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

Agricultural Economy

Reuters writer Christine Stebbins reported yesterday that, “Drought pressures will increase in California and western areas of the United States this spring even as the dry season begins, the government’s Climate Prediction Center said on Thursday.

“‘Periods of record warmth in the West and not enough precipitation during the rainy season cut short drought relief in California this winter and prospects for above-average temperatures this spring may make the situation worse,’ Jon Gottschalck, chief of the Operational Prediction Branch at the Climate Prediction Center, said in issuing its spring outlook.

“The center, a division of the National Oceanic and Atmospheric Administration, also said rivers in western New York and eastern New England have the greatest risk of spring flooding in part because of heavy snowpack coupled with possible spring rain.”

Chris Megerian and Melanie Mason reported yesterday at the Los Angeles Times Online that, “Gov. Jerry Brown and top lawmakers from both parties announced Thursday a $1-billion plan to deal with California’s persistent drought, describing the legislation as a mix of short-term relief and support for long-term water projects.

“‘This is a struggle,’ Brown said at a Capitol news conference. ‘Something we’re going to have to live with. For how long, we’re not sure.’

“Millions of dollars would be spent faster than previously scheduled to provide food assistance and emergency drinking water in hard-hit communities. Additional money would go to wildlife preservation.”

The article noted that, “California is entering its fourth consecutive year of drought , and this latest proposal will mark the second consecutive year in which the Legislature has considered emergency drought relief.”

Jim Carlton reported in today’s Wall Street Journal that, “In a news conference, the governor said California has to be prepared in case the drought continues for a fifth straight year. Already, the drought has severely affected farming in the state and prompted early closures of Sierra Nevada ski resorts.”

A statement yesterday from Western Growers’ President and CEO Tom Nassif on the drought relief measure noted in part that, “Today the Governor said that if the drought continues, ‘there will be restrictions’ on water use by all Californians. This may be interpreted by some to mean that so far, there haven’t been any restrictions placed on the state’s farmers. In fact, California farmers and Californians living in some rural areas are the only people in the state who have had their water cut off. Last year, the State Water Project only delivered 5 percent of the requested supply. The federal Central Valley Project delivered no water at all to the San Joaquin Valley. This year, the state project will deliver only 20 percent and the federal project is projecting another year of zero water delivered to the San Joaquin Valley.

“Farmers bear the brunt of these restrictions. Last year, 500,000 acres of highly productive farmland was left unplanted, and that number is expected to grow by as much as 40 percent this year. For the farm workers and others whose economic security is tied to California’s farms, water supply restrictions mean lost jobs and family stress. Last year, 17,000 farm jobs were lost due to water cuts and this year the number will be higher.”

In a separate Reuters article yesterday, Christine Stebbins reported that, “Planting is expected to start early in the northern U.S. Corn Belt after a dry winter but seeding is behind schedule in southern crop areas where it’s been too wet, U.S. government forecasters said on Thursday.

“‘I would expect planting to go a little better in the upper Midwest this spring than it will in the Ohio River Valley,’ Brad Rippey, a meteorologist with the U.S. Department of Agriculture, told reporters at a spring outlook presentation.”

The article noted that, “In the Delta and Texas, farmers often begin planting as early as late February. But in Texas, just 11 percent of the corn crop was seeded by Sunday, versus the five-year average of 25 percent.

“‘As of mid-March we haven’t seen a single acre of rice or corn planted in Louisiana,’ Rippey said. ‘That is behind the five-year average.’

“In contrast, drought pressure is expanding in the northern Corn Belt centered on Minnesota and adjacent states.”

Also yesterday, University of Illinois agricultural economists Scott Irwin and Darrel Good indicated at the farmdoc daily blog (“Forming Expectations for the 2015 U.S. Average Soybean Yield: What Does History Teach Us?”) that, “There has been a lot of discussion about the likely magnitude of planted acreage of soybeans in the U.S. in 2015. For the most part, current expectations are that acreage will increase as acreage of other crops that have higher production costs and/or lower potential net returns are reduced. Those expectations are not universal. Analysis prepared by the USDA’s Wheat, Feed Grains, Rice, and Oilseeds Interagency Commodity Estimates Committees and presented at last month’s USDA Outlook Forum projected plantings at 83.5 million acres, 200,000 fewer acres than planted in 2014. The USDA will release the results of its survey of 2015 planting intentions in the Prospective Plantings report to be released on March 31.

