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Ag Economy; Biofuels; and, Policy Issues

Agricultural Economy

AP writer Joan Lowy reported yesterday that, “Senators and shippers complained Wednesday that widespread delays in freight rail shipments are hurting a wide array of industries and driving some companies out of business, and they expressed doubt that the railroad companies are doing all they can to fix the problem.

“The delays, which escalated late last year and continued through the spring and summer, appear to be the result of too few rail cars and too much demand from shippers, officials representing the agriculture, auto and chemical industries told a hearing of the Senate Commerce, Science and Transportation Committee. Lawmakers displayed a photo of a giant mound of wheat standing in the open because North Dakota farmers can’t get a railroad company to ship it.

Shipping rates are 90 percent higher than they were in 2002, but service has drastically diminished, said Calvin Dooley, president of the American Chemistry Council.”

The AP article noted that, “Edward Hamberger, the rail industry’s top lobbyist, said the industry is struggling to keep up with a sharp increase in freight rail demand created by the oil fracking boom in the Bakken region of North Dakota and two years of unusually bountiful harvests, and that the problem was acerbated by an unusually harsh winter. Railroads spent $26 billion last year on new track and other capital improvements, and that shipping rates are the same level they were in 1988 when adjusted for inflation, he said.”

Ms. Lowy pointed out that, “Sen. Maria Cantwell, D-Wash, told Hamberger she didn’t believe the $26 billion figure.

“‘I don’t believe your investment figures are sincere figures,’ she said. ‘You are making a ton of money and what is happening is people are losing their jobs and their products can’t get to market.’

“Sen. Jay Rockefeller, D-W.Va., said he didn’t buy Hamberger’s explanation for the causes of the delays.”

Reuters writer Patrick Rucker reported yesterday that, “A stockpile of U.S. Midwest grain will likely increase in the coming months and tax farmers already desperate to house or haul corn, soybeans and other products ahead of an expected record harvest, a U.S. Department of Agriculture official said on Wednesday.

Grain stocks this harvest season are expected to exceed permanent storage facilities by about 694 million bushels, or about 3.5 percent of expected harvest totals, said Arthur Neal, who analyzes market and transportation issues in the agriculture sector.”

Mr. Rucker noted that, “Senator Jay Rockefeller of West Virginia, the committee chairman, said rail operators had the resources to cover the costs of improving service.

“‘We know that the railroads are financially strong,’ he said in an opening statement. ‘I want to hear something more (from them) than ‘we are investing a record amount.’”

Tom Curry reported yesterday at The Container blog (Roll Call) that, “Farm state senators sounded the alarm about delayed crop shipments and ruined crops at a Senate Commerce, Science, and Transportation Committee hearing Wednesday on a U.S. freight rail system that has been overwhelmed by a massive increase in rail shipments of crude oil.

“The hearing opened with statements from the two senators from the state enjoying the benefits of the Bakken crude oil boom – North Dakota [see related updates yesterday from Senators John Hoeven (R., N.D.) and Heidi Heitkamp (D., N.D.)]. But it is that state’s farmers – as well as farmers in neighboring states — who are also suffering from freight rail backlogs.”

In opening remarks at yesterday’s hearing , Sen. John Thune (R., S.D.) explained that, “Projections from the U.S. Department of Agriculture estimate South Dakota’s 2014 wheat harvest at 108 million bushels, a 14 percent increase over the three-year average, and soybean and corn crops are also expected to be unusually large and potentially record-setting. Even with these high yields, the increased negative basis due to inadequate transportation and the inability to timely move these crops from grain handlers could result in more than $300 million in lost value to South Dakota corn, wheat, and soybean producers.”

Meanwhile, Bloomberg writer Lydia Mulvany reported yesterday that, “Wheat futures fell to a six-week low on speculation that global supplies will be ample enough to meet demand.”

And Leslie Josephs reported yesterday at The Wall Street Journal Online that, “Sugar prices fell to the lowest level since June 2010 on expectations that global production of the sweetener would continue to exceed demand.”

University of Illinois agricultural economists John Newton, Scott Irwin, and Darrel Good indicated yesterday at the farmdoc daily blog (“Do Big Soybean Crops Always Get Bigger?”) that, “The USDA’s August Crop Production report forecast the 2014 U.S. average soybean yield at 45.4 bushels per acre. That exceeds the previous record yield of 44.0 bushels in 2009 and is 1.7 bushels above our calculation of the 2014 (unconditional) trend yield based on actual yields from 1960 through 2013. Comments by traders and market analysts indicate there is a widespread expectation that the forecast will increase in subsequent Crop Production reports. This would explain the weakness in soybean prices since the release of the August report.”

