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Ag Economy; Biotech; Regulations; and, Immigration

Agricultural Economy

Yesterday, the Federal Reserve Board released its Summary of Commentary on Current Economic Conditions. Commonly referred to as the “Beige Book,” the report included several observations with respect to the U.S. agricultural economy.

The Chicago District indicated that, “The slow arrival of spring-like weather delayed fieldwork. However, concerns about a delayed start to planting were muted, especially in Illinois and Indiana where 2013 crops performed well after being planted late. The mood among farmers improved as crop prices increased enough from winter lows that breakeven outcomes now seem possible. Hence, there has been more forward contracting of crops than a year ago to manage risk. Higher soybean prices still support a shift in planting intentions toward soybeans and away from corn, but not as much as earlier this year. Fertilizer costs decreased from a year ago, and seed costs were flat. The livestock sector moved further into the black, as milk, hog, and cattle prices increased. Given lower numbers of hogs and cattle available to market, animals were fed longer in order to gain additional weight. Although hog operations were still battling a virus that killed many piglets, there were signs that the worst had past.”

While the Kansas City District noted that, “Crop growing conditions remained dry in March, while livestock prices increased further since the last survey period. The winter wheat crop was in need of moisture and rated in mostly fair to poor condition. Spring fieldwork began, and District farmers followed national trends by intending to plant slightly more soybeans and less corn. With crop prices still lower than a year ago, farm operating loan demand rose this year as farmers financed a larger portion of crop input costs. However, global supply concerns supported strong exports, and crop prices rose to a six-month high during the reporting period. Low cow inventories kept feeder cattle prices elevated, and strong export demand supported higher fed cattle prices. In addition, hog prices surged as the on-going swine virus cut inventories further.”

The Richmond District added that, “Persistent cold temperatures and wet field conditions delayed planting of row crops and in some locations, limited days out in the fields. There were reports of slower small grain growth and some freeze damage to fruit trees. An agribusiness located in South Carolina reported that winter weather pushed back some of their harvesting timelines, although demand levels remained solid. Beef prices remained high and pork prices increased due to a virus currently being found in pigs. A contact reported that the spreading virus decreased the number of pigs available to farmers and reduced the number maturing to hogs.”

A complete overview of all Fed District reporting relating to the agricultural economy from yesterday’s “Beige Book” is available here, at FarmPolicy.com Online.

Emiko Terazono reported yesterday at The Financial Times Online that, “Soyabeans hit a nine-month high after new data showing higher than expected demand from US processors raised concerns about declining inventory levels [related graph].

“Latest figures from the US National Oilseed Processors Association on Tuesday showed that companies ‘crushed’ or processed 153.84m bushels of soyabeans in March compared with earlier market forecasts of about 145m bushels.”

The FT article added that, “Reports of order cancellations by Chinese buyers failed to damp enthusiasm for the oilseed.”

Bloomberg writer Megan Durisin reported earlier this week that, “The cost of a dozen eggs at U.S. grocery stores has climbed to the highest since 2008 as demand for the food usually scrambled, fried or poached shifts to coloring and hiding for the Easter holiday.

“The CHART OF THE DAY shows egg prices have jumped 7.1 percent in the past 12 months to a six-year high of $2.061 a dozen in March, according to the Bureau of Labor Statistics. U.S. exports have jumped, and domestic consumption has climbed for a protein alternative to beef, pork and milk, whose costs by some measures climbed to a record, said John Anderson, a Washington-based deputy chief economist at the American Farm Bureau Federation.”

Meanwhile, a recent update at the Red River Farm Network Online reported that, “North Dakota State University Extension farm management specialist Andy Swenson says the market for farmland has showed significant cooling in 2013. Swenson says according to a survey commissioned by the North Dakota Department of Land Trusts, land values showed about an 8 percent increase over the previous survey, well under the 42 percent increase that was seen in 2012. Land values in the northern Red River Valley region declined 4 percent in 2013 compared to a 56 percent increase in 2012. Swenson says all other regions of the state had positive year-to-year results. Swenson says it is quite possible land prices peaked in the last few months of 2013 when the financial impact of lower crop prices became more evident.”

