Agricultural Economy- Farm Income, Prices, and, Cost Variables
Marcia Zarley Taylor reported on Friday at DTN that, “A Halloween forecast by Purdue University paints a grim outlook for the grain economy through at least 2015, and possibly the next three or four years.
“Indiana grain farm incomes are expected to tumble 30% in 2014 and another 35% in 2015, even including government payments under the new farm bill, Purdue Economist Chris Hurt said. He gauges the state’s grain incomes at $1.1 billion for 2015, down from the recent high of $3.4 billion in 2011.”
The DTN article noted that, “In a webinar on the changing business climate for agriculture, Hurt and other Purdue economists emphasized that cash rents and farm input costs have been slow to adjust to the new realities of commodity markets. The main problem is that production costs need to fall by about 20% to realign with the current price outlook.
“The crop production system could be vulnerable for the next three or four years and possibly beyond that, Hurt said. ‘We have a cost structure that’s built on $5 corn and $12 soybeans, but the reality is the market is only going to offer $4 corn and $9 to $10 soybeans,’ Hurt said. ‘For some growers it will mean trauma or failure, but most will make the adjustments, given enough time.’”
Ms. Taylor explained that, “Since 2000, Indiana cash rents have doubled and land values have tripled, said Purdue’s Michael Langemeier. The problem is that rents rarely retreat — and then only modestly. ‘A drop of 10% in any year would be a very large drop historically,’ Langemeier said. That’s only happened three times in the last 50 years. ‘We’re not expecting a huge collapse in average rent, maybe a 5% to 10% correction in each of the next two to three years,’ he added.
“Average rents run about $250 per acre in the Midwest, so a drop of 10% is only $25 per acre. On the other hand, really strong bids — perhaps $325 and above — could change much more substantially, Hurt said.
“However, fertilizer and seed prices could offer more immediate savings. At the moment, nitrogen prices in DTN’s weekly retailer survey are hovering at levels higher than a year ago.”
The Kiplinger Agriculture Letter noted in part on Friday that, “Expect increases in land values in farming regions to level off or even slip after values soared in much of the U.S. in the past five years. The average for farmland in Ill., for example, shot up over 200% since ’06, to $7,700/acre. 75% of rural bankers in a 10-state Creighton Univ. rural economy survey expect land values across the nation’s middle to actually slip in the next year.
“Among the reasons: Soft crop prices. Continuing weak crop prices, as we expect for another year or two, spell weaker cash receipts from land.
“Reduced cash rents. Many have already been rejiggered downward for ’15. Also, rent increases have lagged the land price boom and are now usually 3%-4% of cropland value, vs. 4%-5% traditionally. Going forward, they’ll lag even more.
“Plus higher interest rates. Still a low 5%-6% on most farm mortgages, but long-term rates will start rising by next spring, and farmland loans will follow.”
Reuters writer Michael Hirtzer reported on Saturday that, “U.S. soymeal climbed 2 percent on Friday, capping the commodity’s best monthly performance since 1976, as short-term supply strains in the United States continued to fuel buying.
“Soybeans also rose sharply and corn turned higher late, following gains in soymeal, while wheat declined on pressure from multiyear highs in the dollar that made the crops less competitive in global markets.
“Soymeal futures climbed nearly 11 percent this week alone, putting them up 29 percent in October, as a mix of harvest delays, slow farmer selling and transport congestion linked to record exports left operators scrambling for supplies.”
However, Alexandra Wexler reported on Saturday at Barron’s Online that, “It’s a slippery slope for soybeans these days. U.S. soybean prices have gotten a boost recently from strong demand for the oilseeds, but record production is expected to quell the rally.
“Prices closed at a seven-week high last week after surges in U.S. export sales. Soybeans are mostly used to manufacture vegetable oil and to feed hogs and chickens.
“But as the rains return to help the planting of the soybean crop in Brazil, and dry weather in the U.S. allows its harvest to progress, prices are poised to tumble once more.”
More broadly on prices, USDA’s National Agricultural Statistics Service released its monthly Agricultural Prices report on Friday, which stated in part that, “The corn price, at $3.28 per bushel, is down 20 cents from last month and $1.35 below October 2013 [related graph]… The soybean price, at $9.64 per bushel, decreased $1.26 from September and is $2.86 below October 2013 [related graph]… The price for upland cotton, at 67.9 cents per pound, is down 1.6 cents from September and 9.9 cents below last October [related graph]…and…The October beef cattle price of $159 per cwt is up $2.00 from last month and $32.00 higher than October 2013 [related graph].”
Meanwhile, Diana Marcum reported on Saturday at the Los Angeles Times Online that, “One modest, seasonal storm wasn’t going to reverse California’s historic drought.
“Yet across the Central Valley and Sierra Nevada mountains, where livelihoods and entire towns are threatened, there was joy Saturday as rain fell and snow piled up.”
