null

Transcript for January 2, 2016

Transcript to come.

 

- Good morning everyone and happy New Year.

I'm Lyndall Stout.

Joining us for our round table this year are Kim Anderson, our Crops Marketing Specialist, Derrell Peel, Livestock Marketing Specialist, and Larry Sanders, our Ad Policy Specialist.

Gentlemen, welcome and happy New Year.

- [All] Happy New Year.

- Now, Larry, you have been busy getting some presents ready for us.

- Yeah, these were left under the tree and I didn't feel quite right opening them all at home, so I brought them with me to share with everybody.

I don't know what's in them, but we can talk about them here.

- Some topics of discussion, hopefully.

- Yeah.

This gift is from the markets, and the markets are giving us lower net farm income.

- So, in general, to start off our discussion this morning, let's kind of recap 2015 and what farm income levels were, and some of the challenges that producers faced.

Then we'll kind of divide up the discussion.

Larry, if you want to start.

- Sure, you know, since the year 2000, we've seen an up-swing in net farm incomes and, as a matter of fact, we're just coming off of a couple of really great record years.

But we saw the stage being set for a more dismal news in that area as we started looking at the price picture and some other adverse events that we'll be talking about a bit later.

- Now, we know that definitely held true for grain folks.

Talk about that, Kim.

- Well, you can look at wheat prices.

Of course, they started down.

They peaked out in 2012.

They were lower in 2013, lower in '14, and of course a level, too, lower in '15.

Corn prices, the same.

They were low in '14 and '15.

Soybeans, soybean prices held relatively high, up $10 or better coming in '13 and '14, and finally they broke in '15.

They're lower.

Canola prices were definitely lower.

Cotton prices, you had one little rally in them throughout the last four or five years, and they're back lower.

Prices have definitely led to lower income.

Now, the salvation, you can look at production in the crops.

If you got back to 2014, we finished that year with wheat, a significantly low crop.

Thank goodness for your policy and crop insurance that bailed the wheat producers out there, and also cotton producers with the droughts that we've had the last couple years.

That kept your income higher there.

What we've seen in crops is declining prices as we came from the peaks we saw in 2012.

- Then, in terms of the cattle markets, it wasn't a bad year, but not the same as the year before.

- You know, 2015 was a year of transition.

You can kind of think of it in two halves.

The first half was kind of coming off of the extraordinary run we had at the end of 2014.

Record high prices, way above what anybody really anticipated.

We were above year over year levels through the first half of the year.

The second half of the year then, kind of reality set in.

We adjusted back down fairly sharply at the end of the year.

There were some fundamentals that were part of it, but a lot of it is just kind of the market transitioning in psychology from this long bullish market we've been in, to the reality that we are beginning to build cattle numbers, beef production will be going up.

It really hasn't done it much yet, but an awful lot of change in the market.

At the end of the year, we were in a very different environment than where we started the year.

That sort of sets the stage for where we go from here.

- Let's open another present.

Derrell, do you want to do the honors?

- Sure, I'll take a look at one.

Let's see what we have here.

From foreign countries, sluggish economies.

- Okay.

- You know, in terms of the livestock markets, that's been one of the challenges through this, is we've seen a trade situation that was, beef in particular, exports have struggled.

Actually, all of the meats have struggled a bit as a result of some concerns in terms of global economy.

A lot of concern earlier in the year about the Chinese market, the stock market shocks there.

Those have impacted the livestock side in that respect.

- I know, Kim, we've talked to you a lot about foreign situations, give us your perspective.

- Well, as far as economies goes, it had a minor impact on the grains.

I think your export demand, for the most part, held relatively high, and probably because of the lower prices.

You compare to what they were paying for the wheat, or the corn, or the beans in 2012, to what they were paying this year in '15, with significantly, prices half as high as they were earlier.

I think the low prices really helped those countries and our exports were up.

I don't think the lower economies, of course they had some impact on our demand, but not the major impact you'd have seen on some other goods and services.

