FarmPolicy

November 20, 2019

Ag Economy; Policy Issues; USDA Employment Numbers; and, Biotech

Agricultural Economy

Tony C. Dreibus reported in today’s Wall Street Journal that, “Corn and wheat futures tumbled to their lowest prices in nearly four years as favorable weather over the July Fourth holiday weekend upgraded prospects for U.S. crops.

Soybeans fell, too, closing at their lowest level in more than four months.

“In the past week, up to six times the normal amount of precipitation fell in parts of Iowa and Illinois, the biggest U.S. growers of corn and soybeans, further improving growing conditions. About three-fourths of the nation’s corn and soybean crops were in good or excellent condition as of Sunday, according to the U.S. Agriculture Department [related graph].”

Mr. Dreibus explained that, “Continued balmy, rainy weather will help lift corn and soybean yields that the USDA has estimated will reach record levels this year, analysts said. The USDA has estimated this autumn’s corn harvest will total 13.935 billion bushels, surpassing last year’s record crop, while soybean output also will set a record. The government is scheduled to update its forecasts for supply and demand of major U.S. crops Friday in a closely watched monthly report.”

“Corn for July delivery, the front-month contract, fell 7.75 cents, or 1.9%, to $4.0925 a bushel, the lowest closing price for a front-month contract since Aug. 25, 2010,” today’s article said.

The Journal article added that, “November soybean futures, the most actively traded contract, dropped 8 cents, or 0.7%, to $11.255 a bushel.”

The AP reported yesterday that, “The price of corn has slumped in the last two months as the right combination of sun, rain and moderate summer temperatures has boosted the chances of a record crop this year. U.S. corn is currently entering its pollination stage, a critical point of its development.”

In related news, Purdue University agricultural economist Chris Hurt indicated yesterday at the farmdoc daily blog (“Pork: USDA Reports Help Brighten Outlook”) that, “Pork producers might want to say thank you for the recent USDA reports that have sharply brightened their profit outlook. The first of those was the June 27th Hogs and Pigs report indicating that breeding herd expansion had not yet started and that baby pig death losses from the PED virus continued to be high last spring. The second beneficial numbers came in the June 30th Grain Stocks and Acreage reports which were contributors to rapidly falling corn and soybean meal prices.

“In the week following the reports, higher anticipated hog prices and lower anticipated feed prices have increased profitability prospects about $18 per head for the period that represents use of the 2014 crops. Lean hog futures rose on average about $6 per hundredweight and corn prices fell by about 40 cents per bushel with soybean meal declining around $30 per ton.”

More broadly, Neil Irwin reported on the front page of today’s New York Times that, “Welcome to the Everything Boom — and, quite possibly, the Everything Bubble. Around the world, nearly every asset class is expensive by historical standards. Stocks and bonds; emerging markets and advanced economies; urban office towers and Iowa farmland; you name it, and it is trading at prices that are high by historical standards relative to fundamentals. The inverse of that is relatively low returns for investors.

“The phenomenon is rooted in two interrelated forces. Worldwide, more money is piling into savings than businesses believe they can use to make productive investments. At the same time, the world’s major central banks have been on a six-year campaign of holding down interest rates and creating more money from thin air to try to stimulate stronger growth in the wake of the financial crisis.”

And Lawrence H. Summers indicated yesterday at The Wall Street Journal Online that, “What has happened in agriculture over the past century is remarkable. The share of American workers employed in agriculture has declined from over a third a century ago to between 1% and 2% today. Why? Because agricultural productivity has risen spectacularly, with mechanization reducing the demand for agricultural workers even as food is more abundant than ever [related graph].

“All of this has had far-reaching implications. Tens of millions of people have moved from rural to urban areas to take jobs in manufacturing and services. Supporting those left behind has led the federal government to spend well over $100 billion in the past decade. Though global issues surely remain, the problems in American agriculture today no longer involve ensuring that food is available, but ensuring livelihoods for those who once worked in agriculture.”

