Obama Administration Pays Town Hall Visit to the Iowa State Fair
According to the National Association of Realtors, sales of previously owned U.S. homes rose 7.2 percent in July, growing at their fastest pace in nearly two years. Despite a 15 percent decline in the national median sales price, Wall Street welcomed the development as U.S. stocks rallied to post new 2009 highs on the robust housing report.
A report from the Mortgage Bankers Association on Thursday showed late home loan payments jumped to a record high in the second quarter, with almost one in eight homeowners delinquent or in the process of foreclosure.
Nevertheless, The New York-based Conference Board announced this week its index of leading indicators rose 0.6 percent in July marking its 4th consecutive monthly gain.
But high unemployment threatens the fragile economic recovery and many private economists and the Fed expect the nation's jobless rate to hit double digits before the end of the year.
While the economy has been President Obama's top priority so far in his presidency, proposed health care reform and climate change legislation aren't too far behind. But even as lawmakers vacate Washington for the August recess, its not just Senators and Congressmen adopting a town hall format.
Farmer with NFU hat: "It seems like we go through a series of crisis all the time and it seems it gets worse all the time."
While Vilsack’s forum was relatively civil, many farmers and ranchers on hand were concerned about economic troubles in rural America.
Rancher with Cowboy hat: "The bankruptcies in these small communities is not the problem. It's the symptom of the problem. The problem is misdirected farm policy. We need to chart a new direction in farm policy."
Vilsack: "55 percent of America's farmers do not list farming as their principal occupation. They will list the job they have off the farm first because of the health care benefits and pay. 90 percent of the income produced by America's farmers is not farm-related. That's why the conservation title and the energy title are so important because it's additional income. When we begin working on new farm bill legislation we will not look at the way things used to be but the way things are. Right now we're just trying to get the economy to the point we can breathe to think about things like that."
Iowa is well-known as the country’s leading state for corn…soybean…and pork production, but the Hawkeye State ranks in the top 15 in dairy. While dairy producers suffer through an economic storm of sour prices and low consumer demand, one farmer took a more upbeat tone.
Dairy Farmer: "I think there is a bright future for dairy and we might have just started to turn the corner and if we give it time the prices will recover. There is a lot of negative feelings out there but I'm positive that it is possible to bounce back.”
Vilsack: "We've got to figure out a way to continue to open up new markets and encourage consumers to look at dairy as a nutritious choice. And we also have to hope that as the world economy improves, and I believe it will and beginning to be signs that it is, we're going to see greater purchase of dairy and greater purchase of pork. But it is going to be tough."
At least one of Vilsack’s questions centered on Washington’s most contentious issue: health care reform.
Town Hall Attendee: "I think that more people would be going into agriculture if we had a health care system that would cover health care."
Vilsack: "23 percent of people that will live in communities of less than 2500 don't have health insurance. They stop going to the doctor because they can't pay for it. They end up in emergency rooms. Hospitals say we have to take care of them. That is the most expensive health care you can get. I think $950 million dollars get shifted to insured customers so the rest of us are paying more and for self-employed people - for farmers - that is tough. We can not maintain the status quo. Rural America comes out on the short end of a very long stick."
Another controversial issue on Capitol Hill, climate change legislation, received a negative appeal from one Iowa farmer.
Farmer: "We need to not pass the cap-and-trade bill because I spend about $2400 a month on electricity right now. If that goes through and I've got to spend 30 to 50 percent more...I mean I don't have profit right now. That's going to hurt small farmers like me."
Vilsack: "There is an expectation of American leadership on this issue. The concern I have is that if we fail to lead on this issue it will impact not just the cap-and-trade conversation. It will impact our capacity to convince countries to do things in other areas. We have a lot of business in foreign countries that involve everything from trade to terrorism. I think from an international perspective we need to provide leadership."
Small Wind Makes A Comeback In Rural America
According to the American Wind Energy Association, or AWEA, the U.S. wind industry accounted for 42 percent of new electricity generation installed in 2008. The surge in construction created 35,000 jobs last year, bringing the number of wind power employees to 85,000.
