FarmPolicy

September 19, 2017

Thursday Morning Update: Ag Economy; Trade; and, Regulations

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Agricultural Economy

Adam Nagourney reported on the front page of today’s New York Times that, “Gov. Jerry Brown on Wednesday ordered mandatory water use reductions for the first time in California’s history, saying the state’s four-year drought had reached near-crisis proportions after a winter of record-low snowfalls.

“Mr. Brown, in an executive order, directed the State Water Resources Control Board to impose a 25 percent reduction on the state’s 400 local water supply agencies, which serve 90 percent of California residents, over the coming year. The agencies will be responsible for coming up with restrictions to cut back on water use and for monitoring compliance. State officials said the order would impose varying degrees of cutbacks on water use across the board — affecting homeowners, farms and other businesses, as well as the maintenance of cemeteries and golf courses.

“While the specifics of how this will be accomplished are being left to the water agencies, it is certain that Californians across the state will have to cut back on watering gardens and lawns — which soak up a vast amount of the water this state uses every day — as well as washing cars and even taking showers.”

Today’s article explained that, “Owners of large farms, who obtain their water from sources outside the local water agencies, will not fall under the 25 percent guideline. State officials noted that many farms had already seen a cutback in their water allocations because of the drought. In addition, the owners of large farms will be required, under the governor’s executive order, to offer detailed reports to state regulators about water use, ideally as a way to highlight incidents of water diversion or waste.

Because of this system, state officials said, they did not expect the executive order to result — at least in the immediate future — in an increase in farm or food prices.”

Chris Megerian, Matt Stevens and Bettina Boxal reported last night at the Los Angeles Times Online that, “The order focused on urban life even though agriculture accounts for roughly three quarters of Californians’ water usage.”

The article added that, “For the second year in a row, Central Valley growers without senior water rights are likely to get no supplies from the valley’s big federal irrigation project. Last year farmers idled about 500,000 acres for lack of water, and this year they may be forced to leave even more cropland unplanted.

“‘Some people want to say, ‘What about the farmers?’ And farmers want to say, ‘What about those people watering their lawns?‘’ Brown said. ‘We all have something to do, and we can all do a little better.’”

Darryl Fears reported on the front page of today’s Washington Post that, “Crop farms and other agricultural operations will not be affected, state officials said, because many have been hard hit already. Last year, more than 400,000 acres were not planted as a result of drought, and 17,000 workers lost their jobs, said Karen Ross, secretary of the state’s Department of Food and Agriculture.

But farms must now take the added step of reporting ‘more water use . . . to state regulators, increasing the state’s ability to enforce against illegal diversions and waste and unreasonable use of water under today’s order,’ according to the Brown administration.”

And, Henry Fountain reported in today’s New York Times that, “The severe California drought that has led the state to order cutbacks in water use may not have been set off by climate change, scientists say, but global warming is making the situation worse.

“‘The drought is made of two components: not enough rain and too much heat,’ said Michael Oppenheimer, a climate scientist at Princeton. ‘The rain deficit isn’t clearly connected to climate change, but the planetary warming has made it more likely that the weather would be hotter in California.’

“Warmer temperatures worsen drought by causing more evaporation from reservoirs, rivers and soil. Scientists say that the warming trend makes it highly likely that California and other parts of the Western United States will have more severe droughts in the future.”

Bloomberg writers James Nash, Megan Durisin, and Brian K. Sullivan reported yesterday that, “California is entering its fourth year of drought as its rainy season ends with blue skies and brown hillsides from San Francisco to Los Angeles, threatening crops and livestock in the most productive agricultural region.

“Hopes for a wetter-than-usual winter to replenish reservoirs drained by three years of drought subsided with the end of March, as a dry spring left San Francisco with 89 percent of its usual rainfall and Los Angeles with 64 percent, according to the National Oceanic & Atmospheric Administration. Snowpack in the Sierra Nevada, which supplies California’s farms and urban centers, stood at just 6 percent of normal.

“The two largest reservoirs supplying most of California’s 39 million residents were at 40 percent of capacity, while farmers in the interior faced decisions on whether to walk away from fields of rice, citrus trees and tomatoes.”

The article indicated that, “The lack of water, and particularly the decline in Sierra runoff used to supply farms and cities during the dry months between April and November, means farmers will plant fewer tomatoes, remove some vineyards, grow less feed for dairy and beef cows and take other measures likely to reduce supply and drive up costs, said Mike Wade, executive director of the California Farm Water Coalition in Sacramento.”

On a separate weather related issue, Bloomberg writer Lydia Mulvany reported yesterday that, “Add record prices for Easter eggs to the list of annoyances spawned by this year’s frigid U.S. winter.

“Why eggs? Because when it’s cold out, consumers want to poach, fry and scramble them in the mornings for a hot breakfast, so says commodity researcher Urner Barry. All that cracking means hens are having a hard time keeping up with demand, especially as exports surge to Canada and Mexico. Wholesale U.S. prices are at the highest ever leading into Easter, according to Urner Barry, which has been tracking the data since 1858.”

The article pointed out that, “Wholesale-egg prices reached $1.85 a dozen on March 26, according to Bayville, New Jersey-based Urner Barry. Prices are up about 46 percent from 2014, and have more than doubled from 87 cents five years ago. Last year, Easter fell on April 20, and prices reached a seasonal peak of $1.80 leading into the holiday.

