Health Care Reform in Rural America
Last week, pundits discussed replacing the dollar as one of the cornerstones for monetary exchange rates. This week, a vote of confidence by Russia's finance minister sparked a moderate rebound for the greenback.
As the dollar bounced back, consumers witnessed a small uptick in prices. According to market analysts, the Consumer Price Index rose a mere one-tenth of one percent in May. Despite a lower than expected rise, the index has fallen by 1.3 percent over the past twelve months -- the largest decline since 1950.
Even with less being spent on consumer goods, construction of new homes jumped 17 percent last month causing some economists to speculate the end of the slump may be near.
Those homes are being built in the face of a tight credit market. In rural America, a recent survey showed the economy may be weak but rural Midwestern bankers think the worst of the recession has already passed.
And after 21 straight weeks of increasing jobless claims the number of people taking unemployment benefits fell. Even with the encouraging news the unemployment rate is still 9.6 percent and is expected to reach 10 percent by year's end.
While employment prospects remain bleak, one benefit of full-time work often is a health plan. During his campaign, President Obama promised 'health care for all' but how that task will be accomplished remains a battle between political superpowers.
The pulse of health care reform on Capitol Hill may be wavering only months before a decisive August recess deadline. President Obama’s goal of expanding coverage to millions of underserved and uninsured Americans may be in jeopardy from ballooning budget estimates and Republican opposition.
Recent estimates by the Congressional Budget Office peg current versions of health care reform on Capitol Hill at $1.6 trillion over ten years. Congressional Democrats and the White House have pledged to keep that figure at or below $1 trillion.
The health care debate could have strong ramifications in Rural America. According to the Center for Rural Affairs, nearly 82 percent of rural counties are classified as ‘Medically Underserved Areas’. Demographic swings and an aging population in Rural America are expected to tax the health care industry in coming years. According to the latest Census of Agriculture, the average farm operator is 57 years old.
A myriad number of statistics are part of the overall health care debate in Washington. Party lines have largely been drawn with Democrats favoring some version of a government-backed insurance option for millions of Americans. Republicans strongly oppose additional federal spending on health care.
Sen. Charles Grassley, R-Iowa: “I don’t want Canadian style health care in this country. My fear is that once the government gets involved in health insurance then all the businesses will drop coverage for their employees. Then you have virtually wiped out all these private insurance companies in this country.”
Iowa Republican Charles Grassley, the ranking member on the Senate Finance Committee, recently raised the prospect of regional Co-ops as an alternative to government-backed health insurance.
Sen. Charles Grassley, R-Iowa: “If we can get bigger private sector insurance groups in the form of Co-ops then that is something I would be on board with. Rural Americans have a long history of making these types of programs work.”
The Co-op proposal has not been adopted by Finance Committee Chairman Max Baucus who is largely regarded as a Congressional “lynchpin” for any health care legislation. Baucus, a Montana Democrat, said this week a health care bill will be “ready when it’s ready but we’re not there yet.”
House Committee Passes Food Safety Reform Bill
Improving on what is considered to be one of the safest food supplies in the world is another item on the Obama Administration list of priorities. Previously, it was clear what responsibilities would be handled by which federal agency but legislation is on track for a major change.
This week, the House Energy and Commerce Committee rewrote the book on who would have inspection and recall power. And regardless of objections by various farm advocacy groups, a voice vote in committee pushed the Food Safety Enhancement Act a few more yards down field.
The push for more rigorous food safety standards comes after several food scares in recent years. Since 2006, the U.S. food supply has been tarnished by a series of high-profile outbreaks including those tied to lettuce, peppers, spinach, peanuts and peanut butter.
In response, the House Energy and Commerce Committee on Wednesday passed legislation that would increase government oversight of the nation’s food supply. The Food Safety Enhancement Act would broaden the Food and Drug Administration, or FDA’s, regulatory authority by requiring all facilities to have a food safety plan in place. It would give the FDA mandatory recall authority and greater access to company records.
Some farm groups are denouncing the legislation which would give the FDA access to on-farm records and require country-of-origin labeling on the ingredients in most products.
