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WASDE and the Stimulus (Markets), Chairman Peterson- CFTC; Sec. Vilsack; Farm Bill; and Biofuels

WASDE and the Stimulus (Markets)

Yesterday, the World Agricultural Outlook Board (WAOB) released its monthly World Agricultural Supply and Demand Estimates (WASDE) report.

The report indicated that, “There are no changes this month to the U.S. corn balance sheet… The projected season-average farm price range for corn is narrowed 10 cents on each end to $3.65 to $4.15 per bushel.”

Globally however, the WAOB stated that, “World corn production for 2008/09 is lowered 4.6 million tons. Argentina production is lowered 3.0 million tons as continued drought and heat during late January further reduced prospects for yields and harvested area in key central growing areas. Brazil production is lowered 2.0 million tons reflecting a return to dryness in late January that limited soil moisture during grain fill in drought-affected southern growing areas. Corn production is also lowered 0.8 million tons in adjacent Paraguay which experienced similar weather problems this season. Corn production is lowered 0.5 million tons for India as lower yields more than offset an increase in harvested area. Production is lowered 0.2 million tons for Russia, but increased 1.4 million tons for Ukraine on the latest government indications.”

With respect to oilseeds, yesterday’s WASDE report stated that, “Global oilseed production for 2008/09 is projected at 408 million tons, down 8.3 million tons from last month.”

More specifically, the report noted that, “Global soybean production is reduced 9.1 million tons to 224.1 million tons. The reduction is due to South American crops which have been affected by hot, dry weather during critical parts of the growing season. Soybean production for Argentina is projected at 43.8 million tons, down 5.7 million from last month as drought conditions and heat in the central growing area has resulted in lower projected harvested area and yields. Soybean production for Brazil is projected at 57 million tons, down 2 million due to dry conditions especially in the southern producing areas.”

Domestically, the WAOB noted that, “Projected U.S. soybean ending stocks for 2008/09 are reduced to 210 million bushels, down 15 million from last month as increased exports more than offset lower crush. Soybean exports are raised 50 million bushels to 1.150 billion as export shipments continue to exceed earlier projections, primarily for China.”

The U.S. season-average soybean price range for 2008/09 is projected at $8.75 to $9.75 per bushel, up 25 cents on both ends of the range.”

While discussing wheat, the WASDE report stated that, “U.S. wheat supply, use, and stocks projections for 2008/09 are unchanged this month. The season-average price received by producers is projected at $6.70 to $6.90 per bushel, up 20 cents on the bottom end of the range reflecting continued strength in reported farm prices.

Global 2008/09 wheat production is nearly unchanged from last month at 682.8 million tons. Reductions for Argentina and EU-27 are nearly offset by increases for Russia, Ukraine, and Australia.”

Bloomberg writer Jeff Wilson reported yesterday that, “Corn fell for the first time in four sessions on speculation that global demand is declining faster than drought is damaging crops in South America… Corn futures for March delivery fell 0.75 cent, or 0.2 percent, to $3.7675 a bushel on the Chicago Board of Trade, after gaining 5.4 percent the previous three sessions. The price, which reached a record $7.9925 in June, fell to $3.055, on Dec. 5, the lowest for the most-active contract in more than two years.”

The article explained that, “Farmers in Argentina will harvest 13.5 million metric tons of corn this season, down 18 percent from a January estimate and 35 percent less than last year, USDA said in today’s report. The estimate for Brazil’s corn crop was cut to 49.5 million tons, 3.9 percent less than predicted in January and down 16 percent from last year. U.S. inventories on Aug. 31 were forecast at 1.79 billion bushels (45.5 million tons), the highest in three years.”

And a separate Bloomberg article from yesterday reported that, “Soybeans fell for the first time in a week on speculation that a slowdown in world economic growth will reduce demand for food, animal feed and fuels made from the crop… Soybean futures for March delivery fell 8 cents, or 0.8 percent, to $9.94 a bushel on the Chicago Board of Trade, after earlier rising as much as 0.8 percent. The most-active contract, which touched a record $16.3675 in July, dropped to an 18-month low at $7.7625 on Dec. 5.”

The Bloomberg article stated that, “The U.S., the world’s largest soybean grower and exporter, will use 27.9 million metric tons in animal feed in the year ending Aug. 31, or 0.3 percent less than last month’s forecast, the USDA said today. That’s down from 30.1 million tons in the previous year. Estimated world demand for soybean meal used as feed was cut to 154.5 million tons from 157.9 million forecast in January and down from 157.5 million a year earlier.”

An article by Jeff Caldwell, which was posted yesterday at AgricultureOnline indicated that, “‘Certainly, if the [soybean] crop continues to get smaller — and there’s some indications that Argentina’s soybean crop is going to get smaller yet — the soybean market will need to keep its edge. With the reduction in soybean acres in South America, soybeans look like they will take a few acres away from corn,’ says Brian Hoops, market analyst with Midwest Market Solutions. ‘We do need a bigger South American crop or else we’ll need to plant more soybeans here.’”

