FarmPolicy

December 18, 2018

Ag Economy; Policy Issues; Biofuels; and, Regulations

Agricultural Economy

Reuters writer Ros Krasny reported on Friday that, “Overall U.S. food inflation will remain near the historic norm in 2014, even as prices for meat and seafood are pushed higher by disease and widespread drought, the U.S. Department of Agriculture said on Friday.”

The Reuters article explained that, “But drought conditions in California and other states could further drive up prices of fresh produce and beef, the USDA warned.

“The agency forecast wholesale pork prices to jump by 10 percent to 11 percent in 2014, hurt by declining supplies after a virus has killed some 7 million piglets in the past year.

“Wholesale beef prices are forecast to jump by 8 percent to 9 percent in 2014, although rising imports are helping to offset some of the decline in domestic supplies.”

Friday’s article added that, “‘The ongoing drought in California could potentially have large and lasting effects on fruit, vegetable, dairy and egg prices, and drought conditions in Texas and Oklahoma could drive beef prices up even further,’ the USDA said.”

Matthew Patane reported in Saturday’s Des Moines Register that, “Iowans eating beef and pork will face higher prices as drought conditions and a virus deadly to piglets continue to reduce supplies and raise prices, the U.S. Department of Agriculture reported Friday.”

On Friday, in its semi-annual Cattle report, USDA’s National Agricultural Statistics Service (NASS) indicated that, “All cattle and calves in the United States as of July 1, 2014, totaled 95.0 million head, 3 percent below the 97.8 million on July 1, 2012. This is the lowest all cattle and calves inventory for July 1 since the series began in 1973 [related graph].”

The NASS report added that, “The 2014 calf crop is expected to be 33.6 million, down 1 percent from 2013 and down 2 percent from 2012.”

Also on Friday, in its monthly Cattle on Feed report, NASS indicated that, “Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.1 million head on July 1, 2014. The inventory was 2 percent below July 1, 2013 [related graph].”

Bloomberg writer Megan Durisin reported on Friday that, “Cattle futures headed for the sixth straight annual gain, the longest rally since at least 1965, as ranchers struggled to recover from years of drought.”

With respect to the pork sector, a news release Friday from Rabobank stated that, “The global pork market is moving into record territory in Q3. Especially in the exporting countries impacted by the porcine epidemic diarrhoea virus (PEDv), hog and pork prices will continue to break records in the remainder of Q3 and into Q4. In the non-impacted countries, this, plus the high prices for beef and poultry, will support bullish hog and pork prices. However, in the European Union (EU) and China, markets will improve seasonally but will not reach the highs experienced in other countries.

“‘In the US, Mexico, Japan and South Korea, the countries that have been affected by PEDv, the key question will be ’Where to source pork?’’ said Rabobank analyst, Albert Vernooij. ‘In these countries the supply drops, as well as declining feed costs, are expected to push farmer’s profitability into record territories. In contrast, processors’ margins will be pressured due to the strong competition for hogs.’”

Meanwhile, David Peirson reported on the front page of Saturday’s Los Angeles Times that, “California’s three-year drought has sparked a surge in demand for wells in the state’s agricultural heartland. With federal and state allocations of surface water reduced to a trickle, growers are searching deeper underground for sources of water to keep their farms from ruin.”

The LA Times article pointed out that, “It’s also setting the stage for more problems later as groundwater supplies are shrinking faster than they can be replenished. In parts of the Central Valley, the water table has plummeted, drying up old wells and sinking the land above, a phenomenon called subsidence.

That’s resulted in even deeper wells that cost hundreds of thousands of dollars to build and require more energy to pump water to the surface. As recently as two decades ago, a well several hundred feet would suffice. Today, large farms are drilling to depths of 2,000 feet in anticipation of falling water levels.”

Jim Carlton reported in today’s Wall Street Journal that, “California’s relentless drought is beginning to dry up revenue in its popular lake and river tourism industry. Marinas and boat ramps across the state are turning away customers, and even spots where water is still relatively plentiful say visitors are staying away, assuming things are worse than they are.”

And Reid Wilson reported in yesterday’s Washington Post that, “Seven Western states that rely on the Colorado River Basin for valuable water are drawing more heavily from groundwater supplies than previously believed, a new study finds, the latest indication that an historic drought is threatening the region’s future access to water.

“In the past nine years, the basin — which covers Wyoming, Colorado, Utah, New Mexico, Nevada, Arizona and California — has lost about 65 cubic kilometers of fresh water, nearly double the volume of the country’s largest reservoir, Lake Mead. That figure surprised the study’s authors, who used data from a NASA weather satellite to investigate groundwater supplies.”