While the vast majority of current wind power comes from large commercial operations, homeowners also are embracing the “winds of change.” And as David Miller discovered last spring, some rural Americans are reintroducing themselves to an old friend.
The idea behind home power generation is not a new one. Thousands of small wind turbines dotted the landscape in the early part of the last century only to be replaced by Rural Electric Cooperatives or RECs. Though most of the first generation turbines may have been relegated to ornamental status there has been a resurgence of the concept over the past few years. For John Clough of rural Nevada, Iowa today signals the end of eight months of research and four months of climbing over paperwork and construction hurdles.
John Clough, Nevada, Iowa: "I can't believe it at this point. You think back to the winds of January when you had no idea that you were going to make it this far...you can't believe it."
As chief accountant for the Department of Energy's Ames Laboratory, located on the campus of Iowa State University, Clough was inspired to erect a turbine on his acreage to cover some of his electrical demand.
John Clough, Nevada, Iowa: "It's the right time to do it, you want to think green. And also I work in a place that works with energy. If the people who are creating energy solutions aren't doing it, no one else can believe it."
Updated for the 21st century, the new units turn in winds of as little as 8 miles per hour and provide alternating current to operate readily available household appliances. More often than not, the units not only supplement power needs in rural settings but they supply enough electricity to run a home completely disconnected from the power grid.
After learning the price of his electricity was going to increase this year, Clough knew the $17,000 he paid for the 1.8 kilowatt turbine was a good idea. Several states offer incentives for renewable energy investment and Clough will be taking advantage of the federal government's 30 percent tax credit.
John Clough, Nevada, Iowa: "...people are talking about it, people are doing it, it's something that for a person who is out in a rural situation and has a little higher electrical bills it makes sense at this time, it's a long-term thing, it could take 20 years to recoup the costs but still you're doing your part. I can potentially reduce maybe a third to half of the monthly bill."
According to the American Wind Energy Association, or AWEA, Iowa ranks second in commercial wind power generation, turning out nearly 3,000 of the sectors 28,000 megawatts. When it comes to what is now known as "small wind", AWEA statistics show there are more than 10,000 turbines in the U.S. are producing power a little more than 17 megawatts. More than 90 percent of the units are grid-connected like Clough's. And, according to a 2009 AWEA study, sales of small turbines between 2008 and 2009 increased by 20 percent.
Sixty-five miles to the southwest, another small-wind user is already taking advantage of the savings. Roy Jobst, put up a wind turbine on his rural Earlham, Iowa farm where his auto repair business and house share property. Since its installation in March, Jobst has watched his turbine feed power back to the grid on the meter outside his shop.
Roy Jobst, Earlham, Iowa: "The first bill we got was, our electric bill was $50, normally it's around $120."
With days like this one, Jobst is expecting his turbine to pay for itself in 10 years.
Roy Jobst, Earlham, Iowa: "Well, everybody's going green, you know. This is a coming through down the road and wind energy basically is free, all you do is pay for the original investment and from there on it's 'money in the bank.'"
Both Jobst and Clough are customers of small wind vendor James McCain. McCain became interested in helping Iowans generate their own green power after receiving his two-year degree in 2007. Instead of investing in two more years of higher education, he decided to fulfill his dream by opening Innovative Kinetics.
James McCain, Innovative Kinetics: "I was looking for people in this industry and I realized there's nobody in 200 miles doing what I do. So, rather than spend that money on education I figured I'd start my own company and be even farther ahead than where I would be coming out of college. So, it was really kind of passion and just chance that drove me to this spot. And it was really a way for me to quit complaining about what was going on and actually do something about the problems."
From his Des Moines, Iowa-based business, McCain specializes in sales and installation of small-scale wind turbines, solar power arrays, and biodiesel distillation units.
