California Gets Chance at Greenhouse Gas Waiver
According to the National Association of Realtors this is the best time since 1973 to purchase a home but home sales are at their lowest level since 1997.
The drop was reflected in estimates for the Gross Domestic Product. Though the final numbers come out next month, preliminary figures indicate a drop of 3.8 percent in the fourth quarter of 2008 -- the worst in 27 years. There was a bright spot as analysts predicted the amount would be even worse. Despite the grim news the estimated annual percentage rate increased by 1.3 percent.
And orders for durable goods, items like household appliances and automobiles, fell in December by 2.6 percent -- continuing a five-month slide.
Even in light of the dire news, Wall Street remained relatively even for the week closing just above 8000 on the Dow.
Amidst the economic doom and gloom, one environmental item did see an increase. Unfortunately it was greenhouse gasses or GHGs. According to a National Oceanic and Atmospheric Administration report, GHGs may have risen to a level that will affect the environment for nearly a thousand years. And as the report was released, President Obama continued to show commitment for his environmental agenda.
The first memorandum directs the Environmental Protection Agency, or EPA, to assess a request from the Government of California to tighten the standard for greenhouse gas emissions from cars sold in the Golden State.
U.S. President Barack Obama: The days of Washington dragging its heels are over. My administration will not deny facts; we will be guided by them. We cannot afford to pass the buck or push the burden onto the states.
Gov. Arnold Schwarzenegger, R-Calif.: For too long, Washington has been asleep at the wheel when it comes to the environment. Now California finally has a partner and an ally in Washington at the White House.
And let me again be clear: This has absolutely nothing to do in punishing the automakers. As a matter of fact, what we want to do is just give them a little push to be innovative and to develop new techniques that will ultimately make better cars that will be more competitive around the world.
If EPA approves California's request, more than a dozen states and the District of Columbia also will be able to set emission standards that are more rigorous than federal law. However, all the states in question will be required to adopt the same set of standards approved for the Golden State.
Auto industry analysts responded with concern about the ability of carmakers to comply with conflicting state and federal rules. There also was some anxiety expressed over the potential cost of making more expensive "green" cars after a year in which car sales plummeted 18 percent.
The states hoping to take advantage of the new rule account for nearly half the auto sales in the United States.
The second memoranda directed the National Highway Traffic Safety Administration to publish a final rule increasing fuel efficiency standards. Originally adopted as law in 2007, all passenger cars and light trucks would be required to get 35 miles per gallon by 2011. Bush administration officials felt the argument put forth by automakers was sufficient to delay the standard from taking effect.
U.S. President Barack Obama: "Increasing fuel efficiency in our cars and trucks is one of the most important steps that we can take to break our cycle of dependence on foreign oil. It will also help spark the innovation needed to ensure that our auto industry keeps pace with competitors around the world."
Vilsack Hits Ground Running For Stimulus Bill
Highlights include a $1,000 per-couple tax cut, a $43 billion boost for infrastructure repairs and construction, and a $43 billion aid package for the poor and unemployed.
Farm country is by no means left on the sidelines with a line item that adds $20 billion to the food stamp program. But augmenting aid to America's poor and unemployed is only part of what newly minted Secretary of Agriculture Tom Vilsack has in mind for USDA. The Department has been plagued by complaints of over spending and accidental subsidy payments to deceased farmers. And Vilsack is now the third Secretary of Agriculture given the responsibility of handling fallout from the landmark civil rights case that ended in the largest settlement in U.S. history.
Sec. Tom Vilsack, USDA: “"I think we'll be at the front of responding to the impact and the human consequences of job loss. Now when people lose their job they obviously worry about putting food on the table. Now that’s why its important in the stimulus package to increase and significantly put more resources behind the food assistance programs so that we can assure those families that are struggling today that they can get food on the table for their children."
Vilsack says the massive economic stimulus bill that passed the U.S. House this week could help current Agriculture Department initiatives in Rural America.