In trade developments, James Politi reported in yesterday at The Financial Times Online that, “Moves by US sugar and steel producers to seek anti-dumping duties against Mexican imports have led to a flare-up in trade tensions between the North American neighbours in recent weeks ahead of key rulings on the cases in Washington.

“In late March, US sugar companies filed a petition asking the US government to impose new duties on Mexican sugar, alleging that they were being sold below cost with the help of subsidies, leading to a $1bn loss in revenue for American producers this year.

“The case – which will receive a first verdict from the commerce department this week – comes on top of growing frustration among Mexican steel producers about another pending petition by US steel companies, including Nucor, to impose duties on Mexico steel ‘reinforcing bar’, on similar grounds of below-cost production.”

The FT article noted that, “‘Ultimately, these decisions on sugar and steel could have a ripple effect on the TPP and TTIP [big trade deals the US is negotiating with Pacific Rim countries and the European Union], as it sends the signal the US cannot be trusted on trade commitments,’ added [Arturo Sarukhan, a former Mexican ambassador to the US, now at Podesta Group, a lobbying firm.]”

Mr. Politi pointed out that, “Sugar producers are equally adamant that they had no other choice but to file a case against Mexican imports. ‘I can tell you that we viewed it as an act of last resort – it was something that we put tremendous amount of thought into – and it is our hope that the US government enforces the laws that we have on the books,’ says Phillip Hayes, a spokesman for the American Sugar Alliance.

“However, Tom Vilsack, US agriculture secretary, told Congress that the filing of the sugar case was ‘ill-timed’ amid sensitive negotiations on access to the Mexican markets for US potatoes, and talks over country-of-origin labelling requirements for meat contained in the farm bill.”

Also yesterday at The Financial Times Online, Kathrin Hille and Shawn Donnan reported that, “Russia has threatened to take the US to the World Trade Organisation over sanctions imposed in the context of the Ukraine crisis.

“If Moscow went ahead, it would mount the first formal challenge to trade sanctions in the global trade body. Such a move would also add to growing friction between Russia and other WTO members less than two years into its membership of the trade club.”

And Bloomberg writer Aya Takada reported yesterday that, “Japan, the world’s largest pork buyer, will lower its tariff on pig meat shipments from Australia in a bilateral trade agreement that also reduces import duties on beef.

The levy will drop to 2.2 percent from 4.3 percent, within a quota that limits volume to 6,700 metric tons in the first year and rises to 16,700 tons within five years, the Agriculture Ministry in Tokyo said in a statement today. Pork imports from Australia were about 700 tons in the 12 months to March 31, 2013.”

The article explained that, “Japan is relaxing restrictions on trade with Australia as the U.S. presses it to cut agricultural protection for the 12-nation Trans-Pacific Partnership trade pact. The Asian nation imported 738,455 tons of pork worth 390 billion yen ($3.8 billion) in 2013, of which 38 percent came from the U.S., the world’s largest exporter.”

With respect to transportation issues, a news release yesterday from Sen. Al Franken (D., Minn.) stated that, “After [Sen. Franken] pressed a key rail oversight board to address the poor rail service that has plagued farmers, businesses and communities in Minnesota, the panel announced that it has directed two major rail companies that serve Minnesota to take an important step to address the problem.

“The Surface Transportation Board (STB)-which has jurisdiction over the U.S. railroad system-has directed Canadian Pacific Railway Company and BNSF Railway Company to report how they will ensure that fertilizer shipments are delivered in time for spring crop planting. Earlier this week, Sen. Franken sent a letter to the STB urging them to take action to restore railway standards that Minnesota shippers and communities expect.”

A news release yesterday from Sen. Heidi Heitkamp (D., N.D.) indicated that, “Heitkamp today called on the U.S. Surface Transportation Board (STB), which is tasked with resolving service disputes, to remain directly involved in the service improvement processes underway at the Burlington Northern Santa Fe (BNSF) and Canadian Pacific (CP) railroads. If the service does not improve, Heitkamp wants STB to exercise its authority to make sure the quality of service in North Dakota improves for agricultural customers.

