Adjusting Reference Prices for Crops Based on Changes in Cost of Production

Former RMA administrator urges more funding for the agency

•

June 08, 2023 05:43 AM

Former RMA administrator urges more funding for the agency

In Today’s Digital Newspaper

Abbreviated report today as I am in Naples, Florida, to speak at the 86^th annual convention of the Cotton Warehouse Association of America.

— U.S. equities on Wednesday: The Dow ended up 91.74 points, 0.22%, at 33,665.02 The Nasdaq declined 171.52 points, 1.29%, at 13,104.89. The S&P 500 was down 16.33 points, 0.38%, at 4,267.52.

— Agriculture markets yesterday:

Corn: July corn fell 3 3/4 cents to $6.04 1/4, near the session low.
Soy complex: July soybeans rose 7 1/2 cents to $13.60 3/4 and near mid-range. Prices hit a two-week high early on. July soybean meal gained $8.50 to $405.20 and near the session high. July bean oil fell 45 points at 50.47 cents, near the session low and hit a three-week high early on.
Wheat: July SRW futures fell 11 cents to $6.16 3/4, ending the day near the session low. July HRW futures lead the complex lower, falling 32 1/4 cents to $7.88, near the session low., while July spring wheat fell 22 1/2 cents to $7.94.
Cotton: July cotton fell 33 points at 85.01cents today, ending near the session high, while December cotton fell 55 points to 81.23 cents
Cattle: Cattle futures surged to fresh records in early Wednesday trading but turned lower by the close. The expiring June contract settled down 82.5 cents at $179.00, while most-active August tumbled $2.30 to $173.20. Nearby August feeder futures plunged $4.15 to $239.10.
Hogs: August lean hog futures fell $1.4 and settled at $83.1, while expiring June futures fell 60 cents to $87.70.

Adjusting reference prices for crops based on changes in the cost of production. Dr. Bart Fischer, writing in Southern Agriculture Today (link), writes about a topic that is very important going into the key debate about a new farm bill and the need to update Title 1. Fischer’s main points are:

Corn, soybeans, and wheat account for 85% of the base acres nationwide, which means decisions made for these three crops will greatly impact spending in Title 1 of the farm bill.
Policymakers should consider the unique risk profiles of each crop and the opinions of farmers instead of making across-the-board adjustments in the farm safety net.
The cost of production is a proper metric for determining reference prices as it relates to the key objective of the farm safety net in Title 1.
Many farmers feel that the Title 1 safety net has not kept up with the increasing cost of doing business.
The recent comparison of corn and rice in the article is not meant to imply that corn, soybean, or wheat producers don’t need reference price increases.
Data from USDA-ERS shows an increase in the average cost of production for corn, soybeans, and wheat between the base periods, and regional variations must be considered.

Ultimately, the author believes that corn, soybean, and wheat producers are justified in requesting reference price increases, with a stronger sense of urgency depending on the region.

Bottom line, according to Dr. Fischer: “Corn, soybean, and wheat producers are absolutely justified in requesting Reference Price increases. Depending on the region in which you produce, the sense of urgency may be even greater.”

Figure 1. Percent Change in Cost of Production by Region, 2020-2022 versus 2012-2014.

Source: Author calculations of USDA-ERS Commodity Costs and Returns data.

NOTE: for assistance in deciphering the regions, see this map.

I recommend signing up for Southern Ag Today at this link.

Wait…there’s more: Several state corn grower groups representation about 25% of corn production have written the House and Senate Ag Committee urging an updated reference price.

— Former RMS administrator urges more funding for the agency. In a Senate Budget Committee hearing titled “Cultivating Stewardship: Examining the Changing Agricultural Landscape,” Brandon Willis, a former administrator of the Agriculture Department’s Risk Management Agency (RMA), advocated for increased funding for the agency. Willis, who is currently an assistant professor at Utah State University and runs an insurance agency, highlighted the importance of hiring and retaining skilled staff to manage the complex insurance products offered by the Federal Crop Insurance Program, now USDA’s second-largest program.

Willis praised the team overseeing the program but emphasized that stagnant funding might make it difficult for RMA to ensure proper oversight and adapt to climate-related challenges. He argued that investing more in the agency would be a wiser decision, as it could help prevent the need for ad hoc disaster interventions by Congress, ultimately saving both time and money.

— Bond yields rise. Government bond yields around the world rose as investors anticipate that interest rates will remain elevated due to high inflation pressures. Both the Reserve Bank of Australia and the Bank of Canada surprised with a 25bps interest rate increase this week, after a pause in the previous meetings. Also, the ECB is set to rise the borrowing cost next week while the Federal Reserve is expected to deliver another hike by July, which traders expect to be the last interest-rate hike in 2023.

