Ag Processing Inc (AGP), a farmer-owned cooperative involved in the acquisition, processing and marketing of grain products, has agreed to pay a $96,588 civil penalty to the United States for its failure to develop and implement a Facility Response Plan for its soybean processing facility in Mason City, Iowa.
According to an administrative consent agreement filed by EPA Region 7 in Kansas City, Kan., the Agency inspected the Mason City facility in January 2009. The inspection found that although the facility has a documented storage capacity of more than 1 million gallons of soy oil and/or fuel oil (actually 5.6 million gallons of capacity) it had not submitted a Facility Response Plan to EPA, as required by the federal Clean Water Act. The facility also had not developed or implemented a facility response training program or a drill/exercise program, as required by the regulations.
The Mason City AGP facility is located within 300 feet of a perennial stream, Cheslea Creek, which flows through two small lakes, then into Willow Creek and the Winnebago River. Without a Facility Response Plan, the Mason City facility was not adequately prepared for a worst-case discharge to the nearby waters, including potential negative impacts to wetland habitat areas.
AGP’s settlement includes a schedule of steps that the company must take to submit to EPA a Facility Response Plan for the Mason City facility, and an agreement to conduct a revised evaluation of whether a Facility Response Plan is required for its facility in Emmetsburg, Iowa.
EPA’s civil enforcement action is part of the Agency’s efforts in Region 7 (Iowa, Kansas, Missouri, Nebraska and nine tribal nations) to make certain that owners and operators of the largest oil storage facilities—with capacity of 1 million gallons or more—are prepared to respond to worst-case discharges, accidents and emergencies, and to protect sensitive environments that could be threatened by such incidents.
Nebraska Corn Board member elected vice-chair of U.S. Meat Export Federation
Nebraska Corn Board member Mark Jagels, a farmer from Davenport, was elected vice-chair of the U.S. Meat Export Federation (USMEF) at the organization’s recent annual conference in Tucson, Ariz. Jagels served as USMEF secretary/treasurer over the previous year.
“I had a great experience over this past year as an officer for USMEF and am looking forward to continuing to serve,” said Jagels, a fourth generation farmer who lives on the home place that was originally homesteaded in 1885.
“USMEF strives to open markets around the world and increase sales of U.S. pork and beef in those markets,” Jagels said. “Its work is important to the success of Nebraska beef and pork producers, as every pound of meat exported adds value to cattle and hogs. That, in turn, helps ensure good demand for Nebraska corn and distillers grains to be fed to those livestock.”
According to USMEF estimates, so far this year the export value of beef equates to more than $200 per head of each steer and heifer processed. For pork, the export value is $55 for each hog processed.
 |
| U.S. Meat Export Federation officer team for 2011-12 - They are (from left) secretary/treasurer Leann Saunders, president of IMI Global, Inc., of Castle Rock, Colo.; chair-elect Steve Isaf, president of Interra International, Atlanta, Ga.; vice-chair Mark Jagels, a farmer-director of the Nebraska Corn Board from Davenport, Neb., and chair Danita Rodibaugh, a pork producer from Rensselaer, Ind. |
“Mark took his personal interest in expanding U.S. beef and pork exports and looked to be the Nebraska Corn Board’s representative with USMEF several years ago. He’s done an excellent job representing Nebraska producers and producers across the country,” said Don Hutchens, executive director of the Nebraska Corn Board. “A year ago, he became the first Nebraska Corn Board member to serve as an officer on USMEF’s board in 24 years, and we’re glad he has taken on a new role this year.”
The Nebraska Corn Board so strongly believes in USMEF’s mission that it has supported the organization with corn checkoff dollars since USMEF was founded in 1979.
“Nebraska farmers recognized early on the importance of meat exports to the success of the livestock industry and how that impacts the demand for feed corn and the feed ingredient distillers grains,” Jagels said. “When you consider that 95 percent of the world’s population lives outside the United States, and the fact that U.S. producers are so skilled in what they do, it makes sense to look to other countries and grow markets. It’s how we’ll be successful long-term.”
Other officers elected to the USMEF board include Danita Rodibaugh, a pork producer from Rensselaer, Ind., who was chosen as chair; Steve Isaf, president of Interra International, Atlanta, Ga., who was chosen as chair-elect, and Leann Saunders, president of IMI Global, Inc., of Castle Rock, Colo., who was chosen as secretary-treasurer.
USMEF’s Branded Products Promotion Program to Begin New Fiscal Year
While brand names are of increasing importance to global consumers looking for quality and consistency, small companies often have an uphill battle promoting their brand names to international buyers. The USDA’s Branded Products Promotion Program – the red meat portion of which is administered through the U.S. Meat Export Federation (USMEF) – has had success in helping small companies gain entry and establish the identity of their branded products in international markets.
