Energy Has More Impact On Food Prices Than Ethanol
According to the Commerce Department, retail sales fell 1.1 percent in March, marking their largest decline in three months.
A big drop in auto sales led the overall slump in demand, but sales also plunged at clothing stores, appliance outlets and furniture stores, as consumers coped with a deteriorating labor market.
The economy lost a net total of 663,000 jobs last month, pushing the unemployment rate to 8.5 percent… its highest level in 25 years.
Meanwhile, new housing starts fell more than 10 percent in March to a seasonally adjusted figure of 510,000 units… the lowest tally in 50 years.
And RealtyTrac, a foreclosure listing firm reports nearly 804,000 U.S. homeowners received at least one foreclosure-related notice in the first quarter of 2009…up 24 percent from the same period last year.
While this week’s economic reports were all negative, a study released late last week, was friendly to the American ethanol industry. But that’s not to say the report wasn’t cited by ethanol critics as well.
In addition to the limited increase in cost, the report shows ethanol reduced gasoline use by 4 percent and greenhouse gasses by 1 percent.
On news of the report, Growth Energy, an ethanol promotion group, held a teleconference to call attention to the results.
Tom Buis, CEO, Growth Energy: "The rapid increase in food prices was not a result of ethanol or farm commodity prices."
Tom Buis, CEO, Growth Energy: "I think the facts speak for themselves. So to blame us for something that wasn't our fault was really trying to point the finger at the other guy and maybe escape scrutiny themselves. You know, food prices, and many of the big companies, had record quarterly profits during that period."
Other groups joining to proclaim that farmers were ready to produce the corn necessary to satisfy America's food, feed, and fuel needs were the National Farmers Union, the National Corn Growers Association, and the American Farm Bureau Federation.
Bob Stallman, President, American Farm Bureau, Federation, "One thing about ethanol is it creates an entirely new industry and at the same time allows producers to have a new market for which they will increase production to supply. That's the case it's always been with farmers."
Long time ethanol opponents claimed the report was just more support of their case. Among those saying ethanol is responsible for increased costs were members of the American Meat Institute, the National Turkey Federation and the Grocery Manufactures Association.
Scott Openshaw, Grocery Manufacturers "We're encouraging Congress to revisit current federal food to fuel policies and to, instead, focus their attention on promotion of the research, development, and rapid deployment of true second generation biofuels that do not pit our nation's energy needs against our nation's food and feed needs."
The CBO study revealed ethanol production will increase the cost of federal programs like the Supplemental Nutrition Assistance Program, or SNAP, formerly known as Food Stamps. According to the CBO 12-18 percent of the $5 billion increase in SNAP's 2009 budget can be attributed to ethanol...about the same as its impact food prices.
And the authors of the report added the warning that if land not currently in production was converted to grow more corn it would offset any reduction in greenhouse gasses provided by ethanol.
Western Crop and Water Subsidies Raise Concerns
A 3-year drought combined with cutbacks in water available for irrigation, is forcing farmers to leave large swaths of land unplanted.
The march is designed to draw attention to the region’s unemployment rate, which exceeds 40 percent in some communities on the west side of the San Joaquin Valley caused by lost farm jobs.
But a recent Associated Press report criticized the federal government’s efforts to fight the arid conditions. According to A.P., Uncle Sam has distributed more than $687 million to hundreds of farmers in drought-stricken California and Arizona over the past two years. And some say the subsidies actually do more harm than good.
Last month in California, the Bureau of Reclamation announced major water cutbacks. The move could force some farmers to switch to less water-intensive crops or leave fields fallow.
Some environmental groups have questioned the practice of so-called “double-dipping” on federal subsidies for crops and water. Urban leaders in the once booming population centers of the southwest also are expected to squeeze agricultural interests for water usage.
The Colorado River, which irrigates farmland and supplies municipal water throughout the West, is at or near record lows in many sections. Some experts believe the water table of Nevada’s Lake Mead could drop low enough in the coming years to stop power generation at nearby Hoover Dam.
Despite the drought issues, USDA economists say a surging population and dry weather are causing water shortages – NOT USDA’s policies.
