Market to Market - June 30, 2023

Coming up on Market to Market -- the Secretary of Agriculture pulls out the whiteboard on the farm economy. Drought tightens in the grain belt as rain arrives in the gauge and the market reacts. Exploring new shipping routes through the Great Lakes. And market analysis with Jeff French, 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 30 edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

Nothing lasts forever, but a durable good should at least last three years.

The order for those long-lasting items was 1.7 percent last month according to the U.S. Census Bureau. The transportation sector helped drive the report higher.

The lack of options of existing units has pushed the new construction market higher. New home sales were up 12.2 percent last month.

The PCE is the government’s preferred inflation gauge. Last month, the index moved to its lowest level since April of 2021.  The 0.1 percent monthly reading was down three-tenths a point. 

The annual snapshot fell to 3.8 percent on less expensive gas prices, slower-rising food costs and tempered consumer spending.

USDA Secretary Tom Vilsack hit the road this week in Michigan promoting the administration’s efforts to expand market access for producers and healthy meal options for children.

Then Mr. Vilsack came to Iowa promoting competition in supply chains and rural economies.

Peter Tubbs reports.

Sec. Tom Vilsack, USDA: “So the question is, is there another option, another opportunity available for small and mid-sized farming operations that essentially get us to a point where they can stay in business and it's not get, get big or get out, it's get diverse and grow.”

This week, secretary of Agriculture, Tom Vilsack, made the case for the Biden administration's use of grants and loans to diversify the nation's food production system, giving producers and consumers more options in the food economy.

Sec. Tom Vilsack, USDA: “You want to grow the economy with a middle class from the bottom up and the middle out. You can't not, you can't have this, just this, these folks are really important. I make no mistake about it. Production agriculture is incredibly important. Why? Because the world population continues to increase. But rural America needs these folks because if you don't create an opportunity, an option to diverse and grow, and you simply have get big or get out, then what happens to your rural communities is what's happening. Fewer farmers, fewer farm families, fewer customers for the small town business.”

The secretary also defended the EPAs rules for the RFS.

Sec. Tom Vilsack, USDA: “We got the 15 billion gallons first administration ever to get to that point. And we've increased in, created, uh, uh, glide path and a growth path for, uh, for biodiesel. I believe that's the best. Uh, this administration has been the most supportive of the industry over the course of two and a half, three years than any previous three-year period of any, any administration. And I'm happy to have that challenge, but, uh, you're going to have to convince me that there's another administration that's done more in this shorter period of time.”

For Market to Market. I'm Peter Tubbs.

A week ago - forecasters were calling for widespread rains and a change in patterns over areas in the Grain Belt.

A week later, heavy rain came true for some - but so did violent wind and hail. Almost 300,000 people woke up Friday without power in Indiana and Illinois.

But there were other extreme conditions out there as well as David Miller reports in our weather wrap.

Texas heat was on full blast this week as residents did whatever they could to stay cool, seeking time in the sprinkler or a moment in some nearby shade.

The second week of triple digit temperatures forced the state’s power grid to operate under a weather watch. The move put customers on alert for the possibility of power curtailment.

The weather is putting the electrical grid under pressure, just like it did several months ago when it struggled during extreme winter conditions.

Doug Lewin , Energy expert: “ERCOT’s (Electric Reliability Council of Texas) system is much better suited for the summer time , then it is for the winter. There have not been summer outages in Texas in over a generation, at least. That is because it’s always been thought of as a summer peaking system.”

Some drought has returned to Texas, but according to the latest Drought Monitor, Middle America is suffering the most. Dry conditions in Kansas, Missouri and Nebraska have only served to tighten drought’s grip.

For Iowa growers, rain has fallen in recent days on areas experiencing drought, but not enough to end concern.

For those in a line from Nebraska to Indiana, a derecho packed hurricane-strength winds and flattened an already drought-stricken crop on Thursday.

The weekly precip snapshot reveals anywhere from 1-2 inches have fallen on most of Nebraska, South Dakota and Minnesota. 

Winter wheat harvest is in mid-season form across most of Oklahoma. The crop was severely stunted by drought that persisted from winter into early spring. The region eventually received rain and a little green can be seen emerging underneath wheat heads as combines roll across the Sooner State. 

Mike Schulte, Oklahoma Wheat Commission: “We're about 12 to 15 days behind schedule now of where we normally would be when you look at harvest over the last 10 to 12 years. So, you know, it just, We're thankful for the moisture. It allowed us to have something where we thought maybe we weren't going to have anything at all. But now at this point in time, it would be great if we could have you know, five to six days of real dry weather to try to get it out because anything now that happens with rain probably is not going to bode well for us as far as quality.”

