Agricultural Economy- Fed Districts Note Land Values Soften
Jacob Bunge reported in today’s Wall Street Journal that, “Farmland values fell in the first quarter in much of the Midwest, the latest sign of a downturn in the market after a yearslong boom fueled by rising commodity prices, according to Federal Reserve reports on Thursday.
“Average prices for agricultural land in the Federal Reserve Bank of St. Louis’s district, which includes parts of Illinois, Indiana and Missouri, fell 6% in the first quarter from the prior quarter, the bank said [related graph].”
Mr. Bunge explained that, “Prices for nonirrigated farmland in the Kansas City Fed district, which includes Kansas and Nebraska, declined 1.4% over the same period. Meanwhile, the Chicago Fed reported a 1% quarter-to-quarter decline, the first in five years for a district that includes Iowa, Michigan and parts of Illinois and Indiana [related graph].
“The reports indicate the U.S. farmland market has softened further, after cooling last year as U.S. grain and soybean prices fell sharply amid large harvests. Farmers produced the biggest corn crop ever last autumn, just one year after the nation’s worst drought in decades drove prices for the grain to record highs. Corn futures prices at the Chicago Board of Trade have fallen 24% over the past 12 months.”
The Journal article stated that, “The slump in cropland values marks a turning point in the U.S. Farm Belt. From 2009 to mid-2013, average prices for farmland rose by half, according to federal data, reflecting one of the U.S.’s largest recent asset booms. The gains fueled concerns about a bubble, though economists have noted that farmers today carry relatively low debt levels.”
Mr. Bunge added that, “Agricultural lenders surveyed by the Kansas City Fed forecast that farmland prices in that bank’s district would continue to slide. ‘Expectations of lower profits for crop producers have generally halted the rise in District cropland prices,’ Kansas City Fed economists wrote [related graph].”
The Chicago Fed report also noted that, “It seems plausible that the drops in 2014 cash rental rates reflected lower expectations for profits in 2014 as crop prices fell last fall, which provided ammunition for farmers to negotiate lower rates for leases. According to data from the U.S. Department of Agriculture (USDA), corn prices were down 37 percent and soybean prices were down 8.5 percent in the first quarter of 2014 from a year ago, following a more plentiful harvest in 2013 than that reduced by drought in 2012.”
Also, the Kansas City Fed report pointed out that, “While lower corn and soybean prices dampened farm income expectations in crop-growing regions, the resulting reduction in feed prices helped improve profit margins for many livestock operators. During the first quarter, feed costs had dropped 10 percent from their peak in 2012, reducing breakeven costs for cattle and hog feeders (Chart 3). Furthermore, prices for fed cattle and hogs rose sharply amid tight supplies and strong export demand for beef and pork. Hog prices in particular jumped as an acute swine virus lowered annual production estimates. Feeder cattle prices have also strengthened amid exceptionally low inventory levels and strong demand to keep feedlots full (Chart 4). According to the USDA Economic Research Service (ERS), the value of cow/calf production less operating costs jumped 34 percent from 2012 to 2013. Following several years of challenges to profitability, nearly half of bankers surveyed noted a modest improvement in the financial condition of borrowers in the livestock sector.”
Meanwhile, the Federal Reserve Bank of Minneapolis noted yesterday (“Conditions remain tough for district farmers; cropland values moderating”) that, “Reduced crop prices and high input costs continue to take a financial toll on farmers and may be putting downward pressure on land prices heading into planting season, according to results of the Minneapolis Fed’s first-quarter (April) agricultural credit conditions survey. Farm incomes and capital spending decreased, according to lenders responding to the survey.”