- Larry, you can speak a little bit more to that.

- Yeah, you know, China is kind of the 800-pound gorilla on the block we've talked about year in and year out.

I think that no one really knows just how bad a shape they're in right now, because statistics are so doctored by the government there, but it's clear that they have declined.

They have been in the top three of our markets consistently over the last several years, joining Canada and Mexico.

I think we can count on Canada doing okay during this time period.

China is a question mark and Mexico to a lesser extent.

It's another one of those red flags to say caution for this period of time.

- Just kind of keep on the radar.

Quickly, let's open one more present.

Kim, do you want to do the honors?

We'll start the discussion at least.

- Stronger dollar.

- Oh, that is right up your alley.

- Oh, yeah.

I was sitting here thinking about that on the economies.

The dollar, if you look at the index of the value of the dollar, it's went from really down around 70 points up to, it hit a dollar in the last couple weeks.

The impacts, say wheat, is probably anywhere from a dollar and a quarter, to a dollar and 50 cents higher price on the export market, speaking relative to the other, say, competing countries.

Canada, European Union, Australia, Argentina, it's had an impact.

The world wheat price, it probably hasn't impacted that much.

However, the U.S. wheat price, it's definitely had an impact on.

It's probably a dollar lower.

Along with corn, and probably your livestock, Derrell.

- Absolutely.

You know, again, as a part of that trade picture, the strong dollar really exaggerated

the beef market conditions that we've faced.

High prices already in the U.S. contribute, and then add the strong dollar to it, made our exports very expensive to foreign customers.

Really impacted the exports.

By the same token in reverse, it's really enhanced our imports the last two years, 2014 and 2015.

We've seen a large increase in beef imports.

Again, the strong dollar has played a big role in that, both directly with our trade, as well as indirectly, in terms of our trade and other countries' trade around the world.

- Larry, your thoughts?

- Yeah, some people kind of wonder what's wrong with a strong dollar.

That says America's strong, but the irony is that when our dollar is strong, it makes our commodities more expensive to the rest of the world relatively speaking.

As Kim was saying, how much the change has been if you go back 7 to 10 years.

We have increased the index value of the dollar 50%.

That's got to have an adverse impact on prices.

We were beginning to really eat away with the trade deficit and we've kind of moved sideways, or maybe even increasing the trade deficit recently because of this problem.

- Let me come on another side of that strong dollar.

On the other hand, though, it's made our equipment cheaper.

It's made our fuel, oil, and lube cheaper.

It's made our fertilizer and some of our chemicals.

It's lowered our cost to production.

So, yes, it's had a price impact and I would say price impact trumps cost impact, but there are some positive factors to that higher dollar value.

- Okay, great discussion.

We'll continue it shortly, but first, let's check in with Glenn Selk for Cow-Calf Corner.

(upbeat country music)

- Today on the Cow-Calf Corner, I want to bring you up to date on some relatively new research that I think has some importance for those cow-calf operations that are going to retain ownership of the calves in, to, and through the feedlot, even for those cow-calf operations that routinely sell to the same customers year after year.

What I'm referring to is some data that comes from Iowa State University, where they looked at the impact of internal parasites of calves as they arrived at the feedlot.

What they did was took a set of calves and individually checked fecal egg counts to see how high the worm load was.

They basically divided the calves into the two groups, those that they said had a pretty high worm load according to the fecal egg counts, and those that they put into the low category.

After they'd checked them, then they de-wormed all of the calves.

They went back and checked the fecal egg counts 24 days later and the de-worming worked very, very well.

All of them had low egg counts.

As they followed those two groups of calves through the feedlot, they found some pretty important differences.

First of all, those calves that came in with the high internal parasite concentrations were the ones that were most likely to have some disease problems.

They were treated, a higher percentage of them were treated, and more of them had repeat treatments.

