Market to Market (May 31, 2019)
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Market to Market (May 31, 2019)

Coming up on Market to
Market — The president threatens to slap tariffs
on a major trading partner. High water and tornadoes
sweep across the country. USDA boosts CRP acres and
offers incentives to quit the program. And market analysis
with Dan Hueber, 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. ♪♪ This is the
Friday, May 24 edition of Market to Market, the
Weekly Journal of Rural America. ♪♪ Hello, I’m
Delaney Howell. Thursday evening, the
president took his well-worn tariff hammer
and used it on the nation’s number three
trading partner. Just days after dropping
steel and aluminum tariffs, and hours after
Congress received the USMCA, the president
threatened Mexico with duties on ALL
imported goods. Mexico’s president has
vowed to not fall for any provocation and says the
use of coercive measures does not lead to
anything good. Peter Tubbs reports. The president took a
different approach on immigration, this time
slapping a five percent tariff on Mexican imports,
with more threatened. The surprise news came
just hours after Mexico’s trading leaders pledged to
move forward on passage of the USMCA, a major
campaign promise of Donald Trump’s. The White House is looking
to slow the flow of undocumented immigrants
into the United States. President Trump tweet:
“On June 10th, the United States will impose a 5%
Tariff on all goods coming into our Country from
Mexico, until such time as illegal migrants coming
through Mexico, and into our Country, STOP.” Iowa’s senior senator
doesn’t see a connection between the two
story lines. Grassley: “Trade policy
and border security are separate issues. This is a misuse of
presidential tariff authority and counter to
congressional intent.” Mexico is the country’s
top customer of corn exports. No word yet on
retaliation by Mexico. Economists were quick to
point out that tariff costs are broad
and shared. Chad Hart, Iowa State
University: “The tariffs would impact our consumers
and their producers. But the idea is that they
are likely to retaliate, often times with tariffs
themselves, and that means its hitting their
consumers and our producers. So in the end, everybody
shares a little bit of the costs of a trade war.” Ernie Goss, Creighton
University: “And the idea is of course to
incentivize the Mexican government to cease or
slow down immigration. It’s not going to happen,
it’s not going to work.” The White House defended
the plan saying the tariff move was expected. Sarah Huckabee Sanders,
White House Press Secretary: “The President
didn’t blindside his own party. If Republicans were not
aware, then they have not been paying attention, I
don’t mean that in a bad way, but the President has
been talking about, we notified a number of
members of Congress prior to the statement
yesterday, at the same time, anybody in this
country or frankly the world that says they are
surprised by this has been living under a rock and
not paying attention.” For Market to Market,
I’m Peter Tubbs. The EPA approved E15 for
year round use this week. It is yet to be seen what
kind of impact this will have on prices. Pennies matter, whether
it’s on a bushel of corn or the price on a
gallon of gasoline. — Consumer spending
slowed last month, rising only 0.3 percent. Despite the decline, the
inflation rate moved 1.5 percent higher. And consumer confidence
moved higher on positive feelings about jobs, wages
and business conditions. — Currently,
83 domestic U.S. river gauges are
reporting major flooding. Some of those same areas
had to deal with severe weather as tornadoes
touched down from Idaho to Pennsylvania. Paul Yeager reports. During four 30-day
stretches in 2003, 2004, 2008 and 2011 reports of
tornadoes topped 500 and 2019 is likely going to
be added to the list. Including this week, there
have been 13 straight days of at least 8
tornadoes a day. The National Weather
Service told Kansas broadcasters to use
the strongest language possible to warn people
of approaching storms. The storm system proceeded
to drop tornados on the Kansas City metro area and
just west near Lawrence. Rain was the other big
story of the week. Corn and soybean planting
remained at historically slow levels as storm
after storm kept tractors waiting to
re-enter fields. Several U.S. rivers are making life
difficult for those near already swollen bodies of
water that – in some cases – are reaching
near record levels. The Arkansas River is
expected to pass a mark set in 1990. In Fort Smith, this
neighborhood was only accessible by boat. The river in the border
town with Oklahoma is twice the level it
was ten days ago. In the state of
Mississippi, scenes like this have played out for
the last four months. The epic flooding of today
in the Delta rivals the great floods of
1973 and 1927. Larry Walls, Mississippi
Farmer: “This year I had planned on planting corn
