DTN Executive Editor Marcia Zarley Taylor reported yesterday that, “Farmers know they must weather the lean years to benefit from the occasional fat ones. But erosion in federal crop revenue insurance guarantees since 2013 is compounding the risks for farm operators during this downturn.
“‘In times like this, we aren’t worried about making money. Our goal is to make darn sure we don’t lose too much,’ said Mark Bryant, who raises wheat, corn and soybeans with brother Mike and other family members in Washington Courthouse, Ohio.
“Bryant’s problem is the crop insurance floor keeps falling with commodity prices, exposing his farm to ever bigger losses. Ohio winter wheat producers, who face a 2017 crop insurance sale closing date of Sept. 30, will be guaranteed only $4.74 per bushel next year, down 45% from the same coverage four years ago.”
Ms. Taylor noted that, “Winter wheat isn’t alone. Back in 2013, a typical non-irrigated Kansas corn grower could guarantee about $678 per acre (thanks to a $5.65 base price and 120 bpa historic yield with 80% coverage.) By 2016, that protection had dipped 32% — to a base price of $3.86 and $463 per acre coverage, observed Kansas State University economist Allen Featherstone.
“Sadly, production costs haven’t retreated nearly as far or as fast as prices, leaving farmers to self-insure those revenue gaps.”
The DTN update added that, “Based on futures prices in late September, Featherstone expects that same 80% corn coverage to shrink to only $448 per acre coverage with a $3.73 guarantee in his Kansas example. That’s an additional $230-per-acre operator risk compared to four years earlier.
“Soybeans also have suffered from a similar safety net shrinkage, although they stand to get a small bump upward come spring. Featherstone projects 2017 spring insurance prices at $9.31 for soybeans, down from $12.87 per bushel in 2013 but up from $8.85 per bushel in 2016.”
DTN Graph Courtesy of KSU
Ms. Taylor also pointed out that, “Bryant is exploring private insurance products that will help him boost the floor on coverage. University economists also continue to recommend options like Yield Exclusion (YE), Yield Adjustment (YA) and Trend Adjustment (TA), which may significantly boost a grower’s Actual Production History (APH) and ultimately, their revenue per acre.”
A news release on Tuesday from House Ag Committee member Rick Crawford (R., Ark.) stated that, “Today [Rep. Crawford] introduced H.R. 6167, the Farm Risk Abatement and Mitigation Election (FRAME) Act, to give farmers the option of taking disaster preparedness into their own hands. The FRAME Act would establish tax-deferred farm savings accounts that farmers could then withdraw from during difficult times without waiting on disaster declarations and government assistance.
“In a conversation with the chairman of the Arkansas Bankers Association, Sean Williams, Congressman Crawford discussed the details of the legislation and how it would work in practice, including its impact on rural communities and banks. The video [is available below], and the audio here.”
The news release added that, “Like IRA’s and Health Savings Accounts, Crawford’s proposed FRAME Accounts would allow contributions, capital gains and dividends to be tax-deferred. Farmers would then be able to draw from the FRAME account whenever they needed it to cope with a disaster, independent of government or state designation, which can often be slow in coming.
“To encourage initial investment, farmers will be eligible to write-off FRAME Account contributions on their tax bill. Contributions will be tax deductible up to $50,000 per year, and farmers will retain 10% of their contributions in the form of a tax credit during the first few years after opening the account.”
And Brownfield’s Tom Steever reported yesterday that, “The accounts, said Crawford, are intended for emergency money in lieu of ad hoc disaster payments which he says are harder to come by.
“‘We’re looking at this as a way essentially for farmers to get a little bit of the tax benefit for implementing a risk management strategy that they can utilize at their own discretion, obviously with those safeguards that we talked about before,’ he said, ‘but it puts the taxpayer at no exposure.’
“The Farm Risk Abatement & Mitigation Election – FRAME – Act provides for penalties when the account is used for non-farm related expenditures such as vacations, according to Crawford. Contributions to the accounts, capital gains and dividends, he said, are to be tax-deferred.”
Mr. Steever and Rep. Crawford also discussed the legislation in more detail, an audio replay of their conversation is available here.
Nathan Kauffman indicated in a column posted yesterday at the Federal Reserve Bank of Kansas City Online (“U.S. Farm Economy Slumps into the Fourth Quarter“) that, “In August, expectations for 2016 farm income were revised up modestly from the February forecast, but income was still expected to decline notably from a year ago. The U.S. Department of Agriculture’s August revision can be interpreted as both positive and negative for the farm sector. On the positive side, farm income expectations for 2015 and 2016 were revised up by 43 percent and 31 percent, respectively (Chart 1). On the negative side, however, the expected decline in farm income from 2015 to 2016 widened from 3 percent earlier in the year to 11 percent in the most recent report. Essentially, farm income was higher than initially forecasted, but the deterioration from a year ago is now believed to be sharper than expected.”
Dr. Kauffman stated that, “The improvement in farm income expectations was largely due to downward revisionsin production costs for the farm sector as revenue expectations continued to weaken.”
The Fed report added that, “Although U.S. farm income expectations were revised up in August, profit margins for many producers of major U.S. agricultural commodities weakened significantly in the third quarter. In the crop sector, the range of average monthly prices throughout 2016 has left very few opportunities for producers to sell at a profit (Charts 4a, 4b, 4c, 4d). Since 2013, profit margins have dropped precipitously for corn, soybeans, wheat, and cotton, and both wheat and corn prices were hovering at or near 10-year lows in September.”
