Market to Market (January 29, 2016)


Coming up on Market to
Market — Monsanto fights to keep Roundup off the
domestic carcinogen list. And agriculture’s changing
role in politics on the eve of the nation’s
first Presidential test. Those stories and market
analysis with Sue Martin, next. Funding for Market to
Market is provided by Grinnell Mutual. You think differently
about a customer when you stand in the middle
of his dreams. We work to make sure
you get covered right. Grinnell Mutual —
a policy of working together. Information on finding
an agent near you is available at
grinnellmutual.com. This is the Friday,
January 29 edition of Market to Market, the
Weekly Journal of Rural America. Hello, I’m Mike Pearson. Despite the recent hits to
energy, manufacturing and Wall Street, consumers
were still willing to open their pocketbooks
last month. According to the
Conference Board, Consumer Confidence rose as oil
prices fell amidst a poor industrial climate
in December. Commerce Department data
showed a 5.1 percent fall in durable goods. Excluding transportation,
the volume of orders declined 2.1 percent
to close out 2015. The lower output
pushed U.S. Gross Domestic Product
down to an annualized rate of 0.7 percent in the
final quarter of last year. However, GDP for the
entire year rose 2.4 percent. The Federal Reserve Board
took a closer look at the cards being dealt for the
world’s economic future and chose to “check”
instead of “raise” interest rates. Wall Street, expecting a
different outcome, fell more than 200 points on
the news–only to rebound at the end of the week. The current macro-level
struggle on Wall Street to make a profit and maintain
investor confidence can always be found
at a micro-level. A case in point
is Monsanto. As the seed division
continues to combat attempts to add the phrase
“contains GMO products” to food labels, the chemical
division is embroiled in a battle of its own. Late last week, Monsanto
Company filed a lawsuit in California seeking to
prevent lawmakers there from adding glyphosate,
the main ingredient in its Roundup herbicide, to
the state’s list of known carcinogens. California law requires
the state to maintain a list of deadly chemicals
to keep residents informed of risk. The Golden State’s Office
of Environmental Health Hazard Assessment said in
September that it planned to classify the
compound as a probable cancer-causing agent
– echoing World Health Organization action
in March 2015. Roundup, used worldwide,
generated $4.8 billion in returns for Monsanto
in fiscal 2015. Genetically modified corn
and soybean crops which tolerate the weed killer
are part of the backbone of the U.S. farm economy. The St. Louis,
Missouri-based agricultural giant cited
decades of studies that have deemed the herbicide
safe, including positive conclusions by the same
California agency in 2007. Monsanto argues – in this
instance – designation under California’s
Proposition 65 would cede authority to an
“unelected, undemocratic, unaccountable, and foreign
body”, saying WHO’s classification is
inconsistent with regulatory bodies
in the U.S. and around the world. To much uproar, the
European Food Safety Authority, which advises
EU policymakers, issued an opinion in November
2015 that glyphosate is unlikely to cause cancer. In 2013, Market to Market
reported on the dramatic increase of cancer and
birth defects in two Argentine provinces. The new cases corresponded
with the introduction of genetically engineered
crops to the South American country in 1996
that were followed by the alleged misuse of
pesticides and herbicides. Under the proposal, all
companies selling products in California which
contain glyphosate would be required to provide
a “clear and reasonable warning” the chemical is
known to cause cancer. Monsanto contends adding
Roundup to the Golden State’s list of
carcinogens would violate the company’s First
Amendment Rights and damage its reputation. Since the WHO decision
last year, numerous lawsuits have been filed
against Monsanto, alleging the company knew the
potential health dangers of glyphosate for decades. The Constitution, which
guarantees the First Amendment right of free
speech, was drafted when the country was
predominately rural. While there are many
influential farm-state lawmakers in Congress
today, specific rural issues rarely
dominate the agenda. Few presidents elected in
the past half-century have direct links to the land. And the last two State of
the Union addresses gave little or no mention
of agriculture. Regardless of the
transition of most political issues from
rural to urban, there has been no change in where
the first steps towards the oval office are made. Paul Yeager explains. Rural America again serves
as the first battleground of the presidential
campaign sequence. Iowa is where the tall
corn and animals dominate the national perception
of the state. So, too, does the presence
of candidates seeking the nation’s highest office
every four years. If an appearance at the
Iowa State Fair counts as dealing with farm issues,
then the candidates still in the race passed this
exercise by flipping pork chops and getting selfies
