Market to Market (March 27, 2020)

Oil Industry News

Market to Market (March 27, 2020)

Coming up on Market to Market — The markets rally even as the cases climb. Congress brings its power to the crisis. The next generation learns more than just the art of the hedge. And commodity 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. 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, March 27 edition of Market to Market, the Weekly Journal of Rural America. Hello, I’m Paul Yeager. The effects of COVID 19 are being seen in rural America. Social distancing has found its way into everything from meeting at the elevator to making contact with your local FSA office.

On Capitol Hill, a $2.2 trillion relief package has wound its way through Congress. Last week, groups like the NCBA and NFU pleaded with lawmakers to remember rural America behind. Their voices were heard. Peter Tubbs has more.

The largest aid bill in U.S. history sailed through the Senate late Wednesday on a 96-0 vote as senators patched up differences. The CARES or Coronavirus Aid, Relief and Economic Security Act will distribute more than $2 trillion to nearly every person and business in America. Agriculture did receive some provisions in the plan. Depending on math, agricultural sectors covered by the Senate Agriculture committee will see nearly $35 billion in assistance.

Emergency resources will be made available for livestock producers, the Commodity Credit Corporation as part of implementing the 2018 Farm Bill and keeping open USDA inspection services to maintain supply chains. More than $15 billion is tagged for SNAP funding to handle projected jumps in applications. Agriculture was deemed “essential critical infrastructure workers” in an order from Homeland Security. As most travel between the U.S. and Mexico was stopped, exceptions for farm labor were put in place allowing guest workers into the country and America’s Salad Bowl looked to turn produce in the fields to items on grocery store shelves. Ryan Jacobsen, CEO, Fresno County Farm Bureau: “We’re very fortunate as this COVID-19 pandemic hit our industry it happened to hit during a slightly slower time of the year.

It is really in-between we’re really busy pruning time when the vines and trees are in dormancy, as we go through the spring and before we get to the harvest part for our early tree crops. For producers like Joe Del Bosque, his main crop is now asparagus. He’s been able to find enough labor for now, however the outbreak has highlighted the need for immigration reform. Joe Del Bosque, CEO, Del Bosque Farms: “During this COVID-19 pandemic, we have to have people in the field to harvest our crops, the food cannot stop moving to market, and people depend on us. And we depend on these people to be here to plant and irrigate and grow our crops and harvest them also.

So we are very concerned we need to get something done with this immigration reform. But how far ‘essential’ stretches, is evolving. Corn Belt farmers will soon be in the field, but the industries surrounding the dirt are taking precautions. Some implement dealers are telling customers much needed parts will be left outside the store after farmers call ahead for an order. Co-Ops are still open, but paperwork and interaction is limited to waves and hand signals in a few locations.

Many operations have yet to take delivery on seed, but hope distribution will have limited disruptions. Deere and Company is still operating some production lines. This week, the Moline, Illinois-based manufacturing giant removed 2020 financial guidance, or projections of expenses and revenues for the year.

The company cited the COVID-19 outbreak as the reasoning in its correspondence with the Securities and Exchange Commission. Several renewable fuels plants are either slowing or in some cases, stopping production. The Renewable Fuels Association said around a fifth of U.S. ethanol production capacity would likely go off-line by the end of March.

That equates to 3 billion gallons a year and includes almost 3 dozen plants in shutdown and 40 plants at reduced production. For Market to Market, I’m Peter Tubbs. Trading commodities, even in times less volatile than these, can be a daunting task. The terminology alone has stumped more than a few. Josh Buettner found one classroom where the next generation of students is tackling those terms, and how to apply them, in our Cover Story.

Turning a profit through Mother Nature can be precarious – a fact of which America’s farmers are acutely aware. Things like soil health and weather intersect with fluctuating input costs, trade disruptions and an array of other variables – creating perpetual uncertainty. So as agricultural products move from the field to end users, financially offsetting such potential losses, or hedging, has become essential. And the University of Idaho’s Agricultural Commodity Risk Management Program is giving the next generation of traders, managers, and merchandisers a leg-up securing operational viability while learning to maximize profits. Norm Ruhoff/Clinical Assistant Professor – University of Idaho College of Agriculture: “The program is relatively new.

It’s built upon the shoulders of a program in the College of Business…and we compliment that by focusing on agricultural commodities.” Clinical Assistant Professor Norm Ruhoff says commodities are a fundamental component of the U.S. economy and three sectors – potatoes, grains and dairy – form the core of Idaho’s contribution. And by harnessing basis – the difference between the cash price of a commodity and its board of trade futures price — farmers can lock in prices and join speculators making money as markets rise and fall. Growing up on an Idaho family farm and cutting his teeth at a local grain elevator, Ruhoff later spent years in the Midwest commodity trade before returning home to impart bins full of knowledge. Ruhoff’s students get their feet wet with supply and demand analysis, form risk management strategies, and dive into real-world experience. Norm Ruhoff/Clinical Assistant Professor – University of Idaho College of Agriculture: “Students in our case have a chance to actually trade the actual commodity and take on the futures position to hedge that.

