Lawmakers Blast FDA's Peanut Recall Response
The Labor Department announced Friday that U.S. employers slashed 598,000 from their payrolls in January. That’s the largest single-month reduction in 35 years. The decline pushed the unemployment rate to 7.6 percent… its highest level since 1992.
President Obama cited the rapidly deteriorating labor picture as justification for his proposed economic stimulus package that now has ballooned to more than $935 billion.
While the languishing U.S. economy clearly is the top priority in Washington, lawmakers also found time this week to consider food safety reforms.
President Obama: “At bare minimum we should count on our government keeping our kids safe when they eat peanut butter.”
To the U.S. Senate…
Sen. Tom Harkin, D-Iowa: “Why does it take 3 months to figure out there is a problem?”
FDA’s role in the nation’s latest food safety outbreak has been criticized.
Sen. Mike Johanns, R-Nebraska: “There are some clear lapses in regulatory control here. We need to tighten this issue up.”
The widespread condemnation stems from a salmonella outbreak in peanut products responsible for killing 8 individuals and sickening more than 500. Health officials traced the salmonella poisoning to a Georgia peanut processor, Peanut Corp. of America.
The FDA learned only weeks ago that the Peanut Corp. of America received a series of private tests as late as 2007 showing salmonella in their products from the Georgia plant but later shipped the items after obtaining negative test results.
Gabrielle Meunier, South Burlington, Vt.: “It was horrible and he only ate a couple crackers with this peanut butter. My son almost died because of this.”
Sen. Pat Leahy, D-Vermont: “I think we ought to throw these people in jail. It’s an outrage. People like this don’t react to fines because they see that as the cost of business. But if you threaten jail time then maybe somebody thinks differently.”
Members of the Senate Agriculture Committee held hearings this week in Washington and questioned the practices of FDA’s voluntary recall structure.
Steven Sundloff, FDA: “I think for the most part our voluntary policy is working. So far, every company has complied with our voluntary procedure.”
Despite a pledge of swift action from federal health officials, some lawmakers are penning legislative overhauls of food safety. In the wake of the peanut recall, Connecticut Congresswoman Rosa DeLauro introduced a bill to strip FDA of its food safety authority and set up a new regulatory division within the Department of Health and Human Services.
President Obama has not endorsed DeLauro’s proposal but did call for a complete review of FDA operations.
House Committee Moves to Ban Naked Credit Default Swaps
Much has changed since the “Oracle of Omaha” issued his indictment, and some complex derivatives -- like credit default swaps – are under fire for their contribution to the collapse of financial and credit markets.
Now, Congressional leaders are considering a series of reforms that could represent the most sweeping changes to the financial regulation system since the 1930s. In an attempt to ensure greater transparency in futures markets, House Agriculture Committee Chairman Collin Peterson is floating a bill which would tighten restrictions on derivatives trading.
Witnesses ran the gamut of academics, to traders, to farm advocacy group representatives. They commented on various points of the legislation which include stricter reporting requirements for market data, increased access to trading records, and granting the Commodity Futures Trading Commission, or CFTC, authority to impose trading limits.
Tom Buis (BUY-us), president of the National Farmers Union, wants tighter control over speculators and believes the measure should be sent to the House floor for swift approval.
Tom Buis, National Farmers Union: "Rural America lost lots of money off of this effort. And, I think, as Mr. Cota said, it's because no one knows what the positions were, how extensive the money was, and who held those positions. So how can anyone convience me that you didn't have excessive speculation if you are not even accounting for all the activity in the market place, because of the exemptions, the swaps, foreign market exchanges, etcetera?"
Terrence Duffy, executive chairman of the Chicago Mercantile Exchange Group which owns the Chicago Board of Trade, asked the committee to avoid creating barriers to a free market.
Terrence Duffy, Chicago Mercantile Exchange Group: " No, we don't condone excessive speculation, er, uh, rampant speculation, as you put it sir. We do believe there is a buyer for every seller, a seller for every buyer. The more liquidity there is the better the price the person is trying to hedge their risk will get for their product."
