Market to Market - April 21, 2023

Coming up on Market to Market - WOTUS survives a veto override while Congress questions the EPA’s chief. Tornadoes and wet weather change the planting pattern. Plus, water quality remains a challenge for Iowa utilities and farmers. And market analysis with Shawn Hackett, next.

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This is the Friday, April 21 edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

Spring is ‘go’ time for planting - and the housing market. While rains have delayed work in the field, the housing market has more factors stunting its growth.

Sales of existing homes fell 2.4 percent last month. The National Association of Realtors cited higher mortgage rates and low number of properties on the market.

The national median price dipped to the lowest level since 2012 to $375,700.  

The Rural Mainstreet Index climbed back above growth neutral last month with a reading of 50.1. The Creighton University-based survey reveals much lower checking deposits as farmland prices expand.

Congress failed to override a veto by President Biden on Waters of the U.S. this week.

While the head of EPA monitors the back and forth over WOTUS, Michael Regan was summoned to Capitol Hill where he was peppered with questions about clean water, tailpipe emissions and air quality.

Peter Tubbs reports.

This week, EPA Administrator Michael Regan appeared before the House Agriculture Committee. The Agency’s process for regulating agricultural chemicals and the Waters of the United States were popular topics.

Rep. Rick Crawford R - Arkansas: “Particularly when we have a Supreme Court case pending. And the administration chose to move through and rush this cumbersome law and costly rule that will ultimately have to be changed. What do you what do you say to that?”

Administrator Michael Regan, U.S. Environmental Protection Agency: “Yeah, I say that the court's vacated the previous navigable waters rule of the previous administration, and it left a void that took us back to pre-2015. There was some litigation risk to the agency for not fully enforcing the Clean Water Act, so we began moving forward to put this rule into place. I will tell you that we will respect the ruling of the Supreme Court, but we won't be starting from scratch.”

Rep. Mark Alford R - Missouri: “The Biden administration has allocated tremendous resources allegedly out of a desire to support American agriculture. But EPA's approach to chlorpyrifos flies in the face of that. Is the White House aware of the economic harm caused by EPA's approach? And if so, what is the jurisdiction and how does EPA intend to make producers whole?”

Administrator Michael Regan, U.S. Environmental Protection Agency: “I think the frustrating part about this is the courts were fed up, that EPA had not moved in a specific way. And so, the courts rendered a judgment that set a timeline very stringent and a bar very high that is atypical of any other pesticide that we have to have jurisdiction over. And so, we made the decision that we made based on the science, but also based on our legal obligations of the requirement of the Ninth Circuit Court.

Rep. Angie Craig D - Minnesota: “Given the dialog today, the tailpipe emissions standards does the American biofuels market industry have a future in EPA policy?”

Administrator Michael Regan, U.S. Environmental Protection Agency: “It absolutely does. In 2022, I finalized the strongest RVO in in history and in 2023, 2024 and 2025, we're maintaining that trajectory.”

Rep. Angie Craig D - Minnesota: “Why does the EPA wait until the last minute every single summer to issue the waiver?”

Administrator Michael Regan, U.S. Environmental Protection Agency: “I think that it's not necessarily wait until the last minute, but I think if you look at prior administrations that have proactively issued those waivers or gone too quickly, the courts have struck them down. So, we have some precedents that we have to watch out for. There are certain market conditions that must be present in order for EPA to utilize that waiver. And my staff has taken a constant look at when they become present we can take action.

For Market to Market, I’m Peter Tubbs

California’s State Water Project will provide full allocations this year to 29 water agencies for the first time since 2006.

The agency was aided in their decision by 700 inches of snow that has fallen this season in the Sierra Nevada mountains - the 2nd largest amount since 1952.

Flooding is now a concern in some areas below the mountains in the West as the snow melts.

Heavy rain is causing local issues in the Grain Belt as severe weather rolled through much of middle America.

David Miller has our weather wrap.

“There’s a tornado, a huge tornado.”

Severe weather opened up in the lower Plains this week. This large tornado was spotted just south of Oklahoma City in the community of Cole.

Damage was visible from the air Wednesday night. At least three people were killed in the storm. Severe weather spread from Oklahoma through Kansas and into Iowa.