The Easter bump for prices may be short-lived as producers expand hen flocks and cheap grain reduces feed costs. Egg output will climb 1.1 percent in 2015 to 8.4 billion cases, the USDA estimates. A case contains 12. Prices will average about $1.30 per dozen this year, down from $1.423 in 2014, the agency forecasts.

“While supplies are up, strong domestic and export demand is keeping prices supported, according to Maro Ibarburu, an analyst at the Ames, Iowa-based Egg Industry Center. U.S. consumption will rise to 264 eggs a person in 2015, the USDA estimates, the highest since 1982.”

Meanwhile, from a broader perspective, Bob Burgdorfer reported earlier this week at Farm Futures Online that, “By now we all know 2015 will be a difficult year for farmers. Implement companies warn of lower sales, economists predict used equipment will be shrouded in ‘for sale’ signs, and tenant farmers are, albeit in rare cases, backing out of farmland leases.

“Amid this gloom is Robert Johansson, the new acting head economist at USDA, who is not so gloomy. Yes, there will be tough times and low prices, but big cash reserves and low interest rates should have many farmers surviving, he says.

“In addition, the median farm household income should creep higher, albeit because of off-farm jobs.”

The article indicated that, “Large commercial farms will face the greatest pressure from lower crop prices as they typically rely solely on on-farm income. But, he says, these farms also have plenty of cash from the profitable years and if they need money for operating expenses, low interest rates will make borrowing cheap.

“‘Those are the farms that are going to be affected most by the downturn in prices,’ he says of the large operators. ‘But, those are also the farms that have benefited the most from the bigger net-farm revenue over the last four years.’”

The article also noted that, “Johansson also talked about cash rents, which farmers hope will come down with the decline in crop prices. Renters want to negotiate lower terms but many landlords have balked, knowing farmers have had several good years.

“Maybe not this year, but next year we should see cash rents come down to reflect that (lower land values), he says.”

Reuters writer Christine Stebbins reported earlier this week that, “Farmland prices in Iowa, the top U.S. corn and soybean state, are down by an average 7.6 percent over the past six months and 11 percent from a year ago, pressured mainly by lower grain prices, according to a survey released Tuesday.

“The report by the Iowa Realtors Land Institute said that all nine Iowa crop acreage districts showed a decrease in value since September 2014, ranging from 4.6 percent in the southwest to 11 percent in the northeast.”

 

Trade

Bloomberg writer Carter Dougherty reported yesterday that, “U.S. and Japanese negotiators are rushing to complete a trade agreement they can unveil during Prime Minister Shinzo Abe’s visit to Washington later this month, something they hope will pave the way for a broader Asia-Pacific pact involving 10 other countries.

“An accord between the U.S. and Japan about access to each others’ markets for products such as pork, rice and automobiles would only take effect if incorporated into the Trans-Pacific Partnership, a 12-nation negotiation that Japan joined in 2013. Although all the governments must agree, the U.S. and Japan are by far the largest economies involved.

“‘Negotiators are meeting around the clock, countries are moving on issues that seem intractable months ago,’ Acting Deputy U.S. Trade Representative Wendy Cutler said of the bilateral talks in a March 30 speech in New York. ‘I’ve been doing this a long time and I sense and feel that we are in the end game.’”

 

Regulations

AP writer Keith Ridler reported today that, “A group of Western-state governors has released a report on voluntary efforts in 11 states to conserve the habitat of sage grouse as part of an effort to avoid a federal listing of the bird under the federal Endangered Species Act.

“The 32-page ‘2014 Sage-Grouse Inventory’ released Thursday by the Western Governors’ Association identifies conservation work during the year and is accompanied by a 101-page appendix listing efforts since 2011.”

The article noted that, “‘The states have certainly done all that has been asked of them and all that can be done to prove to the federal government that a listing is unnecessary,’ said Idaho Gov. C.L. ‘Butch’ Otter, who has proposed ideas for protecting habitat that have been incorporated by federal planners.

“The U.S. Fish and Wildlife Service has a Sept. 30 deadline to decide whether to propose the greater sage grouse as needing protections that could limit ranching as well as oil and gas drilling in the West. The Western Governors’ Association said a listing will reduce voluntary conservation work and harm states’ economies.”

Timothy Cama reported yesterday at The Hill Online that, “Federal officials have declared the northern long-eared bat a threatened species, defying objections from congressional Republicans.

“The Fish and Wildlife Service’s listing under the Endangered Species Act means the bat is under threat of becoming endangered.”

And, Michael J. de la Merced reported in today’s New York Times that, “Less than a week after agreeing to sell itself to H. J. Heinz in a blockbuster deal, the Kraft Foods Group has found itself the target of a government lawsuit over wheat prices.

“The Commodity Futures Trading Commission on Wednesday sued Kraft and its former corporate parent, Mondelez, over what the regulator said in a statement were illicit trades of both wheat futures and other violations of commodity trading rules.”

The article noted that, “In its complaint, filed in federal court in the Northern District of Illinois, the C.F.T.C. homed in on trades involving wheat futures in the fall of 2011. As the cash price of wheat rose, Kraft Foods, the former parent of both companies, bought about $90 million worth of futures.

“The intent was to cause a price drop in the cash wheat market, as sellers were led to believe that Kraft’s trade meant that it would require less of a type of wheat, the commission contended. Yet Kraft never intended to take possession of the wheat tied to the futures contracts, which amounted to a six-month supply for its main mill.

Ultimately, Kraft received more than $5.4 million in illicit profits from its trading strategy, according to the complaint.”

Keith Good

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