FarmPolicy

August 28, 2015

Tuesday Morning Highlights: Trade- Transportation Issues, Immigration, Ag Economy and Livestock Production

Trade- Transportation Issues

Laura Stevens, Suzanne Kapner and Leslie Josephs reported on the front page of Tuesday’s Wall Street Journal that, “As employers at the ports along the West Coast on Monday refused to unload ships for the sixth day out of the past 10, their nine-month contract dispute with port workers is becoming a significant business problem.

“Ocean carrier Maersk Line has canceled some sailings, while China Ocean Shipping (Group) Co. said it will skip at least one port. Truckers that normally haul an average of five containers a day away from the Port of Oakland, Calif., are lucky to haul one. A West Coast customs broker said that her customers are being assessed as much as $300 a day for containers that sit too long on the docks, though the containers are trapped there.”

The Journal writers noted that, “On Saturday, the White House said it would send the secretary of labor to take part in negotiations and urge both sides to come to an agreement. A federal mediator already had been engaged for the talks.

The Agriculture Transportation Coalition estimates that port delays and congestion have reduced U.S. agricultural exports by $1.75 billion a month, while the North American Meat Institute put losses to U.S. meat and poultry producers at more than $85 million a week, including hides and skins.”

Rita Trichur reported in today’s Wall Street Journal that, “The Canadian government is signaling that it could introduce back-to-work legislation as early as Monday to end a strike by unionized workers at Canadian Pacific Railway Ltd. that is snarling freight service across Canada.

“Canada’s Minister of Labour, Kellie Leitch, issued a strongly worded statement Sunday that blamed the union representing CP’s locomotive engineers and conductors for the breakdown in contract talks over the weekend, calling on its officials to abandon their strike and recommence negotiations with the company.

“Thousands of Canadian Pacific’s unionized workers walked off the job early Sunday in a legal strike after negotiations failed to produce a deal. Ms. Leitch, who personally intervened in the dispute, stressed the government would move swiftly to end the job action—a tack that it has increasingly taken to halt other labor disputes.”

The Journal article added that, “With no agreement reached, Canadian Pacific said it would implement a contingency plan to keep at least some freight service moving on its Canadian network with the help of managers.”

Immigration

Meanwhile, Fred Barbash reported on Tuesday at The Washington Post Online that, “A federal judge in Texas last night temporarily blocked the Obama administration’s executive actions on immigration. The judge, responding to a suit filed by 26 Republican-run states, did not rule on the legality of immigration orders but said there was sufficient merit to the challenge to warrant a suspension while the case goes forward.

“The Obama orders would offer a legal reprieve to the undocumented parents of U.S. citizens and permanent residents who have resided in the country for at least five years. This would remove the constant threat of deportation. Many could also receive work permits.”

The Post article indicated that, “The order was issued by Judge Andrew S. Hanen in Brownsville, Tex. Hanen was appointed to the bench by George W. Bush and has been outspoken against the administration’s immigration polices in other cases recently.

“The White House in a statement early Tuesday reported by the AP defended the executive orders issued in November as within the president’s legal authority, saying that the U.S. Supreme Court and Congress have said federal officials can set priorities in enforcing immigration laws.”

Agricultural Economy

University of Illinois agricultural economist Darrel Good noted yesterday at the farmdoc daily blog (“U.S. Soybean Production Prospects for 2015”) that, “Stocks of U.S. soybeans at the end of the current marketing year are expected to be at an eight year high. In addition, the current South American soybean harvest is estimated at a record 6.066 billion bushels, 378 million bushels larger than the 2014 harvest and 710 million bushels larger than the 2013 harvest. The USDA projects September 1, 2015 stocks of soybeans in South America at 2.205 billion bushels, 523 million bushels more than the inventory of the previous year.”

After additional analysis, Monday’s update stated that, “Compared with the current marketing year, expectations for the 2015-16 soybean marketing year include increased acreage, a further increase in year-ending stocks, and lower prices. The expected price decline is moderated by the likelihood that stocks at the end of the current marketing year will be about 90 million bushels less than projected last fall. That is equivalent to two million acres. Prices are not expected to be as low as the CBO baseline projection of $8.19 or even the USDA baseline projection of $8.50. The futures market currently points to a marketing year average near $9.50.”

Livestock Production

AP writer David Pitt reported yesterday that, “Modern meat production, in which thousands of animals are packed into barns for concentrated feeding operations, has proven to be efficient and profitable, but comes with its own set of problems.

From Washington state to North Carolina, federal lawsuits are challenging the livestock industry to change its ways, basing arguments on studies that increasingly show the impact that phosphorous, nitrates and bacteria from fertilizer and accumulated manure have on lakes and rivers, as well as air pollution that can be harmful to respiratory health.

“Livestock farmers insist they’re trying to ameliorate the problem by installing grass strips, tilling less and using other techniques to keep manure and fertilizer from draining into waterways.”

The AP article noted that, “The hog industry’s shift from small family farms to large-scale farms is dramatic, going from more than 200,000 in the early 1990s to just over 21,600 in 2012.

“A driving force behind some of the large-scale hog farms is Murphy-Brown LLC, which became part of the world’s largest pork producer when China-based WH Group bought corporate parent Smithfield Foods in 2013. WH Group aims to feed China’s appetite for meat with cheaper hogs from the United States, and that foreshadows increased production in the U.S., according to lawsuits filed in eastern North Carolina.

“The water- and air-quality lawsuits are mostly driven by advocates of locally grown food as well as animal-rights and environmental activists. But in some cases, farmers are going after farmers.”

Keith Good

Monday Morning Quick Take: Trade Issues, Budget

Categories: Budget /Trade

Trade Issues

Reuters writer Noel Randewich reported on Sunday that, “Growing numbers of freighters were backed up around the two busiest U.S. cargo hubs on Sunday because of a dispute between shipping companies and dockworkers that has led to a partial shutdown of ports along the West Coast.”

The article noted that, “By Sunday morning, 34 container ships, tankers and other cargo vessels were waiting to dock at the ports of Los Angeles and Long Beach, California, up from 32 on Saturday, said Lee Peterson, a spokesman for the port of Long Beach.”

After noting that Labor Secretary Tom Perez had been dispatched by the White House to California to meet with parties to the dispute, the Reuters article stated that, “The Department of Labor is working on Perez’s schedule, spokeswoman Xochitl Hinojosa said on Sunday.