So from an agribusiness perspective, it’s about margin management – sustainability of the family farm… What we try to do is teach them the concept of if you own a bushel of wheat, what kind of risk do you encounter in the marketplace? So once they buy that bushel of wheat, they can actually sell that back to the cash market, do nothing, be exposed to market risks or hedging. And that’s essentially selling it on the futures market.” But understanding puts and calls is a process, even for students who grew up around agriculture. Colt Stowell/Student – Wilder, Idaho: “I remember my very first day in this class and I remember the first question I asked…raised my hand and said, Norm, you’re teaching us how to gamble.

Like this…why don’t we just go play blackjack? I was looking at the candlesticks and the way that prices were moving and how you could go long and make money when the price went up or short and make money when the prices go down.” Colt Stowell had zero knowledge of hedging practices before being immersed in Ruhoff’s curriculum, just like Cole Lickley, a fifth generation cattle rancher from southern Idaho – now one of a handful of students who graduated having earned a Series 3 License with the National Futures Association, a self-regulatory organization designed to safeguard the U.S. derivatives industry. of expenses
Cole Lickely/Student – Jerome, Idaho: “It was really a big eye opener and it was incredible and it just captured me from the beginning and ever since learning about it in Norm’s very introductory class, I’ve just put everything I can into it to try to understand the industry more so you can go back and help those ranchers manage their risks and stay sustainable.” After graduation, Lickley began work as a cattle broker in Nebraska, before returning to Idaho in a similar position. Classmate Justin Chapman started his career trading grain in North Dakota. Justin Chapman/Student – McCall, Idaho: “I’m tickled pink about the commodity markets and just all the different moving parts of being a merchandiser and also being able to connect to farmers and just kind of learning about their traditions.” Chapman and Bailey Storms both came to the Commodity Risk Management program without a farming background but found intense personal and professional value from their education.

Bailey Storms/Student – Idaho Falls, Idaho: “I’m going to be a credit officer trainee and I am going to need to have a knowledge base of markets in order to most effectively help those customers. So that was something that was really important for me.” The agriculture industry is bullish about the things happening in Moscow, Idaho. The school’s graduates are sought out, nationwide, to trade commodities around the globe – and Ruhoff says alumni are giving back – by mentoring the next batch of undergrads. Last year, the Idaho Wheat Commission announced a $2 million endowment to help the University of Idaho expand its program by establishing a Chair of Risk Management.

Commissioner Bill Flory, who graduated from the school decades before the risk management program came into being, runs a diverse operation in the northern part of the state. He’s been impressed by the caliber being cultivated at his alma mater. Bill Flory/Commissioner, District 2 – Idaho Wheat Commission: “Norm is just an outstanding prof. I mean he’s got the real world experience.

He’s really well grounded. He listens, he lets them run, you know. I mean it’s just…classroom is very dynamic and it’s very important. That’s what this program does is interfaces very directly with industry and with producers and provides a great utility as far as an understanding of the complexities of markets and hedging and risk management.” Similar approaches are scarce across America’s academic landscape and university staff beam with pride over what they’ve helped build.

Norm Ruhoff/Clinical Assistant Professor – University of Idaho College of Agriculture: “I look back on my career and this is an opportunity for me to really pay it forward. I’m a third generation grain merchandiser. Followed my father and grandfather into a small country operation. And beyond that, out of a family of eight kids, six of us graduated from the university. So very proud to see what we’re doing with our program and putting recognition out there for the University of Idaho.” For Market to Market, I’m Josh Buettner.

Next, the Market to Market report. The commodity markets dealt with reduced biofuel production, renewed Chinese buying, and rainy weather in South America. Added to it was the shortest bear market in history on Wall Street and optimism over the CARES Act.

For the week, May wheat shot up 32 cents and the nearby corn contract found 3 cents. The May soybean contract jumped 19 cents. May soybean meal lost $2.10 per ton.

May cotton fell $2.35 per hundredweight. Over in the dairy parlor, April Class III milk futures dropped 81 cents. The livestock sector was mixed.

June cattle cut a dime, May feeders gained $2.68 and the June lean hog contract shed $3.70. In the currency markets, the U.S. Dollar index gave back 480 ticks, a 4.7% loss.

when the price

May crude fell $1.52 per barrel.

COMEX Gold climbed $165.10 per ounce, reversing last week’s drop. And the Goldman Sachs Commodity Index spiked 55 points to finish at 268.40. Joining us now to offer insight on these and other trends is one of our regular market analysts Dan Hueber. Welcome, Dan.

