August 21, 2019

Ag Economy (Storm Clouds Looming?), Doha & Trade, and Campaign Issues

Ag Economy

Scott Kilman reported in today’s Wall Street Journal that, “The Farm Belt, one of the hottest parts of the U.S. economy in recent years, is rapidly cooling.

“The Midwest faces plunging crop prices [December corn futures, November soybean futures, December wheat futures] and stubbornly high production costs. Corn prices have dropped from $7.54 a bushel around July Fourth in central Iowa to just $3.81 a bushel on Tuesday. But growers are hearing from suppliers that fertilizer and seed costs could rise by more than 40% each for next spring’s plantings.”

Mr. Kilman explained that, “Many Midwest farmers worry that the combination of lower crop prices and high costs will usher to an end, by next year, one of the most flush periods in American farm history. This year, the U.S. Agriculture Department is predicting that U.S. net farm income will hit $95.7 billion, up 10.3% from last year’s $86.8 billion and nearly double the $58 billion of two years ago [related graph].

“Now, farmers fear a big drop in next year’s profits. Most economists figure the Farm Belt can weather a slowdown, partly because farmer balance sheets are strong, and partly because federal mandates will increase the amount of corn consumed to make ethanol fuel next year. Also, economists think global demand for U.S. crops will remain robust despite recent economic troubles.”

Later, the Journal article added that, “The uncertain outlook already is expected to cool demand for Midwest farmland, where prices have jumped by double-digit percentages for four consecutive years. In June, a piece of McDonough, Ill., farmland sold for $7,750 an acre, just 20 months after the seller had paid $4,700 for it.”

With respect to policy implications, the Journal article indicated that, “For many growers, their breakeven costs have climbed so high that they could lose money next year even if crop prices are above the levels long thought to be too strong to warrant subsidy checks from the U.S. government. Farm trade groups and Farm Belt politicians already are pressing the Bush administration to interpret the newly adopted five-year farm bill generously.”

And on the issue of corn ethanol production, Mr. Kilman noted that, “Lower corn prices help ethanol producers, because corn represents about 75% of their costs. But the falling price of crude oil has depressed the price at which the companies can sell ethanol, which competes with gasoline. The ethanol industry’s 50% profit margins of four years ago, which helped ignite a plant-building boom across the Midwest, have shrunk to less than 5% at many companies. New construction projects are being halted.”

However, “Most economists see little chance of a farm debt crisis of the sort that battered the Midwest in the 1980s, when the federal government bailed out the largest farmer lender,” the article said.

In a related item, the American Farm Bureau Federation issued a news release yesterday, which stated in part that, “In the year ahead farmers will probably continue to realize fairly strong cash receipts, but by the same token they will see significant increases in input costs.

Overall, the farm sector may very well see a down-turn in profits in 2009 compared to 2008, according to the American Farm Bureau Federation.

“AFBF held national outlook conference earlier this month in Boston. More than 50 Farm Bureau economists and commodity specialists were on hand to gain an understanding of the crop, livestock and inputs situation and outlook so they can better provide the farmers they serve with the market intelligence they need.

“By many measures, American agriculture may be in the best financial shape it’s ever been, but there are potential storm clouds building on the horizon, speakers generally concluded.”

The AFBF item indicated that, “The saving grace for American agriculture is the rise in land values.

“‘Land values serve as the shock absorber for farmers. Land values are very high right now, but just because they went up this year, doesn’t mean they will continue to go up,’ [Terry Francl, AFBF senior economist] explained.”

Doha and Trade

Frances Williams reported yesterday at the Financial Times Online that, “The number of new anti-dumping investigations soared by nearly 40 per cent in the first six months of this year, the World Trade Organisation said on Monday, reflecting increased trade tensions as the credit crunch began to take its toll on the global economy.

“Between January and June 16 WTO members started 85 new investigations compared with 61 in the first six months of 2007. China was the target of nearly half the probes, a jump of 75 per cent over the same period last year.”

The FT article noted that, “Anti-dumping actions, once mainly taken by rich countries against poor ones, have become a tool increasingly used by developing nations while industrialised countries have increasingly become targets.

