Market to Market (April 14, 2017)

Coming up on Market to
Market — Farm foes turned back at the courthouse
door fallback and regroup. Deep deposits and a deluge
reset the drought clock out west. And rural American
butchers work to stay a cut above the rest. Those stories and market
analysis with Don Roose, next. Funding for Market to
Market is provided by Grinnell Mutual. You think differently
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of his dreams. We work to make sure
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And by Sukup
Manufacturing Company. Offering a full line of
grain drying and storage equipment and steel
buildings, Sukup Manufacturing is on a
mission to protect and preserve your crop and the
tools that produce it. This is the Friday, April
14 edition of Market to Market, the Weekly
Journal of Rural America. Hello, I’m Mike Pearson. The cure for high prices
is still high prices. Last month, Americans kept
their pocket books tightly closed and retailers –
feeling the pinch – cut back just a touch. — In March, consumers
stayed home for a good meal a little more often
and purchased fewer cars. With cutbacks in retail
purchases came lower consumer prices sending
the monthly inflation rate down 0.3 percent. A look beyond gasoline and
food revealed the core inflation rate move
0.1 percent lower. — Last month, the
plaintiffs in the fight to determine if agriculture
could be legally defined as a point-source polluter
were turned back at the courthouse door. After some reflection, a
new strategy is in play. Peter Tubbs has
the details. After nearly two years of
legal wrangling, Iowa’s largest municipal water
provider has decided to forgo an appeal of their
landmark lawsuit against drainage districts in
three of the state’s counties. The Des Moines Water Works
sued ten water districts in 2015 alleging runoff
from farm ground 150 miles upstream of the capital
city was responsible for high nitrate levels in
the Des Moines River. The municipal utility uses
the river as its primary source of water for
its 500,000 customers. A Federal judge dismissed
the suit in March on grounds that agricultural
drainage districts are immune from lawsuits. Officials with the Des
Moines Water Works have chosen instead to wait and
see if voluntary water quality initiatives reduce
nitrate levels in the Des Moines River. Bill Stowe, Des Moines
Water Works: “To producers upstream, we certainly
understand that they have to make a living. We want them to be
successful in making a living but not in pushing
their costs and a public health concern
downstream to us.” Des Moines Water Works
operates one of the largest nitrate removal
systems in the world. In 2015, the tab for
operating the plant hit $1.2 million. Bill Stowe, Des Moines
Water Works: “We’re at a point now where we can say
pretty cleanly, “You know, you’ve said that,
now walk the talk. Now show us that this
voluntary process really can show measurable
sustained improvements” Many in the agriculture
community have celebrated the dismissal, relieved
they will no longer face the potential costs
associated with being defined as a point
source polluter. Iowa Farm Bureau members
are pleased that continued, measurable
conservation progress can continue, without the
distraction of litigation. The dismissal of the Des
Moines Water Works (DMWW) lawsuit means that
focus should return to collaborative approaches
to improving water quality. But Stowe remains
skeptical. Bill Stowe, Des
Moines Water Works: “Realistically, we believe
the voluntary principles underlying the nutrient
reduction strategy are a non-starter. Counting numbers of
acres of cover crops, a negligible number
incidentally from our vantage compared to 22
million tillable acres, isn’t the measure. The measure should be
water quality, what’s happening in the rivers.” For Market to Market,
I’m Peter Tubbs. What a difference
a year makes. At the start of 2016, El
Nino was the house guest that wouldn’t leave and
100 percent of California was in some
form of drought. Over the past 16-months
things have changed dramatically. Paul Yeager has the story. The California snowpack in
April in 2017 is a far cry from previous spring hikes
up this mountain to gather data. The annual rite at
season’s change gives insight into how much
runoff will flow from the mountains. John Dittli, Snow
surveyor: “Right now they still need us to do, to do
ground truthing for the depth but also to measure
the density.” This year’s level contains nearly
