FarmPolicy

Trade; Farm Bill; and, the Ag Economy

Trade

Yesterday, the U.S. Department of Agriculture released its quarterly Outlook for U.S. Agricultural Trade report, which stated that, “Fiscal 2013 agricultural exports are projected at a record $143.5 billion. Horticultural products are forecast up from the fiscal year 2012 forecast on strong demand from Canada, Europe, and Japan. Grain and feed exports are expected up, driven largely by higher wheat volume and value, but also supported by higher corn unit values. The forecast for oilseeds is up from 2012, based on record soybean and soybean meal prices attributed to tight exportable supplies. Cotton exports are forecast down on falling unit values. Exports of livestock, poultry, and dairy products are forecast marginally lower as declines in dairy, pork, and poultry outweigh growth in beef.

“U.S. imports are projected at $117 billion in 2013, up from the revised 2012 forecast of $106.5 billion. For 2012 tropical oils (coconut, palm, and palm kernel), olive oil, coffee and cocoa beans, sugar, and rubber have all experienced price declines as world demand has weakened. These downward price adjustments are expected to boost U.S. agricultural import volume in 2013.

“The forecast trade balance for fiscal 2013 shows a surplus of $26.5 billion, down $3.5 billion from the revised 2012 forecast. The revised trade surplus for 2012 is $30 billion.”

A statement yesterday by Agriculture Secretary Tom Vilsack indicated that, “Today’s export forecast marks indication of an historic achievement for America’s farmers, ranchers and agribusinesses. Even with tough odds due to extreme weather, U.S. agriculture is now poised for three consecutive years of record exports, smashing all previous records and putting America’s agricultural sector on pace to achieve President Obama’s goal under the National Export Initiative of doubling exports by the end of 2014. These exports will support more than 1 million jobs in communities across the country.”

The Secretary’s statement yesterday also noted that, “Congress needs to help ensure that this success continues by passing a comprehensive, multi-year Food, Farm and Jobs Bill that provides greater certainty for farmers and ranchers.”

Farm Bill Issues

Also with respect to the Farm Bill, while speaking yesterday at the Farm Progress Show in Boone, Iowa, Sec. Vilsack discussed the importance of getting a Farm Bill done in September- related audio via AgWired.com (MP3- 1:42).

Former Secretary of Agriculture and U.S. Trade Representative Clayton Yeutter also spoke at the Farm Progress Show this week.  According to a report at AgWired.com: “While Yeutter admits that Congress could pass a new farm bill next month, ‘the odds are that they won’t get it done before September 30th’ and will probably pass some sort of extension, possibly until after the election or maybe for another year.”

J.T. Rushing reported this week at The Gazette (Cedar Rapids, Iowa) Online that, “A nightmarish scenario is looming for Iowa’s agriculture industry in just five weeks — an expired federal farm bill reversing policies by more than 60 years.”

The article noted that, “However, there are some who see a silver lining in the gathering clouds. Congressional analysts as well as senior Senate Agriculture Committee members such as Democratic Sen. Tom Harkin told The Gazette that the current farm bill already covers the large majority of farm programs that are in place for the current crop year, meaning many of them won’t automatically expire until next spring or summer.

“‘While this is good news for Iowa farmers, it does not negate the need for the certainty that comes from enacting a new five-year bill, especially to respond to the ongoing drought in the Midwest,’ Harkin said.

“An exception would be dairy programs, which will expire on Dec. 31 without congressional action. But analysts also say Congress may be able to extend funding for certain programs without approving a renewal of the entire bill.”

The article added that, “In a sign of the tension surrounding the farm bill and its prospects for renewal, Democratic Rep. Dave Loebsack said House Republicans will bear the blame if Iowa farmers cannot survive the one-two punch of the drought plus a reverted farm bill.”

Beth Wischmeyer reported this week at the Argus Leader (Sioux Falls, SD) Online that, “In her first town hall in Sioux Falls, Rep. Kristi Noem fielded questions Wednesday about a variety of topics, but discussion focused on the stalled farm bill.

“Noem attributed the lack of progress on the bill to uncertainty from lawmakers over proposed nutrition program reforms within the bill and lack of interest from those in urban areas.”

The article stated that, “The current five-year farm bill expires Sept. 30, and with much of the U.S. facing drought issues, pressure to pass the $500 billion bill could intensify. Analysts and lawmakers fear if a farm bill is delayed until after the November election or until 2013, programs might face even deeper spending cuts.

