Market to Market - December 23, 2022

Paul Yeager Coming up on market to market, we take a closer look at rising farmland prices. We also profile the winner of this year's World Food Prize and get commodity market analysis with Jeff French. Next.

Announcer 1 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.

Announcer 2 Tomorrow, for over 100 years, we've worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

Paul Yeager This is the Friday, December 23rd edition of Market to Market, the weekly Journal of Rural America. Hello, I'm Paul Yeager. The effect of the bump in interest rates on the overall economy can already be seen in investment for big ticket items like single family homes. On the heels of declining confidence by homebuilders, the Commerce Department issued its look at the housing market.

Paul Yeager Construction of new homes, an indicator of future investment in other large ticket items, fell half a percent in November, continuing a seven quarter decline. Now, over the past 12 months, the number of new homes being built has cut 16.4%, the number of building permits. Another measure of consumer confidence and the ability to invest dropped 11.2% in November. Now, when compared to a year ago, the number of permits has plummeted 22.4%.

Paul Yeager Blizzard conditions and deadly winter storms dominated the weather forecast this week. Now, in the wake of the storm, some of the most fertile ground in the world is covered by several inches of snow, even as the land sleeps under a winter blanket, its value continues to grow. Peter Tubbs says more.

VO 1 Farmland values in Iowa saw huge increases in 2022, mimicking increases in farmland values nationally. The Iowa State University Land Values Survey, which has been gathering land value data since 1941, reported the average value of Iowa farmland climbed 17% from 2021 to 2022 to over $11,400 per acre. Adjusted for inflation, the new value surpassed the 2013 record price, while inflation in the U.S. economy was part of the price increase.

Peter Tubbs High commodity prices, limited land supply and low interest rates were the driving factors in the value growth.

Wendong Zhong If we have to point to one factor, it will be the much higher commodity prices that led to a significant increase in farm income that they can use to bid on the land market as well.

Peter Tubbs The Iowa State survey reported even larger increases than the USDA land value survey that was released in August of 2022. That report revealed 12.4% growth of all farmland in the U.S. and 14% growth of cropland in the country. The value of cropland in the U.S. has risen over 82% since 2008 to over $5,000 per acre, despite the average.

Peter Tubbs A recent sale of 73 acres in Sioux County, Iowa, topped $30,000 per acre. For Market to Market, I'm Peter Tubbs.

Paul Yeager Norman Borlaug legacy of research that led to the saving of more than a billion lives is celebrated each fall in his home state of Iowa. The accomplishments of those in agriculture who have taken the concept of feeding a hungry world to a new level are recognized with the World Food Prize. Cynthia Rosenzweig, this year's laureate, has taken the relationship between food and climate to new heights.

Paul Yeager She spent much of her career studying the relationship between reducing greenhouse gas emissions and food production. Her work on climate change and its effect on food systems has earned her what is often referred to as the equivalent of the Nobel Prize for Agriculture. That journey is the subject of this week's cover story from her start in New York.

Paul Yeager Through the time she spent in Europe, followed by a return to the states and her current work with NASA. Cynthia Rosenzweig has kept a central focus on climate change and how it relates to growing crops. While working on her Ph.D., she contributed to the Environmental Protection Agency's first assessment of the potential effects of climate change on the environment, which later led to the basis for the United Nations Framework Convention on Climate Change.

Cynthia Rosenzweig My first peer reviewed journal article was in 1985 in the journal Climatic Change, and it took the projections coming from the GUESS climate model, and it was an expert system, it was a different kind of model. The model that we used that I developed, there was an expert system to give us the rules for where different kinds of wheat can grow.

Paul Yeager Rosenzweig's research was the basis for the United Nations 2015 Paris Agreement, a legally binding international treaty on climate change. Just a few years earlier, her work on creating a standard for climate and food production modeling led to the formation of the agricultural model into a comparison and improvement project or AG MIP, an organization of experts working to improve the predictions and performance of World Food Systems in the face of an ever growing climate crisis.

