Agricultural Economy: U.S. Drought Impacts Persist
A news release yesterday from USDA stated that, “As the Obama Administration continues to support farmers and businesses impacted by the drought, Agriculture Secretary Tom Vilsack today announced a two-month extension for emergency grazing on Conservation Reserve Program (CRP) acres, freeing up forage and feed for ranchers as they look to recover from this challenging time.”
Yesterday’s release added that, “The Secretary today also designated 147 additional counties in 14 states as natural disaster areas-128 counties in 10 states due to drought. In the past seven weeks, USDA has designated 1,892 unduplicated counties in 38 states as disaster areas- 1,820 due to drought [related graph]-while USDA officials have fanned out to more than a dozen drought-affected states as part of a total U.S. government effort to offer support and assistance to those in need.”
Also yesterday, a news release from Sen. Chuck Grassley (R., Iowa) stated that, “[Sen. Grassley] is asking the U.S. Department of Agriculture to consider additional remedies to help Iowa farmers withstand one of the worst droughts in years.”
The release explained that, “In a letter to USDA Secretary Tom Vilsack, Grassley urged the Secretary to extend the emergency haying period to September 30, 2012. Grassley said that when USDA opened up CRP land for haying and grazing, farmers had a relatively short window to take advantage of the opportunity compared to when farmers harvest hay on CRP land under mid-contract management situations…Grassley also wrote that he was concerned about the logistical difficulties of inspecting corn for aflatoxin as it relates to crop insurance claims.”
Meanwhile, the Federal Reserve Board released its Summary of Commentary on Current Economic Conditions yesterday. Commonly referred to as the “Beige Book,” the report included several regional observations with respect to the U.S. agricultural economy; a summary has been posted at FarmPolicy.com Online. Many of the Fed districts pointed to the strain higher feed costs were putting on livestock producers.
Jesse Bogan reported earlier this week at the St. Louis Post-Dispatch Online that, “Missouri is second only to Texas in the number of farms — 106,500 — because of small cow-calf operations in rugged parts of the state. Now, as the historic drought continues, scant hay, bald pastures and heavy heat are pressuring many farmers in the state’s $3.6 billion cattle industry to thin their herds because they can’t feed all of the animals and make a profit.
“Hit-and-miss drizzle over the weekend didn’t help, and it’s unclear whether remnants of Tropical Storm Isaac will have much of an effect. Meteorologists say it would take anywhere from 9 to 15 inches of rain over an extended period of time to mitigate Missouri’s drought conditions.”
The article added that, “After good hay crops in recent years, there is precious little to buy today. Drought conditions ravaged the latest cut in June. Last year, desperate farmers in Texas, dealing with a drought there, bought hay in Missouri and other states. Meanwhile, feed corn is expensive, with corn and soybeans trading at record highs.”
Reuters news reported today that, “The worst drought to hit U.S. cropland in more than half a century could soon leave Americans reaching deeper into their pockets to fund a luxury that people in few other countries enjoy: affordable meat.
“Drought-decimated fields have pushed grain prices sky high, and the rising feed costs have prompted some livestock producers to liquidate their herds. This is expected to shrink the long-term U.S. supply of meat and force up prices at the meat counter.
“The U.S. Department of Agriculture expects beef and veal prices to rise as much as 4.5 percent this year, and as much as 5 percent in 2013. Pork products could jump by up to 3 percent this year, and as much as 3.5 percent next year.”
(Note: For more information on beef demand, see “Consumer Spending and Beef Demand,” which was posted yesterday at the farmdoc daily blog).
The Reuters article explained that, “The drought hit corn and soybean farmers first, but now some livestock producers are forced to make a grim choice: to pay double the normal price — or more — for feed, or simply and send their animals to slaughter.
“Many chicken farmers have decided to thin their flocks. Sanderson Farms, the No. 4 U.S. chicken producer by volume, posted better-than-expected profits on Tuesday with help from higher prices, but said it would cut production to protect future earnings from rising feed costs, operating plants at 6 percent below capacity until conditions changed.
“Hog farmers, too, are cutting back and losing money on each animal they send to slaughter.”
