Market to Market - June 17, 2022

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Coming up on Market to Market --

Using trade talks to ease world hunger.

Sweeping changes to the landscape at Yellowstone.

Climate takes center stage on Capitol Hill.

And market analysis with Ted Seifried, next.

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What's the most complex industry on Earth?

It's not genetics, or meteorology, or logistics.

It's a business that involves them all.

It's farming.

Thank you, farmers, from Pioneer.

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.

♪♪

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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This is the Friday, June 17 edition of

Market to Market.

the Weekly Journal of Rural America.

♪♪

Hello, I'm Paul Yeager.

The year was 1994 - NAFTA was signed, Jeff Bezos

founded Amazon and the Federal Reserve raised the

key interest rate by 75 basis points.

The Fed dusted off the nearly 30-year old

playbook to fight the highest inflation in over

four decades by tightening monetary policy.

Spending weakened in May as retail sales fell 0.3

percent.

A large drop in vehicle purchases played a big

role in the reading.

The Rural Mainstreet Index dipped below growth

neutral for the first time since September of 2020.

A reading of 49.8 was reported by the monthly

survey of bank CEO's in rural areas.

While the Federal Reserve tried to cool the demand

side of the ledger by making borrowing costs

higher, Congress worked to ease the supply side.

President Biden signed the Ocean Shipping Reform Act

into law this week - aimed at reducing export

backlogs and logistical costs.

Global trade is more than just sea-going vessels,

but some see it as a rising tide which could

lift all boats.

David Miller explains.

The World Trade Organization met this week

for its 12th Ministerial Conference.

Issues on the table included everything from

intellectual copyright for COVID-19 vaccines to

negotiations over agricultural subsidies.

As the week ended, an agreement on subsidies for

fisheries seemed close at hand.

Ngozi Okonjo-Iweala, WTO Director-General Director

- General "We all know that a healthy,

productive, sustainable blue economy is one where

our oceans are replenished, where our

fish stocks are also healthy, and where

fishermen and fisherwomen who depend on such

resources continue to earn a decent living...I just

want to say that we have come quite a long way.

And even that to me, I can see today, I cannot have

imagined we would move along so fast a year ago.

So there is considerable advance and we hope we can

land this.”

After more than 20 years of negotiations on the

issue, more than a few diplomats were optimistic

about reaching an agreement.

Director General Ngozi Okonjo-Iweala was also

hopeful about the possibility of further

discussion on agricultural subsidies.

Any kind of agreement has remained elusive since the

failed attempt to make a deal during the Doha

negotiations more than a decade ago.

Ngozi Okonjo-Iweala, WTO Director-General Director

- General “A trust deficit has existed dating back to

the breakdown of the Doha round, and even before,

took its toll.” The WTO chief insisted that trade

has lifted 1 billion people out of poverty, but

poorer countries - and poor people in richer ones

- are often left behind.

In other trade deals across the globe, several

countries have joined together to help mitigate

food price inflation.

The United State Meat Export Federation is

reporting that South Korea has joined Mexico, the

Philippines, Taiwan, Vietnam and Brazil in

lowering or eliminating a few food-trade tariffs.

Some of the cuts build on previous agreements

already in play.

Erin Borror, Vice President of Economic

Analysis, USMEF: Mexico eliminating tariffs on

beef, pork and poultry, that's a bigger step than

we've seen from them in the past.

Korea's announcement is a duty free quota on pork

that is expected to be 50,000 metric tons.

The move will help many nations, several of which

have yet to negotiate Free Trade Agreements or FTAs

with the republic.

Erin Borror, Vice President of Economic

Analysis, USMEF: Brazil and Mexico are expected to

be the potential big beneficiaries of that duty

free pork quota that's been announced.

That's because they pay the 25 percent tariff on

frozen, 22.5 percent on chilled, which is relevant

just for Mexico, and even for Canada that has an FTA

with Korea, their 8.6 percent tariff this year.

U.S.

producers already benefit from the 2012 Korean U.S.

trade agreement or KORUS.

The tariff for U.S.

pork imports to South Korea are now zero while

beef imports to the Southeast Asian country

are charged a 10.5 percent duty.

Provisions in KORUS will cut that tariff to zero in

2026.

For Market to Market, I'm David Miller.