Paul Yeager AG Maps, Detailed models and data guide policymakers and stakeholders to implement farmer focused strategies that improve global food systems amid the impacts of climate change.

Cynthia Rosenzweig Now we're all working together so that we can nail uncertainties. We can understand the processes. We can improve the models and thus improve the projections. So we can develop adaptation strategies for all the different regions of the world.

Paul Yeager Stakeholders in Ghana and Senegal, among others, spurred the research and development for regional plans to help build food capacity. Now these same tools are being used to make farming and food systems around the world more resilient to substantial shocks like COVID 19 and weather extremes.

Paul Yeager For her work in this field, Rosenzweig was awarded the 2022 World Food Prize at the Laureate ceremony, which took place last October inside the Iowa State Capitol in Des Moines.

Cynthia Rosenzweig Food systems are emerging at the forefront of climate change action. We now know that climate change cannot be restrained without attention to the greenhouse gas emissions coming from food systems. But at the same time, food security for all cannot be provided without resilience to increasing climate extremes.

Paul Yeager Rosenzweig took a moment to thank those on the front lines of AG MIP.

Cynthia Rosenzweig I salute the members of this network for their tireless work, helping their own and other countries to achieve food security both now and in the future. Under changing climate conditions.

Paul Yeager She also issued one last challenge to the global audience about the future of feeding the world's children.

Cynthia Rosenzweig We need to do everything we can to ensure food security and a livable planet for them.

Announcer 2 Next. The Market to Market Report.

Paul Yeager We are recording our program a few days early to allow our staff and crew to travel safely during the holidays, predictions of a blizzard and the conditions in the US as long as well as dry weather in South America and a cheaper dollar all helped push the commodity markets higher. As of Wednesday, December 21, the nearby wheat contract added $0.14, while the March corn contract added $0.09.

Paul Yeager Drought conditions in Argentina and continued buying by China helped keep the soy complex afloat. The January soybean contract improved a penny, while January meal dropped $7. March cotton expanded by six 2400 wait over the dairy parlor. January Class three milk futures increased a dollar 31. The livestock market was mixed as February cattle added a dollar 90. January feeders lost a nickel in the short week and the February lean hog contract gained to 40.

Paul Yeager In the currency markets, the US dollar index cut 81 ticks. February crude oil expanded by 388 per barrel, COMEX gold strengthened by 2690 per ounce, and the Goldman Sachs Commodity Index, while that was higher by nearly nine points to finish at five 9780. Joining us now is regular market analyst Jeff French. Hi, Jeff. How are we doing? We're doing well. Wheat market's doing well, but it took a blizzard to get there.

Paul Yeager Is that the big story?

Jeff French Yeah, I think a couple of things that was the initial trigger. I mean, we began this week in the wheat market down over $5.30 from the May high. So this has been a story that's been selling off for many months. And technically, we had a good signal this week. We were able to close above the 20 day moving average for the first time in Kansas City and in Chicago wheat for the last two months.

Jeff French So that could probably trigger some funds. Short covering funds for the last three months have been short wheat looking for lower prices. But fundamentally, we had some favorable things. You know, the weather, cold temperatures coming in, you got 30% of the Kansas City wheat belt that's under winter kill threat. Now, I do understand it is December so it is awfully hard to kill wheat during this month.

Jeff French But also, you have Ukraine. Ukraine wheat plantings down 40% compared to last year. So there are some fundamental things as well as technicals that look like wheat is trying to put it in a low down here. We spent this week covering shorts and for producers that have sold wheat at higher prices, this is a good place to start on it.

Paul Yeager So if we've reversed course, have we started a trend and do you have a range on this trend?

Jeff French Well, I think it's is showing some life that we're, at least for now, done going down. I would I would phrase it that the easy money to the downside in the wheat is over and it's also what's going on politically. I mean, you have the president of Ukraine over here in the US this week talking to Congress, you know, looking for more aid.

