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Ag Economy (Trade); Immigration; Farm Bill- Policy Issues

Agricultural Economy

Alexandra Wexler reported on the front page of Saturday’s Wall Street Journal that, “You can stretch cotton only so far. Pushed by persistently steep prices for the fabric, apparel makers are weaving synthetic fibers into clothing that was once 100% natural.

“The trend is showing up at a range of retailers, from high-end to mass-market. Jeans from Los Angeles-based seller AG, which specializes in premium denim, are made from cotton, lyocell and polyurethane and cost $168. American Apparel Inc. offers a $22 T-shirt that is a blend of polyester, cotton and rayon. A dress from Hennes & Mauritz AB made from rayon and spandex costs $12.95.

This year, U.S. imports of clothing made chiefly from synthetic materials are poised to outpace cotton apparel for the first time in more than two decades. As recently as 2008, 60% of apparel imports—the vast majority of the U.S. clothing market today—were made of cotton [see related graph from the article].”

The article explained that, “While economics is a factor in clothing makers’ move away from cotton, consumers were already heading in the same direction. Under Armour Inc. became a $2.9 billion a year business selling athletic gear made with synthetics including polyester, the oil-based fabric once associated with leisure suits and golf pants. Lululemon Athletica Inc.’s yoga pants aren’t just worn in the gym anymore.”

Saturday’s article noted that, “‘I don’t believe that this is cyclical—I believe that this is evolutionary,’ said Bob Grayson, former chief executive of Limited Stores and Lerner New York and founder of Grayson Co., a retail and consumer consulting group. ‘Just as technology impacts other categories, technology is now impacting fashion.’”

Meanwhile, Jacob Bunge, also writing in Saturday’s Wall Street Journal, reported that, “U.S. farmers are dousing their fields with a wider array of herbicides, helping some turn a corner in the war on super weeds but adding new costs and environmental concerns.”

Mr. Bunge indicated that, “U.S. soybean growers spent on average $25.10 per acre on crop-protecting chemicals in 2012, up 51% from 2006 after adjusting for inflation, according to the USDA. Chemicals represented about 12% of soybean farmers’ operating costs in 2012. U.S. farmers spent $13.7 billion that year on all agricultural chemicals, the most on record and nearly two-thirds higher than in 2002.”

Tony C. Dreibus reported in today’s Wall Street Journal that, “Wheat prices are climbing as dry weather in the main growing region threatens U.S. crops.

“The Southern Plains, an area stretching from southern Nebraska through Texas, is entering its fourth year of drought, reducing harvests in the biggest wheat-growing region of the country. Recent weather forecasts show that the areas of lower-than-normal precipitation are spreading, potentially damaging the type of wheat used to make bread and pushing flour prices higher.”

In addition, see this radar image from the National Weather Service in Topeka, Kansas yesterday, which depicted blowing dust across north central and northeastern Kansas.

Also, Jacob Bunge reported in today’s Wall Street Journal that, “The bitter cold and piles of snow have largely receded, but this winter’s harsh weather is likely to chill profits of U.S. agricultural companies.

“Freezing temperatures hampered U.S. railroads, worsening capacity problems caused by grain and ethanol jockeying with crude oil for train space. Now the transport problems are raising alarms that fertilizer supplies could run short, while in northern reaches of the country some farmers are delaying planting corn and soybeans because of the prospect of more poor weather.”

The Journal article added that, “Man-made hiccups also have disrupted agricultural trade. China, the fastest-growing importer of corn in the world, in late 2013 began rejecting some shipments of corn from the U.S. after detecting an unapproved genetic modification. Lost sales and the cost of rerouting shipments cost sellers of corn and a related product—distillers dried grains, a byproduct of ethanol production used in animal feed—a combined $427 million, according to estimates from the National Grain and Feed Association. U.S. corn sales to China have dropped about 85% this year.”

With respect to livestock, Bloomberg writers Elizabeth Campbell and Megan Durisin reported on Friday that, “U.S. feedlots unexpectedly bought 4.7 percent fewer cattle in March than a year earlier, as herds declined in Texas, Oklahoma and Washington state, a government report showed.

“Feedlots placed 1.795 million head of cattle last month, compared with 1.884 million in March 2013, the U.S. Department of Agriculture said today in a report [related graph].”