Yesterday’s report also pointed out that, “The downturn in the agricultural economy has continued to affect credit conditions in the sector. From 2010 to 2014, borrowers had few problems repaying loans. Since 2014, though, bankers in the Tenth Federal Reserve District have consistently reported an increase in the severity of loan repayment problems (Chart 6). As of the second quarter of this year, Tenth District bankers indicated that more than 7 percent of their agricultural loans were experiencing either ‘major’ or ‘severe’ repayment problems, an increase from just 4 percent in 2015.”
And yesterday’s report also noted that, “Bankers in the Kansas City Fed District also continued to point to spillover effects from the softening farm economy to Main Street business activity.”
From the front page of Wednesday’s Des Moines Register
Donnelle Eller reported on the front page of today’s Des Moines Register that, “Dan Zumbach lost 50 acres of corn when the Cedar River flooded. Yet he considers himself lucky.
“Most of his 160 acres would have been lost if not for family, friends and neighbors who gathered Saturday with combines, grain carts and semitrailer trucks to harvest a field near Palo. They worked from noon until 11 p.m. before the rising waters forced them to quit.”
The Register article stated that, “Iowa’s widespread thunderstorms and torrential rains have done more than flood Iowa’s cities and towns. They have also slowed much of the state’s corn and soybean harvest.
“Officials are trying to assess how many acres have been impacted by flooding, but it’s likely to be thousands, they say.
“Many farmers hope to begin combining in the next couple days, but it could take some growers as long as two weeks before they’re able to harvest soybeans and corn, said state Agriculture Secretary Bill Northey, who farms near Spirit Lake, an area that also was inundated with rain last week.”
Greg Jaffe and Juliet Eilperin reported on the front page of today’s Washington Post that, “Late last year, Agriculture Secretary Tom Vilsack strode into the Oval Office to tell President Obama that he wanted to resign.
“‘Mr. President,’ he said, ‘I think it’s time to go.’
“Vilsack had survived nearly eight years in Washington as Obama’s model Cabinet secretary — a disciplined and efficient technocrat who understood the inner workings of his department, worked well with lawmakers and did not cause trouble for the White House.”
The Post writers stated that, “Lately, though, that approach did not seem to be enough to fix the problems he was seeing in the country. Vilsack was frustrated with a culture in Washington that too often ignored rural America’s struggles and dismissed its virtues. ‘I just sometimes think rural America is a forgotten place,’ he often said.”
“Vilsack sometimes felt forgotten, too. He ran a sprawling bureaucracy with 93,000 employees and a $150 billion budget, but the number of consequential issues crossing his desk had dwindled. ‘There are days when I have literally nothing to do,’ he recalled thinking as he weighed his decision to quit.
“The Oval Office conversation would change the trajectory of Vilsack’s career and affect him personally in ways that he could not have predicted. Obama asked him to oversee the administration’s response to the opioid crisis that was ravaging rural America.”
Today’s article noted that, “The new assignment would force Vilsack to confront not only the immediate drug crisis in the country but also the frustrations and feelings of economic hopelessness that had taken root and allowed the epidemic to flourish.
“Each morning Vilsack’s staff passed him statistics that tracked the administration’s top priorities: its push to train physicians on the risks of opioid addiction; the latest on its effort to get the overdose reversal drug naloxone out to more communities; the status of federal grants earmarked for struggling communities.”
The Post article added that, “[Sec. Vilsack] knew that he did not have money for anything ambitious. An urgent request from the White House earlier this year for $1.1 billion to battle the opioid epidemic was stalled in Congress. His department’s discretionary budget, which he could use to fund clinics, was $2 billion less than it had been in 2010.
“So Vilsack channeled his energy into little things: A police officer he had met complained that prices of naloxone, the overdose-reversal drug, had tripled since January to nearly $160 per dose, making it too costly for many rural police and fire departments. Vilsack promised to raise the issue with the White House.”
“But, he was most excited about a four-state pilot program he was developing to use USDA grants and foreclosed properties to create transitional housing for people in treatment,” the article said.
Jaffe and Eilperin pointed out that, “Vilsack knew that the past 15 years had hit rural America especially hard. Rural child poverty rates had begun climbing in 2003, peaking at levels last seen in the 1960s. Only in the past few years had they begun to edge back down. Rural Americans were older, more likely to be obese, less likely to go to college and more likely to become pregnant in their teenage years than people in the rest of the country. And now the opioid crisis.”
The Post article stated that, “[Sec. Vilsack’s] frustration was with the rest of the country — the media, Congress and the private sector — which he felt had ignored the struggles and contributions of a region that produced most of the country’s food and, during 15 years of war, had disproportionately filled the ranks of its military.”
And today’s article also indicated that, “Privately, [Sec. Vilsack] let his anger and frustration with Washington show. He was sensitive to the smallest slights directed at rural America or his record. Denis McDonough, the president’s chief of staff, praised Vilsack’s effectiveness even as he referred to him as the ‘cranky’ Cabinet secretary.
“‘Maybe I have been here too long,’ Vilsack grumbled. He gazed up at his sprawling Beaux-Arts style office with its gold filigree columns, massive windows and stunning views of the Mall.
“‘I have to be cranky,’ he continued, ‘because people don’t pay attention to this part of the country.'”
The U.S. Trade Representative said the move this week by Chinese officials to drop the ban was a ‘critical first step‘ to restoring market access for U.S. producers.
