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FT: “US and EU Near Farm Trade Deal”

I. Doha-Canadian Corn Case
II. “Two Farm Bill Debates”- How Much Money and How it Will be Allocated
III. Renewable Fuels- Additional Budget Allocations?
IV. Farm Bill- Ethanol, Conservation
V. Market Dynamics
VI. Farm Bill Opinion

I. Doha-Canadian Corn Case

Eoin Callan and Alan Beattie, writing in today’s Financial Times, reported that, “Trade negotiators from the US and European Union have reached the brink of an agreement that could restart stalled world trade talks, according to people familiar with the discussions.”

The article added that, “The proposed outline of an agreement between the world’s two largest trading blocs includes politically explosive concessions that are already causing rifts in Europe and alarm in the US farm lobby.

“The fragile deal that is starting to emerge has yet to be finalised and comes amid tremendous uncertainty about whether negotiators can get the political backing to achieve a breakthrough in the Doha round of trade talks.”

More specifically, Callan and Beattie stated that, “The deal that has been taking shape behind closed doors includes a proposal by Brussels to cut barriers to foreign agricultural products by an average of at least 54 per cent and a conditional offer by the US to lower the ceiling on its domestic farm subsidies to close to $17bn (€13.1bn, £8.6bn).”

The FT article also noted that, “This tentative pact represents a significant advance beyond entrenched battle lines over farm policy that have impeded wider trade talks for years. Both sides have also explored yet deeper cuts to tariffs and subsidies, according to people familiar with the dialogue.

“An official said: ‘We are trying to get to the absolute limit of what is politically feasible without falling off a cliff.’”

The authors also reported that U.S. executive branch officials had met with leaders from Congress, and that House Agriculture Committee Chairman Collin Peterson “said after the meeting that he remained deeply critical of US trade policy but was not determined to wreck a Doha deal that included meaningful benefits for US farmers.”

A Reuters news article published in today’s Wall Street Journal added that, “Ministers from around the world will gather in a Swiss resort this week for their most important discussions on how to save global-trade negotiations since they broke down last year.

“Time is running short for a World Trade Organization deal that could boost economies and the flurry of contacts and number-crunching in Davos will indicate whether the impasse can be broken soon or will drag on for years, negotiators say. ‘Davos will be important as a weather vane,’ said a European Union official. ‘It probably won’t go into full ministerial negotiating mode. What’s important will be the political signal, and the strength of it, to facilitate resuming negotiations.’”

In other trade news, regarding the Canadian corn case, Reuters news indicated on Friday that, “Brazil and Guatemala have moved to join Canada’s challenge of U.S. subsidies for corn farmers, which Ottawa says depress corn prices in Canada, Canadian officials said on Friday.

“Brazil has written to the United States requesting to be a third party in a 60-day consultation period on U.S. supports for its corn farmers, said Rob Krystynak, a Canadian embassy official in Washington.

“Guatemala has also requested to become a third party, said spokeswoman Renee David at Foreign Affairs and International Trade Canada in Ottawa.”

The article also pointed out that, “Consultations are expected to begin by February 8 unless the two countries agree to a later date.”

II. “Two Farm Bill Debates”- How Much Money and How it Will be Allocated

In addition to trade considerations, budget allocation issues will also be a key factor as the Farm Bill debate unfolds.

A news release issued on Friday by the American Farmland Trust (AFT) indicated that, “American Farmland Trust says the 2007 Farm Bill must have increased budget authority to meet these needs and expand the public benefits of this far-reaching legislation. ‘It’s very unfortunate that just at the time there is a clearer picture of where we could be investing public dollars in agriculture to lead us into the 21st century, there is apparently going to be declining funds for the next farm bill,’ [AFT President Ralph Grossi] says.”

The release added that, “Grossi explains that current high grain prices, driven by surging interest in renewable fuels, means there may be as much as seven to eight billion dollars a year less in the agriculture baseline when the federal budget figures are released this quarter. ‘It means we are obligated to ensure that we can justify and explain how increased funding will benefit the public,’ Grossi adds. ‘So we have two farm bill debates this year: first in the Budget Committee to determine how much money we will
have to spend, and then in the agriculture committees to decide how to allocate it. As the public, we have to decide how much money we want to allot to feeding the hungry, cleaning up the environment, on rural development and improving our diets, and much more.’”

Scott Wente, writing on Saturday at the Grand Forks Herald Online, reported that, “[Senator Kent Conrad’s (D- ND)] new post as Senate Budget Committee chairman will give the North Dakota Democrat considerable leverage on financial issues. He ascended to the chairmanship after Democrats recaptured control of Congress.”

Mr. Wente also pointed out that, “The country faces a dire fiscal crisis, and many lawmakers don’t even understand it, Conrad explained while sitting in his Capitol Hill office after the 110th Congress convened earlier this month.

“While many in Washington talk of reducing the federal budget deficit – which some estimates pin at more than $300 billion – little attention is given to the country’s growing debt, he said. The debt was $4.6 trillion at the end of 2005, the Congressional Budget Office said.”