and I did not get a chance to do so because the water
started rising back in February, and we did not
get and opportunity to. I got the land ready but I
didn’t get a chance to get it planted before the
water started rising back in February.” For Market
to Market, I’m Paul Yeager. In the three decades since
the conservation reserve program began, millions of
environmentally sensitive acres have been kept
out of production. While the program has done
wonders for preserving the land and increasing
habitat for endangered species there have
been some unintended consequences. Colleen Bradford Krantz
has more in our Cover Story. Missouri cattle producer
Casey Nichols looks across the nearby fields his
grandparents and parents once farmed. In every direction, the
land that once bustled with farm activity is now
enrolled in the federal government’s Conservation
Reserve Program. Casey Nichols, Bethany,
Missouri: “Our home is completely surrounded –
five acres completely surrounded – by CRP. And I mean in all four
directions, and some directions for
three miles.” While he appreciates how
the CRP program has helped protect the Harrison
County hillsides with soil types that easily wash
away, he dislikes how the economic activity
typically stirred up by production agriculture
is disappearing in his immediate area. Casey Nichols, Bethany,
Missouri: “Our township is around 23,000
acres, give or take. And I did some rough
figuring on the amount of CRP in our township and
it’s around 8,100 acres. We are the second poorest
township in Harrison County. The only township poorer
than us has the most CRP.” Nichols sees how older
farmers, some no longer wanting to be out working
every day, are holding on to the land longer than
they would have in earlier generations. Casey Nichols, Bethany,
Missouri: “If it wasn’t in CRP, they would probably
move on to something else… They would either rent it
out to someone to farm or pasture or hay.” About a mile down the road
is one of the CRP plots owned by semi-retired
grain and cattle producer Gerald Parker. The field was enrolled in
CRP when Parker purchased it. He later re-enrolled, not
being able to justify either the cost of adding
terraces for row crops or fences for cattle. The voluntary federal
support package, introduced in the 1985
Farm Bill, was designed to boost commodity prices and
protect the environment. Gerald Parker, Bethany,
Missouri: “It would pay for itself. …I didn’t put anything
down into it so I just got my money back and it’s
been very profitable.” Five hundred of Parker’s
2,500 acres are in the program. As he’s moved toward
retirement, Parker began to see his CRP ground as a
nice retirement nest egg. But not necessarily as the
best option for supporting a rural community’s
economy. Gerald Parker, Bethany,
Missouri: “CRP is a good idea, but there’s a lot
of downsides to CRP… It reduces our income that
is made from farming. It reduces our labor force
needed to farm….and so it cuts down our income
made off the land.” He also acknowledges how
holding on to the CRP land may keep younger
farmers out. To compensate, Parker has
made a point of partnering with younger farmers
in his crop and cattle production rather than
selling or renting. Gerald Parker, Bethany,
Missouri: “Once you get ten years of CRP, all your
ability to handle the cattle or row crops or
whatever is going to be kind of antiquated….It
is hard for a young person to get started.” The Farm Service Agency’s
Harrison County executive director, Brett Gilland,
points out that the CRP program has a maximum
allowed enrollment of 25 percent of a county’s
farmland to prevent too much dependence on
the federal payments. Harrison County has more
acres – 63,600 – enrolled in the CRP program than
any other Missouri county, but remains below that
threshold at 19 percent. Brett Gilland, Harrison
County, Missouri: “We’ve got some really good,
really high productive soils. We’ve got some land that
isn’t that productive…It has been farmed but it’s
also susceptible to erosion…That’s the kind
of land that you know is usually a good candidate
for CRP enrollment.” Gilland said the payments
made to the county’s more than 1,500 contract holder
– most local, but about 18 percent living more than
an hour away – amount to about $8.6
million annually. The future outlook may
shift with some changes included in the
2018 Farm Bill. The cap on CRP acres
nationwide will be gradually increased to 27
million acres by 2023 from the previous 24
million acres. The FSA will accept
applications beginning June 3 for reenrollment of
expiring CRP contracts. The only new applications
being accepted this summer will be for continuous
CRP, which is typically for smaller but more
sensitive areas, like those along rivers
or other waterways. Sign-up for general CRP,
typically larger fields, will be opened
in December. Previously, landowners
received 100 percent of the county’s land rental
rate for both categories. That will change. Brett Gilland, Farm
