FarmPolicy

January 16, 2019

Trade; Ag Economy; Immigration; Biofuels; and, Policy Issues

Trade Issues

Jeevan Vasagar reported yesterday at The Financial Times Online that, “A small grilled sausage from Bavaria has become the unlikely symbol of German resistance to the transatlantic trade deal being negotiated between the EU and the US, after the country’s agriculture minister warned that ‘not every sausage can be protected’ in the trade talks.

Christian Schmidt, Germany’s agriculture minister, said in an interview with Der Spiegel: ‘If we want to seize the opportunities of free trade with the enormous American market then we can’t carry on protecting every sausage and cheese speciality.’

“Food producers, politicians and campaigners against the trade deal seized on his remarks as evidence that the protection of regional brands would be sacrificed to globalisation.”

The FT article pointed out that, “While GM food and investor protection rules remain the most contentious aspects of the Transatlantic Trade and Investment Partnership (TTIP), the agriculture minister’s remarks provoked an outcry in support of the Nürnberger Rostbratwurst, a finger-sized pork sausage from Nuremberg which is protected as a regional speciality by the EU.

“Progress in the trade talks between the US and the EU to create what would be the world’s biggest free trade bloc has been slow, and there is growing public scepticism towards the deal, particularly in Germany.”

Yesterday’s article added that, “The sausage in question has been subject to strict local regulation since the 14th century; in the Middle Ages, Nürnberger Rostbratwurst failing to meet the city authorities’ quality standards were dumped into the Pegnitz river, which runs through the Bavarian city of Nuremberg.

The minister’s spokesman later issued a clarification, offering support for protected geographical indications — the EU appellation that covers foodstuffs such as Parma ham and Roquefort. But the spokesman said he believed the rules should be implemented consistently, so that it was clear to Americans that Europeans were keeping to their own standards.”

Reuters news reported yesterday that, “The European Union will not water down its strict geographic food names under a far-reaching trade deal with the United States despite a suggestion by Germany’s farm minister that not every style of sausage could be protected, the EU executive said on Tuesday.”

The Reuters article noted that, “‘We have made clear to our American counterparts that the protection of geographical indications is one of our main priorities,’ EU trade spokesman Daniel Rosario said.

“‘We have not agreed and will not agree to reduce the protection of our geographical indications in Europe,’ he told a European Commission news conference.”

Meanwhile, Vicki Needham reported yesterday at The Hill Online that, “President Obama and Mexican President Enrique Peña Nieto agreed Tuesday to work together on U.S. plans to reestablish diplomatic and economic ties with Cuba after a lapse of more than 50 years.

“The two leaders, who met Tuesday at the White House, discussed the next steps that would open up the communist island to more business and investment from the United States and Latin America.”

And Thomas F. “Mack” McLarty, White House chief of staff and special envoy for the Americas under President Bill Clinton, indicated in a column in today’s Wall Street Journal that, “Early in the year, Congress is expected to take up legislation that would grant the administration trade-promotion authority. This authority allows the president to send a trade agreement to Congress for a straight up-or-down vote without the ability to add crippling amendments that could kill the deal. U.S. negotiators are hoping to conclude two major trade agreements—the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership—that would be submitted for a vote.

There are powerful reasons to support these agreements. One of every five American jobs is tied to exports, and the jobs generally pay better (up to almost 20%) than non-export-related jobs. U.S. exports are finishing a fifth straight record-breaking year, despite a stronger dollar. Although currency fluctuations can make exports more or less attractive in the short run, one fact won’t change: 95% of the world’s customers live outside our borders. As the U.S. economy continues to improve, expanding trade can create more rewarding middle-class jobs.”

Mr. McLarty added that, “When trade-promotion authority came up in Congress last year, Senate Democrats blocked it. Doing so again would be bad policy and bad politics. Now the minority in both houses, congressional Democrats can draw a sharp contrast with the Republicans’ hyperpartisan, defeat-at-any-cost tactics. Instead Democrats can be a constructive force for elevating the discussion and giving President Obama an important bipartisan accomplishment.

Most Americans want Congress to work across party lines to get things done. Trade is an opportune place to start.”

Also with respect to trade issues, Erica E. Phillips reported in today’s Wall Street Journal that, “Federal mediators have been brought in to help resolve monthslong labor negotiations at West Coast ports, a move that retailers, manufacturers and government officials hailed as signaling a possible end to costly uncertainty and delays seen at the nation’s main conduits for trade with Asia.”

And on the issue of currency values, The Wall Street Journal editorial board opined in today’s paper that, “The most important economic story these days is the relentless rise of the dollar, with effects good and ill. We’d be more confident of the benefits if the world’s central bankers appeared to be navigating this monetary weather with any kind of rudder.

“As notable as the magnitude of the greenback’s rise has been its rapidity: 13% against the euro and some 15% against the yen since the end of June.”

The Journal pointed out that, “All other things being equal, we prefer a strong and stable dollar to a falling one. But note the word stable. Currency volatility has costs, as Nobel laureate Robert Mundell teaches, and movements as far and fast as the dollar’s could create some economic wreckage.

