Market to Market (December 13, 2019)

Coming up on Market to
Market — As a deadline approaches with
China, the U.S. signals a deal
without details. USMCA clears another
hurdle with a finish likely in 2020. The Administration vows
to keep a promise made on renewable fuels. And commodity market
analysis with John Roach, next. ♪♪ Pioneer Hi-Bred
International is a proud sponsor of
Market to Market. Sukup Manufacturing
Company – providing equipment and buildings to
store and condition grain to help farmers adjust
to market swings. We build drying, moving
and storage equipment designed to preserve the
quality of their crops. Sukup Manufacturing,
store now, profit later. ♪♪ 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. ♪♪ This is the Friday,
December 13 edition of Market to Market, the
Weekly Journal of Rural America. ♪♪ Hello, I’m Delaney Howell. The announcement of a
trade deal with China had been bouncing around
back-channels and President Trump’s Twitter
account for several days. At the end of the week, a
deal was announced though what’s in the fine
print remains a mystery. The stock and commodity
markets moved higher on the news. Peter Tubbs has more. Initial reports of the
trade deal indicate that tariffs currently placed
on Chinese imports will be rolled back, and that
additional tariffs scheduled to take effect
on Monday December 15th would be cancelled. There may be a “snap
back” provision that would reapply tariffs if China
does not complete promised purchases. The anticipated amount is
sales of $50 billion in U.S. agriculture goods during
2020, double what was purchased from American
farmers in 2017. Analysts estimate that
American businesses and consumers have paid over
$40 billion in tariffs on Chinese products
since January 2018. Harvest delays have
encouraged the USDA to push the deadline for
applications for Market Facilitation Program and
Dairy Market Coverage. The new deadline is
now December 20th. The extension comes as
dairy prices have declined 4 percent in the last two
weeks, reversing an 11 percent rise over
the last 90 days. Block cheddar prices have
lost over 4 percent in the last two weeks after a
13 percent run-up since September. Grain producers have
endured a late and wet harvest, with many
still in the fields. Retaliatory tariffs have
reduced sales of corn and soybean to China by over
35 percent, lowering prices at the elevator
below the cost of production for
many producers. The value of agricultural
exports to China in 2019 are down 11 percent
compared to 2017. A third round of MFP
payments for the 2019 MFP cycle may be issued
in January 2020. The USDA has paid out
$18.5 Billion in MFP payments since 2018. For Market to Market,
I’m Peter Tubbs. Action at the World Trade
Organization’s appellate body has effectively ended
due to a lack of judges. The U.S. has blocked new appointees
for more than a decade over how the group
handles trade complaints. It is unclear
when the U.S. will return. More on this story can be
found at Market-To-Market DOT org Another trade deal
was sealed earlier this week as all parties came
together over the USMCA. Paul Yeager has more on
the landmark trade pact. Three signatures from
representatives of Mexico, Canada and the United
States led to cheers in Mexico City this week. The USMCA earned its
first round of approval in November of 2018. Robert Lighthizer, U.S. Trade Representative: “The
result I think, is the best trade agreement
in history. I think it’s going to do
the most for manufacturing in this region. It’s going to do the
most for farmers in this region. Its digital trade and
e-commerce provisions are the gold standard, there
are none better in the world.” But the exact
details and language have proven to be challenging
and time-consuming. Sen. Charles Grassley: “Four
months of that year, we got to blame President
Trump because it didn’t move because he had
tariffs on aluminum and steel. So it took us five, almost
five months to talk the president out of
that, take him off. He took them off.” And
eventually many of the hurdles were cleared by
the groups working for passage. The pact nudges
manufacturing back to the United States, requiring
40-45 percent of cars eventually be made in
the countries that pay autoworkers at
least $16 an hour. Rep. Nancy Pelosi, Speaker of
the House: “We were in range for a while, but
until we could cross a certain threshold of
enforcement for our worker’s rights, for
environment and for the prescription drug issue.”