Currently USDA oversees food safety for meat poultry and eggs, and the FDA regulates 80 percent of the U.S. food supply including fruits, vegetables, processed foods and other products. The new legislation would shift food safety oversight of meat products away from USDA to the FDA.
Many livestock groups also have expressed their frustrations. They oppose sections of the bill that give the FDA authority to inspect producers’ premises, charge fees, create standard record-keeping systems, enact mandatory recalls and require full pedigree traceability.
In addition, food producers, manufacturers and processors would be required to carry out safety plans, pay an annual registration fee of $500 per facility to the FDA and keep track of the distribution of all food products. Inspections would take place every six to 12 months at high-risk facilities and between 18 months and three years for those considered low risk. Currently, many facilities go several years without being inspected.
Similar food safety legislation has been introduced in the Senate, but a timetable for when the bipartisan measure will be taken up remains to be determined.
Ag In The Classroom
When George Washington was inaugurated as America’s first president in 1789 , farmers represented 90% of the U.S. labor force. By the 1930’s the figure had fallen to just 21%. Today less than 2% of the population is actively engaged in farming. Tom Tate, National Program Leader / Ag in the Classroom: “And back when there were many more people producing food, everybody kind of knew about the relationships of how food came through, the farm gate and over to the dinner plate. Everybody understood the full steps because they grew their own food…”
Tom Tate is the national program leader of Ag in the Classroom, a USDA educational program aimed at providing students with a better understanding of the importance of agriculture.Tom Tate, National Program Leader / Ag in the Classroom: We need to provide these future policy makers. These future teachers, these future agricultural workers, these future people in all careers so they can make a better informed decision about the use of our national resources and the sustainability of our planet to produce food, fiber and now fuel.”
Secretary of Agriculture John Block initiated the Agriculture in the Classroom program in 1981. Coordinated through the USDA, the programs goal is to help teachers incorporate agricultural information in core subjects taught in kindergarten through 12th grade.
Melissa Brooks, Iowa Farm Bureau: “So what we’re trying to show them is you can teach agriculture and
still reach your educational standards and also teaching agriculture is more than a farming unit. What we’re looking to do is incorporate it into the science and into the social studies, real life math story problems for example using agriculture as a background. “Melissa Brooks is the Leadership Program’s Coordinator at Iowa Farm Bureau and the state’s contact for Ag in the Classroom. Every summer teachers in Iowa are given the opportunity to attend a 2½-day course where they learn explore educational resources available through the program.
Tom Tate, National Program Leader / Ag in the Classroom: “Today we’re talking about tens of thousands of teachers across the United States, are now using these Ag in the Classroom materials to help extend what we call agricultural literacy.”
While not mandated, all 50 states have Ag in the
Classroom. Each state determines the program’s scope, curriculum and budget. In Iowa, those decisions are made by the Iowa Ag Awareness Coalition. The coalition is unique in that it is composed of each of the major ag commodity groups, as well as several other organizations with ties to agriculture. The coalition’s chairman Gretta Irwin, is the Executive Director of the Iowa Turkey Federation. Gretta Irwin, Iowa Turkey Federation: “It started oh 16 years ago back in 1992 as a way for all of us to come together and accomplish this mission of educating Iowa’s youth on agriculture.”
The coalition meets 10 times a year to develop curriculum and to decide how to spend it’s $7,500 annual budget. Since USDA does not provide money at the state level, dues, contributions and grants comprise the total operating budget.
Gretta Irwin, Iowa Turkey Federation: “It can be a lot of work but coming together reduced our workload as individuals because we all share the burden of getting that information out there and getting it developed. I don’t think individually any of us could succeed in doing the volume of work that we have done over the last 16 years.”
Lynne Wagner is the Education Coordinator for Silos and Smokestacks, an organization with the mission of preserving and telling the story of American agriculture.
Lynne Wagner, Silos and Smokestacks: “Surprisingly even with the rural schools a lot of the students don’t have a grasp of agriculture, even if they’re from a rural community they might live in town, they’ve never been on a farm, they don’t understand how that process works. You still find students who don’t know where their milk comes from. So that’s why we feel that lessons like these are important.”