— Efforts to rescue those endangered by the destruction of the Nova Khakovka dam, located in a Russian-controlled area of south-east Ukraine, continued. Ukrainian officials reported that 29 towns and villages had been flooded, leaving people stranded on their rooftops and without drinking water. Authorities say at least 40,000 people must be evacuated. Russia and Ukraine each blame the other for the blast. Though it is too early to assess the long-term damage, officials are concerned about homelessness, crop failure, energy shortages and displaced landmines. At least three people have died, according to local media.

— Germany blamed Russian President Vladimir Putin for the destruction of the Nova Khakovka dam in Ukraine, and was joined by other European NATO members in denouncing it as a “war crime.” The statements added to rising outcry over the biggest man-made disaster in Europe in decades as Ukraine said it was mounting rescue efforts for tens of thousands of people affected by the floodwaters unleashed by the demolition of the dam on Tuesday. The Kremlin denied responsibility and said Ukraine was behind the breach at the Kakhova hydroelectric plant.

— Japan revised up its annualized first-quarter GDP growth to 2.7% from 1.6% as businesses ramped up spending. Economists expected an expansion of 1.9%. Meanwhile, BOJ watchers scaled back forecasts for policy adjustments, with only a few predicting a tightening move this month.

— The economy of the Eurozone shrank by 0.1% in the first quarter of 2023, according to downwardly revised data released on Thursday. That puts the currency area into a recession, defined as two consecutive quarters of negative growth. But the downturn is unlikely to last too long: the European Commission forecasts that the region’s GDP will expand by 1.1% this year.

— Wildfire smoke blanketed North America, generating health alerts from Ontario to South Carolina. New York had the worst air quality of any major city in the world, with some inbound flights disrupted. Almost 4 million hectares (9,884,215 acres) of forests have burned in Canada, with over 400 blazes now active.

— U.S. West Coast shipping gateways are experiencing the longest labor-related disruptions since 2015 due to ongoing negotiations between port employers and dockworkers. A central point of contention is how to allocate carriers’ pandemic-era profits in a market with rock-bottom freight rates. The previous labor contract expired in July 2022, and negotiations between the International Longshoremen and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) have been ongoing since May 2022.

Despite largely peaceful negotiations, labor shortages and other disruptions are becoming more frequent, affecting terminals in Seattle, Los Angeles, and Oakland. Cargo flows have been disrupted with some container vessels experiencing cancellations or delays.

A primary issue is the ILWU’s demand for a $7.50 per hour wage increase for each year of the proposed contract, amounting to a nearly 100% raise in dockworker wages over the six-year agreement. Carriers are also concerned about the ILWU’s request for pay increases to be retroactive to July 1, 2022.

The White House has been monitoring the situation but has chosen not to intervene, hoping the two sides can reach an agreement through collective bargaining. Shipping bottlenecks seem to be resolving, but the issue has put extra pressure on retailers and alternative trade routes such as the Panama Canal. Some cargo owners are diverting shipments to East and Gulf coast ports to avoid labor disruptions, resulting in capacity constraints and rising fees at the Panama Canal.

— A recent European Council of Foreign Relations poll has found that most Europeans view China as an important economic partner, despite acknowledging potential limitations in the partnership. Of those surveyed, 46% saw China as an ally or necessary partner, in contrast with only 35% regarding Beijing as a rival or adversary. Europeans expressed concerns over some of the country’s economic practices. Despite European Commission President Ursula von der Leyen’s suggestion for nations to reduce risks related to China, public opinion appears not to support a pullback from the relationship. Instead, the EU member states seem to gravitate toward French President Emmanuel Macron’s vision of China as a strategic and global partner.

— The National Pork Producers Council (NPPC) held a policy panel at the 2023 World Pork Expo to discuss critical priorities for the pork industry which include advocating for public policy, expanding exports, and protecting animals from foreign diseases. Key topics discussed were the prevention of foreign animal diseases, addressing the agricultural labor shortage, and increasing pork exports.

The NPPC emphasized the importance of renewing farm bill programs to manage foreign animal disease risks and protect the U.S. pig herd. Dr. Anna Forseth talked about progress on six priorities for foreign animal disease preparedness, including state and federal response coordination and international trade.

— Republican leaders in America’s House of Representatives cancelled this week’s votes after a two-day standoff with the Freedom Caucus, a group on the party’s right wing. The caucus paralyzed the House, refusing to cede control of the floor in protest at the debt-ceiling deal that Kevin McCarthy, the House speaker, struck with President Joe Biden.

— The National Milk Producers Federation (NMPF) announced Gregg Doud as its new President and CEO, succeeding Jim Mulhern, who will retire at the end of the year. Doud will begin his tenure in September as Chief Operating Officer and take on the President and CEO role upon Mulhern’s retirement.

Doud’s background includes serving as the vice president of global situational awareness and chief economist at Aimpoint Research, a global intelligence firm specializing in agriculture and food. Additionally, he has held multiple roles within the agriculture industry, such as chief agricultural negotiator in the Office of the U.S. Trade Representative under President Donald Trump and president of the Commodity Markets Council.

KEY LINKS

Policy Updates