Government Watchdogs Blast USDA Over Environmental Payments
Speaking at George Mason University in Virginia, Obama touted his $775 billion economic stimulus package which is expected to include more than $300 billion in tax cuts for businesses and middle-class workers -- as well as money to help cash-starved states and massive infrastructure projects.
While the speech offered relatively few details on the specifics of the plan, a sobering employment report released Friday presented further evidence that the worst recession in decades is far from over.
According to the Labor Department, U.S. employers trimmed 524,000 jobs from their payrolls in December, pushing the total annual job loss figure to 2.6 million. That’s the most jobs lost in one year since 1945.
The layoffs and cutbacks pushed America’s unemployment rate to 7.2 percent - its highest level in 16 years.
And earlier in the week, the Congressional Budget Office estimated the federal budget deficit will nearly triple to an unprecedented $1.2 trillion for the 2009 budget year.
While the proposed stimulus plan will add to the sea of red ink, Obama has in the past singled out inappropriate farm subsidy payments as the kind of waste he intends to end.
This week though, it wasn’t Obama, but a coalition of rural advocacy groups scrutinizing environmental incentive payments to farmers.
Data for the report was limited by privacy provisions in the 2002 Farm Bill, but the Campaign for Family Farms still was able to draw some conclusions. The C-F-F-E found that almost 40 percent of the money allocated to hog farms went to large-scale operations that make up only 10 percent of the industry. And further examination showed large-scale dairies, which comprise only 4 percent of the industry, received an estimated 54 percent of all EQIP money for dairy operations.
(slug dairy cows being released from milking stalls)
When USDA created EQIP in 1996, low-cost projects for pest, nutrient and grazing management were given high priority and waste storage facilities were excluded. The highest amount paid to an individual was capped at $10,000 per year or $50,000 over 5 years.
In 2002, all that changed. Funding went from $1.3 billion to $6.1 billion, the annual cap was eliminated, and the total amount that a farmer received over 6 years jumped to $450,000. New rules required 60 percent of the funds to be used for livestock-related practices including construction of manure storage facilities.
The Campaign for Family Farms data revealed by 2005 more than 80 percent of EQIP funds were approved for construction of manure digestors and lagoons. An extreme example was found showing a single payment of $285,000 was made to one Minnesota producer for construction of a manure lagoon.
A spokesman for the Missouri Pork Association answered the accusations by saying EQIP is working as Congress intended. He went on to say even with the Campaign for Family Farms estimate of $35 million being paid to large operations a sizable portion of the $6.1 billion was still available.
The 2008 Farm Bill does reduce the total amount a farmer can receive over 6 years to $300,000 but the cap can be waived if USDA determines a project is of "special environmental significance."
As a remedy, the Campaign for Family Farms is asking for some changes including a return to giving low-cost solutions a priority, capping payments at $150,000 per operation, and a prohibition on the funding of manure waste facilities.
Though the final rule has yet to be written it is likely USDA will wrestle with the fine print in the days ahead.
USDA Report Details Million Dollar Farms
Vilsack, a political veteran who served two terms as Iowa’s governor before launching a unsuccessful bid for the presidency, has been praised by U.S. Senators from both sides of the aisle.
If confirmed, Vilsack would assume the helm of the U.S. Department of Agriculture, a massive agency with more than 105,000 employees and a budget which exceeds $95 billion.
Vilsack’s appointment has drawn criticism from the Organic Consumers Association which claims the nominee has repeatedly demonstrated a preference for large industrial farms and genetically modified crops.
Perceived preferences aside, USDA recently reported on the growth of so-called “million dollar” farms.
USDA classified small farms as those with annual sales less than $250,000. These so-called small farms represent 92 percent of U.S. farms but account only 23 percent of total production. According to USDA, farm operations grossing more than one million dollars annually represent only 2 percent of all U.S. farms but account for nearly 50% of the entire domestic agricultural production.
The report also made a series of conclusions…
The shift in production to million dollar farms is likely to continue due to the competitive advantage brought on by farm economies of scale.
