Coming up on Market to Market — The renewable fuels industry again gets a double dose of information. U.S. farmers look for global trade options in a political climate. And market analysis with Elaine Kub, next.

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This is the Friday, October 25 edition of Market to Market – the Weekly Journal of Rural America.

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Hello, I’m Delaney Howell.

The U.S. deficit is now at its highest level in 7 years.

Fiscal Year 2019’s deficit topped $984 billion, the fourth consecutive year of increases.

The usually stable housing sector hit a bump in September as high priced homes and fewer listings slowed the existing market by 2.2 percent.

Sales of new units dropped slightly in September.

Orders for big ticket manufactured or durable goods retracted by the largest amount in four months.

A follow up now from our 2018 “Justice in Agriculture” series.

This week, the subject in one of those of stories — a cattle producer who was convicted of defrauding the government — has been arrested again. The disappearance of two Wisconsin brothers is at the center of this case.  

Garland “Joey” Nelson was charged with two counts of first-degree murder in the deaths of the men, who, according to court documents, had come to collect on a $250,000 debt involving cattle.

More on this story is available at our website.  

Another legal matter impacting two major industries is making its way through civil court.

Objections to the Renewable Fuel Standard are still being heard by federal appeals justices.

Peter Tubbs reports.

The Renewable Fuels Association released redacted documents from their 2018 lawsuit challenging the Environmental Protection Agency’s issuing of waivers of the requirement of gasoline refiners to buy and blend ethanol into their fuel mixtures.

The documents confirm some of what the renewable fuel industry has recently charged. The EPA failed to determine if refiners were in economic distress before extending waivers of the blending requirement. In a 2017 meeting, the EPA Administrator Scott Pruitt approved waivers over the objections of career EPA staff.

In the last decade, the EPA has granted 94 waivers, with 85 being issued in in the last 30 months. The waivers have reduced renewable fuel demand by 1.6 billion gallons.

Monte Shaw, Iowa Renewable Fuels Association: “The EPA is currently under a court order to give us back the 500 million gallons of conventional biofuels they illegally waived from the program back in 2016, and they didn’t fix it in 2017, or 2018, and then in 2019 the d not only didn’t fix it, they said they weren’t going to. This isn’t how government is supposed to work. When there is a law, you break it and the Court says you break it, you fix it, you’re supposed to fix it. You are not supposed to have an executive agency thumb their nose at Congress, and thumb their nose at the Courts.”

The renewable fuels industry has asked for the new rules to make up for volumes lost by the issuing of waivers, and for consistency in the rules moving forward.

Monte Shaw, Iowa Renewable Fuels Association: “If they do that, we’ll give it the same applause that we did when they rolled it out on October 4th. If they don’t, then it goes from EPA rule to d Trump policy.”

The President made remarks about the RFS twice this week. During a Monday cabinet meeting he suggested that the new rule was ready.

President Donald Trump: “Thank you very much, and I know you’re working on these small refineries, getting that straightened away so that it’s going to be terrific for this oil refineries. They’ve been hurting for a long time and we gave them waivers for this year and that will, that’s helped them a lot. But I want you to work on that. Make sure this small refineries are happy and for the farmers, ethanol now has been fully approved. We spoke with Joni Ernst, we spoke with the, and very importantly, and we spoke with Chuck Grassley and uh, the ethanol, the whole situation with ethanol that has been going on for so long for so many years. We have that now, where it’s finished, approved, done, and we’re getting things ready to sign.”

On Wednesday, The President spoke of the work that current EPA Administrator Andrew Wheeler was doing on the RFS rules.

President Donald Trump: “…and he’s right now working on small refineries, getting them everything they need to stay because it’s a highly competitive business. We want to keep them really prosperous and keep them in business. Andrew, so I know you’re working on that and he’s dealing with them, I think this week and next week you’ll hopefully have something for the small refineries.”

The EPA will hold a hearing in Michigan on October 30th to take comments on the proposed rules.

For Market to Market, I’m Peter Tubbs.

The U.S. Census Bureau reported this week that U.S. agricultural exports to China are at their lowest level since 2007.

A trade war has limited opportunities for American producers and has some groups seeking new customers.

And as Josh Buettner reports in our Cover Story, those other markets are also proving to be a challenge.

As America’s trade wars plow through friend and foe alike, U.S. farmers have watched foreign markets for their agricultural goods evaporate.

Mark Mueller/District 3 Director- Iowa Corn/Waverly, Iowa: “We can start the fight.  We can destroy the relationship that took years to build.  But how to end that fight?  This administration doesn’t seem to have an answer.”

