October 21, 2016

Flooding Slows Harvest in an Already Stressful Year

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.”

Ms. Eller added that, “The shrinking window to reap what’s expected to be a record harvest is adding to an already stressful year. Many growers are struggling to post a profit, and they’re hoping strong yields will help offset lower corn and soybean prices.”

For additional information on the adverse impact the rains have had on harvest prospects in the upper Midwest, including a recent report on crop insurance related issues to flooding, just click here.


U.S. Trade Representative Responds to China’s Announcement to Resume U.S. Beef Trade

Kelsey Gee reported on Thursday at The Wall Street Journal Online that, “U.S. trade officials on Thursday set out steps necessary for China to resume imports of American beef after a 13-year ban, though they didn’t lay out a timetable for the resumption of trade.

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.”


Rains Negatively Impacting Upper Midwest- Crop Insurance Issues

The front page of Saturday’s Des Moines Register

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.”

Yesterday’s article added that, “Just 2 percent of Minnesota’s soybeans and 2 percent of Iowa’s corn was harvested as of last Sunday, according to the U.S. Department of Agriculture.”

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.”


China to Begin Importing U.S. Beef- Ban Has Been in Place Since 2003

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.

Additional background statistics regarding this issue can be found in this USDA news item from today.

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.”


Egypt Repeals its Ban on Imports of Grains Tainted with Ergot

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.”


Sec. Vilsack Discusses Farm Economy at Senate Ag Committee Hearing

Yesterday, Secretary of Agriculture Tom Vilsack testified before the Senate Ag Committee at a hearing titled, “The U.S. Department of Agriculture and the Current State of the Farm Economy.”

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.”

(Click here for a closer look at “Rural” growth and “Farm” income).

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.”

Chairman Roberts added that, “In Kansas and across the Midwest, we have had a bountiful wheat harvest, and now there are expectations for potentially record-setting corn and soybean crops.

“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.”

To listen to an exchange between Chairman Roberts and Sec. Vilsack that highlighted “farm household” income in greater detail, click on the link below.

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.”

Sen. David Perdue (R., Ga.) also participated in yesterday’s Senate Ag Committee hearing, a replay of his discussion with the agriculture Secretary is available below.

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.”


Senate Judiciary Committee Examines Consolidation and Competition in the U.S. Seed and Agrochemical Industry

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.’

“Executives at the five companies defended their mergers at a hearing of the U.S. Senate Judiciary Committee but Blumenthal was one of several senators who were unconvinced.”

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.

“In September, two of the three big fertilizer companies, Potash Corp of Saskatchewan Inc and Agrium Inc said they would merge and German drug and crop chemical maker Bayer clinched a $66 billion takeover of U.S. seeds company Monsanto.”

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.”


Antibiotics and Livestock Production

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.

“Perhaps this can be answered by California in the next few years. Last year the state adopted the strictest law in the nation limiting antibiotic use in agriculture. Once it goes into effect in 2018, we’ll start to get better data that could shape an effective national policy on antibiotic use for livestock.”

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.”

Ms. Evans noted that, “The study, published in JAMA Internal Medicine, found hospitals increasingly bypassed drugs considered the first line of defense against bacteria in favor of more potent antibiotics.”


Sec. Vilsack Points to Positives in “Rural America”- While Senate Ag Committee set to Focus on “Farm Economy”

Tomorrow, Secretary of Agriculture Tom Vilsack will provide testimony before the Senate Agriculture Committee at a hearing titled, “The U.S. Department of Agriculture and the Current State of the Farm Economy.”

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 populations have 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.”

As the U.S. looks to harvest record corn and soybean crops this fall, commodity prices have dropped and have caused a decrease in projected net farm income.

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.


Focus on Trade, and Wheat Export Issues

Recall that last week, the U.S. action took action against Chinese domestic crop subsidies at the World Trade Organization (W.T.O.).

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.”

Some agricultural observers have indicated that wheat farmers may have the most to potentially gain from the U.S. W.T.O. action against China.

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.”


Wheat Farmers May Have the most to Gain in U.S. W.T.O. Case Against China

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.”


Rural Economic Growth, vs. Farm Income

Recall that DTN Ag Policy Editor Chris Clayton reported last week that, “The National Farmers Union [NFU] is calling on Congress to pass disaster aid and consider starting work early on a new farm bill as they and other ag leaders seek to draw more attention to the state of the farm economy.”

