The interesting thing about the new tax law that got rammed through is that no one really seems to have known what was in it, not even the people who wrote it. This law was literally written in secret, behind closed doors, with only a very few people being allowed to know what was actually in it. Special clauses were inserted for no other reason than to get support from members of congress who threatened to vote against it. And often the people writing it had no idea what they were actually putting into the law. Except for a few high profile items and talking points, none of it was allowed to be made public until it came to the floor for a vote. And finally it was passed in such a rush that the people voting on it didn’t know what they were actually voting for or against.
Apparently even the people who actually had specific items inserted into the law didn’t know what the clauses that they themselves had put in would actually do. Part of the new law, IRC Section 199A that applies to earned income from pass through business activities is one of the items that even it’s authors didn’t really understand. And one section of the 199A deduction could have a huge impact on farmers and how they sell the commodities they produce. I ran across this over at WallacesFarmer and it gives a brief rundown on how it works. But if you don’t have time to go read it yourself, here is how it would work.
The law includes a deduction for income from cooperatives for members of co-ops that is calculated differently from other sources of income. Basically income derived from selling your crops to a co-op you belong to is treated entirely differently from income from selling your products to a non-co-op.
The whole thing is a bit complex. What it essentially does for farmers is that in certain situations it carves out a huge deduction for selling your commodities to your co-op instead of to a commercial grain dealer. In the example they give in the article over at Wallaces, a farmer who sells his grain to a non-co-op business like an ethanol facility and ends up with a $50K profit, will end up owing about $4K in taxes on the profits from the sale.
If he sells it to a co-op, however, the farmer will end up owing zero taxes on the net income from the sale.
The really scary part is that the senators who inserted this into the tax bill, apparently had absolutely no idea this would be the result of the clauses they put into it. Two senators, Hoeven of ND and Thune of SD seem to have been largely responsible for shoving this into the bill just hours before it passed, and both claim that they did not intend to favor co-ops over any other business, despite the fact that is exactly what this does.
And this is just one clause in a law that is hundreds of pages long. No one knows yet what kind of traps, loopholes, give aways or other little surprises are lurking in this thing, and it could be months before we really know. And you can be sure that a lot of this is going to end up going through the courts before it all gets settled.
I haven’t done one of these in a while, so let’s take a look at what’s been going on in agriculture. And since this is January 2018, maybe take a peek at the crystal ball (I actually use an old tennis ball because, well, have you seen what a good crystal ball costs these days?) and see what might be going on in the upcoming year.
Dicamba has been in the news again. This time the Arkansas state legislature has weighed in on the issue. It’s legislative council has approved the Arkansas plant board’s ban on the use of Dicamba from April 16 to Oct. 31. The board put the ban in place after receiving almost 1,000 complaints of Monsanto’s new “no-drift” blend of the herbicide doing exactly that, drifting, and damaging thousands of acres of crops in the state. The company has released the hounds lawyers, is filing for court orders, is threatening to sue everyone in sight, has launched attacks against at least one individual member of the plant board, and it’s getting nasty real fast.
Meanwhile other big soybean growing states have instituted new, much stricter controls on the use of the new herbicide after hundreds of thousands of acres of crops were allegedly damaged by the new blends. Even the feds have gotten into the act, instituting stricter rules and usage regulations about using the stuff.
Monsanto and it’s partners that are selling these blends claim that the drifting isn’t their fault, and that it’s the farmers and people performing the applications that are to blame. The clam is that they’re using the wrong equipment, spraying at the wrong time, at the wrong temperature, and even using not Monsanto’s patented product, but straight dicamba that they’re purchasing elsewhere that volatilizes much more easily. But in order for this much damage to be caused that way, a huge number of farmers and applicators would have to be breaking the law, and I don’t believe that. Commercial applicators won’t risk it. They could lose their licenses, get huge fines, be sued, basically be put out of business if they didn’t apply these products in the proper way. And farmers who apply these products themselves would face similar penalties.