The pressure between parties involved in USMCA
negotiations was palpable as they tried to balance
what would earn passage in each country that
was in the deal. Rep. Richard Neal, (D)
Massachusetts, Chairman of House Ways and Means
Committee: “These were intense, argumentative,
angry negotiations. I mean, this got really
hot on a number of occasions. I think we set a world
record for hanging up on each other, myself
and the trade rep. And, but at the same time,
we also knew that this was an opportunity that we
couldn’t let get away from us.” Proponents of the
USMCA wanted to have the deal ratified by the end
of 2019 and out of the 2020 presidential
election year. Supporters will have to
wait for their gift to come in the new year. Sen. Mitch McConnell, Senate
Majority Leader: “We will not be doing USMCA in the
senate, between now and the end of next week. That’ll have to come up
in all likelihood, right after the trial is
finished in the Senate.” Senator Grassley praised
the support from former Obama Secretary of
Agriculture, Tom Vilsack, in seeking approval
for the pact. The dairy industry may be
one of the big winners of the NAFTA replacement. Vilsack is now the
CEO of the U.S. Dairy Export Council. Mexico and Canada
currently import about $1.5 billion in U.S. milk products, more than
25 percent of all U.S. dairy exports. The pair made a push for
passage back in August during a visit to an Iowa
dairy production facility. The U.S. International Trade
Commission or USITC, says USMCA would increase U.S. dairy exports to Canada by
$227 million as the Class 7 policy restricting
imports is removed. Exports to Mexico could
rise by more than $50 million. R-CALF, the nation’s
largest producer-only cattle trade association
says USMCA is a win for agribusiness giants at the
expense of cattle farmers and ranchers. Other U.S. commodity groups praised
the deal as a chance to export more
American-raised goods to their already major
trading partners to the north and south. Sen. Charles Grassley, R- Iowa:
“We’re going to see a $34 billion investment in
manufacturing in the United States, we’re
going to see 174,000 jobs created. So I think that besides
updating NAFTA, which was absolutely necessary. This is a very good piece
of legislation.” The USITC says USMCA would add
$68 billion in GDP and increase food and
agricultural exports by $2.2 billion. The Mexican legislature
could sign off soon. The Canadians are likely
to take the deal up in late January. For Market to Market,
I’m Paul Yeager. Agriculture Secretary
Sonny Perdue travelled to the Midwest this week. He told reporters markets
forces are indicating another round of MFP
payments would be necessary next year. Perdue also spoke with a
gathering of producers to emphasize the president’s
plan for the future of ethanol. John Torpy reports. While giving opening
remarks at the Farmers Business Network
Conference this week, U.S. Department of Agriculture
Secretary Sonny Perdue brought some welcome
news about ethanol. A crowd of almost four
thousand farmers and ranchers attending the
5th annual gathering also dubbed the Farmer2Farmer
conference, learned future blending limits for
ethanol will be set at 15 billion gallons and
will not be affected by exemption waivers. Sec. Sonny Perdue, USDA:
”The President has the attention here, and he
wants me to assure you, that 15 billion gallons
going forward is going to be 15 billion gallons. The small refinery wavers
will still exist, But what you need to know,
that exemption will be accounted for on top of
the line here for a net of 15 billion gallons.”
