The USDA’s National Agricultural Statistics Service (NASS) released its monthly Agricultural Prices report yesterday, which noted that, “The corn price, at $3.57 per bushel, is down 9 cents from last month and 22 cents below February 2015.”
The NASS report added that, “The soybean price, at $8.51 per bushel, decreased 20 cents from January and $1.40 from February a year earlier.”
Donnelle Eller reported on the front page of the business section in today’s Des Moines Register that, “Iowa farmland values have dropped nearly 9 percent over the past year, reflecting lower farm income and commodity prices, a farm real estate group said Wednesday.
“The Iowa Realtors Land Institute farmland survey through March shows the average value of cropland fell to $6,732 an acre, 8.7 percent lower less than a year ago.”
Ms. Eller explained that, “It’s a 22.5 percent decline from 2013, when values climbed to a record $8,690 an acre and U.S. income climbed to $123 billion.”
The Register article noted that, “‘Farm incomes have been dropping, but land values haven’t dropped to the same degree,’ said Steve Bruere, president of Peoples Co., a Clive brokerage and farm management business.
“That has meant that farmland rents have been slow to decline, causing some farmers to default on agreements this spring.”
Ms. Eller added that, “In November, Iowa State University’s farmland survey showed values down 3.9 percent to $7,633 an acre.”
As commodity prices falter and profit margins remain thin, U.S. agricultural producers will be eager to minimize costs of production in 2016. News reports have indicated that some producers are already cutting back on spending for seed and fertilizer.
With respect to interest rates, Binyamin Applebaum reported in today’s New York Times that, “Janet L. Yellen, the Federal Reserve chairwoman, said on Tuesday that the United States economy remained on track despite a rough start to the year because the drag from weak growth in other countries was being offset by lower borrowing costs.
“Ms. Yellen told the Economic Club of New York that the economy ‘had proven remarkably resilient,’ and that the Fed expected better days ahead. She said the Fed still intended to pursue a careful, patient course toward higher interest rates as the economy improved.
“The cautious tone of her remarks, however, suggested no rate increase was likely at the Fed’s next meeting, in April, shifting the eyes of Fed watchers to its subsequent meeting in June.”
The Times article explained that, “The Fed’s policy-making committee indicated after its most recent meeting, this month, that it now expected to raise rates by about half a percentage point this year.
“That was half as much as the Fed had predicted at the beginning of the year.
“Ms. Yellen attributed the deceleration on Tuesday to a judgment by Fed officials that somewhat lower rates were necessary to maintain steady growth.”
And David Harrison and Michael S. Derby stated in today’s Wall Street Journal that, “Global economic and financial uncertainty poses risks to the U.S. economy and justifies a slower path of interest-rate increases, Federal Reserve Chairwoman Janet Yellen said in remarks that suggested little appetite to raise rates when officials meet next month.”
Jesse Newman reported yesterday at The Wall Street Journal Online that, “U.S. farmers are expected to plant more corn and soybeans this year even as their storage bins remain stuffed with rising inventory, according to analysts surveyed by The Wall Street Journal.
“The U.S. Department of Agriculture on Thursday will release two closely watched reports on domestic crop stockpiles and farmers’ planting intentions, against a backdrop of historically high global supplies and pressure on U.S. exports caused in part by the strength of the U.S. dollar.”
Ms. Newman noted that, “Analysts expect USDA to estimate that farmers will plant 90.05 million acres of corn, up about 2% from nearly 88 million last year.
“The USDA likely will peg soybean acres at 82.95 million acres, up 0.4% from 82.65 million last year, while all-wheat acreage likely will be estimated at 51.66 million acres, down 5% from 54.64 million in 2015, according to the survey.”
With this background in mind, Bloomberg writer Alan Bjerga indicated yesterday that, “Illinois farmer David Erickson admits that what he and many U.S. farmers are about to do doesn’t seem to make much sense. With bulging stockpiles of corn and soybeans left over from last year’s harvest, they’re planting more in 2016 — even though the crops probably won’t be profitable.”
The Bloomberg article noted that, “After record prices in 2012 sparked a boom in output, corn and soybeans in the Midwest now fetch less than the cost to produce them, and U.S. farm income is headed for a 14-year low. While the market has improved in recent months, researcher AgResource Co. still estimates a $50 loss for every acre sown on average. As they seed more, growers have cut spending and hope better-than-normal yields will help them at least break even.
