Thursday November 15 Ag News

Rural Mainstreet Index Climbs Again:  Farmland Prices Soar for Month

After experiencing negative fallout from drought conditions in June, July and August, the Rural Mainstreet economy expanded for a third consecutive month according to the November survey of bank CEOs in a 10-state area.   

Overall:  The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, climbed to a solid 57.5 from October’s 56.6.

Nebraska:  For a second consecutive month, Nebraska’s rural economy moved into positive territory. The November RMI rose to 57.7 from October’s 56.1. The farmland-price index rocketed to 86.2 from a much lower 66.5 in October. Nebraska’s new-hiring index increased to a weak 51.3 from 46.6 in October.  Rod Cornelius, president of Pinnacle Bank of Grant, said, “No changes noted in pasture rent, unless Southwest Nebraska receives some moisture, there probably will not be any grass to graze.”

Iowa: The RMI for Iowa for November advanced to 61.3 from 57.0 in October. The farmland-price index expanded to 80.1 from October’s 70.2. Iowa’s new-hiring index for November increased to 50.2 from October’s 49.1.

South Dakota:  The November RMI for South Dakota increased to 57.7 from 56.5 in October.  The farmland price index climbed to 85.6 from 68.4 in October. South Dakota's new-hiring index for November rose to a still weak 48.0 from 47.9 in October.

Creighton University economist Ernie Goss said, “Our survey indicates that the Rural Mainstreet businesses are shedding the negative impacts of the 2012 drought.  However, given the continuing lack of moisture across much of the region, this economic respite may be short-lived.”

But national issues are also playing a role. According to Dale Bradley,CEO of The Citizens State Bank, in Miltonvale Kan., “The biggest (economic) issue we face soon is the fiscal crises with a locked up Congress.”

Farming:  The farmland-price index took its biggest one month jump since we began the survey in 2005. The November reading soared to 83.9 from 71.7 in October. This is the 34th consecutive month that the farmland-price index has risen above growth neutral. “Farmland prices and cash rents are soaring at what I believe are unsustainable paces. For example, last month there was an auction of cash rent contracts in southeast Nebraska. Contracts went for a record $550 per acre per year for non-irrigated land. Right now we are seeing cash rents and farmland priced for perfection.  Land prices and cash rents will be heavily dependent on 2013 drought conditions, agriculture commodity prices and interest rates.  Any of these three factors could be a significant issue or problem for the Rural Mainstreet economy in the months and years ahead,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton.

This month bankers were asked how much they expected 2013 pasture cash rents to rise as a result of the drought. Overall a 10.1 percent increase is expected.  However, 12.5 percent of the bankers anticipate growth of more than 21 percent for 2013.

In terms of the ethanol industry, moreover, 69.7 percent of the CEOs indicated that high corn prices represented the biggest challenge for ethanol producers in the region in the coming year. Another 16.6 percent think government policy toward ethanol represents the industry’s biggest challenge for 2013.

The farm-equipment-sales index slipped to 60.4 from October’s 60.5.

Banking:  After plummeting for October, the loan-volume index expanded to a still weak 47.8 from October’s 44.2 but well down from September’s 70.2. The checking-deposit index advanced to 75.1 from October’s 66.7, while the index for certificates of deposit and other savings instruments rose to an anemic 45.5 from 42.0 in October. “Despite the 2012 drought, farming and non-farming businesses have remained financially healthy with solid cash balances,” said Goss.

Hiring: November’s hiring index expanded to 53.0 from 51.5 in October. “Hiring for Rural Mainstreet businesses is improving albeit at a slow pace.  The uncertainty surrounding drought conditions and the fiscal cliff’ are restraining hiring even as the economy expands,” said Goss.

Confidence:  The confidence index, which reflects expectations for the economy six months out, sank to 45.6 from October’s tepid 50.7. “The uncertainty surrounding the national economy including the “fiscal cliff,” the farm bill, and energy policy are negatively affecting the economic outlook of bankers,” said Goss.

The national elections continue to have impacts.  As stated by Jeff Bonnett, president of Havana National Bank in Havana, Ill., “There are election blues in this area of the state.”

This month bankers were also asked whether the wind energy tax credit, slated to end on Dec. 31, 2012, should be continued.  Approximately 41.8 percent of bank CEOs support ending the tax incentive while 49.2 advocate for renewing it. The remaining 9 percent support increasing the level of the incentive. 

Home and retail sales: The November home-sales index advanced to a healthy 62.0 from 59.8 in October.  The November retail-sales index increased to a tepid 51.5 from October’s even weaker 48.6. “Much like the national retail sales numbers that came out this week, Rural Mainstreet businesses are experiencing lackluster sales.  At the same time, the Rural Mainstreet housing market is improving rapidly with record low interest rates and a slowly improving job market,” said Goss.

