Recall that earlier this week, USDA Chief Economist Robert Johansson indicated at the Department’s annual outlook forum that, “[A] stronger U.S. economy provides improved off-farm income opportunities for a large majority of U.S. farm households. Since the latest recession ended in 2009, median farm household income has grown faster than U.S. median household income. Between 2010 and 2016, median farm household incomes are forecast to have increased by more than 50 percent. Most of that growth has come from improved off- farm income opportunities. Off-farm income and on-farm income for median farm households are all projected up in 2016. That is true for both smaller residential farm households as well as larger commercial farm households.”
Jim Puzzanghera, citing a Commerce Department report from yesterday, indicated in today’s Los Angeles Times that, “Incomes rose in January for the 10th-straight month and the 0.5% increase was the best since June. Personal income was up 0.3% in December.”
On the down side, today’s article added that, “The Commerce Department also reported Friday that the economy grew at a tepid 1% annual rate in the fourth quarter of last year.
“The figure was revised up from an initial estimate of just 0.7% growth. But the pace still was much slower than the 2% growth in the third quarter.”
The Times stated that, “The Senate could soon join the House to try to make it harder for consumers to know what is in their food by prohibiting state governments from requiring the labeling of genetically modified foods. This is a bad idea that lawmakers and the Obama administration should oppose.
“In July, Vermont will become the first state to require the labeling of genetically modified food. Many food companies and farm groups say such laws are problematic because they could dissuade consumers from buying foods that federal regulators and many scientists say pose no risk to human health. But that is an unfounded fear and states should be free to require labels if they want to.
“The Senate Agriculture Committee is considering a bill by its chairman, Pat Roberts, Republican of Kansas, that would prohibit state labeling laws. The committee is likely to approve it, primarily with Republican votes. The House passed a similar bill last summer along party lines.”
Today’s editorial indicated that, “There is no harm in providing consumers more information about their food. A study published in the journal Food Policy in 2014 found that labels about genetic modification did not influence what people thought about those foods. Some companies are deciding on their own to increase the information they provide to consumers without fear of losing sales. Campbell Soup said last month that it would begin voluntarily disclosing whether its soups, juices and other products had genetically modified ingredients. Around the world, such labeling is commonplace, with 64 countries requiring it, including all 28 members of the European Union, Japan, Australia, China and Brazil.”
Concluding, the Times said: “Usually, Republicans in Congress are eager to give states more power to set policy in areas like environmental protection, health care and social services when they think that legislatures and governors will weaken regulations or cut spending to help the poor. In this case, however, they want to take power away from states that want to impose new rules that their residents support. The only thing these lawmakers seem to favor consistently is protecting corporate interests.”
In part, Dr. Johansson indicated that, “U.S. economic growth is expected to be near 3 percent in 2016 and 2017 before gradually moving to a longer term growth rate of 2.3 percent…[and]…the real value of the dollar increased substantially in 2015 relative to competitor and customer currencies and that growth is expected to continue through 2017.”
“Does that mean a stronger U.S. economy and strong U.S. dollar adversely impacts the U.S. agricultural economy? Clearly, a stronger dollar means it is more difficult to sell products to countries with weaker currencies, such as Egypt and Nigeria (major wheat importers) and it is easier for countries, such as Canada and those in the EU, to sell their agricultural products abroad, making for an extremely competitive trade environment. However, a strong economy also helps U.S. producers in several ways. First, it is easier for U.S. buyers to import goods, such as fertilizer, from countries with weakening currencies, such as Canada, Russia, and Ukraine.
“Second, a stronger U.S. economy provides improved off-farm income opportunities for a large majority of U.S. farm households. Since the latest recession ended in 2009, median farm household income has grown faster than U.S. median household income (see figure 9). Between 2010 and 2016, median farm household incomes are forecast to have increased by more than 50 percent. Most of that growth has come from improved off- farm income opportunities. Off-farm income and on-farm income for median farm households are all projected up in 2016. That is true for both smaller residential farm households as well as larger commercial farm households.”