Blending requirements have been a sticking point for
the biofuels industry, who have been at odds with the
EPA over the issuance of Small Refinery
Exemptions, or SRE’s. The exemptions allow
refiners to forego the federal requirement of
blending ethanol into the nation’s gasoline supply. Ethanol industry officials
have routinely challenged the waivers with the Trump
administration, siting they diminish the bottom
line for farmers in rural America. Sec. Sonny Perdue, USDA:
”Farming is a business and we like it, we love it
as a way of life but it’s gonna be a livelihood as
well and we got up ensure that our farming community
across this country in a sustainable fashion is
a sustainably profitable than that way.” Jeff
Broin, CEO of POET, the nation’s number one
ethanol producer, welcomed the news with a bit of
caution, saying the EPA needs to be held
accountable to the agreement. Jeff Broin, CEO, POET
BIOFUELS: ”For a farmer to get to sustainability,
he has to be profitable, we’re gonna have to use
bio fuels as the bridge Broin added getting back
to 15 billion gallons could help reopen
shuttered ethanol plants, bringing back jobs and
helping rural towns. Jeff Broin, CEO, POET
BIOFUELS: ”Very exciting Future I think
for agriculture. If we can grow bio fuels
the E 15, get the price of commodities up, make
farming more sustainable, and drive cleaner fuels
and cleaner environment.” For Market to Market,
I’m John Torpy. Next, the Market
to Market report. The announcement on Friday
of a trade deal with China overshadowed the rest of
this week’s trade news including a USDA report. For the week, March wheat
gained 8 cents, while the nearby corn contract
climbed 4 cents. The White House says China
committed $50 billion in sales, but China has yet
to confirm the number. The January contract
skyrocketed 18 cents on the rumors and facts. January meal fell
$2.40 per ton. March cotton improved 80
cents per hundredweight. Over in the dairy parlor,
January Class III milk futures declined 67 cents. The livestock sector
finished on a high note. The February cattle
contract put on $2.57, January feeders added
$4.13 and the February lean hog contract
moved $1.95 higher. In the currency
markets, the U.S. Dollar index
shed 51 ticks. January crude oil expanded
87 cents per barrel. COMEX Gold bumped
up $16.20 per ounce. And the Goldman Sachs
Commodity Index gained more than 6 points
to finish at 427.20. Joining us now to offer
insight on these and other trends is our senior
market analyst, John Roach. John, welcome
back to the table. Roach: Thank you,
Delaney, nice to be here. Howell: John, obviously
the big news this week was what happened with the
U.S./China trade news and I want to kick things
off here by asking which commodity, it could be
a grain, it could be a livestock commodity, which
commodity was the biggest winner from today’s
announcement. Roach: That’s a
real good question. We don’t know any of the
details and so knowing who is going to get the best
benefit is a little bit difficult. But what we think is that
the soybean market, a lot of the business that China
has needed they have come in and covered. And so there is just
a small period of time between now and the
harvest of the Brazilian crop before they will be
back competing with us. And so where you’d think
maybe beans would be the biggest benefactor it may
actually turn out to be another commodity. But until we know details
it’s just really hard to know. It was interesting in that
the meat markets were much stronger today along with
the grain markets, oil seed markets and even the
energy markets and gold markets. So all these markets
were all stronger. And part of what is going
on is that the commodity index is moving higher and
as the index moves higher it drags even the weaker
commodities higher. Howell: It seems all ships
were rising by the news of the U.S./China trade
deal this week. Roach: I think that’s
a good expression, yes exactly. Howell: John, let’s talk
about the wheat market because they have been one
that doesn’t really seem to be impacted by
the U.S./China trade negotiations but they
still had another strong week this week. Where is your current
level of resistance for let’s say the December
contract here? Roach: Well, the market
was attempting to, the Chicago market, attempting
to get back up to the highs that we made here
back a month or two ago and with the market
closing firm today we think prices will
inch their way on up. There’s some issues
in Europe with weather conditions, issues in
Australia with weather conditions and some
now in Argentina. So the wheat market is
getting some positive fundamental news. IT was the one market that
had ending stocks pulled down on the report that
came out Monday and has been actually from a spec
trader standpoint been one of their more positive
positions in the market. Howell: John, since you
opened up the door there for the WASDE report, of
course we had that this week, which was
overshadowed and maybe not a big report, but January
is expected to be the big one here, especially
for corn and soybeans. What do you see it
doing in January? Roach: Well, I was in
Illinois earlier this week meeting with farmers in
the northern part of the state, the kind of central
north part of the state, and there were a lot of
