Scott Kilman reported in today’s Wall Street Journal that, “Major agricultural commodities continued their extended run-up in price, underscoring how much of America’s farm belt is booming even as the overall economy continues to struggle.
“Contracts for the delivery of corn and soybeans into mid-2011 jumped Monday by 5% and 2%, respectively, after rising their daily permissible limits on Friday, when the U.S. Department of Agriculture sliced production estimates by small percentages. Cash cotton prices rose 3.3% Monday after a 3.9% gain Friday. They are 86% higher than a year ago.
“For many crops, prices are climbing even as big harvests pile up, a rare combination. Farmland values are up while those for some other kinds of real estate languish. Debt on the farm is manageable. Incomes are rising.”
The Journal article noted that, “The higher prices probably won’t sting consumers at the dinner table as much as did a crop-price surge in 2008, when the consumer price index for food jumped 5.5%. With unemployment high and shoppers frugal, food executives are leery of trying to pass higher costs on. The USDA expects retail food prices to rise 0.5% to 1.5% this year, which would be the least since 1992, though some economists see these prices climbing 3% to 4% next year.
“For taxpayers, higher commodity prices mean the government’s cost of farm subsidies this year will fall to around $12 billion, about half the level in years when prices were much below targets set by Congress [see related graph]. Farmers this year are reaping about $4.8 billion in direct payments that aren’t tied to market prices, as well as checks for such things as weather-related disasters and a land-idling conservation program.”
Mr. Kilman pointed out that, “Modest debt is another factor helping the farm economy. A debt crisis on the farm in the mid-1980s was so punishing that it dealt both operators and lenders a generation-long dose of caution. Farm debt, which had hit 28.5% of equity in 1985, now is just 13% of equity.
“So while soured debt weighs on values in other forms of real estate, Midwestern farmland prices are climbing. Iowa land was up 8% on July 1 from a year earlier, according to the Federal Reserve Bank of Chicago.”
The article added that, “Cotton prices have broken through the $1-a-pound level for the first time in 15 years. The prices and an expected bountiful harvest could swell cotton farmers’ 2010 cash receipts to $5.3 billion. That would be up nearly 50% from last year and the biggest jump of any major farm commodity, according to Agriculture Department forecasts.”
“The world continues to consume cotton faster than farmers can grow it. The U.S. is the world’s biggest cotton exporter, but U.S. and foreign supplies relative to consumption are getting the tightest they have been since the mid-1990s,” the Journal article said.
Meanwhile, the AP reported yesterday that, “Corn prices extended their rally Monday amid heightened concerns about tight supplies even as demand remains strong from ethanol producers, livestock owners and overseas buyers.”
Gregory Meyer reported yesterday at the Financial Times Online that, “Corn ended 5.2 per cent higher, bringing its two-day gain to 11.5 per cent. Such has been the sharpness of the move that policymakers are contemplating a repeat of the global food crisis of 2007-2008. Analysts have also started discussing the level at which prices could begin to shave consumption to bring it in line with supply.”
In a separate FT article yesterday, Greg Farrell and Gregory Meyer reported that, “A surprise contraction in the US corn supply will push up beef, pork and chicken prices in what parts of the industry warn will be a ‘game changer.’”
The FT article noted that, “The beef industry is only this year recovering from the commodity price spikes of 2007 and 2008 – events that led to a dramatic diminution of the number of cattle raised for slaughter.
“[Gregg Doud, chief economist of the National Cattlemen’s Beef Association] said the spike in corn prices would push the cost of breeding cattle beyond the point where those costs could be passed along to consumers.
“The impact on chicken producers was immediate. Shares of Tyson – the top chicken producer in the US – dropped by almost 8 per cent, closing at $15.01 on Friday.”
“Steve Meyer, of Paragon Economics, said the price spike would discourage expansion in the pig industry too. ‘Instead of seeing retail prices come down, they’ll stay up for the foreseeable future.’”
And Bloomberg writers Whitney McFerron and Elizabeth Campbell reported yesterday that, “Meat prices are poised to extend a 14 percent rally this year that drove U.S. retail costs to the highest levels since the 1980s as surging corn futures prevent livestock producers from expanding their herds.