McCain says there are still several hurdles that small-wind owners encounter like permitting. Because the turbines are mounted on towers over 50 feet tall Jobst paid nearly $1000 for the proper permits but Clough paid only $25.
James McCain, Innovative Kinetics: "...every time we do this it gets easier and easier and we start to see some real fruits of our labors coming out of it."
While working through the bureaucratic paperwork maze, both men had to get interconnection agreements with their local power providers. Clough's provider is Consumers Energy, an REC with five thousand members in five central Iowa counties.
David Stineman, Energy Solutions Manager, Consumers Energy: "I mean there's hardly a week goes by that we don't get three or four phone calls about wind turbines. ...These aren't farmers that have a bunch of land they want to lease to a wind farm, but mostly homeowners that want to cut their energy bill."
In the past, power companies have had a reputation of balking at the purchase of more expensive so-called renewable energy, but officials at Consumers were more than willing to honor requests made by their members.
David Stineman, Energy Solutions Manager, Consumers Energy: "I think probably for most utilities it is a change of mind. As time has gone by you realize that, 'hey this is the way it's going to go. We're going to have more renewable energy.' It's not going to replace the base load that we need out there because if the wind doesn't blow it's going to get hot and the lights won't be very bright, you know. So, we know that there's a need for the base load and the wind is a good supplement."
Clough pays 12 cents for every kilowatt he purchases from Consumers. In turn, Consumers will bank any unused electricity and off-set Clough's bill at the same 12-cent-per-kilowatt rate.
Clough realizes he is a pioneer in small wind power generation but he readily embraces his role.
John Clough, Nevada, Iowa: "...someone has got to take the chance, someone has got to be the first, someone has got to help out in their little way and that's where I've also come from beyond the economics. You’ve got to say, well, here's my little part."
For Market to Market, I'm David Miller.
Market Analysis: Sue Martin, Market Analyst
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For the week, September wheat lost more than 20 cents, while the nearby corn contract was down 2 cents.
After last week's bearish report soybeans traded in a sideways fashion. For the week, the August contract lost almost 2 cents but the nearby meal contract gained $13.70 per ton.
In the softs, cotton trended lower, again, this week as the December contract posted a loss of $2.49.
In the dairy market, Class III Milk futures moved higher and ended the week with a gain of nearly 40 cents.
In livestock, August cattle were up 35 cents. Nearby feeders were off 55 cents. And the August lean hog finally moved into positive territory with a gain of $3.20. .
In other markets of interest, the Euro lost 166 basis points against the dollar. Crude oil was up $4.30 per barrel. Comex Gold gained exactly $6.00 per ounce. And the Goldman Sachs Commodity Index gained more than 13 points to close at 472 even.
Martin: Thank you, Mark.
Pearson: Another interesting week as we get ready to start harvesting corn and soybeans and interesting things going on in the market. Crude oil jumped up, inventories smaller than what the world was expecting. Are we starting to see a pick up now in this world economy?
Martin: Well, we're being told that it is and a lot of indicators are indicating that this is occurring. I think the fact that the Chinese Shanghai market when it fell about 4%, 4.3% this week and then turned around and re-gained that all back the next day, everybody was talking about it on the day it fell and our markets reacted to it, then the very next day it all comes back. I think that we have to remember that market has had a big increase from last year's lows and any market can have correction. In the meantime, it just tells us how much China, what a role they are playing in our markets and, of course, they carry a lot of U.S. debt and so they are very important as to their economy as well. But at this time it does appear like things are starting to get better and we have heard since early summer that in the fourth quarter our economy will be growing and so we'll see if that occurs.
Pearson: Based on what we're seeing with a lot of our economic factors that we follow in agriculture the dollar this week, the action of the Euro against the dollar, a little bit of strength going there, not always positive for us in agriculture.
Martin: No, it's not but the dollar has been in a range, so to speak, from about 78, 77.5 to around the 79.50 area, something like that, and so we've just been kind of meandering in that range for some time here. I think that any time we seem to get anything that is disappointing in news to the economy the dollar seems to spurt. I think that we're, there's a lot of attitude out there that the dollar is going to go under 70 cents. That may happen but I'm not sure I expect it this year.
