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Ag Economy; Farm Bill; Biofuels; and, Regulations

Agricultural Economy

Abbie Fentress Swanson reported on Friday at National Public Radio (NPR) Online that, “If you’re bringing home the bacon, you may have noticed a price tag inching upward.

Consumers are paying nearly 13 percent more for pork at the supermarket than they were this time last year, according to the U.S. Department of Agriculture. A deadly pig disease is partially to blame.

“Porcine epidemic diarrhea virus, or PEDv, has killed more than 7 million piglets in the past year, and the number of cases is on the rise. Many hog producers are worried about how to keep their farms immune from a disease that has no proven cure.”

The NPR update noted that, “Meanwhile, economists predict that farmers will reduce the size of their herds this year to minimize costs should PEDv infect their operations. Consumers can also expect pork prices, which now average almost $4 a pound, to continue to rise during the second half of 2014.”

In addition, USDA’s National Agricultural Statistics Service (NASS) indicated on Friday that, “As of June 1, there were 62.1 million hogs and pigs on U.S. farms, the lowest inventory since 2007 [related graph], according to the Quarterly Hogs and Pigs report published today by [NASS].”

The NASS report also stated that, “The March-May 2014 pig crop, at 27.4 million head, was down 5 percent from 2013 [related graph].”

Also on Friday, NASS released its monthly Agricultural Prices report, which pointed out that, “The June hog price, at $82.10 per cwt, is down 70 cents from May but $7.70 higher than a year ago [related graph].”

With respect to input costs for livestock and dairy producers, the report stated that, “The corn price, at $4.37 per bushel, is down 34 cents from last month and $2.60 below June 2013 [related graph];”  and, “The soybean price, at $14.10 per bushel, decreased 30 cents from May and is $1.00 below June 2013 [related graph].”

The NASS report added that, “The June all milk price of $23.30 per cwt is down 90 cents from last month but $3.80 higher than June 2013 [related graph].”

And cattle producers also continue to receive strong prices: “The June beef cattle price of $145 per cwt is down $1.00 from last month but $23.00 higher than June 2013 [related graph].”

Kelsey Gee and Jesse Newman reported in today’s Wall Street Journal that, “Faced with soaring beef prices, many restaurants and food retailers are shifting strategies to woo consumers and protect profit margins.

“The record costs are forcing beef purveyors from Ruth’s Chris Steak House to Carl’s Jr. to choose between asking customers to pay more for steaks and burgers and eating the costs themselves. Many are passing along the higher prices while embellishing their menus with new items, smaller-portion cuts and more sauces, toppings and side dishes. Others are seeking to control costs by locking in beef purchases at current prices as they envision further inflation to come.

The scramble shows how a prolonged drought in the southern U.S. Great Plains that has shrunk the nation’s cattle supply to six-decade lows is rippling from slaughterhouses to drive-ins and high-end steakhouses [related graph].”

The Journal writers explained that, “Wholesale prices for choice-grade beef—the main variety consumed in the U.S.—surged 11% over the 12 months through May as cattle prices reached all-time highs, according to the U.S. Department of Agriculture. The gains come as supermarkets gear up for the week of Fourth of July—typically the year’s busiest period for beef sales.”

In more specific news on grains, Bloomberg writer Phoebe Sedgman reported today that, “Corn dropped to extend a quarterly slump before a government report that may show inventories in the U.S., the largest exporter, climbed the most in nine years.”

The article pointed out that, “Corn for December delivery fell as much as 0.8 percent to $4.435 a bushel on the Chicago Board of Trade and was at $4.4375 at 2:09 p.m. in Singapore. Prices have slumped 12 percent this quarter on expectation that U.S. production will reach a record.

“U.S. inventories on June 1 probably jumped 35 percent to 3.723 billion bushels, the biggest gain since 2005, according to the average of 27 estimates in a Bloomberg survey. The U.S. Department of Agriculture is set to update its estimate today. Farmers will harvest 13.935 billion bushels this year, the most ever, the USDA forecast on June 11.”

T-Storm Weather tweeted on Friday that, “June is unofficially #5 wettest in the key corn / soybean region of IL-IN-IA-MN-MO-NE-OH, and should rank #1 wettest in at least 120 years.”

