Impact of Farm Subsidies on Food Prices and Consumption

Julian M. Alston, Daniel A. Sumner, Stephen A. Vosti,
Farm subsidies and obesity in the United States: National evidence and international comparisons,
Food Policy,
Volume 33, Issue 6,
2008

Even if eliminating farm subsidies were to increase corn prices by as much as 10% (which is in the high end of the highest estimates) the resulting impact on food prices is minimal. Food price reductions as a result of corn subsidies are around 2% which would imply an increase in consumption as a response to price near .5%. The resulting increase in beef consumption would be .10%.

Carbon Footprint of Beef Production

C. Alan Rotz et al. Environmental footprints of beef cattle production in the United States, Agricultural Systems (2018). DOI: 10.1016/j.agsy.2018.11.005

see also: https://phys.org/news/2019-03-beef-resource-greenhouse-gas-emissions.html

'The seven regions' combined beef cattle production accounted for 3.3 percent of all U.S. GHG emissions (By comparison, transportation and electricity generation together made up 56 percent of the total in 2016 and agriculture in general 9 percent).'

Globally this translates to .47% of GHG emissions!

Data from the EPA seems in line with this, finding total agriculture emissions at 9% of total U.S. GHG emissions.

see: https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions

HERE is a nice susmmary fo the Rotz article:

• Greenhouse gas emissions: Beef production, including the production of animal feed, is responsible for only 3.3 percent of greenhouse gas emissions in the U.S. This is dramatically lower than the often-misapplied global livestock figure of 14.5 percent2. Furthermore, through continuous improvements in production practices, U.S. beef farmers and ranchers have avoided 2.3 gigatons of carbon emissions since 19753.
• Grain feed consumption: Per pound of beef carcass weight, cattle only consume 2.6 pounds of grain. This is comparable to feed conversion efficiencies of pork and poultry. Additionally, nearly 90 percent of grain-finished cattle feed is inedible to humans, meaning these plants can only provide value to humans when they're upcycled by cattle into high-quality protein.
• Corn feed consumption: Corn used to feed beef cattle only represents approximately 9 percent of harvested corn grain in the U.S., or 8 million acres. By comparison, 37.5 percent of corn acreage in the U.S. is used for producing fuel ethanol4.
• Water use: On average, it takes 308 gallons of water to produce a pound of boneless beef. Previous reports have estimated upwards of 24,000 gallons5. Additionally, water use by beef is only around 5 percent of U.S. water withdrawals, and this water is recycled.  
• Fossil fuel inputs. Total fossil energy input to U.S. beef cattle production is equivalent to 0.7% of total national consumption of fossil fuels.

Environmental and Water Use Economies of Scope in Beef and Cotton Production

According to CGIAR and the FAO there is a lot of variation globally in when it comes to livestock production. This variation explains differences in GHG emissions due to differences in resources, technology, management, nutrition, environment, political economy and economic development. While this implies the environmental impact of livestock presents a serious challenge globally, it also implies there is a lot of opportunity to mitigate these effects. 

Research by Allen et al integrating cotton and beef production is a proof of concept that managing food and fiber production differently can make a significant difference:

"Per hectare, the integrated system used 23% less (P < 0.001) irrigation water, 40% less N fertilizer, and fewer other chemical inputs than the cotton monoculture. Profitability was about 90% greater for the integrated system at described conditions. Integrated production systems that are less dependent on irrigation and chemical inputs appear possible while improving profitability."

In other words in irrigated environments like those in this study there can be economies of scope in beef and cotton production related to water use efficiency and other inputs.

These kinds of synergies also speak to the variation we might see when it comes to attempts to estimate the water footprint of livestock production. Depending on genetics, nutrition, technology, environment, and management there is a lot of variation.  Three different estimates we find in the literature related to beef production include:

Capper, J.L. 2011. The environmental impact of beef production in the
United States: 1977 compared with 2007. J. Anim. Sci. 89:4249-4261.