Service Agency – Bethany, Missouri:: “For general
CRP, the rate is going to be based on 85 percent of
the rental rate in the county, and for continuous
CRP, that’ll be based on 90 percent of the rental
rate in the county.” Gilland says commodity
prices are typically the biggest factor in
shifting CRP enrollment. The typical 10- to 15-year
contracts don’t allow farmers to make
year-to-year enrollment changes without refunding
the government’s payments plus interest. While Parker is
disappointed he will receive a lower percentage
for land in the program in the future, he does
hope the changes will discourage out-of-state
landowners from buying land just for the
government payments. Some producers with
expiring contracts may now be eligible for two
additional annual rental payments if the land
is sold or rented to a beginning or “socially
disadvantaged” producer. Nichols hopes this
inspires retiring farmers to exit the program and
hand off to younger producers, perhaps filling
the surrounding pastures with livestock again. Casey Nichols, Bethany,
Missouri: “I can’t think of any young farmer that
would want to come out here and buy a farm and
just sit there and look at it… They don’t want to wait
six years until the contract is up….
They want to be on it. They want their
hands in it.” For Market to Market,I’m
Colleen Bradford Krantz. Next, the Market
to Market report. Threats of a Mexican trade
war failed to pull out the massive weather
gains in the market. For the week, July wheat
gained 14 cents while the nearby corn contract
shot 23 cents higher. The soy complex was
bolstered by poor planting weather. The July soybean contract
skyrocketed 48 cents. July meal tagged along
moving up $20.80 per ton. July cotton shrank 31
cents per hundredweight. Over in the dairy parlor,
June Class III milk futures fell a dime. The livestock market felt
pressure from higher grain prices. August cattle lost $4.87. August feeders
shed $10.10. And the July lean hog
contract cut $2.02. In the currency
markets, the U.S. Dollar index
improved 25 ticks. July crude oil declined
$5.21 per barrel. COMEX Gold bumped up
$21.10 per ounce. And the Goldman Sachs
Commodity Index plunged nearly 20 points to
finish at 406.30. Joining us now to offer
insight on these and other trends is one of our
regular market analysts Dan Hueber. Dan, welcome back. Hueber: Thank
you very much. Great to be here. Howell: Well, we certainly
had a pretty strong week up until Friday in
the grains markets. Let’s talk here about what
happened in the wheat markets this week. We put in the highest
levels since mid-February I believe and pulled
back on Friday. So, Dan, what does that
sit our new resistance level at? And can we break
through that? Hueber: Well,
realistically if you look on the, at least on the
chart pattern here, what we had pushed back up
against was what used to be support, unfortunately. We have of course been
taken apart here over the last couple of months. But nevertheless this is a
good sign, a good start. It is certainly being
tagged along with the corn market. But in itself I think some
growing concerns about what this wet weather
is doing to the wheat production out there and
then a second element that the Australian Weather
Bureau, they put out some forecasts that the next
three months look quite dry in that nation, so
here it could be another year of tough
production down there. So I think on a longer
term stance yes we probably turned the
corner, we finally have some better prices
ahead for wheat. Short-term it might be
difficult to really extend the rally much more than
we did here this past week barring a real explosion
in the corn market. And I guess that’s the
major caveat for everybody at this point in time. Howell: That it is. And we’ve got to
talk about that. I think a nice question
here to set up that will the corn market explosion
continue or happen, we’ve got Nick in Linn Grove,
Iowa, sent in a great question. He said, how aggressive
should one get on new crop corn? Where does Dan project
best case corn planted acres and corn carryout
for the ’19/’20 marketing year? Hueber: Certainly. We’re really trying to
determine those acres here at this point in time and
really that’s a large function of the market
right now is trying to give people the economic
inventive to plant corn later than you would on
any normal given year and of course in some cases it
just physically will not be possible out there. I really tend to believe
right now that through either acreage shifting
over to soybeans or going to the preventative plant
route with crop insurance we’re probably going to
lose at least 5 million acres of corn. Howell: And is that a
conservative estimate for you? Hueber: I would tend to
think — I’ve heard people talking about 15 million
acres of corn, which is possible. Even as of last week when
you looked at the nation as a whole we had 39
million acres to plant yet. Now granted I’m sure there
