FarmPolicy

March 25, 2019

Ag Economy; Tax Extenders; Policy Issues; Budget- Immigration; Regs; and, the RFS

Agricultural Economy

The U.S. Department of Agriculture’s Economic Research Service (ERS) updated its 2014 Farm Sector Income Forecast yesterday, and noted that, “Net farm income is forecast to be $96.9 billion in 2014, down 21.1 percent from 2013’s estimate of $122.8 billion. The 2014 forecast would be the lowest since 2010, but would remain $16 billion above the previous 10-year average ($80.8 billion) [related graph].”

ERS indicated that, “The annual value of U.S. crop production is expected to decline in 2014 from 2013’s all-time high [related graph]…[C]orn production has increased significantly since the 2012 marketing year, with corn exports more than doubling. Soybean production has also increased significantly since the 2012 marketing year as have soybean exports.”

With respect to livestock, yesterday’s update pointed out that, “Strong gains in U.S. livestock value of production reflect higher prices and cash receipts, easily offsetting a negative value of inventory change [related graph].”

ERS also pointed out that, “The projected $19.8-billion increase in 2014 production expenses extends the rapid upward movement in expenses that has occurred over the past 5 years. Production expenses forecast for 2014 would be the highest on record both nominally and in inflation-adjusted dollars [related graph].”

And on the issue of government payments, yesterday’s update stated that, “U.S. government program payments are forecast to decline slightly in 2014 (see table on government payments) [related graph].…[M]arket prices are still high enough for most crops that 2014 payments from price-dependent government programs are anticipated to be either zero or very low…[C]onservation program payments are expected to increase (12.7 percent) in 2014. The largest source of payments is the Conservation Reserve Program’s annual land rental payments.”

ERS also indicated yesterday that, “Median total farm household income is forecast to decrease slightly in 2014, to $70,564, down from $71,697 in 2013. Given the broad USDA definition of a farm, many farms are not profitable even in the best farm income years. The median farm income forecast for 2014, at -$1,682, is down slightly from the 2013 estimate of -$1,141. Most farm households earn all of their income from off-farm sources—median off-farm income is projected to increase 3.7 percent in 2014 to $64,825.”

More specifically with respect to farmland values, ERS explained yesterday that, “Historically, farmland values have driven changes in the total value of farm sector assets, due to the large proportion of the sector’s assets held in real estate. Accordingly, the projected rise in farm sector assets in 2014 primarily represents an expected 2.9-percent increase in the value of farm real estate. Growth in farmland values is forecast to slow in 2014 relative to recent years due to reduced farm income expectations, lower crop prices, and higher interest rates. Nonetheless, continued growth in the value of farm real estate reflects expectations of favorable net returns from both the market and government programs, including crop insurance, in 2014 and the future.”

Also yesterday, Bloomberg writer Swansy Afonso reported that, “The slump in cotton prices to a five-year low this week will prompt farmers worldwide to reduce planting, the International Cotton Advisory Committee said…[C]otton for March delivery reached 58.53 cents a pound on ICE Futures U.S. yesterday, the lowest since 2009.”

In related news, Spencer Jakab reported yesterday at The Wall Street Journal Online that, “With agricultural equipment responsible for nearly four-fifths of its [Deere & Co] revenue, the maker of the iconic green and yellow machines is being squeezed by falling crop prices [related graph].”

Meanwhile, AP writer David Pitt reported yesterday that, “The egg is on a roll. It has never been more popular as a fast-food restaurant breakfast staple, and its appeal has broadened far beyond the day’s first meal.

“High demand has kept egg prices at record levels, even as production soars.”

Mr. Pitt indicated that, “U.S. Department of Agriculture figures showed in a Nov. 17 report that use has grown to 261 eggs per capita, up 4 percent from 250 in 2011. The figure is expected to grow to nearly 266 eggs per capita next year.

The demand spike comes as producers are beginning to prepare for the implementation of a new California law that requires chickens to have more space in which to move. Producers selling eggs in the shell to California must comply with the law which for many means reducing flocks so each chicken has more room. Increasing demand and potentially smaller flocks are helping drive record prices, [Rick Brown, senior vice president at Urner Barry, which provides analysis and information for the protein commodity markets] said.”

Also yesterday, ERS updated its Food Price Outlook, 2014-15.

In part, ERS stated that, “The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, fell 0.3 percent from September to October and is 1.7 percent above the October 2013 level. The CPI for all food rose 0.2 percent from September to October and is now 3.1 percent above the October 2013 level.”

