I. Johanns- U.S.D.A.’s Farm Bill Proposal
II. Agricultural Economy- Ethanol’s Impact
I. Johanns- U.S.D.A.’s Farm Bill Proposal
Joseph Morton, writing in today’s Omaha World-Herald, reported that, “Despite the challenges, [U.S. Secretary of Agriculture Mike Johanns] said he is still enjoying the job and even spoke highly of recent trips to Capitol Hill, where he faced some tough questions in trying to sell Congress on his 2007 farm bill proposal.
“But Johanns’ background in farming and politics seems to have served him well so far. The son of an Iowa dairy farmer, Johanns was governor of Nebraska when he was named agriculture secretary by President Bush.
“Members of Congress may have had some pointed questions for Johanns during the recent hearings, but they also praised his sincerity and indicated a willingness to work with him.”
The Omaha World-Herald published an article in today’s paper (“Despite challenges, Johanns enjoys work as agriculture secretary”), which highlighted U.S. farm policy and U.S. Secretary of Agriculture Mike Johanns.
The article noted that, “Senate Agriculture Chairman Tom Harkin, D-Iowa, has denounced the Bush administration on various agricultural issues, including what he describes as inadequate funding to support renewable energy sources such as ethanol. But Harkin gave Johanns high marks for supporting conservation programs and promoting bio-based products. He said some of Johanns’ budget-related proposals are simply the result of whom he works for.
“‘After all, Mike’s boss is the president,’ Harkin said.
“Johanns doesn’t shy from supporting his boss. While the president’s approval ratings have declined greatly over the past few years, Johanns said his admiration of Bush has only increased. Coming from Texas, Bush is on top of agricultural issues, Johanns said.
“‘I don’t need to give him a 20-minute briefing on something,’ he said. ‘This is a guy who understands agriculture.’
“Johanns isn’t publicly discussing his future political aspirations, but he has been mentioned as a possible Republican candidate for the Senate in 2008 if Sen. Chuck Hagel, R-Neb., decides not to run for re-election.
“As for the rest of his time as secretary, the farm bill will dominate his schedule this year, but he said he also wants to tackle animal identification, avian influenza and agri-terrorism. And, of course, trade issues will continue. He said he would like to see the latest round of World Trade Organization negotiations completed, which could ease restrictions on foreign trade.
“‘Farmers are hugely productive here – they’re really good at what they do,’ Johanns said, ‘but we’ve got to find markets for their products.’”
An editorial published on Sunday in at the TriCityHerald webpage (Washington State), indicated that, “A proposed federal farm bill could see some local farmers losing their subsidies and others gaining much needed dollars for research, development and marketing.
“Under the administration’s proposal, the subsidy program largely would remain intact, but farmers with adjusted gross incomes of more than $200,000 could see their payments eliminated.”
The opinion item stated that, “While the specialty crop growers may not go so far as to say they want to see subsidies for crops like wheat and corn dropped to benefit their own kinds of produce, they are organized and demanding their fair share of government dollars this time around. Their crops are just as valuable to our economy — if not more valuable — than staple crops, they argue.”
The editorial also noted that, “The battle over farm subsidies, which opponents liken to welfare for farmers, has waged for years. Powerful Midwest lobbyists representing corn and wheat interests have expertly preserved their funding through it all.
“But with specialty crop growers evolving into a more powerful force — economically and politically — the time has come to share the bounty.
“Research and development is a smart focus. America must continually create new efficiencies to keep U.S. farms competitive.”
Philip Brasher addressed a different aspect of the administration’s Farm Bill proposal in an article that was published in Sunday’s Des Moines Register: How to assist beginning farmers in their quest to be successful and competitive producers.
Mr. Brasher reported that, “Agriculture Secretary Mike Johanns, a former 4-H member, has put the issue on the table with a series of proposals to Congress designed to help young or minority farmers get started in the business. His ideas include easier terms on government loans and higher fixed payments for crops that the government subsidizes, mainly grain and cotton.
“In the Midwest, that bigger payment could mean an extra $5 an acre in income per farmer.”
However, the Register article stated that, “Three-fourths of young farmers polled in Iowa, Nebraska, South Dakota and Wyoming said that land availability was the chief problem they faced, according to a survey by Farm Credit Services of America.
“Land values in parts of Iowa are hitting $6,000 an acre because of the booming demand for corn and soybeans, farmers and others say, and that means land rents may explode as landlords start demanding a cut of the higher commodity prices. Some landlords are asking farmers to pay as much as $80 an acre more this year.
“‘What’s happened to our land values right now is devastating’ for beginning farmers, said Mike Duffy, an economist who runs Iowa State University’s Beginning Farmer Center.
“The extra subsidy Johanns is proposing won’t come close to compensating for the increases in land costs, he said.”
Last week, in an article posted at the Delta Farm Press webpage, Forrest Laws highlighted how some of the administration’s proposals could impact cotton producers.