And Reuters writers Meredith Davis and Theopolis Waters reported yesterday that, “John Goihl, a hog nutritionist in Shakopee, Minnesota, knows a farmer in his state who lost 7,500 piglets just after they were born. In Sampson County, North Carolina, 12,000 of Henry Moore’s piglets died in three weeks. Some 30,000 piglets perished at John Prestage’s Oklahoma operation in the fall of 2013.

“The killer stalking U.S. hog farms is known as PEDv, a malady that in less than a year has wiped out more than 10 percent of the nation’s pig population and helped send retail pork prices to record highs. The highly contagious Porcine Epidemic Diarrhea virus is puzzling scientists searching for its origins and its cure and leaving farmers devastated in ways that go beyond financial losses.”

The Reuters writers added that, “PEDv was first diagnosed in Ohio last May and has spread within a year to 30 states with no reliable cure in sight. U.S. packing plants may produce almost 2 percent less pork in 2014, according to Ken Mathews, USDA agricultural economist.

“Last week the USDA responded to calls for more reliable data and classified PEDv as a reportable disease, a step that requires the pork industry to track its spread.”

Note that on Wednesday, the House Ag Subcommittee on Livestock, Rural Development, and Credit will be holding a hearing “to review the state of the livestock industry.”

In dairy related news, Bloomberg writer Venessa Wong reported last week that, “Chobani’s made a booming business of selling a thicker, Greeker version of the yogurt Americans were familiar with. Now the country’s largest yogurt brand wants to branch out to other categories, such as desserts and cooking ingredients.

“Just as Starbucks has tried to get customers into cafes after the morning rush by launching more food, cold drinks, and even alcohol, Chobani is also getting into the ‘daypart’ game, marketing its products as not only breakfast or snack foods.”

On Friday, USDA’s Economic Research Service (ERS) indicated that, “The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose 0.6 percent from February to March and is 1.5 percent above the March 2013 level. The CPI for all food increased 0.3 percent from February to March, increased 0.3 percent from January to February, and is now 1.7 percent above the March 2013 level.”

The ERS update added that, “Beef and veal prices, which are already at or near record levels across the country, rose another 1.9 percent in March and are up 7.4 percent over this time last year. This reflects, in part, an increase in exports, a decrease in imports, and further reductions in the U.S. cattle inventory due to the ongoing drought in Texas. Pork prices increased 1.9 percent in March and are up 5.3 percent on the year. The Porcine Epidemic Diarrhea virus has reduced hog inventories somewhat, and pork demand is up due to record beef prices. Meat prices, on average, increased 1.6 percent in March and are up 5.2 percent from March 2013.

Milk prices, which have been rising since the end of 2013, increased 1.8 percent in March and are up 4.8 percent since last year.”

Interestingly, ERS also stated that, “Overall, the California drought has not yet had a discernible impact on national prices for fruit or vegetables.”

More broadly with respect to the U.S. agricultural economy, ERS indicate on Friday at its chart of the day webpage (“Less production and debt concentrated in highly-leveraged farm businesses than 20 years ago”) that, “In 2011, 5.3 percent of farm businesses were highly leveraged and contributed 13.4 percent of farm businesses’ total value of production; by comparison, in 1992, 9.5 percent of farm businesses, responsible for 19.6 percent of production, were highly leveraged. The declining role of highly-leveraged farms suggests the sector’s financial resiliency has increased over time because financial shocks—such as an unexpected drop in income or a sudden jump in interest rates—would likely affect fewer farm businesses, producing a smaller share of the value of production.”

 

Trade

Mitsuru Obe and Colleen McCain Nelson reported on Friday at The Wall Street Journal Online that, “The U.S. and Japan tried to put the best face on their failure to reach a trade deal during President Barack Obama’s Tokyo visit, saying major progress was made during nearly round-the-clock talks.

“But it was Japan’s often-blunt finance minister, Taro Aso, who gave voice to the frustration many felt here.

“‘No agreement would ever be reached until the U.S. midterm elections are over,’ he said Friday, just before Mr. Obama left Japan.”

The Journal article explained that, “A trade agreement between the U.S. and Japan is crucial to the Trans-Pacific Partnership, a U.S.-led free trade initiative involving 12 nations. It is also the main economic component of Mr. Obama’s foreign policy ‘pivot’ to Asia, and is considered a litmus test of Prime Minister Shinzo Abe’s willingness to challenge special interests in reviving Japan’s economy.

Mr. Aso said it was hard to strike a deal when Congress refused to give the president fast-track authority, meaning U.S. lawmakers could pick apart any pact piece by piece. ‘Suppose an agreement were reached between U.S. and Japan—there’s no guarantee it would be approved by the Congress,’ he said.”

