FarmPolicy

October 31, 2014

Ag Economy; Farm Bill; Regulations; and, Biofuels

Agricultural Economy

Gregory Meyer reported yesterday at The Financial Times Online that, “US farmers are becoming gripped by anxiety even as they close the books on their best financial year.

“A twin threat of sagging grain prices and a retreat on biofuels policy in Washington has prompted warnings that some farm operations could struggle to break even in 2014, a stark shift from the nominal record $131bn they earned this year.”

Mr. Meyer explained that, “Lower crop prices could also force Washington to pay billions of dollars worth of new subsidies outlined in the farm bill under negotiation in Congress, even as other subsidies are cut.

“A prime source of concern is that farmers will collect an average $4.40 per bushel for corn for the marketing year that started on September 1, down 36 per cent from the prior year, the Department of Agriculture estimates. Corn for March delivery traded at just over $4.27 at the end of last week on the Chicago Board of Trade.”

The FT article noted that, “Farmers in Illinois, the heart of the corn belt, need $4.31 a bushel corn next year to make a profit, according to a University of Illinois estimate.

“‘There are good possibilities of prices being below break-even prices over the next several years,’ wrote Gary Schnitney, a professor at the university.

“US farmers grew a record 14bn bushels of corn on 95m acres this year. Land values in states such as Illinois and Iowa have increased 77 per cent in the past four years but economists say cheaper grain will slow, or reverse, the trend.”

Yesterday’s article indicated that, “Prospects for lower grain prices come as Congress is poised to hash out final details of the farm bill. The bill would end ‘direct payments’ – cash subsidies paid to farmers regardless of whether they actually grow a crop.

“But it would establish another benefit called ‘price-loss coverage,’ where taxpayers compensate farmers when crop prices fall below legislated thresholds. Coverage would start below $3.70 a bushel for corn and $8.40 a bushel for soyabeans under a version of a bill advanced by the House of Representatives.”

As farm revenues have increased, so have expenses such as land rentals, fertiliser, fuel and seed. Mitch Morehart, a USDA economist, said it was too soon to estimate next year’s income as lower prices may spur farmers to change some fields to crops that offer better returns, or to leave them fallow,” the FT article said.

Bloomberg writer Phoebe Sedgman reported today that, “Corn fell to the lowest level in more than a week on speculation that rain in parts of Argentina would aid crops hampered by hot and dry conditions.”

The Bloomberg article noted that, “Hot temperatures will soon give way to two to three days of rain and cooler weather, breaking the ‘flash drought’ in Argentina, QT Weather said in a report yesterday. Corn slumped 39 percent this year, set for the biggest annual loss on record, as global production will climb to an all-time high, according to the U.S. Department of Agriculture. Argentina is set to be the world’s third-biggest corn exporter in 2013-2014 with Ukraine, the USDA estimates.”

And Leslie Josephs reported in today’s Wall Street Journal that, “U.S. cotton futures are headed for the first yearly gain since 2010 as a smaller U.S. crop and firm demand boost prices.

“The price of cotton traded on the ICE Futures U.S. exchange is up 12% this year, with two trading sessions to go. The market will end in the black as long as prices don’t fall by nine cents or more in the year’s remaining trading days, a scenario traders say is unlikely.

“The U.S., the world’s biggest cotton exporter, is expected to produce 13.1 million bales of cotton, the lowest in four years, according to the U.S. Department of Agriculture. Attracted to higher returns from other crops such as corn, farmers had scaled back cotton acreage last spring by 16%.”

Also, with respect to livestock, Bloomberg writer Elizabeth Campbell reported last week that, “Cattle futures climbed to a record as U.S. beef production is forecast to drop to an 11-year low in 2014 while the improving economy signals increasing meat demand.

U.S. beef output will fall 5.7 percent from 2013 to 24.205 billion pounds (10.98 million metric tons) next year, the lowest since 1993, the Department of Agriculture has forecast. Feedlots added 3.1 percent fewer cattle last month than a year earlier, reducing the total inventory to the second-lowest for Dec. 1 since the USDA started collecting data in 1996, government figures showed on Dec. 20.”

Meanwhile, Elton Robinson reported last week at the Delta Farm Press Online that, “Once again, U.S. rice producers are facing an upcoming season rife with uncertainty over commodity prices, input costs, water availability and the farm bill. Here are the thoughts of a few rice producers attending the USA Rice Outlook Conference held in St. Louis, Mo., recently.

Allen McLain, Jr., who farms about 1,500 acres of rice, soybeans and crawfish with his father, Allen McLain, Sr., in Abbeville, La., is concerned that an anticipated increase in U.S. rice acres in 2014 could push supplies higher and prices lower. U.S. farmers planted just under 2.5 million acres in rice in 2013.”

Lorenzo Pope, a producer and researcher in Glenn, Calif., says expenses are a critical issue for rice producers, mostly for weed control,” the Farm Press article said.

