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Senate Takes Turn at Farm Bill Development

Reuters writer Rodrigo Gaier reported yesterday that, “Brazil said on Monday that the Doha round of global trade talks is not dead and that it is convinced that the negotiations will be concluded successfully…’The (Doha) round is not going to die. It is alive and well,’ Foreign Minister Celso Amorim told reporters in Rio de Janeiro. ‘I’m convinced that the talks are going to be concluded and in a successful way.’”

I. Farm Bill
II. Doha
III. Agricultural Economy

I. Farm Bill

Linda Vanderwerf, writing last week at The West Central Tribune Online (Minnesota) reported that, “Writing a new farm bill, and the arm-twisting that entailed, occupied all of U.S. Rep. Collin Peterson’s time for the first six months of the year. (Rep. Collin Peterson, D-Minn. (Photo from The West Central Tribune Online (Minnesota)).

“This last month has given the first-year House Agriculture Committee chairman a chance to catch up on other issues and adopt a more relaxed schedule. Peterson was in Willmar on Wednesday for meetings with constituents about a variety of issues. He also stopped in the Tribune offices.

“Peterson now awaits the Senate’s farm bill, so that a conference committee can iron out differences.”

The article noted that, “When he started working on the bill in February, he moved into the Agriculture Committee offices and ‘literally never even got over to my personal office for three months.’

“Sometimes he had three meetings going on at once, he said, and some of those meetings were ‘basically me going in and threatening people. … ‘Here’s what we need to do, and you guys are going to have to sign off.’’

“It wasn’t always easy to persuade people to support other programs in order to gain support for their own, he said. ‘There were conversations I had with good friends of mine that I never thought I would have.’

“Involving other members of the committee in some of those meetings helped them understand the varied interests included in the bill.”

The article concluded by noting that, “Some members of the Senate Agriculture Committee like his bill, but Chairman Tom Harkin, D-Iowa, has some ideas of his own, Peterson said.

“The two meet weekly to discuss farm issues, Peterson said, and they have made some progress on resolving their differences before the Senate begins work on its bill.

“If the two bills are similar, it will be easier for them to iron out differences later this year.

“But the Senate has its own politics to deal with, and ‘they’ll have to do what they’re going to do,’ Peterson added.”

With respect to Senate Farm Bill activity, Congressional Quarterly writer Catharine Richert reported on Friday that, “Even before the Senate takes up the 2007 farm bill, key members are split over whether to make substantial changes to farm subsidies or renew the traditional mix of payments.

“A handful of Southern lawmakers, including Blanche Lincoln, D-Ark., and the panel’s ranking Republican, Saxby Chambliss of Georgia, are leaning toward North Dakota Democrat Kent Conrad’s proposal to retain farm subsidies and create a permanent disaster fund, according to aides and lobbyists involved in the discussions.

“Those priorities conflict with Agriculture, Nutrition and Forestry Committee Chairman Tom Harkin’s vision for the farm bill, aides say, and the potential clash between Conrad and the Iowa Democrat is expected to shape the measure’s outcome. Harkin backs an overhaul of commodity payments, increases in nutrition and conservation program funding and has devised a different plan for disaster relief.”

Ms. Richert also indicated that, “Harkin is, however, proposing to link countercyclical payments to the national revenue for each crop — a position that has drawn support from others senators including Sherrod Brown, D-Ohio, and Richard J. Durbin, D-Ill. Currently, the payments are tied to a government-set price, which some say does a poor job of helping farmers through tough times and does not comply with international trade rules.

“According to media reports, Conrad told farmers at a North Dakota meeting that Harkin’s approach probably wouldn’t work there.

“‘Make no mistake — these farm bill negotiations will be a tough fight,’ he said in a statement released after the event.”

Meanwhile, Philip Brasher, writing in Sunday’s Des Moines Register, reported that, “No wonder corn growers want to change farm policy.

“Under an alternative subsidy program they’re pushing in Congress, corn growers could get up to $20 an acre more in annual payments than they’ll get under the current program.

“Farmers who grow soybeans and wheat also would be better off, according to an economic analysis of the plan.

“The plan does all this without a major increase in overall government spending.

“Oh yes, the cost of buying crop insurance also will go down.

“So, who could be opposed to it? Two influential groups – cotton growers and crop insurance companies – that would lose money were it to become law. Five Iowa companies are authorized to sell federally subsidized crop insurance.”

