Market to Market - May 26, 2023

Coming up on Market to Market - Water is at the center of two big stories this week - one on what is a body of water and the other on the usage of the precious resource in the West. Also, a partnership aimed at shortening up the grain chain. And market analysis with Sean O’Leary, next.

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.

(music)

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)

This is the Friday, May 26 edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

Congress is planning on spending the holiday weekend acting like that student cramming at the end of the semester trying to make up for lost time as the debt limit looms on the economic horizon.

That’s in the right now as the look back reports trickled in at month’s end.

The government’s preferred inflation gauge, the PCE, added 0.4 percent for the month - up from the previous reading of 0.1 percent.

The core mark was at that same 0.4 percent when food and energy were stripped out of the report.

The Personal Consumption Index was up 4.4 percent for the year-over-year reading.

The new home sale market added a second month of growth as buyers looked to this market over the existing one as owners are holding on to many sub-5 percent interest rates instead of the elevated borrowing costs currently in place.

Water.

A simple word and need.

The inorganic compound prompts complex reactions to how we use and, in the U.S.,, regulate it.

The Supreme Court returned a ruling late this week that rolled back many of the EPA’s attempts to regulate through the Waters of the U.S. rule. 

Peter Tubbs reports.

The Supreme Court on Thursday pulled the authority of the Environmental Protection Agency’s authority to enforce the Clean Water Act a bit downstream.

In a 5-4 vote the Court held that the Clean Water Act covers only wetlands “with a continuous surface connection” to those waters, and that the Agency is not allowed to police discharges into some wetlands, even if they are close to other bodies of water.

The ruling is another chapter in the contentious debate over the exact definition of what types of wetlands fall under the jurisdiction of the Clean Water Act.

The case revolved around the building of a home in Idaho on a wetland the EPA believed fell under its jurisdiction. Lower courts had upheld the EPA’s enforcement using the “significant nexus tests” included in a 2006 Supreme Court case.

The agency’s use of the significant nexus test has been at the heart of industry and agriculture opposition to the EPA’s application of the Waters of the United States, or WOTUS, policies. The EPA and the U.S. Army Corps of Engineers have generally determined waters are under their jurisdiction if there is a physical connection to larger navigable bodies of water. Those policies will have to be restrained in the future.

For Market to Market, I’m Peter Tubbs.

Water is vital to any crop. Pick one between alfalfa to melons and each needs some moisture to get from seed to fruit/harvest.

Rights and allotments for water in the West are hard to manage when the source keeps dwindling through drought and usage.

This week, three states agreed their action is better than the government’s.

David Miller explains.

A major water supply in the West could last longer following a tentative agreement to reduce usage over the next three years.

Arizona, California and Nevada are vowing to cut back their use of the Colorado River in exchange for $1.2 billion dollars from the federal government.

Felicia Marcus, Stanford University water researcher: "It is clearly a critically important stopgap as we're dealing with a near Armageddon state of affairs. But it is just a stopgap for the next few years in order to buy us the time for there to be a more thoughtful reassessment of the whole way we manage the river."

The cuts are not permanent and half of the reductions would happen by the end of 2024. Negotiations have been on-going for more than a year and, if ratified, the new policy would conserve 3 million acre-feet of water - 40 percent of the annual amount allotted to those states - through 2026 when current guidelines expire.

Bret Birdsong, law professor, University of Nevada, Las Vegas: "I think that everyone is going to feel these cuts. What I can't speak to is the allocation of those cuts. But I can say that agriculture is the biggest user and probably will bear, gallon per gallon, the biggest cuts."

The Colorado provides water to roughly 40 million people in seven states, parts of Mexico and at least two dozen Native American reservations. Much of the water is used for agriculture and hydroelectric power.

Felicia Marcus, Stanford University water researcher: "The Colorado River has been in a state of near continuous drought for the last 23 years with the two major reservoirs, the two largest in the country, being near what's known as deadpool, where you can't get any more water out. And before that you can't get any hydropower generation."

Above average snowfall this winter provided some space for negotiation.  Even if the states agree on a new policy, the deal will need final approval from the U.S. Bureau of Reclamation.

For Market to Market, I’m David Miller.

A trade subcommittee of the House Ways and Means committee held a hearing this week on trying to secure U.S. supply chains.

The pandemic of 2020 heightened the understanding of how and where our food comes from.

