Keith Good: Corn Prices Fall on Speculation About China, U.S. Storage

    Agricultural Economy

    With respect to recent commodity price movements, Bloomberg writer Jeff Wilson reported yesterday that, “Corn prices dropped for the first time in three sessions on speculation that China may reduce imports of U.S. grain as domestic inventories swell… . [S]upplies held in Chinese government silos may reach 60 million metric tons before the start of this year’s harvest, Fred Gale, an economist with the U.S. Department of Agriculture, said today.”

    And Tony C. Dreibus reported yesterday at The Wall Street Journal Online that, “Corn futures fell on speculation that farmers are liquidating some corn they have in storage ahead of spring planting, making more of the grain available to exporters, ethanol producers and livestock feeders.

    “Farmers may have opened their storage bins and sold supplies to help pay for inputs including seed and fertilizer after the price on Wednesday reached a six-month high. Futures have been rising on strong demand for inventories from the U.S., the world’s biggest exporter of the grain.”

    Looking at some spring planting variables, University of Illinois agricultural economist Gary Schnitkey indicated yesterday at the farmdocDaily blog (“Soybean-to-Corn Price Ratios in Spring and Fall“) that, “Both corn and soybean prices have fallen since last summer, with corn falling more than soybeans.  Because corn prices have fallen more the soybean prices, the soybean-to-corn price ratio has increased, signaling that soybeans have become relatively more profitable than corn. This leads to speculation that corn acres will decrease in 2014, while soybean acres will increase. Acreage shifts may occur. However, high soybean-to-corn prices in the spring do not necessarily signal high soybean-to-corn price ratios at harvest.   Therefore, relative returns between corn and soybeans may change.”

    Paul Davidson reported this week at USA Today Online that, “Prices are rising for a range of food staples, from meat and pork to fruits and vegetables, squeezing consumers still struggling with modest wage gains.

    Food prices rose 0.4% in February, the most since September 2011, the Bureau of Labor Statistics said Tuesday. Beef and veal shoppers were socked with some of the biggest increases, as prices jumped 4% from January.”

    The article explained that, “Droughts, unusually cold winter weather, rising exports and a virus outbreak in the hog population are among the causes of food inflation, which is expected to accelerate in 2014. The Agriculture Department expects grocery store prices toincrease as much as 3.5% in 2014, up from 0.9% last year.”

    The USDA’s National Agricultural Statistics Service released its monthly Livestock Slaughter report yesterday which stated that, “Beef production, at 1.79 billion pounds, was 5 percent below the previous year. Cattle slaughter totaled 2.24 million head, down 5 percent from February 2013…[V]eal production totaled 8.2 million pounds, 9 percent below February a year ago.”

    And Cole Epley reported yesterday at the Omaha World-Herald Online that, “Consumers across the country are probably splashing a little less milk on their cereal as prices climb through record levels, thanks to global demand for dairy products.

    “While prices are climbing toward the $5-a-gallon mark in a few stores across the Omaha metro area, some shoppers are finding ways to use less milk, even if it means changing retail preferences or modifying eating habits at home.”

    The article added that, “Consumer prices for milk are likely to rise 40 more cents or so, but the new farm bill provisions ‘should only make milk more affordable in the long run,’ said Marin Bozic, assistant professor in dairy foods marketing economics at the University of Minnesota.”

    “Data from the U.S. Dairy Export Council showed exports to Mexico, the top destination for U.S. dairy products, spiked 28 percent in January. Exports to China were up 55 percent and exports to Southeast Asia were up 78 percent,” the World-Herald article said.

    Jan Shepel reported this week at the Milwaukee Journal Sentinel Online that, “Though not everyone believes him, economist Daniel Basse maintains that the dairy industry is moving back to the paradigm before the ethanol buildup. ‘This is your time,’ he told 1,500 members of the dairy industry last week in Madison.

    “Basse is president of AgResource Company, a domestic and international agricultural research firm which forecasts domestic and world agricultural price trends. He was a keynote speaker at the Professional Dairy Producers of Wisconsin annual business conference.

    “‘I believe this is the year of the cow,’ he said, predicting that export demand, excellent cull cow prices, reduced grain prices and recognition of dairy products as the cheapest protein on the table will spell much better times for dairy farmers.”

    Recent USDA data demonstrate that U.S. dairy output is increasing, while some key dairy prices are still going up.

    Mark Koba reported yesterday at CNBC Online that, “Food companies know that consumers these days are highly sensitive to increased costs for what they eat and there’s little benefit from price increases for anyone, [Jack Plunkett, head of his own market research firm, Plunkett Research] added.

