Market to Market - Apr. 29, 2022

Coming up on Market to Market -- Cattle Ranchers and Meat Processors are called to Capitol Hill. As the spotlight shines on prices from the grocery store to the packing house door. Riding roller coaster markets with dry beans and other pulse crops. And market analysis with Shawn Hackett, next.

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What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

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Tomorrow. For over 100 years we have 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, April 29 edition of Market to Market, the Weekly Journal of Rural America.

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Hello, I’m Paul Yeager.

We’re still unsure if all conventional wisdom has been thrown to the wind since March of 2020. 

Take this week’s economic outlook. - - -

Durable goods orders bounced back higher - despite four-decade high inflation rates. New orders for items meant to last three years or more went up 0.8 percent. 

Sales of new homes dropped 9.6 percent in March as rising interest rates and supply chain disruptions weighed down the market.

The Fed’s preferred inflation gauge set another 40-year high at week’s end. The PCE Index surged at an annualized pace of 6.6 percent. - - -

The CDC said this week a person in Colorado has tested positive for avian influenza or bird flu. The person was directly involved in the culling of poultry infected with the H5N1 strain. 

While the poultry industry fights the disease, the beef industry was called to appear on Capitol Hill.

Peter Tubbs has the first of our two reports from Washington. 

The Senate Ag Committee held a hearing this week on a proposed bill that would require meatpackers to buy half of their cattle on the cash market and create a library of contracts for all of the nation’s cattle sales.  

Witnesses were divided on the impact of the proposed bill on everyone from the open range to packing house door.

William Ruffin, Bay Spring MS: “And I dare say that if we don't pass this bill where we have some transparency in this and we don't make an effort to reestablish the price, the cash price, I'm not going to have any. When that happens, I'll go the way of most other producers in this business.”

Stephen Koontz, Colorado State University: “It's not a conclusion that there's any competitive conduct, and in fact, it's rather competitive within this industry. Likewise, there's not any research that shows that mandating cash trade is going to make it make for better cattle prices. That's that's just not part of the research that I understand.”

Shawn Tiffany, Herrington KS: “This bill would. Well, I would in my business model as it exists today, and it would cause many of my customers to quit retaining ownership of their cattle, getting that carcass data back just because it would be so detrimental to the way we market cattle. It would it would radically change everything that we do. I would I will acknowledge that price transparency Price discovery is critical. But in reality, this bill does not achieve the goals. And and actually, I appreciate the spirit of the authors of this bill, but I don't feel that this achieves the goals of what this body is trying to achieve.

Stephen Koontz, Colorado State University: “Right now moving forward. The market is pretty confident that supplies will tighten up, prices will improve, dramatically, Packer margins will decline. And the price discovery in this situation right now is is not is not tremendously uncertain.”

This is the 11th time the Senate Agriculture Committee has considered the bill which was introduced by Iowa Senator Charles Grassley. None of the previous ten versions have advanced to the Senate floor.

For Market to Market, I’m Peter Tubbs.

4737 House Ag Cattle

Over in the lower chamber, the House Agriculture Committee dove into thorny issues tied to the nation’s cattle industry.

Rep. Cindy Axne/D – Iowa: “Today consumers are literally paying more for their beef.  Producers are receiving less for their cattle, and yet your four companies net incomes have reached record highs.”

Across two sessions, representatives quizzed producers, industry advocates and big business about the impact of consolidation, price discrepancies, market disparities and black swan events like COVID. 

Gilles Stockton/Cow/calf producer – Grass Range, Montana: “Rural America is one huge slum, and this is a result of the lack of anti-trust enforcement.”

Discussions zeroed in on smaller producers affected by the tandem choices of contracts, known as alternative marketing agreements, or AMAs, and the potential of more lucrative price discovery at auction.

Don Schiefelbein/President – National Cattlemen’s Beef Association: “They’re basically trying to cram our industry back into the bottle – the way it was 20 years ago…15 years ago.  That’s not healthy for industry.  Nothing could be more advantageous for the industry than to listen to your consumer.”

Mixed reactions have been drawn by bipartisan farm state lawmaker legislation, introduced in recent months, attempting to resolve frayed ends across the cattle business.  The specter of inflation also quickly wormed its way into the conversation.