Yesterday’s report noted that, “After several years of very strong growth, land prices have moderated in recent surveys, a trend that continued in the first three months of 2014. Values even decreased in some cases, along with cash rents. The average value for nonirrigated cropland in the district fell by almost 2 percent from the first quarter of 2013; irrigated land fell slightly (by less than 1 percent), while ranchland values increased nearly 8 percent, likely owing to solid livestock prices. The district average cash rent for nonirrigated land fell more than the value, by almost 4 percent from a year ago. Rents for irrigated land increased less than a percent, while ranchland rents jumped by 13 percent.”
Reuters writer Christine Stebbins reported yesterday that, “Tighter profit margins for crop producers were a drag on farm income in the first quarter despite improved profitability in the livestock sector with lower feedgrain prices.
“With lower income, more crop producers borrowed to pay for operating expenses and bankers reported an uptick in debt compared with last year. But concerns about a sharp drop in land values after last autumn’s 30 percent drop in corn prices appeared to be easing.”
More specifically on the livestock sector, USDA’s Economic Research Service indicated yesterday (“Livestock, Dairy, and Poultry Outlook”) that, “The continuing decline in feeder cattle supplies outside feedlots is reflected in record and near-record prices for all weights of feeder cattle. Relatively stronger feeder heifer prices suggest the possibility of the beginning of increases in cow inventories over the next few years. At the same time, current levels of cow slaughter reflect ongoing drought in the Plains, Southwestern, and Western United States, and drought could again interfere with any plans for expanding cow inventories.”
ERS noted that, “Pork production is expected to increase 2.9 percent next year as pork producers gain facility in managing Porcine Epidemic Diarrhea (PEDv).”
And yesterday’s report added that, “Milk production is expected to increase in 2015 compared with this year. Lower feed prices will improve the profit outlook for producers next year. Continued strong demand, both foreign and domestic, will moderate price declines in 2015.”
Eric Morath reported in today’s Wall Street Journal that, “Inflation is showing an early sign of picking up after years of dormancy, a shift that could reshape Federal Reserve policies forged during a period of persistently weak price pressures and widespread economic slack.
“The consumer-price index rose a seasonally adjusted 0.3% in April from the prior month, driven by increasing costs for staples such as gasoline, food and shelter, the Labor Department said Thursday. It was the strongest monthly gain since last June.”
The Journal article stated that, “Food costs, up 0.4% in April, have been a significant driver of inflation, increasing for four straight months. Meat prices last month posted their largest jump since 2003. A drought in California and illness among livestock are putting upward pressure on grocery-store prices.”
For more detail on yesterday’s CPI update and food prices, see this one-minute FarmPolicy.com video recap.
In other news, Bloomberg writer Brian K. Sullivan reported yesterday that, “California doesn’t have much chance for rain in the next five months, and its best opportunity to break the drought there may hinge on the emergence of an El Nino in the Pacific Ocean this year, U.S. forecasters said [see related graph yesterday from the Climate Prediction Center].
An update from the U.S. Drought Monitor this week noted that, “Kansas also saw a mixed bag this week with heavy but narrow bands of storms putting a small dent in the drought there, particularly in central Kansas where the D3 was trimmed, leaving D2 behind. Elsewhere in Kansas, though, the drought strengthened its grip and was accompanied last week by well above normal temperatures, leading to an expansion of D4 into the extreme southwestern reaches of the state to the Oklahoma border.
“Oklahoma also felt those hotter temperatures along with some below-freezing readings late in the period, leading to more damage to the winter wheat crop, which has felt the brunt of a cold winter and coinciding drought. However, heavy rains did fall across the southeast corner of the state, bringing some 1-category improvement there [related graph].”
Meanwhile, Rong-Gong Lin II reported on the front page of yesterday’s Los Angeles Times that, “For years, scientists have wondered about the forces that keep pushing up California’s mighty Sierra Nevada and Coast Ranges, causing an increase in the number of earthquakes in one part of Central California.
“On Wednesday, a group of scientists offered a new, intriguing theory: The quakes are triggered in part by the pumping of groundwater in the Central Valley, which produces crops that feed the nation.”