Hundreds of cattle died in Kansas this week due to

heat stress.

More than a dozen tornadoes touched down in

eight states.

However, we start our weather wrap with

significant flood damage in the nation's oldest

national park.

Here's Josh Buettner.

Floodwaters at their highest level in nearly a

century swept through Yellowstone National Park.

This cabin on the bank was swept away into the

torrent of water and into the Yellowstone River.

Roads were washed out making much of the

northern part of the park inaccessible for the

remainder of the summer.

Much of the region here has been locked in drought

for months even as days of rain and rapid snowmelt

wrought havoc on southern Montana and northern

Wyoming.

The look at weekly rain shows continued

precipitation in the Upper Plains, extending east

towards Ohio.

In Iowa, a heavy band of showers flooded fields as

some locations experienced five inches of rain in

just a short period of time.

This area near Ames was inundated mid-week.

Just hours before, extreme heat hit the same region.

Temps nearing the century mark were common with more

in the forecast.

More than 100 million Americans were under

advisement to stay indoors in regions from the Gulf

Coast to the Great Lakes and east towards the

Carolinas.

Drought is still a main concern for the West as

conditions have gotten worse.

However, the entire continental U.S.

had the lowest reading of drought since September

with just over 57 percent of the country in some

form of drought.

For Market to Market, I'm Josh Buettner.

Southwest monsoon season kicked off

Wednesday and runs until the end of September.

This time period is usually responsible for

half of the annual rainfall in the region.

But it is going to take a lot of weather events to

change the water story and habits of those living

under severe drought.

Peter Tubbs reports.

This week, the Senate Energy and Natural

Resources Committee held a hearing on the growing

drought in the western third of the United

States.

John Entsminger, Southern Nevada Water

Authority: “What has been a slow motion train wreck

for 20 years has been accelerating, and the

moment of reckoning is near.” The two-decade old

drought has dropped the depth of the nation's two

largest water reservoirs, Lake Mead and Lake Powell,

to levels unseen since the reservoirs were first

filled over 60 years ago.

The dwindling flows of the Colorado River are making

it more and more difficult to meet the contractual

commitments of water service to various cities

and states in the region.

Camille Touton, Bureau of Reclamation: “But in the

Colorado River basin, more conservation and demand

management are needed in addition to the actions

already underway.

Between two and four million acre feet of

additional conservation is needed just to protect

critical levels in 2023.” An acre foot of water is

roughly equivalent to the annual water usage of a

family of four.

Scientists have estimated that the current drought

is the worst in the region over the last 1,200 years.

Much of the discussion centered around future

water usage.

Maurice Hall, Environmental Defense

Fund: “We do have options, but, we have to manage for

the rain and snow patterns that climate scientists

tell us we are in for, not for the patterns we long

for.” Patrick O'Toole, Savery, WY: “I graze my

entire operation in the National Forest.

It is dead.

It is not generating water.

The headwaters of the Colorado River is not

generating near the numbers of acre feet that

it should be because the forest isn't functioning.”

Sen.

Mark Kelley, D, AZ: “If basin states cannot reach

an agreement, is the Department prepared to

take actions to impose restrictions on other

states without regard to river priority?”

Camille Touton, Bureau of Reclamation: “Yes we will

protect the system.

But we are not at that point yet.” The struggle

between thirsty crops and thirsty city residents was

the crux of some of the testimony.

John Entsminger, Southern Nevada Water Authority:

“Congress needs to make massive investments into

agricultural efficiencies.

I agree with Mr. O'Toole that we need to prioritize

food security, but we can't balance the

structural deficit by evacuating cities.

So we are going to need to make our ability to grow

the same amount of food with less water a

priority.” Sen Mike Lee, R, UT: “What can you tell

me about the Bureau's priorities moving forward

as they relate to water levels at Lake Powell?”

Camille Touton, Bureau of Reclamation: “What we are

prioritizing right now is short term.

What actions to make up for that 2-4 million acre

feet in the basin, to help protect Lake Mead and Lake

Powell.

Because all of the actions that you mentioned, of the

1 million acre feet that we did this year, buys us

a year, and we cannot be in the same place next

year where we are talking about critical levels to

protect power pool.” The National Weather Service

expects drought conditions in most of the Southwest

to worsen through the summer.

For Market to Market, I'm Peter Tubbs.

