Keith Good: Tumbling Grain Prices May Prove Costly for Taxpayers

Policy Issues

Grant Gerlock of Harvest Public Media reported yesterday that, “U.S. farmers are bringing in what’s expected to be a record-breaking harvest for corn and soybeans. But all that productivity has a big financial downside: plunging prices that have many Midwest farmers hoping to merely break even on this year’s crop.”

The article noted that, “Rising costs and falling prices are a bad combination. Still, [agricultural economist Cory Walters, of the University of Nebraska-Lincoln] said many farmers will have so much grain to sell, they’ll manage to make some money. Others will lean on taxpayer-subsidized crop insurance to stay in the black, or close to it. Insurance kicks in for many farmers when prices dip below certain levels.”

Bloomberg writer Alan Bjerga reported yesterday that, “A record U.S. harvest has pushed crop prices so low that taxpayers may pay billions of dollars more to subsidize farmers than anticipated just months ago, thanks in part to changes Congress approved this year.

“Lawmakers passed a five-year farm law in February and hailed its projected savings in subsidies of $14 billion over a decade. The forecast was based on farmers getting paid more for their crops. Instead, prices have fallen and may trigger subsidies the law aimed to reduce.”

The Bloomberg article pointed out that, “‘It’s very premature to speculate about the farm bill savings when major programs haven’t even gone into effect yet,’ Rachel McCleery, spokeswoman for Senate Agriculture Chairwoman Debbie Stabenow, a Michigan Democrat, said in an e-mail. Farmers will have until March to select from new subsidy options.”

Also yesterday, The Des Moines Register editorial board addressed issues associated with egg production and animal welfare and stated in part that, “The solution to the interstate egg war won’t be found through litigation. The solution lies in uniform, national standards of the kind agreed to three years ago by the Humane Society of the United States and United Egg Producers, a cooperative of farmers who own 95 percent of the nation’s egg-laying chickens.

“The two groups backed the Egg Products Inspection Act Amendment that would have required an increase in the size of cages and pre-empted state laws like California’s. Despite the support of retailers and consumer groups, Congress failed to approve the bill due to pressure from beef and pork producers who don’t want to be the next target of animal-welfare legislation.”

The Register added that, “Congress needs to act, and it needs to do so with support of egg, beef and pork producers. Animal welfare is a fast-growing concern being driven by consumers and retailers.

“If ag producers don’t want to be faced with new legislative mandates, they need to get out in front of the problem and enact their own reforms.”

Trade Issues (COOL)

DTN Ag Policy Editor Chris Clayton reported yesterday that, “Congress and the Obama administration will once again have to decide whether labeling meat with the country of origin is worth the trade headaches it causes.

“The World Trade Organization publicly released its latest ruling Monday on the U.S. Country of Origin Labeling law and rule by USDA. The global trade panel found that changes made to COOL in 2013 by USDA actually made livestock trade between the U.S., Canada and Mexico more difficult.

“The ruling is a victory not only for Canada and Mexico, but U.S. meatpackers that have long opposed labeling the origin of meat products at retailers. Opponents of the law urged both the Obama administration and Congress to eliminate the rule or change it.”

The DTN article noted that, “‘The WTO decision upholding Canada’s and Mexico’s challenge to the U.S. COOL rule comes as no surprise. USDA’s mandatory COOL rule is not only onerous and burdensome on livestock producers and meat packers and processors, it does not bring the U.S. into compliance with its WTO obligations. By being out of compliance, the U.S. is subject to retaliation from Canada and Mexico that could cost the U.S. economy billions of dollars,’ stated the American Meat Institute and North American Meat Association.

“As the WTO stated in its 206-page report, the amended COOL rule by the U.S. still treats imported Canadian and Mexican livestock less favorably than domestic livestock and actually increases the ‘detrimental impact on the competitive opportunities’ for both Canadian and Mexican livestock.”

Nirmala Menon and Tennille Tracy reported yesterday at The Wall Street Journal Online that, “The World Trade Organization ruled against the U.S. on Monday in a continuing dispute over meat-labeling rules that Canada and Mexico say discriminates against livestock exports from their countries.

“The U.S. Department of Agriculture amended its so-called country-of-origin meat-labeling rule after a WTO finding in 2012 that an earlier version was discriminatory. Canada and Mexico said the amended rule was even more onerous, limiting their exports of cattle and hogs into the U.S. and weighing on the price of those products.

“A WTO panel Monday said the amended country-of-origin labeling requirements violates global trade rules that require imports to be treated no less favorably than domestic products.”

The Journal article stated that, “Canadian Trade Minister Ed Fast and Agriculture Minister Gerry Ritz renewed the threat of retaliation after the WTO panel issued its finding.

