By Keith Good
Agricultural Economy
Jesse Newman and Tony C. Dreibus reported in today’s Wall Street Journal that, “Tumbling corn prices are sowing fears that many U.S. farmers will suffer their first losses in years and the agricultural economy could face its first sustained slump in a decade.
“Corn prices have plunged nearly 30% in the past three months to their lowest point since 2010 as near-perfect weather in the Midwest fuels expectations of a second consecutive bumper harvest. Prices of other crops have fallen sharply as well, with soybeans trading near 2½-year lows and wheat near four-year lows.”
The Journal writers explained that, “But the slide in corn prices is expected to cut sharply into overall incomes in the U.S. Farm Belt because corn is the country’s largest crop, grown on 350,000 farms and yielding about $60 billion in farmers’ revenue last year.
“Now 57% off its record high in 2012, corn is trading well below the $4-a-bushel threshold generally required for farmers to earn profits. That means many growers this year likely will fail to cover their costs for the first time since 2006, according to agricultural economists.
“Signs of strain already are evident in the Midwest. Farmland values in some regions have begun to dip after a yearslong boom, and demand for farm equipment has slipped. Deere & Co., the world’s largest seller of farm equipment, reported a 9.5% decline in its second-quarter profit in May and said U.S. sales of farm and landscaping equipment would decline between 5% and 10% this year. Sales of tractors, seeds and other farm supplies are expected to suffer further as farmers keep dialing back spending.”
Today’s article pointed out that, “Because costs for tractors, combines, land, fertilizer and seeds mostly increased along with crop prices in recent years, many corn growers face losses when corn prices drop below $4 a bushel.
“‘It’s a very different situation than we had a few years ago,’ said Patrick Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri. ‘We’re talking about cutting net [financial] returns in half.’
“Bankers said they would take a cautious approach as they review farm loans after the growing season.”
Bloomberg writer Alan Bjerga discussed the potential impact that lower prices for some commodities could have on federal outlays related to farm policy programs on Bloomberg television this week.
And Ken Anderson reported yesterday at Brownfield that, “Declining grain and soybean prices will change the economic landscape for agriculture.”
Yesterday’s update pointed to remarks by David Oppedahl, senior business economist with the Federal Reserve Bank of Chicago, who indicated that, “‘It’s really more next year that the crop farmers are going to feel the full weight of these lower prices, unless something else changes.’
“But Oppedahl says most farmers are in good shape financially, with very positive balance sheets.
“‘Of course, there will be certain operations that maybe expanded a little too quickly and are in a tighter situation,’ he says, ‘and, going forward, working capital is an issue because a lot of farmers have used that up in purchase of either land or equipment—so that’s going to be a key issue, how much working capital you can have.”
Marcia Zarley Taylor reported yesterday at the DTN Minding Ag’s Business blog that, “Former Purdue University economist Brent Gloy is weighing in on any potential cash rent crash for 2015. Since he headed back to his western Nebraska home farm this spring, he’s become an academic with real skin in the game, so to speak. He emailed me to share his analysis showing that statewide-average cash rents rarely slide much in any given year. It’s those cut-throat, top-of-market leases bid up at cash corn’s $6.89 season-average peak in 2012 that stand to see the biggest adjustments.”
The DTN item noted that, “But renters shouldn’t get their hopes up. From 1976 to 2013, cash rents on ‘average’ quality Indiana farmland reported in Purdue’s land survey rarely moved more than 10% per year.
“‘It is also obvious that rents do go down, but usually not very much or very often,’ Gloy found. ‘Over these 38 observations, there were nine instances when cash rents declined. Of those declines, five were greater than 5% and only one was greater than 10% (1986). It is important to note that when rents overshoot, the adjustment period can take several years to correct and can be substantial. This is the case for the declines that occurred in succession from 1982 to 1987.Together, from 1981 to 1987, a period widely regarded as the U.S. farm financial crisis, cash rent fell by 32%.’”
