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Market to Market (January 17, 2020)


Coming up on Market to
Market — “Promises kept” but what’s in the details. Renewed optimism
over biofuels. And commodity 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. 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. Accu-Steel, offering
fabric covered buildings specifically designed for
the cattle industry since 2001. The next generation
of cattle buildings. Information at
accusteel.com. ♪♪ This is the
Friday, January 17 edition of Market to Market, the
Weekly Journal of Rural America. ♪♪ Hello, I’m
Delaney Howell. Two trade deals were
sealed this week. Thursday saw the USMCA
agreement make it over the last political hurdle
after receiving assurances on environmental
protection and labor safety. The day before, in the
shadow of impeachment, President Trump and Vice
Premier Liu, signed a historic trade pact
between the world’s leading economic
super powers. The peace treaty of sorts
addresses a laundry list of concerns including a
battle over intellectual property rights. Agricultural lobby
groups in the U.S. largely applauded
both efforts. Peter Tubbs has
our coverage. After nearly two years
of posturing and ever increasing tariffs, the
United States and China signed Phase One
of a trade deal. Donald Trump, U.S. President: “This is
something that’s going to be so special, however,
to our manufacturers, our farmers, our bankers,
our service people. Nobody’s ever seen
anything like it. This is the biggest deal
there is anywhere in the world by far. And that’s good. We’re doing another
big one next week. But this is the biggest
deal anybody’s ever seen.” The trade pact puts a
pause on the boiling struggle of issues between
the two countries. Some of the duties placed
on Chinese imports over the last 18-months are
expected to be lowered, but two-thirds of those
imports from the Asian nation remain
under tariff. Most Chinese tariffs on
American exports also remain in place, including
those related to agricultural products. Liu He, Vice Premier of
China: “This is a mutually beneficial and
win-win agreement. It will bring about stable
economic growth, promote world peace and prosperity
and is in the interest of the producers, consumers
and investors in both countries.” Experts on
Chinese trade believe that many structural issues
that were part of the negotiations – such as
Chinese subsidies for certain segments of
the economy – remain unaddressed. Sen. Charles Grassley, R –
Iowa: “So let me say to you that That what we have
a kind of a shotgun behind the door is we haven’t
taken all the tariffs off. We’ve taken some tariffs
off because of this phase one. But we’re keeping
tariffs on to get more negotiation, but also if
they aren’t living up to what we can impose
tariffs.” The agreement requires China to purchase
$40 billion in American agricultural goods in each
of the next two years, but analysts are concerned
that the terms allow too much leeway and lack an
enforcement mechanism. While American tariffs
have reduced the import of Chinese goods by an
estimated $150 billion a year, American consumers
and importers have paid $40 billion in fees since
the trade war began in July of 2018. Exports to the United
States now represent roughly 4 percent of
the Chinese economy. The deal includes language
to improve market access for meats and seafood, and
promises to streamline the certification process
of agricultural biotechnology. But new language also
provides each country to leave the deal with only a
60-day notice if disputes are unresolved. Sen. Charles Grassley, R –
Iowa: “They Yeas are 89, the Nays are 10, the bill
is passed.” A mile and a half up Pennsylvania
Avenue, the U.S. Senate approved USMCA
by a vote of 89-10. The long negotiated treaty
between Mexico, Canada and the U.S. now heads to President
Trump’s desk for a signature. Mexico has already
officially approved the deal leaving Canada as the
last country to ratify the agreement. The dairy business sees
opportunity in both deals. Tom Vilsack,
President, U.S. Dairy Export Council: “For
most of agriculture it’s maintaining the status
quo, which in uncertain times is important. Tough to put a number on
exactly how much more business there will be. Once it’s fully
implemented, the USMCA, it will take several years
for those tariff quotas to be increased, but once it
is fully implemented, the expectation is somewhere
between $200 and $300 million dollars of
additional business opportunity, which is
important.” But Vilsack is skeptical that the Chinese
will follow through on every term of the pact. Tom Vilsack,
President, U.S. Dairy Export Council: “The
Chinese are famous for promising, not so
famous for delivering. And so it’s going to
be important in this agreement to be sure that
we monitor performance on a regular basis.”
