Keith Good: Corn’s Bounce Doesn’t Mean Market Has Bottomed — Analysts

Crop Watch

Luc Cohen reported yesterday at The Financial Times Online that, “US corn prices rebounded from a four-year low on Wednesday but analysts said this did not mean the market had bottomed after a sharp slide driven by record harvests and favourable weather conditions.”CBOT September corn rose 1.17 per cent by mid-afternoon on Wednesday, to $3.77 ½ a bushel, helped by forecasts of warmer than normal temperatures and restricted rainfall in parts of the US corn belt.”

The FT article explained that, “Reports from two government agencies suggested increased demand for the crop had helped to support prices.

“The Energy Information Administration said stocks of fuel ethanol decreased by 341,000 barrels in the week ended July 11 after three consecutive weeks of stock increases.

“The Department of Agriculture said exporters had signed contracts to sell 210,448 metric tonnes of corn to unknown destinations on Tuesday. Exporters are required to reveal sales of 100,000 tonnes or more of a single commodity made in one day.”

news release yesterday from Purdue University cautioned that, “Indiana’s corn is showing potential to produce a bumper crop for the second consecutive year, but much of it could ‘suffer quickly’ if growing conditions turn unfavorable, Purdue Extension corn specialist Bob Nielsen says.

“He is cautiously optimistic as the crop enters the second half of the growing season toward harvest.

“‘Yes, the corn crop in Indiana looks good at this point in time. Yes, the prospects for good yields this year are promising,’ he wrote Tuesday (July 15) in his online Chat ‘n Chew Café. Likening the growing season to baseball, he added: ‘But the crop has only ’rounded second base’ on its way to ‘home plate.'”

Yesterday’s update pointed out that, “The downside, he explained, is that planting was delayed for some farmers because of frequent spring rain, stand establishment was ‘terrible’ in some fields, requiring at least one replanting, and subsequent, excessive rainfall caused root death or damage, plant mortality, overall stunting of the crop and significant loss of soil nitrate-nitrogen.

“‘If Mother Nature’s ‘spigot’ would turn off and soils rapidly dry to excessively low levels, much of this crop that is likely shallow-rooted due to the early wet season would suffer quickly,’ Nielsen said.”

Yesterday, the Federal Reserve Board released its Summary of Commentary on Current Economic Conditions. Commonly referred to as the “Beige Book,” the report included several observations with respect to the U.S. agricultural economy.

The Chicago District indicated that, “The District’s corn and soybean crops made up ground after a late start to planting as favorable weather helped plants emerge more quickly than the five-year average. The consensus among contacts was that the corn and soybean crops were in excellent shape, but were unlikely to set records when harvested because of the late plantings…Hog prices moved higher as disease affected supplies.”

The St. Louis District noted that, “Over 90 percent of the District’s corn, cotton, rice, sorghum, and soybean crops were rated in fair or better condition.”

The Kansas City District pointed out that, “The corn and soybean crops were in good condition overall, and improved growing conditions led to a drop in prices for both crops. Cattle prices continued to rise, but feeder cattle prices have recently increased much faster than fed cattle prices and narrowed margins for feedlot operators. The cumulative effect of reduced piglet numbers due to the swine virus and strong export demand for pork supported further gains in hog prices, even though pork production forecasts were raised due to heavier dressed weights and higher than expected slaughter in the second quarter.”

And, the Dallas District added that, “Widespread rains greatly improved prospects for row crops, especially cotton, but came too late to aid the Texas wheat crop, which is expected to be down 20 percent this year.”

A summary of all of the ag related notes from yesterday’s Fed report can be found here, at FarmPolicy Online.

Meanwhile, Elizabeth Williams reported yesterday at DTN that, “Lenders, economists and producers at the Kansas City Federal Reserve Bank’s Agricultural Symposium Tuesday agreed with the keynote speaker who laid out the case for muted optimism for agriculture in the next 10 years.”

The DTN article noted that, “This summer’s expected bumper crops and crash in crop prices has Plains states and Midwest bankers ‘cautious,’ said Brian Esch, president of McCook (Nebraska) National Bank. ‘Sobering,’ is the outlook given by Douglas Johnson, president of the Guaranty State Bank and Trust Co. in Beloit, Kan.