Pearson: Well, let's look forward into what is happening with our current markets as far as the agricultural futures are concerned. The wheat market this week under a little bit of pressure, obviously a good harvest and plenty of wheat out there. What are you telling wheat producers right now?
Martin: Well, again, the last time I was on the show I said for wheat producers if you haven't sold to hang on and even though price might go a little bit lower into September at this point the prices are so cheap let's see what we can garner into the next year. We have to remember, first off, Stats Canada came out on Friday morning and stated that wheat supplies or production was higher and it kind of surprised everybody and so that was a disappointment to the market and wheat prices fell through the day on Friday. In the meantime, though, we keep forgetting that Argentina is a major player in exports of wheat and they don't have wheat to export and on top of it the new crop that they planted isn't getting planted to the degree that they needed so they're down sharply again for the next year without the knowledge of what the weather will do for them.
Pearson: So, with those factors in mind we get this crop put away, we get through this harvest low and then maybe we start making sales?
Martin: I think so. I think one thing that is hurting the wheat right now also is the enthusiasm towards the soy market, they're buying soybeans, selling wheat and then on top of it the news of the CFTC this week when they announced the Deutsche Bank and also Grisham, those two index funds, hedge funds needed to go back to speculative limits meaning they were going to have to down size positions in corn, soybeans and wheat and the biggest position I think funds hold, index funds hold is 46% in the wheat.
Pearson: So, the CFTC action on index funds not as deep as some people thought it was going to be.
Martin: No, and I think the reason for that is that while the have a position I don't think that position, if this had happened a year ago it would have had a bigger impact. I think the position that they now hold is less than a year ago. I don't think that we have seen quite the infusion of capital into our markets this year by these funds that we would have seen a year ago at this time.
Pearson: This all goes back to a CFTC decision whether or not the index funds would be held to the same standards and speculative limits as individual speculators.
Martin: Exactly and it's thought that there's about two dozen more funds like this that could still be worked over by the CFTC.
Pearson: Are you concerned that could cause some additional liquidation in those pits?
Martin: Well, it will probably cap rallies or give us more stair step fashions in the bull markets and, of course, not help us at all with the bear market.
Pearson: Let's talk about the corn market and what you see happening there. You've been out and about, I've been out and about, the Midwest corn crop by and large looks good virtually everywhere. There's pockets, sure, and there's hail damage and there's holes but by and large this looks like a big crop.
Martin: Well, it does and the corn crop looks the best. I hear it from all over, it looks the best in many areas that they've had so it's going to be a decent corn crop if we can get it home and even if you get into say late September and you get frosted or frozen it's going to take a pretty good freeze, the crop is so green that if you get frosted it might not do an awful lot of damage, maybe a little quality but not an awful lot. The problem is that we're so far behind in the dough stage that if you go to parts of the western part of the Corn Belt like Nebraska and northwest Iowa I'm hearing corn is denting. But beyond that getting through central Iowa, Minnesota and into Illinois and it's the opposite, we're so far behind. That's the concern that as far as we are behind and the cruel nights that we have this crop is going to come home so slowly. And are we going to have the same weather as a year ago? Probably not, we're not in a La Nina, we're in an El Nino.
Pearson: So, with that in mind, Sue, what are you telling producers about making sales? If we come in with the crop and some of these numbers are huge or some of these private estimates out there, if we come out in 2009-2010 with 2 billion bushel carryout what is that going to mean for price?
