FarmPolicy

October 24, 2014

Doha, High Prices and Ethanol

Doha

Alan Beattie, writing yesterday at the Financial Times Online, reported that, “The head of the World Trade Organisation has called a meeting of ministers for late July in a high-risk attempt to rescue the beleaguered Doha round of global trade talks.”

Mr. Beattie explained that, “Gordon Brown, the UK prime minister, said: ‘I believe this is the endgame for the trade talks … I think we are in touching ­distance.’

“But some trade officials warned that large negotiating gaps remained between the leading countries and said Mr Lamy’s decision to call a meeting was a gamble that could lead to a high-profile implosion.”

The FT article noted that, “The previous three summers have failed to push the talks forward. There was deadlock in 2005 ahead of an unproductive meeting of the full WTO membership in Hong Kong that year, and negotiations were suspended after they collapsed in ­disarray in 2006, with the EU and US blaming each other for failing to compromise on agricultural reform.

“Last summer a meeting of the ‘group of four’ negotiating partners – the EU, US, Brazil and India – broke down in acrimony amid accusations of bad faith.

“Mr Lamy’s call follows what some trade diplomats say is progress in recent days in resolving disputes over tariff cuts for industrial goods between rich countries and big emerging markets such as Brazil.”

Rory Watson, writing on Wednesday at the Times Online, indicated that, “The talks have been deadlocked for months as developing countries press the EU to make further agricultural concessions, but stand firm against Mr Mandelson’s [EU Trade Commissioner, Peter Mandelson] demands that they open up their markets to foreign industrial goods and services.

“A breakthrough in July would enable a deal to be endorsed by the current US administration. If that deadline is missed, however, the talks would lose momentum and any agreement would be unlikely before 2010.

Mr Mandelson’s task will be made all the harder when France takes over the rotating EU presidency next Wednesday. President Nicolas Sarkozy has repeatedly criticised his negotiating strategy – most recently at last week’s EU summit in Brussels.”

With respect to France, an AFP article from today stated that, “France said Friday it will hold a special meeting of European Union ministers to discuss the E.U. position on global commerce as the World Trade Organization seeks to conclude a long-deadlocked deal.

“‘France will organize between 14 and 20 July an extraordinary meeting of European ministers of foreign affairs…to quickly deal with European positions regarding the WTO,’ said Europe Minister Jean-Pierre Jouyet.

“‘Europe cannot sit back and do nothing about the WTO, which was a major cause of trouble in Ireland, with agriculture, as it is France,’ he told French radio.

“Jouyet, whose country takes over the rotating E.U. presidency on July 1, was referring to Irish voters’ rejection this month of the European Union’s Lisbon Treaty, which plunged the 27-nation bloc into crisis.”

Tim Colebatch reported today at the Age Online (Australia) that, “Trade Minister Simon Crean, one of the 35, welcomed Mr Lamy’s decision to bite the bullet, which Australia had been urging.

“‘Calling a meeting is a bold call, but the right one,’ he said. ‘If we don’t secure a deal on these core issues of the round now, the talks may drift for some time.’”

The article noted that, “While the gaps have narrowed in agriculture, a deep rift separates negotiators on cuts to manufacturing tariffs. The West, including Australia, insists that developing countries make big tariff cuts on top of those already made since the last trade agreement in 1995.

“But with China keeping its currency well below market levels to boost exports, developing countries fear that big tariff cuts would see Chinese goods swamp their own industries.”

And with respect to agriculture, Mr. Colebatch stated that, “Organisation of Economic Co-operation and Development figures show one reason why agricultural talks are now easier. Farm subsidies in the West have shrunk as rising world prices have reduced the need for them.

“The OECD estimates that direct subsidies to farmers have shrunk by €30 billion ($A50 billion), or 14%, between 2005 and last year, with the US, EU and Japan all easing off. US direct subsidies to farmers have fallen to 10% of the value of farm output, compared with 22% in the mid-1980s.

“They are now far outweighed by indirect subsidies, such as subsidised irrigation, marketing and promotion, and taxpayer-financed research and development.”

An OECD press release from yesterday stated that, “Agricultural Policies in OECD Countries: At a Glance says current policies are limiting the ability of farmers to respond to market signals, to become more competitive and innovative, and thus contribute to improving the global food situation.

