Market to Market - February 3, 2023

Paul Yeager

Coming up on Market to Market. The lowest cattle numbers since ‘62 sets the table for razor thin ’23 and beyond. Winter storms slashed across Texas and run towards West Virginia. Plus, the challenges of coming back to the farm and making your own way. And market analysis with Sean O'Leary next.

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VO

This is the Friday, February 3rd edition of Market to Market, the weekly Journal of Rural America.

Paul Yeager

Hello, I'm Paul Yeager. To say the monthly job report was a surprise would be a dramatic understatement. And be selling surprises short. The monthly snapshot of hiring left some economists scratching their heads on why the dramatic jump, even with several interest rate hikes in recent months, including one this week. Employers added 517,000 new positions in January and revised the previous two reports higher.

Paul Yeager

The unemployment rate dipped to the lowest level since 1969 with a reading of 3.4%. Hiring was broad based in professional and business classes of workers, along with health care, retail and construction. The regional snapshot of the economy as a whole dropped in January. Creighton University’s Mid-America Business Conditions Index was below growth neutral for the third consecutive month with a reading of 47.

Paul Yeager

There is also a call to the 1960s in the cattle market from government data released this week. An annual look at herd size is usually a benign release of information outside of the livestock industry. But the wider view could be a big story in the making. Peter Tubbs reports.

VO

Continued drought in cattle grazing regions of the United States has seen farmers and ranchers cut their animal numbers, reducing the size of the national cattle herd to levels not seen since 1962. Reduced forage quality has been a big reason why producers are sending heifers and breeding stock to slaughter in larger numbers when compared to periods of herd expansion. The recent period of record grain prices has exacerbated an already difficult financial situation for some operators. Expensive corn has heavily impacted the profit margin for farmers, ranchers and feedlot operators.

VO

Well, we've clearly liquidated the herd. In fact, if you look again at the USDA numbers nationwide, we lost over a million head of cows last year, which is the biggest in terms of absolute numbers, the biggest year over year decrease in the beef cattle herds since like 1986.

VO

The herd liquidations have been quickly eaten by Americans who continue to buy beef despite high retail prices. But the slaughter volumes will eventually decline.

VO

Well, the reason we had a peak all time record beef production in 2022 is because we were eating those that inventory. That's a temporary thing that you can do or have to do when you're in the middle of drought forced liquidation. But it's not sustainable. Obviously.

VO

Sending heifers to slaughter rather than adding them to the breeding herd can cause a rapid contraction of the total herd size. But it also limits future growth. The nature of the breeding cycle results in a slow return of cattle numbers, even when grazing conditions improve. In the near term, cattle producers looking to increase their herd size will face increased challenges in an environment of already razor thin margins.

VO

So what it means is the guys in the middle you mentioned the price of corn, all of the margin operations above the cow calf level are going to be really squeezed in this process because the you know, the top side of the market will adjust at least somewhat, but it won't adjust fast, as fast as the bottom side is coming up.

VO

And so I think cattle feeding is going to be a dilemma going forward here because we're going to have not as many feeder cattle. They're going to be really expensive. And then we've still got a high cost of gain in terms of high feed prices. And so those margins are going to be a challenge going forward.

VO

For Market to Market, I’m Peter Tubbs.

Paul Yeager

An Arctic Blast is forecast for the Northeast this weekend as windchills could bottom out at 90 below. Coming on the heels of Punxsutawney Phil seeing his shadow, the next six weeks of winter will hopefully stay in the normal lanes and stay out of the margins where so far this year has been extraordinary as exhibited again this week. Here's David Miller.

VO

A winter storm pounded an area from west Texas to eastern West Virginia during the week. More than 450,000 Texans found themselves without power as the weather made for hazardous driving conditions, causing numerous car crashes across the state. The storm has been blamed for at least ten deaths in the Lone Star State. Watches and warnings about wintry conditions were also issued for portions of Oklahoma, Arkansas, Louisiana, Tennessee and Mississippi.

VO

Several rounds of mixed precipitation, including freezing rain and sleet slashed across the area, causing flight delays and school closures. Much of the nation's midsection was also affected by the winter weather, which led to events being canceled in Michigan, Ohio and Indiana. Out west, winter weather is being welcomed as the snow pack continues to increase.

VO

After multiple winter storms the snow depth in the Sierra Nevada mountains remains at record levels.

VO

For our survey today, we recorded a snow depth of 85.5 inches and a snow water content of 33.5 inches. That results in 193% of average to date, and 137% of the April one average here at this location.

VO

The deep snow is expected to help relieve some of the drought being experienced by Central Valley farmers when the snow pack melts in the spring.