Rep. Doug LaMalfa/R - California: “Ranchers, and being able to continue to operate…I mean, that’s just the plus or minus question from these days, is: Are they even going to be around much longer?  With the costs of energy being up and down?”

Rep. David Scott/Chair – House Agricultural Committee: “How can this jettison up?  And it started well before COVID-19 – which you say cause the record amount of profit.  So, I want to get the yes or no on whether or not you all had agreement on pricing.”

David MacLennan/CEO – Cargill, Inc.:  “No.”

Tim Schellpeper/CEO – JBS USA Holdings, Inc.:  “Not that I am aware of.”

Donnie King/CEO – Tyson Foods: “Experts, policy makers, government regulators agree – the combination of supply, consumer demand, pandemic disruptions and geopolitical unrest is reason enough for the inflation.”

For Market to Market, I’m Josh Buettner.

Crop rotations come out of different situations whether it be for soil health, weed control or demand. 

Some of the diversity is driven by weather and climate. 

USDA lists 16 different crops in the state of North Dakota. Many are considered pulse crops and have been good for some producers.

Colleen Bradford Krantz reports on the attention to the industry from the marketing to the genetics in this week’s Cover Story. 

Darren Kadlec farms in northeast North Dakota’s Walsh County, which last year had the distinction of being the U.S. county with the most land planted to dry edible beans, at about 100,000 acres. His father brought pinto beans to their farm in the Red River Valley in the 1970s, but Kadlec, the fourth generation on the land, is unlikely to give it up.

Darren Kadlec, Producer, Pisek, North Dakota: “Dry beans fit the bill to diversify and raise another crop. It’s a great rotation crop. It fixes some nitrogen. The ground is beautiful for the next year for the following crop like spring wheat. It’s a different way to break the weed cycle as you use different herbicides…and the climate fits incredibly well right here.”

Kadlec will quickly point out there are challenges, such as pinto beans’ preference for a cooler climate, their dislike of too much moisture, and the lack of a future contracts that could make for increased price discovery.

Darren Kadlec, Producer, Pisek, North Dakota: “It’s a specialty market so it’s much more volatile. Contracts do exist…where you can contract a percentage of your crop, then you have the open market on the backside. The export is what can really add to the volatility. Let’s say a country like Mexico comes in… and they can buy a significant amount of beans and clean up the carryover in a very short amount of time.”

Dry beans are just one of the pulse crops, defined as legumes with edible seeds that are harvested dry, to have gradually gained acreage in the United States. Besides dry beans, other pulse crops now grown on about a million acres each include lentils and dry peas, and, briefly, chickpeas before production dropped.

Some pulse crops have seen acreage level off in the last few years. The trend is expected to continue this spring with the war in Ukraine and other factors pushing farmers toward oil-producing crops like canola, soybeans and sunflowers. However, experts say the family of edible seeds show potential for additional growth, particularly dry peas and black beans.

Darren Kadlec, Producer, Pisek, North Dakota: “COVID hit and people realized that beans were part of being a staple food and there was an incredible amount of inventory that got moved.”

Weather events in North Dakota, including a large snowstorm during the 2019 harvest, pulled down the supply as demand was about to spike.

Mitch Coulter, Executive Director, Northharvest Bean Growers Association: “When the pandemic hit, of course, dry goods were one of the first things that flew off the shelf for the consumers. And… our inventory was gone, we totally sold out. The good thing was in 2020, we had the largest crop on record. So we were able to replenish that stock. But it was scary because we’ve never had it where…every bean we had on the shelf: gone.”

Coulter said the United Kingdom’s recent agreement to drop a 25 percent retaliatory trade tariff on dry beans should help boost sales. The industry has also seen more dry beans and dry peas, with their high protein and fiber, being used in plant-based meat alternatives and beverages.

Mitch Coulter, Executive Director, Northharvest Bean Growers Association: “We’ve seen a lot more interest around dry beans once they start looking into … protein replacement or flexitarian diets where they’re blending plant-based proteins with meat products.”