Sec. Tom Vilsack, USDA: "A lot of these contractors can have a rough time in these small towns. But if we are creating easements, restoring wetlands, developing buffer strips through the Conservation Stewardship Programs and EQUIP, then we can help get these people back to work."
President Obama’s nearly $900 billion economic stimulus package could include $250 million to overhaul USDA’s aging computer system and $6 billion for rural broadband initiatives. Both appropriations were criticized by Republican leadership as “government pork” unlikely to stimulate the economy – a charge Secretary Vilsack disputes. The new Ag Secretary hoped to send an email to USDA employees on his first day on the job only to discover his message needed to reformatted and resent across the Department’s 29 different computer systems.
Speaking to Department employees last week, Vilsack also dove into the politically charged history of racial discrimination at USDA.
Sec. Tom Vilsack, USDA: “"We have been criticized by the GAO. We have been criticized by the Inspector General. We have been criticized by Congressional leaders. We have been criticized by groups and we have been sued - repeatedly over the decades. It takes time, it takes energy, it takes resources, it doesn't have to be and it shouldn't be."
Ag in the Classroom
When George Washington was inaugurated as America’s first president in 1789 , farmers represented 90% of the U.S. labor force. By the 1930’s the figure had fallen to just 21%. Today less than 2% of the population is actively engaged in farming. Tom Tate, National Program Leader / Ag in the Classroom: “And back when there were many more people producing food, everybody kind of knew about the relationships of how food came through, the farm gate and over to the dinner plate. Everybody understood the full steps because they grew their own food…”
Tom Tate is the national program leader of Ag in the Classroom, a USDA educational program aimed at providing students with a better understanding of the importance of agriculture.Tom Tate, National Program Leader / Ag in the Classroom: We need to provide these future policy makers. These future teachers, these future agricultural workers, these future people in all careers so they can make a better informed decision about the use of our national resources and the sustainability of our planet to produce food, fiber and now fuel.”
Secretary of Agriculture John Block initiated the Agriculture in the Classroom program in 1981. Coordinated through the USDA, the programs goal is to help teachers incorporate agricultural information in core subjects taught in kindergarten through 12th grade.
Melissa Brooks, Iowa Farm Bureau: “So what we’re trying to show them is you can teach agriculture and
still reach your educational standards and also teaching agriculture is more than a farming unit. What we’re looking to do is incorporate it into the science and into the social studies, real life math story problems for example using agriculture as a background. “Melissa Brooks is the Leadership Program’s Coordinator at Iowa Farm Bureau and the state’s contact for Ag in the Classroom. Every summer teachers in Iowa are given the opportunity to attend a 2½-day course where they learn explore educational resources available through the program.
Tom Tate, National Program Leader / Ag in the Classroom: “Today we’re talking about tens of thousands of teachers across the United States, are now using these Ag in the Classroom materials to help extend what we call agricultural literacy.”
While not mandated, all 50 states have Ag in the
Classroom. Each state determines the program’s scope, curriculum and budget. In Iowa, those decisions are made by the Iowa Ag Awareness Coalition. The coalition is unique in that it is composed of each of the major ag commodity groups, as well as several other organizations with ties to agriculture. The coalition’s chairman Gretta Irwin, is the Executive Director of the Iowa Turkey Federation. Gretta Irwin, Iowa Turkey Federation: “It started oh 16 years ago back in 1992 as a way for all of us to come together and accomplish this mission of educating Iowa’s youth on agriculture.”
The coalition meets 10 times a year to develop curriculum and to decide how to spend it’s $7,500 annual budget. Since USDA does not provide money at the state level, dues, contributions and grants comprise the total operating budget.
Gretta Irwin, Iowa Turkey Federation: “It can be a lot of work but coming together reduced our workload as individuals because we all share the burden of getting that information out there and getting it developed. I don’t think individually any of us could succeed in doing the volume of work that we have done over the last 16 years.”