Some suppliers and users are working in real-time to stay ahead of the curve in shortening the distance from gate to plate and cornering a market advantage in geography.

Peter Tubbs reports in our Cover Story.

Twenty-five-pound bags of all-purpose flour are being filled at Farmer Ground Flour in Trumansburg, New York. Each bag marks the halfway point of the journey for grain grown in New York State to the plate of consumers in the Northeastern United States. The circuit for this grain from field to table could be as short as 15 miles, which is exactly as the owners intended.

Thor Oechsner, Farmer Ground Flour: “My grandfather was a German immigrant. He was a baker. And when I was a kid, I used to run around in the bake shop covered in flour - And when it dawns on me that his main gig was flour, I thought, oh my gosh, I should try and look at producing flour from the grain that I grow on this farm and in that way I can increase the value of it. So, value added.”

The first challenge in Thor Oeschsner’s flour project was discovering that grinding flour isn’t a hobby to be done as a home business. Flour is a food product that’s regulated by the State of New York. Milling flour requires a facility. A facility requires scale. That scale has come slowly.

Greg Russo, Farmer Ground Flour: “So originally I thought I was going to be an organic farmer, got sucked into flour, milling, and I'm happy I did. I really like it. I still get to work with farmers a lot, have an understanding of agriculture and all that stuff.”

Greg Russo met Oechsner as a student at Cornell University in nearby Ithaca, New York. As both men discovered the demands of flour milling, Russo took charge of the mill full time. The early grinds were performed by manually pouring grain from a bucket into the mill. Demand has driven multiple expansions and the adding of staff. The mill now runs 14 hours a day seven days a week producing over a dozen different products. But working with grain from New York State has its own set of challenges.

Thor Oechsner, Farmer Ground Flour: “95 percent of the Bakers said this ‘you cannot grow food grade wheat in New York. It's going to be crap. We can't grow good bread, flour, here. You guys are nuts. This is never going to work.’ And, you know, we were so stupid that we did it anyway.”

Two hundred years ago, Rochester, New York ground more flour than any other city in the world. Flour milling soon migrated to the western Plains, which is better suited for wheat. 

Greg Russo, Farmer Ground Flour:” Any Miller will tell you there's a big difference between hard wheat grown on the Western Plains and hard wheat grown on the East Coast. So, but upstate New York does happen to be a pretty favorable little pocket for growing bread wheat. So that's sort of central to our identity and mission statement sourced locally.”

Their flour finds its way into commercial bakeries throughout the Northeast, forming the base of a broad range of breads and pastas. Another part of the mission of Farmer Ground Flour was to provide flour to Wide Awake Bakery three miles away.

Steffan Sanders, Wide Awake Bakery: “It turns out that stone milling or milling is an extraordinarily complicated business and to make a really nicely performing flour takes a lot of expertise that is really not taught anywhere. I mean, I know that there are places to learn milling, but again, this is all large-scale industrial roller milling. There simply isn't the knowledge base for stone milling. It's died out. That is gone.”

A dinner with Russo and Oechsner convinced Sanders to open a bakery. The farmer and the miller now had a baker as a partner.

Steffan Sanders, Wide Awake Bakery: “I thought he was crazy, but two bottles of wine makes crazy look better. And so, it started to look pretty good. So that was kind of the instigation.”

The community around Ithaca is key to the partnership’s success. Many households in the region buy locally produced food or participate in a CSA during the growing season, so the addition of a bakery with locally grown and ground flour was an easy sell.

The niche where Wide Awake Bakery sits is focused on a high-quality product that can’t be produced on an industrial scale.

Steffan Sanders, Wide Awake Bakery: “It's a craft work, which is very satisfying to some people. It's not for everybody; it takes a tremendous amount of dedication. It's a very long road to learn how to make great bread. You know, any, any fool can make good bread. But to make great bread is actually extremely challenging.”

The partnership between grower, miller and baker provides the opportunity for feedback to each part of the process.

Thor Oechsner, Farmer Ground Flour: “It was this giant feedback loop where we were making flour. I was growing wheat, and we were getting back information from the end user the baker, and they were telling us what we needed to do and us making the mistakes, doing the experiments, getting some victories slowly over the years, all these different little tricks that we learned over time has slowly improved our flour to the point where you know, people really think it's good flour.”

