Market to Market - January 6, 2023

Coming up on Market to Market. Massive moisture relieves drought conditions as the winter weather onslaught moves across the country. Also, the reaction to another waters of the US decision. We also explore how one of the nation's leading duck producers has been hitting life's economic curveballs and the market analysis of Mark Gold, next.

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.

Sukup Manufacturing Company, providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing. Store now. Profit later.

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.

This is the Friday, January 6th edition of Market to Market, the weekly Journal of Rural America. Hello, I'm Paul Yeager. The calendar may say 2023, but inflation, one of the biggest discussion points of the economy from last year is still the one thing economists are talking about. American employers added 223,000 jobs last month, even with the federal Reserve raising interest rates on December 20th.

The positions posted contributed to a fall in the unemployment rate to three and a half percent, matching a 53 year low. The Commerce Department said the trade deficit dropped by 21% last month. The lowest level since February of 2009. Now, slowing domestic demand, coupled with higher borrowing costs, stymied imports. 2023 jumped straight into the fray with making a name for itself in the weather department.

Massive storms blew across the country in the form of tornadoes, blizzards and copious amounts of moisture. David Miller has our weather wrap.

Three different powerful storms called atmospheric rivers came ashore and pummeled the drought stricken West Coast this week. Coastal areas of California were slammed by high winds and rain midweek as falling trees knocked out power lines in Monterey County. Several creeks rose out of their banks, threatening homes in the area. Governor Gavin Newsom declared a state of emergency, allowing for quick deployment of aid to areas impacted by the storms.

Portions of Northern California could receive more than ten inches of rain this weekend. High winds, coupled with high tides on Thursday washed out several sections of piers in Santa Cruz County. The area near the Santa Cruz Wharf was closed until further notice from the storm that is now being called a Pineapple Express since it originated near Hawaii. The storm was pulled toward the West Coast by a rotating area of rapidly falling air pressure known as a bomb cyclone.

Water in the Central Valley was everywhere to start the new year as last weekend's storm dumped anywhere from 5 to 12 inches across the Golden State. Flooded roadways, stranded motorists, turning some properties into islands. Several rescues were made in the area. Farther inland, Reno, Nevada, received moisture in the form of snow. The snowpack in the nearby Sierra Nevada mountains is at its deepest level in 40 years.

State water officials say the snow depth is 174% of the historical average for this time of year. Officials caution this moisture won't be enough to break the drought. More rain and snow will be needed to assist in easing parched conditions. Roughly one third of California's water comes from the snow that melts off the Sierra Nevadas each year. A severe storm tore through an area of central Arkansas here in Jesseville, trees were shredded along with the local football field. A portion of the school also was damaged. The system stretched from the Southeast to the Great Lakes, dumping heavy rain and spawning several tornadoes. Nine of them in Illinois alone, the most in one land of Lincoln storms since 1989. Snow also swept through Iowa and the upper Midwest. The moisture that fell helped drop the national drought picture to its lowest level since September.

For market to market, I'm David Miller.

Paul Yeager:

The Biden administration dropped a ruling late last week that was a throwback to the 1980s. The waters of the US has elicited passionate responses over the policy in the decades since creation. Peter Tubbs reports.

The Environmental Protection Agency finalized a rule last week that reversed the definition of waters of the United States to its Reagan era origins. The EPA revived the 1986 definition because it believed the changes to the definition made by the Obama administration and reversal of changes by the Trump administration had harmed communities and the nation's waters.

The new rule contains some changes and clarifications, including giving federal protection of large waterways along with the streams and wetlands that are adjacent to them. The final rule includes language stating that protected wetlands must be reasonably close, such that the wetland can influence water quality or quantity in another protected waterway. No distance limits for protected areas were specified in the measure.

The new rule also maintains the Obama and Trump definitions that ditches without permanent flows of water, waste treatment systems and artificial lakes or ponds are not subject to federal rules. The EPA appears to be aiming for a pragmatic definition of protected waters that would end a decade of legal challenges. Objections were voiced by several organizations. The National Association of State Departments of Agriculture felt the new rules failed to establish clarity for farmers, including what is and is not a navigable water.

The American Farm Bureau Federation and the National Cattlemen's Beef Association stated in separate releases, the new rules would, among other things, continue to create confusion for farmers. For Market to Market, I’m Peter Tubbs.

Paul Yeager:

The COVID curveballs come in many forms. The long impact on the economy has already filtered its way through several layers of the supply chain. Fewer workers bottlenecked resources and higher prices are just a part of the economic story since 2020.

Paul Yeager:

Those trying to make a profit operating in niche markets have had mixed results. Colleen Krantz reports. In our cover story about the duck industry.

