Daily Ag News Summary 02/13/2017

U.S. Cotton Acres to Surge 9.4%

Cotton producers intend to plant 11.0 million cotton acres this spring, up 9.4 percent from 2016, according to the National Cotton Council’s (NCC) 36th Annual Early Season Planting Intentions Survey. Upland cotton intentions are 10.8 million acres, up 8.8 percent from 2016, while extra-long staple (ELS) intentions of 266,000 acres represent a 36.9 percent increase. The survey results were announced Saturday at the NCC’s 2017 Annual Meeting in Dallas, Texas.

Dr. Jody Campiche, the NCC’s vice president, Economics & Policy Analysis, said, “Planted acreage is just one of the factors that will determine supplies of cotton and cottonseed. Ultimately, weather, insect pressures and agronomic conditions play a significant role in determining crop size.” She said that with abandonment assumed at 12 percent for the United States, Cotton Belt harvested area totals 9.7 million acres. Using an average U.S. yield per harvested acre of 830 pounds generates a cotton crop of 16.8 million bales, with 16.0 million upland bales and 760,000 ELS bales.

The increase in cotton acreage is largely the result of weaker prices of competing crops, improved expectations for water availability in the West, and above average cotton yields in 2016. While current futures markets have increased since last year, many producers will continue to face difficult economic conditions in 2017. Production costs remain high, and unless producers have good yields, the higher price still may not be enough to cover all production expenses.

Optimism Abounds in Latest Barometer Reading

The dramatic improvement in the sentiment of farmers and ranchers that started following the November election continues into the new year. The Purdue/CME Group Ag Economy Barometer—based on a monthly survey of 400 agricultural producers from across the U.S.—reached 153 in January 2017, 21 points higher than December’s survey and 61 points higher than in October. Ag producers’ sentiment in January was not only the most positive recorded in the Ag Economy Barometer’s history, but it was also the biggest month-to-month sentiment change since data collection began in October 2015.

The rise in the Ag Economy Barometer during January marked the third consecutive month the barometer moved higher. Continuing a trend that got underway in November, producers indicated that they were markedly more optimistic about the future which, combined with a more modest improvement in their view of current economic conditions, pushed the barometer up yet again. The improvement in the Ag Economy Barometer is tempered by the fact that over half of the survey respondents felt that their farm operation’s financial was worse off today than a year earlier and over 60 percent of respondents expect their financial condition to be worse yet 12 months from now.

U.S. Sorghum Finds New Home – Corn to Follow

New engagement by U.S. Grains Council (USGC) staff and members in South Africa over the past year has helped achieve export victories there, with recent sales of U.S. sorghum and biotechnology trait approvals that will allow imports of U.S. corn.

In 2015 and 2016, as a result of El Nino, the country suffered a severe drought, leading its feed industry to import U.S. corn for the first time in almost a decade. South Africa uses both yellow corn for animal feed and white corn for a staple food known locally as pap or mieliepap.

Tight Oil Leads U.S. Production Increase Through 2040

The U.S. Energy Information Administration projects that U.S. tight oil production will increase to more than 6 million barrels per day (b/d) in the coming decade, making up most of total U.S. oil production. After 2026, tight oil production remains relatively constant through 2040 as development moves into less productive areas and productivity decreases.

U.S. production of tight oil has increased significantly since 2010, driven by technological improvements that have reduced drilling costs and improved drilling efficiency in major shale plays such as the Bakken, Eagle Ford, and the Permian Basin. Production from tight oil plays surpassed 50% of total U.S. oil production in 2015 when tight oil production reached 4.9 million per day (b/d). Tight oil production and overall U.S. oil production are expected to increase through around 2030 according to the recently released Annual Energy Outlook 2017 Reference case.

Tight oil (also known as shale oil or light tight oil) is petroleum that consists of light crude oil contained in petroleum-bearing formations of low permeability, often shale or tight sandstone.

Purdue Economists Compare Payments: Base vs. Planted Acres

An on-going issue in U.S. crop policy is whether payments should be made on historical base acres, as generally done under recent U.S. farm bills, or on current planted acres. Sizable differences can occur between these measures of acres due to changes in cropping patterns, combined with Congressional and Executive decisions to allow farmers to choose whether they update base acres when such a choice is permitted.

Purdue University economists conducted a short term comparison of payments made on base vs. planted acres within the context of the 2014 farm bill and 2014-16 crop years. Payments are estimated to be approximately 10%, or between $0.5 and $1.1 billion per year, smaller if made on planted than base acres. Longer term and World Trade Organization (WTO) considerations also apply. Tying payments to planted acres raise the issue that expected program payment differences across crops will cause farmers to plant crops with the highest expected payments, potentially causing government cost to grow larger over time. Tying payments to planted acres is also likely to result in the U.S. notifying crop commodity program payments as product specific to the WTO, increasing the likelihood the U.S. may violate its WTO limit on certain farm support. A third policy option exists that can generate cost savings yet limit the undesirable effects of using planted acres. Specifically, base acres could be re-based by mandating that farmers must update base acres to planted acres during a recent historical period. Like all base update provisions, impact of this third policy option will vary by farm, crop, and region.

Depending on past base acre update decisions, a farm’s current crop program base acres may largely reflect acres planted in 2009-12, acres planted in 1998-2001, or base acres in place at the end of the 1996 farm bill which largely reflect acres planted in 1991-95. The Farm Security Act of 2002 allowed farms to choose between the 2 earlier periods but did not allow farms to change the number of base acres – it did however allow the distribution of base acres across crops to be updated to reflect the share planted to crops during the 2009-12 crop years.

Base crop acres total 260 million after the 2014 farm bill sign up. Corn, soybeans, and wheat account for 83% of base acres. Barley, cotton (generic base), oats, rice, peanuts, and sorghum account for 16%. The remaining 12 program crops account for less than 2% of base acres. In total, 23 base acre categories exist, including generic base. Generic base totals 17.6 million acres. It was created by Congress in the 2014 farm bill as part of its compromise to resolve Brazil’s successful case against the U.S. cotton program at the World Trade Organization. Generic base is the home for former cotton base acres. Payments on generic acres are determined by the crop planted on the generic base acres.

Next Ag Secretary Nominee Waiting on Senate Ag Committee Hearing

U.S. Senator Debbie Stabenow, Ranking Member of the U.S. Senate Committee on Agriculture, Nutrition, & Forestry, met with former Georgia Governor Sonny Perdue, President Trump’s nominee for Agriculture Secretary to lead the U.S. Department of Agriculture (USDA):

“Governor Perdue and I met and had a productive conversation about his priorities and vision for the Department of Agriculture,” said Senator Stabenow. “As Michigan’s second-largest industry, I made it clear that agriculture must be a key priority for this administration. The next Agriculture Secretary should be a champion for our farmers and ranchers, while also balancing all of the Department’s important missions – from conducting groundbreaking scientific research and protecting our Great Lakes and public lands, to ensuring access to nutritious food and growing economic opportunities in small towns and rural communities. As the Committee process continues, I look forward to learning more about Governor Perdue and his goals for USDA, and having a confirmation hearing after the Committee receives the required documents.”

The Committee has yet to schedule a confirmation hearing for Perdue, though a field hearing for the next farm bill in Manhattan, Kansas on February 23.