Central Valley Bean Cooperative in Buxton, North Dakota offers farmers contracts, and annually processes and markets about 1.2 million 100-pound bags of dry beans. The company deals almost exclusively in pintos, which are the type typically used in refried beans. The recent volatility with pricing following weather disasters and global events isn’t new to general manager Dan Fuglesten.

Dan Fuglesten, Central Valley Bean Cooperative: “It’s wild… Probably by all accounts, ’20 production was a record on acres and volume. And the market dropped from, say, a $40 grower to a $24 grower per hundredweight price, which is pretty significant. And then, as last year’s drought was developing throughout the winter, the market started coming up and… we’ve hit $50 now this year.”

 

That $50 is considered near-record pricing for the industry. Fuglesten said there is some concern, though, that the industry may be limited by the supply of dry bean seed, which is raised almost exclusively in Idaho and Wyoming. Although farmers are legally allowed to keep and replant some of their harvested dry beans, industry leaders are concerned the genetics may not be as strong.

Dan Fuglesten, Central Valley Bean Cooperative: “Seed becomes a talking point on limiting acreage…So a lot of growers…are only interested in growing dry beans if they can get a certain seed they want. And there’s concern that, on years when there is good demand for seed, there is only so much that can get grown.”

Plant breeders at North Dakota State University are working on developing dry pea, lentil and chickpea cultivars that perform well statewide rather than just farther west.

Nonoy Bandillo, assistant professor, North Dakota State University: “I think the future will be: we’re hoping to bring pulses here to the east as well. That would be exciting.”

Bandillo expects the availability of genetic information and cameras that more precisely identify plant diseases to help speed up development of new options for the region.

Nonoy Bandillo, assistant professor, North Dakota State University: “That’s why we need to use molecular tools so that we could… breed crops in a more precise way.”

In the last four years, North Dakota State University’s pulse breeding program has released a new variety of yellow pea, chickpea and green pea. Developing a new cultivar can take 10 years but Bandillo said the work should become faster over time.

Nonoy Bandillo, assistant professor, North Dakota State University: “Everybody talks about this 9 billion people by 2050, right, but nobody talks about this growing demand for pulse crops… I would expect a linearly increasing trend on the demand for pulses.”

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

Next, the Market to Market report.

Weather responsive markets played out much of the week as rain served as both a relief and a burden on the trade. For the week, the nearby wheat contract lost 20 cents, while July corn added a quarter. Oil demand drove the soy complex. The July soybean contract shed 3 cents. July meal dropped by $19.80 per ton. July cotton jumped $9.78 per hundredweight. In the dairy parlor, June Class III milk futures shed 21 cents. The livestock sector was off. June cattle declined $5.78. August feeders cut $8.62. And the June lean hog contract plummeted $12.40 or 10 percent. In the currency markets, the U.S. Dollar index rallied 179 ticks. June crude oil added $3.06 per barrel. COMEX Gold fell $25.20 per ounce. And the Goldman Sachs Commodity Index improved almost 7 points to finish at 754.80.

Yeager: Joining us now, he's back everybody, Shawn Hackett. Good to see you, Shawn.

Hackett: Hey Paul, great to be here, much better than Ireland where I was a few weeks ago. I'm glad to be in Iowa.

Yeager: Good to have you here. I'm going to start with a question that's not from Iowa but about the wheat country. We receive all sorts of questions via Facebook and Twitter and I want to start right there with a question, my eyes are giving me fits here, from Brent in Enid, Oklahoma. He wants to know, Shawn, is there still so much carryover wheat that a horrible winter wheat crop in Texas, Oklahoma, Kansas, etcetera won't bring prices up further? Seems to be the big topic.

Hackett: Well, it's a question of is the supply that is out there going to be available to the marketplace? When we look at Russia, remember for a year they withheld exports and built up large ending stocks. This year's crop which they're going to harvest in June, they're thinking it's going to be a record crop, 90 million metric tons. So when we look at what Russia has potentially for sale, massive, massive supplies and they have shown willingness to want to sell. They seem to need to fund this invasion of some sort. So the reality is if they're going to be able and willing sellers come June we do think there is enough wheat out there to handle things for now, even with the lower Kansas City winter wheat crop that we have right now.

