November 15, 2019

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

Agricultural Economy

Gregory Meyer reported yesterday at The Financial Times Online that, “Illinois is at the centre of an astonishing rebound in global grain supplies. After almost a decade of shortfalls and price rises, agricultural commodities have declined to the cheapest in four years. The new abundance will have broad effects, weakening incomes of farmers and companies that supply them, fattening profit margins at food and biofuel companies and – eventually – slowing food price inflation for consumers in rich and poor countries alike.

“As the largest agricultural exporter, the US sets the direction for world markets, traders say. Illinois and other states in America’s Midwestern ‘corn belt’ are on track to produce a record US corn harvest for a second consecutive year. The soyabean crop will also be the largest ever, the government predicts.”

The FT article explained that, “The swing towards surplus is all the more remarkable because many of the long-term trends that strain food supplies persist. The world population continues to grow and consumers in developing countries are eating more grain-fed meat. Biofuel refiners are pumping out plenty of ethanol, though they have throttled back their once-headlong pace of expansion. Climate change is making weather extremes more frequent, endangering crop yields.

“But even when difficult weather returns – and indeed, odds slightly favour the El Niño pattern that is associated with extreme conditions – the large crops of 2013 and 2014 will leave a lasting legacy. With stocks replenished from critically low levels, the world has a cushion against the next supply shock.”

Mr. Meyer indicated that, “Viewed over a longer time horizon, climate change has begun to diminish wheat and maize (corn) yields, the UN’s Intergovernmental Panel on Climate Change has found. The National Climate Assessment report published for the US government warns of ‘increased uncertainty’ for production totals. ‘Recent analysis suggests that climate change has an outsized influence on year-to-year swings in corn prices in the United States,’ the assessment says.

“While it might appear surprising, this year’s bumper US growing season has been consistent with climate projections, says Gene Takle of Iowa State University, a lead co-author of the climate assessment. States such as Iowa had heavy springtime rains, a regular feature of recent years. While rains can delay planting and cause erosion, moister soils also enable farmers to fit more corn stalks per acre, boosting yields.”

The FT article stated that, “For farmers, the new global grain surplus brings winners and losers. After enjoying the highest real incomes in 40 years, US farmers’ profits will decline this year, the US Department of Agriculture estimates. But livestock revenues will climb as herd shortages brought on by drought and disease keep meat prices high.

Weaker farmer incomes will translate into lower land rental costs and pressure on sales of fertiliser and equipment. John Deere, the tractor and equipment maker, has announced more than 1,000 redundancies.”

Jesse Newman reported yesterday at The Wall Street Journal Online that, “U.S. corn futures settled at a more than four-year low Tuesday amid forecasts for near-perfect weather as harvest advances and also due to mounting evidence that farmers will bring in bumper crops this fall.

Soybeans and wheat also declined.

“Corn prices extended losses for the fifth-straight session, nearing prices last seen five years ago, as farmers report record yields from southern sections of the nation’s Corn Belt.”

Reuters writer Michael Hirtzer reported yesterday that, “Cash prices for U.S. soybeans have dropped by as much as $5 per bushel since last week as processors have slashed historically high bids for the beans during the early phases of a record harvest, grain merchants and analysts said on Tuesday.”

University of Illinois agricultural economist Gary Schnitkey indicated yesterday at the farmdoc daily blog (“Revisions to the 2014 Crop Budgets Indicate Need to Conserve Cash”) that, “Crop budgets for 2015 were originally released in July 2014. The 2015 Crop Budgets have been revised and are now available in the management section of farmdoc (see here). The major change has been a reduction in commodity prices. The June version had per bushel prices of $4.20 for corn, $10.50 for soybeans, and $5.50 for wheat. The September version of the budgets have prices of $3.80 for corn (a $.40 per bushel reduction from July budgets), $9.75 of soybeans (a $.75 per bushel reduction), and $5.00 for wheat (a $.50 reduction). These new prices result in very low returns, and indicate the need to conserve cash.”

The farmdoc update stated that, “Average cash rents are near $300 per acre. Cash rents at these levels would result in significant losses to farmers in 2015 if returns are at levels shown in Table 1.”

