Market to Market - June 23, 2023

Coming up on Market to Market - New rules cut corn specs for the RFS. Looking closer at who owns American farmland. Plus sounding the alarm over the lack of genetic diversity in livestock. And market analysis with Arlan Suderman, 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.

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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.

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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.

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This is the Friday, June 23 edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

The housing market took steps forward to a more normal pace. 

The existing housing market added 0.2 percent in May according to the National Association of Realtors.

The year-over-year mark sank 20.4 percent in the tenth consecutive month of sales.

The national median price of a home fell 3.1 percent to $396,100. Low inventory continues to plague the market.

The EPA finally brought forth the latest version of its specifications for the Renewable Fuel Standard. The industry has long since exceeded the federal production benchmarks.

Peter Tubbs reports on the reaction from rural America.

This week, the EPA issued its final rule for the Renewable Fuel Standard, or RFS, production requirements for 2023-2025.

The announced rule will introduce the highest mandated biofuel level ever, but will also lower corn-based ethanol requirements. That cut directs a drop of 250 million gallons for 2024 and 2025 from the original 2007 proposal, setting volumes at 15 billion gallons for both years.

Officials at the EPA argue the final rule reduces American consumption of foreign oil by up to 140,000 barrels per day over the 24-months outlined in the new rule.

The RFS mandates that transportation fuel contain a minimum amount of renewable fuels derived from biomass in the form of ethanol. Roughly one-third of the US corn crop is converted into ethanol each year.

Biofuel interest groups were disappointed by the new measure.

Geoff Cooper, CEO, Renewable Fuels Association: “... today's final rule flatlines conventional renewable fuels at 15 billion gallons and misses a valuable opportunity to accelerate the energy sector's transition to low- and zero-carbon fuels.”

For Market to Market, I’m Peter Tubbs.

Anecdotal stories about land sales have spread across America.

Microsoft-founder Bill Gates has made land purchases in the U.S. prioritizing land and water conservation.

One Arkansas billionaire is creating joint ventures with local farmers to create agricultural corporations that may be subject to fewer legal and tax restrictions.

The Mormon Church owns at least 22,000 acres of Iowa farmland.

A recent land survey in Iowa looked at sales and the financing behind them as David Miller reports.

High profile investors are making purchases of farm land, but according to the Agricultural Foreign Investment Disclosure Act, only 3 percent of those owners are from outside the United States.

Dr. Wendong Zhang: “If we are looking at primary agricultural Corn Belt regions like Iowa, that we're only talking about less than, a little over 1% owned by, has any ownership rights that is by a foreign buyer, right.  And a lot of those are actually wind farms that has had the leasing rights for the either have bought the easement rights or bought that land for East for wind turbine development, or they have the leasing rights.”

Cornell University professor Dr. Wendong Zhang led a survey conducted by the Center for Agricultural and Rural Development which is housed at Iowa State University.  

According to the recently released research, new land owners from outside the U.S. are buying property not typically used for corn or soybean production.

Dr. Wendong Zhang, Cornell University: And if you're looking at the reported data that the ownership statistics, by the Chinese buyers it is very low, that if you're looking at even the more recent purchases, that China is not even the top 10. So, the dominant buyers, the top buyer is Canada, and the top categories are often forest land or pasture. So, they don't necessarily are in the in the area of Iowa and think that the they're more smoke than then that then value in reading into how the land market is significantly impacted.

Zhang said one Chinese investor purchased more than 100,000 acres in Texas. That purchase doubled the entire Chinese holdings acquired over the last decade.

The Farmland Act, legislation designed to stop foreign ownership of U.S. land, was introduced this week by a bipartisan coalition from the Senate Agriculture Committee. Senators Debbie Stabenow, a Democrat, and Joni Ernst, a Republican, want to amend the Agricultural Foreign Investment Disclosure Act by adding a review of any land purchased or leased over the last three years that has a value of over $5 million or is 320 acres in size. The Act could be part of the next Farm Bill now under construction on Capitol Hill.  

Dr. Wendong Zhang, Cornell University: “But overall, if you're looking into Iowa land value survey that from the ag professionals and from the landowners in general we find that over 70% of the land are bought by local existing farmers and even a 25% of the investors are probably half of the investors are retired farmers. It's not necessarily the foreign buyer that is that is driving the land market.”

For Market to Market, I’m David Miller.

Genetics - it is what separates us from one another.

Agricultural strains have helped hybrids withstand drought or disease.

Some in the livestock industry have worked to find the right combination that makes up the best animal and, in some cases, limiting a lot of diversity in the herd.

However, there are those in the industry who are working to break out of that narrow band to help their herd.

Colleen Bradford Krantz reports in our Cover Story.

