Market to Market - November 18, 2022

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Announcer: Coming up on Market to Market… Two economic partners meet on the global stage  

Working to understand the relationship between the U.S. and China. Delivering an unusual package via the air.  And market analysis with Dan Hueber …. Next!

Announcer: 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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Announcer: This is the Friday, November 18 edition of Market to Market - the Weekly Journal of Rural America.”

Yeager Hello. I’m Paul Yeager. Last year, consumers were encouraged to shop early and often as there were no guarantees on supply for the holiday season.

Heading into the traditional gift-giving time of year, retail sales were up 1.3 percent in October after a flat reading the month before. The gain was attributed to car sales and higher gas prices. The core reading still added 0.9 percent when the gas and auto figures were stripped out of the report. 

Existing home sales fell for the ninth consecutive month - this time lower by 5.9 percent on the monthly comparison and 28.4 percent in the annual look back. 

Part of the supply chain entanglement of 2021 came from the huge numbers of ships from China waiting for unloading and distribution across the U.S. 

The trade relationship between the two largest global economies is usually listed as complicated.

As U.S. administrations change in personnel and policy, China remains constant. David Miller explains. 

Miller: Monday, President Biden held his first face to face meeting with President Xi Jinping of China. The three hour meeting included discussions on human rights, Taiwan and pollution. Even though both sides clashed over the sovereignty of Taiwan and the rights of minorities in China both sides agreed they would work to manage their differences in the competition for global influence.

President Joe Biden: The world expects, I believe, China and the U.S. to play key roles in addressing global challenges from climate changes to food insecurity and for us to be able to work together. The United States stands ready to do just, work with you if that’s what your desire. 

Biden has acknowledged Xi’s One China policy while at the same time committing to the protection of Taipei.

Xi Jinping, China President: “As leaders of the two major countries we need to chart the right course for the China-U.S. relationship. We need to find the right direction for the bilateral relationship going forward and elevate the relationship.”

However, relations between the two powers have grown more strained under successive American administrations over economic, trade, human rights and global security.

Near the end of the week, former Ambassador to China Terry Branstad, who established a close personal relationship with the Xi while governor of Iowa, held a symposium on China.

Amb.Terry Branstad (ret.), Ambassador to China 2017-2020: “Just as we don’t want to lose the Chinese market for corn, soybeans, pork, beef, you know things like that.”

Brandstad believes the $600 billion in trade with the U.S., which includes the bulk of soybeans exported from rural America, is still important.

Amb.Terry Branstad (ret.), Ambassador to China 2017-2020: “ Well, first of all, I think the tariffs got their attention and led to the Phase 1 trade agreement. So I don’t know that without the tariffs if we would have gotten it because administration after administration had tried to get these things done and now we’ve gotten them done. Now, hopefully over time we can see these tariffs lifted.”

Speakers at the symposium made reference to Xi’s statement about his ideology of capitalism’s demise and the ultimate victory of socialism.

John Pomfret, an expert on U.S.-China relations, believes business was the backbone of this countries relationship with China but he says all of that is gone.

John Pomfret, Journalist and author: “His perspective is that the future of the relationship, continued relationship between China and the capitalist world, which is the United States, is cooperation and struggle. And it’s struggle for the inevitable victory of socialism over capitalism. And people say, ‘Well, he doesn’t mean that’ but this is a speech to party faithful it was kept secret for six years, that he made soon after, he doesn’t waste his time. And I think it’s a clear elucidation of his views on the relationship. So I think he’s in a Cold War with the United States and the issue is if we’re going to be in one with him and I think increasingly we are.”

For Market to Market, I’m David Miller.

Insects can drive a farmer to the brink of frustration as an otherwise healthy crop is decimated by a small army of invaders.  For produce growers, the fight is real and can be devastating. Now advances in aerial support may help producers enter a new frontier of damage reduction. Colleen Bradford Krantz reports in our Cover Story.

 [Audio of 1960’s announcer:] Six. Five. Four. Three. Two. One. Zero. All engines running. Liftoff. We have a liftoff.

This launch isn’t shooting for the moon or a distant planet. No rocket boosters are needed. And the passengers inside? Insects.

Dustin Krompetz, Chief Operating Officer, M3 Agriculture Technologies: “We developed, in collaboration with USDA, a drone-based system for releasing sterile insects.”

