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Dairy-Livestock Sectors; Food Safety; Crop Insurance; and Secretary Vilsack

Dairy-Livestock Sectors

The Associated Press reported yesterday that, “Hundreds of thousands of America’s dairy cows are being turned into hamburgers because milk prices have dropped so low that farmers can no longer afford to feed the animals.

“Dairy farmers say they have little choice but to sell part of their herds for slaughter because they face a perfect storm of destructive economic forces. At home, feed prices are rising and cash-strapped consumers are eating out less often. Abroad, the global recession has cut into demand for butter and cheese exported from the U.S.

Prices for milk now are about half what it costs farmers to produce the staple, and consumer prices are falling. Unless the market can be bolstered, industry officials project that more than 1.5 million of the nation’s 9.3 million milking cows could be slaughtered this year as dairy operators look to cut costs and generate cash.”

The AP article stated that, “As of Feb. 2, the price farmers receive for a gallon of milk has been 80 cents a gallon, less than half the $1.65 a gallon the California Department of Food and Agriculture estimates it costs to produce.”

Wally Kennedy reported on Friday at The Joplin Globe Online (Missouri) that, “The falling price of milk has created a sweet deal for consumers, but it’s a sour situation for local dairy farmers.

“Based on a U.S. Department of Agriculture survey of retailers in 30 cities, the average price of a gallon of whole milk was $3.67 in December, which is down 25 cents from its summer peak.”

This article indicated that, “Industry analysts say the reason for the drop in milk prices is simple — there’s too much milk and not enough demand for it. Dairy farmers hope the drop in price at the checkout counter could stimulate increased consumption.”

Toby Sells, writing late last week at the Memphis Business Journal, reported that, “Milk prices are expected to fall $5 per 100 pounds in open trading next month, a drop that could drive many of Tennessee’s dairy farmers to seek greener pastures.

2008’s average price for 100 pounds of milk on the Chicago Mercantile Exchange was $17.44. Futures prices for the same amount of milk opened Wednesday morning at $9.30.”

“‘There’s not a dairyman in this part of the country that can produce milk for $10,’ says Joe Pearson, commodities director for Tennessee Farm Bureau Federation. ‘They’re scared to death. They’ve done everything they can to control input costs, but now they’re at the mercy of this market.’”

And Dustin Kass reported on Sunday at the Winona Daily News Online (Minnesota) that, “Most dairy experts predict the fall to get worse before it gets better. Farmers talk about prices dropping down to $9 per hundredweight by the end of this month. Action on the milk future market indicates that prices will still be below the break-even point in six months, [Bob Lefebvre, executive director of Minnesota Milk Producers Association] said.

“Congressional leaders have been working to change that outlook. U.S. Democratic Sens. Russ Feingold and Herb Kohl of Wisconsin and Amy Klobuchar of Minnesota were among more than 30 senators who sent a letter late last month to Agriculture Secretary Tom Vilsack urging measures to address the price drops. Minnesota Democrat Rep. Tim Walz sent a similar letter.

“USDA could use funds set aside to purchase surplus commodities to increase the demand for dairy products and help producers, Walz said in the release.”

In news from the livestock sector, Dan Piller reported in last week’s Des Moines Register that, “Cattle producers hope that 2009 will be a more profitable year than 2008, now that corn prices have dropped closer to historically normal levels and that cattle inventories are now at a 50-year low.”

The Register article explained that, “Three decades ago, Iowa’s cattle population totaled 7.8 million, but that figure was cut drastically by the mid-1990s as more Iowa farmers gave up expensive and only marginally profitable livestock operations to concentrate on corn, soybeans and hogs.

So while cash receipts for Iowa’s corn and soybean crops rose from $4.8 billion in 1980 to about $10 billion for the 2007 crop, the cash receipts for Iowa’s cattle industry stayed static during the same period: $2.65 billion in 1980 to $2.67 billion in 2007.”

Meanwhile, with respect to regulations that can impact livestock production, Michael Gardner reported last week at the San Diego Union-Tribune Online that, “Significantly, the [California] state Senate also has redefined the mission of the former Agriculture Committee – now called the Food and Agriculture Committee. The panel now has a chairman who supports animal rights and consumer causes – a blow to agriculture, which for years has counted on the panel to thwart unfriendly bills.

Sen. Dean Florez, D-Shafter, the new chairman, has a history of tangling with agriculture over food safety. He plans an oversight hearing next week to explore livestock welfare issues.”

