Leaders Flock to G-20 Summit in London
The Consumer Confidence Index edged up slightly in March after falling to an all-time low in February. But the optimism was short-lived.
On Friday, the Labor Department reported U.S. employers slashed 663,000 jobs from their payrolls last month, pushing the nation’s unemployment rate to 8.5 percent. That’s its highest level in 26 years.
But bolstered by better-than-expected readings in the housing, banking and manufacturing sectors the Dow Jones Industrials Index shook off the labor numbers with a gain of about 40 points.
The Dow closed Friday above the 8000 mark -- up more than 20 percent since March 9, reflecting its best four-week run since 1933.
This week’s rally aside, America is but one piece of an increasingly complex global economy which also is in a slump. And this week, President Obama traveled “across the pond” to consider solutions.
Only blocks away from throngs of protestors, President Obama met with numerous foreign leaders including Chinese President Hu Jintao.
China owns an estimated $1 trillion in U.S. debt and American representatives attempted to soothe Chinese concerns about the United States economy.
Barack Obama: “I said publicly -- and I continue to believe -- that the relationship between China and the United States is not only important for the citizens of both our countries, but will help to set the stage for how the world deals with a whole host of challenges in the years to come.” (Newshour Wed. April 1)
Obama also met with British Prime Minister Gordon Brown. Brown pledged to work alongside America and other G20 nations to enact common policies that crack down on tax havens, regulate hedge funds, and rebuild trust in the global financial system.
Prime Minister Gordon Brown, Britain: “And I think, as President Obama has said, look, never before has the world come together in this way to deal with an economic crisis.” (Newshour Wed. April 1)
Later in the week, President Obama claimed the meetings produced global consensus for taking so-called “toxic assets” out of struggling banks, creating stronger financial regulations, and infusing billions of dollars in government funds into the world’s economies.
Barack Obama: "The London Summit was historic. It was historic because of the size and the scope of the challenges we face, and because of the timeliness and magnitude of our response."
8 Million Acres Missing from Prospective Plantings Report
USDA projects corn stocks will be 141 million bushels LARGER than the same period of 2008. Soybean supplies are projected to be 114 million bushels LESS than last year, and wheat stocks are predicted to INCREASE 350 million bushels over 2008.
A decline in acres planted to wheat could bode well for new crop prices and that was just one of several predictions made by USDA this week in its much-anticipated Prospective Plantings report.
Soybean producers are expected to work a record 76 million acres in 2009. At least eight states are anticipating farmers will increase the number of acres planted in soybeans by 100,000 or more.
USDA is predicting a 7 percent decline in this year's wheat acreage to nearly 60 million acres. The largest amount of ground is dedicated to winter wheat which also is predicted to be down by 7 percent over last year.
And cotton numbers are expected to fall by 7 percent to 8.81 million acres. If this comes to pass, it would be the fewest number of acres planted since 1983.
According to the report, America's farmers are expected to plant almost 8 million fewer total acres than last year. Analysts have been able to account for nearly a third of the missing acres. Most are located in states like Texas and North Dakota where extreme weather conditions have taken large amounts of land out of production. Nevertheless several million acres of the nation's farmland remain in limbo.
Walking Wetlands
The law also resolves several long-standing disputes over water rights, including restoration of the San Joaquin River in California, bringing water and salmon back to a now-dry stretch of the waterway.
Agricultural interests often find themselves at odds with other groups over water rights -- -- especially in the West. And nowhere has the issue been more controversial than in the Klamath River Basin in parts of California and Oregon. But a unique crop rotation system is helping farmers and environmentalists find common ground. Andrew Batt explains.
To say that wetlands historically have been underappreciated would be an understatement. Farmers and ranchers have long thought of bogs, marshes and swamps as wasted land. And, that belief has led to the draining of more than 100 million acres, or over 50% of America’s wetlands. Recently, there has been a growing awareness that there is value in wetlands for their ability to filter pollutants, reduce erosion and prevent flooding. However, changing perceptions can be a challenge. Ron Cole, Refuge Manager / Klamath Basin National Wildlife Refuges: “I had one of the farmers tell me that, you know, someday Ron you're going to want potatoes on your National Wildlife Refuge. And I, I said you know that that's interesting um I'm not sure about
that…”Ron Cole manages the Klamath Basin National Wildlife Refuges. He also serves as the project leader for Walking Wetlands, a unique crop rotation program that marries agricultural land with wetlands.