More specifically, ERS stated that, “Beef and veal prices continued to rise, increasing 0.3 percent from September to October and 17.8 percent year-over-year. Prices remain high, as the U.S. cattle inventory is currently at a historical low. Pasture conditions have improved somewhat in the Southern Plains and Southwest but not significantly in the West. Improved crop yields have allowed cattle producers to feed cattle longer and to hold cattle for expansion. However, signs of herd expansion are anecdotal at best. Most retail beef prices, on average, are at record highs, even after adjusting for inflation. ERS now predicts beef and veal prices will increase 11.0 to 12.0 percent in 2014 and 4.5 to 5.5 percent in 2015. As a result of higher beef prices, meats are now expected to rise 7.5 to 8.5 percent in 2014 and meats, poultry, and fish 5.5 to 6.5 percent over the same time period.

Pork prices fell in October, decreasing 0.8 percent from the previous month. However, pork prices are now up 9.8 percent from last year. Retail pork inflation is largely due to the effects of PEDv which has reduced the autumn number of hogs ready for production. However, there are some signs of industry expansion, and 2015 hog prices are expected to fall 15 percent below 2014 figures. ERS predicts pork prices to rise 7.5 to 8.5 percent in 2014 and 4.5 to 5.5 percent in 2015.”

In transportation news, Bloomberg writer Thomas Black reported earlier this week that, “With last week’s 7 feet of snow in upstate New York heralding an early winter, railroads crisscrossing Chicago are rushing to open 24-hour command centers, install heaters to keep switches from freezing, and plotting ways to reroute traffic.

The aim is to avoid the gridlock that started with storms last winter in Chicago, the biggest Midwest city and the epicenter of a rail system where the six largest U.S. and Canadian lines intersect. Even after adding engines, crews and capacity carriers from Warren Buffett’s BNSF Railway Co. to Norfolk Southern Corp. (NSC) are still recovering from last winter’s delays as this one roars in.

There’s little room to make up for any new weather disruptions, with U.S. economic growth keeping tracks packed with consumer goods, autos, lumber, cement and steel. That’s in addition to a record grain harvest and petroleum product shipments that have surged 13 percent so far this year, spurred by oil production in northern shale formations.”

 

Tax Extenders

Jonathan Weisman reported on the front page of today’s New York Times that, “With negotiators nearing an accord on permanent tax breaks for businesses worth $440 billion over 10 years, President Obama rallied Democratic opposition on Tuesday and promised a veto.

“‘The president would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,’ said Jennifer Friedman, a White House spokeswoman.

“The deal, negotiated by House Republicans and aides to Senator Harry Reid of Nevada, the outgoing majority leader, showed how much power has shifted since the Republican election victories this month. The negotiations fractured Democrats, and separated the Obama administration from Mr. Reid.”

Mr. Weisman explained that, “The standoff has set up a high-stakes game of chicken. Some 55 tax breaks for businesses and individuals expired last year, and if they are not revived retroactively by Dec. 31, taxpayers will not be able to claim them for the current tax year. Republicans say Congress might pass a one-year retroactive measure that would simply start the fight all over again in January, when they control the Senate and their numbers are fortified in the House.”

Chris Clayton reported yesterday at DTN that, “Sen. Charles Grassley says it’s bad for the economy if more than 50 tax breaks for businesses are not reauthorized by the end of the year, but the White House might actively oppose a bill unless certain provisions are added for middle-class families.”

The DTN article stated that, “Grassley noted the lack of certainty for 2014 has been bad for both the wind and biodiesel industries that have awaited renewal of their tax credits. He also said the lack of better business deductions has hurt manufacturers such as John Deere Co.”

Mr. Clayton explained that, “A key for farmers is the Section 179 deduction on business equipment. A $500,000 deduction expired at the end of last year and was lowered to $25,000 for 2014. Farm groups and others want Congress to reinstate the $500,000 deduction as well as reinstate 50% bonus depreciation for other business machinery.”

And The Washington Post editorial board indicated today (“Congress needs a ‘tax extenders’ bill that paves the way for future reform”) that, “Congress should allow more of the temporary special breaks to expire while paying for more of the ones it chooses to make permanent. Instead, it may be about to force President Obama to choose between signing a bad bill or none at all.”

 

Policy Issues

Rye Druzin reported earlier this week at the Midland Reporter-Telegram (Tex.) Online that, “U.S. Rep. Mike Conaway, the new House Agricultural Committee chairman, said he is eyeing the national food stamps program for review.

“‘We haven’t done really a lot of oversight … and so asking the questions like what works, what doesn’t work, why do we have 56 percent of the families on the program for over five years in length?’ Conaway said Monday in a phone interview.”

The article noted that, “Conaway’s position as chair of the Agriculture Committee will give him the chance to be a part of decisions that have a national impact. He also believes that Republicans and Democrats can come together to craft bipartisan legislation, but after President Barack Obama’s executive action on immigration he is less hopeful that the president would sign legislation from Congress.

“‘It was a … wrong-headed move on Friday to take the action that he took,’ Conaway said. ‘It is hurtful to the overall process. It makes compromise much more difficult in an area where it was already really hard to come to a compromise. The president is specifically and intentionally derailing those efforts that might be out there. So when the new Congress comes in session in January we’ll see if we can’t, like a phoenix, rise out of the ashes of the president’s disaster to try to craft policy that’s best for America.’”