“‘The secretary will meet with the parties to urge them to resolve their dispute quickly at the bargaining table,’ she said.”

In other trade related news, Jonathan Weisman reported in today’s New York Times that, “A number of countries — China most prominent among them — have long acted to hold down the value of their currencies against the dollar, helping their industries by keeping exports to American consumers cheaper and making goods from the United States more expensive.

“And while every president from Bill Clinton on has repeatedly criticized the practice, none have ever taken formal action against China or any other nation to try to stop it.

Now, a growing bipartisan majority in Congress is coalescing around a demand that could derail President Obama’s ambitious trade agenda before it really gets moving: include a robust attack on international currency manipulation or no deal.”

The article, which appeared in the Business Section of Monday’s paper, explained that, “The push for strong currency provisions — in legislation to grant the president ‘fast track’ trade negotiating authority, in a major trade deal with a dozen Pacific Rim countries, or in both — has presented the White House with what it fears is something of a Catch-22.

If members of Congress are to be believed, unless the president’s trade negotiator includes strict, enforceable prohibitions on policies to intentionally hold down the value of currencies, any completed trade accord will die on Capitol Hill. But, administration officials say, demanding the inclusion of such prohibitions would kill the trade deals before they were completed.”

Mr. Weisman noted that, “The administration has a crucial ally in Representative Paul D. Ryan of Wisconsin, the Republican chairman of the House Ways and Means Committee. The trade promotion authority bill he plans to push through his committee by March will include new reporting, monitoring and transparency rules to spotlight currency manipulation, but it will avoid retaliatory enforcement rules that he fears could prompt a trade war.”

And the Times article concluded by pointing out that: [Sen. Chuck Schumer (D., N.Y.) said he had advised the White House to embrace currency protection legislation now, either as part of the bill granting Mr. Obama trade promotion authority or as a stand-alone bill that would move with the Trans-Pacific Partnership. That way, the currency issue would subside before the partnership comes before Congress.

Mr. Schumer said Congress did not ‘have the votes’ for a plain Trans-Pacific Partnership or for granting trade promotion authority.

They actually might need it to happen,’ he said.”

 

Budget Issues

Jeremy W. Peters reported in Monday’s New York Times that, “The House speaker, John A. Boehner, said Sunday that he was ‘certainly’ prepared to allow funding for the Department of Homeland Security to lapse, raising the possibility that one of the government’s largest and most vital agencies could be shut down at the end of the month.”

Mr. Peters noted that, “In dispute is how to handle the issue of immigration. Last month, House Republicans passed a spending plan for the 240,000-employee department that included provisions to gut President Obama’s immigration policy. The bill would revoke legal protections for millions of unauthorized immigrants, including children, and put them at risk of deportation.

“The House measure stands no chance of becoming law…[L]awmakers are gone from Washington until next week, meaning that they have just four days in the Capitol in which to reach a deal before the department’s funding runs out on Feb. 27.”

Keith Good

FarmPolicy.com Recap: Policy Issues; Trade; Agricultural Economy; and, Biotech

Policy Issues

On Friday, the House Appropriations Subcommittee on Agriculture held a budget hearing and heard testimony from USDA Inspector General Phyllis Fong.

During the hearing, Subcommittee Chairman Robert Aderholt (R., Ala.), Subcommittee ranking member Sam Farr (D., Calif.) and Rep. Chellie Pingree (D., Maine) all referenced a recent New York Times article that focused on animal production research procedures and operations at a federal facility in Nebraska. The lawmakers expressed support for the IG to investigate some of the issues raised in the Times article in more detail.

Rep. Sanford Bishop (D., Ga.) raised the issue of fraud and error payments in the SNAP, WIC and farm programs, and Rep. David Young (R., Iowa) brought up antibiotic issues and livestock production during his conversation with IG Fong.

Complete FarmPolicy.com highlights from Friday’s hearing have been posted here.

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Canada Confirms Case of Mad Cow Disease

Reuters writers David Ljunggren and Scott Haggett reported on Friday that, “Canada confirmed its first case of mad cow disease since 2011 on Friday, but said the discovery should not hit a beef export sector worth C$2 billion ($1.6 billion) a year.

“The news, however, helped boost U.S. cattle prices.

“The Canadian Food Inspection Agency (CFIA) said no part of the animal, a beef cow from Alberta, had reached the human food or animal feed systems.”

The Reuters article stated that, “Asked whether he was concerned about exports being harmed, Agriculture Minister Gerry Ritz told reporters in Calgary: ‘Not at this time, no.’

“He added, however, that markets in South Korea and Japan were generally very concerned about the potential risk from BSE.”

Paul Vieira reported on Friday at The Wall Street Journal Online that, “Cattle futures markets initially shrugged off any concerns that the mad-cow disease finding in Canada would limit cattle supply.

“Canadian officials said they had been in contact with the country’s trading partners about the discovery and initial findings. However, at a barley growers event in Alberta, Canadian Agriculture Minister Gerry Ritz said he wasn’t worried about the potential impact on trade.”

The Journal article added that, “While live-cattle futures in Chicago traded higher following the announcement early Friday, analysts said that the impact to the market would likely be muted because it remains an isolated case and because the meat industry and regulators have gotten better at containing such outbreaks.”

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West Coast Ports- Sunday Update

Following Saturday’s executive branch action by President Obama on the ongoing West Coast port dispute, Tiffany Hsu, Andrew Khouri and Time Logan reported on the front page of Sunday’s Los Angeles Times that, “With idled cargo ships piling up along the coastline, President Obama ordered his labor secretary to California to try to head off a costly shutdown of 29 West Coast ports.

Obama dispatched Tom Perez on Saturday to jump-start stalled labor talks between shipping companies and the dockworkers’ union. The move ramps up pressure to resolve a dispute that stranded tens of thousands of containers on cargo ships over the holiday weekend.”

The article noted that, “On Saturday morning, 32 massive ships were anchored outside the ports, unable to unload thousands of cargo containers filled with auto parts, electronics and clothes destined for store shelves across the country.”

With respect to agriculture, today’s LA Times article added that, “Elsewhere in the state, the agriculture industry is in pain.

