Keith Good: River Transportation System ‘Overstrained,’ Report Says

    Transportation, Livestock, Trade

    Reuters writers Michael Hirtzer and Karl Plume reported yesterday that, “With a record U.S. harvest just coming in, the river transportation system that is at the heart of the nation’s farm economy is overstrained by rising demand for shipping capacity, a low barge inventory, and a dilapidated lock system.

    “The pressure is building on an inland waterways network that is just one flood, drought or mechanical breakdown from calamity after decades of neglect, industry sources say.

    “Looming bumper corn and soybean crops are bringing to light issues that have built for years and which have been exacerbated by new entrants to the marketplace for river logistics, such as producers of crude oil from the nation’s shale boom.”

    The Reuters writers pointed out that, “Rail congestion and truck shortages are shifting more cargo to the creaking infrastructure for floating heartland goods to market.

    “As a result, the U.S. Agriculture Department expects the cost to move grains from the Midwestern crop belt to export facilities along the Gulf Coast to reach a six-year high during October, the busiest harvest month of the year.”

    The USDA’s Economic Research Service (ERS) indicated yesterday (“Food Price Outlook, 2014-15“) that, “Inflation rates for farm-level cattle and wholesale beef have remained high in 2014, as U.S. cattle herd sizes remain low. In August, however, cattle prices declined 0.5 percent but are still up 25.7 percent since this time last year. Wholesale beef prices also saw decreases, falling 0.3 percent on the month, but wholesale beef prices are up 28.6 percent year-over-year. ERS now predicts farm-level cattle prices to increase in 2014 by 16.0 to 17.0 percent and wholesale beef prices to increase by 13.0 to 14.0 percent over the same time period. If pasture and water conditions continue to improve in the West, herd expansion would be expected toward the end of the year, which would exert downward pressure on cattle prices.

    “Wholesale pork prices also declined, falling 0.9 percent in August and are up 25.8 percent since this time last year. Hog prices are rising as U.S. supplies decrease due to smaller litter rates caused by the PEDv. ERS predicts that wholesale pork prices will increase 15.5 to 16.5 percent in 2014.

    “Farm-level milk prices rose 1.3 percent in August and are now 21.5 percent higher year-over-year.”

    With respect to drought and water conditions, the latest update of the U.S. Drought Monitor is available here; see also this article, “Drought has 14 communities on the brink of waterlessness,” which posted yesterday at the Los Angeles Times, and this article, “In Wyoming, Fast Revival as Drought Ends” in today’s Wall Street Journal.

    In trade news, Peter Spiegel reported yesterday at The Financial Times Online that, “When President Barack Obama announced he would seek a sweeping trade deal with Europe in his State of the Union address nearly two years ago, officials on both sides of the Atlantic set a goal to complete it before the EU leadership’s term ran out.

    “Just over a month before Brussels changes hands, not only is the US-EU deal far from completion, but the EU’s outgoing trade chief has warned the pact – which would be the biggest trade agreement in history – is at risk of never being agreed.

    “Karel De Gucht said the failure of either Washington or Berlin to provide political leadership had made the chances of a deal being struck by next year increasingly dim, and warned that without an agreement in 2015 the initiative could be delayed indefinitely because of US presidential election politics.”

    Matthew Korade, Doug Palmer and Bill Tomson reported yesterday at Politico that, “German Chancellor Angela Merkel has been touting TTIP at business events in Germany earlier this week and last, saying the advantages of the deal far outweigh any disadvantages and that ‘red lines will not be crossed’ in such areas as environmental and consumer protection, the news site EurActiv reports.

    “The leader’s comments come as EU and U.S. officials gear up for the seventh round of talks next week in Washington.

    “‘Neither chlorine-treated chicken nor genetically modified foods will be able to be imported into the European Union,’ Merkel said, adding that her government is pushing to resolve widespread criticism of the proposed pact, according to the site.”

    And a news release yesterday from the National Pork Producers Council (NPPC) stated that, “The [NPPC] thanks U.S. trade officials for diligently working to achieve an outcome in the Trans-Pacific Partnership (TPP) negotiations that would benefit all sectors of our nation’s economy, including agriculture. At the same time, we must also express our deep disappointment in Japan’s continuing rejection of the fundamental terms of a successful TPP agreement, as agreed upon by leaders of all participating TPP nations prior to Japan’s entry into the negotiations last year.”

    Farm Bill

    AP writer David Pitt reported yesterday that, “Farmers can start as early as next week on signing up for new safety net programs that U.S. Agriculture Secretary Tom Vilsack said replaces the much-criticized direct payments with government payouts based on the risks farmers face.

    “Vilsack traveled to St. Paul, Minnesota, to hold a news conference to announce the rollout of the programs on Thursday. He held a conference call with reporters to further discuss the programs and answer questions. The programs were established in the 2014 farm bill and will allow farmers to protect themselves against commodity price drops and from lower revenue in poor crop years.

