Agricultural Economy (WASDE Report)
Yesterday’s Crop Production report from the USDA’s National Agricultural Statistics Service (NASS) noted that, “Corn production is forecast at 12.3 billion bushels, down 1 percent from the October forecast and down 1 percent from 2010. If realized, this will be the fourth largest production total on record for the United States [related graph].”
The report added that, “Soybean production is forecast at 3.05 billion bushels, down slightly from the October forecast and down 9 percent from last year. Based on November 1 conditions, yields are expected to average 41.3 bushels per acre, down 0.2 bushel from last month and down 2.2 bushels from last year [related graph].”
Incorporating the NASS production estimates, the World Agricultural Outlook Board yesterday also released its monthly World Agricultural Supply and Demand Estimates (WASDE) report.
A brief overview of yesterday’s reports was posted yesterday at the farmdocdaily blog (“Numerous Changes in Crop Production and Consumption Forecasts,” by University of Illinois Agricultural Economist Darrel Good).
Gregory Meyer reported yesterday at The Financial Times Online that, “The US government said the nation’s corn fields yielded the least per acre in eight years, underscoring how tight supplies remain for the world’s primary feed grain.
“Farmers in the top agricultural exporter grew 146.7 bushels of corn per acre this year, the US Department of Agriculture said, 1.4 bushels less than its forecast a month ago. Because farmers planted vast areas with corn last spring, the US crop will still total 12.31bn bushels, the fourth-biggest in history but 123m bushels lower than previously estimated.
“Corn futures showed little response to the revised outlook as the market looked beyond the report to Europe’s spiralling debt crisis and a strong rise in the dollar, which makes US agricultural exports less appealing to foreign buyers.”
Yesterday’s article pointed out that, “Corn, mainly used for animal feed and to make the fuel ethanol, is scarce by historical standards. The USDA forecast US stocks would decline to 843m bushels by the start of next year’s harvest, the lowest level since 1996. Averaged across the season, grain prices are at records. Corn yields were hit after rains delayed planting and heat harmed stalks in the US.
“The disappointing US crop has been partly offset by strong corn and wheat harvests elsewhere, helping to avoid a food crisis on the scale of 2007-08. The USDA on Wednesday said the corn production outlook had brightened in China, Europe, Argentina and Russia, among other growers.”
Ian Berry reported in today’s Wall Street Journal that, “But Wednesday’s report mostly confirmed what many traders already expected: What was supposed to be a big crop planted last spring is falling short of expectations, leaving supplies tight and prices elevated.”
The Journal article noted that, “Nearly balancing out the cut in production was a reduced outlook for domestic demand. The Agriculture Department said it expects U.S. chicken farmers to use less of the grain as they are cutting back the size of flocks in the face of a supply glut.
“One place in which federal forecasters do see increased demand for U.S. corn is China. They now expect total Chinese corn imports to reach three million metric tons in the current marketing year, which runs from September to August. That is an increase from the two million tons the agency predicted last month and an even bigger leap from the 980,000 tons China imported in the previous marketing year. Still, many analysts think even the upgraded estimate is too conservative.”
And the AP reported yesterday that, “The government slightly reduced its estimate for next year’s corn supply, a move that could keep food prices high for most consumers.
“The Department of Agriculture estimates that a smaller harvest will leave farmers with 843 million bushels of corn at the end of next summer. That’s lower than last month’s forecast of 866 million bushels. Wednesday’s crop forecast is the first since farmers harvested most of their corn crop last month.”
In other developments, DTN Executive Editor Marcia Zarley Taylor filed a story from Indianapolis yesterday, where the Agricultural Bankers Conference was held this week.
Yesterday’s DTN article (link requires subscription) reported that, “While the lenders gathered here expect some of the highest farm incomes in history for U.S. grain producers in 2011, they aren’t buying the notion that farming is staged for a permanent golden era. Speakers repeatedly emphasized that commodities are cyclical and that when corrections occur, they could be steeper and more extreme than at any time in the past 25 years. Several commodity advisers even bucked conventional wisdom and laid out scenarios where corn could plunge under $4 by next fall — but they didn’t rule out $10 should weather take a swipe at yields.