The EU was the third-ranking target in the first half of the year, after China and Thailand. Canada, the US, New Zealand and Norway also had investigations opened against their exports.

“The WTO said the main products affected were base metals (21 investigations), textiles (20) and chemicals (10).”

DTN Political Correspondent Jerry Hagstrom reported yesterday (link requires subscription) that, “World Trade Organization officials and ambassadors to the WTO are still trying to reach a broader agreement on the Doha round of trade talks before the end of the year, but they still face the same problems with agriculture that caused key trade ministers to end talks in July.

“In addition, WTO Director General Pascal Lamy’s term expires next September and the ambassadors to the WTO may soon become embroiled in a months-long debate over who should lead the WTO as director general for the next four years.”

The DTN article added that, “Negotiators ‘were surprised at how much progress was made’ before the July meeting and would like to finalize the agreements reached during that period, said John Weekes, a former Canadian trade ambassador, in a recent interview. Weekes is now a senior policy adviser to governments and private firms in the Geneva office of Sidley Austin LLP, the U.S. law firm.

“Crawford Falconer, the New Zealander who chairs the Doha round trade talks, warned negotiators from all the member countries last Wednesday that time is running short for them to come up with compromises on the basic framework or ‘modalities’ of an agreement before the end of the year, according to a source close to the WTO. Falconer had previously announced he will leave his post to return to the New Zealand government before Christmas.”

Meanwhile, an article posted yesterday at stated that, “The UK’s commissioner-designate Catherine Ashton gave an assured performance during a three-hour grilling at the European Parliament yesterday (20 October), where she promised to rescue global trade talks if approved as the EU’s new trade commissioner.”

(To view Ashton’s complete presentation to the European Parliament, just click here; while a brief summary by topic can be viewed here).

The article added that, “Rejecting the view that the Doha talks had failed, Ashton said the current economic crisis made the global trade deal ‘more urgent rather than less’”.

On this side of the Atlantic, Reuters news reported today that, “President George W. Bush vowed on Tuesday to press hard for a successful conclusion of the nearly 7-year-old round of world trade talks during his last few months in office.

“‘The recent impasse in the Doha Round of trade talks is disappointing, but that doesn’t have to be the final word. And so before I leave office I’m going to press hard to make sure we have a successful Doha round,’ Bush said at a White House summit on international development.

“Even with an all-out effort, it would be difficult for negotiators to finish every detail of a new world trade agreement before Bush leaves the White House on Jan. 20.”

(Note: President Bush’s full quote on Doha, which was made at a White House Summit on International Development in Washington, D.C. – “Trade is essential to prosperity in both good economic times and bad. During periods of crisis, like the one we’re in now, protectionism may seem like the best way to safeguard wealth. But when major economies try to wall themselves off, they deny themselves the growth that comes from exports and deepen poverty by depriving poor nations of vital markets for their goods. You see, in the midst of this crisis, I believe the world ought to send a clear signal that we remain committed to open markets by reducing barriers to trade across the globe. The recent impasse in the Doha Round of trade talks is disappointing, but that doesn’t have to be the final word. And so before I leave office, I’m going to press hard to make sure we have a successful Doha Round.”)

Today’s Reuters article added that, “However, U.S. officials have said it was still possible to reach a deal in 2008 on key agricultural, manufacturing and services trade issues at the heart of the round.

That would give important momentum to the talks and increase the chance the next U.S. president — be it Democrat Barack Obama or Republican John McCain — will invest early energy in steering them to a successful end.”

Speaking at the same White House Summit on International Development event yesterday in Washington, D.C., U.S. Secretary of State Condoleezza Rice stated that, “A key component of the broader response, though, must be renewed action to promote global trade and development. We must seize this moment as an opportunity to revive and conclude the Doha Round for the expansion of an open, global trading system because that is the best way to create prosperity, and to enable more people to share in it. A successful completion of Doha would send a powerful signal that the world’s response to this crisis will be fundamentally different than in the past, fundamentally different than in the ‘30s in the Great Depression, when many countries — including the United States, unfortunately – turned inward, adopted protectionist practices and deepened the crisis.”

Campaign Issues

Bob Meyer. “Peterson and Goodlatte on Obama and McCain.” Brownfield. 10.21.

Keith Good

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