VO

For Market to Market, I’m David Miller.

Paul Yeager

The transition from school to home can be a challenge, especially when you are tasked with taking on a new venture your family hasn't done before. As part of the sixth generation to be on the family farm, Hannah Borg took her agricultural communications major and entrepreneurship minor to the Chicken barn in 2019. I had a chance to speak with her on a recent episode of the M to M podcast, where we found out farm life can be a splendid isolation and also a challenge in many ways as we discuss in our cover story.

VO

There is a lot that goes into working with your family. So the first year at home, first of all, I do live with my parents. I'm living and working with my parents as well as you know, we're starting a new business and I'm trying to transition out of college. A lot of times we talk about there's a lot of talk about transitioning into college, but no one talks about the transition out of college.

VO

You go from seeing your friends every day, having a good time to the next day you're trying to figure it out. So I live with my parents while I'm trying to manage all this stuff because, you know, rural Nebraska is kind of hard to find a place to live. Also, starting a new business with no previous experience is a wild experience, and then starting a business with a lot of equipment.

VO

Working with the contract company and a new animal. Yeah, mix that all together and you've got one heck of a mess when it comes to emotional stability. So we're fighting things, just learning the daily routine. Our whole life has shifted in terms of routines and just mindset and slowly it just gets better after time. I think it really took me two years, year and a half, maybe almost two years, to really feel like I've got this figured out because not only am I figuring out life in the chicken barns, but I'm figuring out life on the farm.

Paul Yeager

What is your plan? How has that conversation gone with your family? Because to me, it sounds like it was a very both honest and frank conversation you had with the family. Am I characterizing your situation accurately?

VO

Early on, I understood that my dad was doing things for us, not just for him, just like his father did. And, you know, I'm in that spot too where my building something that can sustain itself. So I encourage people, you know, when I hear people talk about they want their kids to come back home, those decisions, those actions start way, way, way long before the actual action of that daughter or son stepping back on the farm.

Paul Yeager

I do enjoy the social media aspect of people who have documented their farms because let's face it, it's a great canvas to work with when the sky is the gray color or there's steam coming out of the feed wagon as it's heading down through the lot. I mean, there's some incredible images. And to make it your family that's in them, that has to be special.

VO

Yeah. And I learned it's hard. I mean, it's hard to take photos when you're working. Yesterday, my brother and I brought the cows home from cornstalks, and it is so cool to have, you know, image of us walking, you know, chasing the cows. And I can bring out my phone. I take Instagram stories every once in a while and then post and later I'd take some photos.

VO

That's hard. You know that my attention is getting taken away from what's in front of me, cows, to my phone. I'm trying to snap that photo. And so I know what it's like when you're working. You can't take those photos. So my dream is for families to welcome me onto their farm and they're just going about their normal business and I'm taking photos of them.

Paul Yeager

You're just a fly on the wall or, you know, you're just kind of hanging out and you capture them.

VO

Because I come from a farm I know things don't always go as planned. And sometimes there's big emotions or big tensions. And so I, I like to think that I have a handle on, you know, how to handle things like those and know that, you know, if something happens or something breaks down and big emotions come up, like that doesn't bother me because it happens to us all the time too.

Paul Yeager

And it happens to everybody. You have to remind that farmer that you're not the only one that had a breakdown. You're not the only one where something didn't go right. In fact, if nothing went wrong, then really, who are you? How is that possible? This isn't Hollywood.

VO

Yeah, exactly. And I just, I try to it sounds silly, but I try to glamorize our work. There's a splendid isolation in what we do. You know, we're on the farm every day, working, big emotions, sometimes big decisions to make. But even in the small moments like that, sometimes those moments aren't fun. So I kind of glamorize what we do in my own eyes and like, what's the best way to take this photo?

VO

How can I tell the story? Because washing water tanks is not fun, but it's kind of fun to be washing water tanks with all the cows looking at you behind you. So it's like that would make a great photo. So I just, I just glamorize my everyday life as best as I can and picture it in my head.

VO

And I want to do that, the same for others, but with the camera in my hands.

Paul Yeager

We talk about the four years before and since you've graduated. What are the next four years in line for you?

VO

Yeah, I don't know. I'm really content with where I'm at. I'm really happy to be home. I really like being involved in my community. I really like telling people's stories through photography. So I have a feeling that the next four years are going to have some sort of mixture of the farm, the family, photography and so much other goodness that I've no idea what's in store.

Paul Yeager

The full MtoM discussion with Hannah Borg is available now on our YouTube channel of @MarkettoMarket.

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Next the Market to Market report.