“Farmers in the U.S., the world’s biggest grower, will expand corn planting to 89.998 million acres, up 2.3 percent from a six-year low in 2015, and soybeans will be sown on 83.07 million acres, the second-most ever, a Bloomberg survey of 33 analysts showed. The U.S. Department of Agriculture will disclose its planting and stockpile estimates on Thursday.”
Mr. Bjerga added that, “With few appealing options, David Seil chose to expand corn planting on his 1,300-acre farm near Gowrie, Iowa. Rather than sacrifice productive land by using it as pasture for his cattle, he’s cutting back on spending for seed and fertilizer and hoping that weather damages crops somewhere else so that prices go up.”
Pat Westhoff, the director of the Food and Agricultural Policy Research Institute at the University of Missouri, indicated in a column on Saturday that, “In the 1980s, farm financial stress was severe. Farm income was low, debt rose to unsustainable levels and a wave of bankruptcies contributed to a crash in farmland values.
“This is not the 1980s. The ratio of farm debts to farm assets is much lower now than it was in 1985. Interest rates are far lower, and very few farms are behind on debt payments.
“However, these are difficult times for many U.S. farmers and ranchers. Net farm income is less than half the record level of 2013. Prices are down for almost every major farm commodity, from corn, soybeans and wheat to cattle, hogs and milk.”
Dr. Westhoff added that, “Each year, our institute puts together a 10-year outlook for the U.S. farm economy. Our March 2016 outlook tells the same story we’ve been telling for some time — more tough times are ahead.
“After peaking at $6.89 per bushel for the crop harvested in the drought year of 2012, corn prices have averaged less than $4 per bushel for the past two years. We expect more of the same. Similar stories hold true for soybeans, wheat, sorghum, cotton, rice and almost every other major crop grown in this part of the country.”
Saturday’s column also noted that, “[R]eductions in production costs and the increase in [federal government] payments are not nearly enough to offset the decline in sales receipts. That’s why net farm income has decreased so sharply.”
In a related item regarding the 1980s, DTN Farm Business Advisor Danny Klinefelter noted in an article this week that, “Financial watchdogs are still smarting from the 2008 financial crisis and don’t want to be behind the curve this time. They’ve imposed stricter risk-based capital requirements, more burdensome documentation and more proactively aggressive monitoring. Risk can originate from weaker borrower financial condition, more carryover debt, concentration in the lender’s portfolio and increased counter-party risk (say when a vendor or supplier fails, causing a domino effect on customers).
“Fortunately — as opposed to the 1980s farm financial crisis — ag banks and the Farm Credit System haven’t been responsible for overly aggressive lending. Many have required down payments as large as 50% on farm mortgages. Much of what caused land values rising above amounts lenders would finance has been the result of borrowers pledging other debt-free assets to secure the loan; they’ve used their own money (liquidity) to pay prices above the lendable value of the land purchased.”
Meanwhile, Reuters writers Tom Polansek and Karl Plume reported today that, “Three years into a grain market slump, U.S. farmers are set to plant more corn, taking a calculated gamble that higher sales will help them make up for falling prices without triggering even more declines.
“Forecasts suggest that at current prices growers will be able to cover their variable expenses such as seed and fertilizer. By planting more and scrimping on everything from labor to crop chemicals, farmers hope to cover a portion of hefty fixed costs, including land rents.
“Their strategy marks a reversal from the last time that prices for corn, soybeans and wheat fell for three years running in mid-1980s. At that time, farmers cut production and prices began rising.”
The Reuters article added that, “Barring a weather disaster, more corn planted means a bigger harvest that will add to massive global crop inventories that have kept prices below break-even levels. The swollen stockpiles also make any price recovery unlikely even if U.S. output were to decline.
“With no rebound in sight, cranking up production might be the best shot U.S. farmers have at balancing their books in a falling market, economists say.”
Nathaniel Popper reported in yesterday’s New York Times that, “Even as Bitcoin, riven by internal divisions, has struggled, a rival virtual currency — known as Ethereum — has soared in value, climbing 1,000 percent over the last three months.
