Market to Market (May 17, 2019)


Coming up on Market to
Market — More rain drags down planting progress. Counterpunches in trade
talks prompt calls for action. Passing the torch to keep
rural America in business. And market analysis with
Darin Newsom, next. Pioneer Hi-Bred
International is a proud sponsor of
Market to Market. Tomorrow. For over 100 years we
have worked to help our customers be ready
for tomorrow. Trust in tomorrow. Information is available
from a Grinnell Mutual agent today. ♪♪ This is the
Friday, May 17 edition of Market to Market, the
Weekly Journal of Rural America. ♪♪ Hello, I’m
Delaney Howell. The phrase “it’s the
economy, stupid,” entered our lexicon during the
1992 campaign for the White House. If a president’s success
is tied to the economy, the current administration
got mixed returns this week. Consumers cut back
their spending in April by 0.2 percent — continuing
a seesaw pattern for 2019. The building of more
single-family homes led to an increase in
housing starts. The Commerce Department
said last month the rate rose 5.7 percent. The monthly survey of
bank CEO’s in rural areas slumped below growth
neutral for the first time since November. Creighton’s Rural
Mainstreet Index registered a 48.5. Manufacturing giant Deere
and Company cut profit and sales expectations for the
year citing the trade war and weather-delayed
planting as reasons. Usually the saying is
“if you don’t like the weather, wait 15 minutes
and it will change.” Except this
year, it hasn’t. The National Oceanic and
Atmospheric Administration says the continental
United States just booked its wettest 12-month
period in recorded history. And more rain is coming. John Torpy has the story. Heavy rain early this week
inundated southern states of Louisiana and
Mississippi – flooding streets and neighborhoods. Evacuations were common
around New Orleans as many portions of the Delta
received record rainfall. The National Prediction
Center measured rainfall totals in New Orleans and
Baton Rouge over 9 inches in a 5 day period. It’s not known if heavy
rains are to blame, but to show the power of water,
this spillway gate broke free on Lake Dunlap near
San Antonio, Texas. The exact cause of the
failure is not known. More rain in the Plains
hindered an already slow spring fieldwork season. USDA’s latest planting
progress report revealed a historically slow pace —
only 30 percent of the nation’s corn crop
is in the ground. The 5-year average for
this time period is 66 percent complete. A window opened for a few
farmers to allow some planting by late week, but
the weather forecast calls for Mother Nature to soak
already over-saturated farms in much
of the Midwest. Projections from the
National Oceanic and Atmospheric Administration
predict the upper Midwest and parts of the High
Plains could receive as much as 5 inches of rain
over the next 7 days. For Market to Market,
I’m John Torpy. Bloomberg reported
Friday morning the U.S. will lift steel and
aluminum tariffs on Canada and Mexico. This could clear the way
for Congress to ratify the USMCA. In other trade news,
USDA hinted another farm bailout package may be
coming to rural America to counter losses
from the Trade War. As the number of tariffed
items grows, so too does the frustrations and
fortitude of involved parties. Colleen Bradford Krantz
reports on the calls for resolution. China announced Monday a
$60-billion counterpunch to the Trump
Administration’s call last week to apply 25 percent
tariffs to a wider array of Chinese goods. Sen. Mitch McConnell,
R-Kentucky: “Well one thing I think we all agree
on is that nobody wins a trade war, and
we’re all hoping… that these particular
tactics get us into a better position vis-à-vis
China, which has been our worst and most unfair
trading relationship for a very long time.” Hardliners on both sides
of the ocean appear to be digging in for a battle
that’s already disrupting trade between the two
economic super powers. Geng Shuang, Chinese
Foreign Ministry: “We have repeatedly stated that
raising tariffs will not solve any problems, and
igniting a trade war will only harm both
others and itself.” TheU.S. claims the Chinese steal
technology, force foreign companies to hand over
trade secrets, and unfairly subsidize
their own companies. Sen. Chuck Schumer, D-New York:
“We gotta do something about China or America
will not be a strong economic power 10 or
15 years from now. I don’t fully agree with
what the president has done because he’s fought
this against too many different countries. … We ought to all be
united and aimed at China.” Sen. Charles Grassley, R-Iowa:
“I think it’s bad for agriculture,
these tariffs now. But, on the other hand,
look, we’ve had three presidents, both
Republican and Democrat, for 15 or 20 years letting
China get away with stealing their way
into prosperity.” Some producers, such as
Bret Davis of Delaware, Ohio, renewed the “trade,
not aid” sentiment in an effort to avoid long-term
loss of export markets. Bret Davis, soybean
farmer, Ohio: “Once you lose that customer, what
does that do down the road? Can you gain
