Vilsack Sails Through Confirmation Hearing
According to the Commerce Department, sales dropped 2.7 percent last month, as retailers endured the worst holiday shopping season in nearly four decades.
The report brought out the bears on Wall Street, where the Dow Jones Industrial Average lost about 230 points.
Markets remained volatile the rest of the week as investors digested multibillion-dollar losses reported by Bank of America and Citigroup.
After a marathon negotiating session, the Bush administration agreed early Friday to give Bank of America an additional $20 billion to help it weather losses at Merrill Lynch, which the company acquired Jan. 1.
The latest infusion exhausts the first half of the government’s $700 billion Troubled Assets Relief Program for the financial sector.
The Bush administration’s oversight of the bailout has been sharply criticized by members of Congress. Nevertheless, the Senate voted Thursday to release the second $350 billion, after the incoming Obama administration pledged to use more of the money for consumer relief.
Senate lawmakers also heard from several nominees of President-elect Obama’s cabinet this week, including the man he wants at the helm of the Agriculture Department.
Sen. Pat Roberts, R-Kansas: "There's a lot of criticism of agriculture recently, much of it coming from folks who either don't understand or appreciate what I call production agriculture. And I hope that we don't ignore the person who produces the food and fiber for this country and I hope you are a champion in that regard.
Gov. Tom Vilsack, D-Iowa 1999-2007: "I do appreciate the diversity of agriculture and that it's the job of the USDA to be responsive and representative of all of that diversity and to be supportive of that diversity...These are hard working people, these are folks that have a value system that is not just important to them I would argue that it's important to us, to this country. It is about family, it is about faith, it is about community, it is about hard work, and it's about getting up every morning recognizing that what you do doesn't just impact your family, it doesn't just feed your family but it feeds a lot of families."
Vilsack, a champion of biofuels, reiterated his support for ethanol production and promotion as well as research and development.
Gov. Tom Vilsack, D-Iowa 1999-2007: "But it is important to maintain the infrastructure because if you're going to transition, at some point in time, to cellulosic ethanol, you have to have the capacity to produce it. And you don't want the hundreds of millions of dollars, billions of dollars, that's already been invested not to be fully utilized."
If confirmed, Vilsack would assume the helm of a massive federal agency with a $95 billion annual budget and more than 100,000 employees. He would be charged with administrating a $290 billion Farm Bill containing 600 provisions. But his most arduous task may be managing the fallout from USDA's loss in a landmark civil rights case.
Sen. Tom Harkin, D-Iowa, Chair, Senate Agriculture Committee: "Among the most intractable challenges facing the new secretary of agriculture is the intolerable and inexcusable state of civil rights in USDA's agricultural programs for USDA employees"
Gov. Tom Vilsack, D-Iowa 1999-2007: "Discrimination in any form will not be tolerated in this department."
While farm programs often draw criticism as wasteful spending, nearly 75 percent of the Farm Bill budget is designated for nutrition programs like food stamps, school lunch initiatives, and food pantries. And Vilsack made it clear he understands the importance of social programs for many Americans.
Gov. Tom Vilsack, D-Iowa 1999-2007: "This is a powerful, rich country and none of us should be satisfied that there are children going to bed hungry."
Vilsack is expected to be confirmed by the full Senate next week.
Automakers Plan for the Future
According to POET officials, the plant is producing cellulosic ethanol at a rate of 20,000 gallons per year using corn cobs as feedstock. The endeavor is a precursor to the company’s Project LIBERTY, a $200 million, commercial-scale cellulosic ethanol plant that is slated to begin production in 2011.
According to the U.S. Department of Energy, America’s ratio of ethanol to gasoline must be increased if the renewable fuels production mandate of 36 billion gallons per year is to be realized. The DOE claims without an increase in blending rates more ethanol would be produced than could be used in all the gasoline sold in the United States.
Vehicles capable of running higher blends of ethanol are already on the market, but electric cars are growing in popularity.
Nissan, America’s 6th largest selling automaker did not attend the event and Toyota is expected to report later this year it’s first operating loss in over 50 years.
Despite receiving $4 billion in federal loans this month, industry analysts believe the future of Chrysler is shaky at best. CEO Bob Nardelli assured those attending the show that Chrysler wasn’t going anywhere and paraphrased Mark Twain saying “The stories of my death are overblown.”