    “Payouts this year could be significant since anticipated record corn and soybean harvests have sent prices plummeting. At current prices many farmers are likely to lose money, a scenario that will enable them to collect government payments.”

    Mr. Pitt noted that, “The new programs cover this year’s harvested crop. Farmers will receive payment in October 2015. The programs are in addition to crop insurance farmers may buy to cover losses from flooding, drought, hail and other natural disasters.

    “Vilsack said without the programs, the risk of farming could be so great that many farmers would quit.”

    “Vilsack said farmers can sign up as soon as Sept. 29 but he expects they will take several months to research their options, talk with advisers and use online calculators to determine their best choices. He said no firm deadline has been set but farmers will likely be given until early next year to make enrollment decisions,” the AP article said.

    DTN Ag Policy Editor Chris Clayton reported yesterday that, “Agriculture Secretary Tom Vilsack indicated farmers could make that ARC-PLC election as early as next week, but he cautioned against doing so. He urged farmers to dive into the online tools rolled out Thursday by USDA which will show producers there are potentially thousands of dollars in payment differences between the new commodity programs. There are cases where farmers will want to opt for PLC for a crop on one farm and one of the ARC programs on another farm.”

    Note the following links to online decision tools:

    – National Association of Agricultural and Food Policy (NAAFP) led by the Agricultural Policy Research Institute (FAPRI) at the University of Missouri, and the Agricultural and Food Policy Center (AFPC) at Texas A&M University and,

    – National Coalition for Producer Education (NCPE), led by the University of Illinois.

    Gary Schnitkey, Jonathan Coppess, Nick Paulson (University of Illinois) and Carl Zulauf (Ohio State University) indicated yesterday at the farmdocDaily blog (“ARC-PLC Regulation and Decision Tools“) that, “On Thursday, September 25, 2014, Secretary Vilsack announced the regulations for the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs created by the 2014 Farm Bill. Along with the regulation, Secretary Vilsack also announced the public release of the web-based decision tools that have been developed under cooperative agreements with the Farm Service Agency. This article provides more information on these items.”

    In addition, the University of Illinois will be holding a webinar this morning on Farm Bill Decision Aids and Programs- registration for the free webinar is available here.

    In his DTN article from yesterday, Mr. Clayton indicated that, “The online decision tools were developed separately by the University of Illinois and Texas A&M University. Gary Schnitkey, an ag economist at the University of Illinois, said the two tools should give farmers the same answers until farmers change price forecasts. The programs use price projections from USDA, but also allow farmers to change those projections.

    “‘If you change prices in these models, they will change the answers,’ Schnitkey said.”

    Mr. Clayton added that, “Vilsack dismissed the idea that new farm programs would lead to overpaying farmers for revenue losses because of the price declines facing most major commodities. The program options will help reduce some of the significant income risks farmers are facing now.

    “‘Crop insurance is designed to protect against the vagaries of Mother Nature,’ Vilsack said. ‘These programs we are talking about today provide a little additional coverage above and beyond crop insurance. The reality is these programs don’t necessarily guarantee a profit for farmers.'”

    The DTN article also pointed to a Fact Sheet on ARC-PLC.

    Don Davis, of the Forum News Service, reported yesterday that, “[Rep. Collin Peterson (D., Minn.)], who represents western Minnesota, said that some farmers will do better, some worse, than under the controversial direct payments. He and Vilsack said the advantage of the new programs will be their ability to save family farms.

    “Peterson, the top House Democrat on the Agriculture Committee, said farmers need to look carefully to see which program will help them most over the next five years, the length of time for which farmers must sign up. With land and crop input costs high, alongside low prices, ‘I’m worried,’ he added about farmers.”

    Mr. Davis noted that, “The congressman said he is not worried that the new online service will encounter problems like the Obamacare health insurance marketplace did last year. Vilsack said he hopes the online service works, and tried to sooth farmers by saying it was developed by the university community, not government.

    “‘These tools are easy to use,’ Vilsack promised.”

    AP writer Kyle Potter reported yesterday that, “Sen. Al Franken got an election-season bump Thursday from an Obama administration official on an issue he’s tried to build into a cornerstone of his campaign: agriculture.

    “U.S. Secretary of Agriculture Tom Vilsack visited Minnesota to tout new safety net programs for farmers, part of the 2014 farm bill passed after a yearslong slog.”

    The article noted that, “Fellow Democrats Sen. Amy Klobuchar and Reps. Collin Peterson and Tim Walz joined Franken to host Vilsack, who discussed the farm bill’s new programs to help farmers better protect themselves against dropping crop prices and from lower revenue in poor harvest years.”

    More specifically with respect to dairy, an update yesterday from the National Milk Producers Federation (NMPF) indicated that, “The [NMPF] has posted a slide presentation on YouTube to help dairy farmers understand the new federal dairy safety net, known as the Margin Protection Program (MPP), as part of its ongoing effort to educate farmers about the new program.

