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Coming up on Market to Market -
the latest snapshot of the rural
economy reveals modest
improvement on Main Street.
Secretary of Agriculture Tom
Vilsack responds to pointed
criticism from House lawmakers.
And organic production is on the
rise, but some growers hedge
their bets with conventional
crops.
Those stories and market
analysis with Elaine Kub, next.
This is the Friday, March 21
edition of Market to Market, the
Weekly Journal of Rural America.
Hello.
I'm Mike Pearson.
Wall Street traded in record
territory late this week,
capping a tumultuous 5-day
stretch.
The S&P 500 rose 30 points in
five trading sessions including
multiple days when it touched
all-time highs.
The Dow and NASDAQ followed
suit, and all three indices
approached weekly gains of
nearly 2 percent.
But prices were volatile as
geopolitical uncertainty in
Ukraine was countered by an
upbeat report on the U.S.
labor market.
The four-week average of
applications for unemployment
benefits fell to its lowest
level since November.
That supported prices in the
wake of Federal Reserve Chief
Janet Yellen's suggestion days
earlier that interest rates
could rise sooner than expected.
While it's common for rural
Americans to watch economic
recoveries from the sidelines,
things have been different this
time.
At one time or another in the
past few years, commodity
prices, land prices and net farm
income ALL soared to record
highs.
And even though things have
cooled a bit in recent months, a
study from Nebraska this week
revealed the rural economy IS
growing, albeit modestly.
Creighton University's Rural
Mainstreet Index improved by
nearly 2 points last month to
50.1.
But the survey of bank CEOs in
10 Midwestern states reveals
some sectors of the rural
economy are on the decline.
For the fourth consecutive
month, farmland and ranchland
prices declined, this time to
their lowest level since March
2009.
The study also revealed farm
equipment sales fell for the
ninth straight month.
According to Creighton
economists, recent rises in
commodity prices have yet to
boost the rural economy and
until higher prices return, the
healthy growth recorded in 2012
and 2013 will be distant
memories.
On the other hand, one sector is
experiencing record prices, the
livestock industry and that's
helping to offset reductions in
crop farming income.
Secretary of Agriculture Tom
Vilsack responded last week to
sharp criticism from House
lawmakers over USDA's annual
budget.
The fiscal year 2015 request of
$146 billion actually is down
nearly 8 percent from last year.
Mandatory spending on nutrition
accounts for more than 75
percent of the proposed spending
while farm and commodity
programs make up about 10
percent.
But lawmakers took Vilsack to
task over $23.7 billion in
DISCRETIONARY spending that
represents just 16 percent of
the entire request.
And in a twist of fate, Vilsack
- a former two-term governor
from Iowa - faced a pointed line
of questioning from a 10-term
Congressman who also hails from
the Hawkeye State.
Secretary of Agriculture Tom
Vilsack faced tough questioning
late last week from Republican
members of the House
Appropriations Subcommittee
regarding USDA's 2015 budget
request.
Subcommittee Chairman Robert
Aderholt, a Republican from
Alabama began by saying the
proposed budget at first glance,
would "appear to be modest and
straight forward.
Subcommittee Chairman Robert
Aderholt, R - Alabama: "It is
228 million below the 2014 FY
level.
However there are several new
programs and significant
increases in funding for others.
Some of these increases are
offset by questionable
decreases, such as the closing
of 250 farm service agency
offices and the reduction of 815
staff years without any real
background as to how you arrive
at the savings."
Rep Harold Rodgers, R-Kentucky:
"While mandatory comprises about
86% of your department' s
request, only 14 percent is what
we actually sit down and try to
decide how to be spent.
The rest is on automatic pilot
and that's no way for a
government to be operated."
Rep David Valadao, R-California:
"The overall budget for rural
development has been harder hit
than other areas in your budget.
If we enacted you're proposal
far fewer communities, families
and businesses would be helped."
The most heated exchange came
between Vilsack and Republican
Congressman Tom Latham of Iowa.
