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In my near 40 years in the business, no truer words have been spoken that what I've read in Ag Perspectives. WPI Client and Risk Manager

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Not Substantially All; Next NTB’s; FDI in Agriculture

This article originally appeared in the 18 September 2019 issue of Ag Perspectives

By Gary Blumenthal

Not Substantially All

Trade experts this week noted that the U.S.– Japan trade agreement might violate the WTO’s Article XXIV requirement that free trade agreements encompass “substantially all” trade between the participating countries. The agreement encompasses something less than 70 percent of all trade and while there is no agreed WTO metric defining substantially, some say the interpretation is 90 percent of trade.

The U.S. has heretofore prided itself on negotiating more comprehensive free trade agreements, with some criticism of the substantial exclusions for agriculture in agreements negotiated by other countries. The U.S. will likely characterize the Japan agreement as interim, since the intent is to continue negotiating on open areas, but the issue speaks to the need for a specific WTO quantification of Article XXIV’s intent. 

Next NTB’s

A study by Kansas State University found that the African Swine Fever (ASF) virus can survive a 30-day transoceanic voyage in plant-based feed ingredients. China and other countries with ASF currently export plant products that could serve as a disease vector. Notably, imported feed ingredients have not previously been regulated for foreign animal diseases but USDA is now investigating. The review could result in the imposition of nontariff barriers (NTB’s) against feed ingredients. 

FDI in Agriculture

The U.S. Treasury Department this week issued its interim regulations for recent changes to the review process for foreign investments in America. Sensitivity to Chinese investments in American high technology and defense sectors prompted the change. At the time of the legal changes, Senator Chuck Grassley (R-Iowa) wanted foreign purchases of major food and agriculture assets to be reviewed, and for someone from USDA to sit on the Committee on Foreign Investment in the U.S. (CFIUS) reviewing them. They were anxious after China’s WH Group bought the fifth largest meat packer in the U.S., Smithfield Foods. The legal change recognizes 27 sensitive sectors under CFIUS, but does not include agriculture. 

When WH Group purchased Smithfield, it concurrently became one of the largest foreign owners of American farmland. Although on the upswing, the largest foreign ownership is of forestland in Maine, owned by Canadians. The 1978 Agricultural Foreign Investment Disclosure Act requires foreign entities acquiring U.S. farmland to register with USDA, and there are several state-level requirements. Instead of buying expensive American acres, investors can likely find better deals in South America.

 

Grocery Stores are Winning

This article originally appeared in the 18 September 2019 issue of Ag Perspectives.

By Matt Herrington

The consumer is often said to be the backbone of the U.S. economy, and that looks to be a positive factor for the food and agricultural sectors. The U.S. Census Bureau recently released its monthly advanced estimates of retail and food service sales, which are broadly encouraging from a macroeconomic perspective. The data show broad-based sales increases, largely driven by robust consumer spending. Consumer spending, of course, is nearly always good for the economy, provided it isn’t financed with unreasonable debt/income ratios. 

The Census Bureau’s latest data shows widespread sales increases across most industry sectors. Total retail sales in August were up from the prior month and also from the same month in 2018, after adjusting for seasonal variations and holidays. The 4.1 percent increase from last August shows robust consumer spending that has strengthened through 2019 despite a weaker start to the year.  

Moreover, the latest data show encouraging signs for the agricultural and food industries. Reported sales for the Food and Beverage Stores categories (which includes grocery stores and liquor stores) increased 4.3 percent from last August. That increase was largely driven by a 4.34 percent increase in grocery store sales. 

The implication of strong grocery store sales is that consumers are increasingly willing to expand their food purchase volumes and pay more for it. The trend towards fresh food and a focus on increasing consumption of “healthy” foods, which are often priced at a premium, is supporting grocery sales. Notably, the grocery industry’s shift toward selling prepared or convenience-packaged food items is supporting sales in this category. In an industry where margins are often a penny or two on a given item, prepared food sales are a welcome, margin-boosting trend for grocers. 

The strength of grocery store sales has been a boon for the industry’s stock prices. An index of 8 publicly traded, U.S.-based grocery stores created by WPI is up 12 percent YTD and up 24 percent from the same week in 2018. For comparison, the S&P 500 index is up 5 and 4 percent for the same two periods, respectively.

The trend towards culinary convenience is further evident in the sales data for Food Service and Drinking Places (i.e., restaurants and bars). Sales in this category skyrocketed in mid-2018 as the U.S. economy charged forward, culminating in a 10 percent year-over-year increase in restaurant and bar sales. Since then, spending in this category has tapered off but retained a positive annual growth rate. The declining growth rate of restaurant and bar sales was predicted by the National Restaurant Association’s July report in which members' issues are more negative sales outlook for the second-half 2019. 

With total retail sales continuing their expansion, and restaurant and bar and grocery store sales also increasing, the stage seems set for additional support for the food and agricultural industries. Certainly, firms closest to the food service and grocery industries have benefitted, and those same benefits have trickled up the supply chain as well. While raw commodity prices (except for cattle/beef and hogs/pork) are depressed, demand for value-added, differentiated products is increasing. Continued expansion in food service and grocery store sales should favor firms connected with consumers, or that provided products now coming into vogue. 