“‘The easy money times are over,’ said Johnson. What has him most concerned on a micro-economic level is farm families have gotten used to a relatively high living standard and ‘sacrificing for the farm’ may not be as automatic as it used to be, noted Johnson. The Kansas banker said he thinks there will be some attrition out of farming for some under 40, not because they are forced out (as we saw in the ’80s) but because they’ll choose to leave.”

Also yesterday, Bloomberg writer Aya Takada reported that, “More pigs from Europe and Mexico could be heading to Japan, the world’s largest pork importer, as a hog virus outbreak is driving up domestic prices, according to the country’s Agriculture Ministry.

“Production in Japan may fall as much as 5 percent from October to December, pushing up prices and weakening demand for local pork, Kenji Morita, director at the ministry’s meat and egg division, said today in Tokyo. That’s increasing demand for cheaper imports, he said.

“Japan has discovered 1.17 million cases of porcine epidemic diarrhea in 805 farms across 38 prefectures since it confirmed the latest outbreak in October. As many as 343,070 piglets have died, a record number of fatalities from the disease, Yukitake Okamura at the ministry’s animal health division said today by phone.”

Trade Hearing

House Ways and Means Trade Subcommittee Chairman Devin Nunes (R-CA) held a hearing yesterday with Deputy U.S. Trade Representative Michael Punke to discuss the U.S. trade agenda and the World Trade Organization.

Ambassador Punke’s opening statement from yesterday’s hearing is available here; in part, he noted that, “While we have been working on the Doha round, we have also created other opportunities by leading regional and plurilateral negotiations with like-minded trade partners.”

In response to a question from Rep. Kevin Brady (R., Tex.), Amb. Punke explained that, “I very much agree that the place where we have vitality and energy in the room and a sense of like-mindedness among negotiating partners has been in the plurilateral discussions.”

With respect to livestock issues, Rep. Adrian Smith (R., Neb.) noted yesterday that, “We know that Mexico and Hong Kong have lifted their remaining age-based restrictions on U.S. beef, and I was just wondering, you know, there are several other countries that have not lifted those age-based restrictions, even though scientific evidence abounds relating to that. Is the administration considering pursuing some WTO action on that topic?”

Amb. Punke replied that, “Well, Congressman, my hometown is in Torrington, Wyoming, which is about eight miles from the Nebraska border, and right on the border is a feed lot, so this is an issue that I understand perhaps from a similar perspective of you, despite being slightly across the border. We are dedicated in this administration and at USTR that international rules on trade be based on science, and we’re pursuing that principle across numerous issues, including our efforts to promote beef exports, and we will very much continue to do that.”

And, Rep. Lynn Jenkins (R., Kans.) noted yesterday that, “Do you have any suggestions on how the U.S. should manage the EU’s failure to respect its obligations under the WTO SPS agreement, and do you believe that ultimately a Transatlantic Trade Investment Partnership agreement offers a better opportunity to get the EU into compliance?”

Amb. Punke pointed out that, “And so you mentioned WTO rules and WTO litigation. And as you pointed out, those are tools that we are applying and have applied in the context of Europe. Europe, in fact, is paying compensation, having lost a case on beef hormones.

“Now that being said, as you point out, we are not yet satisfied in terms of our efforts to ensure that our bilateral trade is conducted on the basis of science. And so I think that TTIP does provide an opportunity, another opportunity for us to pursue this conversation with Europe, and we’re doing that.”

And with respect to TPA (Trade Promotion Authority), in response to question from Rep. Vern Buchanan (R., Fla.), Amb. Punke indicated that, “Well, Congressman, we are very committed to getting TPA. I think Ambassador Froman has practically camped up here over the course of the last six weeks in terms of the outreach that he’s done personally. Other members of the cabinet have been involved in this, whether it’s Secretary Kerry, Secretary Lew, Secretary of Commerce, Secretary of Agriculture.