The techniques of organic production limit the amount of grain available each year, but also provide the opportunity for more farmers to market their grain through Farmer Ground Flour.

Greg Russo, Farmer Ground Flour: “And a lot of the farms we work with are at the about a thousand-acre scale. But since they're organic, they have all these crop rotations and you can't plant your whole farm to wheat. Right. So, of any of these farmers, we're only buying a fraction of their total acreage, their total crops, which is why we you know, grow from or pull from seven or eight farms.”

Farmer Ground Flour sources grain from farmers over a 150-mile range of Upstate New York to reduce its weather risk each year. Rainfall can vary enough across the region to limit the number of acres that meet the specifications for high quality bread production in any one year. Grain that can’t be made into bread is often sold to distillers or breweries, which have different grain requirements.

Thor Oechsner, Farmer Ground Flour: “It's been really rewarding to be able to work with these farmers and a sort of teach them about growing food grade grain. But we were also able to because we've created our own market, we set our own prices. I'm able to supply our market to these farms at a way higher price than they're going to get anywhere else.

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

An approaching three-day weekend and end of month activities provided for irregular grain market movement. Also, a drier forecast in the Corn Belt and rain in the Southern Plains were the big influences on traders. For the week, the nearby wheat contract added 11 cents, while the July corn contract improved 50 cents or nearly 9 percent. The soy complex almost exited ‘beans in the teens’ territory for the first time in a year as drier conditions have yet to garner attention from market bulls. The July soybean contract gained 30 cents, while the July meal contract shed $6.90 per ton. July cotton shrank $3.37 per hundredweight. Over in the dairy parlor June Class three milk futures dropped 31 cents. The livestock market was mixed. June cattle improved $1.62. August feeders put on $2.63. And the June lean hog contract fell by $6.95 or 8 percent. In the currency markets, the US dollar index was up 107 ticks. July crude oil increased by 99 cents per barrel. COMEX gold cut $32.60 per ounce. And the Goldman Sachs Commodity Index gained almost 2 points to settle at 545.85.

Yeager: Joining us now is Market Analyst Sean O'Leary. Good to see you, Sean.

O'Leary: Good to see you, Paul. Thanks for having me back.

Yeager: This wheat market, we have people who are like it's raining, too little too late to save a crop. But as many times as the people have sat in your chair I have asked them why is the U.S. not moving the market, the U.S. is still not moving the market. This is still a global story, right?

O'Leary: Right, right. And I think it's the case where the U.S. doesn't really set the price. It has grown so many places overseas. Russia it sounds like is going to have a big crop. I think European weather is a little more normalized you might say. And it just remains kind of a sluggish market. The KC market has held up a lot better than the Chicago market. But it's just having a hard time moving higher.

Yeager: So, what are we going to do here if we are a producer in the United States who has a crop that may or may not be there? How does one protect themselves right now?

O'Leary: I would be inclined to instruct producers to maybe initiate some short call premium if the market stays range bound. That is a small reward, it's a small amount of protection, but you can cover that short position with further out of the money long call premium. So, if we do have kind of an upside price breakout you're covered there. That is a protection I would call somewhat passive because it's kind of limited protection. But it's sometimes better than sitting on your hands and not getting the price when all is said and done.

Yeager: Well, we have a couple of questions about that in a minute about not sitting on your hands or sitting on your hands. But, I need to mention this corn market first and it's our viewer submitted question of the week and it came via Twitter from Supply and Command. This is the question that we have here. How are people still bullish, Sean? Ethanol is down. Exports for beans and corn are down. We're importing wheat. When you look at the corn side of this, does the market reaction of the week dictate a bullish outlook on corn?

O'Leary: Well, we've lost a fair amount of value here recently and I think those are all things you could point to and you have to wonder when are those stories kind of baked in? We've just gotten to the point where we're talking about some hot and dry weather. It's primarily I think the concern is within the state of Iowa, Northern Illinois, so it's not overly widespread right now. If you look at the price I would say it's a little bit disappointing, in my opinion.

Yeager: That it should be what, higher or lower?

O'Leary: That it has not made more, a greater gain on that news. But we're at the end of May so it's plenty early as well.

Yeager: We've also in July and December we have moved above that 20-day moving average. What is the technical signal telling you and what I should be watching at home as a producer?