“The USTR and U.S. Department of Agriculture ‘look forward to China’s final audit report on beef, and subsequent discussions between the United States and China on the specific conditions that will allow trade to resume,’ the representative said in a statement.”
Ms. Gee added that, “The U.S. and China have sparred over acceptable farming practices, including as recently as this month, when the Obama administration launched a case against China at the World Trade Organization. The U.S. alleges that Beijing is subsidizing grain and rice growers above internationally-agreed levels.
“Chinese and U.S. regulators also disagree on whether or not to permit the use of a handful of different veterinary medicines used in animal agriculture.”
Reuters writer Karl Plume reported yesterday that, “Heavy rains and flooding swamped a broad swathe of the northern Midwest this week, halting the harvest of corn and soybeans and forcing the closure of at least two Iowa crop processing plants, traders and farmers said on Friday.
“Farmers’ concerns grew that standing water in fields could damage unharvested crops, while floodwaters swelled the Mississippi River and threatened to disrupt the loading of export-bound grain barges.
“Parts of northern Iowa and southern Minnesota received several inches of rain at midweek, with two-day rain totals topping 10 inches (25 cm) in some areas, meteorologists said.”
Mr. Plume explained that, “Farmers, meanwhile, are waiting for fields to drain and dry out before resuming the harvest, a process that will take longer in cooler September weather than it would in midsummer heat.
“Soggy conditions and waterlogged fields have raised concerns about crop damage and disease, which could reduce farmer revenues at a time when grain prices are already near multi-year lows.
“‘If (soybeans) are under water for more than a day or two, it will be bad,’ said University of Minnesota extension agronomist Seth Naeve.”
Meanwhile, William Edwards indicated in an update yesterday from Iowa State University Extension,that, “Some Iowa corn and soybean producers are facing substantial if not complete crop losses due to flooding. Fortunately, nearly 90 percent of Iowa’s corn and soybean acres are protected by Multiple Peril Crop Insurance (MPCI).”
Mr. Edwards explained that, “Most Iowa producers purchase crop insurance policies with a 75 to 85 percent level of coverage. This means that if crops are a total loss, the producer must withstand the first 15 to 25 percent of the loss. However, in 2016 nearly 90 percent of the crop acres insured in Iowa were covered under Revenue Protection policies, which offer an increasing guarantee if prices increase between February and October. So far, this has added about $.80 per bushel to soybean guarantees, while the current corn futures price is actually below the February average. Moreover, since Revenue Protection (RP) policies are settled at the average nearby futures price during the month of October, rather than local cash prices, farmers receive a bonus equal to the fall grain basis in their area.
“Producers with crops that have been totally destroyed by flooding will not have to incur the variable costs of harvesting. This could save around $20 per acre for soybeans and perhaps $50 per acre for corn, depending on potential yields and drying costs. Nevertheless, even producers who carried insurance at a high coverage level could be looking at net revenues near or below those obtained from normal yields this year.”
Looking to next year, Mr. Edwards noted that, “In some cases there may be doubt as to whether land flooded this year can even be planted next year. Risk Management Agency rules state that land must be physically available for planting to be insurable. Land that cannot be planted due to weather events that occurred before the sales closing date (March 15 in Iowa) is not eligible for prevented planting payments. When operators report their 2016 production, they can request that their 2016 yield histories reflect a value equal to 60 percent of the county “T-yield” rather than a zero or very low yield.
“Close communication and cooperation between owners, crop insurance agents and renters can be a ‘win-win’ strategy in the long run, but recovery may take several years.”
Wall Street Journal writer Rebecca Blumenstein reported this week that, “China’s premier promised to resume Chinese imports of U.S. beef soon, calling it a sign of Beijing’s sincerity to improve commercial ties with the U.S.
“Speaking to U.S. business groups in New York on Tuesday night, Premier Li Keqiang said China would soon allow imports of U.S. beef.”
The Journal article explained that, “Though the premier didn’t give a specific timetable, trade groups have previously said imports may resume before the end of the year. China has had a ban in place on most U.S. beef imports since 2003, partly due to concerns over the spread of bovine spongiform encephalopathy, or ‘mad cow’ disease, after a cow with the disease was found in Washington state.”
Meanwhile, Kelsey Gee, Lucy Craymer and Rebecca Blumenstein reported today at The Wall Street Journal Online that, “U.S. beef producers on Wednesday reacted cautiously to a pledge by China’s premier to lift a ban on U.S. beef imports that has restricted access to the market for more than a decade.
“Industry officials said the lack of a clear timeline for lifting the de facto import ban in place since 2003 limited the potential upside for an industry reeling from rising supplies and a sharp drop in prices.”
Today’s Journal article also included this helpful perspective: “With U.S. freezers heaving with beef as the domestic herd expands, China offers a potential outlet. The country consumes around 13% of the world’s beef, with Brazil and Australia the top overseas suppliers…[U.]S. beef accounted for 70% of the 11,000 tons imported into China in 2002, and with the growth of the market there were significant opportunities for producers, said Angus Gidley-Baird, an analyst at Rabobank.”
“For U.S. hog producers, access to Chinese buyers has been a double-edged sword, as U.S. prices have risen and fallen in line with adjustments in demand from the world’s largest pork market,” the Journal writers said.
In a news release today, Rep. Kevin Cramer (R., N.D.) stated that, “This is great news, both for our cattle producers and consumers worldwide. It presents another opportunity for our livestock producers to help feed a hungry world. China’s 1.4 billion people have a growing appetite for meat consumption, and North Dakota producers have premium product to export. Technical negotiations on lifting this ban are underway, and I will work with the USDA and other agencies to see this large and ever-expanding market opens as soon as practical.”