On the issue of commodity prices, Sameer C. Mohindru reported yesterday at The Wall Street Journal Online that, “Worries about soybean supplies started with drought in several parts of South America earlier this year. The U.S. and South American countries account for more than 93% of the global soybean trade. At the time there were hopes that the resulting shortfall would be made up by a good crop in the U.S., said Abdolreza Abbassian, Rome-based secretary of the Food and Agriculture Organization’s Intergovernmental Group on Foodgrains.
“But instead dry weather has hit the U.S., too, and the 2012 crop is wilting in the fields. Last week, the London-based International Grains Council cut its forecast for global soybeans output for the 12 months starting Oct. 1 by 3.8 million tons, or 1.5%, and that’s assuming a rebound in South American production next spring.”
And Ian Berry and Andrew Johnson Jr., also writing yesterday at The Journal Online, reported that, “U.S. wheat futures rose 3.5% ahead of a meeting of Russia’s agricultural ministry later this week, amid fears the big wheat-exporting country may curb grain exports.
“Traders speculated that a cut in Russian exports could boost demand for U.S. wheat. The Russian ministry will meet Friday, after trimming its forecast last week for the country’s 2012 grain harvest, which includes wheat and other crops, to 75 million metric tons. It previously projected 75 million to 80 million tons.”
The article pointed out that, “Traders continued to watch developments from Hurricane Isaac. Soaking rains from the storm won’t benefit much of the nation’s soybean crop but could wash out some fields in the South and disrupt harvests at a time when analysts already are concerned about domestic supplies dwindling.”
With this background in mind, Javier Blas reported earlier this week at The Financial Times Online that, “The G20 on Tuesday said the current situation of spiralling corn and soyabean markets and rising wheat prices was ‘worrying’ but held off from calling an emergency meeting to discuss recent price surges, giving time for Washington to update its crop forecasts.”
Bloomberg writer Alan Bjerga penned an interesting article yesterday, “Dust Bowl Survivor Sees Parallels To Heat Not Hardship,” which featured a comparative look at the drought from the 1930s to the current situation with perspective from an 85 year old Missouri farmer, Anthony “Tony” Klott, who has experienced both time frames. The link includes pictures, as well as a video interview with Mr. Klott.
In other news, Reuters writer Reese Ewing reported yesterday that, “Exports of Brazilian ethanol to the U.S. market are likely to grow, while still allowing Brazil to increase its blend of the biofuel in gasoline in early 2013, local sugar and ethanol analyst Datagro said.
“Brazilian exports of ethanol surged in July to 410 million liters, most of it going to the United States, according to Brazil’s Trade Ministry. In previous months, exports were between 140 million and 64 million liters a month.”
Farm Bill Issues
Bloomberg writer Alan Bjerga reported yesterday that, “A projection that U.S. farmers will make a record profit amid the worst drought in more than five decades shows that government help for producers can be scaled back, critics say.”
The article noted that, “Some agricultural sectors are faring better than others. Corn and soybean producers will see record income, buoyed by high prices for farmers who have crops and insurance for those who don’t. Meanwhile, milk receipts will fall 11 percent and livestock income will stay flat as dairymen and ranchers deal with feed costs that will jump 13 percent, the USDA said.
“The differences among producers argue for a robust insurance program, said Bob Young, chief economist for the American Farm Bureau Federation, the largest U.S. farmer group.”
The Bloomberg article reminded readers that, “A plan that would provide $383 million in aid to livestock producers, who aren’t covered by government-backed insurance, has stalled in Congress, as have efforts to pass a bill governing agricultural policy for the next five years, before current law expires Sept. 30. Both the House Agriculture Committee and the U.S. Senate have approved bills that would eliminate about $5 billion in annual subsidies paid directly to farmers while boosting other support programs, including insurance, by smaller amounts.”
A news release yesterday from the American Farm Bureau Federation (AFBF) stated that, “[AFBF] President Bob Stallman and Roger Johnson, president of the National Farmers Union, have been announced as the masters of ceremony for the upcoming ‘Farm Bill Now’ rally.
“The event, hosted by AFBF, NFU and a coalition of other agricultural organizations, will take place on Sept. 12 at 11 a.m. in Washington, D.C., at Union Square by the Capitol Reflecting Pool. AFBF and NFU represent the two largest general farm groups in the United States.