On a September day in western Michigan, the insects traveling during this routine drone launch by M3 Agriculture Technologies are codling moths, the bane of existence for many pear and apple orchard owners.

Dustin Krompetz, Chief Operating Officer, M3 Agriculture Technologies: “Codling moth is really the worm in the apple. It’s the primary pest. It has always been a nuisance for growers for the last 200 years in North America. It’s a predominant pest worldwide. I think the only place where codling moth is not an issue, has not established, is in Japan, in some parts of Asia.”

Codling moths have long been a foe at Hayden Farms of Pasco, Washington, but when the apple and cherry producers switched a half dozen years ago to organic apple practices, meaning synthetic pesticides were no longer an option, they struggled to keep control.

Denny Hayden, Hayden Farms, Pasco, Washington: “The major pest in apples, by far, is codling moth. When we first converted, we were clean coming from conventional to organic, we didn’t have any codling moth problems. We had a neighbor that was organic and kind of got in trouble with the farm and his control went to heck. A lot of problems, and those problems drifted over to us….We tried every means possible to control codling moths.”

Hayden says they ultimately needed an answer beyond just natural oils and an insect virus spray. Those worked but oils can only be applied a few times before harming the trees, and the viral spray needed to be reapplied repeatedly, driving their pesticide spending up. The viral spray also had to be consumed by the insects, meaning they would leave tiny bite holes in the fruit known as stings.

Inspired by Washington State University’s research into sterilized insects as biocontrols in orchards, Hayden decided to give it a try, hiring M3.

Denny Hayden, Hayden Farms, Pasco, Washington: “We were really shocked. The first year we saw real good results. We still had some stings that first year with it. Since then, we have really been very clean. This year, I mean I might have seen a couple stings all season in 125 acres.”

Although drone-delivery of insects is relatively new, sterile insect technique, or SIT, is not. SIT is a type of biological control, an alternative or supplement to chemicals, when managing agricultural pests like the codling moth.

Dustin Krompetz, Chief Operating Officer, M3 Agriculture Technologies: “The insects that we release are sterilized. They are sterilized with ionizing radiation and it damages their DNA to the point where they’re still viable, as far as they are able to fly and able to act as insects, but when they mate with another insect, with a native insect that’s out in the target environment, they will lay an infertile egg.”

USDA has been using sterile insect strategies for decades, most notably when airplanes dropped sterilized pink bollworms, an insect that once devastated cotton crops all over the South. In 2018, USDA announced it had successfully eradicated pink bollworm, present in the U.S. ecosystem for more than a century.

Earl Andress, USDA-APHIS: “Sterile insect technology is not a stand-alone technology in most cases. In the pink bollworm, we had a variety of technologies that we used… We hit pink bollworm with everything we had…You have to have a thorough knowledge of the insect’s biology, its field behavior, and how it interacts with the host and all its natural enemies.”

After being awarded a grant, M3 began working with USDA in 2014 on developing a rapid-response system in case of any small breakouts of pink bollworm.

Four years later, the Dayton, Ohio-based company got to work figuring out how to safely ship and store sterilized Mexican fruit flies, lady beetles, codling moths and other insects from insect rearing facilities before attempting to drop sometimes-reluctant bugs from drones into treetops.

The company designed its own drones and release devices.

Dustin Krompetz, Chief Operating Officer, M3 Agriculture Technologies: “We went up to Washington and started releasing sterile codling moth… and we treated 50 acres. In 2019, we treated 1,200 acres, and that was our first year of commercial sales. Now, we are at 4,000 acres in 2022 and growing quite nicely.”

The company, now with 10 employees, has moved away from its previous dependence on government grants. Besides contracts in Washington, M3 now has customers in California, Idaho and Michigan. Part of the reason for the growing enthusiasm among producers is that insects, just like weeds, develop resistance to pesticides.

Dustin Krompetz, Chief Operating Officer, M3 Agriculture Technologies: “For the majority of crops, especially apples and pears, there’s no new chemical formulations coming online, there’s no more being developed. It takes generally ten years of a long pipeline, millions of dollars to develop different chemical formulations… we think that methods such as biocontrol using insects and such: those are going to become more and more popular.”

Eoin Davis, USDA-APHIS: “I think there are a lot of options with SIT. And I think it depends a lot on the pest you are talking about, and the crop, and just the setting for exactly where and what you have to work with.”