The measure would ban the sale of what are known as naked credit-default swaps -- a market valued at more than $29 trillion. These financial instruments are a form of insurance in that the holder makes a profit if the company being covered goes under. And many insurance industry regulators believe up to 80 percent of credit-default swap sales are conducted by investors who do not own the underlying debt. On top of the lack of ownership, supporters of the bill are concerned that trading is generally hidden from CFTC regulators.
New Farmers Take On the Challenge
But, in its latest Census of Agriculture, USDA announced this week the number of operators age 75 or older increased by 20 percent, while the number of farmers under the age of 25 decreased by 30 percent.
Even if younger people are interested in farming, they often lack the capital and/or the experience necessary to enter the field successfully.
But there are resources to help younger farmers “take the reins.” A case in point can be found in Iowa where an innovative program is helping the next generation of farmers embrace its role in agriculture. David Miller explains.
For some, the lure of milking cows twice-a-day would be the farthest thing from their mind but Mark Sipma came to the realization this was the job he wanted.Mark Sipma, Hull, Iowa: "...after working, if you want to call it, a 9-5 job and just wanting to do it for myself and wanting to live the lifestyle that a dairyman has."
Though the idea of working long hours in the barn may not appeal to some people for Isaac Phillips owning a stake in a hog operation is a dream come true.
Isaac Phillips, Lakeview Farms: "It's something I have wanted to do since as long as I can remember. I must have been three or four years old and I just something I've always wanted to do."
Neither man is a hired hand. Instead, they is working to be one of the next generation of farmers by purchasing an established operation. Though much of the details of these transitions are being handled by the farmers themselves, the owners of these two Iowa operations have consulted with Iowa State University Extension's Beginning Farmer Center, or BFC.
The BFC was founded as the foreclosures and bankruptcies of the 80s Farm Crisis were in decline. . Those who work with the agency can take advantage of one-on-one conversations as well as seminars on creating business or succession plans.
John Baker, Beginning Farmer Center: "I think many farmers are very proud of, of the business they've developed over the years and would like to see that business continue on. I think the difficulty that many of them have if not many the majority have is figuring out how to get started. How do we start this process?"
Baker and his staff help facilitate the transfer of ownership from one generation to the next, stressing communication as the key to successful transition.
Two farmers calling on the Center's storehouse of knowledge are fourth generation farmers John and Colleen Adam who market more than 30,000 feeder pigs annually at their Lakeview Farms operation. Early on, the couple knew their four children had no interest in taking over their eastern Iowa farm.
John Adam, Lakeview Farms: "I think, part of the reason they weren't interested is we went through the farm crisis of the 80's and they saw us work too hard and struggle and I think probably it just turned them off and they knew there was a better life out there."
Despite the potential hardship, their daughter Amy Jones and son-in-law Todd Jones, a third generation farmer himself, returned to help out in the late 80s.
Recent health problems have pushed John Adam to choose a partner for Jones. With the help of Farm-On, a Beginning Farmer Center service that links prospective farmers with established operators, the Adams chose Isaac Phillips.
Until last year, Phillips, his wife Katie, and their 4 children were living in Utah. Phillips, who was a County Sheriff in Utah and owned 100 sows, is more than excited to be part of Lakeview Farms. Only a month after listing his name with Farm-On he received a phone call from Adam.
Isaac Phillips, Lakeview Farms: "...everybody has told me since I was kid you'll never make farming. You'll never make it. You'll never be able to farm. You’ll never be able to do it and this is you know that's why this is such an incredible you know thing for us is we're doing it, you know we're making this happen."
The Phillips came out for a visit and the Adams knew they had found the right family.
Colleen Adam, Lakeview Farms: "...we thought he was highly trainable and teachable and with the enthusiasm we were not worried about it. You can teach anybody if you just are willing to take the time. You know so that, that was main thing we, we thought we could train them."
