Brexit Impact on Agriculture, Markets, Immediate

Britain’s exit from the European Union is projected to take years, but the impact on U.S. agriculture is immediate. Britain voted to leave the EU on Thursday, and many British farmers seemed to prefer the exit because they were upset over EU regulations. However, those same farmers will lose massive amounts of farm subsidies, according to the Hagstrom Report. British farmers have often complained about the European Common Agricultural Policy but also have opposed measures restricting subsidies. For the UK will no longer be included in the Trans-Atlantic Trade and Investment Partnership negotiations. Britain will have to negotiate trade deals of its own. The United States is currently the single largest investor in Britain. The U.S. sells near $2 billion of agriculture and food products to Britain each year.

Vermont Governor Concerned with U.S. Senate GMO Bill

Vermont’s Governor says a national GMO labeling standard makes sense, but Peter Shumlin says he has deep concerns regarding the Senate’s bill. Vermont Public Radio reported Shumlin is concerned because the Senate compromise would delay labeling “for several years,” and allows the food manufacturer to choose how to disclose the information. Shumlin signed the Vermont mandatory labeling law in 2014. The Senate bill would supersede Vermont’s law and prohibit states from setting their own labeling requirements. It would also give the U.S. Department of Agriculture two years to finalize the national regulations. Many agriculture groups applauded the compromise announced by the Senate Agriculture Committee last week, recognizing the need for a national standard, rather than a patchwork of state laws. The legislation does not come in time to completely block the Vermont law, as the House is on recess until July 5th. It is also still unclear if the Senate has enough votes to pass the legislation. A voluntary GMO labeling bill failed on a procedural vote in the Senate earlier this year.

Bayer Shareholder Approval Not Needed for Potential Monsanto Acquisition

Bayer AG says the company does not need the approval of shareholders to acquire Monsanto. In a legal filing, an executive from Bayer wrote “a shareholder vote is not required by German law." The statement comes after Bayer had spent more than a month trying to warm shareholders to the idea that buying Monsanto is good for business, according to the St Louis Business Journal. The St Louis, Missouri Based Monsanto has rejected an offer by German-owned Bayer. Bayer reportedly has secured $63 billion in financing but has not publicly stated if it's presented another offer to acquire Monsanto. Monsanto rejected the initial offer and also rejected a request for information to justify Bayer increasing its bid. Monsanto said it would only release more details if Bayer boosted its offer, stalling the efforts.

Data Coalition Forms Farmer Advisory Board

Last week, the Agriculture Data Coalition formed a farmer advisory board aimed at helping guide the coalition as it develops a data management repository to house agricultural information. The ten member board features members from seven states who raise crops ranging from corn and soybeans to cotton, sorghum, wheat and potatoes. One of the coalition’s founder members, Keith Coble of Mississippi State, says the members will “provide invaluable insight into the unique needs of these different regions and their various crops." ADC is entering a pilot phase, and many advisory board members will be among the first to work with ADC to drive short and long-term user needs, according to the Coalition. ADC's mission is to create a neutral, independent warehouse where farmers can securely store and control the data generated by their tractors, harvesters, aerial imaging and other devices.

Great Britain Votes To Leave EU

(DTN) -- In a historic move that will have major long-term implications on trade and markets, voters in Great Britain surprised the world by voting Thursday to leave the European Union.

David Cameron, Great Britain's prime minister, announced Friday morning he was resigning after the vote of 17.4 million (52%) to leave versus 16.1 million (48%) to remain in the EU trading bloc.

DTN analysts reported on market reaction throughout the night. As expected, European Equity markets took a hit shortly after Friday's open. London's FTSE 100 was down about 500 points, Germany's DAX was off more than 1,000 points, and France's CAC 40 was down 350 points. Asian markets continue to trade lower with Japan's Nikkei off roughly 1,290 points.

