II. Agricultural Economy
Associated Press writer Martin Crutsinger reported yesterday that, “President Bush’s top trade negotiator said Monday that quiet talks are under way with congressional Democrats seeking to bridge differences on labor and environmental standards in trade deals.
“U.S. Trade Representative Susan Schwab said she was ‘hopeful and confident that Congress will quickly answer’ the call Bush made last week for a renewal of trade promotion authority, which is set to expire on July 1.
“This authority, also known as fast track, allows the president to negotiate trade agreements that must be considered by Congress on an expedited basis that bars any amendments.
“Schwab, who spoke to a coalition of business and farm groups lobbying for renewal of fast-track authority, said that the administration was having a ‘quiet conversation with Democrats on the Hill on labor and the environment. These talks are ongoing and I am hoping we will be able to bridge the gap.’”
Reuters writer Doug Palmer stated yesterday that, “Congress will jeopardize chances for a new world trade deal if it does not renew presidential trade negotiating authority that expires this year, the top U.S. trade official said on Monday.
“‘Failure to renew trade promotion authority would signal to the world that the United States has lost faith in Doha. We must not let that happen,’ U.S. Trade Representative Susan Schwab said in a speech.”
Mr. Palmer added that, “Business leaders said they wanted at least a one-year extension of trade promotion authority to allow the United States to finish negotiations on the Doha round of world trade talks and to conclude negotiations with South Korea and Malaysia on bilateral free trade agreements.
“Schwab said her preference was for a longer extension that would see President George W. Bush through the end of his term in early 2009 and be available for his successor.
“Every president should have trade promotion authority, so ‘I think the broader the better, the longer the better,’ Schwab said when asked her views on a short-term extension.”
In a broader context of her public comments on trade yesterday (“The Case for Trade Promotion Authority Renewal”), Ambassador Schwab stated that, “The United States and its trading partners in the World Trade Organization continue to work toward a successful conclusion of the Doha Development Round.
“Our trading partners understand that we believe that meaningful market access is the only way to open up significant new trade flows. And only significant new trade flows will spur the kind of economic development WTO Members are seeking in this Round.
“We have made it clear that a deal that falls short of these development goals and creates only marginal new opportunities for our farmers, ranchers, manufacturers and service providers will not win approval in the United States Congress.
“Doha is also an historic opportunity to alleviate poverty and create economic opportunities in developed and developing countries around the world. We must not let it slip away. So we continue in our efforts to conclude an ambitious and balanced agreement.
“TPA will be needed to enact the provisions of a Doha Round agreement. Failure to renew TPA would signal to the world that the United States has lost faith in Doha. We must not let that happen.”
Also yesterday, the administration released the annual report on the U.S. economy, which is prepared by the White House Council of Economic Advisers. The report stated on page three that, “First, we must break down barriers to trade so our workers can sell more goods and services to the 95 percent of the world’s customers who live outside of our borders. Global trade talks like the Doha Round at the World Trade Organization have the potential to level the playing field so that we can compete on fair terms in foreign markets, while helping lift millions of people out of poverty around the world.
“The only way we can complete the Doha Round and make headway on other trade agreements is to extend Trade Promotion Authority, which is set to expire on July 1st. This authority is essential to completing good trade agreements. The Congress must renew it if we are to improve our competitiveness in the global economy.” (The report also contained several tables of data relating to the agricultural economy beginning on page 342).
Eoin Callan, writing yesterday at the Financial Times webpage, indicated that, “Congressmen seen as obstacles to a deal are also changing their tune, including Collin Peterson, chairman of the House agriculture committee. ‘Well, you know, I had a visit with Charlie Rangel here just recently and he and Sandy Levin, who are the main players in the House, are working very hard to see if there is a way to do this and I think maybe something will get worked out,’ he said.
“‘Currently they’re in some serious discussion and negotiations with the administration.’
“Representative Sander Levin said: ‘There is time to act. This is doable if the administration is serious.’