The push at the 2008 auto show of Flex Fuel vehicles and E-85 was replaced this year by electric cars and lithium-ion batteries. GM plans to build a factory in Michigan and begin producing the batteries by 2010.
Gov. Jennifer Granholm D-Michigan: “The message is, that Michigan and our domestic auto industry are going to lead the nation in making us independent of foreign oil. This American manufacturing industry, with respect to automobiles, we have to have it. Not just Michigan, but the United States, can not give up on the domestic automobile.”
Chrysler executives believe they will need an additional $3 billion from the federal government. Ford Motor Company, which declined immediate financial assistance from Uncle Sam, says it wants access to as much as $9 billion if market conditions worsen.
Bush Looks Back at His Rural Legacy
They include two recessions -- the first, an eight-month downturn which began in March of 2001. The second recession began more than a year ago and has proven to be much more severe.
More than 2 million jobs have been lost and investors have seen trillions of dollars in savings evaporate. The Dow Jones industrial average fell by 33.8 percent in 2008, in its biggest decline since 1931.
While history likely will not look fondly on the President’s handling of the economic crisis, Bush’s legacy in rural America may be more upbeat. Andrew Batt explains.
When President Bush addressed the nation for the final time this week, the two-term commander-in-chief’s face seemed etched with years of experience.
Nearly a decade ago, a much younger-looking Governor Bush hit the national campaign trail for the first time as a presidential candidate.
George W. Bush (Dec. 1 1999): “I’ve been a uniter, not a divider in my State of Texas.”
Campaigning during the 2000 Iowa Caucuses, Bush emphasized free trade as a backbone policy for rural America.
George W. Bush (Dec. 1 1999): “It is to the farmer's best interests that we open up markets all around the world. I don't believe the freedom to farm act has been given proper time to work.”
George W. Bush (Dec. 14, 1999): “The amount of corn that would be exported to China if they get into the WTO would double. That is good for Iowa farmers.”
Gary Bauer, Presidential Candidate: “No. No. You’re wrong. You assume China will keep their agreements.”
George W. Bush (Dec. 14, 1999): “They will because that is part of agreement keeping.”
While trade invoked a strong response from Bush, the role of ethanol would prove to be a signature promise from the Texas Governor.
George W. Bush: “I support ethanol, I completely support ethanol because its good for the quality of the air…its good for the air.”
But only months after winning the 2000 election over Al Gore, many of the President’s domestic proposals dimmed in light of terrorist attacks on September 11, 2001. Subsequent wars in Afghanistan and Iraq drew much of the nation’s attention during Bush’s first term. But agriculture and rural America faced their own challenges.
President Bush’s first Ag Secretary, Ann Veneman, supervised the 2002 farm bill.
Foreign trade expansion remained a central goal for Bush – an issue he took directly to the Heartland -even speaking at the 2002 Pork Expo.
President Bush: “We need to open markets to your farm goods. I often tell other countries you open to us then we will open our products to you.”
Bush’s crown jewel of free trade would come four years later in his 2nd term with the passage of the Central American Free Trade Agreement or CAFTA. CAFTA passed by a razor-thin one vote margin in a late night Congressional session.
Late in 2003, America’s first case of mad cow disease rocked agricultural circles across the country. Ag Secretary Veneman and the Bush Administration scrambled to install food safety measures and calm an anxious public.
Trade restrictions on U.S. beef would take years to recover from the positive BSE test and some international concerns remain to this day.
Bush would inevitably win re-election over Massachesutts Senator John Kerry in November 2004 and set his sights on a further overhaul of domestic policy. After Washington remained gridlocked over Social Security reform, Bush turned to immigration – hoping the guidance of a former border-state Governor could reform everything from guest farm worker programs to a new border fence initiative.
The immigration debate eventually devolved into a series of accusations labeling the Bush proposals as “amnesty” or “falling short” of true reform. The immigration bill failed in Congress and Bush would eventually instruct the Department of Homeland Security to build thousands of miles of new fenceline along the U.S.-Mexico border.
On farm policy, President Bush’s 2nd term brought a new Agriculture Secretary in Nebraska Governor Mike Johanns.