“Barry Flinchbaugh, an emeritus agricultural economist from Kansas State University, chastised fellow economists who tout net farm incomes of $115 billion as ‘the new normal.’ Flinchbaugh has taught a farm policy class for 41 years and is skeptical that profit margins will be maintained at today’s levels. ‘At last count, I’ve lived through four of these new normals and the old cost-price squeeze always comes back,’ he said.”
Farm Bill Issues
Hembree Brandon reported yesterday at the Delta Farm Press Online that, “With skyrocketing input costs and the volatility of prices in world markets, farmers need the ‘protection and peace of mind’ of a farm program safety net, says Carlisle Clarke, agriculture liaison for Sen. Thad Cochran, R-Miss.
“‘They need this so they can continue to provide food security for the U.S. and to supply the export demands of a growing world population,’ he said at the annual meeting of the Mississippi Agricultural Economics Association at Mississippi State University.
“But, he cautioned, with farm commodity prices having hit record highs in recent years, and with the federal government facing record deficits, ‘in this fiscal environment, we have something of a perfect storm for opponents of production agriculture to target all of our programs for cuts.’”
The article noted that, “A concern in the budget-cutting process, [Clarke] says, is the makeup of the Joint Committee — of the 12 members, only one is a member of an agriculture committee, Sen. Max Baucus of Montana (D).
“‘Two years ago, on the Senate Agriculture Committee, we had the chairman and ranking member representing southern states. Today we have neither.’
“‘That’s a concern, too, because it’s still not clear if there will be any type of hearings, markups, or public settings where members outside the four committee principals — none of whom represent southern agriculture — will get to weigh in with recommendations for policy changes.’”
An update posted earlier this week at the Peoria Journal Star Online (Illinois) included a Q and A with Agriculture Secretary Tom Vilsack, a portion of this news item included the following transaction:
“With the emphasis on reducing federal spending, what do you foresee for the 2012 Farm Bill?
“[Sec. Vilsack]- In this particular farm bill, we’ll be challenged to find adequate resources. This will be a different type of Farm Bill. Direct payments to farmers will be significantly modified, if not eliminated, but a strong viable safety net – with a continued commitment to crop insurance – will remain in place.
“What kind of reduction in funding do you anticipate?
“[Sec. Vilsack]- Ag committees in Washington have informed the Committee of 12 (legislators formulating federal budget reductions) that they would be willing to take a $23 billion budget reduction (the last five-year Farm Bill involved $288 billion in spending). Along with changes in the direct payment system to farmers, we could be looking at changes in how conservation programs are financed with public-private partnerships. Other programs would take a haircut.”
Meanwhile, two Indiana GOP lawmakers, Sen. Richard Lugar and Rep. Marlin Stutzman, penned an Op-Ed that was posted earlier this week at The Washington Times Online, “Reform farm programs and harvest savings.”
In part, the opinion item stated that, “As our congressional colleagues on the super- committee struggle to close the yawning budget gap that threatens our economic future, there is one obvious source of savings: a market-distorting, intrusive special-interest-driven government program that wastes billions of dollars, raises consumer prices and restricts businessmen’s decisions. We are talking about America’s farm and food subsidy programs – outdated, inefficient and in dire need of reform.
“We are businessmen-farmers ourselves. We know that the national debt crisis endangers the prosperity of all and that wasteful farm program spending has been a real contributor over the years. That’s why we’ve introduced the REFRESH (Rural Economic Farm and Ranch Sustainability and Hunger) Act, a deficit reduction bill that cuts an estimated $40 billion over 10 years, ends policies that work against market forces and offers insurance options for farmers. As the supercommittee gropes for solutions, our bill remains the only comprehensive piece of agriculture legislation that can claim this level of savings combined with fundamental reforms.”
The authors added that, “To provide a genuine safety net for our nation’s food producers, we’ve proposed an aggregate risk and revenue management program that protects farmers against ‘shallow-losses.’ Unlike direct payments currently in place, this program wouldn’t blindly send money out the door but rather only when farm revenues actually fall. This program would complement the proven private-public crop insurance market for catastrophic loss that covered 255 million acres last year.”
Christine Souza, writing yesterday in a California Farm Bureau publication, indicated that, “A group of congressional leaders known as the ‘super committee’ has been meeting behind closed doors to develop recommendations to reduce the federal deficit—including a framework for the 2012 Farm Bill. Farm groups including the California Farm Bureau Federation describe the process as quite unconventional, compared to the development of past farm bills.