Latham confronted Vilsack with a
list of Obama Administration
proposals ranging from new labor
guidelines for children of farm
families to reduction in ethanol
mandates.
Latham claimed recent USDA
decisions have left producers
from his state wondering if the
agency is still an advocate for
farmers.
Rep Tom Latham, R-Iowa: "I don't
know if you have any response
but it is very discouraging to
me." Sec.
Tom Vilsack, Department of
Agriculture: "Well congressman I
am surprised by your comments,
and I do want to respond because
they do merit a response.
With reference to the Department
of Labor this department
suggested it was not the
appropriate approach and that we
basically suggested it was an
opportunity to better educate
folks about public safety and
farm safety generally.
And we worked with the Labor
Department to get that rule
pulled and to create an
alternative approach."
Rep Tom Latham, R-Iowa: "Wasn't
your first response."
Sec.
Tom Vilsack, Department of
Agriculture: "Yes it was..."
Rep Tom Latham, R-Iowa: "A tweet
in support..."
Sec.
Tom Vilsack, Department of
Agriculture: "Yes it was!
Yes it was!
No, no, no our first response
congressman was to suggest there
was a better way to do this and
we worked with the department to
find a better way.
As it relates to Meatless
Monday, I was very critical of
that effort and immediately so.
It was pulled immediately.
It wasn't something that I
sanctioned and I would point out
that livestock experts are at
record levels under this
administration.
The dust rule doesn't exist and
you know it.
As far as the RFS is concerned,
what we are focused on is that
there are continued
opportunities to expand export
of ethanol and continued
capacity to have higher blends.
In fact I have spoken directly
to Governor Branstad in our home
state about a joint effort to
encourage more E85 tanks.
I find it interesting congress
made it more difficult for us to
do that when you essentially
restricted us from using REAP
funds for blender pumps.
But we'll continue to help
expand opportunities for higher
blends.
So, I'm happy to visit with
those farmers who have expressed
disappointment to you.
That's not what I hear.
So obviously we must be talking
to different group.
" Rep Tom Latham, R-Iowa: "I
think we're talking to the same
people."
Sec.
Tom Vilsack, Department of
Agriculture: "I don't think we
are congressman...
With all due respect, I don't
think we are."
Rep Tom Latham, R-Iowa: "I know
what I know and it is very
disheartening to see the change
in relationship.
There is an absolute felling out
in the country the department
sides more with EPA, it takes
orders from above and is not
advocating for farmers."
Sec.
Tom Vilsack, Department of
Agriculture: "That's just not
true!
That's just not true!"
And in response to repeated
questions regarding USDA's
proposed budget, Secretary
Vilsack pointed out there are no
easy choices to be made.
Sec.
Tom Vilsack, Department of
Agriculture: "So, if you now
don't want have a cap, fine.
If you want to look at other
aspects of the budget, if you
want to reduce fire suppression
and put 45 million homes at
greater risk, okay.
If you want to reduce WIC and
the 8.7 million women and infant
children that benefit from that
program, fine.
But the realities of our budget
are that there are difficult
choices to make."
The Agriculture Department
announced this week that the
organic industry continues to
grow domestically and globally.
More than 18,000 of the world's
25,000 certified organic
operations are in the United
States, and the domestic
industry has grown by nearly 250
percent since 2002.
Nevertheless some organic
producers aren't quite ready to
abandon conventional crop
production.
Paul Yeager explains.
According to the Agriculture
Department, 40 percent of U.S.
organic producers also sold
non-organic goods in 2012,
suggesting that many of
America's organic operations
hedge their bets with
conventional -- and even
genetically modified -- crops.
Gregory Jaffe, Center for
Science in the Public Interest:
"Farmers aren't necessarily
distinct groups.
There are farmers out there who
are both organic farmers and
conventional farmers or both
organic farmers and biotech
farmers at the same time." Some
organic purists are critical of
the so-called split farming
operations, fearing that the
cross-pollination or
intermingling of genetically
engineered crops with their
products could hamper organic
sales.