Johanns, a former Iowa farm boy, criss-crossed the country in a series of Farm Bill listening sessions. Johanns unveiled new farm bill proposals in 2007 aimed at reigning in direct subsidy payments to American farmers.
Despite more than two years on 2007 farm bill preparations, Johanns left USDA to run for U.S. Senate in Nebraska before the bill even came to a Congressional vote.
Bush replaced Ag Secretary Johanns with former North Dakota Governor Ed Schafer in the months preceding a farm bill vote. In spring 2008, many of the subsidy reforms lobbied by Bush were not part of the final farm bill. The President used his seldom utilized veto power on the 2008 farm bill and was overturned the following week by Congress.
While the farm bill wrangling on Capitol Hill may have given Bush a black eye, the President’s endorsement of biofuels earned him high praise in farm country.
President George W. Bush: “Our nation is addicted to oil.”
Bush’s proclamation of American oil addiction was followed by doubling down on domestic ethanol production.
President George W. Bush: “The bill I sign today takes a significant step because it will require fuel producers to use at least 36 billion gallons of biofuel in 2022.”
When President Bush signed the 2007 energy bill, ethanol expansion and investment seemed to be at an all-time high. But concern was already growing in some livestock sectors. Corn prices were about to make a record run to well over $7.
President George W. Bush: “…we understand the hog growers are getting nervous because the price of corn is up.”
Bush’s unfaltering defense of ethanol during the record food and fuel prices of 2008 all but endeared the President to perhaps his greatest legacy in farm country. While the Bush Administration made little headway on global trade talks with WTO and faltered on its vision of lower farm subsidies, the two-term Republican may long be remembered for defending a homegrown fuel from America’s heartland.
For Market to Market, I’m Andrew Batt.
Market Analysis: Jamey Kohake, Market Analyst
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For the week, March wheat lost more than 50 cents while the nearby corn contract moved nearly 20 cents lower.
Soybeans also were hammered by the increased supply figures, but by week’s end the March contract posted a weekly loss of just 16 cents. The nearby meal contract actually gained $1.50.
In the softs, cotton continued to flirt with the $50-mark this week with the March contract posting a loss of 32 cents
In livestock, February cattle gained $1.42. Nearby feeders were up nearly a dollar. And the February lean hog contract lost $2.50.
In other markets of interest, the Euro fell 184 basis points against the dollar. Crude oil lost $3.50 per barrel. Comex Gold was down more than $15.00 per ounce. And the Goldman Sachs Commodity Index lost nearly 20 points to close at 342.30.
Kohake: Thanks for having me.
Pearson: Well, a little bit of the air came out of these markets this week with the USDA's number, big carryout number on corn, big soybean crop, obviously the wheat market pressured by the news from what the government had to say and, of course, we saw oil prices come back down. So, again, we're still seeing this chilling effect in commodities worldwide. What is ahead and what do you see?
Kohake: We're still seeing deflationary selling in the broader markets. We saw it in the Dow earlier this week with the retail sales report down and we're still seeing usage with the energy markets being really, really low and the weekly storage reports are bearish every Wednesday, we're building a bigger supply, a bigger inventory every week so funds are still in the liquidation mode and they're still trying to get back to even yet.
Pearson: Let's talk about the wheat market first. The USDA's number on Monday was a bit of a surprise and towards the bearish side. We've had a couple of years where we've had very tight wheat stocks. We finally got some good production in the U.S. and elsewhere around the world and giving us plentiful wheat supplies finally.
Kohake: That is right. The carryout was raised compared to November's report. But the big number I think was the yields that came in unchanged and I think that was factored into the market. I think the report was more neutral than terribly bearish but we saw heavy spillover from corn and beans and we saw the heavy losses earlier in the week. We had closed the week off on a very, very strong note, it looks like we're going to be buying upwards of close to 4 million acres for this coming year and that's where this deep buying is coming from plus spillover from the corn and beans.
Pearson: And with the recovery we had near the end what are you telling producers in terms of making sales on wheat?
Kohake: We are holding off on new crop wheat sales. I think you can get the board longer term between $6.50, $6.75 in that area and selling to it then. I think it's going to be a long grind up but I think we should be able to get up there based off the shortage of acres.
Pearson: So, not in a hurry to make sales at all.
