Market to Market (August 16, 2019)
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Market to Market (August 16, 2019)


Coming up on Market to
Market — Rural America waits as a tariff
deadline looms. Another round of
exemptions pushes the ethanol industry
to the limit. The U.S. leather industry stretches
out for new opportunities. And market analysis
with Naomi Blohm, 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,
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 build drying, moving
and storage equipment designed to preserve the
quality of their crops. Sukup Manufacturing,
store now, profit later. ♪♪ This is the
Friday, August 16 edition of Market to Market, the
Weekly Journal of Rural America. ♪♪ Hello, I’m
Delaney Howell. The signal by the bond
market that a recession might happen has yet
to reach consumers. According to the Bureau
of Labor, the consumer price index and Core CPI
rose 0.3 percent in July as gasoline and
electricity prices moved higher. New jobs and higher pay
helped consumers make those purchases as retail
sales grew a strong 0.7 percent. Without the drag of
declining automobile sales, the index
climbed 0.9 percent. However, Creighton’s
10-state Rural Mainstreet Index sank below growth
neutral indicating a shrinking rural economy. Most of the bankers
surveyed say trade tensions were having a
negative effect on their local economies. The U.S.-China trade
war is fighting for the top spot on the things
putting pressure on American farmers
and ranchers. Joining it is the release
of the small refinery exemptions list. Reuters is reporting the
latest round of S-R-E’s was triggered by
President Trump. Peter Tubbs has
the details. Pressure from multiple
directions pushed the agricultural outlook
downward this week. Less than a week after
threatening to increase tariffs on more Chinese
products, President Donald Trump reversed course and
delayed a portion of these new duties on products
popular with consumers. Those new duties will
kick-in after the Christmas holiday
season is over. The 10 percent tariff on
an additional $300 billion worth of goods would raise
the prices for both U.S. importers and U.S. consumers. President Donald Trump:
“We’re doing this for Christmas season, just in
case some of the tariffs would have an impact on
US customers but so far they’ve had
virtually none. The only impact has been
that we’ve collected almost 60 billion dollars
from China, compliments of China. But just in case they
might have an impact on people, what we’ve done is
we’ve delayed it so that they won’t be relevant for
the Christmas shopping season.” United States
Ambassador to China Terry Branstad reports that
negotiations with China have been stalled
since April. Ambassador to China Terry
Branstad: “In April, we thought we were pretty
close to a resolution to the trade dispute, and
then the Chinese reneged on a bunch of commitments
they had made. And after the meeting,
President Trump and President Xi in Osaka,
Japan were back to the bargaining table. Unfortunately there are
a number of key issues. So we want fairness
and reciprocity, It’s critically important that
we have something that’s enforceable.” The Trump Administration
announced this week that the Environmental
Protection Agency has approved 31 small refinery
exemptions, or SREs, for production year 2018. The new set of SRE’s
exempt 13.4 billion gallons of gasoline and
diesel from being blended with biofuels. The total represents more
than 7 percent of the volume set by the EPA in
2018 to comply with the Renewable Fuel Standard. Farm groups and
politicians from ethanol producing states had
pressed the EPA and the Trump Administration to
refrain from issuing SREs and follow the terms
set by the RFS. RFA President and
CEO Geoff Cooper. “At a time when ethanol
plants in the Heartland are being mothballed and
jobs are being lost, it is unfathomable and utterly
reprehensible that the Trump Administration would
dole out more unwarranted waivers to prosperous
petroleum refiners.” Senator Charles Grassley,
Iowa: “They screwed us when we didn’t, when
they issued 31 waivers. Compared to less than 10
waivers during all of the Obama years. And we thought
that was bad. What’s really bad isn’t a
waiver, it’s that it is being granted to people
who really aren’t hardship, and that’s
where it ought to be identified.” Iowa Secretary of
Agriculture Mike Naig believes the deluge
of drama surrounding agriculture has the farm
community fatigued. Iowa Secretary of
Agriculture Mike Naig: “They are optimistic, but,
there is absolutely a frustration. I think folks are tired. I think folks are tired
of just the continued seemingly bad news. It’s a lot of things
that come together. I remain hopeful that we
