Market to Market (August 2, 2019)


Coming up on Market to
Market — Turning up the heat on China. Raising the
stakes on USMCA. The view of rural America
from on top of Capitol Hill. And market analysis with
Darin Newsom, next. Pioneer Hi-Bred
International is a 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. ♪♪ Accu-Steel,
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of cattle buildings. Information at accusteel.com. ♪♪ Sukup
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farmers adjust to market swings. We built drying, moving and
storage equipment designed to preserve the quality of their
crops. Sukup Manufacturing, store now,
profit later. ♪♪ This is the
Friday, August 2 edition of Market to Market – the
Weekly Journal of Rural America. ♪♪ Hello, I’m
Delaney Howell. Farm country continues to
push through hard times even as the nation is
experiencing the longest period of economic
growth in its history. However, there are signs
that things are slowing down. Creighton’s
Mid-America Business Conditions Index fell 3
points indicating economic growth is weakening in
the 9-states it surveys. While Department of
Labor data shows the unemployment rate held
steady at 3.7 percent only 164,000 jobs were created
last month – down from last year’s monthly
average of 236,000. The Fed has been watching
and voted to give the economy a kick-start by
lowering the interest rate it charges banks by a
quarter point – the first cut since the George W. Bush administration. The softening world
economy is a backdrop to the current U.S. trade war with China. More tariffs have been
threatened but this is only one deal the Trump
Administration has on the table. Paul Yeager has more. An American delegation
spent part of the week in China talking trade ending
in what both sides called a “constructive” session. However, the only
agreement from the 12th round of discussions was
to have more talks in September. Senator Charles Grassley,
R – Iowa: “Well, the only way you can read it is
it’s got to be considered very positive, because
we weren’t talking would never get an agreement.” But just hours after U.S. Trade Representative
Robert Lightheizer and Treasury Secretary Steven
Mnuchin left for home, the president tweeted. President Donald Trump:
“But when my people came home they said we’re
talking, we have another meeting in early
September, I said that’s fine. But in the meantime until
such time as there’s a deal we’ll be
taxing them.” His comments were seen as
a way of applying pressure to the Chinese with an
additional 10 percent tariff on the remaining
$300 billion of Chinese imports beginning
September 1. The president has already
implemented 25 percent tariffs on $250 billion
in Chinese products while Beijing has countered by
taxing $110 billion in U.S. goods – the majority in
the agriculture sector. The latest round could
impact more consumer products than
previous enactments. The news came just after
the White House confirmed China’s intent on buying
American farm products. Tom Vilsack, CEO U.S. Dairy Export Council: “I
suspect that if they do purchase agricultural
products in the U.S. is only because they
actually need those products, not because
they’re negotiating in good faith. You know, the Chinese
almost never purchase product because out of the
goodness of their heart, they do it because they
fundamentally need the food. And I think with the
devastation that they’re currently seeing with
their pork industry, they have a need for protein.” Former USDA secretary and
current CEO of the U.S. Dairy Export Council, Tom
Vilsack, was on the trade circuit this week, first
as a witness in a Senate Finance Committee hearing
on the United States Mexico Canada Agreement. The USMCA still needs to
be ratified by the House before it ends
up in the Senate. Sen. Charles Grassley, R- Iowa:
“Surely nobody could consider NAFTA to be
better than USMCA. And nobody, and let me
emphasize this, nobody should dismiss the
importance of a half-trillion dollar
market for U.S. exports.” Vilsack says the
administration is anxious to get a win and hopes the
pact between the three major trading partners is
complete before the end of 2019. Tom Vilsack, CEO U.S. Dairy Export Council:
“Trade agreements are always hard. They never are won
by large margins. So it is important, I
think, to get it done as quickly as we
possibly can. But to get it done right,
in a way that people are genuinely satisfied. This is better
than NAFTA.” For Market to Market,
I’m Paul Yeager. The Family Farmer Relief
Act of 2019 passed Congress this week giving
farmers more of an opportunity to use Chapter
12 of the bankruptcy code if they need it. Previously, only farmers
with a maximum of $5 million in debt could
qualify for relief but the bill raises the
limit to $10 million. The measure is on its way
to the president’s desk. The legislation was
created as an answer to constituents looking to
modernize the 30- year old bankruptcy standard. Last week, I was in
Washington D.C. and spoke with House Agriculture
Committee leaders and USDA officials. Our Cover story is a look
at some of what they’re watching in rural America. American dairy prices
have been under siege for several years due to
