News Clips February 10, 2016



1. Vilsack sells USDA budget

2. Farm income to fall in 2016 amid low grain prices

3. Obama's Clean Power Plan put on hold by U.S. Supreme Court

4. ChemChina's purchase of Syngenta won't be the last in the chemical sector

5. TPP might not pass after the election


1. Vilsack sells USDA budget

DTN / The Progressive Farmer

Chris Clayton

Feb. 9, 2016


Despite being rebuked by Congress last fall for a far smaller cut to crop insurance, President Barack Obama in his final proposed federal budget calls for cutting crop insurance $18 billion over 10 years as the biggest single cut in mandatory spending in the budget.


In making the pitch to cut crop insurance, the White House budget for USDA proposes more spending on conservation, research and issues such as dealing with forest fires.


The crop insurance cuts, proposed repeatedly by the Obama administration, account for 31% out of $58 billion in proposed mandatory cuts over 10 years proposed by the administration. The plan calls for reducing the farmers' subsidy by 10 percentage points for harvest-price revenue coverage and reforming coverage for prevented planting. Effectively, the plan would call for capping the premium subsidy for these policies at 50% of the total premium.


The White House has pushed repeatedly in past budgets for crop-insurance cuts that have made it into a final budget deal. Last fall, the president brokered a deal with then-Speaker John Boehner to cut crop insurance $3 billion over 10 years by reducing the percentage of profits that crop-insurance companies could keep. Those cuts, however, drew howls from the House and Senate agriculture committees, and the farm lobbies, leading Congress to reverse the cuts just weeks later.


USDA's budget notes that lowering premium subsidies and making changes to prevented-planting coverage would require congressional action. The White House states its proposals "would incentivize farmers to choose production practices that minimize climate-change impacts, discourage farming on environmentally sensitive lands and highly-erodible soils, and enhance resiliency in the future through soil protection."


In a call Tuesday with reporters, Agriculture Secretary Tom Vilsack sought to highlight areas of the budget where spending would increase for farmers and other areas of rural America.


Vilsack said part of the proposal for crop insurance cuts comes from criticism by the Government Accountability Office over the way USDA now handles prevented-planting claims. He also said crop insurance is a public-private partnership and thus should be a 50-50 deal in cost to taxpayers and farmers when it comes to revenue policies.


"The reality is that in some of our price-harvest loss programs we are subsidizing 62% or so of the premium -- the taxpayers are," Vilsack said. "We think it makes more sense in a partnership that it be closer to 50-50. So that's the reason. The fact is, if you surveyed the population of the United States and you posed the question to them about this, I would be surprised if there wasn't support for the administration's position."


Vilsack also said the funding for crop insurance will pay for $1.5 billion in return in investment for insurers, representing an 18% return.

House Agriculture Committee Chairman Michael Conaway, R-Texas, criticized the White House for proposing increases in spending and taxes while also undermining the U.S. economy and hurting farmers and ranchers.


"The harmful changes to U.S. farm policy contained in the Obama administration budget come on the heels of attempts by the administration last year to kill federal crop insurance," Conaway said.


National Farmers Union also frowned on the proposed cuts to crop insurance, but NFU and other groups praised the budget for proposing more spending on USDA conservation programs. The National Association of Conservation Districts and National Sustainable Agriculture Coalition both highlighted that the president's budget calls for fully funding the Conservation Stewardship Program and the Environmental Quality Incentives Program.


Congress has largely given the Obama administration "dead on arrival" analysis for essentially every budget proposed, leading to protracted budget battles and government shutdowns. For fiscal year 2017, Congress could decline to engage the administration and ride out continuing resolution votes on the 2016 budget until the end of Obama's term. Vilsack said that would be a mistake because if Congress did choose to cut a program for FY 2017, an agency would have much less time to adjust if Congress waited until next January or February.


