Trade | Field 2 Field

February 2, 2020February 2, 2020

Coronavirus and Possible Effects on Commodity Markets

Coronavirus. As it continues to make headlines, commodity experts are wondering what kind of effect the spread of the virus will have on markets. Joe Vaclavik, President of Standard Grains in Chicago, says the outbreak will have some effect, but it’s hard to tell what kind or for how long.

“It’s not a positive. I don’t know that it’s the biggest negative in the world. It could be, and that’s why you’re seeing liquidation in some of these markets, like the stock market, and that’s why you’re seeing the grain markets soften up. Nobody wants to be long in this stuff. The Coronavirus probably goes the way of SARS, or some of these other similar types of outbreaks that we’ve last a month, maybe two months, maybe the better part of a year. Then, it probably makes its way out of the headline.”

He says the possibility of a significant impact on markets has likely grown over the past couple of weeks.

“There’s always that risk that it turns into something much bigger. It could eventually disrupt the flow of trade. Maybe there’s a country out there that decides to throw up trade barriers and says ‘hey, we don’t want corn from the U.S. because they’ve got too much of that virus going around. There’s always that sort of risk on the table.”

Mike Zuzolo, President of Global Commodity Analytics in Kansas, says the virus will likely have a significant impact on China’s poultry flocks. Separate reports have millions of chickens “on the edge of death.” But they aren’t necessarily sick with Coronavirus.

“Animal feed suppliers cannot get their shipments through, raw materials can’t get through, and this also corresponds with another article from the South China Morning Post that said hedging is not being done, soy meal is not being hedged, so soybeans are not being bought. I think what you’re looking at is probably pent-up demand for the livestock industry and that 300-million chickens die because of not being fed because of Coronavirus. That number of pounds of protein, you’re going to have to replace, eventually.”

There is a long-term buying potential for commodities, but only if the virus outbreak doesn’t last longer than reports are suggesting.

“If China and the scientists are correct and we see a peak in the maximum pressure of this virus, outbreaks of this virus, and, in the next 7-10 days, the price action we’re seeing right now will not last. It will set up a long-term buying potential for commodities.”

Again, that’s Mike Zuzolo of Global Commodity Analytics, as well as Joe Vaclavik of Standard Grains.

January 4, 2020January 4, 2020

Grain Markets put 2019 in the rearview mirror

Here’s the full conversation with Joe Vaclavik of Standard Grain in Chicago. You can download it on your computer by clicking on the three dots on the right side of the player. Play it here on your mobile device.

Grain Markets officially bid 2019 a not-so-fond adieu. Like most other segments of American agriculture, grain farmers are more than happy to put 2019 in the past. Joe Vaclavik, founder and president of Standard Grains in Chicago, says last year didn’t start off well in the grain markets and it just kept going for the next 12 months.

“We had a pretty comfortable, if not burdensome supply situation entering the calendar year, so, the calendar year kind of began similar to what we’ve seen the last two, three, four years, a comfortable supply-demand situation, not anything terribly tight. Low prices, farmers not making a ton of money, you got the trade war going on, a lot of overall negative factors I would say to start the year.”

He says the spring is when things began to get “interesting.”

“Both in the markets and the weather. We basically sold the markets off until about that May time frame, that I think traders started to realize that we had some serious weather problems. Wet weather, cold weather, planting delays continued, and typically we are always told the crop’s always going to be planted, and planting delays are not a cause for concern.”

However, as the spring continued, things turned more serious in the markets.

“Planting delays turned into a major concern. There was a point in time in late May into maybe the mid part of June where we just had no clue what type of production was possible, and out of that, we had a very significant crop scare rally in the corn market and in the soybean market, to a lesser extent.”

Farmers continued to plant corn long past what would be a normal planting date. Vaclavik says the market was rallying as farmers continued to plant, even into early July in a few locations. He says the market peaked in June because it bought a “whole bunch of corn acres” that wouldn’t have been there otherwise.

