Market to Market (April 6, 2018)

Coming up on Market to
Market –The threat of tariffs with China causes
angst in rural America. Plus the renewable fuels
industry cries foul over EPA’s waiver handout. And market analysis with
Tomm Pfitzenmaier, next. Wherever your operation
takes you, or who you share it with, we’ll be
where we’ve been all along, with you
from the word go. Proud sponsor of
Market to Market. 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. And by Sukup
Manufacturing Company. Offering a full line of
grain drying and storage equipment and steel
buildings, Sukup Manufacturing is on a
mission to protect and preserve your crop and the
tools that produce it. This is the Friday, April
6 edition of Market to Market, the Weekly
Journal of Rural America. Hello, I’m Delaney Howell. To tariff or not to
tariff, that was the question this week from
Bejing to Washington. — U.S. manufacturers report
slower expansion in March as they were having a
tougher time getting supplies to fill orders. The unemployment rate
remained at 4.1 percent for the sixth
straight month. The Business Conditions
Index of mostly nine Midwest states revealed a
rate above growth neutral for the 16th
straight month. The trade deficit, long
cited as a burr in President Trump’s saddle,
rose for the sixth straight month, reaching
the highest mark since October of 2008. — Harry Truman wanted a
one-handed economist as he was tired of hearing his
economists repeatedly saying “and on
the OTHER hand…” Global trade is
incredibly complicated. The president’s trade
representative is already trying to finish a
year-long reworking of NAFTA. Mr. Trump also instructed
his secretary of agriculture late Thursday
to implement a plan to protect farmers and
agricultural interests. David Miller leads
off our coverage. Two weeks ago, despite
warnings of a trade war, the U.S. threw the first punch in
its fight against alleged intellectual property and
technology theft with a haymaker worth $50
billion in tariffs. China countered with a $3
billion salvo, mostly for pork products,
and hinted U.S. agriculture was square
in Chinese sites. The U.S. responded this week with
a long list of items that included semiconductors,
car parts and machine tools. In less than a day, China
unleashed a roundhouse matching the power of
America’s initial blow with U.S. agriculture taking the
brunt of the attack. President Trump returned
fire with an additional $100 billion in tariffs. Wang Shouwen, Vice
Minister of Commerce (through interpreter):
China doesn’t want a trade war, because there will be
no winner in a trade war. If someone insists on
starting a trade war, China will fight
until the end.” The National Corn Growers
Association and the Iowa Soybean Association agreed
there are no winners in a trade war. Kirk Leeds, CEO, Iowa
Soybean Association: “I that there are ways to
resolve it but it’s gonna have to be in a way
that saves face for the Chinese, as they would
call it, and it’s gonna have to give the
President some win. Let’s hope they
find that solution.” The catalogue of U.S. goods slated to be charged
a 25 percent tariff now comprises more than 100
items including a laundry list of agricultural goods
that could put beef, pork, corn, and soybeans
exports in jeopardy. The response from other
industry trade groups was almost immediate. The National Cattlemen’s
Beef Association said the unfortunate casualties
of a trade war would be America’s producers
and Chinese consumers. The National Farmers Union
expressed concern saying there was no plan in place
to protect family farmers and ranchers who are
always the first to suffer from retaliatory tariffs. Commerce Secretary Wilbur
Ross was quoted on CNBC as saying: “This 50 billion
that they’re talking about amounts to about 3/10
of a percent of our GDP. So it’s hardly a life
threatening activity.” Larry Kudlow, the newly
minted head of the White House’s National Economic
Council, cautioned against panic and said the
president wants to grow the American economy,
not to hurt any of its sectors. Larry Kudlow, White House
National Economic Council: “this should not be viewed
as strictly mano-mano, punitive, damages, you
know, that kind of thing. This has gotta be viewed
in the context of economic growth, which is what this
administration is all about. And that’s the end game.” Even though Chinese
tariffs will only be levied if the U.S. makes the first strike,
early trading on Wednesday, saw commodity
markets plunge more than a dime in the nearby corn
contract and a whopping 40 cents in the May