Mr. Laws stated that, “In proposals announced in Washington and in Tunica, Miss., and Des Moines, Iowa, Jan. 31, Johanns wants to revise the marketing loan by basing rates on a five-year Olympic average and capping them at the levels of the House-approved version of the 2002 farm bill.
“The marketing loan for cotton would drop from 52 cents to 45.7 cents. For corn, the rate could fall from $1.95 to $1.89 per bushel. Johanns proposes to take the savings — about $5 billion, he says — and increase direct payments.
“Because cotton prices have been relatively low in recent years while corn, soybean and wheat have been relatively high, Johanns would increase the direct payment for cotton from the current law’s 6.67 cents per pound to 11.08 cents per pound in 2008-09.”
However, Mr. Laws added that, “Increased direct payments might sound appealing, but any decrease in loan rates reduces the ability of cotton growers to obtain financing, resulting in either ‘a smaller loan or no loan at all,’ according to one Mid-South agricultural economist.
“The other fly in the ointment is direct payments typically get passed on to the land through higher land prices or higher cash rents. Landowners have also been known to cancel rental agreements and take the entire payment.”
Robert Pore focused on some of the administration’s ethanol research proposals in an article posted on Saturday at the Grand Island Independent webpage.
Mr. Pore noted that, “The U.S. Department of Agriculture’s farm bill proposal doesn’t include funding for research on corn-to-ethanol processing, particularly as it relates to the ethanol co-products that are fed to livestock, according to the Nebraska Farm Bureau.
“State Farm Bureau President Keith Olsen has sent a letter to Secretary of Agriculture Mike Johanns and the chairmen of the House and Senate agriculture committees on the issue.
“He said that to sustain grain-based ethanol systems over the long term, it’s imperative that the USDA and others in the federal government continue to make research funding for grain-based ethanol systems a priority.”
With respect to research associated with cellulose ethanol technologies, a McClatchy newspaper article from Sunday reported that, “All that’s standing between the United States and the world’s first cellulose ethanol plant is an obscure Washington office staffed by one federal contractor.
“The office in the U.S. Department of Energy opened last summer to provide federal loan guarantees for producing clean energy and innovative technologies.
“However, its sole employee hasn’t been able to do more than open the mail. More than 100 so-called pre-applications for loan guarantees have arrived, only to be shelved because the Department of Energy hasn’t had the money to hire more staff to assess them.
“Among the applications is one from Iogen, a Canadian biotechnology company incorporated in Idaho that wants to open a $500 million plant near Idaho Falls. It would be the first in the world to produce cellulose ethanol, which can be used in today’s cars, on a large commercial level.
“Iogen expects to turn out annually 20 million to 50 million gallons of the renewal biofuel, which is made from switch grass and such crop waste as corn stalks and barley, oats and wheat straw. Iogen already has contracted with 320 farmers in southeastern Idaho, who could collectively reap $25 million to $35 million a year, according to some estimates.
“Though it’s more complicated and expensive to make ethanol from tough cellulose fibers than from corn, the Department of Energy has said that more ethanol, at a ratio of 2-to-1, will have to come from cellulose to achieve President Bush’s goal of increasing the renewable fuels supply by 35 billion gallons in 10 years.
“Yet Iogen can’t start building its Idaho cellulose ethanol plant until it gets the federal loan guarantee it applied for last year.”
II. Agricultural Economy- Ethanol’s Impact
Associated Press writer Julie Watson reported on Sunday, in an article datelined from Ciudad Serdan, Mexico, that, “International corn prices driven by the burgeoning U.S. ethanol industry have soared to their highest in a decade, making farmers like Zacaula feel like they just won the jackpot.
“‘I have never seen prices like this,’ said Zacaula, 66, who has been growing corn since he was 10. ‘We suffered for so many years, years in which no one even wanted to buy our crop – until now.’
“Corn had languished about $2.00 a bushel for years before the ethanol boom caused prices to soar, reaching $4.04 a bushel this month. Corn prices should reach new highs over the next five years, according to Keith Collins, chief economist for the U.S. Department of Agriculture.”
The A.P. article added that, “Collins predicts U.S. farmers will need to plant 90 million acres of corn by 2010 – nearly 10 million more than now – to meet demand of the rapidly growing U.S. ethanol industry. And that means world markets will need to turn to corn-producing regions such as Latin America to fill the gap if U.S. exports drop.
“Latin America’s corn farmers are gearing up for such a possibility, snatching up land and blanketing their fields with corn after decades of struggling to compete against cheap, U.S.-subsidized imports. They hope to sell more domestically, and maybe even export more corn.
“Brazil and Argentina, the Western Hemisphere’s biggest corn exporters after the U.S., are expecting near-record harvests in 2007. Also in the top 10 is Mexico, corn’s birthplace, and farmers here are rapidly boosting production.”