“Heitkamp’s letter comes on the heels of STB’s decision to require the railroad industry to report a plan to address shortfalls in the delivery of fertilizer. While Heitkamp applauded this decision, she remains concerned about the inadequate service to farmers, grain elevators, and agribusinesses in moving their products to market.”

In addition to rail issues, Reuters writer Michael Hirtzer tweeted yesterday that, “Shipping costs on Mississippi River hit lowest levels of year while grain shipments hit highest level of 2014 [related graph].”

And from an international perspective, Bloomberg writer Gerson Freitas Jr. reported yesterday that, “The tycoon who built the world’s biggest sugar-cane operation by buying mills in Brazil is about to dominate rail freight transport in the country.

Cosan, the sugar maker controlled by billionaire Rubens Ometto, won approval from ALL-America Latina Logistica SA (ALLL3) controlling shareholders to buy the train operator for about $3 billion in an all-stock deal, ALL-Logistica said in a filing yesterday. Shares gained as much as 5.6 percent today.

“The blessing from holdouts including pension fund Previ opens the way for Cosan to take over a rail network connecting Brazil’s two largest ports to areas that produce most of the world’s sugar and soybean exports. The deal culminates Ometto’s three-year battle to gain control over routes that face increasing bottlenecks to ship record crops.”

 

Biotech

Reuters writer Tom Polansek reported yesterday that, “China’s rejections of a banned variety of genetically modified U.S. corn have cost the U.S. agriculture industry up to $2.9 billion, a grain group said on Wednesday in the first estimate on losses from the trade disruptions.

“The National Grain and Feed Association (NGFA) estimated in a report that rejections of shipments containing Syngenta AG’s Agrisure Viptera corn resulted in losses of at least $1 billion, based on an economic analysis that included data supplied by top global grain exporters.”

The article noted that, “Cargill, the top exporter of U.S. grains, last week said rejections of U.S. corn shipments by China contributed to a 28 percent drop in earnings for the quarter ended Feb. 28.

The rejections have depressed U.S. corn prices by an estimated 11 cents per bushel, accounting for projected losses of $1.14 billion for U.S. corn farmers for the last nine months of the marketing year that ends on Aug. 31, according to NGFA. It is unknown whether China will approve the trait before the marketing year ends.”

Christopher Doering reported yesterday at The Des Moines Register Online that, “In a recent letter, President Obama praised the work of plant scientist and Iowa native Norman Borlaug, and underscored the contribution of genetically modified crops in feeding the world.

“In the letter to his granddaughter, Julie Borlaug, Obama said the Nobel Peace Prize winner changed the way food is produced and helped make it accessible for more of the earth’s population. The president said Borlaug’s support of investing in education and continuing research in biotechnology are ‘inspirational as we pursue developing new products that can nourish the world’s vast population.’

“‘I share his belief that investment in enhanced biotechnology is an essential component of the solution to some of our planet’s most pressing agricultural problems,’ Obama said in the letter dated April 11.”

Meanwhile, Reuters writers Carey Gillam and Lisa Baertlein reported yesterday that, “The Vermont Senate passed a bill on Wednesday that would make the state the first in the United States to enact mandatory labeling of foods made with genetically modified crops.

“‘We are really excited that Vermont is going to be leading on this,’ said Falko Schilling, a spokesman for the Vermont Public Interest Research Group, which backed the bill.

“The bill, approved 28-2 by the Senate, has already passed the Vermont House of Representatives. It now goes back to the House to see if members will approve changes made by the Senate.”

Adrian Higgins reported on the front page of today’s Washington Post that, “Alan Krivanek, a tomato breeder for Monsanto, dons a white protective suit, wipes his feet on a mat of disinfectant and enters a greenhouse to survey 80,000 seedlings. He is armed with a spreadsheet that will tell him which ones are likely to resist a slew of diseases. The rest he will discard.

“Krivanek, 42, is part of a new generation of plant breeders who are transforming the 10,000-year history of plant selection. And their work has quietly become the cutting-edge technology among today’s major plant biotech companies. Instead of spending decades physically identifying plants that will bear fruits of the desired color and firmness, stand up to drought, and more, breeders are able to speed the process through DNA screening.”

