Evening Report (VIP) -- February 25, 2014

February 25, 2014 08:48 AM

Consultant lowers Brazilian bean crop for third straight week... Pro Farmer South American Crop Consultant Dr. Michael Cordonnier trimmed his Brazilian soybean crop estimate by 500,000 MT, lowering it to 88.5 MMT this week. That's the third straight week for a 500,000-MT reduction in his Brazilian bean crop forecast. He maintains a neutral to negative bias toward the crop going forward.

Dr. Cordonnier is currently in Mato Grosso and says his biggest surprise is how saturated Brazil's top soybean production state has become. "Generally by the end of February, the rains are starting to diminish. But this year, the rains have really picked up over the last several weeks," he says. "Disappointing yields are being reported out of southern Brazil and now concerns are mounting in Mato Grosso that the wet weather may impact the yields in that state as well."

Additionally, Dr. Cordonnier doesn't believe there will be as many safrinha soybeans planted as he earlier expected due to saturated conditions and an improved domestic corn prices. He previously estimated around 1 million hectares would be planted to a winter soybean crop, but now he thinks only 500,000 hectares may be planted.

Dr. Cordonnier left his Brazilian corn estimate unchanged at 68.5 MMT and has a neutral bias toward the crop. He also left his Argentine soybean estimate unchanged at 53.5 MMT and says recent weather improvements cause him to have a neutral to slightly higher bias toward the crop. He continues to peg the Argentine corn crop at 22.5 MMT and has a neutral crop bias.


Aussie scientists say El Nino a possibility... The Australian Bureau of Meteorology says current tropical Pacific Ocean temps reveal ENSO readings are currently neutral, but it notes subsurface ocean temp readings have warmed "substantially" in recent weeks and models suggest further warming is likely. Some, but not all models, forecast ocean temps to either approach or exceed El Nino thresholds by July, although the bureau warns climate models that span the next three months have a lower level of accuracy.

"A strong burst of westerly wind occurring now over the far western tropical Pacific may cause further warming of the subsurface in the coming weeks," says the bureau. Click here for more.


ERS expects food prices to rise 2.5% to 3.5% in 2014... The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose 0.4% in January from the month prior to stand 1.6% above year-ago, according to USDA's Economic Research Service (ERS). The CPI for all food rose 0.4% between December and January to stand 1.1% above year-ago levels. Specifically, the food-at-home (grocery store food items) CPI rose 0.7% in January; it now stands 0.9% above year-ago. From 20012 to 2013, the food-at-home CPI rose just 0.9% -- the smallest year-over-year increase in decade. The food-away-from-home (restaurant purchases) CPI rose 0.1% from December to January to stand 2% above year-ago levels.

ERS expects food price inflation will return to a range closer to the historical norm in 2014, after retail food prices were flat in 2013. Therefore, ERS forecasts the food, food-at-home and food-away-from home CPIs will increase 2.5% to 3.5% from 2013 levels, assuming normal weather. ERS does note, however, that severe weather could drive prices above current figures. Specifically, it says the drought in California could have "large and lasting effects on fruit, vegetable, dairy, and egg prices." Learn more.


Study: Proposed tax code changes may slash access capital... Proposed changes to the tax code that would limit the use of cash accounting by ag operations would cut ag's access to capital by up to $12.1 billion over the next four years, American Farm Bureau Federation (AFBF) reports, citing a study released by Kennedy and Coe, LLC and Farmers for Tax Fairness. Informa Economics conducted the study that examines the potential impact of tax reform proposal discussion drafts released by the House Ways and Means Committee and the majority staff for the Senate Finance Committee. The proposed reforms would require ag operations with more than $10 million in gross receipts to shift to from a cash-basis to an accrual form of accounting.

According to the study, U.S. farmers forced to switch to accrual-basis accounting would have to pay as much as $4.84 billion in taxes over the next four years. Another impact of the changes could be a $7.26-billion reduction in borrowing capacity for these operations over that time span. The study explains, "In aggregate, these farms have less than $1.4 billion in current cash on hand to pay the additional taxes. If the tax bill associated with deferred income comes in an unprofitable farm year or if the producer cannot otherwise meet the capital requirements, the farmer or livestock producer may have to downsize to survive (e.g., sell land or livestock)." Learn more.


Farmers just now starting to focus on new farm bill... Washington Consultant Jim Wiesemeyer says recent presentations throughout farm country have made it clear producers waited until the farm bill was signed into law to focus on the details (saving themselves a lot of frustration and time). Following are some of his initial observations based on farmer feedback:

  • Some farmers asked why the farm bill writers did not use the first five months of the marketing year price average rather than the entire marketing year price. This was used in the past, they noted, and would likely have meant a larger payout in low-priced years and a quicker timeline for payouts. Farmer safety net payouts will not come until at least Oct. 1, 2015 for the 2014 crops; Oct. 1, 2016 for 2015 crops, etc.
  • Corn and soybean growers will likely initially focus on the county Ag Risk Coverage (ARC) option due to an expected big payout at least for the 2014 corn and soybean crop based on most price projections for the 2014 crop year, and especially compared with the triggers for the Price Loss Coverage (PLC)/target price option.
  • An easy conclusion is that if a farmer goes with ARC, especially in the Midwest, he or she will go the county ARC route -- not the individual option.
  • Some wheat growers initially said they would focus on the PLC over ARC, and will look with interest in adding the Supplemental Coverage Option (SCO) with the 2015 crop. SCO is not available if a farmer chooses ARC.
  • Corn and soybean growers say SCO is not so attractive to them as they already are at the 80% or higher buy-up level via hefty crop insurance subsidies.
  • Farmers say they will assess the impact of the new safety net programs on their crop insurance choices for the years ahead.
  • Corn and soybean growers with an interest in the SCO option indicated they would likely lower their crop insurance guarantee level in exchange for getting more subsidized SCO coverage if they chose PLC. But that still was not likely enough for them to shift from their initial thinking of going the county ARC route.
  • The lower the price expectation a farmer has, the more interest he has in the PLC option.
  • Farmers said they may put more of their crop under the nonrecourse commodity loan program if prices falter, as that would give them more time for prices to increase.
  • Farmers expressed a lot of interest in more education about the farm bill, and said they will use several spreadsheets to help determine their final choice(s), and that they will put a lot of weight on what their crop insurance agent may recommend. Check out this primer on the new farm bill for some help with this.
  • Several farmers expressed anxiety about getting all of the vested members of their operations to agree on a farm program choice.
  • Many farmers believe dairy producers came out the best in the new farm bill, with the new farmer-friendly gross margin protection program.


General Mills has no plans to formulate more GMO-free products... Food Business News reports that General Mills is not planning on developing any more GMO-free products. Ken Powell, chairman and chief executive Office of General Mills, Inc., told the news group that releasing the reformulated non-GMO Cheerios cereal has not affected its competitive performance. In other words, Americans are not buying more Cheerios because of the new GMO-free label.

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