“Beyond the price spike, Ethereum is also attracting attention from giants in finance and technology, like JPMorgan Chase, Microsoft and IBM, which have described it as a sort of Bitcoin 2.0.
“The rise of the relatively new virtual currency has been helped by a battle within the Bitcoin community over how the basic Bitcoin software should develop.”
The Times article explained that, “Like Bitcoin, the Ethereum system is built on a blockchain in which every transaction is recorded publicly. The promise of such a system is that it allows the exchange of money and assets more quickly and more cheaply than relying on a long chain of middlemen.
“But Ethereum has also won fans with its promise to do much more than Bitcoin. In addition to the virtual currency, the software provides a way to create online markets and programmable transactions known as smart contracts.
“The system is complicated enough that even people who know it well have trouble describing it in plain English. But one application in development would let farmers put their produce up for sale directly to consumers and take payment directly from consumers. There are already dozens of functioning applications built on Ethereum, enabling new ways to manage and pay for electricity, sports bets and even Ponzi schemes.”
Nonetheless, Mr. Popper did note that, “All of this work is still very early. The first full public version of the Ethereum software was recently released, and the system could face some of the same technical and legal problems that have tarnished Bitcoin.”
However, “Microsoft has been working on several projects that make it easier to use Ethereum on its computing cloud, Azure,” the Times article said.
Newley Purnell and Juro Osawa reported in yesterday’s Wall Street Journal that, “Consumers in the U.S. use their mobile devices more for getting directions or listening to music than for making purchases, according to a 2015 survey by the Washington, D.C.-based Pew Research Center.
“But a handful of Asian startups are starting to change the commercial landscape by offering apps that let individuals buy and sell goods directly from one another more easily than on traditional Web-based sites like eBay. The so-called peer-to-peer commerce market is attracting funding from international investors and some companies have valuations of $1 billion or more despite the global economic slowdown.”
Purnell and Osawa explained that, “About 43% of people in South Korea said they used a smartphone to make a purchase during the past 30 days, the highest proportion in the world. Six of the top 10 mobile-shopping countries are in Asia.”
Noting how much more user friendly mobile apps can be in the sales process, the Journal article noted that, “In the past, selling goods online involved some legwork. Users had to snap photos of products with cameras, upload them onto special Web pages on their PCs, write product descriptions and conduct auctions. Some specialized companies even sprung up to act as middlemen.
“Now, peer-to-peer shopping apps like Shopee, Japan’s Mercari and Singapore-based Carousell are gaining popularity. They allow listings to be created in as little as a minute or two by having users photograph an item with a smartphone and tap out a few lines of text. GPS features allow buyers and sellers to find each other and built-in payment, chat and delivery services streamline transactions in places like Southeast Asia, where many consumers don’t have credit cards and poor infrastructure can make long-range deliveries difficult.”
Yesterday’s article added that, “‘The U.S. still thinks desktop first, but being out here, I know the future is mobile first,’ said Vinnie Lauria, a Silicon Valley veteran who in 2011 founded Golden Gate Ventures.”
AnnaMaria Andriotis reported in yesterday’s Wall Street Journal that, “At hardware stores along the U.S. East Coast in recent weeks, TD Bank has been trying to persuade shoppers to think bigger than paint and plumbing supplies: The bank wants them to start taking cash out of their homes again.
“The TD Bank tour bus, equipped with a galley kitchen and iPads where homeowners can start the application process, is part of a marketing push unusual for the mortgage industry since the housing bust.
“As the broader mortgage market remains in the doldrums, banks are again touting home-equity lines of credit, which allow homeowners to draw down the equity in their home as they need the cash, as well as cash-out refinances, which involve taking cash out of a home while refinancing and ending up with a larger mortgage balance.”
The Journal article stated that, “The effort is gaining steam as banks try to offset faltering mortgage originations and a refinancing wave that is fizzling out. Lenders are betting that offers for home-equity lines of credit, or helocs, will resonate with many borrowers whose home values are higher than they were just a couple of years ago and who need cash for renovations or other expenses after holding on to their homes for longer than expected.
“Lenders extended just over $156 billion in home-equity lines of credit last year, the largest dollar amount since 2007, the beginning of the housing bust, according to new figures from mortgage-data firm CoreLogic Inc. That marks a 24% increase from 2014 and a 138% spike from 2010 when new approvals hit a low point.”