Martin: Well, if we come out with a 2 billion bushel carryout, keep in mind the USDA projected I think it was a 165 or 167 this last time, but if we come out with yields up around 162 or 164 like Informa indicated if everything went okay I think then we're going to have a much bigger situation for carryout. The situation we have to remember is one, we have Brazil with production down sizably in corn acres this year. Because of the profitability of soybeans and the lower input costs beans will garner the acres away from corn so we're going to have a sharp decrease in corn acres in Brazil. Argentina, same thing, their acres are going to probably give way to more beans. So, the problem is going to be Argentina is the number two exporter in the world and you have Brazil down, they have numbers of livestock up, they're going to need to import more corn and they usually buy from Argentina. Well, they're going to have to come to the U.S.. So, there is going to be some potential here for corn. I think corn is going to remain in a sideways fashion, maybe with a little upward bounce pulled by soybeans, but at the end of the day I wonder at some point if we don't see corn and beans separate, corn falls into December and beans maybe don't.
Pearson: Let's talk about soybeans. Your take on the soybean market is that, again, our crop looks pretty good out there too.
Martin: Well, it does look good and, of course, in Minnesota, according to Pro Farmer, they found the pod count is down in Minnesota, same thing in Illinois, we are hearing talk of white mold in Ohio, Illinois and even some in Wisconsin. I think that's going to cause a concern when they start getting out there. From the road they look good and then all of a sudden you get out there and you're going to find there's been a problem. But in the meantime, I'm starting to get bullish beans. The last time I was on I felt like we could still pull back. I'm not feeling so much -- I mentioned the analog study the last time I was on that indicated on crop condition ratings beans could have a rally here, put a harvest low in, in July and move. Well, it's interesting because in the bean market we have a situation that in August, whenever you've had August soybeans put new contract highs in for the year, November beans -- there's only been seven times in the last 40 years this has occurred -- November beans have tended to move on and make new contract highs also after the expiration of the August contract. And, of course, we're starting to get a little tight on time but in Market Plus I'm going to talk about some fundamentals as to why I think beans can move higher and make new highs.
Pearson: Appreciate that plug for Market Plus. Now, I also want you to talk about one other thing and that is the livestock market which has been the flip side of these grain and oil seed markets for some time now. The hog market moved up a little bit, the fed cattle market looks a little bit better. What is your take for the balance of the year for fed cattle?
Martin: Well, I think that the cattle on feed report coming out on Friday showed that the heavier weights were up about 17%, then the 799 pounds down to the 700 pounds, we're down about 6%, those are cattle coming after October into towards December and then the lighter weights the report was skewed toward the lighter weights if you put those lower three categories together, maybe an increase of 21%. The bottom line is we have tight cattle numbers and as we go towards December they're going to get a little bit tighter I believe. What I see happening right now is cattle being pushed in towards later, getting heavier and, of course, our deliveries were all taken and a lot of them are going back on feed and with the hopes of being sold on the October futures and then pushed into where they'll show up again in late September or sometime in the September to October period. I think we're going to have a decent number of cattle hitting us around October but beyond that I could see another tightness of supply hitting us as we go towards December. The cattle market has been in a sideways range for nearly a year and at some point usually they don't fall off the bottom side of that sideways range, I would suspect you could come back out to the top side especially if these economies are getting better. So, I don’t think I'd be hedging cattle unless you can get Octobers up around 90 cents.
Pearson: Your take on the hog market?
Martin: Well, the hog market, that's the one that I had thought the last time I was on the show that we were seeing some liquidation. But recently the sow slaughter came out down 10% so that doesn't indicate liquidation. I have talked to a lot of hog producers and, of course, they are very concerned. There's some hanging on by a thread. But I will say this, we're into a seasonal move here with the pork market, they normally put a high in around the 24th of August, fall into about the 31st of August and then rally into September. However, I want to say one thing, this hog market should find -- I think it's going to come back and test the lows.
Pearson: All right, Sue Martin, we appreciate your insights as usual. That is going to wrap up this edition of Market to Market. If you'd like more information from Sue on just where these markets may be headed visit the Market Plus page at our Web site. You'll find streaming video of our program and you can also download audio podcasts of our Market Analysis and Market Plus segments free at our Web site. Be sure to join us again next week when we'll examine the outlook for agricultural trade in the months ahead. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
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