The article noted that, “Lawmakers and animal rights advocates say they are motivated to be more aggressive this year, particularly after voters overwhelmingly approved Proposition 2 – an initiative that requires egg producers to provide hens more space by 2015.

“‘It sent a signal that Californians are ready for and are demanding humane treatment of animals, whether they are farm animals or companion animals,’ said Assemblyman Pedro Nava, D-Santa Barbara.”

And Mike Hughlett reported yesterday at the Chicago Tribune Online that, “Nine years after calling a truce with McDonald’s Corp., People for the Ethical Treatment of Animals says it is going on a new offensive against the Oak Brook-based fast-food giant, this time over the most humane way to kill a chicken.

“Should chickens be knocked unconscious with a jolt of electricity and then have their throats cut, the conventional method of slaughter in this country? Or should they be gassed, a practice used to some extent in Europe?”

The Tribune article explained that, “PETA, known for its in-your-face protest style, claims the latter induces less suffering. So it’s taken its cause to the U.S. chicken industry’s biggest customers, including McDonald’s and KFC Corp.

“PETA has been waging war against KFC since 2003 with its ‘Kentucky Fried Cruelty’ campaign, boycotting the firm, staging thousands of protests at KFC restaurants and using shock tactics like dousing company executives in fake blood.”

Yesterday’s article noted that, “PETA is aiming to pressure McDonald’s and KFC into convincing U.S. chicken suppliers to rejigger their plants to the gas method of slaughter. McDonald’s has the power to ‘require that changes be made’ by its suppliers, said Matt Prescott, PETA’s director of corporate affairs.

“McDonald’s has studied the chicken issue extensively, including conducting its own tests on the gas method of slaughter, said Bob Langert, McDonald’s vice president of corporate social responsibility. ‘It’s not conclusive that it’s more humane.’

About 30 percent of the chicken McDonald’s buys in Europe comes from slaughterhouses that use the gas method. But in the U.S., the technology hardly exists in the chicken industry.”

In a related article, AFP reported yesterday that, “US fast-food chain Kentucky Fried Chicken said on Monday it would create 9,000 jobs across Britain and Ireland by 2014, a boost for two nations deep in recession.

“KFC, which runs more than 11,000 food outlets in some 80 countries and is a subsidiary of Yum! Brands, Inc., said in a statement that it would open 200-300 new outlets.”

The article stated that, “The fast food group, which specialises in fried chicken, added that it would spend 100-150 million pounds in the ambitious expansion scheme.”

Food Safety

David Shaffer reported yesterday at the Minneapolis Star-Tribune Online that, “U.S. Sen. Amy Klobuchar said Monday that the owner of a peanut-processing company should be prosecuted for the salmonella poisoning of more than 600 people and federal laws should be changed in the hope of preventing future outbreaks of food-borne disease.

“‘Based on my review of the evidence, there should be a criminal prosecution here,’ said Klobuchar, D-Minn., after hosting a two-hour panel discussion on food safety at the University of Minnesota’s St. Paul campus.

“Peanut Corp. of America, which has filed for liquidation in bankruptcy court, is the subject of a federal criminal investigation over the shipping of adulterated peanut products from its now-closed Blakely, Ga., processing plant. Last week, the company’s president, Stewart Parnell, refused to testify in Congress, citing his Fifth Amendment right against self-incrimination.”

The New York Times editorial board noted in today’s paper that, “The new agriculture secretary, Tom Vilsack, is talking about creating ‘a modern, unified food-safety agency capable of reducing the risk of food-borne illness.’ Many thoughtful food-safety experts have been calling for such an approach for years. Today’s patchwork system requires frozen pizzas to be inspected by two agencies: one if they’re cheese and another if they’re pepperoni.

A one-stop agency could take time in Washington. Until then, Mr. Vilsack should look at ways to strengthen current federal and state systems for avoiding food hazards. Congress needs to find more money for inspectors, especially at the Food and Drug Administration.”

And the editorial board at The Washington Post indicated today that, “The Peanut Corporation of America was not required to report its numerous positive salmonella results to state or federal authorities. Companies need to be required to test for the hazards that are most likely to occur in their products, and standards for what constitutes a hazard must be devised. A bill from Rep. Rosa DeLauro (D-Conn.) would do this. One from Rep. John D. Dingell (D-Mich.) would mandate the use of a certified lab and require that the results be sent directly to the FDA. Add to that bills sponsored by Rep. Diana DeGette (D-Colo.) for mandatory recalls of contaminated food and for a program to trace food and produce from farm to fork, and you have the makings of a comprehensive approach to safeguarding the nation’s food supply. No system can be foolproof or error-free. But these measures would, at least, establish a system where none exists.”

