Tag Archives: agriculture

DB Returns to Ranting About Soy Beans, with a pro tip for economic advisers

Yes, the results of the midterm elections were mostly satisfying — large and copious  thanks to all those who phone banked, precinct walked, and otherwise worked to make those results possible — No, there weren’t any major networks (or even minor ones) discussing trade policy as a factor in those election results, and rightly so because trade policy wasn’t a big deal.  Why should it be?  It’s not like anyone pays much attention, and that includes the so-called “business channels.”  About as close as we’re likely to get to any explication is yet another interview conducted by some major urban news outlet with yet another white rural voter who inexplicably votes for “Buzz Windrip” in the White House while ignoring the trade policy that’s wiping out rural agricultural profits.

Type in “stock market” and Google will return 384,000,000 results in less than .30 seconds. Type in “commodity futures trading” and get 27,900,000 results in the same time period.  Which one has more impact on our daily lives?  Right! The one with the smaller numbers, likely because the advertisers who pay the freight for what passes for business news are interested in the stock market, their stock prices, their competitor’s stock prices, their 90 day stock performance… we get it… the advertisers want stock market information and want us to pay attention to their stock market information, so that’s what we’ll all get — and we’d get it 24/7/365 were it not for commercials about skillets which can be beaten with sledge hammers, devices to remove facial hair, and pills and potions to restore attributes few people had in the first place.  But, we digress.

Those commodities futures trading markets are important.  There are four major functions of these markets: pricing; hedging; speculating; and organizing.  Let’s look at the hedging function first:

Merchants, farmers and international firms use the futures exchanges to hedge future transactions. When a farmer plants his crop of wheat, for example, he does not know what the price will be at harvest time. To remove the risk of price changes, he sells wheat futures contracts at planting time. When he sells his crop a few months later, he buys back the futures contacts. If wheat prices have fallen, he is protected because the futures contracts he buys at harvest cost less than the ones he sold at planting. An importing firm can use financial futures contracts in the same manner to lock in a price for the goods it will be importing later in the year.

This concept doesn’t require a degree in finance to comprehend. Sell futures contracts to protect himself from a price drop at harvest and our soy bean farmer can stay in business.  Actually, the farmer usually isn’t dealing with the futures but we can bet our last soy bean the grain elevator operators are. They’re paying very close attention.  NPR explains, “They’ll use futures contracts to manage sales and get good deals throughout the year, allowing them to pay farmers a more consistent price and protect them from big drops.”  Farmers benefit from a “more consistent price” and “protection from big drops.”  Anyone doubt those of us who buy the stuff related to soy beans (everything from soy sauce to animal feed to consumer products)  benefit from consistent prices?

“Manufacturers of both industrial and consumer products use soybean oil and meal to replace petroleum and other volatile or hazardous ingredients, as well as increase product performance. The versatility of U.S. soybean components makes product applications remarkably wide-ranging, including rubber, fiber, coatings, solvents, plastics, lubricants and adhesives.” [UnitedSB.org]

Again, no finance degree is necessary to understand that a consistent price is beneficial for manufacturers in a wide range of consumer products.  Consistent prices in a more stable market mean more predictable manufacturing costs, and more predictable business decisions.  IF there’s a market.  If there’s a market for the soy beans. If someone would decide (preferably before December 10, 2018) to fix the mess created by the administration’s silly tariff flap with the Chinese.

December 10 is the day the CFTC is scheduled to make a decision on the storage rate for soy beans — thus far it’s climbing because we’re about out of storage space — because major purchasers like China aren’t buying soy beans — and storage space is scarce and becoming more expensive —  remember Economics 101 or high school  “General Business?”  The result of current policy is a nose dive in soy bean prices.

The USDA is forecasting that soybean-planted acreage will drop by 6.6 million acres to 82.5 million in 2019. The American Farm Bureau Federation notes that “if realized, this would be the third-largest acreage decline of all time and the largest year-over-year decline in soybean plantings since … 2007.

“The decline in soybean acreage is anticipated given the slow pace of soybean exports, the dramatic decline in Chinese purchases, expectations for a nearly billion-bushel-l?carryout and projections for decade-low soybean marketing year average prices.”