that market back? That’s very scary for us,
as the American farmer.” For Market to Market, I’m
Colleen Bradford Krantz. Whether it is a Fortune
500 company or an office employing five people –
succession planning to the next operator is key to
the business surviving the transition. A program in the Heartland
is aimed at matching owners seeking an end
and those looking for an opportunity to hang
out their shingle. Peter Tubbs reports
in our Cover Story. Fifty pound bags of pig
feed are filled at Valley Feed and Supply in
Bonner Springs, Kansas. The business had been
owned by the Stubbs family for 90 years but
was sold in 2018. New owner Matt Laipple
wanted to his farming and engineering experience in
an agricultural business, but wanted to avoid the
risks of starting a business from scratch. Matt Laipple, Owner,
Valley Feed and Supply: “The good thing about that
is, you know, if it’s a successful business,
you’re not reinventing the wheel. It’s already there. You just have to do to
continue to keep that wheel turning.” The transaction was
assisted by RedTire, a project managed by the
Business School at the University of Kansas. Wally Meyer, Director of
Entrepreneurship Programs, University of Kansas:
“RedTire is the link between retiring business
owners or those who want to exit their business and
those who are qualified and capable of taking
over the business with a benefit to the community
of retaining the essential services of the community,
which is key to retaining quality of life in
that community.” The loss of businesses
like medical practices, ag related businesses, and
light manufacturing, can be debilitating to the
viability of rural towns. RedTire facilitates the
purchase of companies by a new owner, often an
experienced professional looking to be their own
boss and control their economic future. One challenge for
businesses looking to sell is arriving at a fair
valuation of their business. Denton Zeeman, RedTire
Program Manager, University of Kansas: “we
can build out a range of value for our valuations. And we, because we’re
working with both buyer and seller, we don’t like
to produce a valuation that is called the
conclusion of value or a price point valuation. Instead we give a range
of value to help with negotiation between buyer
and seller basically.” The negotiation also
includes a transition period where the seller
works with the buyer for a designated period of time
to transfer the knowledge of how the business works. This transition period
dramatically improves the odds of success
for the new owner. Wally Meyer, Director of
Entrepreneurship Programs, University of Kansas:
Businesses fail during a transition, most commonly
because customers get forgotten or the process
gets manipulated in a way that is not appropriate
for the business. And so it’s the handoff
period between the seller exiting the business and
the buyer taking over the business, where
businesses tend to fail.” RedTire has completed 60
transfers since its start in 2012. All 60 are still
in operation. Dr. Deedra Truschinger
bought a dental practice in Auburn, Kansas in 2017. The retiring dentist spent
more than a year on staff introducing her to
patients and teaching how the practice operated. Now on her own, Dr.
Truschinger has seen her patient list increase
enough to require the remodeling of a century-
old bank building as a new, larger office. But the financial side
of her business was the intimidating part
of the purchase. Dr. Deedra Truschinger,
DDS, owner, Auburn Dental Clinic: “I did not do a
whole lot of research and I think that’s a testament
to how awesome RedTire is because they did so much
research for me and provided so much data, I
didn’t feel the need to go outside and get five
different appraisals on what this practice
was worth. They were working both
sides very honestly and just trying to make a
good, a realistic picture of what the value of
the practice was.” Wally Meyer, Director of
Entrepreneurship Programs, University of Kansas: “For
many of our participating companies, 175 of
them, they need to get themselves to the
psychological and emotional point that
they’re able to walk away from the business and
something that they have devoted a 20 or 25 or 30
years of their life to, now all of a sudden
they’re going to turn over a or the relationships
with their customers and of course the machinations
of running their own business to somebody else. So having that emotional
security to be able to do that, being at the right
time of life, to be able to make that transition,
that’s really important.” For Neal Stubbs, finding a
buyer with the financial ability to buy the feed
mill was only half of the equation. An understanding of the
work was an even bigger hurdle. Neal Stubbs, former owner,
Valley Feed and Supply: “He seemed to know, he
definitely has an interest in agriculture. He seemed to to
understand, um, the type of work we do here better
than a lot of people do. And uh, being a farmer
himself, you know, he’s familiar with heavy
equipment, which is kind of what our mill
out here is.” The business at Valley
