Thursday August 8 Ag News

Crop Prices Give Slight Boost to Weak Farm Economy
Cortney Cowley, Economist and Ty Kreitman, Assistant Economist, Kansas City Fed

The Tenth District farm economy remained weak in the second quarter of 2019, but farm income and credit conditions showed some signs of stabilizing. Despite extreme weather and flooding in parts of the Tenth District and continued trade uncertainty, higher corn prices and trade relief payments could have contributed to a slower pace of decline in expectations for farm income and credit conditions. Although farm income was still expected to decrease in the third quarter of 2019, the pace of decline was expected to be the slowest since 2014. In addition, District bankers reported that deposits grew at a faster pace in some states while farmland values remained steady.

Farm Income and Recent Weather Impacts
Farm Income in the Tenth District remained weak in the second quarter, but the pace of decline slowed. Slightly more than 40 percent of bankers reported that farm income was lower, compared with almost 75 percent and 60 percent at this time in 2016 and 2017, respectively. Following a nearly 20-year low in 2016, the pace of decrease in farm income has remained relatively stable since the end of 2017. Crop prices increased in the second quarter, and the United States Department of Agriculture announced a continuation of the Market Facilitation Program in 2019. These developments may have led to less pessimistic expectations about farm income in coming months.

Despite expectations for higher crop prices and farm income, severe weather and flooding could dampen the outlook for some farm borrowers in 2019. In the Tenth District, almost 50 percent of farm borrowers were impacted by extreme weather or flooding. Although only 20 percent of farm borrowers were impacted significantly by weather, those directly impacted by flooding or extremely wet conditions could be at risk of lower yields and revenues. Areas of the District most severely impacted by weather were central Nebraska, northern and eastern Kansas, western Missouri, and western Oklahoma. Farm borrowers in the Mountain States, however, were less likely to experience impacts from severe weather.

Bankers also reported that local economies were impacted by extreme weather and flooding. Local economies are comprised of local infrastructure, roads, bridges, railways, residential homes, and businesses. About 75 percent of bankers reported that their local economies were impacted, at some level, by adverse weather conditions in Kansas, Nebraska, and Oklahoma. A larger percentage of communities in western Missouri was significantly or modestly impacted by weather, likely due to their proximity to the Missouri River, which was subject to record flooding in the first half of 2019.

Although some areas of the District were significantly affected by extreme weather and flooding, the outlook for crop production and revenues still could be better than other areas of the United States. For example, weather likely weighed more heavily on planting progress in the Corn Belt than in the Tenth District. In the Corn Belt, corn and soybean plantings were 50 percent and 70 percent, respectively, behind the five-year average in May. Although progress was made during planting season in both regions, the share of corn and soybean acres that were planted in the Corn Belt still lagged both the historical average and planted acres in the Tenth District. Relatively better planting conditions could support higher crop revenues in the Tenth District.

Credit Conditions
Demand for agricultural lending in the District remained high, but bankers anticipated slower growth in future months. In contrast with expectations in previous quarters, bankers anticipated a slower pace of increase in loan demand than in the current quarter. The extended period of low farm income and strong farm loan demand likely has placed downward pressure on liquidity at some banks. However, over 80 percent of respondents continued to indicate that availability of funds was unchanged from a year ago and looking ahead, nearly no change was expected across the region.

Alongside stable fund availability, deposits at agricultural banks throughout the District were higher than a year ago. Deposits at agricultural banks may have been supported by recent increases in crop prices and payments from the Market Facilitation Program in 2018. Similar to last year, about 35 percent of bankers reported higher deposit levels in the second quarter. However, only 26 percent reported lower deposits, down from over 35 percent in 2018.

Similar to trends in farm income, the pace of decline in credit conditions also showed signs of stabilizing in the second quarter. Slightly less than 30 percent of bankers reported that farm loan repayment rates were lower, compared with almost 50 percent and 40 percent, respectively, at this same time in 2016 and 2017. Moreover, bankers expected farm loan repayment rates to decline at the slowest pace since 2014 in the next quarter. The pace of increase loan renewals and extensions remained relatively stable but was expected to slow in the next three months.

The portion of farm loan portfolios with repayment problems remained steady from a year ago. Since 2017, nearly 30 percent of all loans volumes in the District have experienced issues with repayment. The recent boost to farm revenues from crop prices could improve short-term cash flow and repayment ability. However, another recent survey showed that several years of depleted working capital and carryover debt has increased the need for debt restructuring and weighed on debt-service capacity of some farm borrowers.

