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Family Business Matters

02/24/2017

By Lance Woodbury
DTN Farm Business Adviser

Family businesses can be wonderful organizations. You have a chance to do what you love with your family, achieving the benefits of both flexibility and control that come with owning your own business.

But family businesses also can be difficult. Decisions can become clouded by family perspectives. Relationship problems spill over into management and ownership discussions. A high degree of familiarity can breed a less-than-professional culture. Spouses bring different perspectives that are sometimes difficult to integrate. And families can be notoriously "inward-looking," focused too much on drama, individual financial benefits, or maintaining the status quo.

Enter the independent voice. What I mean by an independent voice is someone whose connection to you transcends financial relationships. It is a person who will tell you what they think regardless of how you might take their comments. It is someone who will be honest and "call you out" when making a mistake, or will push you into a zone of discomfort when you need to go there.

Being independent does not mean this person has no history or relationship with you. On the contrary, they may have a very deep, personal relationship with you or other family members. This care for your relationship is what allows them to push you; they are an advocate for your family's progress despite your (or other family members') occasional missteps or blind spots. They will be a source of unwavering support when the going gets tough.

There are some professional advisers (for example, accountants, attorneys, lenders, insurance agents or wealth managers) who may be quite good at giving you the nudge you need. If you are lucky to have such an adviser, you may not need another voice at the table. But engaging someone who has a history with the family and good general business experience (perhaps even involvement in another industry), but who does not bring a specific technical perspective, can often help you see the forest for the trees.

Inviting an independent voice to be part of your family business discussions is not easy. You may find that airing your dirty laundry to an outsider is uncomfortable. They may ask questions that you really don't want to answer, or point out problems that, down deep, you know you need to fix. They may take your excuses for prior inaction off the table.

As you continue to grow your business, there are many different kinds of resources to help with the family business dynamic. Books or articles about family business create awareness of issues and solutions. Educational conferences and seminars provide knowledge and tools. Professional advisers offer perspective on how problems might be solved. Peer groups provide confirmation that other people are struggling with the same types of issues.

But an independent voice, someone you trust and respect who will hold your feet to the fire, can really move the needle if you are open to change. They can propel your enterprise to new levels. They can encourage reconciliation in the family, help you contemplate a new entity structure, poke holes in your business ideas, or pressure you to complete your estate plan. They can be a true friend to the family at those times when an independent voice is most needed and most helpful.

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Editor's Note: Lance Woodbury is a Garden City, Kansas, author, consultant and professional mediator with more than 20 years' experience specializing in agriculture and closely held businesses. Email questions for this column to Lance@agprogress.com. For more on this topic, see DTN's Minding Ag's Business blog. Find Woodbury's past columns online at https://www.dtnpf.com/….

(TN/AG)

Livestock and Poultry Outlook

02/24/2017



By Emily Unglesbee
DTN Staff Reporter



ARLINGTON, Va. (DTN) -- Is there such a thing as too much meat? Maybe, according to the USDA World Agricultural Board.

In an initial 2017 outlook comments for the beef, pork, and poultry industry, USDA cited 2016 as a record year for meat production in the U.S., which could weigh down markets as production continues to climb in 2017 and the U.S. beef herd enters its fourth year of expansion.

No single sector of the meat production industry set records, but together, beef, pork, broilers and turkey all increased production 3.1% from 2015 to a record 97.6 billion pounds in 2016. And 2017 may set more records, namely for red meat and poultry production, which are expected to increase more than 3% and surpass 100 billion pounds for the first time ever.

These soaring production levels will have the expected depressing effect on prices, USDA added. The board predicted lower prices for cattle, hogs and turkeys in 2017. Broiler prices are expected to make only "fractional" gains in the coming year.

As a result of lower prices, exports are expected to improve slightly, but the strong U.S. dollar and continued modest economic global growth will likely hamper any significant export gains.

CATTLE AND BEEF

With feed prices projected to stay stable in 2017, the U.S. cattle herd is expected to head into its fourth year of expansion. USDA's January 2017 cattle report pegged the cow-calf herd at 93.6 million head, 2% higher that month compared to 2016. The beef cow herd also grew 3% to 31.2 million head. According to producer reports, 1% more heifers are expected to be retained in U.S. herds this year, and 1% more heifers are expected to calve.

Commercial beef production is set to increase by 3% to 26 billion pounds in 2017, the highest level of production since 2011. Total commercial cattle slaughter is expected to increase by just below 3%, and carcass weights are estimated to increase to just over 828 pounds.

Beef exports in 2017 are forecast at 2.72 billion pounds, a nearly 7% hike from 2016. That's slower than the growth trend from 2016, when exports grew by 13%, bolstered by falling prices and a declining Australian herd.

Australia is working on expanding their herd in 2017, but "biological constraints" will likely keep any herd growth in check and limit exports that could compete with the U.S. However, a strong U.S. dollar is likely to continue checking U.S. export growth.

Beef imports in 2016 declined 11%, due to increased domestic production. That trend is expected to continue into 2017, with imports for the year forecast at 2.74 billion pounds, a 9% drop from 2016, thanks to increased U.S. cow slaughter and lower prices for domestic lean processing-grade beef.

The 5-area steer price for Texas/Oklahoma/New Mexico; Kansas; Nebraska; Colorado; Iowa/Minnesota feedlots in 2017 is forecast to average $109 to $116 per cwt, down from 2016's average of $121. Feeder steer prices are pegged at an average of $132 to $139 per cwt, down from $143 in 2016.

HOGS AND PORK

Good margins in 2015 and early 2016 encouraged producers to increase their breeding herd and farrow more sows last year. Along with a record growth in sow productivity, a record number of hogs are expected to be slaughtered in 2017. This number depends on new hog slaughter facilities coming online in time, however.

In its December 2016 Quarterly Hogs and Pigs report, USDA pegged the number of all hogs and pigs at 71.5 million head, up 4% from December 2015. That marks the highest inventory since 1943 for the U.S. The breeding herd was estimated at 6.1 million head, up 1% from 2015.