Mr. Brasher also reported that, “Under the current farm program, Iowa farmers would expect to get about 81 cents an acre in countercyclical and loan deficiency payments on their corn crop each year, while subsidies under the revenue plan would average $14.33 per year, according to the economic analysis done by Iowa State economists.

“Farmers in other states could do even better. In Maryland, for example, corn growers would get an estimated $20.13 an acre more.

“Two Democratic senators, Richard Durbin of Illinois and Sherrod Brown of Ohio, have introduced the plan in Congress. But getting other senators to support the plan won’t be easy for the same reason that the plan would cost taxpayers relatively little: It takes money away from cotton growers and insurance companies.”

The Register article explained that, “The House-passed farm bill takes a small step in the direction of a revenue plan by giving farmers the option of basing their countercyclical payments on either commodity prices or changes in national-level revenue. The chairman of the Senate Agriculture Committee, Sen. Tom Harkin, D-Ia., is considering going a step further and switching the countercyclical program to a national revenue basis.”

For a complete, comprehensive and easy to negotiate breakdown of some of the potential economic implications of the Durbin-Brown bill, see this American Farmland Trust webpage.

Chris Clayton, writing at the DTN Ag Policy Blog on Friday, took a closer look at some issues regarding the crop insurance industry.

In part, Mr. Clayton noted that, “There are more concerns being voiced lately on the trials and tribulations of the crop-insurance industry. DTN’s Washington Insider and DTN correspondent Elizabeth Williams both had pieces this week from the industry lamenting the House farm bill.

“House Agriculture Committee Chairman Collin Peterson, D-Minn., also talked with DTN about the industry and his view that perhaps it is time to take a closer look at the profits and costs of crop insurance.”

II. Doha

An AFP article from today stated that, “Australia called Tuesday on the United States to send a ‘powerful signal’ on cutting farm subsidies to break a six-year deadlock in talks on freeing up global trade.

“Australian Trade Minister Warren Truss issued the call after meeting with US Trade Representative Susan Schwab ahead of a summit of 21 Asia-Pacific economies that make up nearly 50 percent of world trade.

“Truss, who also separately met with other regional counterparts, said a US farm bill that will be considered by the Democrat-dominated US Congress in the next few months was a concern.”

The article stated that, “‘Other countries, particularly agricultural producing countries, would like to see the United States make positive steps toward reducing its farm support and that would send a very powerful signal for the rest of the world,’ Truss told reporters.

“‘So yes we want the US to take action in relation to farm subisidies both in the context of its current farm bill but also in relation to the Doha round.’

“Truss said a US farm bill that ‘increases support or one which maintains some of the existing levels of farm subsidies is an unhelpful signal.’”

Reuters writer Rodrigo Gaier reported yesterday that, “Brazil said on Monday that the Doha round of global trade talks is not dead and that it is convinced that the negotiations will be concluded successfully.

“‘The (Doha) round is not going to die. It is alive and well,’ Foreign Minister Celso Amorim told reporters in Rio de Janeiro. ‘I’m convinced that the talks are going to be concluded and in a successful way.’”

And an article posted today at The Hindu Online stated that, “As negotiators from across the globe settled down in Geneva to resume the multilateral trade talks on Monday, India expressed the hope that the rich nations would provide the leadership by pruning their subsidies on agriculture and removing the distortions in global farm trade.

“‘We do hope that developed countries will provide a leadership role and not thwart the process of Doha negotiations,’ Commerce and Industry Minister Kamal Nath said.”

Financial Times writer Andrew Ward indicated in an article from yesterday that, “Christine Lagarde, French economic minister, last week said she did not expect a global trade deal in the foreseeable future because the divisions among WTO members remained ‘too wide’.

“Her comments reflected widespread pessimism about the chances of progress, amid mounting protectionist sentiment in the US and Europe and unresolved differences between rich countries and the developing world.”

III. Agricultural Economy

On Friday, USDA’s National Agricultural Statistics Service (NASS) issued their monthly Agricultural Prices update.

In part, the NASS report stated that, “The August all wheat price, at $5.85 per bushel, is up 68 cents from July and $1.94 above August 2006; the corn price, at $3.17 per bushel, is down 15 cents from last month but $1.08 above August 2006;” and, “The soybean price, at $7.49 per bushel, decreased 7 cents from July but is $2.26 above August 2006.”

For a graphical depiction of wheat and corn prices received in the NASS report, click here, while a soybean prices received graph can be viewed here.