Rainfall was prominent along that same midwestern line of weather. Ponding at the field’s edge will delay work for several days.

Much of Iowa, eastern Nebraska, Minnesota and Wisconsin had rainfall in the 1-inch range with some isolated areas receiving more than 3 inches in total. The Delta states also saw wide-spread rainfall. 

According to USDA, corn planting was ahead of the 5-year average but storms over the weekend, and again mid-week, slowed progress.

Heavy and persistent melting of record snowfall is causing the most concern across the country.

The dots in purple represent major flooding - mostly in Minnesota and North Dakota. Red dots are for moderate flooding in the same region which extends along the Mississippi River.

Here in Stillwater, Minnesota the St. Croix River is well out of its banks in some locations and pumps are working to send water over a temporary levee that is protecting much of the downtown.

For the ninth consecutive week, the Drought Monitor revealed conditions were improving. Currently, a little more than half of the country is out of drought.

For Market to Market, I’m David Miller.

The Iowa Agriculture Water Alliance will be hosting four field days in May for elected officials, chamber of commerce members and the media.

The goal is to highlight water conservation practices and the Iowa Nutrient Reduction Strategy.

The issue of water quality is a sensitive topic in Iowa as all parties seek to find a balance between agriculture, commerce and end users.

Josh Buettner looks at the challenge for Iowa’s farmers and utilities in this week’s Cover Story.

Iowa is a national leader in several farm commodities, but collateral damage, in the form of runoff impaired waterways, has spurred past legal actions designed to thwart pollution linked to agriculture.

While ultimately dismissed, those moves have helped cultivate farm conservation awareness.

Ted Corrigan/CEO & General Manager – Des Moines Water Works: “Because our lawsuit went away, the Raccoon River did not clean up.  The Des Moines River did not clean up.  There’s still nutrient contamination that still needs to be addressed, and we want to have those conversations.”

Ted Corrigan is current CEO and general manager of Des Moines Water Works, which sued farm drainage districts upstream in 2015 over excess nitrates the utility must remove in order to deliver federally compliant clean drinking water.

Ted Corrigan/CEO & General Manager – Des Moines Water Works: “We’re never going to be off the river.  We are always going to need direct surface water at Des Moines Water Works, and so we are always going to fight for water quality.”

Critics charge excess fertilizers and manure, applied year-over-year at similar rates, can build up during drought and flush out of fields with ever-wetter spring rains.

Chris Jones/Iowa Institute of Hydraulic Research/University of Iowa: “This is a nitrate sensor.”

The University of Iowa maintains a statewide network of roughly 70 streambank monitoring sites. The real-time data helps chart progress toward the state’s water quality objectives.

Iowa adopted the Nutrient Reduction Strategy in 2013, a voluntary, open-ended approach to drop nitrogen and phosphorous loads by 45 percent.  The program’s own assessments found over 90 percent of the state’s nutrient flows were generated through agriculture.

Scientists have long tied farm pollutants in the Mississippi River watershed, where Iowa is grounded, to the Gulf of Mexico’s seasonal low-hypoxic zone.

Chris Jones/Iowa Institute of Hydraulic Research/University of Iowa: “As I always say, if you’re going to have a voluntary strategy, you need to have volunteers.”

Chris Jones is an outspoken research engineer and author of “The Swine Republic”, which rebukes what he describes as agriculture’s status quo in Iowa.  Jones says water quality challenges in the state are driven by agribusiness influence, vested political interests, and a combination of ubiquitous, highly efficient farm drainage tiling with relatively low conservation uptake.

Chris Jones/Iowa Institute of Hydraulic Research/University of Iowa: “There’s no magic bullet.  We have a problem of scale.  We’re trying to farm every piece of farmable land, pretty much, in the state.  We’re trying to raise 25 million hogs at any one time and however many cattle, and 80 million laying chickens.”

Researchers estimate some tens of billions of dollars could be required annually to adequately tackle the problem of flooding and water quality in Iowa’s watersheds.  Jones says that makes private landowner investment essential – but it remains elusive.

Chris Jones/Iowa Institute of Hydraulic Research/University of Iowa: “Can we ever get the water quality we want, at the scale at which we are doing things?  Right now, I would say no, we cannot.”

