Market to Market - June 2, 2023

Coming up on Market to Market - A debt deal clears the way for Congress to focus on the next Farm Bill. Changes in labor laws may dampen fire suppression efforts. Completing the last mile in the digital divide. And market analysis with Elaine Kub, next.

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This is the Friday, June 2 edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

The jobs train has left the station again with an above expectations report.

The monthly snapshot revealed more than 339,000 new jobs were added while the Federal Reserve tries to cool the economy with interest rate hikes. Gains were in construction, restaurants and health care.

Unemployment showed a rise of 0.3 of a point to register a 3.7 percent for May. This is the highest rate since October of last year.

The Business Conditions Index survey stayed above growth neutral for a fourth consecutive month, but did decline more than three points from April’s reading. Creighton University surveys manufacturing supply managers across nine midwestern and southern states.

The debt ceiling deal is done… at least until January of 2025.

Congress now will spend much of the summer in recess.

But there is one bill rural and urban Americans are watching closely and hoping for action - the 1 trillion-dollar Farm Bill.

David Miller reports.

The House and Senate have kept a full schedule of hearings for the next Farm Bill which is set to expire this year. 

Tom Sell is co-founder of Combest, Sell and Associates, a Washington D.C. - based lobbying firm specializing in agricultural issues. Sell believes the bipartisan history of the Farm Bill appears to be alive and well.

Tom Sell/Co-Founder Combast, Sell and Associates: “So now with that taken care of in this debt ceiling deal, I'm hopeful that it just creates this wake or a little pathway for the Farm Bill to go through where we're really going to focus on the farm safety net. That's, that's kind of where the leaders on both sides have said they want to, they want to build consensus.”

Sell, says Title One of the Farm Bill provides a reliable safety net and gives some certainty to farmers and taxpayers.

According to Sell, who worked on the 2002 Farm Bill as a House staff member, while spending on nutrition assistance has grown from half to more than 80 percent of the total farm bill price tag, money spent on the safety net is not keeping pace with the growth in SNAP. Sell adds this could cause further challenges in the near future.

Tom Sell: “If we have a weak safety net, we're going to end up having to do ad hoc bills, again, for the next pandemic, or the next trade war with China or the next, you know, kind of massive area of where Mother Nature, you know wreaks havoc. If we have a strong safety net, we can control that spending and take care of it all through the Farm Bill. But if we have a weak Farm Bill, we're going to be back to the ad hoc mix So let's try and build some of that dollars in.”

The 2023 version of the bill may come out of committee sooner rather than later, potentially by late summer.

For Market to Market, I’m David Miller.

Work requirements were a sticking point in the debt ceiling negotiations and would have impacted able bodied working adults in getting SNAP benefits.

Employment is also at the center of a new California labor law set to take full effect on January 1, 2024. The impact of the new measure may undercut the benefits of grazing used to fight forest fires in the West.

Peter Tubbs has the story.

Hundreds of goats chew the vegetation near a housing complex outside of Sacramento, California. The goats have been hired to reduce the wildfire risk in this neighborhood.

Jason Puopolo, Parks Superintendent, City of West Sacramento: "We have our goats grazing some of the tall grasses and weeds that could potentially be fuel for wildfires. So, we're, we're working to graze those and essentially mow those down to reduce the fire risk for the upcoming dry season."

With the demand for housing in California high, homes are being built closer to areas susceptible to wildfires. Targeted grazing is used as goats eat a wide variety of vegetation and can graze on steep, rocky hillsides.

 Tim Arrowsmith, owner of Western Grazers: "And so the demand has grown year after year after year. California is probably the largest state that does goat grazing and or some kind of herbivore fuels abatement."

But new labor regulations are making it more expensive to provide goat- grazing services, and herding companies fear the higher labor costs may put them out of business.

Tim Arrowsmith, owner of Western Grazers:  "So by January 1 of '24, if we cannot fix the current legislation, we will be forced to sell these goats to slaughter and to the auction yards and we'll be forced out of business and probably file for bankruptcy."