Companies participating in the USMEF Branded Products Promotion Program use their own money, leveraged with matching funds from the program, to develop export markets for their U.S. red meat exports. The 16 companies that participated in the 2010 program exported pork and beef to markets that included Mexico, Japan and Europe, and reported estimated sales valued at $8.6 million (final figures for 2011 are not yet available.) In doing so, the companies exceeded their 2009 sales by 64 percent despite a tough economic climate. Participation in the program is limited to small companies as defined by the Small Business Administration, i.e., eligible companies with 500 or fewer employees, and to producer cooperatives and associations.
Funds from this program can help companies conduct a variety of activities in international markets, including:
- Attend trade fairs and exhibits, including U.S. domestic trade shows with large international attendance
- Offset costs of promotional materials used in connection with a promotion
- Help pay for costs of retail promotions, including fees for chefs, costumes, signs, displays and fees for demonstration staff
- Help cover the cost of seminars, including interpreters, seminar materials, set-up costs/room rental, slides and production
- Translate educational materials such as company brochures and product sheets
- Conduct retail and HRI promotions
USMEF is now accepting applications for its FY12 fiscal year from qualified U.S. companies interested in receiving matching funds to promote their branded U.S. red meat products in international markets.
- Promotions funded under this program must be conducted between Jan. 1 and Dec. 31, 2012. Applications will be accepted as long as funds are available.
- Companies that receive funding from USMEF will be charged a 5 percent administrative fee for participation in the program. The fee is 5 percent of USMEF’s financial contribution to the activity budget.
- USMEF requires a $100 submittal fee to accompany the company's request for funding. If the company completes the contracting process, these funds will be applied toward the 5 percent administrative fee.
The branded program is a small part of the larger coordinated USMEF effort that includes generic funding from USDA’s Market Access and Foreign Market Development programs, private industry funds and funding from the beef, pork, corn and soybean checkoffs to promote international sales of U.S. red meat.
Agriculture Secretary Vilsack in Asia Pacific Region, Announces Investments in International Market Development to Help Sustain Demand for American Agriculture
Agriculture Secretary Tom Vilsack announced today that the U.S. Department of Agriculture (USDA) is investing in approximately 70 U.S. agricultural organizations to help expand commercial export markets for their goods. Vilsack made the announcement during a conference call with reporters from Vietnam, where he is meeting with officials to help strengthen trade relations in the Asia Pacific region.
"Under the Obama Administration, USDA has continued to expand markets for American goods abroad, worked aggressively to break down barriers to trade, and assisted U.S. businesses with the resources needed to reach consumers around the world," said Vilsack. "The funding announced today will ensure that U.S. agriculture remains a bright spot in America's economy and a driving force behind export growth, job creation, and our nation's competitiveness."
USDA's Foreign Agricultural Service (FAS) allocated $213 million for export promotion activities through two USDA international market development programs: the Foreign Market Development Program (FMD) and the Market Access Program (MAP). USDA's international market development programs have had a significant and positive impact on U.S. agricultural exports. An independent study released in 2010 found that for every $1 expended by government and industry on market development, U.S. food and agricultural exports increase by $35.
Currently, the American brand of agriculture is surging in popularity worldwide. Farm exports in fiscal year 2011 reached a record high of $137.4 billion—exceeding past highs by $22.5 billion—and supported 1.15 million jobs here at home. The agricultural trade surplus stands at a record $42.9 billion. USDA also forecasts that new trade agreements with South Korea, Colombia and Panama will add an additional $2.3 billion to the farm economy and support about 20,000 American jobs.
Under FMD, FAS will allocate a total of $29.7 million to 24 trade organizations that represent U.S. agricultural producers. The organizations, which must contribute a minimum 50 percent cost share toward the program, will conduct activities that help maintain or increase demand for U.S. agricultural commodities overseas. Under MAP, FAS will provide $183 million to 67 nonprofit organizations and cooperatives. MAP participants must contribute a minimum 10 percent match for generic marketing and promotion activities and a dollar-for-dollar match for promotion of branded products by small businesses and cooperatives.
In Vietnam today, Vilsack met with representatives from some of the U.S. agricultural organizations benefitting from these programs. He also spoke with Vietnamese officials and talked with students at the Hanoi University of Agriculture. Next he will travel to China as part of the Obama Administration's delegation for the 22nd Joint Commission on Commerce and Trade (JCCT), where he also plans to meet with additional U.S. agricultural organizations benefitting from USDA's international market development efforts.
Farmland Values Continue to Skyrocket
Agricultural land value is soaring in the Midwest, with parts of the region surging 25 percent from last year, according to two recent Federal Reserve surveys. The jump is the highest increase in three decades.
Record farmland prices are also being reported in the northern Plains.