More specifically on climate issues, Bloomberg writer Brian K. Sullivan reported on Friday that, “Rising temperatures caused by climate change increase the odds that corn and wheat yields will slow even as global demand for the crops for food and fuel increases in the next 10 to 20 years, according to a study published in Environmental Research Letters.

“There is as much as a 10 percent chance the rate of corn yields will slow and a 5 percent probability for wheat because of human-caused climate change, said David Lobell, the associate director of the Center on Food Security and the Environment at Stanford University, and Claudia Tebaldi, a scientist at the National Center for Atmospheric Research in Boulder, Colorado.”

Jacob Bunge reported in today’s Wall Street Journal that, “A tidal wave of grain looms over the U.S. agricultural sector, spelling bounty for some companies and challenges for others.

“As some of the biggest U.S. agribusiness firms report earnings this week, analysts will weigh prospects for another massive U.S. corn crop and a likely record haul of soybeans, thanks to benevolent weather this summer, with plenty of rain and moderate temperatures setting up the best growing conditions in years.

“‘Weather has been about as good as we have seen historically,’ said Matthew Korn, analyst for Barclays, who researches fertilizer companies.”

Today’s article stated that, “Mild conditions favoring the U.S. Farm Belt led the U.S. Department of Agriculture to project 13.86 billion bushels of corn will be harvested this year, slightly below last year’s record 13.93 bushels. Soybean farmers are expected to produce 3.8 billion bushels, another record, after this spring dedicating the most-ever acres to the oilseed.

Corn futures prices have dropped by nearly one-third over the past three months, recently hitting their lowest point since 2010, while soybean contracts have been trading near 2½-year lows.

“The previous drop in grain prices last summer, as well as rising costs for beef and pork that have curbed demand for those meats, already have boosted chicken’s profitability. Some analysts previously anticipated that poultry profits for Tyson and Pilgrim’s, the top two U.S. poultry producers, would peak this year. But the continued slide in grain prices could spell ‘another year of banner profitability in 2015,’ according to Brett Hundley, analyst with BB&T Capital Markets.”

Mr. Bunge added that, “The plunge in corn prices has put some farmers’ overall profit margins below the average cost of renting farmland, according to Susquehanna International Group. That means more farmers could look to cut costs, including fertilizers like potash and phosphate, which supply nutrients that can linger in the soil for more than one season.”

And Alexandra Wexler, also writing in today’s Wall Street Journal, reported that, “Cotton prices have retreated to the lowest level in nearly five years as investors worry that global production could overwhelm demand for the fiber.

“The U.S., the world’s biggest cotton exporter, is expected to produce a large crop in the season that begins Aug. 1. But global demand is likely to fall short, especially with top importer and consumer China wrapping up a 2½-year stockpiling program. U.S. government forecasters predict the amount of cotton left over in warehouses world-wide when the next season ends will reach an all-time high of 105.7 million bales.”

A news release last week from the U.S. Grains Council noted that, “The U.S. Grains Council is calling for China to approve MIR 162 following this week’s announcement of new biotech certification requirements for distiller’s dried grains with solubles (DDGS) by the Chinese import inspection authority, AQSIQ.

“The new requirements effectively call for a certificate from the point of origin – in the case of U.S. shipments, from the U.S. Department of Agriculture (USDA) – guaranteeing that the shipment is free of the biotech trait.

“The mandate was made effective immediately, causing serious disruptions with existing DDGS trade and making future DDGS trade hard to achieve.”

In news regarding transportation, an update Friday from Rep. Kevin Cramer (R., N.D.) stated that, “Today [Rep. Cramer] announced BNSF Railway and Canadian Pacific Railway (CP) have publicly filed their fifth weekly status updates on the backlog in grain shipments. The figures from BNSF show a total of 3,359 past due rail cars in North Dakota averaging 23.6 days late as of July 25, compared to the report last week which indicated 3,908 past due cars were averaging 26.6 days late. The CP report shows a total of 22,811 open requests in North Dakota with an average age of 11.15 weeks. The previous report showed 23,761 open requests with an average age of 10.72 weeks.”

“The BNSF report can be viewed here, and the CP report can be viewed here.”

A news release Friday from Rep. Steve Southerland (R., Fla.) stated that, “[Rep. Southerland] introduced the Right to Haul Act (H.R. 5201) this week to extend state truck weight limits to federal roads, providing relief to agriculture and forestry haulers who have been stifled by inconsistent state and federal truck weight regulations.”