After an analytical presentation, yesterday’s update concluded by noting that, “The final USDA estimate of the 2014 U.S. soybean yield will have obvious implications for soybean prices for an extended period. History suggests that the September forecast will give some limited indication of the direction of change in yield forecasts from August to January, particularly if the September forecast is less than the August forecast. Many analysts are on record anticipating that the final soybean yield estimate will be well above the August forecast of 45.4 bushels and it appears that the market is trading a much higher yield. Much of the expected yield increase is based on the concept that ‘big crops get bigger,’ with support also coming from very high crop condition ratings late in the season and early harvest reports of high yields. The analysis in this article, however, reveals that 1) historically, a minority of big soybean crops get bigger, 2) summer weather conditions this year did not uniformly match weather patterns in previous high-yielding years when USDA soybean yield forecasts increased, and 3) average August temperatures contain limited information about the likely change in the USDA soybean yield forecast from August to January. These results do not imply that the U.S. average soybean yield this year will not be large and will not increase, only that such outcomes cannot be predicted based on the size of the August yield forecast relative to trend or weather conditions to date. The conservatism of USDA early season soybean yield forecasts documented in this recent farmdoc daily article (September 4, 2014) provides a sounder basis for arguing that USDA soybean forecasts will rise starting in September.”

Reuters writer Karl Plume reported yesterday that, “Retail giant Wal-Mart joined a group of volunteers counting corn ears and soybean pods in fields in the United States recently in a clear sign traditional crop tours are expanding their appeal from farmers and traders to all those with a stake in the U.S. food chain.

Bob Meyer reported yesterday at Brownfield that, “Sales of four-wheel-drive tractors are down this year. The Association of Equipment Manufacturers says 333 four-wheel-drive tractors were sold in the U.S. in August, down 37 percent or 199 tractors from August of 2013. Year-to-date four-wheel-drive sales are off 14 percent at 3,511 tractors.

“Two-wheel-drive sales were up 3 percent in August and year-to-date. However, the increases have been in sales of tractors under 100 horsepower. Sales of 100-plus horsepower two-wheel-drive tractors were down 11 percent in August and are nearly 9 percent lower year-to-date.”

Also yesterday, Mark Koba reported at CNBC Online that, “California’s ongoing drought is claiming another victim: the state’s rice crop.

Nearly 25 percent of California’s $5 billion rice crop will be lost this year due to lack of water, say experts.”

The article noted that, “To try and make money, some California rice producers have turned to selling their water sources, rather than planting a crop this year, said Bruce Linquist, an agricultural researcher at the University of California, Davis. While some farmers could afford to leave their land unplanted, others have opted to just sell water rights.”

And Bloomberg writer Alison Vekshin reported yesterday that, “Environmental protections for endangered salmon in California’s rivers and streams are drawing complaints from drought-stricken farmers who say water that could be pumped to them is allowed to empty into the ocean.

“Authorities have sharply curtailed allocations in the largest U.S. agricultural producing state, with 2012 sales valued at $42.6 billion, forcing growers to leave farmland unplanted or pay escalated prices for water from other sources.

“‘The Endangered Species Act does not have any consideration for human impact, and that’s a little disturbing,’ said Joe Del Bosque, 65, president of Del Bosque Farms in Firebaugh, who grows melons and tomatoes. ‘It’s already harming us now. It could be worse next year.’”

In trade developments, a news release yesterday from the U.S. Trade Representatives Office indicated that, “Trans-Pacific Partnership (TPP) chief negotiators completed 10 days of intensive meetings today, making important progress across a range of issues as they continue their drive toward a comprehensive, high-standard agreement.

“‘We have committed to a focused work plan, which will allow us to boost momentum and make continued progress,’ said Barbara Weisel, U.S. Chief Negotiator for TPP. ‘All countries involved want to reach a conclusion to unlock the enormous opportunity TPP represents.’”

Jonathan Wheatley reported yesterday at The Financial Times Online that, “The UN’s trade body has joined a chorus of criticism of globalisation, warning that developing countries reap little value from taking part in global supply chains and that the costs of joining free-trade agreements may outweigh the gains.

“In its annual Trade and Development Report, Unctad, the Geneva-based body that prides itself on being a voice for the global south, also called for aggressive stimulus programmes to boost global growth.”

From an international perspective, Bloomberg writer Jen Skerritt reported yesterday that, “Rain turned to snow in parts of Alberta earlier this week and as much as 15 centimeters (6 inches) is expected in some areas today, according to Environment Canada. The cold, wet weather will further delay this year’s harvest, and the excess moisture may damage mature wheat, barley and oat, according to Bruce Burnett, a crop and weather specialist with CWB.”

Vincent Bevins reported yesterday at the Los Angeles Times Online that, “The deforestation of the Amazon in Brazil increased by 29% in the last recorded year, according to figures released Wednesday by the country’s National Institute for Space Research, or INPE.

It is the first time the deforestation rate has increased since 2008, and the report comes as environmental issues move to the center of Brazil’s October presidential election.”

And Bloomberg writer Phoebe Sedgman reported yesterday that, “Overseas investment in agricultural assets in Australia, the world’s third-biggest beef and sugar exporter, is set to expand as countries outside of China step up their push to secure access to farms and food supplies…[O]verseas investors are boosting their presence in Australia to meet rising demand for food, spurring concern about levels of foreign ownership. While Prime Minister Tony Abbott vowed after his election win last year that the country is open for business, during the campaign he promised to lower the threshold for review of land deals.”

