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Coming up on Market to Market -- An explosion at an Omaha animal feed plant kills two people
and injures more than a dozen. Biofuels supporters voice their disapproval of proposed cuts to
the renewable fuels standard. And officials work with agricultural producers to improve
water quality in a leading farm state. Those stories and market analysis with John Roach,
next. This is the Friday, January 17 edition of
Market to Market, the Weekly Journal of Rural America.
Hello. I'm Mike Pearson. Equity markets plunged late this week as investors beat a hasty retreat
to the sidelines. The carnage began Thursday as the Dow declined
176 points on news of an economic slowdown in China. One day later, the Dow fell more
than 300 points to record its lowest close of the year. The S&P 500 followed suit with
its largest two-day decline since 2012. Meanwhile, bitterly cold weather is heating
things up in the energy sector. Natural gas futures prices exceeded $5 Friday for the
first time in three-and-a-half years. Electricity prices also are on the rise as power utilities
struggle to meet higher-than-normal winter demand. And propane soared to record highs
this week in the Midwest, costing those who need to fill their tanks 100-to-200 dollars
more than just last month. But even as some consumers braced themselves
this week for bitterly cold weather, others were more concerned with matters of life and
limb. Federal safety investigators are determining
whether structural problems and a dust explosion contributed to an industrial building collapse
in Omaha this week that killed two workers and injured 17 others.
Inspectors with the U.S. Occupational Safety and Health Administration, or OSHA, are working
with structural engineers and combustible dust experts as part of their investigation
into Monday's accident at the International Nutrition building. The plant makes nutritional
products that are added to livestock and poultry feed.
Some witnesses reported hearing an explosion before the building's top two floors collapsed
into the first floor. But others have suggested that the sound and fire, which burned some
workers, resulted from the collapse. Nate Lewis: "It was crazy. Yeah, I just turned
on my phone, I just turned on my phone, to see where I could get any visibility because
it was like pitch black in there. All I saw was like the fire, I just thought the building
was on fire and everything so I just tried to get to another exit."
An OSHA spokesperson says it likely will be weeks before investigators know the exact
cause of the accident. Bernie Kanger: "The chance of finding any
vicitims that are alive is no longer there." Unfortunately, Monday's deaths were not the
first workplace fatality to occur at the plant. OSHA records show International Nutrition
was assessed more than $13,000 in penalties for a 2002 accident that killed a 45-year-old
worker. The employee perished after falling into a moving mixer that he was cleaning.
The Obama administration sent shockwaves through the Corn Belt late last year when it proposed
cutting the federal mandate to blend ethanol into U.S. gasoline supplies.
The plan has drawn sharp criticism from biofuels supporters who claim the Renewable Fuels Standard,
or RFS, has helped to create nearly 400,000 jobs.
This week, ethanol proponents held a "Hearing in the Heartland" to voice their support of
the RFS. In what was more of a rally than a hearing,
dignitaries representing groups from Washington D.C. to Mainstreet joined Iowa Governor Terry
Branstad to send a message to the Environmental Protection Agency.
Gov. Terry Branstad, R-Iowa: "And the oil companies don`t want to ethanol, they want
to kill it.... We`re not asking for a change in policy we want to stick with what works.
`` Nearly 100 people filled the room to hear
about proposed cuts to the Renewable Fuel Standard, or RFS.
At issue is whether the EPA will reduce the RFS by 3 billion gallons this year, reducing
the annual output to 15 billion gallons. Nearly half of the cuts would be made in ethanol
blending requirements. Lt. Gov. Sue Ellspermann, R-Indiana: "It pulls
the rug out from under Indiana farmers...It hurts jobs, it hurts our economy and disproportionately
hurts the Heartland." Representatives from Iowa`s Washington delegation
who spoke at what was billed as "The Hearing in the Heartland" unanimously called
on the EPA to leave the RFS alone. Rep Steve King, R-Iowa: "We are at ground
zero. The oil companies are trying to weaken the ethanol industry so the petroleum industry
can buy it out. They are locking ethanol out." Rep. Tom Latham, R-Iowa: ``The inside the
beltway crowd may not know that when you step backward in a field without looking you may
step in something. And they`ve really stepped in it this time. This isn`t an issue about
political affiliation. If you believe the future lies in the next generation of biofuels
then this is a mistake....." And Republican Senator Charles Grassley of
Iowa, characterized the proposed rule change as short-sited.