with the famous Butter Cow. Nearly one-third of the
Hawkeye State’s economy is agriculturally based, but
issues of that subject have not garnered equal
time on the stump this cycle. In March of 2015, Iowa
agricultural and energy businessman Bruce
Rastetter hosted the Iowa Ag Summit. Two dozen were invited
from both parties, but only nine republican
candidates attended and took questions on issues
impacting farmers from Rastetter. However, one candidate
didn’t take the populous company line when it
came to renewable fuels. Bruce Rastetter: “How
about we deal with elephant in the room
right away, a week ago you talked to Club for Growth,
and you talked about you’re opposed to ethanol
subsidies, and those subsidies, as you’re
aware, were eliminated in 2011, talk about that. Sen. Ted Cruz, Republican
Candidate for President: “I think biofuels have a
major role in the energy market and they’re going
to continue to have a growing role. I also don’t think, and
you and I have talked about this, a number of
times before, I also don’t think Washington should be
in the business of picking winners and losers. When it comes to energy,
we should have an all of the above approach. But it should be
driven by the market.” Senator Ted Cruz was not
invited to last week’s Iowa Renewable Fuels
Summit because of this stance. The Iowa Renewable Fuels
Association board of directors asked republican
and democratic candidates to appear that they deem
to have favorable views on biofuels. Past Iowa Caucus winners
Mike Huckabee and Rick Santorum, along with Carly
Fiorina and Donald Trump all accepted
the invitation. The New York businessman
had a rare scripted moment in his campaign during
his time on stage. Donald Trump, Republican
Candidate for President: “The RFS, the Renewable
Fuels Standard, is an important tool in the
mission to achieve energy dependence for
the United States. I will do all that is in
my power as President to achieve that goal.” Huckabee, the former
Arkansas governor took the opportunity to highlight
policy differences with Mr. Cruz. Mike Huckabee, Republican
Candidate for President: “You have people running
for president who think that maybe we should
get rid of the RFS. Maybe instead we should
get rid of the candidates who don’t have a clue
about the value of agriculture in America,
and make sure we don’t waste billions of dollars
of infrastructure.” Santorum, the former
Pennsylvania senator was making his third
appearance at the Summit, took his time to encourage
renewable fuel advocates to support a candidate
that has their best interest in mind. Rick Santorum, Republican
Candidate for President: “Iowa is not going to
stand and support the RFS, why do you think the rest
of the country is going to. You will kill RFS and Iowa
will have her fingerprints on the weapon. Businesswoman Fiorina also
spoke in favor of the RFS and free trade. But made some of her
strongest comments against the Environmental
Protection Agency recounting a story of a
farm tour she took last summer. Carly Fiorina, Republican
Candidate for President: “That patchway of grass
in the middle of that farmer’s the soybean
field, he has a lot more reason to manage that
water well, to protect his land to protect his
investment, to protect his family, to protect
his community.” Iowa has served more as a
backdrop for the campaigns than a backbone of
their candidacies. Monte Shaw, Executive
Director, Iowa Renewable Fuels Association: “I
think it is a little different. Not even in general,
forget specifics I don’t want to overdo it, but
I think you’ve seen a reluctance from some
candidates to talk a lot to talk about agriculture. There’s issues out there
like the farm bill, like trade issues and the
Renewable Fuel Standard that some of them
would rather avoid.” And Shaw, the head of
the Iowa Renewable Fuels Association and a former
candidate for congress in Iowa, knows the campaign
is an education process. Monte Shaw, Executive
Director, Iowa Renewable Fuels Association: “The
east and west coast media likes to say they come
and bow down to ethanol in Iowa and it’s
all political. Look, I’m not naive, I
understand politics play a role here, but I think the
role politics plays in the Iowa Caucus is it
opens their ears. It forces them to find
a position that is defensible.” Even Secretary of
Agriculture Tom Vilsack, a former presidential
candidate himself, advised Summit attendees to look
beyond the first talking point on agriculture. Sec. Tom Vilsack, Department of
Agriculture: “Don’t just ask them about the RFS,
ask them about, what do you think about the Navy’s
purchase of biofuels, you think that’s a good idea? What about these exports
is that good idea, trade, research, is
that a good idea? Is the blender pump idea a
good idea, ask them those questions. I’d be really, really
interested in the answers to those.” After the caucus results
are harvested Monday night, the candidates
will market their results. Iowans will be left with
empty town halls and likely few answers on
where candidates stand on agricultural issues
outside of biofuels. For Market to Market,
I’m Paul Yeager. Next, the Market
to Market report. Unable to shake off
