November 27, 2014

Federal Reserve Beige Book: Observations on the Ag Economy- July 2014

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- “Replanting of crops due to extended winter weather was completed and wheat harvesting finished up in the Carolinas, according to an agriculture contact. Overall, fertilizer prices remained steady, while agricultural chemical prices and crop seed prices increased slightly. Some agribusiness owners reported lower commodity prices compared to last year.”

* Sixth District- Atlanta- “While much of Tennessee, southwest Louisiana, and the southernmost tip of Florida continued to experience abnormally dry conditions, most of the District was drought free. Some areas received excessive rain causing delays in production although recent, dryer weather conditions allowed planting to continue. Regional producers benefitted from higher prices for many of their agricultural products, lower costs for feed and fertilizer, and fuel costs leveling off. Recent record- high prices in cattle and hogs were attributed both to growing international demand and to domestic supply constraints.”

* Seventh District- Chicago- “The District’s corn and soybean crops made up ground after a late start to planting as favorable weather helped plants emerge more quickly than the five-year average. The consensus among contacts was that the corn and soybean crops were in excellent shape, but were unlikely to set records when harvested because of the late plantings. Corn, soybean, and wheat prices moved down during the reporting period. More farmers than a year ago took advantage of the spring rally in crop prices to lock in a profit on a larger portion of their expected harvest. Hog prices moved higher as disease affected supplies. Farmers received lower prices for milk and cattle, yet these prices remained well above levels necessary to cover the costs of production.”

* Eighth District – St. Louis- “As of late June, District farmers had completed the corn, cotton, and rice plantings. In contrast, soybean and sorghum plantings were behind the 5-year average rate of progress in Tennessee, Arkansas, Mississippi, and Kentucky. Over 90 percent of the District’s corn, cotton, rice, sorghum, and soybean crops were rated in fair or better condition. The winter wheat harvest was behind its 5-year average rate of progress for all District states.”

* Ninth District- Minneapolis- “District crop producers made progress catching up on a late spring, but flooding due to heavy rains led to crop losses in some areas. Corn and soybean emergence rates were consistent with five-year averages, and most crops were in good or excellent condition. District producers planted fewer acres of corn and more soybeans this year, in line with expectations. The USDA forecasts solid harvests and a slight reduction in crop prices by the end of the year. Prices received by farmers fell in June from a year earlier for corn, soybeans, wheat, and hay; prices increased for cattle, hogs, poultry, eggs, and milk.”

* Tenth District- Kansas City- “Heavy summer storms in June improved soil moisture for developing crops and pastures but also caused some wind, hail and flood damage. Wet fields delayed the winter wheat harvest in Oklahoma and Kansas, and yields depended on the extent of drought, freeze and hail damage. Despite expectations of a poor wheat harvest in much of the District, wheat prices fell since the last survey period. The corn and soybean crops were in good condition overall, and improved growing conditions led to a drop in prices for both crops. Cattle prices continued to rise, but feeder cattle prices have recently increased much faster than fed cattle prices and narrowed margins for feedlot operators. The cumulative effect of reduced piglet numbers due to the swine virus and strong export demand for pork supported further gains in hog prices, even though pork production forecasts were raised due to heavier dressed weights and higher than expected slaughter in the second quarter.”

* Eleventh District- Dallas- “District drought conditions eased over the reporting period. Widespread rains greatly improved prospects for row crops, especially cotton, but came too late to aid the Texas wheat crop, which is expected to be down 20 percent this year. Most crop prices declined over the past six weeks due to expected stronger U.S. production. Pasture conditions improved and cattle prices continued to set new historical highs. Domestic demand for beef remained very strong despite record prices, while international demand for cotton remained low.

* Twelfth District- San Francisco- “Contacts indicated that drought conditions contributed to reduced production of some agricultural and resource-related goods. Contacts expressed ongoing concerns about water costs and availability. They also mentioned that it would be challenging for regulatory agencies to address issues related to pricing and prioritizing limited water supplies if low levels of rainfall and snowpack persist next year. Contacts observed reductions in herd sizes and plantings of annual crops, including tomatoes and rice. Most permanent crops, including nut and fruit trees, have not been affected yet, but some farmers may choose to reduce new plantings or remove less productive orchards. Farmers in Idaho anticipate high yields of grains, wheat, and potatoes this year. Dairy operations continued to benefit from low feed costs.”


