Farm Bill Highlights
Seasons greetings to all from the winter wonderland vacation destination...North Dakota!
Yes, my father-in-law requested a family Christmas back on the farm, so here we are enjoying family and the slower pace of farm life in December. We arrived to 50 degrees and sunshine and this morning it was 20 with a windchill of 5 degrees. After a light snowfall yesterday, it looks to be a white Christmas, which makes my bride very happy. Check out the photo below - fish house on 12" of ice, which is over 15' of water. Ice was late forming this fall due to the warmer than normal fall temps, so the brave are just beginning to set up their houses on the water.
2018 Farm Bill - The President signed HR2 this last week providing producers some certainty for the next five years. Here are some of the highlights contained in the new legislation:
Title I, Commodities:
• ARC county, ARC individual and PLC are reauthorized;
• Re election opportunity for the 2019 crop year, annually beginning for crop year 2021;
• USDA must publish payment rates w/in 30 days of marketing year end
• Yield update on commodity by commodity basis per farm;
• Reference price escalator for PLC, allows for up to 115% price increase if markets improve sufficiently
• Must use RMA approved yield, if crop insurance is available in the county;
• Must use county of physical location
• Loan rate increased to $3.38, 15% increase.
• $125k hard cap per individual;
• Family definition expanded to include first cousins, nieces and nephews;
• Marketing loan gains & loan deficiency payments no longer subject to hard cap limit
• Eligibility threshold limit remains at $900k.
Title II, Conservation:
• EQIP and CSP remain w/in the program will continue to provide cost-share assistance, but are modified;
-Incentive payments added to EQIP;
-CSP modified to overall funding rather than acres, this will alter enrollment and re-enrollment, making applications bid against each other;
-CSP and EQIP will move to consolidation;
-Grassland Initiative w/in CSP for those impacted by base acres suspension
-Acres increase gradually to 27 million acres;
-85% of county rental rate for general signup;
-90% of county rental rate for continuous signup;
-Seed cost limitation set at 50% of actual cost of seed mixture;
-Revised haying and grazing limitations
-Funding increased $700 million FY 2019 to $1 billion FY 2023;
-Current contract holders are eligible to renew in FY 2019, will be allowed to renew under the old programs (not future expiration);
-Program to be changed to dollar based, future re-enrollments would compete with new enrollments
-Funding $1.75 billion FY 2019, increasing to $2.025 billion in FY 2023;
-Incentive payments added;
-50% livestock set aside retained;
-10% wildlife set aside;
-Increased payment for state determined high priority practices
Title III, Trade:
• Some changes in this title that will be of benefit to wheat producers. The title creates the Agricultural Trade Promotion and Facilitation program that houses Market Access Program (MAP) and Foreign Market Program (FMD). The FMD had lost funding baseline as a standalone program; creation of this umbrella program will allow a baseline moving forward. Some additional changes to the Food for Progress act that won't impact the current 'commodity bucket' of funding.
Title V, Credit:
• Significant increases in overall loan levels for the FY 2019 - FY 2023
Title VII, Research:
• Research title has some some gains for wheat, specifically the US Wheat and Barley Scab Initiative which receives an increase of funding from $10 million to $15 million, limitation of indirect costs capped at 10%.
Title XI, Crop Insurance:
• Current structure of crop insurance program is maintained, no implementation of: means testing, cuts to federal cost-share (subsidy), or cuts to the delivery system. Title also requires RMA to undertake research and development of alternative methods for adjustment of quality losses.
• CAT fees increased from $300 to $655.
Title XII, Miscellaneous:
• Establishes a task force with the goal of identifying current gaps in broadband access on agricultural land, develop policy recommendations for 95% of agricultural land to have broadband by 2025.
• Hemp has been removed as a controlled substance and now listed as an agriculture commodity.
Fertilizer - A couple of articles providing an update of sorts on fertilizer prizes.
Global nitrogen market/prices: N Market could tighten... and... N Prices Spiked
Global phosphorous market/prices: P Market well balanced
Global potash market/prices: More supply than demand?
Global sulfur market/prices: S balanced for 2019
Government shutdown - The standoff between the Administration and Congress has delayed budget spending being approved and has created a government shutdown of several non-essential agencies. Most notable USDA agencies that are closed during this time include FSA offices, USDA website and all export statistical reporting. The lack of this information being available (Chinese purchases) could negatively impact grain markets. Additionally, coverage endorsements for dairy revenue protection, livestock price protection and livestock gross margin cannot be made as the RMA systems necessary to complete is unavailable during the shutdown.
Insurance - An article that identifies the most common agri-business claims, auto collisions top the list and spray (mis)applications are number three.
Markets - With the apparent easing of trade tensions between the US and China, the Chinese just placed a near record soybean purchase from the US - 1.13 mmt, the ninth largest single day purchase by the Chinese in a decade and their largest purchase in the past four years!
Corn - Carryout and usage suggest markets are poised to respond, managed money has to go somewhere doesn't it? DTN's hypothetical ethanol plant recorded a net loss of 37.9 cents per gallon, which was down from 34.4 cents per gallon in November. Most ethanol plants are not paying debt, yet operating loss is still 7 cents per gallon, which is down from 3 cents in November. DTN admitted that ethanol plant profitability varies by regional location.
Dow - The chart says it all, painful. Managed money should begin seeking safer funds, i.e. commodities...my 401k is on it's way to halving again, for the third time...
Oil - Crude oil prices have firmed after their precipitous drop over the past two months. Ethanol plants are facing net losses in production.
Soybeans - Heat and dryness are causing some production concerns for southern Brazil. Plantings were early in South American, new crop beans are expected to hit the market in the next 30 days. US carryout will continue to pressure prices until there's some significant sales reducing said mountain of beans.
Wheat - Egypt has again purchased wheat this past week, sourced from Romania and Ukraine, plus a couple of cargos of HRW from the US. Russian wheat price is $6/ton higher than last week. The EU has become a net importer for the first time in more than a decade, this due to poor quality hampering exports. Carryout and usage would suggest prices should continue strengthen.
Housing - Is the bubble on the verge of another burst? Many 'hot' markets are cooling, including Seattle and Vegas.
Dollar - Strengthening dollar provides plenty of headwind for commodities.
Market Facilitation Program (MFP, Trade Aid) - USDA has authorized the second round of mitigation payments to producers for 2018 production. Processing of said payments were said to have begun on Friday, this will be suspended until the government shutdown ends. If not already applied, the deadline to apply for this program is January 15th, 2019.
WOTUS - New rules have been issued, dialing back many of the concerns from the 2015 rule. There are just six categories in the new rule, plus prior converted wetlands would be exempt in some circumstances.
Until next time,
Merry Christmas and a Blessed New Year everyone!
McGregor Risk Management Services, LLC
Cell - 509.540.2632
Office - 509.843.2599
Fax - 509.843.2583