double the water content of an average year. In recent years, survey
crews hiked in shoes and not on skis to
gather information. The winter season’s
bountiful snow and rains have allowed Golden State
Governor Jerry Brown to end the drought emergency. Now 76 percent of
California is out of drought, the highest level
since December 2011. The northern portion of
the state had the wettest winter in nearly
a century. Nationally, 73 percent of
country has adequate soil moisture, the best mark
since August of 2010. For Market to Market,
I’m Paul Yeager. There was a time when a
trip to the local meat locker was part of
a weekly routine. The butcher often knew
every customer by name and could offer help with
a selection or two. Centralized meat cutting
all but eliminated the service in many
communities. However, as producer
Colleen Bradford Krantz discovered, the local
locker has never been completely cut-out
of the picture. For decades, small butcher
shops and meat lockers were a staple of
American life. These mom-and-pop
establishments began disappearing, however, as
more families began to buy their meat at one-stop
grocery stores. Chris Cramer, Elmwood Meat
Plant, Elmwood, Neb.: “We’ve seen a fair amount
of them disappear. They are older facilities
and when the current owners retire or move
on – or through lack of interest in doing the work
or the building being old or maybe not up to date
with its equipment, the standards the government
likes to see in a building – they close down.” But that downward trend
may be slowing or even reversing.Last year, Midwest grocery
chain Fareway Stores opened a brand-new,
old-concept meat shop in Omaha, and expects to open
another in the fall in Lincoln, Nebraska. The stores, considerably
smaller than its typical grocery, aim to capitalize
on both the company’s reputation for quality
meat and nostalgia for old butcher shops. Reynolds Cramer, CEO,
Fareway Stores: “I hope the customer coming to
this Fareway Meat Market has the experience of once
again the old-style meat markets from back in the
30s, 40s, 50s and 60s – the way the old Fareways
were from the standpoint of seeing their butcher
at the meat block. But …we’ve taken
that feeling and we’ve modernized it.” Omaha’s Fareway Meat
Market, the company’s first, has a meat counter
that is 16-feet longer than those in its
typical store. It also features fresh
seafood and grass-fed beef. And while larger metro
areas such as New York, Chicago and Los Angeles
have new shops where the meat cutters like to call
themselves “artisanal butchers,” there are
others scattered throughout the nation
where that kind of work never went out of style
– even if those butchers don’t apply trendy
lingo to what they do. Chris Cramer, Elmwood Meat
Plant, Elmwood, Neb.: “Hey, Mike. You can edit
this out, right? Artisan butchers? … Guess I better
Google that.” Although Chris Cramer –
not related to Fareway’s CEO – would never consider
labeling himself this way, he is about as much an
“artisan” – a marketing term that hints at a
craftsman cutting by hand – as a butcher get. Cramer is a
fourth-generation butcher who has run his own shop
in Elmwood, Nebraska since 1981. His great grandfather was
a butcher in Denmark. His grandfather, who owned
a horse-slaughter plant in Papillion, Nebraska, told
stories of how some ate horse meat – normally used
in dog food – during the lean years of
World War II. Cramer’s late father ran
several butcher shops in his lifetime, in both
Nebraska and Kansas. In the late 1920s, the
first meat lockers were opened in the U.S., and
farmers, or others, rented frozen-food storage to
preserve the meat they had butchered. Chris Cramer, Elmwood Meat
Plant, Elmwood, Neb.: “From the early days, the
settlers so to speak, did the butchering
on the farm. They would cut ice from
ponds and take it into their cellar, cover it
with hay and they would have cold meat until July
in the right conditions. And it moved on from there
with electricity and you had your small locker
plants like this start up.” By 1940, almost
half of U.S. homes had a refrigerator. Eventually, demand for
the lockers fell off. Many of the surviving
shops diversified by adding butchering
services. According to Census data,
a large decline occurred between 1992 and 2012,
when 45 percent of remaining U.S. meat shops closed
their doors. More than 300 miles to the
northeast, in southern Minnesota, is another meat
locker that survived the decades when so many
others shuttered. The 81-year-old Conger