Ag Economy; and, Regulatory Issues

Agricultural Economy

University of Illinois agricultural economist Gary Schnitkey indicated yesterday at the farmdoc daily blog (“Range in Revenues and Returns Possible for Corn in 2014”) that, “The U.S. Department of Agriculture released a revised World Agricultural Supply and Demand Estimates (WASDE) report on July 11, 2014. In this report, the 2014 Market Year Average (MYA) price for corn is projected to fall between $3.65 per bushel and $4.35 per bushel. Revenues and farmer returns are estimated for prices in this range given an average and high yield. Crop insurance and commodity title payments are included in estimates. Given this price range, there is about a $100 per acre range in which per acre returns can fall. Farmer returns likely are negative for cash rented farmland, given that costs are near average. Farmer returns for share rented farmland likely will be low.”

After additional analysis, yesterday’s farmdoc update stated that, “For average yields, farmer returns are negative at all prices: -$18 per acre for the $3.65 price, -$31 per acre at a $4.00 MYA price, and -$14 per acre at a $4.35 MYA price (see Table 1). Given the WASDE range, negative returns seem likely given average yields and average costs.

“For high yields, returns are -$33 per acre at a $3.65 MYA price, -$1 per acre at a $4.00 MYA price, and $76 per acre at a $4.35 price. Positive returns are possible at high yields and at prices near the high of the WASDE range. Given growing conditions to date, yields of 220 bushel are possible on many farms in central Illinois. As more farms have higher yields, however, the chance of prices in the upper end of the WASDE range decreases, as higher yields result in more supply which typically has a dampening effect on prices.”


Ag Economy; Regulations; Farm Bill; and, Political Notes

Agricultural Economy

Anthony Greder and Emily Unglesbee reported yesterday at DTN (link requires subscription) that, “Corn and soybean development was slightly ahead of the five-year averages for both crops, and the condition of the nation’s corn crop improved slightly in the week ended July 13, according to USDA’s latest Crop Progress Report.

“Corn was 34% silking as of Sunday, up from 15% a year ago and ahead of the five-year average of 33%. The crop was rated 76% in good-to-excellent condition, up from 75% the previous week.”

The DTN update added that, “Soybeans were 41% blooming, up from 24% a year ago and also up from the five-year average of 37%. The crop was rated 72% in good-to-excellent condition, the same as the previous week.”


Ag Economy; Policy Issues; and, Regulations

Agricultural Economy

Gregory Meyer reported on Friday at The Financial Times Online that, “Soyabean markets went into freefall after a government report lifted supply estimates for the world’s most widely grown oilseed.

“The bean is typically crushed into soya meal that is fed to livestock, and into vegetable oil, making it a key input in products including steak, baked goods and biodiesel.

“The US Department of Agriculture raised its estimate of the global oilseed crop by 5.8m tonnes on Friday to a record 521.9m tonnes” [full report here, summary of U.S. supply and demand variables for soybeans here].


ERS: Coverage of Federal crop insurance programs is expanding

Categories: Farm Bill


Producers of corn, soybeans, and wheat—the three largest crops produced in the United States—are the largest consumers of Federal crop insurance, although producers of other crops are a growing share of program enrollment. In 1997, corn, soybeans, and wheat crops accounted for 80 percent of all acres enrolled in the program; including cotton and sorghum raised the share to nearly 90 percent of all acres enrolled. Over the last 15 years, with new types of policies being offered and more crops added to the program, the share of enrolled acres attributed to these major crops fell as participation in the Federal crop insurance program continued to rise. Pasture, forage and range land have accounted for the bulk of recent gains in enrolled acres, expanding from zero in 1997 to 48 million acres in 2012. By 2012, corn, soybeans, and wheat made up roughly 68 percent of all acres enrolled, with cotton and sorghum accounting for an additional 7 percent. The share of acres enrolled in crop insurance varies by crop and region, but these differences decreased between 1990 and 2012 as coverage rates increased. For more data and analysis, see The Effects of Premium Subsidies on Demand for Crop Insurance, released July 2014.


Ag Economy; Farm Bill; Regulations; and, Immigration

Agricultural Economy

Gregory Meyer reported yesterday at The Financial Times Online that, “The prospect of a colossal 1bn-tonne global corn crop has sent the price of the grain below $4 per bushel for the first time in almost four years.

“Reports of near-perfect conditions in the US corn belt and favourable weather from Ukraine to China have pounded bulls in agricultural markets in recent weeks. Farmers’ incomes, tractor sales and land prices could be hit.

“Analysts expect the US Department of Agriculture to raise its forecast of how much corn the average US farmer will harvest per acre when it updates official estimates on Friday. The agency’s current estimate, of 165.3 bushels per acre, would already be a record.”


Regulations; Biotech Hearing; Ag Econ; Farm Bill; and, Immigration

Regulatory Issues

Tim Devaney reported yesterday at The Hill Online that, “House Republicans clashed with Environmental Protection Agency (EPA) officials Wednesday over the agency’s controversial plan to regulate small bodies of water, which the GOP says could hurt American farmers.