An ag labor law signed in 2018 that brought overtime pay to farmworkers will affect H2A workers beginning in 2024. Animal herders are currently paid a flat rate per month, with housing and groceries provided by the employer. But workers are on call 24 hours per day. Their pay could rise from $3,750 per month to over $14,000 with overtime, making the business model unsustainable. In turn, the fire prevention technique could become unaffordable.

Tim Arrowsmith, owner of Western Grazers: "What's at stake for the public is your house could burn up because we can't fire-mitigate, I mean, thousands of structures and fire, millions of acres have burned. Hundreds of millions of dollars has been spent on putting out fires. Very little has been spent on fire prevention."

For Market to Market, I’m Peter Tubbs

The Federal government has a long legacy of subsidizing communications in rural and difficult to serve areas of the country. The Communications Act of 1934 created a support system for telephone companies in rural areas, helping to build copper wire infrastructure for hardline phone service, and keeping the monthly bill affordable.

Those dollars are still being allocated and have helped build fiber optic networks across the country over the last 30 years.

Peter Tubbs reports on the progress in South Dakota for our Cover Story.

A contractor is plowing fiber optics into the ground in Covington County, South Dakota. This branch line will serve only two customers who, until now, have been unable to receive consistent broadband due to their distance from the nearest town.

Half of the project's costs are being funded by Connect South Dakota, an initiative of the State of South Dakota to connect the 31,000 households and businesses that have been the hardest to connect to existing broadband systems. By bundling both State and Federal dollars with capital and materials from local broadband providers, the gaps in South Dakota’s broadband map are being filled.

Across the state, rural residents have been able to take advantage of the improved broadband and make a business in an isolated rural area viable.

Emily Mueller, Business Owner: “Yes, I work from home. I have a home office. And so, I need service to always be going to. And it's been great.”

Emily Mueller runs an accounting business from her home office, which wasn’t practical before their residence was connected to fiber optics.

Along with her husband Mark, the Muellers operate Big Stone Pumpkin Patch on a farm near Big Stone City, South Dakota. Access to broadband allows the family to complete customer payments using mobile devices in real time at remote locations across their property.

Mark Mueller, Farmer, Big Stone City South Dakota: “Yeah, we have when we started our pumpkin patch in the fall, we've had no issues with losing our signal. When people are trying to pay, we need to be connected to services so we don't have to be offline and just everything syncing together works a lot better.”

Over $270 million dollars is being spent in South Dakota to go the last mile to make connections with consumers. Just the cost of trenching fiber optic cable into highway right of ways can exceed $15,000 per mile in challenging conditions, and even higher in more rugged geography. The cost of serving rural areas makes projects like this a non-starter for some internet providers that serve South Dakota’s larger cities and towns.

The matching funds using state and federal dollars can make a system expansion economically plausible.  For decades, USDA has provided money to improve broadband service in rural America, however, these projects in South Dakota will be completed with COVID-19 relief funds. Applications from locally owned South Dakota internet providers, which are mostly telephone co-ops, are using the injection of capital to extend service past their FCC defined service areas.

Kara Semmler: “The cooperative mindset is about serving communities and the cooperatives I represent saw the need, saw the opportunity, and like I said, they've delivered.”

The national providers that serve the larger cities of South Dakota rarely deliver service past the city limits, as the return quickly becomes a drag on profitability.

Tracy Bandemer: “And what was attractive to us is areas that adjoin us. So, if they're just right next door, we're interested in that area because there's efficiencies. We actually had already often had people coming to us wanting us to serve them, but it wasn't feasible with the cost of the fiber builds. So yeah, the Connect South Dakota program made a huge difference for these people. They wanted these people served. We wanted to serve them and the customer needed us.”

Interstate Telecommunications Cooperative of Clear Lake, South Dakota completed a 12-year project to replace all of its copper service lines with fiber optics in 2020. The Federal and State monies have allowed the coop to extend service to underserved customers outside their 17-county footprint, which includes three counties in Minnesota.

