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EU’s Massive ‘Green Deal’ Generates Farmer Pushback

Saturday, March 23, 2024
filed under: Marketing/Risk Management

By Mike Krueger*
         What a bizarre winter it’s been.  Markets have been in a bearish mode since late December, and no amount of positive news has been able to sustain any price rallies.  Not that there’s been much bullish news.
        South American weather since late December has been basically good, although it’s interesting that most major analytical groups in Brazil have been continually reducing their corn and soybean production estimates.  The only major group that has resisted dropping their estimates is the USDA.  Again, in their March WASDE (supply and demand), the USDA made only very modest reductions.  They are now carrying Brazil’s corn and soybean production estimates 35 to 40 million bushels above most others.
        Crops in Brazil and Argentina are certainly not in bad condition.  It’s more that everyone these days is intent on forecasting record yields months before crops are even planted.  Argentina’s crop production will be significantly higher than last year, but this will only bring the numbers back to “normal” following two to three years of La Niña-induced drought.
        Brazil’s Safrinha corn crop, their second crop corn, could continue to get smaller.  This crop represents about 75% of Brazil’s total corn production.  Much of it was planted as much as 30 to 40 days later than normal because of a late soybean planting season.  This can push pollination into a hotter and dryer time frame, and that can potentially hurt yields.  April and early May weather will be important.
        We’ve now entered the third year of the Russia/Ukraine war with no resolution in sight.  The conflict never did impede production or shipments from the Ukraine as much as expected.  Russia continues to dump cheap wheat on the world market, and Ukraine continues to dump cheap corn and wheat into eastern Europe and beyond.  There is an increasing amount of speculation that Ukraine corn and wheat production could drop 15% to 20% from 2023.
        Weather isn’t the issue in these projections.  Rather, it is expanding shortages of labor and inputs.  Adverse summer weather would make matters worse. It’s also worth pointing out that Russia hasn’t experienced any weather problems in nearly a decade.  That is an unusually long period of time of good growing season weather. 
        There is another longer-term factor brewing in these markets.  That is the EU’s massive “green deal” that will have a big and negative impact on production agriculture across Europe.  The “Farm to Fork” policy has the following rules for farmers, and it is supposed to take effect by 2030:
        •  Farmers must set-aside 10% of their crop acres.
        •  Mandatory shift to organic farming on 25% of cropland by 2030.
        •  Mandatory 50% cut in the use of chemical pesticides by 2030 — and, a mandatory 30% cut in the use of chemical fertilizer by the same year.
        •  Farmers must shift to “climate neutral” crops (meaning fewer acres of corn and oilseeds).
        •  Farmers must reduce the use of antibiotics by 50%.
        •  Shift from animal protein to plant protein.
        Some countries, like the Netherlands, have expressed the intent to ban all livestock production. 
        Farmers across western Europe have started to protest and protest strongly. You might have seen some of these big protests on the news.  Western Europe’s farmers face two major threats:  cheap wheat and corn crossing borders illegally.   This “green” movement mandatory rules will sharply reduce production across the EU. It is an amazing story that must be closely watched.
        The important upcoming USDA reports will be the March 29 Planting Intentions and Quarterly Stocks estimates.  The talk in the market for months has been three to four million fewer corn acres than last year and three to four million more soybean acres.  Spring wheat acres are expected to drop slightly.
        Sunflower acres could drop another 20% unless prices stage a significant recovery.  That isn’t likely ahead of the planting season.  The unusually warm and open winter across much of the Corn Belt and Northern Plains is signaling a very early start to the planting season. That could result in more corn and wheat acres than expected and fewer soybean acres.
        Sunflower could also gain some acres if producers are worried about current forecasts for a warmer and drier summer than normal. 
        Crop insurance across much of the Northern Plains prevents corn planting until around April 10.
           * Mike Krueger founded The Money Farm, and is now a senior analyst with World Perspectives, a Washington, D.C.-based consulting company.  While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.
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