Economic Matters
Marcia Zarley Taylor reported yesterday at DTN that, “Don’t expect much farmer economizing in production costs in 2015, but it’s not for lack of trying. Yes, growers can nickel-and-dime their remaining grain and soybean expenses, but most cannot recover the hundreds of dollars of gross income per acre that have vanished since 2012.
“A 2,500-acre producer from northeast Iowa has seen roughly $1.45 million ‘walk out the door’ since January 2013, just in reduced corn prices. ‘It’s hard to recover that much in lower production costs,’ he told DTN.”
Ms. Taylor indicated that, “In agriculture, worry about breakeven prior to planting tends to be the norm, report economists at Purdue’s Center for Commercial Agriculture. Losses were forecast 15 out of the last 25 years from 1991 to 2015, prior to planting, economist Brent Gloy and Purdue University colleagues wrote in a recent essay.
“What’s different about the current outlook is the magnitude of the potential 2015 wreck is the biggest in that quarter century. By their early 2015 budget calculations, average-quality Indiana farmland is projecting a loss ranging from $156 to $317 per acre. ‘The declines in commodity prices have not been met with subsequent reductions in costs, creating the potential for a very serious margin squeeze,’ they wrote.”
The DTN article stated that, “If grain farmers interviewed by DTN in early January are typical, most have failed to win meaningful concessions on rent, fertilizer, seed or even chemicals. If they haven’t pre-priced much of their 2015 crop, they are anxiously bracing for what could be one of the biggest one-year losses in their careers.
“‘The biggest item that could have had an impact is cash rent, and landowners pushed that off the table,’ said a Minnesota grower who asked for anonymity. He said he had been quick to deliver bonuses to landowners in the good years with the hope the courtesy might be reversed in years like 2015, but only one of his owners agreed to a $25-per-acre cut, just a drop in the bucket when losses could easily hit $150 to $300 per acre.”
Yesterday’s article added that, “A Minnesota operator paying a modest $245-per-acre rent on 175-bushels-per-acre corn ground will need $5.11 corn to cover all costs and a $60-per-acre return for labor and management, according to Bob Craven, director of the University of Minnesota’s Center for Farm Financial Management.”
Jamie Chisholm reported yesterday at The Financial Times Online that, “Chicago-traded soyabeans futures have dropped to their cheapest in nearly three months. The March contract by mid-session on Tuesday was about $9.85 a bushel. A break below $9.00 would take soyabeans to levels last seen in 2009.”
The FT article noted that, “The US Department of Agriculture just announced that a Chinese buyer has cancelled a 285,000-tonne deal.
“Ditching a contract is not uncommon, as purchasers look to take advantage of cheaper prices or realise they had overestimated demand from their own customers.
“But the cancellation merry-go-round has started a month earlier than usual, notes Reuters, an indication that China is probably eyeing cheaper South American produce.”
Also on the topic of China, Henry Sanderson and Lucy Hornby reported yesterday at The Financial Times Online that, “Chinese funds are becoming the money to watch in the global commodities markets. Often founded by investors who cut their teeth in the country’s chaotic futures markets of the 1990s, they are said to be behind last week’s precipitous fall in copper. Dropping $400 in a single hour during the Asian morning, the move sent shares in Glencore, the world’s third-largest copper miner, to their lowest level since the company went public in 2011.”
The FT article noted that, “‘They hunt in packs. They have a big influence on the market when they come in,’ one metals trader said. ‘They have influential contacts and tell others to come into the market to back a position.’
“Chinese funds have been a force domestically for several years, beginning with a few influential individuals who pooled money from wealthy friends. Their increasingly savvy trading across markets and time zones comes as China loosens currency controls and liberalises restrictions on trading in overseas stocks and commodity markets.”
Yesterday’s article added that, “The world’s largest economy by purchasing power is also the largest importer of agricultural commodities and China’s futures exchanges regularly influence prices in Chicago.”
“In 2012, the US Commodity Futures Trading Commission fined [Shanghai Chaos founder Ge Weidong] and a company he controlled $500,000 and made him return $1m for exceeding speculative position limits in soyabean oil and cotton futures contracts. At one point he held 5 per cent of open interest in US cotton futures as he tried to play the US against the China market. Mr Ge declined an interview request,” the FT article said.
Meanwhile, Reuters news reported yesterday that, “Australian beef exports are likely to fall short of official estimates in the year to June, with ranchers in the world’s third-biggest supplier culling fewer cows as heavy rains revive pastures scorched by a prolonged drought, analysts said.