Jeff French You know, it looks like that conflict over there is not de-escalate. It looks like it's escalating. So that could trigger some for some funds short covering. And then also, you had some reinsurers in the Black Sea pullback. So they are it's going to get more expensive to ship vessels out of the Black Sea.

Paul Yeager Towards this high side. What do you see in the next? We'll give you six weeks.

Jeff French You know, I think if you can get 30 to $0.40 in the wheat, I'd be willing to take her on that. You do have some big numbers coming up of the march. Chicago up at $8. They'll be some resistance. But with the funds as short as many contracts as they are, these short covering rallies can be extremely violent, especially in the next two weeks.

Jeff French With these holiday weeks, you have lower volume.

Paul Yeager Yeah, lower volume. Lighter trade, which is also impacting corn. Last couple of weeks, it seems like wheat and corn have been tied together. Did the weather do anything for corn or is it some of those other factors that you mentioned the about Russia and Ukraine?

Jeff French And I think it all ties together. And you're absolutely right. Corn and wheat during the last six weeks have been correlated that 80% or more. So whatever wheat is doing, corn seems to follow. Now, vice versa. The funds the funds are long corn. And it's going to be interesting to see when they come into the first year, are they going to add to that position, defend that position and move this thing higher?

Jeff French You know, personally, I think this corn right now is sitting up from a technical standpoint that we could rally another 15, $0.20 pretty quick and given.

Paul Yeager Okay, we're looking at the March contract. By then, we're going to know what the big report that comes in January. Do you think some of these positions are going to be made before that report or after?

Jeff French Yeah, I mean, that's a big one. You know, that January report kind of sets the stage for the next couple of winter months. But also what's going to be the driver is the South American weather. And right now there are some problem areas. But in the bigger, larger growing areas, they're setting up pretty good. So that could weigh on the futures price right now.

Jeff French But from a technical standpoint, this corn and this wheat looks like it wants to rally.

Paul Yeager Here we have another fundamental story that we need to bring in and we're going to bring this one in via social media and where it came in. This one, Scott in Wisconsin, asked us via Facebook, is Mexico serious about only buying non-GMO corn by 2025?

Jeff French You know, I think we're time will tell. I mean, they're serious enough that they want to start the conversation. But I think, you know, availability and price of non-GMO corn will dictate if they're if they're serious or not. And then we have the back up if we could take them to court against our trade agreements. So we have a lot of time.

Jeff French But I think if you look at it from a price standpoint and availability, you know, it's very expensive for non-GMO and how much of that out there is available. Now, they've already come out and said, hey, we will still feed non-GMO corn to our livestock, but by 2025 they're trying to get out from human consumption. So time will tell.

Jeff French But if I was a betting man, I would say, you know, they're not going to be able to source enough non-GMO unless.

Paul Yeager But we find out if the market dictates different radical policy changes, planting strategies in the United States. And again, it's it's market related if you're willing to pay. But I don't know are there that many farmers in America willing or able to fill that need?

Jeff French No, no. As of right now, there are. There are. And most of the non-GMO corn is spoken for. So it's not available for export. So again, I think this is a moving target. And, you know, we've got over a year to see where it goes.

Paul Yeager Let's talk about soybeans. That's next on the big hit parade. Rough Monday, but then Tuesday, Wednesday, a little better. Why?

Jeff French You know, I think the beans are just range bound. You know, they break down to 1460 in the march and then we rally up to 1480, 1490 area. You know, you look above 15 and it's just a wall of resistance up there. You know, I think we've traded above it twice since June. You know, there's just a lot of resistance up there.

Jeff French And we're transitioning now. I mean, I know domestically demand is off the charts. It's excellent. But now we are transitioning now to where South America becomes center of focus. I mean, you know, you're going to see pictures and videos next week of combines rolling in the northern parts of Brazil next week combined. It really heats up January 15th to February 15th.