As needed, Des Moines Water Works employs their mammoth, but aging nitrate removal facility, which costs around $10,000 per day to operate.  Officials say it was fired up for 24 days last spring due to record rains, but dry weather had kept it offline for 5 years prior.  Water Works plans to continue proactively drilling riverside wells to mitigate future nutrient surges.

Event MC: “…so incredibly grateful that everybody is here today.”

Last year, the utility announced a groundbreaking partnership with Heartland Cooperative, along with state, county and city authorities to purchase a cover crop seeder, and encourage more conservation efforts.

Ted Corrigan/CEO & General Manager – Des Moines Water Works: “We see this single cover crop seeder as the beginning of a whole fleet of these across the state.”

Corrigan says 2022 saw over 7000 acres of cover crops planted across ten counties in Water Works’ watersheds, and state authorities seem interested and supportive.

Sec. Mike Naig/Iowa Secretary of Agriculture and Land Stewardship: “We believe that that’s the right way to approach these issues, is science-based practices, and working in partnership.  And flat out, if you want to see improvement in the water, well then you’ve got to see change on the landscape.”

Water advocates would like to see more action and funding from the statehouse.  Over a decade ago, Iowa voters approved a water quality amendment, dependent on tax revenue, which has gone unfulfilled.  Some legislators have claimed strides toward funding clean water initiatives, and a specifically designed tax package was introduced this year in the state senate.

State Sen. Pam Jochum/D – Dubuque: “If we actually are going to make this in addition to current funding, rather than replace current funding, it probably would have some legs and some strong support.”

State Sen. Dan Dawson/R – Council Bluffs: “Every one of those categories will actually receive more money, from what currently is being funded now if this was to be implemented.  Maybe not as proposed, back then, but more money is still more money in the end.”

Observers expect larger conservation efforts to languish, citing an ultimate lack of will to raise taxes this session.

For Jones, strategies he says lack accountability are still not enough to move the needle – as rural influence can drown out urban concerns on this topic.

Chris Jones/Iowa Institute of Hydraulic Research/University of Iowa: “We really need to look at some common-sense things.  We farm right up to the stream banks all over Iowa.  Why do we do that?  We need rules about what can be farmed, what the inputs should be, and the amounts of inputs – if we want water quality.  If that’s our priority, we have to be able to talk about things like that.

For Market to Market, I’m Josh Buettner.

Next, the Market to Market report.

The uncertainty of a Black Sea grain deal left traders without answers. For the week, the nearby wheat contract lost 21 cents, while the May corn contract shed 3 cents. The strength of soy products helped keep support under the soy complex. The May soybean contract fell 17 cents, while the May meal contract subtracted $14 per ton. May cotton retreated $4.45 per hundredweight. Over in the dairy parlor May Class three milk futures dropped 35 cents. The livestock market was mixed as June cattle put on 80 cents. May feeders added $4.50. And the June lean hog contract shed 80 cents. In the currency markets, the US dollar index gained 28 ticks. May crude oil lost $4.63 per barrel. COMEX gold fell $30.10 per ounce. And the Goldman Sachs Commodity Index fell just over 18 points to settle at 576.50.

Yeager: Joining us now, our friend Shawn Hackett. Hey, Shawn.

Hackett: Hey, Paul. How are you? I was hoping to bring the warm weather and I did the opposite. I'm so sorry.

Yeager: We book you in January to make you remember how cold things are and here you come back and it's cold and miserable and wet. They need it to be more wet in wheat country. Some answers happened. Oklahoma still really dry. I have like five questions about wheat this week from viewers and many of them are all saying the same thing, it's terrible weather, we're not getting any of the spring in the field. Why is wheat falling like it is?

Hackett: I think you have to remember that the U.S. does not set the wheat price anymore. Russia sets the wheat price. And they have had 105 million metric ton crop that they have been unloading to China, unloading to the Middle East, to Turkey and keeping, undercutting the global price and a lot of Ukraine wheat that has not been able to get out of the ports has found its way into Europe and backing up. There's no way that the U.S. price can take off while the international price is staying depressed. Now, once that pressure comes off the U.S. price can then kind of feed into that and start generating better potential. But for right now we are stuck to the international price.