A department could also fear cuts and hold back on spending, translating into a loss of spending on jobs, research or projects in rural America, Vilsack said. "It's important to focus on the results to people that come from a budget, and every time you create confusion, you are going to compromise the results that matter to people," Vilsack said.


Under USDA's budget, 71% of funding goes to nutrition assistance, which is predominately the Supplemental Nutrition Assistance Program; 16% goes to farm and commodity programs; 7% goes to conservation and forestry; and 6% goes to everything else, including rural development and research.


Due to lower commodity prices, USDA anticipates higher spending for the Agricultural Risk Coverage and Price Loss Coverage programs for 2017. The programs were estimated to cost $5.54 billion in FY 2016, but that spending is budgeted to increase to about $9.6 billion combined for ARC and PLC in 2017.


Payments for all direct subsidies, including dairy, are projected to increase from $6.7 billion in FY 2016 to $10.2 billion in 2017.


The budget will also fund staff and office space for USDA personnel in Cuba. The goal of the budget proposal was to alert Congress to the potential for expanded trade with the island, based on the notion that Cuba imports roughly 80% of its food. That too would require approval from Congress.


"We believe having people in Cuba would help facilitate opportunities now and in the future and prepare us for a very robust effort when the embargo is lifted," Vilsack said.


In a plan promoted by Vilsack, the White House also calls for boosting funds for agricultural research and development programs, including $700 million for the Agriculture and Food Research Initiative (AFRI) of which $325 million would be mandatory funding. This would be essentially double the funding level at AFRI for 2016.


In another R&D investment, USDA would get $106 million for grains to help spur more bio-based energy sources from agricultural and forest products to further boost the production of biofuels.


Under the budget plans, USDA would also continue heavy promotion of soil health practices at the Natural Resources Conservation Service, as well as continue monitoring greenhouse-gas emissions in agriculture. The White House noted, "This network is a key component of USDA's climate strategy as it would allow USDA to verify, for the first time, the United Nations Framework on Climate Change reporting and would provide the foundation for a farm-scale database to house soil carbon data."


Regarding wildfires, the administration calls for increasing base funding at the U.S. Forest Service by 70% of the agency's 10-year spending average for fire-suppression costs. The plan would also ensure a share of that money would be reserved for the most severe fires.


Regarding water projects, USDA would get $15 million for research on water projects for agriculture production and practices that conserve water and build health soils that retain water. The White House noted that agriculture is the largest consumer of fresh water in the country.


The full budget proposal for USDA can be viewed at


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2. Farm income to fall in 2016 amid low grain prices

The Des Moines Register

Christopher Doering

Feb. 9, 2016


Farmers in Iowa and across the Corn Belt are bracing for a rough 2016 with farm income forecast to drop for the third straight year amid a prolonged downturn in corn and soybean prices, the Agriculture Department said Tuesday.


The USDA said income is expected to fall 3 percent to $54.8 billion in 2016. That would drop net farm income to its lowest level since 2002, tumbling 56 percent from its recent high of $123.3 billion just three years ago, when tight supplies and strong global demand for commodities led to record profits.


The federal government said cash income from the sale of all commodities this year will fall $9.6 billion to $367.5 billion, mostly because of a $7.9 billion decrease in animal and animal product receipts.


Still, Agriculture Secretary Tom Vilsack said the drop “is an improvement from the double digit declines seen in 2014 and 2015. It reflects a more competitive trade environment, softening projection for global demand and a continuation of the dip in agricultural commodity prices.”


Indeed, average household farm income this year is projected to be $17,769, up slightly from $17,279 last year. But that's still down sharply from $28,687 just two years ago, according to USDA.


Moreover, the debt-to-equity ratio for U.S. farms also rose for the fourth consecutive year, the government said, which indicated "a higher amount of financial stress is building in the sector relative to recent years."


Michael Hein, vice president of Liberty Trust and Savings Bank in Durant, Iowa, said most farmers came into 2016 with sufficient cash resources, but signs indicate that financial conditions are worsening amid the prolonged slump in commodity prices and stubbornly high input costs.


