Market to Market - March 17, 2023

Coming up on Market to Market - We’ll look at how the collapse of two major U.S. banks could affect rural America and what Secretary Vilsack told the Senate Agriculture Committee in his first appearance since the shift of power from the 2022 election. Plus, a closer look at how oyster farmers are helping clean up Long Island Sound. And market analysis with Arlan Suderman, next.

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This is the Friday, March 17 edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Brooke Kohlsdorf. Paul Yeager is off this week.

Rising prices are getting consumers to hold back a bit after a January spending spree. The numbers for this week’s economic outlook were tallied well before the two major U.S. banks collapsed over the weekend.

The Consumer Price Index rose four-tenths of one percent last month - largely on the cost of places to live.

Without food and energy in the equation, core CPI rose five tenths of one percent.

A drop in auto sales pulled retail sales four tenths of one percent lower.

Without the drag from automobiles, retail sales slipped a more modest one tenth of one percent.

Creighton University’s Rural Mainstreet Index fell below growth neural last month. Bankers in the 10-states surveyed said they were still plagued by a slowing economy, higher borrowing costs and labor shortages.

After the collapse of two banks last weekend, President Biden announced on Monday all accounts would be covered. As the week progressed, Credit Suisse, Switzerland’s second largest lender, found itself in trouble. The Swiss National Bank quickly made $54 billion available to cover accounts and calm fears.

Keeping U.S. banks open is about trust which relies on, as the saying goes, the full faith and credit of the United States.

Colleen Bradford Krantz has more.

The nation’s second-biggest-ever bank failure last Friday quickly captured the financial world’s attention, particularly when it was followed by a second failure.

California regulators seized control of Silicon Valley Bank following a run on the bank. Federal Deposit Insurance Corporation, now the receiver, will use the bank’s remaining assets to replace funds customers lost beyond the FDIC standard insured amount of $250,000.

Experts say Silicon Valley Bank ran into trouble because of investments in U.S. Treasury securities, when the normally safe investment was followed by a rapid increase in interest rates this year and last. The value of those securities plunged and the bank was unable to make up the difference.

A second institution, Signature Bank in New York, failed Sunday and was also placed under FDIC receivership.

Ernie Goss, Creighton University: “A lot of folks say, ‘Well, it’s not an issue for rural bankers.’ It is an issue. But I’d say it’s less of an issue…. If you do compare the banks in this part of the country to banks in other part of the country, I think the banks here stand up quite well, particularly again compared to banks that have been making loans to technology companies…. If I’m a farmer with more than $250,000 in one particular bank, I’ve got some concerns. If I have less than $250,000, I have little concern.”

A number of banks have failed in recent decades, particularly in 2008, but the assets involved with these two failures were noticeably larger than in most recent years, at a combined $319 billion.

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

The 2022 election threw a slim majority to the Democratic party in the U.S. Senate.

Senator Debbie Stabenow of Michigan returns as chairwoman of the Senate Agriculture Committee. She recently requested the Secretary of Agriculture come to Capitol Hill for some Q & A with committee members.

Peter Tubbs reports.

This week, Secretary of Agriculture Tom Vilsack appeared before the Senate Agriculture Committee about a variety of issues, including the Waters of the United States and safety net programs that support farmer profitability.

Sen. Cindy Hyde-Smith, R - AL: “As we look to the next farm bill, what assurances can you give us that USDA will act according to the intent of Congress when administering farm safety net programs?”

Sec. Tom Vilsack, USDA: “When we talk about the 90% of the farms that didn't make money or a majority of their money came from off farm income, we're talking about farms that sold less than $1,000,000. The farms you're talking about are large, commercial sized farms. So more than $1,000,000. I don't think it's an either-or circumstance. But if you're also genuinely concerned, as I am, about the erosion of rural America, you're going to want to keep people on the farm. And every 100 acres or a thousand acres, I want to keep people on the farm.”

Sen Charles Grassley, R - IA: “Is it philosophically possible for you and or the administration to work with us to try to find some payment limitation so that we're helping the medium and small sized farmers?”