farmers that didn’t come to the meeting because the
ground froze and they were able to go combine. We saw beans and corn in
the field, more acres of that than what I expected. The estimates that we saw
from some of the people coming out after the crop
progress report on Monday was that there was still
something near a million, sorry, near a billion
bushels of corn still left in the field. So when we see the report
in January we’ll see how the government is
adjusting for that. We think the numbers need
to come down a little bit. But yields were
surprisingly good this year. And so we’ll have to see
how the government reads that here and counts
those numbers in January. But we look for
a little smaller. Howell: John, I think
I would be remiss if I didn’t at least mention
the big flash sale we saw this week coming from
Mexico, specifically buying U.S. corn. Exports have seemed to
be what has kept a top on this corn market. Is this week’s USDA export
sales an indication that perhaps our corn
exports are picking up? Roach: I think that is
exactly what is happening. The exports satisfying
really world demand have come out of South America
rather than North America. We have lost business
because of their big crops and their cheap currency
discounting their price. But they are out or some
people even think they may have to import a little
bit into South America so they really don’t have
anything available for sale until harvest. And remember, 70% of the
Brazilian corn crop is a second crop, so it gets
planted in January, February, there will be
30% of the crop that will be harvested but the
majority will still be several months away. So we think the export
market for corn will be rather brisk as we move
through the first half of 2020. Howell: John, with that
being said then, we could see USDA alter their
January yield and potentially acreage
numbers, we could see a big window here
for corn exports. What is your price target,
what is the high end of where you think corn could
trade the next couple of months? Roach: I never know
how high prices can go. It would be nice if you
could put your number out there. We pay attention to the
momentum of the market and when we reach the
beginning of a peak we issue a sell signal. And we never know exactly
where that peak is going to be. But when the lines cross
we know that our system is saying this is the
beginning of the peak. And so we try to keep a
relatively open mind as to price level. But let’s be a little more
specific because I know you want me to be. I think prices will be
moving up as we move in through the first part of
the New Year it might be a little bit sluggish unless
something comes out of this China program
immediately. We’ve got people needing
to sell at the end of the old year and at the
beginning of the New Year and farmers are really
needing to get some sales made. So I don’t think the
market has to go up very far to trigger those
farmer’s sales. We’ve got to get the
farmer a little more comfortable financially so
that we then can get them into a holding pattern
moving on through the winter into the spring. And so I would look for
a similar kind of price increase as we saw last
year from winter into spring and we’re talking
20 to 30 cents on corn. Howell: John, what are the
signals showing you in the bean market? Roach: We’re nearly
to a sell signal. We’re just another day
or two away from a sell signal in beans. We have a sell signal
today in cotton. We have a sell signal
today in Minneapolis wheat. So we have markets that
are starting to show the beginning of peaks, we
have the index moving higher for commodities,
that is the reason we think we can gather some
steam here and get some sell signals in the
next couple of weeks. Howell: John, since you
brought up cotton there, we don’t often talk about
it on the main program, but you said that there is
a sell signal in place now for cotton? Roach: Yes, we triggered
that, cotton is getting the same kind of a
response and optimism from the settling of the
Chinese tariffs and trade dispute. Howell: All right, John,
this week’s report was definitely overshadowed
but there was one thing in particular that stood out
to our listener Bradley in Upland, Nebraska and that
was the USDA’s reduction in feed use and residual
numbers, even with the record number we have in
cattle, pork and chicken. He’d like to know, are
they just lowering the number because
production is lower? OR will residual use
actually decline enough to offset higher feed use? Roach: Whoa, you’re
getting down into the weeds here. The residual, when we
start talking about those of details that actually
is very difficult to explain in a short
period of time. What I think the USDA
is doing is making some adjustments in its
baseline and moving their feed and residual
numbers to get lined up. I don’t think it’s a
big deal personally. Howell: Okay. John, is it a big deal
this week the premium that we showed in the
cattle complex? Feeders were up even on
Friday, they seemed to rally on the news too when
it didn’t seem that the U.S./China trade deal was
going to be a big deal for the cattle complex. Did they rally on that
news or something else going on? Roach: Well, the cattle
market has been a very strong market and so the
futures are strong, they are leading the cash, but