“Ronald C. Leimgruber, namesake and owner of a farm in Holtville in southeastern California, said his small company normally exports two or three 20-ton loads of alfalfa hay and grasses a week . Now, he’s forced to stockpile it or sell it cheaper domestically.

“‘You do whatever you can to survive,’ he said.

“Customers have canceled orders, and Leimgruber fears they may never come back.”

Erik Eckholm reported in today’s New York Times that, “At the president’s request, Thomas E. Perez, the secretary of labor, will travel to California to ‘meet with the parties to urge them to resolve their dispute quickly at the bargaining table,’ according to a statement issued by Eric Schultz, a White House spokesman. Mr. Perez will try to mediate a settlement between an association of the major shipowners of the West Coast and the union of longshoremen who unload those ships, which collectively bring in half the nation’s imported cargo.

“The White House statement said the president was acting ‘out of concern for the economic consequences of further delay’ and added, ‘Secretary Perez is already in contact with the parties and will keep the president fully updated.’

“The unusual decision to intervene in contract negotiations came as American retailers, the U.S. Chamber of Commerce and agricultural exporters said they had already lost hundreds of millions of dollars because of mounting port congestion, with spare parts and consumer products from Asia not arriving on time and exports like oranges and apples left to rot.”

The New York Times article noted that, “The total number of ships waiting to dock at these two conjoined ports on Saturday, including bulk and general cargo carriers, was 32.”

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West Coast Ports- Obama sends Labor Secretary to California- Agricultural Implications (Saturday)

Developments

Christi Parsons, Andrew Khouri and Chris Kirkham reported on Saturday at the Los Angeles Times Online that, “President Obama is sending Labor Secretary Tom Perez to California to meet this weekend with ship owners and longshoremen involved in the ongoing labor dispute that threatens to shut down 29 West Coast ports, a White House advisor said Saturday.

“As Obama prepared to leave San Francisco on Saturday morning, aides said he summoned Perez to get the parties together to talk. The union representing dockworkers and the Pacific Maritime Assn. met Friday without reaching a deal. It’s not clear when they’ll meet again.

“The workers’ last contract expired in July and the two sides have been operating without one since. The dispute broke open in the fall when the shipping group accused union workers of slowing down on the job as a negotiating tactic.”

The LA Times article explained that, “Obama still thinks the problems need to be solved at the bargaining table without intervention from the federal government. But he thinks Perez may be able to help the parties find common ground and dispatched him ‘out of concern for the economic consequences of further delay,’ White House spokesman Eric Schultz said Saturday.

“Perez will travel to California to meet with the sides ‘to urge them to resolve their dispute quickly at the bargaining table,’ he said.

“Perez is already in contact with the negotiators, Schultz said.”

House Ag Committee member Dan Newhouse (R., Wash.), who last week introduced a House Resolution expressing the sense of Congress that negotiations must come to a swift conclusion, indicated in a statement on Saturday that: “I am encouraged by the Administration’s response to calls for stepped-up involvement to address the dispute that has already crippled the West Coast’s export economy and had a devastating impact on Central Washington. I strongly urge both parties to remain at the negotiating table until a resolution is quickly reached to end the prospect of an even more damaging long-term port shutdown.”

Last week’s measure was introduced along with House Ag Committee member Jim Costa (D., Calif.) as well as, Dave Reichert (R., Wash.) and former House Ag Committee member Kurt Schrader (D., Ore.); for more details, see this article from Friday’s Los Angeles Times, “House members call for swift resolution of West Coast port dispute.”

Laura Stevens noted in Saturday’s Wall Street Journal that, “While still on the table, pay, pension benefits and the length of the contract aren’t expected to further hinder negotiations. Up until a couple of weeks ago, the two sides seemed very close to a settlement.

Both sides are at an impasse on arbitration, however. Four regional arbitrators currently act as judges in disputes between the union and port employers. Unless both groups agree to remove an arbitrator, he or she remains in place for a life term. At the heart of the dispute is a disagreement over whether one of the arbitrators should continue in the role.

“The union wants to adjust the rules so that at the end of each contract, either group could decide to unseat an arbitrator. The PMA wants to keep the system that has been in place for decades, arguing it allows for stability and keeps the union from ousting arbitrators who side with the employers.”

 

Agricultural Implications

Chris Kirkham and Tiffany Hsu reported on the front page of the Business Section in Saturday’s Los Angeles Times that, “On any given day, up to a dozen ships handle more than $1 billion worth of goods in the mammoth ports of Los Angeles and Long Beach, the nation’s busiest seaport.

“Thousands of trucks carry off 40% of the nation’s incoming container cargo each year, feeding into an extensive highway and rail network that brings electronics, cars and toys to consumers and businesses throughout the nation.

“But despite the enormous volume of goods flowing through the ports in San Pedro Bay, and a long-simmering labor dispute that threatens a shutdown of 29 West Coast ports, economists and trade experts said closures would have very little effect on the broader U.S. economy. That’s because the trade of goods through U.S. ports represents only a fraction of the nation’s total economic output.”

Nonetheless, the LA Times writers pointed out that, “Certainly many businesses would feel the pain, and have already felt it, after months of slowdowns at West Coast ports. Agricultural exporters who ship produce to Japan, China and Australia face canceled orders and spoiled food. Manufacturers who rely on parts from China are contending with work stoppages and delays.”

More specifically, Saturday’s article explained that, “A shipment of fruit set to depart to New Zealand and Australia in December left late last month.

“‘It’s the fresh fruit business — it’s perishable,’ said LoBue, whose company is based in Lindsay. ‘The growing season ends in May. Whatever you miss, you miss. There’s no catching up.’

Economists don’t dispute that companies that deal in commodities such as fruit and seafood will take a hit from the slowdown and potential stoppage. But most businesses can deal with such delays — though there may be costs.”

On Friday, Reuters writer Steve Gorman reported that, “Protracted labor strife and shipping disruptions at U.S. West Coast ports have hit farmers especially hard, posing a major barrier to perishable goods headed to overseas markets and resulting in losses estimated at hundreds of millions of dollars a week.

“Foreign Pacific Rim customers facing chronic delays in shipments of U.S. food and farm products are turning to other countries for produce ranging from citrus and apples to beef and pork, the Washington-based Agriculture Transportation Coalition (AgTC) has reported.