will get to a better place with trade, and that we
will have some success restoring the intent of
Congress to the Renewable Fuel Standard and that’s
what we will keep working on.” For Market to Market, I’m
Peter Tubbs Leather shoes and jackets are some of
the luxury items we’re usually willing to
drop a few dollars on. And more than one farmer
has relied on a good pair of boots to get them
through a work day. U.S. manufactures of leather
goods have experienced a decline in sales as
cheaper, faux leather products have hit the
market but the spirit of domestic producers
remains undaunted. Colleen Bradford Krantz
has more in our cover story. Historians believe
tanneries – where craftsmen turned animal
hides into leather – first appeared at least 5,000
years ago in villages in the Middle East. Today, communities still
gather together workers – such as these in
Pennsylvania – to process cattle and other livestock
hides using method not so different from those used
by their hunter-gatherer forefathers. Tim Ng, board member, U.S. Hide, Skin and Leather
Association: “The tanning industry is one of the
oldest industries in the world … It’s a direct
by-product of the meat industry. And so, as we harvest
animals for meat, just like the Native Americans,
we try to utilize all of the components
of the animal. That skin is about 6 to
10 percent of the animal weight and so if we can
capture that and use that for other products, that
helps keep it out of landfills.” But tanneries are becoming
increasingly rare; while colonial America had a
tannery in nearly every town, these businesses
have been rapidly disappearing. The number of U.S. tanneries with 50 or more
employees dropped from 86 in 1993 to just
22 in 2016. According to the federal
government, water treatment and other
improvements to protect human health and the
environment were costly for some tanneries. Many closed while others
relocated to countries with lower-cost labor. More recently,
international disputes and the growth in synthetic
materials have also hurt the industry. Tim Ng, board member, U.S. Hide, Skin and Leather
Association: “Leather is a natural product. It’s breathable, it’s
flexible, it wears over time. With synthetics, they are
typically petroleum-based, which is a finite
resource.” The tanneries that have
survivedhave done so largely through
specialization or a focus on exporting. Tim Ng is the director
of West Des Moines, Iowa-based C.K. International Ltd., which
buys and sells pigskin internationally. Pigskin accounts for only
about 10 percent of the world’s leather. C.K. International
helps connect U.S. packing plants with buyers
of pigskin, mostly in Asia, who then use the
leather in other products. The majority of leather is
made from cattle hides, and used in
shoes and boots. But automobile and
furniture use remain significant. Over 90 percent of cattle
hides produced in the U.S. are exported – China
being a key buyer. The industry exported a
total of $1.6 billion worth of hide, skin
and leather in 2018. Yet, this was one of the
industry’s lowest export values since the
2009 recession. And prices for
hides remain low. Still, Ng is optimistic. Tim Ng, board member, U.S. Hide, Skin and Leather
Association: “As we have more transparency into
where products come from and as consumers demand
that, I think the industry is really positioning
themselves well to be in play and be part of
that discussion.” In Curwensville,
Pennsylvania, the leather tannery Wickett & Craig
brought dozens of jobs to town when the now
152-year-old company moved there from Toronto,
Canada in 1989. It still employs about
90 people in the town of about 2,500, and is one
of just a few large U.S. tanneries remaining
that uses plant-based compounds, known as
vegetable tannins, on the leather. Most others use chromium
tanning, a method introduced in the 1850s
and viewed as the most efficient
processing method. There is a small risk – if
exposed to extremely high temperatures – that
chromium can convert into a type known to
be a carcinogen. U.S. regulations, however,
govern proper disposal and water treatment
for all tanneries. Matt Bressler, vice
president, Wickett & Craig: “Vegetable tanning
is the oldest form of tanning. It all comes from tree
bark extract…These trees are grown for the
tanning industry.” And while the chromium
tanneries can process a hide into leather in a
week, vegetable tanneries require six to eight weeks
from start to finish. Matt Bressler, vice
president, Wickett & Craig: “When you get a
pallet of hides, you have no idea what you
have in there… We’ve tried to turn it as
much into a science so that we can be consistent. I mean, the cattle
are never going to be consistent… so those are the variables
every tanner has to deal with.” The Wickett & Craig
