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Agricultural Economy; Cuba Issues; and, Regulations

Agricultural Economy

Joel Aschbrenner reported on the front page of the Business Section in Friday’s Des Moines Register that, “Iowa farmland prices fell 8.9 percent in the past year, the largest annual decline in 28 years, according to a report released Thursday by the Center for Agricultural and Rural Development at Iowa State University.

But the average price of $7,943 per acre is still more than double what it was a decade ago, and economists say they expect farmland values to level off.”

The article noted that, “‘Commodity prices and farm income are settling back to more expected levels, and I think land values will probably move sideways for a while,’ Michael Duffy, a retired Iowa State economics professor who conducted the survey, said in a news release.”

“‘Many people think this report indicates the beginning of another farm crisis, but land values are still considerably higher than they were just a few years ago.’”

Mr. Aschbrenner added that, “This year was only the second time since 1999 that the survey showed a decline in farmland prices…[T]he overall drop in farmland prices follows a steep decline in crop prices, which peaked at record highs in 2013. A recent U.S. Department of Agriculture estimate showed farm income dropped an estimated 23 percent in 2014.”

Also with respect to land values, the Purdue Agricultural Economics Report from December indicated that, “The large positive margins that existed in crop production for the last several years have disappeared. Falling prices of corn, soybeans and wheat have dropped well below the full-cost breakeven point of most producers. Will these negative margins lead to a decline in farmland values comparable to recent increases? Using history as a guide, such a decline seems unlikely in the short term.

“While grain prices have fallen sharply, most of the other factors influencing the farmland market still remain positive. Interest rates still remain at historical lows. The amount of land offered to the market still remains small and the prospects of a sharp increase in farmland for sale because of financial stress like the early 80s seems unlikely. Farmland as an investment is still attractive; providing a competitive annual return and over the long-run a positive capital gain. While the cropping sector will be under stress, the livestock sector has found renewed strength as a result of strong livestock prices and lower feed costs.”

With respect to some aspects of the livestock sector, the Purdue report also noted that, “Hog producers had a record profit year in 2014. The PED virus contributed to smaller pork supplies, but the fear that pork supplies could be down much more led to extremely high hog prices from the late-winter of 2014 into the early fall. Hog prices averaged a record $76 per live hundredweight, and profits were estimated at $53 per head.

Pork expansion is already underway for 2015 and prices will be lower, but still profitable. Producers intend to farrow 4% more sows in the final quarter of 2014 and those pigs will reach market by the spring of 2015 with pork supplies moving up 3% in the spring and by up to 5% in the summer and fall. For all of 2015, pork supplies are expected to rise by about 4%.”

Meanwhile, USDA’s National Agricultural Statistics Service (NASS) released its monthly Cattle on Feed report Friday, which stated that, “Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.9 million head on December 1, 2014. The inventory was 1 percent above December 1, 2013 [related graph].”

Also on Friday, NASS released its monthly Milk Production report, which stated that, “Milk production in the 23 major States during November totaled 15.5 billion pounds, up 3.5 percent from November 2013. October revised production, at 16.0 billion pounds, was up 3.7 percent from October 2013 [related graph].”

Bradley L. Zwilling, Brandy M. Krapf, and Dwight D. Raab indicated on Friday at the farmdoc daily blog (“Profit Margins for Dairy Producers Continue Negative Trend in 2013, Likely to Turn Positive in 2014”) that, “Higher milk prices were not enough to offset higher costs resulting in total economic costs exceeding returns for Illinois dairy producers in 2013, according to figures summarized by University of Illinois agricultural economists in cooperation with the Illinois Farm Business Farm Management Association.

“The average net price received per 100 pounds of milk was $20.63, which was less than total costs of $23.91. The price received for milk in 2013 was the second highest ever. The average price received for milk in 2012 was $19.32. On a per cow basis, total returns from milk were $4,642 compared to the total cost to produce milk of $5,343 per cow. Total returns from milk per cow were the highest on record. Total returns have exceeded total economic costs three out of the last ten years.”

In other news, the U.S. Seasonal Drought Outlook, which was released last week by the Climate Prediction Center, indicated that, “Since the previous outlook issued on November 20, drought improvement occurred across parts of northern California but protracted extreme to exceptional drought continues for much of California.”

The report added that, “A tilt in the odds towards above-median precipitation during a wet time of year favors additional drought improvement across California. However, it should be noted that long-term drought conditions are expected to remain beyond March [related graph].”