Recall that earlier this week, The Financial Times reported that, “For the world’s wheat farmers already reeling from decade-low prices due to bumper crops around the world, it is the last thing they wanted.
“Confusion surrounding quarantine rules in Egypt has effectively taken the world’s largest wheat importer out of the international market, depressing prices, which are already weak from plentiful harvests.”
Yesterday, Ed Ballard and Dahlia Kholaif reported at The Wall Street Journal Online that, “Egypt has repealed its ban on imports of grains tainted with ergot, a fungus found in wheat, backing down after a face-off with the international grain trade that was threatening the food security of the import-dependent country.
“The ban had led to the rejection of hundreds of thousands of tons of grain found to contain ergot.”
The Journal writers explained that, “The government said Egypt would abandon its zero-tolerance approach and fall into line with United Nations-backed international standards that tolerate grain containing up to 0.05% ergot. The blight is dangerous in large doses but widely tolerated in trace amounts. Traders said that it is nearly impossible to guarantee a shipment is entirely ergot-free.
“The zero-tolerance policy resulted in 540,000 tons of wheat imports being suspended, according to the government.
“Shipments that had been rejected are now expected to be approved for import, a spokesman for Egypt’s supply ministry said.”
In his prepared testimony, Sec. Vilsack pointed out that, “Even as commodity prices have weakened and farm incomes have decreased, the rural economy remains strong. Our work to increase trade, grow the bioeconomy, strengthen local and regional food systems, and expand conservation have resulted in a more resilient rural economy. Rural and urban areas continue to recover from the Great Recession. Median income for farm households remains near the historic high of 2014 — 35 percent higher than median US household income in 2015.”
In his opening remarks, Chairman Pat Roberts (R., Kans.) pointed out that, “Eleven days ago, I and Chairman Conaway attended the Kansas State Fair, a great opportunity to hear first-hand what folks had on their minds. Plain and simple, farmers and ranchers are worried. The downturn in the agricultural economy is taking a toll on their pocketbooks and the health of many family operations.”
“Most years this would be great news, however these high yields come at a time when we are experiencing large inventories worldwide. At the farm gate, the drop in commodity prices and farm income are felt first hand…and their magnitude is foremost on everyone’s minds around this table.”
Ag Committee Ranking Member, Debbie Stabenow (D., Mich.) indicated in her opening remarks that, “As we know, there has been a dramatic slowdown in the farm economy since the passage of the Farm Bill. Farm income has dropped by over 50 percent—the steepest drop in farm income since the Great Depression. Our farm safety net keeps producers in business when disaster strikes. The 2014 Farm Bill made historic reforms by shifting away from direct payments to a focus on the risk management tools farmers requested to support producers during the bad years like we are seeing today.
“New and beginning farmers are especially vulnerable to financial stress during these times, making access to credit an especially important tool. I applaud USDA for taking action earlier this month to provide additional funding for farm loans. I am hopeful Congress can provide additional flexibility for USDA to extend credit to all farmers in need.”
A news release today from Sen. John Hoeven (R., N.D.) stated that, “Hoeven thanked Vilsack for joining the Office of the United States Trade Representative (USTR) in launching a new trade enforcement challenge against China at the World Trade Organization (WTO). USTR is challenging the country’s excessive subsidies of wheat, rice and corn.” (A portion of the Sec. Vilsack’s remarks on this issue can be heard on the link below).
Sen. Hoeven’s news release added that, “The senator also requested Vilsack’s support for his Capital for Farmers and Ranchers Act, bipartisan legislation Hoeven introduced with Senator Amy Klobuchar (D-Minn.) to increase the maximum loan amount that an individual farmer or rancher is able to receive under FSA’s loan and loan guarantee programs.”
In part, Sen. Perdue noted that, “I’m concerned about regulation. Everywhere that I go, I talk to our farmers. Regulation is the number one topic [of concern], then comes labor.”
Iowa GOP Senator Joni Ernst (R-Iowa) also highlighted regulatory concerns at yesterday’s hearing, noting that, “And what I’m hearing mostly from our Iowans, especially the farmers, the ranchers, and our land owners, is that it really feels like the federal government is out to get them, and I see that a lot with a number of the rules and regulations that are coming forward.”
The full discussion Sen. Ernst had with Sec. Vilack can be viewed below.
A news release yesterday from Sen. John Thune (R., S.D.) stated in part that, “Thune discussed the lack of common-sense guidance and policy for the Conservation Reserve Program (CRP), which is critical to South Dakota agriculture as an economic alternative to farming marginal and fragile lands. Additionally, CRP provides most of the brood-rearing habitat for South Dakota’s pheasant population, which brings in more than $250 million to the state’s economy.”
A replay of Sen. Thune’s discussion from yesterday’s hearing is available below.
Former Committee Chairman Pat Leahy (D., Vt.) highlighted dairy issues at yesterday’s hearing, a portion of his remarks on this issue can be seen below.
DTN writer Todd Neeley reported yesterday that, “What’s more, as debate on the next farm bill will commence next year, the ability to maintain a strong safety net is expected to be front and center.
“‘This administration has proposed cuts to crop insurance programs each and every year,’ Roberts said. ‘We fought hard to stop a $3 billion cut. The crop insurance program is not a bank. In regard to these proposed cuts — not in this room, not on my watch.'”