Meat Market was opened in 1935 by a Czechoslovakian
immigrant and butcher named Ray “Butch” Bohonek. An area farmer had
convinced Bohonek to leave the Lake Mills, Iowa
butcher shop where he was working to open his own
in Conger, Minnesota. Milford Bohonek, who ran
the operation with his wife, Beverly, from 1959
to 2000, says his father built the shop on skids,
thinking he could have the building dragged to a new
location if Conger let him down. Milford Bohonek, Conger,
Minn.: “There wasn’t a basement put in there
until I don’t know how many years afterward when
they finally lifted up the building and put a
basement under it.” The Bohonek family ran
Conger Meat Market for 70 years before selling it
13 years ago to current owners, Jeremy
and Darcy Johnson. Darcy Johnson, co-owner,
Conger Meat Market, Conger, Minn.: “What we
originally talked about was to leave
everything the same. We didn’t want to
change anything. We didn’t want to change
the recipes, or the tried-and-true traditions
of the Conger Meat Market. They worked for 80 years
so that’s not something we were going to change.” The couple has tried to
keep the big things – like “Butch” Bohonek’s
traditional recipes from Czechoslovakia – and
little things – like handing out samples from
the meat smoker to kids – while making plans
for future expansion. Darcy Johnson, co-owner,
Conger Meat Market, Conger, Minn.: “We thought
it was a great opportunity to buy an established
business and be self-employed.” Currently, the meat sold
in their small retail shop comes from larger
federally inspected meat-packing plants that
are scattered throughout the nation. They, like many smaller
-inspected meat lockers, are limited to
connecting livestock producers with buyers
looking for a custom-cut quarters or halves of
beef, pork or venison. They also are restricted
to in-state sales. Darcy Johnson, co-owner,
Conger Meat Market, Conger, Minn.: “Our job
is easy because we are surrounded by so many
successful farmers. And the quality of meat
that’s coming in is just second-to-none, and the
customers are happy when they walk through the door
because they know they are going to fill their
freezer with locally raised, good-quality
beef or pork. This fall, Darcy and
Jeremy Johnson hope to open a small, federally
inspected meat-packing plant in an old
creamery next door. Because they will be
federally inspected, they will be able to sell
locally raised meat in smaller amounts
directly to customers. The designation further
allows for sales across state lines. So far, the creamery they
are renovating for the Conger Meat Market
expansion does not appear to feature any skids. Darcy Johnson, co-owner,
Conger Meat Market, Conger, Minn.: “I think
the Conger Meat Market will be here for
another 80 years.” For Market to Market, I’m
Colleen Bradford Krantz. Next, the Market
to Market report. The holiday-shortened
week came to an end on an uptick despite official
reports showing an excess of grain around the world. For the week, May wheat
gained 6 cents and the nearby corn contract
moved 11 cents higher. WASDE and CONAB reports
revealing burdensome supplies did little to
discourage market bulls as the May soybean
contract rose 14 cents. May meal added
$10.10 per ton. In the softs, May cotton
was $2.16 per hundred weight lower. Over in the dairy parlor,
May Class III milk futures bumped up 11 cents. The livestock sector was
friendly to cattle but not so much for hogs. The June cattle contract
strengthened $2.90. May feeders soared $4.53. However, the June lean hog
contract shed 27 cents. In the currency
markets, the U.S. Dollar index lost
65 basis points. Crude oil put on 94
cents per barrel. COMEX Gold gained
$28.60 per ounce. And the Goldman Sachs
Commodity Index climbed more than 4 basis points
to finish the week at 401.30. Pearson: Here now to lend
us his insight on these and other trends is one
of our regular market analysts, Don Roose. Don, welcome back. Roose: Thank you, Mike. Pearson: Before we get
started, you can listen to our market discussion
anytime by downloading our Market Analysis podcast
on our Web site, Pearson: Don, let’s start,
we had the WASDE report out this week and it just
seems like we keep finding more and more bushels
of wheat globally. When is this crop
going to stop growing? Roose: Well, you’re
exactly right. We not only found more
wheat but we found more of almost all the grains. So we’ve just got huge
world supplies, corn, soybeans and wheat. But the good news is