that is the direction the market wants to move. And when we start seeing
the cattle market move in a direction it seems to
just generate its own power as it goes. We are thinking that this
next week will be getting some sell signals in
cattle and starting to put some hedges on cattle that
people are wanting to get protection but we don’t
really want to be bearish on any of these meats. We think that the
situation with China continues to be positive
for meats really around the world, for all
proteins around the world, as they are building
up their hog herd. They’ll be buying in
additional meats as they need in order to hold down
the inflation on food in their country. Howell: John, when you
look at the February live cattle contract can they
continue to be supported at these prices? Roach: I think we can inch
a little higher but we’re going to be willing to
sell into them next week. Howell: And John, when you
look at the feeder cattle market they had a very
strong week this week. Where do they
head from here? Roach: Well, I would
be cautious with feeder cattle because you have
two things working, you have the fat cattle market
which is maybe getting a little toppy and a corn
market that may be about ready to run up
a little bit. And so feeder cattle,
we think you have to be cautious here
a little bit. We don’t expect a big
down in the market. We just think it’s an
expensive proposition putting high breakeven
cattle into the feedlot. Howell: And John, what
would you be recommending to those feedlot producers
in the case that corn may have a potential
rally in sight? What protection strategies
are you recommending right now? Roach: I think if you’re
in the livestock feeding business you should own
all of your corn or most of it and you should own
all of your protein or most of it. We have gone through
the negative part of the market and we have spent a
year, longer than a year, battling our
biggest customer. We have watched our
biggest customer lose half of their hog herd. And so that is
the history. We also had monster crops
in South America and monster crops in the
United States a year ago, we didn’t this year. So our surpluses
are coming down, the opportunity, really risk
opportunity there’s more risk to the upside than
there is the downside in our opinion for the
livestock feeder as far as feed is concerned. Howell: And John, let’s
round out the conversation with the lean hog market. I wanted to ask in
particular the December contract finished down
on today even with the U.S./China trade news
while the deferred contracts had a large
premium being built in. Why did the December not
react to today’s news? Roach: We have too many
hogs right now and our numbers have been big. In fact, as we’ve had a
problem kind of a market for the past couple of
weeks the market has really been pressured. We were ready for the
Chinese business and the Chinese business hasn’t
really materialized to the size we thought it would. And so now the market
is encouraging more pork production out into the
future and that is what is giving, the price is
moving higher to do that. Howell: And John, how
much of a cap do you think we’re going to continue
to see as we increase pork production but hopefully
China buys here in the short-term? How much of a cap will we
put on that if we continue to see large increases
in production? Roach: Well, again,
it’s a question of size. It’s a question of how big
the Chinese market is for pork for right now and
how quickly they buy. And they can literally
come in and clean up all surplus or they can
continue to go slow and allow us to kind of wallow
around in that surplus a little bit. That is what we
have been doing. And the good news is that
there is a change here and I think we have to for a
moment stop and say, let me just give this a minute
here, let me watch, I know you feel a little bit like
Charlie Brown and having the football pulled out
by Lucy, but this time it looks like the football is
going to stay there and so give it a few more days
before you do anything very rash. This could be a real big
surge of demand in 2020. Howell: And John, let’s
say we do see that surge in demand. How much more could we see
the lean hog market rally? Roach: We could go back to
the contract highs if we have the right kind of
business come at us. Howell: All right, John
Roach, thank you so much, always a pleasure. Roach: Thank you very
much, Delaney, nice to be here. Merry Christmas. Howell: Merry Christmas
to you too, John. 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 Facebook allows you
to keep track of your favorite interests
including those in rural America. You can find our links
and photos at IPTVMarket. Join us next week when
we’ll explore how a group of farmers are growing
their operations by sharing their talents. So until then, thanks for
watching and 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. Sukup Manufacturing
Company – providing equipment and buildings to
store and condition grain to help farmers adjust
to market swings. We build drying, moving
and storage equipment designed to preserve the
quality of their crops. Sukup Manufacturing,
store now, profit later. ♪♪ 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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