Donald Wenzel, a feed mill owner who had worked as a trader at the Chicago Board of Trade, decided in the 1950s that the modest U.S. duck meat industry, then largely centered on New York's Long Island, was based in the wrong place. He thought it would make more sense to raise the birds on less expensive real estate in a place where the corn and soybeans used in the birds feed was grown.

So in 1958, Wenzel started Maple Leaf Farms.

The first year that they were in operation they raised probably a couple hundred thousand head of ducks. You know, today we raise around 10 million ducks. We distribute those ducks in all 50 states in about 40 different countries around the world.

Now, based in Leesburg, Indiana, Maple Leaf, along with Clover Duck, a nearby competitor with company roots on Long Island, have helped push Indiana to the number one spot in the nation when it comes to raising duck selling 14.5 million a year as of 2017.

Almost 60% of the nation's total. Scott Tucker, grandson of Maple Leaf Farms founder Donald Wenzel, who died in 1968, says about 15% of the company's duck meat is exported to other countries whose citizens are bigger consumers of duck. But the company also sells eggs and ducks to hatcheries elsewhere in the world. Americans eat only an average of a third of a pound of duck meat a year, whereas China's citizens eat an average of more than 8 pounds.

The U.S. is ranked number 11 on the global scene. As far as the top duck producers in the world are China, European Union, Myanmar, Vietnam, South Korea and Taiwan. But despite being 11th as far as production, we are the sixth largest exporter of duck meat. Tucker says the U.S. public's misconception that farm raised duck may taste gamy like wild duck has been a barrier to additional growth in the U.S..

We use solely the white Peking breed of duck. That's probably 90% of the ducks that are bred in the world. As we've developed our breeds, we've helped make the product leaner and, you know, the feeding rations that we give the duck, you know, really give it a very, almost sweet flavor to it, very different. And it's unique say relative to, you know, chicken.

It's just something that, you know, we watch very carefully because we think that’s one of our competitive advantages.

Tucker's father, Terry, the company's CEO for 47 years, decided in the 1970s that Maple Leaf could overcome Americans uncertainty about how to cook duck by offering some product preroasted. The half roast duck, which can be reheated in an oven, has since become a big seller representing about 30% of meat sales.

We were the pioneers of taking and cooking duck in order to provide it for people in a more convenient way. This was my father's innovation, and he was, I think, way, way ahead of his time when he when he did this. He built an entire facility back in 1975 to begin cooking ducks.

Still, it's the restaurant industry that continues to purchase the majority, about 60% of Maple Leaf’s duck meat.

As with many other industries, this meant the temporary COVID related shutdown of so many restaurants in 2020 and 2021 threw off normal operations at Maple Leaf.

We needed to go into a major shift in terms of how we were producing, trying to shift more of those products into the retail trade. So we not only had to shift what it was going into, shift the packaging, develop new packaging, develop, you know, new products.

Tucker believes labor will continue to be one of their biggest challenges going forward. We operate ______ County here in Indiana, which has about a 2% unemployment rate, which basically means that anybody who wants to work is already working.

While Maple Leaf was able to navigate the labor shortage that followed the pandemic by working with a company that arranges for international workers, Tucker thinks they will still need other long term answers.

The company installed some automation equipment in 2019, but has plans for more in the coming years.

The way that we're looking at contending with that, like a lot of other poultry processors, is looking at automation, looking at ways that we can take our reliance on the workforce that may or may not show up today, you know, out of the equation.

We're always, you know, getting a curveball from one day to the next. And we just you just learn how to hit the curve.

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

Next, the Market to Market Report.

Paul Yeager:

A stronger dollar and improved moisture conditions along with technical and fund selling, dominated the trading headlines in this holiday shortened week. For the week, the nearby wheat contract lost $0.49, while the March corn contract sold off $0.25. Brazil's pending crop and political changes influence the soy complex, along with concerns on the health of the Chinese economy. The March soybean contract shed $0.32, while the March meal contract moved higher by $6.60.

Paul Yeager:

March cotton improved $2.30 per hundredweight. Over in the dairy parlor. February Class three milk futures gained $0.08. The livestock market was lower, with February cattle down $1.12. March feeders cut $0.58. And the February lean hog contract shed $7.42 or nearly 9%. In the currency markets, the US dollar index added 44 ticks. February crude oil plummeted $6.50per barrel, COMEX gold strengthened at $51.90 per ounce and the Goldman Sachs commodity indexed finished more than 37 points lower at 572.85.

Paul Yeager:

Joining us now is regular market analyst Mr. Mark Gold.

Mark Gold: 

Nice to be here once again. Happy New Year.

Paul Yeager:

Happy New Year to you. Mark's appearance is not indicative of what the market had said. But Mark, let's just face it, it's a tough week in grains.