Japanese farmers have long enjoyed protection through steep tariffs on imports of products including wheat and rice. Japan offered significant reductions on several agricultural items, including beef and pork, a senior Japanese official said Friday. But farmers are an important constituency for Mr. Abe and he wasn’t ready to go further—especially when he wasn’t certain Congress would ratify a deal,” the Journal article said.

(See also this 90-second overview of the TPP talks and ag issues from Friday by FarmPolicy.com; as well as, this interesting graph from the Pew Research Center).

DTN Ag Policy Editor Chris Clayton reported on Friday (link requires subscription) that, “President Barack Obama left Japan on Thursday with no agreement on resolving the Trans-Pacific Partnership talks, but a senior administration official spun the talks as a ‘breakthrough’ that would ‘inject fresh momentum’ for a major trade deal nonetheless.

“Comments to press by a senior administration official released by the White House show Japan offered a range on potential new tariffs for products but little more than that. Several agricultural commodities remain classified by Japan as ‘sanctuary products,’ including beef, pork, dairy, wheat, rice and sugar.”

Bloomberg writer Brian Wingfield reported on Friday that, “U.S. Commerce Secretary Penny Pritzker said she thinks the U.S. and 11 other nations brokering a Pacific-region trade deal will reach an agreement they can send to Congress this year.

“‘I’m pretty optimistic about what can happen,’ Pritzker said in an interview for Bloomberg Television’s ‘Political Capital with Al Hunt,’ airing this weekend. ‘We’re down to the endgame of this negotiation.’”

A statement on Friday from Rep. Rosa DeLauro (D., Conn.) indicated that, “As the President leaves Japan and continues to other Asian nations, I am happy that there was no breakthrough in the Trans-Pacific Partnership negotiations. Here at home the majority of Americans are tired of flawed trade deals that ship jobs overseas and weaken consumer protections. Whether it is market access issues with Japan or any number of the other wide ranging and seemingly unresolvable issues with the TPP nations, this agreement continues to face strong headwinds. There is no appetite to provide the Administration with fast track authority to ram another bad trade deal through Congress at a time when we should be focused on policies that support the middle class and provide better opportunities for those striving to join the middle class.”

Reuters writers Stuart Grudgings and Mark Felsenthal reported yesterday that, “Malaysian Prime Minister Najib Razak said on Sunday that he and U.S. President Barack Obama had agreed to upgrade bilateral relations but suggested that his country remains far from ready to sign a U.S-led trade pact due to domestic ‘sensitivities.’

“Obama’s visit to Malaysia follows his swing through Japan, where he failed to clinch a trade deal key to the U.S. ‘rebalancing’ back to Asia. Such a deal would have injected momentum into the delayed 12-nation Trans-Pacific Partnership (TPP) trade pact.”

Note that the Senate Finance Committee will hold a hearing on trade issues on Thursday, when the Committee will hear testimony from U.S. Trade Representative Michael Froman.

In other trade news, Christopher Doering reported in yesterday’s Des Moines Register that, “China’s decision to effectively halt shipments of U.S. corn is unlikely to cause lasting economic harm to Iowa and other Midwest corn producers, as farm groups and commodity analysts see the trade skirmish as a short-term annoyance for the United States, the world’s largest corn exporter.

“In November, China began turning away shipments of corn from the United States containing a genetically modified seed from Syngenta that regulators in Beijing have yet to approve. But there are signs that U.S. agriculture will be able to rebound from the disruption and benefit long-term from China’s increasing demand for corn used in livestock feed, as consumers there eat more chicken and pork.”

 

Immigration

Lisa Mascaro reported in yesterday’s Los Angeles Times that, “The push-pull of immigration reform is intensifying as Congress prepares to return to work for one of the last few legislative sessions before the midterm elections.

“The window for Congress to approve an immigration overhaul is closing, but House Speaker John A. Boehner continues to suggest that action is still possible — even as he mocked his colleagues who find the hot-button issue too difficult.”

The article noted that, “Boehner is racing the clock this summer, not only against the coming November election but the threat that the White House will take administrative action if Congress fails to act.

President Obama has made it clear that his patience has worn thin as House Republicans dabble in the issue, almost a full year after the Senate, which is controlled by Democrats, approved a sweeping bipartisan immigration law overhaul. Obama has directed the Homeland Security Department to review the way immigration laws are handled, and emphasis of that report is expected to fall on curbing deportations.”