The article noted that, “Groundwater is very heavy, and its weight depresses the Earth’s upper crust. Remove the weight, and the crust springs upward — and that change in pressure can trigger more small earthquakes, the researchers said.”
Ag Economy- Trade
A joint news release yesterday from the National Milk Producers Federation, International Dairy Foods Association and U.S. Dairy Export Council indicated that, “A bipartisan group of 177 members of the U.S. House of Representatives today urged the Obama administration to use the transatlantic trade talks with the European Union (EU) to address a variety of export barriers hampering the U.S. dairy industry. Among the barriers are the EU’s recent efforts to prevent U.S. companies from using common food names like parmesan and feta in export markets, including the EU, and even in the U.S. domestic market [letter here].”
Vicki Needham reported yesterday at The Hill Online that, “A trade deal between the United States and Colombia has yielded more jobs and exports to the Latin American nation, according to the nation’s top trade official.
“The free trade agreement turned 2 years old on Thursday and U.S. trade officials touted the deal’s benefits for the U.S. economy.”
And Shawn Donnan reported yesterday at The Financial Times Online that, “When, after almost two decades of negotiations, Russia became in 2012 the last major economy to join the World Trade Organisation it did so to great acclaim. Business groups hailed the opening up of an important emerging market. The World Bank predicted a boost to Russian national income. Karel De Gucht, the EU trade official, declared it a ‘major step for Russia’s further integration into the world economy’.
“Two years on, however, Russia has become the subject of a confrontation echoing through the WTO’s marbled halls in Geneva. ‘Russia is moving increasingly to build walls around its economy,’ Michael Punke, US ambassador, complained this week to the WTO’s General Council, during a session on Russia’s membership that amounted to a rare public dressing-down of a member country.”
The FT article added that, “Russia is the subject of several disputes in the WTO. The EU has filed complaints over Russian policies that it says amount to illegal barriers to European cars and pork products. Officials in Brussels say they are preparing other cases, including a broader challenge to Russia’s import duties regime.”
Ag Economy- Bees
Bloomberg writer Alan Bjerga reported yesterday that, “Honeybee deaths in the U.S. fell over the past year, according to a government report that said losses remained higher than beekeepers consider acceptable to remain in business.
“Beekeepers reported a loss of 23.2 percent of their managed colonies during the October to April winter season, down from 30.5 percent from the same period a year earlier, the U.S. Department of Agriculture said today. The agency, which conducts the annual survey, declined to offer a theory for the year-over-year decline.”
AP writer Seth Borenstein reported yesterday that, “Before a parasitic mite — just one of a handful of problems attacking the crucial-for-pollination honeybees — started killing bees in 1987, beekeepers would be embarrassed if they lost more than 5 or 10 percent of their colonies over the winter. Now they see a 23 percent loss as a bit of a break, said survey co-author Jeff Pettis, USDA’s bee research chief.
“‘It’s encouraging that if anything it’s not a steady downward trend,’ said University of Illinois entomology professor May Berenbaum, who wasn’t part of the survey of 7,200 beekeepers.”
University of Illinois agricultural economist Nick Paulson indicated yesterday at the farmdoc daily blog (“2014 Farm Bill: Estimated Payment Sizes for County ARC and SCO for Corn in Illinois”) that, “Today’s post continues the historical analysis of the new County ARC and Supplemental Coverage Option programs created in the 2014 Farm Bill. Last week’s post (available here) focused on the likelihood of payments being triggered by yield or revenue losses. This post provides estimates of relative payment size based on the same historical data. More details on the new commodity program options can be found here. Details on SCO can be found here and here.”
A news release yesterday from Purdue University indicated that, “A Purdue Extension agricultural economist has published two articles that include analysis of what the 2014 farm bill could mean for farmers and agriculture in the Midwest.