The share of new farm operating loans denied by bankers declined slightly after reaching a five-year high a year ago. About 75 percent of banks in the District denied at least 1 percent of all new farm operating loan applications, down from over 90 percent of banks in 2018. Nearly 18 percent of respondents continued to report denying more than a tenth of operating loan requests, however, which remained slightly higher than in previous years.

Interest Rates and Farmland Values
Interest rates on farm loans have increased modestly since 2015 but remain low from a historical perspective. Both fixed and variable rates on all types of farm loans remained slightly below the average from 2003 to 2018. Fixed rates on operating loans and machinery loans increased slightly more than fixed rates for farm real estate since 2015, but all remained well below the 30-year average.

Farm real estate values across the District were nearly unchanged from a year ago in the second quarter. The value of all types of farmland declined modestly in Nebraska and increased slightly in all other states except the Mountain States.  Ranchland values exhibited the largest changes, declining 7 percent in Nebraska and increasing 7 percent in western Missouri.

The annual change in farm real estate values was also similar to other recent quarters. The value of all types of farmland in the Tenth District has held relatively steady despite downward pressure from weak farm finances and recent increases in interest rates. Compared with the preceding period of sharp increases in the value of all types farmland, the decline since 2015 has been modest. For example, based on the sum of annual percent changes in each quarter since 2015, nonirrigated cropland values have dropped about 50 percent, a modest change in comparison with the cumulative increase of nearly 300 percent from 2010 to 2014.

Conclusion
Despite some signs of continued stress, the pace of deterioration in the farm economy in the Tenth District was expected to slow in the next three months. Higher corn prices and trade relief payments likely supported less pessimistic expectations for farm income and agricultural credit conditions. Severe weather and flooding slowed planting and may have hindered crop conditions in some areas of the District. However, planting delays were less severe in the Tenth District compared with other regions. Although repayment problems and loan denials remained slightly elevated from previous years, stable farmland values and relatively low interest rates could support stronger credit conditions moving forward, especially if farm borrowers in the District are able to take advantage of higher crop prices in 2019.



Nebraska Beef Council August meeting

The Nebraska Beef Council Board of Directors will meet at the NBC office located at 1319 Central Ave. on Monday, August 19, 2019 beginning at 8:00 a.m. CDT. and Tuesday, August 20, 2019 at 7:30 a.m. CDT. The NBC Board of Directors will listen to presentations from outside contractors for the fiscal year 2019-2020 on Monday. Funding decisions and other business will be conducted on Tuesday.  For more information, please contact Pam Esslinger at pam@nebeef.org. 



Nominations Sought for Ag Educator of the Year

Any student, parent, fellow teacher, or other supporters can nominate their favorite agricultural teacher for a chance to be recognized as one of the best in Iowa.

Nationwide recently recognized the contributions of 17 Iowa and Ohio agriculture teachers with the 2018-2019 inaugural Golden Owl Award. Nationwide established the award to honor teachers and support them with additional resources to assist their continued educational efforts in preparing the next generation for successful agricultural careers.

As a result of the positive response from the communities that Golden Owl Award nominees make a difference in, Nationwide expanded the campaign to include Pennsylvania, Illinois, Iowa and Ohio.

The 2018-2019 Iowa Ag Educator of the Year has already seen a 30-student increase in his agricultural shop class for next fall-at a high school with just over 300 students. Recipient Brad Taylor, a teacher at Roland-Story High School in Story City, Iowa, credits this growth to the recognition he received through the Golden Owl Award.

"I think it's important to be a role model for the students that we have in our classes so they understand what the opportunities are for their futures," said Taylor. "This award symbolizes the hard work that individuals have put into agriculture education to help students realize what their full potential is."

Twenty-six finalists across the four states will receive an individualized plaque and $500 to support their agriculture programs. One finalist from each state will be crowned as his/her state's Ag Educator of the Year and will receive the Golden Owl Award trophy and $3,000 to help fund future educational efforts.



ASA Supports Rule and Suggests Ways to Improve Clarity, Transparency, & Support of Plant Breeding Innovations

The American Soybean Association (ASA) is broadly supportive of the United States Department of Agriculture (USDA) Animal and Plant Health Inspection Service’s (APHIS) direction for its proposed rule changes to regulations in 7 CFR part 340, “Introductions of Organisms and Products Altered or Produced Through Genetic Engineering Which are Plant Pests or Which There is Reason to Believe are Plant Pests.”