soybean contract. Markets rebounded after
the initial shock wore off but remained lower. U.S. farmers and ranchers are
aware China is unable to feed all of its 1.3
billion citizens with domestic production. Chinese markets take about
one-third of American soybean production
making it the number one destination for the U.S. harvest. The nearly 1.4 billion
bushels are valued at around $14
billion dollars. U.S. Pork producers exported
an estimated $1.1 billion worth of product to China
in 2017 and stand to lose significant market share. Craig Hill, President Iowa
Farm Bureau: “This is not a very good place to be
in a trade war; they’re unpredictable, the
duration the impact. So, I’m a little taken
aback by this attitude that’s come from
the White House. It’s a very serious matter
and Iowa is gonna be the first casualty. Agriculture, Iowa ,
soybeans, pork this is what’s gonna
hit the hardest. And so the target is on
farmer’s backs and it’s a very bad place to be.” Many agree, the tariffs
are clearly targeted at rural America, the main
source of votes credited with electing
President Trump. Kirk Leeds, CEO, Iowa
Soybean Association: ” Chinese clearly selected
soybeans to send a message to the Trump
administration. We know your politics. We know that this will
have an impact on the people that voted for you. I don’t think there
is any doubt about it. So based on that,
agriculture is going to pay perhaps a
disproportionate share of the burden of the cost of
this potential trade war.” U.S. Secretary of Agriculture
Sonny Perdue stated that farmers would be protected
and that the President had some tough
decisions to make. This was echoed by other
members of the Trump Administration. Peter Navarro, Director,
National Trade Council: “And we are trying to put
in place measures which will have the backs of our
farmers and our ranchers and everybody else
in this country. Larry Kudlow, White House
National Economic Council: “Give us some time to play
this out, not only with consultation with China,
obviously, but in consultation with the ag
community, consultation with the manufacturing
community, the auto community. You see, its all part
of a fairly delicate, broad-based negotiation
but it’s long overdue. That’s all I’m saying. We can fix this thing. It’s gonna have
a great ending. Kudlow later stated U.S. Trade Representative
Robert Lighthizer was working behind the scenes
to start negotiations with the Chinese. As of now, Chinese
officials say nothing will come to pass
unless the U.S. makes good on its threat
to enact trade tariffs. Official U.S. documents show a hearing
on the matter will take place on May 15 which will
be followed by a one week comment period. No matter the final
outcome, Leeds is concerned about the long
term effects of the confrontation. Kirk Leeds, CEO, Iowa
Soybean Association: ” Is the potential for
anti-Americanism to continue to grow. Again, I’ve been going
to China for many years. It’s certainly more
prevalent now to see this anti-American mindset. And the Chinese have a
history of getting into disputes with other
countries and it impacts the way consumers
view the world. For Market to Market,
I’m David Miller. Early this week the head
of the Environmental Protection Agency
announced a roll back in Obama-era mandates easing
emissions standards. The 2025 levels required
new vehicles to achieve 36 miles to the gallon, a 10
miles per gallon increase over the existing mark. The demand for fuel could
rise as less efficient vehicles will still
be on the road. But homegrown fuels will
likely have a tougher time meeting that need as
Josh Buettner reports. This week, reports
that some oil refiners sidestepped the Renewable
Fuel Standard by obtaining Environmental Protection
Agency waivers, granted in secret, drew backlash
from farm country. The department exempted
about 20 facilities of their 2016 biofuels
requirements, at least 25 for 2017, and are said
to be weighing several others. Midwest lawmakers and
agricultural interests have viewed any step back
from the RFS, including the blending of
predominately corn-based ethanol, as breaking
a campaign promise. President Donald Trump:
“The RFS which is Renewable Fuel Standard,
is an important tool in the mission to achieve
energy independence for the United States. I will do all that is in
my power as president to achieve that goal.” Under a rarely applied
federal law designed to buoy operations producing
less than 75,000 barrels of oil per day, Andeavor,
one of the nation’s largest oil refining
companies, received waivers for three of