Many frustrated U.S. suppliers are deciding to forgo exports and scrambling instead to find domestic buyers for their produce, driving down prices, said Wendy Fink-Weber, a spokeswoman for the Western Growers trade organization.”

Friday’s article stated that, “Precise figures on the extent of damage are hard to come by. The AgTC has estimated that total U.S. agricultural export losses – for fruits, vegetables and meats shipped by container – were running roughly $400 million a week in December, the latest month for which industry data was available.”

Bloomberg writers Craig Giammona, James Nash and Lindsey Rupp reported that, “Even if West Coast dockworkers resolve their nine-month labor dispute soon, a lingering slowdown at the ports threatens to hurt U.S. companies for months to come.”

The Bloomberg article indicated that, “The congestion is taking a toll on consumer goods, food, clothing and other products. Tyson Foods Inc., the largest U.S. meat producer, has shifted its export strategy to cope with the situation. Cuts of meat that would have been sent to China are being used instead for lesser-value ground beef in the U.S., according to Gary Mickelson, a company spokesman.”

The article added that, “ConAgra, which sells Chef Boyardee canned foods, Orville Redenbacher’s popcorn and Reddi-wip dessert topping, lowered its annual forecast on Thursday, in part because of the port slowdown. The labor showdown has hurt exports of Lamb Weston potato products, as well packaged goods, including Swiss Miss hot chocolate and Act II popcorn, ConAgra said.”

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GMO Apples

Categories: Biotech

Video from The Wall Street Journal: Time-Lapse: Conventional Apple vs. GMO Apple, A time-lapse video shows the differences in browning of a regular golden delicious apple and a genetically modified Arctic golden apple left out for 24 hours. Photo: Arctic Apples.

Andrew Pollack reported in Saturday’s New York Times that, “The government on Friday approved the commercial planting of genetically engineered apples that are resistant to turning brown when sliced or bruised.

“The developer, Okanagan Specialty Fruits, says it believes the nonbrowning feature will be popular with both consumers and food service companies because it will make sliced apples more appealing. The feature could also reduce the number of apples discarded because of bruising.

“But many executives in the apple industry say they worry that the biotech apples, while safe to eat, will face opposition from some consumers, possibly tainting the wholesome image of the fruit that reputedly ‘keeps the doctor away.’ They are also concerned that it could hurt exports of apples to countries that do not like genetically modified foods.”

Mr. Pollack explained that, “The Department of Agriculture, which approved the apples for commercial planting, said on Friday that it had considered these issues. However, it said that under the law, approval is based on whether a genetically modified crop poses a threat to other plants. The department determined that the apples posed no such risk.

“The so-called Arctic apples — which will be available in the Granny Smith and Golden Delicious varieties — are genetically engineered in a way to suppress the production of an enzyme that causes browning when cells in the apple are injured, from slicing, for example.

“But over time the apples will still rot and turn brown. In November, the Agriculture Department approved a genetically engineered potato developed by the J.R. Simplot Company that uses a similar technique to prevent browning.”

Also on Saturday, Tennille Tracy reported in The Wall Street Journal that, “The Agriculture Department, which announced the approval Friday, said the apple was given the green light because it didn’t pose a risk to other plants or agricultural products. The Food and Drug Administration is responsible for ensuring the apple is safe to eat, but its review is voluntary and its approval isn’t required for the company to move forward.”

Ms. Tracy added that, “Earlier this week, Democrats in the U.S. House and Senate proposed bills directing the FDA to require labels for genetically modified foods. Republicans are likely to support competing measures that make labeling voluntary and prevent states from passing their own measures.

“Voters in at least four states, including Oregon and Colorado most recently, rejected ballot measures to require food companies to label genetically modified products sold in their states. Vermont is the only state to pass such a law, and its measure is being challenged in court.

Having secured the USDA’s approval, Okanagan says up to 70,000 of its trees could be planted in 2016, with the resulting fruit available for consumers as early as 2017. But it will take several years for there to be any significant production.”

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Highlights: House Appropriations Subcommittee on Agriculture- Budget Hearing, USDA Inspector General

Categories: Budget /Farm Bill

On Friday, the House Appropriations Subcommittee on Agriculture held a budget hearing and heard testimony from USDA Inspector General Phyllis Fong.

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Photo by the House Appropriations Committee

During the hearing, Subcommittee Chairman Robert Aderholt (R., Ala.), Subcommittee ranking member Sam Farr (D., Calif.) and Rep. Chellie Pingree (D., Maine) all referenced a recent New York Times article that focused on animal production research procedures and operations at a federal facility in Nebraska. The lawmakers expressed support for the IG to investigate some of the issues raised in the Times article in more detail.

Chairman Aderholt: In closing, I do want to thank you for agreeing to review the New York Times allegation about the U.S. Meat Animal Research Center in Clay Center, Nebraska. The article described research and attitudes that seem to be pretty much in…pretty inconsistent with the conscientious, the hardworking scientists and the staff that work there and that we have at the Agricultural Research Service. Your assistance in auditing the claims included in the article and reviewing the current conditions, practices and policies would be very helpful to us.

Ranking Member Farr: And I want to echo what the chairman said on the animal treatment center, and I’m sure it’s going to open up a lot of issues with a lot of university research areas, but it’s worth looking into. I know California has required all the research institutions in the state universities to change all their caging and animal husbandry practices to bring in humane practices, state-of-the-art humane practices. It’s very expensive to bring it all up, but they did it, and I think that’s probably something that we in Congress ought to look at.

Rep. Pingree: I want to just add my voice to the choruses of concern around a very troubling New York Times story that was mentioned about animal research, so I’m hopeful that we’re going to do some more investigating into that. And obviously many of the concerns that were raised in that story about the spending of taxpayer dollars and humane treatment basically bordering on the bizarre, in fact in some of the things that were being researched, in my opinion, and even more importantly, completely counter to what the consumer is looking for today. I mean, the market is growing in humanely raised and, you know, different levels of treatment for animals, so why the taxpayer dollars is being spent in something that’s clearly inappropriate practice I think raises a lot of questions. So just want to add my concerns along with the chair and the ranking member.

Also at the hearing on Friday, Rep. Sanford Bishop (D., Ga.) raised the issue of payment error rates with IG Fong and some of her staff; a portion of this discussion is detailed below.