Each month, community bank presidents and CEOs in nonurban, agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy. Goss and Bill McQuillan, CEO of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.



Plains Farmland Prices Up 24%

The worst drought in decades didn't stop a boom in farmland values in the heart of the U.S. Plains, but it has cut into farmers' incomes and forced them to cut back on capital spending, the Federal Reserve Bank of Kansas City said.

The value of nonirrigated farmland in the Kansas City district, which includes all of Nebraska, Kansas and Oklahoma, was up 24.4% during the third quarter versus a year ago. While the rate of gain has slowed, values still climbed 3% from the prior quarter, the Kansas City Fed said.

Historically high grain prices have driven the farmland boom, as both farmers and outside investors have looked to increase their land holdings. Corn futures at the Chicago Board of Trade hit an all-time high of $8.43 3/4 per bushel during the quarter, and while prices have since fallen close to $7, that is still well above historical levels.

The continued gains in farmland over the summer, when many crops baked under withering heat and a lack of rain, have surprised some economists and investors, who expected the drought to make buyers more cautious. In parts of the Plains, farmers dealt with a second-straight year of drought in 2012, and already some agronomists warn that the drought's effects on crop yields could linger into 2013 even if rainfall totals improve.

Bankers are also concerned about the possibility drought could persist into next year, the Kansas City Fed said.

High grain prices, along with crop insurance, have partially insulated farmers from the worst of the drought's effects. Still, the Kansas City Fed noted that farm incomes fell sharply in the quarter, and that demand for operating loans climbed.

Incomes fell most sharply at cattle feedlots and hog operations, the bank said, as feed costs soared.

Capital spending "plummeted" during the quarter, and bankers expect further declines in the fourth quarter, the Kansas City Fed said.

Ranchland values climbed 14% in the district during the quarter. Nearly three-quarters of the bankers surveyed by the Fed expected farmland values to "stabilize at high levels heading into 2013."

Increases in farmland prices throughout the past two years have prompted some to worry about a potential bubble, although many economists have said that farmers' low debt levels should prevent a crash.

For the second straight quarter the biggest gain in farmland values was in Nebraska, where the value of non-irrigated land jumped 30.2% versus a year ago. The district also includes Wyoming, Colorado and parts of New Mexico and Missouri.

The value of irrigated farmland in the district climbed 21.9% versus a year ago.



U.S.-EU Trade Deal Must Include Agriculture, Address Non-Tariff Trade Barriers, Says Coalition

While maintaining its support for a free trade agreement between the United States and the European Union, a coalition of U.S. food and agricultural organizations led by the National Pork Producers Council reiterated that any deal must include agriculture and that the EU must address non-tariff trade barriers.

In a letter signed by 60 organizations sent today to the Office of the U.S. Trade Representative, the coalition said it is important that any FTA with the EU be comprehensive and address impediments to trade in agricultural products. The coalition sent a similar letter in January.

“Carried out properly,” wrote the coalition to U.S. Trade Ambassador Ron Kirk, “a U.S.-EU FTA would generate economic growth and create many thousands of new jobs on both sides of the Atlantic.”

That means negotiating a high-standard, 21st-century agreement, something that has been central to the Obama administration trade policy, the coalition pointed out. But that is not the type of agreements the EU has negotiated with other trading partners.

The EU’s past FTAs have excluded agricultural goods it produces, and its regulatory measures often conflict with World Trade Organization rules, including regulations on “genetically modified” crop approval and labels, which restrict U.S. corn, soy and refined corn product exports, and on production methods in poultry, beef and pork.

As part of agreeing to enter trade talks with the United States, for example, the EU Parliament said any FTA must include language on geographical indications, which would grant the EU exclusive rights to certain product names that, nonetheless, have been widely used outside of Europe for many years. (The United States, for example, would not be allowed to export to the EU “Parmesan” cheese, which is named after the Italian region where it first was produced.)

“We cannot help but be skeptical that the EU is prepared to undertake a U.S.-style comprehensive negotiation and to include the agricultural sector,” the coalition wrote.



AFBF Urges House to Pass Russia PNTR

The American Farm Bureau Federation is the latest farm group to urge the House of Representatives to pass legislation granting Permanent Normal Trade Relations with Russia. Lawmakers are scheduled to vote on Russia PNTR this week.

The AFBF says Russia formally joined the World Trade Organization in August. But, PNTR for Russia must be enacted by Congress in order to guarantee U.S. access to the market-opening and legal aspects that are part of the Russia-WTO agreement.

"Russia PNTR is a critical step toward ensuring the U.S. benefits from Russia's accession to the WTO and remains competitive in that market," said AFBF President Bob Stallman. "U.S. farmers will have more certain and predictable market access as a result of Russia’s commitment not to raise tariffs on any products above the negotiated rates and to apply international food safety standards in a uniform and transparent manner."