pretty much all that news has been baked into the
market right at the present time, Mike. We went down, we continued
to hold this $4.20 in nearby wheat, we really
can’t break under that. And you’re right, the
acres in the U.S. are at 100 year lows. We’re 9 million
under 2015. But I think when you
really back up and look at the wheat market, the U.S. raises 8.5% of the world
wheat, so we’re not the big player in the world
and I think we’re starting to watch the weather in
the Black Sea region. They raise about
33% of the wheat. Europe raises about
20% of the wheat. So those are the two
big players when you’re raising 50% of the wheat
that we’re going to watch and weather conditions
here in the U.S. continue to improve. So I think it’s more start
to watch the world weather in those areas. Pearson: Anything out
there in the Black Sea region or in Europe today
weather wise that could give a little pep in the
step here of the wheat markets? Roose: Well, that’s
a good point. I think we are a little
bit dry in both of those areas, not anything big
yet, but I think we just kind of watch it. And I think the other
thing that you have to be real careful of is the
funds are sitting near record short and this
market very much is a technical market anymore. When these funds start to
move they move and move fast. So keep an eye on the
technical points and keep an eye on the weather more
so I would say in Europe and in the Black
Sea region. Pearson: Let’s talk
about the corn market. We did see a little bit
of strength this week. It seems to be kind of
comfortable trading where it’s at. Are we to a point now
where we’re starting to watch the weather here
over the Corn Belt, seeing these thunderstorms roll
through the heart of the Corn Belt, is that going
to give us a little premium as we move on
into planting season? Roose: Well,
I think it is. And I think if you look
at it much like the wheat we’ve got an awful lot of
negative news already into the market. We had some negative
supply demand numbers this week, really didn’t
budge the market. A big crop in South
America, Argentina and Brazil on corn. But when you really look
at it, it’s that time of year that we
watch the weather. This is no time of year to
be real overly bearish on the grain market because
the weather is a dominant issue. And like you said, I think
with 3% planted on corn last week, probably going
to be up around 7% or 8% planted this weekend but I
think the trade is going to get more concerned if
we move into April if we’re not close to 50%
planted then I think you’ll add some more
weather premium. And then it’s not only the
acres, you talk about do you have prevent
plant acres more? Do you have
less corn acres? Do you have
more bean acres? Could the yield be less? So you start to just add
some risk premium to the market, like you said. But it’s a market that
we’re well supplied with grain so rallies are still
very much short covering risk management
opportunities. Pearson: What price level
do you want to start making those new crop
December ’17 sales at for a producer? What numbers are
you watching? Roose: Well, when you look
at the big supplies, about 2.3 billion carryover on
corn plus probably next year the same, so big
supplies in the world, you have Argentina and Brazil
both with big supplies of corn coming at us. They export about the
same supplies we do. Last year their crop was
getting smaller, this year it’s getting bigger. So your real question is,
what price do we make some sales at? And $3.95 to $4 is a
tough area on Dec corn. But here’s one when you
look at it usually from the winter lows we usually
have about a 50%, 50 cent rally in the corn sometime
during the summer and so that puts you up to $4.28
so it’s possible with weather scares to get
up into that zone. The last two years we
went up close to $4.50. But also look at 2018
corn, you get between $4.10 and $4.20, those are
probably risk management opportunities, if you put
a 30 cent carry on that you’re $4.50 out
into July ’19. So it’s a long ways out
there but keep an eye on it. Pearson: You’re right. And that is a place you
can get plus $4 corn today when you look out
into the future. Roose: Exactly. And you don’t have to have
tight sales out there, you can do some risk
management with some loose option strategies that
still give you the up and the down. Pearson: Alright. Soybeans, it’s been a
tough two weeks or three weeks, four weeks in
the soybean market. It looks like from a chart
perspective maybe we have put a low in. Is the low in, Don Roose? Roose: It looks like