The Post article noted that, “The technology — called marker-assisted or molecular breeding — is far removed from the better-known and more controversial field of genetic engineering, in which a plant or animal can receive genes from a different organism.

Marker-assisted breeding, by contrast, lays bare the inherent genetic potential of an individual plant to allow breeders to find the most promising seedling among thousands for further breeding. Because the plant’s natural genetic boundaries are not crossed, the resulting commercial hybrid is spared the regulatory gantlet and the public opposition focused on such plants as genetically modified Roundup Ready corn or soybeans, which are engineered to withstand herbicide sprays.

“Marker-assisted breeding has been embraced not only by the multinational biotech companies here in California’s Central Valley but also by plant scientists in government, research universities and nongovernmental organizations fervently seeking new, overachieving crops. The goal is to sustainably feed an expanding global population while dealing with the extremes of climate change.”

 

Regulations: EPA, CFTC

Ramsey Cox reported yesterday at The Hill’s Floor Action Blog that, “Sen. John Hoeven (R-N.D.) warned the Environmental Protection Agency (EPA) not to regulate livestock emissions while cracking down on methane emitters.

“‘Imposing costly and unnecessary regulations on livestock emissions will not only hurt our livestock producers, but American families and our economy,’ Hoeven said in a press release.”

Tim Devaney reported yesterday at The Hill’s RegWatch Blog that, “Senate Democrats are calling on the Obama administration to strengthen food safety standards to protect against the contamination of chicken and turkey products in grocery stores.

“Sens. Dianne Feinstein (Calif.), Dick Durbin (Ill.) and Kirsten Gillibrand (N.Y.) said they were concerned about ‘startlingly’ high rates of chicken breasts and ground chicken that are contaminated with pathogens such as salmonella and campylobacter.”

In addition, The Wall Street Journal editorial board indicated today that, “Anyone wondering why the U.S. economy can’t seem to grow at its usual pace should examine one product category where production is booming: federal regulation.

Washington set a new record in 2013 by issuing final rules consuming 26,417 pages in the Federal Register. While plenty of government employees deserve credit for this milestone, leadership matters. And by this measure President Obama has never been surpassed in the Oval Office.”

In other news, Reuters writer David Sheppard reported yesterday that, “United Nations economists who previously called for government intervention to tame volatile swings in commodity prices say banks and hedge funds have since reduced their influence to the lowest level since 2008.

“In a 2012 report for the UN Conference on Trade and Development (UNCTAD), David Bicchetti and Nicolas Maystre said the rise of financial players in commodities markets over the previous decade had moved prices of oil and grains away from the fundamentals of supply and demand.”

The Reuters article noted that, “As a result, commodity prices became more volatile and were increasingly linked to moves on equity markets, they said.

But the latest data to March 2014 shows a large reduction in the so-called ‘financialization’ of commodities, they said in an interview this week.”

An update yesterday at Crain’s Chicago Business Online indicated that, “The U.S. attorney in Chicago has created a new section to focus on prosecuting securities and commodities fraud, creating such a focus here for the first time.”

And Tim Devaney reported yesterday at The Hill’s RegWatch Blog that, “Senate Democrats are urging the Federal Reserve to prohibit banks from investing in physical commodities like oil, gas and metals, because of the risks it poses to the U.S. financial system.

“Sens. Sherrod Brown (Ohio), chairman of a Senate banking subcommittee, and Elizabeth Warren (Mass.) wrote to the Fed on Wednesday to express their concerns about banks that engage in commodity trading.”

 

Immigration

Seung Min Kim reported yesterday at Politico that, “President Barack Obama spoke with House Majority Leader Eric Cantor about immigration reform on Wednesday, hours after the president sharply criticized House Republicans for stalling an overhaul this year.

“But the White House says Obama was just trying to wish Cantor, who is Jewish, a happy Passover.”

The article stated that, “The Wednesday phone call, disclosed in a statement from Cantor, underscored just how far House Republicans and the White House are from an agreement on rewriting the nation’s immigration laws this year.

The two sides couldn’t even agree on the nature of a phone call.”

Keith Good