In the same December report, producers indicated they farrowed 2% more sows in the second half of 2016 and intend to farrow about 1% more sows in the first half of 2017. Higher farrowings will be supplemented by the growth in pigs per litter nearing pre-PEDv levels. These factors are expected to contribute to a record number of hogs slaughtered in 2017.

Commercial pork production is forecast at a record 26.17 pounds, up 5% from 2016. Carcass weights are expected to grow slightly as well, to 212 pounds.

Pork exports for 2017 are pegged at 5.44 billion pounds, up 4% from 2016. In 2016, exports increased 4% as well, thanks to lower prices.

Pork imports are estimated at 1.09 billion pounds this year, just barely below 2016 levels. Imports from our predominant source of imports -- Canada -- decreased 8% in 2016. Higher U.S. pork production and lower prices will likely make the U.S. a less attractive market in 2017, as well.

Hog prices are forecast to average $42 to $45 per cwt in 2017 (51% to 52% lean, live equivalent), down from $46 in 2016.

POULTRY AND EGGS

Broiler meat production is pegged at 41.53 billion pounds in 2017, up 2% from 2016. As of the beginning of January 2017, the layer flock was 1% down from 2016, a result of weak margins and a cautious approach to flock expansion from producers.

Slower weight growth is expected to temper broiler meat production as well, which may reflect an industry response to "woody breast" concerns -- a condition where breast muscle myopathy affects the quality of breast meat in heavier birds.

A second year of growth is forecast for broiler meat exports, which are pegged at 6.93 billion pounds in 2017, up 4% from 2016. Broiler prices are forecast at $0.82 to $0.87 per pound this year, compared to a 2016 year-long average of $0.84.

Turkey production in 2017 is pegged at 6.12 billion pounds, a 2% increase from 2016. Turkey exports are expected to increase to 630 million pounds, a 11% jump from last year.

Total U.S. egg production is expected to hit 8.55 billion dozen, up nearly 2% from 2016. Table egg production is pegged at 7.42 billion dozen, an increase of nearly 2% from last year.

Egg and egg product exports fell 11% in 2016 to 279 million dozen. They are expected to rebound 17% to 325 million dozen in 2017, thanks to lower prices and increased access to South Korea this year.

Emily Unglesbee can be reached at emily.unglesbee@dtn.com.

Follow Emily Unglesbee on Twitter @Emily_Unglesbee.

(CC\SK)

USDA Sees Lower Production

02/24/2017

By Chris Clayton
DTN Ag Policy Editor



ARLINGTON, Va. (DTN) -- In its early forecast for crop production, USDA's Outlook for crops lowers corn, soybean and wheat production for the 2017-18 crop year.

USDA pegs corn production at 14.065 billion bushels, 7% below a year ago with an average yield of 170.7 bushels per acre, down from last year's record yield of 174.6 bpa. USDA projects corn acreage at 90 million planted acres, down 4 million from 2016.

Despite USDA boosting soybean planted acres for this spring by 4.6 million acres to a record 88 million acres, USDA still lowers projected soybean production to 4.18 billion bushels, 3% lower than 2016 with an average yield of 48 bpa, down 4.1 bushels from 2016.

Wheat production is projected at 1.837 billion bushels, down 20% from last year with a yield expected at 47.1 bpa, down 10% from last year. Planted wheat acres are projected at 46 million, down 4.6 million from last year.

The USDA Outlook is the department's first major forecast of the 2017-18 marketing year, which will be updated in the March 31 prospective plantings report.

"USDA's corn and soybean estimates are neutral with ending stocks staying close to this season's estimated amounts," said DTN Analyst Todd Hultman. "Because early trendline yields are below those we saw in 2016, there is room for more bearish supply increases, should we get a fifth consecutive year of good growing weather."

Hultman said USDA's estimate for wheat is slightly less bearish than the current season, but also has room to show a higher yield if weather cooperates once again.

"As said before, these estimates are early starting points in a conversation that has a long way to go," he said.

CORN

With estimated production at 14.065 billion bushels, supplies for the 2017-18 crop year will decline from the 2016-17 record high, but still remain relatively large.

Beginning stocks from the old crop are forecast at 2.32 billion bushels. Total corn use for the 2017-18 crop is projected at 14.22 billion bushels with a total supply of 16.435 billion bushels, which includes 50 million bushels of imports.

Feed and residual use for the new crop is pegged at 5.45 billion bushels, down 150 million bushels from 2016-17 while ethanol use is increased to 5.4 billion bushels, up 50 million bushels from the old crop.

USDA lowered corn exports for the 2017-18 marketing year to 1.9 billion bushels, down from 2.225 billion bushels for the 2016-17 crop. The rationale for lower exports is increased global competition due to abundant supplies in Argentina, Brazil and Ukraine. Beyond strong production in South America, USDA noted Ukraine has increased its exports to Asia and is taking some market share from the U.S.

Ending stocks are projected for the new crop at 2.215 billion bushels with a stocks-to-use ratio of 15.6%, slightly better than the 2016-17 crop.

The 170.7 bpa is based on weather-adjusted trends assuming a normal growing season weather.

USDA pegs the season average price for corn at $3.50 a bushel, up 10 cents from the 2016-17 crop.

SOYBEANS

With a carryover of 420 million bushels, USDA projects production at 4.18 billion bushels, imports at 25 million bushels and at total supply of 4.625 billion bushels.

Due to a projected yield decline to 48.1 bushels per acre, USDA pegs total supplies at 4.625 billion bushels, still 97 million bushels higher than total supply for 2016-17 due to the higher beginning stocks.

Total domestic soybean use is projected to slightly increase to 2.08 billion bushels. USDA cites the higher pork and poultry production as driving slightly higher domestic use for the crop.

USDA bumps up exports to 2.125 billion bushels for the 2017-18 crop, a 75-million bushel increase from 2016-17. Strong global demand will lift exports for all major production areas, driven mainly by China, which drives two-thirds of global soybean trade. Further demand in Asia, the Middle East and Africa also will provide support for an increase in global soybean exports.

Ending stocks for the 2017-18 crop are also projected at 420 million bushels, the same carryover number used for the old-crop stocks, putting the stocks-to-use ratio at 10%

USDA projects the season average price for soybeans at $9.60 per bushel, up 10 cents from the 2016-17 crop.