Preserving Pennsylvania's Barns
Though threatened by urban sprawl, decay, and changes in farming practices, thousands of barns still remain.
And as an incentive to preserve the symbols of agricultures past, a federal income tax program allows a credit equal to 20 percent of the amount spent rehabilitating a historic barn.
As producer Laurel Bower Burgmaier discovered last fall in Pennsylvania, a growing number of “barn huggers” is working to preserve the iconic structures.
Robert Ensminger, Barn Historian: “I’m prejudice. I’m a Pennsylvania German, I can’t help it. They’re some of the largest and most magnificent structures, using medieval timber framing. They’re very interesting from a technological point of view and they reflect the traditions of the European regions in which the settlers came. So they bring all these things over here replicating European barn landscape in Pennsylvania, and it spreads right across country. It’s a neat story.”
Robert Ensminger is an internationally renowned barn historian and is considered the foremost expert on the Keystone state’s iconic structures. He literally wrote the book on “The Pennsylvania Barn,” which has been described as the first comprehensive study of an important piece of American vernacular architecture –the forebay bank barn, better known as the Pennsylvania German barn.
Market to Market tagged along as Ensminger toured Pennsylvania’s picturesque Oley Valley, showcasing some of his state’s architectural treasures –many still in use today.
Bob Ensminger, Barn Historian: “The first barn, grundscheier, the Hopus Barn, was built by a Casper Maul who was a Hessian from the North Central part of Germany. He brought his barn style with him and he stayed here after the revolution. His farm was only 50 acres. So, it didn't require a real big barn. So even though they were building two level bank barns at that time, he chose to build a typical ground level grundscheier barn for his small farm in Oley Valley.”
Barns in this region typically are classified as either banked or ground, with the latter variety having no basement.
Pennsylvania is one of few states that has a style of barn architecture that bears its name. The traditional Pennsylvania barn is a type of banked structure built in the U.S. from about 1820 to 1900. The most distinguishing feature is the presence of a forebay, an area where the barn overshoots its foundation. These barns were banked or set into the hillside to ensure easy access to both the basement and the level above.
Bob Ensminger, Barn Historian: “The barn we're at now was the next generation of a true Pennsylvania barn which has a bank plus the diagnostic forebay. Since it's two levels it was much bigger. You could house cattle and animals in the basement stable. You could store hay and straw in the upper level. You could thresh on the threshing floor. So, it was a versatile multiple purpose barn which became the model then for the barns that developed beyond it larger and built, being built of different materials as time went on.”
Today, many of these symbols of America’s agricultural past are threatened by demolition. Too often, the weather-worn structures are razed to make way for “progress” and part of Pennsylvania’s heritage is lost forever.
Bob Ensminger, Barn Expert: “They preserve the past in terms of the traditional building forms. They show how technology was used in farming in the good old days and although its changed, the amazing thing about these Pennsylvania barns is that they’re still versatile enough to serve farmers today…We know those people were building out of tradition more than from plan. It shows their European origins, the style of barn they had. It shows that they were hard working industrious people. They had to be to survive on a farm in those days.”
Along with Ensminger, an enthusiastic group of people is working to preserve and protect these historical icons. A few years ago, the Historic Barn and Farm Foundation of Pennsylvania, or HBFF, was created.
Sheila Miller, Historic Barn and Farm Foundation of PA: “Our purpose and goal is to do as much as we can to make these barns remain standing here in the state of Pennsylvania. Unfortunately because of a lot of urban pressure and neglect, we’re losing historic barns at a very rapid pace. We are here to try and slow that down, even if it means retro-fitting these barns to other uses. We want to keep as many of them standing where they were erected in the first place, and if not, at least move to a place where they can be preserved.”
The HBFF works with many local, state and national organizations to record and save historic barns. In 2007, its board of directors developed a standard survey to help owners share information on their individual barns. They wanted an inventory of the kind of barns that remain on the Pennsylvania landscape, their locations, and reasons farmers keep them as integral parts of their farming operations.