Isabella Steger reported yesterday at The Wall Street Journal Online that, “A renewed push by the Chinese government to consolidate the country’s dairy industry could spur a round of deal making and capital raising in the sector [related graph].

“Chinese regulators expect consolidated companies will have better control over their supply chains, the fragmentation of which experts cite for repeated food-safety scares. China’s dairy supply chain continues to be dominated by small farms.”

The article noted that, “The country now aims to create a small pool of national dairy heavyweights that control product lines including milk powder, infant formula and raw milk, as well as a greater proportion of dairy-product processing.”

In other news regarding China, Shawn Donnan reported earlier this week at The Financial Times Online that, “Ever since China joined the World Trade Organisation in 2001, the criticism from the US and other major powers has been remarkably uniform: China is doing too little to advance the cause of global trade liberalisation and when the tough negotiating starts Beijing hides behind other developing economies.

“The critics were at it again last week in Geneva as China, which last year became the world’s biggest trader of goods, submitted itself to the biennial ritual of its WTO ‘trade policy review.’”

The FT article added that, “However, there are mounting signs that, in the world of trade at least, China is coming out of its shell and starting to take a more proactive role. And, equally significantly, that it is starting to put distance between itself and the other big emerging economies.”

“On Tuesday, China will join the US and EU as they launch negotiations in Geneva for a new pact on liberalising the trade in environmental goods. That China is taking part from the beginning is significant,” the FT article said; while adding that, “The crucial question is just how effective China can be at the negotiating table and plenty of people harbour suspicions about its intentions there. But the world of trade is changing and China is clearly changing with it.”

In transpiration developments, a news release yesterday from the National Grain and Feed Association (NGFA) noted that, “The [NGFA] has submitted an extensive proposal urging the federal Surface Transportation Board (STB) to establish new rules and procedures that captive grain shippers could use to challenge rail freight rates they believe are unreasonable.”

 

Policy Issues (Appropriations, Farm Bill, Crop Insurance, Food Safety)

Paul Kane reported in today’s Washington Post that, “Election-year politics and personality-driven rivalries have collided in the U.S. Senate to upend what some had hoped would be a cease-fire in the long-running congressional fiscal wars.”

Mr. Kane explained that, “It is the Senate that has become the derailment site in fiscal negotiations.

“The Senate Appropriations Committee, under the feisty direction of its chairman, Sen. Barbara A. Mikulski (D-Md.), had churned out enough of its funding bills that [Senate Majority Leader Harry M. Reid (D., Nev.)] initially cobbled together three of them [including agriculture] for consideration in late June.

“But [Senate Minority Leader Mitch McConnell (R., Ky.)] declared that he would try to attach an anti-EPA amendment to one of the spending bills…Democrats are upset because McConnell is demanding that his amendment votes be held to a simple-majority standard, as is the tradition for amendments on the annual spending bills if they are deemed appropriate.”

In addition, Cristina Marcos explained yesterday at The Hill Online that, “Appropriations have stalled in the Senate due to a disagreement over amendments. But the House has already passed five of the 12 annual appropriations bills and will consider spending for the Department of Energy and Army Corps of Engineers…The House is expected to keep up its pace of appropriations bills on the floor for the rest of July. But with the Senate stalemate, it remains likely that both chambers will ultimately pass a short-term measure in September to keep the government funded at current levels through the midterm elections.”

The full House of Representatives has still not voted on the agriculture appropriations measure.

In more detailed reporting on the ag appropriations bill, AP writer Darlene Superville reported over the weekend that, “First ladies typically avoid getting into public scraps, but Michelle Obama has jumped into perhaps her biggest battle yet.

She’s fighting a House Republican effort to soften a central part of her prized anti-childhood obesity campaign and says she’s ready ‘to fight until the bitter end.’”

Ms. Superville explained that, “A House bill to fund the Agriculture Department next year would give districts a chance to apply to skip the requirements for one year.

