Agricultural Economy- Farm Bill
Jesse Newman reported yesterday at The Wall Street Journal Online that, “Prices for agricultural land in some key states in the U.S. Farm Belt last year grew at the slowest pace in four years, according to a quarterly report Thursday from the Federal Reserve Bank of Chicago.
“Values for farmland in the Chicago Fed’s district, which includes all of Iowa and most of Illinois, Indiana, Michigan and Wisconsin, rose 5% in 2013, the report showed, down from growth of 16% in 2012. Last year’s growth was the slowest pace since 2009 and the second slowest in the past decade, the bank said” [related graph].
The Journal article noted that, “The report offers the latest evidence that the long boom in U.S. farmland is weakening , as prices for corn and soybeans tumble due to huge harvests last year.”
Ms. Newman added that, “In a separate survey issued Thursday, the St. Louis Fed reported an upturn late last year in farmland prices across a swath of the lower Midwest and the South. The bank said average farmland values in its district, which had fallen for much of last year, rose about 10% in the fourth quarter to an average $5,868 an acre, from $5,332 an acre in the third quarter. Compared with a year earlier, cropland values in the district—which includes Arkansas and portions of Missouri, Mississippi, Tennessee, Kentucky, Indiana and Illinois—rose by 12.2%.”
Christopher Doering reported yesterday at The Des Moines Register Online that, “Chad Hart, an associate professor of economics at Iowa State University, said as farmers see their income decline from lower crop prices, the amount of money they can make from the land also falls, pushing down acreage values.
“‘What the Chicago Fed found is a harbinger of things to come,’ Hart said. ‘We’ll likely see lower farm values tied to those lower farm incomes that we’re going to experience in the next year to year and a half.’”
Reuters news reported yesterday that, “…[C]orn Belt bankers were facing 2014 with caution as the effect of lower grain prices and higher input costs for farmers put pressure on grain farm profit for the first time in five years” [see related graph from St. Louis Fed].
A news update yesterday from Purdue University stated that, “Purdue Extension agricultural economists who follow farmland values agree that farmers need to carefully assess land prices and farm financial health before investing.
“According to the Purdue Farmland Value Survey, Indiana farmland values have nearly tripled in the last 10 years – from an average of $2,509 per acre in 2003 to $7,446 in 2013. But abundant corn and soybean crops in 2013 have caused commodity prices to fall, making farm profit margins much tighter. Less profit means less money available to invest in farmland.”
Meanwhile, Tony C. Dreibus reported yesterday at The Wall Street Journal Online that, “After watching U.S. corn prices tumble 40% last year, Illinois farmer Ron Moore has a new strategy for 2014: Plant more soybeans.
“Other Midwestern farmers are embracing the same plan, a development that could lead to record U.S. soybean plantings this year and push down prices. The reason: Soybean prices are the best of a bad crop. Prices in the $42 billion soybean-futures market are down about 6% over the past year, but that is a much smaller decline than for corn and wheat.”
Also yesterday, Katie Micik reported at DTN (link require subscription) that, “USDA expects U.S. crop prices to decline in the near term but remain above 2007 levels over the next decade, according to its annual baseline projections.
“‘In the near term, the agricultural sector continues to respond to high prices for many farm commodities in recent years. Global agricultural production of most major crops remains higher, for example, and prices initially fall,’ the report stated.
“‘Following those near-term adjustments, long-run developments for global agriculture reflect steady world economic growth and continued global demand for biofuels. Those factors combine to support longer-run increases in consumption, trade and prices of agricultural products. Thus, following reductions from 2013 levels through 2016, farm cash receipts and the value of U.S. agricultural exports grow beyond 2016. Although farm production expenses also increase beyond 2015, net farm income remains historically high’” (see related graph).
David Rogers reported yesterday at Politico that, “New economic projections released by the Agriculture Department Thursday carry a sober warning of what lower corn prices could mean for the cost of the new farm bill over the next few years.