an intermediate low. And I think what we really
had this last week, we had a reversal week in both
soybeans and on the soybean meal. The trends on all these
grains, short-term trends, are up. The funds are back to
about pretty much neutral. Big supplies are baked
into the market again over there and usually, much
like the corn, on the soybeans sometime from the
winter lows to the summer highs on average we
have about $1 rally. So you take the low was
$9.41, it looks like a little bit of a low right
now intermediate, if we hold that, $10.41 sometime
during the growing season is possible. Right now short-term $9.80
to $10 looks like catch-up sales if you’re not
banking on weather. Pearson: Alright. And that leads us right
into we’ve got a question here from Richard
in Wisconsin. He sent this to
us on Twitter. We encourage all of you to
find us on Twitter and on Facebook. Just search for
Market to Market. Richard wants to know, are
we at the bottom of the grain bear market? Looking at the industry as
a whole, harvest futures are red with dispiriting
losses before we even finish planting. You mentioned
there’s hope. How realistic
is that hope? As we look at the 50 cents
in corn, $1 in beans, if you were a gambling man
would you say there’s a 90% chance we’ll
see those rallies? Roose: Well, I think what
you need to do is make sure you do some
risk management. When you’re carrying
around big supplies and you need weather really to
turn into something that can reduce the size of the
crop I think make sure you do some risk management
and hope for that. But I think, Mike, just
quickly in the big range I think the corn market, the
new era we found out we’re probably in a range
of $3 to $4.50. The olden days
it was $2 to $3. Soybeans I think we’re in
a range from $8 to $10.50. The olden days we were $6
to $8, $6 to $9 and then weather markets can push
you past those areas. So this again just is not
a time to be negative but fundamentals are
overwhelmingly negative for the pull. Pearson: Okay. Now, you’re a cattleman,
long-time cattle producer. We’ve seen a lot of
enthusiasm in the cash market for live cattle. The bids just keep getting
stronger and stronger and stronger. On top of that, as our
friend Shelby in Decorah, Iowa points out from
Twitter @ShelbyCorneliu2, he’s asking, with China
lifting the ban on U.S. beef, how long before we
see that impact of maybe some Chinese purchases
in the cattle markets? Roose: Well, President
Trump did have the meeting this last week with the
President of China and that’s where the optimism
bubbled to the top again because actually the beef
ban has been lifted since September and it’s the
regulations that they can’t seem to overcome and
they’re talking optimism in the next 100 days that
something is going to happen. But here’s one that is
very interesting is that our import pace equals
our export pace. Our export pace is about
10% of our production but this next year we’re
actually going to import more beef than that. So it’s really domestic
consumption that you’re really hanging
your hat on. Pearson: Okay. And the consumer as we go
into summertime, do you anticipate to see that
domestic consumption continue to grow? Roose: Well, we always say
if the economy is good the beef market is good. The economy has been
pretty decent here. But I think when you look
at the cattle market seasonally this is the
time of year where you have to be a little bit
cautious on a market. We probably work
to the downside. I’d say that we’re putting
in a top in the cash, it’s just that the futures
market has been trying to do that for basically a
couple of months, hasn’t had much luck. But the government has
cash cattle at $110 to $120 for the year. The problem is they
haven’t been very accurate. They were off $36 a
hundredweight last year and $26 the year before. Pearson: And they were
off to the upside. This year so far they’re
off to the downside. Roose: Exactly,
that’s right. Pearson: So how
aggressive, if we are approaching a top in here,
how aggressive do I need to be on my forward sales,
my forward risk managing out through the summer? Roose: Well, we’re going
to have about 7% more cattle all the way
during the summer. Then in the fall we’re
about a half percent more. So I think you have to be
more aggressive during the summer. August cattle and June
probably are the most negative. The most positive are
probably December and February. But we’re going to
have big supplies. We’re going to have 4%