Negotiations are still underway between the Trump administration and the Chinese government over trade issues. However, the U.S. government has emphasized that it is committed to getting things back to normal for soybean farmers. According to Bloomberg, “Any trade pact would also address the resumption of soybean sales specifically, since that was targeted in the trade war.”

“Committed to getting things back to normal?”  How about if Buzz and Company hadn’t launched the stupid trade war in the first place? There were other ways to press the intellectual property issues and trade questions with the Chinese without using a policy version of a meat ax.  However, the ham handed, ham fisted, and ham headed administration acted as “normal” i.e. acting first, without a full and measured consideration of the ramifications, and being surprised at the unintended consequences of its actions.  So, we’ve lost 98% of our soy bean sales to China.  Our storage facilities are filling up, and costing more; while the Chinese are signing contracts with the Brazilians for more beans.

Pro Tip for the economic advisers to the President — draw him a picture of a soy bean on a white dry-marker board, put his face on it, and then erase 98% of the picture until he gets the idea we’ve lost sales, and revenue, and a major component of our national agricultural statistics.  We could try this, but I don’t really hold out much hope he’ll do much more than blame the problem on a slow walking group of immigrant mothers and children from Honduras who have Hillary Clinton’s emails in their back packs, and whose 300 pound sons are at home in their bedrooms in San Pedro Sula hacking into DNC servers.   But, hey, it’s worth a try to amuse Buzz on a rainy day when he can’t play golf, with some colorful charts and pictures of himself as a soy bean if we could manage to get his attention long enough to do something about the trade/tariff stupidity?

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Donald Trump Is About To Do Something Really Stupid: Soy Bean Edition

This is a recyclable headline.  However, we need to be aware of the following item from Reuters two days ago:

“WASHINGTON (Reuters) – The U.S. Commerce Department has recommended that President Donald Trump impose steep curbs on steel and aluminum imports from China and other countries ranging from global and country-specific tarifandfs to broad import quotas, according to proposals released on Friday.”

And, of course here comes the response:

“If the United States’ final decision affects China’s interests, we will take necessary measures to defend our rights,” said Wang Hejun, a senior official at China’s Commerce Ministry, according to a report Saturday by state-run news agency Xinhua.

The short article didn’t provide further details on how Beijing might respond. Ross’ recommendations came in the middle of China’s Lunar New Year holiday when government offices and businesses largely shut down for a week.”  [CNNmoney]

The ‘final decision’ is due in April, 2018.  There’s little to analyze at the moment because the proposal isn’t firm, but consists of options presented by the Department of Commerce.

“Ross suggested three options for Trump — impose across-the-board tariffs on steel and aluminum, target select countries with even higher tariffs, or limit the total steel and aluminum coming into the United States.” [CNNmoney]

The steel portion of the proposals advise (1) an across the board 24% tariff on steel from all countries; (2) “Tariffs of at least 53% on imports from 12 countries: Brazil, China, Costa Rica, Egypt, India, Malaysia, South Korea, Russia, South Africa, Thailand, Turkey and Vietnam. These countries would not be allowed to export more steel to the United States this year than they did last year.” [CNNmoney]  (3) decrease imports of steel into the US by 37% from all countries.   In short, there are three options, and from an economic growth standpoint they are all bad. [Report here]

What the administration appears to be gambling on is that the Chinese will not round off their New Year celebrations with the beginnings of a trade war.  The happy clappy analysis would predict China will not retaliate in the semi-conductor sector because too many jobs (Apple) would be lost; and, it will not retaliate against aircraft manufacturers like Boeing because that would give Airbus a monopoly, and thus higher prices and longer wait times for delivery.   So who could be caught up in the squabble?

China imports some $15 billion worth of soybeans from the US each year. $3.4 billion worth of cotton; $3 billion in copper materials; $3 billion in small engine passenger vehicles; $2.2 billion worth of large engine passenger vehicles; then there’s $1.3 billion worth of corn and $1.2 billion in coal. [CBR]

Someone might want to tell Senator Grassley (R-IA) about this Commerce Department proposal and the possible consequences for soy bean farmers because Iowa is the largest producer in the US, followed by Illinois.  Iowa and Illinois account for about 28% of US soy bean production.  Other producing states are: Minnesota, Nebraska, Minnesota, Indiana, Ohio, North Dakota, South Dakota, Missouri, and Arkansas. [B2Lv]  This isn’t the only crop in question.

