Market to Market - June 9, 2023

Coming up on Market to Market - the Mexico - U.S. GM dispute corn moves to the next level. The pork industry huddles on what’s next after Prop 12. And market analysis with Ted Seifried, next.

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This is the Friday, June 9 edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

If Mark Twain was alive today, he may have said the threat of a recession has been greatly exaggerated.

Or least imminent.

Strong job reports have kept the economy from heading over the cliff.

The new jobs have helped fuel spending which is expected to make for a soft economic landing. The higher interest rates have put pressure on the banking and manufacturing sectors.

New orders for manufactured goods in April have been on the upward slope for four of the last five months, increasing 0.4 percent.

Shipments of manufactured goods have been on the downward slope, decreasing at a similar rate.

The U.S. trade deficit widened by the most in eight years in April as imports rebounded 2 percent and exports declined by 5.3 percent. The trend could put a drag on economic growth.

Agriculture is traditionally one of the biggest contributors to the export side of the ledger for the U.S.

A close trading partner is re-evaluating science that has made genetically modified seed available for commercial use.

Europe and the United Kingdom were the first to ban the import of certain varieties for use in food or feed. Brazil followed the trend as did most of the African continent.

Brazil reversed course and has widely adopted the seeds for their convenience, pest resistance and drought tolerance. Mexico has accepted and planted GM seeds for decades but are looking at a ban that would greatly alter the trade relationship with our number three trading partner.

Peter Tubbs has more.

Mexico intends to defend its policy of limiting imports of GMO corn into the food system, citing health, environmental and cultural concerns.

In late 2020, the Mexican government announced its intention to ban the import of GMO corn. The announcement sparked an ongoing trade dispute between the United States and Mexico, which imports $5 billion worth of American corn each year. Exports of corn to Mexico represented around 5 percent of the 2022 US corn production.

In February of this year, the Mexican government rolled back the ban to limit only white corn, which is used for human consumption, and allow the import of yellow corn, which is primarily used as animal feed.

Current negotiations over the white corn ban have stalled, and the U.S. has formally begun the challenge process under USMCA, the trade agreement that replaced NAFTA in 2020.

The U.S. announced its intention to challenge the ban under the Sanitary and Phytosanitary Measures of USMCA, arguing that Mexico is violating its commitment to ensure measures are “based on relevant scientific principles…” (Article 9.6.6(b)), and an “…approval procedure that requires a risk assessment…” If negotiators do not reach a resolution in 75 days, the dispute can move to a settlement panel.

Given the small volumes of white corn that are imported by Mexico from the United States each year, the impact of the current policy should be low.

While the dispute is over a single product in the vast USMCA trade agreement, U.S. federal trade officials believe upholding the ban on white corn could undermine confidence in the validity of the entire trade package. The potential for a resulting tariff war across the spectrum of traded goods between the United States and Mexico is expected to keep the relationship uncomfortable until the dispute is resolved.

For Market to Market, I'm Peter Tubbs. 

A large portion of pork producers are still reeling from the blow dealt by the Supreme Court ruling over California Proposition 12. The 2018 ballot initiative covering the conditions under which egg-layers, veal calves and hogs are to be raised was approved by 68 percent of voters.

The California Department of Food and Agriculture issued guidelines this week, to help clarify how enforcement will be handled in the Golden State.

On Thursday, I spoke with the president of the National Pork Producers Council who was attending the World Pork Expo in Des Moines, Iowa.

Scott Hays: Since I've been on the board, we've been working on Prop 12. And in the low point, my time on the board was getting that call that, that we were unsuccessful, not just to push back on the activists, but, you know, we've known all along, it's, that's not good for the, for the producers, it's not good for the consumers, and it's not good for the pigs. And so everything that that I'm trying to accomplish in my time, you know, protecting producers, right, you know, to have freedom to operate choice, which gives consumers choice as well, obviously, you know, I've spent my life trying to make life better for the pig, you know, on our farm, we saved the pig does well, we'll do well, and that that goes back several generations. So, all three of those things, went, you know, went the wrong way, with the decision on prop 12.

Paul Yeager: Do you when you look at the ruling from the Supreme Court? Do you take any, I don't know, relief, that what they ruled on wasn't necessarily about agriculture, but it was more maybe a state’s rights issue.

