Professor Brown's Latest Ag News January 3 2016

Latest Ag News January 3, 2016

Quick Take Away

Things are quiet and boring in the grain markets here in the USA.  The big action has been the weather, which has been incredibly wet, and the cattle markets which have been all over the board and making a few historic moves.

First, the boring stuff.  Corn and beans continue to move sideways or lower.  Ample stocks everywhere in the USA and abroad are going to keep prices low for a long time.  Oil is still plentiful and cheap.  For the first time in the past 40 years, the USA actually EXPORTED  crude oil out of the country.  Look for this trend to continue as we are basically over filled to capacity with our available storage for crude oil in the USA and desperately need the storage space that these oil exports will open up.

When reading the news, I always find it more informative to look for the TRENDS in the news coverage more so than what is actually being SAID in the news.   Look for something that is being covered or mentioned for the first time if you really want to understand which way things are headed.   Case in point:  Crop prices.  This past week, for the first time in forever, I noticed that two separate crop price gurus mentioned the possibility of the corn price going as low as two dollars per bushel , maybe into the two dollar range. 

That’s crazy stuff and a real huge problem  for the whole agriculture industry.  Farmers can’t make money with that low price, and for sure when the farmers run out of money the all the supply industries are going to suffer big time also.  John Deere, Case, Syngenta, Pioneer, Monsanto and right down the line are going to take huge hits.

In that same vein, farm land prices continue to decrease also.   Reports of 4% decrease in Iowa, which has the best farm ground in the USA, are the harbingers of things to come.  And as land prices decrease, the poor guy trying to grow corn just loses more equity which adds fuel to the fire of his financial meltdown.

Really, it’s a big mess.  Just ask some Agriculture bankers.  Reports are streaming in of banks tightening credit just when farmers are needing a lifeline.  Same old story, same old song and dance.

Now to the big news!  I mean, what the heck is going on here?  The cattle markets got turned on their head this week.  Two major events cause all the disruption.  First, the wet weather.  As you know, we feed cattle outside here in the USA in large feedlots that typically can hold 50,000 or 100,000 head of cattle at a time.  This system works fine most of the time except in wet weather, which causes everything to turn to mud.  So the cattle end up not gaining weight because they burn up all their calories just trying to negotiate the trip to the feed bunk through all that mud.  If you combine the mud with cold wet weather, you have a double whammy.  The animals just cant gain weight like they are programmed to do.

This wet weather caused the second problem that tipped everything upside down and that was that in the week of December 18^th, slaughter cattle averaged 10 pounds LESS than the previous week.   That is a huge number in the USA, and if you multiply 10 pounds across all slaughter cattle currently in feed yards, the decrease in meat volume is huge.  One day last week, fat cattle were actually up 12 cents a pound in a single day.  Of course, feeder cattle have followed this trend up and have gained about 10% in the past 2 weeks.

It nuts.  On one hand, tens of thousands of fat cattle are hitting the slaughter plants and posting a $700 per head LOSS,  but on the other hand we are seeing some historical daily gains in the market.

Nothing is for sure yet, but it looks like the cattle market has turned around and that fat cattle and feeder cattle have bottomed out and are heading back towards profitability.

Everything else has been fairly quiet over the holidays.  Tune in again next week for another episode and as always, this has been brought to you by Breedex USA, your source for export of quality beef and dairy genetics!

Professor Brown Latest Ag News December 13, 2015

Latest Ag News December 13, 2015

QUICK TAKE AWAY

 Two big events this week in the agriculture world. 

 First, the World Trade Court handed down  its final decision regarding USA Country of Origin Labeling laws.  The USA lost big time.  Canada and Mexico were awarded one billion dollars in retaliatory tariffs.  That means that COOL laws in the USA are now dead.  The House of Representatives had already passed a stand-alone bill that repealed the COOL laws last summer.  Now the US Senate will also include language to repeal COOL in its omnibus spending bill, which of course will be signed by President Obama.  Cool is dead.