Today, the USDA’s National Agricultural Statistics Service released its annual Crop Values Summary.
The value of corn and soybeans in the U.S. declined in 2015.
The price of corn has dropped from $4.46 in 2013 to $3.60 in 2015. The value of corn production was also lower, falling to $49,038,819,000 last year, down from $52,951,760,000 in 2014 and from $61,927,548,000 in 2013.
Similarly, soybeans sold for $8.80 per bushel last year, down from $13.00 in 2013. The value of soybeans was down to $34,535,320,000- off from $39,474,861,000 last year, and $43,582,901,000 in 2013.
Reuters writers P.J. Huffstutter and Justin Madden reported today that, “As the U.S. farming sector enters the third year of a downturn caused by a global glut of grains and slumping commodity prices, bankers across the Midwest are starting to tighten lending conditions and even cutting some clients off.
“Many corn and soybean farmers already are trying to adjust by selling off grain stockpiles, begging landlords to reduce rents and pleading with bankers to restructure debt and give them more time to pay it back.
“But bankers are worried about the potential of loan defaults as incomes fall, prompting farmers to take on more debt. U.S. farm debt, adjusted for inflation, is now at the highest levels since the nation’s agricultural crisis in the 1980s, when scores of rural banks failed.”
The article noted that, “But bankers now are saying no to clients they may have backed during the recent boom times, according to farmers, economists and interviews with nearly three dozen lenders.
“Some are requiring customers to put more cash down for land or equipment purchases; others have suggested farmers update their resumes.”
On Wednesday, the House Agriculture Committee will hold a hearing on the state of the Rural Economy.
Tom Meersman reported yesterday at the Minneapolis Star Tribune Online that, “Farmland prices in Minnesota continue to soften as prices for corn and soybeans remain relatively low and the outlook for 2016 appears to offer marginal profits for many crop growers.
“The changes are part of a pattern of falling values for farmland in much of the central U.S., according to several reports published within the past week.
“An analysis by the University of Minnesota Department of Applied Economics found that the average median price of farm real estate in Minnesota dropped 5.5 percent during the first nine months of 2015, from $4,878 to $4,611 per acre. The median is the price at which half of the transactions are higher and half are lower, and is considered a good measure to gauge price trends at the state or regional level.”
Mr. Meersman explained that, “Cash payments for Minnesota corn generally have stuck between $3.25 and $3.60 per bushel in recent months, below the cost of production for many farmers.”
There are several key agricultural related hearings taking place this week on Capitol Hill.
On Wednesday morning, the House Appropriations Ag Subcommittee will hear budget related testimony from Kevin Concannon, the Under Secretary for USDA’s Food, Nutrition, and Consumer Services. Al Almanza, USDA’s Deputy Under Secretary for Food Safety will testify before the Ag Subcommittee on Wednesday afternoon, while the Food and Drug Administration’s Acting Commissioner Stephen Ostroff will be before the Subcommittee Thursday morning.
Jason Weller, Chief of USDA’s Natural Resources Conservation Service will finish the week in front of the Ag Subcommittee where he will testify on budget related matters Friday morning.
Meanwhile, the House Ag Committee will hold a hearing Wednesday morning where the full Committee will explore the state of the rural economy; Ag Secretary Tom Vilsack will provide testimony at this briefing. Related background regarding the condition of the U.S. ag economy is available here.
And on Thursday, the Senate Ag Committee will hold a business meeting to consider the Chairman’s Mark on Biotechnology Labeling Solutions- background on this bill, which “would prevent states from requiring labels on genetically modified foods,” is available here.
Also this week, USDA’s Economic Research Service will update its monthly Food Price Outlook on Thursday, and Wednesday, USDA’s National Agricultural Statistics Service will release its Crop Values Annual Summary. This report contains the marketing year average prices and value of production of principal crops.