was some progress made this week, would be
interesting to see next week just how much
did get put in. I would tend to
think conservative. If that is correct, and I
think you have to keep in mind as well that we’ll
probably see a little larger takeaway from the
percentage harvested, normally years we’re at
91.7%, 92% harvested acres versus planted. You could probably drop
that down to 90% or under. But let’s say if we are in
that 87.5 million acre, every bushel you start
reducing then from trendline, which the USDA
now is at 176, you’re going to peel close to 100
million bushels out of carryout. So we’re starting with a
potential of 2.3 billion. It doesn’t take much of a
yield hit, 4 or 5 bushels, and we’re down to areas
where again we’re talking about not necessarily
panic situation in the carryout in corn, but 1.5
billion is certainly not $4 corn anymore, that’s
probably $4.50 to $5 range. Howell: Okay. So that sounds like maybe
some upside potential there. Hueber: Oh certainly. Again, the next two weeks
are just absolutely critical. What we tend to get
planted, one of the real challenges of course this
year too is we’re really not going to have great
answers on this probably until October. Yes, there will be some
good estimates out there, with the satellite
technology today we’re going to have a pretty
good handle on what did not get planted, but
really for the USDA to come up with official
numbers we’re months ahead before we actually see
that come into print. Howell: So, Dan, with all
that being said, we’ve got the weather, we’ve got
potential yield drag, we could see maybe harvest
rallies, which doesn’t typically happen. Do you think more
producers are going to turn this year then to
selling corn straight off the bins or straight
off the combine? Hueber: Certainly there
has been a lot of resistance to sell for
some good reasons as well. If you don’t know if
you’re going to get a crop planted it makes it that
much more difficult. We are certainly
encouraging to producers if they haven’t looked at
options before, develop some option strategies,
lock a floor in if you think you’re — leave the
upside open, certainly there’s a lot of good
reason to do that. But by no means let
yourself hang out there thinking that it has to go
higher because there are certainly a lot of other
elements at play, the strong dollar number one
that continues to battle us on the
international front. The trade war, of course
that’s not really a corn picture per se, but it
certainly has an impact on the commodity
sector as a whole. So the weather markets
tend to be generally short-lived. They’re one off events. When they happen — this
one is unusual, don’t take me wrong. I’ve been in this business
for over 40 years and I’ve never seen this kind
of a wet spring. When you get a summer
drought it’s over and you might get just enough
rain, you’re still going to pull some yields out. If we don’t get the acres
planted there’s no coming back at that point. So it is a little
bit different. But that said, good
business management says if you’re looking at what
looks like a return on investment use a strategy
to ty to take advantage of that. Howell: Definitely. Well let’s talk about
the soybean market. We definitely know that
the weather market has been driving the
corn markets. Has weather been a problem
yet for the soybean markets with the later
planting dates, the new varieties or the shorter
season varieties? Hueber: You have
to say yes and no. Is it a critical problem? Not at this point in time. Certainly if it really
continued on and this weather situation never
improved yeah, it could be counterproductive
for bean production. Right now I think the
rally itself is almost counterintuitive. Realistically yes we’re
going to see more beans, more acreage come away
from corn and back into the bean market. Yes it’s early enough in
the year that we could still look at some fairly
substantial bean yields. And when I look at the
bean market trading back plus $9 in the new crop
beans, it’s really looking at a gift horse. So I think you really as a
producer, particularly if you’re thinking you need
to switch acres, you need to take advantage of that
and get some beans priced. Howell: And how much more
upside potential do we have here? We pulled back Friday. We’ve got this new
announcement with both Mexican tariffs and now
China has retaliated as well. And we have a
really large U.S. and global ending stock. Is it really that much
upside potential for soybeans? Hueber: Personally I think
it’s rather limited. Like I say, we had maybe
potential to take Nov beans, if we were really
fortunate we could coattail up with corn on
some additional rally in corn, maybe get it back
towards that $9.50 area, but boy it’s difficult to
come up with a scenario on soybeans that you would
actually call bullish because it’s not only
domestic supplies that are pushing a billion bushels,
you have South American supplies that are at
record numbers on a combined basis, and you
