Agricultural Economic News November 27, 2009
I have three topics of commentary today.
1) A few ag news highlights today would have to include:
- The Dubai World default threat causing a retreat of the dollar with a decline in ag commodities
- Very discouraging articles and outlooks on biofuels prominently in the news this week
- Meat production in the U.S. is down about 3% from a year ago
- Midwest corn and soy harvest advanced this past week with better weather but there are propane shortages and very long truck lines at elevators (corn is 78% complete in Iowa now but other areas are not faring as well)
- Reminder that the USDA’s projected farm income for 2009 is 35% lower
2) My Black Friday thoughts are:
You’ve no doubt seen the buy nothing day hype by now. Unless you’re living in a self-sufficient commune, humanity doesn’t function well without some kind of trade or commerce. And the holiday tradition of gift-giving is admirable, it just went the way of excesses. Time to reassess value systems and priorities.
Buy smart. Buy useful. Buy something of quality that lasts. Reward the good producer with your dollar choices. If you have a favorite store, this is your chance to patronize it. Buy local food products. Cook dinner or bake personal food gifts for friends. Buy quality gardening supplies for gifts. Buy something bike-related. I’ll bet no one would complain about receiving a silver dollar or two for a gift, either. Buy something that helps conserve energy including down-filled anything. Buy local and made in the U.S.A.
But, if you can’t afford to, then buy nothing.
3) This week I had a farmland price update article published on Seeking Alpha based upon Midwestern Federal Reserve Bank 3rd quarter reports. As usual, it received some comments saying ag land prices can only go up, especially since inflation is a guarantee. This was my response:
You obviously both believe inflation is where we’re headed. I don’t have a crystal ball, and am still worried about getting past working out of this deflation we’re in. Our government will take on even more debt before this economic crisis is over. The reality is we have become a much less affluent nation. If farm programs and ethanol subsidies get scaled back, plus higher inevitable property taxes go up on ag land, and perhaps fossil fuel costs go up, you may see the ever squeezed farmer eek out less of a profit. And then, land will go down in value. The fact is there is a lot of overproduction of corn and soy in this country due to farm policy and the time may come that that policy changes. Then what happens to farmland prices? Times are too uncertain right now to make anything a “given”. If, on the other hand, we are headed for inflation, right now could indeed, be a good time to buy ag land because interest rates are relatively low.
Have a great week!
Commodity markets took a hit on Friday as investors recoiled from risk and piled into dollars, with fear of a Dubai debt default serving as a sharp reminder of the turmoil created by the global financial crisis. Dubai has asked creditors of two of its flagship firms for a standstill on debt running into tens of billions of dollars as part of plans to restructure Dubai World, the conglomerate that spearheaded the emirate’s growth.
Oil, gold, base metals and agricultural commodities all felt the backdraft as investors lightened exposure to assets perceived as higher risk on worries about global contagion, lifting the dollar against a basket of currencies….U.S. wheat, corn and soybean futures dropped more than 3 percent before moderating losses.
Gov. Jim Doyle has declared a state of emergency to help alleviate a shortage of propane. Doug Caruso of the Wisconsin Farmers Union says the demand for the fuel is higher than normal because it’s needed to help dry a high-moisture corn crop. Doyle’s declaration will expand the hours that propane terminals are open during the next two weeks. Caruso says there have been long waits at terminal points where drivers get propane for delivery to drying facilities. The state of emergency also gives temporary relief to federal driving limits for truck drivers who carry propane….
Obama’s revolving door and agri-chemical giants
Candidate Barack Obama liked to assail “the special interests who dominate” Washington’s policymaking process, and the revolving door that corrupts government and enriches the well-connected. The Obamas also talk up farmers markets, the ideas of “slow food” and small agriculture — even planting a vegetable garden on the White House lawn. But the president has governed quite differently in the realm of agriculture, showing a pattern of favoritism towards industrial farming and agri-chemical giants such as Monsanto. And if more evidence was needed that Obama’s anti-lobbyist, anti-revolving door rhetoric was mostly smoke, the president’s moves in agriculture provide it.
Most recently, Obama showed his agri-chemical colors with his nomination of Isi Siddiqui as the chief agricultural negotiator at the office of the U.S. Trade Representative. If confirmed, this would be Siddiqui’s second spin through the revolving door….In March, Obama tapped Mike Taylor to head his food safety working group, and since then, he appointed him as the top food safety advisor at the Department of Health and Human Services. Taylor has spun through the revolving door four times, including a stint as the top lobbyist for agri-chemical giant Monsanto…
US survey shows southern counties most obese
The first county-by-county survey of obesity reflects past studies that show the rate of obesity is highest in the Southeast and Appalachia. High rates of obesity and diabetes were reported in more than 80 percent of counties in the Appalachian region that includes Kentucky, Tennessee and West Virginia, according to the new research from the U.S. Centers for Disease Control and Prevention. The same problem was seen in about 75 percent of counties in Alabama, Mississippi, Louisiana, Georgia and South Carolina.