Sheila Miller, Historic Barn and Farm Foundation of PA: “The foundation is also going to be working very closely with our congressional delegation. To get them to put the money where their mouth is I guess is the best way to say it.”
Miller served in the Pennsylvania House of Representatives for 14 years and was chairman of the Center for Rural Pennsylvania. She hopes her background will benefit the foundation.
Sheila Miller, Historic Barn and Farm Foundation of PA: “”Both the 2002 and the 2007 Farm Bills, they put language in for historic barn preservation grants. The funding never materialized and we’re hoping 2009 Congress will actually go ahead and put money towards that grant program.”
A familiar site on many Pennsylvania farms, barn architecture is as varied as the heritage of the farmers who settled the state’s early frontier. The timbers and stones taken from the land combined with hard labor resulted in long-standing storage buildings that provided a safe haven for harvested crops and livestock.
Bob Ensminger, Barn Expert: “There are two barns on the property. One is 1787 with a date 1837 with another date. One's an early Switzer Barn was stone construction, a classic stone Switzer. The other is a typical standard Pennsylvania Barn of the earlier 1800s and they're they're built one against the other.”
Last June, the HBFF welcomed the National Barn Alliance to Pennsylvania for its annual conference. For the first time, these two non-profit associations brought together enthusiasts from seven states and the District of Columbia.
Sheila Miller, Historic Barn and Farm Foundation of PA: “We want to make it a bit more uniform with what the National Barn Alliance is doing. We want to try and determine where throughout the Commonwealth where these barns are located and get them recorded.”
Bob Ensminger, Barn Expert: “My hope is not only to document them, this is the first step. But in the process of documenting, we get people interested enough to want to maintain them and keep them. If they’re going to be used, they’re going to stay.”
For Market to Market, I’m Laurel Bower Burgmaier.
Market Analysis: Don Roose, Market Analyst
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For the week, May wheat lost a penny, and the nearby corn contract moved 14 cents lower.
Strong demand from China pushed soybean prices higher. For the week, the May contract gained 44 cents, while the nearby meal contract was up more than $15 per ton.
In the softs, cotton continued its upward trend again this week as the December contract posted a gain of $1.60.
In livestock, April cattle moved 80 cents higher. Nearby feeders were up just over $1. And the May lean hog contract was down $1.20.
In other markets of interest, the Euro lost 123 basis points against the dollar. Crude oil was down nearly $2 per barrel. Comex Gold declined $15.40 per ounce. And the Goldman Sachs Commodity Index gained more than 3 points to close at 376.25.
Roose: Hello.
Pearson: Let's talk generally about the markets. We've talked about the weather and the weather seems to be pretty good going forward for the next ten days but I was in Enid, Oklahoma yesterday, Don, and I talked to some Oklahoma wheat growers who were saying you guys are not estimating nearly the damage that we had to the wheat crop in the southern plains across a good portion of Oklahoma. They're saying with that freeze they have got some real problems.
Roose: Yeah, and we think so too and the estimates possibly from that freeze could be anywhere from 30 to 90 million bushels which is just astronomical so big numbers. But I think when you counterbalance that what happens Mark is that is true the big wheat damage and it's a big issue but we also had some big timely rains in some of the wheat area and it has balanced it out.
Pearson: Some of those folks were talking they might switch over maybe and tear that wheat out and maybe replant something, maybe go with a milo or something although that can have repercussions I understand for the next crop year. So, barring that as you look at this wheat market from the domestic standpoint with that kind of a challenge offset with the good weather do you think we're about where we should be price wise?
Roose: Well, I think the wheat market put in a performance this week closing about unchanged in the face of corn coming in under a lot of pressure, soybeans pretty firm so I think what you're really seeing is the wheat market is trying to find a value down here. So, I don't think the down side is really all that great until we actually start to see the harvest. I think the trade is going to want to be pretty careful on pressing the wheat market until we see the yield results. So, probably down side is pretty limited, I'd say 20 to 30 cents.
Pearson: Okay, and maybe some up side in there. Internationally crop development pretty good on wheat?