That resulted in treatment costs being four times as high for the calves that came into the feedlot with a high intensity of parasites, compared to their counterparts that were much cleaner.

As they followed those calves through the feedlot, there was no real difference in rate of gain, feed efficiency, or even hot carcass weight, and yield grades of the cattle were similar.

But there was a real difference showed up in marbling score.

Those calves that came in that had lower amounts of internal parasites, had higher marbling scores.

Therefore, had a much better chance to grade Choice or perhaps even Certified Angus Beef, if that be their goal, than did the calves that came into the feed lot with higher worm loads.

If I have an operation where I'm going to send some calves on and retain ownership to the feed lot, I'm going to make sure that those calves have been de-wormed before they leave my place.

They're clean going into that feedlot.

Even if I'm selling to the same customer year after year, I'm going to do the same thing so that he is getting along better with these calves with lower health problems, higher grades as they come out on the rail, and he's going to be a happier customer that's going to be more willing to come back and buy my calves in the future.

Hey, we look forward to visiting with you again next week on SUNUP's Cow-Calf Corner.

(upbeat country music)

- We're continuing our discussion with Kim, Derrell, and Larry.

Now it's my turn to open a present.

I always like to do that.

This is from the oil companies, cheap oil and natural gas.

Why don't you give us your thoughts on this situation.

- What could be wrong with low gas prices?

All of us go to the pump and fill up, and it's good news every time it happens.

I think it's really a mixed bag, especially for Oklahoma, because so many farmers, land owners, out there also get lease checks, royalty checks, from these folks.

Those are problematic now.

Some of them also work in the oil patch and they've lost their checks here toward the end of the year because of low oil and gas prices.

It's a good deal for cost of production, but the other side of the story is probably not all that good of news for Oklahomans.

- A lot of these small communities, I think, are very concerned about the regional economic impacts of the unemployment that's happened recently with the downturn in oil prices.

- Then that translates, of course, to the farm and we've talked a lot about grain prices being sort of dismal, to say the least.

Kim, how did we wind down 2015?

- Well, as you look at the oil and gas, and the prices, and where we are, I think we're ending 2015 with more product in the bin than we would have had if we hadn't had, at one time, the high oil and gas prices.

Because the royalties, the drilling, those checks, oil and gas checks coming in the mailbox, have put some producers in the position where they didn't need the income.

They came into harvest, prices were relatively low.

I don't care which one of the crops you're looking at, they had that oil and gas income.

Even with the lower prices, they've got some coming in, so they can store that product longer, waiting for these prices to recover.

I think we've seen that impact our markets to a certain degree, and they will continue to impact as we look forward.

- On the cattle side, it seems to me that where we end 2015 here, I think, really sets the stage for 2016.

Again, 2015 was a year of transition.

We're in a different place now than we started the year, but I think we've been through a lot of that.

Perhaps the worst of it, in terms of the difficulty of making that transition, hopefully is behind us.

We've had an awful lot of market volatility.

It's not clear yet whether all of that will pass, but hopefully, we get past some of that as well as we go forward looking at --

We continue with herd expansion and that's going to go on, but we've kind of adjusted the price side of this thing to the reality here that we are going to be working our way into lower prices as we go forward.

- Okay, let's open the next present and start the discussion, Derrell.

- All-righty, let's see what we have here.

We have from the federal government, large federal deficit.

Larry, I'm going to pitch that one back to you.

(laughs)

- Well, I think it's a point of cussing and discussing that we continue to spend too much money at the federal level.

Again, though, there's this two-edged sword on this, because probably one of the things that helped prop up the economy in the short term after 2008 was significant federal spending, fueling the economy.

But there's no surprise here, no secret, that we're now looking at a situation where people are really wanting to begin paring back this situation.

If this happens with some other things at play in the economy, we could begin to see a tightening in the economy here as we move into a new year.

- Let me react to that just a little bit on this government spending.

We go back a couple years, we had inflationary fears.