Various studies estimate the value of the natural biological control of native pests in U.S. crops at between $1.7 billion and $5.5 billion. A Canadian facility is the only large-scale insectary rearing sterilized codling moths.

Krompetz expects demand to grow for other insects, especially predatory mites that feed on twospotted spider mites, which are harmful to crops like hops and strawberries. Also, green lacewings, which eat other harmful aphids, show promise for many specialty crops, including fruits, nuts and marijuana.

Dustin Krompetz, Chief Operating Officer, M3 Agriculture Technologies: “The big issue that we face is the supply of insects long-term.”

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

Yeager: The Black Sea Region dominated the headlines and the trade for the week. The nearby wheat contract was even while the December corn contract added 15 cents. Outside markets and major weakness in the vegetable oils limited the soy complex. The January soybean contract improved a nickel December meal gained $6.30 per ton. December cotton decreased $1.22 per hundred weight. Over in the dairy parlor, December class III milk futures gained a penny. The livestock market was mostly lower as December cattle was even January. Feeders cut 92 cents and the December lean hog contract lost 65 cents. In the currency markets, the U.S. Dollar index dropped 129 ticks. December crude oil fell $6.53 per barrel. COMEX gold weakened $7.50 per ounce and the Goldman Sachs commodity index lost almost 19 points to finish at 616. 75. Joining us now to provide some insight, one of our old regulars, Dan Hueber. Hi Dan.

Hueber: Hello.

Yeager: Black Sea Region Instability. It seems like we've talked about this a lot. The wheat market this week specifically, it seemed to be very sensitive to do we have a deal, do we not on allowing these exports.

Hueber: True.

Yeager: How much longer will that story hang over this market globally?

Hueber: Well, I mean, until this war is finally settled or, uh, or, uh, there's some kind of a peace arrangement, it's always gonna hang over because it's, you know, we, we say one thing, we do another, but I mean, realistically, every time we get a news story now, the impact seems to be a little bit more muted. So I think, you know, we, we, we've grown accustomed to it enough than, you know, we know bushels are still moving. They're significantly less, and of course they would've been in any normal year. But, uh, but sure, I mean, I will get a little blips here and there. I mean, two weeks ago it was, well, we're gonna, we're gonna back outta the agreement. Well, we rallied for a day then pretty soon that was forgotten about. And, you know, here this week, well, we have a, we have an agreement, so markets broke a little bit, but then came back. So I can say I, I think they're really just kind of grown a little bit tired of, uh, getting whipsawed around by those kind of news stories.

Yeager: Domestically we're set for a whole bunch of snow in Buffalo.

Hueber: Mm-hmm.

Yeager: That's pretty far from wheat country,

Hueber: Certainly

Yeager: But it's cold and wheat country with no snow cover. That's why I bring up the, the snow.

Hueber: Oh, sure, sure.

Yeager: Are we more sensitive now domestically to the weather story?

Hueber: Well, you know, I think if we were a more of a dominant player in the world wheat market that would probably be a 'yes.' But we're not, I mean, we're, we're a bit player. I mean, we're residual supplier when need be. So it, uh, yes, we, we add into the overall world picture. But, uh, you know, Argentina's issues are probably just as critical as ours are this year. I mean, they've had a, uh, a really difficult beginning to the growing season. Their wheat crop is not looking too good down there. But it, uh, you know, overall, you know, Europe looks like it's getting off to a good start on winter. I think the, the, uh, French today rated their winter wheat planted and 98 percent good to excellent. So it's, uh, you know, it's, a lot of parts of the world are looking pretty good.

Yeager: Which wasn't the story last year.

Hueber: Oh, no. Right.

Yeager: It was very poor dry conditions. Uh, let's go to corn. Uh, that was the market that looked like it was going to have the best week, and it, and the numbers played out, um, uh, December corn up to percent, 15 cents. The harvest low in Dan.

Hueber: Uh, you know, I think temporary low. I mean it, uh, you know, not that it, uh, at some point down the road, we won't be able to go lower than this, but I think, you know, we have, we pushed down, we tested some pretty good support. Uh, you know, really if you went back to about Wednesday this week, it was kind of questionable, you know, looked like corn could even break down another 15 or 20 cents, was able to recuperate and then finish the week strong. So certainly, I think it says we probably have that, uh, that year end, that harvest low bounces back up maybe into December, possibly even to the January production reports. But you know, here again, too, I mean, it's just not a, uh, granted Mexico phenomenal buyer of corn the last week or so. But, uh, but that said, you know, we're not really being overrun with demand here at this time.

