I just think it's because the dry it's been so dry this last year, we didn't get much rain, we didn't get much snowpack. And it looks like it's going to be the same thing this winter. So it's touch and go. We will probably have to drill another well."

Well drillers are in high demand, in some cases doubling the depth of new wells to reach dependable water aquifers. 

Ethan Bowles, Drew and Hefner Well Drilling:

"For the past about four years, it's been almost non-stop phone calls just due to the water table dropping constantly. That's something that's we can't fix it right now. It's something you can't change. So just nonstop phone calls and all you can do is answer the phone and try to be there for them."

Without a dramatic shift in moisture patterns over California, water usage statewide will need to be reduced to support both 39 million residents and the state’s huge agricultural sector. While California produces over 11 percent of America’s commodities, agriculture is only 1.5 percent of  California’s economy. 

Andrew Ayres, water researcher, Public Policy Institute of California:  "Looking at the American West in the face of climate change, we're going to have very serious groundwater management issues that have been brewing for decades really come to the fore right now. I mean, it's happening right now."

For Market to Market, I’m Peter Tubbs

All of Oklahoma is in some form of drought. The discussion of what to do with a parched pasture or feeding area is prompting some tough decisions in the cattle industry.

This week’s MtoM podcast featured Michael Kelsey, the executive vice president of the Oklahoma Cattlemen’s Association. 

A portion of our discussion is this week’s Cover Story.

Michael Kelsey, Oklahoma Cattlemen’s Association: We're in really troubling times. It's weather related and economy related as to things I would say is what I'm hearing more than anything. And then as you look at the average age of the beef producer, not only in Oklahoma that even across the country, but in Oklahoma is not unique. In that sense, the average age of the producer, whether you're in the cattle business, or farming, corn, or whatever, we all know that age is creeping up. And so we're gonna see a lot of generational transfer. And so sometimes the drought and the economy actually excels that in not a good way, sometimes it can be good, but not necessarily so water right now, drought, whether we're hauling water to cattle or trying to figure out how in the world water the cattle. That's, that's really tough plus, then the forage basis, or I should say, the lack of forages, because of the drought and even the outlook. We're a strong wheat pasture country, as you well know, we graze a lot we import a lot of cattle in Oklahoma, mainly from the southeast is where they primarily come from Kentucky and south and so forth. Boy howdy, you it's gonna be tough to do that this year, because we're just not going to have the wheat pasture unless conditions improve, and so that the Outlook doesn't look very promising right now from a drought and then you tack on the economy. And the economy. What I mean by that is cattle prices, you're talking to a cattleman. So cattle prices could always be better, right? I mean, they can always be better. But cattle prices really are pretty strong right now, beef demands really strong considering, but boy howdy when you factor in $4.50 diesel, and the supply chain challenges of where do I even get hay. What is corn going to cost? What are your feed stuffs going to cost? How am I going to ship it in? All of those input costs are just really challenging folks. And so we're hearing a lot of of concern. We're, we're also hearing a lot of selling a lot I would say right now I'm talking to Dr. Derrell Peel, last week about this very question, you know, how many cows have we sold in the state of Oklahoma? What's our cow herd? In other words, and we're probably his, he said, You know, I'm gonna kind of guess this, but it's eight to 12%. I wouldn't disagree with him at all. And I think we're going to see another sale of cows, because a lot of our members are telling us they don't have enough hay to get the cows that they still have through the winter. And so we may have to sell some more cows. So is it theoretically possible that we'll sell 20% of our cows in the state of Oklahoma? And I think the answer is yes, I hope not.

Paul Yeager: Well, what timeframe? Are you talking here? When you say eight to 12?

Michael Kelsey: Right, eight to 12 would be Oh, that's a good question. So it would be relative to this time last year. Okay.

Paul Yeager: So we're talking annual?

Michael Kelsey: Yeah, yeah. So this time last year, we can share and you know, we weren't bumper crop of cows, but we were a healthy cow. We were very healthy cow herd this time last year.

Paul Yeager: Now. Now, I know you said things are connected and we know that they are but if you had to say one is leading the other and why someone's making a sale, is there a leader, drought?

 

Michael Kelsey: Drought, definitely drought right now.

Paul Yeager: Dry since 2010, '11 and '12. You hadn't started on the job yet? And it was that dry. Remember that drought? I think we had video out of Oklahoma and we saw the sale barns were full. Are you seeing a repeat of what it was? 10 years ago?

Michael Kelsey: We Yeah, we've we've slowed down a little bit, because we sold them earlier. Yeah, so we're seeing less now because we sold them earlier. Okay. I think I'm afraid we're going to see another resurgence here in the next month or two.

