FarmPolicy

September 21, 2019

Ag Economy; Regulatory Issues; and Trade

Agricultural Economy

Reuters writer Christine Stebbins reported on Wednesday that, “Prices for farmland in the heart of the U.S. grain belt were up 17 percent in the second quarter compared to a year ago [related graph], the biggest jump since 1977, the Federal Reserve Bank of Chicago said on Wednesday.

“The rising values were driven by strong crop, livestock and milk prices which spurred farmers and investors to buy land, the bank said. Low interest rates have also boosted demand [related graph].

“‘The combination of higher revenues for crop and livestock production has been an impetus for the significant increases in agricultural land values seen this year in the district,’ the Fed said in its quarterly newsletter, adding ‘demand for farmland remained strong from both farmers and investors.’”

The article pointed out that, “Farmland strength in the last year has caused concerns about another farmland ‘bubble’ like the one seen in the 1980s U.S. farm crisis, when overextended farmers lost their land. But bankers say most farmers are much less debt-laden than they were at that time thanks to boom crop prices in recent years.

“The Kansas City Fed released its own banker survey Monday, showing similar results with farmland values up more than 20 percent from a year ago. But the KC Fed farm income was also down in the southern Plains as a devastating drought had hurt crop yields and thus farmers’ incomes.”

The Agricultural Survey report for the second quarter from the Federal Reserve Bank of Dallas indicated that, “Bankers responding to the second-quarter survey reported that severe drought continues to manifest challenges for the Eleventh District agricultural community. Comments from bankers noted widespread negative impacts of the dry conditions—low or nonexistent yields for many dryland crops, stress to irrigated crops and very poor pasture conditions. Respondents in several regions mentioned that farmers will likely collect crop insurance money to offset drought losses. There were numerous reports of ranchers liquidating their cattle herds due to inadequate grazing conditions and a lack of surface water.

Cropland values continued to rise, while ranchland values edged down from last quarter [related graph]. Expectations for farmland values were slightly less positive than in recent reports, with less than 10 percent of bankers anticipating an increase over the next three months [related graph].”

John Blanchfield, senior vice-president of the American Bankers Association, was a recent guest on the AgriTalk radio show with Mike Adams and the two discussed a variety of issues impacting the agricultural economy.  Among the variables they touched on were farmland values.  To listen to this portion of the conversation, click here (MP3- 2:37).  During the conversation, Mr. Blanchfield highlighted the use of cash versus credit in land purchasing and discussed potential implications that less leveraged investments could have if land values were to decrease in the future.

With respect to implications for cash rental rates, Marcia Zarley Taylor reported yesterday at DTN’s Minding Ag’s Business Blog that, “While competition for rental land isn’t new, the financial stakes for cash renters are. For 2012, renters are budgeting with $6 corn dancing in their heads and adjustments to their rents aren’t far behind.  Farm managers from Iowa, Minnesota and Illinois all told me $400 cash rents will be commonplace and to expect 10% to 20% increases, depending on when you set last year’s lease terms.

“A 5,000+-acre farmer attending a crop insurance meeting in Kansas City this week is plugging an average of $365/acre into his 2012 budgets, up from an average of $255 this year. That still offers him a projected 20% return on investment for corn next year (down from 30% on his 2011 crop), but he’s using one-year leases so he won’t be locked into fixed costs should prices unexpectedly plummet in 2013 and beyond. He feels cash rents give retired landowners the security of knowing what their living expenses will be for the year ahead, and he’s willing to ‘tip’ a little extra at year end if things turn out better than expected.”

Meanwhile, Sarah Reinecke reported earlier this week at the Argus Leader Online (SD) that, “Rural America could help lead the economy out of its slump, a South Dakota native who works for the U.S. Department of Agriculture said Wednesday.

Dallas Tonsager, USDA undersecretary for rural development, said in his 40 years as a farmer, he’s never seen the agriculture sector as strong as it is now. Exports are booming, the biofuels industry is strong, and there is room for growth.”

Nonetheless, the AP reported yesterday that, “The economy in rural areas of 10 Midwest and Plains states appears to be slowing down as concerns about the nation’s financial health grow, according to a new monthly survey of bankers released today.

“The overall Rural Mainstreet index for the region dipped below 50 for the first time this year, hitting 49.3 in August. Anytime that index, which ranges from 0 to 100, is below 50, it suggests the economy will contract.

Even though farm income remains healthy, rural businesses aren’t hiring many workers and the bankers are losing confidence in the economy, said Creighton University economist Ernie Goss, who oversees the survey.”

