
		" I heard it through the AgLine"

October 24, 2008

· Glory days fading in the US heartland?

· Pepper consumption up, production going south

· Benefits of country-of-origin labeling not clear

· Fertilizer prices soar, but makers cite oversupply

· Lettuce E. coli came from California, but where?

Glory days fading in the US heartland?

(The Wall Street Journal) – The Farm Belt, one of the hottest parts of the U.S. economy in recent years, is rapidly cooling.

The Midwest faces plunging crop prices and stubbornly high production costs. Corn prices have dropped from $7.54 a bushel around July Fourth in central Iowa to just $3.81 a bushel on Tuesday. But growers are hearing from suppliers that fertilizer and seed costs could rise by more than 40% each for next spring's plantings.

Some farmers are postponing equipment purchases and considering whether to plant less of such high-cost crops as corn come spring. Stock prices of agricultural companies have plummeted: The shares of Bunge Ltd., which sells fertilizer to farmers and processes soybeans, have dropped 67% since June, while Archer-Daniels-Midland Co., a grain processor and exporter, is 60% off its 52-week high.

Many Midwest farmers worry that the combination of lower crop prices and high costs will usher to an end, by next year, one of the most flush periods in American farm history. This year, the U.S. Agriculture Department is predicting that U.S. net farm income will hit $95.7 billion, up 10.3% from last year's $86.8 billion and nearly double the $58 billion of two years ago.

Now, farmers fear a big drop in next year's profits. Most economists figure the Farm Belt can weather a slowdown, partly because farmer balance sheets are strong, and partly because federal mandates will increase the amount of corn consumed to make ethanol fuel next year. Also, economists think global demand for U.S. crops will remain robust despite recent economic troubles.

Still, U.S. growers clearly face a riskier, more volatile environment in which to make bets on what to grow and how much. "I was finally enjoying farming, but it's real scary right now," said Keith Richert, a 38-year-old York, Neb., corn and soybean farmer who is shelving plans to replace his eight-year-old harvesting combine, a purchase that would cost more than $300,000.

The uncertain outlook already is expected to cool demand for Midwest farmland, where prices have jumped by double-digit percentages for four consecutive years. In June, a piece of McDonough, Ill., farmland sold for $7,750 an acre, just 20 months after the seller had paid $4,700 for it.

Michael Boehlje, a Purdue University agricultural economist, said he expects Midwest farmland prices to decline moderately for as long as five years. Because land is farmers' largest asset and source of collateral, any decline in values would dent their borrowing power.

Annual U.S. farmer profits bumped around between $40 billion and $60 billion for seven years until 2004, when they rose to $85.8 billion. Demand for grain was surging as the U.S. raced to expand its biofuels industry, and the swelling middle class in developing nations such as China developed a taste for meat and milk from grain-fed livestock.

Amid predictions for a decade-long "Golden Era" across the Farm Belt, grain and land prices soared, farmers snapped up expensive new tractors and other equipment, and the stock prices of many agricultural companies rose to stratospheric levels.

Now, some of those ag stocks have fallen faster than the rest of the market, amid fears that the financial crisis could spark a global recession deep enough to eventually depress demand for U.S. food exports. Fertilizer maker Mosaic Co., which climbed more than 600% between January 2007 and June 2008, has lost about 77% of its value. Even the stock of crop-biotechnology titan Monsanto Co., which had climbed steadily for five years, has declined about 40% from its June peak.

Prices of corn and soybeans, the nation's two biggest crops, have dropped by half since early July, when fears eased that Midwest floods had reduced the potential size of crops. Prices of barley, cotton, sorghum, sugar and wheat also have fallen.

Thanks to unusually good growing weather since the floods ended, U.S. farmers are harvesting what the U.S. Agriculture Department expects to be the second-biggest corn crop in U.S. history: 12.2 billion bushels. Soybean farmers are harvesting their fourth-biggest crop ever, 2.98 billion bushels. According to Agriculture Department forecasts, global wheat production is jumping 11.4% to a record 680.20 million metric tons.

As commodity prices fall, higher costs are squeezing growers. Many farm suppliers capitalized on the grain boom by raising prices of everything from fertilizer to seed to implements. There's no evidence that those suppliers' savings from recent drops in crude-oil and industrial-commodity prices will be fully passed on to farmers anytime soon.

Kurt Torell, 48, a Gresham, Neb., farmer, said suppliers are telling him to expect to pay 60% more for the nitrogen fertilizer he'll use on his corn fields next spring. The price of a bag of elite hybrid corn seed is up 44%. The rent he's paying for much of the 3,500 acres he tends climbed 47% this year.

Mr. Torell is considering whether to plant just 200 acres of conventional corn next year, half what he planted this year. He's also delaying buying a steel building to house his machinery. "I've had my most profitable two years since I started farming in 1978," he said. "Now, I have to be careful."

For many growers, their breakeven costs have climbed so high that they could lose money next year even if crop prices are above the levels long thought to be too strong to warrant subsidy checks from the U.S. government. Farm trade groups and Farm Belt politicians already are pressing the Bush administration to interpret the newly adopted five-year farm bill generously.

The drop in crop prices is welcome in some parts of the farm economy. Many livestock producers are seeing the costs of fattening animals shrink from the unprofitably high levels of the summer.

Operating costs for many grain-handling firms also are plunging. When grain prices soared in May and June, many farm-town grain elevators struggled to borrow enough money to keep hedges in the futures markets, positions designed to protect them from unfavorable price swings. As a result, many elevators reduced how far into the future they were willing to contract with farmers for their grain -- in some cases, from three years to just months. Now that pressure is easing.

The cash needs of CHS Inc., the nation's biggest farmer-owned cooperative, have dropped to about $300 million this fall from $1.7 billion at the height of the summer grain rally. Still, the suburban St. Paul, Minn., concern is preparing for leaner times by delaying some capital-spending plans.

[Farm]

Lower corn prices help ethanol producers, because corn represents about 75% of their costs. But the falling price of crude oil has depressed the price at which the companies can sell ethanol, which competes with gasoline. The ethanol industry's 50% profit margins of four years ago, which helped ignite a plant-building boom across the Midwest, have shrunk to less than 5% at many companies. New construction projects are being halted.

The hometown investors in Lincolnway Energy, owner of an ethanol plant in Nevada, Iowa, capable of producing 50 million gallons annually, have recouped about 80% of their initial investment in dividends and tax incentives since the plant started operating in 2006. But now, shareholders fear the dividend -- which was $75 a share in May -- will shrink. The next payment is slated to arrive in time for the holiday season. "We are either going to be Santa or the Grinch in town," said Richard Brehm, Lincolnway's CEO.

Most economists see little chance of a farm debt crisis of the sort that battered the Midwest in the 1980s, when the federal government bailed out the largest farmer lender.

Economist David Oppedahl at the Federal Reserve Bank of Chicago says farmers have unusually strong balance sheets. The debt-to-assets ratio of the farm sector is just 9%, down from its peak in 1985 of 22%. While many urban families heavily leveraged themselves to buy homes in recent years, many farmers were still so debt-adverse that they bought land with cash or made big down payments.

"Agriculture learned its lessons in the 1980s," said Robert B. Engel, CEO of Denver's CoBank, a cooperatively owned lender to agribusiness. "I still think the golden era of agriculture will be with us for another five plus years."

US pepper consumption up, production going south

(Texas A&M) – By themselves or as an ingredient in a variety of foods, including salsa, America’s top-selling condiment, peppers have found a warm spot in the hearts and stomachs of U.S. consumers.

But while U.S. Department of Agriculture figures show consumption of fresh peppers at an all-time high, only a fraction are grown domestically.

Currently more than 70 percent of all fresh peppers consumed in the U.S. are imported from Mexico and another 18 percent are imported from Canada, according to the USDA.

“Ironically, our domestic fresh pepper production has been declining steadily in a region renowned for its love of peppers – the American Southwest,” said Dr. Daniel Leskovar, a vegetable physiologist with Texas AgriLife Research.

Leskovar said U.S. fresh pepper production has declined significantly in the past decade due to global competition, labor issues, inconsistent market prices and inefficient agricultural practices.

“These factors, along with drought, plant disease and other challenges that are prevalent in the Southwest, have made it difficult for producers in Texas, Oklahoma, New Mexico and Arizona to grow peppers profitably,” he said.

“Pepper production in the Southwest is often marred by drought, heat and plant diseases, which cause severe plant stress and reduce marketable yields by up to 50 percent,” said Leskovar, who works from the Texas AgriLife Research and Extension Center in Uvalde.

To help Southwestern pepper producers, Leskovar and other Texas A&M System scientists and agriculture experts have teamed up to develop several new adapted fresh pepper hybrids.

Leskovar said that the objective of this research is to “maximize pepper production efficiency and improve the quality of specialty peppers so producers in these four states can increase their profitability.”

“We developed several new cultivars that were more well adapted to climatic conditions and plant diseases of the Southwest, as well as to consumer preferences,” he said.

The team has already bred several new cultivars of jalapeno, serrano, Habanero, poblano ancho, bell and other fresh pepper plants.

“Most of the breeding and selection of these new pepper hybrids has been done in test plots at the Uvalde center,” Leskovar said. “Uvalde is a good test area because the soil and climate are similar to many other parts of Texas and the Southwestern U.S. where peppers are now being grown.”

“At the same time, we’ve been developing these cultivars to produce higher yields of peppers with the size, shape, color, capsaicin (the active “heat” ingredient) level and nutritional content American consumers want,” said Dr. Kevin Crosby, a plant breeding expert with AgriLife Research in College Station and key team member.

Crosby, who received national attention by developing a milder version of the notoriously hot Habanero pepper, said the new hybrids are meeting or exceeding expectations for appearance, yield and quality.

“These peppers not only look good, they taste great and the plants produce impressive amounts of fruit, all of which should please both the producer and the consumer,” he said.

The team has established the first-known poblano pepper production in Texas through a partnership with San Antonio-based Constanzo Farms and is collaborating with other large producers in New Mexico and Arizona. They also have licensed two hot pepper cultivars in the past three years and have provided stock seed for commercial production, as well as providing large quantities of trial seed to pepper growers in Texas, New Mexico and Arizona.

Though some of the team’s efforts began as far back as three years ago, “results have had to be replicable and it has taken time to conduct trails, collaborate with growers, packers and processors and retailers, and get their feedback,” Leskovar said.

Along with cultivar development, the team also is investigating additional strategies for overcoming other challenges to Southwestern pepper production. Some of these include working with regional producers on more efficient irrigation and cropping techniques, and developing a cropping system more suitable to machine harvesting.

“After drought and disease, probably the biggest obstacle to pepper production in the Southwest is labor,” Leskovar said. “Pepper harvesting is very labor-intensive because it’s done almost exclusively by hand. And it’s also difficult for producers to find adequate labor when it’s needed.”

The team already has tested numerous jalapeno, green chile and Habanero lines in Texas and New Mexico to determine suitability for machine harvesting.

“We’ve developed pepper plants that have less foliage, bear more fruit and require less labor-intensive harvest,” Leskovar said.

He added that the new cultivars also are being bred for higher amounts of vitamin C, phytochemicals and antioxidants.

“Peppers are a good source of dietary fiber and contain a number of vitamins, minerals and other nutrients that are known to promote human health,” Leskovar said. “And research on capsaicin, the ingredient that makes peppers hot, has shown it has some positive uses for human health and wellness.”

According to the Agricultural Marketing Resource Center, capsaicin is already used as a “topical anti-arthritic and anti-inflammatory agent” and is “generally recognized as a powerful local stimulant with no narcotic effect.”

Additional research indicates capsaicin may have cancer-fighting properties and may also facilitate insulin production. It also has been identified as a useful pharmacological component in treating chronic pain.

Crosby said increased domestic production of fresh peppers might help address another “health” issue – consumer concerns about product safety.

“Between high U.S. standards relating to product safety and the closer proximity of production to the point of use, consumers will be able to feel more secure about the fresh pepper product they’re buying,” Crosby said.

“We’re hoping our efforts will lead to a reduction in cost of production and an increase in the yield and quality of peppers so growers in the Southwest can remain competitive,” Leskovar said. “Since people in the Southwestern U.S. consume so many peppers, it seems only right that producers in the region should derive an economic benefit by supplying them.”

Benefits of country-of-origin labeling not clear

(Ohio State University) – COLUMBUS, Ohio -- Whether it's for health and nutrition, safety, sustainability or some other reason, consumers' food-purchasing choices continue to widen. In the mix with local foods, organics and genetically modified products now comes country of origin labeling (COOL).

On Sept. 30, mandatory country of origin labeling became effective for meat and perishable agricultural commodities such as fresh fruits and vegetables. Fish and shellfish having been subject to COOL requirements since April 2005.

"Retailers are now required to notify consumers whether the product they are buying is of U.S. origin or from another country," said Ian Sheldon, Ohio State University Andersons Professor of International Trade with the Department of Agricultural, Environmental, and Development Economics.

Products falling under COOL requirements include beef, lamb, pork, chicken, goat, wild and farm-raised fish and shellfish, fresh fruits and vegetables, and some nuts such as peanuts, pecans and macadamia nuts. Under COOL, ingredients in processed food items are not required to be labeled; however, many imported products still must indicate the country of origin of their ingredients under the Tariff Act of 1930.

"For example, frozen peas and carrots are processed foods and in principle are not subject to COOL requirements. However, if those peas and carrots came from another country, then the product has to be labeled," said Sheldon, who holds an appointment with the Ohio Agricultural Research and Development Center.

Apart from giving consumers greater choice in what products they buy, Sheldon doesn't see much benefit with the implementation of COOL.

"I'm not sure what the economic logic is. I just don't see what the specific risks are for such a law to be required. If it's about safety, then perhaps we should be spending money on food safety. Do we want to leave it to consumers to determine if a product is safe based on a label?" said Sheldon, who also holds an OSU Extension appointment.

"Perhaps some U.S. producers see it as a means of protecting themselves from foreign competition. But so many foreign producers, like those from Australia and New Zealand, are already doing a good job of marketing their products based on country of origin."

Sheldon said if anything, COOL might further drive up already high food prices because of the costs retailers must incur to make sure items are labeled. Those costs eventually will trickle down to the average shopper.

"The one thing I don't like about COOL is the across-the-board implementation. That means consumers will be paying higher prices for products whether or not they care which country their food is coming from," said Sheldon. "It has nothing to do with freshness, taste, or quality. The COOL label is simply a characteristic added to a food product that ultimately the consumer will have to pay for. I think it's something that will hurt some consumers in the long run."

Whatever impact, if any, COOL will have on the market, Sheldon said the new law was designed ultimately to give consumers greater food choices based on their preferences.

"There is a segment of the population that obviously won't care about COOL, but there is also a segment of the population that wants it and is willing to pay for it," said Sheldon. "Whether they worry about food safety problems such as E. coli or mad cow disease, or worry about whether their raspberries come from California or Mexico, there will be some demand for products based on country of origin labeling."

Fertilizer prices soar, but makers cite oversupply

(yankton.net) MINNEAPOLIS — Jim Nichols braced himself for a big number when he recently called his local grain elevator for a price on phosphate, a key ingredient of fertilizer.

Even so, the Lake Benton, Minn., corn farmer and former state agriculture commissioner found himself laughing — nervously — after the fertilizer dealer told him the price: $1,025 per metric ton, up from just $520 a year ago. “It was humorous until I learned that he wasn’t kidding,” Nichols said. “Then I started to worry.”

Indeed, in the eyes of many farmers and agricultural experts, fertilizer prices have seemed to defy the normal laws of economics. Despite the high prices, makers of phosphate and potash — another key fertilizer ingredient — say there’s an oversupply and earlier this month, Plymouth, Minn.-based Mosaic Co. said that it would scale back production, the second major company in recent weeks to announce production cuts.

Mosaic, the world’s largest producer of phosphate and potash, said it will cut phosphate production by 500,000 to 1 million metric tons over the next several months. That’s about 10 percent of the company's annual production. Potash Corp. of Saskatchewan, another large fertilizer company, in September idled about 30 percent of its production capacity because of a labor strike.

Both companies are dealing with their own financial issues, including share prices that have plummeted 50 percent or more since their peaks in mid-June. Mosaic, which is majority owned by agricultural giant Cargill Inc., closed Wednesday at $35.75. The stock traded at more than $160 in June.

As a result of curbed production, it's not likely that fertilizer prices will decline anytime soon, agricultural analysts say. Mosaic, in fact, said that it expects the average price of phosphate to be around $1,020 to $1,080 a metric ton (about 2,200 pounds) — virtually unchanged from its current level — through the second quarter. Many farmers buy their fertilizer in the fall and seed in the spring, which means they won't be able to avoid the current high prices.

Farmers were told this year that rising fertilizer prices were the result of increased demand for grains, leaving some hopeful that fertilizer prices would fall once commodity prices dropped. But the agricultural commodities bubble has burst in recent weeks — corn closed Thursday down 43 percent from June highs and soybeans fell to an 11-month low — amid an unfolding global economic slowdown; yet fertilizer prices have continued to surge upward.

Some farmers have turned their anger toward local grain elevator operators, while others have begun to suspect the fertilizer companies of manipulating prices, said Bob Zelanka, executive director of the Minnesota Grain and Feed Association. “It certainly does have the feel like they’re controlling the supply to drive up price,” he said.

In a federal lawsuit filed last month in Minneapolis, Mosaic and seven other large fertilizer companies were accused of conspiring since 2004 to limit competition and drive up prices of potash, which have more than tripled over the past year. Mosaic has denied the allegations.

James Prokopanko, chief executive officer of Mosaic, said his company's decision to cut production was a reaction to an excess inventory buildup — and was not designed to keep prices high. In the commodity price boom that occurred in the spring and summer, fertilizer distributors stockpiled huge amounts of phosphate, before prices rose even more. Many warehouses that store fertilizer nutrients are now almost full, and would have no place to store any increase in production, Prokopanko said. Once farmers work through these excess supplies, Mosaic will increase production again.

An unusually wet spring across much of the nation added to the excess supply. Prokopanko said many farmers planted their crops later than usual, and the late harvest has caused them to postpone fertilizer purchases — adding to the stockpiles.

“The whole system is backed up,” Prokopanko said. “We have no place to put this product we’re manufacturing.”

Jason Walsh, agronomy manager with Glacial Plains Cooperative, a farmers cooperative in Murdock, Minn., that sells fertilizer, said he was’'t aware of “excess supplies” in the fertilizer market and was surprised that Mosaic would make such an assertion. He said fertilizer buying patterns remain the same now as past years, and he hasn’t seen any evidence of stockpiling.

“Something else is happening,” Walsh said. “The phosphate market is getting soft, so they’re cutting back production to maintain $1,000 (a metric ton) prices. It’s by design.”

Mosaic is not the only agricultural company facing challenges. Excess supplies, sinking commodities prices and fears of a widening credit crisis have sent shares of farm-related companies into a tailspin in recent weeks. Shares of Monsanto have fallen from more than $140 a share in June to $81.44 on Wednesday, a decline of about 40 percent. Grain processors Archer Daniels Midland Co. and Bunge Ltd. have experienced similar declines.

David Swenson, an associate scientist in the Economics Department at Iowa State University, likened the run-up in agricultural stocks in the spring to the technology bubble of 2000 and 2001, when investors suddenly realized that demand would not grow indefinitely.

“You had this incredible supposition that every kind of commodity would go up in price,” he said.

“All of a sudden, that view changes a little bit, and ripples all the way through the agricultural production system.”

Lettuce E. coli came from California, but where?

(The Produce News) – The Iceberg lettuce identified as the most possible source of a multi-state E. coli outbreak in the Midwest came from California, but Michigan authorities say it is still unknown where the contamination originated.

The heads of lettuce supplied to Detroit-based Aunt Mid's Produce Co. for washing, cutting and bagging during the outbreak were identified as California lettuce, said Jennifer Horton, spokesperson for the Michigan Department of Agriculture. "We still don't know at which point it was contaminated," she said.

The California Department of Public Health has been in close communication with the Food & Drug Administration and Michigan officials concerning the multi-state outbreak, said Ken August, a CDPH spokesman, who confirmed that Iceberg lettuce was the "possible vehicle" in the outbreak and that California officials were on the case.

For the first time in the investigation, Michigan authorities released an Oct. 14 fact sheet on the E. coli outbreak, which has hospitalized 21 of the 38 people sickened in the state.

"Based upon analysis of scientific evidence from the [Michigan Department of Community Health's] epidemiological investigation, Iceberg lettuce has been identified as the source of the illness outbreak," said the fact sheet. "Case- control studies performed independently in Michigan and in Illinois both identified Iceberg lettuce as the common source of illness."

Tests of product and environmental samples after the outbreak timeframe at Aunt Mid's facility have come back negative for E. coli, and no new cases of E. coli O157:H7 have been linked to this outbreak in Michigan, according to the Michigan Department of Health.

Aunt Mid's, which has resumed its Iceberg lettuce product line, agreed to monitor and test each lot of processed Iceberg lettuce for 30 days and be subjected to random production and record checks.

"We're following it closely and awaiting more information," said Jim Bogart, president of the Growers-Shippers Association of Central California, based in Salinas.

Scott Horsfall, chief executive officer of the California Leafy Greens Products Handler Marketing Agreement, said that he was reluctant to comment until more information was available. "Until we see a report or someone shares information with us, there's not much to say."

When asked about the implications of a California leafy green product implicated in an E. coli probe, he said "Until we know more, we don't know the implications."

Another representative of the fresh produce industry voiced concern about the handling of this investigation so far, questioning whether any lessons were learned from this summer's Salmonella outbreak that implicated tomatoes and hot peppers.

"There still appears to be a lack of command-and-control structure, even though this was a multi-state outbreak," said Amy Philpott, vice president of communications for United Fresh Produce Association. "We think this needs to be changed."

She added, "Industry and government must work together to improve outbreak management. This includes having a clear command-and-control structure, using a transparent outbreak identification process, including industry experts in the outbreak investigation process, and clearly defining risk."

And with no one in charge, information comes "dribbling out" to the media without a risk communication plan in place, she said.

End Transmission