Another challenge for several million Americans has been degraded air quality due to smoke from Canadian wildfires. Hazy conditions have spread from the Missouri River to the eastern seaboard.

Here in Chicago, residents curtailed exercise as the EPA categorized conditions as unhealthy.

For Market to Market, I’m David Miller.

William Shakespeare said “sweet are the uses of adversity.”

Or the more modern version of making lemonade from lemons.

The supply chain challenge of 2020 and 2021 sparked responses from creative thinking and turned into opportunities and diversity in how goods get from one point to another.

Much has been reported about shipping on the coasts, but the Great Lakes region is employing new and cost-effective ways to move goods out of the Midwest.

The following story was done by Detroit PBS and their Great Lakes Now program. Laura Weber Davis reports in our Cover Story.  

Since 2020, backups at ports in the Atlantic and Pacific coasts have left cargo ships stacked up waiting to unload. In the U.S. rising fuel costs, congested highways and a shortage of truck drivers are also creating headaches for businesses wanting to get their goods in or out of the U.S. interior, and they're looking for other options. Will Friedman is president and CEO of the Port of Cleveland.

Will Friedman, President & CEO, Port of Cleveland: The companies that need to move these goods, either as a manufacturer or as a retailer. They're pretty desperate. And so, you know, necessity is the mother of invention and they're now asking much more so than previously. Why can't we get a ship into Cleveland? and just avoid all that gridlock at those big ports.

But rerouting cargo from congested coastal ports to Cleveland isn't so simple. On the Great Lakes, freighters mainly move bulk cargoes like iron ore, grain and coal that are loaded loose into the ship's hold. But globally, most cargo is moved in containers. Great Lakes freighters and the ports they visit aren't really set up to handle large shipments and containers.

But that may be changing. In 2014, the Port of Cleveland saw an opportunity and developed the first container service on the Great Lakes to handle import and export cargo. In partnership with Dutch company Spliethoff, they created the Cleveland Europe Express with a regularly scheduled route between Cleveland and Antwerp. The Peyton Lynn C, a small container ship travels out of the St. Lawrence   Seaway and across the Atlantic.

The trip takes approximately 14 days, with a few days in each port to unload.

And the opportunity to move other types of cargo on the Great Lakes in containers is providing new cost-effective transportation solutions for some shippers.

Will Friedman, President & CEO, Port of Cleveland: It actually does help with cost for a ship to come all the way into Cleveland, because the longer you keep cargo on the water, the more economical it is. The majority of the cost to move, let's say a flat screen TV from China to Chicago or Columbus, Ohio, is the Inland Transportation the over the land transportation. Once it's on a ship, even if it's a smaller ship, it doesn't have to be a mega ship. It doesn't cost that much because you have those, you know, economies of scale and you're just pushing that ship through the water. You're not burning as much fuel. It's also more sustainable. It's also a greener form of transportation.

And according to Friedman, shipping through Cleveland avoids the delays that can happen at congested ocean ports.

Will Friedman, President & CEO, Port of Cleveland: Unlike the big ports, where your container may be on a ship and it sits at anchor, you know, waiting to get to a berth for 30 days or 15 days. Our service is more reliable.

In Cleveland, the cargo in containers has been mostly industrial non-consumer goods and exports from northern Ohio and bordering states. But on more than one occasion, they have been the answer for a business outside their region.

Will Friedman, President & CEO, Port of Cleveland: We just had some rubber, synthetic rubber moving up from Houston, getting trucked all the way up here to get loaded on to the Peyton and go to Europe. So those are the kinds of, you know, somewhat counterintuitive moves we're seeing here with all these supply chain problems. They could not get a ship or find space on a ship out of Port of Houston. So, they moved that rubber all the way up here.

And Cleveland isn't the only Great Lakes port that's looking to expand its container shipping. The Port of Duluth Superior is the largest port on the Great Lakes by tonnage, including the Twin Ports of Duluth, Minnesota and Superior, Wisconsin. And it's making waves in container shipping. Deb DeLuca is the executive director of the Duluth Seaway Port Authority.

Deb DeLuca, Executive Director, Duluth Seaway Port Authority: “From here, you can reach major markets such as the Twin Cities, Fargo, Des Moines, also Milwaukee and even down to Chicago. So, it's from a, from a logistics standpoint that's very attractive.

Last fall, the Port of Duluth was granted approval by U.S. Customs and Border Protection to handle shipping containers by water. And just recently, it exported its first shipment, 200 containers of kidney beans from a company in the region.