Rep. Bishop: Can you tell us what the current level of OIG resources are that are dedicated to the FSA and what’s planned for 2016, if any investigations of fraud-related activity have been conducted with respect to FSA programs over the past couple of years?

I’m a very strong supporter of our FSA programs, as I am for SNAP and WIC, but I think all of us agree that fraud should be routed out no matter where it is, and I believe that we need to be concerned with the level of attention which has been reaped on SNAP versus the other programs such as risk management, the conservation programs.

So I’d really like to…can you tell me what the fraud rate, the error rate is? I know that SNAP and WIC are large programs, but what is the percentage error rate there compared to the other programs?

Ms. Fong: Okay.

Rep. Bishop: Because I think I was under the understanding that really that percentage of the total claims was small compared to some of the other programs that don’t get as much attention.

Ms. Fong: Let me just offer a few comments and then I’ll ask Gil and Ann. We also share your view that we need to address fraud wherever it occurs in USDA’s portfolio, and we are paying attention to allegations and issues in the farm programs and crop insurance programs, and I know we have some good examples of that.

In terms of the improper payment rates, you do have—I think you’re correct that in terms of what the department reports as improper payment rates in the food stamp program, it tends to be in the 3-4% range. In some of the other programs, say the RMA and NRCS programs, the improper payment rate is much higher, in the teens, maybe near 20%. There are probably a number of reasons for that. We are paying very close attention to that. And let me just offer the chance to comment to Gil and Ann.

Gil Harden, Assistant Inspector General for Audits: The thing that I would add to that, too, I mean, we are mindful of it, but the FSA percentages for their high risk programs for FSA are lower, some of the lower percentages. But we do keep them on the radar screen.

Ann Coffey, Acting Assistant Inspector General, Investigations: And I’d like to just address the question you had raised about what sorts of resources we’re allocating towards FSA investigative work. Historically, we have focused quite a bit of our resources on the SNAP program, but FSA is an area that we are definitely looking for an increase and expecting to increase our investigative work in those areas. We have had some very good cases within the last recent year with high dollar amounts, and so we do anticipate that within FY16 we will be increasing our work in FSA.

Meanwhile, Rep. David Young (R., Iowa) brought up antibiotic issues and livestock production during his conversation with IG Fong. A replay and transcript of this exchange is included below.

Rep. Young: Thank you for coming today. You know, I was at the beef expo in Iowa over the weekend, and we eat a lot of pork and produce a lot of pork as well in Iowa, as you know. And I understand in your budget you’ve ask for $57 million for an antibiotic resistance study on livestock, and it’s a new USDA initiative, [something] maybe you’ve studied a little bit in the past, but you’ve got to go forward, I think, and do something broader. And this causes farmers and ranchers in my state and other states, probably, some uncertainty and some cause for pause right there.

And just want to make sure that…the concerns are that sometimes this is viewed by ranchers and producers in a political science context and not sound science, and there may be outside pressures. I reflect back to the GMO debate. I just want to know, can you provide an overview of your work so far on any of this and where you want to go on this? And also, how do you involve the agriculture community, from the producers, the farmers, to veterinarians, and will you be keeping us up-to-date on this, and how will you do that?

Ms. Fong: I believe we have an ongoing audit on that. We started it last summer. We are probably in the middle of field work at this point. And I’m going to ask Gil to comment on specifically what our scope is on that.

Mr. Harden: I can kind of speak to our [unintelligible] scope. We’re basically looking at how the department is going about, you know, responding to the antibiotic resistance, you know, how they’re going about surveillance, you know, what they’re doing to match it with the science and stuff. It’s that line of questioning. But we are in the middle of field work. And I’d be more than happy to brief you further once we’re further along in the process.

Rep. Young: I’d appreciate that. Thank you.

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Recent Highlights from USDA’s Economic Research Service, U.S. Agricultural Economy

The USDA’s Economic Research Service (ERS) noted in its Feed Outlook report this week that, “A 75-million-bushel increase in forecast 2014/15 corn use for ethanol boosts expected supplies of distillers’ grains reducing the outlook for feed and residual use and leaves ending stocks 50 million bushels lower this month…Higher reported cattle inventories increase grain consuming animal units. The midpoint of the projected range for the corn price received by farmers is unchanged at $3.65 per bushel.

And in its chart of the day report on Friday, ERS explained that, “Strong feeder cattle prices and declining feed costs are supporting high returns for cow-calf producers. The price of 750-800 lb. feeder steers at the Oklahoma National Stockyards exceeded $220 per hundredweight at the end of 2014, up $65 since January and over $100 since May 2013. At the same time, the price of corn (a major component of cattle feed) fell from above $7.00 per bushel in mid-2013 to under $4.00 per bushel by December 2014, reflecting a record 2014 crop projected at 14.4 billion bushels. Despite weaker demand, beef prices are at record high levels due to tight supplies and historically low cattle inventories. Expanding the cattle herd is a long-term process due to the time it takes cattle to mature, and requires holding some heifers off market for breeding purposes.”

ERS added that, “Recently released data from USDA’s Cattle report suggests that inventories are beginning to grow, and cattle prices have begun to retreat. With corn prices forecast by USDA to average around $3.50 per bushel for the 2014/15 marketing year, returns to cow-calf operators should remain favorable into 2015.”

In its Oil Crops Outlook this week, ERS stated that, “Last fall, high meat prices encouraged livestock and poultry producers to keep more breeding animals. The expected expansion of livestock and poultry output would boost 2014/15 domestic soybean meal consumption to 30.5 million short tons, compared to 30.2 million last month.”

With respect to soybean oil, the report noted that, “Despite a higher soybean crush, 2014/15 soybean oil production is forecast up only marginally from last month. Extraction rates for soybean oil this year have been below average and could fall to a 5-year low for the whole season. A brisk processing pace and lower oil content of this year’s soybean crop are responsible for the reduction in oil yields.”

In its Wheat Outlook report this wee, ERS pointed out that, “U.S. wheat ending stocks for 2014/15 are projected 5 million bushels higher as reduced exports more than offset an import reduction. Projected imports are lowered 20 million bushels to 160 million on pace to date. Projected exports are lowered 25 million bushels to 900 million due to increased competition from the European Union (EU) and the recent strengthening of the dollar (which makes U.S. exports less competitive). Ending stocks are increased to 692 million bushels. The season-average farm price is lowered 5 cents on the low end and 15 cents on the high end to $5.85 to $6.15 per bushel. The reduction reflects prices received to date as well as a loss of competitiveness for U.S. wheat.”

