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Ag Economy; Tax Extenders (Biofuels); Immigration; CFTC; and, Climate

Agricultural Economy

Yesterday, the Food and Agriculture Organization of the United Nations (FAO) released its biannual report on global food markets.

Titled, Food Outlook, the report stated that, “Early prospects for 2014 cereal crops point to a decline from the previous year’s record level, but output is nevertheless expected to be the second largest ever. Based on conditions of crops already in the ground and planting intentions for those to be sown later this year and assuming normal weather for the remainder of the season, FAO’s first forecast puts world cereal production in 2014 at around 2 458 million tonnes (including rice in milled terms), some 2.4 percent down from 2013. Wheat and coarse grains would account for the reduction. Total cereal utilization in the new season (2014/15) is forecast to increase by 1.9 percent, which compares with a 4.0 percent rise in 2013/14 [related graph].”

The UN update noted that, “Global wheat production in 2014 is forecast at some 702 million tonnes, 1.9 percent below last year’s record, but still the second largest ever. Much of the reduction is anticipated to be concentrated in Canada, but smaller harvests are also expected in Australia, Morocco, the Syrian Arab Republic, the Russian Federation, Ukraine and the United States, which would more than offset larger outputs in Argentina, Brazil, India, Mexico and Pakistan [related graph].”

And yesterday’s report added that, “FAO’s first forecast for world production of coarse grains in 2014 points to a 3.9 percent decline from 2013, with most of the reduction in the United States, the world’s largest producer. Following a 10 percent surge in 2013/14, FAO’s first forecast for world trade in coarse grains in the new 2013/14 season stands at 142 million tonnes, down 2.7 percent from the 2013/14 record level. Smaller maize trade would account for most of the decline, but trade in barley is also expected to contract slightly. The anticipated rise in maize exports by Argentina and the United States will be offset by reduced sales from Canada, Brazil, the Russian Federation and Ukraine. Assuming that current territorial conflicts do not interfere with trade, Ukraine could still remain the fourth largest exporter of maize after the United States, Brazil and Argentina [related graph].”

With respect to cattle, the UN report stated that, “Overall, production in developed countries is forecast to drop by 1.9 percent, to 28.5 million tonnes. In the United States, the world’s largest beef producer, prolonged and extensive dry conditions have caused a fall-off in the production of calves and consequent herd reduction. Therefore, beef output could decline by almost 4.5 percent, to 11 million tonnes, its lowest level since 1994.”

And in the pork sector, yesterdays update noted that, “In the United States, which ranks third in world output, the spread of porcine epidemic diarrhoea (PED), which causes increased piglet mortality, is projected to bring about a 1.9 percent fall in output.”

More specifically on dairy, the report indicated that, “In North America, milk production in the United States is forecast to increase by 2.4 percent to 93.6 million tonnes. Output is recovering from the chronically dry conditions of the previous two years. Production in Canada is set to remain stable at 8.4 million tonnes, within the limits set by the milk quota system.”

The Food Outlook report also included this brief overview, featuring highlights of each agricultural sector.

Meanwhile, Grigori Gerenstein reported yesterday at The Wall Street Journal Online that, “Spring grain planting in Russia for this year’s harvest is ahead of last year’s pace because of better weather conditions, the agriculture ministry said Monday.”

Gregory Meyer and Neil Hume reported recently at The Financial Times Online that, “Cargill has invested more than $1bn in Russia since entering the country in 1991, giving it a stake in the outcome of the Ukraine crisis.

“‘We’re very interested with what’s going on with Russia politically, as well as Ukraine,’ said David MacLennan, Cargill’s chief executive.”

The FT article added that, “Soren Schroder, Bunge chief executive, told analysts last week that ‘activities continue more or less uninterrupted’ despite tensions over Ukraine.”

Domestically, University of Illinois agricultural economist Darrel Good indicated yesterday at the farmdoc daily blog (“Second Guessing USDA Projections for Corn”) that, “The USDA’s WASDE report released on May 9 contained updated projections for consumption of U.S. corn during the current marketing year and updated production and consumption projections for the 2014-15 marketing year. The favorite sport of market analysts is to second guess those projections.”

After an analysis of several supply and demand variables, the farmdoc update noted that, “Although other factors may have contributed, corn prices declined following the release of the new projections. Given the surprisingly large level of consumption of U.S corn that has unfolded this year and planting season weather that may pose a threat to both planted acreage and yield in some areas, the price weakness appears to be premature.”

Cheri Zagurski reported yesterday at DTN (link requires subscription) that, “Winter wheat conditions just keep getting worse, according to the latest USDA weekly Crop Progress and Condition report issued Monday afternoon.