Also last week, the National Oceanic and Atmospheric Administration’s National Climatic Data Center tweeted that, “Dec 16: Exceptional drought reduced in parts of north CA #CAdrought http://www.drought.gov #DroughtMonitor”

Nonetheless, the National Weather Service tweeted last week that, “Latest Drought Monitor Released- Some improvement, but 78% of CA under Exceptional-Extreme ‪#CAdrought. ‪#cawater

Joseph Serna reported in Friday’s Los Angeles Times that, “For the first time in five months, a majority of California is no longer considered to be in an exceptional drought, the most severe level possible under federal guidelines, the U.S. Drought Monitor announced Thursday.

About 32% of California, however – most of it in the Central Valley – remains under the exceptional drought category. Last week the total was at more than 55%.”

The article added that, “The good news is tempered by the fact that the entire state remains in some degree of drought and more than three-quarters of it, about 78%, is in ‘extreme’ drought, the second-highest category available, the report said.

“In addition, the state’s major reservoir capacities are still below normal.”

In trade news, Mitsuru Obe reported in today’s Wall Street Journal that, “Like most Japanese farmers, Fumio Tamura works long hours and makes little money, especially with domestic rice prices down by around a quarter over the past couple of years.”

The article explained that, “Prime Minister Shinzo Abe, who is set to outline policies for his next administration on Wednesday after his ruling party’s election victory Dec. 14, has made agriculture a key part of his pro-growth policies. The government is expected to draft legislation in the next couple of months that would transform the nation’s powerful agricultural cooperatives and the way farmers do business.

Meanwhile, Japan and the U.S. are in the late stages of negotiations over a free-trade agreement, the Trans-Pacific Partnership, that would open Japan to an unprecedented level of agricultural imports.”

The Journal article noted that, “Mr. Abe will surely face resistance, though, including opposition from within his own Liberal Democratic Party. The LDP has protected farmers with favorable policies for decades, while relying on their outsize power at the ballot box. The powerful cooperatives to which farmers sell their produce have fought efforts to restructure them or strip them of power.

Some farmers and co-op officials in Niigata, a leading rice-growing region, acknowledge that change isn’t only desirable but inevitable. The nation’s average farmer is 66 years old and tends to around two hectares, or 5 acres. Overall production is in decline by value. Trade barriers and inefficiency mean Japanese consumers spend a greater portion of their income on food than people in other developed nations. And in trade negotiations with the U.S., Japan has already agreed to a dramatic opening to imports that would pose an existential challenge to many Japanese farmers.”

Also, Reuters writer Tom Polansek reported on Friday that, “China has officially approved imports of a genetically modified soybean variety developed by Bayer CropScience after seven years of review, the company said on Friday.

“Bayer received an import certificate from China for its LL55 Liberty Link soybean and plans a full commercial launch of the variety in 2015, a spokesman said.”

 

Cuba Issues

Julie Hirschfeld Davis reported in Saturday’s New York Times that, “President Obama on Friday rejected criticism that he should not have reopened American relations with Cuba because of the nation’s human rights record, saying the historic thaw would give the United States more sway over the Cuban government.”

The article noted that, “Still, the president acknowledged that he would have to work with Congress on contentious issues, including lifting the 54-year-old American trade embargo against Cuba. ‘We cannot unilaterally bring down the embargo,’ he said, although his administration is undertaking a major effort to loosen key elements.

“‘Ultimately, we need to go ahead and pull down the embargo, which I think has been self-defeating in advancing the aims that we’re interested in,’ he said. ‘But I don’t anticipate that that happens right away.’”

Bloomberg writers Mike Dorning and Angela Greiling Keane reported on Saturday that, “President Barack Obama said the full opening of relations between Cuba and the U.S. may take years, even as he offered assurances the new U.S. stance will bring change to the island nation’s closed society.

“Despite vehement criticism from Republican lawmakers and some Democrats, the president said he was confident his reversal of the half-century-long U.S. effort to isolate its Caribbean neighbor 90 miles off the coast of Florida was the right course.”

Carol E. Lee and William Mauldin reported in today’s Wall Street Journal that, “The shape of U.S.-Cuba relations for years to come hinges on the brewing fight that will determine how much of President Barack Obama ’s executive action to normalize ties can be blocked by opponents in Congress.”

“But Congress controls some of the most significant restrictions on travel, tourism and trade between the two countries, and lawmakers from both parties have made clear they plan to complicate Mr. Obama’s efforts by refusing to fund certain proposals or confirm his nominees to fill diplomatic posts,” the Journal article said.