production outpacing demand and a blockade to
expansion in Canadian markets. Wisconsin, the country’s
number two dairy state, has seen its herd size
fall 40 percent over the past decade as more farms
consolidate or bow out of the business. House Agriculture
Committee Chair Collin Peterson of Minnesota
says the stress on dairy producers competing in
world markets is hurting the small town
way of life. Rep. Collin Peterson, D
— Minnesota: “We’re competing against New
Zealand and other places that are very low
cost producers. Uh, the way the industry
has, has moved ahead. They have a world market,
you know, that we now have to compete in and that’s
forced, um, the prices to be more competitive. Uh, so you have to, it’s
made it difficult for small producers to be able
to compete because they have higher costs per
hundred weight than a large producer just by,
because of economies of scale./ But in my part of
the world and in Wisconsin and places like Vermont,
uh, some of these small towns would cease to exist
if those small producers were not there. You know, so that’s why I
made it my mission to get a program for us all
producers, they only produce 14 percent of the
milk, so they’re not going to collapse some market,
you know, and it’s, um, a way to try to maintain
that way of life out in rural America.” The problem is hitting
more than just the dairy industry. Farmers producing corn and
soybeans have been riding a roller coaster of bad
news for over a year. Grain prices tumbled this
week on news of good growing weather and
threats by President Trump of increased tariffs
on Chinese goods. The President’s threat was
motivated by China failing to make promised
purchases of U.S. farm goods. The move sent commodity
prices into a steep dive shortly after the
announcement. The trade war with China
has brought tough times for many producers. USDA officials have
offered farmers assistance through Market
Facilitation Program payments. House Agriculture
Committee Ranking Member Mike Conaway of Texas sees
MFP payments as necessary but only as a
short term fix. Rep. Mike Conaway, R – Texas:”
So Times are hard in production agriculture,
which means you’re going to be hard in rural
America because you’ve got it’s a symbiotic
relationship between, uh, producers and how
profitable they are as well as how then they’re
able to spend their money within their communities
and, you know, help prosper rural America
so hard times. But we’ve got a, we’ve got
a safety net in place that thank goodness that uh,
will help alleviate some of those issues. These market facilitation
payments will be a good shot in the arm, but it’s
a relatively a one time deal, although there
may be three payments associated with it. It’s not something you
could count on year after year after year, but it’ll
certainly help, uh, yeah, near term with respect to
the folks who get those checks in August.” The latest edition of
the Market Facilitation Program was announced last
week and has already seen many producers heading to
their local FSA offices to complete the signup. However, the question of
how much grain will be harvested this crop year
remains uncertain for growers and commodity
market traders. Undersecretary Bill
Northey- “Large parts of this country are
having challenges. I have been to some areas
in the northeast where we have a tremendous looking
corn crop right alongside a crop that, uh, only
waist high in July, uh, and has a long ways to go. So it’s really hard for
me in my anecdotal piece, either in conversations or
in seeing the crop to be able to have a good
analysis of where those challenges are. But we have challenges in
large parts of the country to our crop. While we have some good
crops, uh, and in many, the places of the country,
we also have some real challenges.” The 2018 Farm Bill
contained landmark provisions allowing hemp
to be grown for profit. While Kentucky Senator
Mitch McConnell, a Republican, has
wholeheartedly endorsed the alternative crop,
Conaway has reservations. Rep. Mike Conaway, R —
Texas:”I worry that we opened Pandora’s box. And so we’re trying to get
as much information as we can.” Next, the Market
to Market report. President Trump’s
announcement of increased tariffs and growing
weather across the country pressured the commodity
markets lower. For the week, September
wheat fell a nickel while the nearby corn contract
plummeted 15 cents. The President’s threat to
enact tariffs on another set of Chinese goods on
September 1st sent the September soybean market
on a 33 cent tumble. September meal fell
$10.40 per ton. December cotton declined a
$5.12 per hundredweight. Over in the dairy parlor,
September Class III milk futures fell 20 cents. The livestock sector
took it on the chin. October cattle cut $2.07. September feeders
shed $5.87. And the October lean hog
contract plunged $13.72 cents. In the currency
markets, the U.S. Dollar index
gained 13 ticks. September crude oil lost
76 cents per barrel. COMEX Gold rose
$22 per ounce. And the Goldman Sachs
Commodity Index declined more than 9 points
to finish at 407.20. Joining us now to offer
insight on these and other trends is market
analyst Darin Newsom. Darin, welcome back. Newsom: Thank
you, Delaney. Howell: Darin, I’m