Surveys released by the Kansas City and Chicago Federal Reserves Tuesday find that despite a struggling U.S. housing market, agricultural in their districts is booming. And the run-up in prices may have yet to peak, they said.
"District farmland values surged to a record high in the third quarter," the Kansas City survey said. "Cropland values rose more than 25 percent over the past year, and ranchland values increased 14 percent."
In particular, Nebraska experienced exceptionally strong gains in the Kansas City District due to bumper crops -- especially productive seasons for certain crops -- reporting a roughly 40 percent rise in farmland prices from one year ago.
The surveys indicate that good credit conditions, successful harvests, and elevated levels of farming income helped to contribute to this large surge in an already strong agricultural property market.
According to the Chicago Fed, farmland values in its district had their largest increase since 1977, jumping 7 percent from the previous quarter.
Iowa farmland prices led the Chicago Fed's district, jumping 31 percent from last year's 3rd quarter.
Thanksgiving Dinner Cheaper in Nebraska
Thanksgiving Dinner for 10 this year will cost Nebraskans $1.23 less than the national average of $49.20. But the Nebraska cost of $47.97 is $9.83 higher than in 2010, the Nebraska Farm Bureau said Monday.
The American Farm Bureau has tracked the cost of food items needed to make a traditional Thanksgiving Dinner for 10 since 1986. Farm Bureau members across the country price the cost of the items at local groceries and report their information to the national organization. The shopping list has remained the same since 1986 to enable year-to-year comparisons. A total of 141 volunteer shoppers from 35 states, including 11 from Nebraska*, participated in the 2011 survey and surveyed prices between Oct. 23 and Nov. 7.
The big-ticket item in the meal is the 16-pound turkey, which averaged $1.35 a pound in the national survey ($21.57) and $1.20 a pound in Nebraska ($19.29). Last year, the Nebraska average price was 91 cents a pound ($17.29). "Our volunteers are asked to price food items without taking advantage of coupons or special promotions. As Thanksgiving gets nearer, shoppers should be able to find turkey at lower prices and may be able to take advantage of special offers," said Cheryl Stubbendieck, Nebraska Farm Bureau vice president/public relations.
According to American Farm Bureau Senior Economist John Anderson, turkey prices are higher this year primarily because of strong consumer demand both in the U.S. and globally. Demand for U.S. dairy products also has been strong throughout 2011 and continues to influence retail prices, he said.
In addition, Anderson noted, "The era of grocers holding the line on retail food cost increases is basically over. Retailers are being more aggressive about passing on higher costs for shipping, processing and storing food to consumers."
In 2010, the Nebraska Thanksgiving Dinner cost was $38.14, $5.33 less than the $43.47 national average. "That suggests to me that our Nebraska grocers absorbed their higher costs longer than the grocery industry overall," Stubbendieck said.
"Despite the price increases, we need to remember that food prices in the U.S. have been relatively stable for many years, and Americans spend far less on food than most people in the world -- only about 10 percent of disposable income," she said.
The Thanksgiving Dinner shopping list includes turkey, bread stuffing, sweet potatoes, rolls with butter, peas, cranberries, a relish tray of carrots and celery, pumpkin pie with whipped cream, and beverages of coffee and milk, all in quantities sufficient to serve a family of 10.
In addition to the turkey, other items showing large price increases in Nebraska compared with 2010 were a gallon of whole milk, $3.86, up .74 cents; half-pint whipping cream, $2.59, up .85 cents; 30-ounce pumpkin pie mix, $3.26, up .75 cents; and three pounds of sweet potatoes, $2.86, up $1.83
US Ethanol Stocks, Plant Output Rise
Domestic ethanol inventories climbed 681,000 barrels (bbl), or 4%, to 17.111 million bbl during the week-ended Nov. 11 while total supply is up 2.4% from a year earlier, according to data from the Energy Information Administration.
On domestic output, the EIA data showed ethanol plant produced 916,000 bpd last week, up 4,000 bpd or 0.4% from the prior week while 2.3% higher than the year-ago level.
Refiner and blender net inputs came in at 821,000 barrels per day (bpd), which is 17,000 bpd, or 2.1%, higher than the prior week and up 0.6% from the level seen a year earlier. Refiner and blender net inputs represent a major portion of implied demand for ethanol.
Meanwhile, implied demand for motor gasoline slipped 46,000 bpd to 8.625 million bpd for the week while four-week average demand at 8.6 million bpd was down 5.7% from the year-ago level.
NCGA Joins with Ag Experts for Discussion on Factors Impacting Farming's Future
This week, the National Corn Growers Association participated in a roundtable that brought experts from various areas within agriculture to Kansas City for a discussion of upcoming issues that will impact agriculture. Focusing on issues such as the sustainability of utilizing corn stover as a biofuels feed stock, increasing grain exports from the Black Sea region and the future of ethanol, these discussions helped both the host and participants develop a more comprehensive view of the potential impacts of developing situations.