“One consequence is the rush out of emerging markets of the kind that hasn’t been seen since the late 1990s. Energy- and commodity-related stocks and bonds are also taking a hit, and there may be major casualties. The U.S. Farm Belt and oil patch will suffer.”

“A stronger dollar would help the world more if it were also stable,” the Journal editorial said.

Emiko Terazono reported this week at The Financial Times Online that, “Sugar fell to a three-month low, battered by a stronger dollar and worries about plentiful supplies from Mexico and the Black Sea region, despite expectations of drier weather in Brazil which could lead to output declines.

“ICE March sugar fell to 14.07 cents a pound, the lowest since September, before firming 0.6 per cent to 14.25 cents later.”

The FT article explained that, “Despite concerns about drier than normal weather in Brazil, the largest producer of the sweetener, with the amount of rain in November and December lower than 2013, producer selling continued due to the lower Brazilian real against the dollar.

“The price of sugar in dollar terms is down 23 per cent since the 2014 high in March, but in real terms it is only down 11 per cent, offering incentives for producers and exporters.”

Also with respect to sugar related issues, Reuters writer Laura Zuckerman reported earlier this week that, “Corn syrup was found to be more toxic to female mice than table sugar, shortening their lives and cutting their rate of reproduction, according to a study by University of Utah researchers published online in a scientific journal on Monday.

“The research, funded by the National Institutes of Health and the National Science Foundation, is among the first to differentiate between the effects of the fructose-glucose mixture found in corn syrup and sucrose, or table sugar, said University of Utah biology professor Wayne Potts, senior author of the paper.”

 

Agricultural Economy

Katie Micik reported yesterday at DTN (link requires subscription) that, “Farmers are ready to put 2014 in the books and move on, according to the latest results of the DTN/The Progressive Farmer Agriculture Confidence Index.

The post-harvest reading of the Agriculture Confidence Index came in at 103.4. That’s a turnaround from the pessimistic pre-harvest reading of 99.8, but it’s also the lowest December index value since DTN began conducting the survey in 2010.”

The DTN article noted that, “Livestock producers are more confident than their row-crop brethren, the Ag Confidence Index shows. At 106.4, the latest reading is down from last August on a more pessimistic view of what the year ahead holds. Prices for livestock are down from their record highs, hog and broiler production are expanding, and concerns about comparatively high retail beef prices have helped rein in hopes.

“Midwest farmers are the most pessimistic overall with an index value of 97.7, which is up from the pre-harvest reading of 92.”

Also yesterday, the USDA’s Economic Research Service released a report titled, “U.S. 2013/14 Wheat Year in Review: Smaller Supplies and Higher Exports Lower Ending Stocks;” which stated in part that: “Total U.S. wheat supplies for the 2013/14 marketing year (June 1, 2013-May 31, 2014) were below those of the previous year as lower beginning stocks and production were only partially offset by higher imports. Total domestic use was down year to year with a sharp decrease in feed and residual use with the recovery in U.S. corn production from the previous year’s severe drought. Other domestic uses were up slightly. Exports were up sharply from the previous year. The season-average price (SAP) for 2013/14 was $6.87 per bushel, down from the record high $7.77 per bushel for 2012/13. The high SAP for 2012/13 was partially the result of the high corn prices due to the drought.”

Meanwhile, Richard Silk and Lucy Craymer reported in today’s Wall Street Journal that, “Australian and New Zealand farmers are having a tough time selling lambskins as China’s tanneries face slowing demand for the products, particularly from Russia, and as Beijing cracks down on some chemical-intensive processing plants.

“In Australia, lambskin prices were down by close to 85% last year. Sheep farmers are also being hit in New Zealand, where prices have fallen by as much as 40%.”

Jacob Bunge and Kelsey Gee reported in today’s Wall Street Journal (“Farmers Deploy New DNA Test for Tastier Meat”) that, “When Mark Gardiner looks at one of his bulls, he sees generations of high-quality steaks.

By having his animals’ DNA scanned by a gene-testing firm, Mr. Gardiner, a Kansas cattle breeder, can tell nearly from birth how many pounds they are likely to pack on per day and how much rich, marbled beef their carcasses will yield.

“U.S. cattle ranches, using technology developed by companies including food-safety firm Neogen Corp. and animal-drug maker Zoetis Inc., are conducting more-sophisticated genetic tests like the ones that give Mr. Gardiner a glimpse of his animals’ future. Advances in DNA analysis help veterinarians and breeders identify prize animals whose offspring will yield a larger volume of tastier steaks—fetching producers higher prices from Cargill Inc. and other beef processors. Testing also can save money on animal upkeep by culling cattle with less-desirable genes.”

The Journal writers explained that, “Soaring cattle prices are helping fuel investment in beef genetics. The nation’s cattle herd has dwindled to its smallest size in 60 years after years of drought in the southern Great Plains parched pastures and drove up feed costs. Tight supplies of steers and heifers have meant record prices for young beef cattle in the U.S., and retail beef prices were projected to climb 11% to 12% in 2014, according to U.S. Department of Agriculture estimates [related graph].

