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  • It might not seem possible that the Environmental Protection Agency could do more to anger farmers than it has already, but on Tuesday of this week, the agency succeeded.On the same day when leaders of the Iowa Renewable Fuels Association were complaining about the EPA’s two-year delay in issuing ethanol and biodiesel blending levels under the Renewable Fuel Standard, the EPA announced a decision that critics say will make it easier for biodiesel plants in Argentina to export to the U.S.“Not only does this threaten U.S. businesses and jobs, it could also undermine our sustainability goals aimed at preventing deforestation from the production of renewable fuels,” said Anne Steckel, the National Biodiesel Board’s vice president of federal affairs. “It opens the floodgates for Argentinian biodiesel with very little oversight or verification that the resources used to make the fuel was grown in accordance with strict RFS sustainability requirements.”To prevent deforestation and other harmful land-use changes, feedstocks used under the RFS generally must be grown on land that was cleared or cultivated prior to December 18, 2007 – when the RFS was implemented, according to the Biodiesel Board. Typically, foreign producers must closely map and track each batch of feedstock used to produce imported renewable fuels.According to the Biodiesel Board, EPA’s decision Tuesday allows Argentinian biodiesel producers to use a survey plan for certifying the feedstocks used – in this case, soybean oil. The change – effectively leaving it to the foreign producer to pay an independent third party to survey their feedstock suppliers – is far less stringent than the current map-and-track requirement and more difficult to verify.The biodiesel board estimates that up to 600 million gallons of biodiesel could be imported from Argentina as a result of this change. (In 2014, the U.S. produced more than 1 billion gallons of biodiesel in the first 10 months of the year, according to the U.S. Energy Information Administration’s most recent monthly report.)When asked how they came up with that number, NBB spokesperson Ben Evans told that “we talked to some of the bigger players in the industry and came up with that number.”Market prices vary, but biodiesel from Argentina is cheaper than U.S. biodiesel, he said. That’s partly because Argentina taxes exports of biodiesel at a lower rate than exports of either raw soybeans or soybean oil, in effect creating a subsidy for biodiesel. There may be overcapacity, too. Argentina used to export biodiesel to the European Union but has been blocked by antidumping tariffs, as is U.S. biodiesel formerly shipped to the EU.The Argentinian biodiesel firm, CARBIO, asked for a faster method of exporting in August of 2012.“It’s been floating around for a couple of years. We knew the decision was coming at some point,” Evans said.But the U.S. biodiesel industry was surprised.“It’s a puzzling decision, given what’s going on with the RFS,” Evans said, referring to the EPA delay in announcing renewable volume obligations for blenders for 2014, 2015, and 2016. EPA made a proposal to lower blending levels in November of 2013, then delayed its final rule after an outcry from farm groups and the biofuels industry in the Midwest. During his weekly press conference, Senator John Thune (R-SD), chairman of the Senate Commerce Committee and a member of the Senate Agriculture Committee, said he needed to learn more about why the EPA announced its decision on biodiesel imports before the agency has issued the final blending obligations.“It seems to me that’s really getting the cart ahead of the horse,” he said.The American Soybean Association also weighed in on EPA’s decisions late Tuesday.“Today’s decision issued by EPA on Argentinian biodiesel shows a lack of coordination and alarming tone-deafness regarding the purposes of the Renewable Fuels Standard,” said ASA president and Brownfield, Texas, farmer Wade Cowan. “EPA has put the interests of our foreign competitors above those of soybean farmers here in the U.S. At this point, we can only scratch our heads and wonder what EPA’s priorities are when it comes to the domestic renewable fuels industry.”And by Wednesday, other members of Congress besides Thune were speaking out.Senator Heidi Heitkamp (D-ND) criticized EPA “for prioritizing foreign biodiesel imports over domestic producers.” And Heitkamp had even higher estimates of the potential damage to the U.S. industry, which she said scaled back production in 2014 without a clear renewable fuel standard.“The EPA is planning to allow Argentina to ship as much as 1 billion gallons of biodiesel into the United States without first fulfilling its legal duty to provide certainty to American farmers and producers by setting clear production levels,” Heitkamp’s offices said in a statement. Questioning the EPA’s priorities, Heitkamp slammed the agency for neglecting its legal obligation to provide certainty to biofuels and agriculture and the workers they employ by setting biodiesel volumes under the Renewable Fuel Standard (RFS). Lacking proper federal guidance, biodiesel producers across the country have been forced to slow production, she said, negatively impacting farmers whose crops supply the industry, hurting jobs, and harming rural communities. 