A2 Milk – I don’t recall now if I’ve talked about so-called “A2” milk before, but if you haven’t heard of it yet, you will in the near future. I suggest you go read the Wikipedia article on it which goes into extreme detail, and which has a plot like a soap opera, complete with bankruptcies, threats, untimely deaths, utterly ridiculous health claims including that it cured diabetes, cancer, etc., bogus marketing scams and I don’t know what all else before it finally became “legit”. I just re-read it and– oh brother, it’s a mess. The thing you want to remember about A2 milk is that it is, well, milk. The only difference is that the casein in the milk has a slightly different chemical makeup than A1 type milk. Nor is A2 milk entirely free of the A1 type of casein. Despite all of the hype, it is still just milk, and there seems to be no real basis in fact for any of the health claims being made for it. If you want to drink it, fine. But for heaven’s sake, don’t pay more for it than you’d pay for regular milk because it doesn’t cost any more to produce the stuff than it costs to produce A1 milk.
Dairy – There doesn’t seem to be much good news for the dairy industry for 2018. Thanks to continued overproduction and a projected increase in production during 2018 of 3% or more, milk prices look like they’re going to be heading down, with some people predicting the price could drop to $13/CWT or even lower. A dairy economist over at UW Madison thinks prices could climb as high as $16 in the second half of the year, but he seems to believe that production and demand are going to start to balance out, and frankly there doesn’t seem to be any real reason to believe that.
Some people think China is going to dramatically increase imports of milk products, but there’s no real reason to believe that, either. China has had a moderate increase in imports, but not to the point where it is having much effect on milk prices.
Don’t look to NAFTA for any help, either. If anything, the NAFTA negotiations are doing little more than making Mexico and Canada increasingly irritated. But more about that lower down on the page.
About the only good thing that’s happened in the dairy industry is that cattle feed prices have remained fairly low. But while that’s good news for dairy, it’s bad news for grain farmers.
Corn – Corn prices don’t look like they’re going to get much better either. Despite predictions that farmers are going to be planting less acreage in corn in 2018, the amount of grain actually produced isn’t going to be shrinking much because of improvements in yield, and as a result the price of corn on the commodities market has remained at or near the $3.50 level, where it’s been for months now. Demand for corn appears to be relatively flat.
As is the case with milk, there is hope that China will start to ramp up imports of corn, but there seems to be no real proof that is going to happen any time soon. The biggest buyer of US corn used to be Mexico. In 2017 Mexico curtailed it’s purchases of US corn, and has been talking to sellers in Brazil and Argentina. Increased sales to Japan has made up for some of that loss, but the way things are going in the political arena, don’t look for any improvement in grain exports any time soon.
NAFTA – The trade agreement that administration officials were claiming would be done in just two or three weeks back in mid summer of ’17, wasn’t, of course. Negotiations are still going on, and despite public statements by the administration indicating things are going just fine, they aren’t. Behind the scenes reports from the proverbial “unnamed source” indicate that things are definitely not going well. And when one considers that the ruling party in DC can’t even negotiate with it’s own members to keep the government funded and has to depend on the opposition to get enough votes to keep government offices open, that shouldn’t be surprising.
The question isn’t when a new NAFTA will be negotiated, the question should be is there going to be any kind of NAFTA at all. Right now I’d say that the chances of NAFTA being successfully renegotiated are around 50/50.
As is common this time of year, the experts are trotting out their opinions about what’s going to happen in the upcoming year in the agriculture sector. And as for that question up there in the headline, the answer is no.
The only analyst who seems at all optimistic is McGlone from Bloomberg, and his comments are a bit, well, odd, frankly. McGlone’s comments seem to be made by someone who hasn’t read a market report recently. He thinks ethanol demand is going to hugely increase, China is going to import US ethanol at a high level, and that is going to drive prices up. And none of that is really true. There is no huge increase in demand for US ethanol from China, ethanol use in the US has flatlined. And the “robust” global demand for corn he talks about? If that “robust demand” actually existed we wouldn’t be seeing record levels of corn sitting in storage.
As for the rest of the sources quoted in the summery, none of them are very optimistic about corn prices. Rabobank seems to think corn will reach $4 or better, but it’s basing that on are, I think, some pretty sloppy speculations about decreases in corn acreage.
Most of the others don’t see corn prices going up any time soon. Unless some kind of major disruption occurs like a severe weather event like a widespread drought, corn prices aren’t going to be moving up and may even move down a bit.