This Holstein bull, Neptune H, was the granddaddy of them all. Not literally, but if you include Hulleman, another bull from the 1880s, it’s safe to say these two are the granddaddies of nearly them all.

Pennsylvania State University associate professor Chad Dechow and two colleagues dug into the family trees of North America’s Holstein herd and reported in 2015 that 99.75 percent of modern-day bulls were descended from those two.

Chad Dechow, Dairy Cattle Genetics, Pennsylvania State University: “Everybody kind of had an idea that the lines would consolidate quite a bit but …nobody had really described the extent to which that would be the case so it was a little bit of an eye opener of how much the male lineages contracted….It’s maybe not quite as alarming as it first sounds, but at the same time, there has been a rise in inbreeding… and there are concerns related to that.”

More than a century ago, word-of-mouth would push some Holstein bulls onto the national stage. The advent of artificial insemination, rapidly adopted in the 1960s by the dairy industry, brought even more widespread use of just a few popular bulls.

Hulleman’s son, Pawnee Farm Arlinda Chief, a bull born in 1962, sired 16,000 daughters thanks to artificial insemination. However, a harmful mutation was quietly being passed along with the bull’s many positive traits. USDA and University of California-Davis scientists had, by 2016, pinpointed the mutation and confirmed that, when the mother also passed on the mutation, it caused some unborn calves to die in the womb.

The industry losses from the mutation, now rapidly being weeded out of the national Holstein herd, were an estimated $420 million. That amount is dwarfed by the $30 billion in economic gains associated with the line’s increased milk production. So, the question becomes: does it matter?

Chad Dechow, Dairy Cattle Genetics, Pennsylvania State University: “That’s one of the tricky questions we want to know, you know: at what level is inbreeding problematic? And there’s kind of the running joke of: If it works, it’s line breeding. And if it doesn’t, it’s inbreeding, right?

Andy Snyder, a territory sales manager in eastern Iowa for the genetics company GENEX, says many dairy producers feel they have to focus first on selling enough milk and milk fats to make a living. A few are searching for “outcross” bulls, animals outside mainstream genetic lines.

Andrew Synder, territory sales manager, Genex, Cascade, Iowa: “They are constantly looking for that outside bull but he has to measure up. If you bring in a bull that the daughters milk ten pounds less and give five pounds less fat a day, we’re not making progress…It’s amazing how efficient the American dairy farmer has become and our genetics are sought around the world…It’s hard to get bulls that rank extremely high outside those lines.”

One of Snyder’s customers, Doug Roth of Hilltop Dairy near Wayland, Iowa, tried crossing Holsteins with another dairy breed but was unhappy with the results.

Hilltop Dairy pairs now most of their Holstein cows and heifers with Angus bulls using artificial insemination. Thirty percent, however, are bred to Holstein bulls using a sex-sorting technology to ensure most offspring are heifer calves. Hilltop gets assistance from Neogen, a genomics company, to help decide which females are worth spending the money on for this more expensive approach.

Doug Roth, producer, Hilltop Dairy, Wayland, Iowa: “They’ll send us results back with production traits… with type traits, any recessive mutations you know so that we can get rid of those calves right away… and the ones we breed are according to genomics. Now we don’t necessarily use the genomic results to choose our bulls. We use our genomic results to determine which ones we keep to breed, and that’s about the extent of it.”

GENEX, which has about 200 Holstein bulls available, and others in the dairy industry have software to pinpoint when a cow and a bull are too closely related.

Doug Roth, producer, Hilltop Dairy, Wayland, Iowa: “We’re paid for fat and protein…So I use bulls that are high fat and high protein bulls. And then of course, I don’t want to give up functional type. … I want to make sure we still maintain sound feet and legs and also udders. Stature? I’ve went the other way: we used to be breeding bigger, bigger, bigger and now we are trying to maintain just a moderate-sized cow.”

While the genomic mapping of cows, in 2009, has been helpful in locating both mutations and positive traits, Dechow isn’t convinced high-tech, data-based tools will eliminate the obsession with a few bulls.

Chad Dechow, Dairy Cattle Genetics, Pennsylvania State University: “That’s had both its upsides and downsides. Certainly, from a genetic-progress standpoint, we are making faster genetic progress in milk yield and in health and fertility so that’s all been great, but a consequence of that has also been …that that particular system and using DNA markers actually accelerates the pace of inbreeding a little bit.”

Although there are differences, Dechow says other livestock industries need to be paying attention as well so breeders avoid losing positive traits needed in the future.

Turkey producer Tim Graber, who also farms in rural Wayland, Iowa, asks the two turkey genetics companies that provide his poults to look for larger breasted turkey lines as this is a key trait for processors. But Graber wonders about the turkeys losing hardiness and disease-resistance.