Chairman K. Michael Conaway (R., Tex.) indicated that, “Against the backdrop of deteriorating conditions in farm country, Secretary of Agriculture Tom Vilsack will testify on the state of the rural economy. This hearing will examine the extent to which current farm policy is helping address the estimated 56 percent decline in net farm income since 2013, the largest 3-year percentage drop since the Great Depression.”
And Bob Tita reported in today’s Wall Street Journal that, “Deere & Co. trimmed its sales and profit forecast for 2016 as it continues to trudge through the worst slump in U.S. farm machinery demand in 15 years.”
The Journal article noted that, “After an extended stretch of elevated demand for farm equipment that was aided by U.S. tax breaks for equipment investments, farmers have scaled back their purchases as lower prices for corn, soybeans and other commodities squeeze farmers’ incomes.”
Charley Grant pointed out yesterday at the Journal’s MoneyBeat blog that, “Deere’s financial outlook gave no sign that the downturn in the global farm economy is letting up.”
The Creighton report also quoted Ernie Goss, Jack A. MacAllister Chair in Regional Economics at Creighton University’s Heider College of Business, as saying: “The strong U.S. dollar and global economic weakness have pushed grain prices down by 11 percent and slaughter cattle prices are 22 percent lower over the past 12 months. These weaker prices have discouraged farmers from buying additional agriculture equipment and have negatively affected the agriculture equipment dealers and manufacturers in the region.”
Meanwhile, in its monthly Cattle on Feed report yesterday, USDA’s National Agricultural Statistics Service (NASS) stated that, “Cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.7 million head on February 1, 2016. The inventory was slightly below February 1, 2015.”
Also yesterday, NASS indicated in its monthly Milk Production report that, “Milk production in the 23 major States during January totaled 16.6 billion pounds, up 0.3 percent from January 2015.”
The report added that, “The average number of milk cows on farms in the United States during 2015 was 9.32 million head, up 0.6 percent from 2014. The average number of milk cows was revised up 2,000 head for 2015.”
AP writer Mary Clare Jalonick reported yesterday that, “A Senate committee is moving forward on legislation that would prevent states from requiring labels on genetically modified foods.
“Vermont is set to require such labels this summer. Senate Agriculture Chairman Pat Roberts of Kansas released draft legislation late Friday that would block that law and create new voluntary labels for companies that want to use them on food packages that contain genetically modified ingredients. The Senate panel is scheduled to vote on the bill Thursday.”
The AP article explained that, “The bill is similar to legislation the House passed last year. The food industry has argued that GMOs, or genetically modified organisms, are safe and a patchwork of state laws isn’t practical. Labeling advocates have been fighting state-by-state to enact the labeling, with the eventual goal of a national standard.
“Senators have said they want to find a compromise on the labeling issue before Vermont’s law kicks in.”
In part, NASS stated that, “The number of farms in the United States for 2015 is estimated at 2.07 million, down 18 thousand farms from 2014. Total land in farms, at 912 million acres, decreased 1 million acres from 2014. The average farm size for 2015 is 441 acres, up 3 acres from the previous year.”
NASS pointed out that, “A farm is ‘any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the year.'”
In part, the report explained that, “Prices for most crops have fallen from highs of recent years as U.S. and global supplies have rebounded from relatively low levels. In response to the associated lower producer returns, planted area for major field crops in the United States has fallen from the highs of 2012-14 and is projected to continue to decline. U.S. planted acreage for eight major field crops (corn, sorghum, barley, oats, wheat, rice, upland cotton, and soybeans) averaged almost 257 million acres in 2012-14 and is projected to fall below 250 million acres by 2017. Wheat, corn, and cotton account for most of the decline between these years.”
More specifically with respect to prices, 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 global growth in population and per capita income along with biofuel demand underlies moderate gains in these prices and keeps them above pre-2007 levels.”
The USDA report added that, “Corn prices are projected to decline through 2016/17 and then increase marginally over the next decade as ending stocks-to-use ratios fall somewhat due to growth in feed use and exports and continuing demand for corn for ethanol production.