"By sharing insight into the issues NCGA thinks will influence the national corn industry and exploring the variety of ideas these experts brought to the table, we are able to create a more comprehensive look at what must be dealt with today in order to create the best possible scenario for our farmers tomorrow," said Vice President of Production and Utilization Paul Bertels, who represented the organization. "Each participant brings a unique understanding of their particular field, be it special circumstances faced by growers in Nebraska or Illinois or a detailed knowledge of exports, energy or other related markets that help us piece together the broader picture much as one might a puzzle. With farmers today involved in such a variety of activities and affected by national and international factors at the farm level, it is crucial we present our leadership with the best possible knowledge to use as they develop the policies that guide NCGA."
The roundtable, organized by the ProExporter Network, began with presentations from Doug Karlen of the U.S. Department of Agriculture's Agricultural Research Service and Wayne Parman of Jefferies Bach, a global securities and investment banking group. Karlen looked at the sustainability of using corn stover for a biofuels feed stock, concluding that the amount which can be sustainably removed is significantly lower than that laid out in the Department of Energy's initial Billion Ton Study. Utilizing information from the DAM project, organized by John Deere, Archer Daniels Midland and Monsanto, he noted that there are many issues with the use of stover as a feedstock for biofuels. These issues include limited days for stover removal in the fall, increased fertilizer expenses, and the need for variable rate removal.
Parman then discussed a recent surge in competition resulting from increased grain exports from the Black Sea region. Despite a short supply of capital and antiquated farm equipment and elevators, all major grain traders have developed export facilities in this. Pacific Rim nations such as China, Taiwan and Japan have begun importing Black Sea corn due as it is currently trading at a significant discount to U.S. corn. Raising the question is this "the third Corn Belt", Parman and several other roundtable participants speculate once capital is invested, the region will continue corn production and expansion of its exporter status.
Animal Care, Handling Seminars Feature Lukasiewicz
Feedlot owners, dairy producers and their employees are invited to an Animal Care and Handling Seminar for beef and dairy on Nov. 22 at Tri-State Livestock Auction in Sioux Center. Featured presenter is Sandhills Cattle Consultants Inc. president Kip Lukasiewicz, who will discuss and demonstrate low-stress cattle handling techniques. Lukasiewicz also is an assistant to nationally recognized cattle handling expert Tom Noffsinger.
Iowa State University (ISU) Extension and Outreach beef program specialist Beth Doran said the seminar will provide a unique opportunity for producers to learn about a timely topic and be able to put the information to use in their operations.
"The issue of animal welfare is at our back door. Some states, such as Nebraska, will have animal welfare proposals on the November election ballot," Doran said. "Producers need to be pro-active toward animal welfare for a number of reasons and this seminar will help provide needed information."
During the seminars, Lukasiewicz will demonstrate and explain how to settle a set of calves and calmly move them.
"Animal handling affects not only profitability, but also employee morale and safety," Lukasiewicz said. "How you interact with the animal and the amount of stress in the animal can affect the end product for the consumer."
ISU Extension beef veterinarian Grant Dewell will share with attendees the impact of stress upon animal health.
"Animals that are stressed do not eat or drink as much," he said. "This can affect their overall health and reduce their immune response."
Doug Bear, director of industry relations for the Iowa Beef Industry Council (IBIC), will round out the speaker slate with a discussion of good management practices related to beef and dairy quality assurance.
"The consumer expects meat and milk that is safe, wholesome and high quality," he said.
Two sessions, morning and afternoon, will be held. Topics will be identical, but the afternoon seminar will be offered in Spanish for Hispanic employees and operators. Participants attending either session will be Beef Quality Assurance certified. The morning session runs from 9 a.m. through lunch at 12:30 p.m. and the afternoon session begins with lunch at 12:30 and concludes at 5 p.m.
Registration for either of the Animal Handling and Care sessions is $10 per person to cover refreshments and noon lunch. This low fee is made possible through grants from the Iowa Beef Center (IBC) at ISU, IBIC and local sponsorship.
The seminar brochure with agenda, speaker and registration information is available on the IBC website.
For more information on the Animal Handling and Care Seminars, contact Doran by phone at 712-737-4230 or by email at doranb@iastate.edu. Registrations are due Nov. 16 to the O'Brien County Extension Office, 340 2nd St. SE, P.O. Box 99, Primghar, Iowa 51245.
Iowa Forage and Grassland Conference Offers Innovation
The 2011 Iowa Forage and Grassland Conference (IFGC) offers expert presentations and technological innovations. Set for Nov. 21-22 at the Airport Holiday Inn in Des Moines, the event begins with registration and round table discussions the first evening, and includes general and breakout sessions, and specific times for visiting with exhibitors. Iowa State University (ISU) Extension and Outreach beef specialist Joe Sellers said IFGC members and non-members alike will benefit from attending this annual event.