Yeager: Well, and each contract was headed in a different direction this week. Finally there may be some relief. I talked about weather in the open there. It has been a hindrance to the growing of the crop but it doesn't seem to be pushing the crop. So, domestically in the United States if I'm a producer of any and I need to take advantage of any three of those contracts, what is some advice for me right now?

Hackett: Right now with taking some of this weather premium off, getting the first rains in that west ground that haven't gotten anything since last year, I think we probably are making a top. Usually once you break the weather market now it's just a matter of how bad is bad but we've already addressed it. So I think one needs to be a cash seller in the Kansas City wheat market. However, in the spring wheat market we're not sure that the market is correctly ascertaining the nature of the Northern Plains delays and the snow and the cold and the wetness and the flooding of the Red River. We think there is more to go there. We might hold off some of the cash sales in the spring wheat. Spring wheat relative to KC wheat is extremely cheap. There could be some difference in bifurcation in prices there.

Yeager: We're talking about prevent plant acres already and it could spill over a little bit into the corn market, North Dakota, South Dakota planting more corn than they used to. Let's specifically talk about corn this week. A couple of times the lines, new contract high, new high close, July, December kept going. The question is, Shawn, does that keep happening next week?

Hackett: Our long-term forecast has been that we would make a final top in the corn market in the springtime. Our idea was the middle part, latter part of May. It's a forecast we've had for over a year now and we really -- one of the reasons we felt that way was because our natural climate cycle algorithm that we created told us that we were going to have a late ending winter, lots of precipitation and delays that would lead into this final what we call kind of a blow off top, which I think we're in right now. So we think we're near the end of this two-year phase transition that began during the derecho storm and it is definitely getting time to take some of that money home on the farm if you're a producer of corn.

Yeager: We have some questions that we'll use in Market Plus, which you can see also in the same place you get this show if you watch us online. We'll ask about some of those specific things. So I'm going to stick with corn for a moment. If you're saying blow off top, you're saying it's high, I haven't turned a wheel. Why do I do something because I'm seeing my field I haven't rolled? Surely this thing is going to go higher?

Hackett: Well, it may go a little higher. We think it could go maybe a little higher into mid-to-late May but the fuse is very shortened. Trying to predict that moment of reversal that we're down big and the top is in, very, very difficult to do. We'd rather be just an average seller through this month, through the period where we think this blow off top is going to occur, and then try to hand pick that moment and then feel I missed it and then try to sell on the way down, which is much more difficult than trying to sell on the way up. Remember though, be careful about overplaying your local weather. It's a global market and even in the United States there's a lot of different growing conditions and it's going to warm up here after next week and the planters are going to start to increase their roll.

Yeager: We had a whole lot of pictures on our Market to Market Facebook page this week of people rolling finally so we'll see how those numbers reflect on Monday. But in soybeans, when you talk about this global picture, the oil, the soy oil as Malaysia, this noise about the cooking oil and we're not exporting any more here, the Russia, Ukraine, no sunflower oil. It wasn't enough to eke out a win for soybeans. Why not?

Hackett: Soybeans are very, very high but on the flip side the bean meal price has really been falling. And we really worry about the bean meal demand. Where is the feed demand going to come for bean meal later this year? The hog herd is not growing. The cattle herd is shrinking. The herd in China has been shrinking for six months as they have been liquidating the herd on uneconomical prices. We really worry, who is going to be the buyer? We're killing off all these chickens due to avian flu. If we're producing, if we're crushing beans for oil and the meal supply is the byproduct I just think we could have a big problem and those two might go in opposite directions and keep the bean crush from being really that exciting to create the crush that is needed to support these high prices. And if we have a large crop which we are expecting to see this year in the U.S. with extra acres we might have all the soybeans we need to cover the deal.

Yeager: So it sounds like I need to make some type of protection right now.

Hackett: Absolutely, a hundred percent agree. We are not friendly the soybeans. In fact, we think the soybean market probably is already topped out on the Brazilian drought and all we're doing now is kind of a re-testing kind of a phase while the corn market finishes its job. And remember the wheat market made its blow off top during Russia's invasion. So we have these markets kind of blowing off their tops in different phases and cycles but overall we're kind of worried about where these prices are heading because we actually think once we get through this planting issue with the weather we're going to have a really good year for weather and big crops later this year. We don't think this is the drought year or this is the weather problem year to get all the market excited from where we've been.