Scott Hays: Yeah, and I'm certainly not a lawyer. But yeah, you know, when they, what they really said is, this is a problem, but it's not our problem. And so, you know, there's a little bit of, yeah, makes me feel a little better, that they agree that this is a problem, and it won't work. Now, we've got to figure out how, how we fix this long term. Because, you know, we can't, we can't let the activists continue to raise the price of food. Ultimately, they don't want us to do what we do, and they're going to keep coming at us. And which is morally wrong. You know, we produce a high quality and low cost product, you know, we can produce cheaper than anybody in the world, because we're blessed with what I call the best garden in the world, you know, and if you raised on the farm, you understand what that means, you know, who had the good gardens and who didn't, you know, when you were a kid, but we are blessed with the best garden in the world, we should have the lowest cost and the highest quality food in the world. And for these folks to come out and just arbitrarily try to raise the cost on that, or try to put barriers up, you know, so that poor people don't have access to that it's just wrong.

Paul Yeager: One of the messages that has happened here before has always been about exports and finding new places to sell your product. China's always out there as they're a really good consumer, and really good buyer. But they're inconsistent.

Scott Hays: Yeah, it's China's a bit of a challenge, because they're in and out of the market. Fortunately, right now, they're in the market, pretty big. The thing that that I like to remind people about exports, exports is about product mix, you know, we consume all the bacon and all the ribs that are produced in this country right here, all the other most of the other products, there's extra. And so, if we can sell that to somebody that enjoys it more than we do, that keeps the price of ribs and bacon lower, you know, for the American consumer, China enjoys parts of the pig that we typically don't in this country, and that's why they're good, good buyer. You know, we appreciate when they are in the market.

Paul Yeager: Different administrations have different views. I seem to remember the old trade rep for NPPC used to say pork was the tip of the spear in that fight. But six years ago, five years ago, where are you at right now politically, in a global stage, to be able to have conversations to get us pork in foreign markets?

Scott Hays: You know, it's, it's been a challenge. You know, the days of free trade agreements are, I hope they're not behind us, but they're certainly more challenging. We spend more time doing maintenance, what I call maintenance on our trade agreements than we do writing new agreements. But we've been fortunate with Katherine Tai, she's done a nice job of keeping pork front and center when she travels around the world, has been very happy working with her. And we do have some opportunities. And we have, we have gained some market share, but I don't think I don't know that we'll write any true free trade agreements. We'd like to we'd like to do that. We'd like to get back into CTPP. We would like to work with the UK and get products in there now. They've moved away from the European Union. But those are long term negotiations.

Paul Yeager: It is a complicated world in agriculture and it is a global world. When you think of when you're Scott Hayes, Monroe County or Miro City, Missouri farmer, do you do get a sense of how big the world is in agriculture, knowing that your product could go anywhere?

Scott Hays: Yeah, it's, it's really eye opening. And it's, it's, it's humbling as well. There's many times in this position, I think, what is a what is a farm boy from Monroe City, Missouri, you know, how did I get at this table? Or how am I sitting in front of these folks, but I want to, you know, I want to represent the 66,000 Pork Producers. Well, all of them. It's, it's not about me, it's about them.

Paul Yeager: You still sound pretty optimistic.

Scott Hays: Yeah, in this business, you have to be an optimist. Maybe sometimes we're maybe we're a little too optimistic, but you just got to get up every morning and go do the job. The lifecycle the pig is long enough that it's hard to make changes. You know, every time the market moves, you just got to get up and do your best every day and, and hope it works out.

Paul Yeager: The full interview with Scott Hayes will be released Tuesday via the MToM podcast.

Next, the Market to Market report.

USDA left most tables unchanged in Friday’s report as weather headlines return to the top of the list of influences on the commodity market. For the week, the nearby wheat contract gained 11 cents, while the July corn contract lost 15 cents. Increased exports and drier conditions helped drive the soy complex higher. The July soybean contract improved 34 cents, while July meal shed 60 cents per ton. July cotton shrank $2.01 per hundredweight. Over in the dairy parlor July Class three milk futures dropped 17 cents. The livestock market was mixed. August cattle declined $1.05. August feeders cut $2.90. And the June lean hog contract moved higher again this time by $4.98. In the currency markets, the US dollar index lost 43 ticks. July crude oil dropped $1.46 per barrel. COMEX gold added $8.10 per ounce. And the Goldman Sachs Commodity Index improved just over 8 points to settle at 550-even.

Yeager: Joining us now is regular market analyst Ted Seifried. Hello, Ted.

Seifried: Hi, Paul.

Yeager: USDA report today. I'm sorry, wake me back up. Right?

Seifried: You know, but that's what it should have been, Paul.

Yeager: Why?