I was tempted to add in a bit about the whole ethanol industry here at the end, but I think I’ll leave that for an upcoming article. I’ll leave you with this thought, though. The entire ethanol industry is going to utterly crash and burn within the next twenty years or so, so I wouldn’t invest your 401(K) funds in it if I were you.
Well, I’m bored, I haven’t written much here of late, so let’s take a look at what’s been going on in the ag world recently.
Dicamba Issues Abound — The controversy over Monsanto’s dicamba herbicide blends and those approved under license, XtendiMax, Engenia and FeXapan, continue to have problems and generate considerable controversy, complaints and legal issues. Minnesota and other states have instituted restrictions on when, where and how the herbicides can be uses, new federal restrictions regarding training requirements and new application restrictions, etc. Other states have issued wide ranging restrictions as well. Even Mother Jones has gotten into the act with an article about the drawbacks of the product.
The companies involved are fighting back, blaming anything and everything for the fact that over 3.5 million acres of crops were allegedly damaged by the herbicide drifting away from the application area this past year. They’ve been claiming farmers are spraying the product with the wrong equipment, failing to follow the proper application techniques, etc. They’ve even tried claiming that famers are illegally spraying non-approved types of the herbicide. In one case one of the companies involved tried to get a member of the board that regulates herbicides in one of the states involved removed from the board.
Words Are Worth Money — The University of Arizona did a study of how consumers react to the term “natural” on meat labels and found out pretty much exactly what you might think: that people who know what the term means were unwilling to pay more for meat labeled “natural”. In the study half of the people involved were told the legal definition of the term, and half were unaware of what the legal definition was. They found that those who did not know would pay $1.26 more for steak labeled “natural”, while those who did know wouldn’t pay more.
Under USDA definitions, all fresh meat, even hamburger, can be labeled as “natural” as long as it does not contain artificial flavors, colorings, chemical preservatives or other synthetic ingredients. So basically if you’re paying more for a package of steak or roast labeled “natural” you are being scammed.
What it boils down to is that a lot of these companies will use any kind of marketing tricks they can to fool you into paying more for a product than you should.
Meat Tax Coming? — Methane and carbon emissions from cattle raising operations makes up almost 15% of the total production of greenhouse gases, and the production of cattle is projected to increase by 70% over the next fifty years or so. So some people are considering taxing the production and sale of meat to try to reduce the reduce greenhouse gas production from cattle. There are serious talks going on in some countries to institute tax policies similar to those used to curb tobacco in order to reduce production and consumption.
Frankly this seems a bit silly to me. The two largest producers of greenhouse gases are electric power plants and motor vehicles. The amount of methane and carbon dioxide produced by cattle hardly makes more than a blip on the charts when compared to that. So I’d think that if they were really serious about greenhouse gas reduction they’d be going after those two sources far more vigorously.
Corn Acreage Shrinking — It looks like farmers are finally beginning to cut back on the amount of corn they’re raising in response to poor prices. USDA is predicting that for the first time in years the number of acres of soybeans will equal or even surpass the number of acres of corn being planted in the US. Corn prices on the Chicago Exchange never went much over $3.75 or so at the peak, and have been sitting at the $3.50 or lower level for some time now. And, of course, the commodities price generally isn’t what the farmer gets for the corn. They often get considerably less than that. When you add in other costs like storage fees, etc. farmers are often getting a lot less than the commodities price. A awful lot of farmers out there are just barely breaking even on corn this year.
Some people are pinning their hopes on China increasing their imports of corn. China has been drawing down it’s huge stockpiles of corn over the last year or so, and some are taking that as a sign the country will begin to import more corn. But continuing to produce corn in the hopes that China might increase imports sounds like a great way to end up bankrupt.
Chicken Suits — No, not that kind of suit. The legal kind. Both California and Massachusetts are being sued over regulations they’ve instituted regarding how chickens (and other farm animals as well in the case of Massachusetts) are raised. The regulations require chickens (and in the case of Mass. other agricultural animals as well) from which products are derived for sale in the state, must be raised according to certain minimal humane standards. The plaintiffs claim that the regulations dramatically increase the cost of eggs and that it will cost consumers hundreds of millions of dollars, and that the cost of eggs nation wide has increased as much as 5% because of it. A claim I view with considerable skepticism. Locally the retail price of eggs is at almost an all time low. They’re going for about $1.00 to $1.28 per dozen at most retail outlets around here for standard, non-organic “generic” brands, and I’ve seen them as low as $0.79 and even less.