Sec. Tom Vilsack, USDA: “The key here, I think, Senator, is to figure out ways in which we can help those small and mid-sized producers in a meaningful way. I think not only is it safety net, but it's also market development. I think we have to create more income opportunities for those producers.”

Sen Mike Braun, R - IN: “WOTUS is this is the thing I hear the most in bailiwick of agriculture. Are you actually tracking comments from farmers? Do we do that to see how much complaints you're getting compared to what I'm hearing back in Indiana?”

Sec. Tom Vilsack, USDA: “Certainly sensitive to this. But let's remember two things about WOTUS. One, Congress has established the Clean Water Act, which is what gives rise to WOTUS and courts have directed the EPA to actually implement the law. All right. So, it's not like they have a choice. They have to implement the law. The question is, how do they implement it?”

Sen Mike Braun, R - IN: “But do you track comments coming back?”

Sec. Tom Vilsack, USDA: “We totally understand.”

Sen Mike Braun, R - IN: “Is that something you'd share with the committee here in terms of what you're hearing from farmers about WOTUS?”

Sec. Tom Vilsack, USDA: “What you're hearing is uncertainty. What you're hearing is uncertainty. Is this in or is this out? And I think basically what we need to have is certainty in in the program. We need at some point in time to get it out of the courts and have certainty.”

For Market to Market, I’m Peter Tubbs

Long Island Sound is an estuary in one of the most densely populated areas of the United States. According to the Government Accountability Office development and pollution have degraded water quality and led to low levels of dissolved oxygen making it harder for fish and other species to survive.

Since the 1970s, many fishermen, lobstermen and oyster farmers have worked to clean up the body of water and keep the fishing industry alive.

And, as John Torpy explains in our Cover Story, there’s a lot more going on just below the surface.

Submerged in brackish waters along the Connecticut coastline, newly nested oyster beds are helping restore the environment and protect generations of family tradition in New England aquaculture.

Robert Norrholm, Owner, Belle Shellfish: “Connecticut was the cream of the crop, pun intended for oysters, you know, and that we want to see that come back.”

Around the turn of the 20th century, oysters became a popular dietary staple for New Englanders. In Connecticut, demand for mollusks was particularly high because of the nutrient rich environments of the natural oyster beds set. 

Tessa Getchis, aquaculture extension specialist, Connecticut Sea Grant: “So what's really unique in Connecticut are these large tracts of oyster beds that are in intertidal areas like this, but also in deep water areas.”

According to the Connecticut Department of Agriculture, the steep rise in popularity for oysters led to depletion of the natural beds due to overfishing. To keep up with strong demand, oystermen began cultivating oysters and oyster seed to raise their own stocks. As the decades progressed, so did cities and towns. Expanding communities and agriculture took a toll on the water aquaculture farmers depended on for raising shellfish.

Tessa Getchis, aquaculture extension specialist, Connecticut Sea Grant: “Many places the oyster beds have really been decimated early on by overfishing, but later by developing it here in Connecticut, we've faced all of those impacts early on. But these oyster beds are large and they have been sustained by industry and protected by regulators through the years.”

Tessa Getchis is an Aquaculture Extension Specialist with the University of Connecticut Sea Grant Program. Getchis works with the fishing industry and seaside communities to help establish and strengthen support for the shellfish industry while improving the environment where fishermen work.

Even with local oversight and industry regulation, yields from oyster harvests have been on a steady decline, according to the Connecticut Bureau of Aquaculture. Layers of silt have covered existing cultch, prohibiting oyster larvae from setting on shells and continuing to grow into adulthood.

Getchis and other colleagues established a pilot program to encourage restoration of the oyster beds as a way to clean up the environment and, at the same time, protect a way of life. 

Tessa Getchis, aquaculture extension specialist, Connecticut Sea Grant:” So when we started, it was just ahead of COVID and we wanted to bring people together to talk about what is the future of the Connecticut oyster industry and also these natural habitats.”