But farmers who embrace organic
production and methods relying
on biotechnology say they're
able to make informed decisions
each year based on both economic
and environmental concerns.
Jim Petersen, Petersen Family
Farms: "I think there's a
benefit because it helps with
our risk.
Because we had a few years that
were so wet, we couldn't get out
there and do proper weed control
in our organics, but we had
other crops that we could spray
and maintain them and so they
were still good even though the
organics weren't so good, and I
that has helped to have the more
diversity.
We are very diverse."
Jim Petersen, his wife, Julie,
and their four children farm
near Knoxville, Iowa.
The Petersen's grow about 450
acres of soybeans: a quarter
being organic.
Roughly one third of their 350
acres of corn also is organic,
as are most of the farm's hay,
oats and rye crops.
To further diversify, the family
also owns 300 head of cattle and
800 ewes, but the Petersen's say
they have not yet found the
transition to certified organic
livestock to be practical.
Jim Petersen, Petersen Family
Farms: "When we started it,
everybody kind of wanted organic
soybeans, but the organic corn
didn't have as much of a premium
so we thought, well, we could
feed it to the calves.
Well, that year we started with
the calves, there was a demand
for the organic corn and so
there was a good premium so we
just decided to just go ahead
and cash in instead of feeding
it to our own."
Since certifying organic land is
a lengthy process, Petersen
evaluates soil quality and
terrain to determine which land
is optimal to transition to
organic.
Jim Petersen, Petersen Family
Farms: "I've seen in our area
that, with some of the hillier
ground and the thinner that I'm
not going to do organic on it or
very rarely would I do organic
on it because it needs to be
treated differently.
It needs the fertilizer fed to
it at a higher rate than I can
do with my organic, and the
tillage I don't like to do it
out on those hills as much
either because of the soil loss
possibility."
Jim Gaffney, DuPont Pioneer: "It
is quite possible to do both on
the same farm.
The split operation is very
reasonable.
And there's nothing to say that
it can't work well on the same
farm."
The Petersen's own 550 acres and
rent another 2,000 for pasture
and crops.
They try to respect the
preferences of landlords when
making decisions related to
planting, and that can be
challenging.
Some landlords refuse to allow
genetically modified crops on
their acres, while others are
adverse to increased weeds that
often accompany organic
production.
And for Petersen, switching
rented land from conventional to
organic is risky.
Jim Petersen, Petersen Family
Farms: "A lot of the land we
farm is rented, and we only have
one-year contracts with the
landlords and so it takes 36
months to get the transition to
have it being organic, so we
don't want to take the time to
being doing that and then lose
the farm in the process."
Petersen acknowledges that
organic production is labor
intensive.
He spends extra time cleaning
equipment to remove residue from
prior crops, and he also
cultivates two or three times
each growing season to minimize
weed pressure.
But he says the premium he
receives for organic products
justifies increased investments
of time, labor and money.
Still, he's unwilling -- so far
- to give up genetically
engineered crops that require
less work and enable him to
spread his financial risk over
multiple methods of production.
Jim Petersen, Petersen Family
Farms: "There are some
certifying agencies that say if
you are doing organic, you can't
do the GMO crops .... My feeling
has been that if you can plant a
crop that will take less
chemicals to control weeds, then
that's a good thing because I
think the chemicals will do more
harm than the GMO crop, myself."
Jim Gaffney, DuPont Pioneer: It
takes different management
skills to have both on the same
farm.
You really have to think hard
about how you're going to
operate your farm.
So the management is probably a
higher level.
But it's a management decision.
It's not a cultural or a social
or religious decision, let's put
it that way.
For Market to Market, I'm Paul
Yeager.
Next, the Market to Market
report.
Grain prices were mixed this
week as traders prepare for
USDA's prospective plantings and
quarterly stocks reports due
later this month.
For the week, May wheat gained 6
cents, while the nearby corn
contract moved 7 cents lower.
Soybeans bounce back from last
week's decline as the May
contract rallied 20 cents,
nearby meal traded in lock step
with the underlying asset with a
gain of $12.00 per ton.