In news related to agricultural production, Dan Piller reported yesterday at the Green Fields Blog (Des Moines Register) that, “Elwynn Taylor of Iowa State University Extension is warning now that the U.S. corn yield is likely to average 149 bushels per acre, which would be four bushels per acre below the U.S. Department of Agriculture estimate released last week and worsen the problem of tight U.S. corn stocks.

“That would put the national corn yield well below the 164 bushels per acre from the 2009 crop and even below the 153 bushels per acre last year, when the crop was hit by flooding in Iowa and Illinois.

“The USDA originally forecast a national yield of 158.7 bushels per acre through mid-summer, then dropped its estimate to 153 bushels per acre in its latest supply and demand report last week.”

And Robert Pore indicated yesterday at the Grand Island Independent Online (Neb.) yesterday that, “An economist for the University of Missouri said that more corn will fuel U.S. gas tanks in the coming year than will feed U.S. livestock and poultry.

“Amid cuts to yield estimates for corn and soybeans, Ron Plain said the USDA’s Crop Production and Supply/Demand Report projects that ethanol plants will use 200 million more bushels of corn than animals will eat.

“‘That’s a first-time-ever type of change,’ Plain said. ‘For forever, feed was the largest single use of corn.’”

The USDA’s Economic Research Service (ERS) released a report yesterday title, “The Ethanol Decade: An Expansion of U.S. Corn Production, 2000-09.”  An ERS summary of the report stated: “The recent 9-billion-gallon increase in corn-based ethanol production, which resulted from a combination of rising gasoline prices and a suite of Federal bioenergy policies, provides evidence of how farmers altered their land-use decisions in response to increased demand for corn. As some forecasts had suggested, corn acreage increased mostly on farms that previously specialized in soybeans. Other farms, however, offset this shift by expanding soybean production. Farm-level data reveal that the simultaneous net expansion of corn and soybean acreage resulted from a reduction in cotton acreage, a shift from uncultivated hay to cropland, and the expansion of double cropping (consecutively producing two crops of either like or unlike commodities on the same land within the same year).”

In first hand reporting regarding the ongoing drought in the south, DTN Ag Policy Editor Chris Clayton indicated yesterday (link requires subscription) that, “Though only 34, Jerod McDaniel knows a little about how to succeed in farming along the Oklahoma and Texas borders. But this year is making McDaniel recalibrate his basic views on practices such as irrigation.

“‘In all my life, I’ve never seen a circle of corn die under a pivot,’ McDaniel said, standing in a field of short, shriveled stalks with ears that didn’t make.

“But that’s happened a lot in the Texas and Oklahoma panhandles for a variety of reasons. In some cases, producers cut off irrigation early when it appeared the crop was too stressed, or cut their circle pivots to half circles, sacrificing half the crop to salvage the other half, or a different crop such as cotton.”

The DTN article pointed out that, “Crop production around Texhoma [Okla.] is expected to take a big hit with the drought. Last year, Texhoma handled 6.2 million bushels of corn, so much the elevator had more than 1 million bushels piled and built three new bins this year to handle extra capacity.

“‘This year, I think we’ll be lucky to get 3 million bushels,’ said Audrey Hofferber, general manager of the Texhoma Wheat Growers Inc. cooperative.”

And a news release yesterday from the University of Missouri stated that, “Historically, droughts have had devastating effects on agriculture, causing famine and increasing consumer food costs. Now, researchers at the University of Missouri College of Agriculture, Food and Natural Resources (CAFNR) have completed two drought simulators designed to test the effects of water deficiency on crops. The simulators are located at the University of Missouri’s Bradford Research and Extension Center east of Columbia.”

Also yesterday, USDA’s Economic Research Service (ERS) released a report titled, “Impacts of Higher Energy Prices on Agriculture and Rural Economies.”  An ERS summary of the report stated that, “Agricultural production is sensitive to changes in energy prices, either through energy consumed directly or through energy-related inputs such as fertilizer. A number of factors can affect energy prices faced by U.S. farmers and ranchers, including developments in the oil and natural gas markets, and energy taxes or subsidies. Climate change policies could also affect energy prices as a result of taxes on emissions, regulated emission limits, or the institution of a market for emission reduction credits. Here we review the importance of energy in the agricultural sector and report the results of a case study on the economic implications for the farm sector of energy price increases that would arise from plausible, constructed greenhouse-gas-emission reduction scenarios. Higher energy-related production costs would generally lower agricultural output, raise prices of agricultural products, and reduce farm income, regardless of the reason for the energy price increase. Nonetheless, farm sector impacts were modest for the scenarios and time periods examined. We demonstrate the unique distribution of effects resulting from price (or cost) increases for different types of energy due to pricing their carbon content, as well as the relative use of energy in production of different agricultural commodities.”