The DTN article went on to point out that, “[NFU President Roger] Johnson added that Sen. Charles Grassley, R-Iowa, and House Agriculture Committee Ranking Member Collin Peterson, D-Minn., have indicated support for writing the next farm bill early.”

(FarmPolicy Note: While speaking at an agricultural forum at the Kansas State Fair last Saturday, Senate Ag Committee Chairman Pat Roberts (R., Kans.) and House Ag Committee Chairman Mike Conaway (R., Tex.) indicated no desire to open the Farm Bill early.)

Also in his DTN article, Mr. Clayton provided executive branch perspective on the ag/rural economy from Sec. Vilsack, who “reminded NFU members that farm income levels over the past five years have been some of the best in recent history. ‘They needed to understand when they talk about tough times, there are a whole lot of people out there who are not doing as well as many farm families are doing,’ Vilsack said.

“The secretary said he told NFU members to consider where they stand relative to the average American family, Vilsack said. 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.”

In a conference call last week with agricultural reporters, Sec. Vilsack made similar points and noted that, “Over that five-year period we have seen a relatively strong foundation to the agricultural economy. We see continued low debt to equity ratios, notwithstanding the fact that the prices are a little low right now. I think farmers, foundationally, are in good shape to withstand the low commodity prices of today.”

During the conference call, 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.”

With this background in mind, Quoctrung Bui reported yesterday at The New York Times Online (“Actually, Income in Rural America Is Growing, Too“) that, “Median household incomes in rural America actually grew 3.4 percent in 2015, according to policy experts who study the census numbers very closely.”

Although the primary focus of the Times’ article is a detailed explanation of the way in which the Census Bureau defines, and derives, statistical results for “rural” and “urban” areas; the article concluded by stating that, “In many cases, data further complicates our view of the world, making things murkier instead of clearer. By contrast, the sharp differences in rural and urban income growth suggested by the C.P.S. [Current Population Survey] felt like a gift from the statistics gods.

“But our loss is clearly the American people’s gain, because it shows that the recovery is even more broadly shared than we thought.”


Sec. Vilsack Remarks on Current Issues: Bayer/Monsanto Deal, and U.S. W.T.O Trade Case

In a recent interview with Bloomberg News, U.S. Secretary of Agriculture Tom Vilsack provided perspective on recent issues impacting the agricultural economy.

Last week, Bayer and Monsanto announced that they signed a definitive agreement under which Bayer will acquire Monsanto. This proposed merger garnered attention in the front pages of The Wall Street Journal, and The Des Moines Register, and was also covered on the front pages of the business section in both The New York Times and Los Angeles Times.

Yesterday, on the “Bloomberg Markets” program, Sec. Vilsack weighed in on the proposed Bayer and Monsanto deal, video replay below.

Also last week, the U.S. announced that it would contest Chinese agricultural subsidies for domestic wheat, corn and rice; Sec. Vilsack’s remarks on Bloomberg regarding this issue can be viewed below.


Bayer to Acquire Monsanto, Creating “Farm Giant”

On Wednesday, Bayer and Monsanto announced that they signed a definitive agreement under which Bayer will acquire Monsanto.

Thursday’s Wall Street Journal had two above the fold articles covering this development.

In the lede article in Thursday’s paper, Jacob Bunge and Christopher Alessi reported that, “Monsanto Co. agreed to sell itself to Bayer AG after months of haggling, in a $57 billion deal that would create an agricultural powerhouse and end the independence of one of the most successful and controversial companies in the U.S.

“If regulators approve the deal, which was unveiled Wednesday, the German pharmaceutical and chemical conglomerate would inherit Monsanto’s market-leading position in seeds and crop genes. That would tilt Bayer heavily toward agriculture in a long-range bet on high-tech crops to sustain a growing global population.”

The Journal writers noted that, “In the near term, the sale of St. Louis-based Monsanto, long a ubiquitous presence in American agriculture, spotlights a sagging U.S. farm economy that shows few signs of rebounding as farmers prepare to reap another in a string of record corn and soybean crops this autumn.

The Bayer-Monsanto union is the latest in a wave of tie-ups that have reordered the $100 billion global market in crop seeds and pesticides in the past 10 months. Major fertilizer producers also have pursued deals. Seed makers, having laid off thousands of employees and mothballed some research projects, regard mergers as a way to cut costs while more deeply integrating the development of new seeds and chemicals.”

The Journal article added that, “Bayer plans to fuse its prowess in pesticides—it ranks among the world’s largest suppliers—with Monsanto’s capabilities in seed genetics and biotechnology, which have allowed it to develop corn, soybeans, cotton and other crops that can survive weed-killing sprays and make natural toxins to repel bugs. The merged company would be the largest supplier by sales of both seeds and pesticides.”

