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Wednesday Morning Update: Policy Issues-Ag Economy; Regulations; and, Trade

Policy Issues, Budget Baselines, USDA Reports

Corey Paul reported on Monday at the The Odessa (Tex.) American Online that, “[House Ag Committee Chairman Mike Conaway (R., Tex.)] said when he was appointed chairman in January that his chief priority was launching a review of the country’s Supplemental Nutritional Assistance Program, or food stamps, criticizing a lack of oversight for the $80 billion annual program.

“Conaway said Monday that review is underway and that he does not want his fellow legislators to make cuts to the program before he is finished.

“‘I’m trying to maintain this idea that we don’t have any preconceived reforms in mind right this second, and we want to let those percolate out of the review itself,’ Conaway said. ‘One of the fights I’m having with the budget is to make sure they don’t do things there that would taint the water.’”

Meanwhile, with respect to the commodity title of the Farm Bill, Reuters news reported yesterday that, “Government support for U.S. grain farmers under the new five-year farm bill will peak with the coming 2015 crop, the Food and Agricultural Policy Research Institute said in a new report.”

The article noted that, “‘Payments under 2014 farm bill programs increase when crop prices fall,’ FAPRI said in its 2015 U.S. Baseline Briefing Book. The think tank estimated that $3.9 billion in ARC and PLC payments for last year’s 2014 crop would be made after fiscal 2016 begins on Oct. 1.

“‘ARC spending is greatest in 2015/16 but declines in later years as the moving averages that determine benchmark revenues adjust,’ FAPRI said. ‘Projected average ARC and PLC payments peak with the 2015 crop at about $6.5 billion but decline to $3.4 billion for the 2018 crop.’”

A closer look at the FAPRI report, along with updated baseline projections released earlier this week from the Congressional Budget Office, can be viewed at this FarmPolicy.com page.

With respect to the market price outlook in the FAPRI and CBO updates, University of Illinois agricultural economist John Newton provided a visual look at the difference in price projections for corn and soybeans in the two baselines in these two graphs from yesterday.

In related news regarding market prices, Jesse Newman reported in today’s Wall Street Journal that, “U.S. corn futures trimmed losses Tuesday after federal forecasters projected tighter-than-expected stockpiles of the grain.”

The Journal article explained that, “Corn prices shed declines—and briefly moved higher—after the U.S. Agriculture Department estimated that corn stockpiles before the next harvest would total 1.777 billion bushels. That was down from its estimate in February of 1.827 billion bushels and below analyst forecasts for 1.822 billion bushels, reflecting in part expectations for healthier demand for the grain from livestock producers and overseas grain buyers.

“The USDA, in a monthly supply-and-demand report, also cut its forecast for global corn stockpiles, surprising some analysts.

“Corn futures for March delivery were down 1 1/4 cents, or 0.3%, to $3.82 a bushel at the Chicago Board of Trade. The March contract had fallen more than 1% before the USDA report was released.”

Today’s article added that, “Corn prices tumbled in the past two years as U.S. growers produced back-to-back bumper crops. But demand for corn from buyers including livestock producers has been relatively healthy, limiting recent declines in the futures market.”

Yesterday’s crop report indicated that, “The season-average farm price for corn is projected at $3.50 to $3.90 per bushel, up 5 cents at the midpoint.”

John Newton, from the University of Illinois, tweeted yesterday that, “New mid-point of the WASDE 14/15 corn marketing year price is 3.70, squeezing out potential #PLC benefits”

The WASDE report added that, “The U.S. season-average soybean price range for 2014/15 is projected at $9.45 to $10.95 per bushel.”

Christopher Doering reported yesterday at The Des Moines Register Online that, “Meanwhile, the government cut its estimate for corn-for-ethanol use by 50 million bushels, to 5.2 billion bushels. Iowa is the largest ethanol-producing state.”

The Register article noted that, “U.S. farmers have seen prices for corn and soybeans plunge the past two years as once-scarce supplies were more than replenished by record production. While some farmers have struggled to cover their cost of production, cheap prices have helped ethanol plants and livestock producers.”

Bloomberg writers Jeff Wilson and Lydia Mulvany reported yesterday that, “The grain [corn] plunged 43 percent in the previous two years after farmers harvested record crops in the U.S., the world’s top grower. World food prices tracked by the United Nations extended a drop to the lowest since July 2010 last month amid bigger global crops.”

Current crop condition reports from Texas, Kansas and Oklahoma were highlighted in this FarmPolicy.com update from yesterday– corn planting is underway in Texas, where 50% of the winter wheat crop is in good to excellent condition. Forty-six percent of the wheat crop in Kansas is in good to excellent condition, while 42% of the wheat crop in Oklahoma falls into that category.