The article noted that, “The last time there was measurable rain in the region was a brief summer storm in July. Going into the fourth year of drought, farmers have pumped so much water that the ground in the Central Valley is sinking and the mountains rising. Federal irrigation water was cut off to many of the area’s farmers and at least 5% of irrigated cropland is fallow. According to a University of California study, state agriculture has taken a $1.5-billion hit, and more than 17,000 farm jobs have disappeared.”
Trade- TPA, TPP, and, China Issues
AP writer Matthew Pennington reported yesterday that, “Big Republican gains on Election Day would be a blow to much of President Barack Obama’s agenda, but one stymied item on his to-do list might get a fresh chance to move forward: trade. That could breathe life into Asia-Pacific trade talks essential to his efforts to deepen engagement in the region…Fast-track legislation was introduced in January but Senate Majority Leader Harry Reid would not allow a vote. Many Democrats fear that opening markets to countries with lower wages and standards will cost American jobs. Republicans tend to be more supportive, seeing more trade as benefiting the economy.”
Jonathan Topaz reported yesterday at Politico that, “Mitt Romney predicted on Sunday that a Republican Senate would break through congressional gridlock and pass legislation on immigration reform and trade.”
The former GOP presidential candidate appeared on Fox News Sunday. The Politico article added that, “A Republican Senate, [Romney] said, would put pressure on the White House to pass trade promotion authority, which the White House and congressional Republicans largely support but rank-and-file Democrats, led by Senate Majority Leader Harry Reid (D-Nev.), largely oppose.”
Toshio Aritake reported on Friday at Bloomberg BNA that, “Japanese economy and finance minister Akira Amari Oct. 29 said TPP countries will hold a ministerial meeting in Beijing Nov. 8 ahead of the Asia-Pacific Economic Cooperation annual leadership meeting.”
The article noted that, “Amari’s disclosure of the TPP meeting, particularly that it would be held before the APEC leadership meeting, has sparked speculation that the U.S. and Japan had come to an agreement and that they would persuade other TPP ministers to conclude the two-year-long talks at the upcoming meeting. The ministers would tell their leaders to announce it at the APEC leadership summit.”
However, the article added that, “TPP negotiations are not likely to conclude by the end of the year primarily because of Japan-U.S. bilateral differences over beef, pork, dairy products, sugar, and beef and pork safeguards, as well as U.S. car and truck tariffs.”
Alexander Speirs and Fran O’Sullivan reported today at the Bay of Plenty Times (New Zealand) Online that, “Concerns continue to escalate that private negotiations between the United States and Japan will bring about a long-awaited conclusion to the [TPP] talks, but produce a deal that could compromise New Zealand’s market access for dairy products.
“On the face of it that could be enough for New Zealand to baulk at the deal on offer and walk away from any final agreement.”
The article noted that, “‘We won’t be shut out of any access that’s there,’ said [New Zealand’s Trade Minister Tim Groser]. ‘The question is whether it’s a big enough deal for us to make an overall balanced assessment, to say ‘yes, that’s good enough let’s move ahead.’”
“But the bottom line for New Zealand will be that any deal that fails to provide hugely improved market access and tariff reduction for agricultural products (particularly with hopes for phaseouts to zero tariffs over time) misses the gold standard mark that Groser and his predecessor, Labour’s Phil Goff, set years ago.”
The article also pointed out that, “The TPP was never intended to be a tit-for-tat deal based on individual trade-offs, but rather a comprehensive agreement to lay the framework for a more economically integrated Asia-Pacific throughout the 21st century.
“The length and depth of the negotiations to date absolutely reflect that, but it appears as though the final frames may be being brought to a rushed conclusion.”
With respect to China and the TPP, Elizabeth C. Economy noted recently at the Asia Unbound Blog (Council on Foreign Relations— “What Beijing Wants From APEC”) that, “After a few years of decrying the TPP as a plot to contain China, Beijing has apparently decided that it wants in—now. In the words of one Chinese official, Washington is being ‘selfish’ by not sharing details with Beijing about the trade negotiations. Never mind that China is likely at least a decade away from being able to meet the standards set by the other major economies already engaged in the TPP negotiations, Beijing has apparently decided that given the slow pace of the negotiations, it may well be ready by the time the deal is done.”
And Bob Davis reported in today’s Wall Street Journal that, “The U.S. has blocked China’s efforts to use a leaders’ summit to begin negotiations on a free-trade zone spanning the Pacific, people close to the matter said, as the world’s two largest economies tussle over influence in the region and billions of dollars in trade.
“China, the host of this year’s Asia-Pacific Economic Cooperation forum on Nov. 10-11, has sought to highlight its expanding international role by pressing for a pact known as the Free Trade Area of the Asia Pacific.
“Beijing’s free-trade zone has been on the agenda of APEC for years—and was initially pushed by the U.S.—but has been relegated to the back burner as the U.S. has poured its efforts into the Trans-Pacific Partnership, a trade pact it is negotiating with 11 nations that include Japan but not China.”