After a year of working together, Jones says there is the basis for a partnership.
Todd Jones, Lakeview Farms: " I would say we probably talk for a half an hour, forty-five minutes, a couple times a week just about how you know you're problems, how work's going, and you know bouncing ideas off. So we get along pretty good. We didn't know at first because you know somebody new coming in but we get along."
And Adam is ready to begin the process of writing up a contract to evenly split the responsibilities between Jones and Phillips at Lakeview.
John Adam, Lakeview Farms: "You either live in the past or you live in the future and I've thought about that quite a bit and there's really you have to decide forget the present. Do you want to live in the past or do you want to live in the future? And those guys are the future..."
Galen and Jeannie Breuer (Brewer) had known for years none of their three children would take over the farm. But Mark Sipma, their hired-hand, was interested and approached the Breuers about purchasing their 60-head western Iowa dairy operation.
Mark Sipma, Hull, Iowa: "He kind of acted like I don't think this kid knows what dairying is all about and he kind of let me sit on it for awhile and then a few weeks later I said it to him again. I said I really think I'd like to get into dairy farming."
With the thought of being free to see their children and grandchildren who live in other parts of the country the Breuer's began to discuss the possibilities of selling to Mark and his wife Kimber.
Galen Breuer, Hull, Iowa: "...we knew that we could start slowing down and did not like the idea of the facilities sitting empty. Knew we had a 60 cow dairy, knew that it has some really strong points to it but knew that it was a 60 cow dairy. So then we started running the numbers with the information we had to see if it was feasible for another to sustain another generation or at least get another generation started you know as the size it was and the numbers ran pretty good."
Sipma did not grow up on a farm but he had been milking cows for the Breuer's over the past 8 years and had been taking college classes in dairy farm management.
Every weekend for two years a series of informal negotiations took place in the milking parlor. Eventually, the details were determined and Sipma went to get a loan. Unfortunately, local bankers denied all of his requests. Breuer then consulted with the BFC. At the suggestion of a staff member, Sipma applied for and received an FSA loan through USDA. The young couple purchased the entire herd and milking equipment but chose to rent the rest of the machinery and buildings.
Kimber Sipma, Hull, Iowa: "First I thought he was kidding but I know it's his dream and I really respect and I'll go along with it and I'm really starting to like it myself."
The Sipma's recently quit their jobs in town and work together on the farm. Occasionally, Jonathan, their 2-year old son, helps out with the chores.
The Breuers continue to live on the property and farm 250 acres of row crops while the Sipma's travel from their home in nearby Hull, Iowa twice each day.
Galen Breuer, Hull, Iowa: "The cows are all here but I don't have final say anymore, he does, and I you know and I understood that going in that I was letting that go when, when you know when the papers were signed. But I also knew that he was an excellent dairy man that helped a lot."
Next week, we'll explore how the new generation of California farmers finds families who are ready to leave agriculture in a region where land prices are dramatically higher than the Midwest and available acres are few and far between.
For Market to Market, I'm David Miller.
Market Analysis: John Roach, Senior Market Analyst
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For the week, March wheat lost more than 10 cents, while the nearby corn contract fell nearly two cents.
Predictions of dramatically reduced production in South America were friendly to soybean prices. For the week, March soybeans gained 21 cents while the nearby meal contract was up $6.30 per ton.
In the softs, cotton flirted with the 50-dollar mark again this week as the March contract moved 45 cents higher.
In livestock, February cattle gained $1.65. Nearby feeders were up $3.35. And the February lean hog contract lost $2.20.
In other markets of interest, the Euro gained 151 basis points against the dollar. Crude oil lost more than $1.50 per barrel. Comex Gold declined more than $14.00 per ounce. And the Goldman Sachs Commodity Index lost nearly 4 points to close at 334.20.
Roach: Thank you, Mark.
Pearson: Well, 2009 is rolling along and so far it has been fairly volatile, it's been fairly soft and it looks like there is a lot of head winds for commodities, particularly with the pull back in crude oil, the strength of the dollar, slowing exports. What are your thoughts generally on the world of commodities at this point?