Meanwhile, Tony C. Dreibus reported in Saturday’s Wall Street Journal that, “A tough stance by China on imports of a widely used U.S. feed ingredient is rattling grain and soy markets.

“The Asian country in recent weeks has curtailed purchases of U.S. dried distillers’ grains, a co-product of corn ethanol that is fed to cattle and pigs, amid concerns the shipments may contain a genetic modification that Beijing hasn’t approved, said industry executives and traders. The action comes after China also slowed imports of U.S. corn over concerns about the GMO trait.”

The Journal article noted that, “China stopped issuing new import permits for the ethanol co-product, also known as DDGs, several weeks ago, according to people in the grain industry. Chinese government officials haven’t confirmed a change in policy and didn’t respond to repeated requests for comment.

The move has caused prices of the ingredient to slide about 19% in the U.S. since June 3, based on Agriculture Department data.”

More broadly, University of Illinois agricultural economist Paul N. Ellinger indicated on Friday at the farmdoc daily blog (“Financial Health of Banks Lending to Agriculture Continues to Improve”) that, “We are approaching the six-year anniversary of the economic meltdown resulting from the financial crisis.   Although many of the problems emanated from Wall Street institutions, Main Street banks also incurred losses and liquidity problems. The entire financial sector continues to deal with the long wake of the financial crisis. New bank regulations have resulted in increased lending standards, reduced investments in exotic derivatives, and higher capital positions across the commercial banking landscape.

“Many of the agricultural banks did not participate aggressively in the high-risk housing or commercial real estate markets. The profitability of agriculture the past decade has helped mitigate the nonfarm real estate losses for banks lending to agriculture. However, the increase in regulatory compliance costs impacts the profitability of banks. Typically, as a share of total operating costs, these compliance costs are greater for smaller banks. There is continued pressure to merge institutions and gain potential cost economies and synergies.”

The farmdoc update stated that, “In summary, the financial health and profitability of commercial banks lending to agriculture continues to improve. There will continue to be new challenges and headwinds. New regulations will add regulatory compliance costs. Tighter profit margins for producers combined with volatile commodity prices increase the risks faced by borrowers. Moreover, interest rate risk may increase in the next 18 months. Banks will need to continue to implement prudent risk-management strategies, monitor economic conditions, and explore new opportunities to enhance competitiveness and viability.   The strong financial health of the sector provides a solid base. The commercial banking sector is in a strong position to meet the capital needs of agricultural borrowers.”

In other news, Jo Craven McGinty reported in Saturday’s Wall Street Journal that, “For the last decade, U.S. honeybees have been decimated by a host of maladies including 22 different named viruses, two kinds of mites, and the mysterious Colony Collapse Disorder in which worker bees inexplicably abandon their hives…Citing the severity of the threat, President Barack Obama on Tuesday established a pollinator health task force, and his 2015 budget proposal to Congress recommends spending $50 million to reverse the loss of pollinators and improve their health.”

The Journal article explained that, “The annual bee deaths have persisted for the past decade, keeping beekeepers, farmers and scientists on edge. The U.S. Department of Agriculture has responded by spending millions on research, including $15.3 million this year. And beekeepers have responded by aggressively splitting healthy colonies and purchasing packaged bees to rejuvenate depleted hives. The practice isn’t new, but beekeepers must replicate hives much more frequently [related graph].

“‘We’re constantly splitting,’ said David Mendes, a Florida beekeeper who trucks 15,000 to 20,000 colonies of honeybees to California each year for the almond pollination. ‘I’m rebuilding my outfit twice a year.’”

 

Farm Bill

Ron Nixon reported in Saturday’s New York Times that, “Ten Asian and Pacific nations have told the Office of the United States Trade Representative that the Agriculture Department’s catfish inspection program violates international law, and their objections could hamper Obama administration efforts to reach a major Pacific trade agreement by the end of next year.

“They say that the inspection program is a trade barrier erected under the guise of a food safety measure and that it violates the United States’ obligations under World Trade Organization agreements. Among the countries protesting are Vietnam and Malaysia, which are taking part in talks for the trade agreement — known as the Trans-Pacific Partnership — and have the ability to derail or hold up those negotiations.”