The Journal article indicated that, “For Beijing, the FTAAP would offer a way to ensure that it continues to get preferential access to some of its largest trading partners. A TPP deal would cost China about $100 billion a year in lost exports as the partners trade more among themselves and less with China, according to an estimate by the Peterson Institute for International Economics, in Washington [related graph].”
Also, a news release on Friday from USDA noted that, “Agriculture Secretary Tom Vilsack announced today that China is lifting its suspension of red and golden delicious apple imports from Washington State. The Chinese market for Washington apples was valued at $6.5 million in calendar year 2011.”
And Reuters writers Carey Gillam and Tom Polansek reported on Friday that, “With U.S. approval for Dow AgroSciences’ package of chemicals and new genetically engineered crops now in hand, the Dow Chemical Co unit faces a major obstacle to a $1 billion market opportunity: Chinese import barriers.
“The Asian nation has become a major buyer of U.S. corn and soybeans in recent years, but has also shown mounting reluctance to accept some genetically modified crops grown by U.S. farmers. China for the last year has been rejecting U.S. corn shipments containing traces of a type of GMO corn developed by Syngenta AG .
“Now Dow, which, like Syngenta has yet to receive Chinese import approval for its new crops, faces the ire of the U.S. farm sector if traces of its new GMOs make their way into exports to China.”
Lastly on trade related issues, Burleigh C.W. Leonard penned a column in today’s Wall Street Journal titled, “U.S. Sugar Policy: Sweet for a Few, Sour for Most.”
An update last week at The Telegraph (“Genetically modified crops: an open letter to Europe”) indicated that, “More than twenty of Europe’s most prominent plant scientists today signed a joint letter warning that Europe will never meet agricultural targets unless it starts allowing GM crops.”
Tennille Tracy reported in today’s Wall Street Journal that, “Voters in Oregon and Colorado will decide this week whether food makers must label their products as containing genetically modified ingredients, marking a test of consumers’ desire to know more about what they eat…Recent polls suggest the Oregon measure may have a chance of passing while the Colorado initiative appears headed for defeat.”
A news release on Friday from National Crop Insurance Services (NCIS) indicated that, “Crop insurance providers today released the first in a series of educational videos meant to highlight three policy attributes that are essential to maintaining a strong crop insurance system in the face of future market and weather challenges.
“The first three-minute segment examines the widespread availability of crop insurance, whereas future videos will look at the affordability of policies and the viability of private-sector delivery.
“‘Congress cemented crop insurance’s role as the centerpiece of the farm safety net during the 2014 Farm Bill,’ explained Tom Zacharias, president of [NCIS], the trade group that sponsored the video series. ‘However, that safety net will collapse if crop insurance policies aren’t widely available, aren’t affordable to producers, and aren’t economically viable to be administered by efficient private insurance providers.’”
Meanwhile, Reuters writer Jonathan Stempel reported late last week that, “A large group of creditors of MF Global Holdings Ltd’s bankrupt brokerage unit will soon receive their first payout, as $518.7 million of checks start to be mailed out on Friday, the third anniversary of the company’s Chapter 11 filing.
“James Giddens, the trustee liquidating the MF Global Inc brokerage unit, on Thursday said the payout to unsecured general creditors will cover 39 percent of claims he has deemed valid.
“He said another $32.3 million will be distributed to some ‘priority’ claimants, covering all of their valid claims.”
Reuters writer Ayesha Rascoe reported late last week that, “Probable legal challenges to proposed cuts in the 2014 U.S. biofuel mandate could focus on a two-word phrase dropped from the U.S. law establishing the renewable fuel program back in 2005: distribution capacity.
“Biofuel producers have argued for months that the Environmental Protection Agency’s justification for potential cuts to 2014 targets is incompatible with federal law and that the legislative history of the mandate will prove this.”
The article explained that, “A bill passed by U.S. House of Representatives in April 2005 that created the Renewable Fuel Standard included a clause allowing the EPA to lower the targets contained in the statute if it deems there is ‘inadequate domestic supply or distribution capacity.’ But, the final law dropped the term ‘distribution capacity.’
“The omission could be the crux of a fight over how the EPA can administer the program going forward, because the agency based its 2014 proposal on a shortage of fuel pumps able to dispense higher blends of ethanol in gasoline.”
Donnelle Eller reported in yesterday’s Des Moines Register that, “Falling gasoline prices are beginning to squeeze margins at Iowa ethanol plants, but renewable-fuels leaders say they expect to see continued profits, thanks to low corn prices and strong domestic and global demand.”
Justin Gillis reported in today’s New York Times that, “The gathering risks of climate change are so profound that they could stall or even reverse generations of progress against poverty and hunger if greenhouse emissions continue at a runaway pace, according to a major new United Nations report.
“Despite growing efforts in many countries to tackle the problem, the global situation is becoming more acute as developing countries join the West in burning huge amounts of fossil fuels, the Intergovernmental Panel on Climate Change said here [Copenhagen] on Sunday.”