Now that’s a scary headline, isn’t it? You’ve probably seen similar headlines over the last few days as even some of the major news outlets have been talking about it. What’s especially troubling is that canola oil has been marketed as being a “healthy” oil for many years now, and it is in very wide spread use around the world. So the possibility that it is linked to something as scary as dementia is pretty serious.
What is canola in the first place? Well, in a way “canola” doesn’t really exist. It actually a variety of rapeseed. The term “rape” comes from the Latin word “rapum”, which means turnip. Rapeseed is related to turnip, rutabaga, cabbage and mustard. We’ve been using plants in this family for oil for thousands of years. It seems that rapeseed oil in the first half of the 20th century was used more as a lubricant than as a food product. Production in Canada increased enormously curing WWII.
After the war demand fell drastically and farmers began to look for other uses. Rapeseed oil was brought to the market in the mid 1950s as a food product, but it had some problems. It had a nasty green color and tasted pretty bad. Even worse, it had a high concentration of erucic acid. Animal experiments indicated that consuming large quantities of erucic acid caused heart damage.
In the 1970s Canadian researchers bred a variety of rapeseed that had far fewer objectionable qualities and far less erucic acid. The term “canola” was originally a trademark name for the new variety, made out of “Can” for Canada, and “ola” from other vegetable oils like Mazola.
Modern canola oil is considered, or was considered before this study came along, to actually be fairly healthy. But now…
How concerned should we be about this? This was just one study and more research needs to be done, but it still is something we need to be concerned about. Dementia is very scary and anything that increases the risk of getting it needs to be avoided if at all possible. To be honest, I’m not going to be buying canola oil after this. There are other oils out there with similar smoke points and nutrition profiles that can be used instead.
Let’s catch up with what’s been going on in agriculture.
Let’s lead off with this odd little item. So, here’s the scenario: You’ve just survived a hurricane. Your house has been flooded, your whole neighborhood has been destroyed, you’ve lost everything you own, you’re trying to cleanup and rebuild. You desperately need money, building supplies, cleaning supplies, drywall, lumber, shingles, plywood… So you’re sitting there staring at the ruins of your neighborhood and you think, “Wow, what I really need is a big hunk of cheese…”
That is apparently what some people in Wisconsin thought when they shipped 45,000 pounds of cheese to the hurricane ravaged areas of the country. Yep, they thought, what they need isn’t money or building supplies or cleaning supplies or anything else that might actually be, well, useful. What they need is forty five thousand pounds of cheese…
Dairy/Milk: All things considered, the dairy business wasn’t totally horrible this year. Not great, but not terrible. The average price for Class III milk (the kind that’s used for cheese and butter) for the year was in the $16.10 to $16.20 range for 2017. That’s considerably better than 2016 when the average price was about $1.60 lower. The price seems to have been propped up largely by demand for butter and cheese, which has remained fairly strong through a large part of the year.
But the ever present specter of over production is once more haunting the dairy business. Production in the US was up around 2.5% over the year, and production has been going up in other dairy producing areas of the world as well, and the market is showing signs of strain. Butter prices on the Chicago Mercantile have dropped from 2.65 to around 2.21, butterfat exports have fallen, cheese prices have dropped about 10 cents and cheese in storage has increased almost 6% over last year.
Mexico is one of the biggest purchasers of dairy products from the US, but it is actively seeking other sources of supply because, well, would you be comfortable dealing with a merchant who called you a drug-running murdering rapist? It has cut it’s purchases of nonfat dry milk from the US by around 20%, and is getting it from Canada and the EU.
Throwing a monkey wrench into the works is NAFTA, which the administration is supposedly renegotiating. Does anyone except me remember that the Ag Secretary, Perdue, was proudly claiming that the administration was going to renegotiate NAFTA in just three weeks back in early May? Sigh… I try to keep politics out of this, but it’s hard sometimes.
