Market to Market - July 21, 2023

Kohlsdorf

Coming up on Market to Market - Wet weather in the East is offset by scorching temperatures in the West. The Black Sea grain deal is on hold. We’ll look at what’s on the horizon. Plus, drones deliver an unusual package to farmers. And market analysis with Elaine Kub, next.

Announcer:

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 a pioneer. Our name is our mission.

Announcer:

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 Sukup.com

Announcer

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.

Announcer

This is the Friday, July 21st edition of Market to Market. The weekly Journal of Rural America.

Hello, I'm Brook Kohlsdorf. Paul Yeager is on assignment. A lower inflation rate and a stronger job market saw American consumer spending their hard earned cash a little more freely. According to the Commerce Department, retail sales rose 2/10 of 1% in June. While that number was considered to be weaker than May by many economists, without the volatile factors like automobiles in the equation, retail sales rose a robust 6/10 of 1%.

The construction of new homes dropped 7% in June as the rate retraced its steps on a nearly 19% jump in May. The Creighton University Main Street Index dropped almost a point and a half, but remains above growth neutral. The ten state survey also revealed a 17% jump in farmland purchases by non-farm investors. The war in Ukraine is nearly 18 months old.

At the beginning, there was concern that the price of grain leaving Europe's breadbasket would push the price of food out of reach for some countries. A deal, albeit a shaky one, lasted nearly the same length of time. But all that has changed. Peter Tubbs has our report.

Tubbs: The Russian government ended its participation in the Black Sea Grain Initiative Monday. The Kremlin threatened to fire on Black Sea shipping until its demands to get more of its agricultural products onto global markets are met. Russia had previously announced record wheat exports over the last year. The pact, which was initially agreed to in July of 2022, allowed for the export and transportation of grain from certain ports on the Black Sea.

While Russia's invasion of Ukraine was being fought. The deal had been extended three times over the last year. The grain exports were primarily being sold to countries in the Middle East and Africa. The United Nations, which helped to negotiate and monitor the pact, estimates that 1000 ships successfully exited the Black Sea to 45 countries. Over 36 million tons of food commodities were exported from three Ukrainian ports during the agreement period.

Corn made up half of the exports, with wheat filling another quarter of the export shipments. The accord is credited with helping to reduce soaring prices of corn, wheat, barley and sunflower products in developing nations. As the pact expired, Russia pounded cities in southern Ukraine, including the port city of Odessa. In three different rounds of missile and drone attacks.

Dozens have been wounded. From Market to Market. I'm Peter Tubb's.

Kohlsdorf: The United Nations has put out a warning that the current heat wave will have a severe impact on human health as high temperatures hit the planet. The growth in heat waves in the northern Hemisphere has increased sixfold over the past four decades. In this country, almost everyone has been running for shelter from above average temperatures or torrential rains, and there is not much relief in sight. David Miller has our weather wrap this week.

Miller: Secretary of Transportation Pete Buttigieg visited locations in Vermont where rains had either flooded or swept away portions of the Green Mountain State. A recent federal disaster declaration will help ease the pain of the estimated millions of dollars in damage. In nearby Connecticut, a swollen river swept away a mother and child last week. Rain and hail did significant damage to crops across the state midweek.

An EF3 tornado struck North Carolina. The twister heavily damaged this Pfizer plant, according to company officials. The facility produces 25% of the nation's sterile injectable medications. The event is expected to lead to long term shortages as Pfizer rebuilds or sends work to other sites. As North Carolinians were cleaning up, torrential rains flooded communities in Kentucky a week after hail destroyed crops in the eastern part of the state. Here in western Mayfield, flash floods were triggered after waves of thunderstorms.

No injuries were reported, but firefighters rescued several people from homes and stranded vehicles. Governor Andy Beshear declared a state of emergency. More rain is forecast for the region. Death Valley, California, experienced record temperatures that briefly made it the hottest place on earth over the weekend. Across the country, drought continues to tighten its grip. As of the Tuesday reporting deadline, heavy rains did little to improve overall conditions as temperatures across the country were up to nine degrees above normal, according to the Weather Prediction Center weekend weather will include precipitation across parts of the central and southern high plains, the Gulf Coast and the East Coast. Next week, temperatures are expected to remain above normal across the entire country. For Market to Market, I'm David Miller.