Also, Reuters writer Tom Miles reported yesterday that, “India spent $56.1 billion on support for farmers in 2010-2011, it said in a World Trade Organization filing on Wednesday, a document that will be pored over for evidence that it breached agreed limits on agricultural subsidies.

“The United States and other WTO members have strongly criticised India for being almost a decade behind with notifications on farm support and for vetoing a landmark WTO agreement because it wanted more attention paid to its demand to be able to stockpile subsidised crops to ensure food security.”



Reuters writer Ayesha Rascoe reported earlier this week that, “The nascent U.S. cellulosic ethanol industry has urged the White House to change course on targets for biofuel use, warning in a letter to President Barack Obama on Tuesday that current policy risks losing investments to China and Brazil.

“Federally set mandates for the use of fuels such as corn ethanol and cellulosic ethanol, made from plant waste like grasses and wood, must be based on the industry’s ability to produce the fuel, not on infrastructure restraints, executives of several biofuel companies wrote.

“The Environmental Protection Agency rocked the biofuels industry last year with a draft plan slashing requirements for blending renewable fuels into U.S. gasoline and diesel in 2014.”

The article noted that, “Following a backlash to the initial proposal, the companies said they expect the administration to raise the targets from the proposed rule to the final rule, sent to the White House for review in August.”

Benjamin Goad and Tim Devaney reported yesterday at The Hill Online that, “Tensions are growing as the Environmental Protection Agency prepares to levy a new renewable fuel standard.

The EPA has dropped hints of late that it will raise the amount of ethanol that must be mixed in with gasoline and diesel fuels, after initially proposing to lower the standard.

“This has the oil industry ramping up pressure on the Obama administration over what it says would be a monumental flip-flop by the EPA. Industry groups say too much ethanol can harm car engines.”

And Reuters writer Alonso Soto reported yesterday that, “Brazil plans to include its struggling sugar and ethanol industries in a tax refund programme that would cost the state about 900 million reais ($395 million) in revenue, a government source close to the negotiations told Reuters.”


Policy Issues

David Rogers reported yesterday at Politico (“Farm bill foes find trouble of their own”) that, “Majority Leader Eric Cantor (R-Va.), who put the House Agriculture Committee through legislative hell over a two-year period, lost his primary in June and is gone from Congress.

“Rep. Steve Southerland (R-Fla.), whose sweeping 17-page food stamp amendment helped to derail passage in June 2013, is fighting for his political life in the Florida Panhandle.

“Sen. Pat Roberts (R-Kan.), who loudly debunked final passage in February, has had to swallow his pride and accept help from Sen. Jerry Moran (R-Kan.), who supported the farm bill.”

Also, “And in his own tough campaign, Senate Minority Leader Mitch McConnell (R-Ky.) is suddenly taking credit for shepherding through a bill he repeatedly voted against in the two years prior to final passage in 2014.”

Mr. Rogers noted that, “The same month that Cantor lost, House Agriculture Committee Chairman Frank Lucas (R-Okla.) himself beat his tea party challenger at home with almost 83 percent of the vote. ‘I’m getting all kind of invitations,’ Lucas said Wednesday. ‘You can say Congressman Lucas has gone from being the forgotten chairman to someone people want to take their picture with.’”

David Horsey reported yesterday at the Los Angeles Times Online that, “Folks in the hinterlands who complain that they want their country back should stop whining. They have a lock on the House of Representatives and a good shot at owning the Senate, too. Meanwhile, the majority of Americans, who live in cities and close-in suburbs, are stuck with having their government tilted in favor of the rural minority.”

The article noted: “How can this be? Well, an analysis in the New York Times by Washington correspondent Nate Cohn gives a good explanation. ‘Democrats often blame gerrymandering, but that’s not the whole story,’ Cohn writes. ‘More than ever, the kind of place where Americans live — metropolitan or rural — dictates their political views. The country is increasingly divided between liberal cities and close-in suburbs, on one hand, and conservative exurbs and rural areas, on the other. Even in red states, the counties containing the large cities — like Dallas, Atlanta, St. Louis and Birmingham — lean Democratic.’

“And most of those cities do more than lean: They are overwhelmingly supportive of Democrats. What that means is that a Democratic presidential candidate can roll up big numbers in the cities where the young, liberal and nonwhite voters tend to live and win the electoral votes of swing states such as Pennsylvania and Florida. But in the non-urban areas of those states, Democrats are in shorter supply and have a tougher time winning congressional seats.”

A news release earlier this week from Rep. Ted Poe (R., Tex.) stated that, “[Rep. Poe] introduced H.R. 5417, the BAKE SALE Act. This legislation would prohibit any funds from being used to implement USDA’s new ban on school fundraisers and bake sales during school hours.”

“‘The federal food police need to stay out of our schools,’ said Rep. Poe. ‘First, the regulators came in to our lunchrooms, then vending machines and now school fundraisers. Bake sales are as American as apple pie.’”

Meanwhile, Kristina Peterson and Michael R. Crittenden reported in today’s Wall Street Journal that, “House Republican leaders delayed a vote Wednesday on a stopgap spending bill until next week to give lawmakers time to respond to President Barack Obama’s request for authority to arm and train pro-Western rebels to combat Islamic State militants.”

Keith Good