“Republicans fear the EPA’s proposed Waters of the U.S. rule would expand the agency’s authority to include small rivers, streams and ponds around the country, which they say could hurt farmers whose lands are strategically surrounded by water.

“‘I own a farm, I have a few ponds, the last place I would put a farm is where there is no water,’ Rep. Thomas Massie (R-Ky.) said during a House Science Committee hearing.


Washington Post Video- Drought, disease drive up meat prices

From PostTV (The Washington Post)- “New York City’s Schatzie the Butcher says meat prices are ‘really insane,’ as drought has driven up the cost of beef and veal while a virus in piglets is causing pork prices to soar. (Reuters)”


Regulatory Issues; Ag Economy; Biofuels; and, Farm Bill Issues

Regulatory Issues- EPA, Clean Water Act

DTN writer Todd Neeley reported yesterday that, “If nothing else, EPA Administrator Gina McCarthy hopes a trip to Missouri this week to talk to farmers and agribusiness representatives will help to dispel what she said are ‘myths’ about the agency’s proposed Clean Water Act rule.

“During a conference call with reporters Tuesday ahead of a farm tour in the Columbia, Mo., area Wednesday and a speech before the Agricultural Business Council of Kansas City Thursday, McCarthy wasted little time tackling claims made by agriculture interest groups and others about the proposed rule.

“‘Unfortunately there is a growing list of misunderstandings going around and we’re trying to clarify the issues,’ she said. ‘Hopefully it is an opportunity to set the record straight. This is not about restricting farmers, but protecting waters downstream. While there are legitimate concerns, we’re hearing some concerns that, to put frankly, are ludicrous.’”


Ag Economy; Policy Issues; USDA Employment Numbers; and, Biotech

Agricultural Economy

Tony C. Dreibus reported in today’s Wall Street Journal that, “Corn and wheat futures tumbled to their lowest prices in nearly four years as favorable weather over the July Fourth holiday weekend upgraded prospects for U.S. crops.

Soybeans fell, too, closing at their lowest level in more than four months.

“In the past week, up to six times the normal amount of precipitation fell in parts of Iowa and Illinois, the biggest U.S. growers of corn and soybeans, further improving growing conditions. About three-fourths of the nation’s corn and soybean crops were in good or excellent condition as of Sunday, according to the U.S. Agriculture Department [related graph].”


Ag Economy; Policy Issues; and, Political Notes (Rep. Collin Peterson)

Agricultural Economy

Bloomberg writer Jeff Wilson reported yesterday that, “The 8-foot (2.4-meter) corn stalks on Bill Long’s farm in southern Illinois are so big, green and healthy that he wishes he’d sold more of it sooner.

“Like many growers across the Midwest, Long expects a second straight record crop that will boost domestic stockpiles already at a four-year high. Output in the U.S. will jump 2.8 percent to 14.314 billion bushels, the most ever, researcher The Linn Group Inc. estimated in a July 1 report. Even after fewer acres were planted, the wettest June on record left fields in the best condition since 2003 and sent prices into a bear market two months before the harvest starts.

“‘There is a wall of grain coming at us,’ said Roy Huckabay, an executive vice president at Linn Group in Chicago, said in a telephone interview July 2.”


Ag Appropriations- Policy Issues; Ag Economy; Regulations; and, Biofuels

Agriculture Appropriations- Policy Issues

The House Majority Leader’s Weekly Schedule for July 7 does not include a reference to the Agriculture Appropriations measure.

Recall that the Ag Appropriations bill contains a provision, “to allow school districts to temporarily opt out of school dietary requirements championed by first lady Michelle Obama.”

Robert Gebelhoff reported earlier this week at the Milwaukee Journal Sentinel Online that, “Schools across the nation are preparing to work with stricter standards for nutrition from the U.S. Department of Agriculture, as part of a nationwide campaign championed by first lady Michelle Obama to eliminate empty calories. The new standards took effect Tuesday for all schools that participate in the National School Lunch Program and will build off previously implemented standards that limited serving sizes and restricted what food was healthy enough for the program.

“What can students expect to find? Wheat bread, low-calorie drinks, meals with limited sugar, fat and salt.

Some district officials are saying they’re all for healthy food, but they have to sell enough hot lunches to break even on their program — and that won’t work if the kids shun the food. They also are a little prickly about federal officials telling them what to do.”

