Country of Origin Labeling
Only days later, the Federal Reserve announced it would leave the nation’s benchmark interest rate unchanged at historic lows between 0 and .25 percent.
The Fed also announced as much as $300 billion in long-term government bond purchases will be made over the next six months. The so-called economic “wisemen” hope purchasing massive amounts of government bonds could encourage business, auto, credit card, and education lending at lower interest rates.
American consumers, already uneasy in the wake of turmoil on Wall Street and growing unemployment numbers, witnessed the largest rise in consumer prices in seven months. The consumer price index, or CPI, rose 0.4 percent in February – largely affected by a jump in gasoline prices.
But costs at the pump and checkout counter are only a portion of consumer concerns.
The American beef industry was shaken in spring 2008 by the controversial processing of so-called downer dairy cows at a California plant. The fallout continues well into 2009. This past week, the Obama Administration permanently banned downer cattle from entering the American food supply.
The move was hailed by some food safety groups as a step in the direction of more progressive federal policy.
Another long-debated issue in the halls of USDA pertains more to a product’s original site of production than safety. The landmark Country of Origin Labeling law took affect this week but critics and advocates are still unsure what effect, if any, new labels will have on the quality of food products.
Art Jaeger, Assistant Director, Consumer Federation of America: " Consumers may wish to avoid meat or produce from a certain country based on news reports on the conditions in that country, pesticide use, or whatever."
Under the new regulations, meats and perishable fruits and vegetables will carry country of origin labels. Processed meats, such as bacon or ham, and canned vegetables, fruits or roasted nuts, are not required to carry COOL labeling. Mixtures such as trail mix and bagged salads are also exempt.
Senator Charles Grassley, (R)-Iowa: “I'm satisfied that it's being implemented for the first time but there is still some dispute and some leeway and some unsettled issues about meat coming in from Canada. Could it be labeled for two countries instead of one country? I'm of the view that the consumers of America are entitled to know specifically where their food comes from like they know specifically where their t-shirts come from.”
According to a 2007 Consumer Reports Poll, 92 percent of Americans felt imported foods should be labeled by their country of origin. Opponents to the new regulations say that knowing food was produced outside of the United States demonstrates few details regarding its quality or safety. Grocers and meat packing companies believe the labeling is a burden that could lead to higher prices. Retailers and suppliers that fail to fulfill the new regulations can be fined up to $1,000 per violation.
Jerry Fleagle, President Iowa Grocery Industry Association: "It's a good program as far as showing where meat, produce and all the covered commodities come from. But, it's also a very expensive proposition. We are talking just by USDA estimates, it's a 2.5 billion dollar a year change. And, I think our industry feels it's even a bit more expensive than that, which ultimately consumers are going to end up paying for."
Canada and Mexico have filed a complaint with the World Trade Organization. Both countries believe that their exports will suffer under COOL because American meatpacking firms may be less inclined to purchase their livestock for slaughter,
Jerry Fleagle, President Iowa Grocery Industry Association: "I think most everybody in the industry has been gearing up to make sure we were all in compliance on March 16th. So, once you train an entire industry on it, to make another change takes another six months. So I think it's important that we make sure this works well before we make any other changes."
Oil Refiner Acquires VeraSun Ethanol Plants
But a year-and-a-half later, the biofuel renaissance is reeling. Skyrocketing oil prices nearing $150 last summer and volatile grain markets trimmed profit margins into oblivion at dozens of American ethanol plants.
VeraSun Energy, a once promising biofuel company based in Sioux Falls, South Dakota, filed for bankruptcy late last year. Only months later, a major oil company is picking up the pieces.
The nation’s largest independent oil refiner is now a major player in the American ethanol sector. Valero Energy, a petroleum refiner and gasoline distributor, acquired seven ethanol plants from the bankrupt biofuel company VeraSun Energy in a court-structured auction this week.
If the $477 million deal is finalized, Valero would become the first traditional refiner to obtain primary ownership of domestic ethanol plants. While the corn-based biofuel is most commonly used as a 10 percent ethanol to 90 percent gasoline blend, some industry experts have characterized the oil and ethanol sectors as not only competitors but business adversaries.