This article also noted that, “While farmers prize biotech seeds for simplifying weed and insect control, they also have locked horns with Monsanto. At times they have bridled at the higher cost and the company’s efforts to protect its intellectual property; it sometimes has taken farmers to court when it suspected them of illegally saving and replanting its seeds.”

In the second article from the the front page of Thursday’s WSJ, Mr. Bunge reported that, “Behind a wave of multibillion-dollar mergers in the agriculture business is a moment of change in American farming. The dominance of genetically modified crops is under threat.

“Since their introduction to U.S. farms 20 years ago, genetically engineered seeds have become like mobile phones—multifunctional and ubiquitous. Scientists inserted genes to make crops repel insects, survive amid powerful herbicides, survive on less water and yield oils with less saturated fat, in turn eliminating farmers’ amateur chemistry. The U.S. Department of Agriculture estimates this year that 94% of soybean acres were planted with biotech varieties, and 92% of corn acres.

Today, farmers are finding it harder to justify the high and often rising prices for modified, or GMO, seed, given the measly returns of the current farm economy. Spending on crop seeds has nearly quadrupled since 1996, when Monsanto Co. became the first of the companies to launch biotech varieties. Yet major crop prices have skidded lower for three years, and this year, many farmers stand to lose money.”

The Journal article stated that, “Biotech farming has also shown limitations, given how certain weeds are evolving to resist sprays, forcing farmers to fork out for a broader array of chemicals. Some are starting to seek out old-fashioned seed, citing diminished returns from biotech bells and whistles.”

Mr. Bunge noted that, “Robert Fraley, Monsanto’s chief technology officer who helped develop the company’s earliest incarnations of genetically engineered crops in the 1980s, said farmers will remain faithful to biotech crops.”

“Kyle Stackhouse, who grows about 1,600 acres of corn and soybeans near Plymouth, Ind., is questioning the high-price seeds’ value,” the Journal article said, while adding that, “Mr. Stackhouse estimates he typically spends about $53 per acre on soybean seeds and $40 on pesticides, versus $83 he would have spent on biotech soybean seeds an additional and $24 on related crop chemicals. That puts him ahead about $14 per acre on costs. Mr. Stackhouse says he has planted no biotech crops for three years.”

The article concluding by pointing out that, “[Jim Kline, president of Kline Family Farms, which raises corn, soybeans and wheat near Hartford City, Ind.], in mid-September was repairing a combine as he prepared to harvest this year’s corn crop, each plant containing genes protecting against Roundup and root-chewing worms. But he has already placed orders to reserve seed for next year, when he anticipates that only about two-thirds of his cornfields will be sown with genetically engineered seeds.

“‘Commodity prices go down every day,’ Mr. Kline said. Since biotech farming isn’t working as well as it once did, he said, ‘why spend the money?.'”

Meanwhile, Leslie Picker, Danny Hakim and Michael J. de la Merced reported on the front page of the business section in Thursday’s New York Times that, “Don Halcomb, a 63-year-old farmer in Adairville, Ky., is expecting his profit to vanish this year, largely because of the confluence of falling crop prices and rising costs for seeds and other materials.

“The price of an 80,000-kernel bag of seed corn rose to $300 from $80 in the last decade, as the companies that produced them consolidated, he said. And with the recent decline in commodity prices, Mr. Halcomb said he expects to lose $100 an acre this year.

“‘We’re producing our crops at a loss now, just like the oil guys are pumping oil at a loss,’ Mr. Halcomb, who grows corn, soybeans, wheat and barley on his 7,000-acre family farm, said by telephone on Wednesday. ‘You can’t cut your costs fast enough.'”

Front page of the Business Section of Thursday’s New York Times

The Times writers explained that, “It is a common plight of farmers across the United States, with the global agriculture industry in a wrenching downturn. Because farmers have produced too much corn, wheat and soybeans, they have been forced to slash prices to sell their crops. They have also reduced spending on seeds, pesticides and fertilizer, which has eaten into sales at agribusiness giants, including Monsanto and DuPont.

In response, these companies have sought multibillion-dollar deals to cut costs and weather the industry’s storm. Four major agribusiness mergers have been announced in the last year. The latest is Bayer AG’s $56 billion takeover of Monsanto — the largest acquisition of 2016 — announced on Wednesday. Every merger creates the possibility of higher costs for farmers.”