surprised you didn’t wear black today. Newsom: It would have
been appropriate. Howell: It
would have been. We had really all the
commodities close down as we just mentioned there. Starting off here in the
wheat markets, they have really been playing follow
the leader with the corn market it seems and corn
broke through some major resistance this week. So where does
that leave wheat? Newsom: Wheat right now
is just kind of stuck in limbo. It really has no
reason to go up. But what’s interesting is
what happened on Friday in the wheat market and where
we saw the Chicago market, the September contract
went up 15 cents today, or on Friday, and the
December was up 10 cents. There was a lot of
commercial buying coming into the wheat market,
Chicago wheat market, the lower quality wheat market
at the end of the week. And what this might be
telling us is that problem with the heat wave in
Europe is getting worse and so when you close
out of Friday like that sometimes there is an
asterisk involved. But it certainly means we
need to keep a close eye on it come Monday, Sunday
night into Monday, to see if there’s any follow
through buying, to see if there actually is some
commercial interest if there’s some concern, if
there’s an idea we’re going to see better
demand for U.S. wheat because of the
problems in Europe. Howell: And if we do see
better demand, will demand keep prices here or allow
prices to get a little stronger? Newsom: Wheat doesn’t mind
divorcing itself from corn and soybeans. Corn and soybeans can go
kind of crazy so wheat will go off on its own
crazy path every once in a while and it
likes to do that. So even if corn and
soybeans struggle, let’s say the weather forecasts
are fine for corn and soybeans once we come out
of the weekend and go into next week and we still see
some commercial support in the wheat market they
won’t mind going up. Long-term, still a lot of
wheat that we’re dealing with. We’re dealing with ample
supplies to meet demand. But we could see a little
bit of a bounce in here. Howell: Okay. Darin, we’ve got to talk
about what’s going on in the corn markets. We mentioned there went
through key resistance this week. Is it forming a head and
shoulders formation? Has it already? And where do we
head from here? Newsom: No, it’s not
a head and shoulders formation. I know there was a lot
of talk about it but it wasn’t the actual pattern. And the reason why is
because one of the, the right side of the neckline
before we started the shoulder actually dipped
below the left side. That’s a very
technical reason. Bottom line, it wasn’t
a head and shoulders pattern. What we had was a — what
we had, have, whatever you want to call it, is a
secondary downtrend on the weekly chart. Why? Non-commercial
traders are selling. Why? Because fundamentals have
gotten a little less bullish. Fundamentals are still
bullish in the new crop market, that
hasn’t changed. But they’re not as bullish
as they were before because the last two or
three weeks have seen better weather. So we’ve backed that
off a little bit. We did some down to some
support, we blew through $4.18 and a half, we went
through $4.05 and a half and then came back and
closed above that level. So I think that was a
semi-bullish sign going into the weekend, I think
the market wants to maybe stabilize now, see what
the weather does this weekend, see what the
weather forecasts are for this week and then low and
behold before we know it August 12th will be upon
us and then things will get fun again. Howell: You don’t pay
attention to the reports though, Darin. Newsom: I don’t, no,
but a lot of folks do. They’re ridiculous. I could go off on a rant,
as you well know Delaney, but folks will be
watching on August 12th. Howell: But we have a good
question actually from one of our analysts who hasn’t
been on in quite some time but you know
her very well. Angie in Michigan
@GoddessofGrain on Twitter. She sent in a pretty
good question. I think you guys were
having a Twitter discussion about it. She said, you’ve always
questioned the USDA and its inability to
accurately report the situation on the ground. Moving onto the question
she said, what would he suggest we look at for a
better idea of what is actually taking place when
it comes to overall supply and demand? Newsom: My answer has been
the same as it has for the last 20 some years, it’s
not about accuracy because accuracy is impossible. With the way USDA is set
up and its process is set up there’s no way the
numbers are going to be accurate. What I’m wanting, what I
have always suggested, what I’ve always suggested
is a nice way of saying demanded, is that USDA not
even release their guesses because people are foolish
enough to look at them. Howell: But USDA aside,
what are you watching then on a supply and demand
— Newsom: What I always have, basis and spreads. I just talked about how
corn isn’t as bearish as it used to be, excuse me,
as bullish as it used to be, but it’s
still bullish. How do I know that? The forward curve in the
new crop market, still bullish. It’s the same no matter
what market we’re looking at, you look at the
spreads, you look at basis, it tells you
everything you need to know. You don’t need to know
acres, you don’t need to know yield guesses, you