competitive prices along with good weather in
other countries the grain markets moved sideways,
even with a late week rally spurred on
by fund purchases. For the week, March wheat
gained 4 cents while the nearby corn contract
advanced almost 2 cents. Dry South American weather
and a cancelled Chinese order put more
pressure on soybeans. However, the March
contract clawed its way back to gain 6 cents. March meal managed to keep
up rising $3.90 per ton. In the softs, March
cotton lost $1.32 per hundredweight. In the dairy parlor,
February Class III milk futures put 8 cents
back on the board. Over in livestock, the
April cattle contract gained 92 cents. March feeders
fell 65 cents. And the April lean hog
contract gained $1.70. In the currency
markets, the U.S. Dollar Index
was unchanged. Crude continued its
comeback as the March contract gained
$1.43 per barrel. COMEX Gold gained
$20.10 per ounce. And the Goldman Sachs
Commodity Index increased 11 points to
settle at 301.25. Pearson: Here now to lend
us her insight on these and other trends is one
of our regular market analysts, Sue Martin. Sue, welcome back. Martin: Thank you, Mike. Pearson: Now, we’ve seen
this dollar hang in there versus all these
other currencies. We’ve got the yen now
causing us some trouble. But as we look at this
wheat market it has also managed to hang in there. Is this a bullish sign as
we look out for the rest of this winter wheat
growing season? Martin: Well, I think
that, like cotton, like corn and soybeans,
all those markets, agricultural markets
are in sideways markets. And that many times can
be a basing factor after a long break. And of course this market
has been coming off of the highs of 2012 so it’s
getting to be an old bearish market. And I think what more can
you throw at it that is bearish? The news today on Friday,
the Russian Ag Ministry had met with the Deputy
Prime Minister in hopes of dropping the export
tax for wheat. That had been talked about
that they were going to have that meeting and that
broke the market here and then all of a sudden it
found out that no, they’re going to keep
the export tax. It had thought that they
would do so to drop it in order to be competitive
against Argentina because Argentina is at
zero percent. So that did not happen and
the market rallied back today. Pearson: So do you expect
to see that rally carry on into next week? Martin: Well, I think
you’ve got a wheat market that when it starts to get
up towards $4.90 to the $5 level it has issues and
then when it gets down around the $4.70 to $4.60
area it has support. It’s kind of caught
in a narrow range. You’ve got moisture coming
across, possible across the hard red winter wheat
areas and that was thought to be a little negative
but it depends on how that storm shifts. But on the same token you
also have Argentina that did mark a deal here this
week with Egypt to export wheat and it’s going to be
interesting to see because yeah they don’t have the
irrigate in it, but they also have poor
quality wheat. I want to say almost half
of their wheat is of poor quality. So kind of what you
would call feed wheat. I guess I think I see this
market still continuing on sideways and I would
probably suspect that we’ve got, as farmers
are getting closer here towards the 1st of March
going into February there’s bills to pay and
loans to pay off and I think you’re going
to see wheat move. Pearson: And in the
meantime watch that range $4.70 up to $4.90
pushing $5 and trade it. Martin: Exactly. It’s not a very sexy
market right now. Pearson: And that’s true
kind of across the board. Speaking of not sexy,
let’s talk the corn market, Sue. 2 cent move. Where are we
going from here? Martin: Well, the corn
market I think if you can get it up around
$3.90 there’s trouble. Again, there’s a fair
amount of corn that is going to move here. Your ethanol industry
is slowing down on production, which means
they might not be so ambitious to be buying
right now at a time when farmers may be having to
sell corn, just like the wheat farmer. And so you would think
that would be negative and yet that corn
market is vibrant. It can drop and the next
day put it all back on. It’s very schizophrenic
right now. And I guess I don’t see
any changes in that for the moment. However, that won’t hold
true for much of the year when we get going. Pearson: So for a lot of
producers that are still sitting on some old crop
corn do you advise them to just go ahead and keep
storing until we can break out of this range? Or do you start metering
out some sales at the upper end? Martin: Well, my
recommendation to them is interest is an expense
and you can own options. There’s very low
volatility in these grains. So you can sell your corn
but I really do recommend reowning it back
on the board. I’m not saying that
because I’m a broker, I’m saying it because prices
are cheap, they’ve been wallowing and this
certainly I think is a year that’s going to
be filled with some surprises. So I think a producer
wants to have that potential and it will make
him feel more comfortable. And you can own those
options probably cheaper than your interest
at the bank. Pearson: So would you be