Deb DeLuca, Executive Director, Duluth Seaway Port Authority: They were having difficulties arriving at a supply chain solution with all the snarls and backups and supply chains over the past couple of years. They were not able to get their goods to market, so they, working with the freight forwarder, a trucking company. We were looking for an alternative solution and that ended up being sending those containers by ship through our terminal.

Great Lakes ports are also looking into new options, like a feeder service where containers are offloaded in bigger ports and transported along the Saint Lawrence Seaway in smaller vessels similar to what is done in Europe.

Along with all the opportunities. There are many challenges to container shipping on the Great Lakes, including the locks of the Saint Lawrence Seaway, which restrict the size of the ship.

Will Friedman, President & CEO, Port of Cleveland: If you're coming into the Great Lakes from outside the system, you're limited by the dimensions of the locks. There are 15 locks that get you from sea level up to where we are, which is roughly 650 feet above sea level. And those lock dimensions are roughly 750 feet long and about 75 feet wide. And the controlling depth of the water and all the channels on the Great Lakes is about 27 feet, 27 or 28 feet. So, ships can't exceed those dimensions.

Another factor that has been challenging for container shipping is the shortened season. Both the Saint Lawrence Seaway and the SOO Locks close   during the winter.

Will Friedman, President & CEO, Port of Cleveland: Many who use the system or ports on the system are likely to advocate for let's keep the system open longer. We think that's feasible from a technology point of view. We all know, unfortunately, with climate change that we're not getting as much ice cover anymore. Winters aren't as severe. Let's allow more year-round shipping or closer to year-round shipping.

Both the ports of Cleveland and Duluth expect to move more shipping containers in the coming year.

Next, the Market to Market report.

The weather was the market mover early in the week as rains fell enough to alleviate traders’ concerns. Then Friday’s USDA report of more corn acres added drama to the virtual pits. The nearby wheat contract sold off 96 cents or 13 percent, while September corn moved 94 cents lower or 16 percent. USDA also said there were a significantly less amount of soybean acres planted this spring. The August soybean contract improved 38 cents, while the July meal added $8.50 per ton. December cotton expanded $1.70 per hundredweight. Over in the dairy parlor August Class Three milk futures subtracted $1.28. The livestock market was higher. August cattle increased $6.40. August feeders put on $13.63. And the August lean hog contract posted a $2.92 move higher. In the currency markets, the US dollar index added 2 ticks. August crude oil gained $1.54 per barrel. COMEX gold slipped $3.10 per ounce. And the Goldman Sachs Commodity Index retreated more than 7 points to settle at 541-even.

Yeager: Joining us now is regular market analyst, Jeff French. What do you say, Jeff? What's the headline of the week? Put this into perspective because we were so different from Monday to today.

French: It's historical. You start Monday out on a nice big rally, especially in the corn. Monday evening you get the ratings, it's some of the lowest rated corn that we've seen since 1988. And we just completely fall out of bed day after day making new lows, new lows, new lows. For the week, corn is down more than 20%. That's the worst week we've had since October 2008 and if you remember, October of 2008 was a financial disaster.

Yeager: There was something going on at that point. Wheat specifically, crop is coming in, we saw in the report it's raining there but we're still losing. Why?

French: You know, coming into the week, the wheat was on a $1.40 rally. So, it had a pretty good uptrend. And then over the weekend, this last weekend we had the unsuccessful coup, military coup in Russia and those type of events here in the last six, eight months, anything out of the Black Sea they just don't stick. And wheat was really following the corn. It was down every day here this week. It was down over a dollar at some point. Look at that December contract in Chicago below $7. If it can get above $7 you might see some buying But Ukraine and Russia out this week saying their wheat crop is going to be bigger than expected.

Yeager: So, if you're a U.S. producer watching this program what do you do?

French: Well, I mean, on that rally you should have been doing some marketing. We were very aggressive the third week of June getting some put options in place as well as selling some cash. At this point, we're actually going to look at this break to reown on the bushels that we have priced. You've got to remember, today was the last day of the quarter, last day of the month. The funds, everything was just sell, sell, sell. So, next week we've got a new month, we get a new forecast, we'll see how the markets react.

Yeager: Corn, more acres, rain, are those the two heads, the two heads leading that?

French: Well, the rain was a start. And again, we were down every day. We did have the rain that moved into Illinois. Now, it was accompanied obviously with high winds. But the trade will look at the rain more beneficial than the damaging winds. So, we'll see if this pattern continues. The forecast says rains the next week as well. Again, tremendously oversold here, 14-month low close. But it will in July if there is rain falling in the "I" states it is hard to rally the corn price.