…The CDC also released Thursday county-specific data for diabetes — Type 2 is closely tied to obesity. Counties with the lowest rates of both obesity and diabetes were out west — Boulder County, Colo., Santa Fe County, N.M., and Summit County, Utah, were at the top of each list. Just under 13 percent of people in those counties were obese, and only about 4 percent reported diabetes, the CDC found…
Deere and Co. lost $223 million in the fourth quarter, reflecting big charges and a 28 percent slump in sales as demand for tractors, combines and construction equipment sagged amid the global economic downturn. Deere is the biggest U.S. maker of farm equipment, and sluggish economic conditions in the United States and much of the rest of the world continue to drive down demand for its agricultural mainstays. Prices of major crops such as corn and soybeans show no sign of rebounding to anything like the highs of the past couple of years, when many farmers bought new equipment….
Organic-food shoppers are making a rude discovery at their grocers’ refrigerated display case. “White Wave Silk Vanilla Soymilk is no longer Organic,” declares a hand-lettered sign at the two Sunflower Shoppes in Texas. Silk — a Boulder-bred product that is now a brand under Dean Foods’ Broomfield-based WhiteWave Foods — has more than 70 percent of the market. Until this month, Sunflower routinely re-ordered it, thinking it was certified organic.
But its maker, Dallas-based Dean Foods, quietly removed the word “organic” from the familiar blue cartons Jan. 15 and switched to cheaper beans — not genetically modified but likely grown with chemical fertilizer and possibly pesticide — then called it “all natural” soy milk. Dean did not change the product’s identifying bar code or package design, nor did it significantly alter the price — moves that would have triggered scrutiny by store owners, some of whom now feel duped. A number of other Silk products were similarly changed from organic without a new bar code, Dean confirmed.
…Also, on-organic varieties are considerably cheaper. Soybeans that haven’t been genetically modified cost $11 to $12.50 a bushel compared with $19 for organic beans, according to Ken Rose, editor of The Organic & Non-GMO Report. That works out to a savings for Dean of 34 percent to 42 percent.
Americans are in love with soy, but not in the soy milk sipping, tofu stir-frying way you might think. Soy is ubiquitous in our food supply. In 2008, 70 percent of the edible oil consumed in the U.S. was soy, according to soystats.com, funded by national and state soy trade associations, Canola lags way behind at 9 percent, and healthful olive oil doesn’t even merit its own category. It’s presumably lumped in with “other,” which makes up 2 percent of the market.
If you haven’t noticed bottles of soybean oil next to the canola and olive in the grocery aisle, that’s because the stuff is starring in processed foods, salad dressings and margarine, acting under its own name — soybean oil — or masquerading with its extended family of soy meal and soy isolates under such names as lecithin, glycine max, hydrolyzed vegetable protein (HVP), mono-diglyceride, monosodium glutamate and tocopherol. The latter is the non trans-fat oil used in some natural baked goods to extend shelf life; soy oil also appears in supplements such as vitamin E and fish oil.
“Soy is so pervasive in our diet,” says Robyn O’Brien, Boulder author of the “The Unhealthy Truth: How Our Food Is Making Us Sick and What We Can Do About It.” She lists soy’s many guises as an additive and shelf stabilizer and makes even a more stunning point — it’s also fed to poultry and livestock. Is soy healthful? So what’s the big deal? Soy’s good for you, right? Depends on whom you ask and what data you look at. Those seeking to avoid chemicals and genetically modified organisms (GMOs) should also take a look at how soy is grown and processed.
….O’Brien says the United States has taken a different approach to the food supply than have many other developed countries. “Governments around the world (conclude) if we don’t have enough tests to know it is safe, we don’t want to allow it into our food supply,” she says. In the United States, the system is more innocent until proven guilty. “I think in part it’s because we’ve deregulated the food system in a way that really benefits corporate interests and drives profitability,” O’Brien says. “I think we’ve seen what happens in the financial world when the banking industry is deregulated. We’ve had such an incredible deregulation of the food system, we’re starting to see the same toxic assets in the food supply.