"Speakers from Grassland Oregon, Iowa Department of Natural Resources, and Land O'Lakes start the conference with valuable information ranging from high sugar grasses to grass species uses and management to quail management," Sellers said. "Presenters from Dow Agriscience, LLC and W-L Alfalfas also will present timely topics on Roundup Ready alfalfa and weed and brush."
Sellers is joined on the agenda by ISU Extension farm management specialist Tim Eggers and Iowa State student Samantha Smith to present findings from focus groups on pasture rental rates, cow sharing agreements and custom grazing. Sellers and Eggers will present a separate session on grazing business arrangements and pasture rental tools.
Preregistration for both days, with meals included, is $40, and continues through Nov. 16. Fee is $50 per person after that date.
For more information, contact Sellers by phone at 641-774-2016 or by email at sellers@iastate.edu.
Registration now open for expanded 2012 FFA Chapter Challenge
Connections within the community and financial resources are two of the most helpful ways for FFA chapters to grow their influence and reach. Now, chapters in 12 states can register for the opportunity to use one to get the other – thanks to the 2012 FFA Chapter Challenge.
After a successful pilot program last year, FFA and Monsanto have expanded FFA Chapter Challenge to 12 states, including Alabama, Arkansas, Georgia, Illinois, Indiana, Iowa, Louisiana, Minnesota, Mississippi, Missouri, Tennessee and Texas. More than 3,300 FFA chapters and their combined 236,000 FFA members can take part in the FFA Chapter Challenge.
Beginning Jan. 16, registered FFA chapters in eligible states will be challenged to reach out to farmers in their communities and learn more about their livelihood. In turn, farmers will go online to vote for their local FFA chapter.
The top 200 FFA chapters that make the most connections and received the most farmer votes by February 29 will receive a line of credit ranging from $1,000 to $2,500 from the National FFA Organization. As a sponsor of the program, Monsanto will provide more than $300,000 in incentives.
But before FFA chapters are eligible for the 2012 FFA Chapter Challenge incentives, they must sign up. Registration for the 2012 FFA Chapter Challenge opened Oct. 19 and is available on the FFA Chapter Challenge website.
“Monsanto is proud to be a partner with the National FFA and help these local chapters generate new and stronger relationships with their area farmers,” said John Raines, vice president of customer advocacy at Monsanto. “We saw the value of this program through a pilot last year and we think the Chapter Challenge is a great way for local chapters to connect with farmers in their communities.”
The award of a chapter monetary credit can be used throughout the year to buy FFA jackets and merchandise, obtain banquet supplies and send members to events like the Washington Leadership Conference or the national FFA convention and more. Awards will go to the top 10 chapters in each of the 12 eligible states, plus 80 at-large winning chapters.
The chapter that makes the most connections of any participating FFA chapter will win the grand prize – an all-expense paid trip for six students and an advisor to attend the 85th National FFA Convention in Indianapolis in October 2012 plus a $2,500 FFA certificate of credit.
“The expanded 2012 FFA Chapter Challenge is wonderful opportunity for students to reach out to people in their community who make their living in agriculture and forge strong, meaningful relationships,” said Rob Cooper, executive director of the National FFA Foundation. “Monsanto’s support of this initiative will most definitely help build support of local FFA chapters and ultimately help develop tomorrow’s agriculture industry leaders.”
Winners will be announced March 9.
Claas Sets New World Record for Wheat Harvesting
Claas announced at the Agritechnica farm show in Hanover, Germany, that it has achieved a new world record for the most wheat harvested in 8 hours by harvesting more than 24,832 bushels of wheat in an 8-hour time frame. Helmut Claas and his daughter Cathrina Claas-Mühlhäuser were presented with the document by Jack Brockbank, official representative of Guinness World Records, at the CLAAS trade fair stand in front of the world record machine. Also present was the 13-man world record team.
The new world record was set by running a LEXION 770 TERRA TRAC combine harvester equipped with a VARIO 1200 40 ft. (12- meter) head in fields near Swaby, Lincolnshire, UK. The record was set during the first 8 hours of a 20-hour harvesting trial and was made possible by the outstanding intelligent technology, power and capacity engineered into the LEXION combine harvester.
LEXION 700 series combines are equipped with the APS HYBRID SYSTEM that combines the Accelerated Pre-Separation (APS) threshing system with the ROTO PLUS separation system to provide the highest quality and largest capacity threshing and separation system in the industry.
The 20-hour harvest trial began early in the morning despite moisture content at 18%.
