Evening Report (VIP) -- February 3, 2014

February 3, 2014 09:04 AM


Martell: Rains helpful in PNW, more cold on its way to Midwest... Meteorologist Gail Martell of MartellCropProjections.com says a sudden shift in the jet stream is bringing drought-breaking rains to the Pacific Northwest (PNW), a chance for snow across the HRW Wheat Belt, but for more cold temps for the Midwest. Martell says the reduced winter precip across the West Coast and Southern Plains may be linked to a building La Nina. She says the Climate Prediction Center is sticking with its ENSO-neutral forecast, even though there is a "distinct dry signal from La Nina" developing. Click here for more.



Economist expects nominal growth in 2014... Dr. Vince Malanga, president of LaSalle Economics, Inc., says last week's announced scaling back of its asset purchase program by the Fed did not surprise the market. The Dow Jones Industrial Average posted sharp losses in January and again today, which happens to be Janet Yellen's first day as Chairman of the Federal Reserve.

"History shows that financial markets have not been kind to incoming Federal Reserve chairmen. If we are right, markets may begin to question the wisdom of the Federal Reserve's decision to scale back asset purchases," says Malanga. "And if markets begin to lose faith in the power of Central Banks to guide economies forward, there could be hell to pay."

For 2014, Malanga looks for the same nominal economic growth as seen in 2013, but for an slight increase in real activity and a slight decrease in inflation. "However, in our view, the risk remains to the downside and if the economy stumbles, simmering deflationary pressures could easily assert themselves," he says. "Upcoming economic data reports will be affected by adverse weather, but this should be reflected in consensus forecasts. Therefore, readings of weaker than consensus reports could be interpreted negatively by financial markets. Our guesstimates for upcoming readings on both employment and retail sales in January are for relatively weak readings."



Attaché Raises Korean U.S. Corn Import Forecast... The U.S. ag attaché in the Republic of Korea has raised its 2013-14 corn import forecast by 500,000 MT to 9.5 MMT, of which 3 MMT are expected from the U.S., which is a 1 MMT increase from the attachés previous forecast. The attaché lowered its wheat consumption forecast due to corn prices becoming more competitive. The attaché notes for 2012-13, the estimated corn inclusion rate was 34.3% of total ingredients for compound feed production, which is 2.7% higher than the previous year. This ratio is projected to increase to 41% in 2013-14, says the attaché, "as feed corn price becomes more competitive and is the preference of local animal growers."



Biggest farm bill change... The most significant change with the new farm bill that is expected to clear the Senate Tuesday is it gives farmers a choice to pick the safety-net tool that works best for them, and that if prices collapse, an arbitrary limit will not force Congress to come back in and provide ad hoc relief as was the case in 1998 operating under a $50,000 pay limit. The Farm Bill provides farmers with a one-time election to choose between a revenue (Ag Risk Coverage) or target price (Price Loss Coverage) safety net. An optional Supplemental Coverage Option (SCO) is also available for those taking PLC beginning with 2015 crops -- not 2014. SCO provides farmers the option to purchase county level insurance that covers part of the deductible under their individual yield and revenue loss policy. Learn more.



Other major farm bill features... Some other major changes and reforms of the 2014 farm bill include the following: (For more details, see the full story.)

  • The 2014 Farm Bill has a higher farm program payment cap than the 2008 Farm Bill even before one takes out SURE payments (no longer in place with the new bill). And there are no specific program caps, but rather a $250,000 overall payment cap (combined husband & spouse) for safety net payouts.
  • Direct payments are eliminated. There is, however, a transition payment for 2014 cotton and for 2015 for cotton in counties where the Stacked Income Protection Plan (STAX) program is not available.
  • The cotton program safety net moves from Title I to the crop insurance title. Because STAX is a crop insurance program beginning with the 2015 crop, there are no payment caps for it.
  • U.S. dairy policy is truly reformed via the Dairy Producer Margin Protection Program.
  • A status quo sugar policy -- no changes.
  • Conservation Reserve Program (CRP) maximum acres are reduced to 24 million by Fiscal Year 2018. The farm bill also merges 23 separate conservation programs into 13.
  • The farm bill cut food stamp funding by $8.645 billion, but added back $645 million for various worker/pilot programs, for a net $8 billion reduction for the program.



Bottom line on crop insurance... Crop insurance is improved in the new farm bill, despite efforts to the contrary. But some fret the linkage with conservation compliance is a warning of changes ahead. With crop insurance the largest chunk of change in the farm bill after nutrition, some note crop insurance stakeholders -- the industry and farmers -- need to take a page from the sugar play book and unify their team. There are lingering hard feelings within the industry about how the 2008 Farm Bill and the 2010 Standard Reinsurance Agreement (SRA) played out. Observers say those wounds need to be healed and that only happens if you build mutual respect and trust and take on a unified position.

Crop insurance is in for a rocky road if that does not happen soon. Future budget deficits and the need for more farm bill savings will focus on crop insurance as the "low-hanging fruit" that lawmakers will likely look to in the years ahead. And it could come earlier than most think if there is a budget reconciliation next year. But if divided government continues, that likely means the status quo for a while. Get more details.



Brazil and the 2014 Farm Bill... Analysts say Brazil should have no grounds to continue to challenge U.S. cotton policy because U.S. cotton producers have zero price support under the new STAX program. The price election for STAX is set the way the price election is under any crop insurance policy -- it is a market-discovered price. But some predict other World Trade Organization challenges are ahead regarding the 2014 Farm Bill safety net programs, especially if there are any sustained periods of low to very low commodity prices.


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