Second big news is that  the Environmental Protection Agency finally released its rules for the Renewable Fuels Standard for 2015 and 2016, after a delay of OVER 12 months.  And of course no one is happy because these new rules require that LESS ethanol be blended into gasoline than was previously required by Congress.  But also, it still requires that MORE ethanol be blended into gasoline than consumer groups and the gasoline industry think is economically viable.  Further, the bio-diesel lobby doesn’t think there is a big enough mandate to make the bio-diesel industry profitable.  It sucks for everyone, but at least after a 12 month delay we have a standard.

Oil is the other big news.  It looks like we are headed for a general oil price collapse towards US$20 per barrel.  Just one year ago, a few brave souls were predicting this but of course those poor souls were subjected to vicious ridicule in the financial press.  Today, even the major banks like JP Morgan are calling for a $20 per barrel bottom in this market.  And the US shale industry has NOT curbed production and drilling by any measure that equates to the same drop in price.

Oil is going to get cheaper.  And cheap oil means cheap corn and soybeans.   Which then turns into cheap meat and milk.

Crop prices traded sideways this week, and cattle prices were slightly lower than last week.  Slaughter weights remain high for both beef and pork, which means we have lots of extra meat on the market, competing for the consumers’ dollar.

One interesting report from CattleFax this week showed that beef heifer and cow slaughter is way down from last year.  This translates into more heifer retention on the farm.  CattleFax says that meat production will be down by 220 million pounds in 2015 because of heifer retention.  But this will turn into an INCREASE of 870 million pounds for 2016 when these heifers start to produce calves that will come to the market.

I know, its confusing.  The January USDA report should clear up a lot of questions.

That’s it for this week, feel free to email me or post any questions, comments or blistering criticisms.  Brought to you by BreedexUSA LC, your source.

Professor Brown Latest Ag News December 7

LATEST AG NEWS December 7 2015

CORN: $144.57 mt

Soybeans:  $323.40 mt

Milk: $0.32

Beef:  $2.67 kg live weight

Feeder Cattle (300 kgs):  $3.42 kg live weight

QUICK TAKE AWAY:  Everything is getting cheaper in the US.  The USDA November crop report came out and confirmed the old saying here that “Big crops get Bigger”.  Corn and beans were both outside of the high end of professional estimates, confirming what farmers already knew, that the US had a great year for crop production in spite of weather problems.  And cheap corn makes cheap meat and milk.

Combine this with cheap oil, historically low gas and diesel prices, and it looks like all farm commodity prices will stay low for the next several years.

The US now has low unemployment and a strong economy, which means the Federal Reserve Bank (which sets USA interest rates) will start to raise interest rates by ¼ percent increments, starting in December of 2015.  For sure, the US dollar will get stronger and other currencies will depreciate in dollar terms.  Probably the Federal Reserve will raise interest rates four times in 2016.  That translates into an increase from zero since 2008 to 2.25% by December 2016.

Look for corn and bean prices to stabilize.  Prices are already below the cost of production for all commodities: Corn, soybeans, beef, milk, pork.  We are now seeing some farmers being forced out of business as the production cycle works its way back toward higher prices.

Avian flu failed to make its dreaded reappearance this fall when the migratory birds headed south for the winter.  Temporary easy breathing across the poultry meat and egg business.  Watch for updates as we near spring and the infected birds head back north.

US milk markets remain in the doldrums.  Production is constant across all regions and cheap feed discourages culling.  The next 12 months appear to be more of the same.

Cattle prices continue to move sideways.  Reports of fat cattle losing over $600.00 per head at slaughter are common.  Lots of cattle feeders bought expensive feeder cattle and now can’t turn them into the profit they anticipated.  One side effect is that the expansion of the cattle herd in the USA has stopped, as farmers are not retaining heifers for breeding purposes.  These heifers are now going into the feeding pens for slaughter.

Look for feeder cattle prices to increase at some point in the next 6 months.

