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Ag Economy; Policy Issues; Biofuels; Biotech; and, Climate

Agricultural Economy

Reuters writer Julie Ingwersen reported yesterday that, “U.S. corn futures rose 3.6 percent on Monday, the second-biggest single-day jump of 2014, as rains in the Midwest interrupted the harvest and slowed the arrival of a record-large crop into marketing channels, traders said.

“Soybeans and wheat followed corn’s lead, with a weaker dollar supporting grains, making them more attractive to those holding other currencies.

“‘Rains should be widespread and heavy across all but far northwestern portions of the Midwest today and tomorrow, which will stall corn and soybean harvesting,’ MDA Weather Services said Monday in a daily note.”

The article noted that, “At the Chicago Board of Trade, December corn settled up 12 cents, or 3.6 percent, at $3.46 per bushel – the biggest rise for front-month corn since Jan. 10.

“November soybeans finished up 22-3/4 cents, or 2.5 percent, at $9.45-1/4 per bushel. Soybean futures traded in larger volume than corn, which is typically the biggest grain market.”

Bloomberg writer Megan Durisin reported yesterday that, “Showers forecast to reach the southeast Midwest in the next one to two days ‘will disrupt or delay’ crop collection, before drier weather returns later in the week, DTN meteorologist Joel Burgio wrote today in a report. As of Oct. 5, 17 percent of U.S. corn and 20 percent of soybeans were harvested, trailing the prior five-year averages, according to U.S. Department of Agriculture data.

“‘It’s going to be pretty wet and soggy through the eastern belt this week,’ Brian Grete, editor of the Professional Farmers of America newsletter in Cedar Falls, Iowa, said in a telephone interview. With projections for record U.S. corn and soybean output, ‘it’s going to be a long harvest season. There’s no doubt about that. It’s just a matter of how many temporary slowdowns we have.’”

See also this map depicting the current 7-day observed precipitation for parts of the Corn Belt, as well as this this map demonstrating potential precipitation expectations over the next couple of days.

University of Illinois agricultural economist Darrel Good indicated yesterday at the farmdoc daily blog (“How Many Acres of Corn Are Needed in 2015?”) that, “One of the functions of crop markets is to direct planting decisions of U.S. producers. That process begins with fall seeded crops, primarily winter wheat, and continues through the following spring. The market’s assessment of the amount of acreage needed of various crops in any production cycle is complicated and continually changes.

“Providing direction for planted acreage requires anticipating the level of old crop inventories available for the upcoming marketing year, the magnitude of consumption during the upcoming marketing year, the likely average yield, and the desired level of year-ending stocks. For corn, these factors all currently suggest that fewer acres of corn will likely be needed in the U.S. in 2015.”

After additional analysis, yesterday’s farmdoc update concluded by stating that, “At this juncture, it appears that corn acreage may decline sufficiently in 2015 to generate a 2015-16 marketing year average price in the low $4.00 range. However, price ratios will have to continue to motivate that acreage decline into planting time. The first indication of producer acreage decisions will be revealed in the USDA’s Winter Wheat Seedings report to be released in early January 2015.”

In news regarding transportation issues, Bloomberg writer Thomas Black reported yesterday that, “Hunter Harrison sketched a vision of railroad consolidation for analysts earlier this month, saying mergers would ensure the seamless movement of oil, coal, grain and other goods from the Atlantic to the Pacific.

“Within days, Canadian Pacific Railway Ltd. (CP)’s chief executive officer was putting that idea into action.

Canadian Pacific made a merger proposal last week to CSX Corp. (CSX), the biggest U.S. eastern railroad, for just such a transcontinental tie-up, only to be rebuffed, people familiar with the matter said. The Calgary-based railroad could try again with CSX or may consider a new target, said one of the people, who asked not to be identified because the talks are private.”

The article noted that, “For cargo traveling between the coasts, a railroad spanning the width of North America would eliminate the need for competing railroads to hand off cargo in congested Chicago. Long discussed by the railroad industry, east-west mergers haven’t gone forward in the face of regulatory opposition.

“‘They’re laying the groundwork for something that they realize will take a long time,’ said Allison Landry, a Credit Suisse Group AG analyst in New York. ‘Maybe they’re just trying to test the waters a little bit and see what can happen.’”

Justin Lahart reported yesterday at The Wall Street Journal Online that, “If CSX changes its mind and decides to accept Canadian Pacific Railway’s overtures, there is still one problem. Any nuptials would face the threat of regulators standing up from the pews and objecting.

“The Wall Street Journal reported on Sunday that CP had approached CSX about a combination last week. Even though CSX said no, shares of the U.S. rail operator jumped on Monday.

“A higher stock price can often nudge a reluctant target to change its mind. Falling oil prices and the notion that these might cool the North American energy boom could also strengthen CP’s hand.”

The Journal article explained that, “Faced with that, CSX’s investors can’t just dismiss a potential deal out of hand. But even if CP succeeds in changing the company’s mind, it would then need to persuade the U.S. Surface Transportation Board to approve a merger.