Meanwhile, Leslie Josephs and Alexandra Wexler reported yesterday at The Wall Street Journal Online that, “Cotton prices tumbled to their lowest in nearly five years on Thursday, as a weaker global economic outlook reinforced expectations of poor demand.”
With respect to transportation issues, a news release yesterday from Rep. Kevin Cramer (R., N.D.) stated that, “Today [Rep. Cramer] met with BNSF President and CEO Carl Ice to discuss what the rail company is doing to reduce ongoing delays of grain shipments in North Dakota. During the meeting Cramer pressed Ice on BNSF’s pledge to clear the backlog of last year’s crop before the new harvest begins, asked for a progress update on the company’s hiring of additional employees, and discussed the new rule for oil by rail shipments proposed yesterday.”
An update yesterday from Sen. John Thune (R., S.D.) indicated that, “[Sen. Thune] sent a letter to the Surface Transportation Board (STB) today calling for the inclusion of two new metrics on the weekly grain order reports required by the board from Canadian Pacific (CP) Railway and Burlington Northern Santa Fe (BNSF) Railroad. Following increased concerns from South Dakota rail shippers regarding harvest season, Thune’s letter requests that the STB require CP and BNSF to include the average shuttle turn rate, which is the average number of roundtrips a group of railcars makes per month, and also include the number of locomotives CP is providing each week to the Rapid City, Pierre, and Eastern (RCP&E) Railroad.”
And Reuters writer Ayesha Rascoe reported this week that, “The U.S. ethanol industry pushed back on Wednesday against what they called a ‘one size fits all’ approach to proposed federal rules for shipping fuel by rail, saying regulators must distinguish between the often corn-based biofuel and crude oil.”
In more specific news regarding livestock issues, Reuters writer Jonathan Stempel reported yesterday that, “A divided federal appeals court on Thursday upheld a U.S. Food and Drug Administration policy allowing the use of various antibiotics in animal feed, even if such use might endanger the public health.
“Reversing a lower court ruling, the 2nd U.S. Circuit Court of Appeals in New York said the FDA was empowered to reject two citizen challenges to its policy, which discourages but does not ban the use of penicillin and some tetracyclines in feed for chickens, cows and pigs, even if they are not sick.”
And a separate Reuters article from yesterday reported that, “South Korea has confirmed a case of foot-and-mouth disease at a hog farm, the country’s first outbreak in more than three years, the agriculture ministry said in a statement on Thursday.
“The case comes as Asia’s fourth-largest economy strives to contain a six-month outbreak of bird flu, which has pushed pork prices to multi-year highs due to demand for alternative meat.”
Biofuels
Laura Barron-Lopez reported yesterday at The Hill Online that, “White House adviser John Podesta has indicated the administration plans to raise the amount of ethanol and other biofuels that must be blended into the nation’s fuel supply, Sen. Al Franken (D-Minn.) said Thursday.
“The Environmental Protection Agency’s proposed draft on blending volumes, which was released late last year, cut the amount of biofuels that refiners would need to mix into their fuels. The plan represented the first time the agency had lowered the target from the previous year.
“While the primary focus of Thursday’s meeting between Podesta and Senate Democrats was on biodiesel volumes, Franken said the adviser mentioned that the final blending mandates would likely be higher than what the EPA had initially proposed.”
The Hill article noted that, “‘I believe the numbers will be bigger and that’s based not only on conversations with [Podesta] but my conversations with EPA Administrator Gina McCarthy,’ Franken said. ‘He certainly led us to believe there will be higher numbers in each piece of it than was in the preliminary [Renewable Fuel Standard].’
“Franken said Podesta told the senators that the release of the final rule ‘will be imminent.’
“‘We were all making the case that the preliminary RFS rule put out by the EPA is unacceptable,’ Franken said on a call with reporters after the meeting with Podesta.”
DTN writer Todd Neeley reported yesterday that, “The release of the final 2014 Renewable Fuel Standard is ‘imminent’ and likely will include higher volumes for both ethanol and biodiesel, Sen. Al Franken said during a press conference Thursday.”
