When You Get A Call About Last Week’s Dicamba Application…

Welcome to June, where that nice summer breeze is… hopefully void of dicamba.

It’s the time of year when farmers will be out spraying the notorious weed killer while simultaneously crossing their fingers that neighboring producers don’t come at them with pitchforks in the case of drift damage.

At least that’s been the way June has played out since the Xtend trait saw its first widespread use in 2016.

The Office of Inspector General (OIG) decided to kick off this year’s dicamba season with a bang too. The agency released their rather salty report on their findings from an investigation into the EPA’s renewal of the dicamba herbicide label back in 2018.

The OIG found that senior EPA officials at the time overstepped their bounds and intentionally manipulated the scientific review process. In fact, many of the staff scientists wouldn’t even sign off on the final reports made for that renewal decision. In its estimation, bypassing the standard scientific process is what caused the legal debacle with the Ninth Circuit in 2020.

Worth noting: The OIG has said that during the initial registrations of dicamba, initial assessments from staff scientists were excluded to “address stakeholder risks.” Lines may have been crossed – allowing for political interference in what was supposed to be a fully scientific process –  and EPA senior officials promise to not repeat those errors.

While we are here: Lawsuits continue to mount for Bayer and BASF over damage attributed to in-season use of dicamba. Two new high-profile suits have been filed recently by a Texas grape farmer and an Arkansas honey farm. And those come as the two companies are working to appeal a jury verdict that granted $265 million to a Missouri peach farm over damages.

Ag Sentiment Takes A Nosedive

No other way to say it; farmers are frustrated.

May’s Ag Economy Barometer plummeted 20 points as pessimistic producers weighed current and future farm economic conditions. Just 27% of surveyed growers expect ‘good times’ for U.S. ag in the next five years – the lowest in survey history.

What’s to blame: Producers expressed concern over tax uncertainties and rising input costs. Of producers surveyed:

  • 83% expect capital gains tax rates to rise over the next 5 years
  • 78% think proposed policies will make it harder to pass on the farm to the next generation
  • 43% predict 2022 cash rental rates will jump by 10%+


Crop input prices are also likely to remain high as supply chain concerns plague everything from crop protection ingredients to the cardboard and plastic they’re stored in.

But it’s not all bad. While producer sentiment isn’t high across the board, 54% of respondents expect the crop sector to yield good results in the next five years. Crop producers also remain bullish on farmland values.

Any positive vibes row crop producers may be feeling are not necessarily shared with their dairy and livestock counterparts. Only 26% of those surveyed expect to see ‘good times’ in the animal production space in the next five years.

Where this goes: The short-term impact could be seen in machinery purchases and construction plans. While farm equipment sales are having a heyday now, producers noted less purchase intent in the coming year. And 59% of those surveyed reported lower year-over-year construction plans, including new buildings and grain bins.

China Is Slackin’

While U.S. farm exports are anticipated to break the glass ceiling this year, China isn’t holding up its end of the bargain.

This year the U.S. will see farm exports hit $164 billion, shattering the previous record of $152.3 billion set in 2014.

Why the boom? A global pandemic recovery mission plus China’s growing economy. Both of which are boosting export numbers and commodity prices.

China, the number one agricultural importer, spent $133.1 billion on ag imports in 2019. And their growing economy will increase by 189 million middle-class households in the next decade.

It all sounds like a #winning situation, but China is still slacking when it comes to its trade commitments.

Back in January 2020, pre-COVID-global-pandemic, they signed the Phase One Agreement with the U.S. to purchase a minimum of $200 billion more in U.S. goods from 2020 to 2021 in comparison to 2017 imports.

Progress meter: Purchases were only 73% of the year-to-date target as of April and 60% of the total two-year agreement. Ag-specific imports were hovering at 79% at the end of 2020.

In better news, upwards of 4,000 plants can now ship products to China versus the 1,500 that could before the trade deal. China now accepts The U.S. Food and Safety Inspection Service certifications for meat and poultry plants.

Bottom line: China will need to ramp up its trade spending ASAP to uphold its end of the Phase One Agreement.