Ron Cole, Refuge Manager / Klamath Basin National Wildlife Refuges: “And I told them I'm not sure about wanting to put potatoes on it but I know someday you're going to want a wetland on your farm. And there was a chuckle and that same individual is now a big proponent of putting wetlands on farm ground and has one on his own farm today and is very proud of it because it's working for his operation.
In the battle over water rights and land use in California and Oregon, the Klamath Water Basin has long been the “Tip of the spear.” In 2001,
agriculture in the basin was pitted against endangered suckerfish and salmon interests, when the federal government denied farmers access to water needed to irrigate fields. 20,000 people gathered in Klamath Falls to protest the decision. The demonstrators formed a bucket brigade, took water from Klamath Lake and dumped it into an irrigation canal. The gesture was symbolic but it drew national attention to the century-old dispute of how water is used in the basin. Prior to the 1900’s, the Klamath Basin was made up of over 180,000 acres of shallow lakes and wetlands, making it one the largest and most important feeding and breeding grounds for waterfowl that migrate along the Pacific Flyway.
Despite the ecosystems intrinsic value, the federal government in 1905 initiated the Klamath Reclamation Project. The goal of the project was to drain wetlands and build canals for irrigation beneath the Lower Klamath and Tule Lake in order to create farmland and encourage homesteading. Three years later, President Theodore Roosevelt recognized the importance of the wetlands and created the nations first waterfowl refuge on the Lower Klamath. Since then, the basin has become a patchwork of reclamation and preservation projects, which have resulted in numerous court battles between agriculturalists and preservationists. Dave Mauser, Wildlife Biologist / Klamath Basin Wildlife Refuge: ”Fighting each other about water, about pesticides, about a host of issues and while you're in those battles and your lawyers are talking to their lawyers you're not negotiating, you're not talking about things that you mutually agree upon.”
Dave Mauser is a Wildlife Biologist
at the Klamath Basin Wildlife Refuges. Since the refuges contain land leased for farming, Mauser along with Refuges Manager Ron Cole developed the idea of draining wetlands to create farmland, and flooding farmland to create wetlands. They felt Walking Wetlands could benefit both farming and wildlife and be the common ground on which both preservationist and agriculturalist could stand. So far the benefits have been greater than anticipated. Marshall Staunton, Tulelake Farmer: “And we had the university come out and do a replicated yield trial in three different spots and we hit the incredible 35 ton yield in one spot, 30 ton yield in another. Typical yield was 25 ton or 500 sacks we call it. And so potatoes, and so we here we had this great big potato crop and a great big grain crop in the two years after wetland…”
Marshall Staunton’s family was the first in the basin to take part in the Walking Wetland program. What they found was not only a 25 percent increase yields, but also a decrease in their use of fertilizer and pesticides.
Prior to the Walking Wetlands program, growing potatoes in the basin without fumigating for nematodes was impossible. But, Staunton found that a former wetland can be farmed without inputs for a few years, and that has allowed him to produce a portion of his crops organically.Marshall Staunton, Tulelake Farmer: “But, if you aren't into organic and you want to go conventional you've got those cost saving and yield.”
With yields up as much as 25%, a reduction in input costs and the ability to command a higher price by marketing organic produce, the cost of leasing land coming out of a wetland rotation is 75-100% higher than other land in the refuge. The benefits realized in the Walking Wetlands program have farmers like Rob Crawford preparing their private lands for wetland rotations. A year ago, this is where Crawford planted his crops. Today the same land is underwater.
Rob Crawford, Tulelake
Farmer: “That's the amazing thing to stand here today and to realize it was red wheat, a spring red wheat crop last year and that this spring was the first application of water and just to watch that quick realization of benefit for the wildlife.” Crawford worked with the U.S. Fish and Wildlife Service to build the levees that surround his field. In return for taking his own land out of production, the government allows him to farm within the refuge. And for Crawford that’s a win-win situation.
Rob Crawford, Tulelake Basin Farmer: “People need to get back to the, to understand the value of fertile land and at the same time if you can do something that is beneficial for wildlife and still make your lands more fertile, and economically justify what you're doing… That's a good strategy.”