You know, what's kept here and we're going to --

The commodities, investment in the commodities, is a good hedge against inflation.

I think we saw the funds.

You know, Derrell, you and I were talking about this last September, October period, about five billion dollars coming out of the commodities.

I think what we've seen with our commodities is the money moving out of them.

I think that comes back to, right now, there may not be the inflationary fears that we had a year or two ago.

I think that's impacted our prices, and I think that's going to be something that we probably need to look at as we move forward.

- Well, I think also the best news, perhaps, farmers got at the end of 2015 was that Congress is willing to stick with supporting farmers with farm programs.

It looked like they were going to renege on their promise with crop insurance and they passed a transportation budget bill, and made sure that they restored that, maintained that.

Here we have a Congress that is talking about cutting budgets, but they said they were going to stick with farmers.

- That's got to be good news all the way around.

Right, Derrell?

- It helps to add some stability in a situation where there is an awful lot of uncertainty.

As Kim said, the decline in commodities has not only affected ag commodities directly, but gold prices, oil prices, obviously are all part of that same complex.

It does play a big role in what we see in the markets right now.

- Okay, we'll continue our discussion in just a moment here at the Ranchers Club, but first, let's check in with our friends at the Mesonet.

(upbeat country music)

- Hi, I'm Al Sutherland with your Mesonet weather report.

Thanks for joining us as we welcome in our new year, 2016.

We're going to take a look at some of last year's weather that will impact us as we begin this new year.

Last year had record-setting rainfall.

Our first map shows how much spring rain we received above average for

March, April, and May in 2015.

McAlester had 23 and 1/2 inches above average for those spring months.

All of the rain in the extremely dark green areas promoted lots of plant growth.

Now, as we look ahead to Oklahoma's March fire season, we will have a huge amount of dead fuel that can feed large fires.

Our air temperatures last fall came in two degrees above average over the months of September, October, and November for much of the state.

That above average air temperature trend continued into December.

A warm winter speeds up wheat maturity.

For those who want to pull cattle off of wheat, they'll want to start checking

the Mezonet Wheat First Hollow Stem Advisor early this year.

Now, here's Gary with January to March outlooks.

- Thanks, Al and good morning everyone.

I hope you had a wonderful holiday season.

We're off to a new year, a great start I hope.

Let's take a look at what we have for January and also the next few months.

Now, this outlook for precipitation for January from the Climate Predication Center shows increased odds of above normal precipitation over the western two thirds of the state, especially the western half of the state where the odds are a little bit greater.

Now, when we go out a little bit farther than that and go for the January through March time period, we see about that same pattern.

Increased odds for above normal precipitation for most of the state.

We see no chances, at least according to the Climate Prediction Center, for the development of drought, which is certainly a wonderful bit of news indeed.

Well, we hope to see you next week.

That's it for this time.

We'll see you next time on the Mezonet Weather Report.

(upbeat country music)

- As we sort of wind down today, we want to look ahead at what some of the trends may be for 2016.

Kim, if you'll do the honors with the next gift please.

- We've got it from the fed and it's called interest rates.

- Terrific.

Larry, you want to tackle this one?

- Why not?

You know, it's been fascinating to watch the economy.

The Federal Reserve system has been the driver, I think, for the last decade with monetary policy and we've had the lowest interest rates ever.

We're starting our second decade of low interest rates, but we're going to begin to move up in interest rates.

We have seen our lowest interest rates for a while.

It's going to have lots of impact on agriculture and the general economy.

Farmers are going to see their cost of production go up somewhat because of increasing interest rates.

If they want to get borrowed capital, they are going to want to get it sooner rather than later.

If they've got variable rate loans out, they probably want to begin to pay them off sooner rather than later.

- In terms of 2016 trends, how does all this translate to cattle?

- Well, again, we've turned the corner now.

Cattle numbers are growing.

Beef production started to grow at the end of 2015 and will continue to grow in 2016.

Over time, there will be that supply side pressure.