Kohlsdorf: Spotted lanternfly is an invasive species that can destroy fruit and vegetable crops were first seen in the eastern part of the U.S. in 2014. Their march has continued eastward for nearly ten years, reaching locations as far west as Iowa. The flies are just one of several insects that produce growers battle on a regular basis. Pesticides are one tool used in the fight from the ground, but advances in aerial delivery methods are coming on strong in the counterattack against one common pest. Colleen Bradford Krantz reports. In our Cover Story.

Announcer: Six. Five. Four. Three. Two. One. Zero. All engines running. Liftoff. We have a liftoff.

Krantz: This launch isn't shooting for the moon or a distant planet. No rocket boosters are needed. And the passengers inside insects.

Dustin Krompetz: “We developed, in collaboration with USDA, a drone-based system for releasing sterile insects.”

Krantz: On a September day in western Michigan. The insects traveling during this routine drone launch by M3 agriculture technologies are codling moths the bane of existence for many pear and apple orchard owners.

Dustin Krompetz: Codling moth is really the worm in the apple. It's the primary pest. It's the it's always been a nuisance for growers for the last 200 years in North America. It's predominant pest worldwide. I think the only place where Common moth is not an issue or has not established is in Japan. In some parts of Asia.

Krantz: Codling moths have long been a foe. Hayden Farms of Pasco, Washington. But when the apple and cherry producers switched a half dozen years ago to organic apple practices, meaning synthetic pesticides were no longer an option, they struggled to keep control.

Denny Hayden: The major pest in apples by far is codling moth. And so when we first converted, we were clean, coming from conventional to organic. We didn't have any codling moth problems. Then we had a neighbor that was organic and kind got in trouble with the farm and his control went to heck lot of problems. And those problems drifted over to us. We tried every means possible to control codling moths.

Krantz: Hayden says they ultimately needed an answer beyond just natural oils and an insect virus spray. Those worked for oils can only be applied a few times before harming the trees and the viral spray needed to be reapplied repeatedly driving their pesticide spending up. The viral spray also had to be consumed by the insects, meaning they would leave tiny bite holes in the fruit known as stings.

Inspired by Washington State University's research into sterilized insects as bio controls in orchards, Hayden decided to give it a try. Hiring him three.

Denny Hayden: We were really shocked. The first year we saw real good results. We still had some stings that first year with it. Since then, we have really been very clean this year. I mean, I might have seen a couple stings all season in 125 acres.

Krantz: Although drone delivery of insects is relatively new, sterile insect technique or SIT is not. SIT is a type of biological control, an alternative or supplement to chemicals. When managing agricultural pests like codling moth.

Dustin Krompetz: The insects that we release are sterilized or sterilized with ionizing radiation and it damages their DNA to the point to where they're still viable as far as they're able to fly, and they're able to act as insects. But when they mate with another insect, with a native insect that's out in the target environment, they will lay an infertile egg.

Krantz: USDA has been using sterile insects strategies for decades, most notably when airplanes dropped sterilized pink ball worms, an insect that once devastated cotton crops all over the south. In 2018, USDA announced it had successfully eradicated the pink Bollworm…

Perdue: Bollworm is officially eradicated.

Krantz: …present in the U.S. ecosystem for more than a century.

Earl Andress: Sterile insect technology is not a stand alone technology in most cases. In the pink bollworm, we we had a variety of technologies that we used. We hit pink bollworm with everything we had. You have to have a thorough knowledge of the insect biology. Its will behavior and How it interacts with the most all of its natural enemies.

Krantz: After being awarded a grant, M3 began working with USDA in 2014 on developing a rapid response system in case of any small breakouts of pink bollworm. Four years later, the Dayton, Ohio based company got to work figuring out how to safely ship and store sterilized Mexican fruit flies, lady beetles, codling maws and other insects from insect rearing facilities before attempting to drop sometimes reluctant and bugs from drones into treetops.

