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

Agricultural Economy

Yesterday, the Federal Reserve Board released its Summary of Commentary on Current Economic Conditions. Commonly referred to as the “Beige Book,” the report included several observations with respect to the U.S. agricultural economy. A summary of the ag related comments can be found here, at FarmPolicy.com Online.

In part, yesterday’s report noted that, “Lower corn prices continued to benefit poultry and livestock producers that rely on corn for feed” (Atlanta District); “Livestock and dairy producers continued to benefit from lower feed costs and high output prices” (Minneapolis District); “Cattle prices continued to be at a record high while feed prices fell, boosting profitability for cattle producers” (Dallas District) and “low corn prices and stable fertilizer and machinery prices benefited dairy and feedlot operations” (San Francisco District).

The Chicago District noted that, “Crop income was lower than a year ago as higher yields were insufficient to offset lower prices. Crop insurance will cover some of the lost income, but farmers already are planning to trim costs for next year, particularly spending on farm equipment and other capital purchases.”

And the Kansas City District added that, “Crop insurance and some pre-selling of this year’s crop at higher prices earlier in the year may help mitigate the effect on overall farm incomes of recent spot price declinesThe demand for farm operating loans has risen substantially from last year as more crop producers borrowed to pay for operating costs. Bankers also reported a rise in requests for agricultural loan renewals and extensions and noted that loan repayment rates have edged down from the high levels seen the past few years. Despite the sharp drop in crop prices, farmland values were typically holding at high levels.”

Bloomberg writer Megan Durisin reported yesterday that, “Corn futures fell from a six-week high as drier weather will help aid harvesting in the U.S., the world’s largest grower. Soybeans also declined.

Rain will remain ‘very limited’ in the next two weeks, aiding crop collection, Bethesda, Maryland-based Commodity Weather Group said today.”

The article noted that, “Corn futures for December delivery fell 2.7 percent to close at $3.475 a bushel at 1:15 p.m. on the Chicago Board of Trade…Soybean futures for November delivery fell 1.3 percent to $9.525 a bushel, after climbing to $9.785, the highest since Sept. 18.”

A news release yesterday from University of Missouri Extension noted that, “Dairy producers are coming off a tremendously profitable 2014, and the outlook for 2015 is promising.

“‘Feed costs have dropped and should be lower next year,’ says Joe Horner, University of Missouri Extension agricultural economist. However, Horner says milk prices are expected to drop as well. Dairy production next year will still be profitable, but not as profitable as in 2014.”

And a separate update yesterday from Missouri Extension indicated that, “University of Missouri Extension agricultural economist Ron Plain told the Oct. 14 MU Agricultural Market Outlook conference that fed cattle prices will set records for the fifth straight year in 2014. And not just by a bit, Plain says.

“‘Last year, fed cattle averaged about $126 a hundredweight,’ he says. ‘We’ve had prices at $160 and above this year and are probably going to average $153 a hundredweight for the year. That’s an increase of $27 per hundredweight. On a 1,400-pound steer, that’s big money.’”

The update added that, “Lower feed costs have also helped the profitability of hogs. At the peak of corn prices, the break-even price for hogs was around $75 per hundredweight, but Plain sees that break-even price dropping below $50 this winter.

“‘Feed makes up 60 to 65 percent of the cost of raising hogs,’ Plain says. ‘For 2011, 2012 and 2013, corn averaged above $6 a bushel, and now producers are looking at prices less than $3, which adds to the profitability.’

“Pork production is low, in large part due to death losses from the PED virus. Plain says production may increase in 2015 because of fewer deaths and a larger breeding herd driven by lower feed costs.”

Meanwhile, Reuters writers Rod Nickel and Theopolis Waters reported earlier this week that, “Shortages of hogs and packing plant workers in Canada, exacerbated by recent government restrictions, may severely cut hog processing and pork exports, helping to keep North American retail pork prices near record highs.

“Farmers in Canada, the world’s third-biggest pork shipper, are also bracing for the spread of a deadly virus that has killed millions of piglets in the United States.”

And a Rabobank quarterly report indicated yesterday that, “With the peak of the 2014 porcine epidemic diarrhoea virus (PEDv) outbreaks behind us, the global pork industry was faced with another challenge in the shape of the Russian import ban affecting EU, US, and Canadian markets and resulting in a rapidly changing trade landscape. According to Rabobank’s Pork Quarterly report, beneficiaries of the ban include Brazil which has seen a 30% per kilogramme price surge. Meanwhile the EU has seen its prices drop by 9% with no sign of recovery.”

In other news regarding pork production issues, Reuters writer P.J. Huffstutter reported yesterday that, “A leading U.S. pork association will use an online marketing campaign to counter a critical television documentary on antibiotics use in livestock, pointing consumers to industry-funded websites that defend the practice, according to an association email.