Oil continues cheap.  Gasoline prices are at historic lows with no predicdtion for future increases.  Seriously, the USA could see cheap gasoline and diesel for at least the next 12 months.  That means pressure on the ethanol price, which in turn puts downward pressure on corn prices.  No one in the ag media really wants to talk about how low corn prices will go, because that is not what their readers want to hear.  But nothing on the near term horizon points to a higher corn price.  And the news about the huge unsold Chinese corn stocks in storage removes another possible support for corn.  This could get ugly.

Dairy cattle prices remain steady, with springer heifers selling for about the same price for slaughter or milk production. 

One notable exception is the price for baby BULL calves.  This price has declined by at least 70% since mid-July.  The high was over $700 and this week a good supply of bull calves was available for $150-200. This is a reflection of lower feeder cattle prices and also a reflection of one major buyer having financial issues and being forced to leave the market.  Heifer calf prices remain constant in the $350-400 range.

Crisis in Country of Origin Labeling dispute: Update September 17, 2015

The arguments are finished for the hearing between the USA versus Canada and Mexico on COOL issues.  Short answer:  The arbitration panel indicated that it would have a decision by late November.  

The issue is the amount of damages.  Canada and Mexico claim US$3.1 billion.  USA claims US$100 MILLION, plus or minus.  That's 30 times LESS than Canada/Mexico.

The arbitration panel can decide on the low amount or the high amount or anything in between.

The decision is binding on both parties, with no appeal possible.

The arbitrator then makes a recommendation to the Dispute Settlement Body (DSB) regarding penalties.  The DSB can then require penalties or decide not to accept the recommendation.  See below: from this link  http://www.ictsd.org/bridges-news/bridges/news/wto-arbitration-in-country-of-origin-labelling-case-gets-underway

Next steps

At the end of the hearing on Wednesday, the arbitrator indicated that its decision is scheduled for late November.

According to WTO rules, the parties must accept the arbitrator's decision as final and cannot seek a second arbitration.

The DSB shall then be informed of the arbitrator’s decision and shall upon request, grant authorisation to suspend concessions or other obligations in line with that decision, unless the Dispute Settlement Body decides by consensus to reject this request.

More to follow.  Tomorrow I will speak directly again with the office of US Senator Debbie Stabenow, who is the ranking member on the Senate Agriculture Committee.  She is not in favor of repealing COOL laws.

Update on Country Of Origin Labeling by Professor Brown

PROFESSOR BROWN UPDATE ON COUNTRY OF ORIGIN LABELING CRISIS

Quick Take Away:  Its back to court for the whole issue.  30 TIMES  MORE than ACTUAL damages:  That’s what the USA is saying about the claims of Canada and Mexico of $3 BILLION in economic damages.   USA says its more like $90 MILLION in damages, MAYBE.  Looks like a major difference of opinion that will keep this tied up in court for a long long long time.

Status:  There are two bills in the US Senate that have been proposed to deal with COOL.  One (The Roberts Bill) has the support of the meat packers industry and the other (The Stabenow-Hoeven Bill) has the support of consumer groups.

The first bill, proposed by Senator Roberts, would repeal COOL completely. This bill was proposed as an amendment to a Senate transportation bill.  The bill DID NOT have enough support to even come to a vote on the floor.  So it is dead.  No more possibility here.  Further, the bill was proposed as an amendment to a long-term transportation bill that had ZERO  chance of passage in the House of Representatives, so it was a non-starter from the beginning.

The second bill proposed by Senators Stabenow and Hoeven is a stand alone bill with support from both Republicans and Democrats.  This bill proposes a repeal of the current COOL law and replaces it with a VOLUNTARY COOL law.  While consumer groups support this, Canada, Mexico, the meat packing industry and other farm groups strongly OPPOSE this approach.

Political note:  The major damages claimed against the USA are from Canada.  These damages are from the WESTERN (Alberta, Saskatchewan, British Columbia) provinces, and are not an EASTERN (Ontario, Quebec) political priority.  Canada has recently called elections and its not probable that a new government is going to immediately go to war with the their largest trading partner (the USA) over something that is not important to a majority of the electorate.

CONCLUSION:  There is no conclusion, as this whole issue is way up in the air, and now that its back in the World Trade Court for further litigation, no one has any incentive to change anything.