Lee and Mauldin noted that, “Policy changes Mr. Obama announced earlier this week will likely go into effect in weeks, officials said. The Treasury and Commerce departments are working on regulatory changes to enact Mr. Obama’s revised policy on exports and banking relationships…[A]fter the new regulations are implemented, the administration would likely pause to judge the Cuban response and evaluate the shifting political climate before issuing new rules or pushing Congress for a broad lifting of the embargo, observers say.

U.S. agricultural exporters at that point are likely to find it easier to ship food to Cuba, but most businesses, including telecommunication firms, are expected to approach the market cautiously.”

AP writer Roxana Hegeman reported on Saturday that, “President Barack Obama’s announcement this week to normalize diplomatic relations with Cuba and ease some economic restrictions has been closely followed in Kansas, as the move could open up a major market for winter wheat producers.

“‘This is a Kansas issue because wheat is Cuba’s second largest import, right behind oil,’ U.S. Sen. Jerry Moran said Friday.

The Republican senator urged the Treasury Department to immediately rewrite cumbersome regulations that have made it difficult to sell wheat and other farm commodities to Cuba — saying the agency can take that step even before Congress grapples with whether to entirely lift the U.S. trade embargo.”

The AP article noted that, “Moran praised Obama’s plan to re-establish diplomatic relations and ease some economic and travel restrictions, and now wants the Treasury Department to immediately roll back the burdensome regulations on the country that’s 90 miles from the U.S.

“‘These steps can be taken, and should be taken,’ Moran said. Moran has also vowed to work in Congress on the side of lifting the embargo, which would require the repeal of specific laws.

“‘This is a very contentious issue, and nothing will be easy about it, but in my view the embargo should be lifted,’ he said.”

Recall that Kansas GOP Congressman Mike Pompeo indicated last week on the AgriTalk radio program with Mike Adams that, “In Cuba’s case we’re talking about a market of at most 10 or 11 million people who are very poor. Very poor. There’s no middle class that’s going to consume large quantities of Kansas agriculture products sitting in Cuba today. It’s just not the case. What will happen is they’ll say sure, we’ll buy your wheat or your corn so long as the United States government pays for it. This is not a country that there’s this huge opening going to create massive markets for Kansas farmers today, certainly so long as the communist regime remains in place.”

Bill Decker reported yesterday at The Advocate (La.) Online that, “The prospect for normalized relations with Cuba could be good news for Louisiana rice farmers, who have fought to reopen what had been a lucrative market before the 1962 embargo and again as recently as a decade ago.

“‘That would be a very big deal for the rice industry,’ said Dustin Harrell, who is set to become the LSU AgCenter’s new state rice specialist in January.

“Experts say the benefits of normalizing diplomatic and trade relations would accrue gradually, and would come at a time when the rice industry is learning to cope with cuts in subsidies and other support programs brought on by the 2014 farm bill.”

The article added that, “Michael Salassi, a production economics specialist for the AgCenter, said any benefits in terms of increased rice exports from Louisiana wouldn’t happen overnight but rather would slowly phase in over a period of years as any potentially new trading arrangements were formalized.

“‘Should the U.S. be successful in normalizing diplomatic relations with Cuba, this certainly would have great potential for Louisiana rice exports to Cuba,’ he wrote in an email response to questions about the impact of normalized relations.”

 

Regulations

A news release Friday from Sen. John Hoeven (R., N.D.) stated that, “[Sen. Hoeven] today said he is working on a two-step process to eliminate the Environmental Protection Agency’s (EPA) proposed Waters of the U.S. regulation, which would bring almost every acre of wet ground under federal Clean Water Act (CWA) jurisdiction.

“The U.S. Congress took the first step in its recently passed omnibus appropriations bill by defunding the Waters of the U.S. Interpretive Rule, which the EPA issued to implement the Waters of the U.S. regulation for farmers and ranchers. The senator said he will continue to work in the new Congress as a member of the Senate Appropriations Committee to defund and eliminate the regulation in its entirety.”

The release added that, “Along with working to defund the Waters of the U.S. regulation, Hoeven will also work to rescind the rule outright with legislation. In 2014, Hoeven cosponsored the Protecting Water and Property Rights Act of 2014, a bill that would prevent the EPA from finalizing the regulation. He said he will work with colleagues to reintroduce this legislation in the 114th Congress next year.”

Keith Good