With the exception of gold, the commodity sector in general was hit by heavy investment fund selling due to the explosive rally in the USDX. Crude oil initially dropped $3.40, or about 7% of its price, in a short period of time while grains continued to be pummeled. July corn fell as much as 10 1/2 cents while July soybeans moved 20 1/2 cents lower. Even Chicago wheat, where noncommercial traders already held a net-short futures position, fell 12 1/2 cents.

As DTN Senior Analyst Darin Newsom wrote, after an initial rally the British sterling fell to a 35-year low while the U.S. dollar index (USDX) rallied 3.174 (3.4%) from Thursday's close. Reflecting a race to safe haven markets, gold gained $99.50. That's right, just four bits short of a $100 rally.

Global equity markets were in full panic selling mode with Japan's Nikkei losing about 1,300 points (8%) ahead of what was expected to be a crushing open in European markets. As expected London's FTSE 100 fell about 500 points, Germany's DAX dropped more than 1,000 points, and Frances CAC-40 dipped 400 points.

"What was interesting though, within the first hour, was the FTSE 100 started to rebound. Was it a case of nothing more than a dead-cat bounce, or as chatter started to pick up on, was the Brexit vote more troublesome for the rest of Europe more than the U.K.?," Newsom said.

The U.S. dollar index moved upward quickly after the vote and remained firm early in the morning, up 1.840, while gold was still holding a gain of $57.

In U.S. equity markets, the Dow Jones Industrial Average futures were down 500 points early, off session lows but still pointing at a sharply lower open later Monday morning.

European equity markets remain under pressure across the board with London's FTSE still doing better than indexes seen over the rest of Europe.

DTN's market coverage will continue in our normal Before the Bell, Quick Takes, and Closing analysis.

The British departure leaves world leaders wondering how to treat the Great Britain. President Barack Obama and other U.S. officials before the vote said they had no plans to negotiate separate trade deals with Great Britain compared to Europe. At the same time, the U.S. government has always maintained a special, separate relationship with Great Britain so any pre-vote posturing will have to be immediately re-evaluated. The White House did not release any immediate statements following the vote but it is likely the president will have more to say on Friday.

German Chancellor Angela Merkel called for Europeans to remain "calm and composed" in the wake of the vote and insisted that the EU would continue to have close ties to Britain. Still, Merkel also called the vote "a turning point" in the EU.

The vote is seen as a nationalist rebuke of European policies on immigration and refugee resettlement from war-torn areas such as Syria. By separating itself from EU policies, Britain will likely be able to tighten its borders. Voting patterns showed much of England voted to leave the EU while Scotland voted to stay with the Europeans. Voting in Ireland appeared more mixed.

However, the vote will have long-term implications for agriculture and markets as well. The UK was a net importer of food and bought $2.7 billion in U.S. agriculture, fish and forestry products in 2014, according to USDA. That's compared to $13 billion in U.S. agricultural exports to major EU members as a whole.

DTN Political Correspondent Jerry Hagstrom noted British farmers were believed to have voted heavily in favor of leaving the EU. Still, the departure also means British farmers will lose massive amounts of farm subsidies. The UK has often complained about the European Common Agricultural Policy, but it has also opposed measures restricting subsidies to large farms because the UK has had some of the largest farms within the EU.

The UK's departure also means that a major voice in favor of genetic modification will be missing from EU debates in the future. The vote for Great Britain to exit the EU -- known as "Brexit" -- also means the UK will no longer be part of the TransAtlantic Trade and Investment Partnership negotiations.

The EU agricultural lobby Copa-Cogeca issued a statement noting the group is still analyzing the impact on agriculture of the vote, based on both EU institutions and UK government decisions, but noting a key point will be to avoid any further disruption to the European agriculture market.

"It's crucial to maintain market stability," the group stated.

New DOL Rules Require Farmer's Review

(DTN) -- Agriculture's 24/7 workload poses special issues for payroll. Most farmers assume they are not required to pay overtime for any farm work performed by their employees, points out Paul Neiffer, a CPA with CliftonLarsonAllen in Yakima, Washington. But given the new rules imposed by the Department of Labor starting December 1, you need to carefully review that policy and the impact on your labor expense, he advises.