“This is going to be a telling year,” said Hein.


Across the board, the numbers appear to be going the wrong direction for farmers:


•  Income generated from egg sales is expected to tumble by $2 billion, to $10.6 billion, as the industry ramps up production following last year's bird flu outbreak that hit Iowa and 14 other states and sent egg prices soaring. Iowa, the nation's No. 1 egg producer, lost 34 million birds to the disease, with the virus affecting about 40 percent of egg-laying hens in the state. 

•  A rebound in hog production, which is surging as the industry recovers from the porcine epidemic virus in 2014, will boost supply and push down prices. Hog cash receipts are expected to drop 5.1 percent to $18.5 billion. 

•  Crop receipts are expected to slip $1.6 billion, to $189.7 billion, from 2015. Corn receipts are forecast to fall by $800 million, to $46.4 billion.

•  Soybeans are one of the few exceptions, expected to record a modest increase of $520 million to $35.1 billion, with higher output overshadowing a small price decline. Iowa is the country's No. 2 soybean producer.


Hein said a growing number of Corn Belt farmers are losing money. As a result, more and more farmers are having to restructure loans or refinance them against other equity resources so they have enough cash to operate.


Many producers won’t have the cash that once came from higher corn and soybean prices to pay for seed, fertilizer, land rents and other inputs that have not fallen at the same rate compared to commodities, Hein said. Liberty Trust and Savings is expecting an increase in loan demand for farmers in 2016.


“Everything is just disproportionately expensive in relation to the value of the commodities that they raise,” Hein. said “There will be some reconciliation if commodity prices stay where they are at or lower.”


Some relief could come from lower expenses, which are expected to see a drop for the second consecutive year, the USDA predicts. It would be the first time expenses have declined in back-to-back crop years in three decades.


Production costs are expected to drop $3.8 billion to $376.5 billion, following a $10.1 billion decline in 2015.


"The drop in expenses (such as feed, fuel, seed, pesticide and fertilizer) is expected to alleviate, but not completely offset, the drop in cash receipts, and ultimately lead to tighter margins," USDA said.


Iowa farmers were expecting a down year, according to an informal survey of those who attended the American Farm Bureau Federation's annual convention in January. To help conserve cash, nearly all the respondents indicated they were making changes to their operations.


Justin Dammann, a corn and soybean producer from Essex, Iowa, said while his operation isn’t facing “a life-or-death situation,” the 36-year-old producer is keeping a close watch on his spending by using less fertilizer and delaying equipment purchases. He’s also switching more of his soybean acreage to corn, which is more profitable than the oilseed.


“If we can break even, pay our bills and make our payments, I’d say we’re going to be lucky,” said Dammann, who has been farming full time since 1999. “We’ve never seen a downturn like this.”


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3. Obama’s Clean Power Plan put on hold by U.S. Supreme Court


Greg Stohr and Jennifer A. Dlouhy

Feb. 9, 2016


A divided U.S. Supreme Court blocked President Barack Obama’s sweeping plan to cut emissions from power plants, putting on hold his most ambitious effort to combat climate change.


The 5-4 order Tuesday halts the Environmental Protection Agency’s Clean Power Plan until at least the final months of Obama’s presidency -- and casts doubt on its ultimate fate before the nation’s highest court by suggesting concern among a majority of the justices.


Utilities, coal miners and more than two dozen states say the agency had overstepped its authority and intruded on states’ rights.


The court action blocking implementation until an appeals court can rule “confirms that the legal justification for the Clean Power Plan should be examined by the courts before scarce state and private resources are used to develop state plans," said Melissa McHenry, a spokeswoman for American Electric Power Co., one of the biggest coal users among U.S. utilities.


