FarmPolicy

July 20, 2019

Ag Economy; Biotech; Farm Bill; Tax Proposal; and, Food Labels

Agricultural Economy

Gregory Meyer reported yesterday at The Financial Times Online that, “Hoarding by US corn farmers has pinched profits at some of the world’s biggest grain merchants, even as the nation wallows in its largest harvest in history.

“Analysts and executives had expected companies such as Bunge and Archer Daniels Midland to report huge profits from buying and storing corn this year. But quarterly results have been underwhelming, they say.”

The FT article explained that, “Merchants say US farmers are clinging to their 13.9bn-bushel corn crop after prices fell 35 per cent in the past year, setting up a test of wills as Brazil prepares to launch its own huge harvest on to the export market.”

Mr. Meyer pointed out that, “The biggest US trading houses, including ADM, Bunge, Cargill, CHS and Gavilon, a unit of Japan’s Marubeni, have added about 1bn bushels of US storage capacity in the past decade, bringing the total to more than 5bn, according to Sosland Publishing’s 2014 Grain & Milling Annual.

“But soaring cereals prices after the worst drought since the 1930s in 2012 enabled farmers to reinvest income in their own storage bins. US on-farm storage capacity totals 13bn bushels, 2bn more than 10 years ago.”

Marcia Zarley Taylor reported recently at the DTN Minding’s Ag Business Blog that, “The five-year stretch from 2008-2012 represented the most profitable crops in 40 years of U.S. corn production. Sadly, most of the spoils accrued to just the top half of producers, a recent study by the consulting firm of AgriSolutions Inc. found. Ag’s golden era largely bypassed the bottom half of corn growers in their analysis.

“‘In the best bull market in history, many operators barely made money,’ said AgriSolutions financial consultant Sam Bachman. Missing that rare opportunity will make it doubly hard for these low- profit corn farms to keep pace with their peers as the margins in farming narrow to more normal levels, he added. USDA has already dropped its estimate of the 2013-14 season-average corn price to $4.50/bu., down 35% from the $6.89 peak in 2012-13.

“The bottom 25% of corn growers in the AgriSolutions accounting database averaged an annual profit of roughly $27/acre on the 2008-2012 crops. Without sizable insurance claims on 2012’s drought-ravaged yields, returns would have been even worse.”

The DTN item stated that, “In contrast, star performers in the top 25% earned an average of $268/acre net margin annually during this same five-year period. The most profitable operators generated about $800/acre gross revenues–virtually identical to the lowest-profit operators— but their expenses ran just above $500/acre. In contrast, operators in the bottom 25% erased virtually all of their profits by spending about $225/acre more on inputs and capital expenses than their most competitive peers.”

The USDA’s National Agricultural Statistics Service recently released county estimates for the Illinois corn and soybean crops last year, respective graphical depictions can be found here (corn) and here (soybeans).

Bloomberg writers Elizabeth Campbell and Megan Durisin reported yesterday that, “Cattle futures rose to a record as ranchers struggle to boost the U.S. herd from a 63-year low, and hogs climbed to a 34-month high after a virus that kills piglets spread, spurring concerns that meat supplies will shrink.

Beef output in the U.S., the world’s top producer, will fall 5.3 percent this year to 24.35 billion pounds (11.04 million metric tons), the lowest since 1994, the Department of Agriculture has forecast. At the start of this year, the cattle herd fell to 87.7 million head, the lowest since 1951, following drought and high feed costs. Porcine epidemic virus has killed more than 4 million pigs, according to an industry group.”

Meanwhile, an update yesterday at the Economic Research Service (USDA) chart gallery webpage indicated that, “Reflecting land’s role as a key input in agricultural production, real estate assets (the value of land and buildings) play an important role in the farm sector’s financial health. Real estate has traditionally accounted for the bulk of the total value of farm sector assets—in 2014, real estate assets are expected to comprise 82 percent of total farm assets. When combined with generally lower annual increases in farm sector debt, the increasing value of farm real estate has helped the farm sector attain record low debt-to-asset ratios in recent years, a trend expected to continue into 2014 (see related chart here).

From an international perspective, Jamie Smyth reported yesterday at The Financial Times Online that, “Rick Britton is a fifth generation beef farmer who is no stranger to dry periods on his sprawling 200,000 hectare farm in northern Queensland. But a savage two-year drought is taking despair to a new level and raising concerns that surging global meat prices could be pushed even higher by the developing crisis in Australia, the world’s third biggest beef exporter.”

The FT article added that, “2013 was the hottest year since records began in Australia and the drought is raising questions about the viability of farming in parts of Queensland, which is home to almost half the country’s 27m cattle. It has coincided with a severe drought in big cattle ranching states in the US, which is causing a global supply crunch just as demand in China is increasing rapidly” (see related graph).