Analysts warn it may take several months to
determine if both sides are following the
terms of the new deal. For Market to Market,
I’m Peter Tubbs. Bloomberg is reporting
that Secretary of Agriculture Sonny Perdue
expects to make the last tranche of MFP 2 payments
even if the Chinese hold up their end
of the bargain. The trade war with China
did little to stop us from buying slightly higher
priced holiday gifts. — The consumer price
index rose 0.2. Core CPI, which removes
the volatile food and fuel sectors, rose 0.1 percent. Overall, our purchases
were up 0.3 percent in December, but the figure
was tempered by downward revisions for
October and November. When the price of cars and
fuel are cut out, retail sales rose a half percent. The Creighton University
Rural Mainstreet Index remained above growth
neutral for the fifth month in a row as rural
businesses were hiring despite lower farm
prices.– The ethanol industry has been taking
it on the chin as the Whitehouse and the EPA put
out conflicting messages over annual output. This week, ethanol
producers and lobbyists were surprisingly upbeat. John Torpy has more. A bitter cold wave in the
Midwest couldn’t keep attendees away from a
Midwest biofuels summit where industry insiders
are looking into the future with
renewed optimism. Monte Shaw, Director,
Iowa Renewable Fuels Association: “You know,
we’re hoping that 2020 is going to be the year where
we get things back on track with the renewable
fuel standard and we begin to reestablish some trust
and rebuild the bridge with, with EPA.” Last
fall, officials with the renewable fuels industry
expressed frustration over a decision by leaders
of the Environmental Protection Agency to
follow ethanol blending suggestions from the
Department of Energy, instead of the Department
of Agriculture. The DOE proposals
contained hardship waivers for oil companies,
known as small refinery exemptions, which cut the
amount of ethanol blended into the nation’s
fuel supply. This move, along with the
U.S./China trade war, helped cut commodity
prices, shutter multiple ethanol plants across the
Midwest, and leave a bad taste in the
industries mouth. Geoff Cooper, President
and CEO, Renewable Fuels Association: “We think EPA
has a real opportunity here in the first part
of the year to show the industry that it was
serious when it said it’s going to follow the
Department of Energy recommendations on small
refinery exemptions. And that it was serious
when it said it’s going to enforce, uh, the law
that Congress gave it on renewable fuel standard.”
But this week in Altoona, Iowa, industry leaders
carried a more optimistic tone into the Iowa
Renewable Fuels Summit. The assembled crowd was
supporting politicians in Washington D.C. with their
passage of the USMCA, the ratification of year round
E15 and an extension of the biodiesel tax credit. The highest praise came
for President Trump’s signing of the Phase
One 1 trade deal. The potential for $40
billion in sales of agricultural products
to China has industry officials looking closely
at the potential for the reopening of channels
closed for that past 18 months. Monte Shaw, Director,
Iowa Renewable Fuels Association: ”For us,
we’re specifically looking at the ethanol export
potential and the distillers grains
potential and the Phase 1 does seem to
open that door. Now. How will the
market respond? What will the details be? Will, will it be a little
crack in the door? Are they going to swing it
wide open and really be a big player? We don’t know that yet.”
Geoff Cooper, President and CEO, Renewable Fuels
Association:” China was once our third
leading market. We sent 200 million
gallons of ethanol there in 2016. Uh, we can get back to
that volume and, and well beyond it very quickly. Uh, and that would
absolutely turn the tide, uh, for profitability and
just the general outlook in the ethanol
marketplace. And at the same time, if
we have EPA following through on the president’s
commitment to strictly enforce the RFS, uh, yeah,
2020 could be a great year for the industry. And, and, uh, we deserve
one after what we’ve been through in 2019.” Despite
the positive outlook, Bunge North America sold
its share in an Iowa ethanol plant and industry
leader ADM, one of the largest players in the
ethanol business, has put some of its ethanol
facilities up for sale. Even as these producers
see a different outcome for their share of the
industry, Renewable Fuels Association President
Geoff Cooper sees bright days ahead for biofuels. Geoff Cooper, President
and CEO, Renewable Fuels Association: ”We’re going
to see some different players and some
new players. And, and some of the folks
that have been in the industry for a long
time may not be around. Uh, but we do know that
a demand for ethanol is going to continue to
grow over the longterm. Uh, and we are very
bullish about the future of the product and
about the future of the industry.” Iowa Governor
Kim Reynolds praised the Hawkeye states resilience
in the fight for renewable fuels. Governor Kim Reynolds, R –
Iowa: ”There is no state that benefits more from
biofuels than Iowa, which is exactly why we’ll
continue to lead the charge in defending the
RFS and holding the EPA to the terms of the deal. Negotiated with president
Trump back in September with over eight. Thank you. We’re now going to stop.”