Kohake: Not at all, right.
Pearson: Let's talk about the corn market. Again, going into this report there was almost this friendly feeling, they were certainly upbeat going into this report on both corn and soybeans and then the numbers came out much bigger and the carryout much bigger. By week's end though, you're right, we came back quite a bit. So, what does this tell us about the corn market?
Kohake: The corn market is spillover from the beans right now. Corn is not trading on its own at all. We did see a bearish report trade limit down on Monday off the higher carryout, off the higher yields, we came back on spillover from the beans. I think corn still has roughly 20 cents below this week's lows to eventually get to. The key problem right now with corn is the export business. We've had about three weeks in a row of terrible, terrible business and the foreign markets are about 30 cents cheaper than we were on Wednesday's trade than where we need to be to attract more sales.
Pearson: What's it going to take and what is driving this weak export market for corn?
Kohake: Foreign corn is cheaper, especially the European markets are and so we're losing business to them and plus we've had a little bit of rally in the U.S. dollar the last two weeks as well.
Pearson: Make it a little bit more expensive to buy U.S. corn. What are you telling producers right now? The other number that I thought was interesting, again, back to another 100 million bushels of demand away from ethanol.
Kohake: That is right and you're still seeing roughly a 50 cent premium from ethanol to unleaded on the futures market and, of course, you get this bearish report. I think usage is going to stay slow right now. The carryout will be the biggest one that we've seen in four years and I'm in the mode right now with selling rallies and we're waiting to see how we come in Monday night and Tuesday but I don't think this corn is going to stay up here that long.
Pearson: So, you think we're going to see some pressure on corn this spring.
Kohake: Next two to three weeks I think we will and we'll start selling realities a lot harder.
Pearson: When will we start buying some acres? I think everything's going to go to beans at this point isn't it?
Kohake: Right, long return as you come into the middle to end of February I think you see the funds shift back in and buy a little bit more. I think the only reason the corn is higher Thursday and Friday just because of beans. We did see a report out today from Informa and they're saying roughly three million less acres compared to last year and five million more bean acres. But right now the carryout in the exports is really what the market is trading off of.
Pearson: Dragging this corn market down. Price targets what are you looking for, for corn? Where would you like to sell corn? Let's talk new crop.
Kohake: New crop corn longer term I'd love to get a sell up around $4.85, close to $5.00 -- that's going to be sometime by the very earliest the first or second week in March coming into the big acreage report then. Or you have to wait until July on a big weather scare.
Pearson: Let's talk about soybeans. Again, in terms of the way a producer is going to look at this thing with the input costs where they are in corn soybeans are going to look like an obvious place to go. And Informa's numbers today kind of reflect that.
Kohake: That is true and also with the at one point six million acres coming out of CRP too that's inferring that it goes to beans as well. The bean market right now is all South American weather. Argentina is very, very dry. There is talk of a 30 year drought down there and also we got a report from Brazil on Thursday and they cut their production also. Brazil has had some scatterbrains but they are dry as well. We're trading all weather right now and off the bean market.
Pearson: And so, again, when it comes to pricing what are your targets for soybeans? Let's talk new crop on soybeans.
Kohake: New crop beans there's roughly double top, heavy resistance between $10.35 to $10.42 in that area. I think that would be a prime sell if we can get it and I think we could the first part of next week. We closed very strong today. If we stay dry over the weekend we should see an early pop next week but these bull spreads buying the March, May and July and selling November is riding out big time -- 60 cents in the last three weeks that spread has worked so I think you've got to sell this November beans anywhere between about $10.25, $10.40 in that area.
Pearson: And, again, for the old crop beans that aren't sold yet what's basis doing right now in these beans?
Kohake: We are riding with corn and bean basis just because that time of the year, tax season so there's ample selling. But I think the basis will narrow back up in here, not this month, I think coming into February. I look at a flat price somewhere around $10 a bushel and try to price something to start out again.
Pearson: So, soybeans around $10 old crop and maybe $10.25 on new crop.
Kohake: That is right.
Pearson: Those aren't bad numbers, that kind of jives with what the USDA is saying in their crop report too so not a bad place to be looking to make sales. I want to talk real quick about the cotton market, up around 50 cents, it's been a rough go in cotton too. Is this a place to make sales?