Yeager: Yeah. We're still behind on, uh, the, the trailing pace that USDA has said we're gonna have on export. So given that those two factors, Mexico and other export sales, what's a range you see, let's say in this March contract that you see moving forward?

Hueber: Well, you, you know, I think if we get 20 cents higher than we are today, you know, we've, we've probably maxed out what we're gonna do on, uh, we'll, how long

Yeager: Would that be before we to reset 20? 

Hueber: Oh, yeah. You know, you know, granted, as I had commented, even this morning on the newsletter, usually we talk about, you know, who gets the Thanksgiving Turkey, and, uh, you know, right now, who, who is it? You know what I mean? The markets have been so stagnant for months, but I would say probably by Christmas. Yeah. We should have those kind of rallies in there. Maybe, maybe we'll test it back and forth several times. I mean, that's realistically all we've done for the last two to three months is just trade back and forth and back and forth in the same range. So it, uh, I don't see anything in the news right now that takes us out of there.

Yeager: We'll discuss Turkey more in Market Plus. Yes. Uh, because I did have that question from your newsletter this morning I wanted to ask you about. Let's move to soybeans, uh, because we have, uh, China and Brazil instability politically especially Brazil on the presidential transition. We just saw the story about China. So my question is, I guess, again, as a global one, is that the biggest story right now in soybeans?

Hueber: Absolutely. I mean, we know China has been a substantial buyer in U.S. Beans as of late. Now granted, I think the big thing that's probably gonna keep the beans market supported for a while is they, they still probably need to price the majority of these beans, and they won't do that until they actually start loading it. But, you know, they are, they're gonna, they're gonna pick up the supplies they need from us probably through the end of the year as they assess what's happening in South America, most specifically in, uh, in Brazil. I mean, Argentina just had some challenges, although things are improving a little bit down there right now, if, uh, Brazil produces the type of crops that are projected to happen, you know, 151, 153 million metric tons of soybeans, you know, the demand's gonna go right back there. And we're, we're probably looking at a, uh, uh, a pretty dier outlook into next year on the soybean market. But, you know, there, there's your million dollar question. What will the Brazilian weather be for the next two months? Uh, right now, off to a decent start.

Yeager: So, so Scott in Augusta, Wisconsin, he already answered your question there. So I'm gonna follow up now, Dan, with a range question. Sure. What's this? Well, again, I'll use the deferred month that we talk about. These things are in a pretty tight range. We're about to see the range in the last four months really fall much tighter. What's the range moving forward for the next four months?

Hueber: Oh, I really think you, um, you know, I think, I think the range really stays the same. We've been $13.60, $13.70 on the downside to, uh, maybe a $14.30, $14.25 -30 on the upside. I think we stay within there. Uh, again, unless there is a, a major weather issue with materialized down there, I think that caps us on the upside.

Yeager: So the range stays home on the range, home in the range. Is that what it would be? Uh, let's talk about this cattle on feed report. Yes. We need to kind of dive into this one because there's a, there's a bigger story that's developing, uh, initially on feed, uh, 2 percent below - 98 percent. What's that tell you?

Hueber: Well, I mean, I, you know, one, I think the people are looking at the economics and saying, you know, it's, why, why risk the money here? At this point in time? We've had a, we've had a pretty good year up to this point. You know, probably the bigger number or the more friendly number was the placements. If I don't, if I recall, were 4 percent down. Is that right? Yeah. I mean, so, uh, uh, you know, looking out into the future, and you've already got a market that seems to be pretty tuned to, uh, reacting to the bullish news. I think that could be the catalyst that maybe gets us into, uh, some higher highs. Are we gonna get carried away to the upside, you know, with the, uh, with the, all the inflationary scare that's already out there with the talk of recession, yeah, I don't think people are gonna go wild on, on what they're doing at the meat counter, but that certainly doesn't mean we couldn't see February cattle work up into the $158, $159 range any time.

Yeager: To, to button up the placed, uh, placed in October, 94 percent on feed, 98 percent, marketed 101. Let's go to the, you, you mentioned the meat counter. We saw box beef have, uh, a little better week. There's this discussion of, I'm not buying the prime, I'm going down the line, going down the line. Do you see that?