Mr. Neeley explained that, “In recent months, [EPA Admin. Gina McCarthy] stated publicly that agriculture and ethanol groups would be pleased at EPA’s deliberate approach to deciding on the final RFS volumes. She indicated the agency was taking its time following a significant outpouring of public comments in opposition to the EPA proposal to cut corn-based ethanol volumes by some 3 billion gallons and biodiesel volumes far below expected production.
“‘We believe we’re going to get higher numbers than in the preliminary rule, and we hope they are significantly higher,’ Franken told reporters.”
A news release yesterday from Sen. Franken indicated that, “Sen. Franken was joined at the meeting [with John Podesta] by Sens. Heitkamp, Amy Klobuchar (D-Minn.), Tom Harkin (D-Iowa), Patty Murray (D-Wash.), Dick Durbin (D-Ill.), Debbie Stabenow (D-Mich.), Maria Cantwell (D-Wash.), Sheldon Whitehouse (D-R.I.), and Joe Donnelly (D-Ind.).”
Farm Bill Issues
In conjunction with House Ag Committee Chairman Frank Lucas (R., Okla.) this week pointing to the importance of crop insurance and the APH (actual production history) adjustment for this upcoming crop season, Rep. Mike Conaway (R., Tex.), the Chairman of the Ag Subcommittee General Farm Commodities and Risk Management, tweeted yesterday that: “?#criticaldroughtrelief ?@HouseAgNews Chairman ?@RepFrankLucas & I keep pushing the USDA on APH for crop year 2015”
And Ag Committee member Randy Neugebauer (R., Tex.) also tweeted yesterday that, “Appreciate ?@HouseAgNews Chair Lucas urging ?@USDA to implement ?#FarmBill on time ?#criticaldroughtrelief for ?#Texas”
Ohio State University agricultural economist Carl Zulauf, and Nick Paulson, Jonathan Coppess, and Gary Schnitkey of the University of Illinois, indicated yesterday at the farmdoc daily blog (“2014 Farm Bill Decisions: Base Acre Reallocation Option”) that, “This article discusses the one-time option the owner of an Farm Service Agency (FSA) farm has to reallocate, but not increase, its base acres. The article concludes that this decision is important because of the emerging low prices, because Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) pay on base acres, and because the change in base acres can be substantive. For a broader policy discussion of the base acre reallocation option, see an article by Nick Paulson and Jonathan Coppess titled ‘2014 Farm Bill: Reallocating Base Acres’ (farmdoc daily, March 6, 2014).”
Also yesterday, Jonathan Coppess penned an update at the Policy Matters blog (University of Illinois), titled, “A Brief History of Farm Conservation Policy.”
“Across the divide from the challenging realities of regulating nonpoint source pollution and agriculture reside the natural resource conservation policies for farmers contained in the omnibus legislation commonly known as the farm bill. The suite of conservation programs tend to avoid the sharp-edged debate surrounding environmental regulation, as well as the harsh criticism aimed at their sibling policies for commodity supports in Title I of the farm bill. They are, however, related to the issue of environmental regulation of farming and part of the universe of policies that impact farming on the ground,” Coppess noted.
A news release yesterday from the House Ag Committee stated that, “Rep. Steve King, Chairman of the House Agriculture Committee’s Subcommittee on Department Operations, Oversight, and Nutrition, today held a public hearing to examine the role of the Supplemental Nutrition Assistance Program (SNAP) in relation to other federal assistance programs. SNAP is designed primarily to increase the food purchasing power of eligible low-income households to help them buy a nutritional, low-cost diet. SNAP benefits are fully financed by the federal government; administrative costs are shared between state governments and the federal government.
“In recent years, the cost of the program has increased from $37.6 billion in 2008 to nearly $80 billion in 2013. Likewise, participation in the program has grown from 28.2 million participants in 2008 to 47.6 million in 2013. Subcommittee Members used the hearing to learn more about the program, including how it addresses hunger, how it is linked to other federal programs, and how opportunities or barriers impact the ability of low-income families to secure employment and job training to lift themselves out of poverty and off of SNAP.”