“We are pleased with USDA’s science and risk-based approach outlined in the rule and ask that USDA work to finalize the rule to bring certainty to the industry. We urge the Food and Drug Administration (FDA) and the Environmental Protection Agency (EPA) to work with USDA so the agencies are aligned, and to coordinate internationally on biotechnology, particularly as it relates to gene editing,” said Caleb Ragland, Chair of ASA’s regulatory committee.

The bulk of ASA’s comments on the proposed rule involve clarity and transparency – offering suggestions to strengthen the rule by clarifying terms, outlining distinct timelines for approvals and steps within the approval process, and including a process for more transparency of available products in the marketplace, including certain gene-edited products.

“We appreciate that USDA took the time necessary to gather input from stakeholders in this rule. It has been more than 30 years since biotech regulations have been updated, and this process has been ongoing for many years and across administrations. Also, USDA is wisely focusing on the products themselves rather than the methods used to produce them,” said Ragland, concluding, “We look forward to a final rule that is based on sound science, spurs innovation, is transparent, and does not cause undue regulatory burdens for our food supply or the consumers that depend on it.”

Biotechnology is an essential tool in allowing our farmers to feed our communities while putting less strain our environment. With the right regulatory system, we can develop innovative ways to improve how we grow our food while reducing our impact on the planet. A clear, science-based regulatory system in the U.S. helps set an example and standard for regulatory systems of biotechnology internationally.



EPA Takes Action to Provide Accurate Risk Information to Consumers, Stop False Labeling on Products

EPA is issuing guidance to registrants of glyphosate to ensure clarity on labeling of the chemical on their products. EPA will no longer approve product labels claiming glyphosate is known to cause cancer – a false claim that does not meet the labeling requirements of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). The State of California’s much criticized Proposition 65 has led to misleading labeling requirements for products, like glyphosate, because it misinforms the public about the risks they are facing. This action will ensure consumers have correct information, and is based on EPA’s comprehensive evaluation of glyphosate.

"It is irresponsible to require labels on products that are inaccurate when EPA knows the product does not pose a cancer risk. We will not allow California’s flawed program to dictate federal policy,” said EPA Administrator Andrew Wheeler. “It is critical that federal regulatory agencies like EPA relay to consumers accurate, scientific based information about risks that pesticides may pose to them. EPA’s notification to glyphosate registrants is an important step to ensuring the information shared with the public on a federal pesticide label is correct and not misleading.”

In April, EPA took the next step in the review process for glyphosate. EPA found – as it has before – that glyphosate is not a carcinogen, and there are no risks to public health when glyphosate is used in accordance with its current label. These scientific findings are consistent with the conclusions of science reviews by many other countries and other federal agencies.

On Feb. 26, 2018, the United States District Court for the Eastern District of California issued a preliminary injunction stopping California from enforcing the state warning requirements involving glyphosate’s carcinogenicity, in part on the basis that the required warning statement is false or misleading. The preliminary injunction has not been appealed and remains in place. 

California’s listing of glyphosate as a substance under Proposition 65 is based on the International Agency on the Research for Cancer (IARC) classifying it as “probably carcinogenic to humans.” EPA’s independent evaluation of available scientific data included a more extensive and relevant dataset than IARC considered during its evaluation of glyphosate, from which the agency concluded that glyphosate is “not likely to be carcinogenic to humans.” EPA’s cancer classification is consistent with many other international expert panels and regulatory authorities.



E15 Sales Up Following Removal of Summertime Barrier, But RFS Refiner Exemptions Suppress Expansion

Data released Wednesday by the Minnesota Department of Commerce prove that the marketplace is already responding to President Trump’s elimination of a decades-old regulatory barrier severely limiting the sale of E15 in the summertime. In June 2019—the first month following elimination of the summertime E15 restriction—sales of the blend virtually doubled when compared to June 2018. At the same time, the Minnesota data show that the wave of Renewable Fuel Standard compliance exemptions granted to oil refiners is suppressing more rapid expansion of E15 and other higher-level ethanol blends.

For the first time ever, E15 sales volumes did not plummet in June, as the Environmental Protection Agency issued a rule on May 31 finally allowing retailers to continue offering E15 throughout the summer months. Sales of E15 jumped from 3.66 million gallons in June 2018 to 6.30 million gallons in June 2019, according to the data. The number of Minnesota stations selling E15 also increased by 18 percent during that period.