Hueber: Thanks very much. It’s great to virtually be here with you. Yeager: Virtually, some say that’s just the best way. Absence makes the heart grow fonder.

Hueber: Under the circumstances this is probably the best way for now at least. Yeager: This is the new norm and it appears that volatility is one of those crazy things that we’re dealing with. Next week we have the end of the month, the end of the quarter and a USDA report.

Let’s just throw a few more things into volatility for next week. What do you say to that? Hueber: Certainly. You might as well cram all you can in at once. Since we don’t really have much we can do outside at this point we might as well enjoy all these types of activities that the government is supplying to us.

But again, these numbers next week are going to be important, particularly that prospective planting figure, but there are just so many things in flux here at this point in time, not that the market won’t take them seriously, particularly the grain stocks. Of course that’s a little more hard and fast number, but boy looking out into the springtime and decisions on what can we get out and do this planting number is going to very much be in flux as we look forward here. Yeager: I do have a couple of questions about acreage we’ll get to in a moment. stopped, exceptions for
We need to start with what.

That was one of the big winners, up the nearby contract 32 cents, that’s a 6% gain. However, we’re pushing higher highs but the question is, and we’re challenging resistance, but are we overbought now? Hueber: Absolutely, we pushed up against some highs we had witnessed maybe back around October of last year, some of the indicators are definitely into the overbought situation.

Not that we couldn’t accelerate through but I think to do so we’re going to need to have a little more concrete positive news to make that happen. So around the world with all the uncertainty that is out there, availability of supplies and of course we do know that people in certain nations are stockpiling, even domestically here we have a lot of people who have been stockpiling on wheat even though many probably haven’t made products from scratch for 20 or 30 years, but we’ve got that on hand here at this point. So there’s a two edged sword there of course too that if we bought all this product ahead, we know millers domestically and throughout the world are kind of scratching to get inventory at this point in time, which certainly helped to lift those wheat prices up, but we have the counter effect there too that at some point once we are through this crisis there’s going to be a lot of not the raw product per se but of course finished products that people might have on their shelves and we could see demand fall off a cliff here at that point. Yeager: So is wheat going to, we know corn is facing a whole lot of stories, we’ll get to that in a minute.

But does we have any more room to go back up or are you making a sale right now? Hueber: Personally I think you make a sale right now. In fact, I had written in my commentary this morning we probably want to get into the first of the week just to see how we react, get through these reports here, but yes I think it’s probably a good time for a new crop/old crop, either one, to go ahead and start making some sales on the old crop if you theoretically have it yet. But start making some sales because these are as good a numbers as we’ve looked at here in the last year and I think it’s time to reward that. Now, certainly we know acreage is not big in this country.

But like I said, when you look at it on a worldwide basis the International Grains Council upped their world production numbers again here this morning so there’s not a critical shortage around the globe so take advantage of good prices when you see them. Yeager: I don’t know, are you a Rocky Balboa fan? Hueber: I don’t know if I’d call myself a fan.

Yeager: But you’re familiar with him. Do you think the corn market kind of looks like Rocky right now? It’s pretty beat up. It has been withstanding a whole bunch of ethanol problems, we’re going to have a whole bunch of it still sitting in the bins, we’re going to plant a whole bunch of it but yet we somehow squeaked out a win this week. Hueber: Well, we have to consider that we have driven, not just the corn, but so many commodity markets last I concluded really down to recession lows, 2008, 2009 type of valuations here and I think that we held, that we bounced back a little bit on corn is indicative that yes, there is still value out there, we still have a fair amount of livestock on feed, those numbers have not shrunk by any stretch of the imagination at this point.

And I think there is some optimism that with China starting to come back into the world, they came in and bought corn this week which I think that was a little bit of a surprise that was on their plate right away. But really for the last several weeks the corn export sales have been improving pretty substantial, over 1.8 million metric tons this past week, so I think that is showing us a little bit of light at the end of the tunnel. But the big caveat there as you hit it already is the ethanol industry and of course that wasn’t just a one, two punch, that was a one, two, three, four punch from the slowdown in the world economy from trade wars to the Saudis and Russia getting into a price war to see who can out punish the other on production numbers and of course now this with the slowdown in traffic not just domestically but worldwide because of this coronavirus, it’s pretty devastating. There was a report issued by the University of Illinois today, Scott Irwin, looking at what would happen if this really continued on and they said, worst case scenario if we didn’t see improvements, see traffic starting to return to normal and business activity returning to normal you could end up cutting corn demand by up to 250 million plus, which there’s 10% of what is already projected carryout increased so that’s certainly not something we want to see for these ethanol or corn markets. Yeager: All right.

Real quick on corn. Are you making any sales right now rewarding this rally? Hueber: I don’t see any rush to sell corn at this point in time.