China’s Corn Obsession

China appears to be using the Pac-Man strategy for buying corn. It’s pretty simple… Gobble up everything in sight.

By the numbers:

  • In the 2020-2021 marketing year (ends on Aug. 31), China has agreed to purchase 22.8 million tonnes of U.S. corn. 56% of that had already been shipped by May 13.
  • New crop corn is where things have really heated up. China has already purchased 10.7 million tonnes of corn for the 2021-22 marketing year, which doesn’t even start until September 1.
  • Of that 10.7 million, 8.2 million tonnes of corn has been booked since May 10, marking a historic pace of U.S. export sales.

China is typically a picky price buyer in the global markets, but with U.S. corn prices holding strong at levels not seen in years, something has obviously changed.

And it’s a pretty simple explanation. China needs corn and wants to be first in line to get it.

Plus, this: The struggling Brazilian corn crop. Conditions for their second corn crop have been extremely dry, and there isn’t much relief in sight. Some in the industry think there could be 10 million tonnes of production lost in the next two weeks. With a U.S. corn crop starting the season with historic levels of drought in some areas, China isn’t waiting to see how the markets play out.

Worth noting: China expects to see their hog herd reach pre-African Swine Fever (ASF) levels by July, with slaughter rates back to pre-ASF levels by November. And those pigs gotta eat.

If the herd build-backs are true, don’t expect China’s Pac-Man strategy to go anywhere anytime soon.

A Beef/Cattle Market Teetor Totter

That moment when your body launches to the top of the seesaw at top speed? Beef packers, please remind us what that feels like.

Beef prices are going nuts. Choice boxed beef prices teetered over $300/cwt. And the wholesale Choice price is up 33%, second only to the record prices reached last year during the pandemic pan!c buying and supply chain meltdown.

Working overtime: To take advantage of markets, packers are gettin’ while the gettin’s good. In 2021, Saturday slaughters have been up 58% over 2020 and more than 92% over 2019.

The other end of the teeter-totter…

Cattle feeders can’t say the same. Fed cattle markets lost their early April rally and tottered down below $120/cwt.

Producers’ margins are tightening as feed grain prices rise sharply. Livestock Economist Scott Brown says for every 10-cent increase in feed costs, there’s an 80-cent decrease in feeder cattle prices just to break even.

And then there’s the d-word. The Drought Severity and Coverage Index is at 180 for the U.S. It’s never been this high in April or May in any year.

With diminishing pasture and hay production potential, there’s little incentive to grow the herd this year; signs point to accelerating beef cow liquidation.

Wheat’s Power Move

Brazil meatpackers aren’t messing around.

High corn prices have big-time meat players, like JBS and BRF, influencing a pivot to wheat planting intentions. Brazil’s ag federation revealed data pointing to a potential 40% increase in hectares of wheat.

The reason? Wheat is the solid, affordable alternative to corn in pork and poultry feed. Other winter crops like triticale and barley are also being gobbled up in futures markets.

Desperate times call for desperate measures. Dry conditions have curbed Brazil’s corn yields, leading to a price spike. Plus, the country’s second corn crop is already being delayed, putting meatpackers in a tough predicament.

The government is turning to Paraguay and Argentina for corn, but even that’s not enough. Brazil went as far as to kick import duties to the curb due to the shortage, allowing corn imports from the United States and Ukraine.

Do the math: With U.S. corn futures at eight-year highs, it’s not like American farmers are necessarily passing out deals. One trader even noted that without import duties, trying to siphon corn from other nations still doesn’t make economic sense.

U.S. Ag Watching TPP Trade Going Down…

While eleven countries are swapping goodies via the Comprehensive and Progress Agreement for Trans-Pacific Partnership (CPTPP), several U.S. ag groups are longingly looking across the pond and saying, take us back.”

Refresher: Yep, it’s that TPP. When the U.S. withdrew from the trade agreement in early 2017, the other partnering nations basically said, “Fine, be that way,” and plowed ahead, creating a longer acronym just for kicks.

But now, some groups, including the International Dairy Foods Association (IDFA), are saying that U.S. farmers are missing out.