Environmental Working Group Proposes Major Changes in Farm Program
Daryll E. Ray, Director, University of Tennessee Agricultural Policy Analysis Center
Most of the major players in the farm bill debate this time assume that revenue insurance will be a major component of the final package. Thus a number of the specific proposals by various commodity organizations offer a wrap-around program that covers shallow losses, leaving it to revenue insurance to serve as a kind of disaster program that covers deep losses.
And in recent go-rounds, Congress has preferred to have an insurance program that can serve as a permanent disaster relief program so that they do not have to garner sufficient votes to pass an emergency disaster relief program in response to a widespread production shortfall. Likewise many farmers and bankers prefer an insurance program over emergency disaster payments because payments are predictable and are paid even in situations where the extent of damage would not be widespread enough to grab the attention of Congress.
On November 3, 2011, the Environmental Working Group (EWG) released a study by Bruce Babcock, Professor of Economics, Iowa State University, titled, “The Revenue Insurance Boondoggle: A Taxpayer-Paid Windfall for Industry” just under 3 weeks before the Congressional Super Committee’s “November 23 [2011] deadline to come up with a deficit reduction proposal” which includes farm bill baseline funding. The EWG report consists of two parts, the study by Babcock and a preface by Craig Cox, EWG Senior Vice for Agriculture and Natural Resources and Nils Bruzelius, Executive Editor, EWG.
While it serves as an introduction to the study by Babcock, the analysis in the preface is not identical to what follows in the study. To allow each part to stand on its own, we will be examining the material in the preface in this column and Babcock’s work in the one that follows.
Cox and Bruzelius begin the preface asserting that “powerful farm state legislators and agricultural industry lobbyists have moved to hijack the process of rewriting the federal farm bill and enact a new, multi-billion dollar entitlement for the largest, most profitable farming operations. Their goal is to have the 12-member committee adopt their scheme, drafted entirely behind closed doors, while shutting out everyone else with a stake in the outcome—including taxpayers and advocates for healthy food, rural revitalization, children, conservation, public health and the environment.”
In addition they argue that “at the heart of this scheme is an expansion of the federal ‘revenue insurance’ program, an already heavily subsidized program that insures business income won’t fall below a ‘revenue guarantee’—something that would be the envy of any other industry—even as it enriches the insurers.” Using Babcock’s analysis, they assert that the recent cuts to the revenue insurance will make “little more than…a trivial dent in the windfall profits that insurance companies and agents reap from the program.”
Rather than rolling the details of the farm bill into the super committee’s deficit reduction process, Cox and Bruzelius write: “the renewal of the farm bill should be done in an open and transparent process” and then provide principles they would use in rewriting the farm bill.
Some of their proposals echo policies advocated by some of the major farm groups while others are their own. They write, “It is entirely possible to construct a true safety net that protects working farm and ranch families from crippling crop failures AND (emphasis in original) save billions of dollars that can be used to reduce the deficit and reinvest in critical conservation and food programs – a safety net for families, children and our land and water. Here’s how:
- “Eliminate direct payments, counter-cyclical payments, loan deficiency payments, ACRE (Average Crop Revenue Election) and SURE (Supplemental Revenue Assistance Payments). (Savings: $57 billion over ten years).
- “Provide every farmer with a FREE crop insurance policy that covers yield losses of more than 30 percent; and eliminate federal premium and other subsidies for revenue-based or other crop insurance products. (Savings: $26 billion just in premium subsidies over ten years).
- “Have the federal government take bids from insurance companies to service the policies, eliminating windfall profits and encouraging the private sector to develop and offer innovative options for farmers to increase their insurance coverage—but not at taxpayers’ expense.
- “Require producers to meet a basic standard of conservation practices in order to be eligible for publicly financed crop insurance.
- “Ensure full transparency by requiring USDA to make available information about who is getting the free policies, the taxpayer cost of providing those policies and how much farmers receive in insurance payouts.”
They estimate that these proposals would save $80 billion over 10 years, far more than most other proposals. With some of those savings they would:
- “Maintain funding for the Supplemental Nutrition Assistance (SNAP) and the Women, Infants and Children (WIC) programs in order meet the needs of families and children during these difficult economic times.
- “Add incentives to SNAP to make it easier for participants to afford fresh food.
- “Ensure that schools have the money they need to meet the new federal school lunch standards and make sure that school lunches provide children with fresh fruit and vegetables every day.
- “Restore cuts to critical conservation programs that protect our soil, clean up our water and preserve habitat for fish and wildlife. This should include adding $10 billion above the current baseline of $64 billion to restore funding for the Wetlands Reserve Program, and increasing funding for technical assistance.
- “Increase funding for programs that provide new market opportunities for sustainable and organic farmers and ranchers, create new jobs and increase access to healthy food by strengthening the local food economy.”