“The data from Minnesota confirm that the market is already reacting positively to the elimination of the unnecessary and ridiculous summertime restriction on E15,” said Geoff Cooper, President and CEO of the Renewable Fuels Association. “In the past, when the calendar flipped to June, E15 sales volumes would begin a summer-long nosedive because of EPA’s antiquated gasoline volatility regulations. But because President Trump kept his promise to remove the summertime barrier to E15, those days are over and retailers now have the ability to sell E15 all year long. Customers looking for a cleaner, lower-cost, higher-octane fuel option can finally fill up with E15 during the busy summer driving season.”

While the June boost in E15 sales is good news, Cooper said the data also underscore the demand destruction resulting from EPA’s unrestrained abuse of small refiner exemptions. In recent months, E15 sales volumes per station have been slightly below year-ago levels due to weakened RFS requirements and lower prices for the RFS compliance credits known as RINs. From December 2018 through May 2019, E15 sales per station per day were 13% lower, on average, than the average during the same period the year before. Not coincidentally, RIN prices were three times lower in the period of lower E15 sales.

“These data provide further evidence that EPA’s rampant issuance of RFS small refiner exemptions is suppressing growth in E15 and other higher-level blends,” Cooper said. “The bailouts given to refiners in recent years led to a collapse in the price of RFS compliance credits, which provide the marketplace with a powerful incentive to expand E15 availability. That incentive is greatly diminished when credit values are very low—as is currently the case. This is more proof that EPA’s reckless use of small refinery waivers is resulting in lost demand for ethanol producers. With another 40 small refiner exemption requests pending, we urge the Trump Administration to exercise far more constraint and judiciousness in deciding these petitions. And we implore EPA to ensure that any exempted volumes are redistributed to non-exempt parties.”



Joint NCGA-ASA Op-Ed Urges President to Support Renewable Fuel Standard
Lynn Chrisp, President, National Corn Growers Association
Davie Stephens, President, American Soybean Association

National Corn Growers Association (NCGA) President Lynn Chrisp and American Soybean Association (ASA) President Davie Stephens have written the below opinion piece urging President Trump to uphold his commitment to America’s farmers and the Renewable Fuel Standard (RFS).

President Trump, Uphold Your Commitment to the RFS
American farmers have a strong history of innovation. Whether that be the seeds that we plant or the tractors that we drive, we are always looking for ways to do better and increase market opportunities for our products.

Home-grown renewable fuels, like ethanol and biodiesel, are far and away our biggest success story. The Renewable Fuel Standard (RFS) has reduced our dependence on foreign oil, lowered fuel prices at the pump, reduced greenhouse gas emissions and added value by increasing demand for the corn and soybeans our farmers produce.

Recently, President Trump took a significant step forward for renewable fuels, instructing the Environmental Protection Agency (EPA) to eliminate the outdated barrier that required retailers in many areas of the country to stop selling 15 percent ethanol blends, or E15, during the summer months.

The benefits of E15, unfortunately, don’t extend to biodiesel. And while this development was welcome news for corn farmers who have been long-time advocates of higher ethanol blends, recent actions by the EPA threaten to curtail benefits to the farmer.

Since early 2018, EPA has granted 53 RFS waivers to big oil companies, undermining the RFS and reducing corn and soybean demand. EPA has an additional 38 waiver petitions pending.

These retroactive waivers, which apply to 2016 and 2017 RFS obligations, have totaled 2.61 billion ethanol-equivalent gallons of renewable fuel. The waivers have resulted in an estimated $2 billion in economic harm each year to the U.S. biodiesel industry alone, and if EPA continues to hand out the waivers, the damage for biodiesel could reach $7.7 billion.

These exemptions reduce demand for renewable fuels and lower the value and demand for our soybean and corn crops. For biodiesel, the waivers, combined with the zero-growth proposed for the annual RFS volumes, take the industry backward. For ethanol, these waivers limit growth of higher ethanol blends and undo the positives provided by year-round E15. USDA’s most recent World Agricultural Supply and Demand Estimates (WASDE) projects a 155 million bushel decline in corn going to ethanol production in the 2018/2019 marketing year, and domestic ethanol consumption in 2018 reversed 20 years of growth with a first-ever decline.

This EPA practice clearly runs counter to President Trump’s much-touted support for America’s farmers and renewable fuels from the farm. Appearing at a Council Bluffs, Iowa, ethanol plant in June, the President harkened back to his campaign promise to support agriculture. “As a candidate for president, I pledged to support our ethanol industry and to fight for the American farmer like no president has ever fought before,” Trump told the crowd.

