So farmers can expect spot prices over 70¢/lb.
by fall...over 75¢ with serious droughts...
compared with 45¢-65¢ most of the past year.
After adding perhaps 10¢/lb. in USDA subsidies,
the prices will make cotton profitable for most.
Higher prices will prompt more acreage in 2009.
But just 10% to 20% more...far below average.
Longer term, cotton will continue to fade,
faced with competition from grains, oilseeds
and veggies, which can fetch higher prices
per acre. However, export demand will ensure
fairly good prices for farmers in most years.
Besides the decline in demand, cotton is expensive to produce,
requiring use of costly fertilizers, pesticides, fuel and machinery
plus trained workers, who are in increasingly short supply.
Essential costs per acre to raise cotton are four times those common
for wheat...triple those for soybeans and nearly twice those for corn.
And despite the uptick in prices, cotton’s recent gains pale
when compared with corn, soybeans and sorghum, which are collecting
two to three times their usual prices. But export demand aside,
cotton will be planted to rotate crops or if rain delays corn seeding.
 Though the World Trade Org. again rebuffed its hormone ban...
The European Union still won’t accept meat from livestock
that are given growth hormones. The EU has claimed since the 1980s
that the added hormones pose a health risk to food consumers. Since 1997,
WTO panels have ruled consistently that reasons for the ban aren’t backed
by science. However, the EU will surely appeal again. In the meantime...
U.S. retaliation for the ban is having mixed results.
The value of imports on which 100% duties were imposed in 1999...meats,
vegetables and other food products...has fallen from over $200 million
in 1998 to $138 million last year. That’s even with the dollar’s drop,
which boosts the price per item. For some products...soups, liver,
roasted chicory...import volume has dropped sharply, while for others...
Roquefort cheese, mustard...the high duties haven’t altered imports much.
Despite the ban, U.S. meat and poultry sales to the EU will rise
after the EU accepts germ-killing rinses for livestock and fowl carcasses
in the year ahead. U.S. plants use the rinses...chlorine, acetic acid...
to meet USDA food safety standards, but the EU forbids such treatments
as product adulteration. Four U.S. plants comply with the hormone ban
and ship beef to the EU, but many more will gain access to the EU
for their exports once the rinses are approved. Just 2% of U.S. exports
of beef and pork, and 5% of poultry meats, are now destined for the EU.
Expect packers to protest a tweak USDA may propose in meat regs.
USDA officials are mulling the addition of fresh beef cuts and boxed beef
to a list of items ruled adulterated if E. coli O157:H7, a deadly germ,
is found on them. If E. coli is an adulterant for those types of meat,
packers will have to test for it before meat is shipped...an added cost.
Industry experts say the pending change wouldn’t make meat safer
because the pathogen isn’t found on muscle cuts. It is occasionally found
in ground beef, and USDA has named E. coli an adulterant for that item.
We expect that USDA will find other ways to curb E. coli cases
in beef as it strives to reduce occurrences of that pathogen in all food.
Milk prices will prove more resilient than we had anticipated.
High priced grain and hay will soon slow gains in output to just 1.5%
vs. a year ago as farmers cull cows and trim feed rations to save costs.
Also buoying prices: Exports. Farmers are selling more to capitalize
on a cheap U.S. dollar and reduced exports by New Zealand and Australia.
Export leaders include butter and Italian-style and American cheeses.
The all-milk price will remain near $18/cwt. and rise by fall,
while milk for cheese (Class III) will enjoy about the same prices.
There’s now a faster way to identify animal and human viruses:
British scientists have developed a microarray, or chip, with groupings
of virus genes that react with up to 300 viruses known to affect animals
and humans. The chips have already been used to identify foot-and-mouth
and a poultry bronchitis. They’re currently very expensive to make,
but costs will fall as more researchers join in their development.
Big livestock operations may get a welcome option from the feds:
Not having to obtain a water discharge permit. But operators
would need to draft and implement manure management plans, get them OK’d
by a qualified professional and then reapproved every five years.
Learn more about this alternative at kiplinger.com/letterlinks/CAFOS.
Don’t envy growers of pricey grains and oilseeds too much.
Sure, corn is near $6 a bushel...spring wheat and soybeans,
over $12 a bushel...covering output costs at least twice over. But...
Price volatility is wreaking havoc on orderly crop marketing.
Margins on 2008 crops are widening, slicing farmers’ shares:
Basis (the discount from nearby futures to cash price) has swelled...
even doubling the normal spread on some sales. That’s hurting farmers
who sell some of their crops ahead of the season to manage their risk.
Among reasons for the expanded margins: Rates to ship by rail,
barge and ocean are all up. Also, margins covering buyers’ risk
always increase with the value of the crop. Especially erratic prices
are leading buyers to charge even more to cover their futures hedging.
Some major buyers have quit offering forward contracts,
which are usually guided by futures prices. Look for the CFTC...
Commodity Futures Trading Commission...to probe this development soon.