(applause) What’s next for the industry will come
into view this March when the EPA calculates
production numbers for the Renewable Fuel Standard. For Market to Market,
I’m John Torpy. Next, the Market
to Market report. “Buy the rumor, sell the
fact” gave way to concerns that China has some wiggle
room in their $40 billion part of the deal. For the week, March
wheat gained 6 cents. The nearby corn contract
battled back from early week losses to
gain 4 cents. The March soybean contract
lost 16 cents largely on skepticism over
the Phase 1 deal. After closer examination,
language in the agreement revealed China only needs
to buy grain from the U.S. if the price is in
their best interest. March meal lost
$2.90 per ton. Cotton ended a 7-week
rally as the March contract lost a penny
per hundredweight. Over in the dairy parlor,
February Class III milk futures rose 50 cents. The livestock sector was
mixed, again, as February cattle shed $1.08, March
feeders cut $2.45 and the February lean hog
contract put on 43 cents. In the currency
markets, the U.S. Dollar index
was up 30 ticks. February crude oil dropped
48 cents per barrel. COMEX Gold added
70 cents per ounce. And the Goldman Sachs
Commodity Index dropped more than 4 points
to finish at 426.55. Joining us now to offer
insight on these and other trends is one of our
regular market analysts, Naomi Blohm. Naomi, welcome back. We certainly have a lot of
things to talk about this week. Blohm: We sure do. Thanks for having me. Howell: Naomi, I want to
kick things off here by asking because we got
a lot of social media questions around the
sentiment of why did we not react positively after
this U.S.-Chinese trade deal was signed when we’ve
been putting so much emphasis on it
for so long? Blohm: It was absolutely
great news that the deal was signed, it’s wonderful
news of the amount of potential business
that we’re going to be receiving. But what the deal did not
spell out and what the trade wanted to see is how
much and when is it going to be happening and we
didn’t see that for any commodity specifically. So therefore the market
said not good enough and prices fell lower. We were up near resistance
levels for corn, beans and wheat, then everything
fell down to support levels until finally
gaining back some ground on Friday’s trade. Howell: And it really
doesn’t seem like we’re going to see the amount of
agricultural products that they’re going to purchase. Blohm: It still is
in question, it’s a substantial increase and
it would have to be every single facet of
agriculture that can have an increase in demand. Now, if those things
could actually happen, wonderful, absolutely
amazing for U.S. agriculture. But in the short-term it
feels like it’s the same old broken record that
we’ve been hearing for a good year. Howell: And March wheat
has been doing pretty strong, it pulled back
this week as you mentioned there. But overall they’re up
near that key resistance, they broke through $5.70. What is your new
upside target? Blohm: We are still up
near the recent highs, the $5.75 area with that March
contract and it is going to be a stare down as far
as which way price goes. We need some additional
friendly news to get that market through resistance. The funds are holding onto
their long positions, open interest continues to grow
so that suggests that the buyers want to be there. But we need to see
increased demand show up on weekly export sales,
we would also need to see further confirmation of
global production falling and we’re starting
to see that. The French planting acres
are going to be down 10%. Of course this crop in
Australia continues to get smaller. Our crop here in the
United States is going to be the smallest ever
pretty much in history. And now there’s concern
that Russia all of a sudden said they might
actually reduce some of their exports, they’re
considering this. And so that is really
interesting when global ending stocks of wheat are
supposed to be at their largest ever but yet all
of these little things are happening around the world
that makes you wonder what is really going on and
especially that the funds are digging in their heels
and staying long, to me that tells me that there’s
other things at play. Howell: Is Russia saying
that might cut exports, is that more of a rumor type
of thing or a way for them to mess with the markets? Or do you actually think
they would follow through in that? Blohm: That’s what we’re
trying to figure out because the Russian
production is supposed to be quite substantial. But they are having a warm
winter and so there would be concern of the crop
having winter kill if winter actually shows up
in earnest within Russia. So we’re not sure because
that was definitely a wild card out of nowhere and
we’re all wondering why would they actually
be doing that. But if they do that would
be great for the U.S. because that would be an
increase potentially for our export market. Howell: Naomi, tell me
what happened in the corn markets this
week on Friday. Was it just a correction
for the losses that we had seen earlier in the week? Blohm: Yeah, corn futures