Yeager: And we had a lot of will they, won't they reach a deal with this Black Sea region. Is that really truly the big factor now?

Hackett: I don't really think it is. Russia is selling plenty of wheat on their own, we don't need Ukraine in or out. But remember, their next crop that they're about to harvest is 85ish million metric tons down from 105. They will not have the ability to sell wheat this aggressively in the next crop cycle. So, I think we're at max supply right now.

Yeager: Make me a little advice on what do I do for the next three to six months with that bit of intel?

Hackett: Well, it's saying to me that we're trading max supply coming out of Russia, which means we should be forming or carving a low here over the next 30 days from which a rally can then feed into the idea that 35-year lows in stocks to usage in exporter hands is what we'll have to trade later on in the season.

Yeager: Corn had poor export sales. We also have the Black Sea issue hanging over that. Is that accurate?

Hackett: I don't really think that the Black Sea is that important to corn. They're not really that big of a player. I think what's more important to corn is the fact that the safrinha corn crop in Brazil looks really good. We're getting some good moisture, getting that timely moisture and so if that crop is going to turn out to be a big one it's going to be another thing keeping the corn market from getting excited at a time that feed demand is under some pressure internationally.

Yeager: Old crop, do you hold any right now still?

Hackett: You know, if you want to have speculative bushels in the bin for what could happen that's fine. We're not a big believer in that. We think that those bushels should be going away or should have gone away long ago when the prices were good.

Yeager: New crop, you saw some customers this week in your time in Iowa. They were a little like uh, like many others, should I have planted? What is an unstable inconsistent planting season doing for us in corn on new crop?

Hackett: Well, I think overall, I think when it's all said and done we're going to lose some corn acres, not a lot, but some. We played the prevent plant game back in 2019 and what's this and it's always a guessing game. But for the most part I think planting is overall going to go okay. This cold snap and some rain that we've seen is not going to be long lasting. I think May we're going to get ourselves cranking again. So, as long as we do I don't think planting is going to be an issue that drives the corn market higher from here.

Yeager: How bullish are you on new crop? Give me a little -- do you have any support for a bullish view?

Hackett: Our long-term weather work, which is our specialty, suggests that we have a very negative PDO, Pacific Decadal Oscillation, surface temperatures lead to a dome in the Midwest. We went back and looked at when did we ever have a strong El Nino, which the models are supporting, and a negative PDO like this? Two years and both those years were very, very dry in the Central and Eastern Grain Belt. So, we're believing that we're going to have significant drought worries to re-excite that corn market as we get into June and July. So, we'd be looking, if I'm a livestock producer I'm looking for a buying opportunity for feed going into May.

Yeager: Okay. Bean wise, planting not an issue. Let's start with old crop. This is one that the products were helping, we've seen some crude oil strength, but meal fell off this week. Where -- we look stuck in the middle. Are we?

Hackett: We are stuck until June comes out and the EPA makes their final decision on what renewable diesel is going to look like. That preliminary report said no growth or very little growth over the next three years, which really took the bean oil market off and it has not rebounded since because remember, if we're going to crush a bunch of beans to make oil that means too much meal. If we're not, that means not enough meal. So, a lot is on what the EPA really comes up with. In the meantime, I just don't see how the soybean market is going to be able to get itself off the tarmac until we get that answer. Now, if they surprise and they say renewable diesel mandates are going to be stronger, we could get quite a rebound rally on a sell the rumor, buy the news. But, that's really going to determine what the demand is later in the year.

Yeager: So, on new crop then with what you're talking about, that's kind of stuck in the middle of those two and the speculation comes out in the summer about a crop. What do you see of a range? $12.85 is what we finished on here with November beans Friday.

Hackett: To me it looks like we have another rung down in soybeans. I'm thinking $12.25ish, low $12 on the new crop. I think that is where we would adequately address all of these risks until we get answers on the planting season and then an answer on the EPA. But I think that's where we're heading right now.