“In addition to the magnitude of planted acreage, the size of the 2015 soybean crop will obviously be determined by the average yield of the crop. Factors determining yield will unfold over the next six months. For the time being, yield expectations are generally based on trend yield analysis that might also incorporate specific views on prospects for growing season weather. For example, the USDA has projected a 2015 U.S. average soybean yield of 46 bushels per acre. This raises the perennial issue of what, if anything can be learned from the historical trends and patterns of U.S. average soybean yields. Here, we examine the history of soybean yields from 1960 through 2014 as a basis for forming an expectation of the U.S. average soybean yield in 2015. The analysis follows the same format as our farmdoc daily article last week on 2015 corn yields (February 26, 2015) and also updates our analysis of soybean yields in this earlier article (February 8, 2012).”

Yesterday’s update concluded by stating that, “…[G]iven the various alternatives, we maintain that yield expectations should be based on the longest sample of data with a stable trend yield component. Since we have been unable to find significant evidence of trend yield shifts since 1960, we argue that the period of 1960-2014 best meets this criterion. After adjusting for bias, the best linear fit of actual yields in the U.S. from 1960 through 2014 results in a trend yield projection for 2015 of 44.6 bushels per acre. This is 1.4 bushels less than the USDA’s 2015 trend yield projection for soybeans of 46 bushels…”

Meanwhile on the issue of cash rents, University of Illinois agricultural economist Gary Schnitkey tweeted this interesting graph yesterday with the following comment- “2015 cash rents on professionally managed land down but high:

$350 – excellent

$295 – average

$295 – average

$250 – good

$200 – fair”

The USDA’s National Agricultural Statistics Service noted yesterday in its monthly Milk Production report that, “Milk production in the 23 major States during February totaled 15.1 billion pounds, up 1.7 percent from February 2014 [related graph].”

In other developments, Reuters news reported this week that, “The United States has reported a mild form of bird flu on a turkey farm in California, the World Organisation for Animal Health (OIE) said on Wednesday, the latest in a series of outbreaks to hit the U.S. poultry industry in recent months.

“The U.S. Department of Agriculture said in a report posted on the OIE website that a commercial turkey flock in Merced County, near San Francisco, had been coughing with a slight increase in mortality last week.”

Earlier this week, at a Senate Appropriations Ag Subcommittee hearing, Jerry Moran (R., Kan.) asked Sec. of Agriculture Tom Vilsack about the bird flu issues, a transcript of that discussion is available here.

 

Policy- Trade Issues

Reuters writer Krista Hughes reported yesterday that, “U.S. regulators on Thursday approved a controversial trade deal with Mexico that imposes a quota on sugar imports and sets minimum prices, rejecting challenges from domestic cane refiners and bringing a year-long trade battle closer to resolution.

“The decision by the U.S. International Trade Commission paved the way for a suspension agreement between the U.S. and Mexican governments that establishes floor values and puts a caps on volumes for imports from Mexico.”

Bloomberg writer Aya Takada reported yesterday that, “Japan, the world’s largest pork importer, can accept a 50 percent reduction in import tariffs to help pave the way for the nation to reach an agreement on the Trans-Pacific Partnership, a producer group said.

“The Japan Pork Producers Association could tolerate a cut in duties to as low as 240 yen ($2) a kilogram from a maximum 482 yen at present, said Hisao Kuramoto, a managing director at the Tokyo-based organization.”

Also yesterday, a news release from the National Milk Producers Federation stated that, “The national dairy organizations of the United States, Australia and New Zealand today issued a joint letter to their respective trade and agriculture officials, pressing for an ambitious, comprehensive and commercially meaningful outcome in the Trans-Pacific Partnership (TPP) negotiations. Representing three of the leading dairy exporting nations in the world, the groups believe TPP provides a historic opportunity to eliminate trade distortions and ensure an abundance of safe and affordable products for consumers, while providing increased opportunities for dairy farmers and processors.”

Meanwhile, AP writer Mary Clare Jalonick reported yesterday that, “Ten states will test new ways to get food stamp recipients back to work, using Agriculture Department grants aimed at helping some of the 46 million Americans who receive benefits move off the rolls.

“The grants come as the Republican Congress is exploring ways to cut the program, which cost $74 billion last year — twice its cost in 2008. Some in the GOP have proposed stricter work requirements as a way to do that.

“The winning ideas ranged from using career coaches to quicker training courses to mental health assistance.”