The DTN article added that, “Demand for farm loans has been increasing, [Sec. Vilsack] he said, ‘driven in part by the need to cover operating expenses as commodity prices have fallen more quickly than costs.
“‘As a result, the debt-to-asset ratio for U.S. producers has increased over the past two years, but in aggregate is still near historic lows,’ Vilsack said.”
And an update yesterday from WHO radio (Des Moines, Iowa) stated in part that, “In fact, Vilsack told lawmakers that in his opinion, a common factor between essentially every hot spot in the world is the fact that none have a functioning agricultural economy, and all of them have a lot of hungry people.
“‘So if we’re serious about protecting our own people, if we’re serious about making sure the world is a safer and better place for our kids and grandkids, then we have to understand the role that agriculture in this country, and agriculture around the world, will play in providing that level of security,’ he said, ‘and I think, frankly, that there is a lack of appreciation, at times, not certainly in this committee, but in other parts of this town, on the significant role that agriculture plays.'”
And Ken Anderson reported yesterday at Brownfield that, “As the USDA works to implement the GMO labeling law, Senate Agriculture Committee chair Pat Roberts cautions the agency to stay within the limits of what Congress intended.
“During a committee hearing Wednesday, Roberts asked Ag Secretary Tom Vilsack about a proposed USDA study on whether consumers will actually use electronic or digital devices when making food purchasing decisions. Roberts said that question goes beyond the scope of the GMO labeling law.”
The Brownfield update added that, “Vilsack disagreed with Roberts’ assessment. He said the study will provide valuable information as USDA develops the framework for GMO labeling.”
Reuters writer Diane Bartz reported today that, “U.S. lawmakers expressed concern on Tuesday over a wave of mergers among companies that sell farmers their seeds, herbicides and insecticides, worrying that the deals could lead to higher prices and less innovation at a time of dropping farm incomes.
“Senator Richard Blumenthal, a Democrat from Connecticut, said the proposed mergers of Dow and DuPont, Bayer and Monsanto and Syngenta and ChemChina had potential consequences which were ‘troubling, in fact alarming.’
Ms. Bartz noted that, “The merger spree began in December, when chemical titans DuPont and Dow Chemical Co agreed to an all-stock merger valued at $130 billion at the time, a first step toward breaking up into three separate businesses.
“Next was ChemChina’s $43 billion takeover of Swiss pesticides and seeds group Syngenta in February. That deal won approval from a U.S. national security panel in August.
Christopher Doering reported in today’s Des Moines Register (photo, right) that, “[Sen. Chuck Grassley (R., Iowa), chairman of the Senate Judiciary Committee], who farms corn and soybeans with his son in Butler County, expressed concern that the pending mergers will have ‘an enhanced adverse impact on competition in the industry,’ raise barriers to entry for smaller companies, reduce choice and boost the price of chemicals and seed for farmers.
“‘It’s absolutely crucial that competition is preserved in this important sector of our economy. And in Iowa, my constituents — including farmers, company employees and regular consumers — are interested in hearing how these mergers will impact price, choice and jobs,’ he said.”
The Register article noted that, “Bob Young, chief economist with the American Farm Bureau Federation, said the reasons for the mergers make sense. It is expensive and time-consuming to develop and obtain approval for a new product, and the expertise of one company can complement that of another. For example, Monsanto has proposed merging its focus on seeds and traits with Bayer’s market-leading position in the crop chemical business. With the slumping farm economy, consolidation was expected, Young said.”
Jacob Bunge reported yesterday at The Wall Street Journal Online that, “U.S. senators on Tuesday challenged executives from the world’s largest seed companies to justify a wave of mergers, which some lawmakers said could lead to higher prices for farmers and consumers alike.”
Mr. Bunge explained that, “Senior officials from Monsanto Co., Bayer AG, DuPont Co. and Dow Chemical Co. said their combinations would yield higher-performing crops and more effective chemical sprays by integrating research and sharing regulatory costs. If successful, the mergers would shrink the seed and pesticide industry’s top six global players to four companies.
“The tie-ups were catalyzed by a deep slump in the U.S. farm economy, which was hurt by four consecutive bumper crops that sent commodity crop prices plunging. The deal-making boom could reorder the $100 billion global market in seeds, pesticides and plant genes that enable crops to survive herbicides and repel bugs. Net farm income in the U.S. is projected to drop 11.5% this year, a third straight annual decline, and some farmers are skeptical their bottom lines will benefit from the cost savings and improved products envisioned by merging seed makers.”
The Journal article added that, “Sen. Amy Klobuchar (D., Minn.) warned that fusing companies with different specialties—such as Bayer’s focus on pesticides and Monsanto’s deep portfolio of seed genetics and biotechnology capabilities—could leave few avenues for upstarts to penetrate the research-intensive business. ‘It poses a question of whether some mergers are too big to fix,’ she said.”
Yesterday’s article also noted that, “‘This is an industry that desperately needs to invest more,’ said Robert Fraley, Monsanto’s chief technology officer, who estimated that Monsanto spends about $1.5 billion annually developing new products. Asked what would happen if the mergers weren’t permitted to advance, Mr. Fraley said it was unlikely Monsanto and its rivals would be able to release new products as swiftly.
“The executives played down concerns about reduced competition by pointing to longstanding agreements to license biotech crop genes to competitors.”