Kohake: I don't think it is. I think you want to stay away from fresh ones right now. If we get one more pullback I would take some profits on some shorts but I would look to reown a little bit with some cheap calls out of the July or September timeframe, same as wheat here we're running into some acreage problems, cotton going to beans and maybe to wheat too and I would look to eventually see a seasonal rally in here and then turn back around and sell it in the mid to high 50s.
Pearson: Let's talk about livestock because we have been feeding some wheat, some cheap wheat from the Balkans that came in which was kind of interesting. But for these livestock producers out there this fed cattle market we saw a little bit of move, a little bit of strength here. Is this the beginning of some better things to come?
Kohake: I think it's close to it. These next two weeks are going to be very, very important with the cattle market, with the cash market holding 83 to 85 I think we are close. I would not be adding fresh shorts on right now. If you get one more pullback two to three cents I would just take profits and look for a rally, like to buy the April in 85, push it up to 90 sometime into the first quarter and I think it would be a very, very good trade.
Pearson: Calf market, last time you were on you were saying that we were going to see some strength, it had been very weak. It jumped dramatically here on feeders. What is your outlook going forward? Obviously this outlook for cheaper corn has got some people thinking we can buy these calves and make them work.
Kohake: I think there's still more up side in the cattle market. I think just like the live cattle one more pullback maybe, take shorts off and look for a rally in here. I'm a little bit bullish cattle in here, feeder cattle, live cattle and just looking for a seasonal rally.
Pearson: What is your target on fed cattle?
Kohake: I think you've got to look up close in the feeder cattle ... up above 100. We have two very important reports coming up at the end of this month, the monthly cattle on feed report and also the inventory report, I think both will be bullish.
Pearson: That might be the start of something good.
Kohake: I think so.
Pearson: Let's talk about hogs. The hog market -- we understand there's a lot of vertical integration occurring in the hog business but we're starting to see, aren't we, some liquidation, some slowdown of farrowings as we go forward?
Kohake: Yes we are, we are seeing smaller numbers. The key problem to hogs the last month or so has been the lean hog index. It has been at a big discount to futures, upwards of five cents at times, right now it's back to roughly two. So, any type of rally has been very, very slow and it comes right back down. I think we're getting close to a rally, the numbers will kick in, we'll start creating fundamentals again as soon as that spread narrows up. And I'd trade the hogs just like I would the cattle, you may get one more pullback the next two weeks, get out of your shorts and look for a rally and maybe sit back and sort of rehedge again.
Pearson: We're hearing all these negatives with the general economy and unemployment and so forth but despite all that you think these proteins are going to be in big demand.
Kohake: I think we're going to see a seasonal rally. I don't think we're going to shoot straight up. I think we're going to see a seasonal balance. Talk about down side markets, we did see the Dow come back up this week on Thursday and Friday and the meat markets came right back up with it too.
Pearson: The flip side for a livestock producer and the big question has been getting feed needs covered. This has got to be a great opportunity to be doing that particularly on corn.
Kohake: Absolutely and buy the corn -- I don't know if I'd chase a 20 higher opening Monday night or Tuesday beyond breaks down around $3.40, $3.50 in March I think is a great buy in there and also in the meal a pullback too. The meal has been leading the bean market higher.
Pearson: Explain that a little bit.
Kohake: Buy March meal off of a hedge, a long hedge but you look at the meal exports, very, very strong and also the bean exports. Over 70% of our exports right now are coming from China and I think that's going to keep this market firm another week. The key part in here is pretty much markets with grains and livestock too over the soybeans right now. China is going to come into a lunar holiday break a week from Monday. For two weeks they're not going to pretty much do anything at all, no exports, no imports. Historically after that timeframe they come back and buy from South America. So, I think you can get a two week window in here where you could pay short-term top in the market.
Pearson: Very good. Jamey Kohake, thank you so much, appreciate your insights. That will wrap up this edition of Market to Market. But if you'd like more information from Jamey on where these markets just may be headed visit the Market Plus page, it's at our Web site. You'll find streaming video of our program and you can download audio podcasts of our Market Analysis and the Market Plus segments absolutely free. Of course, be sure to join us again next week when we'll examine the Obama presidency and what that means for the rural agenda. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
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