Vaclavik says farmers faced challenges from a weather standpoint, logistics, and from a demand standpoint with trade challenges in 2019. With all that stacked against them, the question is how much grain U.S. farmers produced last year. Vaclavik says the answer depends on who you ask.

“A lot of people think that the numbers USDA has put out are just not achievable given the late planting, the wet spring, the late harvest, so there’s still some debate out there. I’m not one to tell you with any degree of certainty that we know for sure what the crop is, and we’ve got this big report on January 10, which is the final crop production report, and I suppose if USDA is going to make any sort of sweeping adjustment, it probably comes on that date.”

Again, Joe Vaclavik is the president of Standard Grains in Chicago.

November 14, 2019November 14, 2019

Dairy Industry is “Optimistic” at #NAFB19

Dairy industry officials know firsthand that the industry has struggled in recent years, and there’s no question about it. Former Ag Secretary Tom Vilsack, who spoke to broadcasters during the National Association of Farm Broadcasting’s annual convention in Kansas City. Vilsack, is the current President and CEO of the U.S. Dairy Export Council. He says in spite of some tough years for the American dairy industry, there are reasons for optimism.

News broke this week that Dean Foods, America’s largest milk producing company in the dairy industry, filed for bankruptcy. I had a chance for some one-on-one comments with the former Ag Secretary, who preferred to talk more about the positive signs ahead in the dairy industry than the bad news about Dean Foods.

He took a lot of questions from farm broadcasters on a variety of topics in the dairy industry. One of the biggest topics in recent months is the growing market for plant-based “milks.” He and the rest of the dairy industry aren’t happy with these companies referring to themselves as “milk.” The question came from Orien Samuelson, the dean of farm broadcasters and a good friend of Vilsack.

https://www.youtube.com/watch?v=CbopKYObCAs&feature=youtu.be

He says the US-Mexico-Canada Trade Agreement making its way through the House of Representatives, all be it slowly because of Democratic concerns, is another reason to be optimistic. He’s confident that the agreement will get done.

https://www.youtube.com/watch?v=FCURYBZ6IIo&feature=youtu.be

It’s hard to believe that folks in Washington, D.C. are already talking about the next Farm Bill. The reason for that is House Ag Committee Chair Collin Peterson, a Minnesota Democrat, isn’t sure yet if he’ll be running for re-election in 2020. He’s said publicly that decision will be coming in either January or February. Vilsack said even if Peterson doesn’t run again, the next farm bill will get done.

https://www.youtube.com/watch?v=BHU9-7w_CVU&feature=youtu.be

Lastly, as President of the Dairy Export Council, he pays close attention to the country’s export situation, which hasn’t been great at all thanks to trade disputes. In spite of that, with agreements pending in Japan, as well as in North America, exports are another reason to be optimistic.

October 22, 2019October 22, 2019

Renewable Fuels Debate Continues Unabated

Here’s the complete podcast with Scott Irwin of the University of Minnesota, talking about his solution to the squabble between ethanol and the oil industry over the Renewable Fuels Standard. You can download and listen to it later or play it here.

Renewable Fuels seem like such a good idea to me. After all, fossil fuels are a finite resource, right? We grow lots of corn and other biofuel feedstocks. Why can’t we use some of them to stretch our fuel supply even further into the future? That’s rhetorical, of course. Big Oil has lots of money. One University of Illinois Professor says that money has put Big Oil squarely in the driver’s seat with the Environmental Protection Agency.

The clash between the ethanol and oil industries over the Renewable Fuels Standard is continuing with no end in sight. Scott Irwin of the Agricultural and Consumer Economics Department at the University of Illinois says there may not be a “win-win” deal in a debate like this.

Irwin wrote an article on the University of Illinois’ farm doc daily website called “Clearing the Logjam on the RFS and SREs: A Simple Proposal.” His idea would divide the refiners into large and small operations, while the ethanol proponents are treated as one group.

By doing it that way, the Environmental Protection Agency won’t be waiving any future volumes of ethanol. He realizes that the large refiners won’t be happy with his proposal, which Irwin says restores what the RFS was originally designed to do.

