Washington Insider-- Thursday

Optimism in Agriculture

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

USDA Downgrades 2016 All Food, Grocery Store Price Forecasts

U.S. consumers will see a smaller bill at the grocery store in 2016 compared to 2015 and overall food price increases are now seen at 1%, a range of 0.5% to 1.5%, according to the Food Prices update from USDA's Economic Research Service (ERS).

Food at home or grocery store prices are now forecast to range between minus 0.75% to up 0.25%, Which ERS said is a "rate of inflation (or possibly deflation) that would again fall below the 20-year historical average of 2.5%. The forecast has been lowered due to recent declines in prices for beef and veal, poultry, and eggs. Lower transportation costs due to deflated oil prices as well as the strength of the US dollar have placed additional downward pressure on food prices in the first half of 2016."

The U.S. dollar strength is impacting the competitiveness of U.S. goods on the global market, "leaving more potential exports on the domestic market," ERS noted.

So far in 2016, ERS said grocery store prices are down 1.1% compared to this point in 2015. "Retail food prices have remained flat or decreased for seven of the first nine months in 2016," ERS detailed.

For 2017, ERS now forecasts food prices to rise between 1% and 2%. "Despite the expectation for declining prices in 2016, beef and veal, poultry, and dairy prices are expected to rise in 2017," ERS said, adding their usual caveats that the forecasts for 2017 could be altered by several factors, including weather, energy prices and the value of the U.S. dollar.

EPA Investigating Reports of Improper Dicamba Use

As DTN initially reported on Monday, the Environmental Protection Agency EPA executed search warrants in southeast Missouri the week of October 10, looking for signs that the herbicide dicamba had been used improperly.

The searches were prompted by complaints that the herbicide damaged 41,000 acres of soybeans and other crops, reportedly because improperly applied dicamba drifted into neighboring fields.

Dicamba has only been approved for application before planting season or after harvest.

The herbicide can injure crops that are not resistant to it. EPA is expected to decide whether to approve "over the top" dicamba application (on fields that have already been planted) for soybean fields this fall.

Washington Insider: Optimism in Agriculture

While it seems that the typical ag press report these days focuses heavily on weak markets, Bloomberg reported this week that there is “optimism in agriculture despite shrinking wallet size.” It says that investments by companies and venture capitalists in agricultural technology reached a record of as much as $25 billion globally in 2015 “and that figure will probably grow again this year.”

The sources of the new estimates are Boston Consulting Group and AgFunder which connects investors with agricultural companies and proposals online. The investments included are a broad range of products including R&D, purchases, partnerships, equity stakes and technology centers. Early-stage funding from venture capital firms reached $3 billion globally, up from $900 million in 2013 and $400 million in 2010, the groups said.

“The total dollars were impressive,” said Decker Walker, Boston Consulting Group’s managing director in the Chicago office and one of the report’s authors. “It is striking that it’s happening at a time when farmer income is declining.” However, the report tends to focus more on larger farms who tend invest more heavily in advanced technology.

The company noted that while slumping grain, meat and dairy prices have eroded agriculture incomes generally, more farmers are turning to precision-agriculture methods to help increase efficiency. “Companies including Deere & Co. are joining the race to create new products for the market that Goldman Sachs Group Inc. estimates could be worth $240 billion by 2050,” Walker said. In addition, USDA recently noted that the new technologies are helping to boost profits for many farming operations.

Perhaps the most interesting aspect of the report is Wallker’s comment that “There is clearly some optimism despite the shrinking farmer wallet size.”

The report covered technologies encompassing everything from granular data analysis that enhances planting decisions to drones that provide field views around the clock. The report is based on a survey of more than 50 executives from seed, fertilizer, meat, grain and farm-equipment companies as well as 15 venture-capital investors.

It suggested that the current surge in technology may be coming later in agriculture than in other industries because past challenges have included a lack of connectivity on vast, remote farms. The perception that agriculture being a “sleepy industry” that’s slow to adopt technology is changing, Walker said.

USDA earlier reported that about 80% of large U.S. farmers are using GPS devices to steer their tractors, while 70% to 80% use yield mapping to determine the most productive areas of their land. The new, private report estimated that crop protection and seed companies have invested the highest percentage of revenue in “agtech.”

In addition, it notes that agribusiness investors are often “cautious” and “defensive,” meaning they are geared to boost core businesses rather than create new ones, according to the report. As a result, almost 60% of the venture capital firms said they expect their investments in start-ups to lead to sales to larger agricultural companies, rather than disrupt the big players, Walker said.

Overall, the report suggests that U.S. agriculture continues to be highly focused on increasing efficiency and competitiveness and in expanding its markets—in spite of the widespread anti-trade sentiment that has been one of the stronger themes in this year’s political fights. This optimism and investment trend also runs counter to the popular criticisms of ag technology that have been featured in urban dailies recently.

Given the expected growth in global food needs in the coming decades, it is certainly not surprising that the sector would turn increasingly to technology to fill those needs. The fact that it is doing so against both economic and social headwinds makes the recent trends especially important and encouraging, Washington Insider believes.

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