The company designed its own drones and released devices.

Dustin Krompetz: When we went up to Washington and started releasing Sterile codling moth and we treated 50 acres in 2019, we treated 1200 acres and that was our first year of commercial sales. Now we are at 4000 acres and in 2022 and growing quite nicely.

Krantz: The company now with ten employees, has moved away from its previous dependance on government grants besides contracts in Washington, and three now has customers in California and Oregon. Part of the reason for the growing enthusiasm among producers is that insects, just like weeds, develop resistance to pesticides.

Dustin Krompetz: For the majority of crops, especially apples and pears. There's no new chemical formulations coming online. There's no more being developed. It takes generally ten years of a long pipeline, millions of dollars to develop different chemical formulations. We think that methods such as bio control using, using insects and such, those are going to become more and more popular. I think there are a lot of options with it, and I think it depends a lot on the pest you're talking about in the crop and just the setting for exactly where and what you have to work with.

Krantz: Various studies estimate the value of natural biological control of native pests in U.S. crops at between $1.7 billion and 5.5 billion. A Canadian facility is the only large scale in sector rearing. Sterilize codling moth Crumpets expects demand to grow for other insects, especially predatory mites that feed on two spotted spider mites which are harmful to crops like hops and strawberries.

Also, green lacewing, which eat other harmful aphids, show promise for many specialty crops, including fruits, nuts and marijuana.

Dustin Krompetz: The big issue that we face is the supply of insects long term.

For Market to Market. I'm Colleen Bradford Krantz.

Announcer: Next, the Market to Market report.

Kohlsdorf: 

Hot and dry weather, the end of the Black Sea Grain Initiative and attacks on the port city of Odessa drove grain prices higher for the week. The nearby wheat contract rocketed $0.36, while September corn jumped $0.21. The soybean complex moved higher on predictions of drier weather and news of sales to China, Mexico and points unknown. The August soybean contract moved $0.21 higher and August meal added $19 per ton. December Cotton bumped up $3.26 per hundredweight over in the dairy parlor. August through August. Class three Milk Futures increased a dollar 60. That's a 10% move. The livestock market was mixed. August cattle cut $0.15. August feeders dropped $0.72. And the August lean hog contract put on $4.48. In the currency markets, the US dollar index rose 121 ticks. September crude oil gained a $1.79 per barrel. COMEX gold added a $1.40 per ounce and the Goldman Sachs Commodity Index climbed more than seven points to settle at 571 even. 

And joining us now is market analyst Elaine Kub. Hi, Elaine. 

Kub: Hello. 

Kohlsdorf: Well, we don't have a shortage of things to talk about today, do we? So really, the big stories that were playing out this week, the weather and the war, the war in Ukraine, the end of the Black Sea Grain deal, was there one that had more of an impact on the markets overall than the other?

Kub: Yes, You just pointed out all the ways that these markets have jumped up a little bit this week, but I think we could argue that it is only the weather or the weather alone could have done it. And I say that based on the lack of evidence in the cash wheat market that it has reacted in any way to this news from an export perspective.

There's still extremely weak wheat bases in Texas, for instance. We are not suddenly seeing some new surge of exports going out of the Gulf in response to this. And of course, it could take some time. But I just wanted to emphasize the point that just because this is a disadvantage for Ukraine or a tragedy perhaps for folks in that in the global south that need that food, it is not necessarily being translated into an opportunity for U.S. wheat producers, given the current state of our exports.

Kohlsdorf: So with wheat, we saw that big rally on Thursday. How much of that was due to just the heat? You kind of covered that a little bit already, but, well, wheat, I mean, certainly it's a reaction to wheat prices and they all kind of have to move together and speculators absolutely do step in and react to a big headline like that and it is true. I'm just saying from from a physical market standpoint, we haven't seen that really translate into that cash market yet. 