after the trade deal was announced and we didn’t
see the DDG news or the ethanol news we were
hoping for prices fell down and they hit support
levels on daily charts. Those support levels held
and I saw a rumor on Twitter that there was
going to be I think two cargos that actually got
purchased of corn that is going to go to China out
the Pacific Northwest. So that is what the market
chewed on and that’s the reason that we
went back higher. We’re at a short-term
resistance area again on the chart. If the March contract can
push a little higher yet $4.06 is the next upside
objective, that’s the 200 day moving average
on the daily charts. But if we don’t have any
confirmation of that news of a Chinese purchase I
would expect us to stay in a pretty simple trading
range where $3.75 is support on the March and
then $3.90 resistance. Howell: Yeah, and corn and
soybeans both have been trading in some small
ranges here for quite some time. We placed so much
sentiment on the U.S.-China trade deal
and now we have one but nothing seems to happen. We’ve got a question here
from Andy in Minnesota on Twitter wanting to know,
is there anything that can jumpstart the market, corn
or beans, aside from some problems in the spring? It said, signing of the
trade deal seems to have minimal effect. Blohm: We need to see
purchases made very soon from China and continued
strong export sales for both corn and beans. The other reality is that
our cash market continues to tell us a very
different story and demand is strong for those
markets but also we are seeing I think the light
test weight becoming an issue already because the
basis is strong and it’s January and the market is
acting like it’s summer and we’re running
out of crop. I know in parts of
Wisconsin our basis is positive and we
don’t ever have that. We’re running out of corn
in some parts of dairy country already and it’s
January and we don’t have enough corn to get us
through until the end of summer. So there’s a lot of issues
coming to head and if the USDA could be more
forthright on the yield that is I think still not
out there we’ll have some marketplace rally. But the USDA said they’re
not going to do a resurvey until spring so that might
mean it doesn’t show up until maybe a June report. Howell: It’s very
frustrating to see some conflicting opinions here
when you look at the commercials obviously
saying they need the corn and USDA saying we’re not
going to adjust acres or production for a while. Blohm: Exactly, exactly. We are stuck with these
numbers for a little while longer but the cash market
is saying that the crop is not there. Howell: Naomi, when it
comes to the soybean markets they fell to a
one month low after that signing where again we’ve
placed so much importance on it and then we saw
them finally pick back up towards the end
of the week. Is the path of least
resistance from here back down? Blohm: I actually would
say sideways because again the market I really feel
believes and knows that the crop isn’t quite as
large as what the USDA is saying. At the same time our
ending stocks according to USDA are at 475
million bushels. Now going forward people
are already talking about what is going to be
planted in the spring of 2020. Let’s say it’s 84 million
acres which kind of seems to be the ballpark that is
out there, if that is the case and if we have
trendline yield then our ending stocks go from 475
just to 425 and that is what would still be viewed
as comfortable and would keep us in that
trading range. But now here’s the kicker,
if we actually see some additional Chinese demand
in the export market and if we can even get export
numbers back up to the 2017 levels where we had
over 2 billion bushels going, then you’re going
to see the ending stocks number drop down to
225 million bushels. That is a game changer. That is over $10 soybeans. So the marketplace is well
aware of the demand that really could be there, the
lack of supply that we might have because of this
old crop being as tight as what we all think it is. So sideways I think is the
answer because there’s still too much
uncertainty. Howell: Okay, but it
sounds like friendliness could be in the cards
for the soybean market. Blohm: Yes. Howell: Naomi, we’ve got
another question here I wanted to ask before we
talk about livestock coming to us from Shane
in Bloomfield, Nebraska. He said, commodities fall
but the stock market surges after
the trade deal. Is this all money flow? And when the stock market
runs out of the bull feed will we see a large buy
back into the commodity sector? Blohm: We were actually
just talking about this at our office this week, same
topic, same wondering of when does the euphoria run
out of the stock market or how long does
it stay there? And then when it does run
out will the money come back to commodities? I’m not sure
is the answer. But I would say that with
the funds still buying aggressively in wheat and
they’re a little bit more neutral with the soybean
market there is potential there for money to come
back into commodities. Seasonally we’re still
looking at the time of year where grain prices
usually start to work higher into late