“The President has indicated, including in the State of the Union address, his commitment to seeking and achieving a Trade Promotion Authority agreement. We’re looking for an agreement that has the broadest bipartisan support possible. And at the same time, as you mentioned, we’re committed to ambitious outcomes in all of the negotiations that we’re working on, and I think it’s possible, and it has been possible, based on our experience at the table, for those two tracks to proceed at the same time.”

Also on the TPA issue, Rep. David Reichert (R., Wash.) noted that, “I just want to thank you for recognizing, in your opening comments, the importance of TPA. I think most members here recognize that TPA is critical to any agreement associated with TPP. And we’ve made it very clear on our side of the aisle that if an agreement comes to this Congress without TPA, it’s dead on arrival.”

Reuters news reported today that, “The United States will insist that India and other World Trade Organization members stick to promises around a global deal to lower trade barriers and speed up the passage of goods through customs, a top trade official said on Wednesday.

“India has criticized a deal struck in December in Bali for putting trade facilitation ahead of a compromise on agricultural subsidies, a crucial issue for a country that stockpiles food for its poor, and South Africa has also expressed concern.

“U.S. Ambassador to the WTO Michael Punke said the United States was concerned about pushback from a ‘handful’ of members on the deal, which was important for the credibility of the WTO.”

Also, the U.S. Trade Representative’s Office posted a brief readout of a meeting between Acting Deputy USTR Wendy Cutler and Ambassador Hiroshi Oe on TPP and Agriculture yesterday: “Acting Deputy USTR Wendy Cutler concluded two days of constructive meetings with Ambassador Hiroshi Oe of Japan regarding bilateral market access in the TPP. They continued to make some progress in narrowing the gaps on treatment of a range of agricultural products. The next meetings are planned for August 4-5 in Washington, D.C.”

Policy Issues

Byron Tau and Bill Tomson reported yesterday at Politico that, “Mike Conaway [R., Tex.] has quietly emerged as a Republican rainmaker, building some major political capital in advance of his likely run for chairman of the House Agriculture Committee in the next Congress.”

The article added that, “Though grass-roots conservative stalwart Rep. Steve King (R-Iowa) also has been mentioned as a potential candidate, Conaway already is thought to be the favorite to take over for Rep. Frank Lucas (R-Okla.) when he is term-limited out of the Agriculture Committee chairmanship at the end of this Congress.”

Meanwhile, the Senate Ag Committee is scheduled to hold a hearing next week on nutrition related issues, “Meeting the Challenges of Feeding America’s School Children.”

Ramsey Cox reported yesterday at The Hill Online that, “The Senate passed a bill Wednesday that would ease requirements for a veterinarian to dispense controlled substances.

“Rep. Kurt Schrader (D-Ore.) introduced H.R. 1528, the Veterinary Medicine Mobility Act, which would amend the Controlled Substances Act to end the requirement that a veterinarian who is registered to manufacture or distribute controlled substances has to obtain a separate registration to transport and distribute the drugs off-site.”

The Hill update stated that, “The House passed the bill last week by voice-vote and the Senate agreed to the measure through a unanimous consent agreement. The bill now heads to President Obama’s desk for his signature.”

In other news, AP writers Mary Clare Jalonick and Lauran Neegaard reported yesterday that, “Nutrition facts labels on food packages list ingredients and nutrient levels, but they don’t tell consumers outright if a food is good for them.

“Public health advocates say that information is necessary to help consumers make healthy choices at the supermarket. They’d like to see labels on the front of packages and a clearer statement of which ingredients are good and which should be avoided.

“The Food and Drug Administration is working on a label overhaul and has proposed two different versions.”

And a news release yesterday from Rep. Rosa DeLauro noted that, “[Rep. DeLauro] released the following statement today applauding the U.S. Department of Agriculture (USDA)’s proposed rule that would require raw ground beef makers to keep records on where that beef comes from. This will ensure that in the event of a foodborne illness outbreak investigators can trace meat back to its source, speeding up the recall process.

“‘We must do more to address the dangers American families face on a daily basis from the hidden killer of foodborne illness. This proposed rule is a good step, and if implemented in its current form, will allow USDA to recall products more quickly. This is crucial during an outbreak when speedy notification can keep people from becoming ill, or even dying. We are not talking about roads or parks. We are talking about people’s lives. Nothing is more important.'”