Senator Charles Grassley, R- Iowa: "Proposals released in November is very harmful to biofuel
producers to the Iowa economy, rural economy and national security and an environment we
all live in and want to respect. This message is from the real environmental, economic and
national security gains. The promise of the next generation of biofuels will add even
more." Most of those who took the podium expressed
concern over the potential loss of jobs, the ripple effect on local economies and the potential
for reduced investment in advanced biofuels. Bill Northey, Iowa Secretary of Agriculture:
"Who will invest $200 million in cellulosic? If you sense the political dynamics will shift
under your feet you won`t invest but that damage can be reverse. We ask the EPA to not
change the RFS." Ethanol plant managers and owners also spoke
about investment in the future of the U.S. Fuel industry.
Jeff Briggs, Green Plains Energy: "There is an oil mandate. I would ask how Brazil manages
to burn 100 percent ethanol while the U.S. lags behind."
Politicians and ethanol plant managers were joined by representatives of the corn and
biofuels industries who spoke to the crowd. Monte Shaw, Iowa Renewable Fuels Association:
"And I say to the EPA. 'Don`t mess with the RFS.'"
Kelly Manning, Growth Energy: "The RFS was not designed to help oil companies. We ask
the EPA to move on the RFS forward not backward." Pam Johnson, National Corn Growers Association:
"It will be harder to get investment in the industry. We must stay the course."
Nearly all those making statements were ethanol supporters but there were a few who voiced
their support for the proposed cuts. Francis Thicke, Iowa farmer: "I don`t think
the sky is not falling what we are looking for is a little more balance here."
Most of the rhetoric focused on political and economic downsides of changes to the RFS.
However, one speaker focused on the human cost of energy security.
Dr. Tim Gibbons, a retired U.S. Army doctor and Gulf War veteran, believes the Iraq war
was fought, largely, to protect oil supplies. And the orthopedic surgeon made a dramatic
distinction between the benefits of ethanol and the liabilities of oil production.
Dr. Tim Gibbons, Mason City, Iowa: "I`ve never seen a case of PTSD caused by ethanol, I`ve
never seen a prosthetic limb needed because of ethanol."
The comment period on proposed changes to the RFS ends Tuesday.
The state of Iowa typically leads the nation in corn production, and the Agriculture Department
reports the average statewide yield in 2011 was 172 bushels per acre. While Iowa growers
enjoy some of the most fertile soils in the nation, that kind of production would not
be possible without fertilizer. But the same amendments that yield such abundance
pose a threat to the environment if they find their way into local waterways. And that's
a "growing problem" in the Hawkeye State. So much of a problem, in fact, the Iowa Environmental
Protection Commission announced this week it will pay Iowa State University more than
$500,000 to test and monitor water quality in 130 Iowa lakes over the next three years.
Increasingly, however, growers and environmental watchdogs are working together to protect
and improve water quality. Market to Market examined some of their efforts and discovered
things appear to be changing for the better. Paul Yeager explains.
In 2013, Iowa recorded its wettest April in 141 years. Nitrogen not absorbed by crops
the previous year, meandered its way into local waterways and streams as run off, and
the two rivers that supply water to Des Moines, the state's largest city, contained record
levels of nitrates. By law the Environmental Protection Agency requires that drinking water
contains no more than 10 milligrams of nitrates per liter. But the Raccoon River tested at
24 milligrams per liter last spring, while the Des Moines River contained 18.
And the person responsible for maintaining safe drinking water for half-a-million central
Iowans points the finger directly at agriculture as the source of the problem.
Bill Stowe, Des Moines Water Works: "...there are urban contributors to runoff and pollution.
I don't mean to disparage that, but the idea that "feeding the world" is somehow this password
that lets us get by poisoning our neighbors is a real problem for me."
In response to the record level of nitrates, the Des Moines Water Works switched on its
$3.7 million nitrate-removal facility for the first time since 2007. The system, which
is believed to be the largest in the world, costs $7,000 a day to run and the bill for
the nearly three months of operation amounted to over half-a-million dollars.
Becky Ohrtman: "Operating and maintenance, that's very costly when you start putting
in treatment systems. A lot of communities will look at drilling a new well but that's
not a guarantee if they drill a new well that it's not going to be drawing a contaminant
such as nitrates into that new well." Becky Ohrtman is the Source Water Protection
Coordinator for Iowa's Department of Natural Resources. According to Ohrtman, 30 percent
of Iowa's 880 municipal water supplies are highly susceptible to contamination from nitrates.