Nevertheless, the article added that, “Still, many expect Conrad to demonstrate his influence in other ways, including in how the next federal farm bill is written later this year.

“While the budget committee doesn’t allocate federal dollars, Conrad’s panel will propose how much money other committees get to spend. That includes funding for agriculture, an area Conrad said he will treat more generously than has been in the past.”

And also on a budget related issue, Alex Daniels reported in Friday’s Arkansas Democrat Gazette that, “Members of Arkansas’ House delegation continued this week to sort out committee assignments, with Democratic Reps. Marion Berry and Mike Ross receiving waivers from leadership to serve on an additional panel.

“Berry was tapped to serve on the Budget Committee. Already a member of the Appropriations Committee, a so-called ‘A’ committee, Berry wasn’t allowed to serve on another panel without getting a waiver.”

Mr. Daniels stated that, “Last year, Berry had asked for a waiver so he could serve on the Agriculture Committee as it tries to write new farm policy this spring.

“Berry said most of the ‘real battles’ facing Congress will be dealt with in Budget and Appropriations. ‘The farm bill is going to depend on what the Budget Committee does and what the Appropriations Committee does,’ he said.”

III. Renewable Fuels- Additional Budget Allocations?

When it comes to money for renewable fuel initiatives, anecdotal evidence suggests that federal dollars may not necessarily be so scarce.

A Reuters news article from Friday explained that, “Congress should make ‘bold investments’ to develop ethanol and other renewable fuels nationwide, the chairwoman of the House Appropriations Subcommittee on Agriculture [Representative Rosa DeLauro (D-Connecticut)] said on Friday.”

The article noted that, “DeLauro suggested an acceleration in research into renewable energy. Congress also could consider loans, grants, credit guarantees and public-private partnerships to help the industry take root, she said.

“‘I think we have an opportunity (in renewable energy),’ she said, comparing it to public highways and rural electrification as aids to economic growth. ‘My sense is we need to make bold investments…’”

(However, the article stated that, “During a session to outline her plans for the year, DeLauro said the subcommittee’s first hearing, in early February, would look at U.S. food safety efforts.” For more on food safety issues, see this National Public Radio broadcast from January 14, “California Produce Industry Nears New Guidelines.”)

And, Representative Sander Levin (D-Michigan) noted in an update posted at The Hill Blog on Friday that, “It’s time for Congress to face the facts and begin to break our nation’s dangerous addiction to oil. The industry tax breaks and royalty holidays that we sought to eliminate yesterday no doubt serve the interests of the big oil companies, but they do not serve the interests of our nation’s long-term energy security or, for that matter, the interests of taxpayers, consumers and the environment.

“Rather than continue business as usual, yesterday we began to chart a new course to energy security. The legislation before the House repealed $13 billion in egregious tax subsidies and royalty holidays that had been given to the oil companies in recent years. Instead, we will invest these funds in clean, renewable energy that is made here in the United States, including solar, wind, biomass, and biofuels. We will also invest in new energy technologies and develop policies to stimulate investment and deployment of energy efficient products and services. Investing in alternative fuels and new energy technologies is also an investment in jobs here in America.”

Philip Brasher reported in Saturday’s Des Moines Register that, “Billions of dollars could be available for new alternative energy sources, including ethanol made from crop residue and grasses, under a bill Democrats have pushed through the House.

“The measure would roll back oil-industry subsidies, raising as much as $15 billion, and would set aside the money for biofuels and other alternative energy sources such as wind and solar.

“The move was applauded by the ethanol industry, even though it’s not clear the measure will become law.”

Mr. Brasher also indicated that, “Bob Dineen, president of the Renewable Fuels Association, said money should be put into grants and loan guarantees already authorized by Congress to build biorefineries that can convert sources of plant cellulose, such as residue from corn plants, into ethanol.

“‘Congress could provide the kind of jump-start to cellulosic ethanol production that was envisioned when these programs were passed,’ Dineen said.”

IV. Farm Bill- Ethanol, Conservation

Associated Press writer Nafeesa Syeed reported on Saturday that, “U.S. Senate and House agriculture committee heads stopped short Saturday of calling for an overhaul of the 2002 Farm Bill, instead emphasizing the need for alternative fuel crops that protect the environment and provide habitat.

“Sen. Tom Harkin, an Iowa Democrat and chairman of the Senate Agriculture Committee, said corn alone will not be enough to produce ethanol if the country wants to develop viable energy alternatives and gain self-sufficiency.

“The answer ‘is to move more aggressively toward cellulosic conversion to ethanol,’ to crops such as switchgrass, which can also serve as nesting grounds for wildlife that are important to hunters, he told a standing-room only crowd of about 300 at a national farm bill forum at the Pheasants Fest 2007 in Des Moines.”

The A.P. story added that, “Harkin said his idea is to give farmers money to convert land protected under the last farm bill’s Conservation Reserve Program to grow ‘energy crops that are by their very nature conserving crops.’

“Tapping into that land must be approached with caution, said House Agriculture Committee Chairman Rep. Collin Peterson, D-Minnesota, who also spoke at the forum.

