Heather Landy and Renae Merle reported in today’s Washington Post that, “Without a federal bailout plan to prop up confidence in the U.S. financial system Monday, stocks fell sharply around the globe,
oil sank, gold soared and yields on government debt skidded closer to zero as traders ran from risk and sought safe-haven investments.

“The Dow Jones industrial average tumbled 7 percent, or 777.68 points, eclipsing the record point drop after the Sept. 11, 2001, terrorist attacks, to close at 10,365.45. The technology-heavy Nasdaq composite index slid 9.14 percent, or 199.61, to 1983.73, and the broader Standard & Poor’s 500-stock index lost 8.79 percent, or 106.62, to close at 1106.39.”
The Post article noted that, “A rush into safer securities pushed down yields on Treasury debt, while crude oil fell more than $10 a barrel on concern that the financial crisis would put a big dent in demand for petroleum products.

“Underlying the panic is a seizing-up of the credit markets that provide companies with financing for expenses such as payroll and inventory. Analysts
said banks are lending less as they try to conserve cash for their own balance sheets, while nervous investors are forcing companies to pay higher interest rates to borrow in the debt markets.”

With respect to agriculture, the Post writers stated that, “Marc Pado, U.S. market strategist at Cantor Fitzgerald, said
the effects of constricted lending already are showing up in the agriculture business, where farmers often are dependent on short-term loans to buy seeds and fertilizer for the next season’s crop. ‘If the bank says no, they’re not going to plant. The fertilizer companies aren’t seeing the orders they normally see at this time of year,’ Pado said. ‘It goes beyond comprehension once you start digging into who uses short-term debt and the impact they have on the next person in line.’”

Meanwhile, the Associated Press reported yesterday that, “Agriculture futures traded lower Monday on the Chicago Board of Trade.

“Wheat for December delivery fell 48 cents to $6.68 a bushel; December corn lost 30 cents to $5.13 a bushel; [and] November soybeans fell 70 cents to $10.94 a bushel.”

A Chicago Board of Trade recap of yesterday’s corn trading session indicated that, “Traders said that
sharply lower crude oil was a negative factor all day along with the
higher dollar with the final pressure coming from the House of Representative’s
vote against the bailout package late in the session.
Overall, selling is said to have stemmed from the crisis mentality in the US and world economies as well as from the onset of the US harvest.”

With respect to harvesting progress, DTN’s Susanne Stahl and Anthony Greder reported yesterday that, “
Less than 10 percent of the U.S. corn crop has been harvested as of September 28, according to the latest USDA Crop Progress report.

“The five-year average for this time of year is more than twice that at
21 percent.”

“The delay is most keenly felt in the heart of the Corn Belt where Iowa, Illinois and Indiana corn fields are between 45 and 57 percent mature, compared to the usual 75 to 90 percent mature in late September. Recent rains and flooding have contributed at least in part to this setback,” the article said.

The DTN item added that, “
Late maturity and harvest progress is also noted for soybeans, which had just 68 percent of fields dropping leaves by Sunday evening; the five-year average is 81 percent. Nine percent of this crop has been harvested, mostly in states such as Louisiana and Mississippi. States such as South Dakota (10 percent harvested) that grow shorter maturity varieties are also seeing harvest progress.”

In a broader look at prices, USDA’s National Agricultural Statistics Service (NASS) released their monthly Agricultural Prices report yesterday, which noted that, “The September index [for food grains], at 237, is 8.1 percent below the previous month but 9.7 percent above a year ago.
The September all wheat price, at $6.91 per bushel, is down 73 cents from August but 15 cents above September 2007.”

The NASS report noted that, “The September index [for oil-bearing crops], at 189, is down 17 percent from August but 44 percent higher than September 2007.
The soybean price, at $11.70 per bushel, decreased $1.10 from August but is $3.55 above September 2007.”

Yesterday’s report also included historical graphical depictions of prices received for corn, wheat and soybeans, which all showed declines from August.

In a related article, Curt Thacker reported yesterday at Barron’s Online that, “Companies such as Tyson (ticker: TSN), Smithfield (SFD) and Pilgrim’s Pride (PPC) thought they could breathe a little easier when grain prices fell about 30% from all-time highs, making their chicken feed, as well as cattle and hog feed, a little more affordable.
But recent volatility in grain prices — torn between a bullish crop estimate from the U.S. Department of Agriculture and the heavy pressure all commodity markets have been facing in the recent financial turmoil — may mean their relief is short-lived.

“Meat producers still must cope with unprecedented volatility in input costs: Feed is the largest expense in producing livestock and poultry, and the meat industry’s struggle with high corn costs, in part because of higher ethanol usage, are well-known.”

The article explained that, “Industry analysts say
unpredictable grain prices make it difficult for meat-animal producers and processors to set production plans. The difference alone in corn prices from the high to low in just the past 90 days, when applied over the lifetime of a hog, would amount to approximately 17 cents a pound on a carcass basis, or about 25 cents per pound wholesale of edible pork.”