WHEAT

Wheat production is projected to decline to 1.837 billion bushels, a decline of 473 million bushels from the 2016-17 crop as planted acreage declines by 4.2 million acres and yield declines to 47.1 bpa.

With a carryover of 1.139 billion bushels and imports of 120 million bushels, USDA projects the total wheat supply at 3.096 billion bushels for 2017-18.

Total domestic use for wheat is projected at 1.216 billion bushels, down 30 million bushels from the 2016-17 crop.

Wheat exports for the 2017-18 crop year are projected at 975 million bushels down 50 million bushels from the old crop.

That puts total use at 2.191 billion bushels, down 80 million bushels form the old-crop usage.

Ending stocks for the 2017-18 crop are projected at 905 million bushels, down 234 million bushels from 2016-17.

USDA projects the average season price for wheat will be $4.30 a bushel, up 45 cents from the 2016-17 crop.

COTTON

USDA projects a small increase in cotton production in the U.S. in 2017 with production pegged at 17 million bales, up .2% from the 2016 crop. Planted acres will increase to 11.5 million acres, up 1.5 million acres from 2016.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(AG/)

Migrant Rules Affect Farmers

02/23/2017

By Chris Clayton
DTN Ag Policy Editor



WASHINGTON (DTN) -- Agricultural leaders say farmers aren't panicked yet by the Trump administration's new memos on immigration enforcement, but concerns are growing that illegal immigrants, who are the backbone of most farm labor in the country, could increasingly become targets of deportation.

Memos handed down by the Department of Homeland Security earlier this week make it easier to deport almost any person in the U.S. illegally. For roughly 11 million people in the U.S. illegally, deportation has always been a threat, but for the most part, those people were unlikely to be deported unless they committed a serious crime. New guidelines make it more likely they can be deported if they are pulled over by law enforcement.

The tighter enforcement could have a major impact on farmers who rely heavily on undocumented labor, said Frank Gasperini, executive director of the National Council of Agricultural Employers. Gasperini told DTN there are increasing concerns from farmers right now over how the Department of Homeland Security will enforce its new guidelines. "There's isn't an awful lot of impact yet, but people are becoming more worried," Gasperini said.

Gasperini also pointed to a section in one of the two Homeland Security memos that noted the federal government would assess all penalties and fines against the workers "and those who facilitate them being here." That statement can be interpreted to mean employers "because they wouldn't be here if it weren't for the jobs." Gasperini estimated more than half of the country's 1.5 million seasonal workers are undocumented.

"They are scared and they are reacting like scared people, which is reasonable," Gasperini said.

The migrant stream normally starts in Florida and Texas then moves to Georgia, the Carolinas and northward as the seasons change. Five years ago when states started getting tougher on undocumented workers, Alabama lost much of its tomato crop and Georgia lost part of its Vidalia onion crop. Georgia attempted to replace migrant farm labor with prison labor, but that failed. Farmers across the country are affected when the flow of migrant workers is disrupted, Gasperini said. "It hurt states like Michigan badly, and it hurt parts of Pennsylvania and other states as well," he said.

Speaking to reporters at the USDA Outlook Forum on Thursday, House Agriculture Committee Chairman Mike Conaway, R-Texas, said agriculture has to find a way to get a rational guest-worker program. He said the issue comes up more frequently when he is talking to farmers.

"The turmoil committed by whatever Mr. [President Donald] Trump is trying to do is unhelpful in that sense, but we're a nation of laws and what Mr. Trump is doing is enforcing our laws," Conaway said. "But I do think it is in all of our interests to have a good inside-voice conversation about immigration as it relates to a work program that has nothing to do with citizenship."

Conaway noted he represents one of the most conservative districts in the country, but he did a recent poll with his constituents who said they strongly support an improved guest-worker program for agriculture, as long as such a program does not include potential citizenship. Conaway cited that H-2A doesn't work for farmers such as dairy producers who need daily labor.

"We can't do a worker program for agriculture fast enough," he said.

Larry Wooten, president of the North Carolina Farm Bureau, has been a leader in immigration reform for the past several years. "Our farmers need dependable labor and they want legal labor," Wooten said.

North Carolina has a diverse crop mix of fruits, vegetables, nurseries, tobacco and other row crops, many of which require more labor than other commodity crops. The state uses about 80,000 farm workers, of which about 20,000 come from the H-2A guest-worker program. Planting season is coming up quickly. "We have a high percentage of undocumented workers, many of whom have been here for years," Wooten said. "They are dependable and they run the machinery and they are managers, and they are some of the most important people on those farm operations."

"Nobody I would say is alarmed yet, but a hold up in the H-2A would cause some alarm as we get into planting season," Wooten said.

Wooten is hopeful Congress will move forward on a more comprehensive immigration bill to deal with guest workers for agriculture. Aggressive enforcement won't work in agriculture without some improvements in H-2A, and legalization of workers who have been in the U.S. for several years, he said.

"This is an opportunity to put pressure on to fix the broken immigration system," Wooten said. "We need some adjustment of status for those workers, many of which have been here 10 to 15 years. Right now, our farmers and growers are very nervous."

An immigration bill doesn't seem like an agenda priority for Congress, but Wooten is pressing the North Carolina congressional delegation. Sen. Thom Tillis, R-N.C., has been vocal that he would like to fix the situation, Wooten said. "He understands the angst it is causing our growers and our workers, and just generally in the countryside because of this," Wooten said.

The tougher state laws and tighter enforcement under the Obama administration against illegal residents pushed more farmers to use the H-2A program in recent years. Ag employers in 2016 used the program to bring in more than 160,000 temporary workers, twice as many workers under the program as five years ago.

"People are very, very concerned because we are afraid our migrant workers won't come, or these enforcement measures will result in much stricter enforcement and people will end up being pulled off of highways and out of the fields during the season," Wooten said.

The U.S. Department of Labor, Department of State and the Customs and Immigration Services all have a role in H-2A applications and approvals. Gasperini noted the departments don't have computers that network, and in some cases, operate with old software limitations. There could be applications for more than 200,000 workers through the H-2A program this year, which is expected to strain the system.