A single million dollar farm does not have market power. USDA found it was unlikely single operations could dominate specific agricultural commodities.
Most million-dollar farms are family operations. The Agriculture Department discovered that 84 percent of million dollar farms were owned by the operator and related individuals.
According to USDA analysis, million dollar farms doubled their market share from 23 percent in 1982 to nearly 50 percent in 2002. USDA says so-called mega farms are a mix of recent entries to agriculture and long-time operators dating as far back as far as 1978.
Christopher Ranch
These days it seems that everything from textiles to technology is imported, and as cheaper, foreign goods grow in popularity, many domestic industries struggle to maintain market share.
A case in point can be found in the U.S. garlic industry, where a flood of Chinese imports over the past decade has driven more than 50 percent of the nation’s large-scale growers out of business. But America’s largest producer and processor is taking steps to regain its share of the domestic market. David Miller explains.
Referred to as everything from the stinking rose to an essential ingredient for life, garlic has grown in popularity over the past 30 years. Its strong flavor has been used by chefs around the world for centuries but it fell out of favor for many years in the United States. Over the past few decades, garlic has returned to its role as a common cooking ingredient in American cuisine.One of the companies benefiting from the resurgence is the Gilroy, California-based producer and processor, Christopher Ranch. Since 1956, the family owned business has been spreading the word about garlic.
Bill Christopher, President and CEO, Christopher Ranch: "The coolest things about working in the garlic business you know garlic is fun. People have fun with garlic. ...and it's just, it's a little niche of a vegetable market. There's not a lot of competitors because it is, it's not cheap to get into this market. You have to grow your own seed, there's very few buyers, so there's it's a very tight industry and there's four of five other guys that we work, that we know that are in the garlic business and that’s fun. You know we're friendly competitors."
According to USDA, of the approximately 400 million pounds of fresh garlic sold in the United States annually, California producers were the dominate source until 2004. That year, Chinese growers, who have been steadily increasing their market share since the early 90s, finally moved past the 200 million pound mark in U.S. sales. Today, China controls 75 percent of the world's garlic production.
In an attempt to keep Chinese farmers from dumping cheaper product on the U.S. market, the federal government imposed a 377 percent tariff on garlic imports in the mid-90s. And attempts by Chinese growers to circumvent the tariff do not sit well with American growers and processors like Christopher.
Bill Christopher, President and CEO, Christopher Ranch: "...there's a tariff that was put in place ah they brought in garlic through Vietnam and through Chile through other countries to get around that. There's some new shipper review laws that if they get one shipper at zero percent then they'll all ship under the same number. Their persistence of trying to get into our market at you know at unlawfully low prices is something that has surprised me."
Despite Chinese penetration in the market, the
Christopher Ranch staff is always working to increase sales and awareness of the small vegetable. One venue has been the Gilroy Garlic Festival. Co-founded in the late 70s by Don Christopher, the company's founder, the festival now attracts more than 100,000 people each year.
Bill Christopher, President and CEO, Christopher Ranch: "Well the garlic festival was started 30 years ago to kind of promote the city of Gilroy and the fact that they brought more garlic into this city than any other place in the United States and it just kind of steam rolled from there where people would come to the first festival and taste the garlic and taste all the different things you can do with garlic and it just became a fun place to be..."
What began as a luncheon for food writers and chefs from around the country in 1978 has become a premiere event for the industry. Activities include the crowning of a garlic queen and a cook-off where regional chefs compete for a $5000 purse with dishes that include both garlic and another secret ingredient.
The celebration, held midway through the garlic harvest also gives back to the community. Over the past three decades the festival's Volunteer Equity Program has donated more than $8,000,000 to local Gilroy charities.
When Don Christopher started farming more than five decades ago he grew garlic on just a small portion of his operation along with other fruits and vegetables. As Don has backed away from his role as CEO, Bill Christopher, his son, has taken over an operation that now owns 3,000 acres, rents 3,000 more and has a line of fresh, chopped and pickled garlic products that can be found everywhere from grocery stores to white table cloth restaurants across the United States.