Many of those municipalities serve small communities, where an expensive nitrate removal system
would be unfeasible. Becky Ohrtman: "Most communities that are
proactive will say, I want to take care of this before they reach the maximum load that
they're allowed to. EPA designates you can have 10 mcl is what the nitrate level is and
so once they hit that then they have to find alternate sources of drinking water for their
community. It's kind of like planting the tree. The best time to plant a tree is 20
years ago. The second best time is today." Over 70 percent of Iowa's drinking water comes
from groundwater which is tapped by drilling wells. Because it is subsurface, does not
mean it is pollution free. Jeff Metheny: "Every town does testing. They
regulate how much you have to test according to where your levels are. So since we're at
an 8 average test every month we send a sample in. That gets reported to the DNR. We at Griswold,
we test it ourselves every day just for our knowledge. We're not required to do that but
we test every day." Perilously close to test numbers that would
cap its wells, the town of Griswold turned to the Iowa DNR to explore possible solutions.
With a population of only around a thousand, less expensive solutions aimed at preventing
contaminated water rather than treating it were explored.
Becky Ohrtman: "Our primary objective when we go into a community that has an existing
contaminant problem is to identify if that contaminant is a point source or a non-point
source and then to try to better define the capture zone area of where their drinking
water is coming from." The capture zone is the area where the well
draws its water. Once a capture zone is identified the source of the pollution can be determined
and addressed. In Griswold it was found that the source of
contamination was determined to be agriculture. But a solution proved elusive until area farmers
were invited to help develop a strategy that would reduce the amount of nitrates entering
the water supply.. Drue Kirchhoff: "We were just trying to do
it all ourselves and once we asked them it was like they come in and they were so much
enthused about helping protect our water, not only the city's water but they're also,
since we've started this they have started doing it in other areas around Griswold that's
not in our capture zone." The solution reached in Griswold was to plant
cover crops in the identified capture zone. According to the Iowa Nutrient Reduction Strategy;
92 percent of the nitrates in Iowa's waterways comes from non-point sources and cover crops
are the best single farming practice to keep both soil and nitrates from running off farmland.
The finding is the culmination of two years of work by the Iowa Department of Agriculture,
the Iowa Department of Natural Resources and Iowa State University,
Kenny Cousins: "We had some land that lays around the city wells and we're doing a cover
crop to try to control the nitrates in the water, the nitrates in Griswold water has
been moving up slowly. It's not dangerous levels yet but we're trying to get ahead of
it before they do." Cousins chose a cover crop of ryegrass which
was seeded by plane on standing corn. It is not the first conservation measure he has
adopted to protect Griswold's water supply. Kenny Cousins: "we put a buffer strip around
here, it's a 200 foot radius around the well, probably 15 years ago, something like that
thinking at that time it would help and it probably did help some but now we're putting
cover crops in to help control the nitrates. And we've also gone to spring applied anhydrous
plus another split application where we're putting on some more liquid in."
There are many solutions to the puzzle of how to protect municipal water supplies. Next
week we'll look at some of the alternative cover crops farmers are planting as well as
other conservation practices employed by rural communities to keep nitrates out of their
water. For Market to Market, I'm Paul Yeager.
Next, the Market to Market report. Grain markets traded modestly higher this
week. But that may because for celebration among wheat growers as their commodity had
its first winning week since November. For the week, March wheat gained 2 cents, while
the nearby corn contract moved 6 cents higher. Soybeans' time above $13.00 proved to be brief
as the March contract settled with a weekly loss of 32 cents. Soybean meal followed suit
giving up $8.80 per ton. In the softs, cotton continued its rally as the March contract
advanced by more than 40 cents per hundred weight. In the dairy market, Class III milk
traded in record territory this week as the February contract gained 47 cents, while the
deferred contract was unchanged. Another big week over in livestock as the April cattle
contract settled with a weekly gain of 80 cents. March feeders advanced by more than
$1.00. And the April lean hog contract rallied more than $2.00. In the financials, the Euro
improved 15 basis points against the dollar. Crude oil advanced by $2.00 per barrel. Comex
Gold gained $12.40 per ounce. And the Goldman Sachs Commodity Index gained nearly 10 points
to settle at 625.70. Pearson: Here now to lend us his insight on
these and other trends is our senior market analyst, John Roach. John, welcome back.
Roach: Thanks, Mike. Pearson: We talked at the start of the show
about the selloff in the Dow these last two days of the week. Give us a little insight
into how that might have an effect on the commodity markets.