Silos and Smokestacks is a member of the Iowa Ag Awareness Coalition where Wagner chairs the committee on distance learning.
Lynne Wagner, Silos and Smokestacks: “We are one of the number one ag producing states in the nation. So, it helps students become proud of that. It works.”
The annual federal budget for Agriculture in the Classroom is $500,000. Since that money generates $10 million dollars in contributions
every year to the program, the governments return on it’s investment would make a president smile, but what makes it work is the belief that knowing where food comes from is important. That belief is why individuals are willing to volunteer their time, organizations are willing to donate dollars and why teachers are willing to spread the word of agriculture in the classroom.Tom Tate, National Program Leader/Ag in the Classroom: “We have 5 million youngsters that have been treated with Ag in the Classroom materials. So we thing that the whole system of our society stands to benefit greatly from the ag in the Classroom, teachers and the students they work with.”
For Market to Market, I’m Jeannie Campbell.
Market Analysis: Jamey Kohake, market analyst
- Download Audio (MP3)
- Subscribe to Podcast iTunes | Other
For the week, July wheat lost nearly 30 cents, and the nearby corn contract was down more than 25 cents.
Informa crop numbers released this week showed an increase in Soybean acres and the market took notice. The July contract lost more than 65 cents and the nearby meal contract was down more than $32 per ton.
In the softs, cotton lost what it gained last week plus a bit more as the December contract dropped $4.84.
In livestock, August cattle were up more than 50 cents. Nearby feeders also gained more than 50 cents. And the July lean hog contract was up nearly $1.35.
In other markets of interest, the Euro lost 63 basis points against the dollar. After staying over $70 per barrel most of the week, crude oil lost almost $2.50 per barrel. Comex Gold was down just $4.50 per ounce. And the Goldman Sachs Commodity Index lost more than 12.5 points to close at 455.15.
Kohake: There is plenty of oil out there. What we have seen starting back in February was China went on a big, big buying spree and the are still buying but they're slowing down compared to where they were 90 days ago. But what the key is, is they're not using this for feed or food, they're just using it as inventory. Longer term that is bearish and right now it looks like the market is catching up to it and we're starting to peek out a little bit with exports, a little bit with demand and I think we're starting to see just a little bit of maybe a mini bubble right now in the market and a little bit more nervousness creeping in.
Pearson: A lot of things helped pop it for the grain market but you think oil just a slow down from China and slow down in energy demand? Obviously fewer pasture miles being driven, those factors kind of come together and maybe keep a lid on this oil price?
Kohake: I don't think it goes to $140 again this year. I think $75 to $80 is the top side range right now. The weekly inventory report crude supplies were down four percent and the unleaded gas was down three percent. So, we're seeing a little bit of a slow down there and I think it's all going to depend on interest rates is where it comes from, how fast does inflation creep in the market, how fast does the fund money creep back in.
Pearson: As an old navy officer I chuckle a little bit when people talk about we're not going to use the dollar to denominate our world currency anymore. The country with the biggest military is where you're going to denominate your currency from, that remains the United States, no one really at this point is still close although China is building, you can make a case for some of the other states. But the weakness in the dollar that we've seen did provide us with some market opportunities. What is your outlook for the dollar relative to all that?
Kohake: The dollar looks like it has bottomed out right now. We were around roughly 78 and now we're back above 80 again right now. We've seen some profit taking. I think the dollar is more range bound. I think it depends what the interest rates do. How fast does the government start raising rates to slow down inflation and that is how the funds, the big money plays off of it. Right now I think we're stuck between about 79 and 81, it doesn't affect the markets too much the next 30 days.
Pearson: So you're not seeing much of a dollar weakness near-term?
Kohake: Not for the short-term I don't. I think it's already built in right now.
Pearson: Long-term where else is it going to go.
Kohake: Exactly, I agree with you with the military, we're not going to see China and Japan and Russia pull out and quit buying debt. A safe play right now would be to come in and sell bonds. I like that play as well. Just kind of hold off on the more short selling the U.S. dollar.
Pearson: Then hopefully we'll see rates come back up for those near-term, short-term investor types and that will weaken those bond prices a little bit. Let's talk about the grains. Let's talk about the Informa numbers that came out Friday and, again, let's talk first about wheat and what you see for wheat numbers. Last time you were on you were talking about there's a lot of wheat out there worldwide so not a big impact.