Seifried: Well, because the bigger reports for this month come at the end of the month, planted acreage, quarterly grain stocks. And because of those reports the USDA very usually typically kind of punts on this report because on the demand side of the equation they're going to get a better picture of that when we're looking at quarterly grain stocks. So, the bigger changes in demand could be coming next month. And then on the supply side of the situation we know that they're not going to change acreage because the acreage number is coming at the end of the month and we knew that very, very, very, very likely they would not change yield. Now, there is a specific circumstance where they can change yield on the June report and that is if we're dramatically behind in planting ala 2019. That obviously is not the case. Now, the USDA can take liberties. So, there was some talk that maybe because of the dryness that we had in April and May they would make an exception, but they didn't. And also, if you go back to the last year we had a similar situation, all the way back in 1992, they didn't change yield that year either. So, I was very, very convinced or very sure that they weren't going to be changing production on this report. They did not. And when you don't change production and you only have small demand changes then you have a boring report and it came out pretty much right on top of trade guesses.

Yeager: Boring, we'll just say uneventful. Let's talk wheat. Weather, still a story there? Or is it more the Russia we had a dam break and Ukraine relations are bad again?

Seifried: You know, I'm surprised the dam breaking or getting blown up, I'm surprised that didn't get a little bit more traction in the wheat market. With the funds being as short as they are in wheat it wouldn't take, well you would think it wouldn't take much of a spark to get them to cover at least some of their short positions, we just haven't really seen that. These guys are not phased by pretty much anything. I don't know what that spark would be at this point. As far as weather is concerned, we've seen that, we've seen the weather affected crop, the winter wheat crop conditions improve the last three weeks. So, yeah, now we're really going to get into harvest and as we get into harvest we want to hear yield results because the USDA raised yield for winter wheat today and the crop tour came in with higher than what people were expecting, actually they came in higher than USDA. Usually the Crop Tour is lower than the USDA, which is possibly part of the reason why it made sense that the USDA raised yield in wheat today. Again, a lot of people are really very sure that's not realistic and it's not actually there. But when we harvest and we start putting things across the scale then we will actually know. I wouldn't be surprised if that yield does come back down. But, I mean, I don't know, wheat is wheat, it can surprise.

Yeager: Wheat is wheat, I got that. Let's move to corn. Old crop, those that have some left, has the ship sailed or is this the final descent to the last rally it can have?

Seifried: Old crop corn, it kind of depends on where you're at. There's still a lot of tightness in the West. River bids aren't great. Export demand is not great. I don't really know what is going to get old crop corn to rally back up towards highs if it isn't a weather story and this weekend is going to prove out whether we are going to have a continuing weather story or whether we're going to kind of put this weather story to bed. So, I would think that if you're holding onto old crop corn there's a lot of risk to the downside. It would be very easy to sell that corn. And then if you want to participate to the upside you can buy some fairly inexpensive calls and then that would be your risk. I would much rather just risk 14 or 15 cents than risk another dollar to the downside.

Yeager: We have a question from Phil in Ontario who wants to ask you about some of the weather conditions that are not rain. It's smoky and dry through much of the Eastern Corn Belt but the market seems to continually yawn. Barring the weather getting worse, is it straight downhill or sideways for prices into October? And you can use, you kind of just talked about old crop, but what do you think about new crop in that scenario that Phil is talking about?

Seifried: So, it is a weather market. But I think this weather market is coming to a head right now. Well, it's either going to get worse or this pattern is going to change. Your weather forecasters, a lot of them are expecting this forecast or this weather pattern to change, to get wetter and cooler. And that can do very good things to the crop. I don't think there's been a lot of the yield potential that has been taking off at this point. If we go to that wetter, cooler pattern I still think there's a lot of upside potential for yield. I think there's a lot of upside potential for the crop but a lot of downside potential for prices. Prices have been tracking, December corn prices have been tracking 2012 and 2013. Those two split and go opposite directions in the very near future. Likely we are going to do the same, just a question of which. And we've got rain in the forecast this weekend. If those rains happen it's not going to cover everybody, it's not going to be enough to fix the problems. But if those rains happen, it really gives you a lot of confidence that this weather pattern change is taking place and it gives you a lot of confidence in the longer-term forecast again and I think that might be the end of your weather market, even though that one singular rain isn't going to fix the problem. I understand that.

Yeager: Right, because we had the El Nino advisory issued this week and that might signal that yes, it's over. So, real quickly on corn new crop, have I missed the chance to make a position there or do I just wait this out right now?