Russia has a strong capacity for growth in food imports from the United States. U.S agricultural exports to Russia are forecast at $1.4 billion for 2012. Russia has potential for significant increases in poultry, pork and beef consumption, which are the top U.S. agricultural exports to Russia.



EIA: Ethanol Stocks Near 11-Month Low

Domestic ethanol inventories were drawn down for the second consecutive week during the week-ended Nov. 9, declining by 285,000 barrels (bbl), or 1.6%, to a 17.851 million bbl nearly 11-month low, data from the Energy Information Administration showed. Ethanol supply is 800,000 bbl, or 4.3%, higher than the stock level held a year ago.

Domestic production of ethanol fell 3,000 barrels per day (bpd) to 824,000 bpd last week, with the output rate down 10.1% compared to a year ago.

Implied demand, as measured by refiner and blender net inputs, dipped 1,000 bpd to 822,000 bpd for the week-ended Nov. 9. Refiner and blender net inputs represent a major portion of implied demand for ethanol.

Elsewhere, the EIA reported implied demand for motor gasoline surged 601,000 bpd to 8.9 million bpd for the week-ended Nov. 9, while four-week average gasoline demand at 8.6 million bpd was up 0.7% from the corresponding year-ago period.



USFRA NAMES NINE FINALISTS FOR ITS FACES OF FARMING & RANCHING SEARCH DURING THE FOOD DIALOGUES: NEW YORK

Today at The Food Dialogues : New York, the U.S. Farmers & Ranchers Alliance (USFRA) announced the finalists of its Faces of Farming and Ranching program, a nationwide search launched earlier this summer to help put real faces on agriculture. Chris Chinn (Missouri), Will Gilmer (Ala.), Daphne Holterman (Wis.), Brenda Kirsch (Ore.), Tim Nilsen (Calif.), Eric McClam (S.C.), Katie Pratt (Ill.), Bo Stone (N.C.), Janice Wolfinger (Ohio) were all named program finalists.

More than 100 applications were received from passionate, dedicated farmers and ranchers from across the nation, nine of whom were selected as finalists. The winners will become the face of agriculture, and will be tapped to share stories and experiences on a national stage to help shift conversations about food production and set the record straight about the way we feed our nation.

“The nine candidates selected reflect the extent of diversity in agriculture across the nation,” says Bob Stallman, chairman of USFRA and president of the American Farm Bureau Federation. “These exceptional farmers and ranchers can bring the reality of farming and ranching to the forefront for consumers, mainstream media and influences to develop a relationship and learn more about how food gets from the farm or ranch to their plates.”

Starting at 1:30 p.m. ET on Nov. 15 through Dec. 15, people can visit www.fooddialogues.com to learn more about each of the nine finalists and the work they do. Consumers, farmers and ranchers are asked to vote for who they believe best represents those across the country who work to bring food to the table. These votes will be factored into the decision to determine the Faces of Farming and Ranching.
In addition to the public vote, a panel of judges will interview and evaluate the finalists to help determine the winners of Faces of Farming and Ranching. Winners will be announced in early January 2013.



Antibiotic Use, Resistance Calls for Collaborative 'One Health" Approach

The message emerging from the “A One Health Approach to Antimicrobial Use & Resistance: A Dialogue for a Common Purpose” symposium, Nov. 13-15, in Columbus, Ohio, was clear: Antibiotic use and antimicrobial resistance are the responsibility of all communities—human health, animal health and environmental health—and solutions will require collaboration of these health communities.

At the end of the three-day symposium, which was coordinated by the National Institute for Animal Agriculture, presenters and participants agreed on numerous points:
-    Antibiotics dramatically improve human, animal and plant health, and increase life expectancy.
-    Antimicrobial resistance is not going to go away. A historical look at antimicrobial resistance shows antimicrobial resistance is not a new phenomenon but existed before mankind.
-    The topic of antimicrobial resistance can be subtle, complex, difficult and polarizing. It is more than science and evidence. It’s about politics, behavior, economics and conflicting opinions.
-    Antimicrobial resistance is not merely a consequence of use; it’s a consequence of use and misuse—and each community—animal health, human health or environmental health—is responsible for antibiotic stewardship.
-    The finger pointing and blame for antimicrobial resistance need to end. The time has come to work together.

“Finding a solution is not about compromise; it’s about reaching agreement,” stated Dr. Lonnie King, Dean of The Ohio State University College of Veterinary Medicine. “We (animal health, human health and environmental health communities) need to focus on interests and not positions and initiate options for mutual gain. We need to find common ground—something we all can agree to when we disagree on other issues.”