Feed & Supply has evolved over the last 20 years. Situated in the corridor
between Kansas City and Topeka, the demand for
hog and cattle feed has declined as sales of horse
and chicken feed has risen. It is also the type of
business that is well suited for the RedTire
program: a sole proprietorship with good
cash flow and a track record of
turning a profit. RedTire estimates there a
10,000 businesses of this size in Kansas and
Missouri alone whose owners are nearing
retirement and lack a succession plan. Much of the work of
finding the valuation range of the businesses
looking for new owners is done by students in the
Business program at KU. Their salaries are paid
by a grant from the U.S. Economic Development
Administration, and allows RedTire to be a free
service to both buyer and seller. RedTire also provides a
level of transparency for the buyer that is uncommon
in a typical broker-driven transaction. That transparency helps
smooth the sale from one owner to the next, keeping
a rural business going that otherwise
would have closed. Neal Stubbs, former owner,
Valley Feed and Supply: “It was in our family for
95 years, so it was not the time I wanted
to drop the ball. We did everything we
could, you know, to make sure everything
went smoothly. I think it did.” For Market to Market,
I’m Peter Tubbs. Next, the Market
to Market report. Traders apparently noticed
that four major corn producing states report
single digits of corn planting progress. For the week, July wheat
gained 40 cents while the nearby corn contract
jumped 32 cents. The soy complex went along
for the ride much of week before another selloff
Friday as the prospect of more acres became a
stronger possibility. The July soybean contract
improved 13 cents. July meal increased
$7 per ton. July cotton fell $2.46
per hundredweight. Over in the dairy parlor,
June Class III milk futures went up 15 cents. The livestock
market was mixed. June cattle lost $1.17. August feeders shed $1.33. And the June lean hog
contract put on $2.70. In the currency
markets, the U.S. Dollar index
improved 67 ticks. July crude oil expanded
$1.19 per barrel. COMEX Gold fell
$11.20 per ounce. And the Goldman Sachs
Commodity Index gained eight points to
finish at 442.60. Joining us now to offer
insight on these and other trends is one of our
regular market analysts Darin Newsom. Darin, long time no see. Newsom: Very
regular anymore. Howell: Yes, very regular. Newsom: Thanks for
having me back, Delaney. Howell: Yes, thank you. Darin, we’re going to
start off the show doing something a little
different because you decided to tweet in your
own question this week. And folks, you can share
your questions each week for our analysts. This week we’re going to
take your question, Darin. So your question was what
is the technical picture for the markets
after this week? And I think that’s on the
minds of a lot of folks. Newsom: Yeah and it’s
going to be fascinating when I sit down to do all
of the charts that I look at and I like to look at
basically weeklys and then add in dailys and then I’m
drawing on monthlys if I want to look at
the long-term. And almost, if I’m talking
about the grain and oil seed complex just about
every one of them is bullish. We’re seeing, a couple of
weeks ago we sat here and we talked about how we
could see a two week reversal, two week bullish
reversal in soybeans. It didn’t happen. But it did set up in two
weeks’ time not a two week reversal but a bullish key
reversal where we went to a new low early this week,
we shot back up, blew out last week’s high, closed
higher for the week as you pointed out. So from a technical point
of view, not just soybeans but corn, wheat and almost
everywhere you look, any markets you look at in the
grain and oil seed complex looks bullish going
into the weekend. Howell: So is Darin
Newsom bullish? Newsom: With my split
personality if I’m looking at it strictly from a
technical point of view, it’s hard for me to say
I’m bullish, but yeah I’m going to have to say the
charts look bullish right now. Howell: We’re going to
have to write this one down in history. Newsom: That’s right. Howell: Darin, when you
look at the wheat markets they also you mentioned
have a pretty bullish technical indication
right now. Did they have a reversal
earlier this week because corn and soybeans were
pulling it up, or weather, or was there something
else going on there? Newsom: Yeah, I think
we’re at the time of year where wheat is going
to act on its own. And what’s fascinating is
that we just can’t get the hard red winter harvest
started right now. So it is weather related. It’s just like
everything else. Weather is the
key at this point. I know we kind of got into
a little bit of a debate about what does a weather
market mean, but we are in weather markets right now. And I guess the point that
I was making earlier this week is that they usually
don’t last all that long but this one starting in
April/May it’s a different beast than what we’re
usually looking at when it’s 7 to 10 day timeframe
in the summer when it gets hot and dry. This is something