Tim Graber, turkey producer, Tim Graber Farms, Wayland, Iowa: “I can choose which genetic company and then I can work with them and tell them, ‘Hey this is what I’d like to see more in the future, maybe a more hardy bird, better feed conversion, maybe one that has better bone structure.’ And they take that and they listen to us and work with us.”

Graber makes sure only about half of his birds come from any one genetic line, a measure that was important when avian influenza hit the region.

Tim Graber, turkey producer, Tim Graber Farms, Wayland, Iowa: “To me, it makes sense not to have all your eggs in one basket so to speak.”

Chad Dechow, Dairy Cattle Genetics, Pennsylvania State University: “Losing genetic diversity limits our agility. And that to me is kind of the biggest problem.”

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

Next, the Market to Market report.

First the drought sent the market higher and a forecast for widespread weekend rain sent the trend lower at week’s end. For the holiday-shortened week, the nearby wheat contract added 45 cents, while July corn moved a dime lower. Soy oil fell hard after the release of the RFS on top of some profit taking in the soy complex. The July soybean contract improved 28 cents, while the July meal contracted by $5.70 per ton. July cotton shrank $3.29 per hundredweight. Over in the dairy parlor July Class three milk futures gained a nickel. The livestock market was lower. August cattle cut 95 cents. August feeders dropped 98. And the June lean hog contract posted a $1.57 move lower. In the currency markets, the US dollar index gained 71 ticks. July crude oil fell $1.57 per barrel. COMEX gold slipped $40.90 per ounce. And the Goldman Sachs Commodity Index retreated more than 5 points to settle at 548.05.

Yeager: Joining us now is regular market analyst, Arlan Suderman. How are you doing, Arlan?

Suderman: Doing well. Good to be back with you, Paul.

Yeager: I could just have a question sheet with about two works for this week. A week ago, Don Roose sat here and said, things can change quickly in a weather market. Proved him right, right? Is that what this is all about in commodities here?

Suderman: Well, that and the funds and larger position limits. A few years back we almost doubled position limits in some cases and then you throw in the algo computers that trade the momentum and it reminds me a lot of when Russia invaded Ukraine and we saw wheat going limit up, limit down, limit up, limit down, back and forth and the algos are just taking a ride whichever direction it's going that day. And that's really what we're looking at, as long as the crop ratings are in decline nobody really wants to be short, but we started out with a lot of short covering to give us a rally. And the in corn they started adding to their long positions, the speculative funds did. But as soon as we started moving rain forward in the forecast, even though we've been here before, they didn't want to take that chance going into the weekend and really took the profits and went home with those profits in their pockets.

Yeager: Did they learn so quickly from last weekend? Because it was a long, it was that three-day weekend, Monday threw things off. So, you think they learned that quickly?

Suderman: It really did. And keep in mind that there's a lot of traders trading this market who don't know what a corn plant looks like, but they do read charts, they do read momentum and they are watching the forecast and there is a skepticism but they can't afford to be wrong if the rains do come. If we get to Monday and we see another big drop in ratings and the weekend rains again disappointed, I anticipate we'll probably take it back the other way again.

Yeager: Let's go to wheat quickly, a 6% gain. Is that all about what you already kind of mentioned, the Russia/Ukraine?

Suderman: Well, first it was following along corn and soybeans, that was kind of come along lately and follow along. Then it seemed to have some other strength to it. Part of it was reports coming out of India this week about midweek that USDA may be about 10 million metric tons too high with India's production estimate requiring India to actually do some importing this year. So that caught their attention. Then you see Russian production estimates start to work down during the week, private estimates. And this is a critical time right now to get some rain in the spring wheat belt of Kazakhstan and Russia. If those rains fail then I anticipate that will be more of a story. If the rains come, it's just in time to kind of save their crop. So, we'll be watching that this week. But huge short positions in Chicago and that is really what has been behind the rally.

Yeager: Let's go to corn. But I first want to get in a question more about ratings. You like numbers. John in Iowa asked us this week, he says, given the expanding drought and the declining corn and soybean ratings, how much damage has already been done to yields? And to what degree is that already in the new crop market?

Suderman: Well, this is the big debate that I've been having on Twitter because I'm a former agronomist, I've walked a lot of corn fields and the research that I find has basically identified there's three phases where you can really impact yield. And it's really in that V5, V6 and up level where you set the maximum ear size. And it can get smaller after that but it can't get bigger after that. And then of course pollination is the time we're most sensitive. And most of the crop's pollination this year is going to be in the last third of July, so a little bit later. And then it's that grain fill stage we get into August. So now we're in the first phase. And a lot of people are arguing, no it's earlier than that. And I say okay, give me a research study, give me a link, I'll be happy to read it. And nobody has yet. But these new hybrids really impress me and it's not just the genetics, it's the ability of seed to soil contact, it gives us good root development early, the insecticides, just everything we do with technology these days, when I bet against these crops I'm usually wrong. Now, am I saying there's no damage? No, absolutely not. I think we have enough problem spots that are starting to be affected where the ceiling is being brought down, the ceiling yield is being brought down, that we are starting to be a drag to it. Now, if you look at condition index scores, where we're at now compared to other years that were similar in mid-June, we've had one year that had above trend yields, that was 1992. We've had two years that had near trend yields. And for corn we had two years that were below trend. And so, anything is still possible but we're starting to drag that ceiling down.