  • The currency market (i.e., Foreign Exchange/FOREX) and its participants make up the largest market in the world, encompassing $5.3 trillion dollars per day. That is a figure that cannot be ignored. Exchange rates around the world are affected by any number of things, but a few of them are more important than the others. Interest rates are probably the biggest driver. Central bankers use interest rates to manage their economies and the way they grow. Economies that grow too fast run the risk of inflation and forming bubbles. This means that cash is too cheap to borrow and is being deployed all over the place. That can cause prices to rise as more cash is chasing the same amount of goods. That is the definition of inflation. When economies begin to expand too quickly, central bankers move to raise rates. This will have the effect of slowing the economy down. That helps to ease inflation and bring prices back down to earth. You can see how the currency would react to the moves in interest rates. Rates that are low are encouraging business investment and the deployment of cash because it is so cheap to borrow. People are hired and paid, goods and services are bought, and inflation begins to creep into the system. If other interest rates around the world are higher, U.S. businesses will invest abroad for a better return. As things begin to heat up and the economy improves, the bankers move to slow things down so the economy doesn't overheat. An overheating economy is just as bad or maybe worse than a stagnant economy. A good example of an economy that is overheating is one with very high inflation. Zimbabwe comes to mind. They are struggling with mind-blowingly high rates of inflation - runaway inflation, for that matter. Way over 50%, when here in the U.S., we are struggling to get 1.5% and on our way to 1%. By raising rates to slow the economy down, you are encouraging foreign investment back to the U.S., slowing down exports, and putting the brakes on the amount of capital in the system. By raising rates, you encourage saving and the slowing down of purchases. This also strengthens the currency as the rate of return on investment goes up with the raising interest rates. When you are in dire straits as an economy, you lower rates to cheapen your currency to spur on inflation. You hear people talk about 'importing' inflation. That is a way of thinking that believes that inflating your economy will get cash and investment moving and make your goods and services attractive to the rest of the world. The problem now is that when the FED embarked on this policy in the states, the rest of the world was weak as well and could not invest in the U.S. and prop up the economy.  We weren't able to import inflation. Now, as the rest of the world has weakened much more than we have, our economy, though very sluggish, looks great to those abroad. So, by weakening their own currencies (12 countries already this year) they have by default strengthened ours. And, if the FED wants to raise rates for some reason this summer, it will only move to exaggerate the issue. That is why a strong dollar hurts things denominated in dollars that are being sold overseas. By default, our currency is getting stronger and making our goods more expensive to the rest of the world. This will be the theme for the year and cannot be ignored in your marketing plan.

  • Producers are in high spirits at the Iowa Pork Congress in Des Moines today. Hog markets are profitable and herd disease levels low, at least for the time being.The deadly PED virus, which infected about 60% of the nation's sows last year, is still circulating in herds, but at lower levels than one year ago, says Algona, Iowa, veterinarian Matt Anderson. However, it's too soon to breathe easy, he says. Last year the worst "explosive pockets" hit in February through April. "Let's see what the next few months bring," says Anderson.Another topic of concern to producers is the Des Moines Water Walks notice of intent to sue 10 drainage districts in three Iowa counties under the Clean Water Act. Is discharge from field tile lines point source pollution? Farmers are not sure how this will play out.Attorney Eldon McAfee told producers to be extra careful about manure applications this winter. No applications are allowed on frozen or snow-covered ground until April 1. It's 50 degrees today, so nothing is frozen. "Remember, Iowa law requires that manure must not cause water pollution," says McAfee. Better safe than sorry.

  • The switch has been flipped.A couple of years ago, farm lending for big-ticket purchases -- fueled by high grain prices and farm incomes -- was strong while operating loans were scraping the floor. Corn and soybean farmers were making a lot of money and turning around and reinvesting it in their businesses through capital purchases. Now, the opposite is true. "The total volume of non-real estate farm loans rose significantly compared with the same period in 2013," says Nathan Kauffman, Omaha Branch Executive for the Federal Reserve Bank of Kansas City, referencing fourth-quarter 2014 loan volume in a recent Fed report. "Most of the gains were driven by increased borrowing for current operating expenses. In 2014, a large U.S. corn and soybean harvest placed downward pressure on prices and limited cash receipts for fall crop sales. With production expenses holding at high levels, reduced farm income increased the need for financing to pay for next year’s crop inputs. Despite a slight rebound in crop prices from the October low, corn and soybean prices have remained significantly below those of recent years."That's not true for all farmers, though. It's no surprise that cattle farmers are having a year for the record books, and that's reflected in the latest quarterly data from the KC Fed. The cow/calf sector is booming, and that's putting a squeeze on feeders to keep up with demand, hence a jump in feeder cattle loans, according to the Fed. "Looking ahead, the supply of feeder cattle may contract further if a reduction in calf slaughter signals that more animals are being retained to rebuild herds," Kauffman says. Despite the downturn in overall loan volume -- which was sharper still for medium-term loans for bigger-ticket items like machinery -- the performance of the ag loans out there didn't hurt much. In fact, improved loan performance underpinned overall better ag bank performance in general. In other words, though the bills are higher than the revenue in most cases right now, farmers are still getting the job done and keeping everyone paid, with just a few exceptions."Improved farm sector loan performance supported a slight rise in profits at agricultural banks. At the end of the third quarter, the return on assets at banks with an above-average percent of loans made to the agricultural sector edged up from year-ago levels. Delinquency rates on both farm real estate and non-real estate loans moved lower and net charge-offs as a share of total loans also declined. In addition, the average capital ratio at agricultural banks improved from last quarter and last year," Kauffman says. "Agricultural bankers reported only a modest deterioration in credit conditions despite a drop in farm income in the third quarter of 2014. Reduced profitability for crop producers in the Chicago, St. Louis, Minneapolis, and Kansas City Districts was driving increased demand for operating loans and a decline in loan repayment rates as well as more requests for loan renewals and extensions. Still, survey respondents in all reporting Federal Reserve Districts indicated funds were available for farm loans but noted a slight rise in collateral requirements."The slight tipback in loan repayment rates overall is nothing to worry about yet; the ag lending sector remains on solid footing, Kauffman says. However, where ag credit goes in the next year will depend a lot on which direction both grain and livestock prices move soon."After narrowing in 2014, the direction of farm sector profit margins in 2015 will be a key factor in determining whether agricultural credit conditions improve or worsen in the coming year," Kauffman says.See more from the Fed report