Valero executives have previously taken a negative tone towards the ethanol sector. In March 2008, Valero CEO Bill Klesse (Cles-ee) blasted U.S. energy policy towards ethanol. Klesse said:
“All of these programs are just a huge transfer of wealth from our industry to the Midwest farms.”
The Valero CEO added that ethanol would cause much more damage to the environment and contribute higher amounts of greenhouse gases than oil production.
Speaking with Market to Market this week, Valero spokesman Bill Day did not refute his company’s previous criticism of the ethanol industry. Day added that…”Ethanol production will be a small part of what we do so it’s unclear how much advocacy for either higher blends or overall ethanol production we will have.”
Day also restated Valero’s opinion that the ethanol industry would not be viable without heavy government subsidies, tariffs, and a renewable fuel standard.
In acquiring seven ethanol plants, Valero’s main bidding competitor was biofuel giant Archer Daniels Midland. ADM, one of the nation’s largest producers of ethanol, sought to purchase all of VeraSun’s biofuel plants as opposed to Valero’s strategy of targeting only facilities the oil refiner deemed “most viable”.
Ag Star Financial and a group of previous VeraSun lenders will likely purchase the bankrupt company’s remaining ethanol plants throughout the Midwest.
Farm Safety 4 Just Kids
Farming also can be hazardous to one's health. And the National Safety Council currently ranks agriculture as America's most dangerous industry with nearly 30 deaths per 100,000 workers annually.
Tragically, many of the victims are children. One Iowa woman knows all too well just how dangerous the farm can be. And after losing a son more than 20 years ago, she's been on a mission to make the family farm safe for children. Cate Koester explains.
In the fall of 1986, Marilyn Adams lived every parent’s worst nightmare when she lost her son Keith in a farm accident. While helping his father with the harvest the 11-year old climbed on top of a gravity flow wagon, was sucked under the corn and suffocated.Marilyn Adams, Farm Safety Just 4 Kids: “A lot of times we'd give them more than they can handle. That's what we did with Keith. We gave him an adult job, expected him to react like an adult. And I guess I would be the first one to tell you that giving a child's life to farming is not acceptable.”
Adams was determined not to let her son’s death be just another farm industry statistic. One year later, Adams formed “Farm Safety 4 Just Kids.”
Marilyn Adams, Farm Safety Just 4 Kids: “When I can actually spend time with these kids it's really a highlight for me because it pumps my adrenaline so I can see that they can learn and be a part of all of that and they get so excited. And they even connect with Keith and my personal story.” “1 thousand 5… 1 thousand 6... 1 thousand 7... 1 thousand 8. Even though we counted kind of fast it still only took eight seconds to be pulled clear to the very, very bottom.”
Adams started “Farm Safety 4 Just Kids" in a spare bedroom in her home, but today the non-profit organization has a staff of 5 and 132 chapters across the United States and Canada.
Marilyn Adams, Farm Safety 4 Just Kids: “We started out with, of course, zero for a budget and then our very first contribution was $20,000 and I thought that was going to last us a lifetime. But now with our development of our educational programs and our staff and all the outreach that we do our budget is really close to the million dollar mark and we have a lot of corporate sponsors that have been with us for many, many years. And that started with them calling us saying what can we do to help.”
To assist communities in teaching farm safety to children “Farm Safety 4 Just Kids” offers to anyone a curriculum and a variety of resources. Their catalogue offers everything from activity books and videos, to t-shirts and decals, which can be affixed to farm machinery as a reminder of potential danger.
Marilyn Adams, Farm Safety 4 Just Kids: “We have puppet shows, skits and a variety of ways to deliver the message. We have it pre-packaged and they can call the office and get suggestions. And so we help keep everybody interested in having children's farm safety on the forefront and then they deliver the programs and we provide support.”
When Adams began “Farm Safety 4 Just Kids,” more than 300 children died annually in farm related accidents, but that number has dramatically declined. According to the National Institute for Occupational Health and Safety between 1997 and 2005 an estimated 907 youth died on US farms.