“‘Criticism is building over the process of drafting the farm bill under the umbrella of the super committee process and not having much of an opportunity for the public to weigh in,’ said Jack King, CFBF National Affairs and Research Division manager. ‘Though we would prefer a more open process, the end result may be satisfactory for the advancement of agricultural and nutrition programs—but clearly it’s very different from the traditional approaches.’”
Yesterday’s update pointed out that, “While farmers and farm organizations recognize tough budget decisions will have to be made with regard to the next farm bill, CFBF [California Farm Bureau Federation] President Paul Wenger said he would like funding for specialty crop and conservation programs to be preserved.
“‘California fruit, nut and vegetable growers led the charge in the 2008 Farm Bill to ensure that specialty crops would have their own title in all subsequent farm bills. This was the first real significant advance for specialty crops,’ Wenger said. ‘Funding was set aside in key areas including research, pest exclusion and market development. Now, we must maintain the progress we’ve made.’”
In news regarding the supercommittee, Jake Sherman and Manu Raju reported yesterday at Politico that, “The deficit supercommittee has quickly devolved from secret talks to full-fledged public brawl, with both sides leaking details of horse-trading and exchanging bitter charges ahead of what may become yet another major embarrassment for Washington.
“With the Joint Select Committee on Deficit Reduction deadline less than two weeks away, Democrats and Republicans are demanding each other budge first in order to prevent economic calamity. But both sides believe they’ve already made significant concessions — Democrats on entitlement cuts and Republicans on tax increases — and neither is yet willing to bend further and risk revolt from their respective parties.”
Erik Wasson reported yesterday at The Hill’s On the Money Blog that, “With exactly two weeks to go before the Nov. 23 supercommittee deadline, Democratic and Republican members huddled separately behind closed doors on Wednesday trying to find a way out of the panel’s stalemate.
“Each side says it is waiting for the other to make a fresh offer and claiming that it has made ‘painful’ concessions.”
Mr. Wasson noted that, “There have been no full supercommitee meetings for nearly two weeks.”
Also yesterday, Alexander Bolton reported at The Hill Online that, “Republicans have charged Democrats with breaking off talks on the deficit-reduction supercommittee less than two weeks before the panel’s deadline to reach a deal.
“The GOP accuses Democratic leaders of abruptly reining in their appointees after Republicans made a serious offer to reduce the deficit through tax reforms that would lower tax rates while eliminating or reducing tax deductions.”
And, Lori Montgomery reported in today’s Washington Post that, “A senior Democrat on Wednesday hailed a decision by congressional Republicans to embrace higher taxes as ‘a breakthrough’ in the year-long battle over the national debt. But that development only seemed to intensify partisan bickering over the shape of a debt-reduction blueprint.
“With a Thanksgiving deadline less than two weeks away, Senate Republicans declared talks over the debt at an impasse and accused Democrats of walking away after the GOP for the first time offered to raise taxes above current levels to help restrain future borrowing.”
The Post article stated that, “The offer [GOP revenue idea] marked an unprecedented break from the anti-tax orthodoxy that has defined the GOP for decades and blocked a far-reaching debt-reduction deal for much of the past year. On Wednesday, Sen. Richard J. Durbin (D-Ill.), the No. 2 Democrat in the Senate and a veteran of the budget wars, described it as ‘a breakthrough.’”
William Mauldin reported in today’s Wall Street Journal that, “Russia on Wednesday signed a pact with Georgia that removes the last obstacle to Moscow’s membership in the World Trade Organization, boosting the trade bloc’s clout among major world economies and sealing the Kremlin’s intentions to open up the economy after 18 years of negotiations…The deal also is a boost for Washington and Brussels, which have pushed for Russia to join. Accession to the trade bloc is expected to stimulate Russian economic growth and help global companies ranging from consumer goods to insurance.”
And Keith Bradsher reported in today’s New York Times that, “The United States and China are gearing up for a trade war that could catch American users of solar energy in the crossfire.
“The Commerce Department in Washington on Wednesday opened an investigation sought by American manufacturers who accuse the Chinese of ‘dumping’ solar panels into the United States at prices, aided by government subsidies, lower than the cost of making and distributing them.”
Lastly today, while U.S. lawmakers debate the Farm Bill, a quick look at farm policy and trade issues in the EU, a chief U.S. competitor, was posted yesterday at FarmPolicy.com.