Kohake: Right, the ending stocks are at eight year highs right now so that has kept the lid on the markets. We've pulled back by over a dollar off of our highs over the last 45 days. I think you saw rallies right now with the dollar being pretty much stabilized at 80, exports are a little sluggish, we got some rain in Argentina where they have been having a drought and we're going to get some spillover weakness from corn and beans too right now. So, if I was going to be a seller I'd look for the $6.30 to $6.50 range in Chicago new crop and try to hedge off of that.
Pearson: Hopefully people got hedged in that last move when you talked last time you were on the show before wheat started this downward slide. You were also pretty aggressive on getting corn and beans sold first. Let's talk about the corn number, a little bit of a reduction at least from Informa's standpoint and Informa has been pretty close to dead on.
Kohake: They have been historically. We are going to see less acres per their numbers but it's still a huge, huge number historically. It's roughly the third largest acres number in the history that we've been keeping these numbers. Corn has seen a lot of fund liquidation the last two weeks, we're not seeing the new buying come in as crude has topped out and the dollar has bottomed so the funds have become very, very quiet. I would be selling this market up to $4.50 right now very aggressively and if you can get anything over that I would step in and sell more. I like selling the board, working an option play rather than selling cash right now. The basis is too wide and it stays wide until late July. The carryout is roughly about a billion bushels, a little over that right now and I think we're going to continue to eat that away and the basis will narrow up late July. Take advantage of the basis then. Right now it's too wide. Use the board as your hedging tool.
Pearson: Utilize some kind of option strategy here. Would you sell the board?
Kohake: I would, I would get about a 20 cent stop on it, above $4.50 on a close or come in and buy some $4.20 puts right at the money, maybe sell a $5 call but I think anywhere between $4.30 and $4.50 doing something with puts or futures.
Pearson: Let's talk about soybeans. The Informa number there was big and that points to a big number, obviously soybeans took a big hit on Friday. Was this a big overreaction based on demand that we've seen for soybeans going forward?
Kohake: The funds are long, roughly 100,000 bushel so they are extended pretty heavy and you see some bearish numbers just a reason to take some profits and plus we've seen a lot of speculation money come out too. The number today was huge, roughly 80 million acres of beans, that's a massive number to see and I think you're going to run into a lot more hedge pressure right now, the speculators are going to be scared unless crude would run to $80, $85 and these rallies have to be sold, you've taken roughly 95 cents off this market in the last two weeks and I'll be selling this anywhere close to Thursday night's high of $10.50. If we can get up there next week, new crop November for sure, it has to be sold. Solid rallies is the moment to run it very aggressively.
Pearson: So, what rallies we get and, of course, we've got a long way to get the crop in the bin and like you say the world issues and certainly crude oil if it heats up and we get back to 85, soy bought diesel really isn't a factor from what they tell me but they seem to still be linked to soybean oil to energy either way.
Kohake: And talking about the products we've seen a slow down in the meal buying, the meal was leading the rally about two weeks ago and we've seen a slow down with that and the fund money has come out of that market. You're right with the carryover between products with the oil and the crude and over the beans and right now with crude being defined it looks like the top side about $77 I don't think we're going to see another blow off top right now in the short-term.
Pearson: So, again, I always believe the caveat that weather can impact us no matter what. They are now talking about maybe that dry pressure, that hot dry system down in Texas moving up into the corn and bean belt could be a factor later on.
Kohake: That is right, there is a heat dome forecasted for the middle part of next week, right now it looks to be over the Delta area mostly but you're exactly right, if that would shift north up over Iowa, Illinois we could run into a round of a decent amount of buying. We also saw a very heavy amount of rain in Chicago this week too, they had floods there Friday morning and so there is still weather problems out there. I don't think the funds are willing to give up right now but as a hedger take advantage of any type of rally and do something with puts or with futures. Both corn basis and wheat basis is too wide, in my opinion, look for them to narrow up in July and then come in and sell the cash then.