…After two years of losses, Clinton-based Coharie and three smaller North Carolina pork producers recently declared bankruptcy, causing scores of grain and hog farmers to lose once-stable contracts to raise hogs. Many hog farmers fear that other companies could go under or greatly reduce their contracts, further damaging the hog-dependent Eastern North Carolina economy.
The average cost of raising a hog is now $20 more than the hog is worth at sale, thanks to high grain prices and weak demand, said Don Butler, the president of the National Pork Producers Council, who works for Murphy-Brown, a Warsaw hog and turkey company….North Carolina has the second-largest hog industry in the country. The $2.2 billion in 2008 cash receipts was 22 percent of all cash receipts from farming in the state, according to the state’s Agriculture Department. The industry’s problems are complicated, with blame attributed to the net effect of high grain prices, less consumer demand for pork and the emergence this April of H1N1, also known as swine flu….
…With the best of the crop off to market, growers say this year it’s cheaper to leave leftovers on the trees than to pick and sell them for juice….One reason is an abundant crop, not only in New York but in neighboring Pennsylvania and nearby Michigan, which has produced more second-tier fruit than juice and applesauce makers need and driven down market prices. When labor and transportation costs are factored in, selling anything but the cream of the crop for the supermarket can become a losing proposition….The difference in prices is the biggest one-year swing some have ever seen.
Last year, growers hurt by severe hailstorms were getting an above-average 12-18 cents per pound for processing apples, those sold for sauce and slices. The price is about 5-8 cents this year. Juice apples, including drops, brought 7 or 8 cents a pound last year, compared with 3 or 4 cents this year, and there are so many of them that juicers aren’t even buying drops, Kirby said…
U.S. residents are wasting food like never before. While many Americans feast on turkey and all the fixings today, a new study finds food waste per person has shot up 50 percent since 1974. Some 1,400 calories worth of food is discarded per person each day, which adds up to 150 trillion calories a year.
The study finds that about 40 percent of all the food produced in the United States is tossed out. Meanwhile, while some have plenty of food to spare, a recent report by the Department of Agriculture finds the number of U.S. homes lacking “food security,” meaning their eating habits were disrupted for lack of money, rose from 4.7 million in 2007 to 6.7 million last year. About 1 billion people worldwide don’t have enough to eat, according to the World Food Program….
A Letter to AgWeek:
Farmers have lavish crop subsidies
Taxpayers have a right to know how Congress has lavished the American farmer with federal crop insurance premium subsidies totaling $5.410 billion for the 2009 crop, paying about 60 percent of the farmers’ premiums, while providing huge “administrative margins” and “underwriting gains” of $5.262 billion in crop year 2008 for their insurance company friends and agents. All to reward these titled “crop insurance companies,” which have transferred most of the risk to taxpayers and the financial gains to themselves, while ignoring the fact that farmers have enjoyed record crop prices and could pay their own premiums.
Today’s high crop prices and hidden political governance has driven USDA-insured crop income exposure from $44 billion in 2005 to $90 billion in 2008. Leaving taxpayers with the bill for insuring the 2008 crop at a stunning $9.233 billion, compared to $2.587 billion for the 2005 crop, all in a period of good farm yields and record farm income and farm net worth.
The “farmers premium subsidies” jumped from $2.337 billion in 2005 to insure 246 million acres to $5.696 billion in 2008 to insure 272 million acres. Crop insurance costs now run above $15 billion, which is as high or higher than the present traditional “direct crop subsidy payments” debated for two years in Congress, which both President Bush and President Obama called for cuts!
The House and Senate Ag Committees told taxpayers they had soundly budgeted the farm bill, where $22 billion is documented as the five-year cost of federal crop insurance for the 2008 Farm Act. Which means only $7 billion remains for the next three crops. What will Congress and the administration cut, is the question taxpayers deserve answers on today. All as 47 million Americans have no health insurance, while farmers have super federal insurance coverage for their crops!
Sometimes it’s nice to revisit your old hangouts and reminisce. Investors in first-generation corn ethanol producers, however, just wish they could revisit their money. The three publicly traded refiners we’ve been tracking over the past 18 months are moribund. Two—VeraSun Energy Corp. and Aventine Renewable Energy Holdings, Inc.—are bankrupt. The other, Pacific Ethanol, Inc., is solvent in name only; its four operating subsidiaries have all filed Chapter 11 petitions, while the holding company stares at the prospect of standing before the bankruptcy bench itself. So what happened?…
Global Energy Holdings Inc. announced Wednesday it has filed for Chapter 11 bankruptcy protection in Delaware to restructure its operations as it moves away from ethanol production to biomass power. The Atlanta-based renewable energy producer said in a regulatory filing that the restructuring effort will allow it to remain in business as it sheds it legacy ethanol business and refocuses on “landfill gas-to-energy projects.” The Associated Press reported the firm estimated $28 million in assets, and liabilities of about $3.7 million….