EU-U.S. Biofuels

In general EU financial news, Joellen Perry and Alistair MacDonald reported in today’s Wall Street Journal that,
“The European Union’s top markets official is preparing an overhaul of banking regulation across the continent, as Europe struggles to deal with its own wave of bank failures.

“Charlie McCreevy, the EU commissioner for internal markets, on Wednesday will propose changes that include creating groups of national regulators to supervise banks doing business across national borders, a fast-increasing share of the continent’s banking.”

The Journal article stated that, “Mr. McCreevy also will ask for rules that force banks to set aside more capital when they sell some of the securitized credit products that were at the heart of the current crisis.
The proposals unite Mr. McCreevy with a number of European policy makers who have signaled they’re willing to consider major changes to bolster Europe’s financial system against future turmoil.

“A string of dramatic European bank rescues in recent days is stoking debate about how well-prepared the 27-nation EU is to handle the collapse of a big bank whose business crosses borders. In 2006, Europe’s 15 biggest listed banks by market value held 24% of their assets in European countries outside their own, up from 11% in 1997, according to Brussels-based think tank Bruegel.”

In more specific EU news developments regarding agriculture and biofuels, Reuters news reported on Friday that, “The French government said on Friday it will phase out tax breaks for biofuels by 2012, arguing that higher oil and grain prices have removed the need for fiscal support.

“In its draft 2009 budget, the government said it will remove in stages from January reductions given to biodiesel and ethanol on France’s national fuel tax (TIPP).”

The article indicated that, “‘The cost price of biofuels is no longer structurally disconnected from those of standard fuels,’ the government said, stressing that crude oil prices will remain high.

“‘Tensions affecting agricultural raw materials have reached levels that no longer justify tax exemptions on the grounds of helping to provide outlets for farm production,’ it said.”

Later, the Reuters article explained that,
“But the size and timing of the cuts represents a setback for the biofuels sector as it faces mounting criticism over its environmental impact and contribution to rising food prices.

“The government said biofuel investment in France has reached 1.7 billion euros. It expects to save 401 million euros next year from the reduced tax breaks.”

Charlie Taylor reported yesterday at the IrishTimes Online that,
“The Government today announced a lower target for biofuel use that it says reflects concerns about the environmental impact of growing crops for fuel.

“Minister for Communications, Energy and Natural Resources Eamon Ryan this morning outlined a revised target of
3 per cent of transport fuel by 2010. A target of
5.75 per cent was set last year by the Minister for Transport, Noel Dempsey.

“Although it has reduced its target, Minister Ryan said this morning that the Government remained committed to achieving the EU goal of 10 per cent of transport fuel from biofuels by 2020.”

The article noted that, “However, the transfer of land from food for biofuel crops has been linked with increased global food prices. In addition, a number of studies have led to doubts as to whether biofuels are as environmentally friendly as originally thought.

“Under the revised plan, biofuels in Ireland must be entirely compliant with EU sustainability criteria, which are currently being finalised. In addition, biofuels must come from sustainable sources.”

Issues associated with biofuels are also garnering attention in the U.S.

Reuters writer Gerard Wynn reported yesterday that, “A global pull-back from bank lending may dent the commercialisation of biofuel technologies to replace conventional gasoline, said the chief executive of U.S. cellulosic ethanol firm BlueFire Ethanol.

“A credit crisis which claimed more bank victims on Monday has raised project finance costs and made ambitious targets to replace fossil fuels with renewable energy sources look less achievable.”

The article stated that, “The credit crisis could slow that transition both through more costly finance and by diverting subsidies from renewables, which are often more expensive than conventional fossil fuels.”

Robert Pore reported yesterday at the Grand Island Independent Online (Nebraska) that, “
A study to be released by the University of Nebraska-Lincoln found that ethanol production is more energy efficient than previously thought.

“The Nebraska Corn Board reports that Ken Cassman, director of the Nebraska Center for Energy Sciences Research, said earlier studies that examined ethanol’s energy balance sheet were based on ‘backward-looking data.’

“‘These studies looked at older technologies with regard to energy use in corn production, the biorefinery and co-product use,’ Cassman said.

“He said recent research conducted at the University of Nebraska shows that estimates for the energy balance of corn-based ethanol are much more favorable — in fact, two to three times more favorable than previous estimates.”

And Philip Brasher reported in Sunday’s Des Moines Register that, “Democrats may have finally found a wedge issue to pry away some rural voters from the Republican Party: Ethanol.”

Mr. Brasher explained that, “This time, [Senator John] McCain’s position on ethanol has proven in some quarters to be the gift Democrats needed. [Sen. Barack] Obama is trying to take advantage with some aggressive outreach recently to farm groups, led by David Lazarus, a former aide to Sen. Richard Durbin, R-Ill., and Todd Campbell, Obama’s rural vote director who hails from Sac City.