Lynne Wagner is the Education Coordinator for Silos and Smokestacks, an organization with the mission of preserving and telling the story of American agriculture.
Lynne Wagner, Silos and Smokestacks: “Surprisingly even with the rural schools a lot of the students don’t have a grasp of agriculture, even if they’re from a rural community they might live in town, they’ve never been on a farm, they don’t understand how that process works. You still find students who don’t know where their milk comes from. So that’s why we feel that lessons like these are important.”
Silos and Smokestacks is a member of the Iowa Ag Awareness Coalition where Wagner chairs the committee on distance learning.
Lynne Wagner, Silos and Smokestacks: “We are one of the number one ag producing states in the nation. So, it helps students become proud of that. It works.”
The annual federal budget for Agriculture in the Classroom is $500,000. Since that money generates $10 million dollars in contributions
every year to the program, the governments return on it’s investment would make a president smile, but what makes it work is the belief that knowing where food comes from is important. That belief is why individuals are willing to volunteer their time, organizations are willing to donate dollars and why teachers are willing to spread the word of agriculture in the classroom.Tom Tate, National Program Leader/Ag in the Classroom: “We have 5 million youngsters that have been treated with Ag in the Classroom materials. So we thing that the whole system of our society stands to benefit greatly from the ag in the Classroom, teachers and the students they work with.”
For Market to Market, I’m Jeannie Campbell.
Market Analysis: Tomm Pfitzenmaier, Summit Commodities
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For the week, March wheat lost almost 15 cents, while the nearby corn contract trended lower by the same figure.
A rainy forecast in Argentina helped push bean prices downward. For the week, March soybeans lost 29 cents while the nearby meal contract lost $7.30 per ton.
In the softs, cotton dipped below the 50-dollar mark as the March contract dropped most of last week's gain losing a $1.23.
In livestock, February cattle lost nearly 70 cents. Nearby feeders were off $1.75. And the February lean hog contract lost 37 cents.
In other markets of interest, the Euro fell 183 basis points against the dollar. Crude oil lost $4.79 per barrel. Comex Gold gained almost $31 per ounce. And the Goldman Sachs Commodity Index lost nearly 12 points to close at 337.85.
Pfitzenmaier: Thanks, Mark.
Pearson: 2009 is underway and already it has turned out to be a volatile year so far. Obviously the situation in South America, dry weather, that kind of had the market going stronger and then we get these forecasts. It's kind of been an adjustment for us the last few years to start trading South American markets as weather markets for us.
Pfitzenmaier: Well, the weather markets down there aren't any different than the weather markets here and everybody kind of knows what happened last late June and July up here where it looked like the crop was getting worse, everything looked terrible and yet the market topped out and went lower and this week kind of had that same feel to it where they were still talking about dry weather and dead cattle in Argentina and all this stuff and yet the market kind of divorced itself and started to turn lower. So, technically things didn't look very good in the grain markets this week, as you alluded to in your report before this, we lost some ground this week.
Pearson: And I hear about exports and what the potential is for exports for all commodities, really for moving all products because shipping prices are so cheap. But except for beans it's been kind of a disappointment there.
Pfitzenmaier: Well, and then like you reported too how much does the dollar gain relative to the euro, that didn't help matters any either. So, especially wheat took a pretty good hit this week. Cotton did. Corn and beans not quite so much. But there's some other things going on there besides just shipping rates.
Pearson: That's right. Let's talk about the wheat market. Obviously some pressure this week in the wheat market, talk about a weather market, that's usually the longest weather market that we have is winter wheat.
Pfitzenmaier: Yeah, and there's some really dry conditions down in that Oklahoma and Texas area that has the market a little concerned. I guess we are going to be watching to see how the winter wheat comes out of dormancy over the next month or two. Again, like I said, export sales weren't very good this week. That was disappointing. So, I think there's recovery potential in the wheat market but probably not a lot.