DTN writer Emily Unglesbee reported yesterday that, “Sen. Ted Cruz, R-Texas, introduced a newly minted study from Texas A&M’s Agricultural and Food Policy Center showing that the Monsanto-Bayer and Dow-DuPont mergers would increase corn, soybean and cotton seed prices, with cotton prices rising by as much as 20%. In contrast, another study submitted by National Corn Growers Association CEO Chris Novak showed that the Dow-DuPont merger was unlikely to hurt competition for herbicides, insecticides or soybean seed, and that the resulting increased consolidation in the corn seed market would not be harmful.”
And AP writer Mary Clare Jalonick noted yesterday that, “Farm groups testified that they are worried about the consequences.
“Roger Johnson, head of the National Farmers Union, said that the mergers would mean that three companies would have more than 80 percent of U.S. corn seed sales and 70 percent of the global pesticide market.”
The Los Angeles Times editorial board indicated in today’s paper that, “On Tuesday, the U.N General Assembly will hold a high-level meeting to discuss one of the greatest contemporary threats to global public health. Not war, not Ebola, not Zika — but antibiotic-resistant microbes.
“Scientists and public health officials have been warning for decades that overuse of antibiotics would inevitably lead to a rise of bacteria that have adapted to the drugs and developed a resistance to them.”
After pointing out that, “Already, authorities say that slightly more than 2 million people in the U.S. are sickened each year from antibiotic-resistant microbes. About 23,000 of them die,” the opinion item added that: “Human overuse isn’t the only factor. More than 70 percent of the use of medically important antibiotics (that is, the ones developed to treat human illnesses) is by the agriculture industry for disease prevention and control and for growth production of livestock, though the latter is on the wane since federal guidelines were released in 2013 restricting use. Antibiotics are routinely added to livestock feed and water to keep animals from getting infections. Just as in humans, this overuse helps create antibiotic resistant strains.
“Perplexingly, overall use of antibiotics in livestock has increased slightly since the federal guidelines went into place. Some consumer groups have called for the FDA prohibit the use of antibiotics for disease prevention in animals, saying the the agricultural industry is still too reliant on prophylactic use. Though an outright ban on disease-prevention may be excessive, clearly more needs to be done to rein in overuse.
And Geoffrey Mohan reported in today’s Los Angeles Times that, “Panera Bread and Chipotle Mexican Grill passed with flying colors, but KFC and Olive Garden were among the laggards in commitments to eliminate medically important antibiotics from their meat and poultry supply chains, according to a new report.
“Strong progress nonetheless was made across the top 25 fast-food and casual dining retailers, suggesting that public pressure has helped slow the meat and poultry industry’s routine use of antibiotics that are critical to human health, according to the report released Tuesday by five consumer, environmental and public health groups.”
The article added that, “Subway, which last year received an F rating in the report’s inaugural edition, rose to a B for its commitment announced earlier this year to eliminate antibiotics across its entire menu. Last year, the restaurant chain did not even respond to the survey and did not offer public details of its antibiotics policies, the groups reported. Starbucks, which again earned an F rating, has maintained a similar silence for two years running.
“McDonald’s rose a half grade, to C-plus in the wake of its decision earlier this year to eliminate antibiotics from its chicken supply.”
Today’s L.A. Times article also stated that, “Activists estimate that about 40% of the chicken supply chain is or will soon be free of antibiotics that are important to human health. A commitment by KFC, said [Sasha Stashwick, senior advocate for food and agriculture at the Natural Resources Defense Council], ‘could tip the industry over the 50% mark.’
“But the beef and pork industries have been much slower in adopting more aggressive policies regarding antibiotic use.”
Meanwhile, Melanie Evans reported in today’s Wall Street Journal that, “A new study by the Centers for Disease Control and Prevention found more widespread use by U.S. hospitals of powerful antibiotics designed to fight infections when less-robust antibiotics fail, a ‘worrisome’ development as bacteria grow increasingly immune to treatment, the researchers said.”
In perhaps would could be a precursor to some of the points Sec. Vilsack may highlight tomorrow, he penned a brief opinion item that was posted on Monday at The New York Times Online (“Rural America Has Already Begun to Rebound“) where he noted that, “Despite concerns about the fate of rural America, a number of key benchmarks show these areas have been growing economically since 2014. Many were surprised when the Census Bureau released data last Thursday showing median household income in non-metro areas of the United States had increased by 3.4 percent in 2015 and poverty rates had fallen.”
Sec. Vilsack stated that, “Rural populationshave stabilized and are beginning to grow, the Agriculture Department reported earlier this year. Then we learned that rural counties had added more than 250,000 jobs in 2014 and 2015. As a result, the rural unemployment rate has dropped below 6 percent for the first time since 2007. Hunger is down in rural and urban areas alike. Today, about 8 million fewer people are struggling to provide adequate food for themselves or their families compared to the height of the recession.
“Taken together, these benchmarks demonstrate a turning point in rural communities.”
Note that the title of the Senate Ag Committee hearing includes the words “Farm Economy,” while Sec. Vilsack’s opinion item referenced “Rural America.”
Secretary Vilsack has recently referenced the different components of “farm household” income by pointing to both “off farm income,” as well as “farm income.”
A recent DTN article, that included perspective from Sec. Vilsack, noted that, “The average American farm family has a median income of about $76,282, according to USDA, which is $19,782 higher than average U.S. household.”
And during a recent conference call with reporters, Sec. Vilsack expounded on the fact that overall “farm household” income, which includes “off-farm” income, as well as “farm income,” is significantly above national averages. This is primarily due to the fact that “off farm” income in farm households remains strong. Sec. Vilsack noted that what is done in the policy area of rural development is important because it helps to strengthen “off farm” income opportunities.