O'Leary: If you look at the relative strength index, a momentum indicator that I watch a lot, it actually showed signs of divergence, which on a move lower is bullish. And the December contract had a little bit of follow through. It has had a good week basically. The beans are just starting to show a little bit of divergence on that indicator so that is potentially bullish. I would say to anyone if you look at the price I kind of see it compared to just eight weeks ago as a good buying opportunity in those markets. It can be sometimes hard to find someone that is bullish, that is the contrarian in a person might lead you to be a little friendly just based on that. And it's the time of year, it's way too early to get comfortable on weather.

Yeager: Well, we have this long holiday weekend. We're not opening the overnight trade until Monday night. Are you nervous?

O'Leary: A three-day weekend always makes you nervous. I get nervous all-day Saturday and Sunday much less having Monday off. But there's ways to approach any of these markets where you can have a comfort level going into a regular weekend much less a three-day weekend. You can establish option trades that aren't as heavy or as fast as futures but still afford you some exposure.

Yeager: Let's get to beans specifically here. We have seen the meal be an issue, which headed the opposite direction. We also had Tom Skilling, the old Tom Skilling at WGN, say flash drought. At what point does the bean market respond to words like that?

O'Leary: I would think that would come to play pretty soon here. I saw a comment just today where they're trying to kind of balance the story of that. And kind of the counterpoint to it was we're going to get a lot of things planted in a timely fashion or sooner. We've also had years where that appeared to be kind of a bearish story because everything got done in a timely fashion, got off to a good start and then it turned out that early planted corn, for example, was the first to dry up. So, it's kind of a coin toss right now honestly.

Yeager: That November contract that we have on the screen right now, $11.89 and a half. How much lower does this move have in it?

O'Leary: Well, I mentioned that momentum indicator, that is a minor signal. I would say we really haven't shown any sign of a bottom yet. But I would say that over the course of, I think if you go back to mid-February or so the bean markets lost a $1.80 or $2 worth of value. That's a fair amount to knock off the price, pretty good percentage wise. So, I don't know how aggressive I'd be on the short side of the market right now. If you're a producer and want to take some protection, maybe you've still got some old crop sales to make, maybe you want to enter into some new crop sales, you can always turn around and take reownership if not with straight futures, establish some option positions including that short option premium. I think producers and end users would do well to treat their assets like insurance companies do, instead of paying for a premium, put yourself in a position to receive the premium from another customer.

Yeager: Let's move into livestock, let's get to live cattle. We had this $166 kind of looking like a top. Do you agree with that?

O'Leary: I would say --

Yeager: Considering at $167, I need to correct myself.

O'Leary: Okay, yeah, well most of those contracts just made new highs yesterday and today. The only thing bearish technically you could say is that they finished off the highs today. Big deal.

Yeager: We've had to say that a lot in this market lately.

O'Leary: Yeah, for a couple of years now, yeah. But I would say if I was a cattle producer and looking back over the past couple of years and trying to look forward to the next couple of years, if you have been fortunate enough to not really take protection and have to pay for it, losing some of that price because you protected it, I think the longer that goes on the better the odds that it's going to be good idea to do so.

Yeager: We have a question we'll get to in Market Plus but I do need to get to hogs quickly. There's quite a spread here. We had a pretty rough week in hogs. Why?

O'Leary: Yeah, just the inability for producers and the packers to move product. It's a competitive price now, it has been competitive with beef, it looks like it's going to continue to be. But it hasn't fallen to a level where it's going to bring some short covering in and really get to the point where you're concerned in any way, shape or form about supply. The supply has been there and the demand just hasn't met it.

Yeager: In the feeder market, do you see here in the last few seconds, same question I guess back with live cattle, is the top in there?

O'Leary: I see really no disconnect between those two markets. Feeders have followed cattle and vice versa and I think that will continue to be the case. If someone can pick one of those two as being kind of a harbinger of things to come it will be a great thing.

Yeager: They're going to be doing something different. All right, Sean, appreciate it. Good to see you. Thank you so much.

O'Leary: You bet. Thank you.

Yeager: All right, that will do it here for our analysis. We're going to put a pause here 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. And if you are one of the thousands already in our YouTube subscription community, you know that little secret we have about the program. Click the Subscribe button at youtube.com/markettomarket so you can join the club. Next week, we look at the work being done to connect the last mile of the digital divide. Thank you so much for watching and have a great week.

(music)

(music)

(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.

(music)

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)