The delay is a blow to Obama’s environmental agenda, highlighting the prospect that his signature program for combating climate change could be in legal jeopardy. It also risks undermining the U.S. commitment to pare greenhouse gas emissions as part of an international accord reached in Paris last December.


Legal Foundation


The White House said it disagreed with the court’s action and expressed confidence it would prevail in the long run.


"The Clean Power Plan is based on a strong legal and technical foundation," Obama press secretary Josh Earnest said in an e-mailed statement.


The plan will now be on hold until the Supreme Court either rules or refuses to get involved. The EPA won’t be able to enforce a Sept. 6 deadline for states to either submit their emission reduction plans or request a two-year extension.


A federal appeals court is hearing challenges to the rule on an expedited basis, with arguments set for June 2. If the court rules quickly enough, the Supreme Court could consider the case in the nine-month term that starts in October.


Obama Successor


A final ruling in 2017 would leave it up to Obama’s successor -- potentially one of the Republicans who have criticized the Clean Power Plan on the campaign trail -- to decide how to respond.


"We’re disappointed the rule has been stayed," said Melissa J. Harrison, press secretary for the EPA. "But you can’t stay climate change and you can’t stay climate action."


Senior administration officials, who acknowledged that the order took them by surprise, stressed that the final state implementation plans weren’t required until 2018, despite initial blueprints due in September. The plan’s timeline was created to absorb delays.


That gives states ample time and flexibility to develop plans that meet their targets, one official said, speaking on the condition of anonymity. 


The EPA rule requires states and utilities to use less coal and more wind power, solar power or natural gas. It is designed to bring about cuts in carbon emissions from power plants of 32 percent below 2005 levels by 2030.


Unique Structure


The rule runs more than 1,500 pages and takes a unique approach, setting targets that each state must meet in cutting the amount of carbon pollution from power plants. It is designed to accelerate a shift away from coal as the chief source of electricity generation, toward natural gas, wind and solar power.


But its broad structure -- demanding that states meet targets, going beyond power plants if necessary, including by adding new renewable power generation or and boosting efficiency -- drew objections. The agency said that showed flexibility, but opponents weren’t persuaded.


It’s “the most far-reaching and burdensome rule EPA has ever forced onto the states,” 26 states led by West Virginia and Texas argued in court papers.


The Supreme Court had never before granted a request to halt a regulation before review by a federal appeals court, the administration said.


‘Countless Dollars’


In a statement, West Virginia Attorney General Patrick Morrisey said he was “thrilled that the Supreme Court realized the rule’s immediate impact and froze its implementation, protecting workers and saving countless dollars as our fight against its legality continues.”


David Doniger, director of the climate and clean air program at the Natural Resources Defense Council that supports the plan, said that states, financial leaders and other interests will continue pushing to clean up the power sector “and will keep moving to incorporate strategies and public policies leading toward a clean energy economy.”


But Jeff Holmstead, a former EPA assistant administrator, said in a phone interview that the delay is sure to chill action by states to comply with the plan.


“The states that have frantically been trying to figure out how to comply certainly put their pens down tonight,” said Holmstead, now a partner at Bracewell LLP.


The court gave no explanation for its order. Voting to grant the delay were Chief Justice John Roberts and Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito. Dissenting were the four Democratic appointees: Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan.


Winning Streak


Prior to Tuesday’s order, the EPA had been largely on a winning streak before the federal judiciary.


The Supreme Court gave the EPA victories in 2013 and 2014, upholding its greenhouse-gas permitting rules and regulation of pollution that crosses state lines. It also rejected a plea to reconsider its 2007 decision letting the agency regulate greenhouse gases.


But last year the court sent EPA’s far-reaching rule on mercury emissions back to the agency for further analysis, a decision that has had no practical impact so far but was raised as a reason the court should grant this delay.


‘Serious Concerns’


“The stay is a signal the Supreme Court has serious concerns with the power plan,” said Mike Duncan, president of the American Coalition for Clean Coal Electricity, which includes coal-burning utilities, producers and rail operators. “We’re optimistic the power plan will ultimately be rejected.”


