FarmPolicy

July 15, 2019

Policy Issues; Ag Economy; Trade; Regulations; and, Biofuels- Tuesday

Policy Issues

DTN Political Correspondent Jerry Hagstrom reported yesterday that, “A statement by U.S. Agriculture Secretary Tom Vilsack last week that crop insurance companies are making a 14% to 15% return on investment raised eyebrows here [Bonita Springs, Fla.] at a crop insurance industry meeting.

Brandon Willis, the administrator of the Risk Management Agency, sought to clarify the secretary’s comments when speaking to industry leaders this past weekend. Willis acknowledged more recent years had been rockier for the industry than the industry’s historical performance.”

Mr. Hagstrom indicated that, “Vilsack did an interview with the website Politico last week on the one-year anniversary of the farm bill that also delved into crop insurance cuts. Vilsack said, ‘One of those reforms would be to take a look at what the average rate of return is on crop insurance. Today it’s roughly 14%-15% on average of return on investment.’

“‘The reality is that this entity and this operation could be quite effective at a 12% return on investment, and I think most taxpayers would be happy if their portfolio was growing by 12%,’ he said. ‘So I think first and foremost it’s a question of what’s a reasonable rate of return in a government-sponsored and government-supported program.’”

The DTN update noted that, “RMA furnished DTN with a list of the rates of return since 2003. It showed that the rate of return was much higher in the early years, but that the program lost 15% in 2012 and made only 7% in 2013.

“The rate of return for 2014 has not been determined.”

A news release yesterday from National Crop Insurance Services (NCIS) stated that, “Financial returns for crop insurers have fallen nearly 60 percent below expectations since 2011, according to (NCIS), the industry’s main trade organization.

“The Standard Reinsurance Agreement — the business contract between the federal government and private-sector insurers that went into effect in 2011 — targeted average returns on retained premium of 14.5 percent. Returns on retained premium have averaged only 6 percent over the four-year period.

“And because these calculations only measure gross revenue, not net profit, the actual financial pain has been far greater, said NCIS Chairman Tim Weber. When expenses are subtracted from gross revenue, average net profit since 2011 has been less than 1 percent, with the industry experiencing negative returns in 2012.”

And a separate NCIS update yesterday stated that, “The new leaders of the agriculture committees in Congress addressed crop insurers during the annual meeting of the American Association of Crop Insurers and (NCIS) and pledged to protect and strengthen this public-private partnership.

“In separate taped videos, Sen. Pat Roberts, the chairman of the Senate Committee on Agriculture, Nutrition and Forestry, and Rep. K. Michael Conaway, the chairman of the House Committee on Agriculture, delivered parallel messages explaining how the 2014 Farm Bill made crop insurance the key risk management tool available to farmers.

“‘Crop insurance is the cornerstone of the farm safety net,’ said Roberts. ‘You have my word to continue to protect, preserve, and improve the number one risk management tool in every farmer’s toolbox.’”

NCIS also pointed out yesterday that, “With crop insurance now cemented as the cornerstone of U.S. farm policy, political attacks are inevitable. But crop insurers will make education a top priority in 2015 and will address the critics, said Tim Weber, chairman of the American Association of Crop Insurers and (NCIS)… Weber noted three pillars that are essential for the continued success of crop insurance. They will be the focus of educational efforts and include: Keeping crop insurance affordable for producers to promote wide-scale participation; making sure it is widely available for numerous crops in all geographic locations; and ensuring the viability of private-sector insurance delivery.”

A clip from yesterday’s Agriculture Today radio program (Red River Farm Network), pointed out that, “The President’s budget proposes cuts to crop insurance. Bills have also been introduced in Congress to cap crop insurance payments. Minnesota Congressman Collin Peterson, who spoke Saturday at the Q-Country Farm Forum, believes these attacks can be handled. ‘I don’t think any of this is going anyplace. I think we’ll be able to fend them off’”- related audio clip here (MP3- 0:30).

Meanwhile, Chris Clayton reported yesterday at the DTN Ag Policy blog that, “Supporters of country-of-origin labeling declared victory Monday that they had beaten back a federal lawsuit filed by the nation’s meatpackers and other critics of the legislation. A bigger question was just how relevant the litigation is in the grand scheme of things because the World Trade Organization is going to tell everyone what is going to happen with COOL.

“Still, National Farmers Union President Roger Johnson praised the dismissal of the U.S. District Court lawsuit on Country-of-Origin Labeling (COOL), filed by the multinational meatpacking industry and their allies to try and stop the USDA from implementing the very popular labeling law.”

Mr. Clayton pointed out that, “There isn’t much legal gain. The appeal at the World Trade Organization will determine whether the U.S. will have to scrap this latest rule or face possible retaliatory actions from Canada and Mexico [additional background here].”

