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Ag Economy; Policy Issues; Immigration; Climate; and, Political Notes

Agricultural Economy

Tom Meersman reported over the weekend at the Minneapolis Star-Tribune Online that, “The prospect of a bin-busting crop has driven corn prices to their lowest levels in four years and raised fears of a prolonged slump for crop farmers in Minnesota and elsewhere.

“After three years of profits, analysts are calling 2014 a break-even year, at best. Some think prices could drop more and stay low into 2015.”

The article explained that, “The sputtering prices have significant implications for the economy of the Upper Midwest, which has outpaced much of the nation in recent years partly on the strength of a strong agricultural sector. Not only are corn prices down, but soybeans and some other crops have also dropped sharply.

Beyond thinning farmers’ wallets, the impact could ripple outward to weaken a host of service businesses: seed companies, farm implement dealers, fertilizer marketers, herbicide applicators, and landlords who rent fields to farmers. The record harvest will also overflow grain bins after harvest begins this fall, according to federal officials, further straining railroads that are far behind in shipping last year’s crop.”

Mr. Meersman added that, “Lower prices, of course, are good news for buyers. When corn drops, livestock operators and ethanol producers benefit from cheaper feed and fuel.”

The Star-Tribune article pointed out that, “Costs of production are ‘way out of balance with expected revenue,’ said Dale Nordquist, associate director of the Center for Farm Financial Management at the University of Minnesota. Land values and land rental rates have just caught up to where corn prices were during the past couple of years, he said, but now corn has plummeted.

“‘There’s no profitability at these current corn prices,’ he said, and many producers will not be able to break even.

“Some analysts have predicted that corn prices may drop to $3.20 or $3.25 per bushel before bottoming out during harvest in early October. Prices of course depend on continued good weather, which has been ideal for corn and soybeans in most parts of the Midwest this year.”

More broadly, Bloomberg writer Whitney McFerron reported on Friday that, “Global wheat production will be bigger than expected a month ago as prospects improved for crops in China, the European Union and Russia, the International Grains Council said.

“World wheat production will rise to a record 713.4 million metric tons in the 2014-15 season, 1.6 percent more than estimated in July and topping the prior year’s harvest of 712.5 million tons, the London-based IGC said today in an e-mailed report. Rising wheat output and higher-than-expected production of corn, or maize, means total grain harvests worldwide will be near an all-time high at 1.976 billion tons, it said.”

Also, agricultural economists Scott Irwin, Darrel Good (University of Illinois) and Dwight Sanders (Southern Illinois University) indicated on Friday at the farmdoc daily blog (“Are USDA Corn Yield Forecasts Getting Better or Worse over Time?”) indicated that, “A widespread view in the trade is that the final yield estimate for the U.S. average corn yield in 2014 will be well above the USDA August forecast of 167.4 bushels per acre, perhaps as large as 175 bushels.  Much of the expected yield increase is based on the concept that ‘big crops get bigger,’ with support also coming from relatively high crop condition ratings late in the season.  A recent farmdoc daily article (August 20, 2014), however, revealed that not all big crops have gotten bigger in the past and that weather conditions this summer may not have been consistent with a large increase in the USDA yield forecast from August to January.  An implication of the expectation that the USDA yield forecast will increase substantially in future Crop Production reports is that the August forecast this year will have an unusually large forecast error.  The purpose of this article is to examine trends in the accuracy of USDA corn yield forecasts in recent years in order to provide an additional perspective on the debate about the U.S. corn yield in 2014.  Two previous farmdoc daily articles (August 19, 2011; September 1, 2011) and a research report earlier this year examined the accuracy of USDA corn yield forecasts.  We update those analyses here.”

After additional detail, Friday’s farmdoc update noted that, “Our analysis of USDA yield forecasts for corn over 1990-2013 did not reveal any evidence of bias in August, September, October, or November.   There is compelling evidence that the accuracy of USDA corn yield forecasts has improved over time, particularly since 2011.  It is especially interesting to note that USDA corn yield forecast errors in 2012 were extremely small, with the August forecast exactly equal to the final estimate.  This performance was exceptional given the severe drought that occurred in the summer of 2012. What, if anything, do these results imply about the ongoing debate about the direction of USDA corn yield forecasts in remaining Crop Production reports during 2014?  While it is, of course, true that longer-term trends in accuracy will not necessarily dominate in any particular year, an unusually large August forecast error this year (5 percent or more) would definitely be counter to the trend towards increasingly accurate USDA corn forecasts over time.”

