FarmPolicy

September 18, 2019

Ag Economy; Biotech; Biofuels; Policy Issues; and, Budget Developments

Agricultural Economy

An update yesterday from the Food and Agriculture Organization of the United Nations stated that, “Latest indications confirm that world cereal production will reach an all-time record of more than 2.5 billion tonnes in 2014.

“Buoyed by bumper crops in Europe and a record maize output in the United States of America, this year’s cereal output should reach 2.532 billion tonnes, including rice in milled terms, or 0.3% higher than 2013, according to FAO’s latest Crop Prospects and Food Situation Report.

“The record global cereal harvest in 2014 will outpace projected world cereal utilization in 2014/15, allowing stocks to rise to their highest level since 2000 and pushing the worldwide stock-to-use ratio, a proxy measure for supply conditions, to rise to 25.2 percent, its highest level in 13 years, according to FAO.”

Bloomberg writer Lydia Mulvany reported yesterday that, “Milk is flowing like never before in the U.S., where dairies have expanded output enough to send wholesale prices plunging from an all-time high in September.

“Production in the 12 months through October reached 17.08 billion pounds a month on average, up 1.8 percent from the same period a year earlier, as farmers took advantage of high milk prices and low livestock-feed costs, government data show. At the same time, global supplies are expanding with increased output from top producer New Zealand and the European Union, sending U.S. dairy exports in September to a 19-month low.”

The article noted that, “Two years of record corn harvests in the U.S. sent grain prices to a five-year low, encouraging farmers to expand the cow herd to 9.28 million head, the most since 2009, USDA data show. Output per animal in October rose 2.9 percent from a year earlier and is heading for the biggest annual average on record.”

Milk futures will continue their slide through June, dropping as low as $12, according to Eric Meyer, president of HighGround Dairy, a Chicago-based broker,” the Bloomberg article said.

An update yesterday at AgriMoney Online stated that, “High beef prices ‘are here to stay,’ boosted by the squeeze on US cattle numbers which may take until the end of the decade to return to 2013 levels – and will provide an ‘umbrella’ protecting chicken sector fortunes.

Donnie Smith, the chief executive of Tyson Foods, the top beef packer in the US ahead of JBS and Cargill, said that domestic supplies of the meat, which fell 5% on the group’s estimates this year, will fall 4% next year too as producers attempt to rebuild herds.

“The US cattle herd entered this year at its smallest in 61 years – in part a reflection of higher productivity levels, allowing more beef to be produced from fewer animals, but with the trend accelerated in recent years by drought and high feed prices which have encouraged higher slaughter rates.”

Chad Hart and Lee Schulz, of Iowa State University, indicated recently at the CARD Agricultural Policy Review (“Strong Demand, but Inconsistent Profitability”) that, “Crop margins for 2015 are in negative territory for both corn and soybeans. The cost structure for both crops reflects the great returns crop agriculture has captured over the past few years. Land rents have been bid up. Seed, fertilizer, and chemical costs have increased. Crop production costs tend to follow prices, but there is usually a significant lag of one to two years. That lag generates significant profits in rising markets, but sizable losses in falling ones.”

In other news, Matt Hamilton reported yesterday at the Los Angeles Times Online that, “Even the lifeguard towers have been brought in from the expected tides and strong surf.

As a powerful storm system swept into Southern California on Thursday night, bringing the potential for up to 4 inches of rain and wind gusts as high as 70 mph, communities and public agencies were preparing for the worst with road closures, evacuation orders and emergency shelters.”

Bloomberg writers Esme E. Deprez and Alison Vekshin reported yesterday that, “Three years of below-normal rain and snowfall have left reservoirs at less than a third of capacity. Water for the nation’s most productive agricultural region was rationed. At least five similar storms would have to follow to replenish the deficits, said Alan Haynes, service coordination hydrologist at the California Nevada River Forecast Center in Sacramento.”

In trade related news, Reuters Krista Hughes reported yesterday that, “Chances that U.S. negotiators can bring home a strong trade deal with Asia-Pacific countries are now much better than 50-50, U.S. President Barack Obama said on Thursday.

“Obama said he was also confident the administration could make a ‘strong case’ in Congress for a Trans-Pacific Partnership deal covering nearly 40 percent of the world economy.”

And Vicki Needham reported yesterday at The Hill Online that, “The top U.S. trade official said Thursday that Republican support for trade is encouraging for the White House’s ambitious agenda.

“U.S. Trade Representative Michael Froman said trade issues have always required bipartisan cooperation and will continue to need support from both parties in the next Congress.”

Regarding transportation news, USDA’s weekly Grain Transportation Report indicated yesterday that, “In its December World Agricultural Supply and Demand Estimates report, USDA raised its forecast of the 2014/15 marketing year soybean exports to 1.76 billion bushels, up 40 million bushels from the November forecast and 113 million bushels more than last year. The new forecast reflects the record export pace in recent weeks and prospects for additional sales and shipments ahead of the South American harvest. With production and other demand unchanged, soybean ending stocks are projected at 410 million bushels, down 40 million bushels from last year, but still the highest since 2006/07. USDA did not change its projected average farm prices, leaving it in the range of $9 to $11 per bushel.”

