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Ag Economy; Biotech; C.O.O.L; and, Political Notes

Agricultural Economy

University of Illinois agricultural economist Gary Schnitkey indicated on Friday at the farmdoc daily blog (“Cash Deficits Projected for Corn in 2014 and 2015”) that, “In Tuesday’s article (farmdoc daily, October 21, 2014), gross revenue from corn was projected to be much lower in 2014 and 2015 than in 2011 through 2013. Total costs are compared to gross revenues in this article. For cash rent farmland, total costs are projected higher than gross revenue in 2014 and 2015. Projected losses are over $100 per acre in 2014 and 2015 [related graph].”

The farmdoc update noted that, “Given a cash rent situation, losses are projected for both 2014 and 2015. A -$109 per acre loss is projected for 2014 and a -$143 loss is projected for 2015. These are large losses from a historical standpoint. The only other time that a loss occurred since 2000 was in 2009. In 2009, gross revenue minus total costs equaled -$21 per acre.”

 

With respect to cash rent issues, Dr. Schnitkey noted in a tweet from Friday: “Thought question: What decisions impact farm risk more?

1) cash rent negotiations

2) farm bill decisions

Argue either. My pick: cash rent.”

And Marcia Zarley Taylor noted on Friday at DTN’s Minding Ag’s Business Blog (“Landlords Refuse to Blink”) that, “My inbox is filling with irate landowners who took offense at a column I wrote for the October issue of Progressive Farmer on ‘fat cat rents.’ Actually, the thrust of the article was that average and below-average rents weren’t likely to budge in 2015, only the ‘fat cat,’ above-average leases like we’ve seen at those $400-to-$500/acre Iowa cash rent auctions a few years ago. My message must not have been clear, though, because the landowners’ responses showed how sensitive this issue remains.”

Meanwhile, Elizabeth Williams reported on Friday at DTN that, “While many farmers’ financial situations are more secure now than 30 years ago, agriculture is still vulnerable to interest rate shifts. In a DTN August online poll, about 20% of the respondents said their operation could not handle an increase in interest rates. One in eight said a rate hike of 1% or 2% would be trouble. Twenty percent worried about a rate hike over 2%. On the other hand, 44% of the poll respondents said a short-term interest rate hike would not affect their operation since they borrowed so little money.

The problem for borrowers is that the Federal Reserve remains on course to begin raising short-term rates in 2015. Once that happens, Farm Credit System lenders expect rates to jump as much as 200 to 300 basis points in a 24-36 month period (see Minding Ag’s Business ‘Defend Against Reversals of Fortune’ http://goo.gl/…).”

Jesse Newman reported in today’s Wall Street Journal that, “Soybean prices are climbing, thanks to increased demand for the oilseeds and a temporary squeeze on supplies.

“Prices touched a six-week high of $10.02 a bushel last week after a surge in U.S. export sales upstaged concerns about a huge soybean harvest this year.”

The Journal article explained that, “Soybeans are mostly used to make vegetable oil or to fatten hogs and chickens, and the higher prices mean U.S. processors will pay more for their supplies and farmers could pay more to feed their animals. But that isn’t likely to translate into higher meat or oil prices for consumers, because futures remain near four-year lows.

“Soybeans for November delivery at the Chicago Board of Trade ended Friday at $9.77½ a bushel, up 7.4% from $9.10¼ a bushel reached last month, the lowest price since February 2010.”

Donnelle Eller reported in yesterday’s Des Moines Register that, “But the state’s [Iowa] bin-busting bounty could create challenges — for farmers, the industry, and potentially for Iowans heating their homes.

“Here’s why: Iowa’s corn harvest is nearly three weeks behind the normal pace, and much of it is wet, meaning that elevators across the state will need to dry it. That takes a lot of fuel, both natural gas and propane. A wet harvest last year, combined with transportation bottlenecks, pushed propane prices to record highs, hurting Iowa consumers.”

In addition, Alexandra Wexler reported on Saturday at Barron’s Online that, “The biggest global cotton glut in history is set to further weigh on prices for the fiber.

The world is awash in cotton—a situation traders and investors predict will worsen now that China, the world’s top consumer, has surprised the market by saying it would slash its imports in 2015. The news came just as the U.S., the world’s No. 1 exporter of the fiber, has been ramping up production.

These two factors suggest that cotton prices, which are trading near five-year lows, are likely to fall farther. ‘Tepid demand for U.S. cotton and increasing harvest pressure across the northern hemisphere will likely compel the December contract lower,’ says Louis Rose, founder and owner of Risk Analytics, a cotton-consulting firm in Memphis, Tenn.”