“The articles, ‘What Will the 2014 Farm Bill Mean for Midwest Agriculture?’ and ‘Beginning to Evaluate Choices in the Farm Bill,’ were authored by Roman Keeney and are available for download free of charge in the most recent edition of the Purdue Agricultural Economics Report.”
Ramsey Cox and Bernie Becker reported yesterday at The Hill Online that, “Senate Republicans blocked progress on an $85 billion tax package on Thursday amid deep anger aimed at Senate Majority Leader Harry Reid.
“In a 53-40 vote, the Senate failed to end debate on the tax package authored by Senate Finance Committee Chairman Ron Wyden (D-Ore.). Sixty votes were required to move forward, and only Republican Sen. Mark Kirk (Ill.) voted with Democrats.”
The Hill update noted that, “Even Sen. Chuck Grassley (R-Iowa), who insisted this week that he’d back the extenders bill and defended it on the Senate floor, said the fight over amendments was bigger.
“‘If our guys are getting shut out, I think it’s awfully hard to be for this process, even though most of us support the bill,’ said Sen. John Thune (S.D.), a member of both GOP leadership and the Finance panel.”
Yesterday’s article stated that, “This is the second bill in a row that had bipartisan support but failed in a fight over amendments. The tax extender package passed unanimously out of committee.”
WRDA- Water Resources Reform and Development Act
An update yesterday from the House Transportation and Infrastructure Committee indicated that, “The Conference Report to H.R. 3080, the Water Resources Reform and Development Act (WRRDA), was filed in the House of Representatives today. WRRDA was introduced in the House by Committee Chairman Bill Shuster (R-PA), Committee Ranking Member Nick J. Rahall, II (D-WV), Water Resources and Environment Subcommittee Chairman Bob Gibbs (R-OH), and Subcommittee Ranking Member Tim Bishop (D-NY).
“H.R. 3080 passed the House by a vote of 417 to 3 on October 23, 2013. House and Senate conferees reached agreement on a final measure last week, and now both Houses of Congress must approve the Conference Report in order to send it to the President to be signed into law.”
A news release yesterday from the American Soybean Association (ASA) indicated that, “This is a huge step forward to ensure the continued success of the soybean supply chain, and leaders in both the House and Senate deserve a great deal of credit for shepherding this bill through a challenging policymaking climate,’ said [ASA] President and Iowa farmer Ray Gaesser.”
And a news release yesterday from the National Grain and Feed Association (NGFA) stated that, “[NGFA] commends the WRRDA conference committee for completing work on this crucial legislation. This nation’s inland waterways system is indispensable in providing U.S. agriculture with an efficient and cost-effective means for transporting agricultural products to overseas markets, and for importing fertilizer and other essential farm inputs essential for U.S. agricultural production. ‘The waterways really are the gateway to how our nation helps feed the world,’ said NGFA President Randy Gordon. ‘And recent rail service disruptions have magnified and reinforced the importance of the United States having an ‘all-of-the-above’ transportation infrastructure policy that focuses on all modes – truck, rail, barge and vessel.’”
Keith Laing reported yesterday at The Hill Online that, “The Senate Environment and Public Works Committee unanimously approved a plan that would spend $265 billion on transportation projects over the next six years — if Congress can come up with the money.
“This bill reauthorizes the federal gas tax, which collects $34 billion a year. That would provide $204 billion over the next six years, which is not enough to pay for the projects the panel wants to fund.”
David Pierson reported yesterday at the Los Angeles times Online that, “Nationwide sales of organic products continued to experience healthy growth last year, jumping 11.5% to $35.1 billion, according to the Organic Trade Assn.
“The Washington-based group representing organic businesses said growth rates are expected to at least keep pace the next two years.”
And Henry I. Miller, a physician and molecular biologist, who was the founding director of the FDA’s Office of Biotechnology and is a research fellow at Stanford University’s Hoover Institution, penned an opinion column in today’s Wall Street Journal titled, “Organic Farming Is Not Sustainable.”