"At some point, it doesn't matter how hard they try to process and approve applications, they are just going to run out of capacity," Gasperini said.

Wooten added he's concerned about the budget for the H-2A program to handle the load. Another complaint is that the Department of Labor just bumped up the Adverse Wage Rate by 55 cents in his state to an average of $11.27 an hour for H-2A workers.

H-2A doesn't help farmers who need labor every day of the year, such as dairies, livestock or poultry operations. Those farmers around the country who rely on likely undocumented workers do not have a guest-worker program.

Another limitation for H-2A workers is the lack of housing capacity for them as the demand grows. The program requires employers to provide adequate housing for each worker.

"Agriculture is just really unprepared for being forced into all H-2A. It just isn't workable," Gasperini said.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(GH/BAS)

The Market's Fine Print

02/23/2017



By John Harrington
DTN Livestock Analyst



When it comes to contentious U.S. relations with Mexico, Presidents James K. Polk and Donald J. Trump could turn out to be the perfect bookends.

Of course, Polk's responsibility for the Mexican War (1846-1848) has long been a benchmark of American history. On the other hand, it's way too early in the Trump Administration to know if his aggressive saber-rattling will actually trigger a major trade war with our neighbor to the south. Nevertheless, there are certain comparisons between these chief executives and their respective settings that are tantalizing to say the least.

Elected in 1845 by the still-rising tide of Jacksonian democracy (a political and philosophical revolt against the elites and insiders of the day), James Polk romanced the nation with visions of continental expansion, promising to do whatever it took to stretch U.S. boundaries to the Pacific. This was not just a nifty idea. It embodies blueprints pretty much endorsed by the Almighty himself. Manifest Destiny.

Much of the real estate Polk needed to buy, steal or conquer for the project was all too loosely held by the new sovereignty of Mexico (winning independence from Spain in 1821). Indeed, Mexico had attempted to improve its foothold on land north of the Rio Grande by "encouraging immigrants" to settle in the region, often cutting them generous land deals if they promised to practice the Catholic faith, reject slavery and remain loyal to Mexico.

Unfortunately for Mexico, it proves to be yet another example of how dangerous immigrants can be. Eventually, these rowdy misfits became known as Texans, sowing the seeds of big trouble.

In November of 1845, President Polk sent diplomat John Slidell to Mexico City with an offer of $25 million for the Rio Grande border in Texas and Mexico's provinces of Alta California and Santa Fe de Nuevo Mexico. When officers in the chaotic government saw the money as an insulting bribe, Slidell was sent packing.

So much for the art of the deal. So much for Mr. Nice Guy.

Polk then ordered General Zachery Taylor to invade disputed territory south of the Nueces River and essentially pick a fight with Mexican forces. When Mexico fired the first shot on this showy parade of bullies, Polk had the perfect excuse to declare war and eventually claim the desired geographical booty.

Fast-forward nearly 170 years and we find ourselves in the middle of another skirmish with Mexico. While no one expects any shots to be fired (if you don't count the border guard), the possible trade war President Trump may be provoking threatens to be extremely bloody for agricultural concerns on both sides of the Rio Grande.

Once again, consequences of immigration partially explain the conflict. To be sure, they compose more of the centerpiece in 2017.

After blaming everything from unemployment to drugs to urban violence on illegal immigrants from Mexico during his presidential campaign, Trump seems to be aggressively moving ahead with plans to build "the Wall" and send the bill south.

Late last month, the president suggested that he would impose a 20% tax on imports from Mexico to pay greater security along the border. Although a White House spokesman quickly clarified that other options were also being considered, the statement served as gas on an already blazing fire.

It didn't take long for Mexican Senator Armando Rios Piter to announce retaliatory plans to introduce a bill in the country's legislature requiring the country to stop importing corn from the United States and instead import it from Argentina or Brazil. The boycott threat sent seed caps spinning from one end of the Corn Belt to the other.

The initial shock value was easy to understand. About 15% of last year's record 15.1 billion bushels of corn produced in the U.S. was exported, and Mexico recently surpassed Japan to become the top buyer. More specifically, close to 28% of U.S. corn exports annually (valued right at $2 billion) is shipped to Mexico. If Mexican buyers would truly pull the plug, the damage to the already feeble domestic cash trade would be crippling.

Yet once U.S. producers and analysts recovered from the initial sucker punch, most agreed that Rios Piter's proposal was probably long on rhetoric and short on serious intent. Even if the senator actually tried to push such a plan into law, its unattractive economic implications would make few friends among Mexican legislators.

For example, a shift in corn sourcing to South America would not be easy or inexpensive for Mexico. U.S. livestock feed is mostly delivered to northern Mexico by rail while product destined for the southern part of the country largely arrives by ship from the Gulf of Mexico. Generally speaking, longer hauls from Brazil and Argentina add 40 cents to 50 cents a bushel to the price Mexican buyers pay for corn.

Beyond the significant hike in feed costs for ongoing cattle and hog operations, banning U.S. corn could seriously compromise major herd expansion projects now on the Mexican drawing board. On one hand, Mexico is expanding its hog herd with some sources projecting a 20% growth in breeding numbers over the next two to three years.

Similarly, Mexico's beef complex is also positioned for substantial growth in the coming years. SuKarne recently opened a new beef complex that includes feedlot capacity of nearly 300,000 head and a beef plant that can process more than 800,000 head annually.

Short of stiff economic sanctions actually imposed by Trump, I can only conclude that Rio Piter's comments now represent little more than angry bluster. Maybe the Mexican lawmaker simply wanted to demonstrate that his side could rant along with the best the White House could offer.

Yet it would be a big mistake to dismiss this controversy as an insignificant war of words, a silly international spat that will harmlessly resolve once the teenagers tire of throwing spit wads. The economic stakes are way too high for the situation not to be closely monitored by politicians, diplomats and commercial interests.

In addition to the corn bond, the agricultural fortunes of the U.S. and Mexico are wedded together in terms of beef and pork.

Mexico also is the second-largest volume market for U.S. beef and third largest in terms of value. Beef exports to Mexico last year increased 7% over 2015 in volume to 242,373 metric tons.