“The National Pork Board sent out an email about the strategy to food and agriculture officials in advance of Tuesday evening’s PBS Frontline program entitled, ‘The Trouble with Antibiotics.’”

And in a separate article from earlier this week, Reuters writer P.J. Huffstutter reported that, “The Kroger Co, the biggest U.S. supermarket operator, said on Monday it will remove the ‘humanely raised’ claims from a store brand of chicken to settle a federal lawsuit claiming the retailer deceived consumers because the animals were raised under standard commercial farming conditions.

“Kroger and the lawyers for a California consumer filed a statement in U.S. District Court for the Central District of California on Friday agreeing to dismiss the case with prejudice. On Monday, animal activist group Compassion Over Killing, whose lawyers were involved in the litigation, sent a statement to Reuters saying the case had been settled.”

Lynn Hicks reported on the front page of yesterday’s Des Moines Register that, “In the wake of scandals involving tainted milk, Chinese officials are pushing for U.S.-size dairy farms with thousands of cows. The thinking: Large dairies will exert greater control over every aspect of production to ensure quality and boost productivity.

“The consolidation has major costs. It squeezes out the traditional suppliers of China’s milk, farmers with fewer than 10 cows. The big operations consume more of China’s scarce resources, such as land and water. They also increase dependence on imported feed, including Iowa soybeans.

The trends can benefit Iowa agribusinesses. Companies including Vermeer Corp., DuPont Pioneer, Kemin Industries and others are stepping in to help Chinese dairies improve and increase their feed supply. Consolidation is necessary as the Chinese people consume more dairy products, the companies say.”

More broadly on the issue global agricultural productivity, Chris Arsenault indicated yesterday at Reuters that, “With the world population rising, demographers are grappling with one of the most pressing issues of the century – will there be enough food for an extra two to four billion people?

The Reuters item pointed out that, “The Food and Agriculture Organisation of the United Nations (FAO) estimates that 60 percent more food is needed to feed a world population of nine billion people.

“Experts are divided on exactly how many people the earth can sustain but are in agreement that upper-end projections are a concern with profound implications for food prices, the environment, security and future planning by governments.”

More specifically on U.S. trade related issues, Reuters news reported earlier this week that, “U.S. President Barack Obama and Japanese Prime Minister Shinzo Abe discussed stalled trade talks and the Ebola virus epidemic in a telephone conversation on Wednesday morning Tokyo time, Jiji news agency reported.”

The Reuters article explained that, “Obama has said he hoped to have a TPP deal by year-end but many experts are skeptical whether the group’s two biggest economies can make necessary compromises. Other TPP partners are reluctant to commit to final offers until they see how the two resolve their differences.

Japan wants to protect sensitive goods, including beef, pork, rice and dairy, which are important to its farming sector. But with U.S. midterm elections looming, many U.S. farmers and lawmakers have warned against a deal that does not significantly open Japan’s markets.”

Matthew Korade, Adam Behsudi and Doug Palmer noted yesterday at Politico that, “The 12 countries negotiating the Trans-Pacific Partnership want to present ‘great results’ for leaders to discuss at the upcoming Asia-Pacific Economic Cooperation summit next month in Beijing, but that all depends on whether the U.S. and Japan can reach a breakthrough in bilateral talks on market access, a senior Mexican official said Tuesday.

“‘Obviously the solution of the market access negotiations between the U.S. and Japan has an impact in most other bilateral market access negotiations, and it would be highly, highly beneficial for all of us if that’s taken care of,’ Mexican Economy Minister Ildefonso Guajardo Villarreal told reporters after a U.S. Chamber of Commerce discussion on Mexico’s economy.”

A news release yesterday from the National Cattlemen’s Beef Association noted that, “The Five Nations Beef Alliance concluded a successful meeting and tour in south Texas last week, capped by the unanimous endorsement of a public statement calling for all Trans-Pacific Partnership nations to support ‘gold standard outcomes’ for beef that do not sacrifice important reforms for political expediency.”

 

Policy Issues- C.O.O.L.

Rep. Randy Hultgren (R., Il.) was a guest on Tuesday’s AgriTalk radio program with Mike Adams where the conversation focused in part on Country of Origin Labeling (C.O.O.L.) issues (audio replay here, MP3- 10:12). An unofficial FarmPolicy.com transcript of yesterday’s discussion is available here.

In part, Rep. Hultgren indicated that, “[T]here’s been some concern over what might be coming out of the World Trade Organization final ruling on compliance of our country of origin labeling and what this potentially could do, as far as retaliation, from our two largest trading partners. So we need to do everything we can to be prepared if the WTO comes back saying that our rule is not compliant.