Next, the Market to Market report.

Weather took over most market headlines this week

as hot and dry baked much of the grain belt.

For the week, the nearby wheat contract dropped 37

cents, while July corn improved 11 cents.

The bulls that dominated the soy complex were hard

to find after last week's rally.

The nearby soybean contract fell 44 cents.

July meal jumped $9 per ton.

July cotton shrank $1.61 per hundredweight.

Over in the dairy parlor, July Class III milk

futures lost $1.01.

The livestock sector was mixed.

August cattle put on 38 cents.

August feeders decreased $1.53.

And the July lean hog contract improved $5.52.

In the currency markets, the U.S.

Dollar index dropped by 47 ticks.

July crude oil weakened by $10.81 per barrel.

COMEX Gold lost $40.20 per ounce.

And the Goldman Sachs Commodity Index fell just

over 41 points to finish at 754.30.

Yeager: Joining us now to provide some insight,

Mr. Ted Seifried.

Hello, sir.

Seifried: Hey Paul.

How's it going?

Yeager: Hot and dry, that's how it's going.

Seifried: Yeah, it's a little warm out there.

Yeager: It's warm for June.

But it's warm and hot in wheat country but they're

used to it at this time of year.

Winter crop is coming out below expectations or

below average in some parts of Kansas.

Is that a bell weather for the rest of the Wheat Belt

when it comes to winter?

Seifried: Yeah, it should be.

Any time you have lower production like that it

should be supportive for prices in the market.

But we're already at some very, very good prices.

We were quite heavy on Friday.

So the question is, harvest pressure, when are

we going to be done with that?

I would think that in a year like this where as

you said yields are coming out well less than, when

you say expectations -- Yeager: I shouldn't have

said expectations.

Average.

Seifried: Right, what we were thinking when we

planted.

How's that?

This crop is a lot smaller than what we were

thinking, what we were intending to have.

So when that happens you've got a fair amount

of wheat that has already been sold so it doesn't

have to go, when it comes to town the cash doesn't

have to go to market.

And whatever you are doing, whatever is getting

sold, it's probably going to dry up sooner than it

usually does.

So I'm thinking by the time we're 40% to 50%,

maybe 45% harvested that harvest pressure should

probably be done.

In a normal year you say 60% to 70% harvested,

that's when the harvest pressure lifts and we

start to get that post-harvest rally.

This year I think that happens earlier.

So it might be within the next week or so.

But, again, that kind of depends on what is going

on with row crops I think and it also kind of

depends on what is going on with the whole

macroeconomic climate that we have as well.

Yeager: We're going to get to the macro everything

here in a minute.

But wheat has been this, I won't say accordion, but

it has kind of been the same 30 to 40 up one week,

back down the same amount.

We know volatility is here more.

But why is that such a story?

Seifried: You know, we found a level that really

I think we were sort of value priced in wheat and

without seeing a huge increase in exports it's

tough to say that the initial spike that we got

from the Ukraine or the Russian invasion of

Ukraine, it's hard to say that was really justified.

In fact, at the time it was a short squeeze.

It wasn't really fundamentally justified in

my opinion.

Now, since then we've had some bullish things happen

for the wheat, obviously drought, obviously low

yields, production issues not only here but in other

places as well, that have kind of come in to justify

some of these higher prices.

But whether we go higher or not I think really

hinges on hey, are we going to see this influx

of business coming for our wheat export program?

And we haven't seen that so far.

I think you have to have really big doubts about

that.

So yeah, again, I think wheat can recover after we

get past the harvest pressure.

I think there can be some more upside but it has to

come from strength in the row crops.

I think at this point wheat would be the

follower.

Yeager: Is corn the leader then this week?

Seifried: I think corn and soybeans really kind of

trade off being the leader.

You go back a couple of weeks and soybeans really

were the leader and the cash market in beans was

really very tight.

But then this week you saw that the basis at the Gulf

and everything really started to kind of fall

apart, or cool off, pretty significantly for beans.

Crush margins have cooled off very significantly for

beans.

But then when we look at the weather forecast, corn

kind of takes that leadership role because

that is the one that we look into a climate

prediction center outlook for July of above normal

temperatures and below normal precip for much of

the growing area and we know July is the key month

for corn, the yes, corn is going to take the lead.