The Journal writers did point out that, “The volumes are nowhere near the amounts given out before the housing bust, when lenders were approving more than $300 billion in credit lines a year. And housing analysts said it is unlikely that equity lending will return to those levels at any point in the near future.”
David Lazarus penned an interesting column in today’s Los Angeles Times where he noted that, “[Stabucks’] has taken a leadership role in addressing domestic hunger by announcing that it intends to donate all its leftover food to charity.
“This year, Starbucks aims to provide nearly 5 million meals to food banks nationwide from its roughly 7,600 outlets. Within five years, it says, that figure should rise to 50 million meals annually.”
Mr. Lazarus explained that, “Here’s what all other restaurants, hotels, caterers and other food business need to understand: [The] challenge [of finding a way to preserve the food’s quality during delivery] isn’t insurmountable. Nor is the question of legal liability, which I know from past columns on this topic is the chief concern when it comes to donating prepared food.”
Today’s column noted that, “[Michael Flood, president of the Los Angeles Regional Food Bank] said Starbucks’ donations will be relatively easy to handle. Because we’re mainly talking about sandwiches, it won’t be difficult to keep them refrigerated until they’re ready to be eaten…[T]he greater challenge remains hot food served at restaurants, weddings, corporate functions and other events.”
More specifically, Mr. Lazarus stated that, “Many restaurants and hotels don’t donate leftovers to charity because they think they’ll be subject to lawsuits if someone gets sick. What they often don’t know is that the federal Emerson Good Samaritan Food Donation Act shields most donors from legal liability.
“The catch is that the law doesn’t protect charities that receive donated food, which must ensure that any meals served meet all local and state health requirements. Many charities will decline donations of prepared food rather than run the risk of serving potentially unhealthy meals.”
In conclusion, today’s column indicated that, “I see a business opportunity in coordinating pickup and prompt delivery of prepared food to soup kitchens and shelters — with funding, perhaps, from companies that aren’t directly involved in the food business but want to help feed the hungry.
“The pitch: Uber for leftovers.
“Help yourself, entrepreneurs.”
Greg Trotter reported late last week at the Chicago Tribune Online that, “Immediately after U.S. Secretary of Agriculture Tom Vilsack concluded his remarks at the Good Food Festival in Chicago Thursday, he was approached by a couple of admirers — and one ardent supporter of GMO labeling who wanted to bend the politician’s ear.
“The debate on labeling products that contain GMOs — genetically modified organisms — has roiled the food and agriculture industries in recent weeks. Many consumers say they have a right to know what’s in their food; those opposed to labeling say it gives the wrong impression the food is unsafe.”
The article noted that, “In a brief interview, Vilsack, a former two-term governor of Iowa, lamented the debate that’s divided the farming community.”
(Recall that Sec. Vilsack also addressed this issue publicly earlier this month).
The Tribune “Q and A” with Sec. Vilasck included this transaction:
“Q: Were you disappointed the bill stalled in the Senate?
“A: I’m disappointed because I think it’s an opportunity at this point in time to bring agriculture together as opposed to continuing this dispute within agriculture.
“So it was a disappointment in that respect. I think it’s also going to create a confusing mixture of ways in which individual companies and individual states are going to approach this issue. I think it begs for some sort of standardization. And I’m hoping that despite the setback that folks in the Senate don’t stop working on this issue and figure out a way to reach common ground.
“Q: Do you think that’s realistic before July 1, before Vermont’s law goes into effect?
“A: I think it’s certainly possible and doable if people spend the time and are willing to understand that they’re not going to get everything they want. That’s the nature of compromise. We seem to have lost the art of compromise in this country, which I think is unfortunate.”
(Recall that Sen. Chuck Grassley (R., Iowa) has noted that it will be difficult to reach an agreement before this summer).
During the Tribune “Q and A” Sec. Vilsack also stated that, “We need to increase innovation and productivity here and around the world, in order to meet the demand for food. I don’t think there’s a full appreciation for how much food we’re going to have to produce to be able to feed 9 billion people. … (Global food security) is an enormous problem that we have got to face and America’s got to lead. And America is leading, but part of that is making sure we have adequate resources and agricultural research.”