completely different. So yeah, we’re in a
weather market right now. Basically every grain and
oil seed market is being driven by the latest
weather forecasts and it’s certainly seemed like
as we headed into this weekend certainly seemed
to still be in charge. Howell: Absolutely,
especially when you look at the corn market
in particular. Let’s talk about that
because we’ve neared insurance dates, we’re
nearing insurance dates in a lot of states, we’re
still drastically behind on planting. Darin, at what point do
you think folks should just say, maybe this year
is a prevent plant year for me? Newsom: You and I have
been going to a lot of meetings and the ones that
I’ve been going to where they talk about strategy
for this marketing year, for the 2019-2020
marketing year, one of the favored strategies
is prevent plant. So just take the prevent
plant and do something else with it, don’t even
worry about it, don’t even worry about trying to
spend the money to get that crop in. So that seems to be the
goal this year rather than fighting Mother Nature
trying to get these acres planted after the
insurance date. Howell: Okay. Well let’s say producers
go ahead, they say I’m going to take prevent
plant, how do they ensure that if we continue this
rally, this weather rally, they’re able to take
advantage of some of those? Newsom: I don’t know. If they wanted to play the
markets a little bit, most of them are probably still
long last year’s market, they probably still have
some of last year’s crop laying around so they
could certainly use that. Some of them might jump
into the futures, they could jump into the
options on the idea, particularly if we’re
looking at the new crop market, that this thing is
not going to slow down. As long as the weather
stays the way it is, and I believe the story you
talked about over these next 6 to 10 days is not
going to be pretty for much of the Midwest,
there’s a number of different ways
they could play it. They could play it, as
I said, cash, futures, options, whichever seems
to fit them the best at this point. Howell: If you were a
producer sitting on old crop corn right now are
you making cash sales? Newsom: Well, yeah because
this has nothing to do with old crop. Old crop shouldn’t
be going up. We saw last Thursday the
latest marketing year export shipment numbers
were released and we’re on pace right now. If we continue what we’ve
seen over the last four weeks spread out over the
last 16 reporting weeks we could come up 200, 300
bushels short of USDA’s projection at this point,
of that 2.3 billion bushels. So that could add 3
billion or so onto their whatever it was, 2.0
something, in its May round of estimates. So again, we’re talking
about 2.3, 2.4 billion bushels possibly
of ending stocks. We’ve got a lot
of corn on hand. Basis showed a little bit
of a crack this week. National average basis
weakened a little bit. So I think there is some
signals that if I’m holding cash this rally in
the new crop doesn’t have anything to do with the
old crop market, we’ve got plenty of old crop on
hand, we might be wanting to get to that point where
we’re feeding the old crop market a bit. Howell: Okay. And then I think the other
question that gets lumped into the whole weather
debate is will those acres, if they don’t go to
prevent plant, are they going to turn to
soybean acres? Newsom: They could
possibly do that but I’m also hearing it’s going to
get too wet, with as wet as it’s going to be it
could get too late to even get soybeans in. I was talking with, we
both met him this weekend, a farmer from Mississippi
who is saying the time window for the optimum
soybean production has also passed, at
least in his area. So I think we’re going to
be running up against more of that in the Midwest as
well where I’m not going to sit here and say
they’re not going to plant anything. But I think it’s going
to be very difficult and they’re going to certainly
have to look at some different options. Howell: With that being
said, Darin, you mentioned corn and wheat
are bullish. Are you still bullish
soybeans as well if we don’t get some
acres planted? We still have a large
carryout number. Newsom: But see
you’re trying to take fundamentals into account. If we take fundamentals
into account there’s no way I’m bullish soybeans. I’m not bullish
old crop corn. I’m not bullish wheat. If we look at
fundamentals, which so many people like to do
because fundamentals drive the market and all this,
no I’m not bullish at all for any of the markets
if we’re dealing with fundamentals. It’s just from the
technical side. And this is one of
the more interesting divergences I’ve seen over
the last 30 years where we’ve got very distinct
directions going between technical and fundamental
analysis and I think it’s going to be great watching
to see how it plays out. Howell: I think so too. Darin, I’m going to save
the cotton discussion for Market Plus so folks
do tune into that. We’ve got to talk about
the livestock markets as well. Funds are still net
long in the live cattle markets. Do the funds know
something that we don’t know? Newsom: Usually. Basically it’s just