In other commodity news, Bloomberg writer Lydia Mulvany reported on Friday that, “Butter futures reached an all-time high in Chicago as Americans’ rising appetite for the fatty dairy spread and rising exports erode U.S. inventories.

“Domestic consumption is projected to rise 0.8 percent to 788,000 metric tons in 2014, according to the U.S. Department of Agriculture. That would be the second-highest ever in data going back to 1965.”

In more specific international and trade related developments, Bloomberg writers Yuriy Humber and Aibing Guo reported on Friday that, “For every additional bushel of wheat or pound of beef the world produces, China will need almost half of that to keep its citizens fed. With domestic production unable to keep up, Hong Kong-listed and mainland Chinese firms spent $12.3 billion on foreign takeovers and investments in food, drink or agriculture last year, the most in at least a decade, data compiled by Bloomberg show.”

An update late last week from USDA’s Animal and Plant Health Inspection Service (APHIS) indicated that, “We are proposing to amend the regulations governing the importation of certain animals, meat, and other animal products to allow, under certain conditions, the importation of fresh (chilled or frozen) beef from a region in Argentina located north of Patagonia South and Patagonia North B, referred to as Northern Argentina. Based on the evidence in a recent risk assessment, we believe that fresh (chilled or frozen) beef can be safely imported from Northern Argentina provided certain conditions are met. This proposal would provide for the importation of beef from Northern Argentina into the United States while continuing to protect the United States against the introduction of foot-and-mouth disease.”

A news release Friday from Rep. Kevin Cramer (R., N.D.) noted in part that, “‘Allowing beef imports from the Patagonia region of Argentina would risk the spread of an extremely contagious livestock disease. My concerns about this rule echo those of cattle ranchers across North Dakota who want to protect the health and safety of their herds. I plan on maintaining close contact with the USDA on this issue and encourage concerned ranchers to submit comments in the meantime,’ said Cramer.”

National Cattlemen’s Beef Association (NCBA) President Bob McCan also issued a statement on the APHIS proposal, noting in part that, “The [NCBA] is deeply concerned by today’s announcement by [APHIS] to add the Patagonia areas of Argentina to the list of regions considered free of Foot-and-Mouth disease and to subsequently allow the importation of live cattle and fresh or frozen beef into the United States from this region. Our extreme concern is only further magnified by the associated proposed rule to allow chilled or frozen beef to be imported from the region of Northern Argentina. Northern Argentina is a region that is not recognized as being free of Foot-and-Mouth Disease by APHIS. We strongly believe that these recent actions by APHIS present a significant risk to the health and well-being of the nation’s cattle herd through the possible introduction of FMD virus.”

Meanwhile, a recent article in The Japan Times reported that, “Prime Minister Shinzo Abe is considering appointing Koya Nishikawa, who heads a Liberal Democratic Party panel on the Trans-Pacific Partnership free trade negotiations, as farm minister in this week’s Cabinet reshuffle, a government source said Saturday.

The likely choice of Nishikawa appears aimed at pushing the broad negotiations involving 12 nations toward a conclusion, given that the Lower House member has extensive knowledge of farm policy.

“Nishikawa worked to forge a party consensus on the TPP talks amid strong reservations among LDP members who think Japan should retain tariffs on certain key farm products to protect domestic agriculture from cheaper foreign products.”

In weather related news, Fernanda Santos reported in Saturday’s New York Times on dust storms in the Southwest (“Swirls of Dust and Drama, Punctuating Life in the Southwest”) and included this July photo from Phoenix.

And Felicity Barringer reported in today’s New York Times that, “California’s vicious, prolonged drought, which has radically curtailed most natural surface water supplies, is making farmers look deeper and deeper underground to slake their thirst.”