On a separate issue, Reuters writer Michael Hirtzer reported yesterday that, “An ethanol plant in Nebraska corn country is pumping out fuel made from sugar beets, and corn farmers are suing to stop it – a small-town dispute that offers an unusual take on the debate over the market-distorting impact of sugar and corn subsidies.

“The dispute in Aurora, population about 4,400, brings into conflict two of the largest U.S. farm programs, one promoting sugar production and the other corn-based ethanol. Aventine Renewable Energy Holdings Inc, a privately held Illinois firm, is reaping profits producing ethanol with cheap sugar, thanks to a U.S. Agriculture Department subsidy of beet sugar.

“Local corn farmers, who benefit from a government rule that forces oil companies to blend ethanol into gasoline, say in court documents that Aventine’s action violates an agreement to use their grain exclusively as a feedstock for the firm’s recently reopened plant in Aurora. Aventine denies any wrongdoing, saying it has abided by its contract.”

Also on the issue of biofuels, Timothy Cama reported yesterday at The Hill Online that, “The American Petroleum Institute (API) is focusing on the Environmental Protection Agency (EPA) in its fight to reduce the ethanol blending mandate, conceding that there’s little short-term hope in congressional action.

“Bob Greco, API’s director of downstream operations, said his group is still pushing for legislative changes to the Renewable Fuel Standard (RFS) that requires oil refiners to mix ethanol, biodiesel and other renewables into their fuels. But with elections approaching, it is trying instead to convince the EPA to keep the mandated volumes low.”

Regulations

Timothy Cama reported yesterday at The Hill Online that, “The House Transportation and Infrastructure Committee passed two bills Wednesday aimed at undercutting the way the Environmental Protection Agency (EPA) regulates water pollution.

“One of the bills would give states more authority over water pollution permits and state permitting rules, while the other would block the agency’s joint proposal with the Army Corps of Engineers to redefine which waters it has jurisdiction over per the Clean Water Act.”

DTN writer Todd Neeley reported yesterday that, “EPA Administrator Gina McCarthy told farmers and agribusinesses on a trip to Missouri last week that agriculture essentially has ‘nothing to worry about’ and that ‘nothing will change’ with the proposed Clean Water Act rule. Yet many of the 204,416 public comments submitted so far to regulations.gov on the rule suggest the agency has a ways to go to convince the industry.

“One thing is consistent among farmers and farm groups from the states of Washington to Louisiana, Kansas and Maryland: concern about potential connections the rule makes between ephemeral waters — waters that exist only a short time following precipitation — on their fields and navigable waters.”

Meanwhile, a news release yesterday from Sen. Pat Roberts (R., Kans.) stated that, “U.S. Senators [Roberts] and Heidi Heitkamp (D-ND) today introduced a bill to enhance customer protections for farmers and ranchers by preventing regulations from the Commodities Futures Trading Commission (CFTC) from being overly laborious and making it significantly more difficult for farmers and ranchers to make economical trades on commodities.

“Following the collapses of MF Global and Peregrine Financial Group, the CFTC proposed and finalized customer protection rules to help regulators better recognize trouble in firms before they occur. While some changes to the regulations are beneficial, the rules enacted by the CFTC could overly burden those who rely on futures markets to hedge risks, such as local farmers and ranchers, grain merchants, and futures brokers.”

An update yesterday from the National Grain and Feed Association (NGFA) stated that, “The [NGFA] today commended Sens. Pat Roberts, R-Kan., and Heidi Heitkamp, D-N.D., for their bipartisan leadership in introducing legislation to resolve a problem that could put billions of dollars of futures customer funds at risk if another futures commission merchant (FCM) insolvency occurs.”

Reuters news reported earlier this week that, “The Chicago Mercantile Exchange has started a review of electronic trading hours in its cattle and hog contracts, it said on Tuesday, and trade sources said talks have focused on reducing hours to keep the contracts attractive.

“Scaling back activity on the world’s biggest platform for trading cattle and hog futures would concentrate volumes, which should calm market volatility. Contracts currently see wide swings in price after open-outcry trading has closed.”




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