Marilyn Adams, Farm Safety 4 Just Kids: “You know when I look at the statistics compared to 300 children dying on farms back when I started the organization, and now a little over 100, all of us that are in the children’s farm safety movement should be proud of those numbers. But that’s an average of two children a week. And so, looking at the whole picture, we’ve got a lot of work to do.”
Since 2002, the annual “Volvo for Life Awards” has honored more than 17,000 everyday heroes and contributed millions of dollars to their causes. In May of this year (2008), Adams was presented Volvo’s Grand Award.
Marilyn Adams, Farm Safety 4 Just Kids: “I would like to dedicate this award to the memory of my son Keith and to all of America’s hero’s, striving to make the world a better place.”
The award includes $100,000 cash, and Adams will be receive a new Volvo every three years for the rest of her life.
Marilyn Adams, Farm Safety 4 Just Kids:
”While he's no longer with us physically, you know his spirit is reflected in all the children and youth that are educated by the farm safety program. And his influence has spread far beyond his short time here on earth and his story has touched countless number of rural families.”
Adams will use the $100,000 prize to create an endowment fund ensuring that “Farm Safety 4 Just Kids” will continue long after she is gone.
Marilyn Adams, Farm Safety 4 Just Kids: “Every day is a constant reminder for me that we lost Keith in a farming accident. But in a selfish way it might be my own way of keeping him alive. I don't know, I don't understand how somebody like me, a typical farm wife and mother and Sunday school teacher could pull this together, start an organization, but I had to do something and I wanted to prevent this from happening to any other family.”
For Market to Market, I’m Cate Koester.
Market Analysis: Darin Newsom
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For the week, May wheat climbed more than 32 cents. And the nearby corn contract moved 8 cents higher.
Soybean prices shot upwards with the May contract posting a gain of more than 75 cents, and the nearby meal contract was up $23.80 per ton.
In the softs, cotton trended higher this week as the December contract posted a gain of $1.41.
In livestock, April cattle moved 55 cents higher. Nearby feeders were up $1.72. And the April lean hog contract fell $1.45.
In other markets of interest, the Euro gained 2 basis points against the dollar. Crude oil moved significantly higher for the week, gaining $4.81 per barrel. Comex Gold fell $12.60 per ounce. And the Goldman Sachs Commodity Index gained more than 30 points to close at 374.
Newsom: What we're seeing is over the last six months of 2008 a 90% correlation between what the Dow does and what commodities in general do, grains included. Historically that has been closer to 55%, 56%, so the correlation over the last year to six months has just been very strong and the more pressure that we see coming from the Dow Jones the more pressure it's been putting on grains. Non-commercial traders, key aspect to any type of trends in the markets, have been getting out. As they have been losing money in the Dow they have been less interested in trading in commodities so they have been getting out. That being the case we've been watching very closely the movement in the Dow to see if it's going to give us any indication of this correlation starting to loosen.
Yeager: Because you're also looking at companies and their economic viability and their futures that are involved in this whether we talked about VeraSun earlier and Valero, those are companies that they were trading profitably. What has been the impact long-term? You're making it sound like maybe the end of following it so closely is near or is that going to continue?
Newsom: I think we're starting to see a break. As we move into spring here I think we're starting to see a break from commodities and the Dow. We're seeing it loosen up a bit. It could possibly be in some of these key commodities right now, copper, gasoline, crude oil as we mentioned just a little bit, grains, corn, beans. We can start to be seeing some demand coming back into these markets, it's going to start to shift the attention away from the non-commercial side, bring it back more to the commercial side and see if we get into our normal spring rallies.
Yeager: You talked about the crude oil, that was up again this week and that was something that already is noticed at the pump for most people who are off the farm. But on the farm we're already talking about input costs and many people have already written that check or at least made that order. What is that impact long-term at least for this season going to have if we continue to trend up?
Newsom: It looks like right now that the fertilizer prices and the diesel prices that we're seeing probably are going to start going up as well, in step with what we're seeing in the crude oil market, heating oil market and these other energy complex members. So, if we've locked in our prices over the winter even heading into spring I think we're going to see these prices going up. They have done pretty well by getting them in a bit cheaper. But even for those who locked them in say at the end of 2008 still paid less than they had over the last couple of years so it's going to lower their overall input costs. So, even if they felt like they might have jumped the gun a bit early I think they're still going to come out ahead from where they have been over the last couple of years.