“‘Today’s WTO compliance panel’s report reaffirms Canada’s long-standing view that the revised U.S. COOL measure is blatantly protectionist and fails to comply with the WTO’s original ruling against it,’ they said.”

The Journal writers added that, “The U.S. is considering an appeal of the decision, a spokesman for the U.S. Trade Representative said.”

Reuters writers Tom Miles and Krista Hughes reported yesterday that, “U.S. pork producers urged Congress and the administration to fix the rules and avoid ‘financially devastating’ retaliation, while the U.S. Chamber of Commerce, National Association of Manufacturers, farmer cooperatives and corn refiners said the offending sections should be immediately repealed. Beef producers said the whole policy should be scrapped.”

The Reuters article noted that, “House Agriculture Committee Chairman Frank Lucas, a Republican, has called for repeal of the disputed rules and said he would support a compromise. His Democratic Senate counterpart, Debbie Stabenow, called for a balance between consumer interests and international trade.”

Iowa GOP Senator Chuck Grassley indicated yesterday that, “I’m a supporter of Country of Origin Labeling. People, now more than ever, want to know where their food comes from. We know where our T-shirts come from. We should know where our meat comes from. After two negative findings from the WTO, with the second WTO ruling saying that the revised rule from the U.S. Department of Agriculture was actually worse than the original rule, it’s likely time for Congress to go back to the drawing board. Country of Origin Labeling needs to be written and implemented clear of any trade distorting principles. As a member of the world trading community, we have an obligation to be trade compliant, even if we disagree with the rulings.”

And Rep. Rosa DeLauro (D., Conn.) stated that, “Accurate information is essential in a competitive, free market and COOL provides consumers with essential information about the origin of their food. If this ruling stands U.S. ranchers will not be able to differentiate their products with a U.S. label and consumers will not have the information they need at the point of purchase.”

America Farm Bureau Federation (AFBF) president Bob Stallman noted yesterday that, “Americans prefer to buy food products that they know were grown and raised by America’s farmers and ranchers, and AFBF supports a country-of-origin labeling program that conforms to appropriate parameters and meets WTO requirements… . [F]arm Bureau will carefully review the decision and then determine further recommended actions. We will work with the Office of the U.S. Trade Representative and USDA to reach the goal of an effective COOL program for meats that conforms to international trade rules.”

American Soybean Association President Ray Gaesser noted in part that, “As part of the COOL Reform Coalition, we continue to urge Agriculture Secretary Vilsack to suspend the COOL rule indefinitely to avert a potential economic disaster not only for the American livestock industry, but also for those sectors like ours that depend so greatly on animal agriculture.”

National Farmers Union president Roger Johnson stated in part that, “Under the guidance of USDA, any changes to COOL to ensure full compliance with today’s decision should be able to be made administratively, while maintaining the integrity of COOL labels.”

In other trade related news, Shawn Donnan reported yesterday at The Financial Times Online that, “If Republicans seize control of the Senate in next month’s midterm elections, it would be bad news politically for Barack Obama and his Democrats. But the dirty little secret in Washington is that it could be very good news for the US president’s trade agenda.

“The November 4 elections are being watched carefully far from the US capital because the fate of two regional trade deals could hinge on the result of the vote. US negotiations with Japan and 10 other countries in the Pacific Rim are approaching a climax and, though talks are at a less advanced stage, proceeding apace across the Atlantic with the EU’s 28 member states.

“The reality is that both deals need a trade-friendly Congress to go ahead and the hope is a Republican majority in the Senate may just give them that.”

Crop Watch

Meanwhile, Reuters writers Christine Stebbins and Karl Plume reported yesterday that, “The largest U.S. grain harvest in history has pushed prices to four-year lows, which usually means a sales bonanza for the world’s largest food exporter. Not this year.

“Traditional rivals and aggressive new competitors with their own huge harvests, such as Ukraine and Russia, are leveraging the dollar’s strength to snap up a bigger share of a market that is shrinking as importers themselves boost output.

“In addition, a clogged domestic transport system has pushed rail and river freight rates sky-high, making it expensive to bring the mountains of grain to ports for shipping. That is driving down what farmers get paid by exporters, encouraging many to hold on to their crops hoping that U.S. rivals will eventually run down their stocks and bids for their grain will pick up.”

University of Illinois agricultural economist Darrel Good indicated yesterday at the farmdocDaily blog (“Crop Storage Issues May Be Less Severe Than Anticipated“) that, “The large size of fall harvested crops in the U.S. have raised very real concerns about the ability to readily store the record supply of crops available this year. Supplies that exceed permanent storage capacity require the use of temporary storage facilities or may require delayed harvest in some circumstances. However, weather related harvest delays to date and a rapid rate of consumption mean that overall storage issues may be less severe than feared this year.”

