January 20, 2020

Commodity Prices, Production Decisions and the ’07 Farm Bill

Categories: China /Farm Bill /Obesity

I. Commodity Prices
II. China
III. Obesity

I. Commodity Prices

Yesterday, the U.S. Department of Agriculture’s National Agricultural Statistics Service (N.A.S.S.) released the December Agricultural Prices report.

New York Times Photo

The N.A.S.S. report indicated that, “The preliminary All Farm Products Index of Prices Received by Farmers in December, at 121 percent, based on 1990-92=100, increased 1 point (0.8 percent) from November. The Crop Index is up 6 points (4.9 percent) but the Livestock Index decreased 3 points (2.6 percent). Producers received higher commodity prices for lettuce, corn, grapes, and broccoli. Lower prices were received for turkeys, cattle, hogs, and tomatoes.”

More specifically, N.A.S.S. estimated that, “The December all wheat price, at $4.59 per bushel, is unchanged from November but $1.06 above December 2005…The corn price, at $3.01 per bushel, is up 14 cents from last month and $1.09 above December 2005…The soybean price, at $6.14 per bushel, increased 7 cents from November and is 36 cents above December 2005.”

With respect to livestock, the report noted that, “Compared with a year ago, prices are lower for cattle, milk, turkeys, calves, and hogs but higher for broilers and eggs.”

The report also contained a helpful graphical depiction of price trends, click here to view the Prices Received chart for corn and wheat; and click here to view the ten-year pattern of cotton and soybean prices.

The prices of these and other program crop commodities will have various impacts on the overall agricultural economy, and will also be a contributing factor in the debate over the future direction of U.S. farm policy.

An Associated Press article posted yesterday at BusinessWeek Online stated that, “A record run of hog profits in Iowa could end as early as this winter because of higher corn prices and record numbers of hogs on farms, analysts said.”

On Wednesday, N.A.S.S. released their Quarterly Hogs and Pigs Report, which noted that, “U.S. inventory of all hogs and pigs on December 1, 2006 was 62.1 million head. This was up 1 percent from December 1, 2005, but down 1 percent from September 1, 2006.”

A report posted yesterday at the Brownfield webpage provided an analytical look at the N.A.S.S. swine estimates.

The Brownfield update noted that, “Ron Plain, [Professor of Agricultural Economics at the University of Missouri] says that if he takes a contrarians approach to the report, what may be the most surprising is the fact that while pork producers have had a very good run (Iowa State reports that November marked the 34th consecutive month of profits that Iowa pork producers have enjoyed. The longest profit period since Iowa State began issuing the monthly report back in the mid 1960’s) they are beginning to cut back. ‘History says we need to pile up some red ink for awhile before you start seeing a cut back in the breeding herd,’ said Plain. ‘In this case, we haven’t got to that point, we’re still making money, yet it looks like we are well on our way to cutting back.’

“And the number Ron Plain points to as the most surprising in the latest report is the half percent increase in the spring farrowing intentions. ‘A lot of people were sort of anticipating that, that with higher feed prices we were going to see producers cut back,’ Plain said. But what’s surprising he says is how quickly and how drastically the cut back is happening as indicated in the Hogs and Pigs report.”

To listen to a Brownfield interview with Dr. Plain, just click here (MP3).

Dow Jones writer Gary Wulf reported yesterday that, “The expanding U.S. ethanol industry is poised to alter the look of the land across the grain belt, possibly prompting farmers to plant more of their 2007 acreage to corn than any other time since World War II.

“‘I’ve been suggesting that we may have to push acreage up to 88-89 million acres of corn,’ said Purdue University agricultural economist Chris Hurt. ‘That would be a 10 million acre increase from 2006 and would put us at the highest acreage planted to corn in the United States since 1946,’ covering a total area approximately the size of Montana.

“U.S. corn plantings peaked at 113 million acres in 1932, but post-war development of higher yielding corn hybrids and commercial fertilizer made it possible to grow more corn on fewer acres, just as soybeans were introduced.

“But the nation’s expanding biofuels industry is now threatening to return rural America to its appearance of several generations ago, featuring field upon field of tall-standing corn, rather than fluffy cotton, grassy wheat or bushy soybeans.

“‘There’s no question at this point that we’re going to need a massive increase in corn acreage for 2007,’ Hurt said. ‘That increase is driven primarily by ethanol, but we also have very strong export demand.’”

A Dow Jones article posted yesterday at DTN (link requires subscription) stated that, “Following recent gains in Chicago Board of Trade corn futures prices, Nebraska farmers are considering killing off wheat they sowed this fall to make way for corn to be planted in the spring, agricultural economists said.

“Nebraska likely saw producers plant 15 percent more wheat acres this fall to take advantage of high futures prices, said Bob Klein, a cropping systems specialist for the University of Nebraska-Lincoln Extension. But wheat prices have since declined, while corn futures are showing continued strength.

“To clear the planted wheat, producers would spray it out with herbicide, Klein told Dow Jones Newswires.

“‘If the corn price stays up and the wheat price stays where it is, it’s pretty attractive to consider,’ he said.”