Mark Mueller is a fourth generation farmer in northeast Iowa.  He has travelled the globe as part of the Iowa Corn Growers Association, exploring business opportunities for the Hawkeye State’s top commodity.

Mark Mueller/District 3 Director- Iowa Corn/Waverly, Iowa: “I guess president Trump can declare that we will end this trade war, but who’s going to want to necessarily pencil a deal with him when you don’t know that he’s going to follow that deal that he himself signed?  That’s what I’m concerned about.”

Critics charge trade agreements have taken the scenic route under the Trump administration.

President Donald Trump: “And let me tell you, if I wanted to do nothing with China…”

Despite the president’s recent announcement China has agreed to purchase up to $50 billion in U.S. farm products amidst the current impasse, free trade advocates remain skeptical.

Virginia McGathey/President – McGathey Commodities: “The trade war was a big surprise to everyone.  At first I think some people thought it was a joke.  And then we thought, okay, there’s no way anyone’s going to take this down the road because of the ramifications we knew that it was going to have on our exports – of everything.”

Virginia McGathey is a commodity broker at the Chicago Board of Trade, and admits – despite the methods – alternatives to some of Trump’s trade actions have been sparse.  She adds that as the nation’s top-notch agricultural efficiency has allowed the U.S. to dominate global markets, Chinese infrastructure developments have ratcheted up competition.

Virginia McGathey/President – McGathey Commodities: “We would have had this problem without the tariffs.”

Sec. Sonny Perdue/U.S. Department of Agriculture: “We’re going to do the market facilitation thing again this year and as you know, it’s $4 billion more – 12 billion last year, 16 billion…You’re right to acknowledge that’s not going to make anybody whole.”

Following two rounds of federal payouts to farmers affected by retaliatory tariffs from China, USDA chief Sonny Perdue encouraged Farm Progress Show-goers in Illinois this summer to develop new markets – prompting some to recall one geographically convenient port of call, which, despite controversy, rests at the nation’s fingertips.

Paul Johnson/Executive Director, Illinois-Cuba Working Group: “All markets matter.  Right now, Cuba represents a $2 billion market.  The United States share of that currently is less than ten percent.”

Paul Johnson is Executive Director of the Illinois-Cuba Working Group, created through the state’s general assembly in 2013 to promote agricultural commerce with the Caribbean nation.  Illinois helped facilitate congressional trade reform with the Cold War nemesis nearly 20 years ago, unleashing agricultural exports which peaked in 2008 at $700 million.  But credit issues tied to the long-standing U.S. embargo against Cuba eventually gummed up the works. 

Farm state lawmakers have attempted legislative modifications, and President Obama’s steps toward normalization held risks. 

Paul Johnson/Executive Director, Illinois-Cuba Working Group: “When president Trump came into office, he rolled back a lot of those initiatives. The rhetoric has completely changed. They’re trying to increase the embargo, tighten the screws between the United States and Cuba.”

Johnson says business sentiments have been dampened by travel restrictions and enactment of dormant provisions within decades-old legislation expanding legal rights to seek damages, in U.S. courts, for property seized following Cuba’s 1959 revolution.

Ambassador Jose Cabanas/Cuban Ambassador to the United States: “It will take probably years to know the outcome of those lawsuits, but the aim is to freeze foreign investment in Cuba.”

Jose Cabanas, Cuba’s first Ambassador to the United States in over 50 years, says current Congressionally-proposed exemptions for credit under the blockade, Cuba’s term for the embargo, would be a game-changer.

Ambassador Jose Cabanas/Cuban Ambassador to the United States: “The policy that limits further bilateral ties simply represents the will of a very small amount of people in one particular state in this country.”

Currying favor among Cuban exiles contributed to Trump’s 2016 electoral victory, which he rewarded with executive action, much to the dismay of Johnson and others.

Paul Johnson/Executive Director, Illinois-Cuba Working Group: “We just don’t agree on the solutions. And so at some point, Cuban-Americans in Florida and the president of the United States has to recognize that if this policy hasn’t worked at all, and I would ask Cuban Americans to, if they’re really looking for change in Cuba, the best way to do that is not to continue a policy that has zero impact in 60 years, but to try to engage, to, to look for change.”

A recent soybean expo in Chicago gave producers an opportunity to highlight the industry’s current patchwork alternative to the Chinese market.

Derek Haigwood/Chairman – US Soybean Export Council: “We have Pakistan, Bangladesh, Sri Lanka, Egypt.”

Suzanne Shirbroun/Farmersburg, Iowa: “Myanmar.”