have to look at the threat that we have South
American countries that are developing stronger
and stronger alliances with China especially and
they’re going to do all they can to push
production higher again this year as well. Howell: It’s definitely
going to be a wait and see game. But we have to address
the feeder cattle market. Dan, we’ve got some young
cattlemen watching up tape the Market to Market
episode today. So tell me what’s
going on there. We had two
limit down days. On Friday we used the
expanded limit even in the feeder cattle and we
haven’t seen that in quite some time. Hueber: Right. And of course the live
market has been in a free-for-all really for
the last 30, 45 days. I think a lot of that
is just kind of playing catch-up. We had a great price over
the winter months but it all related to the poor
weather and really pretty substantial demand. But of course once you
took that market down it just really started
eliminating that demand for the feeders. Initially when the fats
broke feeders looked like they could start
turning higher. But I really think one,
concerns about the economy, not really seeing
the kind of pick-up in demand nor the pick-up
in export demand. I think there was a lot
of hope when we saw Japan open the doors to U.S. cattle again, we’ve seen
some business come up there. Psychologically that
hasn’t happened and I think has disappointed the
market and now this rally in the grains I think was
just that last nail in the coffin that really pushed
the feeders to the downside. And yes, we’re probably
reaching the end of the rope where we’ve gone to
the extremes but certainly it’s going to take some
time to rebuild the demand in there once again. Howell: And not only that,
from a domestic standpoint grilling season really
hasn’t had a chance — Hueber: It hasn’t
even begun. Talk about a delayed
everything this year. The summer months have
not been for anybody out there. Howell: And when you look
at transitioning into the hog markets we haven’t
really seen the pick-up in exports that we were
expecting, we’re not really seeing a strong
grilling season yet. Is that what is playing
into the hog markets right now? Hueber: Certainly. And I guess I’m a little
surprised the hogs have, really if you look at the
last two weeks we’ve seen fairly substantial
purchases by China and I really thought that would
kind of breathe a little of life back in there
but so far has not. And of course weighing
against that is certainly we’re looking at 3% to 4%
more hogs on production this year in the U.S., a
fair amount of competition from other countries but
I still can’t help but believe that the latter
half of the year, particularly from the
export scene, is going to play out pretty favorably
to the hog market. Howell: With that being
said, Dan, the latter half of the year what can we
expect for prices in some of the deferred months to
come as we near those? Hueber: Deferred —
Howell: In the lean hog market. Hueber: In the lean hogs,
well here again too when you look at the prices we
did push up to before we took this recent
correction here, those are fairly, some of the
highest prices we’ve seen in four or five years. I would think we have an
opportunity to at least go back and revisit
those levels. If you would have asked me
30 days ago I would have said this could have been
kind of a hogs/ethanol moment because we just,
when you have a nation that potentially is losing
80 million, 100 million head of hogs — Howell:
Especially the number one producer and consumer. Hueber: In both cases. And really this problem
of course has not ended there. I think I read just this
morning that now we have cases detected in North
Korea, not that they’re a large hog producer, but
this is not going to go away for some time. So I think that’s really
going to shift that trade around to where, again,
I think that’s — are we going to go back to the
levels we were 2014? I don’t know if I want to
go quite that far yet. But I think the potential
certainly exists. Howell: All right. Dan Hueber, thank
you so much. Hueber: My pleasure. Thank you. 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 Twitter remains a great
way to get a good thought out in a few words. For us, 280 characters
allow sharing of links to our stories and photos. You can also leave us a
question for the analyst of the week. Give us a follow
@MarkettoMarket. Join us again next week
when we’ll explore how a diverse set of western
stakeholders are seeking common ground
on public lands. So until then,
thanks for watching. I’m Delaney Howell. Have a great week! ♪♪ ♪♪ Market to
Market is a production of Iowa Public Television
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Market to Market. Tomorrow. For over 100 years we
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for tomorrow. Trust in tomorrow. Information is available
from a Grinnell Mutual agent today.

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