Bloomberg writers Aya Takada and Yuriy Humber reported yesterday that, “Convenience store chains Lawson Inc.  and Seven & I Holdings Co. are so sure Japan’s aging farmers can’t meet demand for fresh vegetables that they’re investing in cropland and training young people to work the fields.

Takeshi Niinami, who heads an agricultural reform committee advising Prime Minister Shinzo Abe and is the chief executive officer of Lawson, the nation’s second-largest operator, started 12 farming joint ventures since 2010 and plans 28 more.

“He’s expanding as Abe cuts subsidy payments to food-rice growers and creates land banks to consolidate small holdings into large tracts that can be leased by companies as older farmers put down their plows.”

Trefor Moss and Isabella Steger reported yesterday at The Wall Street Journal Online that, “A crackdown on rice smuggling in the Philippines is behind a run-up in prices of the country’s staple food, some traders and analysts say.

“Smugglers had been ‘absolutely helping’ to keep prices down for consumers by boosting the national supply, said Roehlano M. Briones of the Philippine Institute for Development Studies. But the crackdown on smuggled rice in recent months has driven up prices, Mr. Briones said, because the government hasn’t compensated with an increase in legal imports.

“The conflict comes from a government policy that aims to have domestic farmers grow all the rice the nation needs by the time President Benigno Aquino III leaves office in 2016, even though the archipelago is short on space for irrigated land. Population growth makes the goal still harder to achieve, but the idea of the nation’s being able to feed itself is popular among voters.”

The Journal article added that, “While the price of rice fell in most countries last year, it rose by around 5% in the Philippines, according to the nation’s Bureau of Agricultural Statistics.”

In trade related news, Marc Lifsher reported yesterday at the Los Angeles Times Online that, “Wine exports from the United States, mainly from California, generated a record high revenue of $1.55 billion in 2013, the Wine Institute reported.

“It was the fourth record in a row for foreign sales when ranked by value, the San Francisco trade group said.”

And Vicki Needham reported yesterday at The Hill’s On the Money Blog that, “Two top Democrats said Wednesday that without currency manipulation provisions, the White House’s ambitious trade agenda has little chance of gaining traction in Congress.

“Sen. Sherrod Brown (Ohio) and Rep. Sandy Levin (Mich.) told reporters that a new report from the Economic Policy Institute (EPI) should restart the conversation about the need to include a framework for determining offenders and punishing countries that deliberately adjust their exchange rates for their own gain.”

 

Biotech

Neil Munshi and Emiko Terazono reported in yesterday’s Financial Times that, “In the heated battle in the US over mandatory labelling of food products containing genetically modified ingredients, the big food and agricultural companies so far have managed to log victories in high profile ballots in two states – Washington and California.

“Both Connecticut and Maine passed their own labelling laws last year, but they require a set number of other states to pass their own labelling legislation before they take effect.

“Just shy of two decades since GM seeds were introduced, they account for more than three-quarters of all corn grown in the US, along with 93 per cent of soyabeans, according to the US Department of Agriculture. By some estimates, more than 70 per cent of processed foods in the US contain the GM ingredients.”

The FT writers explained that, “The Center for Food Safety, which opposes genetically modified organisms, said it expects more than 30 states to introduce labelling laws in 2014.

“However, the Grocery Manufacturers Association, the trade group for packaged food producers, and 30 other food and agribusiness industry groups are lobbying for federal legislation to allow voluntary GMO labelling but also block further state-by-state initiatives. This would, they argue, ‘eliminate the confusion and uncertainty of a 50-state patchwork of GMO safety.’”

 

Farm Bill

House Ag Committee Chairman Frank Lucas (R., Okla.) touched briefly on Farm Bill issues yesterday in a conversation with Ramey Cozart (KKBS 92.7FM- Guymon, Okla.); Chairman Lucas noted in part that, “This Farm Bill may well be the last Farm Bill that’s actually a farmer’s Farm Bill.”

Chairman Lucas added that, “A stand alone ‘farm bill’ Farm Bill: Conservation, Rural Development, Ag Research, Commodity Title- I don’t know if the President would have ever signed it, I don’t know that the Senate would have ever passed it…[I]f we had never passed a Farm Bill, the food stamp program would have kept going…[t]he commodity title would not have.”  (Related audio clip here (MP3- 3:20)).

A news update this week from House Speaker John Boehner (R., Ohio) indicated that, “This Saturday, March 1, Congressman Boehner is hosting the 23rd annual 8th Congressional District Farm Forum at Edison Community College in Piqua, where experts from different sectors of the agriculture community will come together for a discussion about issues impacting their industries.

This year, the panel will focus on the 2014 farm bill and how important reforms in the bill will help Ohio’s agriculture community.”