After additional analysis, yesterday’s farmdoc update added that, “While overall crop storage issues may be less severe than anticipated, regional issues persist. In addition, a more rapid pace of harvest, particularly for corn, is expected to occur this week and beyond as weather conditions remain favorable over much of the production area. A rapid pace of harvest would be expected to keep basis levels for corn and soybeans seasonally weak. A typical post-harvest recovery in basis levels, however, is expected.”

Also yesterday, The Wall Street Journal reported yesterday that, “China’s economy in the third quarter grew at its slowest pace in five years as it battles a slumping real-estate market and weak domestic demand and industrial production.

“The results on Tuesday make it increasingly likely that China will miss its annual growth target for the first time since 1998, in the midst of the Asian financial crisis. Chinese leaders in recent months have at times emphasized that their target is an approximate one, of about 7.5%, and that a level slightly below that figure is acceptable to Beijing.”

“A weaker performance could damp demand for China-related equities, commodities and currencies,” the Journal article said.

Bloomberg writer Lydia Mulvany reported yesterday that, “Soybean futures fell to a one-week low on speculation that dry weather will help accelerate the harvest in the U.S., the world’s top producer. Wheat dropped for the second straight session, while corn was little changed.

“Mostly dry conditions were forecast in the Midwest over the next 10 days Bethesda, Maryland-based Commodity Weather Group said in a report.”

“Soybean futures for November delivery dropped 0.8 percent to close at $9.4425 a bushel on the Chicago Board of Trade… . [C]orn futures for December delivery rose 0.1 percent to $3.4825 a bushel.”

Reuters news reported today that, “The U.S. Department of Agriculture, in a weekly report, said the corn harvest as of Sunday was 31 percent complete, below the five-year average of 53 percent for that date, and the soybean harvest was 53 percent complete, below the average of 66 percent.”

Biotech

Reuters writer Tom Polansek reported today that, “A federal appeals court has opened the door for Syngenta Seeds to revive a lawsuit it brought against Bunge North America in 2011 over the agribusiness company’s refusal of a type of genetically modified corn.

“An opinion in the case came on Monday as Syngenta and its parent company, Swiss-based Syngenta AG, have become the target of lawsuits over the same variety of corn, Agrisure Viptera.”

The Reuters article added that, “A three-judge panel of the U.S. 8th Circuit Court of Appeals ordered a district court to review whether Syngenta had standing to bring a claim of false advertising against Bunge in 2011 after Bunge began refusing to accept Viptera corn because it was not approved for imports by China.

“Syngenta sued Bunge over the decision, and a district court in 2012 ruled in Bunge’s favor.

“The appeals court sent Syngenta’s false-advertising claim back to the lower court for review, while affirming the lower court’s rulings in favor of Bunge on two other claims.”

Regulations

Kimberly Kindy reported yesterday at The Washington Post Online that, “The U.S. Department of Agriculture must set strict pathogen limits for poultry products with the highest contamination rates and find ways to measure a poultry plant’s success with these new standards, according to a government report released Thursday.

“The key problem is that ground poultry products and chicken parts – breasts, wings and drumsticks — have pathogen rates in the double digits, partly because of the cutting and grinding processes that expose the meat to more bacteria.

“The Government Accountability Office report noted that after the USDA set a standard of 7.5 percent for salmonella on whole chicken carcasses, contamination rates fell to the single digits. A pathogen standard establishes the level of a bacteria that can be found on a poultry product before it is declared unfit for commerce.”

Ms. Kindy also noted that, “In a letter to Agriculture Secretary Tom Vilsack, three Senate Democrats criticized the agency for failing to honor the deadline, and urged the department to publish the standards ‘as quickly as possible.’ Dianne Feinstein (Calif.), Richard Durbin(Ill.) and Kirsten Gillibrand (N.Y.) also referenced Centers of Disease Control and Prevention data that shows salmonella and campylobacter cause nearly 2 million food-borne illnesses, 27,000 hospitalizations and more than 450 deaths annually.”

Political Notes

Michael Barbaro reported in today’s New York Times that, “Iowa, the quintessence of heartland America, is undergoing an economic transformation that is challenging its rural character — and, inevitably, its political order.

“As Iowans prepare to elect a new United States senator for the first time in three decades, the scale at which people and power have shifted from its rural towns to its urban areas is emerging as a potent but unpredictable undercurrent in the excruciatingly close race, offering opportunity and risk for both sides.

“The state’s once ubiquitous farms are supporting fewer workers, the towns built around them are hemorrhaging younger residents, and a way of life eroding for decades is approaching a denouement. Farm fields are yielding to the new headquarters of banks, insurance companies and health care providers, whose rapid expansion is luring waves of Iowans to cities and suburbs, and contributing to the state’s enviable 4.5 percent unemployment rate.”


The Latest


Send press releases to Ernst@Agfax.com.

View All Events


Send press releases to Ernst@Agfax.com.

View All Events