“The report shows that government support to farmers in OECD countries was USD 258 billion in 2007. This represented 23 per cent of total farm receipts, down from 26 percent in 2006, the lowest level since OECD estimates began in 1986. The latest fall was due mainly to the rise in farm commodity prices. With higher world prices, lower levels of support and subsidies were needed to prop up domestic prices.

The report calls on governments to seize the opportunity offered by higher farm incomes to remove the most trade-distorting measures which still dominate agricultural policies in many OECD countries. It adds that such measures have been less effective than targeted policies in tackling farm income problems and have created inequity in distribution of support and contributed to environmental problems in agriculture.”

Meanwhile, a policy brief regarding Doha, “Walking a Tightrope: World Trade in Manufacturing and the Benefits of Binding,” which was written by Patrick Messerlin and posted recently at the German Marshall Fund of the United States Online, stated that, “Negotiators in Geneva are still struggling to conclude the Doha Round of multilateral trade talks at the World Trade Organization (WTO). However, after seven years of negotiations, many people – and especially many industrialists in Europe and the United States – are not convinced that the negotiations are worth the efforts being put into them. These doubts have been fueled by the modesty of recent estimates of the gains on the table in the negotiations on Non-Agricultural Market Access (NAMA).

“This policy brief argues that a completed Doha Round has more to offer to the U.S. and European private sector than cuts to already low applied industrial tariffs. The real gold mine in the Doha negotiations is the increased certainty that would flow from large cuts to bound tariff rates.”

High Prices and Ethanol

Reuters writer Carey Gillam reported yesterday that, “As a light sprinkle of rain fell across his 3,000 acres of corn and soybean fields early on Thursday, Missouri farmer Jim Collins knew it was too late.

“Too late to replant flooded fields, and too late to hope for better weather.”

The article noted that, “Flooding up and down the Mississippi and other waterways, deemed the worst in 15 years, has either drowned or damaged millions of acres of corn and soybeans throughout several states in the U.S. Midwest this month, leaving farmers like Collins with dwindling options.”

The article explained that, “The National Agricultural Statistics Service is surveying farmers in Illinois, Indiana, Missouri, Minnesota and Wisconsin to try to gauge just how much the heavy rains and flooding have eaten into corn, soybean and sorghum production potential. The information will be incorporated into a report due out on Monday.

The American Farm Bureau Federation said this week that in top U.S. corn-grower Iowa, corn yields could be down 16 percent this year. The federation estimated that 1.5 million to 2 million acres of corn and soybeans in Iowa that farmers intended to plant likely remain fallow.

“The federation pegged the losses at $4 billion to Iowa’s crops, with a $900 million loss in Missouri, a $1.3 billion loss in Illinois, and crop losses of $500 million each in Indiana and Nebraska.”

Dan Piller, writing today at The Des Moines Register Online, reported that, “The American Farm Bureau Federation said Thursday that crop damage from the recent Midwestern floods will total $8 billion, and half of that loss will be in Iowa.

“‘We’re looking at a crop that will be about a half-billion bushels short of projections,’ Farm Bureau economist Terry Francl said. He said the average Iowa corn yield likely will be 143 bushels per acre this year, compared with the pre-planting projection of 170 bushels per acre.

“The report did not factor in replanting, which many Iowa farmers did this week as their fields began to clear. Farmers who replant to try to save their crops can expect yields at [best] only about half of normal levels because of the shortened growing season, Francl said. Also, insurance is likely to cover about 50 percent to 60 percent of crop losses.”

In other issues impacting the production of agricultural crops, Associated Press writer Stephanie S. Garlow reported yesterday that, “Food prices could rise even more unless the mysterious decline in honey bees is solved, farmers and businessmen told lawmakers Thursday.

“‘No bees, no crops,’ North Carolina grower Robert D. Edwards told a House Agriculture subcommittee. Edwards said he had to cut his cucumber acreage in half because of the lack of bees available to rent.

“About three-quarters of flowering plants rely on birds, bees and other pollinators to help them reproduce. Bee pollination is responsible for $15 billion annually in crop value.”

Some of these production variables are impacting the market price of key program crops.

The Associated Press reported yesterday that, “Corn and soybean prices soared Thursday, climbing to new all-time highs after more thunderstorms drenched Midwestern states and left recently replanted crops underwater again.

“A big rally in crude oil also pushed corn and soybeans higher. OPEC’s president said oil could surpass $150 a barrel later this year, sending prices up nearly $4. Crude’s rise boosted other commodities, with gold, silver and copper trading sharply higher.