leather factory processes nearly 5,000 cattle
hides a month, most from Charolais, Simmental and
Limousine cattle because of the lighter
colored hides. Cattle brands and any
other imperfections on the hide reduce the value. Matt Bressler, vice
president, Wickett & Craig: “Most of them are
from the Dakotas or from Toronto and other
Canadian regions. The farther north you go,
generally the better the hides are because there’s
less summer and hence the less bug bites, less
scratching and things like that.” Bressler says the
chromium-tanned leathers tend to serve the
automotive and garment industries while Wickett
& Craig might have their thicker leather used in
equestrian equipment, gun holsters and handbags. Bressler says most
Americans fail to appreciate the quality
of work done in the U.S. regardless of
tanning method. Matt Bressler, vice
president, Wickett & Craig: “Why should they
pay … $40, $50 or $60 for a genuine leather belt
that the leather came from Wickett & Craig when they
can buy one at Walmart for $12.95? . . . . The end consumer
is probably not as knowledgeable as they
probably should be but it’s getting better.” For Market to Market, I’m
Colleen Bradford Krantz. Next, the Market
to Market report. The August WASDE set fire
to the trade as the funds liquidated positions
crushing commodity prices. All three major
commodities managed to rebound from weekly lows. For the week, September
wheat nosedived 29 cents while the nearby corn
contract plunged 39 cents. The WASDE combined with
good weather across the Upper Midwest sent the
soy complex plummeting. The September soybean
contract was able to claw its way back for
a 12 cent loss. September meal
lost $3.60 per ton. December cotton expanded
$1.23 per hundredweight. Over in the dairy parlor,
September Class III milk futures lost 3 cents. A fire at a Tyson plant in
Kansas cut prices in the livestock sector as
October cattle lost $8.70. September feeders
shed $6.07. And the October lean hog
contract tumbled $4.98. In the currency
markets, the U.S. Dollar index
added 69 ticks. September crude oil gained
40 cents per barrel. COMEX Gold put on
$15.90 per ounce. And the Goldman Sachs
Commodity Index fell more than 4 points to
finish at 396.10. Joining us now to offer
insight on these and other trends is one of our
regular market analysts Naomi Blohm. Naomi, welcome back. Blohm: Hi, thanks Delaney. Howell: Naomi, we
obviously had a big report this week that a lot of
the trade was waiting around to see
what happened. Was there anything notable
that happened in the wheat market? Blohm: The biggest thing
from the wheat standpoint was that actually demand
was increased and that was nice to see. Export demand improved and
then also wheat going to be used for feed
improved as well. So those were
supportive factors. However, the all wheat
production number increased because yield
was increased on this report. Therefore ending stocks
in the United States back over a billion bushels and
now globally we’re back to seeing the largest
carryout number for wheat around the world as well. So the wheat market is
going to be under a little bit of pressure for the
moment, again, primarily just because of the
surplus of supply. Howell: And of course
wheat has been moving very closely here in tandem
with the corn market. Tell us about the WASDE
report there for the corn market. That was shocking I
think for the trade. Blohm: That was beyond
shocking for the trade. First I’ll start on
the demand side and we actually lost 125 million
bushels of demand for the new crop. We lost it in ethanol. We lost it in the food,
seed and industrial category. And we lost it
in the exports. So that was an
unfortunate event. But the bigger surprise of
course was the acre number and the yield number. Acres for planted corn
came in at 90 million and trade was expecting it to
be substantially less. That was on the higher end
of estimates and compared to the July and June
number it was up at 91.7 so a cut but not at
all what trade was anticipating. And the bigger shocker
came from that higher yield number, especially
with as late of a crop as this is. The yield number came in
at 169.5 and we were at a number before of 166. So the important part to
remember on how that yield was determined because
that was new this year, that was a new way that
they were conducting the August numbers. And the USDA did four
things, they actually called a farmer and asked
the farmer, what do you think your yield is going
to be, they used satellite imagery, they looked at
crop conditions as of August 1st and the last
one and most important is that they are assuming
normal weather from now until harvest. You’re going to see that