Dave Walton/Executive Director – Iowa Soybean Association: “Philippines, Maylasia.”

Mark Albertson/Director of Market Development, Illinois Soybean Association: “Right now we need every market we can get and Cuba is right next door.”

Illinois-Cuba Working Group members see a potential $300 million market for soy as the island doubles pork production.  In addition to meal, American wheat, rice and poultry are poised to reap more benefit from 11 million mouths.  The socialist nation also imports 900,000 metric tons of corn annually.

Mark Mueller/District 3 Director- Iowa Corn/Waverly, Iowa: “It could be a very small market, but it’s just 90 miles off the coast of the U.S.”

Mark Mueller joined an envoy of commodity groups led by Paul Johnson to Cuba in 2018.   He sees potential for corn exports by cultivating markets, not unlike how China and other rivals were brought on board.

Mark Mueller/District 3 Director- Iowa Corn/Waverly, Iowa: “ The obstacles that would keep us from doing trade with them are not physical but political obstacles. In the last 60 years we’ve gone to war with Vietnam.  And then we are now one of their best suppliers of agricultural goods and we’ve gone from mortal enemy to good friend and close trading partner.  Why not do it with these guys who are, you know, a 45 minute plane ride away?”

For Market to Market, I’m Josh Buettner.

Drier conditions hampered one crop, while helping the harvest of another. 

For the week, December wheat lost 15 cents, the first weekly loss in 12 weeks, while the nearby corn contract fell 4 cents.

The soy complex dealt with China/U.S. trade talks. The result was a 14 cent loss in the November contract.

December meal shed $5.20 per ton.

December cotton declined 26 cents per hundredweight.

Over in the dairy parlor, November Class III milk futures gained 92 cents.

The livestock sector finished mixed as the December cattle contract added $2.45, November feeders improved $2.53 and the December lean hog contract fell $3.02.

In the currency markets, the U.S. Dollar index gained 60 ticks.

December crude oil increased $2.88 per barrel.

COMEX Gold added $12 per ounce. 

And the Goldman Sachs Commodity Index added nearly 9 points to finish at 415.20.

Joining us now to offer insight on these and other trends is one of our regular market analysts, Elaine Kub. Welcome.

Next, the Market to Market report.

Drier conditions hampered one crop, while helping the harvest of another. For the week, December wheat lost 15 cents, the first weekly loss in 12 weeks, while the nearby corn contract fell 4 cents. The soy complex dealt with China/U.S. trade talks. The result was a 14 cent loss in the November contract. December meal shed $5.20 per ton. December cotton declined 26 cents per hundredweight. Over in the dairy parlor, November Class III milk futures gained 92 cents. The livestock sector finished mixed as the December cattle contract added $2.45. November feeders improved $2.53. And the December lean hog contract fell $3.02. In the currency markets, the U.S. Dollar index gained 60 ticks. December crude oil increased $2.88 per barrel. COMEX Gold added $12 per ounce. And the Goldman Sachs Commodity Index added nearly 9 points to finish at 415.20. Joining us now to offer insight on these and other trends is one of our regular market analysts, Elaine Kub. Elaine, welcome back.

Kub: It’s good to be here. Great program and very interesting times.

Howell: There are a lot of things to talk about today, aren’t there, Elaine?

Kub: Yes.

Howell: Let’s kick it off here and talk the wheat market. As we just mentioned there the first time over weekly closes I think that it has been down and I believe we just said in 12 weeks and last week we had such a strong week for wheat and this week it appears they did not continue that rally.

Kub: Right, if you just looked at the chart, just the futures chart, it kind of looks flat, kind of looks boring this week but actually that’s not the full picture. Most of the interesting things that are happening in the wheat market, and there are interesting supply implications from the weather and everything else, but really that gets reflected in the cash market and in the basis, the discounts in the premiums that folks see at their actual elevator door.

Howell: And is that the explanation then for why basis levels are so much different right now than what we see on the futures board?

Kub: Yes, and it really matters about what type of wheat you’re talking about. You’ve got hard red winter wheat in the Southern Plains where you could get a little bullish about the fact that it’s getting dry. You look at the drought monitor, there are starting to be dry spots kind of looming up from Texas and Oklahoma. but really the concern I think in the milling wheat space right now if for hard red spring wheat and for Durham even going up into Canada. In North Dakota and Montana you’ve still got wheat that is unharvested. The latest crop progress report showed 94% of the U.S. hard red spring wheat was harvested already, which means there’s 96% harvested, there’s 4% still not harvested and this is the end of October. This is very, very rare and at this point it kind of means that that’s actually a loss. A lot of times late harvesting doesn’t matter to a crop or doesn’t matter to a futures market but in this case I think it does. I think that at this point you can kind of write that off as a loss. The actual crop insurance date for that loss isn’t until October 31st but effectively that wheat has been snowed on, it’s just not going to be wheat that is going to end up in a supply table.