usually their algorithms but yet when you gave kind
of a rundown of what the markets did this week,
again, we’ll go back to what we talked about a
couple of weeks ago. We were still looking for
some pressure in the live and feeder cattle and
that’s what we’ve seen. I think it’s going to run
out of gas here before too long. We’ve seen the
hogs move up. I think we’re getting
ready to move cattle, excuse me, live cattle and
feeder cattle start to move higher as well. This is kind of that end
of the last little bit of the selloff, the downtrend
that we were looking for. It has pulled the
market pretty low. I think the June live were
testing something like $109 or something, they
may have moved below that the last couple of days. But that’s decent support,
now we’ll see if we can’t start to find some
commercial buying to go along with the
non-commercials who are already holding a long. Howell: And isn’t that an
indication in the feeder markets, you look at
Friday’s closes, August feeders put on $2 plus
dollars, is that a sign to you that we’re starting
to turn this thing back around? Newsom: Sometimes it’s
just a Friday activity. If it’s been down all week
you see some covering coming in on Friday. Howell: But $2 is a pretty
big premium to the old crop, or the old
contracts here. Newsom: $2 is a nice move,
not going to downplay that. I want to go back and look
to see okay, how did the August move in relation to
the October and so on and so forth as we look
at the spreads. Yes, it was a good move,
but if we see the right type of activity that was
indicating commercials are also, commercial traders
are also coming into these markets, that’s going to
give us even more support going into next week. Howell: Okay. We’ve got to talk
lean hog markets. They had a pretty
strong week again. What’s leading
those markets? We know weather
is leading grains. Newsom: We had, again, go
back a couple of weeks, we talked about the initial
run up with the, make sure I get the letters in the
right order, ASF, with all that hubbub. So we ran the market up,
we pulled it back, now we’re moving back up. I don’t know that we take
out the previous high. I think we’ve just still
got some trade going on in here and I’m not sure
that the cash market is providing all
that much support. If it’s not then I
think that gives us the opportunity for the hogs
to run out of upside momentum here
before too long. If we blow out that top
— Howell: Which is what? Newsom: Above where
we are right now. I don’t remember
the numbers. Howell: We’ll give you
some slack, we’ve been on a plane. Newsom: Yeah, I never
remember the numbers anyway. But if we blow that out
then that changes the picture. That would indicate that
not only do we have some fund buying coming in
but we’ve also got the commercial side coming in
as well, which is very important particularly as
we head off into these summer months and so on
from a seasonal point of view. So if we can do that I
think it changes the picture considerably
in the hog market. Howell: So you mentioned
the commercial side needs to come in maybe
to see some action. Where are the funds and
the commercial side sitting right now? Newsom: I haven’t looked
at this week’s CFTC. If I recall, I’m not even
going to — it’s a little fuzzy. I was thinking that they
were still long the hog market. Again, it depends on what
report you’re looking at. I’m fairly certain they’re
still long but I probably just said something really
stupid so I’ll have to go and check the numbers. Howell: We can double
check it and verify it on Market Plus. Okay, since we’ve got just
your 10 second thoughts here, Darin. Cotton is also potentially
having a weather market. Are we going to see some
acreage switch out of that as well? Newsom: I don’t know. You look at the way the
market acted this past week and you just can’t
find any friends right now. Longer term could we see
some acreage switch? Certainly we could, but
right now it’s just really struggling. Howell: All right, Darin
Newsom, thank you so much. Newsom: Thank
you, Delaney. Howell: That wraps up
the broadcast portion of Market to Market. But we will keep this
conversation going on Market Plus where we’ll
answer more of your questions. You can find it
on our website at Market-to-Market.org. Tractor riding season is
here and we have just the thing to keep you company,
three weekly podcasts to stay on top of what’s
happening in agriculture. Download where you
get your podcasts. Join us again next week
when we’ll see how a pivotal moment in
agriculture is still drawing attention to
the nation’s attic. So until then,
thanks for watching. I’m Delaney Howell. Have a great week! ♪♪ ♪♪ ♪♪ ♪♪ ♪♪ Market to Market is a production
of Iowa Public Television which is solely
responsible for its content. Pioneer Hi-Bred
International is a proud sponsor of
Market to Market. Tomorrow. For over 100 years we
have worked to help our customers be ready
for tomorrow. Trust in tomorrow. Information is available
from a Grinnell Mutual agent today.

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