When restaurants shut down due to the COVID-19 Pandemic in 2020, oyster farmers were stranded without markets or consumers. At the same time, Getchis needed boots on the ground, or more precisely, boots in the boats, to help launch the restoration plans for Connecticut oyster habitats.

With boats and businesses idle, boat captains were recruited to help get rid of the silt choking the Connecticut shellfish industry.

Tessa Getchis, Aquaculture Extension Specialist, Connecticut Sea Grant: “They couldn't sell their oysters. And we were trying to come up with a plan to keep them in business. And we had these beautiful beds that needed to be restored. And this fleet that was just ready to work. And so, we really didn't have to convince them to, to get out and help us with this. They knew it was important. It’s their insurance really.”

Robert Norrholm, Owner, Belle Shellfish: “These gaps right here that allows the shell to pass through the direction and keep the shell on the bottom. This will hold the oysters in it. So, we're eliminating keeping the shell on the bottom, but we're taking up any other shell that the guys have that's on the bench to put it right back down.”

Robert Norrholm is owner of Belle Shellfish and is part of the seven generations of his family who have spent their lives harvesting clams and oysters off the coast of Connecticut.

Robert Norrholm, Owner, Belle Shellfish: “So one, I love to tell this to everyone. One full grown oyster will filter 50 gallons of water a day. Now, multiply that by how many oysters are on the bottom. So, the more we cultivate, the more oysters that can be produced. We'll filter more water. That’s going to increase the water quality of Long Island Sound.”

Norrholm is an early adopter of the Shellfish Restoration Program, acknowledging benefits to the oysters….and the future of his business.

Robert Norrholm, Owner, Belle Shellfish: “So the process, you know, and how, how we work is we're doing it in a way where we're not gouging the bottom or harming the bottom. We're just scraping along the top. And that's going to be enough to remove the silt. Once we get the oysters there, it's going to it's going to help the industry in a long way because they have an area where they can go catch oysters to plant on their own grounds and put into the market. So, the small industry guys that are able to do it, they're going to benefit from it years from now.”

Norrholm’s passion for shell fishing has deep roots. He relies on a long-established family history and personal experience to help him pay it forward, helping to keep the industry alive for future generations.

Robert Norrholm, Owner, Belle Shellfish: “My grandfather is still my teacher and he is still going to teach me until he decides to retire, which I don't see coming any time soon. His idea was to get this natural bed cleaned up, get it cultivated and the silt removed, and that way more oysters can grow because that's what he wants to see.”

For Market to Market, I’m John Torpy.

Next, the Market to Market report.

Excitement over Chinese buying was mixed with concerns over the economy and the banking system, which dominated trading decisions in the commodity markets.

For the week, the nearby wheat contract jumped 31 cents, while the May corn contract gained 17 cents. Soybean oil led the charge downward as farmers in Brazil passed the halfway point in harvesting their record crop. The May soybean contract was off 31 cents, while the main meal contract lost $19.90 per ton. May cotton shed 35 cents per hundredweight. And over in the dairy parlor, April Class III milk futures added $1.38. The livestock market was down as April cattle cut $1.95. April feeders falling $3.00. And the April lean hog contract dropped $7.57. In the currency markets, the U.S. Dollar Index lost 74 ticks. April crude oil declined $10.20 per barrel, that's a 13% drop. COMEX gold went higher by $120.60 per ounce. And the Goldman Sachs Commodity Index fell nearly 35 points to settle at 538.05.

Kohlsdorf: Joining us now is regular market analyst Arlan Suderman. Hi, Arlan, Thanks for being with us today.

Suderman: Good to be with you.

Kohlsdorf: Okay, so we talked about this a little earlier in the show, just the impact of those bank collapses on the economy. How much did that play in the role of what happened this week?

