Market to Market - December 30, 2022

Paul Yeager: Coming up on Market to Market, the nation digs out from heavy snow and cold while preparing for winter flooding. We'll also take a look back at the stories that affected agriculture in 2022. And market analysis with Don Roose.

Announcer 2 : 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 4: This is the Friday, December 30th edition of Market to Market, the weekly Journal of Rural America. 

Paul Yeager: Hello, I'm Paul Yeager. The answer to high prices is generally high prices. But politicians and federal economists have spent the past year trying to keep the economy from spiraling out of control. The Federal Reserve raised interest rates seven times in 2022, pushing the rate paid by banks four percentage points higher. 

More hikes are expected in 2023. The annual inflation rate rang the bell at 9.1% in June, backing off to 7.1% in November. The price of food rose 10.6% over the past year, with bread climbing nearly 40% and milk by almost 30%. A bright spot in the economy was USDA's prediction that net farm income will have risen nearly 14% in 2022.

That number is expected to be overshadowed by the expectation that production expenses will climb nearly 19%. Weather swings continue to whipsaw everyone as the switch flips from subzero to spring like conditions across the country. While next week is predicted to be a bit milder. The past week was a wake up call that it's still winter. Peter Tub's has more as one region dug out from record snowfall.

Peter Tubbs: Another region cleaned up after heavy wind and rains. Erie County, New York, home to Buffalo and many of its surrounding suburbs, began the arduous task of digging out from over 40 inches of snow that were driven by hurricane force winds. At least 37 people died in the county as a result of the storm. Several hundred thousand customers were without power for multiple days as massive drifts paralyzed snowplows and emergency crews throughout the region.

Officials are concerned that warm temperatures will turn the massive snow problem into one of flooding. The ten day forecast in Buffalo is for temperatures in the forties and fifties with periods of rain. Millions of Americans hunkered down as unseasonably cold temperatures covered the eastern two thirds of the country. A weakened Midwestern storm with high winds and blowing snow was all but a memory as roads were cleared by mid-week.

A few cars remain for crews to pull from roadside ditches. A drop in temperatures caused a series of water main breaks in Memphis, leaving thousands of residents without running water. At least 16 water systems in Georgia also experienced problems due to the cold. The coasts of Oregon and Washington were battered by monster waves and strong winds this week.

In early January. More flooding may be in store for California and other states for mark to market. I'm Peter Tubbs. 

Paul Yeager: Weather and Policy stories are constant each year. Themes emerged in 2022 of higher land, fertilizer and commodity prices. But what fell or didn't fall is what made headlines this year. This look back is our cover story. The meat packers started the year in the driver's seat on Packer margins.

President Joe Biden: I've said it before and I'll say it again. Capitalism without competition isn't capitalism.

Paul Yeager: It's exploitation. In early January, President Joe Biden announced the allocation of $1 billion to advance expansion of small to medium size meatpackers and processors. The Senate Agriculture Committee held a hearing in April on a proposed bill that would require meatpackers to buy half of their cattle on the cash market and create a library of contracts for all the nation's cattle sales.

William Ruffin, Bay Spring, MS: And I dare say that if we don't pass this bill where we have some transparency in this and we don't make an effort to reestablish the price, the price. I'm not going to have any. When that happens, I'll go the way of most other producers in this business.

Stephen Koontz, Colorado State University: It's not a conclusion that there's anti-competitive conduct and in fact, it's rather. Competitive within this industry. Likewise, there is not any research. That shows that mandating cash trade is going to. Make make for better cattle prices. That's that's just not part of the research that I understand. 

Paul Yeager: That same week, the House zeroed in on smaller producers affected by the tandem choices of contracts known as alternative marketing agreements or AGAs, and the potential for more lucrative price discovery at auction.

Don Schiefelbein/President – National Cattlemen’s Beef Association

They're basically trying to cram our industry back into the bottle the way it was 20 years ago, 15 years ago. That's not healthy for an industry. Change is a part of the industry, and especially if you look at the impact it's had on meeting consumer preferences. Nothing could be more advantageous for the industry to listen to your consumer.