Roach: I think it might have an effect on a few different markets. First of all, cotton,
which has been strong because of relatively tight supplies except for the Chinese supplies.
Worried -- the worries that came into the stock market was that the Chinese economy
might be slowing down and if the Chinese economy slows down that really has an impact quickly
over into the cotton market. So that might be the first one. We have a sell signal in
cotton going home on Friday. So if you're needing to make some sales or thinking about
making some sales this is probably a pretty good time to do that. We really are interested
in selling new crop cotton whenever we can get it back up over 80 cents.
Pearson: Alright, and we ended there, just a little above. Now, let's take a look over
at the wheat market. We saw it hold steady this week, gained nearly a penny. The question
everybody is asking, is the bottom in, in the wheat market? Are we finally competitive
worldwide to see some export growth and some demand build back up?
Roach: Well, we're definitely competitive. After several months here of being beaten
in all the export business we're competitive there and we're seeing some business that
is taking place. The supplies on wheat worldwide and in the United States are really not all
that burdensome. We certainly had a very big crop. But when you look at the ending stocks
estimates they're not all that burdensome, particularly in the United States. So there's
room for this market to move higher if we can change the psychology a little bit. In
addition to that, winter wheat growing in this country has had some really cold weather
to deal with, without very much snow cover here recently, the same thing in Russia where
they have had less than normal snow cover and very cold temperatures. So there's a couple
of different things out here to give the wheat market a rally but we sure have had a hard
time getting it going. Pearson: Now, you mentioned the colder weather,
the potential for winter kill both in the U.S. and Russia. Have either of those things
caused you to put a sell signal on any of the wheat contracts out there?
Roach: We really haven't been a seller of wheat since back in November around our last
big rally we had and then the market just fell away from us and so we really haven't
had what we thought was a decent selling opportunity although any day would have been a decent
selling opportunity when you look back at the chart to see how much the price has declined.
So we think the market will give us some better opportunities than what we have right now.
We're hoping that these bottoms will hold and spur some rally from here.
Pearson: We might see a bit of a correction --
Roach: We sure hope so. We still have the specs very heavily short in Chicago and so
we're just hoping here that we'll see a short covering rally and maybe even a little bit
of worry about crop size. Pearson: Alright. Well, now let's take a look
over at the corn market. We have seen corn hold above the place it popped to after the
January report, $4.36 right now. Where does the old crop corn market go from here?
Roach: The old crop corn market is also coming into its own. We're seeing good export sales
in the sales report today. And we have very few competitors in the world right now that
have available supplies. Most of the competitors have sold through their supplies or well into
their supplies. The South American crop is smaller because of smaller acreage and the
shipping capacity there is going to be dedicated to soybeans rather than corn. So we become
the number one market here and we have started to see basis values over on the river reflecting
that increased demand. So we think that the corn market has made its wintertime low or
is close to having made its wintertime low and we expect to see some recoveries into
the spring as people start to focus out ahead. The supplies this upcoming year, the demand
is going to be very large and we're going to have to have record supplies in the world
again this year in order to supply that demand. So we think that the corn market will have
some better days ahead and we're looking for some opportuni9ties to make sales on rallies.
Pearson: Alright. And that being said, looking at the recent price movement, both old and
new crop, you don't see any selling opportunities today?
Roach: No, not today. We had a bounce up that we triggered a sell signal. We're close if
we get another surge back to being willing to make some sales. We're not willing to make
sales today. We're going to wait for a little more of a bounce.
Pearson: Alright. Well, now let's take a look at soybeans. Flip side of the coin there.
We saw soybeans being a good market to watch all winter, kind of a Cinderella story, the
past week really we saw it being to sell off. What are your thoughts on old crop soybeans?
Roach: Well, old crop soybeans have, in the United States, been getting the benefit of
no soybeans available out of South America. So we have been meeting the market's demand
for the last several months. But the South American crop, the Brazilian crop is in the
process of being harvested. There may be up to around 5% harvested. That crop is making
its way to the port. That is going to become major competition to us as we look down the
road in the next month to six weeks. So we're hoping for one more surge back, one more rally
back in the beans and at that point we're going to get real serious about cleaning out
the bins unless you want to gamble on a weather problem on into the summer. We just had a
sell signal on beans a week ago today and so we were able to trigger some sales. We've
been able to trigger some sales. So we've had opportunities but we think those opportunities
are about ready to pass. Even though we're more optimistic about corn we're less optimistic
about beans. Pearson: Certainly. With the growing acreage
in South America and the quality of the crop down there that makes sense. Now, is this
Chinese slowdown going to have a major impact on the bean market as we work through the
rest of this year? Roach: We don't know. So far it's not. So
far although the Chinese were rumored to have cancelled a couple, three cargos, shifting
it maybe to Brazil, export sales out today another strong week of export sales of soybeans.