If you have old crop unfortunately that’s a little tougher game but I think we’ve got some room for improvement there too. Looking at new crop you’ve got — up at $3.88, granted that is at 85% of your production, but I think it’s a good safety net. Why need to start selling corn at 20 cents lower than that when we have all of the risk of the planting and growing season in front of us. If we looked at prices a year ago at this time, maybe after this week a little bit less, we’re not that different than we were a year ago at this time and at that point nobody could predict what was going to happen in spring last year.

Yeager: If they could they would be a whole other level of things. Let’s move to beans, Dan. Meal was extremely hot, that drove a lot of the market and then Thursday we had a selloff, went over to oil.

What is going to drive this market going forward? Hueber: Well, the oil had been devastated, it went down to lows we hadn’t seen since 2008, 2009, finally saw a little recuperation on the realization that a lot of these plants in Malaysia and those areas have now been, the plantations have been virtually shut down because of the spread of the coronavirus there. But meal, I think you can look at one thing and that is point your finger over at China.

China, not that they don’t have some health issues they’re going to have to work through in the days and weeks ahead, but they are trying to gear back up their livestock production, they are trying to get their economy rolling again and between this issue, some delays in the South American harvest on soybeans, they’re just not seeing the product come into the country at this point. The raw product, of course soybeans, are coming into the country and the meal prices just skyrocketed in China here this week and I think that bled over to two week ago we look at the meal market and it was the dog and here we are now it’s the leader of the pack that is taking the soybeans higher. And when you look at the soybeans, been a bit overshadowed by all of this other news and where is China in this whole picture, it just seems like it was never going to come.

But I think overlooked in that is look at what the USDA has already done on carryout on soybeans. We’re less than half of what we were a year ago. We have some uncertainty on the acreage numbers, we’ll find out some more on that next week. But it would not take a big problem in the growing season, one or two bushels to the acre and we’re back down to some very tight, critical carryout numbers in soybeans.

This in spite of another, what potentially is going to be another record crop out of South America. So the beans could be the one bright spot we have looking out into spring, summer. is teach them the concept
Yeager: Okay, I have to move along. I’m going to save a dollar question for later. The livestock market, when we come into cattle — before I get to cattle I need to talk about dairy prices.

We are falling quickly here. What is going on? Hueber: It’s a tough question, a good question.

You would think that as people are out rushing in, stocking up on wheat or flour and pastas and canned goods and this type of thing, they would have done the same thing in dairy, but I think we have to come back to the recognition as well that dairy does not have the shelf life per se as some of these other staples do in the grocery store. It could be the point they got to that toilet paper aisle and it was dry and they were upset and they just left the store. Yeager: Don’t cry over spilled milk. I’ve got to move into cattle quickly. Is that one overbought as well or just run out of steam/ Hueber: I think the crushing pushed a day cattle and hogs both again was just a psychological battle.

I think the realization that we may have a difficult time getting the summer barbeque season moving has punished all of those livestock markets here this last week. It really did look like we were starting to get into recuperation and I think that just took the wind out of, or any momentum we had at that point just kind of destroyed it. I don’t think we have tremendous downside potential. As I mentioned before if you look back here we’re down at what has been basis of support for the last two to three years let alone going back all the way to the recession in 2008, 2009.

But we’re going to have to see some good news on the economy I think before we start to turn these meat markets around again. Yeager: Speaking of turnaround, there’s not much of one in the hog market. That looks like it’s an EKG again today, just brutal on Friday. What is happening there? Is that tied to grilling like with beef?

Hueber: I think you have the same impact there. If we would have been looking at the hog market earlier this week it looked like a whole different beast. We were kind of finding some value in there and I think people were feeling a little bit better but I think as the news continues to — forget about the Easter ham at this point.

It’s just hurting us on the demand and of course then 3.3 million unemployment claims this week, granted there’s going to be some money coming from the government which should help out and maybe some longer unemployment benefits, but I think everybody is probably looking at how they are going to start cutting back on expenses and some of those places are going to come to — not that pork is an expensive cut of meat but poultry is going to be favored and I think until we can start seeing some light at the end of the tunnel — Yeager: They’re spending their money on their data and I’m out of it right now with you. Thank you, Dan Hueber. Hueber: Very good, thank you.

Yeager: 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 MarketToMarket.org. This week, check out the M-t-o-M podcast where you can hear how we’ve been producing this program in these different times and we also remember Dean Borg.

Mr. Borg was the longtime host of Iowa Press here at Iowa PBS and the occasional fill-in host for Market to Market. He passed away from pancreatic cancer on Sunday. Join us again next week when we’ll assemble a panel of analysts to breakdown the numbers in next week’s USDA reports.

So until then, thanks for reading 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.

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