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Farmland Values- Federal Reserve Bank of Kansas City

Following Thursday’s reports on farmland values from both the Federal Reserve Banks of Chicago and St. Louis, on Friday, the Federal Reserve Bank of Kansas City indicated on Friday that, “Farmland values in the Tenth District generally held steady in the fourth quarter of 2014 despite further declines in farm income. Most bankers surveyed, however, said they expect cropland values to fall in 2015 alongside reduced expectations for farm income. Amid shrinking profit margins, demand for operating loans to pay for crop inputs is expected to remain elevated, and some bankers expressed concern that loan repayment rates might deteriorate if weak profit margins persist.”

Chart- Tenth District Farmland Values, Annual Gains

The report noted that, “Cash rental rates also had moderated only slightly from a year ago despite prospects of lower crop revenue in 2015. While tenants were concerned about weaker profit margins due to low crop prices and high input costs, landlords cited high property taxes during rent negotiations as justification for keeping rents steady.”

Chart- Tenth District Farmland Cash Rental Rates, Annual Gains

The Kansas City Fed added that, “Although overall farm income continued to soften, livestock producers have experienced record profits. Profit margins remained particularly strong for cow/calf operators due to low feed costs and persistently high feeder cattle prices, which have been supported by reduced U.S. cattle inventories. U.S. cattle inventories have yet to return to pre-drought levels, and the USDA National Drought Mitigation Center recently reported that about 26 percent of the current cattle inventory is in regions hampered by drought. In the Tenth District, large portions of the major cattle producing areas in Oklahoma and Kansas are still affected by moderate to exceptional drought.”

Reuters writer Christine Stebbins reported on Friday that, “But the [Kansas City Fed] bank noted sharp variations based on farm income trends. Nebraska, the region’s top corn producer, saw non-irrigated land values drop 3.4 percent from a year ago. In Oklahoma, with more grazing land, those values jumped 19 percent.”

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Policy Issues; Ag Economy; Biotech; Trade; and, CFTC

Policy Issues

A news release yesterday from the House Ag Committee stated that, “Today the House Committee on Agriculture sent its Budgets Views and Estimates Letter for Fiscal Year 2016 to the House Budget Committee. In the letter, Committee members urged Budget Committee Chairman Tom Price to take into account that with the Farm Bill the Agriculture Committee made a significant contribution to deficit reduction with the passage of the Farm Bill, which Congressional Budget Office (CBO) estimated at the time would save $16 billion over 10 years. Despite a steep decline in commodity prices the CBO estimates that taxpayer savings remain intact.

“‘The Farm Bill is working as it was intended to work, meeting our objectives with substantially fewer resources,’ Committee members wrote in the letter. ‘From our perspective, we believe that the Committee on Agriculture has done its duty for now with respect to deficit reduction and that areas constituting the other 98 percent of the Federal budget ought to be looked to first for any additional savings being sought this Congress.’”

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Farmland Values, Federal Reserve Banks of Chicago and St. Louis, Updates

On Thursday, the Federal Reserve Bank of Chicago released its AgLetter report, which stated that, “The Seventh Federal Reserve District had an annual decrease of 3 percent in ‘good’ farmland values for 2014, marking the first yearly decline since 1986. However, farmland values in the fourth quarter of 2014 remained largely the same as in the third quarter, according to survey respondents from 224 agricultural banks across the District.”

The report explained that, “Moreover, the fourth quarter of 2014 was the first time since the third quarter of 2009 that the District suffered a year-over-year drop in farmland values. When adjusted for inflation, the District’s annual decrease in agricultural land values for 2014 was the first one since 1992; the streak of annual increases in District farmland values in real terms had reached 21 years before being broken in 2014. Still, at the end of 2014 the index of inflation-adjusted agricultural land values for the District was 68 percent higher than at its 1979 peak from the 1970s boom.”

The Chicago Fed noted that, “Lower corn and soybean prices have been primary factors contributing to the drop in farmland values. The impact of falling crop prices has been offset to some extent by buoyant returns for livestock producers through- out 2014. Nevertheless, the index of prices for livestock and associated products was down 5.2 percent in December from November (yet it was still up 13 percent from the previous December). The average price of milk in December was noticeably lower than the price in November, and even trailed the price from the previous December by 7 percent. As livestock producers responded to price signals for expansion, the extra output contributed to a lowering of the prices received by producers, trimming their profits. There still seemed to be some lift to farmland values from livestock operations toward the end of 2014, yet the farm sector should be cautious about possible future impacts of these price trends, especially because feed costs may not get much (if any) lower.”

Also Thursday, in its Agricultural Finance Monitor, the Federal Reserve Bank of St. Louis stated that, “According to the survey responses from 39 agricultural banks in the Eighth District, farm income, farm household spending, and capital equipment expenditures all declined in the fourth quarter relative to the same period a year earlier.”

The report pointed out that, “The average quality farmland values reported by common respondents in the fourth quarter indicate that quality farmland values were little changed from one year ago (+0.8 percent). However, a majority of bankers expect quality farmland prices to soften in the first quarter of 2015 compared with prices a year earlier. Respondents indicate that, for the quarter, their funds available for lending increased ahead of expectations while loan demand increased but fell somewhat short of expectations.”

With respect to key variable in crop farm operation profitability, the report explained that, “Cash rents for quality farmland increased on average 3.6 percent from one year ago. However, proportionately more bankers see downward pressure on farmland cash rents over the next three months (an index value of 77). As with the trend in pastureland values, respondents reported a decline in pastureland cash rents: 2.1 percent lower than one year ago. Similarly, bankers are equally divided on the future direction of cash rents over the next quarter. Since cash rents adjust to land values—perhaps with a lag— expectations for cash rents for quality farmland and ranchland or pastureland over the next three months are generally very similar to land values.”

Jesse Neman reported on Thursday at The Wall Street Journal Online that, “The [federal reserve] reports spotlight an overall slowdown in the U.S. farm economy and in the appreciation of farmland prices. Crop prices had soared for much of the past decade, fueled by drought and rising demand for corn from ethanol processors and foreign importers. The gains pushed agricultural land values so high that some analysts warned of a bubble.