While much of what they write in the preface is political in nature and subject to vigorous debate, they err in their definition of the function of a safety net. They define the safety net they are talking about as “stepping in when working farm and ranch families suffer unpredictable and potentially crippling losses caused by bad weather.” This is but one portion of the safety net that farmers have historically needed—protection in cases of weather-related disasters. The other portion of the safety net that farmers need is in response to long periods like 1998 to 2001 when crop prices remain well below the cost of production creating economic problems just as real as those caused by weather-related a crop failure.
That aside, their proposals are likely to create lively responses both for and against their positions.
ABA: Manage Risk Effectively to Keep Rural Markets
Midwestern farmers have done particularly well in recent years. Minnesota farmers saw their incomes triple from 2009 to 2010, and most expect income levels to go up again in 2011. Net farm income in Iowa was nearly $6 billion in 2008 and 2009, more than double the incomes in 2000 and 2001. South Dakota farmers saw 7.7 percent and 15 percent increases in equity in 2009 and 2010, respectively. Agriculture researchers in Iowa, Nebraska, and Indiana have recorded record farm income in 2009 and 2010 and fully expect new records for 2011. Only Wisconsin farmers, many of whom are reliant on slowly rising milk prices, did not see significant farm income gains.
But Midwestern farmers - and the community bankers who serve them -have long memories. Many wonder if today's good times represent a bubble, waiting to burst. They worry that current conditions too closely resemble the mid-1980s, when everything on the farm went down the tubes. Are today's good times a prelude to a new agriculture disaster? The short answer is probably "no." A look at why reveals the real challenges facing Midwestern farmers and their rural community banks.
Four factors of today's agricultural world make it quite different from that of the 1980s:
-- Commodity prices are unlikely to plummet. In the 1980s, commodity prices buckled primarily due to export restrictions (President Carter deciding to cut off grain to the Soviet Union, for example) and over-production based on government subsidies. Today, government subsidies are at an all-time low, and high commodity prices are primarily based on steadily increasing global demand for food. World population recently hit 7 billion and is predicted to reach the 9 billion mark by 2050, so demand for food will almost certainly continue to rise, and commodity prices are likely to remain above a farmer-sustainable rate for years to come.
-- Agricultural loans are now based on production capacity. The late 1970s and early 1980s agricultural loan market was much like the residential and commercial real estate market of the last decade. Loans were collateral-based, which meant that as land values rose, owners could borrow more. When it became clear that the price of most land did not reflect its production value, the market collapsed and landowners - most of them farmers - simply couldn't make their loan payments. Today, nearly all agricultural loans are issued on the basis of a producer's projected cash flow, which means that only devastatingly low prices and crop damage can impede repayment - and that's only if the producer isn't carrying adequate insurance.
-- Producers are less likely to be owners. If land prices drop, producers who rent won't be affected much, if at all. Lower prices may, in fact, resuit in lower rents, which would benefit producers. Producers who are owners will lose some equity and probably see a drop in their ability to borrow, but their ability to make mortgage payments - which is based on commodity prices - shouldn't be affected, which is good for them and their banks.
-- Leverage among landowners is down. According to the USDA, farm asset values are expected to rise from $2.18 trillion in 2010 to $2.32 trillion in 2011 while total debt falls from $246.9 billion to $242.1 billion. John Blanchfield, the director of the American Bankers Association's Center for Agricultural and Rural Banking, said he thinks the explanation is simple: "The farm economy is being driven by cash." Farmers are using their cash, in other words, to pay down debt and to put significant down payments on new land. "We're looking at an asset bubble, not a debt bubble," said Nate Franzen, agribusiness division manager of First Dakota National Bank in Yankton, S.D. In addition, banks simply aren't lending 80 percent to 90 percent of purchase prices like they did in the 1980s, he said, which means that a drop in land prices may hurt the asset side of the balance sheet, but not production or profitability.
If high land prices don't pose much risk for farmers and community banks in the Midwest, what does? Nothing changes the perpetual risks for farmers and their banks: bad weather, disease, and unpredictable input costs. But there are a number of identifiable threats to future profitibility which farmers and bankers alike see as posing a significant measure of risk.
Changes in U.S. agricultural policy could undercut farm income. Direct payments and insurance subsidies - which affect nearly all producers - are an easy target for the budget hawks circling Washington, D. C, Blanchfield said. Corn growers can probably count on the mandate that oil companies blend ethanol, Blanchfield said, but he added it is likely that the blending tax credit will be discontinued. That, coupled with an end to the import tariff on foreign ethanol, "could significantly reduce the demand for U.S. corn, onethird of which is tied up in ethanol production," said Timothy Baker, a professor of agricultural economics at Purdue University.