A remarkable second half pushed 2016 pork export volume to Mexico to its fifth consecutive record at 730,316 metric tons, breaking the previous record by 2%. Export value to Mexico totaled $1.36 billion, up 7% year over year and the second highest on record, trailing only the $1.56 billion mark. Overall, Mexico represents our top customer for pork in terms of volume and our second top customer in terms of value.

While President Polk had plenty of critics when he went to war with Mexico in the first half of the 19th century (e.g., Abraham Lincoln called the action "unconstitutional" and Henry David Thoreau decided to be jailed instead of paying taxes in support of the war), his army occupied a good chunk of the far West by the time all the smoke cleared. Is it possible that President Trump somehow envisions a similar risk/reward ratio as he flirts with a trade war in the near future?

Whether you're a history buff or just a nervous marketer of commodities, this question stands to be a real nagger for months to come.

(AG)

(ES/SK)

Outlook Panel Dissects Ag Economy

02/23/2017



By Emily Unglesbee
DTN Staff Reporter



ARLINGTON, Va. (DTN) -- While it's true that the farm economy has historically cycled through ups and downs with some regularity, don't expect to ride the up cycle anytime soon.

That was the message from Rajiv Singh, Rabobank's North American wholesale CEO. Based on the company's models, "Crop farming will not see a typical upturn but rather an extended period of low returns," Singh told attendees of the 2017 Ag Outlook Forum, during a panel discussion with other industry executives.

"Using corn as a proxy for the markets, [our models] still predict corn around $4 for the next five years; even in the best-case scenario, it's slightly over $4; worst case, it's around $3.20," he said.

Singh's prediction was echoed somewhat by fellow panel speaker, Luke Chandler, John Deere's deputy chief economist. Chandler noted that in John Deere's 179-year history, the company had only seen declining sales for three years in a row three times -- most recently from 2013 to 2016.

"And in that 179 years, we've never had four years of declining sales," Chandler added. "So we're hoping 2017 doesn't create new history for us."

The industry executives also stressed the importance of preserving standing trade partnerships -- as well as forging new ones -- and expressed concerns over the damage volatility and uncertainty in this arena could do to the current farm economy.

WHERE DO WE STAND?

Both Chandler and Singh sought to place the current environment of low and declining commodity prices within a historical context.

Traditionally, the farm economy sees a short and modest growth rally after a financial downturn, Singh said. It grew 33% from 1992 to 1996, and 39% from 1986 to 1988.

Knowing this, we should set our expectations fairly low, Singh said, which will seem especially painful, given that this most recent downturn was preceded by one of most impressive growth rallies in history -- a 278% increase in the farm economy from 2001 to 2011.

Chandler pulled up historical data on ag equipment sales to put the current downturn in perspective. During the financial crisis of the '80s, the industry's tractor sales saw a 60% decline; the early '90s saw 23% decline and the late '90s brought with them a 35% decline.

Currently, industry tractor sales are 60% below where they stood in 2013, just as they were in the 1980s -- a disturbing comparison that Chandler was quick to soften: "Thankfully, our net income is nowhere near where it was in the 1980s, and it's certainly worth noting also that the peaks that we came off before going into this downturn were as high as we've ever had in history."

ALL EYES ON TRADE RELATIONS

For panelist Beth Ford, Land O'Lakes' COO, finding new outlets for dairy products -- in particular the milk powders that go into products like chocolate and baby formula -- is one of the most pressing priorities for the dairy industry. International markets such as Mexico are essential to this effort, and the new administration's message on trade has spooked markets and dropped powder prices significantly in a matter of two weeks, Ford noted.

"I think the administration and President [Donald] Trump understand the importance of trade -- it appears to me he is re-setting the frame...to one-on-one negotiations," she said. "Those need to happen with speed. What is the real challenge to us is the resulting uncertainty and the inability to understand where we need to make investments," she said.

Chandler agreed, noting, "U.S. agriculture probably has the most to lose of any sector when it comes to trade." John Deere was a vocal supporter of the Trans-Pacific Partnership, which President Trump recently scuttled with an executive order. "There was a lot of opportunity in there," Chandler said, citing potential beef export opportunities to Japan as an example. "For now, we'll just have to wait and see [on trade policy], but there certainly is a lot to lose," he added.

For more information on the schedule and events of the Ag Outlook Forum, see the USDA website here: https://www.usda.gov/….

Emily Unglesbee can be reached at Emily.unglesbee@dtn.com

Follow Emily Unglesbee on Twitter @Emily_Unglesbee

(AG/)

Ethanol, Oil Groups Look Ahead

02/22/2017

By Todd Neeley
DTN Staff Reporter

SAN DIEGO (DTN) -- At a time when politics in Washington, D.C., has never been as divided, leaders of the ethanol and oil industries talked a good game in San Diego Tuesday on how the future requires both industries to find common ground.

During a panel discussion at the National Ethanol Conference, a panel representing the liquid fuels industry -- both ethanol and oil -- pointed to Corporate Average Fuel Economy, or CAFE, standards as perhaps the single biggest threat to their future.

In short, the standards tightened in 2011 by the U.S. Environmental Protection Agency during the Barack Obama administration, are designed to force the auto industry to build new cars that go farther on less fuel. The CAFE target is to reduce liquid fuel consumption by about 80% by 2050. The idea is CAFE standards would be best met by widespread adoption of electric vehicle technology.

Opposition to the standard may be the one piece of common ground where petroleum and ethanol interests build a future coalition.

For a decade, the ethanol industry has fought to expand market access in the nation's fuel supply. E15 and E85 expansion are seen as obvious ways to do that, but the petroleum industry fought tooth and nail to stop ethanol expansion beyond E10.

Now, with a change in administration comes an expected change in how the EPA conducts its business. Additionally, Scott Pruitt, who was appointed to head that agency, is seen by oil and ethanol interests alike as a chance to take a fresh look at energy policies.

TRUMP'S LETTER OF SUPPORT

On Tuesday, Trump sent a letter of support to attendees of the National Ethanol Conference, reiterating his support for the renewable fuels industry.