The update also included a brief video clip with remarks from the Speaker.

Meanwhile, the House Agriculture Appropriations Subcommittee will hold a hearing on March 5th where Phyllis Fong, the USDA’s Inspector General will provide testimony.

And Billy House reported yesterday at National Journal Online that, “Several governors are trying to thwart attempts to reduce food-stamp payments to their states, in a move that could affect portions of the recently passed farm bill aimed at saving $8.6 billion over the next 10 years.

“While congressional aides conceded Tuesday that the moves could have some impact on projected savings in the federal budget, they say it is too early to tell exactly how significant that impact might be.

“Democratic Govs. Peter Shumlin of Vermont and Deval Patrick of Massachusetts have indicated they are considering such moves…”

Recall that New York Andrew M. Cuomo (D) also took state action regarding the SNAP program this week (see related Politico article here).

The National Journal article noted that, “House Agriculture Committee Chairman Frank Lucas and Senate Agriculture Committee Chairwoman Debbie Stabenow had no immediate comment on what the governors are doing.”

In other developments, Andrew Ackerman reported yesterday at The Wall Street Jouranl Online that, “The Senate Agriculture Committee will question three of President Barack Obama’s nominees for the Commodity Futures Trading Commission at a hearing next week, including Timothy Massad, a senior Treasury Department official tapped to head the agency.

“The panel will meet March 6 to hear from Mr. Massad as well as Sharon Bowen, a partner at law firm Latham & Watkins LLP, and brokerage executive J. Christopher Giancarlo, the committee announced Wednesday.”

 

Tax Proposal

Lori Montgomery reported in today’s Washington Post that, “The Republican chairman of the tax-writing House Ways and Means Committee [Rep. Dave Camp (R-Mich.)] proposed a bold but politically hazardous overhaul of the nation’s tax laws Wednesday [summary here] that would jettison hundreds of popular tax breaks in favor of a simpler code with lower rates.”

The Post article, noting that, “Camp’s prospects for passing any part of his plan before he gives up his chairmanship early next year were dismissed as exceedingly dim,” also added that,  “Even before Camp released his plan, Senate Minority Leader Mitch McConnell (R-Ky.) told reporters Tuesday that he has ‘no hope’ that a tax overhaul could make it through Congress this year. On Wednesday, House Speaker John A. Boehner (R-Ohio) was equally blunt.

“‘Blah, blah, blah, blah,’ he said when asked about the details of Camp’s proposal, calling it just ‘the beginning of the conversation.’”

Bob Stallman, the President of the American Farm Bureau Federation, noted in part yesterday that, “Farmers and ranchers are grateful for the long-standing willingness of the chairman, as well as his colleagues, to listen to our concerns on issues like cash accounting. We look forward to continuing the conversation about meaningful tax reform that benefits the whole economy.

“We appreciate the chairman’s focus on simplifying and streamlining the tax code. Still, his proposal runs deep and wide and at a level of detail that will require careful analysis. The American Farm Bureau Federation will take a serious look at the proposal and thanks the chairman for his dedicated effort.”

Also yesterday, American Soybean Association (ASA) President Ray Gaesser noted in part that, “ASA strongly supports the measures proposed to allow farmers to continue utilizing cash-based accounting regardless of size. This accommodates the uncertain and potentially inconsistent nature of farm incomes and crop values across multiple years. Additionally, the proposal would make expensing deductions under Section 179 permanent. This provision enables farmers and other small businesses to deduct business-related purchases like equipment and infrastructure…[W]e are significantly concerned, however, in the proposal’s elimination of the Biodiesel Tax Credit. Understanding that achieving comprehensive tax reform requires many compromises, ASA believes the Biodiesel Tax Credit is worthy of extension given the many benefits it provides, including support for jobs, economic development in rural communities, diversity in our energy sources, and reduction in greenhouse gas emissions, among others.”

 

Food Labels

Thomas M. Burton and Annie Gasparro reported today at The Wall Street Journal Online that, “Food labels would have larger-font calorie counts and more realistic portion sizes under an Obama administration proposal to significantly revise nutrition labels for the first time in two decades.

“The proposal, to be unveiled by first lady Michelle Obama at the White House on Thursday, aims to make it easier for consumers to decipher unhealthy ingredients in packaged foods. The new label would include a line for ‘added sugars’ to distinguish from sugars that appear naturally in food. It would list nutritional values for vitamin D and potassium, which benefit bone health and blood-pressure control [see related graphic].”

The Journal writers explained that, “The proposed labels, produced by the Food and Drug Administration with input from industry and consumer groups, aren’t slated to take effect for at least two years. Industry groups are expected to push for changes, and the proposal is open to a 90-day comment period before being finalized.”

Keith Good

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