Marcia Zarley Taylor reported yesterday at the DTN Minding Ag’s Business blog that, “Nebraska farmer Bart Ruth doubts his area will see much cash rent moderation next season, not anywhere close to the 33% drop in December futures prices compared to a year ago, or the fact that DTN national average cash prices are running at more than four year lows.

‘In fact, a lot of our landlords are asking for the same rents,’ Ruth says, noting that $200 to $300/acre rents are pretty common for the area. ‘Some are pointing to a 15% to 20% increase in property taxes the last three or four years in a row. So there’s a multi-year lag with those taxation issues.’”

Reuters writer Rod Nickel reported yesterday that, “Canadian fertilizer companies Potash Corp of Saskatchewan and Agrium Inc are bracing for a pullback in demand from U.S. farmers due to sliding crop prices, but say any slump is unlikely to be severe…[S]askatoon, Saskatchewan-based Potash Corp assumes there will be some reduction in U.S. potash use after this year’s harvest, but [Potash Corp Chief Financial Officer Wayne Brownlee] noted that the crop nutrient makes up only an estimated 3.5 percent of a farmer’s total costs.”

The article added that, “[Agrium Chief Executive Officer Chuck Magro] said farmers have historically tended to cut back on buying farm equipment and renting land before trimming spending on fertilizer and chemicals.”

In a related article, David Gelles and Chad Bray reported in today’s New York Times that, “Two of the biggest fertilizer producers in the world are in talks about what could be the next inversion deal to be announced.

“CF Industries, based in Deerfield, Ill., near Chicago, and Yara International of Norway both confirmed on Tuesday that they were in discussions about a deal that would essentially be a merger of equals.”

Meanwhile, Reuters writer Theopolis Waters reported on Monday that, “Russia’s ban on Western meat imports, in response to sanctions imposed for its role in eastern Ukraine, contributed in part to increased U.S. pork and poultry warehouse inventories in August, an analyst said.”

And Reuters writer Randall Palmer reported yesterday that, “The Canadian government dismissed on Tuesday complaints from Canadian National Railway Co that fines for failing to ship the required minimum amounts of grain were unfair because there was not enough demand.”

In trade related news, Matthew Korade and Doug Palmer reported yesterday at Politico that, “A senior trade analyst said today that he sees only a small chance that Congress will vote on trade promotion authority legislation in the lame-duck session after the November congressional elections.

‘More likely, the new Congress will take on trade promotion authority early on in the winter-spring of next year,’ Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, said during a discussion on whether South Korea should join the proposed Trans-Pacific Partnership.”

Reid Wilson reported in today’s Washington Post that, “An unprecedented drought that has parched Northern California has led to one of the most active fire seasons on record and there is little hope of a wet and cool end in sight…In truth, the dry conditions mean fire season never stops.”


Policy Issues

Reuters news reported yesterday that, “Deere & Co, the world’s largest farm equipment maker, said it was exploring strategic options for its low-margin crop insurance business and had hired Citigroup as its adviser.

“The company said no formal decisions had been made and no agreements had been reached yet.”

Michael Calia reported yesterday at The Wall Street Journal Online that, “Deere & Co.’s eight-year foray into crop insurance could be coming to a close as the tractor maker strains under a slumping farm economy.

“The company said Tuesday that it plans to review strategic options for its crop insurance unit, although it warned that it hadn’t made any formal decisions or reached any agreements.”

Bloomberg writers Shruti Date Singh and Zachary Tracer reported yesterday that, “U.S. crop insurance, which has been led by companies like Wells Fargo & Co. and Ace Ltd., drew competitors including Deere and Australia’s QBE Insurance Group Ltd. as farm production surged. Droughts and price declines have made the business less profitable in recent years. Third Point Reinsurance Ltd., which counts hedge fund manager Dan Loeb as a founding shareholder, said in May that it was retreating from crop coverage.”

In other news, David G. White, the chief science officer and research director in FDA’s Office of Foods and Veterinary Medicine, indicated yesterday at the FDA blog that, “An estimated one in six Americans is sickened by foodborne illness annually, resulting in about 3,000 deaths each year. To keep our food safe, FDA wants to develop faster and more sensitive technologies to detect contaminants such as harmful bacteria. That’s why the agency is launching its first Food Safety Challenge, an effort to strengthen our food supply by fostering innovation in technologies that will more quickly detect pathogens in produce.”