“A slower slaughter rate could boost Australian cattle prices to record highs and ramp up costs for key consumers such as the United States, which is battling tight supply at home, while forcing others such as China to opt for Brazilian beef.
“But it will also ease concerns about long-term global shortages as the rains in Queensland – Australia’s largest cattle producing state and home to about half the national herd – will allow farmers to rebuild stocks that are at 17-year lows.”
And Bloomberg writer Whitney McFerron reported yesterday that, “Russia may resume imports of some banned food products from the European Union, according to the European Commission.
“EU officials and Russian veterinary authorities met in Berlin in the past week to discuss trade, said Enrico Brivio, a spokesman for the Commission in Brussels. He declined to comment on which foods may be re-approved or a timeline for potential clearing of such products.”
Also yesterday, Reuters news reported that, “As the season for wheat planting in Iraq wound down early last month, farmers in areas under the control of Sunni militant group Islamic State grew worried.
“More than two dozen farmers told Reuters they had not planted the normal amount of seed, because they could not access their land, did not have the proper fertilizers or adequate fuel, or because they had no guarantees that Islamic State would buy their crop as Baghdad normally does.
“Farmers, and Iraqi and United Nations’ officials, now fear a drastically reduced crop this spring. That could leave hundreds of thousands of Iraqis hungry. But another big loser would be Islamic State, which controls territory that normally produces as much as 40 percent of Iraq’s wheat crop.”
Yesterday’s article pointed out that, “A bad crop might not cost the group control of territory, but it would seriously dent its campaign to be seen as an alternative government, and hurt its credibility among some fellow Sunnis.
“Iraqi farmers have long complained of Baghdad’s neglect and mismanagement of agriculture. International sanctions and the U.S. invasion further hurt the sector. But many farmers say this planting season marks an all-time low.”
And Bloomberg writer Phoebe Sedgman reported yesterday that, “The risk of an El Nino in coming months dropped after indicators eased for the event that brings drought to Asia and heavier-than-usual rains to South America.
“‘Since late 2014, most ENSO indicators have eased back from borderline El Nino levels,’ the Bureau of Meteorology said on its website, referring to the El Nino Southern Oscillation by its initials. The bureau lowered its outlook for the event to neutral from alert.”
Trade
Vicki Needham reported yesterday at The Hill Online that, “A frustrated White House is planning to blitz congressional Democrats on trade in the weeks following Tuesday’s State of the Union address.
“President Obama is tasking every member of his Cabinet to round up votes from Democrats for fast-track negotiating power, which would give Obama leverage to complete trade negotiations by preventing Congress from amending his agreements.
“About 80 House Democrats have been targeted in the effort, and Cabinet members are divvying up those names based on their personal relationships with the members.”
In a separate article yesterday at The Hill Online, Vicki Needham reported that, “House Democratic leaders stopped short of full-throated support for President Obama’s trade agenda in separate media appearances on Tuesday.
“House Minority Leader Nancy Pelosi (D-Calif.) and House Minority Whip Steny Hoyer (D-Md.) each suggested that they were maintaining a wait-and-see attitude on the issue, even as the White House ramps up efforts to build support for trade among Democrats.”
Ms. Needham also reported yesterday at The Hill Online that, “Senate Finance Committee Chairman Orrin Hatch (R-Utah) said Tuesday that giving President Obama expanded trade powers is essential to pushing through a broad global agenda.
“Hatch said he plans to ‘move carefully but quickly to introduce and mark up’ a trade promotion authority (TPA) bill.
“‘I’m currently working with ranking member [Ron] Wyden and [Ways and Means Committee Chairman Paul Ryan (R., Wis.)] to see if there are improvements that might be made to TPA so that we can introduce a bipartisan, bicameral bill in this Congress that we can move in short order,’ he said during remarks at the U.S. Chamber of Commerce.”
In his State of the Union Address last night, President Obama indicated that, “Twenty-first century businesses, including small businesses, need to sell more American products overseas. Today, our businesses export more than ever, and exporters tend to pay their workers higher wages. But as we speak, China wants to write the rules for the world’s fastest-growing region. That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field. That’s why I’m asking both parties to give me trade promotion authority to protect American workers, with strong new trade deals from Asia to Europe that aren’t just free, but are also fair. It’s the right thing to do.
“Look, I’m the first one to admit that past trade deals haven’t always lived up to the hype, and that’s why we’ve gone after countries that break the rules at our expense. But 95 percent of the world’s customers live outside our borders. We can’t close ourselves off from those opportunities. More than half of manufacturing executives have said they’re actively looking to bring jobs back from China. So let’s give them one more reason to get it done.”