its portfolio of 10 refineries. According to the U.S. Energy Information
Administration, Andeavor’s three plants are capable
of producing 2.3 billion gallons of
gasoline annually. In 2017, the Texas-based
refiner posted profits of roughly $1.5 billion. The revelation sent
prices for Renewable Identification Numbers, or
RINs, spiraling to their lowest level since 2015. RINs are the credits
generated by renewable fuel producers that allow
obligated parties with limited blending capacity
to adhere to federal law. American Fuel &
Petrochemical Manufacturers video:
“Small business owners shouldn’t be forced to
sell an unwanted product just to meet Congress’
decade-old prediction about biofuels.” The oil industry has long
sought government reform of the RIN program
saying prices for the certificates fluctuate
wildly creating an undue financial burden. As further proof, they
point to a controversial court decision which
allowed Philadelphia Energy Solutions, the east
coast’s largest refiner, to avert bankruptcy by
blaming RIN compliance as a major contributor
to its insolvency. For Market to Market,
I’m Josh Buettner. Next, the Market
to Market report. Reaction to China’s call
for tariffs on U.S. commodities was quick. Markets tumbled early
Wednesday, but fundamental news helped fend
off greater losses. For the week, May wheat
was a big winner, gaining 21 cents. The nearby corn
contract added a penny. Soybeans got caught in the
tariff talk as the May contract declined
11 cents. May meal added
$2.30 per ton. In the softs, nearby
cotton improved $1.08 per hundred weight. Over in the dairy parlor,
May Class III milk futures were 45 cents higher. The livestock sector was
mixed again as the June cattle contract
lost a quarter. May feeders
expanded $1.60. And the June lean hog
contract shrank $3.27. In the currency
markets, the U.S. Dollar index
declined 6 points. Crude oil lowered
$2.88 per barrel. COMEX Gold added
$8.80 per ounce. And the Goldman Sachs
Commodity Index moved 9 points lower to finish
the week at 443.15. Joining us now to offer
insight on these and other trends is one of our
regular market analysts, Tomm Pfitzenmaier. Tomm, welcome back. Pfitzenmaier:
Thanks, Delaney. Howell: Well as we saw
there earlier in the program we had some big
news continuing this week that had a lot of moves in
the markets all across the board really but let’s
talk about the bear in the room which is obviously
the retaliation or potential retaliation that
China is going to have or impose on the U.S. here. When we look at what has
been happening is this just a psychological
move from the U.S. and China to try and get
us to bend a little bit? Or what are your
thoughts on that? Pfitzenmaier: Well, if you
sit back and think about it we don’t sell them any
corn anyway so why would corn react? And like you said a minute
ago corn closed up a penny on the week. So the corn fundamentals I
don’t think are affected by this all that much. Soybeans, which are
supposedly the ones that really bear the brunt
of it were only down 11 cents, so that’s not
terrible and meal was actually higher supported
by I think the poor crop in Argentina. So there’s a lot of talk,
a lot of uproar, a lot of volatility but in the
end things didn’t really change all that much and I
think the fundamentals of all those markets kind of
came to bear really by the end of the week. Howell: I think the other
big question we have to ask ourselves and ask you
specifically is do you see this actually
coming to fruition? Do you think China will
actually impose these tariffs? Pfitzenmaier: If we
do they sure will. Yeah, I think that’s
absolutely true. Now, again, it doesn’t
affect corn, they don’t buy much wheat from us,
soybeans they’re already for the next few months
anyway probably going to buy a lot of beans, the
majority of their beans from Brazil, so we’ve got
a lot of time to sort this all out. We’ve got a crop to get
planted, we’ve got a supply and demand report
this coming Tuesday to get sort of sorted through. So there’s a lot of other
stuff to talk about besides that, something
that may or may not happen down the road a ways. Howell: So every wheat was
listed on that tariffs list but they didn’t
really react to the news. Were you
surprised by that? And why did wheat not seem
to rally on that impact? Pfitzenmaier: Well, I
think wheat is, again, going back to you’ve got
how is this winter wheat going to come
out of dormancy? Is the cold weather
going to ruin that crop? Are we going to be able to
plant the spring wheat? How is the European wheat
