Washington Insider-- Monday

China Trade Measures

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

USDA to Require Meat Packers Report Cattle Purchases Via Online Auctions

To bolster price discovery, USDA said it will require meat packers to report cattle purchases made via online auctions to the department starting Oct. 5, a move that traders hope will bring more transparent markets. USDA's Agricultural Marketing Service (AMS) will begin including transactions from auctions on the Fed Cattle Exchange in pricing reports that top packers use to determine how much they should pay farmers for an increasing percentage of animals sold. That means the exchange, which has held eight auctions since launching in May, will begin impacting prices that packers pay in the broader market.

USDA said cattle sold weekly on an exchange owned by Superior Livestock Auction LLC, which says it is the largest U.S. marketer of cattle using televised and internet auctions, will be added to the mandatory reports on negotiated purchases. The livestock industry requested the data inclusion, the government said in a statement.

"In recent years, participation in the cash slaughter cattle market has declined significantly from 37% nationally in 2010 to 25% today," USDA said. "This occurred as the supply chain moved to using more formulas and forward contracts to market cattle more efficiently," and that "reduced opportunities for price discovery in the negotiated market," USDA added.

"After review, it has been determined that livestock traded in this manner would meet the definition of a 'negotiated purchase' as the Fed Cattle Exchange is merely a trading platform," USDA said. "Negotiation does occur as buyers can bid on the livestock offered and sellers can accept or refuse the final bid. In addition, delivery must be scheduled within 14 days of the sale."

Industry groups have blamed high-frequency traders and a lack of cash transactions for increasing futures volatility, which deterred animal owners and meatpackers from using the contracts for hedging.

Adding transactions from Superior's Fed Cattle Exchange will increase the volume of negotiated purchases from 1.5% to 2%, USDA said. Cattle futures on the Chicago Mercantile Exchange have slumped 25% this year. Cash steer prices reported by USDA have dropped 23% in 2016.

Starting Oct. 5, the AMS Livestock, Poultry and Grain Market News (LPGMN) will begin including in the National and Regional direct negotiated slaughter cattle reports, cattle purchased through the Fed Cattle Exchange by packers required to report according to the LMR (Livestock Market Reporting) Act and regulation. "Based on the weekly sales activity since launching in May of this year, approximately 1,800 head of cattle per week have been offered through the Exchange at price levels in line with the current weekly reported markets," USDA said.

PLC Payments Coming for 2015 Crops of Corn, Sorghum & Canola

Eligible producers will be receiving payments under the Price Loss Coverage (PLC) program for 2015 crops of corn, grain sorghum and canola, but no PLC payments will be generated for 2015 crops of soybeans, dry peas and lentils.

2015 PLC Payment Rates. The payment rates will be 9 cents per bushel for corn, 64 cents per bushel for sorghum and 4.55 cents per pound for canola.

Agriculture Risk Coverage -- County (ARC-CO). Actual Revenue for Corn, Grain Sorghum, Soybeans, Dry Peas, Canola, and Lentils: The ARC-CO actual crop revenue is calculated by multiplying the actual average county yield for the covered commodity times the higher of either of the following -- either the Market Year Average (MYA) price for the covered commodity or the national overage loan rate for the covered commodity.

Washington Insider: China Trade Measures

Bloomberg reported over the weekend that China "could be on the brink of imposing measures to protect its soybean industry." The concerns arose following remarks by a leading figure in the country's agricultural ministry.

The main development was that Ni Hongxing, head of the Agricultural Trade Promotion Center at the Ministry of Agriculture, said it may be necessary to introduce antidumping tariffs and other measures to curb imports and protect domestic production. The statement was reported by the country's state-run Xinhua news agency late last week.

The U.S. soybean industry is highly export focused and China is a huge market, so the reports of major policy changes there are having an unsettling effect across the sector. Since 2005, Chinese soy imports have more than tripled and now account for more than 60 percent of the global total. In addition, the United States is the second largest soy exporter, behind Brazil with Illinois and Iowa the main producing states, Bloomberg says.

According to Erlend Ek of the advisory firm China Policy, Chinese soybean farmers have suffered in recent years due to poor domestic support. New policies aimed to correct these problems are being planned, but have yet to take shape. As a result EK thinks China may feel it necessary to introduce "some short term protection to the domestic sector," he told Bloomberg "although it would likely resist doing so."

The Ministry's Ni has long talked about a need to protect China's agricultural industries, both to ensure food security and to alleviate poverty, which is most pronounced in China's rural areas. In addition to antidumping tariffs, he wrote recently, China might attempt to stimulate domestic production by increasing compensation for farmers.

He also suggested that imports of genetically modified soybeans should be strictly supervised in packing, transport, processing and labeling. Such measures could mean problems for U.S. exporters since, according to Ek, "imports are mainly genetically modified soy while domestic products are not."

While there is considerable discussion just now of possible future Chinese policies, there also are suggestions that the government has other goals in mind than protectionism. Previous statements from the Ministry of Agriculture have envisioned a complimentary system, Ni added.

"Rather than aiming for self-sufficiency or forcing imports out of the market, the Ministry of Agriculture's 'guiding opinions' on soybean production laid out in April called for developing complementary niches for domestic and foreign soybeans," Ni told the press.

"Imported soybeans are to fill the lack of feed protein and edible plant oil, while domestic soy beans will be processed into tofu, soy milk and other classic foodstuff," Ek said. To meet demand, the recent document called for a 40 million mu [one square meter is equal to 0.0015 mu] increase in soybean areas by 2020."

In the meantime, Ek thinks that China is likely to support "rotation policies and new policies towards domestic genetically modified crops" as well as efforts to find dedicated production sources overseas. "Looking ahead, I think Chinese companies will seek to invest in soy production globally to serve domestic demand," he said.

This is a somewhat critical time for Chinese ag policies, including those for oilseeds. Years ago, in the late 1990s, there was considerable debate about whether China would, or could, permit domestic reliance on a food product as central to its diets as soybean oil. However, that question now appears settled as the government has continued to depend on global markets, at the time it has cultivated overseas sources.

Thus, it appears that the government has decided that these global sources have become reliable enough to be incorporated into long-term policies. This situation seems unlikely to change rapidly since pressure on Chinese resources is so great and is becoming greater as its economy grows.

Of course, that doesn't mean Chinese policies will be smooth for all concerned. It still has work to do to modernize and commercialize its meat production and appears to be moving to support modern genetics.

At the same time, it is being heavily criticized for its domestic ag support policies by the United States and others who argue that it is spending far more than it agreed to do on its ag programs. It says it will fight the U.S. criticisms and believes it has the facts to do that.

So, we will see. The Chinese-Western market relationship have become increasingly important, but not always smooth and recent geopolitical concerns have increased these and other tensions, and likely will continue to do so. Certainly, its policies toward soy farmers will be important for US producers to watch as these issues evolve in the future, Washington Insider believes.

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