That could be doable, but likely would be difficult. The last big wave of rail mergers in the 1990s didn’t go well, and the STB resisted a proposed combination of Burlington Northern and Canadian National Railway in 1999 that was later abandoned. It now requires that rail mergers not only don’t crimp competition but also include measures that enhance it.”

 

Policy Issues

Marcia Zarley Taylor reported on Friday at the DTN Minding Ag’s Business blog that, “If you needed another confirmation that crop insurance protects prices as well as yields, look no further than the tentative price guarantees now in their ‘discovery’ month at the Risk Management Agency. With the swan dive in corn and other commodity prices since last spring, it’s become increasingly likely crop revenue insurance policies will be triggered for corn–even if you’ve had a slightly bigger-than-normal yield this season. The last time price moves of this magnitude triggered payouts was in 2008.

October is the month when RMA sets a harvest price for growers in 31 states, so Chicago futures closings on corn, soybeans, sorghum, cotton and popcorn are a closely watched feature (DTN subscribers see daily running averages on the Ag News page). Through Oct. 9, the Dec. 2014 corn contract averaged $3.33, down 28% from the spring planting guarantee of $4.62/bu. The November 2014 soybean contract was running $9.31, about 18% below their $11.36 spring guarantee.

“That means revenue per acre (price times yield) could nosedive for growers with so-so yields or even above-average yields.”

The DTN update noted that, “In the case of corn, a grower with an 85% Revenue Protection policy could harvest a yield about 20% higher than his 10-year APH yield and still collect an indemnity, says Kansas State University economist Art Barnaby. For example, assume the October futures price closings average $3.35 for the Dec 2014 corn contract. Someone with a 117.6 bu. APH could post up to a 138 bu. corn yield and still get into claim territory, Barnaby says.”

Mark Lange, the president of the National Cotton Council, penned a letter-to-the editor recently in The Washington Post in response to the paper’s editorial regarding the U.S. agreement with Brazil over the long running WTO Cotton Case, “More fluff for Big Cotton.”

Mr. Lange noted that, “Brazil won a World Trade Organization arbitration finding in 2009 against the operation of the U.S. export credit guarantee program for all agricultural commodities and against two components of U.S. cotton policy. Based on the arbitration findings, Brazil announced it would seek retaliation for annual damages of $682 million associated with export credit guarantees and $147.3 million associated with some U.S. cotton policies. The United States and Brazilian governments negotiated a temporary agreement in 2010 that avoided trade retaliation while a farm bill was anticipated from Congress in 2011. Unfortunately, the farm bill was not completed until early 2014. In that bill, U.S. cotton policy was reformed, and the export credit guarantee program was altered.

“Now the two governments have resolved the dispute and prevented any trade retaliation. The new farm bill cut expected commodity program spending by 24 percent, and cotton spending, specifically, was reduced 38 percent.

Can any other legislation be found that cut spending to this degree in the past three years?

A recent news release from Perdue Farms Inc. indicated that, “Perdue Farms, Inc. and The Humane Society of the United States are pleased to announce the settlement of two federal cases in New Jersey and Florida concerning Perdue’s ‘humanely raised’ claim on its Harvestland chicken labels. The settlement requires the plaintiffs to dismiss their claims with prejudice, in exchange for Perdue agreeing to remove the ‘Humanely Raised’ label claim from its Harvestland chicken packaging.

“The proposed class action cases were filed in 2010 and 2013 by individual consumers who contended that Perdue’s ‘Humanely Raised’ claim on the packaging of its Harvestland brand chicken was misleading. Perdue vigorously opposed plaintiffs’ claims.”

Roberto A. Ferdman reported yesterday at The Washington Post Online that, “In recent weeks, Giant stores nationwide changed their labeling procedures, making it difficult for customers to know the quality of meat. Rather than providing different options, the company labeled meat simply as ‘USDA graded’ — a description that applies to all but a tiny amount of meat approved for sale in the United States.

Larry Meadows, a Department of Agriculture official who is one of the people charged with overseeing the nation’s meat supply, said in an interview that the action was problematic. ‘We’ve never seen anyone use anything like the ‘USDA graded’ label before,’ said Meadows, associate deputy administrator of the USDA’s livestock, poultry and feed program. ‘The label is truthful, but it’s also misleading.’

“Meadows said one reason a company might use a more generic label is to save money, or to blur the impact of introducing an unusually high amount of lower-quality beef.”

The article stated that, “Tracy Pawelski, a top spokeswoman, said the new label was part of a brand rollout, but the firm later learned from regulators that it was ‘not permissible’ because it did not tell customers the quality of meat. ‘We apologize to customers for any confusion caused by this labeling error,’ she said in a statement…[W]hat transpired at Giant and its sibling companies reflects what food safety experts say is a growing concern about food and supplement manufacturers misusing labels. The experts say that labels are supposed to allow customers to make more informed decisions, often granting a distinction of quality or making claims about health and safety, but they have instead turned into advertising vehicles.”