Howell: So will that give us enough of a shock to the market or a surprise to the market to add any sort of positive premium back in?

Kub: I don’t think so. I don’t think that the futures market has or is going to reflect that problem, not yet maybe in January something like that, but at this point it’s just the actual traders that are out there looking for good quality wheat, wheat that doesn’t have any problems, any molds or anything like that, and it just is reflected as I mentioned at the elevator door.

Howell: Elaine, the other thing that producers are curious of is when are we going to see the price implications for the corn and soybean markets? We’ve got a question here from Matt in Amherst, Wisconsin. He wants to know, has the market priced this epic train wreck of wet corn in the northern third of the Corn Belt? The dry corn is 23% with most of it at 27% on up and that’s what was planted halfway on.

Kub: Right. It is a real mess and as I mentioned a lot of times the futures market doesn’t reflect bullishly if there is a late harvest because the bushels are still there. And in a lot of cases for this corn market that is true. I was driving down I-80 today and I saw lodged corn that was hit by wind storms or storms that you’ve had here in Iowa recently but eventually that corn will get harvested, the bushels are still there, it will just be a pain. It will be a mess to go harvest and it will go slowly. I suspect this country will definitely still be harvesting corn in December this year. But eventually those bushels do show up. They might be light test weight if it was some place that got frosted here in the northern part of the Corn Belt. They might have wet problems like mentioned there and in that case nobody wins. You don’t get a crop insurance payment for having to dry down corn. You get crop insurance reimbursement for damaged corn or anything like that but having to pay extra to dry that down or pay the moisture charges or pay the shrink at the elevator, none of that ever gets reimbursed for farmers. So you’ve got both the elevator industry not receiving the corn that they’re counting on and needing at this time of year and at the same time you’ve got farmers who are not going to really see the prices that they would otherwise see, even from the strong basis. We have very strong basis but once you back off those discounts you don’t even see that.

Howell: Well and I think the other piece of the puzzle that a lot of folks are curious about is I think the general sentiment is we really won’t see that production shown up in the reports until January. But if we do see some sort of uptick in that we do not have great export numbers as is. Will that just continue to butt heads up against each other?

Kub: Yeah, so the actual movement of corn right now or the sales business of corn has not been great. Rail movement in this country this past week is down 20% from average levels, the inspections, the export inspections are down 31% from average levels. So we’re not seeing the seasonal movement that we would expect to see this time of year and part of that is because it’s not coming and it really depends very microlocally what your basis bids might be. There were certain processors that really boosted and strengthened their bids this week and were as strong as they have ever been this harvest season. But then right here on Thursday and Friday they weakened back out again because there’s a few dry days where they are expecting to see harvest progress actually made in their local little area and they’ll see that corn come in. Nationwide, eastern Corn Belt you’ve still got basis bids at a co-op level at 25 over 35 over very strong because they don’t have the acreage, you’re still basing these outlooks on the prevented plant scenario we’ve got back from spring that we’ve been talking about all summer. So exactly, there’s two competing things, everybody needs that corn but the corn is wet and so the actual prices received are not what folks want them to be.

Howell: Okay, Elaine, let’s transition and talk about what is going on in the soybean story. Friday was a horrid day for grain producers, maybe not so much for end users, but losing 13 plus cents I think it was. What was going on in the soybean market?

Kub: Well, the timing of it, it was pretty steady all day until the afternoon and the timing of it coincided with this trade war scenario, some sort of rumor that maybe parts of the agreement that might happen between the U.S. and China might have maybe been agreed upon, maybe. take that for what it’s worth. but apparently it’s worth 13 cents lower in the soybean futures as a disappointment of not getting what they expected to see or we don’t really have the details of what’s in it, hard to say, but I imagine it’s tied to that. Other than that you’re looking at a fairly bullish scenario if you look globally for soybeans.

Howell: A bullish scenario why?