yield number change a lot going forward. My thought is that it is
tremendously yet too high and we’re going to have
a crop tour next week, hopefully we’ll see some
truth out of the reports from that because we
actually have humans walking into the field and
usually that Pro Farmer Tour does a nice job of
just cutting to the facts and giving us the
information that we need so we can get a better
grasp of what really is out there. Howell: Absolutely. We’ve got a great question
here from Phil in Dresden, Ontario addressing the
acreage number and also the prevent plant
numbers that we’ve seen. He said, please explain
the 90 million corn acres number from USDA and the
11 million prevent plant corn acres. How did they find that
many acres and not lower their acreage number on
Monday’s report I think is his question here. Blohm: Yeah, that was the
shocker because it was 11 million prevent
plant acres on corn. And so the thought is that
during the month of June when the corn price
started to work higher that perhaps more and more
farmers were going to take advantage of the higher
prices of markets and so therefore try to
plant more corn. That is what the market
industry is thinking. So that is what we’re
working with for the moment. It is important to know
that the prevent plant numbers are going to
continue to be updated and changed in the USDA
reports going forward. Howell: Naomi, when you
look at the corn and soybean markets they had
probably the most banking on Monday’s report. They were trading in a
range before Monday. We saw limit down in the
corn markets, soybeans also pulled back
quite heavily. Where do they
trade from here? Are they going to continue
in that range pattern? Blohm: For corn with
the market getting that negative news on the
report the marketplace price was able to finish
a head and shoulders formation on that daily
chart and so we reached the downside objective. We also filled a gap that
was really important to reach and fill
on the charts. And so now we are within
pennies of the low from May, the $3.70 area is
tremendous price support. In my opinion we are going
to be finding our low within the next two weeks. We could potentially find
the low next week if the Pro Farmer Tour finds out
a lower yield number for us. And so probably for the
next two weeks more of a sideways trading range
just until we can get some better confirmation
on yield numbers. So I do think that the
worst is behind us is my full belief on that. Howell: For the
corn markets. And for soybeans? Blohm: And for soybeans
a lot of uncertainty yet there too and more of a
sideways trading pattern because the bean yields
you really won’t know until we get those
combines rolling. But as late as this crop
is there’s so much weather uncertainty that
can affect things. And in Wisconsin we have
corn that just finally pollinated this week and
so that’s not going to be even mature until the
second week of October which is past our
normal frost date. So God forbid we see an
early frost with this crop. And this is not over yet
in terms of prices and in terms of yield. So there’s so much to be
aware of going forward. But I would say our
harvest lows traditionally come at the end of August
or into early September so we’re going to be forming
the lows quite soon. Howell: It sounds like
you’re implying that perhaps the soybean yield
yet has to come down as well when we get into
the harvest season here. Am I understanding
that correctly? Blohm: I think it has the
potential to come down because you’re really,
really needing absolutely perfect, perfect weather
for the rest of August and all of September. And so the USDA kept the
yield at 48.5 but if that yield comes down to 45
with the demand situation that we have right now
then you’re looking at ending stocks that are
back to under a half, 500 million bushel carryout
and that actually is really supportive
for prices. And then if we could
actually see China doing some importing of our
product we have a supportive story to
tell going forward. But I really do think the
yield numbers are likely to come down before they
have a chance to even hypothetically go up. Howell: Okay, Naomi, we’ll
save the rest of this discussion for
Market Plus. We’ve got a great
question, a dairy question here, because you’re our
dairy expert on Market to Market from
Lynn on Twitter. They said, will milk
prices ever get and then stay above $18 for Class
III milk futures in the near future? Blohm: So milk prices had
in the past few weeks been pushing higher,
up towards $18. $18 for the moment is
going to cap us for the short-term. The reality is that we
actually have had cheese demand that is really
strong, the cheese prices are improving, in fact we
had the block barrel price this week the highest it