Yeager: The corn that you just saw on TV looked healthy, but there's others that's not. So, Ryan in South Dakota is asking, when will prices start reflecting the crop conditions?

French: Well, I think we've seen in years past where crop conditions, especially in June on corn don't really necessarily mean, terrible crop conditions mean big yields, or lower yields come harvest. But, if they continue to decline, the trade is anticipating corn yields to start improving now. Illinois might decline because of the wind. But, again, if this forecasted rain next week falls, it's going to be hard to rally this market.

Yeager: And then there's the beans. A whole lot of acres going off that ledger. Where did they go?

French: Well, they went into corn. You look at the corn states that picked up, you had Illinois pick up 500,000 acres of corn, came out of beans. Iowa picking up 300,000 acres out of beans. Texas gained 450,000 acres of corn. That was one of the bigger states. That's a question mark on how good that corn will be, especially with the amount of rain they've had here this spring. But yeah, the bean number is tremendously bullish. Even with record yield at 52 bushels per acre nationally we're at pipeline supplies. The one thing though that you've got to question is corn and beans typically don't do opposite prices. They tend to travel together. So, we are going to have a tug of war here in the next couple of weeks. Do the beans lead the corn higher? Or does the corn lead the beans higher, excuse me, the beans lower? That's what is going to be figured out here in a couple of weeks.

Yeager: So, if you're a soybean holder, you're one of those that stuck it out and you planted something. Are you putting anything -- we almost went a dollar higher at one point today -- do you see that continuing next week regardless of rain?

French: I don't see the beans, from what we know right now with demand as it is, there's really no room for lower prices here right now. Again, if the rains fall it's going to be kind of hard to rally this thing. But demand has been soft. China bought today, that was good to see. I don't know if they can something coming down the pipeline, but they did announce a sale to China. But what you look at on the books for China right now this time of year, it's low. They're 200 million bushels behind bean purchases compared to this time last year. So, they have definitely slowed down their purchases.

Yeager: And then there's the livestock market. Everything is up. Live cattle, another rally. We keep retesting some waves here. Look at this chart. That thing looks like it's headed up again another wave. What do you see?

French: Again, I think you have the funds, they're in control, they're long, they're betting for higher prices. You have the final Friday of the month, you have the final Friday of the second quarter here, they were piling into it. But the feeder cattle love lower prices in the corn, so they shot up, new contract highs. The cattle market is one of those things that we know the fundamentals pretty good. The supply side is going to be tight. What we need to be looking at here is, is the demand going to keep up with these higher prices? Because beef prices are going up from here on out.

Yeager: It looked like previously to this week we were having some steam let out because of the higher price in demand. When you specifically see feeders, at some point that bubble has to pop. When?

French: Well, and that's one thing too, seasonally we're going into July, the hottest part of the year, dog days of summer, seasonally typically you do see demand start to fall off here. But, with this supply, these prices, it looked awfully good on a chart. Again, how long will this demand stay up with the supply? That's the question that we're going to have to see here in the future.

Yeager: Then we have the hog market, which keeps adding, but why?

French: Well, we had that big decline here a couple of weeks ago, last month. Now we are $20 off those recent lows. The hog and pig report, if you look at the main three numbers all hogs kept for breeding, if you look at them compared to last year they're not that friendly. But, if you look at them the last couple of quarters against the hog and pig reports it definitely shows that the herd is contracting, especially if you look at kept for farrowing, it's down 5%. So, Prop 12 goes into effect tomorrow. Now, they have grandfathered in the pork to sell the remainder of the year. But there's a lot of question marks out there on this pork demand. I would just make sure as a producer that you have the downside protected, at least the next couple of months, because the market does not like what ifs and there's a lot of what ifs out there.

Yeager: Final few seconds. Of today's USDA report that came out Friday, the easy headline is bean acres lower. Is that the correct headline of the report?

French: Yeah, but also if you look at the bean stocks, the stocks report, it was down 18% compared to last year. So, domestic bean demand has been phenomenal. So, that is something to take notice and that will also fuel the fire on this rally.

Yeager: And that's going to fuel the end of our show. Jeff French, thank you so much.

French: Thank you for having me, Paul.

Yeager: Appreciate it. We're going to pause 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, they are free. YouTube is full of content to keep you informed about the happenings in rural America and from this program. Subscribe to our feed for features, full episodes and Market Plus at YouTube.come/MarketToMarket. Next week, we check crop progress in two states with on-the-ground reports. Thank you so very 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)