WPI Spotlight

Spotlight

Corn, Weather and the Market

Recall that the bearish 28 June Acre report caused a sharp sell-off in the December corn contract; down to about $4.90 per bushel. End-users found that to be an attractive price level prior to pollination and various speculators also perceived a temporary opportunity. Consequently, this combination of buyers drove prices back up to about $5.25 per bushel which was an area of technical resistance. As this price action was transpiring, improving weather forecasts made it increasingly evident that the U.S. corn crop would not be threatened by adverse conditions during pollination and the prospects increased that the $5.00 per bushel level would again be penetrated.

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Northeast Interstate Dairy Compact History

Clients may recall the disruptive regional dairy policy known as the Northeast Interstate Dairy Compact (NEIDC) which was in place from 1996- 2002. If not, a quick primer follows:

The NEIDC empowered an appointed commission – made up of state bureaucrats and dairymen - to effectively set the minimum farm gate price that bottlers must pay for fluid milk. It was intended to be a temporary measure to tide over dairy farmers in the six New England states until a more comprehensive national dairy policy reform – unachievable during the 1996 farm bill debate - was crafted. In all, it cost consumers in the northeast at least $130 million in higher retail milk prices before it expired in 2002. Though the New England states comprised only 3 percent of dairy production at the time, the price-setting power even applied to milk entering from states outside the compact, such as major dairy producers New York and Pennsylvania.

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Kennedy, Agriculture and Agricultural Policy

Later this year, on 22 November to be precise, the 50th anniversary of the assassination of President John F. Kennedy will be remembered. On that date in 1963 President Kennedy was shot and killed by Lee Harvey Oswald in Dallas, Texas. It was one of those instances of great national trauma. Those of us who were around at that time can still well remember exactly where we were and what we were doing when we first heard the tragic news. The 50th anniversary of President Kennedy's death will no doubt revive discussion of his life and his presidency although that discussion has really never gone away.

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ARGENTINA'S WHEAT IMPORT POTENTIAL

Prices have been increasing because of the lack of wheat on the local market. Currently millers are paying $520/MT FAS at ports without originating any volume. The new harvest is five months away and millers are uncertain whether they will have enough goods run the factories. If it were only about the pricetag, Argentina could certainly import wheat. Russian wheat is openly offered at $270/MT FOB. Considering a freight rate of about $45/MT CNF, Russian wheat can be sent to Argentine ports for $315/MT. A specialist calculated that the additional cost to introduce the goods into the country would be approximately 30 percent of the price (to cover discharge, taxes, etc). This results in a final price of $409.50/MT unloaded at Argentine ports, well below the $520/MT on the internal market.

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The Farm Crisis

Prices for corn, wheat, soybeans and other commodities have given U.S. farmers cash with which to purchase more farmland. Supported by historically low interest rates and high crop insurance payments, farmers now have easy access to the money they need to close deals. As a result, farmland values in the Midwestern United States have skyrocketed in recent years and they are expected to stay elevated in 2013.

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Eulogizing Direct Payments

Given the federal government's current fiscal condition, the newly imposed sequestration of federal spending, mounting federal debt and several years of record high commodity prices, farmers' direct payments are doomed. They are the favorite cost-cutting target of virtually every budgeter who puts pen to paper to produce a fiscal blueprint, including the Senate and House Agriculture Committees, the Senate and House Budget Committees, the Office of Management and Budget and the Senate Democratic leadership in its sequester avoidance plan. Because of the 2012 Farm Bill's one-year extension, direct payments are like a condemned prisoner waiting out his days on death row. They may be terminated this year -- or, like a prisoner getting a reprieve from the governor -- there may be one more extension. Ultimately, however, they face a lethal fate.

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