    “‘Before 2008 and the recession, people were a little less sensitive to higher food prices,’ he said. ‘But now they are more wary of what it costs to buy food and companies have a difficult time passing on their rising costs and charge more because of that.'”

    Mr. Koba added that, “Another reason food inflation limits any kind of revenue surplus are commodity contracts, said Bruce Taylor, CEO of fresh vegetable and fruit producer Taylor Farms.

    “‘We’re locked in with contracts to sell at a price for as long as three years so there’s little advantage to us from inflation,’ said Taylor.”

    Also, NOAA (National Oceanic and Atmospheric Administration) released its Spring Outlook yesterday, which noted in part that, “[R]ivers in half of the continental United States are at minor or moderate risk of exceeding flood levels this spring with the highest threat in the southern Great Lakes region due to above-average snowpack and a deep layer of frozen ground. Additionally, drought is expected to continue in California and the Southwest.”

    Currently, the updated U.S. Drought Monitor indicated this week that, “Warm, dry weather prevailed on the central Plains, intensifying drought while accelerating winter crops out of dormancy. The unseasonably warm conditions (weekly average temperatures up to 11°F above normal) rapidly increased crop-water demands, while strong, occasionally severe winds rapidly dried topsoils and caused blowing dust. Consequently, Extreme Drought (D3) was expanded from southeastern Colorado into western Kansas, while the drought-impact type was changed from ‘L’ (Long-Term) to ‘SL’ (Both Short- and Long-Term) to account for greening winter crops as well as blowing dust and increased fire danger [related graph].”

    The Drought Monitor summary added that, “The benefits of the February and early-March precipitation rapidly diminished across California and the Southwest as unseasonable warmth and dryness increased water demands and depleted snowpacks [related graph].”

    In other news, David Kesmodel reported yesterday at The Wall Street Journal Online that, “[Pilgrim’s Pride Corp.], acquired in late 2009 by Brazilian meatpacker JBS SA, spent $1.3 million on the automated machinery two years ago so it could cut dark meat into smaller portions in Athens [Ga.]. The move has helped Pilgrim’s increase sales in countries such as Angola, an oil-rich African nation where consumers prefer smaller drumsticks and thighs that are less pricey than bigger cuts. Selling those smaller pieces adds up to about 10% more revenue in Angola than Pilgrim’s would generate by shipping whole leg quarters, the way U.S. chicken is usually exported.

    “Angola, the third-largest export market for U.S. chicken by volume, represents a small part of Pilgrim’s $8.4 billion in annual revenue. But the move reflects a drive under JBS to garner more profit per pound that has sharply improved earnings at Pilgrim’s, the second-largest U.S. chicken processor after Tyson Foods Inc.”

    The article noted that, “Pilgrim’s push for profits includes deboning chickens more efficiently to produce more salable meat and cost cuts that range from idling underperforming plants to reducing free Gatorade for workers. Just replacing paper-towel dispensers with electric hand dryers saved $3 million annually, executives say. Pilgrim’s also has eliminated 5,500 U.S. jobs, or 15% of its U.S. workforce, since 2010.

    “Its net income more than tripled last year to a record $550 million as its sales rose 3.6%.”

    Also yesterday, Reuters writer Sarah McFarlane reported that, “China could face premiums on future corn purchases after rejecting U.S. genetically modified corn in recent months, an official with the U.S. Department of Agriculture said on Thursday.

    “‘The Chinese are going to have to learn that their actions will have consequences,’ USDA China chair Fred Gale told the AgResource Cereals Europe event.

    “China has officially rejected 887,000 tonnes of U.S. corn since November last year, after detecting Syngenta’s unapproved MIR162 in incoming shipments.”

    In other trade news, Roman Olearchyk and Kathrin Hille reported yesterday at The Financial Times Online that, “Russia has started disrupting imports from Ukraine, raising fears that the two countries’ stand-off over Crimea is spilling over into a fresh trade war.

    “Citing complaints from export-oriented businesses, Ukrainian agriculture consultancy APK-Inform reported that Russian customs officials had refused entry of all Ukrainian goods without explanation late on Wednesday.”

    Carol E. Lee, Gregory L. White and Jared A. Favole reported in today’s Wall Street Journal that, “The U.S. raised the stakes Thursday in its confrontation with Russia over Crimea, aiming a new round of sanctions closer to Russian President Vladimir Putin and his inner circle even as Moscow struck back with penalties of its own on U.S. lawmakers and White House officials.