Perhaps these different components of “farm household” income will be a subject that is addressed in greater detail at tomorrow’s Ag Committee hearing.
In his weekly electronic newsletter yesterday, House Ag Committee Member Randy Neugebauer (R., Tex.) stated that, “I am very pleased the United States has initiated a new agriculture trade enforcement action against China at the [W.T.O.]. U.S. Trade Representative Michael Froman and U.S. Agriculture Secretary Tom Vilsack announced last week that the United States is bringing a case against China to challenge the support China has provided for its own wheat, corn, and rice crops. Like other countries, China agreed to limits on its domestic government support for agriculture when it joined the WTO. However, China has exceeded the limits it agreed to on corn, rice, and wheat by $100 billion in 2015 alone. Excessive government support, such as the market-price support China provides, artificially inflates the prices Chinese producers receive, causing overproduction that keeps out U.S. exports. China’s actions have created an uneven playing field for American producers who are following the rules. Moving forward, I hope U.S. trade officials also pursue enforcement action against unfair Chinese policies that impact other crops, such as cotton.”
Several variables are currently at play that are negatively impacting the profitability of wheat production in the U.S.
Reuters news reported yesterday that, “Farmers in Oklahoma, the No. 2 winter wheat producing state, face potential losses of roughly $55 an acre for wheat in 2017, according to Kim Anderson, an agricultural economist at Oklahoma State University.”
The Reuters article added that, “The world wheat harvest hit a record in 2016, sending nearby Chicago Board of Trade futures to 10-year lows below $4 a bushel.”
Meanwhile, Emiko Terazono and Heba Saleh reported yesterday at The Financial Times Online that, “For the world’s wheat farmers already reeling from decade-low prices due to bumper crops around the world, it is the last thing they wanted.
“Confusion surrounding quarantine rules in Egypt has effectively taken the world’s largest wheat importer out of the international market, depressing prices, which are already weak from plentiful harvests.
“Wheat sales to Egypt have come to a standstill after the government announced in late August that there would be zero tolerance for any traces of ergot fungus, a naturally occurring fungus, despite internationally accepted standards which allow for levels of 0.05 per cent.”
The FT writers noted that, “The Egyptian government, which provides subsidised bread to citizens, is the top buyer of wheat, but few traders are now willing to put in their offers in the state-run wheat tenders after the country’s authorities recently rejected vessels from Romania as well as Russia.”
Yesterday’s FT article added that, “The virtual absence of the world’s largest buyer comes as wheat markets are groaning under excess supplies.
“The Australian government recently raised its wheat production forecasts for 2016-17 to the second highest on record, while the US Department of Agriculture also increased its world production estimates for the same period to a new record high of 744m tonnes due to increases in India, Kazakhstan, Brazil and Australia.”
Reuters writers Karl Plume and Tom Polansek reported yesterday that, “U.S. wheat farmers, struggling to make money as prices sink and global supplies swell, could be the main beneficiaries if Washington wins a case it brought last week against China over an estimated $100 billion in domestic grain market supports.
“On Tuesday, U.S. trade officials said they would file a case at the World Trade Organization (WTO) against China over allegations that aggressive pricing supports prompted Chinese farmers to overproduce corn, wheat and rice, fuelling a global crop glut and depressing world prices.”
The Reuters article noted that, “While the U.S. allegations cover corn and rice as well as wheat, China has already reformed its corn policy and rice exports were never a major part of U.S. agricultural income.
“It is wheat that is now causing most pain in America’s farming heartland. U.S. wheat prices are at decade lows and some farmers could face losses next year of $55 an acre. In the coming weeks, they are likely to plant the fewest winter wheat acres in a century.”
Meanwhile, Reuters writer Julie Ingwersen reported today that, “U.S. farmers are poised to plant winter wheat on the smallest area in over a century this autumn, as tumbling global prices and fierce competition push the world’s former top supplier into retreat.
“But even that shrinkage is unlikely to dent massive global supplies or help bolster prices. The world wheat harvest hit a record in 2016, sending nearby Chicago Board of Trade futures to 10-year lows below $4 a bushel.
“The strong dollar is adding to the pain for U.S. farmers, as it makes the exports of competitors such as Russia and Ukraine more attractive. Russia is projected to overtake the United States and the European Union as the top wheat exporter for the 2016-17 season, which ends on June 1, 2017.”
Ms. Ingwersen explained that, “Farmers in Oklahoma, the No. 2 winter wheat producing state, face potential losses of roughly $55 an acre for wheat in 2017, according to Kim Anderson, an agricultural economist at Oklahoma State University.
“In the heart of Kansas, the biggest U.S. winter wheat state, mountains of harvested grain flank roadsides. Cash prices in some parts of the state have slid below $3 a bushel.”
And in a separate update regarding China, Reuters writer Paul Carsten reported yesterday that, “The Agricultural Development Bank of China, one of the country’s main policy lenders, agreed to loan at least 3 trillion yuan ($450 billion) by 2020 for the modernization of China’s agriculture industry, state media said on Sunday.
“The Ministry of Agriculture and the bank, which lends in line with government policy, signed an agreement to protect national food security, support the sector doing business overseas and develop China’s seed industry, according to the official Xinhua news agency.”
