Washington Insider-- Friday

Producer Self-Help Price Supports Under Fire

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

China Corn Crop to Fall 2.3 percent in 2016: CNGOIC

China's 2016 corn harvest will drop 2.3% from 2015 to 219.5 million metric tons, said the China National Grain and Oils Information Center (CNGOIC), with farmers planting less of the grain following a change in government support.

Planted acreage will fall almost 5% to 36.3 million hectares, (89.66 million acres) CNGOIC noted, but yields are expected to increase to 6 metric tons per hectare, up by 162 kg from last year.

The think-tank also predicted a 12% jump in corn consumption in the 2016/17 marketing year, starting in October, to 199 million metric tons.

Feed accounts for about 60% of demand, with most of the rest used by industrial users. It said imports in 2016/17 would fall to 1 million metric tons, down by 2.2 mmt this year, or a drop of 69%.

China is continuing to shift some of their domestic farm policies, including the ditching their policy of buying up supplies from farmers and holding them as state-owned reserves. It's not clear how long it will take for the policy shift to produce results.

USDA: No Fiscal 2017 actions expected under Feedstock Flexibility Program

No purchases or sales of sugar under the under the Feedstock Flexibility Program (FFP) for Fiscal 2017 are expected by USDA's Commodity Credit Corporation (CCC).

FFP was reauthorized under the 2014 Farm Bill to help support sugar prices and avoid sugar loan forfeitures. Based on USDA's August Supply/Demand report, domestic sugar ending stocks for Fiscal 2016 are unlikely to lead to forfeitures.

Therefore, USDA said it does not expect at this time to purchase and sell sugar under FFP for Fiscal 2017. USDA will provide another quarterly estimate on FFP prior to Jan. 1, 2017.

The program has not been used a great deal since the reauthorization in the 2014 Farm Bill and U.S. ethanol production has continued to run at hefty levels without the possibility of the excess sugar being converted into the fuel.

Washington Insider: Producer Self-Help Price Supports Under Fire

Many ag observers were surprised last spring when, in the face of relatively low prices, producers increased plantings of a number of crops. Since farmers have notoriously sharp pencils regarding incentives and investment, more than a few analysts concluded that the planting decisions were driven by expectations of profitable returns in spite of low prices.

Still, Bloomberg said the recent case against producer efforts to raise prices reflects a "mysterious state of affairs" in the industry. Thus, while the government has often tried to control supplies to raise farm prices since the 1930s, that doesn't mean producers can do the same.

The recent case focused on allegations on behalf of American consumers that cooperatives paid farmers to prematurely slaughter cows. The recent settlement cost the producers $52 million, a modest amount, Bloomberg says.

The "herd retirement program," as it was called, was led by Cooperatives Working Together, run by the National Milk Producers Federation and supported by farms producing almost 70% of America's milk, Bloomberg says. Individual cooperatives sued included Dairy Farmers of America Inc., Land O'Lakes, Dairylea Cooperative Inc., and Agri-Mark Inc.

The plaintiffs claimed that, between 2003 and 2010, the cooperatives paid above-market prices for dairy cows owned by member farmers and sent them to slaughter. According to the antitrust lawsuit, filed five years ago in San Francisco federal court, the herd reductions were effective. From 2004 to 2008, producer prices rose 66¢ per hundredweight of milk, according to an analysis done by Dr. Scott Brown of the University of Missouri-Columbia for cooperative groups.

Bloomberg sys that the decision that that led to killing "perfectly good dairy cows" begins with a 1922 law, the Capper-Volstead Act that was designed to protect both dairy farmers and consumers from profiteering by allowing them to organize and consolidate their bargaining power. "What it did not allow was the farmers to get together to sell their milk and to decide how much they were going to produce," said Jeff Friedman, a partner at the law firm that filed the suit, Hagens Berman Sobol Shapiro LLP.

The cooperatives regularly updated members about the success of the program, often including analyses of its effectiveness in maintaining dairy price levels, according to the complaint.

Producers criticized both the suit and the agreement. "No [dairy farmers] got rich on that program," an accountant and farmer in New Mexico with 2,000 cows told Bloomberg. "It was those who were financially strapped and found that as a great exit strategy." The attorney for the consumer class said, however, that some farmers made use of the program just for cash and not out of necessity.

"Yes, dairy farmers needed more money," Pete Hardin, editor and publisher of the Milkweed, a publication about the dairy industry told Bloomberg. "But use of questionable means to achieve that appears to have ultimately backfired," he said.

He added that this is just the latest legal black eye for the dairy industry, which has a long list of antitrust cases, including one settled in June for $50 million and another in 2013 for $158.6 million. "The real story here is the long and repeated and expensive list of antitrust settlements entered into by dairy co-ops," Hardin said. "Somewhere along the way their attorneys misread what was legal and illegal under federal antitrust statutes."

He concludes that, "because farmers finance the co-ops, they end up footing the legal bills, too. Consumers who paid artificially high dairy prices will get their tiny piece of the settlement," but dairy farmers may not see a solution to the supply problem that sparked the "retirement" program in the first place. In fact, they may lose even more, Hardin said.

In addition, the suit seems to have aligned two potentially powerful groups against ag interests. There has been talk across the industry that because of low commodity prices in recent years, the next farm bill debate should be begun early. But, this suit may be seen as a caution signal for such ideas.

Animal agriculture faces strong push-back these days from consumers who accuse it of many unsavory things—factory farming, cruelty to animals, threats to the environment, and more. Perhaps the most important charge is that it does not need additional income supports because its recent acreage increases prove it already has sufficient expectations of profit to lead it to boost planted area.

So, before opening the current farm law early to these amplified criticisms from both budget hawks and consumer groups, the industry as a whole needs to be sure it has done its vote counting very well, Washington Insider believes.

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