    “The Obama administration’s more aggressive move–targeting a high-profile Russian bank as well as some of Mr. Putin’s wealthiest and most influential supporters–increased the likelihood the retaliation could spiral.”

    And James Politi and Richard McGregor reported yesterday at The Financial Times Online that, “President Barack Obama’s move to expand sanctions punishing Russia could raise fears in corporate America of an extended economic confrontation with Moscow…[U]S business, which has been quietly lobbying the administration to take a ‘circumspect approach’ to the crisis, has in recent days made clear in meetings with the White House and Congress that it does not want to see an escalation in economic warfare with Moscow. US business groups have been trying to ‘educate’ members of the Obama administration and lawmakers about the potential costs of additional Russian sanctions, even if they cannot mount a full-scale lobbying push because it could be interpreted as hindering Mr Obama’s efforts to put pressure on Moscow.”

    Farm Bill

    Russell Berman reported yesterday at The Hill Online that, “Democratic governors appear to have the upper hand in a fight with House Republican leaders over a change to federal welfare policy that was enacted in February… . [W]hile [Speaker John Boehner] said last week he wanted the House ‘to stop’ the states from avoiding the cuts, aides do not expect a fast legislative response, and advocates say they aren’t sweating a congressional crackdown.”

    The Hill article stated that, “Asked for specifics on a legislative response, aides said only that the relevant committees — Agriculture, Appropriations, and Energy and Commerce — would conduct oversight and continue to monitor the implementation of the law.

    “‘It is premature to discuss specifics, but the committee will continue to be aggressive with its oversight and legislative agenda as it relates to SNAP,’ an agriculture committee aide said. ‘This will include a review of LIHEAP, work pilot, and the other reforms in the farm bill. Where possible, we will coordinate our efforts with other committees as they review these issues, as well.'”

    The New York Times editorial board indicated today that, “Cheating? The states are doing exactly what the farm bill — which Mr. Boehner supported — encouraged them to do: pay more to some of the poorest families in America so they neither freeze nor starve during a brutal winter. Mr. Boehner seems unaware of it, but millions of families have never recovered from the recession, and his chamber has not only refused to help them by stimulating the economy but is trying to push them through the safety net.”

    Meanwhile, on Tuesday, the House Appropriations Subcommittee on Agriculture will hear testimony on budget related matters from Kevin Concannon, Under Secretary Food, Nutrition, and Consumer Services at USDA.

    On Wednesday, the same committee will have a hearing with Dr. Catherine E. Woteki- Under Secretary for USDA Research, Education and Economics.


    Timothy Cama reported yesterday at The Hill’s Energy Blog that, “The American Petroleum Institute is optimistic it can convince a majority in the House to endorse reforming or repealing the renewable fuel standard (RFS), an official with the group said.

    “API has counted 205 representatives who have either signed letters or co-sponsored legislation to reduce the amount of renewable fuels that refiners must blend or repeal the mandate altogether, said Bob Greco, downstream group director at API.”


    DTN Ag Policy Editor Chris Clayton reported yesterday that, “Generally, an out-of-state U.S. senator showing up in Iowa before a mid-term election means he or she is testing the waters for a presidential run over the next two years. U.S. Sen. Sheldon Whitehouse of Rhode Island trekked around Iowa this week, but dismissed that he wants to live in his namesake.

    “‘I’m totally not running for president,’ Whitehouse said. ‘It has absolutely nothing to do with that.'”

    Mr. Clayton noted that, “The two-term Democrat did note Iowa is the gateway to the presidency in 2016. Because of that, Whitehouse said he wants to lay the groundwork so that any candidate running for president, Democrat or Republican, has to be credible in acknowledging the science and need to act on climate change.

    “‘People who are close to this see it,’ he said. ‘Climate change is not something in the future. It is something that is happening now. I think we are close to winning on climate change.'”

    Political Notes

    Laura Meckler and Dante Chinni reported in today’s Wall Street Journal that, “There have always been differences between rural and urban America, but they have grown vast and deep, and now are an underappreciated factor in dividing the U.S. political system, say politicians and academicians.

    “Polling, consumer data and demographic profiles paint a picture of two Americas–not just with differing proclivities but different life experiences. People in cities are more likely to be tethered to a smartphone, buy a foreign-made car and read a fashion magazine. Those in small towns are more likely to go to church, own a gun, support the military and value community ties.

    “In many ways, the split between red Republican regions and blue Democratic ones–and their opposing views about the role of government–is an extension of the cultural divide between rural Americans and those living in cities and suburbs [see related graph].”

    The Journal article also provided this interesting graphic, “How rural and urban America compare.”

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