Roose: You know, the problem with the wheat market is the fact that domestic supplies are large, the world supplies are fairly large, we're working off of those big supplies that we had from our record plantings last year so once we work through that we think next year the balance table will shrink mildly but it's still going to be fairly adequate.
Pearson: So, pricing, you want to make sales not at this point? Wait for some kind of a rally?
Roose: Yeah, I think now is premature to make sales unless you really need to make some catch up sales. I think you have to really see how the market is going to react at these price levels and see if we can get a push back up another 30 to 50 cents to the up side but technically the market is down in support, it's oversold so we should have some kind of a retracement.
Pearson: Six dollars a possibility?
Roose: It might be. I think part of it is going to be as we move closer to harvest what happens, what happens to the Red River Valley where the spring wheat from a protein content that's the one that's going to have to carry the load here so maybe but I'd be a little bit careful.
Pearson: All right. Let's talk about the corn market. You mentioned the week that corn put in, good exports, seems to be a lot happening on the plus side for corn but at the end of the week we were really about even.
Roose: Yeah, the problem with the corn market I think it's just too much good planting weather and that really was the dominant issue this week. Almost on a daily basis the soybeans tried to go higher, the corn tried to go lower. When you have a carryout of 1.7 billion bushels and you have a sizeable carryout potential next year our cushion of error is pretty large.
Pearson: So, for old crop sales basis where are we there?
Roose: Well, I think on old crop the one thing we've seen in the corn market is the tight basis levels two weeks ago told you that the producer wasn't selling, we've seen a more aggressive selling going on here lately, some pre-planting selling and I think to the up side on corn we're back down to an oversold condition, we're nearing maybe some support, it's tough resistance as you get up into that $4.20 to $4.30 level on July.
Pearson: Take us into new crop, Don, what are your thoughts there?
Roose: Well, I think the new crop adequate supplies there again, of course, a lot of it is going to be dependent on first of all we're going to have to take it one step at a time, what is the real acre going to be. I think we have an unknown with what happened to those phantom 7 million acres that we lost but I think when you look at new crop if we get timely plantings, we get adequate acres, it looks like we're going to have a decent yield, we're going to continue to take risk premium out of the market which is what we're doing right now so the corn market really struggles when you hit this $4.37, $4.38 area.
Pearson: So, you get up to that resistance point it may be time to part with some?
Roose: Well, I think you're going to have to look at the time of the year it is when we get to that level but I would say if the crop gets timely planted and the weather turns out like we are talking about right now you get rallies back into that $4.30, $4.40 area that's probably going to be an area that we're going to have trouble overcoming.
Pearson: You mentioned the 7 million acres, they didn't disappear, they're going to do something. We're looking at 1 3/4 bushel carryout and if we come into trend line yields, the last time you were on the show we talked about this, we could have a bigger carryout in 2010 and isn't that going to point towards some lower prices going forward? Should we be looking at these markets more aggressively, Don?
Roose: Well, I think so. I think the one thing we have when you look at marketing we still have the insurance support area at $4.04 on Dec. corn so you probably have that as your safety net but you have to probably market over your insurance rates more aggressively when we move to the up side in the areas that we were talking about. But I think there's a lot of question marks, we could have some of these phantom acres show up again, we've seen that before so I think that up side rallies are meant to be sold, down side there's probably going to be good support until we can actually put the fire out on the bull story in the soybeans.
Pearson: A little bit of a bull story occurring in cotton and, again, some of this goes back to weather conditions and some other issues but are these sales levels in cotton, Don?
Roose: Well, we're back up at the old highs on cotton and really what pushed us down to the low was the economy is so slow, a slowdown in the economy and now all that has started to reverse a little bit and the big thing that has been occurring in the cotton, very similar to what's been going on with soybeans, China has just been an aggressive buyer of cotton, they've been restocking their supply, if you will, and that has really been the driving force so you have to be careful, they are probably the big unknown what they're going to do so you're back at resistance, back at areas and you have to take a hard look at it again.