In a focused look at the U.S. corn export market, University of Illinois Agricultural Economist Darrel Good noted yesterday (“A Closer Look at U.S. Corn Exports”) that, “In addition to increased demand from Mexico, U.S. corn exports have benefitted from at least four other factors. First, a continuation of relatively small exports from China has provided the U.S. with a larger share of the world market. South Korea, for example, has purchased about 10 million bushels more U.S. corn this year than purchased last year as a result of the limited supply of corn from China. Second, a small 2006 corn crop in Argentina resulted in a 200 million bushel reduction in Argentine corn exports, also providing the U.S. with a larger share of the export market. Third, the small world wheat crop of 2006 likely increased world demand for corn. Fourth, strong world demand for corn will push consumption to a record level, forecast at 28.7 billion bushels during the current marketing year.
“The strong world demand for U.S. corn has been one of the factors contributing to the significant strength in corn prices over the past 5 months. However, demand for U.S. corn may weaken somewhat over the next several months. The rebound in Argentine corn production suggests increased competition for U.S. corn. Record production in Brazil this year may also result in another 30 or 40 million bushels of exports from that country. Finally, a significant rebound in world wheat production could soften the demand for U.S. corn. The wild card will continue to be the magnitude of Chinese corn exports.
“The strength of export demand for U.S. corn will be important as U.S. corn production struggles to keep up with domestic demand for ethanol production. Softer export demand, along with a significant increase in U.S. corn production in 2007, would provide a little more breathing room in the tightening supply and demand balance sheet.”
Meanwhile, Iowa State University Agricultural Economist Robert Wisner noted in last week’s Iowa Farm Outlook that, “With enough new ethanol plants currently under construction to double the industry’s capacity, it looks clear that a large increase in corn plantings will be needed this year. That prospect appears likely to keep old-crop July corn futures in a trading range of about $4.10-$4.50 per bushel (with some chance of a brief break to $3.96) until prospective acreage becomes more clear from USDA’s March 30 planting intentions report.”
Later in the Iowa State report, Dr. Wisner stated that, “Both the corn and soybean markets for the last several months have been supported by (1) the need for corn prices high enough to slightly ration domestic corn feeding and export demand and (2) the need for a sharp increase in corn plantings this spring to over-come the current large production-use gap and a sharp increase in corn processing for ethanol that is almost certain to occur in the 2008-09 marketing year. Indications that farmers are planning a substantial shift of cropland from soybeans and cotton to corn has strengthened soybean prices. The acreage shift points to a tightening of U.S. soybean supplies next season and most likely for the next few years. However, the percentage strength in bean prices has been much less than in corn. A year ago, corn and soybean prices in north central Iowa were $1.78 and $5.33 per bushel, respectively. On February 14, 2007, they were $3.74 and $6.86 per bushel. In other words, cash corn prices in this part of Iowa today are 110% higher than a year ago while bean prices are up 29%. The more limited response of the soybean market reflects (1) indications that greater strength in soybean prices would trigger expanded South American plantings next fall and (2) potential difficulty in making biodiesel from virgin soybean oil competitive with other alternatives if bean prices were sharply higher. At least half-a -dozen alternative feedstocks can be used to produce biodiesel. Alternatives include recycled cooking oils (yellow grease), corn oil, cottonseed, sunflower, rapeseed, and palm oils, and animal fats. In contrast, corn is the main feedstock for producing ethanol at this time.”
DTN continued their Farm Bill Lobbyist series with an update yesterday posted at DTNAG.com.
Yesterday’s article stated that, “Kirk Ferrell is trying to explain to Congress the law of unintended consequences.
“A top lobbyist for the National Pork Producers Council, Ferrell is used to getting his message across. The NPPC has always had influence in Congress and USDA where some of the pork lobby’s officers often find second careers in government. The NPPC’s Washington staff also has convenient access from an office just a block from the U.S. Capitol, part of a complex housing some of the nation’s major lobbying groups in every area of industry.
“Still, Ferrell, a 52-year-old Iowa native, fears pork producers will struggle to establish a strong voice as debate about the 2007 farm bill grows. This sixth installment of our series on farm bill lobbyists looks at how the NPPC will be approaching that debate.
‘”Unfortunately, I’m fearful that’s going to be a defensive situation,’ Ferrell said.”
The DTN article noted that, “For NPPC, the 2007 farm bill is about doing no harm. Don’t harm the livestock industry with more incentives for ethanol production. Don’t adopt tough competition rules or a ban on packer ownership. Don’t cater to animal-rights activists who are trying to dictate production practices such as banning gestation crates or antibiotic treatments.
“Pork producers were among the first to point out that too much expansion in ethanol will hurt the livestock industry. Hogs can only handle up to about 15 percent of distilled-grain products in their diet. They need whole corn rations in their meal. Pork producers discovered this problem early in states such as Iowa where cheap corn made the state both the top pork- and ethanol-production state in the country.
“‘This is a landscape-changing event when you start using your food-production system and turn it into an energy-production system,’ Ferrell said.”