Mark Gold: 

Tough week in grains. You know, first of all, we had much better weather in the United States. All this arctic blast and this typhoon type weather hitting the West Coast is ultimately going to help a lot of things. All that moisture that moved across the Midwest, we're going to see these river levels come up, replenish a lot of soil moisture with the big exception being western Kansas.

Mark Gold: 

They are still dry and need a lot of moisture.

Paul Yeager:

And that leads us into the wheat market right off the bat. You talk about the missed opportunities of moisture there, but that domestic story is not the only one in wheat.

Mark Gold: 

Well, you've got Australia looking at it, maybe a record crop. It's going to be huge. You've got Russia selling wheat wherever they can sell it. You do have the concern of the ongoing war between Russia and Ukraine. I thought it was great that Zelensky told Putin to take his --

Paul Yeager:

It’s a family show, remember?

Mark Gold: 

Yeah -- take the cease fire and stick it in the barrel of his gun. So that's an ongoing situation that could get bad very quickly depending on what Putin does.

Paul Yeager:

And it has and it has been a very serious situation for a long time. But when you say Russia's finding anywhere they can sell that has influenced the world market.

Mark Gold: 

No question about it. We've got relatively cheap wheat out there. These current rains and moisture and the snow cover we've had in the U.S. has knocked out the threat of winter kill teally. And again, with the exception of western Kansas, we're going to have some pretty good wheat in this country.

Paul Yeager:

We're down 6% on the March contract, July down 6%. What's a range? Do we have more lower to go.

Mark Gold: 

In the wheat market? Yes, absolutely. You know, you look at the wheat, the high in 12 and a half, $13 range back down to $7.50. That's one heck of a break in this market and it doesn't mean it can't go even lower. Look at these export numbers. The they're almost non-existent, you know, 120,000 metric tons of wheat going out the door.

Mark Gold: 

It's nothing. The dollar on Friday put in a remarkable move, it was up a point, a full penny, and it was down more than a full penny, but still closed higher on the week. The dollar could be in some trouble here. That might help things long run, but we just don't have any export demand for our wheat. And it's killing our market.

Paul Yeager:

Not much better export story in corn either, though.

Mark Gold: 

No corn. We had the exports this morning, 360 or 350, whatever. It was just terrible numbers out here without China buying. Mexico's stepped up a little bit to the plate and kind of helped us a little bit here. But it's not what China could do. And if anybody wants to know China's in trouble with this COVID situation, just look at what's happening there.

Mark Gold: 

They've stopped announcing how many cases, how many deaths. They just increased their crude oil export quotas, which tells us that their economy is slowing down dramatically. So, you know, where's the demand going to come from if we've now China out of the box. Plus, the world's going to be bringing more and more grain to the table over the next couple of months.

Mark Gold: 

I just it's a tough market.

Paul Yeager:

I asked you about the wheat range. Same thing in corn. I'm not even asking you to say a top range because I'm going to bet you're going to tell me we're not going to see a top. Is there still more room to move lower on corn and by how much?

Mark Gold: 

Well, you know, two years ago we were at 450 corn and then last year, we never really broke too hard. We had the big rally first, then the break afterwards and then came back again. But, you know, can we see corn under $5 this year? We've got new crop sitting around 596. There's no reason why we can't go down and test five bucks in there if we have good crops and there's soil moisture replenishment that we've seen in the last two weeks is going to help.

Mark Gold: 

We haven't had a good growing season in three years. Really. If we ever have a good growing season, look what Brazil's doing with their beans. I mean, there's just no telling how big these yields will get. And, you know, the American farmers gotten kind of used to big yields and big prices or decent yields despite the rain. What's going to happen if we get rain, timely rains and always is a big concern.

Paul Yeager:

Let's go to the big picture then. You mentioned Brazil, their crops about two weeks from coming online. Argentina, though, about to get some rain and cooler temperatures.

Mark Gold: 

Well, the Argentinean weather shifts almost every 12 hours last night or yesterday morning. It looked like they were going to have rains, maybe Tuesday, Wednesday. They take in the high 104 numbers out of it, down to like 100 degrees. Now, last by the end of the day they put rain in Tuesday, Wednesday, Thursday, Friday, Saturday, Sunday. And which was part of the pressure we saw yesterday.

Mark Gold: 

And then all of a sudden we wake up this morning and it's gone. Maybe two chances of rain, maybe Wednesday, Thursday, temps back up to 100 degrees. So I think that's what rallied the beans on Friday. But in my opinion, when we get these kind of Argentinean rallies, don't worry about it. Brazil's going to have more than enough.

Paul Yeager:

So what do I do?