The end result of all of this is that the future for the dairy industry doesn’t look very good. Between over production, declining demand, declining exports, well, right now it looks like 2018 is going to see milk prices dropping by at least $1/cwt, down to the $15.50 range, and they could even get lower than that.
Wild Pig Population On The Rise: Wild pigs are a huge problem. It’s estimated that there are 6 to 11 million wild pigs running around out there, and according to the National Feral Swine Damage Management Program they are responsible for up to $1.5 billion in damage every year.
They’re trying to get approval for a poison based on sodium nitrate called “Hoggone” which would apparently be placed out in the field in “a species-specific feeder”.
The problem with that kind of thing is, of course, that other animals other than that target species often consume the poison because these “species-specific feeders” often aren’t all that specific. Then there are problems with poison residue left in the carcass being consumed by predators and scavengers. And if you read the article tagged up there you’ll see that some of the experts don’t think poisoning is going to do all that much to cut down the size of the population.
Can you hunt them? Hell yes. You need to check the regulations in your own area for specifics, but most states strongly encourage hunters to take wild pigs, and have few restrictions and no bag limits, and no restrictions on size, gender, no specific season.
Can you eat ’em? Ah, well… Here’s where I get a bit nervous. A lot of DNRs encourage people to eat them. But that’s because they hope you’ll go out and shoot a lot of the buggers. I know people who wax poetic about the joys of eating wild pig. Me? I wouldn’t touch one. They carry a lot of diseases, many of which are infectious to humans and pretty nasty. A lot of them are infested with parasites… No, I wouldn’t eat one.
Cranberry Glut: We are growing way, waytoo many cranberries. We have so many cranberries already in storage that even if we’d lost the entire 2017 crop, we still would have had a surplus.
The Cranberry Marketing Committee is trying to get USDA to issue a marketing order that would require cranberry growers to produce 25% less cranberries than market demand.
The problem with cranberries is that except for the holiday season, there is really little demand for them. Despite efforts by marketing companies to boost demand, consumption of cranberries in any form has been shrinking. Cranberries, at least by themselves, just don’t taste very good. They are so sour and so bitter on their own that they are virtually inedible unless you add a huge amount of sugar to them, or use them only in very small quantities as a flavoring agent.
What The Heck Is Actually In That Stuff? You might like to think that manufacturers are required to list the ingredients in a product on the label, but there are all kinds of loopholes in labeling regulations that let them refuse to tell us what exactly is in the products we use. But California has passed new legislation that will lift the veil from at least one category of products, cleaning chemicals. When you see that term listed, it means that chemicals have been added to make the product smell nice. But what exactly is “fragrance”, or the ever popular “cleaning agents” that are listed on the labels? Turns out “fragrance” can contain one or more of thousands of different chemicals, some of which, it seems, are highly toxic, and even are known to be carcinogens. Some labels don’t tell you anything at all. This will will help a bit, but the law doesn’t really go far enough. It only covers cleaning products, for one thing.
Note: The article at Mother Jones that I’ve linked to here seems to be focused on fragrance for some reason, while the bill itself (yes, I’ve read the thing) does not seem to be restricted to chemicals added for fragrance alone. Fragrance is specifically mentioned in the bill, yes, but the bill seems to cover all chemicals in a product not just those used as fragrances.
A reader was going through some of my old posts and ran across something I’d written back in May when I’d run into an article over on AgWeb that claimed that there was a 70% chance that corn prices would be up in the $4.40 – $4.50 range by December. To be honest I’d completely forgotten about that item until Dustin reminded me when he left a comment reminding me of my skepticism about the claims back then. (See? I do read the comments!)