"Rest assured that your president and this administration value the importance of renewable fuels to America's economy and to our energy independence," Trump said in the letter.

"As I emphasized throughout my campaign, renewable fuels are essential to America's energy strategy. As important as ethanol and the Renewable Fuel Standard are to rural economies, I also know that your industry has suffered from overzealous, job-killing regulation.

"I am committed to reducing the regulatory burden on all businesses, and my team is looking forward to working with the Renewable Fuels Association and many others, to identify and reform those regulations that impede growth, increase consumer costs, and eliminate good-paying jobs without providing sufficient environmental or public health benefit," Trump said.

During the panel discussion, one oil industry representative said the new administration is opening doors for his industry and renewable fuel interests to find common ground.

"I think we all have an opportunity to take a deep breath," said Marty Durbin, executive director for market development at the American Petroleum Institute, or API.

"We were all planning for a different outcome (to the presidential election). But the election result does provide some interesting opportunities for new coalitions."

Chet Thompson, president of the American Fuel and Petrochemical Manufacturers and former general counsel at EPA under the George W. Bush administration, said his group is encouraged by the Trump administration's pursuit of regulatory and tax reform.

In addition, Thompson said Trump's America-first approach is expected to open the door to expand energy production across the board.

"We're thrilled by what we're seeing in the first month," Thompson said. "If you look at the executive orders on regulatory reform and two-for-one policy, Congress getting in the game, there's lots of opportunities for us in manufacturing."

Trump signed an executive order calling for federal agencies to eliminate two regulations for every new regulation proposed. That order faces a court challenge from a number of environmental groups.

Thompson said he believes Pruitt will be a "champion" for the energy industry as a whole.

"For eight years, EPA has fought all of liquid fuels," Thompson said. "We think the opportunity is now to make lasting changes. In the last eight years, the EPA has issued nine rules that at least each come with $1 billion in compliance costs."

FAR APART ON RFS

When it comes to the future of the RFS, however, oil and ethanol groups couldn't be further apart.

Both Durbin and Thompson still advocate for, at a minimum, complete reform to include capping corn-ethanol by volume at 9.7% of the gasoline supply. Ethanol groups, on the other hand, want the RFS to remain in place as is to grow a nascent cellulosic-ethanol industry.

Bob Dinneen, president and chief executive officer of the Renewable Fuels Association, said while it is good for oil and ethanol interests to have an open dialogue, he called on the oil industry to tone down its anti-ethanol rhetoric.

"When it comes to API, advertising efforts are more focused on the molecule (ethanol) rather than policy," Dinneen said "What's the point of disparaging ethanol the molecule? Can we begin today to message this constructively? I'm mystified at the messaging."

Durbin said even if the RFS was eliminated, the petroleum industry still would be using ethanol as a blend component.

"We're your biggest customer," Durbin said.

Thompson said, "As free-marketers, we don't appreciate the mandate."

With the Trump administration also benefitting from having a Republican-controlled Congress, Thompson said both industries should focus on getting things done in the next two years to benefit liquid fuels in general, ahead of the next Congressional elections.

The ethanol industry would like to see its markets grow through the expanded adoption of high-octane engine technology, and by eliminating a number of market barriers to more widespread availability of E15.

"We are under siege and we can work through some differences on market issues constructively," Dinneen said.

Following the panel discussion, Dinneen told reporters that continuing a dialogue with petroleum interests is a way to show both sides have a lot in common.

"They're our customers, and at the end of the day, we've got to be involved with them," he said.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN


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Dicamba Decisions - 5

02/22/2017

By Emily Unglesbee
DTN Staff Reporter



Editor's Note: Dicamba herbicide use on soybeans and cotton is expected to expand dramatically in 2017. Stewardship will be critical to avoid drift and other movement onto sensitive crops and plants. This Dicamba Decisions series examines important application issues and the tough new federal label requirements of the new dicamba herbicides.

**

ROCKVILLE, Md. (DTN) -- Applicators face complex and sometimes ambiguous buffer requirements for the newly labeled dicamba herbicides this year.

The labels for Monsanto's XtendiMax, BASF's Engenia and DuPont Pioneer's FeXapan put all the responsibility for following buffer requirements and avoiding off-target drift on the applicator. That is a heavy burden for commercial applicators, in particular, who juggle multiple jobs in a day and spray fields they may not know.

That means conversations about what is surrounding a field of Xtend soybeans and cotton need to happen now, and they need to involve the grower and retailer as well as the applicator, said Purdue University weed scientist Bryan Young.

"Applicators have got to do their homework before they get to the field," he said. "The requirements on this label that are up to applicator -- knowing the proximity of sensitive crops, susceptible crops and endangered species -- they can't do that from the cab." Growers will also need to pick the fields where they plant Xtend cotton or soybeans with great care, he added.

Growers and applicators should become comfortable with three key phrases in the new labels: "Sensitive areas," which require a downwind buffer at all times and "non-target susceptible crops" and "specialty crops," which vary in spray restrictions among companies.

SENSITIVE AREAS

When spraying the new dicamba herbicides, applicators must leave a 110-foot downwind buffer (or 220 feet, if using the higher rate of XtendiMax and FeXapan) between the edge of the field and neighboring "sensitive areas."

The EPA declined to define "sensitive areas" on the herbicide labels, which means companies, scientists and applicators have been forced to come up with their own interpretations. In its 24(c) labeling for Engenia, North Carolina made a point to define "sensitive areas" as "residential areas, bodies of water, known habitat for threatened and endangered species or dicamba-sensitive crop plants," a broad definition that most experts accept.

The buffer requirement for these areas aims to minimize dicamba exposure to non-target organisms, particularly threatened and endangered species, Monsanto Crop Protection Systems Lead Ty Witten noted. Chad Asmus, BASF technical marketing manager, recommends growers and applicators reach out to their local and state Extension offices or agriculture departments for clarification on which threatened or endangered species might be in their area.

A number of things can count as part of that buffer, including paved or gravel roads, unplanted agricultural fields, buildings or certain crops that tolerate dicamba, such as Xtend soybeans, Xtend cotton, corn, sorghum, millet, small grains and sugarcane.