Paul Yeager: By year's end, no legislator emerged from Congress for signature by the president. Hi parthenogenesis, avian influenza or HP? I emerged again in 2020 to bird flu would strike millions of birds in the U.S. and in nearly every state, even after changes are made since the last big outbreak eight years ago. While Fall has typically brought about a resurgence of migratory birds beginning their journeys to warmer climates, this summer also included what the World Organization for Animal Health called an unusual persistence of the virus in wild birds.

Nearly every state has reported a positive flock, where more than 50 million birds have died or been euthanized. In late February, Russia would invade Ukraine. The fallout locally in Europe strained supplies of energy and grain from the region and would reverberate across the globe as countries lined up in support of Ukraine. Commodity markets would respond to the flow of grain through the region.

Late July brought major flooding in Kentucky. The eastern Appalachian region was damaged with 8 to 10 inches of rain. At least 37 people died in the early hours of the storm. More than 1300 needed rescue and thousands more were without power for days. Ending the wettest July on record. In Jackson, Kentucky, a drought record was reached in California.

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% below the historical average of precipitation. Dry conditions in the upper Mississippi led to problems downstream because of a lack of water.

Dredging would be used to help get traffic moving.

Phillip VanderWeit, United States Coast Guard: It's definitely created navigational hazards along the marine transportation system. But we've been working very closely with the Army Corps of Engineers, who have put in a lot of work over the past decade in preparing for a situation like this.

Paul Yeager: The lower Mississippi River went through a limited barge draft restriction that is standard on the upper Mississippi.River

Paul Rhode, Waterways Council: We’re about 40% in some cases, half, 50%. You know, the industry is very resilient and working with the Corps to make sure that, let's say the Corps is dredging 12 hours and then will stop for 12 hours so that two barges and boats can get through. At its worst, we had 2200 barges directly impacted with 150 boats waiting.

Paul Yeager: The river level in Memphis near the minimum operational limit in October, but rose 16 feet the next six weeks. Some barge operators have reduced the number of tows by half, and those tows include a reduced number of barges due to width restrictions on the river. Barges are often loaded at only 75% of capacity. Recent rains in the lower watershed have raised river levels by up to ten feet in sections of the channel.

Paul Yeager: But the long term prognosis is for lower than average levels to be norm until the drought is broken. Another of the infrastructure hiccups came from the railroad back in September. An initial agreement was reached between the 115,000 rail workers and their employers. This provided the biggest raises in 40 years. But it was more than money. Changes in policies that allow more flexibility and taking time off from work, including the right to take unpaid medical days off without being punished.

Mike Steenhoek, Soy Transportation Coalition: There's a lot of areas of this country where your option for transportation, Israel and it's rail that's your only option. And maybe some areas of the country where you're close to the inland waterways system, you can move some freight at the margins to the river. But that's only that's only limited.

Paul Yeager: Economists have estimated a shutdown of the rail system in the U.S. would have cost the economy up to $2 billion per day. Over 40% of U.S. cargo shipments are moved via rail, and a strike could have caused cascading shutdowns throughout the economy. However, not all unions ratified the agreement, and Congress stepped in with last minute legislation in December.

Announcer 2: Next, the market to Market Report.

Paul Yeager: Profit taking and limited volume made for some volatile sessions ahead of the three day weekend for the week. The nearby wheat contract added $0.16, while the more March corn contract gained $0.12. Soybeans rallied to new highs this week on word of COVID restrictions being lifted in China, predictions of a smaller crop in Argentina and news of tighter overall supplies.The March soybean contract bumped up $0.39, while the March meal contract moved 1570 higher. March cotton declined by a dollar 84 per hundredweight over in the dairy parlor. February Class three milk futures fell $0.13. The livestock market was mixed as February cattle added $0.15. Large feeders put on to 23 and the February lean hog contract shed $0.13. In the currency markets, the US dollar index cut 86 ticks.February crude rose $0.72 per barrel. COMEX gold strengthened 1770 per ounce, and the Goldman Sachs Commodity Index finished nearly three points higher at six, ten, ten. Joining us now is regular market analyst Don Roose. Hello, Don.