 

Biotech

An update yesterday from Rep. Mike Pompeo (R., Kan.) noted that, “Yesterday morning [Wednesday], the House Energy and Commerce Committee held a hearing on H.R. 4432, the Safe and Accurate Food Labeling Act (SAFLA). My ultimate goal with this legislation is to ensure that Kansans are able to go to the grocery store and get affordable, safe, and nutritious food for their kids and family. A recent study showed that proposed local GMO-labeling laws could raise the average family’s food bill by as much as $500 a year. That is something many of our friends and neighbors cannot, and should not have to, afford.”

Rep. Pompeo added that, “The bi-partisan bill, co-sponsored by 37 members of Congress, does three simple things. First, it requires the FDA to review all new Genetically Engineered (GE or GMO) products to ensure they are not harmful to you or your family. This is new. Today, these foods have no required review by any governmental entity. Second, it creates a system for labeling that is consistent with our nation’s tradition of requiring food labels only for health or safety reasons. Finally, it protects consumers’ ‘right to know,’ by confirming that truthful labels identifying products as ‘GMO-Free’ or ‘organic’ will be permitted in every state.”

Wendy Culverwell reported yesterday at the Portland Business Journal Online that, “A controversial ballot measure to require GMO labeling in Oregon is done.

“The Yes on Measure 92 campaign conceded defeat Thursday, acknowledging that the initial results of the November general election will stand.”

 

Biofuels

University of Illinois agricultural economists Scott Irwin and Darrel Good indicated yesterday at the farmdoc daily blog (“Prospects for Ethanol Production Profits Dim as Gasoline Prices Plummet”) that, “The magnitude of the decline in crude oil and gasoline prices has taken nearly everyone by surprise. NYMEX nearby crude oil futures this week touched $60 per barrel, almost $50 less than peak prices last summer. This is a major economic event with potentially far-reaching impacts for biofuels markets. We examined some of these impacts in two recent farmdoc daily articles (November 12, 2014; December 4, 2014). Our conclusion was that current high ethanol prices relative to gasoline prices, as illustrated in Figure 1, might slow the growth in domestic ethanol consumption, but would not likely result in consumption that is less than the 10 percent blend wall. In contrast, the high price ratio may represent a threat to growth in ethanol exports and could result in some decline in ethanol export volumes from current relatively high levels. Softness in export demand, in turn, would be expected to pressure ethanol prices and bring the ethanol/gasoline price ratio back to more normal levels. In today’s article, we investigate how much ethanol prices could decline from the combination of weaker export demand and continued low gasoline prices and the impact that lower prices would have on the profitability of ethanol production.”

After detailed analysis, yesterday’s farmdoc update indicated that, “The drop in crude oil and gasoline prices is a major economic event and the ethanol industry will be directly impacted. We expect the combination of softness in export demand and low gasoline prices to pressure ethanol prices and bring the ethanol/gasoline price ratio back to more normal levels. In the scenarios we consider, the calculated price of Chicago wholesale ethanol ranges from $1.12 per gallon to $1.70 per gallon, all well below the current spot price of about $2.05 per gallon. At the current price of corn ($3.65 per bushel), these ethanol prices imply returns below estimated variable and fixed costs of production except for the highest crude oil price and the highest ratio of ethanol to gasoline prices considered. Consequently, we expect the curtain to come down on the current period of exceptional ethanol production profits fairly quickly.”

 

Policy Issues

A statement yesterday from USDA yesterday indicated that, “U.S. Secretary of Agriculture Tom Vilsack today made the following statement on the retirement from federal service of USDA Chief Economist Dr. Joe Glauber:

“‘No one has a higher level of credibility on issues impacting the agricultural economy than Dr. Glauber. Farm country and, truly, the country as a whole have been extraordinarily well served by Joe throughout his 30 years of federal service. I will miss Joe’s expertise and wise counsel, and wish him well as he begins the next phase of his distinguished career.’

“Current USDA Deputy Chief Economist Dr. Robert Johansson has been named Acting Chief Economist. Johansson has served as USDA’s Deputy Chief Economist since 2012 and holds a Ph.D. in agricultural economics from the University of Minnesota. Johansson will assume the duties of Chief Economist beginning January 1, 2015.”

Meanwhile, Philip Brasher reported this week at Agri-Pulse Online that, “Rep. Michael Conaway, R-Texas, the next chairman of the House Agriculture Committee, today named the Republican lawmakers who will lead the panel’s subcommittees in the 114th Congress.

“‘These individuals will play a leading role in developing policies on an array of issues that are important to all Americans,’ Conaway said in a news release. The subcommittee chairs are:

Rodney Davis of Illinois: Biotechnology, Horticulture and Research.

Austin Scott of Georgia: Commodity Exchanges, Energy and Credit.

Glenn Thompson of Pennsylvania: Conservation and Forestry.

Rick Crawford of Arkansas: General Farm Commodities and Risk Management.