Forty-two percent of the crop was rated poor to very poor for the week ended May 11, compared to 38% last week and 39% last year. The percent of the crop rated good to excellent fell to 30% compared to 31% last week.”

The DTN update stated that, “Nationwide, corn planting hit 59% complete with emergence at 18%, compared to 29% and 7% last week and five-year averages of 58% and 25%, respectively…[and]…Soybean planting progress jumped 15 percentage points to 20% complete, compared to 5% last week and a 21% five-year average.”

More specifically, the DTN article noted that in Minnesota, “Corn was 31% planted, up from 16% last year but still well behind the five-year average of 62%.” In North Dakota, “Corn planted was 3%, behind last year at 16% and the five-year average of 33%;” and in Michigan, “Corn was 20% planted, down from 28% last year and the five-year average of 41%.”

In news regarding food prices, Josh Zumbrun reported this week at The Wall Street Journal Online that, “Many economists and some Fed officials focus on so-called core inflation, which strips out volatile food and energy prices, because it measures underlying inflation pressures. Many consumers won’t have that luxury. A drought in California and turmoil in Ukraine—once dubbed the breadbasket of Europe—could push grocery prices higher. Since February alone, corn prices have climbed by 17% and wheat prices by 30%.”

However a recent Amber Waves update (USDA- Economic Research Service) article explained that, “A picture of the price transmission process—how price changes for inputs are transmitted to prices for final products—emerges when annual price fluctuations for farm and wholesale food products are compared with retail price inflation, as measured by the Consumer Price Index (CPI) for All Food. Overall, prices for these intermediate and final goods move in the same direction, but the price changes vary in size. For instance, in 2011 the Farm Products PPI rose by 23.6 percent, while the Processed Foodstuffs and Feedstuffs PPI increased by 8.3 percent and the CPI for All Food by 3.2 percent.

“The disparity in the size of the price swings across the three stages of production also holds true for food sub-categories. During that same year, the price of wheat increased by 37.5 percent and wheat flour prices grew 23.1 percent, while the price of wheat bread rose by 5.6 percent. The beef and veal category and the dairy category exhibit a similar pattern [see related chart and graph].”

In transportation developments, a news release yesterday from Sen. Heidi Heitkamp (D., N.D.) stated that, “Today, U.S. Sens. [Heitkamp], Al Franken (D-Minn.), Tim Johnson (‎D-S. Dak.), and Amy Klobuchar (D-Minn.) pressed a key federal rail oversight board to swiftly address the poor rail service that has plagued farmers, businesses, and communities throughout the Midwest.

“‘We write to urge you to remain involved in the process of improving rail service for customers in the Upper Midwest who, since November 2013, have been suffering from poor service,’ the senators wrote to the Surface Transportation Board (STB) in their letter. ‘If rail service does not improve in the near future through steps taken by BNSF and Canadian Pacific railways, we request that you use whatever authority necessary to ensure such improvement, especially for agricultural customers struggling to move last year’s crop to market and access needed inputs for planting.’”

And a news release yesterday from Rep. Kevin Cramer (R., N.D.) indicated that, “Today [Rep. Cramer] released updated fertilizer shipment data from BNSF Railway and Canadian Pacific Railway (CP). BNSF reports 32 of its goal of 52 trainloads of fertilizer over a six-week period beginning April 12 have been delivered, an increase from 26 trainloads from last week’s report. The CP report notes 177 train cars were delivered in North Dakota during the week of April 27, an increase from 109 cars during the week of April 20.”

“This week’s report from BNSF can be viewed here. The report from CP can be viewed here.”

Chris Clayton pointed out yesterday at the DTN Ag Policy Blog that, “The White House released an analysis Monday arguing for the need for spend more on highway infrastructure. The analysis states 65% of major roads are rated as ‘less than good condition’ while one in four bridges require significant repair or upgrades to handle traffic.”

And Keith Laing reported yesterday at The Hill Online that, “Senate leaders are planning to unveil their version of a bill to extend federal transportation funding beyond a scheduled September cut-off on Monday.

“The Senate Environment and Public Works Committee scheduled to hold a hearing to mark up their transportation bill on Thursday.”


Tax Extenders (Biofuels)

Michael Catalini reported earlier this week at National Journal Online that, “With the House out this week, the Senate is poised to put its energy debate in the rearview mirror and move tax extenders to the top of its list.

The Senate will take up Senate Finance Committee Chairman Ron Wyden’s tax-extenders legislation after passing it out of committee last month, and just days after the House passed a bill to make the so-called R&D tax credit permanent.

The House and Senate are pursuing different approaches to tax extenders, with the Senate putting dozens of the provisions into one bill while the House follows a more piecemeal strategy.”