Recall that Friday’s FarmPolicy update noted that USDA’s Economic Research Service (ERS) indicated on Thursday that, “Cash receipts for corn have benefited from the higher farmgate price in 2007 (up around 90 cents per bushel from 2006). Rising corn prices are the result of a projected 60-percent jump in ethanol demand. Currently, 119 ethanol refineries in the United States have the capacity to produce 6.2 billion gallons per year, expected to soon double capacity through new construction and expansion of existing facilities. The forecast for corn exports in 2007 is up slightly from last year.

“Cash receipts for soybeans are expected to rise by $2.6 billion, reflecting rising prices (over $1.50 per bushel). Marketings in the early months of 2007 are from the record 2006 harvest (3.2 billion bushels), but the 2007 crop is expected to be 18 percent (563 million bushels) smaller. The demand for soy oil to produce biodiesel has more than doubled since 2005, with biodiesel capacity projected to expand greatly in 2007.

Wheat cash receipts are expected to rise by more than $2.3 billion in 2007. Wheat, like soybeans, competes with corn as a feed source so wheat prices, which started to rise in late 2006 and continued in 2007, are expected to average a record $5.20 per bushel in 2007. Even with these high prices, U.S. wheat exports are forecast to rise in 2007 by nearly 18 percent. Global wheat production in 2007 is projected to continue to lag behind world demand, and ending stocks are expected to fall to their lowest level since the early 1980s.”

Javier Blas reported on Saturday at The Financial Times Online that, “Chicago Board of Trade December wheat rose above the $8-a-bushel level to an all-time high of $8.07¾ a bushel. Profit-taking later sent prices a ¼ cent down on the day to $7.84¼ a bushel.

“Wheat prices surged almost 10 per cent on the week in Chicago and more than 15 per cent in the European market.”

Iowa State University Agricultural Economist Robert Wisner explored some issues associated with higher wheat prices in the latest edition of the Iowa Farm Outlook.

Dr. Wisner stated that, “ Another connection between wheat and corn prices will be in competition for cropland. Depending on the timing of the soybean harvest, farmers along the eastern edge of the Great Plains, as well as in the eastern Corn Belt and South will have a strong incentive to plant part of this year’s soybean acreage to winter wheat. The temptation to do so is further strengthened by a strong soybean market that reflects tightening supplies that result from this year’s 15% decline in U.S. soybean plantings. From the southern part of the eastern Corn Belt into the south central and southeastern U.S., high soybean prices offered for delivery in the fall of 2008 will make double cropping beans after wheat potentially more attractive than planting corn on those same acres. The eastern Corn Belt had an estimated 3.3 million planted wheat acres this year.”

And strong market prices are not limited to grains and oilseeds. Wayne Arnold reported in today’s New York Times that, “Driven by a combination of climate change, trade policies and competition for cattle feed from biofuel producers, global milk prices have doubled over the last two years. In parts of the United States, milk is more expensive than gasoline. There are reports of cows being stolen from Wisconsin dairy farms.

“‘There’s a world shortage of milk,’ said Philip Goode, manager of international policy at Dairy Australia in Canberra.

“But the biggest force driving up milk prices is the same one that has driven up prices for conventional commodities like iron ore and copper: a roaring global economy. Rising incomes in emerging economies from China and India to Latin America and the Middle East are lifting millions of people out of poverty and into the middle class.”

Despite robust price levels for many sectors of the agricultural economy, Thursday’s ERS report nonetheless noted that, “Total production expenses are forecast to rise $17.4 billion (7.5 percent) to a record-high $249.9 billion in 2007.”

With respect to production expenses, a press release issued recently by the American Farm Bureau Federation stated that, “Although the Agriculture Department has revised its 2007 net farm income estimate up $20 billion to a record $87.1 billion on the strength of higher livestock and crop prices, the glass is only half full for America’s farmers since farm production costs are also escalating, according to the American Farm Bureau Federation.”

Recall that USDA’s National Agricultural Statistics Service (NASS) released a report on August 2, entitled, “Farm Production Expenditures- 2006 Summary,” which stated that, “U.S. Farm Production Expenditures totaled $235 billion in 2006, up 5.4 percent from the revised 2005 total of $223 billion.”

These two graphs, located in page five of the NASS report, provide the best overview of current and recent trends in U.S. farm production expenses (notice the sharp upward trend starting in 2003). Note that “rent” was a leading cost variable, representing about 7.8% of production expenses.

Keith Good