“‘We appreciate all of the work done to date by Congress and look forward to working with the House to get a farm bill passed and into conference as soon as possible,’ said Stallman. ‘In light of the drought, it is imperative for America’s farmers that a farm bill is passed this year.’”
With respect to nutrition issues, The Oregonian (Portland) editorial board recently indicated that, “The U.S. Department of Agriculture produced refreshing new federal standards this year for healthier school meals aimed at preventing child obesity” [Note, see related USDA video here].
“But as parents of Abernethy Elementary in Portland discovered this month, the standards come with rules so detailed and prescriptive, they threaten to kill the kind of nutritional programs they are supposed to foster.”
The opinion item added that, “The federal standards are too complicated. Rules and explanations fill 79 pages of the Federal Register. The USDA has produced an eight-page ‘meal documentation checklist’ that asks, for example, if the school meets minimum weekly requirements for dark green vegetables, red and orange vegetables, beans and peas, and starchy vegetables. Schools must account for grains, type of milk, meats, calories, saturated fats and sodium.
“Putting together a meal that fits the guidelines is like working a puzzle, says Gitta Grether-Sweeney, director of nutrition services for Portland schools.
“‘Everyone is struggling with this,’ she says. ‘It doesn’t have to be so complicated.’”
Meanwhile, Brad Plumer noted yesterday at the Wonk Blog (Washington Post) that, “Does anyone remember when the Obama administration promised to bring ‘true broadband [to] every community in America’? The Republican Party definitely does, and its 2012 platform criticizes the president for not making any progress on this pledge:
“‘The current Administration has been frozen in the past…. It inherited from the previous Republican Administration 95 percent coverage of the nation with broadband. It will leave office with no progress toward the goal of universal coverage—after spending $7.2 billion more. That hurts rural America, where farmers, ranchers, and small business manufacturers need connectivity to expand their customer base and operate in real time with the world’s producers.’”
The 2012 GOP Platform also stated that, “benefit programs like food stamps must ensure that those benefits are better targeted to those who need help the most.”
Bloomberg writer Karen Gullo reported yesterday that, “The U.S. Food and Drug Administration was sued over claims that it has failed to enact regulations intended to help prevent outbreaks of food-borne illnesses 18 months after a safety law was signed.
“The government missed a January deadline for setting standards for the safe production and harvesting of fruits and vegetables and was supposed to establish regulations requiring food shippers to use sanitary practices by July, lawyers for the Center for Food Safety and the Center for Environmental Health said in a complaint filed yesterday in federal court in San Francisco.
“The groups’ lawsuit claims the government has failed to promulgate seven major food safety regulations required by the Food Safety and Modernization Act, signed into law by President Barack Obama in January 2011.”
Julian Pecquet reported earlier this week at The Hill’s Global Affairs Blog that, “Eight Democratic House members wrote to U.S. Trade Representative Ron Kirk on Tuesday asking to be included in far-ranging trade talks involving 11 countries in Asia and the Americas.
“Joining the so-called Trans-Pacific Partnership is the White House’s top trade priority, and the administration has said it hopes to have a deal by the end of the year. Critics, however — including many lawmakers — say the talks have been going on behind closed doors and could undermine congressional priorities, including Buy American procurement policies, financial regulations, cheap medicines and safe foods.”
Aaron Lucchetti reported yesterday at The Wall Street Journal Online that, “Louis Freeh, the trustee for bankrupt securities firm MF Global Holdings Ltd., called for settlement talks with other bankruptcy administrators in the U.S. and U.K. amid a clash over how to recover money for the company’s customers and creditors.
“The proposal was made by Mr. Freeh in a court filing Wednesday afternoon that also outlined his opposition to a plan by a separate trustee, James Giddens, to join several plaintiff lawsuits against former MF Global officials.
“The move by Mr. Freeh, a former director of the Federal Bureau of Investigation, comes one month after he submitted congressional testimony projecting that the various estates had enough money to pay back customers. Both steps indicate that Mr. Freeh, whose interests as parent-company trustee have sometimes diverged from lawyers trying to recover money for MF Global customers, is looking to find ways to unlock the logjam.”