In a more in-depth look at soybean issues in South America, Matt Moffett reported in today’s Wall Street Journal that, “Soybean prices have plunged about 40% since last July amid a global commodities crash. For Argentine growers, the pain has been especially acute. Leftist President Cristina Kirchner, who once disparaged soybeans as ‘practically a weed,’ taxes them heavily and maintains a heavy hand in the economy. On top of that, the worst drought to hit Argentina in 70 years is scorching the fields during the growing season.”

The Journal article explained that, “For almost six years, rising commodities prices and favorable weather were a boon to corporations and governments throughout Latin America. Natural-resources tycoons were born, Andean mining towns and coastal oil towns boomed, and foreign investors piled into Latin stocks whose names they could barely pronounce. Governments paid off debts and spent freely on social programs. Economic growth averaged 5% between 2003 and 2008, up from 3.5% over the prior three decades.

But that cycle has taken a sudden, vicious turn. Prices of soybeans, copper and oil — the region’s meal tickets — have tumbled as the global economic crisis undercuts demand.”

Mr. Moffett added that, “Prices of soybeans peaked about $600 a ton last July, then began falling as the global financial crisis took hold. Traders worried that the recession would slow soybean demand; selling by commodities speculators further depressed prices. Prices have rebounded a bit from their December lows, and are currently around $365 a ton.

“In Argentina, the drought is only making matters worse, scorching Los Grobo’s acreage on the pampa. In a field the company farms in Tornquist, the scrawny plants are wilted and yellowing. Grasshoppers have attacked.”

Meanwhile in other sectors of the agricultural economy, Bob Meyer reported yesterday at Brownfield that, “Monthly World Supply and Demand Report from USDA had a reduction in the milk production estimates for 2009. The Outlook Board now projects milk production to be 189.1 billion pounds this year, that is 1.4 billion pounds lower than last month’s estimate and 600 million below 2008’s production. The Outlook Board, along with just about everyone else, anticipates a big reduction in cow numbers this year although the Ag Department group doesn’t see that happening until the second half of 2009. Most see it already underway in California and ready to get underway in the rest of the country as the milk checks this month will be substantially smaller than last month.”

And Jim Downing reported on Sunday at the Sacramento Bee Online that, “With the bad global economy choking off exports and warehouses full with a record harvest, California’s almond business is swimming in nuts – and the industry’s long boom has finally run out of steam [related graphic].

“Almond prices dropped more than 30 percent from August to December. The market for orchard real estate, which doubled in price from 2003 to 2007, has gone cold. And the industry expects to be left with a record-shattering surplus – at least 300 million pounds – when the 2009 harvest begins in August.”

David M. Herszenhorn and Jeff Zeleny
reported in today’s New York Times that, “Congressional leaders moved quickly into intense negotiations with the Obama administration on Tuesday after the Senate voted to approve an $838 billion economic stimulus plan, and officials said the talks were on a fast track to finish the legislation perhaps by the end of this week.”

Chris Clayton, writing yesterday at DTN (link requires subscription) reported that, “People in rural areas would be assured at least $3.5 billion in investment for expanding broadband Internet access under the economic stimulus bill passed by the Senate Tuesday.

“Under the package, the Senate provides $7 billion for broadband Internet access. Most of the money would be split between programs overseen by the U.S. Department of Commerce and USDA, including $3.25 billion for USDA’s Rural Utility Services programs. Another $350 million would be invested in a national broadband ‘inventory map’ to determine areas served and underserved by broadband Internet. The bill also includes funding set aside for distance learning, telemedicine and upgrading computer capacity at community colleges.”

Brian Baskin reported in today’s Wall Street Journal that, “Crude-oil futures ended at a three-week low on doubts that the economic-stimulus package would prevent demand from weakening further… Light, sweet crude for March delivery settled $2.01, or 5.1%, lower at $37.55 a barrel on the New York Mercantile Exchange, the lowest settlement since Jan. 16.”

Chairman Peterson- CFTC

Janet Kubat Willette reported yesterday at Agri-News that, “Rep. Collin Peterson said he thought he’d be coasting once the farm bill was finished.

Then the financial crisis hit and he became embroiled in issues surrounding the derivatives markets.”

The article added that, “Peterson has been holding hearings to address derivatives markets. He said he hopes to introduce a bipartisan bill that passes the agriculture committee with a unanimous vote to address the derivatives issue. He’s taken a lesson from the farm bill and is working to create a coalition of interest groups to support the legislation.”