“For the 2014-2015 marketing year beginning Sept. 1, the report projects a seasonal average farm price of just $3.65 per bushel of corn–compared to $4.50 for the current year. In 2015-2016, the price drops further to $3.30 per bushel before beginning a slow but steady climb back up to $4.10-$4.20 per bushel by 2023 and 2024 [see related table].
“That’s a much steeper decline than many had expected and well below the corn prices assumed by the Congressional Budget Office in scoring the new farm bill.”
Mr. Rogers explained that, “Just a year ago, the department was forecasting about $1 more per bushel for corn in the same 2015-2017 period. If the revised projections prove accurate, it will surely impact the cost of new counter-cyclical programs signed into law last week by President Barack Obama.
“The department’s economists will present a much fuller forecast next week at the annual Agricultural Outlook Forum held Feb. 20 and 21. Because Thursday’s report was prepared before the new farm bill was completed, its value is more as a harbinger of what could lie ahead.”
After additional analysis, yesterday’s Politico article noted that, “The bottom line is ARC [Agricultural Risk Coverage] seems almost certain to cost more than what the CBO had estimated, but the jury is still out on how big that swing will be.
“A second caveat is the fact that the same drop in corn prices will yield savings for the government by reducing the level of premium subsidies for crop insurance.”
More specifically on crop insurance, DTN Political Correspondent Jerry Hagstrom reported yesterday that, “Crop insurance agents will need to explain the intricacies of the new commodity programs and crop insurance this year even though the changes to crop insurance will not go into effect until next year.
“USDA’s Farm Service Agency has to develop rules for the new commodity programs, but they will cover the 2014 crops while any changes to crop insurance will begin with the 2015 crop, key industry officials said here this week at the annual crop insurance convention.”
The DTN article noted that, “The new farm bill requires crop farmers to make a five-year choice between the Agricultural Risk Coverage program, which covers the shallow losses that crop insurance does not, and the Price Loss Coverage program, which makes payments when market prices remain below set target prices.
“The big issue is that if farmers choose ARC, they cannot add the Supplemental Coverage Option, another crop insurance program, a year later.”
Yesterday’s article indicated that, “Keith Collins, a former USDA chief economist and chairman of the Federal Crop Insurance Corporation board who is now a consultant to NCIS [National Crop Insurance Services], said he could not overestimate the importance of agents explaining the choices.
“‘There are more choices than in farm bills in recent years,’ Collins said, noting that there are 296 million acres enrolled in crop insurance, more than at any time in the nation’s history.”
The DTN article added that, “While Farm Service Agency county office directors will explain the new programs to farmers, only the crop insurance agents will be able to explain the interaction of the programs with insurance policies, Collins said.
“‘Agents represent a tremendous capacity to teach farmers,’ Collins said. ‘This farm bill has put crop insurance center stage.’”
And in trade related news, Vicki Needham reported yesterday at The Hill’s On the Money Blog that, “Newly tapped Senate Finance Chairman Ron Wyden reiterated his plan to talk with his Democratic colleagues about trade promotion authority legislation before moving forward.
“The pro-trade Oregon Democrat said he first wants to address how the global marketplace has changed since the last fast-track authority bill was passed by Congress in 2002 and factor that into any legislative mechanism.”
Agricultural Economy- California Drought Issues- Livestock
The U.S. Drought Monitor indicated this week that, “So with this brief (1-week) glimmer of good news, the bad news is that California has a long, long way to go to get back to normal. To put this in historical perspective (which does NOT include the Feb. 4-10 storm), NCDC stated that except for January 2014 (3rd driest) and June 2013-January 2014 (2nd driest), all of the time periods from the last two months (Dec’13-Jan’14) through the last twelve months (Feb’13-Jan’14) ranked driest on record statewide for California since 1895. In addition, the last 24-months (Feb’12-Jan’14) was also the driest such 24-month period on record.” (See also this graphical depiction of the California drought).
Jennifer Medina reported in today’s New York Times that, “Fields that in any other year would be filled with broccoli, melons and onions are instead dusty patches of dirt. Farmers are calculating losses that add up with each arid day. Thousands of farm workers who rely on paychecks for tending the fields are expected to go unemployed this year.