Some ranchers, anticipating bigger payoffs, now aim to rebuild their herds with animals boasting better genes, said Luke Bowman, spokesman for Select Sires Inc., an Ohio company that provides dairy- and beef-cattle semen to breeders. That is helping drive a surge in prices for high-quality breeding animals, Mr. Bowman said, with bulls fetching as much as $250,000 now, compared with about $50,000 four years ago.”

Also, Spencer Jakab reported yesterday at The Wall Street Journal Online that, “‘Buy land,’ goes the old saw, ‘they’re not making any more of it.’

“While that advice hasn’t always worked out in the short run, companies like Monsanto Co. are poised to benefit from it in the long run. The world’s growing population combined with a scarcity of new arable land has been driving demand for crops with resistance to disease and pesticides.

“Now, Monsanto is expanding from high-tech seeds with those traits to equally novel methods of optimizing planting, measuring weather and even developing microbes that assist crop growth. The company claims, for example, that growth in global corn output in the past five years was driven 60% by acreage growth and 40% by such yield enhancement. In the next five years, the mix could be 5% and 95%, respectively.”

 

Immigration

Seung Min Kim reported yesterday at Politico that, “A Republican House member from Alabama is set to propose legislation to override President Barack Obama’s sweeping moves on immigration, even as GOP leaders ponder their response to the executive action.

“Rep. Robert Aderholt’s bill would effectively undo Obama’s decision to defer deportations and grant work permits for up to 5 million undocumented immigrants. The bill would also keep in place the immigration enforcement program Secure Communities, which Obama ended.”

And Justin Sink reported yesterday at The Hill Online that, “President Obama pressed Mexico’s president on Tuesday to work alongside the U.S. government to prevent a new surge of illegal immigrants.”

 

Biofuels

Jacob Bunge reported earlier this week at the Money Beat blog (Wall Street Journal) that, “Crude oil’s latest skid Monday dealt another dent to ethanol producers’ shares, as investors gauged the potential for slimmer profits on each gallon of the corn-based fuel additive.

“As a barrel of crude oil briefly traded below $50 Monday, investors sent shares of top ethanol makers sharply lower, reflecting concerns that cheaper gasoline prices could further curb ethanol prices after the industry pocketed big profits last year. Oil prices settled on Monday 5% lower at $50.04 a barrel on the New York Mercantile Exchange.”

The update noted that, “Green Plains Inc., which runs plants capable of producing about 1 billion gallons of ethanol per year, settled 10.2% lower Monday. Archer Daniels Midland Co., which maintains the largest U.S. ethanol production capacity, settled 3.5% lower, and Pacific Ethanol Inc.– which last week added to its bet on ethanol by acquiring a rival  – fell 7.7%.

The ethanol business is under pressure from the slide in crude oil as well as a 26.6% rise in the price of corn since September, boosting the price of the additive’s main ingredient. The combination of pressures has fueled concerns that the industry’s most-profitable days may be behind it, for now.”

 

Policy Issues

Coral Davenport reported in today’s New York Times that, “The White House on Tuesday made it clear that President Obama would veto a bill authorizing construction of the Keystone XL oil pipeline, setting up an immediate clash with Republicans just as they assume control of Congress.

“‘The president threatening to veto the first bipartisan infrastructure bill of the new Congress must come as a shock to the American people who spoke loudly in November in favor of bipartisan accomplishments,’ Senator Mitch McConnell of Kentucky, the new majority leader, said on Tuesday.”

In budget developments, Jonathan Weisman reported in today’s New York Times that, “After the drama of electing a new speaker of the House and the changing of control in the Senate, the House on Tuesday approved an obscure but significant rule change requiring the economic effects of legislation to be included in a bill’s official cost to the Treasury.

“The change on ‘dynamic scoring’ — ardently sought since the 1990s by Republicans — could ease passage of major tax cuts by showing that their impact on economic growth would substantially reduce their cost to the Treasury. The move is widely seen as a way for Republican leaders to set ground rules for an ambitious overhaul of the entire United States tax code.”

Bernie Becker reported yesterday at The Hill Online that, “The White House ripped House Republicans on Tuesday for implementing new budget rules that look more favorably on tax cuts.

Shaun Donovan, the director of the Office of Management and Budget, wrote in a blog post that the GOP’s move toward ‘dynamic’ scoring would ‘risk injecting bias into a broadly accepted, non-partisan scoring process that has existed for decades.’”

Also, Siobhan Hughes reported earlier this week at The Wall Street Journal Online that, “The new lawmakers taking their seats in Washington on Tuesday represent not just a changing of the guard in Congress but a change in the pedigree of its members. They have spent less time marching through the traditional steps toward elected office, instead forging political identities their own way.

“They tend to be younger and have less legislative experience. The Senate’s 13 new members will join 33 others who have served less than one six-year term, the highest total since 1981. In the House, roughly half of all lawmakers will have been in office only since the 2008 election, meaning that their main political experience is the politics of polarization.”

Keith Good

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