“‘What I’d like to do is add acres on top of the CRP to do some experimentation with switchgrass and mixes of switchgrass and other crops … to see how they work,’ Peterson said.

“Both lawmakers said they would consider U.S. Department of Agriculture recommendations, but did not see the need for an overhaul of the existing farm bill framework.”

Jerry Perkins, writing in yesterday’s Des Moines Register, noted that, “A federal conservation program that pays farmers to leave cropland idle drew bipartisan support Saturday in Des Moines from two congressional leaders who will help form agriculture policy.

“U.S. Sen. Tom Harkin, D-Ia., and U.S. Rep. Collin Peterson, D-Minn., chairmen of the Senate and House agriculture committees, said critics who want to cut back the Conservation Reserve Program will have a fight on their hands.”

The Register article explained that, “Critics say the program should be cut back so more land can be used to grow corn for ethanol production. They also say it hurts young farmers because it removes land from the rental market and cuts income for farm supply businesses.”

V. Market Dynamics

Curt Thacker reported in today’s Wall Street Journal that, “A tug of war could develop between meat packers for available hog supplies before the end of the decade if processing capacity increases as currently planned and production cutbacks occur because of skyrocketing corn prices.

“U.S. hog-slaughter capacity is expected to expand within the next two to three years while swine production is expected to eventually decline. As a result, one or more existing older and less efficient plants could close.

“The growing ethanol industry’s corn demand has boosted feed prices since the autumn. Hog prices through December were high enough to keep producers in the black, but the combination of lower prices and high feed costs likely will result in negative returns for at least some producers during the first quarter.

“The demand-driven rise in corn prices, unlike past surges caused mainly by periodic drought problems, is expected to last for the foreseeable future because of ethanol.”

Debbie Carlson reported today at Barron’s Online that, “Nothing cures high prices like high prices, the trading adage goes, and that’s been true in the wheat market lately. Lured by 10-year highs in prices, farmers worldwide have been plowing land to plant the grain. London’s International Grains Council noted in December that wheat plantings in the northern hemisphere would likely rise 4%, to 154 million hectares, in 2007-’08, reversing last season’s decline.

“So will all the new supply soon bring big price markdowns? Probably in the 10% to 15% range, analysts say.

“The U.S. Department of Agriculture says American farmers have sowed 10% more winter wheat than they did last year. India, which in ’06 became a net wheat importer for the first time in six years, is expected to plant its biggest crop ever. Australia, where savage droughts cut output by 60% last year, could see production rebound.”

Elton Robinson, writing last week at the Delta Farm Press webpage, reported that, “U.S. cotton producers are expected to plant almost 10 percent fewer acres in 2007, one of two factors that should lead to higher prices, according to an analyst speaking at the 2007 Beltwide Cotton Conferences in New Orleans.

“Jarral Neeper, Calcot, Ltd., Bakersfield, Calif., says the largest regional reduction in acreage is expected to come in the Mid-South where cotton producers are expected to make significant shifts in acreage to corn, which is currently in the middle of a bull market.

“Neeper projects planted acreage for 2007 in the United States at 13.9 million acres, down 9.2 percent from 2005. That includes a 16 percent decline in the Mid-South, a 6 percent decline in the Southeast and a small decline in Texas and Oklahoma.”

VI. Farm Bill Opinion

Ken Cook, of the Environmental Working Group, posted a comment last week at The Mulch Blog on the issue of direct payments.

In part, Mr. Cook noted that, “Some subsidy lobbyists, notably former Ag Committee Chair Larry Combest, are now bragging that taxpayer costs are ‘lower’ than the outrageously high levels set in the 2002 farm bill, but the reason is the surge in corn, soybean and wheat prices–not the wisdom or frugality of the subsidy lobby. Maybe that’s one reason why Mr. Combest is afraid to accept my invitation to debate farm subsidy issues.

“These fixed payments pose less of a challenge to WTO compliance than the price-triggered subsidies (countercyclical payments and various marketing loan payments). But it is hard to defend making payments to some farmers of a few favored crops every year no matter what the market prices might be. Why aren’t cattlemen given a direct payment because they’ve raised cattle for a time? Why aren’t peach growers or asparagus producers sent a few thousand dollars a year…simply because they’ve grown peaches or asparagus before?

“It is especially hard to defend automatic payments when market prices are high and bringing subsidy crop farmers strong returns, as they are now for corn, soybeans and wheat.”

An editorial posted at the Baltimore Sun Online yesterday stated that, “American farmers already grow too much corn, and this year they’re likely to grow more. Demand is at an all-time high – but for all the wrong reasons.

“Most of the corn produced this year will go toward ethanol production, feed for poultry and livestock, and processed sweeteners. But corn cultivation, because it is so reliant on fertilizer, exacts an unacceptable environmental toll. On top of that, there are better crops to make ethanol out of, there are healthier crops to feed to farm animals, and Americans themselves would be better off not consuming so much corn syrup. Corn’s advantage is that it’s abundant and therefore cheap; one reason it’s abundant is that corn producers receive billions of dollars in federal subsidies.

“This year, Congress will take up a new farm bill, and it’s a good time for an overhaul.”

-Keith Good