Texas Governor Gov. Greg Abbott recently issued a proclamation to renew the state of disaster designation for 95 Texas counties due to exceptional drought conditions, Texas Ag Commissioner Sid Miller noted yesterday that, “I commend Governor Abbott for his continued leadership on water issues and commitment to using all available resources to help Texans who are suffering from this extended drought. Even though our state has received welcomed rains, the drought is still causing perils for agriculture producers and citizens alike. It’s important to understand the drought is by no means over. Many area lake levels remain low and river flows are down.”

In other policy related news, an update yesterday from Rep. Jim Costa (D., Calif.) noted that, “Today, [Rep. Costa] and Congressman Steve Womack (R-Ark.) announced the formation of a new, bipartisan Congressional Chicken Caucus in the House of Representatives.

“The caucus will serve as a formal group of members whose mission is to educate members of Congress and others about the history, contributions and issues of importance to U.S. chicken producers, pertaining to food safety, international trade, labor, animal welfare, immigration and environmental issues, among others.”

More broadly on poultry issues, Reuters writer Meenakshi Sharma reported yesterday that, “Poultry firms expect demand to pick up after a ban on beef in India’s western state of Maharashtra, with other states ruled by Prime Minister Narendra Modi’s Hindu nationalist party also aiming to toughen laws on livestock slaughter.”

Also, Reuters writers Tom Polansek and P.J. Huffstutter reported yesterday that, “A suspected case of avian influenza has been identified in poultry in Arkansas, the third-largest U.S. turkey producer and home to Tyson Foods Inc , the nation’s biggest chicken company, the U.S. Department of Agriculture said on Tuesday.

“The infection, if confirmed, threatens to widen trading bans from countries such as Taiwan, Singapore and Nicaragua that have already restricted U.S. poultry exports due to bird flu outbreaks in states ranging from Minnesota and Missouri to California.”

 

Regulations

A news release yesterday from Sen. Deb Fischer (R., Neb.) stated that, “[Sen. Fischer] will chair a hearing of the Senate Environment and Public Works Committee in Lincoln, Nebraska on Saturday, March 14, 2015, at 10:00 a.m. CST. The hearing will focus on the impact of the proposed Waters of the United States (WOTUS) rule, which would expand federal regulation of water in Nebraska.”

Recall that the House Agriculture Conservation & Forestry Subcommittee will take a closer look at the Waters of the U.S. rule next week.

And a news release yesterday from the American Farm Bureau Federation [AFBF] indicated that, “The [AFBF] is warning that the Environmental Protection Agency’s proposal to place further restrictions on air quality standards would damage agriculture and rural communities if implemented.

“The move to tighten already strict ozone standards would impose significant cost to farmers and ranchers without delivering a guaranteed benefit to the public, AFBF said in formal comments submitted to the EPA late yesterday.”

 

Trade

Writing yesterday in the Morning Trade update from Politico, Victoria Guida noted that, “Moves by the Obama administration and members of Congress to make up with Havana have had businesses strategizing since mid-December about how to break into the Cuban market.

“But even if Congress were to lift the decades-old embargo tomorrow, Havana’s trade hurdles won’t just disappear.”

The update added that, “As the White House pushes forward with negotiations to reopen embassies at a fast clip, business leaders are struggling to navigate Cuba’s challenging business environment — from the communist bureaucracy’s tight control over the distribution of imports and its clamp-down on Internet access to its abysmal credit rating and the country’s dearth of hard currency.

Businesses need to go into the country with a long-term strategy in mind, not with the idea of getting rich quick, said Mark Entwistle, a former Canadian ambassador to Cuba and founder of the merchant bank and advisory firm Acasta Capital. ‘For smaller companies that are living from account receivable to account receivable,’ he said, ‘Cuba’s probably not your place.’”

Yesterday’s Politico update also stated that, “Japan’s extensive farm subsidies went under the microscope this week in Geneva, with the World Trade Organization’s secretariat releasing a report highlighting the country’s above-average level of support for the agricultural sector.

“‘Despite changes in agricultural programmes over the past few years, support and protection given to agriculture in Japan remains high compared to other countries and is provided by a comprehensive set of policies,’ the WTO secretariat says in its routine trade policy review of Japan. The report adds that while Tokyo has moved toward supplementing farmers’ incomes, propping up prices is still the main mode of support.

“‘[Market price support], along with other transfers based on outputs and inputs, is potentially one of the most production and trade-distorting forms of support,’ the report says.”

The Los Angeles Times editorial board indicated in yesterday’s paper that, “With negotiators closing in on a major and hotly disputed trade pact for the Pacific region, the Obama administration is pressing Congress again to pass a bill that would require an up-or-down vote on the agreement with no amendments or filibusters. At this point, it’s hard for the administration to argue that this ‘fast track’ process is crucial to its ability to get an agreement — a deal appears to be coming regardless. And it’s far too late for Congress to lay out its trade goals, which is one of the traditional rationales for granting fast-track authority. But it’s not too late for the deal to get better, and approving fast-track authority could help.”

Keith Good