An attorney for the Sierra Club said the decision is only a temporary reprieve for coal.


"The coal industry is on life support already; it was without the Clean Power Plan, and this should not give them a glimmer of hope," said Sierra Club Managing Attorney Joanne Spalding. "The transition we’re experiencing in the electric sector away from coal and other fossil fuels to clean energy has been going on for years and will continue. EPA is following the trends that are already occurring in the electric sector -- not creating new trends."


A three-judge appellate panel rejected a bid for a delay on Jan. 21, prompting foes to turn to the Supreme Court.


The Obama administration said power plants wouldn’t face any deadlines to begin cutting emissions until 2022 at the earliest, and wouldn’t have to be in full compliance until 2030. Administration lawyers accused states and businesses of seeking an “extraordinary and unprecedented” delay of the entire regulation before any judge had ruled on it.


“A stay that delays all of the rule’s deadlines would postpone reductions in greenhouse gas emissions and thus contribute to the problem of global climate change even if the rule is ultimately sustained,” U.S. Solicitor General Donald Verrilli argued.


Southern, Peabody


The challengers, including Southern Co., Peabody Energy Corp., the largest U.S. coal-miner, and the U.S. Chamber of Commerce, said companies and states alike already were having to prepare for the rule to take effect.


Southern and other utilities told the justices that, without Supreme Court intervention, companies would have to “begin the complex and lengthy process of shutting down or curtailing generation from existing plants and shifting that generation to new sources.”


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4. ChemChina’s purchase of Syngenta won’t be the last in the chemical sector

U.S. News and World Report

Tony Dreibus

Feb. 9, 2016


China National Chemical Corp.'s proposed $43 billion purchase of Syngenta (ticker: SYT) should vault the Chinese giant to the top of the agricultural chemicals sector, while giving the Swiss company a much-needed infusion of cash to complete some of its own goals.


The acquisition, along with an announcement that Dow Chemical Co. (DOW) and DuPont (DD) will merge, is likely just the beginning of consolidation in the chemicals industry, analysts say.


A slowing global economy and reduced spending on research and development is leading companies to seek growth opportunities outside of normal channels, says Duane Dickson, the U.S. chemicals and materials sector lead at New York-based Deloitte. Companies have been looking at available takeover targets and are finally starting to make moves.


"It's not like any chemical company can say, 'I can get organic growth [through] research and development,'" Dickson says. "When global growth starts to slow down, you get growth inorganically because it's hard to get growth organically. That's one of the big drivers. We're really seeing the culmination of companies reviewing what's out there, and we're finally getting to a point where they know the business well enough to make decisions."


ChemChina's acquisition of Syngenta will be beneficial for both companies as it will help improve food security in China while giving the Swiss company the money it needs to meet its own growth targets, says Jeremy Redenius, a London-based senior research analyst who covers the European chemicals industry for research and trading firm Bernstein.


Syngenta revenue in 2015 fell 11 percent from the prior year. Operating income dropped 13 percent, and net income tumbled 17 percent last year.


"Syngenta is under a lot of capital pressure lately because it has struggled financially the last few years," Redenius says. "For them to focus on acquiring to improve their business, they're not going to get that ability from an investor base. But with ChemChina, they're in a much better position to invest."


ChemChina will pay 470 Swiss francs ($460) per share and a special dividend of 5 Swiss francs to shareholders once the transaction is completed, which is expected to be by the end of this year.


The Swiss company has been a lightning rod for merger and acquisition activity in the past year. Monsanto Co. (MON) attempted to purchase Syngenta last year for $46 billion, but was rebuffed due to what Syngenta thought was too low of a valuation. Monsanto then withdrew its bid.


Under the deal with ChemChina, Syngenta would remain headquartered in Switzerland, and the takeover is backed by the company's board.