“Noem, a member of the House Agriculture Committee, said the bill hasn’t been brought to the House floor for a vote because members of the House leadership don’t think it will pass because of the cuts to nutrition programs.

“She said she and other representatives have worked to educate those unfamiliar with the importance of agriculture in an effort to garner more support.”

Rep. Tim Walz (D., Minn.) also discussed the importance of the Farm Bill with constituents recently.

Meanwhile, 44 organizations sent a letter to Senate and House Ag Committee leaders yesterday urging passage of the Farm Bill and inclusion of key rural development policy changes and funding that will be lost in any extension.

And North Dakota State Farm Management Specialist Andy Swenson indicated this week that, “The proposed farm bills (with one exception) for the 2013-17 period are languishing in Congress and have a hole in the safety net. It would take a few years to expose the hole and odds now seem low that it would occur, but it is there just waiting.

“The main safety net is crop insurance, with revenue insurance being the most popular type of policy. It accounted for 85 percent of the 189 million acres of corn, soybeans and wheat that were insured this year.

“Revenue insurance uses average production history (APH) yield multiplied by price and then multiplied by level of coverage to determine the amount of revenue guarantee. Therefore, if the APH or price declines, so will the guarantee. The price used is determined from a relatively short period, which is one month.”

Swenson added that, “The hole in the safety net will be exposed when there is a significant drop in prices. The crop insurance revenue guarantee will fall but costs likely will remain high, at least initially. Potentially, this can expose producers to a large financial loss.”

With respect to nutrition issues, Carrie Coppernoll reported this week at The Oklahoman Online that, “Children returning to school this fall may notice a change in what’s on their lunch trays.

“New federal regulations are kicking in for school districts across the country, and in Oklahoma’s largest school district, lunches already look different.

“More produce, more whole grain, less fat and other changes are under way, said Al Pilaski, director of operations for child nutrition services for Oklahoma City Public Schools.”

The article added that, “Pilaski said the new rules are the most dramatic he’s seen in the past 15 years.

“‘Obesity is not going to be solved at school lunch,’ Pilaski said. ‘But school lunches are a component.’”

And on conservation issues, an update posted yesterday at the USDA’s Natural Resources Conservation Service webpage stated that, “On August 30, 2012, NRCS Chief Dave White announced the release of the CEAP-Cropland report on the effects of conservation practices on cropland in the Missouri River Basin. This report is the fifth in a series of regional reports that continues the tradition within USDA of assessing the status, condition, and trends of natural resources to determine how to improve conservation programs to best meet the Nation’s needs. These reports use a sampling and modeling approach to quantify the environmental benefits that farmers and conservation programs are currently providing to society, and explore prospects for attaining additional benefits with further conservation treatment.”

Agricultural Economy

Michael Rothfeld and Carolyn Cui reported in today’s Wall Street Journal that, “The market for cotton, one of the world’s oldest commodities, has been roiled by rampant breaking of contracts by farmers and textile mills.

“Over the past two years, cotton prices nearly tripled before they fell by almost two-thirds, triggering the broken deals. Both cotton growers and the overseas mills that spin cotton into yarn have walked away from previously signed agreements after prices turned against them.”

The Journal writers pointed out that, “As much as 20% of the hundreds of thousands of contracts written since 2010—valued at as much as $12 billion—have been reneged on or rewritten, estimates Terry Townsend, executive director of the International Cotton Advisory Committee, an association of governments with cotton interests.

“‘It destroys people’s confidence in these markets,’ says Neal Gillen, former executive vice president of American Cotton Shippers Association. The industry has been shaken, he says, by ‘the sheer amount of the losses, the audacity of the buyers, their feeling they can just walk away.’”

Meanwhile, Ian Berry reported yesterday at The Wall Street Journal Online that, “U.S. soybean futures leapt to a record, buoyed by strong demand and concerns that global supplies will remain tight well into next year.

“Soybeans for September delivery gained seven cents, or 0.4%, to close at $17.7025 a bushel at the Chicago Board of Trade. Soybeans topped the previous record closing high set Wednesday and are up 48% for the year [related graph].”

The article explained that, “Heavy rains from the remnants of Hurricane Isaac are expected to hit the Midwest in the coming days, but because much of the nation’s soybean crop has reached maturity, the rain will be too late to help, meteorologists said Thursday.”