David Rouzer of North Carolina: Livestock and Foreign Agriculture.

Jackie Walorski of Indiana: Nutrition.

“Conaway also named fellow West Texan Randy Neugebauer the Agriculture Committee’s vice chairman.”

With respect to conservation issues, a news release yesterday from USDA stated in part that, “The U.S. Department of Agriculture is publishing a rule that outlines how it will improve the Environmental Quality Incentives Program (EQIP), one of USDA’s largest conservation programs. The interim final rule includes program changes authorized by Congress in the 2014 Farm Bill.

“USDA has established a 60-day comment period for the rule. The rule is expected to be available in the Federal Register and regulations.gov on Friday, Dec. 12. Beginning Friday, public comments can be submitted through regulations.gov or by mailing them. Comments are due by Feb. 10, 2015. Full details are in the Federal Register notice.

“‘This interim final rule provides a roadmap to help streamline and simplify EQIP for farmers and ranchers,’ Agriculture Secretary Tom Vilsack said.”

Also yesterday, Peter Whoriskey reported at The Washington Post Online that, “The cows that produce the nation’s organic milk spend their days ruminating happily on an idyllic green pasture, usually beside an iconic red barn. That, at least, is what the ubiquitous marketing would tell you.

“Now an agricultural watchdog group based in Wisconsin has taken the trouble to obtain aerial photos of 14 large-scale organic farms – five dairies and nine chicken operations that supply well-known store brands such as Walmart, Target and Costco, according to the group. Not surprisingly, the reality is less picturesque and more industrial than that advertising image.

“More importantly, according to the group, the aerials taken in May and June of this year show very few animals outside, even though organic rules require that animals be allowed daily free access to the outdoors. Cows and chickens that are allowed outside to forage yield more nutritious milk and eggs, according to some studies.”

 

Budget Developments

Ashley Parker and Robert Pear reported in today’s New York Times that, “The House narrowly passed a $1.1 trillion spending package on Thursday that would fund most government operations for the fiscal year after a rancorous debate that reflected the new power held by Republicans and the disarray among Democrats in the aftermath of the midterm elections.

“The accord was reached just hours before the midnight deadline, in a 219-206 vote, amid the last-minute brinkmanship and bickering that has come to mark one of Congress’s most polarized — and least productive — eras. The legislation now heads to the Senate, which is expected to pass it in the coming days.”

The article noted that, “The split in the Democratic Party dramatically burst into view when Representative Nancy Pelosi, the minority leader and one of President Obama’s most loyal supporters, broke with the administration over a provision in the bill that would roll back regulation of the Dodd-Frank Act, which Ms. Pelosi said was a giveaway to big banks whose practices helped fuel the Great Recession. She spoke on the House floor in the early afternoon, expressing her strong opposition to the bill.”

Lisa Mascaro, Christi Parsons and Michael A. Memoli reported yesterday at the Los Angeles Times Online that, “The massive bill, which funds most of the government until September, next goes to the Senate, which is expected to consider the measure this weekend.

“Because the cutoff to renew government spending was midnight Thursday, the House also approved a stopgap funding measure to extend the deadline for a few days so the Senate would have time to act.

“The Senate also approved a two-day emergency bill late Thursday to extend the deadline.”

Kristina Peterson, Siobhan Hughes and Michael R. Crittenden reported in today’s Wall Street Journal that, “The bill passed late Thursday with the support of 162 Republicans and 57 Democrats. It was opposed by 67 Republicans and 139 Democrats.”

The Journal writers explained that, “Meanwhile, in a rare clash with one of its closest allies, the White House backed the bill opposed by House Minority Leader Nancy Pelosi (D., Calif.) but embraced by top Senate Democrats.

“The day’s mayhem aligned President Barack Obama, [House Speaker John Boehner (R., Ohio)] and [Senate Majority Leader Harry Reid (D., Nev.)] with the same goal—passing a longer-term spending bill—in the face of opposition from critics as varied as liberal Democrat Sen. Elizabeth Warren of Massachusetts and conservative GOP Sen. Ted Cruz of Texas.”

More specifically, AP writer Mary Clare Jalonick reported yesterday that, “It’s another political victory for the popular potato.

For the first time, low-income women would be able to pay for white potatoes with government-subsidized vouchers issued by the Women, Infants and Children nutrition program, known as WIC.

“The potato provision is part of a massive spending bill Congress is considering before the end of the year.”

And AP writer Matthew Brown reported yesterday that, “Congress is poised to make an end-run around the Endangered Species Act with a legislative rider on a massive spending bill that would delay protections for several struggling bird populations in the Western U.S.

“The rider blocks the Interior Department from spending money on rules to protect greater sage grouse and three related birds.

“The chicken-sized sage grouse has been on a collision course with oil and gas companies, agriculture and other industries in recent years. The Obama administration was up against a September 2015 deadline to either turn around the bird’s fading fortunes, or propose protections that could mean severe restrictions on industry.”

A more detailed summary of the Agriculture Appropriations bill included in the Omnibus budget measure was outlined earlier this week at FarmPolicy.com.

Keith Good

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