Don Roose: Glad to be back, Paul.

Paul Yeager: What a week, huh? I mean, Monday was a dud. Tuesday. Wednesday kind of picked up steam and then look, Tuesday was a dud. Sorry. Monday we were celebrating a holiday, but Friday and we really took off. Why?

Don Roose: Well, I think if you look at these markets, a lot of them, including the livestock, was all about a lot of weather. And, you know, in a thin market, you can move a market pretty aggressively. But when a lot of it we watching the weather in Argentina, it hasn't really changed a lot. So we added risk premium. We had back to the weather, we had transportation slow down very often when you get your first big storm like this.

Don Roose: Transportation slows down and you add some weather premium to the market. Corn, soybean and wheat with a winner killed because consumption goes up by the livestock.

Paul Yeager: Well, and the winter kill is going to be the story that we maybe figure out a little bit next week on Wheat. Let's talk specifically about this first contract, the March contract, and then into July, $0.16 higher on the week domestically. Is the weather story enough to keep driving this thing higher?

Don Roose: Well, remember the wheat market. We are only like 7% of the world total all trade. So it's not really the big thing that you have on the wheat market as Russia continues to sell wheat below the world market on rallies. But the thing that really brought us to the upside was the winter concern, the fact that Australia had a bigger crop than we thought.

Don Roose: They pressed us to the downside. Their harvest is basically behind us. So we're getting that post-harvest rally and we know Argentina had a smaller crop, they're about 91% harvested. So I think it was a relief rally from the Southern Hemisphere. And then we had issues here in the north. So going forward, the wheat is probably going to be a switch to what happens with our crop in North America as we get into the spring.

Paul Yeager: Can you help us on a little range there? How much more steam we might have?

Don Roose: Well, remember, the wheat market came from in February from $13, and then it's drifted just lower until about three weeks ago. We go to 725 now. We're trying to bounce back a bit. Got close to $8, 799 on March wheat in Chicago on Friday. But I think what we're really saying is probably $7 is too low eight fifties to high court in that range.

Don Roose: Funds keep trying to press the market to the downside, but we'll see once what happens in Ukraine with the shipping.

Paul Yeager: We have a big number in soybeans, but let's start with corn because it had a nice number to its approach in March. Corn approaching $7 here again, another week up is how much more steam left in that one.

Don Roose: Well, look at what happened to the corn market. We dropped down in range as we were 680 to 7 and we dropped down to 660 to 680, then to 635, back to 660 in a range. Now we're just moving back to the upside, but we're in a really tough resistance. Paul We go to 685 on Friday. Every nickel up is going to be tough and anything happens with improved weather in Argentina.

Don Roose: And I think the market comes under a lot of pressure pretty darn quick.

Paul Yeager: Well, I had I had written down lower crude on Thursday. Also, where is the crude relationship to corn right now? Normally it's been so tight, but is it still are they still right together?

Don Roose: Well, we're a petrol grain, there's no doubt about it. And, you know, look at you bring up the the crude oil, but our ethanol consumption production is under some pressure. Profitability just isn't there. Our exports on corner down 47% versus a year ago. So we don't have a it's all about the supply problem that when we talk about the demand, you've got a real issue with the corn.

Paul Yeager: We're still lower on that December contract. Does that have any range higher?

Don Roose: Well, the December corn, you know, the same thing is coming under some pressure. It's all about what's going to happen with Argentina. Weather gave us a little pop to the upside there. What, about 67% planted? About 15% of their crop is good, excellent versus 58% a year ago. So it's a problem with Argentina, June-July, they'll have their basically their harvest.

Paul Yeager: Then the beans story 15 was that number we just could not trace kept hitting our head on it. Finally broke through. Katy Bar the door.