“The U.S. cattle herd in July was the smallest since 1973 and the number of breeding hogs last month was near the lowest ever, government data show. Corn futures jumped to a two-year high today and the price of the main feed ingredient is more than 70 percent above the 10-year average.
“U.S. per-capita beef supplies next year will be the lowest since 1952 and pork the smallest since 1976, industry researcher CattleFax said. Hog futures will rise 14 percent by July and cattle may gain 3.6 percent by April, according to a Bloomberg survey of analysts. Wendy’s/Arby’s Group Inc., the maker of the 1,360-calorie Baconator Triple burger, and CKE Restaurants Inc., owner of the Hardee’s chain, have warned investors they are contending with higher commodity costs.”
In a concise but detailed analysis of some of the USDA estimates that were released on Friday, University of Illinois Agricultural Economist Darrel Good indicated yesterday (“Markets Get Whipsawed”) that, “Corn and soybean prices will now be influenced by expectations about the November production forecasts and the revealed rate of consumption. Chatter about acreage needs in 2011 has already begun, but is likely premature. The actual rate of consumption over the next six months and the size of the South American crops will have significant impacts on U.S. acreage needs in 2011. Early thinking is that more corn acres will be needed in 2011. The degree of acreage competition for spring planted crops will be influenced by winter wheat seeding decisions to be revealed in early January.”
Beyond corn, soybeans and cotton, Bloomberg writer Chris Kay reported yesterday that, “Sugar rose to the highest price in more than seven months in London on concern that adverse weather may limit supplies from Brazil, the world’s largest producer of the sweetener.
“Brazil will harvest 3.2 percent less sugar cane than previously estimated in the year that began May 1, the U.S. Department of Agriculture’s attache in Sao Paulo said Oct. 4. The nation’s south-central sugar cane growing region experienced a four-month drought up to mid-September that damaged crops.”
In a broader look at food security and hunger issues, a news release yesterday from the Food and Agriculture Organization of the United Nations indicated that, “A five-day high-level intergovernmental meeting of the newly reformed Committee on World Food Security (CFS) opened today. The meeting takes place against a background of recent increases in international food prices which pose additional challenges to food security.
“Since its last session in October 2009, the CFS has been undergoing a major reform with the aim of making the Committee the most inclusive international and intergovernmental platform for all relevant stakeholders to work together to ensure food security and nutrition for all. In its role as the cornerstone of the global governance of agriculture and food security, the CFS will be more effective in facing challenges to food security.”
Philip Brasher reported yesterday at the Green Fields Blog that, “Addressing global hunger will require doing something about nutrition in children under 2 years old, according to a report released today. The extent of underweight children is one of three factors in rating the severity of hunger in countries around the world under the Global Hunger Index compiled by the International Food Policy Research Institute and two other groups. The rate of underweight children winds up counting for nearly half of the total score worldwide in the latest index.
“More than 90 percent of the world’s children who are considered stunted, because their height is low for their age, live in Africa and Asia. Stunting results from the cumulative effects of undernutrition, making it a good indicator of the problem, the report says.”
Darren Goode reported yesterday at The Hill’s Energy Blog that, “Four main ethanol industry trade groups are floating draft principles ahead of key White House and Capitol Hill decisions about extending federal assistance and market share for the gasoline additive.
“The groups — American Coalition for Ethanol, Growth Energy, Renewable Fuels Association and the National Corn Growers Association — recently drew up the draft blueprint offering a long-term policy roadmap for the industry to help in their discussions with the Obama administration and on Capitol Hill.”
Yesterday’s update explained that, “The draft principles, obtained by The Hill, feature the need to extend a 45-cent volumetric excise tax credit for ethanol that expires at the end of the year ‘at the highest level possible’ for another year.
“The idea would then be to transition to a new four-year production tax credit essentially based on the greenhouse gases used to produce a gallon of fuel. For example, a facility that makes corn-based ethanol using biofuels would receive a higher tax credit than a corn-based ethanol plant using fossil fuels. Those that employ new technology to reduce energy and water use could also receive a higher credit.
“The groups also call for more rapid deployment of flex-fuel vehicles and pumps that can handle ethanol blends to increase their market access.”