In the softs, cotton continued
its upward trend as the May
contract rose more than $1.00
per hundred weight.
In the dairy market, April Class
III milk gained $1.11, while the
deferred contract also
strengthened by more than $1.00
per hundred.
Livestock prices were mixed as
the June cattle contract fell
$1.73.
Nearby feeders took a breather
from their stint in record
territory as the May contract
shed $1.80.
And the May lean hog contract
also traded at an all-time high
in route to a weekly gain of
$2.50.
In the financials, the Euro
gained 11 basis points against
the dollar.
Crude oil rose 86 cents per
barrel.
Comex Gold lost $47.00 per
ounce.
And the Goldman Sachs Commodity
Index declined by 5 points to
settle at 640.35.
Pearson: Here now to lend us her
insight on these and other
trends is one of our regular
market analysts, Elaine Kub.
Elaine, welcome back.
Kub: Pleasure to be here.
Pearson: Well, let's jump right
into it, Elaine.
We've got the wheat market still
trading at a very high level, up
slightly again this week.
Are we starting to get toppy in
those nearby contracts?
Kub: Possibly, simple because
we're back at the level --
before it had that big two
months slide this was the level
that it was at.
So we have basically all the way
corrected from that crazy two
month slide that had no let up.
And I think that all of the
considerations that have made it
bullish for the past week here
or the past three weeks or
thereabouts with the Ukraine
chaos and the ideas of the
winter kill in the Kansas or the
southern plains' winter wheat
crop I think all of that you
could say might be priced in by
now.
We might still see a little bit
more of that.
We've got the next couple of
weeks to really get a good
observation of that winter kill
because there's still some
fields coming out of winter
dormancy.
So there might still be a little
bit of new information coming
in, in the next couple of weeks.
But I think, to some degree, we
might be reaching a high here.
Pearson: Now, is the wheat
market waiting on too much
information from the March 31st
reports?
Kub: No.
I don't think so.
That's an acreage number and
acreage is fairly well known, we
can pretty well guess what the
enthusiasm for planting spring
wheat will be this year, which
is probably not super high given
the market opportunities that
are there.
In fact, the Kansas City wheat
is trading at a very strange
premium to spring wheat.
So the market is not asking for
spring wheat at this time, it's
probably not going to get major
acreage play in that prospective
planting report and yeah, the
story here is just watching that
hard red winter wheat market is
really the leader.
Pearson: And at these levels, as
you say, we're getting back to
those older, higher levels.
Is this a good time to be making
some sales?
Kub: Absolutely, particularly in
that hard red winter wheat
market.
You're at about $7.75.
Let's say you got up to $8.00 or
something, which is completely
reasonable to expect perhaps in
the next couple of weeks, it has
never been wrong to sell wheat
at $8.00.
That is a good, profitable
level.
I think this is a great
opportunity to be selling.
Pearson: Alright.
Well, now let's take a look over
at corn.
We're still seeing corn
relatively range bound.
We were down this week after
being up last week.
Talk to us a little bit about
where we're at on this old crop
corn market.
Kub: Yes.
And from day to day you're only
talking a couple of cents one
way or the other.
So it's a very neutral market.
And at this point supply and
demand is fairly well matched.
We know that we have lots of
stocks, we'll get a picture of
that -- on the same day as the
prospective planting reports we
have the grain stocks reports
coming out and remember, we have
a full week to trade before we
really see that on March 31st.
So there's certainly time for
the markets to continue to guess
at that, to have speculators
come in and bring more money in.
We have been seeing more
investment interest in the corn
market, more than we've seen in
the past year.
So we're starting to see a story
in there again and the other
hint at some bullishness in the
corn market is to look at the
spreads between the nearby and
the December or even between the
spreads between the nearby and
the July or the September.
They are not very large.
So even though we have pretty
comfortable supply we also have
really consistent demand and
enthusiastic demand from the
ethanol sector, from the
livestock feeding sector
especially.