“On Tuesday, the U.S. Department of Agriculture projected net U.S. farm income this year would fall to $73.6 billion, the lowest since 2009, from $108 billion in 2014.

Prices for corn, the biggest U.S. crop by value, have tumbled more than 50% since the summer of 2012, when they soared to record highs amid a severe U.S. drought. Growers produced the nation’s largest corn and soybeans harvests ever last autumn, helped by nearly flawless weather over much of the growing season.”

Reuters writer Christine Stebbins reported on Thursday that, “‘It is very difficult for farmers to buy farmland and new equipment with corn prices in the $3.50 range,’ one Missouri lender told the bank [St. Louis Fed]. ‘Many received much less for their crops this fall. Farmers with a lot of debt cannot postpone the sale of their crop waiting for prices to rebound when they have payments due after harvest.’”

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Policy Issues; Ag Economy; Budget (CFTC); and, Regulations- Thursday

Policy Issues

Yesterday, the House Agriculture Committee heard testimony from Secretary of Agriculture Tom Vilsack at a hearing to review the state of the rural economy.

During his opening remarks, Committee Chairman Mike Conaway (R., Tex.) noted that, “Saturday marked the one-year anniversary of the signing of the Agricultural Act of 2014. As you know, economic conditions for many producers have changed dramatically since then, with commodity markets plunging by up to 50 percent. Drought and other natural disasters also resulted in disaster declarations in 33 states across the country last year. The net effect was an estimated 43 percent decline in net farm income over the past 2 years.”

Chairman Conaway indicated that, “I must admit that I was disappointed to see the administration’s FY2016 budget proposal that slashes $16 billion from crop insurance—a reduction of over 17%. With commodity markets plummeting and producers struggling to find financing, now is precisely the wrong time to weaken crop insurance.”

At the opening of the discussion portion of yesterday’s hearing, Chairman Conaway sought more detail on crop insurance issues from Sec. Vilsack– a transcript of this five minute conversation is available here, at FarmPolicy.com.

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Highlights, USDA Agricultural Projections to 2024

On Wednesday, the U.S. Department of Agriculture released a report titled, “USDA Agricultural Projections to 2024.”

At page 53, the report stated that, “Planted area for major field crops in the United States is projected to decline over the next several years as U.S. and global supplies rebound from relatively low levels in recent years and prices decline for most crops. As a consequence of the associated lower producer returns, U.S. planted acreage for eight major crops (corn, sorghum, barley, oats, wheat, rice, upland cotton, and soybeans) is projected to fall from a 2012-14 average of about 257 million acres to about 246 million in 2017.”

Yesterday’s report noted that, “Larger global production of grains and oilseeds in response to high prices in recent years has raised world supplies and lowered U.S. prices for corn, wheat, and soybeans. Following these near-term price declines, the continuing influence of several long-term factors—including global growth in population and per capita income, a relatively low-valued U.S. dollar, and global biofuel production—underlies moderate gains in these prices and keeps them above pre-2007 levels.”

At page 76, the report stated that, “The livestock sector is projected to adjust to lower feed costs, with stronger producer returns providing incentives for increasing production. Additionally, the pork sector rebounds from reduced production in 2014 that largely reflected effects of Porcine Epidemic Diarrhea virus (PEDv). Production expansions for pork and broilers are projected for the full projection period. Beef production increases begin in 2018 as near-term declines in output are exacerbated as more heifers are retained to build beef cow inventories rather than fed for slaughter. As a result, total U.S. red meat and poultry production is projected to rise over the projections period. Milk production also increases over the next decade.”

With respect to farm income, USDA indicated that, “Net farm income reached a record high in 2013, largely reflecting a runup in prices for many agricultural commodities. While net farm income is projected to fall from that record, it remains above the average of the 2001-10 decade.”

And at page 86, the report stated that, “Direct Government payments to farmers rise sharply in 2016, mostly due to ARC and PLC payments under the Agricultural Act of 2014. After falling through 2019, direct Government payments average almost $10 billion per year over 2020-24, compared to an annual average of over $15 billion in 2001-10. The Conservation Reserve Program (CRP), ARC, and PLC are the largest Government payments to the agricultural sector over the projection period.”

Nutrition Issues Highlighted at House Ag Committee Hearing

Categories: Farm Bill

At a House Ag Committee hearing on Wednesday, lawmakers and Secretary of Agriculture Tom Vilsack highlighted nutrition related issues.

Committee Chairman Mike Conaway (R., Tex.) had the following exchange with Sec. Vilsack on Dietary Guidelines:

Rep. Conaway: Dietary Guidelines Advisory Committee is rumored to be wanting to eliminate red meat from our diets as a part of those guidelines. I guess, you know, coming from cattle country, I’m a little fired up about that. That whole panel I hope is focused on nutrition science in terms of developing those guidelines. Can you talk to us a little bit about—in fact do you have all the authority—it’s a joint responsibility with HHS. Do you have all the authorities you need to insist that it’s nutrition science that drives that train?

Sec. Vilsack: Yes, and I think the operative word of your question was “rumored.” That’s just not the case.

Rep. Conaway: Well, whether it’s reducing size of portions, all those kind of things—

Sec. Vilsack: No. I…as it relates to… Well, first of all, these are recommendations which the Department of Health & Human Services and the Department of Agriculture are free to accept, reject, or modify based on, ultimately, the decision-making that we are responsible for. Secondly, these folks get together, they do literature review of the latest science. It’s supposed to be driven by science and it needs to be driven by science. There is a lot of issues that have to be resolved yet. This is by no means finalized.

Rep. Conaway: Okay.

Sec. Vilsack: And then last, but not least, I would be surprised if the recommendations relative to meat are fundamentally different than they were in previous [guidelines].

Rep. Conaway: Can you give me a sense of what the timeline is and the steps between here and that final recommendation and report, whatever it is that goes on?

Sec. Vilsack: Sure. I think that we will be getting the guidelines—the recommendations, rather—very soon, within a matter of weeks, if not days. Then our team basically begins the process of working collaboratively with HHS to—and they’re the lead agency in this go round. I would anticipate and expect by the fall to early winter we’d have whatever the recommendations are going to—the new guidelines are going to be.

Rep. Conaway: All right. Well, again, you know, we’ve mentioned the science-based decision-making process, and nutrition science ought to drive the train and not sustainability or environment things, other things like that. It ought to be nutrition-based science, so appreciate that.