has ever been in 2019. So there’s some supportive
demand from the cheese side of it. And milk production is
down a little bit in part because of lower numbers
of dairy cattle. But I’m thinking and what
I think some of the trade is maybe interested and
nervous about going forward is the feed
situation for the dairy cattle just because we
don’t necessarily have the feed quality that we’re
used to having with this late planted crop and that
could affect production going forward. So to see prices go above
$18 and to stay above $18 I think is going to be
dependent of course on continued demand, we need
our export markets to pick up again because they’re
behind, and then we have to keep an eye on this
feed situation because they’re not going to
necessarily receive the nutrition that they’re
used to receiving and therefore production might
be a little bit lower. Howell: Okay. And their counterparts,
the feeder markets had an exciting week this week
to say the least with the Tyson fire plants. Is that effect now
factored into the markets? Blohm: Yeah, between the
feeder cattle and the fat cattle having their just
demise in pricing this week because of that plant
fire I think that the worst is behind us. The market was assuming
that because of the fire that there would be cattle
that would not be able to get slaughtered in time
therefore we’ll see cattle needing to be slaughtered
that can’t get slaughtered and it’s a back log. So that was why the market
sent prices lower, limit down and then
expanded limits down. But that I think is really
behind us because as of so Monday, Tuesday,
Wednesday, Thursday of this week slaughter was
actually only down 13,000 head from a week ago which
is about a 2% drop and I have a feeling that
production overall this week is not going to be
cut as much as they’re thinking because there are
other plants who are happy to work a little harder
and fill their shifts and by golly maybe even work
Saturday and do some overtime on Saturday. And I think by the time
everything is said and done we’re not going to
lose as much production as what the market is
anticipating because we have Labor Day orders that
have to be met and beef demand overall
is still strong. Howell: What about when
you look at the hog markets? We had a limit down day to
finish the week up here. What happened? Blohm: Market just
continues to not be sure what it can grasp onto for
reality at the moment. It is concerned about
the true thought that production is
ample right now. We’re concerned about loss
demand for the export market to China yet we
found out this week that our exports were fantastic
for this week, up 48% from the week prior and half of
our purchases were from China. So they are still buying
from us but it’s not of course as much as they
were buying in March. So prices now are back to
the levels that we were at before the whole African
swine fever erupted. So now we’re going to be
at a point where we’re going to decide okay, how
much is our production actually going to be? Where is our demand at? And we’re going to most
likely, in my opinion, trade sideways for a
little while, maybe a little lower because
production is, it is big. But ultimately I don’t
think it’s going to get too much lower just
because I think that China is going to end up buying
more than what people are thinking. Howell: Well, and that’s
the question as we kept hearing oh China is going
to make all these massive purchases. We saw a good sized
purchase happen last week. Is there ever going to
be a point in time where they’re making these huge
purchases in the market? Blohm: I wonder if it
will coincide with early October, late September or
early October when they have their big festival
to celebrate the country because that is going to
be primarily I’m thinking they’re going to use a
lot of pork during that celebration and they have
their lunar new year’s celebration coming up in
January and with their prices up over 60% now
with demand for pork within China still strong
I think you’re going to see them buying from us
not as much as we want until we get the trade
deal nailed down but still buying. Howell: All right. Naomi Blohm,
thank you so much. Blohm: 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. Using Twitter allows you
to stay in the loop with just a few characters. We share news, pictures
and behind-the-scenes information on our feed
of @MarkettoMarket. Join us again next week
when we explore why land rights activists view a
new policy as more of the same. 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 build drying, moving
and storage equipment designed to preserve the
quality of their crops. Sukup Manufacturing,
store now, profit later.

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