Two years ago, Congress ordered the nation’s gasoline refiners to do something that is turning out to be mathematically impossible. To please the farm lobby and to help wean the nation off oil, Congress mandated that refiners blend a rising volume of ethanol and other biofuels into gasoline. They are supposed to use at least 15 billion gallons of biofuels by 2012, up from less than seven billion gallons in 2007. But nobody at the time counted on fuel demand falling in the United States, which is what has happened during the recession. And that decline could well continue, as cars become more efficient under other recent government mandates….E85 does not make economic sense for drivers, and most of them use regular gasoline in their flex-fuel cars.
That means gasoline stations have little incentive to install pumps for E85. The fuel can be found in the Corn Belt but is not readily available elsewhere in the country. Gasoline was selling on average Thursday for $2.63 a gallon, while E85 was selling for $2.23 a gallon. That might make E85 sound like a bargain, but cars go fewer miles on a gallon of ethanol than of gasoline. Adjusted for that factor, E85 on Thursday was effectively 31 cents a gallon more expensive than gasoline…
In two short years, the hopes for next-generation biofuels have gone from bright to downright gloomy. production won’t come close to that modest 100 million-gallon mandate next year, and the 250 million-gallon target for 2011 is a mirage as well. By 2012, when the mandate reaches 500 million gallons, some of the earliest plants may be just coming on line — if the projects finally get started over the coming year. Developers are struggling to get the capital to start construction. The recession has played a big role in discouraging investors. Federal tax credits have little attraction to investors who have little income to be taxed in the first place.
But industry officials, who gathered in Washington last week for an annual cellulosic biofuels conference, also are pointing the finger at the federal government, complaining that the requirements for federal loan guarantees are impossible to meet. These next-generation biofuels plants will cost at least four to five times as much to build as a conventional corn ethanol plant. Two departments, Energy and Agriculture, offer loan guarantees for advanced biofuels, but neither is doing much business….
The value of the U.S. dollar hovered at 500 Chilean pesos this week, a 30 percent decline over the year that is creating tremendous worries for business leaders in Chile’s export-based economy. Most of Chile’s top export products – copper, forestry products, wine, salmon and fruit – are paid for in dollars because the U.S. has traditionally been the leading destination for the nation’s exports (although China has taken this honor in recent years, at least for mining exports). A weak or low-valued dollar means reduced profits for Chilean export businesses because most overhead is paid in the (now) high-valued peso. So when the value of the U.S. dollar dropped below 490 Chilean pesos on November 18, Chile’s fresh fruit exporters gave a collective cry of alarm…
As food inflation for the week touched 16% — the first time since 1998 — on Thursday, the UPA government, particularly food minister Sharad Pawar came under intesense attack in the Lok Sabha. Participating in the debate on spiralling prices, speaker after speaker laid the blame of faulty food management at Mr Pawar’s doorsteps. The issue brought together adversaries like the Left parties, the BJP, the Samajwadi Party, Bahujan Samaj Party and the Rashtriya Lok Dal.
Rajiv Ranjan Singh and Murli Manohar Joshi, who sponsored the motion, alleged that the government was “ignoring the farming community and deliberately not allowing the country to be self-sufficient” in food. Mr Joshi said the model of industrial agriculture and globalised trade on food were responsible for the hunger and indebtedness of farmers. “You are putting at stake our sovereignty by continuously making the country dependent on food import.Wake up, Mr Agriculture Minister. Be courageous and tell your government that your policies are wrong,” he said….
Crop prices are enjoying a nice run.
% Chg % Chg % Chg
1 Month 3 Month 12 Months
Wheat +13% +27% +1%
Corn -7% +10% +17%
Soybeans +3% -6% +26%
Source: Thomson Reuters
”Just like in any commodity market, there has been a lot of institutional money that’s come into the [ag commodities] market,” says Renatto Barbieri, portfolio manager at Galtere International Fund. ”And it’s not focusing on fundamentals.” The result has been a huge spike in the asset prices of several of these commodities — although the various commodities themselves haven’t moved in lockstep. Corn prices have risen 17% since Thanksgiving 2008, including a more than 10% rise since this year’s Labor Day.
Soybeans have bulged nearly 26% since last Thanksgiving. And wheat has jumped 27% since the start of September 2009, having gained a whopping 13% in just the last month. From a fundamental standpoint, Gidel says, the commodities market is seeing its second consecutive bumper crop of wheat. There have been record or near-record harvests of other ag commodities, as well, including both corn and soybeans. At a time when products like wheat ought to be effectively on their knees, they’ve seen those dramatic price increases.