A news item from Congress Daily reported today that, “Commodity Futures Trading Commission member Bart Chilton Tuesday endorsed House Agriculture Chairman Collin Peterson’s bill to strengthen the CFTC’s
regulatory powers. He added that he believes the CFTC should have authority to launch criminal investigations.

Chilton said in a speech to the Agricultural Roundtable at the Brookings Institution that under current law the CFTC sees only the $5 trillion in derivatives traded on exchanges but that over-the-counter credit default swaps amount to $55 trillion to $66 trillion.”

Commissioner Chilton also noted that, “A year ago, corn was at a high of $5.00, but today corn is at $3.77. Wheat was $10.00, and is now $5.62. Oil was $89.00, and reached a high of over $147 a barrel in July and is now trading around $40 per barrel. Gasoline last summer topped $4 a gallon and now is around $1.85 a gallon.

“Some say that the primary drivers of roller coaster commodity prices were simple supply and demand fundamentals. I don’t disagree that fundamentals played an important and perhaps even driving role. That said, speculators, particularly non-commercial speculators who were new participants in these markets, also played a role in my opinion.”

Secretary Vilsack

An item in today’s Washington Post (“Tom Vilsack, The New Face Of Agriculture”) stated that, “Sustainable-food and farming activists in Washington have long felt they were on the outside looking in. New Secretary of Agriculture Tom Vilsack says he wants to change that. In an interview with staff writer Jane Black, the former Iowa governor, 58, talked about his personal struggles with food and about his vision of how to transform the department — maybe even rename it — to serve a broader range of interests. Edited excerpts follow.”

In part, The Post item included this exchange, “Whom do you see as your constituency?

“This is a department that intersects the lives of Americans two to three times a day. Every single American. The department has a global influence in terms of food, in terms of consumers and in terms of some of the moral challenges that a wealthy nation faces in the face of hunger. So I absolutely see the constituency of this department as broader than those who produce our food. It extends to those who consume it.”

Secretary Vilsack also appeared earlier this week on the Oregon public broadcasting radio program, “Think Outloud.”

To listen to a clip from the program regarding the Census of Agriculture and mid-sized farm operations, just click here (MP3- three minutes). Recall that, “The latest census figures show a continuation in the trend towards more small and very large farms and fewer mid-sized operations. Between 2002 and 2007, the number of farms with sales of less than $2,500 increased by 74,000. The number of farms with sales of more than $500,000 grew by 46,000 during the same period.”

Meanwhile, Jerry Hagstrom reported recently at Congress Daily that, “Agriculture Secretary Vilsack said today he favors a single food safety agency, but he has not decided whether it should be located in USDA’s Food Safety and Inspection Service, the FDA or an independent agency. Commenting on the salmonella peanut butter scandal, Vilsack told the U.S. Rice Federation that the issue of centralization is key because food safety is both a human health and market issue. ‘We are the only industrial nation to have two systems,’ Vilsack said, a reference to USDA’s responsibility for meat, poultry and eggs and FDA’s responsibility for most other food products. He pointed out that no children have been harmed by peanut butter purchased through the USDA’s school-lunch program.”

And Gardiner Harris reported in today’s New York Times that, “The Peanut Corporation of America closed its processing plant in Plainview, Tex., on Monday night after a laboratory test indicated possible salmonella contamination, a development that threatens to widen one of the largest food recalls ever and raises more questions about why the government allowed the plant to operate.”

Farm Bill

Chris Clayton noted yesterday at the DTN Ag Policy Blog that, “Sen. Saxby Chambliss, R-Ga., Ranking Republican Member on the Senate Agriculture Committee, and Sen Blanche Lincoln, D-Ark., Chairman of the Senate Agriculture Committee Subcommittee on Production, Income Protection and Price Support, and others sent a letter to U.S. Department of Agriculture Secretary Tom Vilsack on Monday requesting USDA to implement the rules and regulations pertaining to new Adjusted Gross Income and payment limit reforms to accurately reflect Congressional intent.

“The senators stated that the interim rule, as published on Dec.29, 2008, strays from congressional intent and could adversely affect American producers and farm operations throughout the country. The senators also reminded USDA that the 2008 farm bill does not require any changes in the way individuals or entities are determined to be ‘actively-engaged’ in farming. Additionally, the Senators added that interjecting unnecessary changes will not only cause further confusion but also go well beyond the congressional intent.”

Biofuels

The Associated Press reported yesterday that, “The U.S. could produce enough ethanol to displace nearly a third of all gasoline use by 2030, but gas would have to cost more than it does today for the plan to work, according to a study released Tuesday by Sandia National Laboratories and General Motors Corp.

“The researchers found that annual ethanol production from plant waste and energy crops could reach 90 billion gallons by that date, with 75 billion gallons coming from cellulosic feedstocks such as switchgrass, corn stover, wheat straw and woody crops.”

Keith Good