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  The House of Representatives had already passed a stand-alone bill that repealed the COOL laws last summer.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.

LATEST AG NEWS JULY 31 2015

CORN: $149.67 mt

Soybeans:  $344.67 mt

Milk: $0.36 liter

Beef:  $3.31 kg live weight

QUICK TAKE AWAY:  The warm weather and ideal growing conditions across the US in the past 2 weeks are driving crop prices down down down.  Corn went below its 50% retracement level from its previous high.  Reports are coming in from all over the US corn belt of potential record yields.  Same for soybeans.  Hot weather made everything grow and mature. 

Look for further declines in corn and soybean prices.  And wheat is falling completely out of bed.  Record yields in the northern wheat belt will continue to drive wheat prices lower.

Avian flu continues to scare everyone to death.  No one can agree on a vaccine to prevent the disease.  On the one hand, a vaccine might prevent another devastating outbreak this fall when the migratory birds travel south from Canada to Mexico.  On the other hand, a national vaccination program could severely curtail US chicken exports to countries that will not allow in US chicken meat if its vaccinated. 

$3.3 BILLION in losses so far.  And that does not include the $500 million that USDA has spent to control the disease and euthanize birds this year alone.  More to follow.

US milk markets remain stubbornly resistant to the world price collapse.  Farm gate milk prices have suffered, but class III futures prices remain stuck in the $16 range for the current and future months.  Butter continues to support the US market, but USDA predictions this week are for 12 months of excessive supply, at least.

Cattle prices hit their seasonal lows, both fats and feeders.  The semi-annual cattle on feed report showed record heifer numbers added to the breeding herd for expansion, 7%.  But we are at least 24 months away from any measurable increase in cattle numbers caused by this heifer expansion.  But it will come.

Oil continues cheap.  Gasoline prices are declining across the US which is unusual for the summer driving season.  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.  Fortunately, slaughter prices are high or springer prices would go even lower.

One notable exception is the price for baby BULL calves.  This price has declined by at least 50% since mid-July.  The high was over $700 and this week a good supply of bull calves was available for $350-400. 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.