Kohlsdorf: The situation in the Black Sea is leaving concern that Ukrainian grain and even Russian grain too, will have no place to go. So how is that going to play out? It will fail. It will find a place to go.

Kub: And in fact, it's my understanding that Ukrainian grain, it can still work its way out through a land route. It could in some cases, still work its way out, even by water if they stay very close to the land. So the bigger concerns, I think, for what happened in Russia and Ukraine in this past week is the damage to the export facilities themselves or the loss of the grain itself that was lost in those attacks.

So that is perhaps more lasting damage than the sort of short term the headlines and just the implications of the of the hostilities. Yeah.

Kohlsdorf: Okay. We have a question from social media that goes along with what you said. A lot of times. Matthew in Ohio is asking, a lot of times we can start a rally that leads all commodities higher? Can this really be sustained in corn and soybeans? 

Kub: I, I, yeah, I would hesitate to make too much of this as being a long term thing for corn, soybeans. But corn and soybeans have their own reasons for moving higher, too. So. So I'm not it's not to say that we shouldn't necessarily expect no more higher movement in corn and soybeans, but I wouldn't pin it all on this one story.

Kohlsdorf: Okay. Well, let's move on to corn. So weather is still dry and hot. You look at that map. 

Kub: Yes, it's scorching. 

Kohlsdorf: And now there are predictions that next week is going to be especially hot in areas that haven't seen that heat. We're talking triple digits in parts of the Corn Belt. So is weather already factored in to what happened last week? 

Kub: Is the market already reacting to weather? Yes, I think some of that longer term forecast has been built into the new crop prices because that ridge is expected to proceed even into August and it is not helpful and particularly in the areas of the Corn Belt where they plant such aggressive hybrids. And we're aiming for 300 bushel per acre corn and we see such really disappointing crop conditions.

In Illinois, for instance, less than half of the corn is rated good or excellent. And any of the low yield models that the USDA or any private estimated or could come up with just really doesn't have a lot of history of seeing Illinois that dry or these weird pockets of dryness all throughout the heart of the Corn Belt.

There are just fingers on that that red drought map that we showed on the show previous. There's lots of pockets that are very dry. And so you could have a neighbor that is 20 miles away from somebody else have completely different conditions. It's a really difficult thing for anybody to try to model the yields at this point in the growing season, which means we may feel bullish long term, but it's not going to show up on the USDA supply tables.

It's not going to show up in the traders' estimations yet. It's going to have to take some time for the market, even an efficient market, to really understand that. 

Kohlsdorf: Yeah. So with this record heat, our hopes of a record corn yield kind of dashed by this if we do see that heat next week. 

Kub: Oh, absolutely. I don't think anybody can reasonably expect record corn yield in 2023 yet. Even if you even if you had excellent rain across the Corn Belt from here on out, which is not the forecast, as you've mentioned, even if that was the case, a lot of damage has been done to the plants. 

Kohlsdorf: All right. So soybeans, soy has we've talked about the Black Sea agreement being on hold. And how much will that affect new prices, new crop prices?

Kub: Yes. So the soybeans, you have both a fairly bullish yield scenario because they're facing the same stresses from the hot weather while they're blooming. But you also have the continued loss of acres that came in the last USDA report. And I don't I mean, I hesitate to get real bullish because I don't want to discourage farmers from selling at these very profitable prices for soybeans.

It's more of a of a interest in gamble for somebody who has gambling money to do it for a speculator, perhaps, or somebody who doesn't need any cash until January to probably wait to really see these bullish implications of this weather that we're seeing today really play out in the markets. It may take months for that to really be reflected with China buying more soy from soybeans from Brazil and not us.

Kohlsdorf:  How much is that hurting the markets? 

Kub: Well, fortunately, our soybean prices are fairly favorable. Nevertheless, because you're absolutely right that exports for wheat and soybeans and everything has been fairly poor for the United States, volume wise, you know, there's a lot of people who suffer when we don't see that volume moving out in that way. But there's a lot of reasons why we necessarily maybe, you know, we're concerned about low water in the Mississippi River.