February or early March. So I think there’s still
some potential there but again we’re just not going
to know for sure until it happens. Howell: Okay. Naomi, the live cattle
markets have been sustained at these levels
and they did pull back this week. But how much longer are we
going to be at this $125, $126, $127 area? Blohm: I have been
wondering the same thing. I thought we would have
given one way or the other like a month ago. So the market is really
supported by steady cash. Cash prices are still near
$123 or $124, we have a futures price with
February cattle at $126. Exports are really decent
without question but yet we also look down the
road at bigger production levels coming. But now with this China
deal they’re saying that they’re going to ease up
their restrictions on the age of cattle and things
like that so there might be some increase
in demand. So we’re going to continue
to trade sideways and it’s going to be a matter
of can the cash market continue the strength or
not, it could also be a difference of do we see
just a quick technical sell off because sometimes
when the market gets bored you see those
selloffs happen. But overall I think the
trend for cattle is supportive. I don’t look for any
humongous rallies to the upside but I think we are
well supported overall. Howell: Is it supported in
the feeder cattle markets? Will this I’m going to
call it snowmageddon this weekend add any positive
undertones to our feeder cattle market? Blohm: Yeah, demand for
feeder cattle has actually been strong. The feedlots seem to be
anxious to replenish inventories. So we’re seeing the cash
markets there stay firm. But again it’s the same
story of people are I think a bit cautious to
make sure that demand is going to be there but at
the same time the outlook in the cattle market
really actually is optimistic. Howell: Naomi, looking at
the lean hog market do you think now that we’ve got
this trade deal done China was just waiting for it to
be finalized before we see them start to pick
up on pork exports? Blohm: Our exports
have been fantastic. That’s very clear and it
is expected to continue in the future. Last year China imported
about 2.1 million metric tons of pork. Some analysts are thinking
that it’s going to be as much as 3 million into
next year, some are thinking it
could be higher. Now if that’s the case
wonderful for the U.S. farmer because we have
plenty of product to export overseas. So I’m always cautious
though because if for some reason the export market
falters, boy we have overproduction here
in this country. But at the same time
because of the reality of the situation in China I
do think that the outlook for hogs does look good
for quite frankly another year until they are able
to replenish their herd. Howell: And when can
we expect to see maybe getting up over this $70
closer to $80, $85 that we saw earlier this year? Blohm: It is solely in my
opinion just dependent on the pace of the exports
and that’s all we can do right now is just
keep an eye on that. Howell: Naomi, we’ve got
to save dairy for last here. They had such a strong
rebound there for quite some time heading
up near $20. We’ve pulled back
pretty substantially. What is going on? Blohm: That rally was
all led by cheese demand heading into the holidays. Once cheese demand was
met for Christmas season prices all set back
to the downside. So now though we’re seeing
cheese demand pick up again a little more in
tune with the playoffs for football and just some
winter demand that way and for the Super Bowl. But the other part that is
happening with the dairy market is that our
power exports have been fantastic and China said
that they’re going to be wanting to have more of
our powder which makes a lot of sense as their
population continues to grow. The other thing to be
mindful of is that dairy production has been kind
of stagnant lately. But looking forward, again
I think the last time I was here we talked about
the feed issues and here in Wisconsin on the
eastern part of the state we’re feeding wheat
because we are out of corn. And so that should keep
milk production levels higher. But the problem is going
to show up in milk fat. And so we’re going to see
lower levels of milk fat and deferred contracts of
milk actually made new highs this week. So the outlook for milk
is still looking good. Howell: All right. Naomi Blohm, thank you so
much, always a pleasure. 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. Subscribe to our YouTube
channel to watch our extended interview
with Tom Vilsack. Search “Market to Market.”
Join us next week when we’ll look at a job
retraining program that focuses on economic and
personal development. So until then, thanks for
watching and have a great week! ♪♪ ♪♪ Market to
Market is a production of Iowa PBS 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. 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. Accu-Steel, offering
fabric covered buildings specifically designed for
the cattle industry since 2001. The next generation
of cattle buildings. Information at
accusteel.com.


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