For practical purposes, dependable broadband is no longer an entertainment frill; it has become a required utility.

Kara Semmler: “Yes, absolutely. I think that is right on. It is a necessity. It's not a luxury. (edit) 00;02;40 So the opportunities, the payback to our citizens and our state is tremendous. Just like rural electric, just like rural water was years ago.”

David Hicks is a contractor who lives in Lake County, South Dakota, who also serves on the Executive Board of the Grant County Development Corporation. Businesses looking for new locations have little interest in sites without broadband.

David Hicks: “It either has it or it doesn't. So, you're you can't really pitch one that doesn't have the Internet service. I mean, that's if you don't have it, you better figure out how to get it or they need to go somewhere else and they don't even consider it anymore.”

Valley Queen Cheese Plant in Milbank, South Dakota is increasing its capacity, which will require workers to move to the area for jobs, and raise demand for milk in the area. Both prospective workers and future milking cows need the internet in their daily lives.

David Hicks “Because we got a lot of big dairies looking at South Dakota right now that want to get to this area.  We have a cheese plant expanding, um, and they are required all that same stuff and good internet. I mean a lot of that stuff is handled online anymore or it's linked. The cows are linked.”

Mark Mueller believes the efficiency of his farming operation has improved with the broadband connection.

Mark Mueller, Farmer, Big Stone City South Dakota: “I've we've tried to implement technology on our farm, adding monitors. We've had a yield monitor for years, and now we're able to sync our iPads and other technology as we just pull up next to our house through our shop to download the information online.”

Broadband providers are averaging 70 percent sign ups along the new broadband lines but encouraging property owners to take advantage of the service can be challenging.

Beyond the financial costs of expanding broadband service, a stable connection to the internet is now viewed by many as an expectation. The Federal government has prioritized daily mail delivery to every address since the founding of the country, and the communications mandate has expanded into both voice and data connections.

Tracy Bandemer “I think back to the days of the telephone, you know, when it was said everybody should be able to have the same service in the United States. And so that's when support was started to be received. I don't see that any different. We're all United States citizens. We should all have the same opportunity to have good broadband support.”

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

A major swing in commodities this week where weather took over as the biggest influence on the markets. For the week, the nearby wheat contract gained 3 cents, while the July corn contract added 15 cents. The nearby contract in the soy complex went below $13 for the first time since December of 2021 but rebounded following a drier forecast in key growing regions. The July soybean contract improved 15 cents, while the July meal contract shed $4.40 per ton. July cotton expanded $2.70 per hundredweight. Over in the dairy parlor July Class III milk futures dropped 45 cents. The livestock market was higher. August cattle improved $5.55. August feeders put on $11.17. And the June lean hog contract skyrocketed higher, that's actually July hogs, they skyrocketed higher by $9.87 or 13 percent. In the currency markets, the U.S. dollar index lost 17 ticks. July crude oil dropped $1.06 per barrel. COMEX gold added $2.60 per ounce. And the Goldman Sachs Commodity Index shed almost 4 points to settle at 541.95.

Yeager: Joining us now is regular market analyst Elaine Kub. Nothing to talk about, Elaine.

Kub: It's a good week to be here I think.

Yeager: Well, it wasn't good if we would have started -- if we would have recorded the show Tuesday -- Tuesday was so bad, wheat, corn, soybeans. Let's start with wheat. Why is that so bad right now?

Kub: Well, everything is bad for wheat. If you're a wheat producer you probably don't have wheat. About a third of the wheat fields in the Southern Plains in the United States, winter wheat fields are going to be abandoned this year. If you're a co-op and you're paying these high prices in an inverted market and you have no cost of carry to collect on this. I mean, it's really nothing very nice to say about wheat. If you're a wheat consumer obviously you're paying $7.90 for wheat. High prices -- drought is not good for anybody basically.

Yeager: Do you see any bounce back up in this market in the near future for wheat?

