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Coming up on Market to Market -- The clock is ticking on a potential government shutdown
while partisan bickering rules the day. A study indicates sub-therapeutic use of antibiotics
in livestock production may lead to trouble. And as one of the worst wildfire seasons continues,
officials seek to calculate the risk. Those stories and market analysis with Jamey Kohake,
next. This is the Friday, September 27 edition of
Market to Market, the Weekly Journal of Rural America.
Hello. I'm Mike Pearson. Consumer confidence in the economy has been shaken over the past
few months while business and industry appear to be throwing off some of the weight that
is slowing growth. According to the Conference Board, consumer
confidence decreased last month as concerns about the short-term outlook for both jobs
and earnings resurfaced. Despite the change in attitude, officials
with the Commerce Department say orders for durable goods -- items expected to last at
least three years -- increased 0.1 percent in August after plummeting more than 8 percent
in July. When the volatile aircraft sector is removed,
core durable goods - a leading indicator of future economic growth - also rose 1.5 percent
after posting a decline. With the October 1st Federal Government shutdown
looming, Treasury Secretary Jack Lew told Congress this week the government's ability
to borrow funds will end on October 17. And Wall Street suffered losses six of the
past seven sessions in anticipation of Washington politicians remaining deadlocked well-beyond
midnight on September 30th. Unless a bitterly-divided Congress sends a
temporary spending bill to President Obama before Tuesday, the federal government will
be forced to shut down. Never ones to let a good crisis go to waste, Republicans seized
the predicament to further their agenda. And with the clock ticking to yet another
self-imposed fiscal deadline, Tea Party Republicans practiced a little brinksmanship this week,
promising to approve the spending bill but only if the legislation also abolished funding
for President Obama's signature health care overhaul.
Sen. Ted Cruz, R -- Texas: "...Do you like Green Eggs and Ham?"
In a rambling floor speech that alluded to everything from the Revolutionary War to Dr.
Seuss, Freshman Senator Ted Cruz kept the Senate in session Tuesday night in an all-out
attempt to derail President Obama's signature health care law.
Sen. Ted Cruz, R -- Texas: "Not in a box. Not with a fox. Not in a house. Not with a
mouse..." For 21 hours and 19 minutes, the Texas Republican
charmed the tea party wing of the GOP; irritated leaders on the other side of the aisle; and
complicated efforts for House Republicans seeking support for the spending measure to
avert a government shutdown. Sen. Patrick Leahy, D - Vermont: "The hour
of noon having arrived, pursuant to the order... the Senate will be in order. (applause...)
Ultimately Cruz ran out of time and the Senate voted unanimously to continue to debate on
the controversial proposal. While the House has already approved legislation
defunding the three-year-old health care law, Senate Democrats have more than enough votes
to restore the funds, and Majority Leader Harry Reid called Cruz's turn in the spotlight
"a big waste of time." But Senator Charles Grassley says it's Harry
Reid who is wasting time. The Iowa Republican questioned Reid's leadership and praised Cruz's
quasi filibuster. Sen. Charles Grassley R -- Iowa: "It's really
serving the prime function of the Senate, and that is to deliberate. Historically, that's
what the Senate has done. But under Senator Reid for the last six years, filing cloture
to cut off debate, filling the tree so that any Senator that has a right to offer an amendment
under the president doesn't offer an amendment. We've gone from having about 500 roll calls
a year six years ago down to about 300 and some. We are hardly meeting on any Fridays;
we don't start voting on Mondays until about 5:30. Reid has basically shut down the Senate
so it doesn't fill its constitutional function of being a deliberative body.
Any differences between the Senate and House in the spending measure must be reconciled
and the bill signed into law by next Tuesday to avert at least a partial shutdown.
Midday on Friday, the Senate passed a continuing resolution to keep the federal government
open through November 15. Voting was along party lines. The measure will be sent to the
House for consideration but the question remains on whether debate will continue until the
11th hour Monday night. President Obama reiterated that the bill will NOT get his signature if
the final measure lacks funding for the Affordable Care Act.
Somewhere in the distance behind the giant political roadblock in Washington lays the
Farm Bill. And with little or no time left before the continuing resolution expires another
extension of the 2008 farm law is all but certain.
The languishing Farm Bill authorizes federal spending on everything from nutrition to disaster
payments. But while attempts to find a compromise continue, work by other agencies goes on.