The culprit, of course, has been the weak dollar. ”The attitude has been that, since the dollar is going to be weak, and there’s all kinds of extra dollars pumped into the economy, that’ll create an inflation bubble,” Gidel says…
Soybeans are the hot commodity these days in the grain pits, with new recent highs this week putting the spotlight on the soybeans. Corn and wheat are struggling a little more as their export market is not very alive at all. But soybeans – ah, soybeans, – they have an export market that is red-hot right now. Export sales and shipments of 50 mb/week continue to rack up strong export demand for this commodity, with China leading the way buying 50-65% of these exports every week…
Monsanto is the largest seed company in the world. It controls 95 percent of the market for Bt and Ht cotton traits. In 2008, Monsanto had shares of up to 65 percent for traited corn and soybeans and about 45 percent for traited corn. During the late 1990s and through the 2000s, Monsanto acquired almost 40 companies “creating the horizontal and vertical integration that underlies the firm’s platforms in cotton, corn, and soybeans,” according to a whitepaper by American Antitrust Institute’s vice president and senior fellow, Diana Moss. Most of the acquisitions were seed companies.
The whitepaper cites a report by the Government Accounting Office (GAO), which noted that Monsanto’s U.S. patents for Roundup Ready soybean seeds give it power over the seed market. It also points out that during the years 2002 to 2009 there were almost 60 patent infringement and antitrust court cases in federal district and appeals court. Almost 55 percent involve Monsanto as the plaintiff, and 20 percent as the defendant. This amounts to three-quarters of all the cases. “The lack of competition and innovation in the marketplace has reduced farmers’ choices and enabled Monsanto to raise prices unencumbered,” said Keith Mudd from the Organization for Competitive Markets, after Monsanto decided to raise some GM maize seed prices by 35 percent.
Origin Agritech Ltd., China’s third- biggest seed producer, more than doubled in Nasdaq trading after the company won approval to sell the nation’s first genetically modified corn seed….
A 30% reduction in livestock in high-producing countries is needed to meet climate change targets, says the document. The report calls on health ministers and professionals across the world to recognise the danger that climate change poses to health. A reduction in livestock numbers that led to reduced meat consumption would have positive effects on human health, it states…
…Virginia Tech scientists announced this week that they have secured funding to complete the genetic map of Meleagris gallopavo, the domesticated turkey. The U.S. Department of Agriculture has awarded a two-year, $908,000 grant to Tech and the University of Minnesota to finish decoding the turkey, one of a few species to be mapped at the genetic level. Turkeys are the fourth-leading source of meat on dinner tables. Cows, chickens and pigs have been genetically catalogued…
An international research team that included Iowa State University professors announced this month that it had completed a five-year program to chart the genetic code of a pig. The map of the estimated 28,000 genes in a pig could enable breeders to better develop pigs that grow faster with less feed, are less prone to disease, have juicier and tastier meat, and even produce less manure. The pig now joins other genetically scoped-out species such as human beings (2001), cows and chickens (2004) and horses (2008)…
This Thanksgiving, much attention has been paid to how your bird was raised, but how about the manner in which it was killed? The head meat buyer at Whole Foods, Theo Weening, made public the company’s effort to collaborate with both USDA and state regulatory agencies to develop certifiable mobile slaughterhouses for poultry. Before claiming a victory for the locavore movement, one has to ask, is this good news for family farmers?
First, understand that Whole Foods mobile units are a long way off. To begin with, the company must wade through USDA bureaucracy and has yet to identify an authority to approve a mobile poultry slaughter and processing facility. Whole Foods aims to overcome a barrier – the dearth of slaughterhouses – to a meet customer demand for local food products….
A Chicken Bus and Other Lovely Portents of the Future
by Gene Logsdon
Returning home from a new farmers’ market in Wooster, Ohio last Saturday (Nov. 21), I passed a scene in a farm field that might have said more about where farming is headed than any economist’s prediction I have seen lately. Out in a clover field stood a big yellow school bus full of chickens [not the one shown above]. Actually the chickens were mostly scampering in the pasture or running up and down the ramp that led into the bus. We all know about chicken tractors, but this is the first chicken bus I’ve seen. I didn’t have time to stop and check it out but I presume that when the henhouse needs to be moved to another spot in the field, or wherever, the farmer just drives it. The world’s first self-propelled chicken coop. If the motor is no longer running, one can hitch a tractor to it. Easier than pulling a coop on skids, I’d think…