So it is fairly well matched,
it's fairly well known and like
you say we're kind of at this
level where the market feels
comfortable staying neutral at
this point.
Pearson: And as we head into the
stocks report knowing that there
could be a surprise, with the
USDA report of course there's
always that potential, for folks
out there in the countryside
sitting on old crop corn do you
go ahead and take some cash off
the table today or do you wait
and see what happens with the
report?
Kub: I think farmers have been
selling their cash grain.
You see that in the basis level
which has certainly dropped here
in the past couple of weeks and
that is backed up in the
commitments of traders looking
at who has been doing the
selling, it has been farmers
that have been motivating that
weaker basis level.
So they have been needing the
cash in the spring, very timely
time to be making these old crop
sales and like you mentioned the
prices have been stable so if
you have not already taken
advantage of that you've still
got these price opportunities.
Pearson: Alright.
Now let's take a look at new
crop corn.
As we look out at December we
are waiting on those acreage
numbers it really looks like on
March 31st.
What is the market anticipating
-- what is the trade talking
about?
What acre numbers are we
expecting to see?
Kub: Yeah, for the past several
months there has been this idea
that farmers are going to be
planting a lot more soybeans
because they're disappointed by
the profitability in corn.
And at this point, because we've
had the last 20 or 30 cents
added to the corn market, it is
no longer looking so
unprofitable.
Perhaps corn on corn or corn on
poor ground where you wouldn't
have good yields might still not
be profitable.
But generally it's a good crop
for farmers to be looking at for
their acreage in my opinion.
So in my opinion if we can get
the planters out there, if the
soil warms up sometime before
April, May 1st and really get
going on this I think there's
going to be a lot more corn
planted than the market has been
talking about for the past
several months.
But as far as the prospective
planting report the survey that
was taken on March 1st, you're
still going to be looking at the
soybeans winning the acreage
battle.
Pearson: Certainly.
Now as we take that into
account, the idea that there
could be a lot more corn going
in at these levels, we've got
Dec corn at $4.80, it's a penny
spread between the nearby and
December.
Would you be making some sales
if you know you're going to be
planting corn this year?
Kub: Yes I would because if
we're looking at a normal year
where you've got abundant crops,
the typical pattern will be to
have a high in the spring, in
the sort of spring timeframe.
That hasn't been the pattern
that we've seen for the past
couple of years but this is not
2012, this is not 2013.
We have no reason at this point
to expect poor yields in 2014.
There is even the chance of an
El Nino which is generally
supportive of high yields within
the United States.
So you're looking at a large
production year, probably making
pre-harvest hedge sales in the
spring at some time of spring
high, get some averages in here,
is generally the right thing to
do in one of these "normal"
years.
Pearson: Alright.
Well, now let's take a look over
at the soybean market.
Old crop soybeans up and down,
up and down, back and forth
across that $14.00 mark.
Where are we headed?
Kub: Gosh, that's a good
question.
The thing is that there is some
potential for continued
bullishness if it could make it
through that resistance.
Like you mentioned it made a run
up but try to get past $14.60
this week, couldn't do it so
it's backing back down, profit
taking like you mentioned very
up and down pattern.
But the bullishness that has
been in the old crop soybeans
about demand from China is still
definitely in play because the
Chinese currency has been
weakening but the Brazilian
currency has coincidingly been
going up at the same time.
So as far as our competitiveness
for our beans in this country
and our own domestic demand also
has remained fairly strong, it's
all those bullish factors are
still very much in play for old
crop soybeans.
Pearson: So is the March 31st
report going to play as big an
issue in soybeans on the old
crop side as it is in corn?
Or are we going to continue to
watch those fundamentals, the
strong U.S.
domestic demand and Chinese
demand, keep us up in that $14
and change range?
Kub: Yeah, you could argue that
the grain stocks report would
have a bigger effect on soybeans
because they're so much tighter
than the corn supplies.
But remember that those grain
stocks reports are backward
looking.
So even for corn supply you're
looking at the implied feed
usage and also for soybean meal
the implied feed usage.