Study Updates Value of Red Meat Exports to Corn Growers, Provides More Details on Soybean Industry Impact

Beef and pork exports added 85 cents per bushel to the price of soybeans and 39 cents per bushel to the price of corn in 2018, according to the latest report by World Perspectives Inc. (WPI). Over the past three years, WPI has analyzed the impact of U.S. red meat exports on the value of domestic feedgrains and oilseeds.

Among new information included in the latest report are statistics that point to the value of red meat exports to U.S. soybean producers. According to WPI, the market value of pork exports to the soybean industry in 2018 was $783 million. WPI’s updated study shows that without red meat exports, U.S. soybean farmers would have lost $3.9 billion last year and U.S. corn growers would have lost $5.7 billion.

The updated report includes a projection of domestic feed use impacts based on both the long-term 10-year baseline projections for meat exports and a special analysis of the critical importance of the proposed U.S.-Japan trade agreement. USMEF has also prepared state-specific statistics on the value of red meat exports to the top 15 soybean states and top 10 corn states.

The World Perspectives study has been a very useful tool in quantifying the importance of red meat exports to our corn and soybean member organizations,” said USMEF President and CEO Dan Halstrom. “Results of the study and the subsequent updates demonstrate that maintaining global market access for U.S. beef and pork is critical to continued growth and to the continued value that meat exports bring to corn and soybeans.”

The updated study also looks forward, projecting that U.S. pork exports are expected to generate $8.68 billion in market value to soybeans from 2019 to 2028. Red meat exports are expected to generate $19.1 billion in market value to corn and $3.1 billion in market value to distiller’s dried grains with solubles (DDGS) in that same period.

“When the original study came out a few years ago, it gave us a good look at the value of U.S. beef, pork and lamb exports to corn and soybean farmers,” said Dean Meyer, a corn, soybean and livestock producer from Rock Rapids, Iowa. Meyer, a member of the USMEF Executive Committee, noted that the WPI study continues to support the fact that exporting red meat drives demand for livestock, in turn driving demand for livestock feed.

“The updated study offers a fresh look at corn and goes a little deeper into soybean meal and what red meat exports mean for soybean growers. As grain farmers, we are aware that meat exports add value by increasing the volume of soybean meal and corn used to feed cattle and hogs, but the numbers in this study provide a clear picture of just how important those exports really are,” said Meyer.

USMEF and the National Corn Growers Association initially commissioned WPI to quantify the impact of U.S. beef and pork exports on corn use and value in 2016, using 2015 data. Record-setting growth in red meat exports since 2016 – along with an uncertain global trade climate that has developed since the original study – led USMEF to request updates. Using final 2018 data and new 2019 to 2028 USDA baseline projections, WPI updated its analysis of red meat exports’ impact on corn in 2018 and expanded the analysis of the value of pork exports to soybeans.

Highlights from the updated WPI study include:

  • Since 2015, meat exports represent the fastest growing category of corn and soybean meal use.
  • In 2018, exports accounted for:
    • 14.6 percent of total U.S. beef production;
    • 25.7 percent of U.S. total pork production;
    • 459.7 million bushels of corn utilization – with a market value of $1.62 billion at the year-average market price;
    • 2 million tons of soybean meal disappearance — the equivalent of 84.2 million bushels of soybeans with a market value of $783 million.
  • In 2018 beef and pork exports added an estimated $0.39 to the average 2018 corn price of $3.53/bushel, and pork exports added $0.85 per bushel to the average 2018 soybean price of $9.30/bushel.
  • Since 2015, one in every four bushels of added feed demand for corn was due to beef and pork exports, and one in every 10 tons of added feed demand for soybean meal use was due to pork exports.
  • Over the next 10 years, meat exports are forecast to generate a projected $30.8 billion in cumulative annual market value to corn and soybeans based on USDA’s long-term forecast for crop prices.
Comprehensive Feasibility Study: U.S. Beef Cattle Identification and Traceability Systems

In response to the 2016-2020 Beef Industry Long Range Plan’s key strategic objective, “Secure the broad adoption of individual animal ID traceability system(s) across the beef community to equip the industry to effectively manage a disease outbreak while enhancing both domestic and global trust in U.S. beef and ensuring greater access to export markets,” WPI researched and wrote the industry’s most foundational analytical document on animal identification and traceability. The report offers a series of conclusions based on, among other methodologies, a 600-plus respondent quantitative survey, 90-plus interviews with industry participants from all sectors), and a deep-dive review of 9 global systems supported by direct interviews with foreign industry association and government officials.

Since the report’s initial rollout at the 2018 NCBA Convention in Phoenix, AZ, WPI has presented findings to and led constructive discussion with over 30 audiences of stakeholders from across the industry and beyond.

 

 

 

Updated Analysis: Exporting Corn through U.S. Beef and Pork

On behalf of the U.S. Meat Export Federation (USMEF), in 2018 WPI delivered the results of an updated study aimed at quantifying the value red meat exports deliver to U.S. corn producers. The original 2016 study, as well as the 2018 follow-up, also quantified the impact that red meat exports have on select corn co-products such as distiller’s dried grains with solubles (DDGS). The updated 2018 study concluded that 2018 beef and pork exports will use a combined total of 14.9 million tons of corn and DDGS, which equates to an additional 459.7 million bushels of corn produced – an increase of 29 percent over the 2015 projections.

 

 

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