The Chinese bought an increasing amount of corn last year from the US, but also found a new source of imports — Ukraine.  Ukraine will be the winner in any trade spat, and may be  the ultimate winner anyway.  Most US corn is genetically modified and permits are required in China for the processing of GMO corn; thus Chinese processors started buying more non-modified corn from Ukraine. [Reuters]  Add the GMO issue to a tariff tit-for-tat and Ukraine will be picking up business from — here we go again — Iowa, Illinois, Indiana, the eastern portions of South Dakota and Nebraska, western Kentucky and Ohio, and the northern section of Missouri. [B2lv]

It appears the easiest target for Chinese retaliation for tariffs/import limits would be agriculture, and then there are those large and small engine passenger vehicles.

One of the factors which makes targeting the Chinese a dubious tpoin is that China’s exports of steel have declined in the last few years (although some steel is exported in some form via other nations like Vietnam) and there’s this information on steel importation from the US Trade Representative (pdf)

 Between YTD 2016 and YTD 2017, imports increased from eight of the United States’ top 10 import source countries. Imports from India showed the largest volume increase in YTD 2017, up 209  percent, followed by Russia (up 64%), Taiwan (up 36%), and Mexico (up 23%). The two countries  which the United States had decreases in imports from are Japan (down 9%) and South Korea (down 2%).

Do we see China in this list? No, China is the 11th largest exporter of steel to the US. The top ten are Canada, Brazil, South Korea, Mexico, Turkey, Japan, Russia, Germany, Taiwan, and Vietnam. [USTR pdf]  Exactly how the 11th ranked export source of steel, of which 0.3% by weight is used for military purposes, makes Chinese steel a ‘national security’ issue requires a bit of a stretch, and we’ll probably find ourselves losing the argument with the WTO.  Going the Section 232 route is creative, but not really a very strong platform from which to launch a trade dispute.

Meanwhile it might be a good thing to decide if we want more Chinese assistance with the ever thorny problem of North Korea or we want to slap tariffs on Chinese steel?  Stump speeches which sound good to a crowd of Nucor employees about protecting their industry don’t necessarily make good practical policy when it comes to the point where decisions need to be made about overall economic policy, international trade relations, and diplomatic soft power.  Or, there’s a big difference between campaigning and governing — a not-so-subtle point the current occupant of the Oval Office appears not to grasp with both small hands.

Meanwhile we can only hope the Oval Office occupant doesn’t make a really stupid blunder next April.  Stay tuned, we’re only a little over a year into this E Ticket Ride.

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Farm Bill Tom Foolery

PlowThe House of Representatives of the United States of America was supposed to pass a Farm Bill (HR 1947) on June 20, 2013 but that didn’t happen, and the actions of Nevada Representatives Heck and Amodei weren’t helpful.

Head counters, AKA the Whips, were fairly certain there would be about 40 votes from the Democratic side of the aisle for passage.  Let’s review the basic numbers.  There are 234 Republican Representatives and there are 201 Democrats.  There are no Independents.  Given these numbers, the House Republicans could theoretically pass any bill they want without Democratic assistance.  Since they’ve voted some 37 times to repeal the Affordable Care Act and Patients’ Bill of Rights it’s reasonable to assume there is some cohesion in the majority.

So, why did the Federal Agriculture Reform and Risk Management Act (HR 1947) go down on roll call vote 286 with a 195-234 count?

Representative Mark Amodei (R-NV2) was among the 195 voting in favor of the bill. Representatives Heck (R-NV3), Horsford (D-NV4), and Titus (D-NV1) were counted among the 234 opposed.  Why did those 40 Democratic votes vanish?

There wasn’t much Democratic support for the House version of the Farm Bill to begin with, estimates of 70 Democratic votes were probably too optimistic in the first place, and if Rep. Collin Peterson (R-MN7) is to be believed the straws that broke the old camel’s back were amendments brought to the floor which decimated the SNAP (food stamp) programs.