''The transaction minimizes operational disruption; it is focused on growth globally, specifically in China and other emerging markets, and enables long-term investment in innovation,'' says Syngenta chairman Michel Demare, who will become vice chairman of the combined company.


China's lack of arable land will make it necessary for the country's farmers to improve yields in the future, analysts say.


To that end, the takeover will give ChemChina access to Syngenta's seed technology, which is expected to help the state-run company improve food security in the world's most populous country.


It's good news for the Chinese, no doubt, but the announcement has some U.S. producer groups worried that the merger would reduce competition and drive up prices for inputs that are already at high levels relative to the price of corn, soybeans and wheat, all of which are at near the cost of production.


The proposed acquisition of Syngenta comes on the heels of an announcement that Dow Chemical is merging with DuPont to temporarily form a company called, unimaginatively, DowDuPont, before splitting into three separate entities in coming years.


With all of the M&A activity in the agriculture chemicals industry, farmers are concerned.


Chris Novak, the chief executive of the St. Louis-based National Corn Growers Association, which has about 40,000 active members, says Syngenta contacted him to discuss the proposed acquisition. He says company executives assured him that prices for farm inputs, including seed, fertilizer and fungicides produced by the company and sold to U.S. growers, would not increase and that supply would not decline.


Still, agriculture groups are worried about what a merger of this magnitude means to their members' bottom lines.


"Farmers have a right to be concerned about the loss of competition in the marketplace," Novak says. "We are going to focus on the real impact on farmers, what it means to availability and pricing of products to farmers and will we have competitive markets for the products farmers are utilizing."


The association plans to hire third-party experts to conduct market analysis "to ensure competitiveness in the marketplace," he says.


Producers of corn and soybeans should probably get used to M&A in their industry, Dickson says. "We've been seeing the trend toward more consolidation in the core chemical industries, and we're seeing some opportunities in emerging segments or niches of the chemical industry that are going to get growth investment and spinoff attention."


Many companies are finding in a competitive economic environment the easiest, or at least most cost-effective way, to grow is by acquisitions.


Agricultural companies such as Syngenta are prime takeover targets because there are so few in the world, and they are in an industry in which growth is assured, Dickson says. That all but ensures more M&A activity in the industry.


"Agricultural science and chemistry and the whole idea of precision agriculture and high-yield farms is a growth, area so not a surprise that [Monsanto and ChemChina] want to have Syngenta in their portfolio," he says. There will be "3 billion more people in the world over the next 30 years, so it's a safe bet to say the need for more food, higher yields and more-productive farms isn't going to stop. The space has good long-term fundamentals that will likely pay back."


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5. TPP might not pass after the election


Jerry Hagstrom

Feb. 8, 2016


Both Senate Agriculture Committee Chairman Pat Roberts, R-Kan., and House Agriculture Committee ranking member Collin Peterson, D-Minn., said on February 3 they don’t think the Trans-Pacific Partnership trade agreement will be considered before the lame-duck session after the election.


Agriculture Secretary Tom Vilsack told the stage ag commissioners that each year TPP is not passed, the United States loses $77 billion in opportunities to export products.


But Roberts said members of Congress “are going through 5,000 pages and finding reasons they are not for it.”


He also said he has never seen a trade bill in which the president is not involved and that the president needs to sit down with congressional leaders to figure out what they need. But he added that if President Barack Obama “comes to the House … that throws up opposition.”


Peterson said he believes that if TPP were brought up in the House today, it would fail.


Peterson noted that “a different type” of Republican has been elected in recent years compared with the pro-trade Republicans of the past. The recently elected Republicans won’t listen to the White House, he said.


Peterson also said he doubts that all 24 Democrats who voted for Trade Promotion Authority would vote for TPP.


Peterson, who has opposed most trade agreements, said he is still examining the agreement, but he considers it a “managed trade” agreement rather than a free trade agreement because it lowers tariffs over a period of time rather than eliminating them.


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