But, as Iowa corn and soybean farmer Kevin Ross told the President, “The EPA’s oil refinery waivers threaten to undo your good works.”

Disruptions in the renewable fuels market could not come at a worse time for agriculture. This spring’s wet weather meant planting was significantly behind schedule, if we could even get into the field at all, and uncertainty surrounding trade disputes and tariffs has threatened long-standing relationships and new market opportunities for our products.

President Trump has the opportunity to follow through on his promise to farmers by instructing the EPA to ensure it does not undermine the RFS and the many benefits of renewable fuels. This is especially important now, as EPA evaluates pending waivers and begins a rulemaking process to reset RFS requirements.

America’s farmers are the most innovative in the world and, if given the opportunity, can be a major contributor to our nation’s energy independence. Mr. President, you support us, and we want to support you; please uphold your commitment to America’s farmers and the RFS.



Shifting Policies Lead To Market Opportunities In Saudi Arabia

Customizing programs to meet the specific needs of an individual company, such as ARASCO, ensures the Council's programs address the specific interests and concerns companies may have regarding U.S. feed grains and co-products.

Imports represent a growing proportion of animal feed rations in Saudi Arabia due to shifting government policies to conserve water and increased overall demand. The U.S. Grains Council (USGC) is working with leading feed grain importers and end-users to capture that demand and expand export opportunities for U.S. feed grains and co-products to the Kingdom.

“The Council foresees the Kingdom to be a key export market for U.S. feed grains and co-products, as well as a growing export market for ethanol for years to come – especially as Saudi continues to turn to imports to conserve water and meet growing feed grain demand,” said Ramy Taieb, USGC regional director for the Middle East and Africa.

A critical component of the Council’s work with Saudi industry is ensuring key decision makers have a comprehensive understanding of U.S. grain production, marketing and handling systems. As a part of this effort, the Council organized a team from ARASCO, Saudi Arabia’s largest feed milling company, to travel to the United States in July to meet with U.S. producers, suppliers and exporters.

“Customizing programs to meet the specific needs of an individual company, such as ARASCO, ensures the Council's programs address the specific interests and concerns companies may have regarding U.S. feed grains and co-products,” Taieb said. “With a 40 percent market share in the feed industry and plans to expand its operations, ARASCO is, and will continue to be, a key partner to the Council in the region.”

The team visited Illinois, Kansas and Louisiana to gain a better understanding of the U.S. feed grains and co-products value chain - from production to logistics channels for export - as well as the nutritional and economic advantages of these commodities.

“Teams like this one allow the Council to provide consistent, reliable market information to the Saudi feed industry,” Taieb said. “The direct interaction between Saudi buyers and U.S. farmers and exporters is an integral part of assessing and evaluating what tools the Saudi industry needs to use higher volumes of U.S. feed grains and co-products.”

The Council has worked in Saudi Arabia for more than three decades, focusing on relationship building, market promotion and knowledge exchange. The amendment to the Saudi’s animal feed subsidies in 2011 - which the Council encouraged - granted import subsidies for U.S. distiller's dried grains with solubles (DDGS) and corn gluten feed for the first time.

“This allowance created new export market opportunities for U.S. corn and co-products to the Kingdom,” Taieb said. “One of the world's driest areas, Saudi Arabia also began undertaking substantial measures in 2016 to conserve water, creating additional demand for imported feed versus heavily-irrigated domestic barley and wheat production.”

As a result of these policy revisions and growing feed grain demand, the Kingdom has grown into a key export market for U.S. corn, sorghum and co-products. Saudi Arabia purchased nearly 1.5 million metric tons (59 million bushels) of U.S. corn, ranking as the ninth largest market, in addition to U.S. DDGS and corn gluten feed in the 2017/2018 marketing year.

Saudi customers, including ARASCO, were also among the first to purchase U.S. sorghum vessels on the water when China announced tariffs in April 2018. Since that announcement, the Saudi Arabian market overall has purchased 280,000 tons (11 million bushels) of U.S. sorghum.

The Council will continue working with Saudi buyers and end-users to meet their feed demand as additional water-conservation policies are put in place - including one introduced in early 2019 to reduce overall water consumption by 24 percent over the next year.

“The Council has the opportunity to further increase its effectiveness in the Saudi market by providing marketing information to major players in the Saudi feed industry,” Taieb said. “Doing so will continue to improve import prospects for U.S. corn, sorghum and co-products to the Kingdom.”