“Rep. Robert Aderholt of Alabama, the Republican author of that measure, said the lunch rules go too far and came too fast for school districts to handle.

“‘As well-intended as the people in Washington believe themselves to be, the reality is that from a practical standpoint these regulations are just plain not working out in some individual school districts,’ he said after a House panel approved the bill. A vote by the full House is expected after its July Fourth break.”

The AP article added that, “The first lady and Agriculture Secretary Tom Vilsack, whose department runs the school meals program, oppose changing the law… The White House has threatened to veto the House bill. The Senate version does not include the one-year waiver.”

Looking ahead, Mike Lillis pointed out yesterday at The Hill Online that, “House Republicans will use July to continue moving spending bills through the committee process and on to the floor, though it remains unclear if they’ll succeed in advancing all 12 appropriations bills before the end of the fiscal year, Sept. 30…If the sides can’t agree on individual spending bills, they’ll likely pursue a shorter-term stopgap measure – a so-called continuing resolution – to take them at least into the lame-duck session, as they’ve done in years past.”

In Farm Bill news, Anne Effland indicated in a recent Amber Waves (USDA, Economic Research Service) article that, “The 2014 Farm Act introduces a marked change in U.S. commodity policy, ending nearly 20 years of fixed annual payments to producers based on historical production. New programs offer a variety of payment structures, commodity coverage, and level of yield and/or revenue risk, but all are tied in some way to annual or multi-year fluctuations in prices, yields, or revenues. The new Farm Act continues a movement toward closer links between commodity programs and Federal crop insurance that began with the 2008 Farm Act, but producers also face increased choices that add complexity to the program enrollment decision [see related graph].”

The article noted that, “How much the new commodity programs and insurance options will help to reduce income variability for eligible producers remains to be seen. However, unless prices and yields remain fairly steady over the life of the 2014 Farm Act, the new suite of programs seems likely to increase the year-to-year volatility of budgetary outlays compared to the period covered by the 2008 Farm Act.”

Also yesterday, USDA’s Economic Research Service (ERS) released a report titled, “The Effects of Premium Subsidies on Demand for Crop Insurance.”

An ERS summary of the report stated that, “Premium subsidies are a major factor in the current success of the Federal crop insurance program. This study measures the change in crop insurance demand across multiple crops and regions following a legislated increase in subsidies. Findings reveal the influence of premium subsidies on participation in the program.”

On the issue of nutrition, Laura Tiehen stated in a recent Amber Waves article that, “The Nutrition title of the Agricultural Act of 2014 reauthorizes USDA’s Supplemental Nutrition Assistance Program (SNAP), the Nation’s largest food and nutrition assistance program. In fiscal 2013 (October 2012-September 2013), an average of 47.6 million people received SNAP benefits each month, and Federal spending for the program totaled $79.8 billion, accounting for over half of USDA outlays in that year. In contrast with many other programs serving low-income households, SNAP eligibility does not depend on family structure, age, or disability status, so benefits reach a broad range of needy households.

“Although a major topic of debate in the negotiations leading up to the 2014 Farm Act, SNAP’s eligibility requirements are unchanged by the legislation. States retain the option, within certain Federal guidelines, to apply a policy of ‘broad-based categorical eligibility’ for SNAP that coordinates eligibility requirements with other Federal assistance programs.”

The ERS article added that, “In 16 States and the District of Columbia, nominal LIHEAP [Low-Income Home Energy Assistance Program] payments (typically $1 to $5 per year) have been issued to trigger additional SNAP benefits for some households. The practice is known as adopting a ‘Heat and Eat’ policy, a term coined by advocates to bring attention to the choices faced by low-income households trying to stretch scarce resources to cover energy and food expenses. Under the Heat and Eat policy, some States have issued nominal LIHEAP payments to allow some SNAP recipients to claim the HCSUA [heating or cooling standard utility allowance], even though their heating and cooling expenses are included in their rent.