Kub: Well, we have seen prices rallying a little bit or at least staying stronger and we’ve seen the dollar come down, every sort of piece of news that you get coming out of South America right now could be pointing in a bullish direction. You’ve got an election coming up in Argentina this weekend which has been driving the value of the Argentine peso down and really encouraging the domestic farmers in Argentina to be planting as much soybeans or as much exportable crops as they can. Brazil on the other hand has had their currency move upwards and that is traditionally bullish and I think that’s the more important influence here rather than that bearish Argentine peso. It’s bullish because they had a vote on some pension reform that is finally getting done and any time the Brazilian real starts to go up their FOB prices for soybeans at their ports are as high now as they have ever been in the calendar year 2019. So the expectation is that China might actually start coming to the U.S. for some of that export business so that’s great. And then you’ve also got the weather, which is not ideal. They’ve got enough showers in Brazil to keep planting going. I suspect right about now as we’re recording this they’re probably about a quarter planted in their soybeans but there has been enough of that dryness that if you ever do get that South American weather forecast really dry up it could become quite bullish for soybeans, you could see the March contract start moving back towards $10 and I think that’s a number that folks kind of play around with.

Howell: Are we going to see that March contract move towards $10 here in the next couple of weeks or is that something else that’s going to be kicked down the line until January or so?

Kub: If we saw some sort of details from this trade whatever with China that was really favorable it could become bullish fast. But we’ve been saying that for the past 18 months. And so I wouldn’t hitch your star on that wagon necessarily. The timeline for seeing a $10 sort of number on the March contract I think is more like a December/January kind of argument and if and only if you started to have much drier weather in South America.

Howell: Okay. Elaine, let’s talk live cattle. We had the cattle on feed report and I want to get to that here in just a moment. But on Thursday they had, or maybe it was Friday, had a reversal that closed lower than what they were trading in on the day. Is that just a short-term correction?

Kub: So that rally on the futures market has been pretty steady. I think if you look since the September 9th low we’ve been adding an average of 50 cents to that front month contract every day. It has been a pretty steady rally. So to see it pull back here on the futures chart, fine, these things happen. Cash market wise it’s still strong. We saw $110 trade live basis, that’s a $2 improvement over last week, $5 improvement through the month, so that’s still churning higher and I think there’s still the potential for the cash market, the actual market that is being traded out of the feedlots, to continue higher because the packer margins are still there. There’s still room for this market to keep moving higher.

Howell: All right, Elaine, share with me your cattle on feed report. Was there anything noteworthy there that our producers that are watching should be aware of?

Kub: Not really. You should be aware that it was a non-event. The report showed 1% less cattle on feed than last year at this time which is exactly in line with what the analyst expectations were going into the report. So that means you don’t expect any sort of a futures reaction when Monday shows up. But it does suggest that there is going to be good appetite through the month of October and November for feedlots to actually go out and buy these feeder cattle. When you start looking at the feeder cattle market it adds some strength or at least some stability to that, that there is room in there for them to go in now in the season where these cattle are actually going to finally start moving in the feedlots, that that appetite will be there.

Howell: What does the appetite look like for the lean hog markets? We continue to have these strange swings of limit up one day and then maybe limit down the next.

Kub: Well, that again is a trade war story. It really is. You could argue bullishly or bearishly based on demand scenarios and certainly the large supplies that we know and we have seen in this market for the past several months. Slaughter numbers are huge and they continue getting huger. You’re looking at more than 490,000 head every day so this is a lot of pork being put onto the market. But it just cannot be put on to the market at much higher prices because you’re still looking at that 62% tariff from China. So price wise there just isn’t the ability for that market to move higher.

Howell: There isn’t perhaps when you look globally, but domestically is there the ability for prices to move higher?

Kub: Well, that’s the expectation as we move out six months. I feel like every time I come on this show it’s always well six months down the line hog prices are expected to move higher. But we see that if you look farther out to July/August sort of timeframe you look towards the $90 level.

Howell: But that’s usual right? That’s the seasonal rally anyways.

Kub: Right, so in the near-term no, I don’t think there’s any reason to feel very bullishly about hog prices.

Howell: So let’s not look at the summer months because those are maybe a little usual to the higher prices. Let’s look at some of the deferred contracts relative to now. What are the levels that they feel comfortable trading at?

Kub: That $80 level for your spring contracts, that seems to be the price level just chart wise where it seems to be consolidating.

Howell: Okay, Elaine Kub, thank you so much, always a pleasure.

Kub: 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. We’ve been filling our Instagram Stories feed with some of the best fall images in rural America. See what we mean at IPTVMarket on Instagram. Join us again next week when we’ll see how farmers in one area are getting exposure in a new way to sell their wares. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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Tomorrow. For over 100 years we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today. 

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Accu-Steel, offering fabric covered buildings specifically designed for the cattle industry since 2001. The next generation of cattle buildings. Information at accusteel.com.