With residents of the West facing the tough job of clean-up from one of worst forest fire
seasons in history, federal officials are attempting to provide a touchstone for calculating
the danger. Federal researchers are working on a system
to measure and predict the destructiveness of wildfires... similar to ones already in
place for hurricanes and tornadoes. The National Institute for Standards and Technology
hopes the Wildland Urban Interface Hazard Scale will tell residents the intensity of
a likely wildfire burning in their neighborhood. The scale will help predict the potential
destructive power of a wildfire given the combination of fuel and location.
The proposed scale of E1 to E4 creates regions based on location anywhere from grasslands
to remote mountain canyons. The scale is aimed at beefing up building codes and buffer zones
in high-risk areas. Insurance companies are also paying attention
to the research as payouts after western wildfires have grown exponentially. In the 1970s, wildfires
destroyed about 400 homes nationwide. Since 2000, that number has topped 3,000 structures
annually. In Colorado alone, wildfires accounted for more than $858 million in insurance claims
in 2012 and 2013, according to the Rocky Mountain Insurance Information Association.
Researchers are looking at building materials, landscaping, weather patterns plus the behavior
of wind-driven embers. Nelson Bryner: "So if you understand the exposure,
you can then design to that exposure." Historically, big insurance claims involve
flooding, but fires are gaining ground. The government also is remapping flood zones
and trying to restore solvency to the National Flood Insurance program. The change will likely
raise rates for nearly everyone. Colin Elston: "We paid fourteen hundred and
eighty-two dollars for our flood premium this year. The best estimate we have right now,
is twelve to sixteen thousand." Congress passed the Biggert-Waters Act last
year to mandate rates more closely match true risk.
Lee Gorodetsky: "Everyone's going to pay more for flood insurance. It's just a question
of how much. And we've seen so many floods now: Colorado, last year, hurricane Sandy,
before that, other parts of the country. And it's obvious the FEMA program is bankrupt."
FEMA will be paying to helps thousands displaced by the latest round of flooding in Colorado.
This week, Vice President Joe Biden toured a portion of the $1 billion in damage in the
Centennial State. Flood damage to Colorado's oil industry has
state regulators monitoring spills and damage to equipment in oilfields north of Denver.
At least 37,000 gallons has spilled in a dozen incidents, according to the Colorado Oil and
Gas Conservation Commission. And construction crews are trying to get emergency
repairs done to flood-damaged highways and bridges where the price tag is already close
to $430 million. Crews are attempting to complete their work before the fast-approaching winter
weather season hits. The owners of a Colorado cantaloupe farm determined
to be responsible for the 2011 listeria epidemic that killed 33 people were arrested late this
week. The Jensen brothers were charged with introducing adulterated food into interstate
commerce -- a misdemeanor. According to the Centers for Disease Control
roughly 1 in 6 Americans -- about 48 million people -- get sick from contaminated food
annually, 128,000 are hospitalized and 3,000 die from foodborne illnesses.
Some diseases are more easily fought with the use of antibiotics. But you can have too
much of a good thing. Overuse can lead to antibiotic resistant bacteria.
But stopping the spread of disease can be problematic anywhere - - even in the feedlot.
Finding ways to check the spread of infectious animal diseases has USDA working on a number
of new vaccines. In the wake of the outbreaks of Porcine Reproductive
and Respiratory Syndrome, or PRRS, USDA is making efforts to secure the health of the
nation's swine population through the development of new vaccines. Dr. Joan Lunney/USDA Research
Scientist: "For breeders and producers, they well know that once you have a disease, many
times you have production losses, and with PRRS we know there's $642 million production
losses per year in the United States alone." Though a majority of pork producers raise
their animals in bio-secure environments, USDA warns livestock operations are still
susceptible, mainly due to human activity. The agency cautions diseases can enter an
operation on truck tires, on shoes, or in shipments of new stock from grow-out facilities.
The problem has Agriculture Department scientists working to prevent the spread of deadly bacteria.
Dr. Joan Lunney/USDA Research Scientist: "To be able to design more effectives vaccines...To
be able to know what their immune response is, and to ask whether genetically some of
them may be better responders to vaccines, we call them vaccine-ready pigs ." These efforts
come on the heels of a recently released report from the Centers for Disease Control and Prevention.