I was more than a bit irritated by the item at AgWeb at the time. The article presented absolutely no data to back this claim up. Just this “expert” from a brokerage firm trying to tell farmers corn was going to hit 4.40 – 4.50. And at the time that claim made no sense to me at all because I was seeing nothing in the markets or crop reports that indicated any kind of significant price increase. There was no decrease in the number of acres planted, there were no significant weather events going on, there was no increase in demand for product, and there was a huge amount of corn still in storage. What I was seeing was that corn prices were going to remain fairly flat, and quite possibly go through a serious drop as the 2017 harvest was completed
So, here it is, mid-November. What happened to corn prices? Well, corn, of course, never got above $4 of course. It briefly flirted with 3.80 – 3.90, but it didn’t stay there for long and quickly fell back to the 3.50 range, and as of this morning, it’s down to 3.43 after it hit a low of 3.40 when the WASDE report came out telling us that US corn stock was at it’s highest level since 1987. And heaven help any farmer who made any kind of financial plan based on the advice from that so-called expert.
Now if seeing advice this wildly wrong was a one time thing, it wouldn’t be so bad. Everyone makes mistakes. But I see this kind of thing over and over again in the ag press. Some “expert”, some pundit, some talking head, crawls out of the woodwork to make some wild and completely unsupported claim, and then disappears back into anonymity to never be heard from again. And the publication goes ahead and prints the item despite the fact there is no rational reason to believe anything the person says.
Over the last year or so I’ve seen articles in which “experts” made unsupported claims that milk would hit $19 (it’s around $16) by this time of the year, soybeans would hit $11 (about 9.80), and wheat would hit 7.50 (sitting at 4.31). And all those claims were presented by the publications without any facts or reasoning to back them up. Often some of these publications are printing material that completely contradicts what articles in the same publication are claiming.
The end result is that in many cases you don’t know who or what you can trust any more. You need to be very, very careful these days. Here’s a bit of advice.
First: Remember that these media companies are in business for one reason, and one reason only, to make money. Oh, they might have noble sounding statements appearing that claim they are out there to help you, etc., but, well, no. I’m sorry, but no, they aren’t there to help. The individual reporters, bloggers, etc. might feel that, but when it comes right down to it they are there to make a buck. Period. And that means they have to generate page hits to drive up advertising revenue. So almost all of these publications tend to lean towards click-bait headlines and stories to drive up page views as high as they can. Oh, they’ll deny that, but it’s true. A headline like “Corn Going Up 70%” is going to generate more hits than a headline that expresses what is actually in that story, like “Someone You Never Heard Of Makes Unsubstantiated Claims”, now doesn’t it?
Second: Remember that a lot of the “reporters” in these publication aren’t actually reporters. They are independent bloggers/writers who have no relationship to the publication itself except that they get paid some money if a piece of theirs is published. They aren’t employees of the publication. They’re freelancers who get paid by the piece. Even worse, often what they’re writing about is not something they’ve come up with on their own through their own work, it’s material they found somewhere else and re-wrote to avoid being charged with plagiarism. That sounds harsh, I know, but it’s also true.
The advent of the internet has resulted in a phenomena that a friend of mine rather crudely refers to as “circle-jerking”. Let me explain. One of these so-called reporters runs across an item that might make good clickbait. He does a quick and dirty rewrite to avoid plagiarism charges, and as his source, refers to the the original item he found. But if you go to that piece you find that it wasn’t the original. That writer too was a “circle jerker”, referring to yet another piece which, in turn, also wasn’t the original but another “jerker”. That site cites as it’s source yet another website which turns out to be another jerker, and…
Well, you get the idea.
Third: Once upon a time most magazines and newspapers had fact checkers. Almost every story, editorial, etc. was run through the fact checking department to make sure that what was in the item was actually true. Those days are long, long gone in most media companies. Some of the more reputable organizations still do it. Sort of. But the majority of them seem to have discarded fact checking as an unnecessary expense, it seems.
Fourth: Editors don’t actually edit anything any more. The job of an editor used to be making sure that the material that appeared in the publication adhered to basic standards of accuracy, that it was suitable for the intended audience, that it was not misleading, etc. And, alas, those days are long gone as well.
This kind of thing isn’t new, of course. It’s been going on for as long as we’ve had the printing press. It wasn’t invented by the internet. The term “yellow journalism”, which was coined to describe the kind of behavior I talk about here, goes back to the 1890s. Newspapers, especially those owned by Hearst and Pulitzer, are considered to have played a significant role in starting the Spanish-American war due to their irresponsible reporting. While their role in starting the war is exaggerated, there is no doubt that they helped to push public sentiment towards war.