Christopher Ranch proudly claims the title of the largest packer of the multi-million dollar fresh garlic industry in the United States by processing 60 million pounds annually. Christopher Ranch employees also pack other vegetables including bell peppers, shallots, and ginger shipped-in from Hawaii.
Though it’s not his preference, Christopher will satisfy customer requests for less expensive Chinese products but he includes his own warning.
Bill Christopher, President and CEO, Christopher Ranch: "When you see our Christopher Ranch label that's just California garlic. Some of our customers will take Chinese bulbs and then take our chopped and fresh garlic in jars. So we, we're not going to turn the business away but we do inform them that it is an inferior product and let them make the choice."
To ensure the quality of the garlic coming to the processing plant the Christopher Ranch staff closely controls every phase of production. They choose the land, supply the seed, and tell contracted land owners when to irrigate and when to harvest. The company then relies on an employment agency to find field hands to bring in the crop.
When the harvest is in full swing, the 500 regular employees at the processing plant can be joined by up to 500 more seasonal workers depending on the load. Because of the opportunities and benefits offered by the company many of the full-time employees have been with Christopher Ranch for decades.
Bill Christopher, President and CEO, Christopher Ranch: "What's the lure of staying here at Christopher Ranch? Well we've been in business for 52 years now and you know I took over for my dad the last couple years. It's a family business so I think people kind of have to feel a little bit closer to the ownership if they have problems or things they would like to talk about it's real easy to come to us and get things taken care of. We're also able to make decisions quicker than bigger corporations. It doesn't take us a board of directors and four or five months to get a change."
And Christopher remains dedicated to taking the company into the future with a vision of what markets to pursue and how to maintain what he already controls.
Bill Christopher, President and CEO, Christopher Ranch:"...it's just about doing things better and marketing our product and just getting more information at the consumer. Where as before consumers just knew there was garlic. Now they have to know that there's California Garlic and everybody else."
For Market to Market, I'm David Miller.
Market Analysis: Alan Brugler
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For the week, March wheat gained nearly 20 cents while the nearby corn contract moved more than 3 cents higher.
Soybeans also rallied, as the January contract gained more than 65 cents, and the nearby meal contract was up more than $15 per ton.
In the softs, cotton continued to test the $50-mark this week with the March contract posting a gain of 30 cents
In livestock, February cattle lost nearly $3.00. Nearby feeders were off a nickel. And the February lean hog contract gained $1.58.
In other markets of interest, the Euro lost more than 500 basis points against the dollar. Crude oil lost $3.77 per barrel. Comex Gold was down nearly $30 per ounce. And the Goldman Sachs Commodity Index lost one point to close at 344.20.
Brugler: Good to be here, Mark.
Pearson: I have to note here before we get into our farm commodities that oil prices were down again this week despite some unrest in Israel and Gaza. Typically those would be the kinds of markets that would drive oil prices higher and oil has been the touchstone of the commodity market rally we had in 2008. What does that tell us?
Brugler: Well, it tells you you're not in a bull market in crude oil and the market is ignoring the bullish news, it is focusing on the bearish news, the inventory buildups, the tankers that are floating offshore holding oil, the market structure is basically telling someone who has got excess inventory not to sell at these prices. But relative to the ag commodities it's hurting us because we've become more dependent on biodiesel and on ethanol and with crude oil down at this level it's much more difficult to produce those products at a profit.
Pearson: Historically it doesn't stay down at these levels for too long, Alan. What is your outlook for crude oil going forward?
Brugler: Well, we're basically thinking we've seen the bottom with the expirations of the contracts a month ago but we can go down and test that from a technical standpoint, that means we ought to stay above $30, $35, somewhere in that range. But, again, demand is soft right now for energy products in general, that's a price rationing function out of the high prices we saw last summer. We do anticipate eventually it will go back into the $50 to $60 range and potentially higher depending on how much inflation we get into the economy.
Pearson: Producers are thinking about input costs and, of course, so much of that is driven by crude oil, diesel, fertilizer, you name it, pesticides. What would you recommend for a producer in terms of locking in these lower prices? How would you recommend they do that?