The Times article stated that, “Bayer and Monsanto said they planned to cut about $1.2 billion worth of costs as part of the deal, helping to improve efficiency.”

The trio of Times writers added that, “Christine Hamilton manages a farm of more than 12,000 acres in Kimball, S.D., growing crops like corn and operating a ranch. She said that if the deal can pass the antitrust screening, then maybe it could actually help farmers.

“‘I understand how companies need to get bigger in order to be competitive,’ she said. ‘As we are in a low part of the cycle, anything that might have a chance of reducing our input prices would be great.'”

In a similarly based look at the potential impact of large agri-business deals, Christopher Doering reported on the front page of Thursday’s Des Moines Register (picture, right) that, “Iowa farmers are anxiously waiting to see if they will be helped or harmed by the purchase of seed giant Monsanto Co. by Germany’s Bayer AG — a deal that could shrink competition and increase prices, but also raises the prospect of better seeds and chemical products that could bolster their profits.”

The Register article indicated that, “‘It’s mixed emotions for all of us in farming and agriculture,’ said Ray Gaesser, a corn and soybean producer in Corning, Ia., who has been farming since 1967. ‘We definitely need new traits. Finding the best avenue to get that done is what we should be after, but at the same time we’re concerned about the consolidation and being down to three or four majors instead of six we had even a year ago.'”

James F. Peltz reported on the front page of the business section in Thursday’s Los Angeles Times that, “Farm profits are forecast to drop for the third straight year in 2016 to their lowest level since 2009, according to the U.S. Department of Agriculture.

“In turn, spending on seeds and pesticides as been flat or down in the last three years, the agency said.

“The deal may also be the catalyst needed to start a new green revolution where investment in R&D in seed and crop-chemical combination solutions could significantly increase global crop yields,” said Christopher Shanahan, agriculture and nutrition director at consulting firm Frost & Sullivan.”

With respect to the regulatory aspects of the Bayer/Monsanto deal, Reuters writers Diane Bartz and Greg Roumeliotis reported today that, “U.S. Senate Judiciary Committee Chairman Chuck Grassley has called a hearing next Tuesday to scrutinize the wave of consolidation. Farmers in Iowa, the Republican senator’s home state, are worried that seed and chemical costs are rising while grain prices are near their lowest levels in years. Farm incomes have plunged.

“Senator Bernie Sanders, who recently ended a run for the Democratic presidential nomination, called the deal ‘a threat to all Americans.’

“‘These mergers boost the profits of huge corporations and leave Americans paying even higher prices,’ he said.”

The Reuters article added that, “Senators Mike Lee and Amy Klobuchar, the two top antitrust lawmakers, also expressed concern. ‘The transaction has the potential to result in a significant loss of competition and reduced incentives and ability to innovate, thereby raising prices,’ said Lee, a Republican from Utah.”

And Jacob Bunge reported yesterday at The Wall Street Journal Online that, “To secure its deal to buy Monsanto Co. for $57 billion, Bayer AG will require approvals from a host of government regulators already scrutinizing a wave of consolidation in the agricultural sector.

“While Monsanto’s seed-focused business doesn’t vastly overlap with Bayer’s pesticide-heavy agricultural franchise, combining two of the world’s largest farm suppliers will test the tolerance of farmers and politicians already wary of multibillion-dollar deals to merge other top players in the $100 billion global market for seeds and pesticides, while fertilizer producers also consolidate.”

Mr. Bunge noted that, “The companies have had ‘some initial contacts with regulatory agencies describing what this combination would be about,’ Bayer Chief Executive Werner Baumann said on a call with investors after the deal was announced. ‘We have so far received encouraging feedback but nothing beyond that.’ He said regulatory filings will now begin.

“Monsanto CEO Hugh Grant said on the call that between the two companies, ‘the overlap is quite small, with a few obvious exceptions.’ One area of overlap frequently cited as possibly prompting divestitures is seeds. ‘We feel quite good’ regarding regulatory approval, Mr. Grant said.”


Rep. Newhouse Points out the Sparse Number of Farmers in Congress

House Ag Committee Member Dan Newhouse (R., Wash.) indicated in his most recent newsletter that, “Out of 535 people in both the House and the Senate, there are only about 15 farmers and ranchers. As a farmer and the co-chair of the Congressional Fertilizer Caucus, I’ve been working in Congress to increase understanding of the agricultural industry and the importance of fertilizer. During the August district work period, I had the opportunity to take a tour of Agrium fertilizer plant in the Tri-Cities to discuss issues important to Central Washington farmers.”