“Six former presidents of the National Corn Growers Association, including five who served from 2001 to 2006, recently signed a letter endorsing Obama. The association itself hasn’t endorsed either candidate.

“One of the former corn growers’ presidents, Fred Yoder, is from Ohio, a must-win state for McCain. Yoder is a Republican and considers himself a social conservative, but McCain’s opposition to the ethanol usage mandate was too much, he said. Others share his concern: Members of the Ohio Corn Growers Association put up a display at a recent farm show with quotes from McCain and Obama on ethanol.”

Mr. Brasher added that,
“McCain is still the favorite of rural voters, according to the latest poll from the Center for Rural Strategies, but Obama has been making headway.”

Farm Bill

A news release issued yesterday by the House Ag Committee stated that, “Today, the House of Representatives passed bipartisan legislation to
suspend for the 2008 crop year a Farm Bill provision that required producers to have a minimum of 10-base acres to receive program benefits. The House and Senate each passed by unanimous consent the Senate amendment to

Chairman of the House Agriculture General Farm Commodities and Risk Management Subcommittee.

“permanent crop disaster program included in the 2008 Farm Bill. It also temporarily reverses the US Department of Agriculture’s published notice regarding the Farm Bill’s 10 base-acre provision, which would have denied farm program benefits to hundreds of thousands of producers nationwide by refusing to allow for the aggregation of small base acreage.”H.R. 6849, originally sponsored by Congressman Bob Etheridge of North Carolina, H.R. 6849, as amended by the Senate, makes technical corrections to the

A Senate Ag Committee press release from yesterday added that, “The Senate today passed legislation that would suspend for a year a provision included the 2008 farm bill that the Department of Agriculture is implementing to cut payments off to all farms with base acres of 10 acres or less without allowing the consolidation of small farms as Congress intended.”

The Senate news release added that, “The bill also contains clarifications on various aspects of the new standing disaster assistance program, mostly having to do with how minor acreages and grazing land are supposed to be treated under the program. There is also a newly established minimum loss threshold under the program, requiring that there be a physical loss of at least 10 percent of one crop on the farm to qualify for payments, to avoid having farmers qualify for payments only due to a reduction in prices.”

Meanwhile, Chris Clayton noted yesterday at the DTN Ag Policy Blog that, “Twenty senators, most of whom represent southern states, also wrote USDA on Monday
asking the department to speed up efforts to write the rules for the new provisions on the elimination of the three-entity rule and adjusted-gross income eligibility for commodity payments.

“‘The implementation of these reforms beginning with the 2009 crops will significantly affect a wide range of farming operations,’ the senators wrote. ‘Although the 2008 farm bill provides expedited rule-making for most farm program provisions, sections 1603 and 1604 containing the payment limit and adjusted gross income limitation reforms were specifically required to be implemented through the promulgation of an interim rule. We request that USDA publish these regulations for public comment at the earliest possible date so farmers have an opportunity to review and comment on the proposed regulations. Some farmers will need to make significant adjustments in existing operations in order to comply with the new rules, and those farmers who will no longer be eligible for program benefits will have to take that into consideration when planning for their 2009 crops and beyond.’

“The senators, led by Senate Agriculture Committee Ranking Member Saxby Chambliss, R-Ga., also noted to USDA that ‘It is important to note that the 2008 farm bill does not require USDA to make any changes to the way individuals and entities are determined to be ‘actively-engaged’ in farming except in the case of a spouse. Although the 2008 farm bill did end the discrimination against spouses being considered as equal farming partners, the change was designed to mesh with existing rules and regulations. Furthermore, we believe it is vitally important to maintain as much consistency as possible with the 2002 farm bill in this important determination given the significant impact of eliminating the three-entity rule and application of two new adjusted gross income tests. Interjecting unnecessary changes in the operation of the farm programs will not only cause further confusion and uncertainty for our farmers but will also go well beyond the Congressional intent of this narrowly crafted provision.’”

Mr. Clayton also noted yesterday that,
“Country-of-origin labeling [C.O.O.L.] goes into effect on Tuesday. USDA is putting out Q&A information to the public and holding briefings for reporters to explain the details. The department has now made it clear that packers aren’t going to be able to get away with ‘Product of North America’ labels everyday. It does remain to be seen, though, how meat labeling will play out within the industry.”

A news release issued yesterday by USDA stated that, “USDA’s Food, Nutrition and Consumer Services today announced the advent of a new era in nutrition assistance at USDA. The Supplemental Nutrition Assistance Program (SNAP) is the new name of the Food Stamp Program, as a result of the recently enacted Food, Conservation, and Energy Act of 2008 (P.L. 110-246), also known as the Farm Bill.
The new name, effective October 1, more accurately reflects the Program’s mission to provide food assistance and nutrition education to assist participants as they move to a healthier lifestyle and self-sufficiency.”

Keith Good