Today’s article explained that, “Yet for a century, farmers believed that the law put control of groundwater in the hands of landowners, who could drill as many wells as deeply as they wanted, and court challenges were few.

That just changed. The California Legislature, in its closing hours on Friday, passed new and sweeping groundwater controls. The measures do not eliminate private ownership, but they do establish a framework for managing withdrawals through local agencies.

It all happened after many farmers slowly rethought their priorities, as they surveyed a landscape of over-pumping, dropping water levels and multimillion-dollar groundwater sales. Ceding some control of groundwater management to local water agencies, an idea long opposed, became palatable enough to win over a significant share of farmers. It helped that the controls were matched by the state’s commitment to expanding existing water storage.”

 

Policy Issues

Cristina Marcos reported on Friday at The Hill Online that, “Rep. Adrian Smith (R-Neb.) on Friday said that school boards and local education officials should manage lunch programs instead of having to comply with federal rules.

“The Healthy, Hunger-Free Kids Act of 2010 requires school lunch programs that receive federal dollars to provide healthier meals in an effort to combat childhood obesity.

“However, Agriculture Department statistics indicate fewer children are now participating in the National School Lunch program. Additionally, many school districts have struggled to cover the costs of uneaten fruits and vegetables.”

The Hill update added that, “In June, the House began consideration of an appropriations bill providing funds for the Agriculture Department that would give temporary waivers to school lunch programs that have been operating at a net loss for the last six months. But the bill was later pulled from the floor without explanation.”

Kirk Johnson, writing in today’s New York Times about local agriculture incentives in Alaska, reported that, “Kathy Page, 33, had just bought zucchini, broccoli, onions and snap peas for her family of five under a program that doubles the first $20 of a food stamp recipient’s money used for fruit and vegetable purchases at farmers’ markets… The food stamp incentive program has grown fivefold since its start here in 2011.”

A news release on Friday from Sen. Chuck Schumer (D., N.Y.) stated that, “[Sen. Schumer] today announced that the [USDA] has awarded New York’s Upstate Niagara Cooperative – based in Buffalo – a contract to provide its Greek yogurt to public schools across three states through the USDA’s School Lunch Program Pilot. These states are New York, Arizona and Tennessee. Upstate Niagara will be providing 142,700 pounds of Greek yogurt to schools in these states through December. The entire pilot program will run through the end of the school year in June 2015, and USDA will soon consider bids for the next round.”

 

Immigration

Michael D. Shear reported in Saturday’s New York Times that, “President Obama is considering a delay of his most controversial proposals to revamp immigration laws through executive action until after the midterm elections in November, mindful of the electoral peril for Democratic Senate candidates, according to allies of the administration who have knowledge of White House deliberations.

“The president vowed in late June to act unilaterally, declaring a deep frustration with what he termed Republican obstruction in Congress. He pledged to act to reshape the immigration system soon after he received recommendations from senior advisers at the end of the summer.”

 

Climate

Reuters writers Kathy Chen and Stian Reklev reported yesterday that, “China plans to roll out its national market for carbon permit trading in 2016, an official said Sunday, adding that the government is close to finalising rules for what will be the world’s biggest emissions trading scheme.

“The world’s biggest-emitting nation, accounting for nearly 30 percent of global greenhouse gas emissions, plans to use the market to slow its rapid growth in climate-changing emissions.”

 

Political Notes

Phillip Ramati reported late last week at The Telegraph (Macon, Ga.) Online that, “U.S. Senate candidates Michelle Nunn and David Perdue disagree on many issues, so why should the farm bill be any different?

“The two were in Macon on Thursday, huddled behind closed doors with the Georgia Farm Bureau’s state board at the organization’s Bass Road office.

“The board invited them to Macon to learn their positions on issues affecting the farm industry in Georgia, including the farm bill and immigration. Agriculture is the state’s top industry, contributing about $71 billion to Georgia’s economy each year.”

The article stated that, “When it comes to the farm bill, Nunn supports it, noting that it is one of the few successful bipartisan efforts in Washington lately. Perdue said he opposed the measure, saying it didn’t do enough.”

“Both Nunn and Perdue said they want to serve on the Senate’s Agriculture Committee,” the article said.

Keith Good