selling both old crop and making some sales on new
crop corn and reowning with options? Or would you just be
practicing that strategy with old crop corn? Martin: I’d practice that
strategy with the old crop and I would move out to
the September timeframe. That lets you get through
the summer for the most part, well into August,
and you’re going to know by then what it going on. And in the meantime, new
crop if you have this urge and you can see yourself
breaking even and you want to market — we’re not
in the game to just break even, we’re here
to make money. And so, again, I would
definitely have some way of ownership back
on new crop as well. I’m not as bearish as
probably many are out there. Pearson: Okay. So you think we could
see 50 cent rally, Sue? What does Dec 16 corn
look like at harvest? Martin: Well, hard to
say at harvest because it depends on — but this
is going to be — every summer, new crop year
is a year of weather. But this one has really
got some important things going for it. First off, our foreign
production deficits, which means the rest of
the world, U.S. taken out of the picture,
how badly do they need to import, is much greater
this year on corn and on soybeans. And that is even with
Argentina and Brazil included in those numbers. So that says, U.S. you have a weather
problem, prices are going up not down. Pearson: Okay. Well now talking rest of
the world production, as we move down and take
a look at the soybean market, we’ve got a
question from one of our followers on Facebook. We invite all of you to
follow us on Facebook. You can find us
@MarkettoMarket there or on Twitter. Look us up. We’d love to get
your questions. This one is from a friend
of the program, this is Frank down in southwestern
Iowa in Cumberland. He wonders, is the dry
weather pattern in South America affecting a large
portion of their crop producing area? Martin: It’s about 20%
I think right now, maybe 25%. The next seven to ten days
is expected to continue to be dry, very little
rainfall and probably some warm temperatures,
mid-90s, something like that. So nothing really
getting help so to speak. But they’re just
getting going. Argentina did book a deal
or I should say they did release, the Argentine
government released export registrations for up to
12.2 million metric tons of corn. Our contention has
been all along that the Argentine government is
going to see the farmer moving wheat and corn
first because there’s no taxes and he’s going
to drag his feet on the soybeans. And of course the products
I think well about a week ago Argentina’s government
dropped the import tariffs on soybeans from
neighboring countries, mainly on soybeans. And what are they going
to do with those beans? The fact they did that
shows they’re not getting enough out of the farmer. Now some will say, well
the farmer probably doesn’t have them then. Well, that would be music
to our ears but I don’t think that’s the case. I just think they’re
hanging on and gratifying themselves with other
commodities right now. Pearson: So they’re
crushing beans from Brazil and Chile rather
that domestic beans. Martin: Exactly. And then what they’ll do
is they’ll export that meal and oil and of
course they’re the world’s largest exporter of meal. But the good news is, is
that even in the face of all that, export sales
today on soy meal actually got above a year ago’s,
or the five year average actually, and we’re doing
way more than what we need to do weekly to meet
the USDA expectation. So now that we’re above
the five year average and then you look at on
soybeans and we even are like neck to neck, like
one tenth of a percent under the five year
average and this is with all the bearish talk. And, yes, China did cancel
395,000 metric tons this week. Well, you know, over the
past four to five years I’ve seen them do
that many times. The market breaks like a
ton of bricks and China sort of walks in and
buys it right back up. I wouldn’t underestimate
— Pearson: So they’re still using the beans. Martin: That’s right. And this talk of well
they’re slowing down in their buying because
they’re going on their holiday, week long holiday
for lunar new year, well no, they’re always around. They’re just, you don’t
think they’re there, but they’re never out
of that market. Pearson: When a deal is
there they’ll take it. Martin: You bet. Yes. Pearson: Okay. So broadly as we look out
to this summer, trend up or down in beans, Sue? Martin: Well, I like
corn better than beans. Pearson: Okay. Martin: But I do think
that the bean market, you give a weather market here
and it’s going to have potential too. But I think we do have
some resistance up around this $9 level. And so that is probably
more psychological than anything. And of course that
sideways market, it could shove this market right
back down to the seasonal lows around that $8.50
level, $8, $8.50. Pearson: That would be a
buying point and then look to maybe make some sales
up close to $9 until we see what happens. Martin: Yeah. And then again I’d
probably come back with some call spreads out
in September beans. But I do like corn
much better than beans. Pearson: Okay. Now, let’s jump into
