Todd's Take

Markets: Free, Fair or Something in Between?

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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The sharp drop in cattle prices after the Tyson plant fire on Aug. 9 (red arrow) is one of three events that has agriculture feeling the pain of unfairness in 2019. (DTN ProphetX chart by Todd Hultman)

Each year that passes is a little different from the one before and often has its own lessons. From my perspective, the summer of 2019 will be remembered for tough financial conditions on the farm, emotions that ran high and three incidents that triggered anger in the country.

For regular readers of this column, I don't have to explain the financial stresses of farming. But, for the record, USDA estimated net farm income at $88.0 billion for 2019, a slight increase on the year, but also on par with the inflation-adjusted income of 2010.

Corn, soybean and wheat prices that are trading near their lowest levels in a decade are not helping. The longer prices stay low, the tougher the financial pressures become.

Farmers are feeling the stress as Todd Neeley's DTN article explained in June, "When Stressed, Control What You Can" (…).

Neeley tells of increased calls to rural hotlines and the Twitter hashtag #noplant19 as some of the ways producers found to vent. It was in this atmosphere that frayed nerves flared in 2019 and included a threatening incident on a crop tour. The frustration is palpable, but let's try to step back and look at this year's offending events.

The first offense came from USDA, or more specifically from NASS, in the June 28 Acreage report. The pushback heard across the country was loud and clear, and I added my own two cents in the July 2 column, "Making a NASS of Themselves." (…)

As I explained at the time, NASS' 91.7 million acre (ma) corn estimate was based on poor method and didn't square with the admission that 15.8 ma were not yet planted at the time of the survey. It is times like that when people say government should stay out of the markets, and it's hard not to agree. For farmers that had lakes where crops were supposed to be standing, the 91.7 ma planting estimate was especially tough to take.

The second hit came on a late Friday afternoon in early August when EPA mentioned that they granted 31 waivers out of 38 requests from refineries for 2018. As Todd Neeley reported for DTN on Aug. 9, the decision brought the total to over 50 waivers since 2016 and meant that 2.6 billion gallons of ethanol were not required for blending into petroleum (…).

Two billion six hundred million gallons of ethanol represents a loss of roughly 900 million bushels (mb) of corn demand over the same three years -- demand that corn producers looking at a national cash average price of $3.56 a bushel would like to have back.

The worst insult was hearing that some of the refineries given waivers were owned by Exxon Mobil and Chevron, not just firms experiencing financial difficulties. Big Oil won a political game at the expense of ethanol plants, jobs and farm income.

This time, the government was involved on both sides of the situation. The ethanol mandate was a creation of government in the first place. EPA became the particular culprit and, for some, the president as well.

The third hit to the ag sector in 2019 happened the same night as the EPA announcement. Only the market itself could be blamed after a Friday night fire at a Tyson beef plant in Holcomb, Kansas, shut down facilities, immediately removing 6,000 head of slaughter capacity a day, roughly 5% of the U.S. total.

Cash cattle prices in the North fell immediately, dropping a quick $10 the first week after the fire and then another $10 by mid-September. Meanwhile, boxed beef prices jumped over $20 higher. While October cattle futures were posting their lowest prices in four years, packers were rolling in cash, unable to count it all fast enough.

The unfairness of it all was too much for those on the losing side of the market and understandably so. Why should the fire hit cattle prices so hard and put instant money in the pockets of packers?

At times like this, it's not fun to be the analyst that explains these kinds of market events, and some confuse our role of reporting, thinking that we are somehow supporting the changes we describe in market comments.

An economist would probably say the market was doing its job, giving packers incentive to step in and make up for the loss of capacity. Slaughter levels did make up for some of the 6,000 head per day that was lost, but for the most part, cattle prices stayed depressed.

As unpleasant as it is, I always go back to fundamental number one: Markets are people.

People are emotional, sometimes make good decisions and sometimes bad decisions. Sometimes people overreact as they likely did here. My experience is that markets are not fair, are not always right and certainly don't display the utopian ideals that used to be taught as classical economics in school.

In the case of cattle after the fire, it appears the buy side of the market got spooked and disappeared. Packers behaved like capitalists, sensed opportunity and bought enough cattle to take advantage of the big profit margins, but not enough to aggressively lift prices back higher.

I sympathize with the unfairness of it all and, in general, favor seeing people paid for their hard work. But this is where our views about markets and government get confusing. Many of us say we want free markets and no government interference, but there is also something in our gut that says markets should be fair.

According to the U.S. Ag Census, there are nearly 1.5 million cropland farms and over 700,000 farms that sell cattle and calves. The marketing alternatives for both are far fewer in number than those supplying the grain and the beef. That perennial imbalance makes it tough for producers in both worlds to find markets consistently fair.

I don't know a solution for the problems that agriculture faces in 2019 and beyond, but we don't need to pretend that there are only two choices: strict capitalism or strict socialism. Free markets have benefits and they have abuses. Government decisions made in the name of fairness aren't always fair.

I'd like to think there's a solution somewhere in the middle that could take the edge off the excesses. But markets without pain? Not in this lifetime.

Todd Hultman can be reached at

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Todd Hultman