Roach: I think maybe we've seen, at least over the shorter run, I think maybe we've see near term lows. We actually are higher than where we were back when we printed the lows in the early part of December and we're still in a period of time where everybody is very concerned about the economic health of the United States and other countries around the world and we haven't yet gotten stimulus packages through, we really haven't seen any of the good news yet. I think we will see some good news as we march along here over the next upcoming weeks. And so I think we're at a low ebb and I think the market is actually starting to ratchet a little higher although you didn't really see it in the corn and the wheat this week.
Pearson: Not so much this week. Let's talk specifically about the wheat market and what you see ahead there. Obviously we're going to grow a lot more wheat around the world in 2009 or at least that's what they're telling us for acreage wise. How do you see the supply situation globally as we look at wheat?
Roach: I actually think our wheat numbers will be pulled down here in 2009 as we see what the winter kill situation has been. We're worried about China, in their primary wheat area they have had considerably drier than normal weather. Some of their wheat is irrigated and they tend to have dry weather during their winter months in that particular area but people are a little more nervous about it than in other years. We've seen the wheat estimate pulled down in Australia. We think that the former Soviet Union crop will be smaller. So, we really think as we look forward that we have some positive news to come and certainly in the United States we've been extremely dry down in our winter wheat area although we're just now starting to see some rains coming in. But we think that those numbers have been as big as they're going to be and likely to get smaller.
Pearson: Of course, as they get smaller hopefully prices are higher so you're holding off on making sales.
Roach: We're holding off on making sales. We think the market can rally as we start to take wheat out of the dormancy stage here in the northern hemisphere, it's just around the corner. We think the wheat market is ready to ratchet itself higher.
Pearson: Any price targets at this point?
Roach: Not really. Rather than looking at price targets we really look at momentum in the market. We pay close attention to the slow stochastics and when we get that market up into an overbought stage then we think that will be the time to be making sales.
Pearson: Let's talk about the corn market, of course, a lot of questions looming there in the world of corn, particularly as producers try and line up their input costs and see just what their expenses are going to be as they go forward and what the demand looks like for corn versus soybeans so we've got an acreage battle to work through. What are your thoughts at this stage of the game? We've been on this show for over 30 years and I know this is not the time of year you like to sell corn.
Roach: It really is not. This is the time of year that we normally look for a weak spot to be accumulating some additional feed needs to carry into the summer. And we think that that's what we've just passed. We've just gone through a timeframe here where we wanted to accumulate feed needs. On further weakness we would be back accumulating feed needs. One of the things that has really hurt our corn market is that the export sales and shipments have been way behind last year's levels. Last year we got off to a very strong start with very strong demand, this year we got off to a really puny start and the major reason for that was the competition from the former Soviet Union countries where they had extremely large crops. Now, the last three weeks in a row we've had much better export sales numbers on corn and we've seen basis values strengthen in the former Soviet Union so we think that's really a signal that they have sold most of their surplus out that they wanted to get sold and now the business comes to the United States. So, we think that the increase in the export business -- we also think that just the concern about raising the crop -- one of the things that has happened in South America is they have lost about 400,000 bushels of corn production with their winter drought that they've had and we think that sets us in a better position worldwide than what we expected to be in. They are the first area to be producing, they've had problems, that makes the production in the United States and the rest of the northern hemisphere just that much more important.
Pearson: Alright, so a couple of pieces of good news there. You talked about the bad news that we've had in wheat. Some of the other bad news has been the government reducing and the concern that we're seeing in the whole biofuels arena.
Roach: That's another concern that we don't see that at the moment. The margins to process corn and ethanol are about as tight as they have been for a while. There is no opportunities out forward to put any of the crush on so it's a spot market. Everybody is struggling. We saw reports out this week that maybe as much as 20% of the capacity has been idled. So, we need to see some improved demand for ethanol which will spill over into the corn market as far as demand is concerned but so far we haven't seen that.