the livestock markets. We’ve seen a lot of
volatility, a lot of the trade has been under
intense discussion here over the past
couple of weeks. We saw live cattle climb a
little bit, put almost $1 on. Do we have strength going
into next week in this market, Sue? Martin: Well, we ended
the day almost close to a limit down move
on feeders. This market is a little
bipolar or whatever you want to call it,
schizophrenic, and it does have volatility. I’m not, I guess I don’t
have the same sentiments towards the volatility
that some people do. I think that the
volatility does allow us to get trades
off at times. We just have to be
willing to jump. And in the meantime, I
think that the cash market was kind of a little bit
all over the map today but there was some talk
of $135 being paid. And so I think that was
good news in the face of a soft market albeit the
February fats held on and the April’s were
kind of okay. The deferred’s were not
and the feeders were soft. I think what you’ve
seen today was more of a concern about the
cattle inventory report. Pearson: And tell us a
little bit about what we saw in that report. Martin: Well, the cattle
inventory report was termed as bearish. All cattle and calves
inventory was 103%, trade was looking for 102%. So, okay, that’s
a little negative. The calf crop was right
in line with what traders expected at 102% but
calves 500 pounds and under was 104% and then if
you take heifers that are going to calf for beef
replacement cows they were 106%. What this says is, is that
we’re going to have a good number of placements as we
go through this year and on into next year. So from August feeders on
out the market might not be so special and we’ll
maybe want to use some rallies. But then the good news is
the enthusiasm should be more up front if we’re
going to have it. And of course this storm
will be interesting to see. How bad is the storm? How bad do feedlot
conditions get? Could make a difference as
to the demand for feeders. But there was some pretty
good demand at the early part of this week
for feeder cattle. So I think that it’s
interesting because there’s an old seasonal on
cattle and this market has been following it
almost textbook. And it calls for a peak
here around the 30th. Well, we peaked today
and then down we came. And that is on
feeder cattle. And then you get into next
Monday, Tuesday and it puts a low in and then you
start moving up into the middle of the month. So I think we’re following
that pattern and I don’t have any reason to not
believe we aren’t going to get it. August fats are looking
awfully underpriced right at the moment. So we’ll see. I wouldn’t want them
coming back under $115 or $116, something like that. But I do think that there
is something better. I think the market wants
to push itself a little bit higher before
we get it again. Pearson: Fully
commit to the cycle. Okay. Now, bucking the trend in
the livestock is the hog market. We saw them put on
almost $2 over this week. It has been on a steady
climb, Sue, over the past several weeks. Can it maintain that as
we march through first quarter 2016? Martin: Well I’m
friendly the hog market. If you looked at data out
of China for the National Bureau of Statistics and
then you look at what the Ministry of Agriculture
puts out, well, they’re putting out two
separate stories. But basically the National
Bureau of Statistics would have you believe, well the
Ministry of Agriculture basically lets you believe
that the numbers have been very stable through
all of 2015. National Bureau of
Statistics is a little bit all over the map, first
quarter you lost 50 million head, the second
quarter you put 30 million back on, that
type of thing. But the interesting fact
is demand for soy meal has been really good
this last year. Why? They must have hog
numbers they’re feeding. Some say that they were
feeding meal at the expense of corn. Maybe. I still think —
Pearson: So there’s some uncertainty in
that market. Martin: Yes. And I think that plays
into this bean market why we’re seeing the interest
that we’ve been seeing at this time. Pearson: Okay. And we will talk hog
pricing more in the Market Plus online. Thank you, Sue. That wraps up the
broadcast portion of Market to Market. But we will continue our
discussion as I mentioned and answer some more of
your questions in the Market Plus segment
available on our website. While you’re there you can
check out our social media outlets and
interact with us. And join us again next
week when we’ll examine how the byproducts of oil
exploration are both a blessing and a curse. So until then,
thanks for watching. I’m Mike Pearson. Have a great week. ♪♪ Market to Market
is a production of Iowa Public Television which is
solely responsible for its content. Funding for Market to
Market is provided by Grinnell Mutual. You think differently
about a customer when you stand in the middle
of his dreams. We work to make sure
you get covered right. Grinnell Mutual —
a policy of working together. Information on finding
an agent near you is available at
grinnellmutual.com.

Leave a Reply

Your email address will not be published. Required fields are marked *