Jeff French That is their main time. So, you know, I think moving forward here, you know, the beans are going to be tough and one of the biggest point is, you know, the Brazilian farmers have old crop beans left over. It's estimated they have 4 to 5 million metric tons of old crop beans that have to come to market before their harvest.

Jeff French So, you know, they're looking at 150, 180 million bushels of beans that they need to move out here in the next six weeks. So I think the beans, if one thing is they're going to have the toughest challenge moving higher from these levels.

Paul Yeager And like you said, the whole hitting your head against 15 is just clearly something there and it hasn't busted through unless something else happens. But maybe it is. Phil in Dresden, Ontario's question, Jeffs already kind of touched a little bit on it in South America. But let's ask this specifically how are South America's crops looking? You talked about Brazil a little bit.

Paul Yeager Maybe let's talk about Argentina and their supply. Will that mitigate any global supply concerns at present price levels? What calendar timelines should farmers use when to expect these supplies to come on stream and how much 23 crops should be priced. Now.

Jeff French A lot of questions there, but South American crops. I sat in on a scout crop conference call this week. His one word answer for Brazil beans was outstanding. We were all still asked him, What is Brazil lacking in moisture? Percentage wise, he thinks 10 to 15% of the entire country of Brazil is lacking on moisture. With more rains this week, a lot of rain forecasted to fall.

Jeff French So we'll see if they actually do fall. But, you know, looking at 23 November beans up here, again, that wall of resistance is at $14. So I have no problem being 34, 40% covered. And then on the remaining bushels that you expect to produce, go down, go out there, get through the South Korean weather and buy a cheap put option in case this thing moves lower, but yet can can Brazilian crops, Miguel, to mitigate the, you know, crop shortage throughout the world, you know, time will tell.

Jeff French But as of right now, you know, they're looking at probably 148 to 152 million metric ton crop. They are shooting for, you know, a 5.6 billion bushel bean crop. So it's it's a big one.

Paul Yeager Well, do you remember a time when we've been so tight on a global scale? I mean, we talk about maybe not the best crops the United States the last couple of years. And I had a family member tell me over the weekend say, if we don't produce at least trend line, we're going to be hurting, especially he was talking about the cattle feeder next year.

Paul Yeager I mean, so we're in a precarious spot where we actually need Brazil and South America to produce.

Jeff French And you've seen price, you know, prices when when when you have a short crop price is responsible for demand destruction. You know, it's got to go to a point where you start to see demand, start to come down. And, you know, we've seen big run ups and we'll have to see if the demand holds up with that.

Paul Yeager We didn't even mention China, but we'll discuss that. And we have a couple of questions about that for Marketplace. Let's talk about the other sea commodity, and that's cotton. This has been in a bearish trend for a long time after having a great run, let's see in our shortened week, $6 up seven and a half percent. Can the party continue on cotton?

Jeff French You know, it's been a very violent move up. A lot of it has to do with the stock market. Stock market had a pretty good risk on by everything type of day here midweek it's got to get March has got to get above $0.90 and this thing can probably run pretty good but you look at the new crop December 23 cotton you know, it just doesn't work at $0.83 when you have $14 beans So, you know, a long time to come here.

Jeff French But I think this cotton needs to move higher to buy acres, especially away from $14 being. So I look for it to move higher.

Paul Yeager And that's what it did last year. But yeah, we're far from that right now. A lot of time livestock back to the blizzard. Is that impact? I mean, trade was light. It's also holidays, but live cattle wise, I mean, cash has been performing well.

Jeff French Futures to cattle made of fresh eight year high today. You know, this is rare air but yeah, it's a weather rally. We have two weeks of holidays right now. The packer is short bought with these storms making logistics extremely tough for the cattlemen. You know, I wouldn't want to be the first one to sell here. I mean, this the charts look good.

Jeff French There's no reason that I see that the charts can't run up to the November 2014 highs in that 173, not meaning that we're going to. But from a chart standpoint, this price action looks very friendly. Now, from a producer standpoint, you know, we've been here before, but we didn't spend too much time up here. So this is a time for producers to use the rally to get some hedges down lower in case the economy in the next six months doesn't stand as tough as we think it will.