With respect to Cuba, President Obama noted in his speech that, “In Cuba, we are ending a policy that was long past its expiration date. When what you’re doing doesn’t work for 50 years, it’s time to try something new. And our shift in Cuba policy has the potential to end a legacy of mistrust in our hemisphere. It removes a phony excuse for restrictions in Cuba. It stands up for democratic values, and extends the hand of friendship to the Cuban people. And this year, Congress should begin the work of ending the embargo.
“As His Holiness, Pope Francis, has said, diplomacy is the work of ‘small steps.’ These small steps have added up to new hope for the future in Cuba. And after years in prison, we are overjoyed that Alan Gross is back where he belongs. Welcome home, Alan. We’re glad you’re here.”
Also on the State of the Union (SOTU) address, DTN Ag Policy Editor Chris Clayton tweeted yesterday that, “#SOTU is nearly 6,700 words long. ‘Rural, farmers or agriculture’ are not among them.”
In more detail on developments with Cuba, Tracy Wilkinson reported yesterday at the Los Angeles Times that, “Acrimonious neighbors for 50 years, Cuba and the United States this week are expected to take the first concrete steps toward opening diplomatic relations and an entirely new relationship in trade, traffic and tourism.
“The most senior American official to meet with Cuban officials in a generation is to arrive for two days of talks beginning Wednesday on normalization and immigration.
“It will be a major test for both sides of their commitment and ability to move the relationship beyond the historic decision announced last month by President Obama and Cuban President Raul Castro, to the nuts and bolts and the reality.”
Policy Issues
A news release yesterday from Sen. Jerry Moran (R., Kan.) indicated that, “[Sen. Moran] today issued the following statement regarding his selection as chairman of the Senate Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies:
“‘Farmers and ranchers provide the food, fuel and fiber for our growing world and are the economic drivers of communities and local businesses across Kansas. Regardless of our job or where we live, agriculture matters to all of us. As chairman of the Senate Appropriations Agriculture Subcommittee, I welcome the opportunity to focus on investing in policies that are vital to Kansas farmers and ranchers, such as agriculture research and extension and Farm Bill implementation. Additionally, through the subcommittee’s jurisdiction over the FDA budget, I will work to advance public health innovations, including development of new medicines, medical devices and food safety technology. It is also critical that as responsible stewards of taxpayer dollars we take a hard look at spending in areas of government that aren’t working, and many times even harmful to rural America.'”
Sen. Roy Blunt (R., Mo.) tweeted yesterday that, “I have every reason to expect I’ll stay on the ag & defense approps subcmtes, & I look fwd to continuing focusing on these areas for MO’ians”
And Donnelle Eller reported yesterday at The Des Moines Register Online that, “The next generation of biofuel production didn’t take the hit industry leaders predicted with the delay of a federal mandate requiring ethanol and biodiesel to be blended into the nation’s fuel supply, U.S. Agriculture Secretary Tom Vilsack told The Des Moines Register’s editorial board Monday.
“‘I’m not sure that it has been a significant hindrance on investment,’ Vilsack told the board. ‘I’m not saying there hasn’t been some’ impact ‘but it hasn’t been significant.’
“The ag secretary said he’s optimistic about the future of renewable fuels, pointing to record U.S. ethanol production last year, developing export, military and aviation markets, and strong interest in building advanced biofuel plants.”
A news release yesterday from Sen. Charles Grassley (R., Iowa) noted that, “[Sens. Grassley] and Al Franken of Minnesota have introduced legislation that would reverse a Supreme Court ruling (Hall v. United States) that makes it harder for family farmers to reorganize their finances when they fall on hard times.
“The bill is expected to be referred to the Senate Judiciary Committee where Grassley is the Chairman.”
Yesterday’s update added that, “Grassley and Franken’s Family Farmer Bankruptcy Clarification Act of 2015 remedies a May 2012 Supreme Court ruling that said despite Congress’s express goal of helping family farmers, the language inserted into the Bankruptcy Code in 2005 conflicted with the Tax Code.
“The Family Farmer Bankruptcy Clarification Act clarifies that bankrupt family farmers reorganizing their debts are able to treat capital gains taxes owed to a governmental unit, arising from the sale of farm assets during a bankruptcy, as general unsecured claims. It removes the Internal Revenue Service’s veto power over a bankruptcy reorganization plan’s confirmation, giving the family farmer a chance to reorganize successfully.”