Crop Insurance

A University of Illinois Extension article from Friday (“2009 Crop Insurance Changes Suggest Considering Either Grip or Enterprise Units and be for CRC and RA-HP”) stated that, “Most Illinois farmers insure using Crop Revenue Coverage (CRC), Revenue Assurance (RA), or Group Risk Income Plan (GRIP). Of the corn acres insured in 2008, 35% was insured with CRC, 30% with RA, and 18% with GRIP. Of soybean acres insured in 2008, 18% were insured with CRC, 45% with RA, and 12% with GRIP. In 2008, 83% of the corn acres were insured with these three products while 75% of soybean acres were insured with the three products.

One of the three products will be a good choice in 2009. GRIP is a county product that makes payments when county revenue falls below a county guarantee. Over time, GRIP has paid out more in indemnity payments than farmers have paid in premiums. This occurs because all Federal crop insurance products are subsidized. Over time, GRIP should return about $1.78 for each dollar of farmer-paid premium given that GRIP premiums are set correctly. Historical analyses suggest that indemnities on GRIP have exceeded farmer-paid premiums.”

The article added that, “CRC and RA are two farm products that make payments when farm revenue falls below a farm guarantee. Because a farm’s yields are used in calculating guarantees and revenues, CRC and RA provide better risk protection than GRIP. Unlike GRIP, however, historical analyses indicate that Illinois farmers have paid more in premiums on CRC and RA than they have received in indemnity payments. Hence, the choice between CRC, RA, and GRIP comes down to a risk-return tradeoff. Because they are based on farm yields, CRC and RA will provide better risk protection than GRIP. But GRIP will tend to have higher indemnity payments relative to farmer paid premiums than CRC or RA.

Changes to insurance policies in 2009 may impact farmer choices. Two changes reduce premiums on CRC and RA: higher subsidy levels have been implemented for enterprise units and the Biotech Endorsement (BE) has been expanded. In addition, subsidy levels have been lowered for GRIP. One other change in 2009 is a simplification of limits of harvest price movements.” Each of these changes was discussed in more detail in the rest of the paper.

Sara Wyant, writing recently at the High Plains/Midwest Ag Journal Online noted that, “Nationwide, more and more farmers are switching from traditional Actual Production History (APH) policies, based on yield, to those that pay when revenues drop. In 2008, over 75 percent of the crop insurance coverage sold on corn and soybeans was revenue-based, says Tim Witt, acting associate administrator of the U.S. Department of Agriculture’s Risk Management Agency. And it wasn’t an easy decision.

“‘Given the considerably higher price elections and the volatility factors, revenue coverage was very expensive,’ adds Witt. ‘But people demonstrated that they were willing to buy that type of protection.’ Nationwide, farmers paid almost $9.9 billion in premiums on revenue policies and all other types written, with the U.S. government subsidizing a considerable portion of the cost. The subsidy rate depends on the coverage level and insurance plan selected by the producer.”

Secretary Vilsack

A Reuters news article from yesterday (posted at DTN, link requires subscription) reported that, “U.S. farmers could make money from carbon credits and other steps to control greenhouse gases with more security than farm subsides, often eyed for budget cuts, Agriculture Secretary Tom Vilsack said on Monday.

“‘I strongly believe this is a tremendous opportunity for rural America,’ Vilsack said at the National Cotton Council annual meeting. ‘We can create a whole system of green payments that will help support’ farmers across the country.

“During a 40-minute appearance, Vilsack mentioned three times the potential for income from programs that curb climate change. By contrast, he said, challenges to farm payments are inevitable as the U.S. deficit rises.”

The article added that, “Cotton Council chairman Jay Hardwick said ‘there are probably opportunities there’ but many details are yet to be settled, such as how much credit, and income, a grower could earn for carbon controls.

He said he would be reluctant to dismantle the farm program so that it focused on environmental enhancements without assuring U.S. crop production.”

In an audio segment posted at the National Association of Wheat Growers (NAWG) Online entitled, “Comments From Secretary of Agriculture Tom Vilsack to the Board of NAWG and U.S. Wheat Associates, Feb. 9, 2009,” Sec. Vilsack commented on the future of direct payments and climate change. To listen to a brief clip of his remarks on this issue, just click here (MP3- three minutes).

To hear Sec. Vilsack’s remarks in their entirety, just click here.

Keith Good