"Antibiotic Resistance Threats in the United States 2013" warns of a festering pandemic
of superbugs able to thwart current medicines. CDC officials claim the overuse of common
drugs has encouraged several bacterium to develop immunities. The report declares: "Antibiotics
should be used in food-producing animals only under veterinary oversight and only to manage
and treat infectious diseases, not to promote growth." Dr. Tom Frieden/CDC Director: "Antibiotic
resistance is one of the most serious health threats we face today. We risk entering a
post-antibiotic era...where even simple infections can be deadly. With a few bacteria, we're
already there." For the past decade, sub-therapeutic antibiotic use has skyrocketed as method of
promoting rapid weight gain in meat production. Over seventy percent of all antibiotic drugs
sold in America go to animal production, particularly chickens and hogs. But drug-resistant bacteria
are already present in the nation's meat supply. Officials with the Atlanta-based health and
safety agency warn these resistant bacteria can be passed on to the consumer when meats
are undercooked or handled improperly. CDC scientists estimate a $20 billion annual bump
in health care costs and another $35 billion in lost productivity will occur each year
should the issue go unchecked. Currently, there are few federal rules governing the
sub-therapeutic use of antibiotics. This means compliance to current industry guidelines
is voluntary. The Food and Drug Administration echoes the CDC's warnings of the speed with
which pathogens can evolve under such conditions. FDA guidelines promote "judicious use" of
antibiotics only when the health of an animal is in peril. Dr. Tom Frieden/CDC Director:
"We're sounding this alarm because as serious as the threat is, if we take quick, aggressive
action, we can stop it." A record crop, demand uncertainties and concerns
over next week's quarterly stocks report moved the grain market slightly higher. For the
week, December wheat gained 37 cents, while the nearby corn contract moved 3 cents higher.
Despite positive weekly export numbers, anticipation of the quarterly stocks report moved the nearby
soybean contract sideways with a gain of only a nickel. Nearby meal prices posted a gain
of $6.70 per ton. In the softs, December cotton continued last week's rally and added $2.11
per hundred weight. In the dairy market, October Class III milk lost 15 cents, while the November
contract moved 4 cents higher. Over in livestock, December cattle rallied $2.32 cents. Nearby
feeders rose $4.17. And the December lean hog contract posted a weekly gain of $2.05.
In the financials, the Euro lost 3 basis points against the dollar. Crude oil fell $5.34 per
barrel. Comex Gold gained $6.70 per ounce. And the Goldman Sachs Commodity Index dropped
almost 5 points to settle at 635.25. Pearson: Here now to lend us his insight on
these and other trends is one of our regular market analysts, Jamey Kohake. Jamey, welcome
back. Kohake: Thank you, Michael.
Pearson: We did see a down week on Wall Street. Was this related more to Washington or was
this a sell off from a little bit of excitement over the Fed last week?
Kohake: I think a little bit of both. Like you're saying, we are back to pre-Fed levels
in the equity markets. There is a lot of uneasiness out there with the debt limit coming up next
month. The CR, continuing resolution fight ongoing right now. And then, of course, I
think the big one, the tapering. The Feds did not taper at all last week, it looks like
they may now be ready to in December. But all that big rally with the Feds now we're
taking it all back off. Seasonally this is a bearish time of the year. I like selling
rallies. I like selling the December S&P at 17.25, get a little bit of a balance to sell
into. We've also had a lot of fund liquidation. It's end of the month, it's end of the quarter.
So just a very slow trade the last week and a lot of profit taking.
Pearson: Alright. Well, let's take a look at the grains. We are up this week on wheat,
30 some cents. Is that going to continue or are we just following corn higher?
Kohake: I think wheat can separate itself here short-term. Great week, like you're saying,
saw an uptick in exports and that is going to be the key here longer term is the export
number. We've got a short crop down in Argentina with their early freeze. Russia and China
have a short crop as well. China's wheat is at an all-time high so the expectations are
a lot of wheat to be moving into China to support our market. I think we push up towards
$6.94. We had a great close today above the 100 day moving average, that was at $6.78
area so I think we're looking right at $7.00. The funds are short so this thing could get
very, very explosive if we can keep the export number very, very high.
Pearson: And now one of the stories all summer in the wheat market has been the great global
supply. Has this Argentine freeze affected that in a big way?
Kohake: It could longer term and also the Russia/China situation as well where we're
actually back competitive again on the world markets. Just here a couple of weeks ago the
talk was we need to sell off more, we're too high priced. Now we're fine because China
is at an all-time high pretty much. We've got a very weak dollar as well based off the
same situation with equities tapering, debt limit talk.
Pearson: So that $6.94 you think we'll hit it soon?