The article pointed out that, “The inspection program was inserted into the 2008 farm bill at the urging of catfish farmers, who have been hurt by competition from both Vietnam and China and by the rising cost of catfish feed. The domestic catfish industry has shrunk by about 60 percent since its peak about a decade ago, and in the past few years about 20 percent of American catfish farming operations have closed.”

Dave Russell reported on Friday at Brownfield that, “While there is still plenty of work to do, Agriculture Secretary Tom Vilsack is pleased with the progress made thus far in getting Farm Bill programs implemented.

“‘We just recently announced the $6 million that’s going to be used to create the models and educational materials for ARC and PLC so producers in the fall will know a little bit better how these programs might work in their particular operations,’ the Secretary said. ‘We’re expending crop insurance options, we’ve announced the Regional Conservation Partnership, and we’ve made the adjustments to our credit programs that the Farm Bill required, so I think progress has been good.’”

And Emmarie Huetteman reported in Saturday’s New York Times that, “The food on Air Force One is well known among White House staff members and reporters for being plentiful in quantity and broad in appeal, but not always the perfect mirror of the nutritional recommendations coming out of the office of the first lady, Michelle Obama, who has made healthy eating and living her mission.”

 

Biofuels

Geoff Cooper, Senior Vice President at the Renewable Fuels Association indicated on Friday that, “A new report from the Congressional Budget Office (CBO) suggests that full compliance with RFS requirements ‘poses significant challenges’ and could increase fuel prices. The CBO’s conclusions are largely based on a careless analysis that relies on unsupported assumptions. Further, the report blatantly acknowledges that the economic impact of substituting biofuels for gasoline and diesel (i.e., downward pressure on crude oil prices) has been purposely omitted. Finally, the CBO results contradict the findings of more credible research from independent university economists.”

National Farmers Union Senior Vice President of Programs, Chandler Goule, noted on Friday that, “CBO’s claim that repealing the RFS would reduce gasoline prices is simply false. The RFS has reduced consumer demand for oil, and the study fails to take that into account. It is unfortunate that CBO, which is supposed to be objective, released such a flawed study that does not take into account the reality of fuel markets.”

On the other hand, Reps. Bob Goodlatte (R-VA), Jim Costa (D-CA), Peter Welch (D-VT), and Steve Womack (R-AR) indicated on Friday that, “The report released by the Congressional Budget Office confirms what a bipartisan majority in Congress already know – we must reform the Renewable Fuel Standard. The report underscores the hardship that full implementation of the RFS would have on everyday Americans, and the unfeasibility of reaching the full mandate by 2022.”

House Ag Committee ranking member Collin Peterson (D., Minn.) indicated in a newsletter on Friday that, “I took action and led a bipartisan letter signed by 51 other House members to President Obama expressing concern over reports that the Administration is considering issuing a final 2014 Renewable Fuel Standard (RFS) of 1.28 billion gallons for biodiesel, which would effectively cut the industry’s production by at least one-third from last year’s demonstrated volume. The letter stresses the fact that biodiesel producers around the nation have the ability to produce nearly two billion gallons a year of the only EPA-approved and commercially available advanced biofuel. I’m concerned about the negative impact this could have on the biodiesel industry, particularly small producers.”

 

Regulations (EPA, CFTC)

Christopher Doering reported on Saturday at The Des Moines Register Online that, “Now, a rule being proposed by the Environmental Protection Agency outlining which bodies of water the agency would oversee under the Clean Water Act has again rattled the agriculture industry. The EPA says it is necessary after recent court rulings to clarify the 1972 law. Many farmers fear it amounts to nothing more than a land grab that could saddle them with higher costs, more regulatory red tape and less freedom to run their farms and ranches.

“‘This, in my career of farming, is the most scary and frightening proposition that I have witnessed,’ said Craig Hill, president of the Iowa Farm Bureau Federation who farms 1,750 acres of corn and soybeans with his son in Milo. ‘Even though they say this doesn’t affect farmers, but you read this rule and you are not convinced at all. That’s why it’s so dangerous. And that’s why we have such a lack of trust.’”

And Reuters writer Tom Polansek tweeted on Friday that, “CFTC extends reopened comment period on commodity position limits ‪http://www.cftc.gov/PressRoom/PressReleases/pr6956-14 …

Keith Good