Evening Report (VIP) -- January 31, 2014

January 31, 2014 08:54 AM

Cattle Inventory Report: smaller inventory, less heifer retention than expected... USDA's data confirms the U.S. cattle herd has now contracted for seven consecutive years. The Jan. 1 inventory of all cattle and calves in the U.S. at 87.730 million head is roughly 320,000 head fewer than the average pre-report guess. The U.S. cattle herd is down roughly 1.57 million head from year-ago and nearly 9.3 million head fewer than in 2007, when the contraction phase started. The calf crop also continues to contract. At 33.930 million head last year, the calf supply is nearly 350,000 head fewer than 2012.

Cattle Inventory Report




% of year-ago

All cattle & calves




Annual calf crop




Total Cows/heifers calved




beef cows/heifers calved




milk cows/heifers calved




Heifers 500 lbs. and over




Beef replacement heifers




Milk replacement heifers




Other heifers




Steers 500 pounds and over




Bulls 500 pounds and over




Calves under 500 pounds




Looking forward, cattle producers are rebuilding their beef herds, but at a slightly lower pace than was expected. Beef replacement heifers came in 2% above year-ago, while the trade expected a 3.1% increase. Most of the heifer retention was in the Central and Southern Plains. While there's incentive to rebuild herds after the prolonged contraction, pasture conditions still aren't back to where producers would like them to be. That's likely the reason there wasn't more heifer retention.


Title I provides safety net choices... The new farm bill will give you safety net options --either a revenue-assurance plan called Ag Risk Coverage (ARC, aka shallow loss payments) or Price Loss Coverage (PLC, aka target or reference prices). Once the safety net choice is chosen, that decision will last for the life of the farm bill.

A major change with this farm bill is Title I program payments will be made on base rather than planted acres. You will have an option to reallocate your base acres for the average of what you planted or was considered planted during 2009-2012. For example, if you had a 100-acre wheat base and planted an average of 50 acres of corn during 2009-2012, you have the option of reducing your wheat base by 50 acres and establishing a corn base of 50 acres.

If you choose ARC, payments can be based on either county or individual farm. For the county option, any payments will be made on 85% of your base acres; the farm-level option makes payments on 65% of base. If you choose PLC, any payouts are on 85% of base acres. If you choose county ARC or PLC, you can mix programs for your individual crops. But if you choose farm-level ARC, your safety net choice covers all crops on that farm number.

County ARC payments occur when actual crop revenue is below the ARC revenue guarantee for a crop year. The county ARC guarantee is 86% of county ARC benchmark revenue. Coverage is capped at 10%, meaning coverage is between 76% and 86% of the county ARC benchmark revenue. County ARC benchmark revenue is based on the Olympic average (removes high and low values) of county yields and U.S. crop year average prices for the five preceding crop years.

PLC payments occur if the U.S. average market price for the crop year is less than the crop’s reference price. Reference prices (in bu. per acre) are: corn $3.70; soybeans $8.40; wheat $5.50; barley $4.95; sorghum $3.95. Also of note, you can update yields under the PLC program to 90% of your average planted yield over the 2008-2012 crop years. That’s a big deal if you have increased yields since payments are based on yields and base acres.

An optional Supplemental Coverage Option (SCO) is available beginning with 2015 for those enrolled in PLC (SCO is not available for those in ARC). SCO gives you the option to purchase county-level insurance that covers part of the deductible under your individual yield and revenue loss policy. Your coverage level cannot exceed the difference between 86% and the coverage level in the individual policy and the subsidy rate for SCO is 65%. There are no payment limits for SCO. Get more details about your safety net options and other farm bill features.


Other crop insurance provisions... Besides the new SCO option for those electing to participate in PLC, the farm bill also includes the following provisions.

  • The higher subsidy levels for enterprise insurance are made permanent.
  • A new revenue-minus-cost margin crop insurance contract is authorized. The initial target is rice for the 2015 crop year.
  • Several provisions encourage data sharing, with a focus on USDA agencies. One objective is to increase availability of county-based insurance products.
  • Insurance plug yields are increased from 60% to 70%. A producer may exclude a yield for a crop year in which the county planted acre yield was at least 50% below the average county yield over the previous 10 consecutive crop years.
  • Budget limitations are placed on renegotiations of the Standard Reinsurance Agreement, including budget neutrality with regard to the crop insurance programs.
  • Insurance benefits are reduced if a farm tills native sod for production of an annual crop.
  • Insurance coverage is to be offered by dryland and irrigated acres of a crop.
  • Beginning farmers and rancher are eligible for a higher subsidy rate on insurance.
  • A proposal to reduce the level of insurance subsidies for high income individuals was deleted.
  • USDA's Risk Management Agency is given a mandate to focus on developing insurance products for underserved commodities. Immediate priorities are revenue insurance for peanuts, margin insurance for rice, and a specialized irrigated policy for grain sorghum. Studies are authorized of insurance for swine and poultry catastrophic disease, poultry business interruption; and food safety. Insurance for organic crops is to offer price elections that reflect the retail or wholesale price, as appropriate. Index-based weather insurance pilot programs are a priority.