Kohake: I do. I think we could be pushing upwards of $7.00. We've got a report out Monday
morning, stocks report, see how that plays out. If it's supportive, yeah, I'm looking
right at $7.00. Pearson: Now, taking a look over at the corn
market we do have some harvest reports beginning to come in. By and large the reports seem
to be a lot more favorable than farmers were anticipating. Is that starting to filter into
the market? Kohake: It hasn't very much. Like you were
saying, the small sample that is coming in is pretty decent, better than I think what
was expected based off the weather this summer. But the key number for December has been $4.44,
$4.45, those lows there, we're off to the races maybe $4.20 or $4.30 area but we can't
seem to get through that off bearish news. That signals to me maybe we need to see some
profit taking, retrace a little bit higher and then come back down again. I think the
top side could be $4.70. If we get something supportive Monday off the carryout number
but I see this market more as range bound until we get about a third or 40% of the way
through harvest once we know more information. Pearson: Now, how should producers be playing
this market because the American farmer has been very long all fall? A lot of them don't
have much sold. How should they be protecting themselves rolling into harvest?
Kohake: Yeah, if you have on-farm storage I would fill the bins up and lock your doors
shut until January, February and March. There is carry from December out to March. It's
not exactly full carry but there is enough out there to pay some bills. So I would store
corn right now, look at forward price sometime the first quarter of next year.
Pearson: Alright. Now, as we take a look over at the soybean markets we did see another
little bit of an increase this week. How are soybeans shaping up across the country?
Kohake: Very small sample done here as well. I would say the yields here are more erratic.
I've heard some stuff out of eastern Iowa, kind of what was expected, pretty pathetic.
I've heard some stuff out west, very, very good. I think 42, 41 is probably where the
number is at right now based off the early numbers. But beans have seen an 80 cent setback
roughly. Corn was on a 40 cent setback this week on some days. But the funds were long.
Beans, they have liquidated based off this last shower, last rain we had about two weeks
ago, a lot of talk that the last 20-30% of the beans are planted late, could actually
be pretty decent and there was a lot of money pulled out on that. I'm a little negative
here short-term still just based off of we need more information. We've got a report
out Monday here too but I think this market could longer term maybe slide to $12.80, $12.90
for November. That's where the 100 day and the 50 day moving averages are. You could
slide back down into there and you'll reload based off of how good or bad a harvest is.
But right now it's still range bound, we need more information.
Pearson: Now, you mentioned Monday's report a couple of times. What is the trade anticipating
to see in corn and beans come Monday? Kohake: I'd like -- the trade would like to
see right around 125 to maybe 135 area for beans, 675, 680 number for corn. I think the
numbers should be supportive but I think it will probably be short-lived and be right
back to harvest progress. Forecast looks great for next week, 70s, low 80s, clear window
past Saturday afternoon to get started again. Pearson: Alright. Now, as we look longer term,
you mentioned you're a little bit bearish short-term, as we look longer term we still
do have a very tight domestic supply situation. Is this another example of bin it until January,
February, March? Kohake: This is, in my opinion, completely
different than corn. There's no carry at all in the beans. If I was combining beans, did
not have them priced I'd take them straight to the elevator and sell them, look to reown
them later with some option strategies or futures. There's no incentive right now to
store beans at all. I would unload them. If you've got to reown them do it later.
Pearson: Okay. Now, we do have some big stories, we take a look over at the meats. As we look
at the fat cattle market we're up $2.00 this week, the cash trade is up again this week.
Where is fat cattle headed? Kohake: Getting a little bit overdone technically
but the market is still fundamentally strong. I'm still bullish longer term. It's been a
very impressive, solid trade that we've seen. I'd like to see December pull back to down
around $130.50, $130 area, maybe try to get long there. But I'm not chasing speculative
longs up in here where they're at right now. But yeah, the cash market is strong, fundamentals
are strong and longer term I think you're still $2.00 higher by first quarter of next
year. Pearson: Choice box beef still staying high,
consumers still willing to pay the prices being asked for beef?
Kohake: Yeah, demand is still there even with the feeder cattle market nuts here in the
last three weeks. Very, very impressive meat trade.
Pearson: Okay. And that is going to continue. Does the market think we're going to continue
to see strong beef demand throughout the fall? Kohake: I think so. The way the numbers look
right now feeder cattle are getting a little bit overdone there. It has been a very, very
impressive trade. $6.00 we ran into 50 day, shot up straight like a rocket and haven't
looked back since. $6.00 rally like I was saying, would not chase it here either though
for a couple of dollar setback to get long. But it's a demand driven market, supplies
are tight, fundamentals are strong, demand is good and I think there's still more upside
longer term. Pearson: Now, how long would you be long?