In addition to it’s agricultural benefits, the Walking Wetland program has had a huge impact on refuges within the basin. While less than 25 percent of the Klamath’s historic wetlands exist today, the Walking Wetlands program has added nearly 4,000 acres of additional wetlands. That in turn, has prompted a 50-75% increase in waterfowl. Because farmers are using less fertilizer and pesticides, water quality has improved benefiting wildlife not only within the basin but downstream as well. And, there is also the benefit of increased revenues from farmers who are willing to pay more for land leased within the refuge. Ron Cole, Refuge Manager / Klamath Basin National Wildlife Refuges: “You know we call it walking wetlands and they were taking some tiny steps to start with but the legs are getting pretty strong and they're moving
pretty fast now and I love it. I like where it's going. I like the stride it's taking.”For “Market to Market” I’m Andrew Batt.
Market Analysis: Alan Brugler, Market Analyst
- Download Audio (MP3)
- Subscribe to Podcast iTunes | Other
For the week, May wheat gained 56 cents, and the nearby corn contract was up 17 cents.
Soybean prices also rallied, with the May contract posting a gain of 17 cents, while the nearby meal contract was up more than $22 per ton.
In the softs, cotton also had a winning week as the December contract gained nearly $4.
In livestock, April cattle moved $1.73 cents higher. Nearby feeders were up $2.28. And the April lean hog contract was down 20 cents.
In other markets of interest, the Euro gained more than 180 basis points against the dollar. Crude oil was up 13 cents per barrel. Comex Gold declined $28 per ounce. And the Goldman Sachs Commodity Index gained more than 8 points to close at 376-even.
Brugler: Great to be here, Mark.
Pearson: USDA's numbers came out, somewhat of a surprise to the market, 85 million acres of corn, 76 million acres of soybeans and, of course, we're also looking at some wheat acreage declining by 7%. So, a first glimpse anyway of what 2009 is going to look like for corn and soybean producers in particular. Were you surprised by the acreage reduction?
Brugler: Yeah, I think a lot of us were wondering where the extra acres went to. We've had an increase of more than 9 million planted acres over the past two years, prices have been fairly attractive over the last two years but they're still 40% or more higher than the long-term average price for the major grains and it doesn't seem like producers are going to take expensive farmland and leave it sit idle this year. But if you add up all of the principle crops you end up with 317.1 million acres and that is down 7.8 million from last year.
Pearson: So, keeping all that in mind what is this going to tell us now about 2009 and what could we expect?
Brugler: Well, basically it says that the market has got to track some of that missing ground. It may in fact be intended to be planted, it may be some dry land, crop land that can't be farmed every year in which case it's gone for this year, out of the picture. But I think what the market showed you this week with the rally is that it's trying to encourage some more double crop soybean acres, for example, if there's some marginal areas that did get a little precip in March after the survey was taken it's trying to encourage producers to go ahead and try to plant something in those acres.
Pearson: It’s like we've had four years now with this planting intentions report and March has been so critical and yet by the time we get to June the numbers have changed quite a bit.
Brugler: That's an important point, Mark. The acreage can change in corn as much as three million acres between March and final, in the last ten years it has changed as much as 2.4 million acres just from March to June. The whole purpose of an intentions report is to tell producers what everyone else is planning on doing and if you’re looking like you're going to overproduce or under produce for a certain crop it gives the market a chance to react to that before everything is in the ground and you can't do anything about it.
Pearson: It looks to me like the next issue is really going to be spring planting and what is happening with the U.S. wheat crop. Let's talk about the wheat crop first and talk about what it is you see ahead. We've had some problems no question about it in the domestic U.S. wheat production this year with extreme dry weather in big parts of the central plains. Are we starting to see some recovery from that? Could this crop improve?
Brugler: We're definitely seeing some recovery in the hard red winter wheat area because of the big snowstorm that we had about a week ago, some areas got twelve to fourteen inches of snow, that's an inch to an inch and a half of water, remarkable green up in those areas after that snow started to melt. There's certainly some permanent damage in terms of crop that wasn't able to till or they were running cattle on that will just be grazed out. But we do look for some improvement in the crop condition ratings on Monday in the hard red winter wheat areas. In particular we have another weather issue which is the flooding up in North Dakota, you've got spring wheat ground up there that if we were short on hard red winter wheat you would try and attract some additional spring wheat. It's going to be difficult to get that because of the wet soils up in that area.