In trade news, Lucy Hornby reported yesterday at The Financial Times Online that, “China will open its markets to Argentine sorghum this year, according to Argentina, creating competition for the US farmers who have been the main beneficiaries so far of a surge in Chinese demand for the grain normally used to make distilled alcohol.

High prices of corn in China have forced animal-feed producers to turn to sorghum as a cheaper alternative, especially after Chinese quarantine officials began more strictly enforcing restrictions against imports of certain types of genetically modified corn.

“Imported corn and sorghum cost less than domestic corn thanks to Beijing’s minimum price policy, which is designed to encourage the planting of corn.”

The FT article noted that, “Sorghum generally has an easier time than corn in clearing Chinese import inspection procedures because it is not genetically modified.”

Last week USDA’s Economic Research Service (ERS) updated its Food Price Outlook and noted that, “The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose 0.1 percent from August to September and is 1.7 percent above the September 2013 level. The CPI for all food rose 0.3 percent from August to September and is now 3 percent above the September 2013 level.”

The ERS update explained that, “Looking ahead to 2015, ERS predicts that supermarket (food-at-home) prices will see normal to slightly lower than average food price inflation, increasing 2.0 to 3.0 percent. Meat prices will likely continue to experience the effects of the Texas/Oklahoma drought and Porcine Epidemic Diarrhea virus (PEDv) in the immediate future, as farmers’ decisions on calving and herd sizes based on current conditions are felt down the line due to the 6- to 18-month production process. This forecast is based on an assumption of normal weather conditions; however, severe weather events could potentially drive up food prices beyond the current forecasts. In particular, the ongoing drought in California could potentially have large and lasting effects on fruit, vegetable, dairy, and egg prices, and drought conditions in Texas and Oklahoma could drive beef prices up even further.”

The U.S. Department of Agriculture’s National Agricultural Statistics Service noted on Friday in its monthly Cattle on Feed report that, “Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.1 million head on October 1, 2014. The inventory was 1 percent below October 1, 2013 [related graph].”

With respect to the California drought, Diana Marcum reported on the front page of Friday’s Los Angles Times that, “Beneath this small farm town at the end of what’s left of the Kings River, the ground is sinking.

“Going into the fourth year of drought, farmers have pumped so much water that the water table below Stratford fell 100 feet in two years. Land in some spots in the Central Valley has dropped a foot a year.”

The article noted that, “If rain doesn’t come soon to California, cities and suburbs will survive, with maybe fewer flower beds or more expensive lettuce.

“But in Stratford — where the school has had some of the same teachers for 40 years, the auto parts store doubles as a coffeehouse and first names change but last names don’t — survival isn’t a given.”

Friday’s article stated that, “The glory days, when the arches were entrances to burger joints and gas stations for Central Valley residents driving to Pismo Beach, faded decades before the drought.

“‘But nothing like this,’ said Josh Orton, manager of the farm equipment store his great-great-grandfather started in 1906. ‘There’s just no water.’”

A separate update in Saturday’s Los Angeles Times pointed out that, “Water shortages forced farmers to leave an estimated 500,000 acres unplanted this year. That accounts for only about 6% of the state’s irrigated cropland. Growers in the Imperial Valley, who get water from the Colorado River, received full deliveries this year. Those Central Valley farmers who received no water from the region’s big federal irrigation project pumped groundwater and bought supplies from districts that hold senior water rights.”

The article added that, “About a quarter of Californians’ water use is urban, and roughly three-fourths is for agriculture. Thanks to indoor conservation measures and increasing density, Los Angeles uses about the same amount of water today as it did four decades ago, despite the addition of about 1 million residents.”

Also, Eva. M. Clayton stated in a column in today’s New York Times (“Local Food for the Military”): “That’s why Congress and the Department of Defense should tackle this issue anew by mandating that a percentage — even if it is just 5 or 10 percent — of a base’s food come from local small- and mid-scale farmers.

“Doing so would be a boon for everyone. Given the tens of thousands of people who live and work on the average base, even a small share of that market would be a huge benefit for local farmers and military families.”

 

Biotech- Food Labels

Christopher Doering reported on the front page of yesterday’s Des Moines Register that, “The discovery of another unapproved variety of genetically modified wheat in Montana has increased pressure to tighten the regulation of biotech crops, a change that could cause havoc for farmers in Iowa and across the U.S. eager to get their hands on the newest varieties.

“The popular crops are staunchly defended by farmers who depend on genetically altered seeds to provide them with higher yields, better-quality products, and lower consumption of chemicals to rebuff attacks from weeds or insects. The result is a boon to their bottom line.”

Mr. Doering noted that, “The United States is by far the world’s largest grower of biotech crops, planting 173 million acres in 2013 — almost 40 percent of all biotech acreage globally. Ninety-five percent of all corn planted in Iowa this year came from genetically engineered seeds.