A recent update at the Senate Ag Committee webpage stated that, “Senator Debbie Stabenow, Chairwoman of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, will convene a Committee hearing on Wednesday, December 3, 2014 at 10:00am in room 328A of the Russell Senate Office Building. The hearing, “Farmers and Fresh Water: Voluntary Conservation to Protect our Land and Waters” will examine different ways farmers and ranchers can help improve water quality in our lakes and rivers through voluntary conservation practices. Healthy lakes and rivers are vital to recreation, tourism, and wildlife habitat.”

In other news Reuters writer Tom Polansek reported yesterday that, “China’s barriers to imports of some U.S. genetically modified crops are disrupting seed companies’ plans for new product launches and keeping at least one variety out of the U.S. market altogether.

“Two of the world’s biggest seed makers, Syngenta AG and Dow AgroSciences, are responding with tightly controlled U.S. launches of new GMO seeds, telling farmers where they can plant new corn and soybean varieties and how can the use them. Bayer CropScience told Reuters it has decided to keep a new soybean variety on hold until it receives Chinese import approval.”

 

Budget- Immigration

Emma Dumain and Emily Ethridge reported yesterday at Roll Call Online that, “House GOP leaders are likely to float a proposal in their conference next week to fund most government agencies through September 2015, while providing a shorter-term stopgap component for immigration-related programs and initiatives.

“The current framework, according to a few Republican aides close to the discussions, is being pushed in particular by Tom Price, R-Ga., the incoming chairman of the House Budget Committee, who has close ties to leadership and strong conservative credentials but no official affiliation with the appropriations process.

“While some lawmakers are calling this gambit the ‘Cromnibus’ — a combination of a continuing resolution, or CR, and an omnibus — others, in a closed-door Republican Conference meeting last week, were calling it the ‘Price Plan.’”

David Rogers reported yesterday at Politico that, “Like most everything in Washington, President Barack Obama’s new executive order on immigration is not just about the law but the dollars to make it stick.

“For the past decade, Congress has poured billions into enforcement efforts and succeeded in greatly increasing the level of deportations from the U.S. But given budget restraints, this drive has begun to top off near 400,000 removals a year, and Obama has seized this opening to begin his own reforms financed largely by private fees — not public appropriations.”

The in-depth Politico article noted in part that, “For all the angry threats of shutting the government, Obama has harnessed an agency, the U.S. Citizenship and Immigration Service, deemed immune from last year’s meltdown because 98 percent of its budget came from fees earned by processing applications for visas and work permits, for example.

“A September 2013 advisory by the department of Homeland Security specifically cites USCIS as one office that ‘may continue during a lapse of appropriations.’”

 

Regulations – CFTC (Commodity Futures Trading Commission)

Reuters writer Tom Polansek reported earlier this week that, “CME Group Inc, the world’s largest futures market operator, should continue to develop strategies to detect an illegal manipulative trading practice known as ‘spoofing,’ the U.S. Commodity Futures Trading Commission said on Monday.

Spoofing involves rapidly placing orders to create the illusion of market demand. Unsuspecting traders are then tricked into buying or selling at artificial prices, only to later find that the orders were canceled.”

Bloomberg writer Silla Brush reported yesterday that, “Southwest Airlines Co. complained for months in Washington that rules designed to curb excesses of the finance industry were hurting companies far from Wall Street.

“Southwest lobbied regulators, wrote letters to lawmakers and testified at a congressional hearing that new safeguards for the swaps market were increasing its fuel costs by as much as $60 million a year. The agency that could do something about it, the Commodity Futures Trading Commission, refused to budge.”

The Bloomberg article noted that, “CFTC Chairman Timothy Massad, who succeeded Gary Gensler’s acting replacement in June, gave Southwest the break it wanted this month. The move pleased the Dallas-based company and some of the agency’s critics on Capitol Hill.

“‘I sense a different tone altogether,’ U.S. Representative K. Michael Conaway, a top Republican on the House committee that oversees the CFTC, said in an interview. ‘I’m tickled that he at least acknowledges that that’s a problem for a market participant,’ he said of Massad’s decision on Southwest.”

 

Renewable Fuel Standard (RFS)

Ramsey Cox reported yesterday at The Hill Online that, “Sen. Ben Cardin (D-Md.) called on Congress to reform the way the Environmental Protection Agency (EPA) calculates the renewable fuel standard (RFS).

“‘While I applaud EPA’s recognition that it should attempt to finalize [renewable volume obligation] rules for multiple sequential years, the real answer is for Congress to act by reforming and fixing this important statute,’ Cardin said Monday. ‘I will continue finalize an RFS reform bill that should be considered in the next Congress.’”

Keith Good

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