“‘It’s as worse as I’ve ever seen it, I’ll tell you that right now,’ said Bill Chandler, who runs a nearly 500-acre farm, growing raisin grapes, peaches and almonds.”
The Times article noted that, “With California facing its worst drought in modern history, President Obama will visit Fresno on Friday with the state’s two senators, Dianne Feinstein and Barbara Boxer, who are promoting legislation that would offer $300 million in aid. The bill would also simplify the process of buying water from other areas and allow changes to try to divert more water from the Sacramento-San Joaquin River Delta to farmers.
“But with Republicans in the House pushing instead for an overhaul of environmental protections of the delta, there are few immediate solutions in sight for the Central Valley, a massive stretch of land in the middle of the state that provides nearly half of the nation’s produce. State officials have already said that they will not be able to offer any water to the farmers through California’s vast network of canals. And federal officials are expected to announce that their web of reservoirs will not provide any water this year either, leaving thousands of farmers to rely exclusively on private wells.”
A news release earlier this week from Sen. Tom Udall (D., N.M) indicated that, “[Sens. Udall] and Martin Heinrich [D., N.M.] today announced that they have sent a bipartisan letter signed by a coalition of senators to U.S. Department of Agriculture Secretary Tom Vilsack, encouraging the USDA to expedite the implementation of the livestock disaster programs reauthorized in the 2014 Farm Bill.”
Chris Clayton reported yesterday at the DTN Ag Policy Blog that, “The 2014 farm bill had not yet been signed when lawmakers started calling on USDA to get the livestock disaster programs out as quickly as possible.
“Agriculture Secretary Tom Vilsack told Agri-Talk on Wednesday that he has instructed his staff to focus on those disaster programs to get the rules out as quickly as possible.”
Mr. Clayton explained in the DTN update that, “Under Supplemental Agricultural Disaster Assistance Programs in the farm bill, USDA will be able to pay out for livestock disaster aid to producers going back to 2012.”
“Livestock Indemnity Payments: Pays up to 75% of the market value for livestock mortality that exceeds normal rates.”
“Livestock Forage Disaster Program: Compensates producers for grazing losses due to drought or fire on land a producer owned, leased, purchased, sold due to drought or was a contract grower on in a county affected by drought. Payments can equal up to 60% of the monthly feed costs incurred by the producer or the feed costs calculated by the normal grazing capacity of the land. The payment rate can go up to 80% for producers forced to sell livestock because of drought.”
And, Mr. Clayton added that, “Tree Assistance Program: Payments can be made for orchards that lost at least 15% of their trees and will reimburse up to 65% of the costs of replanting those trees beyond those 15% losses.”
DTN Editor Emeritus Urban C. Lehner noted in an update at his blog yesterday (“A Battlefield Report From the Food Wars”) that, “Once one company acts, it can touch off a chain reaction of competitors that feel pressured to do the same. In February 2012 McDonald’s said it would work with suppliers to eliminate gestation crates, just weeks after Smithfield Foods and Hormel had moved in the same direction. Within two months Burger King and Wendy’s had joined the parade. And that was just the beginning.
“Judging from the timeline on the Humane Society’s website (http://tiny.cc/…), you have to wonder if there’s a major food or restaurant company left that’s still planning to buy pork from suppliers that use gestation crates. As best I can tell Domino’s may be the most significant holdout, Papa John’s fell in line in November.”
Mr. Lehner added that, “To be sure, the pressure to conform varies from issue to issue. For all that the controversies over food chemicals and gestation crates and biotech ingredients have in common, they resonate differently with consumers.
“Genetic engineering, for example, generates fierce resistance among some but far from most Americans. We still buy what’s on the supermarket shelves, 70% of which has genetically engineered ingredients. So far, at least, the caravan of companies following Chipotle and Whole Foods into anti-biotech land has been short.”
And Reuters news reported this week that, “Kroger, the biggest supermarket operator in the United States, faces a lawsuit claiming it deceived consumers by marketing a store brand as products from humanely raised chickens when the animals were raised under standard commercial farming.”