Paul Yeager

A cut in production plus changing forecasts in Argentina offered some opportunity for a rally. For the week, the nearby wheat contract added $0.07, while the March corn contract lost $0.06. Pressure from outside markets, along with the surge in meal, weighed on the soy complex. The March soybean contract improved $0.23, while the March meal contract jumped by $23 per ton.

Paul Yeager

March cotton shrank by a $1.59 per hundredweight. Over in the dairy parlor, March Class III milk futures fell $0.29. The livestock market was higher again, with April cattle up $3.30. March feeders added $2.62 and the April lean hog contract gained $0.03. In the currency markets, the US dollar index added 101 ticks. March crude oil cut $6.24 per barrel.

Paul Yeager

COMEX gold fell $66.60 per ounce, and the Goldman Sachs Commodity Index finished almost 24 points lower at 586.50. Joining us now is market analyst Sean O'Leary. Welcome, Sean.

Sean O'Leary

Thank you. Glad to be here.

Paul Yeager

Well, let's start with the really easy one. Seven days in a row, Kansas City wheat had a rally, kind of like the Chiefs rallying late in the fourth quarter.

Paul Yeager

The rally stopped, though, on Thursday. Where's the next rally coming from? Are we done?

Sean O'Leary

If we see things play out like the last 4 to 5 weeks where we're kind of back in the middle of the range, I think we might be in an area where we find support, but I'm not sure we have the fundamentals to really break out to the upside.

Sean O'Leary

And I think you've seen all three of those contracts trade similarly there today, for example, the Chicago contract looked like it might put a, had of 13 and a half net change higher at one point, maybe a little bit greater than that. Half an hour later, you look and it's up $0.03. So short lived and rangebound. I think that will probably continue.

Paul Yeager

And that's been we've seen a lot of volatility in just a short amount of time. But we also have other issues at bay and including a question that we received. This one came from Facebook. Brandon in Montana wants to know about wheat, Sean, and this specific if the war in Ukraine has been priced into the market, how will a ramped up war this spring affect the wheat market?

Sean O'Leary

The war being priced in -- if you look at the prices now, I'm not sure if that's the case because look what the market did in the spring of last year when we had to price the conflict in, we essentially gave back all of the gain. So it's almost as if there's very little, if any war premium there. I've seen some news reports where the next six weeks are pretty, pretty pivotal.

Sean O'Leary

I think there's a little bit of fear about what Russia might do and, you know, essentially throwing the kitchen sink at them, unfortunately. And that that corridor has been not talked about quite as much when they first set it up. And there's been a pretty, pretty good flow of product. But it's coming from a lesser amount of production from them as well.

Paul Yeager

Plus, we have the weather issue domestically here, drought continues. I had a conversation with a producer in Kansas this week, told me about a friend, Southwest Kansas hadn't had any water on any of his wheat the last two years. We're still dealing with drought issues.

Sean O'Leary

Right, right, right. And that, you know, parts of Kansas, Nebraska, up into northwest Iowa.

Sean O'Leary

But those areas are -- they're stressed. But I think worldwide, I don't know that there's a fundamental supply side issue right now. And I think you look at the price and that bears out.

Paul Yeager

Let's go to corn for a minute. This was a market, crude was weaker, which has become more tighter that then we have poor exports and we had a good export report.

Paul Yeager

What do you see as big factors right now in corn?

Sean O'Leary

I've got a lot of customers that want to know, you know, what should they be doing right now? Corn, in a lot of respects is kind of like the wheat markets. Just a little bit, a little bit rangebound. The option premiums are pretty, pretty small due to lack of volatility.

Sean O'Leary

I think we've got a stocks report next week. And then obviously the bigger one further down the road is planting intentions in March. So if you've got to take some price protection, I think there's a number of different ways you can do that. If you're kind of undersold, there's some things you can do with covered short option premium.

Sean O'Leary

I've always been an advocate of that, both for hedgers and speculators. It's not a very big hedge. I'd call it kind of passive, but it's a hedge nonetheless and sometimes can be better than sitting on your hands doing nothing.

Paul Yeager

We have a good question about old crop that we'll get to in Market Plus. But let's look at that December contract as we look out, we're in that you mentioned planting intentions we don't know, there's so many unknowns in that one.

Paul Yeager

However, when you still are, we're still not quite above six. Do we have enough legs to get back above six?

Sean O'Leary

I think so. I don't know that I'd be real aggressive right now between now and the intentions report. I think there's a good chance at some point in our growing season, we're going to have to factor in some weather premiums, almost a given any given year.

Sean O'Leary

So, you know, that's where 20 to 25, $0.30 away from that area. I've told customers hedge and spec if you're on the long or short side and you see profit of 25 or $0.30, you might as well take it.