And Stephanie Strom reported in today’s New York Times that, “The three largest soda companies — Coca-Cola, PepsiCo and the Dr Pepper Snapple Group — have pledged to cut the number of sugary drink calories that Americans consume by one-fifth in about a decade, through a combination of marketing, distribution and packaging.”


Climate Issues

Justin Gillis reported in yesterday’s New York Times that, “The fields here [at the University of Illinois] are among a handful of places in the world where researchers are trying to mimic the growing conditions expected to arise decades in the future as the air fills with heat-trapping gases and other pollutants from human activity.

“A network of pipes sprays extra carbon dioxide and a corrosive pollutant, ozone, into the air. Lamps and other equipment mimic future droughts and heat waves.”

The article noted that, “The work has been going on in some form for nearly a decade, and the answers so far have been worrisome. Earlier this year, for instance, researchers at Harvard and elsewhere pooled data from the Illinois project with findings from scientists in three other countries. In a high-profile paper, the experts reported that crops grown in environments designed to mimic future conditions have serious deficiencies of certain nutrients, compared with crops of today.

The Illinois researchers are trying to move past just documenting the potential trouble, though. The bigger question is: What can be done to make crops more resilient?”

A separate piece in yesterday’s New York Times pointed out that, “If wheat, rice and corn are going to continue to feed the world, the crops will have to adapt to warmer temperatures. The latest report from the Intergovernmental Panel on Climate Change offers some predictions.

“The analysis, published last spring in Nature Climate Change, concluded that a 3.6 degree Fahrenheit increase in temperature will bring a significant decline in crop yields.”

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “U.S. farm groups have signed on to join a new three-year initiative to help farmers and ranchers build more resiliency in North American agriculture to mitigate the long-term risks of climate change.

“The North American Climate Smart Initiative was rolled out Tuesday as part of the United Nations Climate Summit in New York and ties into larger efforts on climate resiliency also announced by the Obama administration at the summit.”

Meanwhile, Mark Landler and Coral Davenport reported on the front page of today’s New York Times that, “President Obama, emboldened by his use of executive powers to fight climate change at home, challenged China on Tuesday to make the same effort to reduce its greenhouse-gas emissions and join a worldwide campaign to curb global warming.

“Declaring that the United States and China — the world’s two largest economies and largest polluters — bear a ‘special responsibility to lead,’ Mr. Obama said, “That’s what big nations have to do.”

“The president’s remarks at the United Nations Climate Summit, delivered in a packed chamber of the General Assembly, were broadly aimed at marshaling more than 100 world leaders to confront climate change. But his words were directly focused on putting the onus on China, an essential partner of the United States if a global climate treaty is to be negotiated by 2015.”

The Los Angeles Times editorial board indicated in yesterday’s paper that, “But here’s one topic we’d like to see the participants discuss, because it has been given short shrift so far in the battle against global warming: what to do about methane, refrigerants and other short-lived climate pollutants. These are pollutants that don’t remain in the environment for as long as carbon but are far more powerful at trapping heat. Methane, which is the most abundant and which is emitted from landfills, livestock farms and some oil and gas operations, breaks down after about 50 years, but it is 20 to 30 times more potent at trapping heat. It is believed to be the source of 25% of the Earth’s warming.”

The editorial added that, “Yet California, for all its forward thinking on climate change, allocated no cap-and-trade money specifically to reductions in short-term gases. Livestock operations are the biggest source of methane in California, but the state has not been helping farms and feedlots with the cost of machines, called biodigesters, that can capture methane from manure and turn it into biofuel.”

Timothy Cama reported yesterday at The Hill Online that, “The United States will contribute $15 million toward a World Bank program to fund projects to reduce methane emissions.”


Political Notes

ArkansasGlenn Kessler penned an update yesterday at The Washington Post Online titled, “Tom Cotton’s invented version of farm bill history.”

KansasAlexandra Jaffe provided an update yesterday at The Hill Online titled, “GOP’s scorched-earth Kansas plan.”

Keith Good

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