“What we’ve done, a group of us—it’s over 100 of us—a bipartisan letter has been signed, sent to Secretary Vilsack, saying that if this is a negative response back from WTO on our rule, we should rescind that rule immediately, because the damage to our ag sector and to our farmers could be irreparable harm. And so we want to make sure that we’re ready to respond if that report back from WTO is not what we hope it to be.”

Rep. Hultgren added that, “And that’s one of the things you see in this letter, is that it is bipartisan. It’s saying let’s be ready and let’s make sure that we’re acting in the best interests of our farmers until Congress can fully discuss and really make the right determination of how do we respond if there is a negative ruling from the WTO. So that was really what we’re doing.”

 

Regulations

David Kesmodel and Jacob Bunge reported yesterday at The Wall Street Journal Online that, “Dow Chemical Co. won approval from the U.S. Environmental Protection Agency for a new herbicide that may broaden the weaponry farmers use to combat super weeds.

“The EPA said Dow’s Enlist Duo weed killer, which includes a new formulation of the chemical 2,4-D, initially can be used in six states. The approval will enable Dow to start selling corn and soybean seeds that have been genetically modified to withstand Enlist Duo, after the U.S. Department of Agriculture in September approved those genetic modifications.”

An update yesterday from the American Soybean Association [ASA] noted in part that, “The farmer members of the [ASA] welcome today’s decision by the Environmental Protection Agency (EPA) to register Dow’s Enlist Duo herbicide for use with Enlist Duo soybeans. The new low-volatility Enlist Duo herbicide will be utilized with Enlist soybeans, when commercialized, to control resistant and difficult to manage weeds. ASA also called upon foreign markets where U.S. soybeans are exported to quickly review and approve these new biotech events so that they can be commercialized here in the United States without jeopardizing export markets and U.S. farmers can realize their benefit.”

Meanwhile, Tim Devaney reported yesterday at The Hill Online that, “Small businesses are accusing the Environmental Protection Agency (EPA) of a ‘massive power grab’ to extend its authority over small bodies of water like streams, ponds and even puddles.

“The National Federation of Independent Business (NFIB) says the EPA’s controversial water regulation would be particularly troublesome for farmers, because it would devalue their land and prevent them from growing crops in certain places.

“In comments filed with the EPA on Wednesday, the NFIB asks the agency to withdraw the ‘waters of the U.S. rule.’”

DTN writer Todd Neeley reported yesterday that, “The Pennsylvania Department of Environmental Protection said in a comment letter to the U.S. EPA recently that states are far more equipped to regulate waters.

“What’s more, Pennsylvania’s top environmental agency called on the EPA to withdraw the proposed rule redefining ‘waters of the U.S.’ and engage in a process that includes input from state agencies and public hearings. EPA has received more than 415,000 public comments ahead of the now-Nov. 14 public comment deadline on the proposed rule.”

In his discussion earlier this week on AgriTalk, Rep. Randy Hultgren (R., Il.) also touched on the EPA proposed Waters of the U.S. rule, and he noted that, “I serve on the Science, Space and Technology Committee, along with the Financial Services Committee out in Washington, but on the science committee we had an under secretary of EPA come in and report to us. And quite honestly, after his testimony, I was more confused coming out of that committee than I was going into it of just how really insidious this is, and how everything is connected. And bad policy here could have an incredible impact on a fundamental piece of who we are as Americans, and that is property rights.”

 

Biofuels

Reuters writer Ayesha Rascoe reported earlier this week that, “The Obama administration is trying to balance its support for renewable fuels with awareness of infrastructure constraints at gas stations as it finalizes targets for 2014 biofuel use, agency officials said on Tuesday.

“But with only 11 weeks left in the year, the administration also needs to weigh oil refiners’ ability to comply with the long-delayed requirements, one official told the Reuters Global Climate Change Summit.”

The article noted that, “More than 10 months overdue, the final 2014 biofuel targets have been under review at White House’s Office of Management and Budget since August. Timing of the official release of the rule is still unclear.

“[Janet McCabe, head of the Environmental Protection Agency division that oversees the biofuel program] tied delays in finishing the targets to the program’s complexity, further complicated by fuel demand that has not kept pace with the levels expected when Congress expanded the mandate in 2007. That directed increasing amounts of renewable fuels to be blended into U.S. gasoline and diesel supplies every year until 2022.”

 

Climate

Reuters writer Jane Wardell reported yesterday that, “Peanuts have moved north, tuna has moved east, wine has moved south.

But sooner or later, Australia is going to run out of places to shift agricultural production to avoid the harsh effects of climate change.

“Australia’s flagship scientific body told the Reuters Global Climate Change Summit on Wednesday that it is therefore critical for companies to consider both mitigation and adaption measures now.”

Keith Good