Paul Yeager

It's hard to turn that away.

Sean O'Leary

Well, it is because your chances of looking at a dollar of profit a month later, pretty remote.

Paul Yeager

Good point. Very good point. There's a story both in corn, but I want to have it focus more on the bean contract. Argentina. The US Foreign Service cut the outlook for the Argentina crop. Kind of like, oh, where have you been? So we finally catch up to it. How much is Argentina impacting U.S. soybean prices right now?

Sean O'Leary

I think that has probably been priced in pretty well over the past couple of months.

Sean O'Leary

The last USDA report was bullish, had some initial bullish reaction, but essentially gave it, gave most of it back over the next couple of weeks. So that story has been talked about for a long time. I think they can get some weather, beneficial weather into the end of this month that could improve the bean crop. Probably not going to do much for their corn crop.

Sean O'Leary

So there is still a chance for some improvement. There's also a chance that if that precip later this month, if they don't get it, there's going to be further cuts, I think.

Paul Yeager

I mentioned in the open about meal that was a huge gain this week and influenced all of soybean. Does that rally have any more to it?

Sean O'Leary

If I were along and they had some money made in that, I'd probably be pretty cautious about it. Maybe take some protection for it.

Paul Yeager

Yeah. Okay. So I get what you're saying. Yeah. All right. I'm not sticking out too much. I want to move to livestock. We heard the report about this herd, but we also had a weather story that impacted. Seemed to be that live cattle responded one day, the feeders responded to the weather a different day.

Paul Yeager

Why did live cattle move the way they did this week?

Sean O'Leary

Well, I think that report and the weather is a big part of it. But if you look at the way the cattle have traded for months and months now, I think you could probably take away that report.

Sean O'Leary

You could probably lessen the weather impact and probably still see new contract highs. That's just the way that market has traded. The consumer hasn't backed away. But honestly, I think the more the market trades higher, the less friendly I would be. Cattle have been known historically to have some big washouts on some bearish news. You just don't know where it's going to come from.

Paul Yeager

Well, and that was some of the discussion this week was April's making new contract highs, but all of a sudden there looks to be some bullish technical formations happening. Do you read the chart that way, technically?

Sean O'Leary

Yeah. I mean, you can't see new contract highs and wonder where to get short without having to admit I'm trying to pick a top.

Sean O'Leary

You know, you can't have your cake and eat it too. But yeah, I'd say it still looks friendly. There's really no reason, in my opinion technically, or from anything I see on the chart that says we're due for a $20 drop.

Paul Yeager

What about in the feeder market? What do you see there?

Sean O'Leary

I think they're going to trade hand in hand with the live cattle.

Sean O'Leary

As far as price protection on either one of those, I go back to the option market. There's a lot of things you can do with the short option premium, especially if you're a hedger. And at these prices, there is some, you know, pun intended, there's plenty of meat on the bone in the options, and there's volatility that goes with it.

Sean O'Leary

It's not only the notional value of the contract, but it's the amount of volatility in both feeders and fats.

Paul Yeager

Let's finish up with hogs in our final few seconds here. Pretty even on the week. Are we still just kind of watching China and hoping they're going to want something?

Sean O'Leary

Yeah, you know, I read something where production, our own production from fourth quarter to first typically declines and this will be the second if it plays out that way, only the second time in history where we have an increase from fourth quarter in the first quarter.

Sean O'Leary

And that's pretty telling. I think China with their own herd increasing, has probably been a little bit less aggressive on imports.

Paul Yeager

And I have to be aggressive on ending your comments. That's well, what a better welcome than to say we'll keep it up in Plus in a minute. Thanks, Sean.

Sean O'Leary

Sounds good.

Paul Yeager

Sean O'Leary, everybody. We're going to put a pause in this analysis and continue our discussion about these commodities in Market Plus.

Paul Yeager

You can find that segment on our website of markettomarket.org. You know, winter days and nights can be filled with a little reflecting and learning. Head back to school with our Market to Market classroom project in the modules and several topics that we have from today's agriculture. Head to Market to Market Classroom, it’s markettomarket.org/classroom to get enrolled today. Next week we look at a startup gaining momentum in preserving pollen.

Paul Yeager

Thank you so much for watching and have a great week.

VO

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

Announcer

What’s next doesn’t happen by chance. It happens when researchers and farmers work together to solve tomorrow’s agronomic challenges. We’re committed to creating what’s next because at Pioneer, our name is our mission.

Announcer

Sukup Manufacturing. Celebrating 60 years of innovation as a family owned and operated manufacturer of grain storage, drying and handling equipment out of Sheffield, Iowa. Learn more at sukup.com.

Announcer

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.