Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.
Conflicting Reports Continue on State of US Soybean, Ag Product Sales to China
News reports continue to provide conflicting signals on the state of U.S. ag exports to China of soybeans and other ag products. The Wall Street Journal Wednesday reported Chinese state-controlled companies have canceled transports for some shipments from American exporters as new tensions flare between Washington and Beijing.
Maritime executives told the paper at least 23 cargoes of soybeans were withdrawn and that a handful of shipments of other agriculture commodities were “pushed back.” However, the article noted a similar Bloomberg report that Chinese importers late last week had been seeking 20-30 cargoes of U.S. soybeans, but opted to hold off.
Meanwhile, the China-run Global Times said that sales of U.S. soybeans to China announced this week are proof that there has been no halt in the purchases as has been reported. They quoted Zhang Xiaoping, country director for China at the U.S. Soybean Export Council, as saying Chinese firms are still buying U.S. soybeans in line with market rules, unaffected by diplomatic tensions between the two sides.
The U.S. Court of Appeals for the Ninth Circuit issued a ruling that effectively blocks Bayer and BASF from selling the herbicide dicamba in the U.S., ruling that EPA “failed entirely” to acknowledge risks from the herbicide and that the agency violated federal regulations in October 2018 when it issued a two-year approval for the herbicide.
“We strongly disagree with the ruling and are assessing our options,” Bayer spokesman Chris Loder told Bloomberg via email. “If the ruling stands, we will work quickly to minimize any impact on our customers this season.”
The ruling also applies to dicamba-based herbicides from BASF and Corteva Agriscience.
BASF said the ruling could have a “significant adverse impact” on its customers that have already purchased such products for this growing season.
Washington Insider: Chicken Probe Ensnares a CEO, Other Executives
DTN and others are reporting this week that amid the long list of new economic threats to meat producers, plain old anti-competitive behavior can still attract official attention.
Bloomberg reports that “toward the end of every year, chicken producers compete for massive contracts with grocery stores and fast-food chains across America. At least, that’s how it’s supposed to work.”
But reality is sometimes messier, Bloomberg thinks. A string of text messages and emails disclosed in a federal indictment Wednesday featured a 2014 exchange with Jayson Penn, the now-chief executive officer of chicken giant Pilgrim’s Pride Corp., asking unnamed colleagues about negotiations with a restaurant franchise. The manager responded that, “They are listening to my direction.”
“Who is they?” Penn asked. If “they” is illegal, he said, “don’t tell me.”
Bloomberg says that now, after years of talk, the feds have finally pounced: Big Chicken, they say, has been fixing prices.
Bloomberg calls the case, “one of the stranger examples of alleged market-rigging in a long history and an unusual one in that the chief of a company this big is actually facing criminal charges.” The U.S. Justice Department filed a case Wednesday that appears to document executives at competing companies colluding to share pricing and bidding information from 2012 through 2017 in “the cut-throat world of commodity chicken.”
Penn was indicted by a grand jury in Colorado along with a former vice president of the company. There are also charges against executives from Claxton Poultry Farms Inc., a tiny player with about 1% market share.
Pilgrim’s, which is majority owned by Brazilian food giant JBS SA, denied the charges. It will “continue to fully cooperate with the Department of Justice in their investigation,” it said.
The Justice Department filing includes some colorful text-message exchanges that suggest that the poultry giant was in regular communication with rivals over prices. That indicates more changes could come after a decade of hearings on antitrust and consolidation in the industry and a slew of civil lawsuits.
“It’s hard to get anything more solid than having text messages of people working together to rig prices,” said Christopher Leonard, author of “The Meat Racket,” which examines the protein industry. “This is the most significant action by the federal government on the meat industry in probably decades.”
The case against Pilgrim’s is part of an ongoing investigation into allegations of price fixing by chicken processors, which also includes Tyson Foods Inc. and Sanderson Farms Inc. Together, Pilgrim’s, Tyson and Sanderson control almost half of the U.S. chicken market, Bloomberg said.
While Wednesday’s charges are unrelated to the current coronavirus crisis, they likely signal that enforcers will be increasingly vigilant about issues in the industry. The Justice Department also probing potential market manipulation at beef processors, and USDA is separately investigating processor margins.
The four executives charged face a statutory maximum penalty of 10 years in prison and a $1 million fine. In addition, the text exchanges give the public a glimpse into the market, Bloomberg says. And, the messages between executives reveal that a difference of just pennies in prices can mean hundreds of thousands of dollars in additional profit because of the plant’s scale.
The Justice Department is expected to bring additional charges in the investigation, said Lisa Phelan, a lawyer at Morrison Foerster LLP in Washington and a former prosecutor with the Justice Department. Pilgrim’s Pride is probably negotiating a plea agreement with the government, she said, and other companies in the industry could be targeted, which is typical in a price-fixing investigation.
“The DOJ always looks to hold both the companies and executives responsible for any kind of collusion in cartel conduct,” Phelan said.
“If these allegations are true, they offer more evidence of an industry that has no problem exploiting workers and now possibly customers, for their gain,” said Minor Sinclair, Director of U.S. Domestic Programs at Oxfam America, an advocacy group that also holds shares in Pilgrim’s.
Food shortages during the coronavirus pandemic and market disruptions from outbreaks at meat plants have further focused political attention on the risks in food industry consolidation. Even with the administration’s anti-trust investigation into big meatpacking companies, convictions and compliance actions may be months or years away. The charges against chicken processors demonstrate a commitment to enforcement of price-fixing laws, industry observers say.
So, we will see. While the meat processors tend to be concentrated, most analysts say that supply and demand “remain” the primary driver of prices. However, the industry’s questionable health record and worries about supply and price uncertainties are increasingly attracting attention in the urban press and elsewhere. One result is declining consumer confidence at a time when “competitive” manufactured products are gaining modest market shares. These are trends producers should watch closely as they evolve, Washington Insider believes.
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