Kub: Well, no. I think the most interesting thing to say about wheat is, again, to stick with this hard red wheat market in the Southern Plains, which is the most interesting piece right now. The most interesting thing to consider is where are these acres going to go, the acres that have been abandoned? And how will that effect the other markets, the row crop markets, sorghum and corn specifically?

Yeager: Let's move to corn where the weather story became a factor. We had conditions come out for the first time on Tuesday. Oh, it's not as bad, it's worse than 2012 gets some people talking. But then we get these rain showers, but they're not widespread. So, is weather the biggest story and the reason we're testing levels now?

Kub: I don't think so necessarily. I think, particularly on Friday I think the higher trade that we saw in most of these commodity markets, the grain markets and the livestock markets to some degree, is everything was higher. The stock market was higher. There's less fear that the Federal Reserve is going to bump up interest rates again. And so that allowed a lot of just financial trading and a lot of things to move up. I think that's a big piece of corn moving higher, soybean oil moving higher, soybeans moving higher. But weather is some of it because you talked about the rain and it wasn't enough rain in the center of the Corn Belt where things are starting to look dry. And the condition ratings in this first piece are actually, they're fine. It's very early in the season. You can't get too worried about a very young corn field when Iowa is rated 77% good to excellent. We're not that worried about it yet. But you can see why there would be some bullish concern going forward if we don't get rain.

Yeager: So, would you be sold all of your old crop by now?

Kub: Oh, yes, I would be.

Yeager: Where would you be then on your new crop bushels?

Kub: Yeah, I would be concerned about them moving lower too. But let's talk about old crop real quick because yes, I am a risk averse person. I would not still be holding onto it. But I think some people out there still are. And they're basing this on the history of like 2013, 2015, 2016, 2019 when you get these big spikes in the summer in the middle of June or the middle of July, you see a big spike in basis and these very high prices for summer old crop corn. I don't know that that's a great expectation in 2023. Basis values are already so rich and so strong this won't be a surprise to the corn buyers out there. I don't think that we're going to see some July spike because end users are all of a sudden concerned. I think there's much more potential for that to weaken.

Yeager: Okay, so on the new crop there's a story out late Friday right before we taped that the Secretary of Ag asked for a dispute settlement consultation on GM corn with Mexico. This debate has been going on. Does that have any market influence moving down the road?

Kub: I mean, I suspect it will be really hard to tease that out on Monday, assuming that people will react to this on Monday and not forget about it over the weekend. IT will be really hard to tease that out from any other market factor. But you're right, it's not great. It's not a great sign when our biggest corn customer is not giving much certainty to the market at this point.

Yeager: Okay. Soybeans, we had it seemed before the weekend weather wasn't a story. Weather became a story for soybeans. However, China has had a little bit of a maybe resurgence of COVID that might be influencing some parts. What's the biggest weight on that scale right now?

Kub: I think you're right, when you look internationally it's more of a lid on soybeans, even Brazil is very fast shipping pace. We had a boost here on Friday and as I mentioned I think that might have been led by the soybean oil actually. But you're right, when you look internationally towards the trade between Brazil and China and the competition that we would face in that trade to try and pick up a piece of that, that will be keeping a lid on U.S soybean prices I think for the foreseeable future.

Yeager: Then the cattle.

Kub: Yes, the cattle.

Yeager: Big story on Thursday was in the South we opened at $175, quickly spread word to the north that this high rate was coming and the market took off. This thing looks like a rocket on the chart.

Kub: Yes, it does.

Yeager: Is that rocket still going up?

Kub: Well, I mean, as Walt Hackney would say, how much money do you want to make? Yeah, cash cattle went up $8 this week, which I am delighted to be here to say.                   So yeah, you've got live basis trading at $180, the dressed basis trading at $292. The packers just finally had to pay up and it's the same story that we've been talking about for a year now is there's just not the numbers out there and they need to get those animals. And they finally had to pay up for it. Listen, when the choice cutout is kind of dwindling here or sort of plateauing at about $306, that will cut into packer profits. Packer profits you're going to pencil out at a slight negative at this point. But so be it. They are just going to have to share what they can because that's the structure of the market at this point. The feedlots have the power because they are the ones that have the scarce numbers.