The Department of Labor announced final regulations on new overtime rules May 18, greatly expanding who qualifies for overtime treatment.

"Direct" agricultural work still is generally exempt from overtime, so if you're pressed to run full speed during planting and harvest, you simply pay field hands their hourly rate multiplied by time worked. Immediate family members employed on farm also are completely exempt from overtime rules. Neither of those exemptions have changed, says Angie Ziegler who advises clients on payroll issues for the accounting firm of EideBailly in Mankato, Minnesota.

WHERE IT GETS COMPLICATED

However, today's farms also include a number of business entities, some which will qualify as "farm" and some which may not. Frequently non-farm sidelines can include commercial trucking, custom hire work or perhaps a commercial grain elevator. In those cases, the work performed is no longer exempt from overtime rules.

For example, hourly employees who haul for someone other than the farm would need to be paid time-and-a-half on hours that exceed 40 hours per week. That's the case, even if they worked 40 hours on the farm and 20 hours for your trucking company.

"The problem is there aren't a lot of specific rules and regulations on this. This is not something that's been pinned down by the Department of Labor. But that's my educated guess, based on discussion with attorneys and reviews of revenue rulings," Neiffer says.

The big change in a new Labor Department rule is white-collar employees who have been paid more than $455 per week ($23,660 per year) and were exempt from overtime in the past because of their job category. In the past, managers, administrative staff and technical workers who worked on farms were still considered farm labor. "As long as they were paid at least $455 per week, they were entitled to nothing for overtime," Neiffer says.

Beginning Dec. 1, 2016, however, the overtime-wage standard for white-collar jobs jumps to $913 per week, or $47,476 per year. "White-collar" employees who earn less than $47,476 a year and who work in non-farm businesses must be paid overtime at time-and-a-half for all hours above 40 hours a week.

However, "white-collar" employees who work for the farm and earn under the $47,476 salary threshold -- and are not involved in any non-farm sideline businesses -- won't need to be paid time-and-a-half, Neiffer emphasizes. Still, these workers will need to be paid their flat hourly wage for all hours above 40 hours per week, he says.

"Under the old rules, a farm's white-collar workers were no big deal since almost everyone earned more than $23,000 a year if they were on salary, so they weren't collecting any overtime pay. But with non-taxable benefits like housing and company vehicles, many farm employees do earn less than $47,476 a year and will now need some compensation for those excess hours," Neiffer says.

It's common at certain times of the year that a farm's clerical staff or other managers put in 60 or more hours per week, so there's a chance that farm labor costs will go up if employers don't monitor the situation, EideBailly's Ziegler says. Besides salary, the rules could affect FICA taxes and retirement plans.

"Farm employers may need to work out their options," she says. "They can jump salaried employees to a higher pay rate to avoid overtime rules; keep them at current salary and pay overtime; convert salaried workers to hourly workers; or reduce an employee's hourly wages but pay over-time that will keep them at their current annual earnings."

Roberts, Stabenow, Announce GMO Labeling Compromise

Senate Agriculture Committee Members, Chairman Pat Roberts and ranking Democrat Debbie Stabenow released a GMO labeling law Thursday that would preempt state laws, such as the one taking effect July first in Vermont. The bill would require mandatory labeling of most foods with genetically modified ingredients but with labeling options. The bill offers companies a choice of providing an on-package label or a symbol or scannable electronic label, according to the Hagstrom Report. The law would preempt state labeling laws but gives the U.S. Department of Agriculture two years to develop the labeling standards. Stabenow said the bill ensures that organic producers can clearly display a “non-GMO” label, but is “also a win for our nation’s farmers and food producers.” Roberts says the legislation recognizes the 30-plus years of proven safety of biotechnology and urged Senators to support the bill. He called the legislation “a far better alternative than Vermont’s law.” Grocery Manufacturers Association CEO Pamela Bailey said the compromise is “the commonsense solution for consumers, farmers and businesses,” and urged the Senate to quickly pass the bill.