The article also included a link to this University of Nebraska online decision tool for producers, which provides an assessment of whether corn or wheat might be a more profitable crop to plant.

Andrew Martin, writing in today’s New York Times, in an article datelined from Denison, Iowa, reported that, “With some restaurants and even the city of New York swearing off trans fat, Monsanto recently sent representatives here with a mission: persuade farmers to grow a special kind of soybean that produces a valuable alternative to frying oil laden with trans fat.

“The company and its local soybean processor offered the farmers doughnuts and a simple pitch: an extra 35 cents a bushel to grow the special soybeans, instead of regular ones, and seemingly unlimited demand. The special soybeans contain less of the fatty linolenic acid than other soybeans.

“Some liked the offer, but others were not so sure, given the extra work involved and the allure of planting high-priced corn instead to feed the ethanol boom.”

Mr. Martin added that, “A strange twist to the current supply squeeze for trans-fat-free soybean oil is that the seeds were created more than a decade ago, but for years, there were no buyers. One seed company, Pioneer Hi-Bred International, finally stopped research on new varieties in 1999 because of the dismal prospects.

“‘We waited and waited,’ said Russ Sanders, marketing director at Pioneer, which is now part of DuPont. ‘Now the market is expanding faster than we can keep up.’

“As a result, seed companies and oil manufacturers are offering farmers 21 cents to 80 cents a bushel extra to grow the low-linolenic soybeans.

“Monsanto has made arrangements with 14 processing plants across the Midwestern corn belt to process the beans next year, and it has held several meetings with neighboring farmers at each plant to make their sales pitch.”

In conclusion Mr. Martin reported that, “Kenneth Fawcett, 57, of West Branch, Iowa, said he, too, is the exception in his part of eastern Iowa. He has planted low-lin soybeans for three years and collected premiums as high as 80 cents a bushel because his soybeans are not genetically modified to be herbicide-resistant, and thus can be sold at a higher price.

“But he said most of his neighbors are more likely to plant corn or regular soybeans because low-linolenic soybeans are too much work. In addition to the need to keep them separate, he said, the processing plant accepts them only a couple of days each month.

“‘I think a lot of people want to grow the beans because it’s the right thing,’ Mr. Fawcett said, but, ‘the economics have to be there to reward them.’”

II. China

Tracy Zheng and Victoria Ruan, writing in today’s Wall Street Journal, reported that, “China’s economy is likely to have expanded 10.5% in 2006, the chief economist of the National Bureau of Statistics said yesterday.

“The estimate is in line with the government’s recent forecast. China’s gross domestic product grew 10.2% in 2005.

“Yao Jingyuan, the senior official of the statistics bureau, said at a financial forum that the combined value of China’s imports and exports likely rose 25% in 2006 to $1.7 trillion.

“Mr. Yao’s forecast suggests economic growth slowed slightly but remained rapid in the fourth quarter. The economy surged 10.7% in the first three quarters from the same period a year ago.”

For a more detailed look at what population and income growth in developing countries like China could mean for agricultural exports, see this Brownfield interview with Dr. Bob Thompson, Gardner Professor of Agricultural Policy, University of Illinois.

Brownfield’s Dave Russell noted that, “But Dr. Thompson gets even more excited about the market opportunities China offers when he digs deeper into the numbers. ‘When you see that almost half the population in China is still living on less than $2.00 per day, and realize that most of the economic growth that has occurred has been in the coastal provinces, we could really see all the impact China has had on the global market demand double from what it has been to date.’”

To listen to the Russell / Thompson interview, just click here (MP3).

III. Obesity

Chicago Tribune writer Jeremy Manier reported yesterday that, “More than a third of disadvantaged 3-year-olds in Chicago and other major U.S. cities are overweight or obese, according to a new study that supports the notion that the struggle with obesity often begins in early childhood.

“Hispanic children from low-income families were most at risk, with 44 percent either overweight or obese, compared with 32 percent for white and African-American children from similar households.

“The study’s authors at the University of Wisconsin-Madison also identified several practices that may protect kids from excessive weight gain, including breast-feeding for at least six months and not allowing children to take a bottle to bed.”

Mr. Manier added that, “Although some nutrition experts hailed the results as a call to action, some have questioned the foundation of the research. Even using the terminology of obesity to describe the very young is contentious.

“The federal Centers for Disease Control and Prevention does not refer to those under age 20 as obese because rapid growth early in life makes it difficult to compare desirable weights for children with adults’. Instead, the CDC uses the terms ‘overweight’ and ‘at risk of overweight’ for children at the upper end of their age group’s body-mass index, or BMI, a number used to gauge the relationship of weight to height.

“In contrast, the American Obesity Association holds that the same terminology should be used for children and adults, in part because heavy children are more likely to become obese adults and face a range of health problems such as diabetes and high blood pressure.

“Despite such differences, both organizations agree that more children are becoming overweight, creating a national health threat. The percentage of U.S. children meeting the definition of obesity has more than doubled over the last two decades, to nearly 19 percent in 2004.”

-Keith Good

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