NON-TARGET CROPS

The label includes stricter and more complex restrictions to protect "non-target susceptible crops" or "desirable plants" -- that is, crops and plants that could be killed or rendered less commercially valuable by dicamba drift, Young noted.

In this section, the labels specifically forbid spraying when the wind is blowing -- at any speed -- in the direction of "specialty crops." For XtendiMax, this includes non-dicamba-tolerant soybeans. "Soybeans are one of most sensitive species" to dicamba, Witten said. "If that adjacent field is non-Xtend soybeans and the wind is blowing toward it, you should not apply XtendiMax at that time."

For Engenia, however, BASF is not considering non-dicamba-tolerant soybeans to be among the specialty crops, but rather part of the "sensitive areas," Asmus said. That means growers can spray Engenia in fields where the wind is blowing (from zero to 10 mph, provided there is no inversion) toward a non-Xtend soybean field, but only with a 110-foot buffer. For help with the Engenia buffer requirements, see this BASF chart: http://bit.ly/….

Other specialty crops that are specifically identified on the labels are commercially grown tomatoes, fruiting vegetables (EPA Crop Group 8), cucurbits (EPA Crop Group 9) grapes, peas, potatoes, tobacco, flowers, fruit trees and ornamentals. (See the EPA Crop Groups here: http://bit.ly/…).

The labels also include blanket bans on spraying when drift could occur to "food, forage, or other plantings that might be damaged or the crops thereof rendered unfit for sale, use or consumption" or "foliage, green stems, exposed non-woody roots of crops and desirable plants."

How close do these specialty crops and desirable plants need to be to trigger these restrictions? That's not clear from the labels and companies are telling applicators to use their best judgment, Young noted.

"The lack of direction there is concerning," he said. "Personally, I would want to make sure that something very sensitive to dicamba, like tomatoes, is at least a quarter mile away." At least one tomato processor -- Red Gold Inc. -- has released letters asking growers to leave at least a half-mile between their Xtend fields and tomato fields.

Remember to use any available specialty crop registries, such as Field Watch (https://driftwatch.org), and consider contacting local specialty crop commodity groups for more information on crops in your area.

BUFFER WEED CONTROL

Growers have limited options for weed control within downwind buffers. One option is to wait until the wind stops blowing in that direction, and try to make a dicamba pass then, time permitting, Witten said. Otherwise, they will have to use alternative herbicides or target those areas for other weed management strategies, such as hand weeding.

To be safe, growers should be especially diligent with pre-emergence residual herbicides this spring with their Xtend fields, Asmus added.

Young recommends "framing" Xtend fields with the highest labeled rate of a residual herbicide to reduce the chance of weed issues in the field borders later in the season. Planting a cover crop, such as cereal rye, in field borders could also help supplement weed management efforts there, he added.

STATE RESTRICTIONS

To add to the complexity of these restrictions, at least one state -- Arkansas -- has passed a rule with more restrictive buffer requirements for applicators spraying dicamba within that state. The rule requires a default 100-foot buffer zone in every direction, as well as a quarter-mile downwind buffer for any "susceptible crops."

The rule applies only to Engenia, as Arkansas has banned the use of DGA-based dicamba herbicides (including XtendiMax and FeXapan) between April 15 and Sept. 15, and Monsanto will not be selling XtendiMax in that state this year. See the Arkansas rule here: http://bit.ly/….

A number of other states are still working on rules regarding the new dicamba herbicides, so all applicators should check with their respective state Plant Board or Extension weed specialists to get state-specific information before spraying.

FIELD SELECTION AND COMMUNICATION

Amid these tough and confusing new buffer restrictions, one clear lesson emerges: Choose your Xtend crop fields carefully, Young said.

"Some fields just aren't going to be good candidates for Xtend crops and dicamba applications," he said.

He recommends Xtend growers have early and ongoing conversations with neighbors to choose fields that are going to be surrounded by other Xtend crops, corn, sorghum or other non-dicamba-sensitive crops.

The labels and herbicide companies have made it clear that the final responsibility for correctly maintaining buffers and avoiding spray drift falls squarely on the shoulders of the applicator. That's a heavy burden -- and one that farmers and retailers should help lighten, Young said.

"You have to have conversations now, because time is short when it comes to spraying," he said. "The applicator needs help getting this information. I'm urging them to work with the retailer who gives them the spray ticket as well as the growers."

Emily Unglesbee can be reached at Emily.unglesbee@dtn.com.

Follow Emily Unglesbee on Twitter @Emily_Unglesbee.

(PS/ES)

Dinneen: 'Ethanol Lifts Ag'

02/22/2017

By Todd Neeley
DTN Staff Reporter

SAN DIEGO (DTN) -- Though there is angst in rural America about the future of the Renewable Fuel Standard and agriculture trade in particular, the leader of the nation's largest ethanol interest group told an ethanol industry audience here Tuesday he's confident President Donald Trump will not abandon agriculture or ethanol at home or abroad.

Renewable Fuels Association President and Chief Executive Officer Bob Dinneen said during his state of the industry speech at the National Ethanol Conference that although times are tough on the farm, things could be worse without a growing ethanol industry.

Though the farm economy continues to be tough for producers who face commodity prices not high enough to account for crop input prices, Dinneen said it was important to keep perspective.

"Still, there is a sense of unease spreading across rural America," he said. "Net-farm income fell to a seven-year low in 2016 and the aggregate value of crops hit its lowest point since 2010. Record corn crops in three of the last four years have pushed stocks to 2.4 billion bushels -- a 30-year high."

Even with a 7% increase in demand, average corn prices are expected to hit a 10-year low this marketing year. USDA recently projected net-farm income to drop to $62 billion in 2017, or about half of the $123 billion that farmers earned in 2013.

"It's probably no consolation to the farmers in the audience," Dinneen said, "but things could be worse. Indeed, they have been worse.

"Imagine what the farm economy would look like without 5.3 billion bushels of demand coming from the ethanol industry. Imagine the state of our rural communities if we didn't have more than 200 ethanol plants providing thousands of jobs, offering investment opportunities, and creating value-added markets for local farmers. It is no exaggeration to say that the recent downturn in the farm economy would have been far worse without the ethanol industry's stabilizing effects," he said.