crop going to come out of dormancy? So, again, there’s a lot
of fundamentals in the wheat market that I think
the trade is watching. Export demand for U.S. wheat hasn’t been all
that spiffy anyway. So yeah I think we’re
pleased to see wheat up 21 cents this week. I think you could see some
follow through on that because of weather issues. We start getting wheat up
around $5 and maybe up to $5.20 I think you have to
start a run out of your bullish enthusiasm and
maybe make some sales on wheat. Howell: Okay. When we look at
Wednesday’s announcements and how they affected the
corn market we had a huge reversal. We’ve had a high this week
of $4.16, a low of $3.96. Which side do you expect
us to break out on? Pfitzenmaier: The up side. I think the fundamentals
on the corn market are pretty good. I have very little
interest in selling corn here for a while. If you have reduced
acreage, we’ve got really good export demand for
corn, ethanol, despite the dustups we’ve had the
ethanol industry has been pretty solid. Obviously we’ve got wheat,
cattle and hog prices because there’s a lot of
them around so they’re eating a lot of corn so
the domestic, the demand side on corn is
solid that way. And if we have any dustup
this summer on yield I think you could see, at
least challenge last summer’s highs at $4.28
on the December contract. So I guess I’m holding out
and believe that $4.16 is probably going
to be nudged out. Howell: Okay. And you’re watching $4.28,
to be clear, on the December contract? Pfitzenmaier: Correct. Howell: Okay. What about export sales? We’ve slowed a little bit
this week from previous weeks. Where do you see
them heading? Pfitzenmaier: I think that
was just an off week. I think we’ll continue
to see good exports. Nobody else has got corn
in the soil that is competitive until June
really so I think we’ve been lagging, we lagged a
little behind through the winter but we’re catching
up and I don’t know that we’re catching up enough
that the USDA is going to make any changes on their
export projections on the report next Tuesday but I
think their numbers are probably pretty
solid at this point. Howell: And when we look
at ethanol specifically ethanol production has
been running higher even with some of these threats
with China going on. Do you expect us to see
that, see the ethanol production rise on
Tuesday’s reports or will we remain the same? Pfitzenmaier: I think
they’re going to leave the export, the ethanol
numbers about the same. Ethanol production has
been decent, stocks are starting to pull down,
which they normally do this time of year. We’re obviously losing
some ethanol export business to China but
other countries are picking that up some. So I think that, I don’t
expect changes there either in the report
Tuesday, Howell: Okay. I think the big portion of
our conversation we wanted to gear it towards
soybeans today because they have been impacted so
much from the news this week. And we’re going to start
here with a social media question. Tim from Crookston,
Minnesota would like to know, can South America
cover China’s soybean needs? And how long can China go
before they would have to buy U.S. beans? Pfitzenmaier: China is
expected to buy about 100 million metric
ton of soybeans. The maximum Brazil is
going to be able to export is probably 75 by most
estimates so there is a gap there that they’re
going to have to come to us to fill. Now, I thought this week’s
export numbers were particularly interesting
because the majority of the purchasing was done
by unknown destinations, presumably China. So you wonder if China
isn’t making the calculation that okay we
can get X amount from Brazil, we need X amount,
how do we, we’ve already bought some U.S. beans, how do we buy
enough to fill that in before all this
potentially dustup becomes a problem on May 22nd? So we may very well have
decent export sales to China over the next six
weeks as they make those sort of calculations. So it could be a problem
farther down the road certainly and if this
persists and it balls up on us it’s going to make
us the residual supplier. Now you know what China is
going to do, they’re going to say we’ll pay X amount
for Brazilian soybeans but we’ll pay substantially
lower than that to incorporate those extra
costs because of the tariffs for U.S. beans. So it’s going to be a
price negative thing for sure on beans if it
persists or actually if anything comes of it. Howell: And that being
said, do you expect other countries to start
looking to the U.S. for soy needs as China has
kind of maybe backed off from buying from the U.S.?