And in other developments, an article posted on Friday at DTN (link requires subscription) reported that, “The rural economy grew in December, but there are also warning signs of weakness in these regions, according to a monthly index report.

“The Rural Mainstreet Index (RMI) rose to 56.1 in December from November’s moderate 54.3. The RMI is a monthly survey of rural bank CEOs in a 10-state area. The index can range from 0 to 100 with 50.0 representing neutral growth.”

The DTN article noted that, “While the RMI is positive overall, there are portions of it which were weaker. The farmland-price index fell to 47.0, its lowest level since December 2009 and was also down from November’s 54.3. [Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University in Omaha, Neb.] said as commodity prices move lower, so have farmland prices.

“‘Continued increases in ag real estate prices and cash rents, along with lower crop prices, are a major concern for community banks,’ said David Callies, CEO of Miner County Bank in Howard, S.D.”

Friday’s update added that, “Bankers said they believed 2014 cash rents for non-irrigated cropland will average $252 per acre. Goss pointed out, however, 3.2% of bankers forecast 2014 cash rents over $500 per acre. Further declines in commodity prices will present a challenge for a significant share of farmers who are cash renting, Goss said.

Jeff Bonnett, president of Havana National Bank in Havana, Ill., said, ‘2014 will be interesting, as input costs have not come down in relation to commodity prices. Fasten your chin straps firmly and hold on, it may be an interesting ride.’”

In news regarding trade issues, Julian Pecquet reported last week at the Hill’s Global Affairs Blog that, “Congress and the White House are pushing broad trade deals that risk triggering an economic fight with China.

“Pacts the Obama administration is negotiating with the European Union and Pacific Rim countries are intended to help the U.S. compete with China, a growing economic power that drives much of the global economy.

“The administration is worried the U.S. could lose influence to China, particularly in Asia, as trading partners fight for access to the region’s largest economy, which is growing at a 7 percent clip.”

In other news regarding China, the AP reported today that, “More than 8 million acres of China’s farmland is too polluted with heavy metals and other chemicals to use for growing food, a Cabinet official said Monday, highlighting a problem that is causing growing public concern.

The threat from pollution to China’s food supply has been overshadowed by public alarm at smog and water contamination but is gaining attention following scandals over tainted rice and other crops. The government triggered complaints in February when it refused to release results of a nationwide survey of soil pollution, declaring them a state secret.

“The figure given at a news conference by Wang Shiyuan, a deputy minister of the Ministry of Land and Resources, would be about 2 percent of China’s 337 million acres of arable land.”

 

Farm Bill

Annie Lowrey reported in Saturday’s New York Times that, “An emergency federal program that acts as a lifeline for 1.3 million jobless workers will end on Saturday, drastically curtailing government support for the long-term unemployed and setting the stage for a major political fight in the new year.”

The article pointed out that, “Democrats on Capitol Hill are pushing for an extension of the program, though the constrained fiscal environment makes its reinstatement somewhat less likely, aides said. Members of the Republican leadership have indicated that they might be willing to extend the benefits, but only if Democrats offset the new spending with other cuts.”

Ms. Lowery noted that, “Some Democrats have suggested that continuing the program for three months, with the estimated $6 billion in spending offsets coming from agricultural subsidies in the farm bill.

“But some conservatives have shown stauncher opposition.”

Peter Schroeder reported on Friday at the Hill’s On the Money Blog that, “Senate Majority Leader Harry Reid (D-Nev.) said he plans to bring up an extension as his first order of business in 2014, but some Republicans have indicated they would only be willing to extend the program if the cost of another extension is offset elsewhere.”

Meanwhile, David A. Fahrenthold reported in Saturday’s Washington Post that, “One day this summer, the House of Representatives faced a decision. Should America cut off the money for Super Twiggy, the cartoon squirrel?

“At that time, across-the-board budget cuts called sequestration were kicking children out of Head Start and leaving FBI agents without gas money. Congress was still supposed to be looking for smaller, smarter ways to trim the budget — so it could replace that big, dumb cut.”

The Post article noted that, “So it came to Super Twiggy. The squirrel starred in Web videos in Spain, touting the health benefits of California-grown walnuts. U.S. taxpayers had paid more than $3 million for Spanish walnut promotions, as part of a $200 million-per-year Agriculture Department program that promotes U.S. farm goods overseas.

“‘The Republican majority was supposed to end this kind of nonsense, not perpetuate it,” said Rep. Tom McClintock (R-Calif.), trying to kill the broader program with an appeal to his party’s small-government soul. ‘It is a test of the determination and sincerity of the House majority.’

“It didn’t work. After other members touted the program’s value to farmers, the cut was rejected, 322 to 98.”

Saturday’s article stated that, “Republicans in Congress had forced a historic shift: Washington, for the first time in years, was focused on cutting, not growing, the budget. But then, politicians in both parties choked on the decisions that came next: Where to cut. Who to hurt. What to kill.”