But as of March 1st when they
took those measurements things
may have changed, the outlook
may change, particularly with
the hog market, the hog feed
sector.
The outlook for hog feeding of
soybean meal and corn could have
dramatically changed between
when they measured for that
grain stocks report and what we
actually see in the future.
Pearson: Alright.
Well, now as we're talking
livestock let's jump in and
let's talk fat cattle.
We had an interesting week in
the fat cattle trade with a big
sell off on Wednesday or
Thursday and we're still seeing
very strong cash trade.
Talk to us a little bit about
what's happening there.
Kub: Yeah, the cash market
completely brushed off that drop
on Thursday I believe it was in
the futures market.
And I would suggest that that
drop in the futures market was
really just anticipating the
cattle on feed report.
You've got perhaps some funds or
investors that have made a lot
of money on this run up and
didn't want to be exposed to the
volatility of a Friday or Monday
response to the cattle on feed
report so they took it out.
And it turns out that the cattle
on feed report could be
interpreted bearishly so that
was the right thing to take
those profits out at that time.
Pearson: While we're talking, we
had placements of 115% of last
year's, the other numbers were
sort of right around last year's
numbers, is that correct?
Kub: Yeah, so they definitely
during the month of February put
more cattle on feed than the
year before.
But overall supplies are still
down obviously.
Overall you're still looking at
a shortage of supply, nothing
suggesting that these price
levels that you're seeing,
particularly in the box beef or
the retail beef sector, but
there's probably no relief in
that perspective from that
cattle on feed report.
But just as far as the actual
number of supply that packers
can look for in the next three
to four months, that was a
bearish number, a surprisingly
bearish number.
Pearson: Alright, now as we talk
fat cattle we did see the choice
box beef stay up there, it's
hanging around that $240 level.
Does this give us continued
support do you think for the
next month or so?
How long is this trend going to
continue?
Kub: I think it gives continued
support through the summer.
And what is an interesting
nuance in this is that if the
pork market is as bullish as the
futures seem to imply now you've
got a situation where perhaps
potentially if you really start
putting pressure on pork prices
the consumer could end up going
to the grocery store and using
beef as a substitute for pork in
their summer grilling.
That's never the way that that
relationship typically goes from
a price perspective.
But perhaps the beef market may
end up receiving some demand
just because of the shortage of
pork if that happens.
I don't know.
Pearson: Well, let's talk pork.
We did see the pork market
continue its run up, another
$2.50 this week.
Realistically how much higher
can this go?
Kub: Well, if this was a bubble,
if this was a bubble that was
driven by speculative investors
that are just hearing a story
about PED and just randomly
buying futures then you would
have no sense of knowing how
high that might go.
But I don't think that this is a
speculative driven bubble.
If you look at the actual
participation of who has been
buying these futures and who is
holding these futures or who has
been short covering it has been
the actual commercial traders
and they're the only ones who
would rationally know in this
market exactly how much
influence that virus may have.
Because of the vertical
integration of this industry the
commercial hog producers are the
ones that really know what's
going on.
And that run up in lean hog
prices has exactly followed the
number of new cases each week.
It's been uncanny how much that
has followed it and how much
that may be a leading factor
because we don't really know how
many new cases there are.
The reporting of that is very
hard to know.
So if that's who knows what is
going on then it just will
continue to follow the actual
progress of the disease.
This is not a bubble.
I can't tell you exactly how
fast or how high that price
could go.
Pearson: And really the only
catch is when they cure it then
we're going to see it tail down.
Kub: Exactly.
Pearson: Alright.
Well, Elaine, there's a lot of
things to keep an eye on here
over the summer, especially on
the livestock side.
Kub: Absolutely, yeah.
Pearson: Well, thanks for taking
the time to be with us tonight.
That wraps up this edition of
Market to Market.
But Elaine 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 examine the impact of
record prices in the dairy
parlor.
Until then, thanks for watching
and have a great week.
Market to Market is a production
of Iowa Public Television which
is solely responsible for its
content.