A House Ag Committee news release from Wednesday indicated that, “Today, the House Agriculture Committee held a hearing to examine the potential for expanded agricultural trade between the United States and Cuba. Much of the conversation centered on the Cuba Agricultural Exports Act (H.R. 3687) and the potential for removing financing restrictions that have limited agricultural exports to Cuba.”
Committee Chairman Mike Conaway (R., Tex.) indicated that, “[The stranglehold the Castro regime has had on Cuba] resulted in the United States imposing an embargo on trade with Cuba that has been in place in various forms for almost 60 years. In 2000, the Trade Sanctions Reform and Export Enhancement Act—known as TSRA, authorized certain sales of food, medicines, and medical equipment to Cuba subject to various restrictions on credit and financing. One such restriction requires Cuba to pay cash in advance for purchases, interpreted in 2005 by the Bush Administration to mean payment in cash before shipment of goods.
“In December 2014, amongst a host of other changes, the Obama Administration announced its intention to modify the cash-in-advance provisions to require payment before transfer of title. While that move was generally applauded, I—and many of my colleagues—believe the U.S. secured too little in return for the litany of other concessions made to the brutal regime that continues to remain in power. The Castro regime remains one of the world’s most oppressive human rights violators. Their heavy hand is in everything—including agriculture—where ALIMPORT remains the sole entity allowed to trade in agricultural products with foreign entities.
“Against this sobering backdrop, I believe there lays an opportunity—albeit a rather narrow one—to make changes that will positively benefit both agricultural producers here at home while contributing to economic growth in Cuba. To that end, our colleague and General Farm Commodities and Risk Management Subcommittee Chairman Rick Crawford authored [H.R. 3687] which lifts the financing restrictions under TSRA while providing for both market promotion and U.S. agribusiness investment under strict safeguards. The Committee was involved in the development of that bill, and both Ranking Member [Collin Peterson (D., Minn.)] and I are co-sponsors.”
Ranking Member Petersonpointed out at last week’s hearing that, “Now, as we’re all aware, the Administration has taken steps to ease both trade and travel restrictions. This is a good step but there is still more work that we can do to open this market to American agricultural products. I would like to see the embargo lifted but am doubtful that it’s politically possible to do so now.
“I do want to caution however, that with the exception of rice and possibly wheat, the potential benefits are limited – at least in the short term. Cuba is a small country with most people having very limited income. I visited Cuba in 2015 and from what I was able to learn from my discussions with Cuban officials it would seem that, without ending the embargo, there’s still a long way to go.”
Rep. Crawford spoke about his bill at the hearing (video replay below) and tweeted that, “We’ve got to change thinking with regard to #Cuba trade. Cold war has been over for many many years.”
U.S. Representative Rick Crawford explains why U.S. trade relations regarding agriculture with Cuba must change during a House Agriculture Committee hearing.
A news release Wednesday from Rep. Cheri Bustos (D., Il) indicated that, “The hearing today focused on a piece of legislation that Congresswoman Bustos strongly supports, the Cuba Agriculture Exports Act.
Rep. Bustos stated that, “Today’s Agriculture Committee hearing was a step in the right direction for Illinois farmers, and I am hopeful that we can move forward with a vote on this legislation so we can cut the red tape and barriers facing farmers and producers in our region. By providing Cubans with access to the standard credit terms offered by virtually every other nation in the world, we can significantly grow our region’s agricultural exports, move toward normalizing relations with Cuba and strengthen our 21st century heartland.”
Meanwhile, the Washington Insider section of DTN reported on Friday that, “The U.S. lost a billion dollars in potential farm sales to Cuba over a span of a few years as result of the restriction, witnesses testified at the hearing. ‘Between 2013 and 2015, the Dominican Republic imported $1.3 billion worth of agriculture products from the United States,’ said [Matt Gibson, vice president at St. Louis, Mo.-based Bunge North America]. He noted that the two Caribbean islands have similar per capita incomes and populations. ‘During this same time, Cuba, however, imported only $262 million from the United States. That is over $1 billion to the U.S. agriculture industry left off the table due to the financing restrictions under which we must currently operate.'”
The DTN item added that, “While the legislation would be a net positive, more would need to be done before American farmers saw significant benefits, said CoBank ACB Senior Vice President of Agriculture Export Finance Karen Lowe. ‘I think in the short run there won’t be a very significant change, because many other things need to happen, particularly in terms of the creditworthiness of the importing entities in Cuba,’ she said. ‘But we have to continue to keep the ball moving so that over a period of time we will create a level playing field.'”
And McClatchy writer Sophie Ota reported on Wednesday that, “A handful of experts urged the House Committee on Agriculture on Wednesday to loosen restrictions on farm trade with Cuba, as legislators further contemplate U.S.-Cuba ties.
“Four witnesses from the agricultural industry encouraged the committee to support the Cuba Agricultural Exports Act, a bill that would repeal restrictions on export financing for agriculture shipments to Cuba.”
Ms. Ota also explained that, “Meanwhile, the only witness opposed to lifting sanctions, Mauricio Claver-Carone, the executive director of Cuba Democracy Advocates, described Cuba’s government as a ‘company’ that ‘values food over people.’
“‘Let’s debunk a myth,’ Claver-Carone said. ‘Financing agricultural transactions with Cuba isn’t about assisting small and midsize farmers on the island, but about financing the monopoly of the Castro regime.’
“Committee Chairman Mike Conaway of Texas, who presided over the hearing, spoke in favor of lifting restrictions, despite being ‘firmly opposed to lifting the embargo or restrictions on travel.'”