Foreign governments also pose a risk to U.S. producers. "Any perceived subsidy or unfair trade advantage could spark a trade war," effectively shutting down markets for U.S. commodities, noted Mark Scanlan, vice president of agriculture and rural policy for the Independent Community Bankers of America.
The ups and downs of foreign economies also affect commodity prices. "Any slowdown in the BRIC countries [Brazil, Russia, India, and China] would definitely lower commodity prices," Blanchfield said. Bob Viering, a principal of River Point Group, an agricultural consulting firm in South Dakota and Minnesota, noted that a weak dollar and minimal global competition have significantly bolstered U.S. producers, but both could change if the U.S. economy improves and if other countries try to capitalize on high commodity prices.
If farmers are at risk of smaller profits - or even a loss - from events beyond their control, so are the banks that serve them. According to Scanlan, now is not a time for exuberance, but for reducing exposure to a potential agricultural downturn.
Diversification is one of the key tools for creating a safer agricultural loan portfolio, Franzen said. Ideally, he said, banks will have an agriculture portfolio that spans regions, crops, livestock, and types of loans. In reality, most banks are restricted by the farming done in their area and their own lending limits, but they should seek opportunities to broaden their loan base as much as possible.
Partnering with other banks is one such opportunity. 'Tf a customer needs a loan that's bigger than we can handle, we always look to work with another bank," said Dallas Solfest, business relationship manager at Mid-Wisconsin Bank in Medford, echoing a claim from a number of community bankers. Solfest noted that farmers are typically open to such bank partnerships because it results in more of their money staying in the local community. Such partnerships not only keep customers coming in the door, he said, but also spread out risk.
Likewise, the U.S. Department of Agriculture'sFarm Service Agency is an "invaluable" partner when it comes to serving customers and mitigating risk, commented Viering. FSA can take up to 90 percent of the risk of some loans with the added benefit that the loan is not counted toward a bank's total. "Without FSA, it would be hard to help those just getting into farming," Viering said, "because young people just don't have the capital they need for conventional loans." With FSA, banks can establish good relationships with farmers early in their careers and be in a position to be a lender of choice as the farms become more successful.
The best way for rural banks to mitigate their risk, however, is by "helping customers mitigate their own risk," Franzen said. He and other agricultural bankers emphasized the following when working with potential borrowers:
-- Insurance, against bad weather, disease, and sudden drops in prices is essential. Many banks require enough insurance to cover operating costs before even considering a loan.
-- Conservative price projections. "Corn has been as low as $4 and as high as $7.50 in the past year," Franzen noted, so all projections should be based on the lower end of the scale, he said.
-- Lowering costs. Activities directed to overall cost-savings - like growing feed for dairy cattle, investing in energy production via methane capture or wind turbines, or improving operational efficiency - usually bring down risk associated with input price fluctuations.
-- Information technology. Farmers and banks have more information, analytical tools, and educational opportunities available via the internet and computer software than ever before, noted Solfest and Mike Jorgensen, president of Nebraska State Bank in Oshkosh. Banks, for example, "can quickly look at a farmer's ratios and see if they line up with what history has taught us is successful," Jorgensen said. Other tools include stress test programs and detailed business plan templates which calculate likely yields and profits under particular conditions.
-- Health insurance. "If a farmer doesn't have a working spouse who carries health insurance, one medical bill, even if paid just a little bit late, can hurt his credit score," Solfest said, and that translates into a risk of higher interest rates on every loan.
-- Refinancing. "Locking in the low interest rates now available on long-term loans is a great risk management strategy," said Darla Sikora, executive vice president of Citizen's State Bank in Loyal, Wis., "especially for real estate purchases through Farmer Mac."
-- Record-keeping and document assistance. "By helping farmers with their record-keeping and documents, we make our work and theirs more efficient," Sikora said. "Going over documents is also a way of making sure everything has been thought through."
For Michael Grove, president of Bank of the Rockies in White Sulphur Springs, Mont., helping farmers reduce their own risk is especially rewarding. "They want to understand their operations and options better," he said, "so they're eager to use the tools we bring to the table."
Perhaps the biggest challenge for agricultural banks today is a problem for all banks: the increasing costs - in time and money - associated with regulations and compliance. According to Blanchfield, the worst part now is the sheer lack of certainty surrounding the implementation of Dodd-Frank and the work of the Consumer Financial Protection Bureau. And the stakes are high. "Ag goes up and ag goes down," Blanchfield said, "but Dodd-Frank will be with us for a long time. It would be nice to know how it will be used."
But bankers, whose deposits are generally up, are in a good place to meet the challenges of a good, if uncertain, agricultural economy and regulatory regime. Specifically, they can safeguard liquidity so that when loan demand increases, they will be positioned to meet their customer's needs. And as always, Viering said, "the best thing we can do for our customers is help prepare them for the future" with sound advice and analytical tools.
No comments:
Post a Comment