Pfitzenmaier: That already happened. Europe cancelled the
Brazilian purchase and moved the origin
to the U.S. this week. The number I hear on that
is about $100 a ton. If they can get our beans
for less, $110 or $100 less than Brazil they’re
going to start switching back. So that’s the sort of
thing that is going to happen too is if Brazil
becomes a primary supplier to China other people are
going to gravitate toward U.S. beans. So that is going to
minimize maybe that a little bit too. And maybe that is part of
the reason beans are only down 11 cents when all was
said and done this week. Howell: Yeah, when we look
at the end of the week here it wasn’t as bad as
what we had seen earlier in the week. Pfitzenmaier: We can’t
discount meal either. A big chunk of the world’s
meal is supplied by Argentina. A couple of their mills
are down, processors are down because of strikes,
worker strikes down there and our processors are
running full blow to try and produce enough meal. So I think the meal is
going to be a supportive factor for soybeans too
for a while anyway. Howell: Absolutely. And maybe let’s continue
that discussion on Market Plus which can be found
online at I want to take another
social media question here as we transition
into livestock. Gord in Manitoba, Canada
would like to know, when will we see the larger
slaughter numbers in cattle that cattle on feed
reports have been calling for the last six
to eight months? Pfitzenmaier: Our
expectations is that’s going to happen sometime
in this April to June time period, April
to May probably. We’re getting
to that point. They beat cattle up
pretty hard this week. Part of that was the big
tariff discussion but part of it is just expectations
for a lot of numbers. We haven’t had really
great weather for grilling yet so we’re sort of
waiting for that to develop. But in answer to the
question probably April to May period here. Howell: Okay. And when we look at the
cattle complex we had quite the roller coaster
of a week this week. With prices as low as
they have been why aren’t slaughter, or why aren’t
processors killing more? Pfitzenmaier: That’s a
good, I think that’s a demand driven thing. Exports have
been quite good. There’s some
concern about that. But a lot of those exports
to China go through Hong Kong and Hong Kong is
not included in this. So that sort of minimizes,
again every one of these issues you look at on
tariffs if you kind of pull the covers up a
little bit and look under there’s some underlying
reasons why maybe it’s not going to be as bad as the
headlines make you think. Howell: That makes sense. I like that analogy, pull
the covers up a little. We saw also a key reversal
this week for both feeder and live cattle. Do you fundamentally think
that we have bullish fundamentals ahead of
us or are indicators supporting here more
bearish news in the cattle complex? Pfitzenmaier:
How far ahead? Howell: That’s the
question of course. Pfitzenmaier: I think at
some point that’s going to happen but it’s sure not
going to happen in the next three to four months. It’s going to take a while
to work our way through these big numbers and get
all that beef eaten before things are going
to get much better. Howell: Let’s end the day
of course with the hog markets. We were limit down here,
almost limit down, touch limit down at one
point in the week. Have we put in a low for
the moment when we look at the June contract
specifically? Pfitzenmaier: It sure
looks like it to me. We kind of tried to
retest them and couldn’t. I think we’ll probably see
some strength come back into that market. It looked like Wednesday
or Thursday we were kind of trying to do that and
then we had this sort of quasi-announcement of
maybe look into more tariffs came out late
Thursday afternoon late and then that tanked
them on Friday. But I don’t really think
that’s going to, as we go into next week I think
what the market was trying to do on Wednesday,
Thursday is probably going to come back and I expect
to see some buying support in the hog market and the
cattle market next week. Howell: And the April
cattle, or the April hog contract, excuse me, is
almost off the board here. There’s a $21 difference
between the April contract and the June contract. Do you expect the June
contract to drop down to meet the April levels? Or is there a reason that
we’re keeping that premium in the June contract? Pfitzenmaier: I expect
that to reconcile itself. The June is probably going
to end up where April is probably. Howell: Okay. Tomm Pfitzenmaier,
always a pleasure. Pfitzenmaier:
Thanks, Delaney. Howell: That wraps up
the broadcast portion of Market to Market. But we will keep the
conversation going on Market Plus where we’ll
answer more of your questions. You can find it on our
website at Looking to avoid our
social media channels but still want to let us
know how you feel? Send an old
fashioned e-mail to [email protected] Join us again next week
when we dive back into the trade waters impacting
rural America. So until then,
thanks for watching. I’m Delaney Howell. Have a great week. ♪♪ Market to Market
is a production of Iowa Public Television which is
solely responsible for its content. Wherever your operation
takes you, or who you share it with, we’ll be
where we’ve been all along, with you
from the word go. Proud sponsor of
Market to Market. 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. And by Sukup
Manufacturing Company. Offering a full line of
grain drying and storage equipment and steel
buildings, Sukup Manufacturing is on a
mission to protect and preserve your crop and the
tools that produce it.

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