Paul Yeager From the the cattlemen right now. Am I having to pay attention during Christmas and New Year's? Is this going to move quickly then or do you see it more in June? Well, I.

Jeff French Think they never you know, they don't start paying attention ever, ever, any time. But, yeah, when you when you're putting in eight year highs, you need to be paying attention.

Paul Yeager All right. All right. Live are feeders. Now, that's tough to feed in in the conditions that we're seeing. But we but we're seeing some moisture in some of those areas. Does that give you reason to believe what cattle on feed reports and anecdotal stories of that? Yes, there is more hold back in in some of these feeders right now.

Jeff French You know, the feeders have had a excellent rally. I mean, we're up here at multi-year highs, you know, and I just take a step back and I look at the feeder cattle. I have to look at corn prices. And in the near term, you know, I think the corn could rally here in the next 3 to 4 weeks, which could put feeder cattle under pressure.

Jeff French The number to watch is 182 in that January and we closed above it here this week. But if we start taking that out, that opens the door pretty quick to five or seven pullbacks. But, you know, fundamentally, this cattle complex is in strong hands and it's going to be for the next probably 12 to 18 months. So use pullbacks to buy, but don't be chasing rallies.

Paul Yeager Are you chasing any rally and hogs?

Jeff French You know again new contracts highs and in the deferred you know we've got a hog and pig report end of this week. Weights are down. PD is still rearing its head around there. So, you know, I think the hogs kind of want to get into the cattle rally here. What we saw this week. You know, I just look at, you know, China.

Jeff French I mean, the hog prices in China here the last two weeks have dropped 25%. We've seen a real big pullback in exports. So I look at, you know, the deferred contracts above $100 in the hogs. Again, these are good places to be putting some hedges on.

Paul Yeager There was a report today about US net farm income and the Wall Street Journal saying that it is going to be 100. And let me get this right, 160.5 billion this year, boosted by increased price prices for farm goods ranging from wheat to milk. As we sit around the holiday table, is it a good time in rural America to be in agriculture?

Jeff French Oh, I think it is. I mean, anytime you can be in agriculture, it's a good time. I mean, there are tougher times, but it's always a good time. It's going to be expensive crop. But the last few years have been extremely profitable and I think there's better years to come. And yeah, it's a good time to be.

Paul Yeager Are there things I can do to make it merrier in 23?

Jeff French You know, I think you get I think you get some crop sold here. I mean, you got December 23. Corn right now is $0.50 higher than it was this time last year and a dollar 50 higher than two years ago this time. So we are at elevated levels and I think you get a little bit of new crop booked here.

Paul Yeager All right. Well, we'll we'll put that in your stocking. A couple of 23 calls. How about that? All right. All right. Jeff French, everybody, thank you. Thank you.

Jeff French Merry Christmas.

Paul Yeager Merry Christmas to you as well. And we are going to put a pause on this analysis and continue our discussion. Yes, we have more to go in market. Plus, find that on our website of market to market dot org. We have that in podcast and also on YouTube. All of these resources are free, by the way, if you're getting a chance to relax at home during the holiday season, put your feet up and catch up with some of our podcasts.

Paul Yeager We have three options the market analysis, the MarketPlus and the MTOM. That's where you go. Follow today to get your podcast. That's where you go. If you want to get your podcast next week, we are going to look at the highs and lows of agriculture during 2022. Thank you so much for watching and have a great week.

VO 1 Market to Market is a production of Iowa PBS which is solely responsible for its content.

Announcer 1 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.

Announcer 2 Tomorrow, for over 100 years, we've worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

Paul Yeager This week on market to market, recapping agriculture's biggest stories in 2022, back weather and market analysis. What Don Rose desperately wants to buy. Market to market. The Weekly Journal of Rural America.

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.