“Prices for soybeans also initially fall through 2016/17 as continued high soybean acreage keeps supplies and stocks high. Soybean prices rise moderately through the rest of the projection period, reflecting a reduction of soybean plantings, increasing demand for soybeans and soybean products, and declining stocks.”
In a look at livestock variables, USDA stated that, “The U.S. livestock sector is projected to increase production over the next decade, an expansion that reflects several factors. Feed costs have fallen from recent highs and are projected to rise only moderately over the next 10 years. Also, demand for meats and dairy products in both the domestic market and for export is projected to be strong. As a result, total U.S. red meat and poultry production rises over the projection period. Milk production also increases over the next decade.”
And on the issue of U.S. farm income and federal government payments, yesterday’s report explained that, “Net cash income and net farm income initially fall from recent record highs. Net cash income declines through 2019 before generally rising over the latter part of the projection period. Net farm income, which through 2015 fell more sharply from its peak, generally rises after 2016…[T]otal direct Government payments are projected to increase to more than $13 billion in 2016 and 2017, largely reflecting lower crop prices that push up payments under the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs of the Agricultural Act of 2014. Government payments then fall in 2018 and 2019 as commodity prices begin to rise. Government payments are projected to increase again in 2020 before falling over the remainder of the projection period.”
Emiko Terazono reported today at The Financial Times Online that, “Tough times are continuing for US farmers.
“Rising global inventories thanks to plentiful harvests, the high value of the dollar as well as falling oil prices have meant lower prices for agricultural commodities, weighing on farm incomes.”
The FT article noted that, “‘Persistently low prices for agricultural commodities remained a primary driver of diminished farm income,’ says the Kansas City Federal Reserve, which covers Kansas, Oklahoma and Nebraska, in a report on agriculture and the economy earlier this month.
“A survey of bankers by the Kansas City Fed showed that income conditions of farms in the region were the worst since it started compiling the data in 2002. Sustained weakness in corn, soyabean and wheat prices has had ‘a particularly negative effect on farm income’ as they accounted for about 70 per cent of harvested crop acreage in the region, the report adds.”
(Additional Fed reports regarding the ag economy from Chicago and Texas can be viewed here).
Ms. Terazono explained that, “The ongoing weakness in agricultural prices suggests that farm incomes may well remain depressed. With corn trading at $3.65 a bushel, soyabeans at $8.85 and wheat at $4.69, US farmers are staring at prices that are lower than the cost of production…[T]he cost of production for corn is around $5 a bushel in the US corn belt, and at prices of about $3.50 a bushel, growers will cover their ‘variable’ costs such as seeds, fertiliser and land and fixed costs such as rent.
“However, the price means that their overheads are not covered, says [David Widmar, agricultural economist with the Center for Commercial Agriculture at Purdue University in Indiana]. For soyabeans, the production costs are around $12.60, and again, farmers will struggle to cover their overheads, he adds.”
“That means tough times for Deere & Co and rivals AGCO Corp, CNH Industrial NV and Claas KGaA mbH.”
Yesterday’s article noted that, “Deere and rivals have kept technology investments a priority even as revenue and net income have fallen. But some farmers said the high-tech gear is out of reach. Jon Soeller, 40, bought a new John Deere planter in 2014 for his family farm in Ripon, Wisconsin. He estimates it would cost him $90,000 to $100,000 to upgrade with a John Deere ExactEmerge retrofit kit that would allow him to plant faster and more precisely. ‘It is not worth it to me. I don’t think John Deere knows the price of corn is $3,’ Soeller said. His father will insteadbuy a new grain bin to store crops in hopes that prices rise.”
On the brighter side, Reuters writer Karl Plume reported yesterday that, “Investments in agriculture technology startups surged to a record $4.6 billion in 2015 despite a steep drop in U.S. farm income and slumping profit at farm-affiliated companies such as machinery producers and seed makers, according to a study released on Wednesday.