An update yesterday from National Farmers Union (NFU) indicated that, “[NFU] President Roger Johnson urged the Canadian Minister of Agriculture and Agri-Food Gerry Ritz, to review the results of a recent econometric study showing that ‘COOL did not have a negative impact on Canadian cattle exports,’ in a letter sent today.”

With respect to nutrition, Justin Sink reported yesterday at The Hill Online that, “First lady Michelle Obama is ‘confident’ that controversial changes to school lunch programs undertaken after her lobbying will ‘eventually be embraced by kids.’

“In an interview with Cooking Light magazine to mark the fifth anniversary of her Let’s Move initiative, the first lady says that she sees the effort as ‘generational.’ Eventually, Obama argues, schools will be filled with children who never knew meals that did not conform to new nutritional standards.

“‘We’re really thinking about the kids who are kindergartners today,’ Obama said. ‘If all they know are whole grains and vegetables, by the time they’re graduating from high school, this will be their norm; they won’t know anything different.’”

Also yesterday, an update from the Senate Ag Committee noted that, “U.S. Senator Pat Roberts (R-Kan.) Chairman of the Senate Committee on Agriculture, Nutrition and Forestry today announced additional staff selections.”

In other news, an update yesterday from the American Farm Bureau Federation noted that, “A federal district court in Minnesota ordered EPA late Friday not to release farmers’ and ranchers’ personal information while AFBF and co-plaintiff National Pork Producers Council appeal the court’s decision dismissing their lawsuit. By dismissing the suit, the court ruled that farmers are not harmed when the government compiles and releases a storehouse of personal information, so long as individual bits of that information are somehow publicly accessible, such as through an Internet search or on a Facebook page.”

 

Agricultural Economy

For a closer look at recent developments in the U.S. hog and cattle markets, see this brief update that was posted yesterday at FarmPolicy.com – “Hog, Cattle Market Issues,” which included this observation from Reuters writer P.J. Huffstutter, “For decades, Chuck Souder relied on corn and soybeans to keep his 400-acre Iowa farm running, but with corn selling for half its price two years ago and soybeans slumping, Souder has shifted to what he hopes will be a more profitable crop: Pigs.”

Bloomberg writer Alan Bjerga reported yesterday that, “The squeeze on U.S. farmers is getting worse as low crop prices and rising costs erode incomes that not long ago were the highest ever.”

Mr. Bjerga explained that, “Farm income in the U.S., the world’s top agricultural producer and exporter, is poised to drop for a third straight year in 2015. While raising livestock remains profitable, as tight meat supplies keep prices high, growers of corn, soybeans and wheat saw crop and land values fall faster than many of their costs. That’s pinching sales for equipment maker Deere & Co. and seed and chemical producers including DuPont Co.

“‘The budget picture for corn and soybeans is as negative as we’ve seen in a long time,’ said Brent Gloy, an agricultural economist at Purdue University in West Lafayette, Indiana. ‘You will see some farmers not able to cover their production costs.’”

University of Illinois agricultural economist Darrel Good indicated yesterday at the farmdoc daily blog (“Balance Sheet Projections for the 2015-16 Corn Marketing Year”) that, “It is the season for developing corn balance sheet projections for the upcoming marketing year. The 2014-15 marketing year is approaching the halfway point, the spring crop insurance price is being determined, and planting and new crop marketing decisions are being made. The USDA will update their previous early release of projections for the 2015-16 marketing year as part of their USDA Agricultural Projections to 2024 report scheduled for release on February 11. Others, such as the Congressional Budget Office (CBO), have also released long term projections.”

After additional analysis, yesterday’s farmdoc update concluded by stating that, “Early expectations, then, are for 2015-16 marketing year corn consumption to be near 13.76 billion bushels. (CBO and USDA projections are at 13.61 and 13.745 billion bushels, respectively). Ending stocks would total only 1.54 billion bushels and would point to a marketing year average price in the low $4.00 range. The price expectation is $0.50 to $0.70 higher than most other projections, and slightly higher than the price currently reflected by new crop futures.”

Nicole Friedman reported yesterday at The Wall Street Journal Online that, “Cotton prices rose to a nearly three-month high on Monday on expectations of a drop in U.S. supply.

“The National Cotton Council said over the weekend that it expects the number of U.S. acres planted with cotton in the spring to fall by 15% from 2014 to the lowest level in six years.”

More broadly, Reuters news reported yesterday that, “China will give priority to growers of key staple crops as well as cotton and sugar under changes to its farm machinery subsidy scheme, as it seeks to guarantee food self-sufficiency amid a declining rural workforce, its top newspaper said.”