    “There are links to the narrated presentation on both the NMPF website, and the Future for Dairy website serving as NMPF’s information hub for the new MPP program, which was launched by the U.S. Department of Agriculture September 2nd.”

    Meanwhile, Christopher Doering reported yesterday at The Des Moines Register Online that, “Tom Vilsack said Thursday he plans to stay on as head of the Agriculture Department, making the former Iowa governor one of the last original cabinet members in the Obama administration.

    “During a call with reporters to unveil new risk-management programs being offered for farmers, Vilsack was asked about his future at the USDA. He said he wants to stay on the job.”

    The Register article noted that, “Since taking the position in January 2009, Vilsack, 63, has benefited from a strong farm economy that has spurred growth in rural areas. He also has overseen an increase in U.S. consumption of renewable fuels, promoted the use of locally grown foods and helped implement the farm bill that was signed into law by the president in February.

    “Vilsack has been rumored to be a potential vice presidential candidate in 2016. If he got the job, the former mayor of Mt. Pleasant would follow in the footsteps of Iowa native Henry A. Wallace, who became U.S. secretary of agriculture in 1933, then vice president eight years later.”

    Alexandra Wexler reported yesterday at The Wall Street Journal Online that, “A closely watched international price for cotton has fallen below the threshold that triggers U.S. government loan-repayment assistance to farmers.

    “Lower demand from top-importer China and greater production in the U.S., the No. 1 exporter, are expected to lead to the largest global glut of the fiber in history at the end of this season. This has pressured futures to the lowest levels in nearly five years. The cotton season began Aug. 1.”

    Ms. Wexler explained that, “To help farmers with operating expenses, the federal government offers cotton growers nine-month loans at a rate of 52 cents a pound that are secured with the fiber. Late Thursday, the U.S. Department of Agriculture calculated its adjusted world price–a proxy for the physical price of the fiber–for the week beginning Friday, at 50.94 cents a pound.

    “When the USDA’s world price falls below the loan rate, the government allows cotton farmers to pay back their loans at the world price rather than the higher price at which they took the loans. Farmers also have the option to forgo a loan and simply receive a payment that equals the amount by which the loan rate exceeds the USDA’s world price when they sell their cotton. Cotton growers currently have $24.3 million in outstanding federal loans, according to the latest data on the USDA’s website. That figure is expected to increase as the U.S. harvest ramps up next month, analysts said.”

    And Jesse Newman reported yesterday at The Wall Street Journal Online that, “U.S. soybean futures slid to a fresh four-year low, pressured by reports of huge crops flowing in from farmers’ fields and strength in the U.S. dollar.

    “Corn and wheat also fell.

    “Soybean prices dropped amid continued reports of strong yields from the U.S. harvest, which have fueled expectations that farmers will reap their largest oilseed crop ever. Federal forecasters earlier in September estimated that soybean output would total 3.913 billion bushels on yields of 46.6 bushels an acre, both records.”

    Ms. Newman noted that, “December corn slipped 3 1/2 cents, or 1.1%, to $3.26 a bushel at the CBOT.”

    Bloomberg writer Whitney McFerron reported yesterday that, “Global wheat production will be larger than previously expected amid an improving outlook for supplies from the European Union and Ukraine, the International Grains Council said.

    “Wheat output worldwide will rise to a record 717 million metric tons in the 2014-15 season, higher than last month’s forecast of 713 million tons and 0.6 percent bigger than the previous year, the London-based IGC said in an e-mailed report today. The agency also raised its forecast for global corn production to 974 million tons, 0.1 percent more than the August estimate while still below last season’s record harvest of 983 million tons.”

    CFTC- Commodity Futures Trading Commission

    Andrew Ackerman, Katy Burne and Viktoria Dendrinou reported yesterday at The Wall Street Journal Online that, “U.S. and European policy makers have hit a snag in their postcrisis efforts to coordinate on international rules for derivatives, which played a central role in the 2008 meltdown.

    “The two sides are at loggerheads over the regulation of clearinghouses–entities that are supposed to help prevent a market-wide collapse by ensuring either party in a derivatives transaction would get paid if the other side falters.

    “The entities, which include CME Group Inc., Intercontinental Exchange Inc. and LCH.Clearnet Group, are required to register with their home-country regulators in the U.S. and Europe. Global regulators are working to establish a system to ensure that home-country rules are ‘largely equivalent’ across borders.”

    The article noted that, “Industry observers see the spat as retaliation for steps U.S. officials took earlier this year, when the U.S. Commodity Futures Trading Commission declined to grant full equivalence to European trading platforms for certain derivatives called swaps. Michel Barnier, the European Union’s financial-services chief, warned last year that Washington’s attempts to impose its rules overseas could spark ‘protectionist reaction’ from other countries.

    “EU officials say they have concerns that U.S. oversight of clearinghouses is less strict.”

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