The AP reported yesterday that, “Indiana farmer John Kolb normally would welcome storms that could provide his crops with badly needed water in this summer of drought. Instead, he and other Corn Belt farmers are nervously watching the forecast as Hurricane Isaac’s remnants slog their direction, concerned they could end up getting too much of a good thing.

“The reason for their worry: Strong winds could topple corn stalks already severely weakened by the nation’s worst drought in two generations, and a possible deluge could muddy the fields and slow bringing in whatever crop is still salvageable.”

The AP article indicated that, “Isaac has lost strength since coming ashore late Tuesday as a Category 1 hurricane, with 80 mph winds near the mouth of the Mississippi River. But it’s still expected to provide a dousing for much of the nation’s midsection — from Arkansas north to Missouri and into a corner of Iowa, then east through Illinois and Indiana to Ohio — in coming days. Rainfall totals could reach up to 7 inches, according to a U.S. Drought Monitor weekly update Thursday.

“In Arkansas, farmers scrambled to bring in as much of their corn and rice as they could before Isaac’s wind and rain reached the state. With the storm blowing Thursday into southeast Arkansas, growers had to leave their fields and begin the wait to see what the storm will do to their crops.”

Reuters news reported yesterday that, “Torrential rainfall from Hurricane Isaac hurt rice, cotton, soybean and sugar cane crops in the Deep South, but elsewhere the storm will bring relief to American farmers suffering from the worst drought in more than 50 years, an agricultural meteorologist said on Thursday.”

Bloomberg writer Jeff Wilson reported this week that, “A logjam of grain barges is worsening on the Mississippi River after New Orleans terminal closures during Hurricane Issac compounded a slowdown in U.S. exports already delayed by low water levels during a drought.

“The number of barges moving north on the Mississippi fell to 117 in the week ended Aug. 25, down 75 percent from five weeks earlier and 14 percent smaller than a year earlier, data from the U.S. Army Corp of Engineers show. The U.S. is the world’s largest exporter of corn, soybeans and wheat.

“‘It will take the whole month of September to straighten out the logjam of empty barges stuck south of Memphis,’ Troy Lust, a senior risk manager for commercial grain at INTL FCStone Inc., a commodity brokerage in West Des Moines, Iowa, said in a telephone interview.”

Meanwhile, Bloomberg writer Tony C. Dreibus reported yesterday that, “Kansas farmers are preparing to plant winter wheat into the driest soil since 1991 as three seasons of drought causes Dust Bowl conditions in the biggest growing state and global reserves fall to a four-year low.

“About 97 percent of fields in the state had too little moisture as of Aug. 19, U.S. Department of Agriculture data show. Kansas is having its hottest year ever, leaving all 105 counties as federal disaster areas. The worst U.S. drought since 1956 spread to wheat-growing Great Plains states after damaging corn and soybean yields in the Midwest and driving prices for both crops to a record.”

More broadly, a news update yesterday at the World Bank Online stated that, “Global food prices soared by 10 percent in July from a month ago, with maize and soybean reaching all-time peaks due to an unprecedented summer of droughts and high temperatures in both the United States and Eastern Europe, according to the World Bank Group’s latest Food Price Watch report.

“From June to July, maize and wheat rose by 25 percent each, soybeans by 17 percent, and only rice went down, by 4 percent.  Overall, the World Bank’s Food Price Index, which tracks the price of internationally traded food commodities, was 6 percent higher than in July of last year, and 1 percent over the previous peak of February 2011.

“‘Food prices rose again sharply threatening the health and well-being of millions of people,’ said World Bank Group President Jim Yong Kim. ‘Africa and the Middle East are particularly vulnerable, but so are people in other countries where the prices of grains have gone up abruptly.’”

The World Bank update added that, “According to Food Price Watch, weather is the critical factor behind the abrupt global price increases in July. The drought in the U.S. has resulted in vast damages to the summer crops of maize and soybeans, for which the country is the world’s largest exporter. Meanwhile, the dry summer in the Russian Federation, Ukraine, and Kazakhstan has contributed to projected wheat production losses.

“The abrupt food price increases turned favorable price prospects for the year upside down. World Bank experts do not currently foresee a repeat of 2008; however, negative factors — such as exporters pursuing panic policies, a severe El Nino, disappointing Southern hemisphere crops, or strong increases in energy prices — could cause significant further grain prices hikes such as those experienced four years ago.”

Keith Good

Posted by Keith Good • August, 31, 2012 • 3:36 am