Federal Reserve Beige Book: Observations on the Ag Economy- August ’16

Today the Federal Reserve Board released its Summary of Commentary on Current Economic Conditions. Commonly referred to as the “Beige Book,” the report included the following observations with respect to the U.S. agricultural economy:

* Fifth District- Richmond– “Agricultural activity increased modestly since our previous Beige Book report. Farming contacts reported flat demand in the timber and forestry industries, but noted expansion in the poultry industry. Farm input prices were unchanged in recent weeks, while prices of grains, cotton, soybeans, and corn ended the reporting period at low levels.”

* Sixth District- Atlanta– “Agriculture conditions across the District were mixed. Damage and losses from drought conditions in the region caused the USDA to designate many counties in Alabama, Georgia, Mississippi, and Tennessee as natural disaster areas. Additionally, parts of southern Louisiana experienced severe flooding and there are preliminary reports of crop damage. Compared with last year, District cotton production is forecasted to be higher, while soybean and peanut production is expected to be lower. On a year-over-year basis, prices paid to farmers for corn and soybeans increased, while cotton, rice, beef, broilers and egg prices decreased. However, on a month-over-month basis, prices for corn, cotton, soybeans, and broilers were up, while prices for beef and eggs were down.”

* Seventh District- Chicago– “Already low expectations for farm incomes deteriorated over the reporting period as the potential for a record national harvest pushed prices down further. District corn and soybean growing conditions were better than a year ago (with the exception of Michigan), and the U.S. Department of Agriculture (USDA) forecasted near record yields for corn and soybeans for most District states. Corn and soybean prices moved lower, although soybean prices remained above last year’s level. Strong supplies also resulted in declines for wheat, egg, dairy, hog, and cattle prices. The USDA announced limited purchases of dairy and egg products to help address excess supplies.”

* Eighth District – St. Louis– “While the quick return to low crop prices has weakened the near-term outlook for farm income, crop conditions bode well for strong yields. The proportions of corn, cotton, rice, and soybeans rated fair or better were roughly the same as in our previous report, but the proportion of crops rated excellent increased. Contacts also reported good conditions. Multiple contacts noted that expected strong yields, both in the District and elsewhere, are likely playing a role in the return of low prices.”

* Ninth District- Minneapolis– “District agricultural conditions were mixed, with strong growing conditions offset by low commodity prices. District crops were mostly in good condition as of mid-August, with record harvests expected in some cases; parts of western South Dakota and Montana suffering from severe drought were an exception. Winter and spring wheat harvests were progressing ahead of schedule, but high yields were not expected to fully offset the effect of low prices on income, according to contacts. Prices received by farmers increased in June from a year earlier for corn, soybeans, hogs, and turkeys; prices for wheat, hay, cattle, chickens, eggs, and milk fell from a year earlier.”

* Tenth District- Kansas City– “District farm income and agricultural credit conditions softened moderately since the last survey period. Following an early June rally, crop prices declined in late July and August due to expectations that a strong wheat harvest and favorable growing conditions for fall crops would generate excess supply. Cattle prices also remained well below year ago levels, despite a slight uptick in early August. Although agricultural loan delinquency rates remained low, bankers reported increased demand for farm loan extensions and weaker loan repayments rates. Additionally, District bankers reported modest increases in the severity of agricultural loan repayment problems. Financial strain was particularly high in the western portion of the District due to the combination of subdued commodity prices and increased drought stress. Lower commodity prices, softer farm income and weaker credit conditions continued to push farmland values lower throughout the District when compared with a year ago.”

* Eleventh District- Dallas– “Strong crop production prospects materialized into above-average yields for several crops, with double-digit increases expected for the 2016 cotton, corn and soybean crops. This will help offset some of the negative impact of low crop prices for farmers. Livestock grazing conditions have been very good this year, which, coupled with low grain prices, has reduced feed costs. Dairy producers benefitted from a marked rally in dairy prices over the past six weeks.”

* Twelfth District- San Francisco– “Activity in the agricultural sector expanded modestly. Above-average water availability boosted harvests, with record yields recorded for almonds and walnuts, but contacts expressed concern that a return to earlier weather trends would hurt yields over the near term. On balance, increased foreign production, the elevated dollar, and flat overall demand increased inventories of many agricultural goods. Contacts reported that dairies continued to operate at a loss despite lower input prices, while ranchers benefited from somewhat firmer cattle prices.”


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