Don Roose: Don Well we got within $0.20 of contract highs on November. Soybeans just over $0.30 away from contract, high on the March soybeans. So you've had an awful lot of risk premium into the market. It's going to be a dangerous three day weekend, Paul, because if the weather pattern changes at all, a lot of premium comes back out of this market.

Paul Yeager: Well, and that's kind of what set us up on Tuesday, right? Because when we I mean, we have to think we had a shortened trading day last Friday because of Christmas Eve. Then it never rained and it got drier. We're not quite set up as long. We're not going to have trading Monday or Monday night. What do we do to prepare ourselves on soybeans come Tuesday morning?

Don Roose: Well, you know, if you look at it from a producer standpoint, look at where we're really sitting. You know, you're sitting basically close to contract highs, little areas that have been very hard to get to over history with an economy that is still very much shaky. With Brazil, that probably has a record crop, probably makes up for the loss in Argentina, the government.

Don Roose: I just want to tell you about soybeans. Where we're really at are carry outs running to 20 a race likely to 70 last year to 50 the year before that. So their carry outs aren't a lot different the last three years. But Government's forecast in $14 this year, last year, 1330. But where I'm going it was 1082 years ago carry out aren't that much different than we got the same thing going on in corn it's have we moved to a new level for what reason?

Paul Yeager: Oh, well, I'm going to tease Marketplace because we dare you not to watch it because we know many of you don't. But I'm going to put Don on the spot about 2022 surprise story and also 2023. But we are going to take a question now from Phil in Dresden, Ontario. Don, kind of get you to think about 23 a little bit when it comes to soybean.

Paul Yeager: He goes, can we expect seasonal highs in corn, beans and 23 in June or July or does the size of the crops in Brazil and or the missiles launched over Ukraine skew that seasonal narrative in 23?

Don Roose: Well, I think what you have to be very careful of, and this is what we've been focusing on is upside down, short crop, long tail that you put your tops in more at harvest, which it seems like we have, except soybeans rallied back and then in South America gets a bigger crop. And if La Nina which has been dying, if it switches to an El Nino in the winter and we get a big crop, you have just the upside down from what you normally would think from a seasonal.

Don Roose: You have what we call a contra seasonal. So at these price levels, with what's going on the world, with what's going on, the economy, you have to be a little bit concerned what could happen. And you have to ask yourself, Paul, what do you think the upside is from here.

Paul Yeager: And what do you do to take advantage of that? Because things change quickly.

Don Roose: They change very quickly in this fast paced world anymore. And, you know, March corn is trading about $0.07 higher than July. So there's really not an incentive if the basis is right, there's not really an incentive to sit there, change your ownership, which is what we're seeing people do, change your ownership to options in some way and take your money off the table.

Paul Yeager: There's something about hay in the barn, too. I think you just you missed one more part of that phrase, Don. Speaking of the barn, the cattle, it's it's cold in cattle country. It was last week. We've since recovered moisture is coming back into some regions maybe not enough in the right spots. What's the biggest influence on live cattle right now?

Don Roose: Well, you know, again, we're back to the weather. We first big weather storm. We added some premium back to the cattle market and much like the grain market put the risk premium in. But then you also take it out. On Friday, we started to see it taking some of that premium back out. It's a cyclical bull market. The industry is very bullish, but when you look at it, you've got April cattle of 24 sitting about 169 April of this year sitting about 162.

Don Roose: So you got no shortage of bulls in the market, Paul.

Paul Yeager: I mean, there's room for me to get in or if I miss my chance there.

Don Roose: Well, it's it's not a surprise that we're in a bull market. That's I guess that's one way to look at it.

Paul Yeager: Well, what's the what's going to take us out of that, then?

Don Roose: Well, you know, the thing that's happened in the cattle industry before is we run into a black swan. You know, who would a herd of BSE, you know, a few years back, you know, the economy. So it's not the supply side of the market. It's more the demand side. And that's what I think you have to be concerned about.

Don Roose: If you're looking at not risk management at high prices, you know, you're not afraid of the black swan.