Yeager: Let's get onto the farm itself, let's talk about wheat, had a pretty good week, up 32 cents. What is driving that market up?
Newsom: Wheat right now is watching the new crop weather, particularly in the southern plains. You mentioned how dry it has been over much of the growing area in 2009. I know there is a great deal of concern. Not only did the crop come out of dormancy early but now they're dealing with very dry, relatively warm conditions that is going to start to play more of a role the deeper we get into the growing season. So, the market certainly seems to be paying attention to that. A lot of the buying in the futures seemed to come from the winter wheat contracts, particularly in the new crop July, September, December contracts carrying over and helping support the May a bit as well.
Yeager: Let's move on down to corn a little bit, not up as high as the others, only up eight cents was the difference from last week. Why is that market not trending any differently?
Newsom: Corn still has bearish underlying fundamentals that we're working with. We've got a very strong carry in the futures spreads and what this is reflecting is the continued growth in not only the U.S. ending stocks but world ending stocks as well. Having a hard time moving a great deal of corn on the export stage, the higher dollar certainly hurt that. So, it's got a bit of a different market structure than what some of these others are looking at, particularly in beans when we get to that but we have been able to see this market move up and if gasoline starts to take off I think it's going to spark some interest in the ethanol market which is going to carry over and help support the corn as well.
Yeager: Which also makes it a little more volatile then if it's up and down when it's tight that way or are we going to see more of a steady increase?
Newsom: No, we're just going into the most volatile time of the year. We think it's been volatile over the winter, we think it was volatile last fall, spring is normally the most volatile time of the year so I think we're just getting started seeing how fast and far these markets can move.
Yeager: The market that has moved fast and the one that you've been following is soybeans this week, up an incredible 75 cents on the market. What is pushing this one? I don't think it's domestic production.
Newsom: No, it's not. What we've got here is very strong demand and what we see in the supply-demand situation that we're looking at is this inverted future spreads. We've got the May contract at a price premium over the July, July over August and so on down the line for the old crop. What this is indicating -- I know USDA has backed their ending stocks for U.S. down below 200 million bushel and that's fine -- I think it's actually going lower than that, probably in the 125, 150 million bushel range. Looking at what the spreads are telling us right now we've got very strong demand still coming from China, exports almost week in and week out are very strong, export sales, export shipments so I think we've got plenty of fundamental factors coming into this market that's going to continue to push the old crop market higher, it certainly was reflected this week as you said 70, 80 cent gains in the May, kind of left the new crop in the dust a bit but it was still following along. I think most of the buying is still going to be centered in the old crop as we deal with this tightening situation.
Yeager: And you also talked there briefly or hinted around at least worldwide but Argentina is looking at another strike of some kind. What's going on there?
Newsom: I saw the headlines and I'm going to have to check on this story again but it certainly looked like the headline indicating the Argentine farmers were going to go on strike. Now, what this might mean is it's sort of a confirmation of what we've been seeing play out in the spreads, this widening of the inverse or the strengthening of the inverse may certainly have been an indicator that some piece of news was getting ready to come out of Argentina, that China was going to have to continue to maintain its focus as far as exports coming from the United States rather than turning more to South America. It certainly seems to be playing out.
Yeager: To take some of that pressure off of and relieving the United States and not as volatile with the market.
Newsom: Right, this is normally the time of year when we start to see the demand shift to South America and it may just be postponed a bit.
Yeager: Cotton is another one up a little bit this week. What do you know about cotton?
Newsom: The cotton market is struggling a bit but just as with many other commodities the lower the dollar is coming there's some buying interest starting to come back into cotton, we've tested some recent support areas in the old crop near the low 40s to upper 30s, in the new crop it looks like if we can hold this area we might be able to rally back up into the 50 cent areas so there could be some spillover support from the other commodity markets that could certainly help cotton this spring.
Yeager: Let's move into livestock a little bit. We'll start with cattle. They're not up as much but, again, with everything else seems to be trending up. Are they following suit with corn and soybeans? Why are they going up?