Also yesterday, Darryl Fears reported at The Washington Post Online that, “Threatened animals like elephants, porpoises and lions grab all the headlines, but what’s happening to monarch butterflies is nothing short of a massacre. The U.S. Fish and Wildlife Service summed it up in just one grim statistic on Monday: Since 1990, about 970 million have vanished.

“It happened as farmers and homeowners sprayed herbicides on milkweed plants, which serve as the butterflies’ nursery, food source and home. In an attempt to counter two decades of destruction, the Fish and Wildlife Service launched a partnership with two private conservation groups, the National Wildlife Federation and the National Fish and Wildlife Foundation, to basically grow milkweed like crazy in the hopes of saving the monarchs.”

 

Trade

Shawn Donnan reported yesterday at The Financial Times Online that, “US President Barack Obama is expected to raise concerns about the pace of trans-Atlantic trade talks with Angela Merkel when the German chancellor visits Washington on Monday with US officials fretting that supposedly reinvigorated negotiations are instead getting off to a false start.

“Following the November appointment of Cecilia Malmstrom, the new European trade commissioner, both sides pledged a ‘fresh start’ to talks over a Trans-Atlantic Trade and Investment Partnership, or TTIP, that had been crawling along since beginning in July 2013.

But a senior US official told the Financial Times that Washington was disappointed with the progress made in last week’s round of formal negotiations, the first since the re-launch, and had decided to press its case with Ms Merkel on Monday and in European capitals in the coming weeks.”

Erica E. Phillips reported in today’s Wall Street Journal that, “The group representing employers at the nation’s West Coast ports accused union leaders of making ‘reckless’ demands Monday, further heightening tensions in long-running labor talks, even as the loading and unloading of vessels resumed after being suspended over the weekend.

“After offering what it called an ‘all-in’ offer to union workers last week, the Pacific Maritime Association said a separate union request to change arbitration-process rules threatens to derail the talks.”

California Democratic Senators Dianne Feinstein and Barbara Boxer sent a letter yesterday to Robert McEllrath of International Longshore and Warehouse Union, and James C. McKenna of the Pacific Maritime Association regarding this issue.

Jonathan Weisman reported in today’s New York Times that, “An odd marriage of convenience between liberal Democrats and Tea Party Republicans is squeezing President Obama on his ambitious trade agenda, forcing the White House and top Republicans to fight a two-front war on an international economic effort the president hopes to secure before he leaves office.

“An alliance between the likes of Representatives Louie Gohmert and Dana Rohrabacher — two of the House’s most conservative members — and Rosa DeLauro and Louise Slaughter — ardent liberals — is unlikely enough. But as the political fringes expand on each end, they are challenging another strange-bedfellows alliance between Mr. Obama and Republicans like Representative Paul D. Ryan and Senator Orrin G. Hatch, who have joined together in a push to secure ‘fast-track’ trade promotion authority before the administration completes a major trade agreement with 12 partners along the Pacific Rim.”

Meanwhile, Bloomberg writer Aya Takada reported yesterday that, “Japan’s powerful farm lobby is conceding to efforts by Prime Minister Shinzo Abe to weaken its grip on the country’s farming industry through legislation designed to dilute its power and cut the fees it collects from members.

“JA-Zenchu accepted the ruling Liberal Democratic Party’s plans to revise the nation’s agricultural cooperative law to deprive it of the power to audit local farming groups, said Takamori Yoshikawa, the party’s farm reform committee chairman. A Zenchu spokeswoman confirmed the sides reached an agreement after a meeting Monday evening in Tokyo.

The breakthrough comes as Japan negotiates with the U.S. over agricultural tariffs outlined in the Trans-Pacific Partnership trade deal. Abe has sought to weaken the politically powerful group’s influence on the industry as he tries to change the country’s entrenched farm policies, part of a broader push for structural reforms to spur economic growth.”

 

Regulations

Todd Zywicki reported yesterday at The Washington Post Online that, “A new study by Marshall Lux and Robert Greene reports that since the enactment of Dodd-Frank community banks have lost market share at twice the rate that they did prior to Dodd-Frank.”

Rep. Frank Lucas (R., Okla.) tweeted yesterday that, “For most people across rural America, ‪#CommunityBanks are often the center of credit availability”

 

Biofuels

A news release yesterday from Sen. Heidi Heitkamp (D., N.D.) indicated that, “[Sen. Heitkamp] today led a bipartisan group of 32 Senators in pressing the U.S. Environmental Protection Agency (EPA) to live up to its legal obligation to provide certainty to the biodiesel industry and the thousands of workers it employs by setting long-delayed production levels.”

Keith Good

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