A recent opinion item by David E. Hoffman, a contributing editor to The Washington Post, indicated that, “Donald Kennedy, a Stanford University biology professor, had been commissioner of the Food and Drug Administration for less than two months in 1977 when he plunged into a difficult scientific and political debate that remains unresolved today. Kennedy wanted to cut back on the widespread use of antibiotics on farms to make animals grow faster and prevent disease.”

Mr. Hoffman noted that, “Kennedy’s proposal ran into a wall of opposition. The Texas Farm Bureau warned of ‘a devastating effect on animal agriculture.’ The Mississippi Pork Producers Association said it would cause ‘a tremendous economic blow to our industry.’ The National Broiler Council said it would set an ‘ultimately disastrous precedent.’ The National Turkey Federation said it was based on ‘flimsy scientific evidence.’

“Then came the final verdict: Congress told Kennedy to stand down. His proposal was shelved, largely at the behest of the farmers and their powerful champion in the House, Rep. Jamie L. Whitten (D-Miss.).

“I heard this story while researching a documentary film on this subject, ‘The Trouble With Antibiotics,’ which is scheduled to air Tuesday on the PBS series ‘Frontline.’ I kept coming back to a nagging question: Was Kennedy right nearly four decades ago?”

Mr. Hoffman pointed out that, “After years of inaction, the FDA last year asked the animal drug-makers to voluntarily stop producing antibiotics for growth promotion over the next three years, and all agreed. The FDA also said it would require antibiotic use to take place under supervision of a veterinarian — something Kennedy also wanted a long time ago. But the FDA will continue to authorize the widespread use of antibiotics on healthy farm animals as a means to prevent disease. How much of a reduction can be expected? The data on antibiotic use on U.S. farms is skimpy, and no one really knows. The FDA commissioner, Margaret A. Hamburg, told me that she hopes the new approach will get results — and that more needs to be done.”

 

Biofuels

David Shaffer reported on Saturday at the Minneapolis Star Tribune Online that, “The first large ethanol plants to produce biofuel from nonfood sources like corn cobs are starting operations in the Midwest amid industry worries that they might also be the last — at least in the United States.

“After a decade of research and development, ethanol maker Poet Inc. and its Dutch partner Royal DSM recently produced the first cellulosic ethanol at a $275 million plant next to a cornfield in this northern Iowa town.”

The article explained that, “Yet the goal of producing ethanol from nonfood sources faces a murky future. Wavering U.S. policy on renewable fuels and the North American oil boom cast a shadow over the commercial triumph.

The next big cellulosic ethanol plants are planned or underway in Brazil, not the United States. Although the U.S. government has spent more than $1 billion to develop cellulosic technology, industry executives recently wrote to President Obama that other countries, including China, could ‘reap the economic and environmental rewards of technologies pioneered in America.’”

Mr. Shaffer pointed out that, “[Jeff Lautt, CEO of Sioux Falls, S.D.-based Poet] and other industry officials said cellulosic ethanol can be produced today for $3 per gallon, but costs are sure to drop, making it competitive with corn ethanol, whose U.S. average rack price recently dropped below $2 per gallon.

“Besides federal R&D grants, Congress has, at times, offered a $1 per gallon tax credit to promote advanced biofuels like cellulosic ethanol. The credit expired last year. In 2007, Congress enacted the renewable fuel standard that imposed a complex system of mandates to blend more ethanol into the nation’s motor fuel. The oil industry has resisted it as onerous, costly and unworkable.

“Ethanol makers say that without a blending mandate, it will be difficult if not impossible to raise investment capital for more U.S. cellulosic ethanol plants. The Obama administration, which has signaled it might dramatically alter the mandate, is expected to soon announce its policy.”

 

Biotech

A news release from the National Grain and Feed Association (NGFA) from yesterday noted in part that, “The [NGFA] has joined 12 other national agricultural producer, biotech, seed, and grain handling, processing and export organizations in urging President Obama to make market access for U.S. crops and advancing the U.S.-China relationship on agricultural biotechnology and trade ‘beyond the status quo’ as a ‘top priority’ during the upcoming Asia Pacific Economic Cooperation Leaders Summit in China next month.

“In a letter written under the auspices of the U.S. Biotech Crops Alliance – of which NGFA and the North American Export Grain Association (NAEGA) are founding members – the groups stressed the ‘incredible importance’ of the Chinese export market for U.S. grains and oilseeds to the viability of the U.S. agricultural economy.  The letter noted that China is the largest U.S. export market for soybeans, valued at more than $14 billion in 2013, while U.S. corn and corn product exports were valued at roughly $3.5 billion that year.”

 

Climate Issues

Coral Davneport reported in today’s New York Times that, “The Pentagon on Monday released a report asserting decisively that climate change poses an immediate threat to national security, with increased risks from terrorism, infectious disease, global poverty and food shortages. It also predicted rising demand for military disaster responses as extreme weather creates more global humanitarian crises.

The report lays out a road map to show how the military will adapt to rising sea levels, more violent storms and widespread droughts.”

Keith Good