Paul Yeager: Well, and so I guess that I guess the reason I bring it up is it's a little misleading when you see Oh, sales aren't so bad. That's because everything has been sold already. And if it's if it's not going to another feedlot or another pasture, and it's going to slaughter of course that animals not going to resurface.

Michael Kelsey: That's right. And she's our factory. Yeah. She's our fact. She's what makes the calves you know, calf prices. Next year, you're after it's gonna be great, right? Because we're selling all these cows will have fewer calves. But if you don't have any cows to make calves, then you don't really care what calf price is.

The full interview was released Tuesday as part of the MtoM Podcast. Subscribe via our YouTube channel for the video version or follow on your preferred audio podcast format.

Next, the Market to Market report.

A triple threat of factors to trade this week with harvest pressure, the dollar and drier weather leading the pack. For the week, the nearby wheat contract reversed course with a 41 cent loss, while the December corn contract gained six cents. Similar headwinds are blowing through the soybean complex with an eye on South America. The November contract improved 2 cents. December meal dropped $2.30 per ton. December cotton shrank $1.11 per hundredweight. Over in the dairy parlor, November Class III milk futures went up $1.23. The livestock market was higher. December cattle added a dollar as did November feeders. And the December lean hog contract increased by 92 cents. In the currency markets, the U.S. Dollar index expanded 57 ticks. November crude oil skyrocketed by $13.60, that's 17 percent per barrel. COMEX Gold gained $34.40 per ounce. And the Goldman Sachs Commodity Index jumped by 61 points to finish at 667.80.   

Yeager: Joining us now, our friend Sue Martin. Hi, Sue.

Martin: Hello, Paul.

Yeager: Wheat market, it's really easy to say right off the top these three things, the dollar. But each contract has been moving individually with different factors. But the question to start I think our discussion is, and you like the technical side of things, have we hit the top of this latest wave and we're done with this rally?

Martin: No.

Yeager: Why not?

Martin: No. The market has, in fact as we ended the week the Kansas City December contract closed near the 20 day moving average and also on a trendline from the very lows that we've had. So it's at a good support. But the market hasn't even -- now Chicago wheat did make a 38% retracement on Fibonacci, but KC has not. And I think the market has got capability of pushing even farther than that. You look at this stocks report that took everybody by surprise, I don't think hardly any of us anticipated the USDA would drop harvested acres and yield at the same time, but they did. So this next report that we get here next week is going to be rather important to see just how much they show for this crop as far as ending stocks where we're at. And I think that we could possibly see, the ultimate is the ending stocks drop under 600 million bushels. If that happens it's the first time since I want to say 2013, 2014, something like that. But also it will be the sixth year of a consecutive decline domestically and a third consecutive year ex China that we see global supplies drop.

Yeager: Well and it kind of goes with what we just talked about in the news segments, the dry in California, not as big of a wheat producing state, but Oklahoma is and in that area and when you mention '13 we're coming out of the drought from 10 years ago. So similar scenario. So what is a range then that we're going to be watching in wheat?

Martin: Well, I think when wheat, like Kansas City wheat for example, when you pull that back down in the lower 9's, if that can happen, I think that market is capable of going up closer towards $11 and maybe a little more. The question mark going forward for the next year is, okay, do we take this year's high out or do we take this year's low out? Well, when you've got Ukraine now talking that they may not see or, let's put it this way, 50% of their production could be down this year because of that much less in hectares that are planted because of the high input costs, the low cost of wheat in their country and the concern of the war. Well, that's another big thing because they right along with Russia are very big exporters of wheat. Russia has very low prices right now. They're planting and getting the crops, the winter crops, trying to get them planted. The southern part of Russia is pretty wet and so they're delayed a little bit there. But when you go into the southern part they've got until mid-November to get that in. So I think when you look at wheat it's a major food item and a feed but it's not kind of being used for feed right now, it's just too expensive.

Yeager: Right. Speaking of expensive, this corn, in some eyes. We can't seem to pop -- Friday I was just looking while you were talking about wheat so I was prepared for this and I couldn't remember the number. $6.83 is what we closed in on corn for the December contract. Why is $7 such a hard thing to get over?

Martin: Well, it's psychological because even in the prime part of our rallies into summer, into spring actually, we got to $7.47, that $7.50 area. And the old crop made it up around $8.27. So $8.27 came really close to the all-time high for a lead contract and therefore all three of these kind of markets, corn did a double top this year. Beans came within 10 cents double top. Wheat, KC wheat made new all-time highs but not to an extreme to where it qualifies as a double top. So when markets do this they kind of have to step back and sort of reset themselves and then we go on from there.

Yeager: So I'm listening to you hearing the words more of a technical explanation for this. So you're not going to give me a fundamental story on crude or an expensive dollar or the harvest pressure right now?