 

Policy Issues

The House Ag Subcommittee on Livestock, Rural Development, and Credit will hold a hearing tomorrow titled, “Coordinating Future Investments in Broadband;” and, the House Ag Subcommittee on Horticulture, Research, Biotechnology, and Foreign Agriculture will hold a hearing on Wednesday “to review the impact of enforcement activities by the Department of Labor on specialty crop growers.”

Georgina Gustin reported on Friday at Roll Call Online that, “Earlier this year, the Food and Drug Administration unveiled a revamped Nutrition Facts label for food packages, proposing changes to the iconic white box for the first time since it was adopted 20 years ago.”

The Roll Call article noted that, “Of the changes proposed for the now-trusted label, none has prompted more scrutiny than a new line noting ‘added sugars’ in products.

Nutritionists and some public interest groups have applauded the change, stressing the increasing evidence that links added or artificial sugars to obesity and all manner of metabolic disease. Drawing consumer attention to these added sugars, they say, could result in better choices in the grocery aisle and in better health.

But the food industry knows the little white label is probably the most valuable real estate on a package, and a tiny line for added sugars wields big power — and means potentially big problems for manufacturers.”

Marina Koren reported on Friday at National Journal Online that, “Barely a month after federal regulations for school cafeterias kicked in, states are already pushing back.

“Specifically, they’re fighting nutrition standards that would considerably alter one of the most sacred rituals of the American public school system: bake sales.

Twelve states have established their own policies to circumvent regulations in the Healthy, Hunger-Free Kids Act of 2010 that apply to ‘competitive snacks,’ or any foods and beverages sold to students on school grounds that are not part of the Agriculture Department’s school meal programs, according to the National Association of State Boards of Education. Competitive snacks appear in vending machines, school stores, and food and beverages, including items sold at bake sales.”

 

Biofuels

A news release Friday from Rep. Bob Goodlatte (R., Va.) stated that, “Reps. [Goodlatte], Jim Costa (D-CA), Peter Welch (D-VT), and Steve Womack (R-AR) released the following statement today in response to comments made  by White House advisor John Podesta regarding the Renewable Fuel Standard (RFS):

“‘Recent comments by a White House advisor implying a future increase in the ethanol mandate run counter to the position expressed by a majority of the House of Representatives. The EPA’s proposal for 2014, which included a reduction in the amount of ethanol blended into the fuel supply, was a positive step forward and acknowledged that the mandate is unworkable, detrimental to the environment, and price distorting to feedstock industries throughout the country. If these comments accurately represent the administration’s intentions, this would be a significant step backwards for American consumers and businesses. We urge EPA Administrator McCarthy and the Obama Administration to carefully consider the concerns of a majority of House lawmakers and take action to reduce the burden of the RFS for 2014.’”

 

Regulations

An update on Friday at the National Sustainable Agriculture Coalition blog provided additional analysis with respect to the EPA and proposed rules regarding water issues: “Waters of the U.S.: What’s it all About?

In a teleconference with reporters on Thursday, Sen. Mike Johanns (R., Neb.) indicated that, “This week I joined with Republican colleagues on the Agriculture Committee in expressing frustration with Environmental Protection Agency’s regulatory agenda. We had an opportunity to meet face-to-face with the administrator, Gina McCarthy.”

Sen. Johanns explained that, “The proposed EPA rule that would redefine what the agency can regulate under the Clean Water Act is a great — has been a source of great concern. It puts farmers and ranchers at risk because it would allow the federal government to literally regulate the farm pond, ditches, low-lying areas, which in some cases are dry for most of the year.

“What that does is it opens the door to costly new permits and fines for our nation’s ag producers. But this regulation is only the latest in a very long history of EPA regulations that target the ag industry.

“The administrator told us that she needs to do a better job of working with producers. And I’m going to hold her to that. This week’s meeting must be followed up with concrete action addressing the concerns of ag producers.”

During the briefing, a reporter queried: “In your meeting with EPA Administrator McCarthy, did you receive any indication that they might reconsider the proposed water rule or maybe scrap it all together or they seem to be pretty dug-in on this one?”

Sen. Johanns indicated that, “I don’t think she’s — she’s going to pull this back. She did say that she heard the concerns and she will take those concerns into consideration. But at least at the moment, I think she’s going to try to forge ahead.

“I do think what’s happening here is the Obama administration recognizes that they only have a couple years left and I just think you’re going to see a blizzard of regulations over the next two years and five months.

“So I just think this battle will continue.”

Keith Good

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