If we get that couple dollar setback say, talking feeders, say we get that set back
where would you look to buy? Mid -- Kohake: 63, 64 area, look for 66, 68, see
what happens here too with the grain market. Corn has helped out drastically with the feeder
cattle market with the 40 cent setback there. So see what happens here with harvest, you
know, with the corn and how that could support the cattle as well too.
Pearson: And roll on through. Now, what are we hearing as far as retention numbers as
people try to regrow their herd now with lower corn prices?
Kohake: Yeah, we should see something next spring but this rally here right now is based
off of what we had in the past where the feeder cattle numbers tied it since the 50s, guys
down south lost pretty much their herd last spring with the weather and there's just nothing
out there pretty much and the market is rallying off of that with the cheaper corn.
Pearson: Now, we've been talking about that for the whole year, really that's been the
talk of the cattle market. Fundamentally it should have been rallying really last December
we all anticipated. Why is it kicking into gear right now? What is driving it today,
this past two weeks? Kohake: I think it is more corn and the cash
market has really started to move as well too. We kind of got caught here with some
seasonal weakness in the fat cattle through the summer from last spring, July time period,
seasonally kind of bearish, kicked that off to the side, get back to lower corn trade
and we've seen money pour in there and it hasn't looked back.
Pearson: Now, as we continue to climb if we get up into that $1.68 territory is that still
profitable for feedlots to feed $1.68 feeders and then try to market them even at $130,
$132? Kohake: $132 you could for Feb time period
or $1.33 in change here this week but it's going to be tough too I think longer term
depending on what corn does. That is going to be the key, your inputs. But this thing
could get wild and I think it will. It's going to be a fun play here through the winter months.
Pearson: Now, we're talking a lot about corn. Is the market still anticipating a very large
corn crop out of South America? I know we're looking a lot of beans, corn also increasing?
Kohake: Yeah, not as big as beans though. Probably have a record amount of beans planted
down there for this coming year and it will be a weather market down there as well. The
key here the corn market is going to be can we get 14 billion domestically? And what happens
with demand? Is Mexico going to continue to be a big buyer? Does South America overlap
us here come period of March or not and see how that plays out.
Pearson: And then also the question of the RFS, renewable fuel standard, and what happens
with ethanol going to be playing out over this next year. Now, we did have a big report
out today, quarterly hogs and pigs report. The hog market has been on a roll most of
this summer. The trade was anticipating lower hog numbers. Talk about where the report put
us and what do you anticipate come Monday? Kohake: Yeah, the report came in a little
bit bearish looking for a softer opening Monday, 50 cents to $1.00 lower are the early calls
right now. The marketing number was the key there. And hogs, like you're saying, at 52
week highs, been supportive off pretty much reiteration of news that we already knew about
but the funds bought into it, the PED virus, Smithfield got their deal finalized this week
and then some money ahead of the hog and pig report thinking it might be bullish. Hogs
are overdone up in here. I think they could set back $2.00 to $4.00 just on fund liquidation.
Pearson: Back to the mid to low 80s -- Kohake: Yeah, 85.5 for the Christmas contract
is where I would look to and I think this could be maybe the first stepping stone that
the highs are in here short-term and the fund liquidation could start real slowly. I would
like to see the kill number pick up right around 435,000 a day right now, I'd like to
see us get up around 450,000. Pearson: And that would put us more in tune
with historical slaughters or at least last year's.
Kohake: Yeah, around 1.2 plus, 1.2 million for a week but getting that back up into some
decent areas, see some fund money pour out over a couple week's span I think you'd set
back pretty quick. Pearson: Now, as we look longer term we're
seeing the hog herd increase rather quickly. How low could the hog market go if the numbers
come back quick? Kohake: I think you could still see 7s in
front of the hog number coming into spring. Pearson: Alright. Thank you so much, Jamey,
appreciate you being with us today. Kohake: Thank you.
Pearson: That wraps up this edition of Market to Market. But Jamey and I will continue our
discussion and answer some of your questions in our Market Plus segment on our website.
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. Be sure to
join us again next week when we'll examine the impact of the quarterly grain stocks report.
Until then, thanks for watching. I'm Mike Pearson. Have a great week.
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