more beef this next year. We’re going to have 2%
more poultry and about 5.5% more pork. So there’s no shortage of
protein meat out here and that is why you have to
keep your risk management up when you’re on
this kind of a rally, particularly the feeders,
they’re an overachiever also. Pearson: You bet. And let’s talk about that. They are an overachiever,
especially this week. We saw gains in the feeder
market well outpaced gains in the live cattle side. Is that just a function of
cattle feeders, especially the unhedged ones, are
making some money now, they’re pouring it right
back into feeder cattle and we’re seeing
that on the board? Roose: Yeah, I think
that’s really what has happened. Actually we’re in contract
highs not only in the feeder but also
on the fat market. And more than that, on the
live market we’ve got more players than we’ve ever
had in history right at it. Open interest is at
an all-time record. So the speculator, the
funds, the hedgers are all involved in the market. So it’s a big market out
here and the index funds are long. Pearson: Okay. And so the specs, they’re
all long this market, both feeders and fat cattle? Roose: Exactly. And so that’s a good story
today and if they start to move, and that’s what I
mean you have to keep an eye on the charts, these
technical points, you have to know them sharp because
when it tips over it can move over pretty fast. Pearson: Do you have
points in hand that you’re watching from a technical
side on the feeder cattle market? Closed right up here
around $138.40 in the May contract. Are we getting close? Roose: Yeah, I think if
the cattle, if the feeder market drops about a buck
and a half I think the trends will start
to turn weaker. So watch for that. It’s all good until, it’s
like musical chairs right now, don’t be the last
person trying to find a chair. Pearson: Alright. And then lean hogs, before
we let you go, are we just at a point of stability
here in this market? We see some up and down
each week but at the end of the day we move 27
cents on the week. Where does this market go
into the summer with that growing hog population? Roose: Well, we’re trying
to figure out if we’re at a bottom here. And the government has an
idea, they’re saying for the rest of the
summer 60 to 63. The futures are well over
where the government is saying. We’re going to have about
5.5% more, 5.1% more hogs during the second quarter
and then 5.5% more in the fourth quarter. So we’ve got a lot of
numbers coming at us. The real thing you have to
remember is seasonally we usually start a rally on
the hog market but you have to be careful with
these big supplies if we’re going to have a
contraseasonal, like we had in 2002, everybody was
looking for a rally, we never did, the big
supplies overwhelmed the market, we went lower
right into the beginning of June. Pearson: So how do you
want to manage risk given that that potential
threat is out there? Roose: Well, the fourth
quarter no doubt has a lot of premium in the
market out here. The government is
saying 48 to 51. Where we were last year on
hogs, we went to 42 on the board and right now
they’re saying we’re going to have 5.5% more hogs. $2 to $3 rallies in all
these months are risk management opportunities. Pearson: Alright. Well, Don Roose, we want
to thank you so much for taking the time to visit
with us this week and I hope you have a
great weekend. Roose: Thank you, Mike. Pearson: That wraps up
the broadcast portion of Market to Market. But Don and I will keep
the conversation going including answering more
of your questions during Market Plus which you
can find on our website. While you’re there,, check out the Classroom. This virtual schoolroom
allows you to explore the science, technology, and
business of agriculture. And join us again next
week when we explore a sour note in a sweet
domestic industry. So 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 its content. Funding for Market to
Market is provided by Grinnell Mutual. You think differently
about a customer when you stand in the middle
of his dreams. We work to make sure
you get covered right. Grinnell Mutual —
a policy of working together. Information on finding
an agent near you is available at
And by Sukup
Manufacturing Company. Offering a full line of
grain drying and storage equipment and steel
buildings, Sukup Manufacturing is on a
mission to protect and preserve your crop and the
tools that produce it.

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