And Rep. Rodney Davis (R., Il.) brought up issues associated with school nutrition with Sec. Vilsack:

Rep. Davis: The issue that I always talk to you about, school nutrition. I wanted to thank you for putting out the guidance, the guidance memo for the exemption that our schools can apply for if they show hardship for the whole grain requirement. And also I want to thank you for implementing the freeze in current sodium levels until science can further back up target levels which will benefit the health of…which would be shown to benefit the health of children. In your view, how are the schools going to be able to benefit from these provisions, and do you support efforts to continue providing this flexibility?

Sec. Vilsack: Well, throughout this process we’ve indicated a willingness to be flexible as circumstances dictated. I think we’re very excited about the opportunities that we’re pursuing with our Team Up For Success initiative, which is designed to mentor and pair up school districts that are having a difficult time dealing with the new requirements, for whatever reason, with school districts that are similarly situated—similar size, similar geographic location. There was a day and a half seminar that was done down at Mississippi, University of Mississippi. We sort of piloted this notion. It was very well received. And so we want to see if we can continue doing that.

We obviously want to continue the smarter lunchroom grants and the school equipment grants, and the other financial resources that we’re making available. So it is a combination of a variety of things, and I think that’s why we’re seeing general acceptance, notwithstanding some of the concerns that have been expressed by school districts and by students. A recent survey showed 70% of elementary students and 63% of high school students were okay with what’s going on. So, you know, when I was governor I would have died for a 63 or 70% approval rating, and I suspect members of Congress would, too.

Rep. Davis: I wouldn’t die, but I would be very excited for that approval rating.

And in his prepared remarks, Sec. Vilsack noted that, “SNAP helps millions of hardworking families put healthy food on the table as they get back on their feet. More than half of SNAP recipients are children and the elderly, and less than 7% of households receive cash assistance. Among SNAP households with at least one working-age, non-disabled adult, more than half work – and more than 80 percent work in the year before or after receiving SNAP. With a stronger economy SNAP participation is beginning to gradually decline. Comparing Fiscal Year 2014 with Fiscal Year 2013, average participation decreased 2.3 percent or by approximately 1.1 million people. While the economic trends are encouraging, SNAP remains critical to millions of Americans.”

Sec. Vilsack indicated that, “The Farm Bill provided $200 million for SNAP employment and training pilots to help participants find jobs and increase their earnings…[and]…The new Farm Bill builds on USDA’s ongoing efforts to root out any waste, fraud, and abuse from the program, protect the taxpayer investment in SNAP and make sure that the program is there for those who truly need it. In FY2013, SNAP achieved a record level of payment accuracy of 96.8 percent. Payment errors in FY2013 were almost 64 percent lower than they were in FY 2000, among the lowest in the federal government. USDA efforts have also resulted in a significant reduction in trafficking – USDA’s The Extent of Trafficking in the Supplemental Nutrition Assistance Program: 2009-2011 study shows that the exchange of SNAP benefits for cash – which was estimated to be as high as 4 percent 15 years ago, down to just 1.3 percent according to the most recent data.”

Rep. Neugebauer Discuses Cotton Issues with Secretary Vilsack

Categories: Farm Bill

A news release today from Rep. Randy Neugebauer (R., Tex.) stated that, “I appreciate USDA Secretary Vilsack for coming before the House Agriculture Committee today to provide an update on the state of the rural economy and specifically where things stand with the implementation of the 2014 Farm Bill. The USDA has jurisdiction over many issues that impact hardworking farmers in the 19th District, and I raised several concerns with the Secretary regarding issues affecting our cotton producers, including concerns with the relationship between marketing loan gains and the new payment limit, and China’s cotton program and its effect on the global price of cotton. I also voiced my objections to President Obama’s budget request which would dramatically increase the cost of crop insurance for producers of all crops in the 19th District and limit its viability. We cannot afford to move in that direction and the President’s budget request is dead on arrival in Congress. As Farm Bill implementation continues and deadlines are right around the corner, I look forward to working with Secretary Vilsack to ensure that we have a Farm Bill that works for the 19th District of Texas and our great nation.”

More specifically with respect to cotton and China, Rep. Neugebauer had this exchange with Sec. Vilsack:

Rep. Neugebauer:Ambassador Froman came to sit down with some of the members of the House Ag Committee last week and talked about what’s going on in the trade. And as you know, trade is extremely important to agriculture. And, you know, I think with the recent, I guess, defeat in WTO with cotton with the Brazil case, I think we were forced to kind of basically redraft our farm program, particularly for cotton producers.

And I think one of the concerns that a lot of the people in cotton have right now is, particularly with China, are they playing by the rules. And, you know, their policy is not very transparent, and they have a huge influence on the world price of cotton. And as you know right now the price is down. Can you kind of expand on what the department’s doing to help make sure that our friends in China are playing by the rules?

Sec. Vilsack: That’s a big challenge, Congressman. I would say that we’re heartened by the announcement today from the U.S. Trade Representative’s office that beginning the process within the WTO to raise questions about the export subsidies that China is engaged in [related Wall Street Journal article here]. And agriculture is one of the industries that was identified as being part of that effort. And certainly it’s fairly clear that they have been not necessarily playing by the rules in a number of areas.

We’ve also urged them in terms of their reserves, their cotton reserves, to have much greater transparency in terms of what they have and where they have it and what they’re going to do with it, because that obviously does, indeed, impact and create instability in the market, which we don’t need. This is an issue that’s raised in every meeting that we have with the Chinese, along with several other issues that we have with them.

I would say that we’ve also, in the last meeting I’ve had, we suggested that there needed to be a strategic dialogue with China, a much more in-depth dialogue and conversation about a variety of issues, from biotech, to regulatory processes, to subsidies, to the way in which they control markets. And they have agreed to this strategic dialogue. We will be submitting to them a proposed agenda, and the hope would be that that dialogue will begin this spring.

They are our number one customer, and so it’s—obviously we have to be sensitive to that. But at the same time, we want a science-based and rules-based system because if everyone plays fair, we’ll do just fine in that system. If we’re at a disadvantage, obviously that’s a problem. So I think we’re calling them out and we should.

Rep. Neugebauer: Thank you, Mr. Secretary.


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