Pearson: I was at an outlook conference in Chicago this week and I was in a room with some dairy producers, some cattle feeders, some pork producers, you talk about that bean meal demand backing off, these people are serious about reducing inventory for cattle, hogs, the dairy industry with the dairy buyout going on, the cooperatives working together, you've got a lot of factors here that I think are negative on that side of it. Let's talk about fed cattle first, are we setting up for a good opportunity in 2010 for fed cattle?
Kohake: I think the deferred contracts are bullish longer term. I think you may see 95, 97 cent cattle sometime this winter. For the front months neutral to slightly bearish except for maybe two to three weeks and try to play off of that by selling calls if I had some cattle to hedge immediately. But I would stay away from October through February right now hedge wise and let this market rally a little bit before I would step in front of it. I like the fed cattle especially and selling puts below that right now.
Pearson: Do you think that's when this rally will start to take hold what would be say between the first and second quarter of 2010?
Kohake: I think the actual futures rally is going to start sometime this fall and those contracts fall and the first quarter of next year we'll get a boost off of that but I think by the first quarter next year we will see the full effect of it by then.
Pearson: Walk us through, for the calf producer out there as we continue to shrink the factory, we continue to reduce the number of cows out there on farms and ranches surely this calf market is going to have to start to strengthen if not see some big spikes into 2010 as well.
Kohake: I do agree with you with that. We saw the cattle on feed report today, the placement number was bullish but it was pretty much what was expected. I think another key that you're looking at too is corn and if corn has put a high in towards last week's highs that is drastically going to help these beef and pork guys out as well. But I think the key is going to be these placements numbers, how many of the feeders are backed up on grass coming up. That number to me looks slightly bearish right now but could be factoring in. I think we're going to see a lot of spillover from the live cattle, from the hogs spilling over and just a whole entire meat complex sometime the third quarter of this year and that’s when I look for this rally to start.
Pearson: A lot of it's going to hit and what happens with the general economy. We didn't talk to you about this but the equities markets you were getting fairly favorable to equities last time you were on. Has that changed any?
Kohake: I'm more neutral right now to kind of wait and see what happens. I think we are looking at a mini bubble with the Dow and S&P but right now there's just not I don't think a lot of people willing to go ahead and take profits and step in front of it and sell it yet but longer term I am bearish to the equities based off of inflation, all this money being printed and I think anywhere close to 9000 if I was long the futures or calls or even the stock market I think I'd go in and take profits.
Pearson: Obviously the meat markets are so sensitive to what happens with the restaurant trade and the travel business, it's such a big part of that trade. If that doesn't pick up we're going to be struggling to find that demand. Talk about hogs.
Kohake: Right, the restaurant traffic you're talking about, that's what I'm talking about keeping these front month cattle in a negative bias right now. Back to hogs right now I think we're close to a bottom. We're going to see the quarterly hogs and pigs report this week and I think we're going to see more of a short covering. A great trade today, finally saw the cutouts bounce back after being down over four percent on Wednesday, that market might have had the short-term low placed in hopefully so you can get some more short covering but I think next week we should have decent trade just on profit taking for the quarterly hogs and pigs report. I like this trade just like I do the hogs, the deferred hogs the fourth quarter through first quarter of next year to go ahead and keep buying right now. The front months I don't see much out there for a rally. Demand is still very, very slow. Even though pork is cheaper than beef I just don't see any type of rally for the June or August contracts.
Pearson: We're out of time, Jamey Kohake thank you so much, appreciate your insights very much. That will wrap up this edition of Market to Market. If you'd like more information from Jamey on where these markets are headed visit the Market Plus page at our Market to Market Web site. You'll find streaming video of our program and you can download audio podcasts of the Market Analysis segments and, of course, our Market Plus segments absolutely free at our Web site. Of course, join us again next week when we examine a unique crop rotation system that is uniting farmers and environmentalists. Until then, thanks for watching. I'm Mark Pearson. Have a great week.
Market to Market is a production of Iowa Public Television which is solely responsible for its content. Funding for Market to Market is provided by Pioneer Hi-Bred ... working to provide growers with local knowledge and support to help get the right product into each field. Pioneer ... science with service delivering success.