Recall that last month, DTN Ag Policy Editor Chris Clayton reported that, “The Senate Finance Committee approved a long list of tax extensions that included key provisions for the biofuels industry as well as the wind industry.”

The April DTN update noted that, “For biofuels, the bill includes:

“The $1.01 per gallon Cellulosic Biofuels Producer Tax Credit through 2015, which is scored to cost $55 million.

“The $1 a gallon Biodiesel tax credit as well as the 10-cent a gallon agri-biodiesel producer tax credit.”

Meanwhile, Reuters writers Cezary Podkul and Jeff Mason reported yesterday that, “Six months ago the U.S. oil industry scored a surprise win against farm groups when the Obama administration proposed slashing the amount of ethanol refiners must blend into gasoline, a move that could save them billions of dollars.

“Stunned by the reversal, producers of the corn-based biofuel and their supporters are now fighting back ahead of a June deadline for the Environmental Protection Agency (EPA) to make a final decision on the cut.

“The clash has been portrayed as a battle between ‘Big Oil’ and ‘Big Corn,’ two powerful and deep-pocketed lobbies. But a Reuters review of public records and interviews with lawmakers, lobbyists and executives reveals a more complex picture.”

The Reuters article noted that, “A private equity firm and an airline helped convince the Obama administration to backtrack, at least temporarily, on a policy it has supported for years: requiring steadily-rising volumes of ethanol to be blended into gasoline each year, a key to shifting U.S. energy consumption toward renewable sources.

“The ethanol industry, blindsided by the proposed cut, has said it was orchestrated by ‘Big Oil.’ However, some of the most effective players in the fight weren’t traditional oil majors but rather The Carlyle Group and Delta Air Lines, owners of two Philadelphia-area refiners.

“Together with their allies, the refiners helped convince policymakers that the rising mandates would cripple their businesses and threaten thousands of jobs.”



Russell Berman reported yesterday at The Hill Online that, “Speaker John Boehner (R-Ohio) has a pretty good idea of what immigration reform in the House is going to look like. He just doesn’t know when it’s going to happen.

“Addressing the Hispanic Chamber of Commerce on Monday in San Antonio, Boehner said he wanted to overhaul the nation’s immigration laws ‘in chunks’ over a period of a week or two to a month. The process would likely begin with border security measures, and it would address the crucial question of citizenship for illegal immigrants in a way that he said would ‘pass the straight-face test’ for people who have already gone through the arduous process legally.

“But none of that will happen, Boehner reiterated, until President Obama builds back trust with Republicans in Congress.”

Kevin Robillard reported yesterday at Politico that, “The GOP shouldn’t even field a presidential candidate in 2016 unless Congress passes immigration reform this year, U.S. Chamber of Commerce President Tom Donohue said Monday.

“‘If the Republicans don’t do it, they shouldn’t bother to run a candidate in 2016,’ Donohue joked at an event on infrastructure investment in D.C. ‘Think about that. Think about who the voters are. I just did that to get everybody’s attention.’”



CFTC (Commodity Futures Trading Commission) Issues

Bloomberg writer Silla Brush reported yesterday that, “High-speed trading in U.S. futures markets is being dominated by a small number of firms that should be forced to register with regulators to ensure adequate oversight, the Commodity Futures Trading Commission’s former chief economist will tell lawmakers.

“The firms, which can account for more than half of trading volume in some markets, should face new record-keeping rules and be required to have consistent policies and safeguards, according to Andrei Kirilenko, who left the CFTC in 2012 after he led a study of high-speed trading following the May 2010 flash crash.

“‘It is time to go at least this far, so when the next flash crash or technological malfunction happens, the regulators could go deeper into the market ecosystem to piece things together,’ Kirilenko said in testimony prepared for a Senate Agriculture Committee hearing on high-frequency trading scheduled for today. He urges creating a broad registration category for ‘automated brokers and traders,’ according to a copy of his remarks obtained by Bloomberg News.”



Justin Gillis and Kenneth Chang reported on the front page of today’s New York Times that, “A large section of the mighty West Antarctica ice sheet has begun falling apart and its continued melting now appears to be unstoppable, two groups of scientists reported on Monday. If the findings hold up, they suggest that the melting could destabilize neighboring parts of the ice sheet and a rise in sea level of 10 feet or more may be unavoidable in coming centuries.

“Global warming caused by the human-driven release of greenhouse gases has helped to destabilize the ice sheet, though other factors may also be involved, the scientists said.

“The rise of the sea is likely to continue to be relatively slow for the rest of the 21st century, the scientists added, but in the more distant future it may accelerate markedly, potentially throwing society into crisis.”

Keith Good