“And then, you know, we had made a deal on food stamps where I agreed to more cuts than we had considered last year, but I thought we had a deal that there weren’t going to be any other…that we were going to stand together to oppose any other changes in the food stamp area, but that’s not what happened. And three amendments got approved, that each one of them peeled off more support, so we got down to 24 votes, and that wasn’t enough.”  [Peterson, pdf]

The Southerland Amendment was the last straw — the “deal was off” as far as the few remaining House Democratic supporters were concerned.  This amendment was passed on a 227-198 margin [vote 284] with both Amodei and Heck voting in favor of the deal killing amendment.  House Amendment 231 (Southerland) proposed “An amendment numbered 102 printed in Part B of House Report 113-117 to apply federal welfare work requirements to the food stamp program, the Supplemental Nutrition Assistance Program, at state option.”

The federal welfare work rules are: “The Federal government provides assistance through TANF (Temporary Assistance for Needy Families). TANF is a grant given to each state to run their own welfare program. To help overcome the former problem of unemployment due to reliance on the welfare system, the TANF grant requires that all recipients of welfare aid must find work within two years of receiving aid, including single parents who are required to work at least 30 hours per week opposed to 35 or 55 required by two parent families. Failure to comply with work requirements could result in loss of benefits.”  [WI.org]  Rep. Eric Cantor was only too pleased to see these requirements added to the qualifications for the SNAP program. [Cantor] Cantor acknowledged the need to assist citizens in dire need but added, “our overriding goal should be to help our citizens with the education and skills they need to get back on their feet so that they can provide for themselves and their families.”

The last point goes absolutely nowhere toward explaining why the House hasn’t taken up legislation to prevent student loan interest rates from doubling from 3.4% to 6.8% next Monday — but, that’s another story.  Or, why in the midst of innumerable anti-choice bills there hasn’t been time for a JOBS Bill… but that’s yet another story.

The GOP axe job on the SNAP program probably wasn’t going to secure the total support of Representatives Horsford and Titus, and Rep. Titus’s interest may indeed have declined precipitously when her amendment, H. Amdt. 192, “to continue the USDA’s Hunger-Free Communities grant program,” failed on a voice vote.

Representative Amodei may one day have to explain why he voted for the Farm Bill, AND also voted for the amendment (Southerland H.Amdt. 231) which was the Deal Killer.   Mother always repeated the old saw, “Can’t have your cake and …..”

Representative Heck behaved precisely as one might expect of a Tea Party Darling, voting against the Farm Bill and voting for the Southerland Amendment.   There’s no time, and I’ve no enthusiasm for explaining yet again, the role of Automatic Stabilizers in the U.S. economy (such as Food Stamps) to a Representative who obviously doesn’t understand and evidently doesn’t want to.

Suffice it to say that a bill was reported out of House Committees, and then subjected to recorded votes on amendments from vote 256 to to 284 (not including the voice vote amendments).  It shouldn’t really surprise anyone that the final bill failed after minority support was peeled off during successive waves of amendments.

What is a bit incredible is that House Speaker John Boehner (R-OH) couldn’t have foreseen the cumulative effect of the amendments on Democratic supporters of H.R. 1947.

Representative Cantor’s feeble attempt to lay the defeat of the Farm Bill at the office doors of Democrats who watched as “deal breaker” amendments were added to the legislation on the floor notwithstanding, perhaps the Washington Wags are on to something — Speaker Boehner cannot control his own caucus.   Brokering a “deal,” and then allowing amendments to come to the floor for recorded votes — amendments which are designed to deplete the store of minority good will — is a recipe for failure.

However, if the Speaker and his Party, are willing to offer the American public the governance philosophy that Nothing is Better Than Anything then he’s been successful.   If this is “success” then how to explain the tanking of Congressional approval?  The Congress of these United States now has an historically low approval rating — a rather miserable 10%.  [Gallup]

This sad state of affairs doesn’t bode well for some important measures which should be coming to the House floor — Immigration Reform, Student Loan interest rates, and JOBS, JOBS, Jobs, Jobs?

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