“The process sketched out by the administration involves a series of carefully choreographed steps that it hopes will lead to the renewal of President George W. Bush’s trade negotiating authority, due to expire on June 30.
“Welles Orr, a former adviser to Mr Bush’s father and to ex-President Bill Clinton, said: ‘The Bush team badly wants and needs this.’ But many doubt the White House can win renewal of fast-track – needed for a successful conclusion to the Doha round of world trade talks. ‘There is every chance they will mess this up,’ said a Republican lobbyist.”
More specifically with respect to the Doha talks, the Associated Press reported yesterday that, “French Trade Minister Christine Lagarde on Monday criticized a proposed new U.S. farm bill, saying it was ‘still heavy on subsidies,’ days after EU negotiators called on Washington to make deeper cuts to reinvigorate stalled global trade talks.”
The A.P. story added that, “She also criticized EU Trade Commissioner Peter Mandelson, saying his tactics for the last year had focused on being too conciliatory toward the U.S. without yielding results. She accused him of spreading his views to the press and business circles, before speaking directly to the national governments he represents on trade matters, saying this was ‘not a good method of functioning.’”
Reuters writer Missy Ryan reported yesterday that, “For five years, poor countries have waited anxiously for world trade talks to deliver on their promise of lifting millions of destitute farmers out of poverty.
“But even now, as negotiations pick up in Geneva after a six-month hiatus, debate roils on about whether a new trade deal will truly salvage Africa’s fragile economies.
“Those doubts will dominate a mission to Washington this week of agribusiness leaders from COMESA, Africa’s largest trade bloc.
“‘We have been under hope, hope, hope for too long … hope that some kind of agreement will be reached and that the agreement will be fair,’ said Roble Olhaye, Djibouti ambassador to Washington and dean of the African diplomatic corps here.”
The article noted that, “World Trade Organization Director-General Pascal Lamy visited Eastern Africa last week, reassuring nations like Kenya that the gains from a Doha deal would outweigh increased competition they might face. But Africa’s political leaders are still clearly worried that developed nations may walk away.
“‘WTO members, in particular the developed countries, have a duty, a responsibility, and a moral obligation not to disappoint the African countries,’ African Union Chairman Denis Sassou N’Guesso chided in a recent statement.”
In addition, the Reuters article included this analysis, “‘The real question now for these countries,’ according to Sandra Polaski, a Carnegie Endowment for International Peace economist, is ‘will they hang out or will they give in?’
“She believes some of the world’s most fragile economies could actually contract if a Doha deal isn’t tailored right.”
II. Agricultural Economy
The U.S. Department of Agriculture’s Economic Research Service issued their monthly Oil Crops Outlook yesterday, which stated that, “U.S. exports of soybeans typically start a seasonal decline by February. Export shipments did improve during January 2007 and, based on outstanding sales, a robust rate will likely continue. At this seasonal midpoint, the export sales normally account for 70-75 percent of the total. However, the opportunities to add enough new sales for reaching the prior forecast are becoming more remote, particularly upon commencement of a very good soybean harvest in South America. USDA trimmed its forecast of 2006/07 soybean exports by 20 million bushels to 1.1 billion, which would still set an annual record.
“Domestic soybean use was unchanged this month, so the revised export forecast raised the 2006/07 ending stocks projection by an equal amount to 595 million bushels. Remarkably, the strength in soybean prices has endured, despite the anticipation of record ending stocks. In January, the preliminary national average price received by farmers rose sharply to $6.42 per bushel from $6.18 in December, tracking a similar gain for corn prices. Based on recent price movement, the 2006/07 price forecast was raised to $5.90-$6.50 per bushel from $5.75-$6.45 previously.
“The prices are buoyed by the market’s primary focus upon the outlook for 2007 crop production. Perceptions already exist for a sharp reduction in the 2007 U.S. soybean crop. Prompting that belief is an urgency to secure considerably more grain acreage next spring, as stocks this year are feared dropping to an uncomfortably low volume. For soybeans, then, there is potential for a dramatic reversal of the supply outlook to be combined with robust demand. In that event, a large 2006/07 carryout could be construed as short-lived and not so burdensome. While the market seeks more grain acreage in the United States, it also is still encouraging production of oilseeds in the world wherever possible. Thus, prices in the futures market have provided little motivation for U.S. producers to accelerate the delivery of unsold soybeans.”