Yeager: Talk about the packer, let's talk about the consumer. TD in Nebraska asked us this week on Facebook, does the overly simplistic and perhaps outdated theory that the consumer will switch to cheaper chicken and pork if beef gets too high need to be put to rest based off 2023 year-to-date trends?

Kub: I think that is a really interesting question and I think it would take a lot of in-depth study about the elasticity of the demand for beef because it's sort of a different product than chicken or pork. It is more of a luxury product. I know that people get angry when I say that, but it is. But the other really active piece of that, particularly, is what will happen to pork prices after July 1st in this post-Prop 12 environment. So, if you had pork prices get suddenly very cheap I think then the calculus does sort of change even for the beef consumers who are locked into wanting to grill beef this summer.

Yeager: One more note on cattle before we move to feeders. Anything to do with southern rain issues impacting numbers of herd that we didn't anticipate with flooding in the Panhandles of Texas and Oklahoma reducing what you said already a lower number that was out there?

Kub: I don't know if those death losses are enough to be a market mover. But I do feel strongly that that rain that has come in the Southern Plains over this past week or 10 days and kind of across the western sort of cattle country part of the United States, that has been very helpful for the feeder cattle market more so than for the live cattle market because people are out there looking for those grass calves and this year they finally have some grass to put them on. The pasture and range conditions it's like 43% good to excellent, which doesn't sound like a lot, but it's better than it was and it shows an improvement and it shows some more optimism.

Yeager: Again, maybe not as sharp as a rocket but still moving up pretty high in feeders. You wish you had those feeders back to sell again this week?            

Kub: No, no, I think they did fine. But that is something that you'll note at the sale barns is that there's just not a lot of numbers out there. People want to buy and fill up those feedlots and scarcity is there. You look at the numbers of animals that have been slaughtered, that's down year-over-year, the numbers that are coming through the sale barns are down. Yeah, it's a scarce market, the power is at the owners.

Yeager: You talked about the hog market and Prop 12. Are we getting close? We're under a month now before this is really going to maybe take effect. Is that what this bounce is in this market? Or is that one of the dead cat bounce things?

Kub: Dead pig bounce. Part of it -- we started this week coming back off of last week's lows about $5 and I think that is just sort of a reaction, just a correction to the overreaction of last week. But then you get to Friday and finally the state of California did issue some more clarity about what they will allow retailers to sell. Retailers are, it turns out, going to be able to sell non-compliant pork, which frankly sounds like something out of 1984, non-compliant pork. But they will be able to sell what they have now in storage. So, all of the pork that is sitting in California now that is non-compliant does not have to be abandoned. That glut won't be there. So, that I think really helped on Friday. That explains some of the rest of that boost to that market. But it remains a big question mark of how this really happens for the rest of the market or even for the prices in California once that goes into effect.

Yeager: Do we think it's going to be a regional impact on California, those closest to will benefit on that premium?

Kub: Well, no, because so much of the processing -- basically all of the hog processing in the United States takes place in the Midwest and Iowa is the leader of that. It's so far from California. It's not like there's somebody that I know of right on the state line in Nevada with a pork processing plant, although maybe they'll build one because I suspect that the premiums for California pork will be quite large. And the premiums for the hogs is the interesting piece, the premium, or the discount if you look at it that way. When I looked at this back in 2021 doing some research, if you have a sudden glut of oversupply of hogs that spread between compliant and non-compliance could be $10 to $20 and I think that that's what we're going to see in July.

Yeager: We'll pick it up in a minute. Thanks, Elaine.

Kub: Thanks.

Yeager: That's going to do it here as we put a pause on this analysis, 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 the little secret we have about the program. Click the Subscribe button at youtube.com/MarketToMarket so you can join in that club. Next week, we take the temperature of the pork industry after that Supreme Court ruling. Thank you so much for watching and 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.

(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)