Yeager: Speaking of an answer, I have a question for you that came in via social media and we appreciate everybody who asked. We're going to go with Matt in Iowa who asked us on Facebook, he says, will the slow planting pace in the Dakotas and Minnesota lead to a rally in the grains? I saved this for the end of grains. Impacting any of the three we've talked about, Shawn?

Hackett: If you remember what happened in 2019 we had the hellacious rains that would never end and we didn't get the market to rally until early June. So, I don't see that being any kind of an issue that is going to make the grain markets rally over the next 30 days. Now, if we get into late May and June and we get some issues maybe that could impact the market. But for the most part it's really going to be a spring wheat market issue than corn. I don't think that's going to do anything for corn.

Yeager: Quickly on cotton. Tough week.

Hackett: Tough week. Economy still looks really, really bad. We got some negative numbers. The Fed is coming out with their meeting. Rains coming into Texas that haven't seen a drop for a long time. The market just caved in and said, we're just not ready to do anything yet. And so that is just going to be an ongoing problem until or if we start worrying about weather.

Yeager: How about live cattle? Do you have any worries there?

Hackett: Lots of worries actually. We have marginally broke above the all-time high in the August contract. Usually when you do that you either spring forward or you fail to spring forward. We have just closed above and have stalled. The longer we stall the more likely we are to cave back in. We have speculators really, really long the market and today's cattle on feed report for the first time actually looked more on the bearish side than I've seen in quite some time with the placements considerably higher than the market was expecting. I'm very, very worried about a near-term break. And this impenetrable demand for beef I don't think is going to last.

Yeager: You don't think the demand is going to last?

Hackett: No.

Yeager: So, that's one set of that equation. And are you saying that because the consumer is going to pull back because of economics?

Hackett: Yeah, we've seen the dairy demand really fall off the cliff. We've seen the pork cutout just collapse. And we've seen others that we are seeing pull back. And as much as beef is revered as it is for me, there is a point whether it's 300 cutout or not, there's a point where we are going to see that demand pull back and I think it's sooner than later.

Yeager: In the live cattle situation, all this discussion about drought, expanding herds, people may be holding back. What do you see for feeders here?

Hackett: We are almost testing $240 level or $240 level on the August contract, which set the high in 2014. Once again, similar to the fats, I just think that's an area that the market is going to pull back on, especially if drought comes back into the equation as our weather is strongly suggesting at this point.

Yeager: Hog market has been tough. Is there any light at the end of the tunnel for a hog producer right now?

Hackett: There's a huge light at the end of the tunnel. We're still in the darkness from ASF in China. That is a big problem, round three of this, massive over supply in the near-term just pressing the prices down. But on the other side of this, we've been through this before, there will be very little supply later in the year. So, I think it's a good cop, bad cop market. But, we really, if we look at the December contract at 75, 76, cents, we think that's a great value in the marketplace if you're a physical buyer.

Yeager: Okay, so I'm sorry, did you give me a time table on when we get out of this tunnel?

Hackett: If we look at the last two times we've been through this I would say mid-summer onward is when China says, okay, it's time to rebuild the herd, we need supply for the end of the year, we need to get those supplies in from the U.S. and others, we're going to start buying aggressively for those deferred months.

Yeager: Okay. Let's go along with this, if China says that, what other market benefits besides hogs?

Hackett: Meat proteins in general are going to catch a bit whether it's beef protein, whether it's chicken, whether it's fish. Feed demand, remember that when you make all these piglets you need dry whey in the dairy parlor, we need more corn feed. So, a lot of things get very exciting later in the year because right now they don't need the corn feed because the hog herd has just been crushed by 10% to 15% and they're holding back. But I'm pretty excited about that story later on in the year.

Yeager: I'm excited to talk to you in Market Plus. Thank you, Shawn.

Hackett: Thank you, Paul.

Yeager: That will do it for now. We're going to pause the analysis and continue our discussion about these markets in our Market Plus segment. You can find both analysis and Plus on our website of MarkettoMarket.org. These resources are free. We make it easy to never miss any of our offerings when field work season hits. We have three podcasts to keep you informed of the markets and the stories around agriculture with our MtoM podcast. Follow today to stay up to date. Next week, we look at how spring planting progress is shaping up with a report from the field. Thank you so much for watching. Have a great week.

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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.

(music)

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.

(music)