Pearson: What is kind of your target, Tomm? We'll talk about Chicago wheat because that's what we show on the show.
Pfitzenmaier: Certainly if you've got it back up in that $6.30 to $6.50 area I think you'd have to become a seller and I know there are some who think we're going higher than that but I guess I'm not that optimistic. I think there's some -- demand is a big problem for wheat just like all the other commodities and I think that's going to keep any rallies limited.
Pearson: Let's talk about the corn market. It seems like a lot of head winds in the corn market these days. You've got the ethanol factor, the VeraSun bankruptcy, you've got reduced livestock numbers, your feed demand of broiler numbers and so forth, that's on the front. What is your outlook for corn just based on what we know here at the end of January? What are you thinking?
Pfitzenmaier: Corn has only had one thing going for it all winter and that has been this January drought in South America. If it wasn't for that corn doesn't have anything going for it. So, I guess I think any rallies in that March corn up in that $4.00, maybe on up to $4.10 if everything works out right I think we're going to have a tough time getting there but if we did that would be a place to get a lot of old crop corn sold. New crop corn $4.25 to $4.75, again, I think that top end is going to be tough to get to but maybe as we talk about acreage and all that over the next 60 days maybe there is some potential. But I think rallies are to be sold there. We started to see the momentum indicators and some of the moving average indicators rolled over and start to turn lower and I think the lack of demand here is going to continue to pressure the corn market. This demand problem that is being generated by all the problems in the country right now I think are going to plague corn throughout 2009. I just think it's going to be hard to get any demand straightened out in any of the categories you alluded to earlier through most of this year.
Pearson: So, you would clean up your old crop on rallies and start selling some of the '09 crop too.
Pfitzenmaier: Absolutely. I'm not saying go out and sell 80% of your new crop corn because maybe you will have a spring rally on acreage or on planting concerns or some of that but I think you need to get it bumped up to 10% to 20% here because this could very well be the best selling opportunity of the year.
Pearson: Let's talk about what's happening in soybeans where the exports have been good and obviously they have also had the other tail wind would be certainly the situation down in South America.
Pfitzenmaier: Well, the beans are a tale of two contracts. You've got the old crop beans and the new crop. The old crop situation has been certainly short but there's one word there, China. They have taken 57% of our exports this year. If you subtract them out exports haven't been all that great in beans. So, you need to have them continue to be in there in order for beans to continue to do well on the old crop. Now, you've also had this dry weather in South America. Having said that, that's being diminished. There is a big chunk of Brazil that is in very good shape and then the areas that were dry are starting to get some rain so that problem is starting to be mitigated. Now, we're starting to watch to see if the Chinese are going to come back after their Lunar New Year holiday and see if they come back. They have been trying to get their reserve filled. Once that is filled we have the potential for demand for beans on the export side just to nosedive here so you're kind of playing with fire by holding beans too long here. We've been given an opportunity to make old crop sales at fairly good levels. I don't think you want to let that get away from you.
Pearson: What are your targets on beans?
Pfitzenmaier: I think anything over $10.00, $10.25, maybe $10.40 on old crop beans I think you'd have to be a seller, somewhere around the $10.00 level basis the cash market in central Iowa. As far as new crop beans whole different story. You've got the potential for wheat acres to move to beans, cotton acres to move to beans, probably some corn acres moving to beans, you apply a 42 bushel per acre trend line yield to that and assume some fairly modest exports and demand numbers and all of a sudden you're looking at a $500 million plus carry out in beans next fall. I mean, that's not $9.00 beans, that's something substantially less than that. So, you get those new crop beans up there in that approaching $10.00 you've got to start selling some new crop beans.
Pearson: And you talk about the acreage battle in corn and soybeans right now, that's going to be very interesting and also you've got a million and a quarter of CRP acres that are going to come out too.