The 2014 Farm Bill seeks to curb this practice by requiring households to have received a LIHEAP payment greater than $20 in the past year in order to automatically qualify for the HCSUA. The Congressional Budget Office estimated that the LIHEAP provision would reduce SNAP expenditures by $8.6 billion over 10 years, which represents about a 1-percent decline in overall SNAP program costs. The provision is estimated to reduce the SNAP benefit levels of the 850,000 affected households by an estimated average of $90 per month.”

Recall that in a recent interview with House Ag Committee Chairman Frank Lucas (R., Okla.), farm broadcaster Ron Hays pointed out that, “And it seems like some of the savings that were talked about during the scoring process and everything, you’ve got some governors that are looking at, with the LIHEAP type program and saying, yeah, we’ll up our ante and try to still grab some of those dollars that otherwise the ag committees were trying to grab, you know, score a savings.”

Chairman Lucas noted that, “Now, some of the governors, yes, are trying to game the system. But CBO leads me to believe that the overall savings in the nutrition title will be higher than they projected. And in some of the northeastern states that have really tried to game the system, if I am a part of a Congress next year where I have a Republican majority in the Senate and continue a Republican majority in the House, don’t be surprised, whether it’s the appropriations process or some area, that the nutrition programs are not revisited. So the old line about some of my friends in the northeast may have outsmarted themselves could well be the case next year.”

Meanwhile, Victor Oliveira explained in a recent Amber Waves article that, “SNAP [food stamps] is an entitlement program whereby everyone who meets the eligibility criteria and chooses to enroll receives benefits. WIC [Special Supplemental Nutrition Program for Women, Infants, and Children], on the other hand, is a discretionary program funded annually by congressional appropriations and can only serve as many participants as funding allows… When WIC was initiated in 1974, the average monthly WIC food cost per person was similar to the average monthly SNAP benefit per person. However, food costs per person for SNAP and WIC have diverged significantly since then, with inflation-adjusted, or real, per-person SNAP benefits trending upward and real per-person WIC costs trending downward. Since the mid-1990s, real monthly food costs for WIC have remained relatively stable at about $43-$48 per person in fiscal 2013 dollars. However, real per-person food benefits for SNAP continue to fluctuate, due in large part to legislative changes that either increased or decreased benefit levels. For example, the American Recovery and Reinvestment Act of 2009 temporarily increased SNAP benefit levels beginning in April 2009, however over time, food price inflation eroded the increase. Average monthly real SNAP benefits fell from $145.34 per person in 2010 to $133.08 per person in 2013 [related graph].”

In other news regarding Farm Bill nutrition issues, Rep. Jim McGovern (D., Mass.) tweeted yesterday that, “Kicking off my tour across 2nd Congressional District to raise awareness about the @USDA Summer Food Service Program”

More information on USDA’s Summer Food Service Program can be found here.

In food safety news, Cristina Marcos reported yesterday at The Hill Online that, “Democratic Reps. Rosa DeLauro (Conn.) and Louise Slaughter (N.Y.) on Monday urged the Department of Agriculture to close all Foster Farms poultry processing facilities until they eliminate a salmonella outbreak.”

 

USDA Employment Numbers

Josh Hicks reported yesterday at the Federal Eye blog (Washington Post) that, “Last week, we showed how the federal civilian workforce grew since the start of the Obama administration, despite shrinking slightly in recent years. Today, let’s look at individual departments to determine which of have gained and lost the greatest percentage of their employees.”

The update added that, “As for the losers, the Treasury Department shrank most, shedding nearly 9 percent of its workforce. Close behind are Housing and Urban Development and Agriculture, which lost about 7 percent and 6 percent, respectively [related graph].”

 

Biotech

A recent AFP article by Eric Randolph stated that, “While the United States, Canada, Brazil, Argentina and China and many other countries have warmly embraced genetically modified crops, Europe remains the world’s big holdout.

Could this be about to change? New European Union rules now seek to clear up years of internal deadlock that could, in theory, lead to widespread cultivation of GM foods. But the fight is far from over.”

Keith Good

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