Supplies have driven prices to record height levels previously and that's going to be the major driver over time of prices coming down.

Again, I don't think there's as much volatility potentially in the market in 2016.

Interest rates is one of those factors.

Once we turn the corner and begin increasing interest rates, there's a certain amount of dread of making that decision, but once it's in place, I think the market will absorb that.

The strong dollar will play a big role in and how our trade picture,

it should start improving next year.

We expect to see less beef imports and probably modest increase in beef exports, but again, that's going to hinge on things like the strength of the dollar as we go forward.

Producers, having made the adjustment we did at the end of 2015, we're looking for modest declines in prices in 2016, but probably not the level of uncertainty that we had at the end of 2015.

- Will this translate to the crops markets too, Kim, do you think?

- I think it will.

If you look at the interest rates, as they go up, and we've got low prices, I believe that means most producers are going to have to borrow more money for their production.

That's going to increase the cost to a certain degree.

As you look at the prices of where they are now in the crops, I think they're all just about on the bottom.

I think there's a lot more upside potential than there is downside risk.

Can they go down some?

Yes, but I believe wheat, corn, soybeans has probably got the most downside potential.

Canola's already down.

Sorghum, of course, follows the corn.

But as we look out into '16, '17, and '18, interest rates are probably going to go up.

Those interest rates are going to have impacts on our costs.

Also, I think we need to bring in there inflation.

If you get inflation, because we do have the high debt, I think there's going to be inflationary pressures.

I think that could be positive for our prices because I believe it would bring back in that outside money into the commodities.

They'd be buying the commodities to insure against that inflationary pressure, to a certain degree.

I think that could be positive for prices.

I remember what Luther Tweeten told me in 1983.

He said, "Policy comes and policy goes, Larry, "but weather determines price."

(laughter)

- That's for sure.

Let's open the last present of the day.

This is more dysfunction in Washington D.C.

Could we possibly be talking about an election year, Larry?

- No doubt about it.

If nothing else, we're going to have lots of entertainment coming out of the presidential and congressional campaigns this year.

I think that we, admittedly, have had serious problems with dysfunction in Washington.

I think that's probably only going to increase as we go through this.

After the elections, things may settle down.

Candidates are all over the board in both parties.

We'll see many suggestions about what to do to cut the deficit, and change the value of the dollar, and fight off interest rates going up, but they won't get much done in Washington.

- Your thoughts Kim?

- Well, I come to mind of what just happened in Argentina, they just elected a new president.

The president campaigned for farm votes, saying that he would do away with the export tax on soybeans, corn, and wheat.

That was a 35% tax doing away with on beans.

That's a 25% tax doing away with on corn, a 23% tax doing away with on wheat.

I go back to a book, a biography, that was written in 1903.

It ended up, this cattleman that had built this 300,000-acre ranch down in Texas.

He says, "I built my empire on mismanaged government programs and I suffered my greatest loss at the change in administration."

I think, Larry, I think there will be changes.

We just don't know what they're going to be.

- Derrell, some final thoughts?

- Well, you know, again, the election year itself means that there's a lot of entertainment, is the word Larry used.

There will be a lot of noise, a lot of things kicked around.

Probably not much gets done, but as Kim said, I think it is important.

It does have an impact over time, depending on what happens.

It certainly will have an impact on our markets.

It's something producers have to be prepared for whatever changes come.

- Luckily, we have all of you guys to help us navigate through this.

Thank you very much for a great discussion this morning, great presents to get everything rolling, and, as is tradition for our round table show, let's kind of raise our glass.

I can't quite clink with everyone, but happy New Year.

- Happy New Year.

- Happy New Year.

- Thanks so much to all of you for joining us

and we'll see you next time on SunUp.

(gentle guitar music)

 

Document Actions

Watch SUNUP each Saturday at 7:30 a.m., Sunday at 6 a.m.
on your OETA channel, or anytime online
at www.YouTube.com/SUNUPTV.