Pfitzenmaier: Exactly and everybody is running around here saying, well, bean prices are so much higher than corn so there's no way anybody is going to plant corn relative to beans and I think the one mistake they are making is there's more to it than just price, there's also the yield potential and the yield potential for corn is still substantially better than it is for beans. The hybrids, the seed technology we're putting out there is a lot better for corn than it is for beans and if you're paying high cash rents you need to make good profits on those acres you're planting. Corn is still the answer. So, there probably will be some reduction in corn acres. I guess I'm becoming convinced that maybe it won't be as great as we thought. Costs have come down, fertilizer is starting to work its way lower. I think when people start working the numbers corn doesn't look as bad as it did maybe around Thanksgiving time.
Pearson: Absolutely. All right, so that will be interesting. Again, that could be another opportunity maybe to make sales as that acreage battle heats up at the end of March. Real quick you mentioned cotton earlier in the show, back below $50 and just kind of a slow down. Is that the Chinese New Year celebration or what?
Pfitzenmaier: We had a fairly good export number this week and we still couldn't go anywhere. I think worldwide demand, again, a recession or whatever word you want to use around the world is going to be a problem for cotton. Now, you're going to have acreage shifting, like I said, probably to beans. It doesn't work that well down south to switch them to corn acres so it's probably going to be beans. So if you have any weather problems there is the potential for a pretty good bounce, a supply side kind of a bounce in cotton back up in that 55, 56 cent area basis the December contract, a good place to make some sales. If we don't have that and just strictly look at demand then cotton is going to have trouble sticking its head above 50 cents for very long.
Pearson: Let's talk about livestock and what you see happening there. Obviously cattle numbers, cattle on feed report was a fairly bullish number and the market responded negatively.
Pfitzenmaier: All we've talked about all winter long is everybody is bullish cattle because of the supply side, that's all you've heard ever since last fall is the supply is down, cattle on feed is down, placements are down, it's got to be bullish and continually forget that the demand for beef is poor. We've got an economic problem that has given us cheaper alternatives, people aren't paying up for the expensive beef and that continues to plague the beef market. I agree, if we had normal demand supply would dictate substantially higher beef prices but as long as this demand situation stays like it is, and like I said earlier, I think that's going to persist through most of 2009 and beef is going to struggle. I think you have the potential to see that April contract dip down under that $80 level at some point here before it starts to stabilize.
Pearson: And the calf market as you look at what's happening with feeders they've had a little bump there in the last ten days.
Pfitzenmaier: Historically we've always thought lower corn and higher feeder cattle and the two have been moving in sync with one another through most of the winter which has really been a huge surprise. I think as the spring rolls around people are going to be a little more optimistic. If corn prices are depressed I still think you'll see some people trying to buy some calves and is going to support them. But I wouldn't get too frisky on thinking that there's a big up side potential on that feeder market either here. Again, demand is a problem.
Pearson: Let's talk about the hogs and what you see ahead for the hog market. The last hogs and pigs report talked about fewer farrowings. You mentioned the strong dollar. Pork has been a big export item.
Pfitzenmaier: Yes, that's a big component of why pork prices have been as good as they are. You had that pork in the cooler up 20% here a week or two ago and that really killed the hog market. Everybody is kind of trying to be a little optimistic and that came out and that was the end of it. So, until we start moving that pork get it out of the cooler and try to get it exported. Now, the dollar is continuing to work not making new highs but it has certainly been firm especially against the euro and we're going to have trouble moving the pork and that's going to be a problem. Again, just like on the beef side demand is a problem on the pork side. The numbers aren't as big a problem as the demand is.
Pearson: All right, Tomm as usual you have touched upon everything. We appreciate it and appreciate your insights. That will wrap up this edition of Market to Market. But if you'd like more information from Tomm on where these markets just may be headed come and visit the Market Plus page, it's on our Web site. You'll find streaming video of our program there too and you can download audio podcasts of this Market Analysis segment and the Market Plus segments. It's all free of charge at our Web site. Of course, be sure to join us again next week when we'll see how young farmers are getting a chance to live out their dream. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
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