Seifried: Tell you what, at the end of the day on Friday, even after a bearish report, you could buy September short-dated $5 puts for around 18.5, 19 cents. I think that is a very wise investment, even if you don't -- if you're not sure that you have the crop to sell, which I think a lot of us are in that position at the moment until we get the rain, okay, there's other ways of taking protection and a $5 line in the sand is a really good deal. It's not as good as it had been, but you can't dwell on the past. You have to understand that historically $5 is still a really good price.

Yeager: Is Tom Skilling casting a shadow over the soybean market too?

Seifried: The soybeans are going to trade weather as well, although they usually trade on a delayed weather. Maybe weather comes back later in the year for soybeans, but soybeans were trading more of, well soybean oil fundamentals this week than anything else and also the soybeans hadn't enjoyed the bounce off of lows that corn had, so we were due for a technical correction there too.

Yeager: What do you see then -- we're still above $13, bounce up -- is there any chance $14?

Seifried: There's chances for anything. There's always chances. I think the chances are unlikely though. You really do need a very aggressive weather problem to get even old crop to go higher because old crop can rally on a weather issue because then we have to bring as many bushels into next year as possible, but at the same time you have global end users worry about getting that supply next year so they'll come in and start buying what's left of the old crop and then we'll have to price ration. But that's really the only thing that I can see is likely a weather problem or something causing a big influx of exports that we're just not getting right now.

Yeager: Let's go to livestock. Last week heck of a story for live cattle. This week a little retreat. Is this the top is in or a pause?

Seifried: You know, on Wednesday we had a very near key reversal on the front month. A lot of people will look at that and say hey, that looks really toppy. In my book, no. Even if it had been a key reversal, I don't look at key reversals as being ultimate tops or ultimate bottoms of a market. I look at them as throwing up red flags that hey, there could be a pattern change coming at some point relatively soon. But I still think there would be new highs. And again, we didn't have a key reversal. But, at one point Wednesday morning we were almost 90% on the relative strength index. That is about as extreme of an overbought condition as you can get. So, we needed a correction. We needed to cool that market off, at least briefly. And, by the way, at the end of the day on Friday you were in the 60s on the relative strength index, a much more healthy level. And you can see cattle go up from there. It's really going to be about the cash market. We still have futures trading at a very large discount to cash. If that cash market stays hot and heavy the futures are going to have to follow to some extent. Boxed beef prices are in fuego all of a sudden. They had been slow getting started but now you've got prices that are rivaling September of 2021, which if you remember at the time, high prices were caused because packers were having a hard time staying open with COVID spreading like wildfire, a much different scenario. But now you have those prices falling, which means the American consumer is willing to pay those prices. Now, we did see demand slump just a little bit, or it was a little disappointing over the Memorial Day holiday weekend. So, maybe that price rationing is starting to take place, which is actually a beneficial thing for the hogs. But, we're not there. And I don't think we're going to see massive price rationing at these price levels unless we have a major economic issue, if we do get into that recession that everybody has been talking about, it hasn't really happened, at least not sector-wide. That's the only thing that I see throwing a wrench into the cattle market in the near-term.

Yeager: All right, let's go to the hog market then. A couple of good weeks here. Does that tell you that the low is in, Ted?

Seifried: Yeah, I feel a lot more comfortable saying that now than a couple of weeks ago. We've been looking for a low in hogs for a while. And the hogs have been, there's a lot of similarities to the wheat market where we can tout bullish fundamentals but the market had kept going lower because the funds had kept piling in on the short side. Finally, we're seeing some short covering. Finally, you're getting a hint that consumers are maybe looking to buy a little bit more pork with the high-priced beef. Again, it's not a dramatic shift, at least not yet, but that has caused some optimism. Also, weights, while they have come up a little bit in recent days, they're still relatively low, meaning marketing is current, we don't have this big upfront glut of supply. So yeah, I think we had gotten rather undervalued. We were due for at least a bounce. But now this looks pretty good. I think the lows are probably in for hogs at this point, again, barring some sort or major macroeconomic thing. There's always the possibility of black swan events and things like that.                 

Yeager: Always the possibility. All right, Ted. I'll get your thoughts, more detailed thoughts on feeders in the Market Plus, so stay tuned. Thanks, Ted. That's Ted Seifried, everybody. We're going to pause this analysis and continue our discussion about these markets in our Market Plus segment. You can find both Analysis, which we just did, and the Plus on our website of MarketToMarket.org. These resources, by the way, they are all 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 markets and the stories around agriculture with our MtoM podcast. Follow today to stay up to date. Next week, we take a look at the legacy left by greyhound racers in the Midwest. 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.

(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)