Pearson: Corn sales, it's not the time when you want to make them.
Roach: We're just coming off the period where we're actually buying corn for feed needs so we really like to focus our sales in March through June, we're just not there yet, we think the market is trying to stage a recovery, we've pressed up against the 20 day moving average on nearby March corn this week and we haven't been able to penetrate it but we're bumping against it. We think the market will have an opportunity here. There is money flowing into commodities again and some of that money is flowing into the corn market as well. So, we think we can get a further price surge.
Pearson: Is money flowing into the soybean market as you look at that one?
Roach: Maybe even more into the soybean market than the corn market because the soybeans South America is the largest region for production and they have had weather problems so the money flowing into the commodities probably first of all has gone into energies, from what we understand, precious metals but then also the agriculture commodities as well.
Pearson: What is your take on soybeans at this point?
Roach: Well, the crop in South America was reduced by about, at least the current estimates are down about 400 million bushels from what the government estimated, from what the USDA estimated would be their crop size in their estimates back last fall. So, if you put that in comparison for the viewers, 400 million bushels compares to the total ending stocks currently forecast in the United States of 225 million bushels. So, that is a substantial reduction -- if the current estimates are correct -- that is a substantial reduction and that tightens world supplies and at the same time we have China showing greater appetite than anybody anticipated. The Chinese have taken bigger numbers from the United States than anybody anticipated. Their total imports are bigger than was anticipated. They are also buying their own domestic stocks trying to build a stockpile of six million tons. So, all of these are positive news for soybeans and perhaps we have the most positive news in the soybean market with less positive news in the other grains.
Pearson: Let's move over to the livestock side, John, and just talk about where we're headed. You mentioned getting some feed needs covered so you're definitely in that camp.
Roach: Yes. We think that the feed component, of course, in the livestock business is about as important as anything else.
Pearson: Fed cattle market I know you've talked about the fact of a very small cow herd out there. We continue to restrict supplies but there seems to be a demand problem here.
Roach: Well, the difficulty we have is being seen at the restaurant trade. We're just having a slow demand. Exports are not bad. The exports of beef have been fairly good but we're just seeing a slow demand and with the bad economic news nobody is very optimistic about that demand changing very quickly.
Pearson: What is your outlook then for fed cattle?
Roach: Cattle producers have reduced their numbers in the feedlot so we're seeing smaller supplies out forward. We think that as we get the supplies back in line with where the demand level is we think we can have a good springtime rally. So, again, we think prices have bottomed and are on their way back up and so we're patient at this point. If you're looking to put any replacement cattle in shop carefully. But we think this is probably a pretty good time to do that. When losses are substantial coming out of the feedlots frequently that is your best opportunity to be buying feeder cattle.
Pearson: And as you look at that relationship and you mentioned exports that certainly was critical in 2008 for the hog business. What is your take on pork prices as we go forward?
Roach: The hog business for year after year after year saw increasing export demand. It's really a very bright story. But the 2009 demand has not been very good. A lot of our business went into China, Russia and Mexico, all three areas struggling so the pork export demand is worrisome and our outlook in the hog market because of that is a little bit worrisome. But, once again, we're in the time of the year where we think the demand side is being played down about as much as possible because of all the economic concern that is around. We think that's about ready to change. The news is about ready to get better on the economic side. We think so much of it is perception and every day in the news we hear just how tough it is out there and we think once we get a stimulus bill passed we'll start hearing better news out there. If nothing else it will be just publicity and so we think hog prices can rally up into the summer.
Pearson: John Roach, as usual great to have you with us, our senior market analyst. That's going to wrap up our edition of Market to Market. If you'd like more information from John on where these markets just may be headed visit the Market Plus page at our Web site where you'll find streaming video of our program and you can download audio podcasts of our Market Analysis and Market Plus segments absolutely free at our Web site. Of course, you'll want to join us next week when we'll examine a California program that is linking established farmers with young entrepreneurs. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
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