 

Regulations: Biotech

In an Op-Ed published in today’s New York Times, Nina V. Fedoroff indicated that, “Food prices are at record highs and the ranks of the hungry are swelling once again. A warming climate is beginning to nibble at crop yields worldwide. The United Nations predicts that there will be one to three billion more people to feed by midcentury.

“Yet even as the Obama administration says it wants to stimulate innovation by eliminating unnecessary regulations, the Environmental Protection Agency wants to require even more data on genetically modified crops, which have been improved using technology with great promise and a track record of safety. The process for approving these crops has become so costly and burdensome that it is choking off innovation.”

Today’s item noted that, “It is time to relieve the regulatory burden slowing down the development of genetically modified crops. The three United States regulatory agencies need to develop a single set of requirements and focus solely on the hazards — if any — posed by new traits.

“And above all, the government needs to stop regulating genetic modifications for which there is no scientifically credible evidence of harm.”

 

Regulations: Farmers and EPA

DTN Political Correspondent Jerry Hagstrom reported yesterday that, “Agriculture Secretary Tom Vilsack said Thursday he agreed with President Barack Obama’s statements on Wednesday that farmers worried about impending regulation should check to make sure the regulations are really moving forward or are they just fears being fed by lobbyists in Washington.

“Asked on a call to reporters whether the administration might address concerns farmers had expressed about regulation during Obama’s Midwestern tour, Vilsack said when a farmer asked a related question in Atkinson, Ill., Wednesday, ‘the president’s response was right on target.’

“When the farmer told Obama that he wanted to start his days driving his tractor, not filling out paper work, Obama asked the farmer for his specific concerns. The farmer replied, ‘We hear what’s coming down about noise pollution, dust pollution, water runoff.’”

A related report from USDA’s Daily Radio News Service yesterday (“Vilsack: I Will Inform EPA about Farm Effects of Any Proposed Regs”) indicated that, “Vilsack says he’s looking out for farm interests when it comes to proposed new regulations from the Environmental Protection Agency.”  To listen to this one-minute report, just click here.

An update posted yesterday at Brownfield included an interview Tom Steever had with the President during his Midwest tour. During that discussion, Mr. Steever asked the President about regulatory concerns expressed by farm groups and lawmakers, related audio available here (MP3- 1:48).

Meanwhile, MJ Lee reported yesterday at Politico that, “At Wednesday’s town hall in Atkinson, Ill., a local farmer who said he grows corn and soybeans expressed his concerns to President Barack Obama about ‘more rules and regulations’ — including those concerning dust, noise and water runoff — that he heard would negatively affect his business.

“The president, on day three of his Midwest bus tour, replied: ‘If you hear something is happening, but it hasn’t happened, don’t always believe what you hear.’”

The article added that, “Saying that ‘folks in Washington’ like to get ‘all ginned up’ about things that aren’t necessarily happening (‘Look what’s comin’ down the pipe!’), Obama’s advice was simple: ‘Contact USDA.’

“‘Talk to them directly. Find out what it is that you’re concerned about,’ Obama told the man. ‘My suspicion is, a lot of times, they’re going to be able to answer your questions and it will turn out that some of your fears are unfounded.’

“Call Uncle Sam. Sensible advice, but perhaps the president has forgotten just how difficult it can be for ordinary citizens to get answers from the government.”

Yesterday’s item noted that, “When this POLITICO reporter decided to take the president’s advice and call the USDA for an answer to the Atkinson town hall attendee’s question, I found myself in a bureaucratic equivalent of hot potato — getting bounced from the feds to Illinois state agriculture officials to the state farm bureau.

Here’s a rundown of what happened when I started by calling the USDA’s general hotline to inquire about information related to the effects of noise and dust pollution rules on Illinois farmers: [click here for the reminder of the article and documentation of calls and responses made by the Politico reporter.]

 

Trade

AgriTalk host Mike Adams recently spoke with U.S. Trade Representative Ron Kirk about trade issues, and the pending Free Trade Agreements that are currently awaiting Congressional approval.  To listen to this AgriTalk interview, just click here.

And Ken Anderson reported earlier this week at Brownfield that, “There seems to be some disagreement over who is to blame for the repeated delays in approving those three pending free trade agreements.

“Speaking in Iowa Tuesday, President Obama urged Congress to pass the FTAs.  He said rural America would benefit tremendously from the increased trade—and in Obama’s words, ‘the only thing holding us back is our politics.’

“But Nebraska U.S. Senator Mike Johanns says it’s the Administration that has been holding things up.”

Trade was a topic that came up in Tom Steever’s interview with the President, a portion of this discussion is available here (MP3- 2:05).

Keith Good

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