Additional analysis of the soybean market was also published yesterday by University of Illinois Agricultural Economist Darrel Good (“Is The Soybean Market Bullet Proof?”).
In part, this report stated that, “The dominant fundamental factor supporting soybean prices appears to be concern about the size of the 2007 U.S. crop. A decline in U.S. soybean acreage in favor of additional corn acreage in 2007 has long been expected. However, recent private sector forecasts about the magnitude of the switch have been larger than the early expectations. These larger forecasts seem to have spooked the market into thinking that the switch could be large enough to create a shortage of soybeans in the 2007-08 marketing year. With carryover stocks of 595 million bushels and a trend yield in 2007, soybean acreage would have to decline by more than 12 million acres (16 percent) to suggest a possibility of a shortage of soybeans next year.
“The worries about reduced acreage are also apparently being augmented by concerns about the upcoming growing season. The fading of the weak El Nino weather phenomenon and the increasing number of references to the similarity to 1988 raise concerns about a summer drought in the midwest. In 1988, the El Nino faded rapidly and La Nina conditions emerged to contribute to the midwest drought. The current concern seems a little premature. Drought events in the U.S. midwest apparently do coincide with a rapid transition from El Nino to La Nina, but not every such transition is associated with a midwest drought. In addition, most models suggest that the current El Nino will give way to more normal sea surface temperatures in Nino region 3.4 rather than to below normal temperatures. Current soil moisture levels are generally more abundant than at this time in 1988.
“The ability of the soybean market to move to new highs in the face of negative old crop fundamental and the willingness to respond to concerns about the 2007 crop has resulted in some attractive pricing opportunities for the 2007 crop. However, pricing the 2007 crop is a challenging balancing act. The prevailing attitude suggests that prices could continue to move higher, yet there is some risk that the soybean market will make the same mistake as last year when prices remained relatively strong and too many acres were planted to soybeans.”
And with respect to corn acreage planting prospects, a Dow Jones article posted yesterday at DTN (link requires subscription), reported that, “U.S. corn planted acreage this spring is expected to rise sharply as producers react to futures prices reaching 10-year highs on strong demand from domestic ethanol producers and exporters, but some of the bigger estimates circulating are probably optimistic, analysts said.
“Early estimates for corn planted acreage generally range from an increase of 8 million to 10 million acres from the 78.3 million acres planted last year. However, some estimates are exceeding even the high end of those ideas.”
The article added that, “‘You have to respect the estimate but there are a number of reasons why it could be hard to reach those levels,’ said Don Roose, president of U.S. Commodities in West Des Moines, Iowa. Chicago Board of Trade soybean prices have rallied recently and might limit some acreage switching to corn. Corn is more expensive to plant and there are additional equipment needs to consider as well as more on-farm storage for the expected larger crop output, Roose said.
“In addition, several analysts said acreage not in ‘prime’ corn yielding country may not produce enough corn to make it worthwhile economically for producers to switch.”
And the article noted that, “On Feb. 2, the National Cotton Council released its annual survey of early season planting intentions, which showed a 13.6 percent decline in 2007 cotton planted acreage.
“Much of the acreage lost will be planted to other crops, primarily corn, soybeans and wheat, said the NCC’s senior economist Stephen Slinsky, who expects cotton acreage to decline to 13.2 million acres, a drop of roughly 2 million acres.
“‘One million to two million acres will move out of cotton and into corn,’ said Don Roose, president of U.S. Commodities in West Des Moines, Iowa. ‘It’s a profitability issue. Cotton values are down 5 percent-6 percent from last year and corn values are up 80 percent-90 percent from a year ago. It’s just pure economics,’ Roose said.”