The fact is if you look at the export sales numbers we really don't have any more beans
to sell either. But we keep seeing those numbers show up every week. The demand still is there.
So those numbers may get shifted to another destination or we may just really eat down
into our ending stocks. So I don't want to really be bearish on old crop beans because
of the tight supply. I just think it's going to be very hard to get much -- one more rally
and that's about it before we get a lot of competition out of South America. I'm not
sure whether the Chinese economy is going to have problems, cause us problems later
in the year but at least at this juncture they have really not slowed down their buying.
Pearson: Alright. Well, now let's take a look at livestock. Over in the cattle market we
saw the cattle on feed report come out today. Anything in there that's going to spark the
trade one way or the other come Monday? Roach: Wasn't really -- there were no real
surprises there. It was pretty much in line with what everybody was looking for. The numbers
all came right in the middle of the range of estimates. But the cattle market had a
very strong week this week in the cash. The futures market kind of trailed off at the
end. We do have sell signals in cattle. It may be an opportunity here to be starting
to hedge some cattle forward or perhaps get some puts underneath of them. But it's not
because we're really afraid of the market. We are concerned though when we see the stock
market fall like this, that we've seen in the past couple of days because you can change
people's attitudes just as you are trying to push this high priced beef out on the retail
shelves. So the consumer has not yet seen the highest price on beef and we don't know
if that demand will taper off when they see that demand. But certainly if the psychology
of markets in general are starting to turn a little negative that could influence the
consumer's buying decisions. Pearson: Alright. Now, you mentioned you've
got sell signals on cattle. Does that apply to feeders as well? Is this a seller's market
on the feeder cattle side? Roach: The feeder cattle are also giving us
sell signals. If you're on that side of it, it may be an excellent opportunity to look
at getting some price protection. Pearson: Alright. Well, now let's take a look
at the hog market. We have been faced with the PED, high feed costs in the past and then
this week we saw the price jump a little over $2.00. Where do you see the hog market headed?
Roach: We think in general the hog market moves higher. But, again, we have got sell
signals on the charts. So we're up into price areas that if you're looking for prices to
be putting some hedges on or getting some puts this is probably the right area to be
looking. But we're not negative the market. We think price levels will be firm. We think
that we're really getting into some of the better supply periods here as we move forward.
Pearson: Alright. Now, let's take a look over at the energy side. We've had a lot of talk
as we have endured this cold weather throughout the country, the polar vortex and so on. As
we watch crude oil prices, for instance, we have been bouncing in that $90 range. Do you
see crude moving one way or the other? What is your expectation on crude oil?
Roach: Every time I hear the talk about the oil refining in this country and the amount
that we're getting out of the various areas in this country they're all bigger numbers.
And so it would seem to be very hard to get energy prices, oil prices to rally very far
when the supply is as adequate as we're seeing right now. So no, I don't think we have a
big up move in oil. We have certainly had a big move in propane and in natural gas and
that is another reason, let's shift back over to the livestock market, another reason to
be a little bit afraid of these higher prices because the consumer has higher heating bills,
maybe higher electric bills to pay too. But in general energy prices we think will be,
will stay relatively under control once we get through this weather situation.
Pearson: Once we get through -- all the folks out there watching in the Midwest with this
high priced protein, excuse me, propane might see a little bit of a break?
Roach: We think so. When we finally get some clearing in the weather, some warming in the
weather. Pearson: Alright, fingers crossed. Thanks
for being with us, John Roach. Roach: Thanks, Mike.
Pearson: That wraps up this edition of Market to Market. But John and I will continue our
discussion and answer some of your questions in our Market Plus segment online. You'll
also find audio podcasts and streaming video of our program as well as links to our Twitter
feed and Facebook account exclusively at the Market to Market website. And be sure to join
us next week when we'll continue our examination of efforts to improve water quality in Iowa.
Until then, thanks for watching. I'm Mike Pearson. Have a great week.
Market to Market is a production of Iowa Public Television which is solely responsible for
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