Ashley Parker and Michael D. Shear reported in Saturday’s New York Times that, “Steven C. LaTourette, a Republican former congressman from Ohio who is close to Mr. Boehner, said the speaker’s comments meant he was ready to either push forward on immigration or was preparing for retirement.

“Mr. Boehner may have become ‘finally unchained and has basically had enough of this stuff and is going to be John Boehner again, which would be great for the party and great for the country,’ Mr. LaTourette said. ‘Or this condo he bought down in Florida is going to be occupied sooner than anyone thought.’”

The Times article added that, “House Republicans, including Mr. Boehner, hoped to pass a series of narrow but related bills. But they also said that Mr. Obama’s repeated changes to the Affordable Care Act, as well as his State of the Union promise to use executive actions to circumvent Congress, have eroded trust and made any immigration deal with Republicans increasingly difficult.

“Privately, Republicans also said that a broad immigration deal was unlikely in a midterm election year, and that the issue was too big and unwieldy to push through in the lame duck session after the November elections. Democrats pointed to a small window of opportunity — in June and July — when a deal could be reached, but they warned that it was rapidly closing, and that Republicans had not made any serious effort to work with them on a compromise.”

The Washington Post editorial board noted in part in yesterday’s paper that, “The trouble is that this bracing shot of honesty from Mr. Boehner probably will not fix the underlying problem, which is a Republican Party that cannot see a future for itself, or for the nation, beyond its own predominantly white, aging electorate. House Republicans, rooted in parts of the country demographically distinct from an increasingly diverse nation, are loath to embrace the nation’s Hispanics in part because relatively few of them live or vote in their districts. As they cling to an older America, a new America is rising fast.

“Some Republicans, including Mr. Boehner, Karl Rove and others, have seen this and tried to coax back-benchers toward a deal on immigration that would align Republican interests with a changing nation. So far they have failed — but at least in Mr. Boehner’s case, they are starting to level with the public as to why.”

Rachael Van Horn reported on Friday at the Woodward (Okla.) News Online (“Rep. Lucas talks issues, politcs at Woodward stop”) on a town hall meeting held on Thursday afternoon at the Conference Center in Woodward by House Ag Committee Chairman Frank Lucas (R., Okla.)

Friday’s article noted that, “One man also asked if the Republicans had drafted anything such as a blueprint for the solution to immigration issues that have been a hot button topic for decades.

“Indeed, because the issue is so divisive and includes such wide swinging opinions from those who wish to deport everyone not a citizen to others who wish to say ‘if your here you can stay,’ that no middle ground has been reached, Lucas said.

“‘Right now, that’s not going to happen,’ Lucas said.”

 

Farm Bill- Policy Issues

Ohio State University agricultural economist Carl Zulauf indicated on Friday at the farmdoc daily blog (“Understanding Crop Year Price Changes in Estimating PLC Payments”) that, “The 2014 farm bill provides a choice between a Price Loss Coverage (PLC) program and an Agricultural Risk Coverage (ARC) program. The choice is not a 1 year decision; it is a 5-year decision. This post therefore examines one potential price behavior that may occur over multiple crop years. It suggests a simple method for estimating PLC payments. Results of this study should be used as an illustration of the strategic thinking that needs to occur regarding this 5-year decision.”

John Bresnahan reported on Friday at Politico that, “The House is currently scheduled to be in for three weeks – a total of 12 legislative days – during May, according to the official calendar maintained by [Majority Leader Eric Cantor’s (R-Va.)] office.”

The Politico article added that, “In addition, Cantor said the House would move on a tax extenders package that includes a permanent extension of a research and development tax credit.”

Meanwhile, Saturday’s Wall Street Journal contained an editorial regarding biofuels; and, the front page of today’s Washington Post included an article by Kimberly Kindy on food safety issues.

In part, the Post article stated that, “Dozens of scientific studies have shown that irradiated food is safe for human consumption, and that no radioactive material has leaked outside any U.S. plant, according to the U.S. Nuclear Regulatory Commission. The three forms of energy that can be used — gamma rays, electron beams and X-rays — can virtually eliminate bacteria in minutes. All this has prompted the World Health Organization, the American Medical Association, the U.S. Centers for Disease Control and Prevention, and dozens of other groups to endorse its use.

“Michael T. Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, blames an ‘anti-science movement’ for the public resistance. He is frustrated with the federal government for endorsing irradiation but then not educating the public as it has with childhood immunizations and water fluoridation.”

Keith Good