Washington Insider -- Monday

The Decline of Agriculture

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

South Africa Officially Opens Market to US Pork

South Africa has officially opened its market to a host of U.S. pork products, based on notifications from USDA’s Food Safety and Inspection Service (FSIS) dated Feb. 26.

Raw and frozen pork is now listed as approved for export to South Africa with certain specifications applying to cuts such as pork shoulder which includes removal of lymph nodes and “excessive connective tissue.” The individual cuts and packaging of the products are to be specified on the import permit and health certificate, according to FSIS.

Products include raw, frozen pork, including bellies, hams, loins, ribs and shoulders, for unrestricted sale and other pork for further processing, according to the National Pork Producers Council (NPPC) who welcomed the news. (Link to NPPC statement)

“NPPC is pleased that South Africa has followed through with a commitment to open its market to U.S. pork,” NPPC President Ron Prestage said. “Now, we can sell safe, high-quality and affordable U.S. pork to more than 50 million new consumers. U.S. pork producers had been on the outside looking in as competitors from Brazil, Canada and the European Union sold pork to South Africa, which banned our product using non-science-based restrictions that didn’t pass the red face test.”

However, Prestage noted that there are still some restrictions and the group would continue to press on that. “While we now can sell pork in South Africa,” Prestage stated, “there is no scientific reason to restrict any of our pork, so we’ll continue to work with the governments in Washington and Pretoria to get complete access to that market.”


CFTC Advisory Panel Recommends Ditching Speculation Plan

Cancelling plan to limit speculation in energy commodities including natural gas and oil was recommended in a report by the US Commodity Futures Trading Commission’s (CFTC) Energy and Environmental Markets Advisory Committee (EEMAC).

In their report summary the CFTC EEMAC noted:

“There is little to no evidence that the CFTC’s Proposed Rule mandating new federal position limits is sufficiently ‘necessary’ to satisfy the explicit requirement under the Commodity Exchange Act. In the absence of evidence of necessity, it is unlikely that any final federal speculative position limit rule could pass a cost/benefit test.

“There are already concerns with a sharp reduction of trading liquidity in the relevant physical and derivative markets, adversely affecting the ability of end users to hedge.

“The Proposed Rule, if implemented without substantial changes, would exacerbate the adverse effects on hedging and undermine the ability of energy derivatives markets to perform their economic functions of risk transfer and price discovery while avoiding unwarranted fluctuations in prices due to excessive speculation.

“Implementation of a new federal speculative position limits regime will create abundant practical challenges. These challenges can be reduced—but not eliminated—by drawing upon existing resources and expertise within the exchanges and through modifications to the Proposed Rule (such as use of accountability levels rather than hard limits).”

The panel is made up of executives including ones from Morgan Stanley, CME Group Inc., ICE Futures U.S. and the Natural Gas Supply Association. Panelists agreed on a broad range of issues presented in the report’s findings.


Washington Insider: The Decline of Agriculture

USDA’s annual Washington extravaganza of crop and livestock outlook sessions took place last week. It attracts world-wide attention for its businesslike and useful reports.

However, there are some themes that pop up frequently, even at highly focused sessions like this For example, The Hill, in spite of its urban orientation, picked up on some of the gloom and doom that was presented by Cornell’s Dean of Agriculture, Kathryn J. Boor, who described a number of concerns about the sector.

She sees it as dwindling, with U.S. total farmland decreasing rapidly since 2014 by some 1 million acres that she converted into the “loss of 18,000 farms.” She also worried about economic stagnation and cited a Science magazine editorial that focused on a “26% decline in federal spending on agriculture and food research over the previous decade.”

And, she thinks that “It is no secret that the face of the American farmer is over 57, white and male” and often without any succession plan. She cited USDA data to conclude that there “will be 20,000 fewer university graduates in the fields of agriculture and the environment than will be needed in just the next five years.”

By contrast, the National Geographic apparently sees something wrong with agriculture, even if is not sure what. It served up a few catchy phrases recently, along with an article that mangles ag statistics pretty badly to describe somewhat a forlorn farmer who may grow barley, millet or other minor grains and while earning 84 percent of his income by working off the farm.

The article itself is by a “food writer” and a Midwestern university professor. It says that farmers do well and earn more income than most Americans—but then focuses on the extent to which this is because they’re “hustling in a second-job off the farm.” It cites USDA data. The picture and the article’s tone suggest that this is a pretty bad thing. If you thought this was an odd criticism, you would be right.

Even worse, it mischaracterizes the situation. The writers say the averages “gloss over a number of other factors,” and that certainly is true.

It is important to remember, for example, that USDA defines a farm as a unit having at least $1,000 in farm sales, a definition that included about 2.07 million farms by the end of 2015. What the writers don’t say is that this very low threshold means that farm units are an enormous hodge-podge of units that can be analyzed only with care and use of other details since the vast bulk of what USDA calls farms are not farms at all, in the sense that their operators do not consider themselves farmers. Half of USDA’s farms had sales of under $10,000 and 80 percent under $100,000. Only 8 percent had sales of $500,000 or more.

So, it is not surprising that many of these farms are part-time. These “farmers” are frequently professionals like doctors, dentists, veterinarians or many, many other rural service providers.

USDA data show that many so-called farmers actually are retirees or just rural residences or “hobby farmers” who sell small amounts on local markets. Thus, the raw numbers give quite a misleading impression about agriculture.

So, the National Geographic’s image of the “hustling” farmer is not entirely wrong, since farm work is demanding—but, it is not really correct, either, because it doesn’t capture a realistic picture of the enterprises that provides most of our food and fiber.

The central core of U.S. agriculture is family owned and operated, quite sophisticated, and highly reliant on modern technology. This commercially-oriented sector returns attractive incomes, which are protected by government subsidies to help manage weather and price risk. Farm work is demanding, but increasingly mechanized and high-tech—and likely nowhere near as picturesque as the National Geographic seems to think it is.

Neither is it falling into disrepair or aging to stagnation, although Dean Boor’s instincts are likely correct since modern farm operators need to be increasingly well educated and IT oriented.

What is going on in ag today is an adjustment to lots of supply and demand factors in both global and domestic markets, rather than any basic deterioration. It calls for greater care in use of social statistics, but almost certainly does not justify any widespread rush toward federal intervention, Washington Insider believes.

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