Brugler: We basically within the last week recommended that you lock in at least 50% of your spring fuel needs, diesel primarily, because we started to see a little uptake in that activity, some of the index funds should be buying diesel, excuse me, crude oil is part of their allocations, fertilizer prices are still coming down at the present time but, again, there's kind of a problem where some of the dealers got caught with some high priced inventory and they're needing to blend that price down. So, we're taking a go slow approach on the fertilizer at this point.
Pearson: But maybe go out and use futures to lock in some of your oil needs?
Brugler: There are some decent hedging opportunities either in futures or using options.
Pearson: Let's talk about what happened as far as the grain markets were concerned. We had this big start of the year rally going and, of course, come Monday we're going to get a look at what the USDA says we came out for a final crop for 2008, what the final carryout looks like and also wheat acreage. What is your prognostication now before this report comes out? I know it's a tough position to be in.
Brugler: There's a raft of data, if you will. You've got your ending stocks for grain are probably the main number but the other numbers all feed into it. Your December 1 stocks tell us how much corn was fed in the first quarter, for example, it also measures the ethanol consumption of corn. You've got, of course, final production numbers for corn and soybeans from USDA that feeds into that equation as well. So, one kind of builds on the other. It's a tricky set of reports to analyze ahead of time.
Pearson: Well, let's talk about the wheat market first. Wheat acreage, what is your take on that? Where do you think we're headed?
Brugler: I think we're going to see a smaller wheat acreage number this time compared to a year ago. That is pretty much baked into the cake, the market is already anticipating that. The question is, is it a 44 million acre figure, a 43 million acre figure for winter wheat? We were fairly certain soft red winter wheat acreage is down, more questions about the hard red winter which is grown on the Great Plains. So, we've got a cushion there. Ending stocks are expected to still be above 600 million bushels next spring so we can afford to lose some acreage and still meet domestic and export needs for the next year. But the smaller that number becomes the more vulnerable the market is to a bullish surprise from winter kill or poor emergence next spring.
Pearson: As you look at the wheat market right now with the rally that we've had are you making sales on wheat if you haven't done so yet?
Brugler: We haven't made any sales other than catch up sales, if someone was behind our recommended percentages we thought it was time to reward the rally. But we're still hanging onto that last five or ten percent of the old crop. We've got some light hedges on in July futures but no major commitment yet.
Pearson: So, you're expecting higher prices?
Brugler: At least we're looking for evidence that they're not going higher.
Pearson: Let's move over to the corn market. You mentioned the carryout number, what's leftover and what our total production was will be a big number on Monday's report from USDA. What do you anticipate? What do you see ahead for corn in that report?
Brugler: Well, the trade average guesses for ending stocks is somewhere around 1.49 billion bushels. Our number is slightly above 1.5. So, we're looking for a little less on the consumption side or a little bigger production number from the USDA. But in any event that is expected to be a larger number than we had in previous reports. We continue to see very sluggish corn export sales, we continue to see ethanol plants shut down. There were another three this week for various reasons that have stopped for a month or two at least so that means less corn production. Again, that gets tricky because if those plants are taking downtime that means they're also not producing DDGs which have been fed to livestock. So, we're potentially getting a little more feed use of corn directly rather than through the ethanol plant. But overall demand has been hurt. The big question which won't be addressed by this report is acreage for 2009. USDA is not going to go there until probably May. We'll get some indications in February with their preliminary number. But the point is the corn market needs to have 85 to 87 million acres at least for next year and production from this past year is pretty well set within 20 to 30 million bushels.
Pearson: With that in mind -- I'm not sure just how much time we have -- but as we look forward to these reports and the corn market as we look after Monday and if we hit pretty much dead even what is your thinking on the corn market going forward for 2009? Obviously we do have those higher input costs and producers do want to see some kind of return before they go to the expense of putting this crop in the ground.
Brugler: Yeah, we're starting to see prices you can at least believe are above break even. Now, that will slow the plans to reduce plantings. I think crop rotations and so forth will support corn acres in that 85 million acre range at least. But market wise the futures' resistance to technicals is at $4.70 to $5.00 and if we have any reasons to believe we need more acreage we can still advance to those levels.