Mark Gold: 

What do you do is you take advantage of these rallies. First of all, in corn and beans, if you've got old crop in the bin, you really have to ask yourself why. The basis has been incredible. All around the country. You've got virtually global -- $6.50. $7 corn, depending on the basis where you're at even higher in some areas, you've got $15 beans plus a good basis.

Mark Gold: 

There's no carry in the market. Why are you storing these grains when the market is begging you for it? Paying you for it? Why? Why are you sitting there? Are you hoping for higher prices? Well, good luck. Maybe you'll get them. But you can always sell the grain and buy a call to keep the upside open.

Paul Yeager:

That ship has sailed. So, Gary in Wisconsin, we kind of glossed over your question, but that was the basis question. Maybe we'll ask it for sure in Plus. I need to get to livestock because I just the outside perspective, you would think with lower grains that maybe cattle for sure feeders would have a better week than they did either.

Paul Yeager:

Why did cattle not do so well?

Mark Gold: 

You know, it's an interesting question because the box beef market has been so strong. We backed off a little bit here in the last day or two, but we're still at 282 or we were this morning. We've had obviously a strong cash market in the retail level, but the Packers haven't been willing to pay up even though there aren't that many cattle around.

Mark Gold: 

So why would the market break? I think it's a couple of things. Number one, this is a long time ago, but when I was back in college in the mid seventies, I did a study for one of the professors about cattle relationships and how many times we would make highs in the cattle market in the third or fourth Friday of the year.

Mark Gold: 

And that's always stuck in the back of my mind. And when we were on the contract highs last Thursday and Friday, I'm thinking, I don't know if it's going up or down or not, but I do know this is a great opportunity to buy some puts here. So I think that's part of the technical scene that's going on.

Mark Gold: 

And right now, if the last couple of days certainly looks a little toppy. The other thing I think that's going on is that, you know, even though the Dow is strong, I think people are concerned about world economies. We're going to have we know it's tough to pull cattle now and that the placement numbers are going to be tough for a while.

Mark Gold: 

But if we sometimes it's a futures market, we build these things in ahead of time and maybe we've built enough in for the time being.

Paul Yeager:

On the on the cattle.

Mark Gold: 

On the cattle side.

Paul Yeager:

What do you think on the feeder side, then?

Mark Gold: 

Well, I think feeders are going to be as much a function of the corn market as anything else. But I think cattle, hogs and fat cattle, feeder cattle and hogs all have a propensity, in my opinion, to go down because the fund rebalancing is going to start on Monday and we expect the funds to be selling corn, wheat, beans, cattle, hogs and feeder cattle.

Mark Gold: 

So I don't think that's a positive for these markets.

Paul Yeager:

We've already had major funds selling this week. You're saying we're due for more come Monday.

Mark Gold: 

It's a rebalancing, so it's certainly possible we could see it. And generally it comes in toward the end of the day, we could see significantly the funds are long, 140,000 corn. They're long 100,000 beans, and 100,000 meal. Could we see more selling? You bet we could.

Paul Yeager:

So maybe part of the pause for some on the livestock side have been we're thinking it's going lower their feed side.

Mark Gold: 

Well, I think that's part of it. But to me, the technical indicators and with the fund rebalancing and the fact that the market just didn't act that good this week with the boxed beef up at 288 or 289 earlier, with the cash prices not really responding too much, maybe up a buck in Iowa, that was it.

Mark Gold: 

You know, so I think you got to be very leery here.

Paul Yeager:

What about hogs? I mean, that wasn't a good week either.

Mark Gold: 

You know, China, I think you watch China to see what the hogs are going to do. Any time there's more concern about the COVID situation in China, hogs are going to go down.

Paul Yeager:

And that's that's something I asked many times that about, but not everybody agrees with you on that. So again, continue to watch China is what you're saying.

Mark Gold: 

I can't believe they don't all agree with me.

Paul Yeager:

Well, you know, wouldn't be the first time they agree with everything else. All right. I'll hold that and get the rest of your hog discussion in our Market Plus. All right. Thank you so much. That is going to do it. As we put a pause in this analysis, we will continue and talk about these markets in our market plus segment.

Paul Yeager:

So that's analysis and plus there you can find those segments on our website of markettomarket.org. All of these resources that we've mentioned here are free. We also post our video content to YouTube, which includes the show, the Plus and our stories along with the MtoM Show podcast. Make a resolution to try something new and join our family by subscribing to the feed of market to market.

Paul Yeager:

Next week we look at the impact of one of the biggest government reports of the year. Thank you so much for watching and have a great week.

Speaker

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.

Sukup Manufacturing Company, providing equipment and buildings to store and condition grain to help farmers adjust to market swings. We build drying, moving and storage equipment designed to preserve the quality of their crops. Sukup Manufacturing, store now profit later.

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.