Suderman: Well, you saw the commodity index that you mentioned did go down because of fear on Wall Street. They liquidated positions in some cases to pay their fees or the losses, cover their losses in some of the other markets, so they liquidated some ownership in the other commodities. Grain and oil seed prices actually fared pretty well overall, soybeans a little bit worse. But from an agriculture standpoint, farmers are going to have more fees on their accounts. They need to make sure their accounts are divvied up so that they're covered with FDIC insurance. This past week FDIC has covered all the accounts so that means more fees coming. But interest rates are going to be the big thing where they're going to see it. What does the FDIC do in this coming week with their -- not the FDIC, the Federal Reserve, this coming week? Will they slow the pace of rate hikes in order to take pressure off the banks? Or will they stay the course, will they go up 50 basis points, which the inflation data suggests maybe they should do? And if they pull back now they may have to go higher with interest rates later on. So, farmers who have operation loans are going to be very vulnerable depending on what the Fed does and what they are required to do to try to calm the waters here.

Kohlsdorf: They've got a fine line to walk, don't they?

Suderman: They really do.

Kohlsdorf: Okay, so turning to wheat, futures are trading this past week, turned a little lower. Why?

Suderman: Well, wheat has been in a downtrend now for quite some time. One thing about the what market, unlike soybeans where virtually every bushel that is produced in the world is traded on the derivatives market at some point before it is consumed, wheat just a fraction of it is. Most of it is traded on the cash market. So, the funds have really wanted to be short wheat. They've been assuming that Ukraine will get an extension of the grain initiative allowing it to continue to export. They're still assuming that is going to be the case. And so, we've been trending down. We've come up the last few days, we've seen a little bit of a bounce back and I think the focus is starting to come back to putting a little bit more risk premium into the market going forward because of the increased tensions in the Black Sea region and because of the drought that we have in the U.S. Southern Plains that is slow to find relief and because with El Nino coming on Australia is expected to have a short crop this year as well.

Kohlsdorf: Okay, well let’s move onto corn and social media for our next question. This is Gary, he's asking, did China's purchase of corn show that the market could be bottoming because the safrinha corn crop is getting so late?

Suderman: Very much so, it very well could be. Of course, I've been wrong now for the last several weeks on corn. I didn't expect it to break the way that it did. But now that it has broke about 75 cents and China has seen the opportunity there, it's looking at the safrinha corn crop going in very late, especially Mato Grosso do Sul and some of the surrounding districts of Brazil, which doesn't guarantee a short crop this year but it really does substantially increase the risk. Argentina's crop is getting much smaller, it's down about 40% from a normal crop. Ukraine is going to have trouble producing a crop this year. And I think China is starting to get nervous and so they're making sure they have supplies on hand in case those things just don't play out. They're managing their risk exposure and I think that is going to come around and support the corn market as long as the outside markets can stabilize.

Kohlsdorf: With that said, will China be buying more corn?

Suderman: I do think they will. I think they'll buy more than what USDA said. I felt that for the past several months that they will end up doing that. Even if they end up not needing it, they need to rebuild their reserves, and so I do think that they will be buying more and right now the U.S. is the cheapest corn on the market.

Kohlsdorf: Okay, well turning to soybeans, the soybean story and you mentioned this in Argentina is bad, some calling it a disaster there. What is that going to do to the markets?

Suderman: Every time Argentina has a drought we see soy meal prices rise because Argentina is the world's largest exporter of soy meal and soy oil. And the assumption is that that will drive demand do the United States for soy meal. We're just not seeing that. One of the reasons is Brazil has a massive soybean crop and so they'll be able to ship soybeans south to Argentina and they'll be able to divert some of their own soybean crushing to the world market as well. Currency exchange rates will give them advantage. So, it's really unclear how much they'll really increase demand for U.S. soy meal. And I think the funds, which built record ownership of meal, are starting to figure that out now. We've been warning for several weeks be careful, this market could collapse, and it looks like that is what is starting to happen.

Kohlsdorf: Okay, there are some reports again about ASF, African swine fever showing up again in China. Is this enough to impact the markets? Or do we need to know a little more?