Newsom: The biggest thing with the cattle market is the spillover effect from the Dow. The perception of a weak economy has certainly slowed down domestic beef demand and we've seen that as the choice and the select prices have come together. Now, this is going to continue to weigh on the market, particularly if what we're seeing in the Dow is just a recovery rally and isn't very long lived. I think that we could see some strength coming back in. We saw a bit higher cash market this week, another bullish cattle on feed report, we've had a string of them now over the last almost year. So, these things could start to help support the cattle market a bit and start to push it higher as we head into spring.
Yeager: We talked a little bit about COOL early on and there's a line in that script that talks about this could throw off the price just a little bit, it could put an extra up on the price. Is there any indication in the price there?
Newsom: If we look at the futures spreads and the premium that the June contract is holding over the April it very well could be reflecting that. Whatever the case may be we have a stronger premium from June over the April than what we normally see. So, I think all of these factors are coming together and I think they're all playing a role and they're being registered by the traders themselves.
Yeager: Anything different with feeders then?
Newsom: Feeder cattle still very much of a follower market. The demand for feeders has really been down, particularly with the down turn we've seen in the live cattle market. So, if we can start to see some sort of rally in the live cattle maybe it can start to pull the feeders as well going into this spring.
Yeager: Is it time to change any of your feeding patterns with your feeders or get in, get out, anything that has changed here in this week?
Newsom: I don't think so, I think they're going to have to take a very long-term view of this as most cattlemen do. See where we are through this spring, certainly the numbers look like we're going to see a better market, see how this plays out over the next 90 to 100 days and we should start to see some better markets.
Yeager: Let's go to pork, talk about hogs. Are they following suit? It seems like pretty much a broken record, everything has been up a little bit but that's the one market that was opposite and trended down.
Newsom: The cash market continues to act as a drag on this market and until we see -- for a couple of weeks now we've been talking about, we've been hearing talk of the bottom coming into the cash market and it's going to start to support the futures and the whole complex is going to start to go up. The problem is talk is very good, it's great, but the market hasn't reflected that. So, if we can start to see this cash market turn around, we can start to see some demand really starting to push this market higher I think the futures are going to follow. Again, just as with many of the other commodities I think spring is going to be a bit of a relief in the hog market and I think we're going to see some better prices, seasonally we do. I think it's going to follow its seasonal tendencies relatively well, we're going to start to firm up this cash market and it's going to help the futures out as well.
Yeager: We haven't seen any impact of the economy having an impact on our dietary needs whether we're buying pork or buying beef at the store. Has any of that played into the market at all here in the last six months or even the last three months?
Newsom: I think it has and I think it comes back to the fear again that we're not going to be going out and spending as much on food or we're not going to be going out to eat as much and overall our trips to the grocery store and everything probably haven't been reduced that much. What we're looking for when we go there probably hasn't changed all that much. I think it's just the perception of the market that these things could occur if this down turn really starts to expand into a much longer timeframe than what is being projected right now.
Yeager: This always seems to be a popular target for those off the farm or outside of the farm and they're talking about subsidies and there's been targets of the subsidies of we're going to change the way that pattern is. Has that had any impact on the markets whether it is grain or otherwise?
Newsom: Last year when we were seeing the markets racing to new highs that was a very hot topic but once the crash came and people are more focused now on what's going on in the stock market, what's going on with the Federal Reserve and all these other issues it seems to have been put on the back burners, they're not quite as concerned as they were before. Certainly if the markets start to rally again this summer and we start to get back into the inflationary talk which is a very strong possibility I think it will probably bubble to the surface again.
Yeager: We'll see how it goes and continue to follow it and I know that you do at DTN when you do that. So, Darin Newsom, thank you very much for stopping by on Market to Market this week. And that will do it for this edition of Market to Market. But if you'd like more information from Darin on just where these markets may be headed visit the Market Plus page at our Web site where you'll find streaming video of this program and you can also download audio podcasts of our Market Analysis and our Market Plus segments free at our Web site. Be sure to join us again next week when we'll examine the niche marketing in the agritourism yield dividends for one Idaho farmer. Until then, thanks for watching. I'm Paul Yeager. Have a great week.
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