“The investments were nearly double the $2.36 billion seeded by venture capitalists and others in 2014, according to the annual report from online food and agriculture investment platform AgFunder.”
University of Illinois agricultural economist Gary Schnitkey indicated yesterday at the farmdoc daily blog (“Corn versus Soybean Returns: 2016 Projections with Historical Comparisons“) that, “In the past three years, soybeans have been more profitable than corn in Illinois. There is a reasonable chance that soybeans will be more profitable than corn again in 2016. Larger increases in corn costs as compared to soybean costs make it more difficult for corn returns to exceed soybean returns, particularly at low corn and soybean prices.
“Figure 1 shows corn-minus-soybean returns for high-productivity farmland in central Illinois. These values are averages across grain farmers enrolled in Illinois Farm Business Farm Management (FBFM), Historical values reported in an Actual and Projected Returns and Costs publication available in the management section of farmdoc. Positive values indicate that corn was more profitable than soybeans and vice versa. From 2000 to 2012, corn was more profitable than soybeans in all years except 2002 and 2009. Corn returns exceeded soybean returns by very large margins in 2011 and 2012. From 2013 to 2015, soybean returns exceeded corn returns, an unusual three-year run compared to years between 2000 and 2012. In 2016, corn is projected to be more profitable than soybeans; however, the difference is small and soybeans could again be more profitable than corn.”
After more detailed analysis, Dr. Schnitkey explained that, “Similar to the last three years, soybean likely will be more profitable than corn unless a combination of one or more of the following four items occur:
“1. Both corn and soybean prices increase to higher levels than currently expected. If relative price increases are the same for corn and soybeans, higher prices cause corn returns to increase relative to soybean returns.
“2. Relative corn and soybean prices change, with the corn price increasing relative to soybean price
“3. Corn yields are high relative to soybean yields.
“4. The difference in corn costs decrease relative to soybean costs. Likely items that could contribute to this decrease are lower nitrogen fertilizer prices or lower corn seed costs.”
AP writer Mary Clare Jalonick reported today that, “The Agriculture Department unveiled new rules on Tuesday that would force retailers who accept food stamps to stock a wider variety of healthy foods or face the loss of business as consumers shop elsewhere.
“The proposed rules are designed to ensure that the more than 46 million Americans who use food stamps have better access to healthy foods although they don’t dictate what people buy or eat. A person using food stamp dollars could still purchase as much junk food as they wanted, but they would at least have more options in the store to buy fruits, vegetables, dairy, meats and bread.”
The AP article explained that, “Under current rules, SNAP retailers must stock at least three varieties of foods in each of four food groups: fruits and vegetables, dairy, breads and cereals, and meats, poultry and fish. The new rules would require the retailers to stock seven varieties in each food group, and at least three of the food groups would have to include perishable items. In all, the rules would require stores to stock at least 168 items that USDA considers healthy.
“The proposal would also require that retailers have enough in stock of each item so that the foods would be continuously available.
“The rules could mean that fewer convenience stores qualify to be SNAP retailers.”
AP writer Mary Clare Jalonick reported last week that, “A key House Republican is renewing a GOP push to allow drug tests for low-income food stamp recipients, a move to help states like Wisconsin, where Gov. Scott Walker has sued the federal government to permit screening.
“Alabama Rep. Robert Aderholtunveiled the measure on Thursday as Republicans look to find savings in the program. Aderholt says that states could choose whether they wanted to allow drug testing, so the legislation wouldn’t be a mandate. He says it’s common sense to create drug programs for those who need help.”
Ms. Jalonick noted that, “Though he has not weighed in on Aderholt’s legislation, House Speaker Paul Ryan, R-Wis., has long said he wants to overhaul the food stamp program, along with other federal assistance for the poor. He has in the past proposed budgets that would convert federal food stamp dollars into block grants for the states, a move that would cut spending for the program.
“Aderholt says he hopes his legislation is a first step in a larger GOP effort to overhaul the food stamp program.”
Recall that nutrition programs account for the majority of Farm Bill expenditures.