The AP article explained that, “The five-year farm bill sets policy for agricultural programs and nutrition aid like food stamps, now called the Supplemental Nutrition Assistance Program, or SNAP. House Republicans held up the bill for almost two years, arguing that food stamp spending needed to be cut.

In the end, the bill made an estimated 1 percent cut to the program and established the grants for states to test work training programs.

“[Sec. of Ag. Tom Vilsack] said the grants will help USDA identify what works and doesn’t work in terms of getting people to work.”

Yesterday, the House Appropriations Agriculture Subcommittee heard USDA budget related testimony from Michael T. Scuse, the Under Secretary for Farm and Foreign Agriculture Service.

In prepared remarks, Mr. Scuse noted that, “The Federal crop insurance program represents a vital risk-mitigation tool available to our Nation’s agricultural producers. It provides risk management tools that are market driven and reflect the diversity of the agricultural sector, including specialty crops, organic agriculture, forage and rangeland, as well as traditional row crops.

“Over its 76 year history, the value of the Federal crop insurance program to American agriculture has grown. In FY 2014, the crop insurance program provided coverage on more than 295 million acres of farm and ranch land and protected nearly $110 billion of agricultural production. This represents a 10-fold increase from the $11 billion in crop insurance protection provided just two decades ago. As of February 23, 2015, indemnity payments to producers on their 2014 crops total just over $8 billion on a premium volume of just over $10 billion. Our current projection for the 2015 crop year shows the value of protection will decline slightly, to about $108 billion. The decline is based on the Department’s estimates of planted acreage and expected changes in market prices for the major agricultural crops.”

Risk Management Agency Administrator Brandon Willis, who also testified at yesterday’s hearing, pointed out that, “The 2014 Farm Bill required RMA to offer a product to cover diversified farms, but RMA began work on this effort well before the 2014 Farm Bill was enacted into law. Prior to the passage of the 2014 Farm Bill, RMA developed the Whole Farm Revenue Protection policy and the Federal Crop Insurance Corporation Board of Directors approved the policy shortly after the 2014 Farm Bill became law. As a result, Whole Farm Revenue Protection is available for purchase for the 2015 crop year. I am happy to report that it has been generally well received when presented at conferences for specialty crop and organic growers around the country.”

Subcommittee ranking member Sam Farr (D., Calif.) also commented on changes in the crop insurance program during his opening comments at yesterday’s hearing- audio clip here.

 

Regulations

A news release yesterday from the House Ag Committee stated that, “Today, the House Committee on Agriculture approved H.R. 897, the Reducing Regulatory Burdens Act of 2015. This legislation (H.R. 872 in the 112th Congress and H.R. 935 in the 113th) would clarify Congressional intent regarding pesticide regulation in or near waters of the United States.”

A news release this week from the Organic Consumers Association stated that, “Lawmakers from both parties joined with concerned citizens and representatives from several non-profits at the Maine State House today, March 19, to roll out a landmark initiative that would place Maine at the forefront of the food safety movement…LD 991 would require foods distributed in Maine to include a label if genetically modified organisms were used to produce the final product…In 2013, Maine legislators passed a law that would require labeling for foods that contain genetically modified organisms, but only if five contiguous states passed a similar requirement first. This effectively allows Maine to be held hostage on this issue until New Hampshire decides to pass a similar law.”

Soumya Karlmangla reported in yesterday’s Los Angeles Times that, “Seven years ago, Los Angeles made national headlines with a novel attempt to reduce obesity in South L.A. by banning new fast-food restaurants.

“But a new study found the effort has not achieved its intended goal.

“A Rand Corp. report released Thursday says that from 2007 to 2012, the percentage of people who were overweight or obese increased everywhere in L.A., but the increase was significantly greater in areas covered by the fast-food ordinance, including Baldwin Hills and Leimert Park.”

The article added that, “The study also found fast-food consumption went up in South L.A. as well as across the county during that time.”

Also, David Zucchino reported yesterday at the Los Angeles Times Online that, “A federal judge threatened Thursday to sanction the Justice Department if he finds that government lawyers misled him about the rollout of President Obama’s plan to shield up to 5 million people from deportation.

U.S. District Judge Andrew S. Hanen, visibly annoyed, confronted a U.S. deputy assistant attorney general over previous government assurances on the timing of the program.

“He asked why he shouldn’t grant a discovery request for internal federal immigration documents — a request filed Thursday by 26 states that are suing over Obama’s executive actions on immigration.”

Keith Good