Yeager: And if you believe the photos that you see on

Twitter or online, wilting crops in Illinois, good

corn country, Indiana, nothing growing in Ohio if

we believe what Glen is showing us.

We know the story in North and South Dakota,

Minnesota.

There's a part of Iowa that didn't get the rain

this week.

They're going to see 100 degree temperatures real

fast.

This is June.

Is that a problem?

Seifried: Yeah, so you kind of touched on a

couple of different things there.

The planting issues that you had in North and South

Dakota and Minnesota, that is something that is a

problem.

I don't think we're going to get the intended corn

acres, which was down from what we really needed

anyway.

So I'm worried that maybe we don't have that 89.5

million acres of corn.

But as far as the heat that we're having in June,

we were behind on this crop.

We needed the heat to come in to try to catch up.

And yeah, you're pineappling a little bit

in the evenings and there are some areas that are

going to have problems, we have this every year.

June is not the month that we really focus on as far

as weather.

That is all going to happen in July.

I really don't see this hot and dry that we're

having right now as being a major problem for the

corn crop unless it continues into July,

unless those climate prediction center outlooks

are correct with above normal temps and below

normal precip.

If you're following a month like this up with a

month like that, then we really do have a problem.

So it all depends no the forecast.

And after we come back from a three-day holiday

week we'll see what that forecast has to say and

that will really dictate what we're going to do.

It's almost just like a second 4th of July holiday

weekend that we're having two weeks, it's a dress

rehearsal for the 4th of July holiday weekend.

Yeager: I want to ask you a question about something

I've asked you before but it's a follow up that came

in from Mitch in Hull, Iowa and we thank you for

all of your Twitter and Facebook questions that

come in.

Mitch is asking you, Ted, how do you feel about

marketing 2023 new crop corn and/or soybeans given

uncertainty on input costs that far out?

Seifried: Yeah, input costs are starting to come

down as sort of predicted.

And if you're a believer that we're going to see an

inflationary bubble burst happen between now and

next growing season, that would suggest that we're

going to be paying quite a bit lower for input costs.

It would also suggest that corn prices could be quite

a bit lower by that time too.

So I'm really urging a lot of my guys to be between

15% and 25% sold for '23 already at this point and

we're looking for ways to kind of get a little bit

higher numbers there by the time we get past the

4th of July.

I want to be careful because I do realize that

there is fairly significant upside

potential in the short-term based on

weather forecasts, based on a blow off top in the

inflationary climate of the market.

But I really worry about where we're going to be

even going into this harvest and then for the

next following couple of years.

This time last year, Paul, being here I was not

really very bearish for harvest of the following

year.

I really thought this was going to stick around for

quite a while and it has.

But now you see the cracks coming in the foundation

in the form of what is happening with the stock

market, what is happening with cryptocurrency.

A lot of the wealth and money flow in the economy

that has created this inflation has kind of

disappeared, gone away because of the wealth

destruction that has happened in other markets

and we have to take notice of that.

We have to realize that over time that, along with

higher interest rates, will really go a very long

way to not only busting this inflationary bubble

but really taking us to a period of deflation

possibly.

Yeager: We have a couple of questions about

inflation that we'll get into in Plus but I'll just

ask you right now, what is the impact of a I think

you said blow off top or we're back below 30,000?

What does that mean for commodities?

Seifried: Commodities are directly impacted by

inflation because that's the thing, when there's

more money in the money supply then the money is

worth less and commodities have to be worth more.

That is really the definition of inflation.

But the thing is, when you're taking money out of

that money supply, that leaves that inflationary

bubble at risk for bursting.

When it does what happens is the products that you

use these commodities to make, i.e. beef,

i.e. ethanol, things like that, in an inflationary

climate it's okay to have high priced inputs because

the products are high priced and people are

willing to absorb that.

But when you have that inflationary bubble burst

and people are not willing to absorb those higher

prices and pay those higher prices for the

products, that demand starts to, that's what we

call demand destruction, demand starts to go away.

Then the inputs have a problem because they can't

be high priced if the products that they're

making, if that demand is going away, so the demand

for the inputs goes away, i.e. corn.

So yeah, inflation goes away that's a big problem

for grains.