Yeager: So you don't see weather as a big issue then?

Hackett: Not once we get past planting season we don't. We think it's going to be a really good year. We're leaving La Nina, we're heading towards El Nino, that phase transition tends to produce better weather, cooler weather, more moisture. We're already seeing it this spring.

Yeager: Cotton, that is one of those markets that went opposite China's buying. IS that the only driver?

Hackett: Well, there's two things. Old crop cotton is being driven by these on call sales that the millers have put on and they didn't fix their product in time and so there's been a lot of shortcovering that has been blasting this market higher in the short run. But the new crop it's all about are they going to get rain in West Texas? 3.5 million acres, it can be a zero, it can be a huge crop. It does look like, we talk about Kansas City winter wheat, it does look like we're going to get our first sprinkle, quarter inch, half inch and if we do that could start to pressure that new crop cotton prices and start maybe the worst case scenario is not going to play out here.

Yeager: We had a lot about cattle in this program, but live cattle, all the meats off this week. What is driving the live cattle?

Hackett: When you hear stagflation, when you print a negative GTP number, you definitely worry the market that the demand for meat is going to be an issue and at the same time when you're dealing with high feed prices, high cost of production and potentially lower demand it brings sellers in week end, month end, it's a perfect time to just crush the market like we saw and just really pile drive it down. Having said that, having said that, that's the short-term issue. But if we're correct about the corn market topping out here in May and rolling over, especially for the cattle market, that herd liquidation especially for the feeders, we could see prices much, much better as we get into the latter part of the summer and the fall. And so we do think there is an optimistic side to this very difficult period right now for the livestock sector.

Yeager: So you make it sound like there's a couple of months of rough road ahead for cattle, especially the feeder.

Hackett: I would think for at least the month of May and even into June it could be tough sledding. After that the situation could -- if you think about what happened in 2013, 2014 after the drought top in corn, we had that really nasty hit and then we had the really wild when all the animals stopped coming to the market and we started to retain them and rebuild the herd, that is kind of the scenario we see later this year into 2023 and it should be pretty exciting times in the cattle business. But right now it's the last of the herd liquidation phase and the most painful part unfortunately.

Yeager: Not much to get excited about in the hog market either.

Hackett: Well, we had some excitement, we had a big rally and then it just caved in. We've been adding a lot of weights and as those weights have been added and the supply has been coming in, when you look at China we just noticed that the hog price in China jumped 15% this month. That is a sign that their herd liquidation that they have been going through is finally over and that the price is finally going to be maybe profitable for the first time in a while. That is the early stages of getting them back into buying our pork. But that is not today, that's later in the year. And so right now we have an air pocket for demand against these higher weights and that is going to pressure this market down at a time that we did hit some pretty high prices there for a while.

Yeager: Do you see the timeline being the same for hogs as it is for cattle?

Hackett: We kind of do, we kind of think if you're thinking August prices onward, we're thinking that is where the rubber meets the road and where this switcheroo between supply and demand favor higher prices for both markets right now.

Yeager: 15 seconds, crude oil, it's still above $100. What does that mean?

Hackett: Bad for consumer demand, it's as simple as that. We need that down. And if the natural gas price is going to continue to be elevated because we're selling L&G to overseas, that is not going to help the economy or get some of the demand going that we want to see.

Yeager: Shawn Hackett, good to see you. Thank you so much for your insight.

Hackett: Thank you, Paul.

Yeager: All right, that will do it for the TV show we call Market to Market. We're going to keep going in Market Plus so please join us there. Find that free on our website of MarketToMarket.org. Twitter was in the news this week and some have jumped on and off the platform but we've been there since 2009 and we continue our plans to offer links of our content and requests for your input. Follow along if you like @MarketToMarket. Next week, we look at the battle to end famine. Thank you for watching. Have a great week.

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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.

Market to Market is a production of Iowa PBS which is solely responsible for its content.

What's the most complex industry on Earth? It's not genetics, or meteorology, or logistics. It's a business that involves them all. It's farming. Thank you, farmers, from Pioneer.  

(music)  

Tomorrow. For over 100 years we have 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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