“But food and environmental groups are skeptical about the safety of these crops in everyday foods and in the environment in which they grow. The discovery of unapproved wheat has renewed calls for regulators to adopt a slower, more stringent approval process.”

AP writer Audrey McAvoy reported on Saturday that, “Dozens of Maui mothers are going door-to-door to urge voters to back a ban on the cultivation of genetically engineered crops because they think they are unsafe.

“A group backed by companies growing the crops counters with ads playing heavily on the airwaves that urge rejection of what they are calling the ‘farming ban.’”

The article noted that, “There has been little scientific evidence showing foods grown from GMO seeds are less safe than their conventional counterparts. But fears persist in Hawaii and elsewhere.”

The Wall Street Journal editorial board indicated today that, “If you can’t beat them, ask the government to stigmatize them. That’s the adage in Oregon and Colorado, where organic-farming interests posing as champions of consumer transparency are hoping to persuade voters to approve ballot initiatives on Nov. 4 requiring costly and useless food labels.

“Oregon’s Measure 92 and Colorado’s Proposition 105 would force food manufacturers and retailers to stick a ‘produced with genetic engineering’ notice on grocery store foods that contain genetically modified ingredients, which come from crops whose DNA has been tweaked to help farmers reap a better harvest.”

The Journal explained that, “GMOs are in everything from cookies to breakfast cereal, and people have eaten trillions of GMO meals without a single documented illness since the technology began rolling out in the mid-1990s. Multiple scientific studies have found that GM crops are as safe and nutritious as conventional counterparts.”

Concluding, the Journal item stated that, “Let’s hope voters see through the scare campaign, say no to higher food costs, and tell organic producers to compete the natural way without government favoritism.”

Also on the issue of food labeling, see this opinion item posted yesterday at The New York Times Online, “Revised Nutrition Labels Still Won’t Tell Whole Story,” which stated that, “The epidemics of obesity and Type 2 diabetes show that the goal of a healthier population has yet to be realized. One obstacle is that those most likely to read food labels are health-conscious people who least need to do so.

But another problem is the label itself, which can border on meaningless for many consumers, especially those who cannot relate grams of a nutrient or percentages of the Daily Value to the amount of food that goes in their mouths.

“So, prompted by the Institute of Medicine, the F.D.A. is planning a revision. It will be a while in coming: Thousands of public comments must be reviewed, then final rules issued and the food industry given time to implement them.”

 

C.O.O.L.- Country of Origin Labeling

Canadian Agriculture Minister Gerry Ritz was a guest on Friday’s AgriTalk radio program with Mike Adams where the conversation focused on Country of Origin Labeling (C.O.O.L.) issues and the recent WTO decision against the U.S. on the labeling measure (audio replay here, MP3- 10:20). An unofficial FarmPolicy.com transcript of Friday’s discussion is available here.

In part, Mr. Ritz noted that, “Well, there’s a window of opportunity for the U.S. administration to appeal. At the same time, we’ll make use of that window to show every state that we intend to attach products to, from Kentucky bourbon to Minnesota mattresses, just exactly what it’s going to cost them…[A]nd at the end of the day, no one wants to see retaliation, Mike. I mean, we rely on your raw materials for a lot of our processing. But I’ll tell you what. The easiest way to avoid retaliation is to fix this damn thing now.”

Mr. Ritz added that, “Nothing short of full repeal will actually make this thing go away. We’re not going to spend the next years looking over our shoulder waiting for another shoe to drop.”

 

Political Notes

Jake Sherman reported yesterday at Politico that, “In a series of interviews with POLITICO in his office in D.C., in a Capitol Police SUV in New York and aboard a rented private jet flying above the Empire State, [House Majority Leader Kevin McCarthy], who became the No. 2 Republican in the House this summer, laid out in the richest detail yet his goals for a Republican controlled Capitol Hill.

Legislative cliffs are over. One muscular, unified agenda will bridge both chambers. If he has his way, House and Senate Republicans will kick off the year at a joint retreat to get on the same page. He and Sen. John Thune (R-S.D.) have already been holding private dinners with lawmakers from both chambers to build relationships.”

The Politico article noted that, “‘You have a lot of new people over there and don’t instinctively like the Senate to start with, which I get,’ Thune said in an interview. ‘In the House, it’s a dynamic where you really have to work it. And we’re trying to do a better job of that.’

McCarthy’s vision is a departure from the last four years under former Majority Leader Eric Cantor, when brinksmanship and dysfunction ruled. Now, alienated voters must be won back to have a shot at the White House in 2016.”

Keith Good