Yeager: We're really running the clock out when we need rain is kind of what you're saying.

Suderman: Yeah, and if you do a scatter plot analysis or regression study, however you want to approach it, it would suggest that right now we're probably in that 5% to 6% below trend level. Some of that can be recaptured or it can go much lower. I know there's a lot of people out there in Twitterville who have us down 15% to 20%. But I wouldn't go there. Maybe in your back yard, so to speak, but not nationally and that's what matters to the market.

Yeager: I won't talk about corn old to new crop now, we'll talk about that in Plus. But in beans specifically there was quite the spread this week. How much longer will we have that much of a difference between the two?

Suderman: Yeah, we're starting to roll over to the November contract in some cases and that is starting to affect that spread and particularly as we get close to the July going into delivery we're going to see more and more of that. Soybean old crop stocks I think we're going to see tighten up. I'm looking for a little tighter number on the stocks report. I think USDA may have over-reported the size of last year's crop. It showed up in the March report. I think it will show up again in the June 30th report. And I think that we're going to see a little stronger crush in USDA. Now, I think that is going to be partially offset by a little lower export number. So, I think we're close but a little bit tighter there. But the focus is really going to be new crop in its entirety and things are going to start all pricing off of that pretty quick.

Yeager: Let's get to livestock. I have another question about beans but, again, Market Plus I can ask those long rambling ones. Cattle on feed report today. Any surprises for you there?

Suderman: Placements were a little bigger than we expected. We expected them to be up a couple percent from a year ago because a year ago was an abnormally low year, but still about 5.5% below the five-year average. They ended up only about 50,000 head below the five-year average, so it came in a little bit stronger. We weren't expecting that. Overall marketings were pretty close to expectations. I would call it modestly weak. We're still tightening supplies, there's no question about that. And the main thing I think on cattle is now Father's Day weekend was kind of the last steak weekend. 4th of July weekend is kind of a hamburger weekend. Then we get into the dog days of summer. So, I think the product demand is going to soften. We started seeing that in the cold storage report that came out at the end of the week that we're starting to move down the value chain from beef to pork to poultry.

Yeager: You think that's already starting to happen?

Suderman: I think we're starting to see it. It took longer than I expected and it's not a major move yet but we are seeing indications of it now.

Yeager: The cattle market specifically, are you seeing anything about weights are changing? Has that impacted some of those sales? There was that big issue from south to north about weights.

Suderman: It really was. And we're starting to work through some of that now. I think we're starting to get a little bit more balance in there. We're holding up better than really I think anticipated. We thought the packers would slow things down a get a little bit better control. But through all this their margins, their packer margins have held up better than expected. And so, we expect this week's slaughter data to come in a little bit higher than what was first anticipated. They're pulling in a few more animals and that is helping support the cash market a little better than anticipated.

Yeager: Hog market finally paused or is it trending?

Suderman: Well, Prop 12 is the real problem, trying to sort it all out. We got the good news that California is going to allow a transition period as we read it and then the courts kind of codified it. But as we read it, as long as you have the pork, the non-compliant pork in-hand in the state of California by July 1st you have until the end of the year to utilize it, so it's got a lot of retailers trying to buy up now and so that is a drain on pork supplies now what we saw in the cold storage report but then it will slow down. But we're still trying to figure out, okay, what portion of the hogs are compliant and what aren't? There's still a fear of building up pork supplies after July 1 it the other 49 states, so to speak, and sow slaughter is high. Sow slaughter is as high as it was pandemic levels in 2020. We anticipate that is going to be the case. We're shrinking the breeding herd just like what we're doing in the cattle herd.

Yeager: Always something isn't it? All right, Arlan, good to see you. Thank you so much.

Suderman: Thank you.

Yeager: That's going to do it here for our Analysis as we pause for a moment. We'll continue our discussion about these markets and answer your questions in Market Plus. You can find both Analysis and Plus on our website of MarketToMarket.org. These resources are free. The podcast platter has three options from us here, the Market Analysis, the Market Plus and the MtoM. Follow today to keep up to date in rural America. Next week, we explore new shipping routes through the Great Lakes. 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)