~ 317 gallons per pound

Beckett, J.L. and J.W. Oltjen. 1993. Estimation of the water
requirement for beef production in the United States. J. Anim. Sci.
71:818-826

~ 441 gallons per pound of beef

Rotz, C.A., B.J. Isenberg, K.R. Stackhouse-Lawson, and E.J. Pollak.
2013. A simulation-based approach for evaluating and comparing
the environmental footprints of beef production systems. J. Anim. Sci.
91(11):5427-5437

~ 808 

Reference: 

Allen, V. G., C. P. Brown, R. Kellison, E. Segarra, T. Wheeler, P. A. Dotray, J. C. Conkwright, C. J. Green, and V. Acosta-Martinez. 2005. Integrating cotton and beef production to reduce water withdrawal from the Ogallala aquifer in the Southern High Plains. J. Agron. 97: 556-567

Market Commentary for June 14, 2019

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

I've only been following the commodity markets since 2012. That was the year of the drought, which broke the night before my first daughter was born (about 5 weeks early). That fall and following we saw corn futures prices in the $8 range. And prices remained above $5 beyond the next season from what I remember. In the last couple years we have sort of seen a stagnant sideways movement in corn roughly in the $3 -$4 range. There has been a lot of talk about being 'overdue' for another drought to push prices back up to more profitable levels. It does not look like that is going to be the case this year. However, those of us newer to these markets are learning that cool and wet springs could impact planting enough to have similar supply reductions as we saw in 2012 which could trigger prices at levels we have not seen in a few years.

Technical Analysis 




From a technical perspective looking back at the last couple of weeks we have seen the RSI reach overbought levels and a bullish crossover in the MACD. As of the last market close the RSI was over 70 and after some convergence in the MACD it looks like it remains bullish. And prices are well above the 20,50, and 90 day moving averages. Not shown is the volume, but it has been tracking right along with the rise in prices. Technically this market is hot and may get hotter.

Fundamental Analysis

While technical signals might give an overbought signal on a short term basis, the fundamentals could support strengthening at lease over the mid term through the harvest season as we learn just how much of the late planting will turn into a crop that faces heat stress during the summer and delayed harvesting issues in the fall. In the latest USDA WASDE report total harvested acres and national average yield was reduced. Recently some analysts have even entertained the notion of $10 corn. Really? I thought. So I plugged the latest numbers into my balance sheet and my very crude model for December corn futures to see what I would get.

(abridged USDA June WASDE numbers)

	June WASDE	Bullish Projections
Supply:
Planted Acreage (million acres)	90	86
Harvested Acreage	82	75
Yield (Bushels/Acre)	166	166
Beginning Stocks (million bushels)	2,195	2,195
Total Production	13,670	12,450
Imports	35	35
Total Supply	15,900	14,680
Total Consumption	14,250	14,250
Ending Stocks (million bushels)	1,650	430
Stocks to Use	11.58%	3.02%
Model Projected Price:	$4.23	$11.32

My model is based on some of the work by Scott Irwin and Darrell Good at U of I, but very loosely. I only used about 5 years of data and did not have the correction factors for weak or strong demand. But at least for the last year it has served as a good barometer at least directionally for corn prices. Based on the current WASDE numbers its a bit short of where December futures closed ($4.63). But if we plug in the very bullish harvested acres numbers that are being thrown around $10 corn definitely looks like at least an upper bound based on my model. The market is somewhere between my model's projections going off of the WASDE numbers and something a bit more bullish.

We always hear about late planting and how its going to hurt yields, and how a hot or dry streak through the summer is going to hurt pollination etc. and modern genetics seem to fool us by the time we get the final numbers on national yield (at least for the short time I have been following the market). But this year might really be different.

References:

Irwin, S. and D. Good. "New Corn and Soybean Pricing Models and World Stocks-to-Use Ratios." farmdoc daily (6):99, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, May 25, 2016. Link: https://farmdocdaily.illinois.edu/2016/05/new-corn-and-soybean-pricing-models.html

Is $10 Corn a Possibility??? The Van Trump Report. June 13, 2019. https://www.vantrumpreport.com/why-i-remain-bullish-corn/?loggedout=true

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****