Washington Insider--Wednesday

Looking at Weather and El Nino

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

COOL Arbitration Decision Pushed Beyond Earlier Date of Nov. 27

A three-member WTO arbitration panel's final decision on whether Canada and Mexico are justified in imposing $3.2 billion in annual Canada and Mexico retaliatory trade measures against the U.S. country of origin labeling rule on meat will not be made Nov. 27 as previously indicated, sources advise. Contacts say the reason for the delay is a frequent one offered by the World Trade Organization : the time it takes to translate various papers, decisions, etc.

During a recent two-day arbitration hearing in Geneva, Switzerland, both Canada and Mexico claimed their estimates were accurate, based on real figures and represented appropriate damages stemming from the U.S. application of discriminatory COOL rules.

Meanwhile, the U.S. repeated its concern that the Canadian and Mexican calculations were inaccurate, omitted key variables and led to inflated results that were 35 times greater than the U.S. estimate of $90.77 million in combined annual damages.

Canadian officials are likely displeased by the apparent arbitration panel decision delay, as they wanted the U.S. Senate to act on legislation to repeal COOL before Congress recesses, likely a week or so before Christmas. It is unclear if that can still occur, pending the official date the WTO announces or makes known regarding when the WTO arbitration panel will make its decision.

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US Egg and Poultry Industries Brace for a Return of Bird Flu

USDA, states and the egg and poultry industry are preparing for a return of bird flu as wild birds begin their fall migration, including hiring hundreds of veterinarians, workers and examining the feasibility of using a new bird flu vaccine n case of a new outbreak, according to a Wall Street Journal report.

The fall migration of birds -- suspected as a prime vector for bird flu -- through the U.S. is thought to bring with it the potential for a new bird flu outbreak among commercial chicken and turkey flocks.

The spring outbreak resulted in the culling of over 48 million chickens, especially in Iowa which was particularly hard hit, losing nearly half of its 60 million egg-laying hens.

Senate Ag Committee members earlier this year requested USDA detail its bird flu preparations and USDA released a blueprint for addressing another potential outbreak.

As it prepares for a potential outbreak this fall, USDA has hired about 200 of a planned total of 300 veterinarians, animal-health technicians and other workers to administer a disease containment program if an outbreak occurs, WSJ reported.

USDA and the poultry industry are preparing for a potential of 500 new detections -- the worst-case scenario envisioned by federal models.

USDA is considering the deployment of a new bird flu vaccine from Iowa-based Harrisvaccines and has solicited a contract worth at least $6 million to create a stockpile of 500 million doses of the vaccine. The use of a bird flu vaccine would still need to be authorized by the chief U.S. veterinarian and some egg, poultry and turkey producers are leery of its use due to the potential for import bans on U.S. products.

Other measures taken by USDA include authorizing farmers to shut down barn ventilation systems to cull poultry, should they not be able to otherwise meet the 24-hour goal for exterminating birds diagnosed with the virus.

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Washington Insider: Looking at Weather and El Nino

The Wall Street Journal noted this week that government forecasters in the United States and Australia and elsewhere have been busy warning people that an unusually severe El Niño weather phenomenon is coming -- perhaps the most severe in two decades. It cited the Japan Meteorological Agency's reports that sea surface temperatures in the Pacific are already "remarkably above normal" and that they could reach their highest level since 1950.

El Nino weather patterns occur to some degree annually as winds in the equatorial Pacific slow seasonally, or reverse direction. That affects water temperatures over a vast area and can affect weather patterns globally. The full effect of this year's event likely won't be known for months, experts say and won't peak until the end of the year. Some forecasters expect them to persist into 2016.

However, the Journal tends to leave the winds and temperatures to the science guys, and focus on market metrics. They are already reporting reversing commodity price trends as they begin to shift from recent reflections of large current crops and begin to respond more to potential weather impacts, trends now spreading through key crop-growing regions in Asia and beyond.

Many producers have been quick to anticipate potential crop damage. Brazilian sugar producers say heavy rain could reduce their cane's sugar content while farmers in Australia, Asia and parts of Africa say dry conditions could hit production of crops such as palm oil, wheat, cocoa and coffee.

In response, many agricultural prices have now rallied well above recent lows on the basis of fears of weather-related supply shortages. Sugar prices have risen 31% over the past three weeks; dairy is up 36%, palm oil has gained 13.1% and wheat is up 6.1% over the same period.

Some city dwellers in Asia are feeling El Niño in a different way, the Journal said. A heavy layer of smog has hung over Singapore since the middle of August, brought on by the burning of forests in Indonesia to clear land for palm-oil plantations. The fires have lasted longer than normal because of the dry conditions caused by El Nino, making its impact "really tangible," the Journal reported.

In the past, nonfuel-commodity prices have risen by 5.3% on average in the 12 months following the announcement of an El Nino event, according to an International Monetary Fund working paper. Already this year, a number of national food bodies in key crop-producing countries in Asia have already downgraded their forecasts for the coming year, because of unexpectedly dry conditions. The Vietnam Coffee and Cocoa Association, or Vicofa, expects the output of coffee to fall sharply there, although it hasn't specified the likely impact. The Thai Rice Exporters Association has predicted rice production will be down between 15% and 20%.

Augyawati Joe, a spokeswoman for the Indonesian Palm Oil Association, told the Journal that plantations throughout Indonesia are experiencing drier-than-normal conditions, which are delaying the fruit's ripening. Moreover, the persistence of land-clearing fires has caused a significant haze that could impact production this autumn, she said.

That could affect palm-oil supplies eventually, pushing up prices for the commodity used in products ranging from processed foods to lipstick, which touched a six-year low in August.

Andrew Carberry, who farms in Narrabri, north of Sydney, said he is hoping his wheat will get away largely unscathed, though the outlook for other crops that are several months away from harvesting is less certain. Last month, Australia's Department of Agriculture and Water Resources forecast the national wheat production for the 2015-16 season would reach 25.3 million metric tons, up 7% from a year earlier. Tobin Gorey, agribusiness economist at Commonwealth Bank of Australia, pegs the output lower by perhaps two million tons.

Well, no one is surprised that markets are anticipating a new weather pattern ahead of the scientists and are moving ahead of the final reports to hedge against at least some of the changes. Critics who perceive only economic evils coming from the markets need to pay attention to how clearly producers in most countries understand how to access these now familiar protections.

That is not to say that using these tools is either simple or risk free. However, it is true that they are used routinely with considerable success even by modest-sized producers. Given this year's prospects for a heavy duty, wide-spread climate event, the outlook for sharply increased market volatility is strong. Producers should take steps to become familiar with management tools that are widely available to help alleviate that risk, Washington Insider believes.


Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

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(GH/SK)