Topics addressed by the 13 animal health, human health and environmental health experts during the symposium covered:
-    Overview of antibiotic use
-    History of antimicrobial resistance
-    Antimicrobial resistance surveillance
-    Environmental contamination with antimicrobial residues
-    Interplay of animal and human antimicrobial resistant populations
-    Nationally funded antimicrobial resistance research projects
-    Alternatives to antibiotics in agriculture

“The symposium’s four interactive sessions allowed presenters and attendees to provide input to questions that moved the group to consensus,” stated Dr. Leah Dorman, co-chair of the symposium, and Director of Food Programs at the Ohio Farm Bureau. “In the end, it was extremely evident that the dialogue among the animal health, human health and environmental health communities is critical to a solution.”

“A ‘One Health’ approach is important. Plus, we need think in a much larger dimension.”

Dr. Jennifer Koeman, symposium co-chair and Director of Producer and Public Health with the National Pork Board, agreed, adding, “It’s about mutual gain and not a victory for any one community.”

Presentations by symposium speakers will be available online at www.animalagriculture.org. A white paper is being developed and will be available online at NIAA’s website as well.



GrainCorp Reports Record Profit, Hopes for Higher ADM Bid

GrainCorp Ltd. said Thursday it is holding out for a higher bid from Archer Daniels Midland Co. (ADM), as the Australian grain handler reported record profit for fiscal 2012.

GrainCorp's board has decided that the 2.7 billion Australian dollar (US$2.8 billion) bid from the U.S. grain behemoth "materially undervalues GrainCorp, and has advised ADM accordingly," it said in a statement to the stock exchange accompanying its full-year result.

Net profit for the Australian grain handler rose 19% in the year through September to an unprecedented A$205 million, up from A$172 million a year earlier.

That was close to the A$206 million average figure expected by four analysts surveyed by The Wall Street Journal ahead of the results, and within guidance provided by the company of between A$185 million and A$205 million.

Chief Executive Alison Watkins said the gain handler was planning to spend A$250 million as part of a strategy to improve underlying earnings by about A$110 million by the end of fiscal 2016.

"GrainCorp's focus remains capitalising on the strengths of our infrastructure and processing assets to deliver additional value for our shareholders," Watkins said.

GrainCorp declared a full-year dividend of 65 per share, up from 55 Australian cents in fiscal 2011.



Mosaic Updates Fiscal Second Quarter Guidance

In advance of upcoming investor conferences, The Mosaic Company, Plymouth, Minn., announced an update of the near-term price and volume guidance, as well as an update of the Company's full year effective tax rate guidance.

Since the Company announced its fiscal second quarter guidance on October 2, 2012, international crop nutrient market demand has weakened, primarily as a result of distributors delaying purchases to avoid price risk. The Company believes this demand is simply delayed, but that sales volumes may not pick up until calendar 2013.

"The long-term positive outlook for crop nutrient demand has not changed; high commodity prices are driving record farm returns and making our products more affordable than ever before. These strong fundamentals are expected to drive record global phosphate and potash shipments in calendar 2013," said Jim Prokopanko, President and Chief Executive Officer. "In the short term, however, we are seeing lower than expected shipments to the export market, in spite of very strong demand in North America for the fall application season. As a result, we have lowered our volume guidance for both the Phosphates and Potash segments in the second fiscal quarter of 2013 while also tightening the price forecasts to the upper end of the previously announced ranges."

In potash, the delay in signing long-term supply contracts with China and India has resulted in weakening price expectations, leading other international buyers to delay purchases to avoid price risk. The midpoint of the Company's previous guidance for second quarter potash volumes of 1.6 to 1.9 million tonnes already excluded shipments to China and India. The current guidance range of 1.3 to 1.4 million tonnes reflects lower near-term demand in other international countries as well. In part because of the decline in international shipments and changes in product mix, our realized price expectations are now at the high end of the prior range, at $435 to $450 per tonne.

In phosphates, international distributors' cautious sentiment with respect to potash is spilling over as buyers are avoiding phosphate price risk, and delaying purchases in spite of low reported producer inventories. The Company has lowered second quarter volume guidance to 2.9 to 3.1 million tonnes from 3.0 to 3.4 million tonnes. Realized prices are expected to be in the upper end of the prior range, at $535 to $550 per tonne.

Additionally, the Company will decrease the amount of unrecognized tax benefits reported on the balance sheet by approximately $200 million in the second fiscal quarter, due to the resolution of tax audit activity. As a result, the Company now expects its effective tax rate for full year fiscal 2013 to be in the mid-teens, including the impact of this benefit, and in the mid 20 percent range for the second half of fiscal 2013.

The Company continues to expect the gross margin rate for phosphates to be approximately flat with the first fiscal quarter. Assuming no benefit from foreign exchange in the potash segment cost of goods sold, low operating rates will continue to pressure the gross margin rate in the second quarter, currently expected to be in the low to mid 40 percent range.