Pearson: So, sales wise, a producer making decisions, in wheat production what are you telling them?
Brugler: Well, I think you have to be a little careful about how much forward pricing you're doing for your '09 crop here because of this uncertainty about the size of the crop. We've got 30% or so cash sold for our producers but we're kind of dragging our feet now to wait and see how the spring planting in the spring wheat areas particularly goes.
Pearson: Worldwide wheat acres about the same as last year?
Brugler: No, we're pulled down, world production last year was over 680 million tons, estimates now running 645 to 650 million tons, you're seeing some cutbacks in the United States, we know we've planted about 4 million less winter wheat acres. You're also seeing some other countries that are saying it's not $13 futures any more, it's $6 futures, we don't want to plant quite as much wheat, we need to go back to some other crops.
Pearson: What are your targets? You're 30% sold new crop. What number do you want to see before you make some more sales?
Brugler: Well, we're pretty flexible on that. We look at the charts and let the charts tell us where we can mechanically get to. Right now we're seeing an increase in open interest, we're seeing new money coming into the market since the first of April or the beginning of the second fiscal quarter and we want to let it run a little bit and see where it can go.
Pearson: Half a buck?
Brugler: Certainly, daily limit in wheat is 60 cents nowadays so that is a good one day move.
Pearson: If we got that you'd start making some sales?
Brugler: It would be my intention, we'll put it that way.
Pearson: Let's talk about the corn market. Now, these corn acres, 85 million, pretty close to what everybody was kind of anticipating for corn and a nice rally this week. Obviously we're going to run into planting issues and planting concerns and we're going to have farmers on tractors pulling planters and not hauling corn to town here in the next 70 to 80 days. So, as we look at that we're going to see some opportunity maybe to sell some corn at some better money here?
Brugler: Well, you've got a couple of things going on. The grain stocks report showed that we had a larger percentage of the crop than normal still on farm, still held by the farmer. In the last two weeks we've seen a big rush to get some of that moved and if that continues for a couple more weeks we may have enough to coast by. It has weakened the basis, the spread between cash and futures because it's suddenly available to the market. But traditionally there is a window there somewhere in early May usually where the market is either nervous about the crop or having trouble attracting cash bushels from the farmer.
Pearson: Would that be a chance maybe to make some additional sales?
Brugler: Yes, we've got three different buckets here. We've got one that we do before planting, we've got one that we do May and June and then once you're really sure you've got the crop you might do a little bit more before harvest.
Pearson: And are you running about a third sold on new crop corn or where are you on that?
Brugler: Yes, we're basically a third sold on the forward contract side. Now, we've got some additional protection via some put options and we're locking those higher as the market is allowing us to do that.
Pearson: It seemed like that $4 level was such a resistance point for corn. As we move through that in the nearby contracts is that going to stimulate some more upward moves? Are we seeing the speculators come back in now?
Brugler: Yes, we're seeing an influx of money since the first of April, another trader report on Friday night showed some of that, you'll see more next week I think based on the open interest. The limiting factor there is they need someone to sell against and usually that is the commercial hedger who has to have bought to cash corn from the farmer first. So, that's the lynch pin of the whole move.
Pearson: So, at this stage of the game you'd tell a corn producer to hold off and you'll probably get a good opportunity to make some sales?
Brugler: Yes, we've got targets 20 to 30 cents higher for some old crop sales but certainly we won't clean the bin out at that point.
Pearson: 85 million acres, trend line yields, we're talking pretty good production for 2009. Can we find a home for it all?
Brugler: It would be over 12 billion bushels but if you look at the estimated total supply including carryover and so forth it would not be a record so there should be bin storage out there for it.
Pearson: Let's move over to soybeans. Kind of update us on what's happening in South America. Last time we were talking about that issue and we're seeing that crop wrap up. What are you seeing for South American production?