What to do?Forward contracts remain available on some crops,
and farmers can ensure prices for a portion of crops with options
or, within their means, futures contracts sold short in the market.
But waiting and watching awhile may be the best bet for many:
Basis tends to shrink as the season advances and harvests approach.
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 Congress will soon tackle major estate tax change. In a year
or two, look for lawmakers to remove a big hurdle for couples
by making any portion of one party’s estate tax exemption portable
to the other. Unlikely: Replacing the estate tax with an inheritance tax.
The Kiplinger Tax Letter has details at kiplinger.com/letterlinks/estate.
 Growing switchgrass to produce ethanol makes sense economically,
says a report from the Univ. of Nebraska. It records five years
of growing switchgrass on 10 farms in the Dakotas and Neb. Farmers raised
2.3 to 5 tons per acre at costs averaging $60 a ton. At 80-90 gallons
of ethanol produced per ton, costs to provide switchgrass feedstock
averaged 45¢-70¢ a gallon. That compares with 70¢-85¢ a gallon
to provide corn grain that yields 175 bushels an acre and 2.8 gallons
of ethanol per bushel. Note that conversion of both switchgrass and corn
into ethanol is improving: Breeding of higher-yielding grass varieties
is just starting, and biorefineries will soon make ethanol from corncobs
along with the grain. See the report at kiplinger.com/letterlinks/grass.
Changes lie ahead for ethanol’s tax credit and import duties.
The tax credit...51¢/gal...will be cut before it expires in 2010.
The Senate Finance Committee has already tried to nick a nickel from it.
Now Congress, with its 36-billion-gallon biofuels mandate in place,
will reduce the blender’s credit to curtail spending. Annual costs jump
with each new ethanol plant: $3 billion last year...$7 billion by 2012
if the rate isn’t changed. And the credit may be reassigned to producers.
Meanwhile, the 54¢/gal. import duty will probably end...sort of.
The Senate will OK House-passed provisions that ban any further claims
of the 51¢ tax credit on imported biofuel, neutralizing importers’ gains
from terminating the import duty. However, lawmakers will likely adjust
for loss of the credit by countries in the Caribbean Basin Initiative
so CBI nations can use the credit when shipping ethanol to the U.S.
 Farmers will get a couple of breaks on the labor front this year.
The feds won’t go after employers that don’t act on letters
from Uncle Sam citing discrepancies in workers’ Social Security numbers.
A plan to penalize employers will be shelved until at least next year.
And Washington will let in more temporary agricultural workers
this season and permit longer stays through a streamlining of H-2A visas.
H-2As allow foreign nationals to perform seasonal work in the U.S.
 Eliminate the New Jersey Department of Agriculture? Fat chance.
To trim $500,000 from the state’s deficit, the governor wants
to farm out the Garden State’s ag department in parts to other agencies.
But legislators are being besieged by farmers and won’t let that happen.
Other states will try to revamp their ag agencies to save money,
combining them with other agencies to trim state budget deficits.
Such changes aren’t unheard of. Ark. and Ind. created ag departments
by realigning agencies in 2005. Maine is drafting an agency merger plan.
 USDA’s survey of farmers’ planting intentions is just a start
to a wild season of juggling to pick the most profitable crops.
USDA says soybean acreage will rise 18% from 2007...spring wheats, 10%.
Corn acreage will drop 8% this year, while both domestic use and exports
are rising 15%...world use, 7%. Survey results will sway farmers’ plans.
The year will be a highly volatile one, forcing farmers to adjust
as markets rise and fall. Corn prices have spiked based on USDA’s report,
ensuring planting increases. Ditto for prices for soybeans and wheat,
already in tighter supply than corn. We think corn near $6 per bushel
will entice about 2 million more acres, despite surging production costs.
But the added acres won’t satisfy 2009 demand for feed, food, exports
and ethanol. What’s needed? About 13.5 billion bu., which would use up
this fall’s output plus some stocks before the 2009 harvest arrives.
And don’t forget to factor in seasonal weather events.
Rains in the southern and eastern Corn Belt will delay planting of corn
and shift more acreage to later crops: Soybeans, cotton, wheat, etc.
Across the Great Plains, persistent drought will curtail some planting,
curbing hoped-for yields of wheat, corn, sorghum and oilseeds.
 Bolstering hybrid crops can pay off in larger yields. How?
By using an old cross-pollination trick: Alternating varieties
in stripes three rows or so wide when planting and selecting types
that reach pollinating stage about the same time. Over 100 field tests
in Ohio measured yields for many hybrid striping combinations and found
that they produce 7% more in average yields vs. single-hybrid fields.
 World crops of wheat, rice and feed grains will expand this year,
a bright note amid tight global markets for grain and oilseeds
as worried nations hoard supplies and drive up prices even more.
Rice supplies will grow. A crop expected to be 2% larger than last year
will outpace increases in consumption and help to calm panic buying.
For editorial information call us at 202-887-6462
©2008 The Kiplinger Washington Editors
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