We're concerned about, you know, vulnerabilities in the rail system or any sort of freight system. So right now, it's probably not the end of the world. And we're seeing pretty good prices, nevertheless, fortunately. Yeah.

Kohlsdorf: Okay. So let's move on to cattle. There were two big reports out today, the cattle on feed report and then the cattle inventory report, which comes out a couple of times a year.

Kub: Right. 

Kohlsdorf: So was there anything in them that caught your eye? Anything unexpected?

Kub:I think they were all a little more slightly more bullish than than traders were expecting going into it. Certainly the cattle on feed was more explanatory for why we have seen such strong cash cattle prices in the past couple of months. The marketing were down 5%, which is a big number.

And so we did see cash cattle prices 180 on a live basis in the south and 295 dressed in the north. So they are very strong. That was a jump of $2 to $3 once again this week. 

So the cattle on feed report was explanatory, but going forward the placements were again down more than folks were expecting.

I think I don't know that that's necessarily going to translate into a big movement when trade reopens on Monday, because we already knew that this cattle herd has been shrinking. The cattle inventory report was showing down 3% for beef cattle. And to me, that just reminds us all that this is not just a flash in the pan. This is not 2014 where we immediately rebuild the herd and prices go away.

I think these prices will be sticky because the scarcity of this cattle, this continues. This is a continuing thing that's going on, according to these reports. 

Kohlsdorf: Yeah, And that's something that takes years. Right? 

Kub: Kind of reverse. 

Kohlsdorf: How much is weather with concern in cattle farmers right now? 

Kub: Yeah, well, drought, I mean, that's not necessarily day to day weather so much as that long term climate. I think that's exactly why we have not been able to see this herd rebuild and are not likely to see the herd rebuild. Certainly, as you look to sort of closer to the to the eastern part of cattle country where that drought is this year, they're experiencing. Yeah, conditions for hay, poor hay conditions in areas that didn't see it in the past couple of years.

So everybody is getting the pain shared around in these past three or four years. And I think that is one of the large reasons why we cannot see this cattle herd rebuild in the in a near term future. Mm hmm. 

Kohlsdorf: The feeders that lot herd is the the smallest it's been in. Is it nine years, Right? 

Kub: Yeah, the smallest since 2014. So not smaller than 2014, but the smallest since then. And if we continue at this pace and you know, with hay prices being what they are and hay supplies being what they are, I think we should expect that going into 2024 is that the the pain will continue. The pain will continue. 

Kohlsdorf: Okay. So we'll end with pork potentially with a strong market or with higher beef prices. Will this continue to keep pork prices priced well with this idea that maybe consumers are buying less? 

Kub: Yeah, absolutely. There is there is a play between folks going to the grocery store and choosing pork or beef. But I will clarify that actually beef prices have been softening in the you know, in the past few weeks, which is partly seasonal and perhaps a reflection of of of price rationing.

You've got the the choice cut out is coming down to 300, which is going to challenge Packers. But Packers are starting to get more for pork. So the pork is going the opposite direction. Lately it has been continuing to to grow since June 115. I think the pork cut out was that this week. So that's actually fairly favorable.

I don't think that we'll be able to see that in the futures market carry on much passed this nearby futures contract. Once you start looking in October and onwards, there is, you know, seasonal weakness. 

Kohlsdorf: All right. We are out of time, unfortunately. Elaine, thank you so much. All right. Well, we are going to pause this analysis and we'll continue our discussion about these markets on MarketPlus, you can find both analysis and plus on our Web site of Market to Market dot org. These resources are free. Our YouTube page is the place to find our full program, Market Plus and the stories we feature each week. You can subscribe to our feed at YouTube.com slash Market to Market. Next week we look at how the market is scrambling to stabilize itself as key growing areas struggle.

Thanks so much for watching and have a great week.

Announcer: Market to market is a production of Iowa PBS, which is solely responsible for its content.

Announcer:  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.

Announcer: 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.

Announcer: 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.

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.