Cotton producers have a different option... Beginning with the 2015 crop, cotton growers will have a revenue/crop insurance-type program called the Stacked Income Protection Plan (STAX.) Since it will not be available for 2014, there will be a "transition payment" for upland cotton growers and in 2015 for those counties where STAX is still not available. Farmers can only get STAX if they plant cotton (which has nothing to do with the old cotton base now called generic base). The only way farmers can get payments on generic base is if they choose to plant something other than cotton. Base acres have no connection to STAX.


Stabenow stymied COOL changes... Meatpackers and some livestock groups are upset the farm bill does not repeal or overhaul the country-of-origin labeling (COOL) regulations that have been challenged by Mexico and Canada at the World Trade Organization (WTO). Senate Ag Chairwoman Debbie Stabenow (D-Mich.), who successfully fought any COOL changes during negotiations with House Ag Chairman Frank Lucas (R-Okla.), said Congress would address the issue separately later should the WTO decide that a new rule implemented last year by USDA is illegal. The newly enacted Fiscal Year 2014 omnibus spending package expresses strong disapproval of USDA's new COOL rule, but does not stop them from being implemented. The farm bill conference report includes a provision requiring USDA to conduct within six months an economic analysis of the COOL rule's impact on consumers, producers, and packers. USDA Secretary Vilsack last week signaled no waiting period by USDA is likely.


Canada clears way for PEDV vaccine... The Canadian Food Inspection Agency will issue permits allowing veterinarians to import a vaccine to fight PEDV after recently discovering the potentially deadly pig virus in Ontario. The vaccine will only be available under veterinary prescription. Industry sources tell us the vaccine is also approved under veterinary supervision in the U.S., but how widely it is being used here, or its actual effectiveness, is uncertain.

Meanwhile, Tyson Foods Inc. today said PEDV will decrease U.S. pork production by 2% to 4%. The company reported better-than-expected earnings to its investors today.


Russia to lift pork, turkey ban... Russia will reportedly remove its ban on imports of some U.S. meat in the months ahead, according to the news agency Interfax. The nation is expected to resume imports of U.S. turkey mid- to late February followed by pork in March, the head of Russia's veterinary and phytosantiary service indicated. Russia has cited the use of the growth additive ractopamine for the ban on U.S. beef and pork imports. In November the country announced it would permit U.S. beef imports of up to 60,000 MT in 2014, as the country was in need of beef. Its decision to ease its U.S. pork import restrictions may be related to its recent decision to block imports of EU pork due to African Swine Fever in Lithuania.


Syngenta has no plans to stop sales of Viptera® and Duracade® corn... As we reported last week, the National Grain and Feed Association (NGFA) and North American Export Grain Association (NAEGA) asked Syngenta to suspend commercial sales of its Viptera corn seed in the U.S. until China has granted regulatory approval. The groups also asked Syngenta to suspend its planned launch of Duracade corn this year.

Yesterday, Syngenta said halting sales now would not solve the issue. Instead, in a letter to the groups, Syngenta president, David Morgan, said his company would like to see "collaborative efforts" to bring about "harmonized regulations for biotech traits."

Morgan writes, "Your letter states your organizations 'support agricultural biotechnology' but your request for us to 'immediately halt commercialization' of Viptera and Duracade 'until such time as China and other U.S. export markets have granted required regulatory approvals' is in clear contradiction of that stance."

"Your letter, taken literally, would mean that it is the Chinese regulatory system -- currently not functioning in a predictable or timely manner -- which will decide which tools are going to be available to U.S. corn growers in the future," adds Morgan. "Demand the withdrawal of much-needed technology for U.S. corn growers will not remove the grain that has been in the grain handling system for three years now or is it a credible solution to a wider problem of asynchronous approval processes and timeliness around the world."

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