don’t need to know any of that because it’s
all just guesswork. All we need to know is
what the market’s opinion is and that is through
basis and spreads. Howell: Well, tell me then
what’s going on in the spreads when you look
at the soybean old crop versus new crop? Newsom: That’s
apples to oranges. Toss that out. There’s a lot of people,
a lot of traders like to look at the Dec-Dec,
December 2019-December 2020 corn spread,
that’s fine. But you’re talking about
two different fundamentals situations. Same thing in soybeans. I heard you mention
September soybeans earlier. September soybeans are
one of those weird months where, one of those weird
contracts where there’s very little open interest
and you don’t know if the commercial side is under
the September contract right now, under the
November contract right now. So basically the September
is out there on its own and the only fundamental
read we can get on the September market, the
September contract is through basis. Basis has been strong but
this week is the week it normally tops out and then
it starts to work lower. As far as the new crop
forward curve, it has been going down. We’ve seen the carry
continuing to get stronger. It has moved from a
bullish situation to neutral at best. That means there’s getting
to be more concern over the supply and demand
situation long-term and that tells me more about
any trade war than all of the made up headlines
coming down from Washington and trade talks
and all these things. It’s not going
to get done. We still have a problem. And supplies continue to
grow even if we have a crop problem. That is what the new crop
forward curve is telling us. Howell: When you look
at new crop then from a technical perspective and
on the chart, are we going to go back down and fill
that gap made earlier this summer? Newsom: On the spreads
or on the futures? Howell: On the futures. Newsom: On the futures. On the corn market? Howell: Soybeans. Newsom: Soybeans, excuse
me, I got my markets twisted around there. We certainly could. Technically we are still
in a secondary downtrend. We broke out this week,
as you said we’re down 30 cents. We broke out of a
consolidation pattern. Usually that means more
than one week down. And we’re seeing selling
coming from both sides of the market, both
commercial and non-commercial. So really unless the
weather changes, unless we start to see weather
forecasts saying it’s going to get hot and dry
again, weather forecasts stay relatively benign,
yeah I would look for continued pressure in
the soybean market. Howell: Okay, how much
further down could we head? Newsom: Yeah, I had
somebody ask me if we could get to $8.50. I think we’re around
$8.70, $8.80, something like that, $8.50 is not
that far away given the slide that we’ve seen. We closed at a new weekly
low in the November to July futures spread. So if that continues
$8.50, $8.30, maybe even a little lower, maybe we
could approach those lows from May around $8.20. Howell: I’ve got one more
question for you, Darin. As you look at heading
into the harvest season here do you think we’re
going to have a harvest or post-harvest rally in
the soybean market? Newsom: Why would we? We can’t sell them. We’re not selling them. Yeah, we hear all this
chatter that trade talks are going great. So they’re going so great
we’re going to throw more tariffs at China. Yeah, we can’t sell
the soybeans we have. We’ve got a more bearish,
or less bullish supply and demand situation. I don’t see, we could have
a counterseasonal harvest rally but there’s no, I
don’t think it’s going to be one of those things
where we really blow out the top. There’s just no backing
for it from either side of the market at this point. Howell: Okay. Darin, we’ve got to talk
about what happened in the cotton markets, over $5
loss from last Friday. What’s going on there? Newsom: It’s the same
thing, look at the list that you read, every
commodity was just pummeled this week. Cotton just got
caught up in it. It’s the same thing. It’s commercial selling. We saw the December lost
over $5, we saw the March contract lose
more than $4. So the commercials are
loading up and selling on the nearby contract. We don’t have any demand. Maybe we have
a crop problem. We don’t know. But we have no demand and
it’s the same thing down the line everywhere we
look, a lack of demand. Any why do we have that? We’re having all kinds
of trade problems. The more trade problems
you have the less demand you have, it just
goes hand-in-hand. As long as we continue to
do that these markets are going to struggle. Howell: Is the picture any
brighter when you look at the livestock market? We got headlines out just
after the market closed that we have a new or an
increased trade amount with the EU on beef. So does that
change the story? Will they react to
that on Monday’s opens? Newsom: They could. I’m not overly
enthusiastic about it. We saw the daily chart
turn bearish here at the end of last week, early
this week, so that is one of the reasons why we were
pushing cattle lower. Didn’t see a lot of
commercial selling in the cattle market. So long-term they could
try to climb back up. I don’t think we’re going
to see any huge rally in cattle. But I think there is going