Suderman: It is. We don't have any official reports. There is an industry survey that went out that suggests that we have already seen enough incidence of African swine fever this year, more than what we had all of last year. And some hog farms say they have reduced their breeding herds by 20% to 30% and may go to 50%, but yet others are saying, no we're not seeing any problems. So, it's the diversity of information we're getting out of China, we have people on the ground there, and our people on the ground are saying one thing to watch is piglet prices are up about 13% over the last five to six weeks. That suggests a shortage of piglets, meaning there's some deaths that are happening. And if that is true that means the disease is there and we'll probably have a reduction in feed demand for corn and for soy meal as we get through the summer months.

Kohlsdorf: Okay, well let's turn to cattle. So, this red-hot market died down just a little bit this week. So, is this a -- are we in correction mode? I guess that is what I've heard or read a little bit about.

Suderman: Yeah, that's a really good way to say it. The fundamentals are still there. We've got a cattle on feed report the end of the week to indicate pretty much as expected, that placements, etcetera and on feed numbers are down roughly 5% or so. And we're going to continue to see that really for the next couple of years. It's going to take a couple of years to rebuild production. We first have to get the weather totally turned around. Then the next step is we hold back heifers, that tightens the supply even more. So, beef supplies are going to be tight. The question is, what will the consumer pay? And that goes back to the economy and to the banking story in consumer confidence. Consumer confidence pulled back this month a little bit. That raises fears that consumers won't pay what they need to for the beef in order to rebuild those herds. So that is why we have a little bit of volatility now.

Kohlsdorf: Okay, that was going to be my next question. We're headed into the big grilling season, right? This is when people start buying a little more beef. So, what kind of impact will consumer demand have on the market? Is that a big chunk?

Suderman: It really is. And we've been rather cold this month. We've had a resurgence of cold coming in. This next week there's going to be another big shot of cold air coming in across many of our country's urban centers. That is going to reduce barbequing and delay the beginning of barbeque season and that is a big part of our beef demand and even our pork demand as well. So, we need to warm things up. It looks like we're going to be able to start doing that as we get into the month of April, get barbeque season going, that will help strengthen demand again.

Kohlsdorf: Feeders were lower this week. Why?

Suderman: Really that is a place where we've seen the most impact of this banking story, lack of confidence in the economy. So, the protein sector, cattle and hogs, have both really been hurt by that over the past week and the feeders is one of them. If there is uncertainty about the demand for the fat cattle then that makes a reluctance to buy the feeder cattle to feed.

Kohlsdorf: Okay, let's end with pork. So, we talked a little bit about this earlier, but the African swine fever story. Is that enough to impact the hog market?

Suderman: We've seen some resurgence of demand to China, so this may be some indication and we really saw exports to China drop off last year sharply. We're seeing some of that come back so that gives us some hope for the hog industry because our supplies ended up bigger than what we anticipated. The slaughter numbers have been higher than what USDA's quarterly hogs and pigs report in December would suggest. We'll get an update of that report here before the end of the month, see if USDA raises their numbers. But this does give us some hope that we'll see more pork going to China.

Kohlsdorf: Okay, should farmers be locking in their fuel prices right now?

Suderman: I would say when you look at all of these commodities what is the risk -- more risk of going higher or lower? And from a fuel standpoint we could go either way in this current environment of uncertainty. But we're getting prices low enough now that we're starting to see greater risk of something driving it higher than lower. So, as you look at your summertime needs, your spring planting needs going into the summer, I would start scaling in some things and taking a look at managing that risk exposure. And even as you start pricing your crops, look at all the inputs, the fertilizer, fuel, focus on margins.

Kohlsdorf: I wish we could talk more but we're running out of time. Thank you, Arlan, so much for being here this week and giving us your opinions and expertise on all of this. We are going to pause this analysis and continue our discussion about these markets in our Market Plus segment. We can chat a little more there. You can find both segments on our website of MarkettoMarket.org. And both of these resources are free. We also post our video content to YouTube, which includes the show, the Market Plus and our stories along with the MtoM show podcast. Subscribe to the feed MarkettoMarket. Next week, we look at a Minnesota group putting pets under the spotlight in the war against antibiotic resistance. Thanks for watching. Have a great week.

(music)

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

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.

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.

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.