Brugler: Well, it looks like Brazil is probably going to stay above 57 million tons, you can argue about the decimal point. Argentina is somewhere under 43 million. The Argentine ag secretary put a very low number out this week and then pulled the number back and said there were errors in it. So, we're guessing 41 is probably closer to what they've got there. We did get some decent moisture on the late planted beans, harvest is still ongoing in both of those countries but there's adequate beans going to the ports that the political situation in Argentina is very unstable, producers were on strike for a week and now they're actually actively hauling soybeans to market because of the rally but certainly they could interrupt the supplies again in the future.
Pearson: Soybean sales, old crop first, clean those up now?
Brugler: We're fairly heavily sold from last summer, last fall and we did make a few catch up sales here on this rally.
Pearson: New crop, have you made sales there yet?
Brugler: Again, we're about 20% to 30% forward sold. We did have some short futures but we got out of them because of the rally this week and we're looking for a pricing opportunity there.
Pearson: I don't want to put you on the spot but could we see another half a buck in this soybean market?
Brugler: Well, what we're looking at is the potential for tight stocks. If you take the 76 million acres at face value and assume we don't get more you're looking at a 200 million bushel carryout and needing fairly strong yields to get it. So, the market is going to try and buy some extra acres. But that is a function of planting and progress in corn and some other things. Yes, we could get $10.07 on the nearby futures with a little bit of help from the fundamentals.
Pearson: And you'd recommend those make some sales?
Brugler: Yes, that would definitely be one of our targets.
Pearson: Real quick, the cotton market, nice bounce this week, a lot fewer acres there.
Brugler: And the surprising thing is the acreage number was actually larger than the trade guesses and we still got the bounce. Export sales are starting to pick up and encouraging there that it's not just China, it's Mexico and some other people buying it. With the stock market improving there's some perception maybe that consumer demand will turn around, certainly nothing in the retail sales yet to suggest that but you put all those together and cotton is trying to move up here a little bit.
Pearson: You mentioned the financials, strong markets, strong recovery here from the lows of the first part of March, in the Dow we're seeing a little bit better news, a little bit of strengthening in the financial sector which historically would lead us back out since they led us into this equity decline. As we look at all this I'm thinking about the cattle market right now, I'm thinking about fed cattle. You were getting fairly friendly on cattle for the second half of the year. You've got to feel pretty good about that.
Brugler: Yes, again, if we get a little more consumer income to play with there -- the key there is that the restaurant trade has been hurting, particularly in the higher end restaurants that use a lot of our choice and our prime beef. That has lowered the average value of a steer because of the pricing. In fact, we went to negative what we call the choice-select spread this week, that's very uncommon. But, again, if you get a little turn up in incomes and people choose to part with that instead of saving it that could help us. We've got a lower number of cattle on feed, the lowest since 2005 right now for the month of March and actually fairly tight numbers coming to slaughter the next 60 days. So, that could support the market.
Pearson: Low 90s you think on fed cattle maybe second half of the year?
Brugler: Well, the first target is 87 and then we'll see.
Pearson: Let's talk about the hog market in the little bit of time that we have left and what you see happening there. There's been a lot of talk about some fairly friendly numbers from mid-summer hog trades. Are you in that camp? Do you think we're going to see some pretty good numbers?
Brugler: Well, we normally have a rally of $10 or $11 in the cash market from the spring low to the summer high. What makes it difficult is from a producer/hedger standpoint is the summer futures are already anticipating that, they're already trading $12 higher than the nearby. So, the cash market can go up. It will be much more difficult to get the futures to rally.
Pearson: Alright, well it's going to be interesting to see what happens. Hopefully second half of the year better one for livestock producers and, of course, for our good friends in the dairy business as well. Alan Brugler, thank you very much, we appreciate it. That's going to wrap up this edition of Market to Market. If you'd like more information from Alan on where these markets just may be headed visit the Market Plus page at our Web site where you'll find streaming video of our program. You can also download audio podcasts of our Market Analysis and our exclusive Market Plus segments free at our Web site. And be sure to join us again next week when we'll learn how National Guardsmen are beating swords into plowshares to win the hearts and minds of farmers in Afghanistan. Until then, thanks for watching. I'm Mark 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 Pioneer Hi-Bred ... working to provide growers with local knowledge and support to help get the right product into each field. Pioneer ... science with service delivering success.