to be a buying opportunity to take a short-term
shot at this thing. Flipping the coin, look
what happened to hogs. Hogs were down
$11, $12 this week. It was quite literally
a blood bath in the hog market. And that was a market that
was trying to show some signs of getting better,
of getting more bullish, gaining some momentum, the
commercial side coming back in. Everything just
blew up this week. So they have to start
over, if we’re going to start rallying that market
again they’ve got to start from scratch next week. Howell: Darin, why did
we see such a blood bath going on in the lean
hogs markets this week? Newsom: There is just no
demand right now and when you have no demand for the
hogs, you see the cash markets coming down as
well, spreads are falling apart, there’s just no
demand for hogs right now and when that happens
and you can’t get anyone buying the sellers are
more than willing to jump in. Howell: How much of the
African swine fever or the lack of demand from
African swine fever is playing into the lean
hog market right now? Newsom: I still think
that’s weighing on things. We don’t hear as much talk
about African swine fever as we were before a few
months ago but I still think it’s weighing
on the market. And so we played it up and
it came back down, now it has tried to rally a
little bit and the bottom fell out. Howell: Okay, Darin, I
want to go back here to feeders. We kind of jumped ahead,
jumped over feeders. But they had a roller
coaster ride this week. They closed almost limit
down in the October contract. Are they trying to
test for a new low? Newsom: Of the three, I
shouldn’t say out of the three, between live cattle
and feeder cattle, feeders may want to try to go to a
new low and the reason why would be if for some
reason corn starts to find some buying
interest again. If we see a weather change
and if the sentiment in the corn market starts to
get that we’re going to start tightening things
up again, we see the commercial buying coming
back, that could put some pressure on the
feeder cattle market. So of the two markets
between live and feeders I do think feeders are the
ones that probably have some more
downside to them. Howell: Darin, how much is
the dollar’s highs this week impacting what’s
going on in our exports? They’ve already been
pretty dismal — Newsom: We’re not exporting
anything. Howell: Is it because of
the dollar we’ve had? Newsom: No, no, the dollar
just keeps going up. What’s interesting is we
cut rates this week, the dollar goes up. That’s counterintuitive,
that just normally doesn’t happen. So the dollar right now is
one of those markets that just won’t go down. I don’t really think it’s
playing into the exports right now because we’re
not selling anything and we’re certainly not
shipping anything and we can look at the weekly
export shipment pace for that. So I think they’re acting
more on their own right now. But what is interesting is
as the dollar is going up we are seeing the
Brazilian real also weakening and I think
that’s playing a part in it. Until Brazil completely
runs out of soybeans it’s certainly making their
supplies that much more attractive. So I guess in that respect
it’s probably still playing a role, the
strength of the dollar is still playing a role, it’s
just that the strength of the dollar isn’t
necessarily pushing the real lower, the real is
just working lower right now. Howell: Darin, you didn’t
wear black, so we know you’re not maybe quite
that gloomy as usual. Is there anything to
be positive about? Newsom: Can’t you tell
by my sunny disposition? If you want sunny,
look at what gold did. Gold was incredible,
it’s up challenging its previous high. But let’s flip that coin. Why is gold so, why did
gold rally $50 off its low just on Thursday? Because the world
if falling apart. We’re escalating the trade
war and we backed out of a nuclear treaty
with Russia. There is concern
all over the world. We saw triple digit losses
in almost every global equity market. Where are they
going to go? They went over to gold. Howell: All right, Darin
Newsom, thank you so much. Newsom: Thanks, Delaney. Howell: That wraps up
the broadcast portion of Market to Market. But we will keep this
conversation going on Market Plus where we’ll
answer more of your questions. You can find it
on our website at Market-to-Market.org. Subscribe to our
YouTube channel. You’ll get notified when
the program and Market Plus are online. Find us at
Market to Market. Join us again next week
when we explore a farmers market that gets to set
up in the Library of Congress. 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. Pioneer Hi-Bred
International is a 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. ♪♪ Accu-Steel,
offering fabric covered buildings specifically
designed for the cattle industry since 2001. The next generation
of cattle buildings. Information at accusteel.com. ♪♪ Sukup
Manufacturing Company, providing equipment and
buildings to store and condition grain to help
farmers adjust to market swings. We built drying, moving and
storage equipment designed to preserve the quality of their
crops. Sukup Manufacturing, store now,
profit later.

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