Irwin says his solution would satisfy two-thirds of the people and groups involved in the debate, which might be the best we can do. By way of comparison, the current situation is a mess.

Again, Scott Irwin is with the University of Illinois. Follow the link here if you’d like to read his full report on the Farm Doc Daily website.

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August 30, 2019August 30, 2019

Agricultural trade opportunities are still out there

Here’s the podcast with Jeremy Miller. If you want to download it for later, go ahead and click on the three dots on the right side of the player and hit download.

Agricultural Trade is a sore topic of conversation these days. The agricultural sector in Minnesota and around the country has been struggling for more than a year due in large part to trade disputes with other nations, including the biggest one with China. However, there is some good news out there in international market opportunities for Minnesota farmers. District 28 Republican Senator Jeremy Miller recently took part in an overseas trade mission to Taiwan July 21-26 and says there are opportunities out there for Minnesota farmers to find markets for their commodities.

“A representative from the Taipei Economic and Cultural Office in Chicago reached out to me earlier this year about leading a multi-state, bipartisan legislative leaders’ delegation to Taiwan,” he recalled. “Before we go any further, people have asked who paid for the trip. I want to make it clear that the trip was paid for by Taiwan’s Ministry of Foreign Affairs. The whole purpose of the trip was to develop relationships between the United States of America, specifically Minnesota, and partners in Taiwan.”

It was the second trip Miller has taken overseas, with the first one taking place in South Korea back in 2011. He said the number one focus of these trips is to “meet people,” with the number two focus of “looking at opportunities.” The third and most important focus of the trip is “developing relationships” to see what kinds of business dealings can evolve in the future.

“The potential is there for a lot of different relationships between Minnesota and Taiwan,” he said. “By far, the biggest opportunity I see in Taiwan is for agricultural trade. Minnesota already exports a good number of crops, especially soybeans, to Taiwan. I think there’s even more opportunity there, whether it be for corn, more soybeans, and especially for pork.”

Miller looked into the numbers and found that Minnesota exported about $413 million worth of goods to Taiwan in 2018. However, that number is likely to go higher. “Last year, there was a agricultural trade mission to Taiwan that both Minnesota and Iowa took part in,” he recalled. “On that trip, Taiwan signed a $1.5 billion-dollar deal to buy 3.9 million metric tons of soybeans from both Minnesota and Iowa before 2021.

“What I’m driving at is there are even more opportunities for Minnesota and Taiwan to increase the amount of business done,” Miller said. “But, it comes down to keep lines of communication open and building on those relationships once they’re established.”

August 12, 2019August 12, 2019

Trade dispute puts U.S. agriculture right in the middle

Trade is important to agriculture. There, I said it. American agriculture is the best in the world. When you produce goods at the rate we do, there has to be somewhere to sell it overseas. However, thanks to the trade dispute with China, as well as recent disputes with some of our top trading partners, trade isn’t happening with the regularity it needs to.

In turn, when trade doesn’t happen the way it should, prices drop and farmers can’t make a living. I wanted to find out more about the trade dispute and what’s really going on. When you want to learn something like that, you find someone with skin in the game that can teach you the ins and outs.

Dan Ujczo (YOOT-zoh) is an international trade lawyer with the Dickinson-Wright Law Firm of Columbus, Ohio. I’ve known him for over a year now, ever since the dispute began. In typical Chad Smith fashion, my first question is “what the hell is going on here?” How’s that for direct and to the point?

“There was never going to be a deal in which things would go back to the way they were prior to January of 2017, when President Trump was inaugurated,” Ujczo said. “When Trump met with President Xi last December, they both thought we’d have a deal inside of 90 days. Then we heard they would make a deal in May.

“We never thought there would be a deal in which tariffs were completely rolled back,” he said. “Certainly not on the items from List One and List Two, which were an initial 25 percent duty on $50 billion worth of goods.”

When it comes to the items on List One and List Two, Ujczo says the U.S. government talked with industry and looked at the future of manufacturing, deciding then that these are the items we don’t want China taking the lead on. “Tariffs probably weren’t ever coming off those items,” he said.

Here’s the full conversation: