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Thursday April 26, 2018

What ever happened to the wheat shortage?

As little as two short months ago, USDA was reporting farmers nationwide were devoting the fewest number of acres to wheat in decades. The agency expected all wheat plantings, including all varieties, to total only 49.6 million acres, down a surprising 9 percent from 2015 and the lowest acreage since 1970. Driven by any number of factors, including the farm-program dictates, relative crop prices and higher demand for corn heightened by ethanol usage, this former grand-daddy of High Plains crops was being slowly driven out of the average farmer's crop mix. Anticipating possible resulting shortages, the commodity futures price for wheat shot up, as buyers hedged against the possibility that tight supplies resulting from such low plantings would cause prices later in the year to explode.

These developments came fresh on the minds of commodity traders remembering just six years ago, when Russian drought and worries about a global shortage of the grain revived fears of a repeat of 2008, when low supplies of the grain led to riots in several countries, pusing prices up at their fastest rate in half a century.

Given the smaller area planted to wheat, U.S. wheat production was expected to fall this year, as was the world's production through 2017. The spring forecast from the International Grains Councilpredicted world wheat production for 2016 and 2017 to be down 3 percent from a record 734 million metric tons in 2015 and 2016.

Now, fast-forward to July 4, considered the traditional start of the wheat harvest in Nebraska, and the state's farmers are awash in the grain.

The Agriculture Department estimates the average yield for the new crop of winter wheat in the United States is now projected to be record high at 50.5 million bushels. Production is projected at 1.506 billion bushels despite an 8-percent year-to-year decline in area harvested. The improved outlook for winter wheat lifts aggregate wheat production for 2016/17 to 2,077 million bushels, an increase of nearly 80 million bushels from the May projection and an increase of 25 million bushels over the 2015/16 crop. The Nebraska Wheat Board thinks this year's harvest should be a good one. Initial outlooks show it many be better than in the last few years, but they don't want to expect too much before the numbers start coming in. Increased export prospects in the European Union and Russia this month also reflect changes in those countries’ wheat output. The projected increase in world wheat production is slightly higher than consumption growth, leaving record-level stocks virtually unchanged.

The bottom line is farmers are again reacting to the highs and lows of the commodities markets in supplying the food chain, and wheat is perrenially unattractive. The all-wheat season average price for 2015/16 as of June remains at $4.90 per bushel. June is the first month in the wheat marketing year and thus the 2016/17 wheat marketing year is officially underway. The preliminary price reported in last month’s World Agricultural Supply and Demand Estimates is lowered by 10 cents this month to a midpoint of $4 per bushel. Prices on the low and high end of the range are $3.60 and $4.40 per bushel, respectively. Wheat prices have not been projected this low since the 2005/06 marketing year; at present the market value of the 2016/17 crop is nearly 2 billion less than for 2015/16.

As Montana wheat farmer Jim Mertens tells the onlinge magazine Narratively, that $4.50 per bushel he's sold his wheat crop for the last two years is a bit less than he was selling it for in high school back in the 1970s.

Meanwhile, a new feature-length Austrailain documentary featuring Virginia farmer Joel Salatin and food activist Vandana Shiva doesn't stand to help spur demand for wheat-based products. The film, What's with Wheat?, paints demon wheat as the underlying cause of numerous ills, from diabetes to leaky gut syndrome to celiac disease and gluten intolerance to industrial agriculture’s vices.

It's time for summer grilling. Here's a commodity outlook

Just ahead of the kickoff to this year's summer grilling season, the U.S. Department of Agriculture published red-meat and poultry production forecasts for 2017 predicting production of all animal protein components is expected to increase next year vs. this year. Overall, total red meat production should rise 3.3 percent, total poultry will grow 2.5 percent, and the total for both categories combined should rise 2.9 percent.

All meat production is expected to rise


Now's the time to take advantage of beef featuring through June and July. USDA reports cattle prices are moving lower and supplies of cattle remain large. Given a larger 2015 calf crop and expectations of increases in the 2016 calf crop, the number of cattle going into feedlots in preparation for market in 2016 and early 2017 are expected to be higher. Those larger slaughter-cattle supplies and higher average carcass weights add up to more beef production for 2017—4 percent more than 2016, at a forecast 25.8 billion pounds. Those increasing beef supplies have kept wholesale beef prices under pressure. Weak demand for ground beef products and the popular middle-meat grilling items amid expanding weekly beef production remain a negative force. USDA reports the Choice cutout price for the week ending May 6 was $205.72 per hundred pounds, down $9.79 from the previous week and $50.89 lower than last year. The Select cutout was reported at $196.49 per hundred, down $9.82 from the previous week and $48.40 below last year. The current fundamentals of the beef complex are the exact opposite of this time last year, with lower prices and higher production.

Beef price trends



Larger hog supplies will drive 2017 pork production almost 3 percent above volumes in 2016, according to USDA. Retail pork prices are likely to be lower as a result. They will be pressured by larger animal-protein supplies, not only of pork products, but of meats that compete with pork; beef and poultry production are also expected to increase in 2017. The ERS retail pork composite is expected to average in the mid-$3 region next year, down about 4 percent from the retail composite forecast for 2016. The wholesale value of January-to-April production averaged $76.20 per hundred pounds, almost 5 percent more than in the same period a year ago. In effect, this year, the wholesale market valued roughly the same volume of pork 5 percent higher than a year ago, suggesting that wholesale demand increased.

Pork price trends



First-quarter broiler production was slightly below forecast, and outlying forecasts were left unchanged. Broiler stock forecasts were reduced on lower-than-expected data, and whole-broiler price forecasts were raised slightly on stronger price trends. USDA reports April wholesale prices for broiler meat were mostly trending up, led by leg quarters, but they remained relatively low. The national composite price for whole birds at wholesale reached its seasonal low during February and has increased fairly consistently since then. With a relatively strong increase in prices during April and May, the whole-broiler price forecast was raised for the rest of 2016, with an annual average of $0.86 to $0.90 per pound. The 2017 price was forecast to average $0.84 to $0.91 per pound, as expected growth in exports partly offsets the effects of increased production.

Poultry price trends



First-quarter Choice slaughter lamb price was $133.33 per hundred pounds, almost $14 lower than the same time last year. Prices are expected to continue to remain below year-earlier levels for the rest of 2016, primarily due to the expected increase in the supply of lamb on the market. Second-quarter commercial production is also forecast at 38 million pounds. Both the first and second quarter commercial lamb production was below last year’s 39 million pounds when Easter and Passover occurred around the same time in the second quarter. However, overall 2016 production is expected to be slightly higher than last year.

Lamb price trends

What fruits do kids eat?

Fruit, we are told, is the key to protecting our children from obesity and diabetes today and from stroke, cancer and other chronic disease later in life. That's why the 2010 Dietary Guidelines for Americans recommends children under 18 eat around 1 to 2 cups of fruit every day, preferably in the form of whole fruits rather than juice or fruits as part of mixed dishes. Yet we know from previous national estimates that only four in 10 kids get that recommended amount.

As to how they're doing in the other half of that requirement regarding whole fruit vs. mixed dishes, researchers from the Centers for Disease Control and Prevention in Maryland analyzed data from 3,129 youth aged 2 to 19 years, from the 2011-2012 National Health and Nutrition Examination Survey. Using the Food Patterns Equivalents Database and the What We Eat in America 150 food groups, they then calculated the contribution of whole fruit, 100 percent fruit juices, mixed fruit dishes, and 12 discrete fruit and fruit juices to the average American kid's total fruit consumption. Here's a snapshot of what they found:

Nearly 90 percent of total fruit intake came from whole fruits (53 percent) and 100 percent fruit juices (34 percent) among  2- to 19-year-olds.

Fruit consumption by youth

Of the 12 discrete fruits and 100-percent juices that contribute almost 90 percent of total fruit intake in the diet of American youth, apples, apple juice, citrus juice and bananas were responsible for almost half of total fruit consumption. Apples accounted for 18.9 percent of average fruit intake. Differences by age were predominately between youth aged 2 to 5 years and 6 to 11 years.

Fruit breakdown by age group

Is whole milk about to make a comeback?

For decades, government health advisors told millions to cut whole milk from their diets in favor of skim. School lunch programs followed dutifully, dumping whole milk in favor of low- and no-fat, often flavored with added sugars to increase palatability and lure kids back to drinking it.

Could it all have been a mistake?

That reality may be the conclusion of several recent studies looking at large populatons to study possible links between full-fat dairy consumption, weight and risk of disease. In a new study in the medical journal Circulation, Tufts University epidemiologist  Dariush Mozaffarian analyzed blood samples of 3,333 adults over a period of 15 years. Mozaffarian and colleagues tested the samples for three compounds that indicated full-fat dairy consumption, in order to get around the notorious problem with similar studies of simply asking people to remember what they ate and drank. When they looked at the actual indicators of fat consumption based on the blood tests, they found subjects with the higher levels of the full-fat compounds on average were 46 percent less likely to get diabetes than people with lower levels.

Why the seemingly paradoxical result occured is uncertain, he reports, although he theorizes natural trans fat in the high-fat dairy products may improve the body's ability to use insulin more efficiently in managing blood sugar.

Another new study, reported in the American Journal of Clinical Nutrition, suggests that diets recommending low-fat and fat-free dairy foods as well as fruits and vegetables, whole grains, fish, lean meats, nuts, seeds and legumes in order to combat high blood pressure can can be modified to include whole milk, yogurt and cheese without sacrificing health benefits. In the randomized trial, researchers modified those meal plans, which despite their health benefits often suffer from non-compliance with consumers, by replacing fat-free and low-fat dairy foods with whole-fat milk, yogurt and cheese, in conjunction with a 12 percent reduction in simple sugars from fruit juices.

The results of the study showed blood pressure was similarly improved when participants followed the standard or the whole-fat dairy eating plan, compared with the control diet. In addition, the whole-fat dairy eating plan did not increase total cholesterol or LDL-C levels, despite a 6 percent higher saturated fat intake than the standard.

A separate study published in the American Journal of Nutrition, compared the effects of full-fat and low-fat dairy on obesity and found that among more than 18,000 women, those who consumed the most high-fat dairy products lowered their risk of being overweight or obese by 8 percent.

“I think these findings together with those from other studies do call for a change in the policy of recommending only low-fat dairy products,” Tuft's Mozaffarian told TIME magazine. “There is no prospective human evidence that people who eat low-fat dairy do better than people who eat whole-fat dairy.”

The good health news notwithstanding, it may be premature to predict a rush to the whole-fat section of the dairy case.

Consumption of whole milk has been on the decline for decades. Whole milk sales have fallen more than 61 percent since 1975, to a low of 14 billion pounds last year. Over that same period, 2 percent milk sales have more than doubled, while  1 percent and nonfat milk sales have increased by nearly three times. However, the whole-milk decline is part of a wider drop in fluid milk sales. On average, Americans today drink 37 percent less milk than they did 45 years ago, according to data from the USDA. While milk used to be the beverage of choice, Americans have reduced its share of the fluid market in favor of more options. And prospects for improvement aren't promising. The biggest declines in milk consumption over that time period came in the 2-year-old to 11-year-old and 12- to 19-year-old demographics.



Farm commodity markets have always had their wild ups and downs, but last year was particularly volatile for U.S. cattle markets. The futures price for cattle--those prices bid on animals not yet ready for market in anticipation of their future delivery--fell by 16 percent at the end of 2015, the hardest fall in more than 30 years. Combine that particular instance with more general wild price swings for many other farm commodities globally that started in 2008, and many sellers and buyers of commodities have started looking hard at the futures markets. Are they still working?

Futures markets have traditionally been considered a valuable tool to reduce natural market risk, both for the farmers who produce crops and livestock and the food manufactures who buy those commodities. In theory, they allow both parties to lock in prices today for commodities that won’t be ready for delivery for months, allowing them to better plan around the natural price swings in the market.

But in January, the Denver-based National Cattlemens Beef Association, the trade association for American cattle producers, wrote a formal letter to the the Chicago Mercantile Exchange, the world's biggest futures market and the exchange that trades futures on cattle prices in this country, complaining the mercantile's contracts are growing useless to the typical beef-cattle grower.

“For several months we have been hearing from our members across the country regarding market volatility and their concerns about high frequency trading’s contribution to that volatility,” the letter said. “The effectiveness of cattle futures contracts as a viable risk management tool is being called into question due to the concerns over high frequency trading. In fact, we continue to hear our members question their use of the cattle contracts because the volatility has made them a tool which is more of a liability than a benefit.”

NCBA complains that such “high-frequency trading,” in which computerized trading that can place and cancel orders in fractions of a second has replaced human beings, is artificially altering the futures market. NCBA’s letter also questions whether some of the market swings have been caused by the process known as “spoofing," an illegal practice in which participants try to change pricesby placing orders they quickly cancel, creating the false notion of genuine movements in the market.

In a conference with cattle officials at the NCBA’s annual meeting in San Diego last month, officials of the mercantile exchange promised to make changes, without admitting to the group’s complaints. It said it would add cattle futures to a system the exchange already uses that will limit the number of order updates traders can send compared to how many they actually execute. It also plans to consider five-to-six-second trading delays that would slow down computer-automated trading and address NCBA’s complaints about that practice. “High frequency trading occurs at a rate faster than any human can analyze," the cattlemen’s letter complained. "Latency would therefore level the playing field so that everyone sees the market at the same speed." NCBA also wants audit trails released on trading activity to better monitor market activity that may be less than above-board.

This recent activity has led others to ask some bigger questions about the health of America’s commodity marketing system in general. R-CALF USA, a smaller organization of western cattle ranchers that advocates for more independence and better market protection for independent cattle ranches, has demanded the U.S. Senate Committee on the Judiciary investigate the recent collapse in market prices. That group blames large meatpackers for artificially altering prices.

Others agree. An executive for the Chicago Mercantile Exchange told Reuters News that one contributor to the futures market uncertainty is the reality that fewer and fewer cattle today are sold on the open market. Those more traditional “cash sales” in which cattle buyers and sellers negotiate immediately before those animals are ready, have declined in the past decade in favor of longterm contracts that lock in prices, often months before the animals are put onto feed. Futures markets, as they were originally intended to function, depend upon a meaningful underlying cash market to set their prices. That evolution toward contracting rather than cash price is occurring throughout agricultural markets.

A second, and perhaps more serious, underlying problem is the reality that futures markets have changed, as well. According to some ag ecomomists, what was once a market that allowed buyers and sellers to hedge the price of commodities they were forced to hold has now become a market for the diversification of financial assets. That change has turned them into “derivatives,” the same type of financial-market tool that nearly sunk the world financial markets in the crash of 2008. Those economists argue that when the fundamental market factors that affect producers and consumers of physical commodities become “uncoupled” from the financial-asset diversification of speculators in the futures market, the futures markets lose their value in helping buyers and sellers predict true prices. The relatively low cost of futures trading, some have argued, invites speculators to jump in and out of the market, artificially causing commodity prices to vary excessively, destabilizing markets from everyone, from farmer to your consumer. The research is split on whether futures are to blame for underlying market-price changes, or simply a victim of those factors.

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