Martin: Well, let's look at corn. When we look at corn, we lost of course 150 million bushels out of the old crop supplies, which means in this report next week WASDE has got to give us some changes of numbers. And feed usage is going to be one we're going to watch. In fact, actually the numbers in wheat, I'm bouncing back a little bit on you, but in wheat it shows that the first quarter of feeding usage was near zero. But in corn they're going to have to play with the numbers. Right now you have slow disappointing exports. You have we lost 150 million bushels of old. What that says is that for every bushel that we lose per acre nationally in this number coming up with NAS, it's going to equate to 81 million bushels decline in stocks or they're going to have to play with it, let's put it that way.

Yeager: And that is a question that we have coming up that's interesting. But speaking of questions, I want to get this to you before we move on. Mitch in Hull has a question. We haven't even really discussed the weather side of this equation yet. Is there anything Western Corn Belt end users should be doing right now to protect themselves if the western's crop is shorter on production than anticipated?

Martin: Well, I think first off we've dialed in a pretty low corn number. But a lot of the reduction is in the Western Corn Belt. And you look at Kansas and those feedlots are going to have to be pulling and end users are going to have to pull Nebraska, South Dakota, Iowa, they're not going to be able to pull from the Eastern Corn Belt. So I think if they need -- and I've been hearing some pretty awesome basis levels by end users, $1.20 over even through all of October talking 40, 60 cents over. There was some talk that even based on December futures basing off of that but don't have to deliver it until next March. The end user was put on alert when he saw those quarterly stocks. And if he was nervous before, he became even more nervous because farmers' bins are empty and they have a tendency to put corn in those bins anyway. So it's going to be that they need to protect themselves with call spreads to protect that because the best thing for them would be oh my gosh, prices are dropping. Why would prices drop? It would have to be that our demand just sort of went out the door.

Yeager: We need to move to beans and that is a story of, we kind of alluded to the Mississippi River issue of transport. But is that again a technical story or a fundamental story right now driving to help the range that you’re going to tell us we're in?

Martin: I think in the beans we have to realize that it's kind of a fundamental situation. It plays with some other factors. You've got a 4.5 billion bushel bean crop expected to be harvest. And the export side of the demand accounts for 46% of demand. And that means we need to be exporting 80 million bushels a month. Well, half of those bushels would come out of the Gulf. Now you've had September and we've had a problem with Argentina competing there and they sort of stole any thunder that Brazil had at the time. And we thought we were going to get more business because of Brazil's lower crop and that's not happening. So we've already had September out the door. We have these very low water levels, they're having to dredge at Lake Providence and Greenville and they're offloading barges. You've already had one barge company file for force majeure. And what's happening is that all of a sudden there's not much rain in the forecast for all of October so now you've got two months out the door. This could mean that we could lose nearly 60 million bushels of our first quarter export business. That is huge. And we need that business. So I look at, I think what this does is it really puts emphasis on South American weather and right now they're planting very easily, they're catching some rain, especially in the Central and Southern parts. I think Brazilian weather right now looks kind of congenial. So once they get the crop in, you can't kill it anyway until it's in, and then we'll see what the weather is. But La Nina appears like it's pushing a peak and it could peak by the end of the year from what I'm hearing.

Yeager: I need to move to livestock in a hurry, we've just a few seconds left. Live cattle. Packer margins seem to be shrinking. The unemployment report, our friend Chris Swift was on last week, he says maybe with more people working they're going to keep buying meat. Do you buy that story?

Martin: Absolutely I do. I think that the amount of 263,000 people working, unemployment at 3.5%, the lowest in 50 years, our economy still looks pretty good. People working are going to spend money for the food for the proteins. You've got Europe looking at a horribly huge number of poultry losses because of Avian bird flu and that is falling on the backside of African swine fever. Demand, meat is going to be in huge demand. Exports, we just had China show up on our cumulative exports, China is in our export picture. I think they took a record amount of beef, so maybe not so much pork, but beef. And I've got to tell you, I've got another story too --

Yeager: Real quick.

Martin: We have to look at China and they're going to have on October 16th their 20th Chinese Congress and at that Congress, Xi is expected to be solidified for the next five years again as the President, leader of China.

Yeager: That's a story we're going to have to watch and I hate to do it, we'll continue in Plus. Thank you, Sue. Sorry. We have to put a pin in this for a minute. We're going to continue in Market Plus and pause this analysis. We're going to have your submitted questions, give them to you here from Market Plus in that segment. You can find that on our website of MarkettoMarket.org in podcast form and on YouTube. All of these resources are free. Now, the short bursts of information can be market moving or they can actually just be funny. We stick in the info lane with links to our stories and some of your content in a retweet. Give us a follow @MarketToMarket. Next week we're going to give the next government report the panel treatment. Thanks for watching. Have a great week.

(music)

(music)

(music)

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)