I'm going to argue there's probably about a dollar to

two dollars of value in corn, of the price in corn

that is 100% tied into inflation and if you take

the inflation away and even if you're still

looking at the same balance sheet or possibly

even slightly more bullish, I still think

there is a very sizeable down draft that can happen

in corn prices just because of inflation.

Go back to 2007, 2008 and 2009 and you'll see what

I'm talking about.

Yeager: You've touched a lot on beans.

Real quick, are you doing anything right now with

beans?

Are you buying?

Are you selling?

Changing positions?

Seifried: I have a hard time being bearish old

crop beans.

And like I said, I think there is this one more big

inflationary push and I think one more potential

big weather push as long as the forecast doesn't

change over the three-day holiday weekend.

So I'm being a little bit patient.

New crop beans same thing as corn, I'm asking guys

to be 60%, 65% sold for new crop.

I think you can have sold old crop bushels laying

around just to see what happens towards the tail

end of the marketing year where we're supposed to be

running out of beans.

But you've got to be fairly aggressive at these

prices pretty much across the board.

You've got great prices, take advantage.

If you want to reown with call options I'm all for

something like that.

But don't just sit on the risk of a $2 drop that

could happen at any given time.

Look at crude oil on Friday.

Yeager: Well, energies in general, we could talk

about that.

I need to get into cattle.

I mentioned the deaths in Kansas in the feedlots.

Is that pulling live cattle down?

Is that impacting live cattle in any way, this

weather story?

That's the reason they're in the feedlot in the

first place.

It's more of a feeder story when it comes to

inputs.

But what is the big story for you here on cattle?

Seifried: I think my biggest takeaway because

there's a lot of rumors and speculations swirling

around that event, I'm not going to partake in that.

But what I will say is that it really highlights

what these very warm temperatures very early in

the year can do.

So you've got to be a bit worried about weights I

think going forward.

You've kind of had this sort of push pull thing

going on in the cattle where we're worried about

hot temperatures and weights and what the

production and supply is going to be but at the

same time we're really worried about demand

because we see the stock market pretty much down

every day and big unprecedented plunges that

we've had since the beginning of the year.

So we're worried that our 401Ks aren't as robust, so

people aren't going to go and spend those high

prices for beef at the grocer's counter.

I think we are going to keep doing that for a

period of time here, Paul.

People want to go out and act like it's 2019 where

we're unrestricted.

A lot of people were still very restricted last

summer.

People want to go out and live that lifestyle again

and they'll do that until at least the 4th of July

if not mid-July.

It's the later half of the summer when the consumer

starts to pull back, that's when I worry about

cattle prices, then corn prices, really just the

whole board I think gets really dicey towards the

end of the summer into the fall.

Yeager: And with feeders you kind of touched a

little bit on that.

I need to get into hogs because they are, again,

like what wheat has been doing, way up, way down,

kind of the same thing.

$5 back up this week after $5 last week.

What's going on?

How do you make sense?

Seifried: I mean, quite a bit better than expected

export sales this week.

That was really good to see.

Cutouts started to raise again, that's really good

to see.

And I'm sort of frustrated with the hogs because I

can see the hogs trading higher prices, I really

think domestic demand is going to be rather strong.

If we're talking about people balking at going to

their grocer and paying $24 for a one pound

ribeye, for example, well then just look right next

to it and you've got pork chops at really very low

prices.

So if we're saying that demand in beef is going to

get cut because of the drop in the stock market,

well then what are people going to look at for an

alternative?

And you've got a cheap pork product sitting right

next to it.

I think the pork demand is going to really get

stronger and stronger throughout the course of

the summer.

I think you're going to see a shift away from

those high priced steaks into pork chops and things

like that.

Yeager: Thank you, Ted, good to see you.

Seifried: Always a pleasure, Paul.

Yeager: All right, that's going to do it for the

installment of the TV show Market to Market.

We're going to keep going in Market Plus because I

cut Ted off so we have to keep going.

Find it free on our website of

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Next week, the future of greyhounds after the race

is over.

Thank you for watching.

Have a great week.

♪♪

♪♪

Market to Market is a production of

Iowa PBS which is solely responsible for its

content.

What's the most complex industry on Earth?

It's not genetics, or meteorology, or logistics.

It's a business that involves them all.

It's farming.

Thank you, farmers, from Pioneer.

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.

♪♪

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.

♪♪