Farm bill, South American weather

Farm Forum

1/28/14 — In news this week there is a Farm Bill now unveiled yesterday that is likely to get passed by both the House and Senate in the next few weeks, and signed by Pres. Obama. So it’s likely to become law, so we will get additional details of how the thing works (or doesn’t work) for our producers. The biggest news is that producers will have the choice of traditional price supports, OR insurance like protection against a drop in crop revenue. Of course, the choice will be made by producers, so in the next few months there will be all kinds of comparisons between these 2 choices, with administrative decisions about how to implement these programs likely to have a great deal of influence over which option to choose.

And as always this time of year, South American weather is also important as we fill out corn and soybeans in South America in January and February, with late crops still affected by weather in early March. South American weather has taken a turn for the better in Argentina, which has had wetter weather and cooler weather the last few weeks, which is alleviating crop stress there. However, Southern Brazil is seeing the emergence of dry weather there this week, which if the pattern develops that continues this process over the next few weeks will become concerning to the crop.

Overall, the Farm Bill is reported to cut federal spending $23 billion over 10 years compared to current law (with estimates varying around these numbers), with crop subsidies cut $8 billion, conservation by $7 billion, and food stamps by $8 billion. The replacement of direct-payment subsidies by the shallow-loss revenue program or the $1 billion-a-year expansion of federally subsidized crop insurance is the biggest reform for producers. They choose in a one-time choice either the revenue protection program (based on yields and season average prices) or a program similar to target prices that sets a minimum price. Reference prices are up sharply from current law at $5.50/bushel for wheat (up from $4.17), $3.70 for corn (up from $2.63), and $8.40 soybeans (up from $6).

Farmers in the revenue protection program (or shallow loss coverage) will get payments when crop revenue is less than 86% of the rolling 5 year average, and would end when revenue falls below 76% of the average (which is when crop insurance is supposed to kick in to cover deeper losses). Besides the shallow loss program, this farm bill creates an insurance program called Supplemental Coverage Option (SCO) that would operate in a similar way but with fewer limits on payments, available to growers who opt for Price Loss Coverage explained below.

Price Loss Coverage would be similar to the target price program, with payments triggered when season average prices are below the guaranteed price.

Many more details are likely to be released about the Farm Bill in the coming weeks, with implementation an important part of the equation as sometimes how USDA implements the Farm Bill is more important than how Congress writes it.

Meanwhile, while the focus turns to the Farm Bill as it’s passed and moved along in the Congressional Record, South American weather will continue to be most important in determining prices for now in the marketplace. So far it appears that South American weather has improved as we end January, but there remains a few troublesome spots in the region including southern Brazil, which has turned back to a dry forecast for the next 7 days. But Argentina finally has received drought-ending rains in some areas the past week or two, and the improved precipitation pattern is leading to more optimism about the Argentine final crop size.

Regardless, weather in South America will continue to dominate markets, as well as the pace of export sales/shipments (especially soybeans which are particularly good at this time).