Michael Dykes, IDFA’s CEO, put it this way: “Members of that TPP, or CPTPP…are enjoying ratcheting down tariffs. We’re not enjoying those.

First things first: To get to the TPP, all routes must pass through the TPA. The Trade Promotion Authority law gives the executive branch carte blanche authority to negotiate trade deals, requiring only an up or down vote from Congress. The problem? TPA expires on July 1.

Friends in high places: At a recent trade conference, Ag Secretary Tom Vilsack gave TPA the nod — urging Congress to “get serious about resuming and extending” the legislation.

Oh, and this: Vilsack also noted that U.S. ag would benefit from and should consider joining the CPTPP (**and the crowd goes wild**).

Where this goes: There’s a long road ahead, but noting Vilsack’s positive relationship with U.S. Trade Rep Katherine Tai, fingers are crossed that American agriculture gets an invite back to the club.

Farm Lending in Slo-Mo Mode

Talk to just about anyone connected to the ag industry today and you will see their face light up when the conversation inevitably turns to commodity prices. After all, higher commodity prices are good for everyone…

Minus one audience: bankers.

Farm lending has been on the slow track for a while now, and that train kept rolling into the first quarter of 2021.

Not exactly welcome news if you’re the one with money to lend.

The Kansas City Federal Reserve Bank found that overall non-real estate farm lending in the first quarter dropped about 10% compared to last year. Within that group, loans to cover operating expenses are down almost 20% year over year, to a level not seen since 2012.

Worth noting: Hefty government aid via pandemic relief likely also contributed to the decrease in lending activity.

The outlook: Most economists seem to agree that commodity prices will remain strong through 2021, but higher input costs could curb overall profits on the farm. And you can bet ag lenders will be watching those income statements closely to see if loan applications will be headed their way anytime soon.

Cotton’s Comeback

Cotton is on the up and up.

Higher cotton exports and lower supply are driving the price of cotton up. As a result, the USDA projected ending stocks of the fiber at 3.9 million bales, down 300,000 bales.

And suddenly, cotton is looking quite bullish.

A soundbite:

With the weather challenges we had last year, the U.S. crop was not as large as originally expected,” says Gary Adams, CEO of National Cotton Council (NCC). “In fact, it got quite a bit smaller. And so as a result, the stocks-to-use situation, which we went into the year with a lot of stocks, we’re getting into a year with a much smaller level of stocks. So, the overall balance sheet has tightened up.

Not to mention, cotton is seeing a good ol’ revival.

Refresher: Last year, the World Ag Outlook estimated ending stocks landing at 7.25 million bales versus the 3.9 million bale estimate for this marketing year, which ends in July.

That’s a gin-erous difference.

Zoom out: Given the expectations that COVID-19 would ravage the textile industry, cotton is in a solid spot thanks to $timmy checks and a resurgence in global consumer demand.

Sorghum Sees $$$ in Pet Food

Sorghum has a pet-filled pandemic to thank for its dynamite 2020.

And the companion animal data doesn’t lie…

  • The U.S. pet industry notched $99 billion in 2020.
  • 21% of owners spent more on their pets during the pandemic.
  • 12% of adults with children adopted a pet last year.

Why it matters: With more four-legged friends comes lots and lots of kibbles.

That’s where sorghum steps in.

The cereal crop, in high demand due to being gluten-free and high in antioxidants, had a banner year as a top ingredient in pet food.

Noting the $1.7 billion in pet food exports last year, Tim Lust of the National Sorghum Producers made it clear that sorghum is one hot commodity:

The pet food industry just continues to take more and more sorghum. And domestically, they have been very aggressively bidding against the international markets to try to make sure they get those supplies.

Per usual, China is in the mix.

With a big appetite for sorghum to feed their own livestock and produce alcohol for biofuels, the Asian kingpin is making markets move. In early March, China snatched up 14 million U.S. bushels, pushing prices to a market tipping $5 per bushel.

What’s ahead: The USDA thinks sorghum producers will double down with the demand. Early April reports pegged U.S. sorghum acres up 18% from 2020, with Kansas – the top producing state – scaling up 20% from last year.