“Severe thunderstorms overnight and Thursday morning rattled parts of Iowa and Missouri, dumping as much as 5 inches of water and threatening to push rain-swollen rivers over their banks. More bad weather was expected Friday, raising concerns that corn crops already damaged by recent flooding may not dry out in time for the critical July growing period.”

The AP article stated that, “Corn for December delivery shot up to an all-time high of $7.95 a bushel on the Chicago Board of Trade before pulling back slightly to settle at $7.88, up 23 cents. It was corn’s ninth trading record in the last three weeks.

“Soybeans for November delivery surged to a new record of $15.69 a bushel on the CBOT before easing back to settle at $15.6150, up 36.5 cents. Wheat prices also jumped, with the September contract gaining 22.5 cents to finish at $9.4275 a bushel on the CBOT.”

The article reported that, “The U.S. Department of Agriculture on Monday will give a partial report of the impact of Midwest flooding on crops. Estimates range from 2 million to 5 million acres of U.S. farmland being damaged or destroyed — a huge loss that would depress crop yields and almost certainly send world food prices higher.

“The spike in grain prices mean consumers can also expect to pay more for meat and dairy products as livestock owners are forced to thin their herds and flocks to cope with rocketing costs for corn- and soybean-based animal feed.

“Thursday’s agriculture rally followed on the back of crude. Oil surged after Chakib Khelil, president of the Organization of the Petroleum Exporting Countries, predicted prices could rise to between $150 and $170 a barrel this summer but would not hit $200.”

With respect to energy prices, David Cho reported in today’s Washington Post that, “The House of Representatives yesterday approved legislation that directs the regulator overseeing commodity trading to use its emergency authority to investigate and rein in speculators who lawmakers blame for the run-up in oil prices.

“The Commodity Futures Trading Commission has not yet taken such action, arguing that oil prices are rising simply because supply cannot keep up with demand. But lawmakers who authored the bill say recent congressional hearings have shown that investors such as hedge funds, pension funds and big financial firms are flooding into commodity trading and causing oil prices to soar.

“The measure immediately allows the agency to use its most dramatic powers, such as imposing temporary limits on traders or halting trading altogether when oil prices swing wildly.”

The Post article noted that, “‘There are people in our caucus who believe the CFTC is not doing everything it should be doing,’ Rep. Collin C. Peterson (D-Minn.) who chairs the House Agriculture Committee and sponsored the bill, said in an interview.” (Note: a related press release from the House Ag Committee is available here).

Market variables are also influencing the production of corn-based ethanol.

Dow Jones News writer Donna Kardos reported yesterday that, “Standard & Poor’s said smaller pure-play ethanol producers face ‘high’ business and financial risks due to market volatility.

“The ratings agency said in a report that political-event risk also could become a risk factor for the industry ‘if the food versus fuel debate sways currently positive public opinion.

“The report comes a day after VeraSun Energy Corp. (VSE) said it will delay the startup of an ethanol production facility in North Dakota, the third plant this month the company decided to not open due to volatile market conditions. The postponements reflect the immense pressure ethanol producers are under as their margins are squeezed by high corn and natural-gas prices.”

The Associated Press reported yesterday that, “Alternative Energy Sources Inc. is closing its doors after being unable to raise enough money for a proposed ethanol plant in Iowa and failing to expand its ethanol management consulting business.

“In a securities filing Wednesday, the Kansas City-based company said its remaining employees would be furloughed next Tuesday and that it expected to take a $3.1 million charge for shuttering the business.”

Meanwhile, in news regarding cellulosic ethanol production, DTN writer Adam Templeton reported yesterday (link requires subscription) that, “Although some people herald cellulosic biofuels as leading the way to sustainable clean energy, the new technology isn’t out of the woods (or the corn field) yet. Several issues keep cellulosic biofuels from becoming a viable source of power, according to Bill Belden, a speaker at the Iowa Farm Bureau Federation’s Conservation and Natural Resource Issues Conference.”

The DTN article stated that, “The primary challenge for farmers looking to get their feet wet in biomass production is the industry’s overwhelming lack of infrastructure.

“Cellulosic feedstock producers have no supply-handling system comparable to the nation’s grain elevators, nor do they have a price-discovery body such as the Chicago Board of Trade. The industry also lacks a uniform supply delivery system and production standards for biomass producers to follow. And the laws handling the interstate shipment and sale of biomass are inconsistent at best.”

Keith Good

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