Pearson: You mentioned China on a buying spree and you mentioned soybeans, that's certainly been the case. From an export standpoint they've been huge in the U.S. market. Is that going to continue or are they front loading all of their bean demand for this year? What is happening there?
Roose: It is a demand story that you look around for demand stories in big bull markets that have a lasting effect and it's the soybeans and to put that into perspective how large is the buying by China they have purchased 57% of the total exports so far so just absolutely amazing. And what you have to be careful with, with China, because you have one big buyer and we've seen it before as the market moves up into resistance they've been on a stockpiling binge but also at the same time they're not opposed to selling back some of the soybeans and putting a big cap on the market. So, I think what you have to watch for signs that the buying pace slows down by China and probably the first evidence of that is going to be if their spreading starts to work in the market.
Pearson: Okay, so again these might be good times to be making sales.
Roose: Well, what we did on old crop beans this week we moved back to $10.64 in July, that is the 2004 high so what kind of a market, we're up at some pretty good levels barring last year's numbers so we're back at some pretty big areas. We're overbought on the soybeans. On Friday we did have bigger spreads starting to work a little bit and that meant that the up front soybeans started to lose in relationship to the deferred soybeans. So, without some technical support you don't want it to roll over here so I would say you're at some catch up levels on soybean sales on the old crop and maybe even new.
Pearson: So, maybe look at some new crop sales too?
Roose: Well, I think you have to look at it mildly here. You still have the insurance levels below us at $8.80 on November soybeans but I think in the big perspective of things it's going to be hard for November beans to move past the $10 mark. But, I tell you, there's a lot of unknowns for the soybean market yet, Mark. There is some in the trade that think that the carry over could be down to 110, 115 million bushels. That is razor tight and so our margin of error has really shrunk and so the dynamics are much different than they've been for a long time, a demand bull market is what you have.
Pearson: Wow, so certainly any weather implications could be dramatic.
Roose: Yeah, that is the big unknown and that's the question mark and the soybeans are probably going to keep risk premium in the market longer than you'd probably think because if anything goes wrong with either planting or any weather problems the market on the soybeans could be explosive again because, remember, South America had some problems, southern Brazil we're in a dry drought condition, Argentina they are about 50% harvested down there, yields just continue to sink.
Pearson: Let's switch gears and talk about the livestock sector. Equity markets improved in the last ten days and improved dramatically since the last time you were on which was near the low in the equity markets -- are we going to start to see it translate into a general stronger economy that might help out this beef price?
Roose: It might and I think what we saw this week is we did see the box beef move up sharply. In fact, mid-week we had the strongest day up on box beef that we’ve had since 2007 and we had a remarkable move in a week on the box beef. The packer break evens went from negative $50 a head plus to now he's about at a positive $1. So, a big move up and that really helps the overall demand.
Pearson: Are you in a hurry to hedge some cattle in here? Do you think we're going to see back into the 90s?
Roose: Well, I think the cattle market is very much dependent on the economy and I think the situation with the cattle it's not about the supply side, it's really about the demand because the supply side of the market actually is fairly tight. Our slaughter so far this year has been down about 4%, our total beef production and we expect to be down a half a percent for the year. So, I think what we really are looking at is this market probably is capped on these rallies as you get up into the high 80s.
Pearson: We've got about 30 seconds, Don, let's talk about the hog market and what you see happening there. We talked about reduced farrowings, reducing supply, we've had some huge kill numbers really for the last eighteen months, starting to see that shrink. What is your hope for the hogs? What is your outlook?
Roose: Well, I think we're carving in a bottom on the hogs. There's no doubt about it. But the slaughter this week down about eight and a half percent, we have been down about five percent on the year so far, a pretty big number, been down six and a half percent in the last three weeks. But the problem with the hog market is really anticipating that and the futures market has that dialed in. We're really pushing to the up side there and resistance.
Pearson: Don, we appreciate it very much, Don Roose, I want to thank you. That will wrap up this edition of Market to Market. But if you'd like more information from Don on where these markets just may be headed visit the Market Plus page at our Web site. 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. Be sure to join us again next week when we'll start examining the efforts to preserve barns in the Midwest. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
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