Mr. Gebelhoff explained that, “Frustration by schools and parents across the country prompted Republicans in Congress to propose a waiver system that would allow schools strapped for cash the chance to receive federal subsidies from the government without having to comply with the USDA’s requirements. If it becomes law, schools that can demonstrate a net loss over a six-month period in their food service would be eligible to operate outside the standards.”


Farm Bill; Ag Economy; and, Biotech

Farm Bill

AP writer Kevin Burbach reported yesterday that, “The U.S Department of Agriculture will provide up to $50 million over the next five years for conservation programs in the Red River Basin in North Dakota, South Dakota and Minnesota, Agriculture Secretary Tom Vilsack and Democratic Minnesota U.S. Rep. Collin Peterson announced Wednesday.

“The funding, which comes from the 2014 Farm Bill, will be distributed through the USDA’S Natural Resources Conservation Service and be used to minimize flooding, boost soil health, improve water quality and enhance wildlife habitat in the 25 million-acre watershed. The funding will provide financial incentives to landowners, ranchers and farmers who make conservation efforts, such as restoring and protecting wetlands and grasslands.

“[Rep. Peterson] and Vilsack announced the funding during a trip to Moorhead. They were joined by members of the North Dakota and Minnesota congressional delegations.”

Farm broadcaster Mike Hergert of the Red River Farm Network (RRFN), spoke with Rep. Peterson about the conservation funding yesterday. The audio report, which can be heard here (MP3- 2:08), was included on RRFN’s Agriculture Today program yesterday.

Also, Allison Stock Myhre tweeted a photo of yesterday’s announcement from Moorhead.


Ag Economy; Farm Bill (Nutrition Issues); Regulations; and, Immigration

Agricultural Economy

Daniel Finney reported on the front page of yesterday’s Des Moines Register that, “Punishing thunderstorms, tornadoes and hail assaulted Iowa for a second straight day Monday, killing at least one man and leaving a teenager missing, flooding streets, destroying property and battering weather-weary residents.”

The article noted that, “There were reports Tuesday of over 5 inches of rain falling on Monday alone.”

More specifically, Mr. Finney indicated that, “Hail and wind flattened corn crops and battered homes and buildings across the state [see photos here and here].

Hail as large 4 inches in diameter — slightly larger than a softball — crashed to the ground in Rockwell City in Calhoun County.

Six inches of rain clobbered Cedar Rapids from 10 p.m. Sunday through about noon Monday. Cedar Rapids rescuers evacuated some areas by boat.

“Another 5.6 inches of rain drenched Center Junction in Jones County in about 12 hours from late Sunday through Monday morning.”

Nonetheless, the Register article indicated that, “The crops that weren’t destroyed by storms could help return corn yields back to normal, [Elwynn Taylor, Iowa State University climatologist] said.”


Ag Economy; Immigration; Farm Bill; Regulations; and, Calif. Fuel Law

Agricultural Economy

A news release yesterday from USDA’s National Agricultural Statistics Service (NASS) stated that, “[NASS] estimated a record high 84.8 million acres of soybeans planted in the United States for 2014, up 11 percent from last year, according to the Acreage report released today. Corn acres planted is estimated at 91.6 million acres, down 4 percent from last year, representing the lowest planted acreage in the United States since 2010.”

“All cotton planted area for 2014 is estimated at 11.4 million acres, 9 percent above last year,” the NASS update added.

The update noted that, “NASS today also released the quarterly Grain Stocks report to provide estimates of on-farm and off-farm stocks as of June 1. Key findings in that report include:

Soybeans stored totaled 405 million bushels, down 7 percent from June 1, 2013. On-farm soybean stocks were down 36 percent from a year ago, while off-farm stocks were up 12 percent.

Corn stocks totaled 3.85 billion bushels, up 39 percent from the same time last year. On-farm corn stocks were up 48 percent from a year ago, and off-farm stocks were up 32 percent.”


Ag Economy; Farm Bill; Biofuels; and, Regulations

Agricultural Economy

Abbie Fentress Swanson reported on Friday at National Public Radio (NPR) Online that, “If you’re bringing home the bacon, you may have noticed a price tag inching upward.

Consumers are paying nearly 13 percent more for pork at the supermarket than they were this time last year, according to the U.S. Department of Agriculture. A deadly pig disease is partially to blame.

“Porcine epidemic diarrhea virus, or PEDv, has killed more than 7 million piglets in the past year, and the number of cases is on the rise. Many hog producers are worried about how to keep their farms immune from a disease that has no proven cure.”

The NPR update noted that, “Meanwhile, economists predict that farmers will reduce the size of their herds this year to minimize costs should PEDv infect their operations. Consumers can also expect pork prices, which now average almost $4 a pound, to continue to rise during the second half of 2014.”


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