A separate update by Washington Post writers David A. Fahrenthold and Ben Wiseman indicated that, “The U.S. government has 15 official definitions of the word ‘rural,’ including 11 used within the Department of Agriculture alone. The definitions, created by laws that accumulated over years, vary widely. Some include cities of 49,000 people, while others include only places with fewer than 2,500. The result is confusion for small towns seeking federal aid designated for rural places.

“Situation changed? Pending.

The Senate version of this year’s farm bill would pare the list down to nine definitions of ‘rural.’ The House version, however, would leave the 15 definitions in place. The two chambers are now working out a compromise version of the farm bill, so it’s unclear whether the law will change.”

More broadly in policy news, Amy Guthrie reported in Saturday’s Wall Street Journal that, “From a Mexican tax on sugary drinks to legislation banning Happy Meal toys in Chile and Peru, Latin America is becoming a laboratory for public policies meant to steer consumers away from processed food.

“Since 2012, Peru, Uruguay and Costa Rica have banned junk food from public schools. Ecuador recently mandated a nutritional label system inspired by a traffic light, in which warnings of high salt, sugar and fat content are placed on red circles; lower levels will be indicated on yellow or green circles. Industrial food makers in Ecuador will also be barred from using images of animal characters, cartoon personalities or celebrities to promote products high in salt, sugar or fat.

In October, Mexico’s congress passed a special tax of 8% on packaged foods like potato chips, as well as a per-liter tax of one peso, or about eight U.S. cents, on sugary beverages. The beverage tax is widely seen as the most significant attempt yet to curb sugary-drink intake in a large country, given that Mexico is the Coca-Cola Co.’s second-biggest market in the world by volume sales.”

 

Regulations

Julian Hattem and Ben Goad reported yesterday at The Hill’s RegWatch Blog that, “Battles lines are being drawn for a series of upcoming clashes over new regulations on the horizon in 2014.”

The Hill update added that, “The EPA has started the process of declaring that it has the power to regulate streams, brooks and small ponds.

“The agency says that issuing a new rule is necessary to clear up uncertainty about its powers under the Clean Water Act, after Supreme Court rulings cast doubt on the extent of the EPA’s authority.

Regulating smaller bodies of water is necessary to protect larger rivers and lakes downstream, the EPA and environmental groups assert.”

Yesterday’s update noted that, “One of the lesser-known provisions of the Affordable Care Act was a requirement that chain restaurant menus and vending machines say how many calories are in the food they offer.

“The provision was meant to combat obesity and help Americans make healthier choices.

“Major restaurant groups support the effort, which the Food and Drug Administration (FDA) has delayed for more than a year, but major pizza parlors and grocery stores have fired back.”

And John Eligon reported in Saturday’s New York Times that, “Anita Hudson’s moment of realization came early this year when she saw cement trucks whizzing past her home in this blip of an Ozark town. For Sam Dye, it was when an employee at the school where he once was principal pointed out bulldozers clearing a wooded area in the distance.

For many months, Ms. Hudson and Mr. Dye had been among those who brushed off rumors that a large hog farm would be built here in the scenic watershed of the Buffalo River.

But now they were confronting reality: a farm that could house as many as 6,500 hogs was being built near them, within the pristine ecosystem of the Buffalo — designated America’s first ‘national river’ and overseen by the National Park Service. Since then, the operation, C&H Hog Farms — which began producing piglets for the agricultural giant Cargill in the spring — has divided the community, drawn scrutiny from environmentalists, politicians, and state and federal officials, and left many wondering how one of the largest hog operations in the so-called Natural State ended up in the heart of a major tourist area.”

The article noted that, “For environmentalists, the development of the Mount Judea (pronounced Judy) hog farm provides a stark example of what they see as lax oversight of such farms by state and federal regulators. Many of them were dismayed last year, for instance, when the Environmental Protection Agency withdrew proposed regulations that would have required all concentrated animal feeding operations, or CAFOs, to submit ‘basic operational information’ and would have increased the number of such farms that require permits.

But C&H Hog Farms has many supporters, who say that these farms have long dotted the watershed without causing major environmental damage. They argue that the owners of C&H followed all the required steps to obtain a permit and will do all they can to make sure that the farm does not hurt the ecosystem.”

 

Biofuels

University of Illinois Agricultural Economist Nick Paulson indicated on Friday at the farmdoc daily blog (“RIN Update: 2014 Carry In and EPA’s Proposed Rulemaking”) that, “The EPA released proposed rules for the 2014 Renewable Fuel Standard (RFS) in November.  The rules reduce both the total advanced and renewable mandate components, not only below the statutory levels for 2014 but also below the levels set for 2013.  Previous posts from Irwin and Good and Meyer and Johansson have analyzed the impact of the reduced mandate volumes in the 2014 proposed rule.  Today’s post returns to the issue of RIN stocks, providing an update to RIN generation data for 2013 and carryover estimates for 2014, and discussing the implications of the proposed rules on 2014 RIN stock levels.”

Keith Good

Comments are closed.