Hueber: Well, you know, certainly I think people are, are, uh, they're gonna watch their Ps and Qs when it comes to what the money they spend. You know, you haven't really, um, you haven't seen people really pull back dramatically as you were, as you were viewed earlier. Retail sales still 1.3% better last month. You know, that said, those numbers have continued to, to slack a little bit each month. You know, they're not quite as strong as they were, you know, back in the middle of the summer. So, uh, so yeah, it's, the demand's not gonna go away. I mean, and, and again, the good thing is, you know, all meat, I shouldn't say good. The all meats are high priced, you know, compared to each other or compared to historical averages. So it's, uh, it's not like I can go to, you know, get these extreme bargains here or there unless somebody's running some kind of a feature to get you into the store to buy their other goodies. But it, uh...

Yeager: Well, that's the, that's the story in the retail picture. Walmart had a good third quarter because a bunch of their businesses become groceries. And people are going to Walmart to shop to save money on groceries, because food has gotten higher. Target, I believe, was off 52 percent year over year. Now last year, it's kind of how we started the show. Retail sales had been up because the retailers are pushing everybody to shop. So that's a little bit of a bloated factor, but bloated is one thing, inflation is another. Does the pressure of food weigh over this market more than the interest rate does?

Hueber: Oh, you know, it, you know, and granted, not that interest rates don't affect us in so many different categories, but, but yeah, I think food takes precedence over everything else. I mean, it's, uh, interest rate is part of the picture, but unless you're out borrowing money or, you know, if you have a ridiculous amount of credit card debt, which is, you know, interest rates are gonna hit you hard all the time, if that's the case to begin with. But, but sure. I mean, I think the, uh, the food price is gonna tend to make people, you know, be, be, uh, bargain shoppers and, and just like you say, you know, of course the target thing is, is interesting, and I think that's probably more a reflection of targets management, that they've not necessarily held their inventories as well as Walmart

Yeager: Well, Kohl's had the same problem. They had a, they they miscalculated on what they were going to buy, and we weren't buying what we had been.

Hueber: And what the consumers wanted at that point, so, correct.

Yeager: All right. So given that those over large picture, if I'm a producer at home looking to expand a cattle herd, knowing what I know could be coming, am I buying, trying to find some feeders right now?

Hueber: The, uh, you know, and again, I guess I probably wouldn't, uh, wouldn't go too heavy as far as the weights on there, but, but sure. I mean, I think it's, you know, if the economics are there, if you have the, the feed stuff's available to do it, why not? I mean, I think the moving into the first quarter of next year looks pretty respectable.

Yeager: All right. Hog market, uh, that was, uh, looks like the bulls are kind of hanging around there.

Hueber: You know, a similar situation there. I mean, we've, uh, you know, and granted, I think part of this is predicated on some hope that China is gonna be a, uh, a little stronger buyer or a pork out there, which may or may not be the case. We know, I mean, the hog industry has just been in flux over there between health issues and unprofitability and now shortages of, of meats. So chances are they will be a buyer in there. But boy, we have already pressed up to some, uh, pretty lofty levels in the deferred contracts. Not that we couldn't get higher, uh, not, not that we haven't traded higher than this before, but boy, very rarely. So it's, um, uh, you know, granted, the, the hog and pig report the last, we'll get another one here in December, but I mean, you know, the hog industry was not really expanding. So, I mean, keeping the numbers in checked, uh, keeps, keeps the outlook at least, uh, positive. But boy, to push a lot higher than we have already here, I think's gonna be difficult.

Yeager: Our outlook is, we have to say goodbye. Okay. Goodbye, Dan.

Hueber: All right. Very good.

Yeager: That's, uh, Dan Huber, and we're gonna put a pause on this analysis and we're gonna continue our discussion and answer more of your submitted questions at our Market Plus segment. Find that on our website of markettomarket.org. That's in Podcast Form and also on YouTube. All of these resources, by the way, are free. The easy season for great images is when there is work in the field for planting or harvest. Now is when we find out how creative our friends can be and then share their work with you. Plus we have content of our own available right now at Market to Market Show on Instagram. Give us a follow there. Next week, we will look at how food insecurity is still plaguing America. Thank you for watching. Have a great week.

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Announcer: 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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Announcer: 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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