Paul Yeager: For those in the feeder market who are trying any way they can to expand, to hold back, to pull something, help them out, are they making the right decision?

Don Roose: Well, you know, usually the cattle cycle, Paul, is three and a half years up three and a half down, and we've been in a four year break. So, yeah, I mean, this is a timeframe where you probably should try and expand of your cow calf operator. You know, it's been a tough sled here for a while. Drought conditions, all kinds of different problems.

Don Roose: So it looks like we're in that expansion phase and it looks like the cow calf guy finally has his turn.

Paul Yeager: How long does that last?

Don Roose: Well, I think you probably are talking probably a good three years.

Paul Yeager: Oh, so you're saying we're at the beginning of that cycle?

Don Roose: Beginning of the cycle. So it should just be starting. And let's look at the placement figures in December are probably going to be down 8 to 9%. Fourth quarter supplies. We're just starting the cattle bull market, although the futures, you know, market has it dialed in from the fourth quarter of this year to the first quarter next year, we're going to have a record drop in production.

Don Roose: So and then it just goes on from there.

Paul Yeager: Do you know anything about geography in the sense of areas that are stronger or lighter or any shifting, maybe longer term cattle production?

Don Roose: Well, you know, I think if you look at the cow calf operators are pretty much in, you know, the rugged ground. So I think that's the area you're going to have the expansion. And we know that we're going to have a dislocation of feed supplies this year, 800 million bushels probably. So I think what that means is maybe you're going to see some of the feedlot production move further north.

Paul Yeager: I should ask before we skipped it. Everybody missed their feed. Need opportunities to cover anything right now?

Don Roose: Well, we're on a 50 cent rally in corn. We're overbought. You know, you're we've been in uptrends buy signals for three weeks on corn for six weeks on soybeans. So it's a.

Paul Yeager: Hold if we can.

Don Roose: It's got a little bit of a beard on it right now.

Paul Yeager: I like that one, too. And you're bringing them all out today, Don? Our hogs, as we close out here, we really not talked about China in this discussion very much. We always kind of look at them to gauge what their interest is in our product for exports. On pork, we've bounced off a high now and come back a little bit. Are we pausing to go back higher or are we going to keep falling?

Don Roose: Well, you bring up China. China hog prices hit a seven month low this week. So and that's because they're expanding. So our export pace are supposed to be down 2% next year. But, you know, we've been in a contraction phase in the hog industries, much like the cattle. But the last hog and pig report that these Fed fair wings are forecast to be up 28,000 on sales versus a year ago. So it looks like we're trying to build the herd a little bit. But the bull story in hogs is probably the bull story in cattle. You're going to keep the spread relationship kind of close, the demand kind of closed. So maybe shifting some of the demand. So the last you remember hogs in August went to 123. And is that possible again with the same about supplies as a year ago?

Paul Yeager: Before we go real quick, we talked a little bit about oil. We got to close to 60. We've push in 80. Again, what's a range here in the first quarter for us in 23 in oil.

Don Roose: On the crude oil? Yeah. Yeah. Well, I think from the crude oil, I think you're probably you know, if you look at it, Europe tried to talk China or Russia into selling them crude at $60 a barrel. That was too low. So I think $70 is a sweet spot. You hear people talk 100 days is too high in this economy.

Paul Yeager: Well, I appreciate you spending time with us and we'll get your take on 23 and wrap up 22 in Marketplus. Thank you.

Don Roose: Don. Thank you, Paul.

Paul Yeager: All right. That's going to do it for this analysis. And we'll continue our discussion about these markets. Answering your questions in our Market Plus segment. You can find that on our website of market to market dot org and also on YouTube. All of these resources that I mentioned are free, by the way, also on YouTube, the show, the Market Plus and our stories, they get posted each and every week, join our family by subscribing to the feed of at Market to Market. 

Next week, one of the nation's leading duck producers learns to hit life's economic curveballs. Thank you so very much for watching. Have a great week. 

Announcer 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.

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.