Dinneen said the Trump administration's approach to trade may benefit ethanol and agriculture.

During the past several years, the ethanol industry has been hit with what Dinneen said have been "unfair and ultimately illegal" trade barriers. Those barriers put up by the European Union, China and others have limited ethanol's ability to build export demand.

Though there is concern in agriculture and ethanol that Trump's rhetoric on trade will be hurtful, Dinneen said he believes the new administration is setting a tone.

"We're all trying to get our grips around the new reality in Washington," Dinneen said. "I believe what Trump is saying now is part of a negotiation. At the end of the day, I have confidence the nation's ability to trade is going to be preserved."

ETHANOL EXPORTS

Last year, the ethanol industry exported 1.05 billion gallons to nearly 60 countries. It was the second-highest export volume on record. Ethanol imports were about 34 million gallons, meaning the net-trade balance for U.S. ethanol was a record 1.01 billion gallons.

The top markets for U.S. ethanol were Brazil (26%), Canada (25%) and China (17%). China was the fastest-growing export market by volume, Dinneen said, importing 106 million more gallons than one year ago. The value of those exports exceeded $2 billion, up 13% from 2015.

The United States also exported 11.5 million metric tons of dried distillers grains with solubles to 51 countries, with China, Mexico and Vietnam accounting for about half of the total.

"But China's implementation of trade-distorting tariffs has significantly slowed those imports from about 1 million metric tons per month in the summer of 2015 to almost nothing today," Dinneen said during the speech.

"China's recent actions have been a major factor driving ethanol and DDGS prices lower in recent months. In fact, DDGS prices are 40% lower than in June 2016. The industry's growing concern over China's anti-U.S. and anti-consumer trade barriers led the RFA, Growth Energy and the U.S. Grains Council to write President Trump a few weeks ago imploring the new administration to put China's recent actions near the top of the administration's China trade agenda."

Although the Trump administration has walked away from the Trans-Pacific Partnership, or TPP, and has indicated it will re-negotiate the North American Free Trade Agreement, or NAFTA, Dinneen said he believes the president also understands trade's importance to rural America.

"There is understandable angst around the president's disdain for multilateral trade pacts," he said.

"Trade is critically important to agriculture and ethanol," Dinneen said. "But Trump, the businessman, most certainly appreciates the importance of trade. His antipathy is toward trade deals he believes have put U.S. companies at a disadvantage, not toward trade itself. Frankly, it will be refreshing to have a leader willing to stand up for American business in trade disputes."

When Trump announces cabinet nominees shortly after the election, the ethanol industry was alarmed by a number of seemingly anti-RFS nominees in Scott Pruitt at the U.S. Environmental Protection Agency and Rick Perry at the U.S. Department of Energy.

Dinneen said that concern should be put to rest.

"When some questioned whether his (Trump) appointment of Scott Pruitt to be EPA administrator or Rick Perry to be DOE secretary signaled a weakening of his resolve on the RFS, their anxiety was relieved throughout the confirmation process when Mr. Pruitt repeatedly affirmed his commitment to uphold the law as Congress had written it," he said.

"Both Pruitt and Perry understand that their perspective has changed, that they will now represent the nation, not the parochial interests of their home states, and each is acutely aware that the boss is solidly in support of American energy, including homegrown, renewable ethanol."

RFS DEBATE SHIFT

Dinneen said the RFS debate on Capitol Hill is shifting away from repealing the law to reforming it after 2022. That is when congressionally mandated volumes are replaced with "largely unfettered discretion by EPA" to set future standards for all renewable fuels.

"We need to be active and constructive participants in that debate," he said. "I don't know about you, but I'm not necessarily comfortable leaving the industry's fate in the hands of what has been an unaccountable bureaucracy that has not always appreciated the importance or benefits of corn ethanol."

Although the EPA took the RFS on a roller-coaster ride during the past eight years with changes to biofuel volumes and fell behind in announcing annual volumes, last year the ethanol industry churned out record production.

Dinneen said the industry is on track for a fifth-consecutive year of record production. At present, ethanol producers are on track to produce 16.1 billion gallons in 2017.

Because of that, he said there is a premium on expanding markets.

"I highlight these statistics not to minimize the demand challenges currently facing our industries, but rather to point out that we are indeed continuing to grow and mature, and that we remain fixated on growing demand," Dinneen said.

"But we have much work to do. We must expand existing markets and open new markets for ethanol here and abroad. We must continue adding value to our plants and pursuing technologies that will make us more efficient and profitable. We've seen how ethanol can lift the ag economy out of the doldrums of massive surpluses, acute supply/demand imbalances, and market prices below the cost of production.

"We've seen how ethanol can transform local markets and invigorate rural economies. It's no coincidence that the most profitable 10-year run in the history of U.S. agriculture began the same year the Renewable Fuel Standard was adopted. We've seen ethanol revitalize agriculture. We know it works. And we will work together to ensure ethanol continues to serve the critical role of stabilizing and strengthening the farm economy."

WASHINGTON POLITICS

Although the Trump administration appears to be in ethanol's camp, Dinneen said D.C. politics will continue to put pressure on the industry.

"While the regulatory agenda moves forward, hopefully with the urgency and efficiency of the blizzard of executive orders marking the first month of the Trump administration, congressional oversight of the RFS and legislative attacks on renewable fuels will continue," he said.

"Our friends in the oil industry continue to target the RFS with ads designed to vilify ethanol even as many oil companies produce ethanol themselves and all of them have recognized ethanol has benefits and is here to stay. We will continue to fight those attacks, and defend both the molecule and the policy with passion and prejudice."

Because the political climate in Washington, D.C., continues to be difficult, Dinneen said corn ethanol's success will depend on the industry's ability to build new partnerships and allies.

"Thankfully, we begin from a position of strength," he said. "Not only do we have a strong base of support throughout the Congress, but we have a resident at 1600 Pennsylvania Ave. who understands the value of ethanol and who is committed to an America-first energy policy."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

(AG/SK)

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