Pearson: Hopefully that will be the case. Let's talk about soybeans and what you see ahead there. This has been a nice rally in the bean market. Are you making additional catch up sales here?
Brugler: Yeah, we made our first 2009 forward contract sales recommendation this week when November got above $10. We've had some hedges on for some time that we have lifted but we had not actually made any cash sales. So, we're wanting to reward the rally and we're still holding onto a little bit of old crop but, again, this is a very good rally and it's going to be very difficult to have a bullish number on Monday. The market has had such a tremendous move up into the report that the saying is, buy the rumor, sell the fact. It's going to be difficult to come up with a bullish reaction to the report other than perhaps fresh index fund, hedge fund money coming in as they make their allocations.
Pearson: You mentioned exports for corn were soft. Is the opposite true for soybeans?
Brugler: Exports for soybeans are running ahead of last year, the actual shipments. Export sales are about even to last year. China has been very active. They usually are active this time of the year. Their total commitments since September 1 are just a little bit above a year ago. But it's got everybody's attention and we've got these issues with South America with the dry pockets in southern Brazil, northern Argentina. It looks like CONAB this week said that the Brazilian crop may only be 57.2 million tons rather than 60 million last year. That drives a little more business here or at least forces the market to go up high enough to get the grain out of their stockpile.
Pearson: So, you've made some sales, made some initial '09 sales for beans.
Brugler: Yeah, just kind of sticking our toe in the water a little bit.
Pearson: So, let's talk about the livestock front. You mentioned the DDGs and whether the feed value is going to offset some of that ethanol demand out there. But as you look forward this fed cattle market, again, a very soft week on the board. What is your outlook for fed cattle for '09?
Brugler: We're getting into some higher finish numbers right now, just the way the placements went over the last three or four months we've had a lot of heavy 800, 900 pounders coming into the lots and so our supply is up a little bit. With the unemployment data and other things going on we assume that consumer demand is on the weak side. You're seeing that in the wholesale level, box beef prices for choice are in the $143, $142 range and you saw it this week in the cash cattle. The cash cattle were down $2 to $3 throughout most of the central U.S. So, the board is basically reflecting the reality that we're having a little trouble moving the product.
Pearson: Long return calf market as you look at that for '09. I keep hearing this small herd size and yet the cash market has been pretty good, we've had a nice little bump there.
Brugler: Yeah, we've had a pretty good run there. We had some technical buy signals on the charts but then those are longer term signals, the short-term stuff is saying, wait a minute, what's going on with corn because feeders are a composite of what's going on in the live cattle market which we discussed is not particularly strong right now in the corn.
Pearson: Let's talk about the hog market, another factor out there. As you look at hogs this last hogs and pigs report kind of showed that maybe we're starting to contract some.
Brugler: Yeah, we definitely saw some contraction, we saw some increased sow slaughter two or three months ago back starting in the summer when corn prices were very high. That has kind of slowed down. We've kind of stabilized the farrowing intentions for later on in '09 a little bigger so we're kind of in the sweet spot here where production has slowed down and we're trying to get those wholesale prices up. It would be helpful if the dollar would kind of stop going up so we could get some juice into the export market but normally that's going to pick up after the first of February, first of March.
Pearson: So, that export market is critical for hogs. What about sales for hogs, hedging opportunities for hogs? Do you see those right now?
Brugler: We've basically had put options in place for quite a while to put a floor under them. We don't see any major rally right here although February has got a big lead to cash.
Pearson: An interesting month will be coming up. Alan Brugler, it will be an interesting day on Monday. Thank you so much. That will wrap up this edition of Market to Market but if you'd like more information from Alan on where these markets just may be headed visit the Market Plus page at our Web site where you'll find streaming video of our program. And, of course, you can download audio podcasts of our Market Analysis and Market Plus segments free right there at our Web site. And be sure to join us again next week when we'll examine the Bush administration's legacy in rural America. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
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