Jacob Bunge reported yesterday at The Wall Street Journal Online that, “Developing countries are leaping ahead of industrial nations in planting genetically modified crops, according to a study released Thursday.
“Farmers in Latin America, Asia and Africa last year together cultivated 94 million hectares of biotech crops, more than half the total area planted world-wide and outpacing industrial nations’ use of GM crops for the second straight year, research from the International Service for the Acquisition of Agri-Biotech Applications showed.”
The Journal article added that, “The U.S., home to such biotech seed giants as Monsanto Co. and DuPont Co., retains the GMO crop crown, farming 70.1 million hectares in 2013, up about 1% from the prior year, according to the survey.”
Reuters news reported yesterday that, “China has begun testing imported U.S. soybean cargoes at the southern province of Guangdong for contamination with the unapproved genetically-modified MIR 162 strain of corn, traders said on Thursday.
“Strict testing of corn shipments for the variety developed by Syngenta AG, which has not been approved for import by China’s agriculture ministry, has led to rejection of more than 600,000 tonnes of corn from the United States and interrupted imports of the feed grain as well as its by-products.
“But the quarantine bureau in Guangdong, the largest importing province in China of soybeans and grains, is now also looking for potential MIR 162 contamination in other imported crops.”
And Reuters writer Tom Polansek reported yesterday that, “Bunge Ltd, one of the world’s top grain traders, signaled on Thursday that it will refuse to handle corn containing a new genetically modified Syngenta AG trait unless it is cleared by China.
“‘We handle crops that have been approved in major markets,’ Chief Executive Officer Soren Schroder told Reuters. ‘That is our stand.’
“Grain merchants must decide whether to buy corn from farmers that contains Syngenta’s Agrisure Duracade strain because seed containing the trait is available for planting in the United States for the first time this year.”
A news release yesterday from Sen. Maria Cantwell (D., Wash.) indicated that, “Today, U.S. Senators [Cantwell] and Chuck Grassley (R-IA) introduced bipartisan legislation to reinstate a tax incentive for the production of domestic biodiesel that will help spur job creation and boost America’s supply of cleaner alternatives to imported fossil fuels.
“The measure, the Biodiesel Tax Incentive Reform and Extension Act of 2014, or S. 2021, would reform and extend the $1-per-gallon tax credit for biodiesel producers through 2017 after Congress allowed the law to lapse at the end of 2013. Congress has allowed the credit to expire three times since the end of 2009.”
Ashley Parker and Jonathan Weisman reported in today’s New York Times that, “Senator Charles E. Schumer, Democrat of New York, offered a long-shot option on Thursday to revive the moribund effort to overhaul the nation’s immigration laws that would require the support of more than a dozen House Republicans — and, if nothing else, pressure others to act on an election-year issue that Tea Party-aligned members strongly oppose.
“The legislative maneuver, known as a discharge petition, would allow supporters of overhauling the nation’s immigration laws to circumvent the Republican majority in the House by bringing the measure directly to the House floor, bypassing the regular committee process. It is a rarely successful tactic, though it was used in 2002 to eventually win passage of a major campaign finance law.”
CFTC- Commodity Futures Trading Commission
Gina Chon and Michael MacKenzie reported yesterday at The Financial Times Online that, “Under new leadership, the US Commodity Futures Trading Commission is easing tensions with European regulators and mollifying industry worries in a marked change from its recent past.
“Since taking over the CFTC at the beginning of this year, acting chairman Mark Wetjen has taken advantage of his temporary time at the helm to lessen some of the waves made by his predecessor, Gary Gensler.”
The FT article noted that, “But those who know Mr Wetjen, a Democrat and former staffer for Senate majority leader Harry Reid, said he is not a pushover for Wall Street and in fact, agreed with most of the decisions made by Mr Gensler.
“But he has a more quiet and deliberating approach, drawing from his experience as a lawyer. He has sought to ensure the CFTC’s credibility is not eroded as the agency imposes new rules, people familiar with the matter said. Mr Wetjen is in charge until his permanent replacement, Treasury official Timothy Massad, is confirmed by the US Senate.”