Mr. Goode added that, “The groups also want to suspend the Environmental Protection Agency’s effort to take indirect land use changes into account when determining the carbon footprint of ethanol ‘until a scientifically-based, transparent, reliable, and verifiable metric is created to determine the lifecycle greenhouse gas emissions of all fuels in the U.S. transportation marketplace,’ according to the draft principles.”
Louise Loftus reported yesterday at The New York Times Online that, “A framework of tariffs and subsidies introduced by the U.S. Energy Tax Act of 1978 has long bolstered the American ethanol industry, helping to increase demand while keeping foreign competitors out.
“But these tariffs are due to expire Dec. 31 and other countries are lobbying hard to get into the U.S. market — particularly Brazil, the world’s largest producer of sugar cane ethanol, which stands to be the biggest beneficiary if the tariffs are allowed to end.”
The article stated that, “But ethanol, particularly from corn, the primary source of American ethanol, remains controversial. Billed by some as an answer to questions posed by climate change and fuel security, it is criticized by others as siphoning food away from the hungry and into the fuel tanks of rich countries, leaving a trail of environmental devastation in its wake.”
“Food prices are no longer at the record levels of 2008, but they remain high and are still prone to sudden upward spikes.
“And though a study published by the World Bank suggested that the part played by biofuels in the rise of food prices in 2006-8 may have been overplayed, concerns persist over diverting agricultural resources to fuel production.”
The Times article added that, “Tom Buis, chief executive of Growth Energy, an American industry coalition of ethanol supporters, called last month for continuing U.S. government support — if not through tariffs, then through investment in infrastructure improvements, more flex-fuel vehicles and increased blending levels.
“The industry hopes to receive approval soon from the Environmental Protection Agency for an increased cap on blending ethanol in gasoline — allowing cars built since 2007 to use regular gasoline blended with ethanol levels of 15 percent instead of 10 percent.”
Devlin Barrett reported yesterday at The Wall Street Journal Online that, “Sen. Kirsten Gillibrand, a longtime advocate for policies that encourage better eating habits, is not jumping on board the effort by Mayor Michael Bloomberg and Gov. David Paterson to bar low-income people in New York City from using food stamps to purchase soda and other sugary drinks.
“Asked in an interview whether she thought the proposal was a good one, the senator said: ‘I think giving parents and families the tools they need to make the right choices is a better approach.’”
The Journal article stated that, “Her reluctance to embrace the effort is noteworthy because she has championed other nutrition and diet proposals from the mayor, including mandating that major restaurants post calorie counts and requiring that school lunches be healthier.
“Also, she sits on the Agriculture Committee, which has jurisdiction over the agency that will decide whether to grant the sugary drinks request.”
The article added that, “A spokesman for New York’s other senator, Charles Schumer, declined to comment when asked whether the senator supported or opposed the anti-soda effort by the mayor and governor.
“Both senators are Democrats running for election this year amid complaints from Republicans that the Democratic-controlled Congress is too intrusive in the life of everyday Americans, from taxes to health care to business regulation. A crackdown on soda consumption could further fuel that criticism. Ms. Gillibrand was appointed to the Senate last year by Mr. Paterson to the seat vacated when Hillary Clinton became secretary of state.”
Manu Rajou reported yesterday at Politico that, “Public polls show that Republican Rep. John Boozman is poised to easily walk away with the [Arkansas Senate] race — he’s up double digits in all but [Senate Agriculture Committee Chairman Blanche Lincoln’s] own internal polls — and, in an interview, Boozman sounded confident that he’d ride a wave of anger toward the Democratic majority into the Senate seat in the fall elections.
“Lincoln’s internal polling shows her trailing by just 7 percentage points after being down by as much as 20, according to several people familiar with the numbers. And she’s trying to convince national Democrats that a late surge could help her pull off another shocker after her come-from-behind victory in a June runoff against Lt. Gov. Bill Halter in the Democratic primary.”
And in a race with implications for the House Ag Committee, Lauren W. Whittington reported yesterday at Roll Call Online that, “South Dakota state Rep. Kristi Noem (R), who is vying to knock off Rep. Stephanie Herseth Sandlin (D) next month, announced Monday that her campaign raised $1.1 million in the third quarter.
“Noem began October with $777,000 in the bank for the final stretch of the campaign. Herseth Sandlin has not yet released her latest fundraising totals, which are due to be reported to the Federal Election Commission on Friday.”