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Johanns on Farm Bill Direction

The Associated Press reported yesterday that, “The Doha round of global trade talks has made more progress than people realize and a deal could be close on key issues, a senior EU official said Monday…’While everybody has said that the talks are failing they have in fact been moving forward and we nearly have a deal on the key issues,’ EU Trade Commissioner Peter Mandelson told the Council on Foreign Relations in New York.”

I. Farm Bill Issues
II. Doha
III. Biofuels- Commodities

I. Farm Bill Issues

Reuters writer Charles Abbott reported yesterday that, “The best way to strengthen the farm safety net is to add a provision that protects farmer income, Agriculture Secretary Mike Johanns said on Monday, rejecting the idea of an ever-ready disaster relief program.


“‘The more you study it, the more sense it makes for farmers,’ said Johanns, referring to so-called revenue-based counter-cyclical payments. They take yields and prices into account. Counter-cyclicals now are based on price alone.

“Johanns lauded revenue-based counter-cyclical payments while meeting 250 members of the National Farmers Union, which wants the new farm subsidy law to authorize disaster relief to farmers and ranchers whenever severe losses occur.”

Mr. Abbott pointed out that, “Disaster-relief authority is a priority for the NFU and its allies in Congress for inclusion in the farm law being written this year. Two senior members of the Senate Agriculture Committee, Democrats Max Baucus of Montana and Kent Conrad of North Dakota, support it. The committee chairman, Democrat Tom Harkin of Iowa, prefers revenue-based counter-cyclicals.”

Chris Clayton, writing yesterday at the DTN Ag Policy Blog, reported that, “Johanns, Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, and groups such as the National Corn Growers Association and American Farmland Trust want to reform counter-cyclical programs to pay farmers on a per-acre revenue trigger instead of a national price trigger. The issue with these programs comes down to the best — and most affordable — way the new trigger would be defined on a county, state or national revenue.

“But Senate Finance Committee Chairman Max Baucus, D-Mont., holds the purse strings for budget offsets. Baucus has said he may be able to find up to $10 billion for the farm bill, but he wants to set aside half of those funds for a permanent disaster program. Farmers Union will hold a press conference Wednesday with Baucus to drive home their point.”

Mr. Clayton noted that, “The problem with a permanent disaster program, Johanns said, is trying to budget it. Then there is no assurance of just how much it would cost regardless of what is budgeted. If a program paid $2 billion a year in disaster payouts to farmers, then it budgets out at more than $20 billion over 10 years built into the USDA budget.”

Philip Brasher, writing yesterday at the Des Moines Register’s Cash Crops Blog, noted that, “Agriculture Secretary Mike Johanns went before members of the National Farmers Union Monday to defend the administration’s threat to veto the House-based farm bill, legislation that group likes.

“He focused on two issues: The bill’s million-dollar means test for farm subsidies and the tax measure that the Democratic leadership added to the bill on the House floor.”

II. Doha

Reuters news reported yesterday that, “World trade talks have made a lot of progress in the past year but the final outcome will depend largely on the willingness of advanced developing countries to open their markets, U.S. Trade Representative Susan Schwab said on Monday.

“‘We’re going to know in the next four to six weeks how that’s going to play out,’ Schwab said in a speech at the U.S. Chamber of Commerce.”

The article added that, “She did not mention any countries by name. However, a group of developing countries that includes Brazil and India complained loudly in July about the industrial goods text.”

The Associated Press reported yesterday that, “The Doha round of global trade talks has made more progress than people realize and a deal could be close on key issues, a senior EU official said Monday.

“‘While everybody has said that the talks are failing they have in fact been moving forward and we nearly have a deal on the key issues,’ EU Trade Commissioner Peter Mandelson told the Council on Foreign Relations in New York” [full transcript available here].

The AP article added that, “Brazil and India have criticized the United States for its failure to offer deep enough cuts in farm subsidies, which critics claim unfairly deflate international prices, making it impossible for poorer nations to develop their economies by selling farm produce abroad.”

Also yesterday, Dow Jones News writer Riva Froymovich noted that, “Peter Mandelson, European Union commissioner for trade, stressed Monday the importance of concluding the Doha round of trade talks to counter economic crises.

“At an event hosted by the Council on Foreign Affairs in New York, Mandelson said the stalemate of the Doha Round is delaying what the world needs most now: an insurance policy against recession as a credit crunch’s impact widens beyond the U.S.”

The article went on to explain that, “‘At a time when our economies may be at risk as a result of the turbulence in the financial markets, the Doha world trade round offers insurance against protectionism and recession,’ Mandelson said.

“The disagreements on agricultural issues between the E.U. and U.S., while important, are distracting and confuse what is most important to economic development today, he said.

“The bulk of E.U. and U.S. businesses are engaged in goods and services, not agriculture, said Mandelson.

“‘Agricultural interests are dwarfed by what the U.S. stands to gain’ in goods and services, he added.”

And Dow Jones News writer Carolyn Henson noted yesterday that, “Mandelson said the E.U. is ready to do a deal and said he believes the U.S. is as well.

“‘I know it is politically difficult in the U.S., but all of us need to see beyond the limits of agricultural protection and grasp the gains where the huge bulk of our trade takes place, in manufacturing and services,’ he told the council.”

III. Biofuels- Commodities

Jerry Hirsch, writing in today’s Los Angeles Times, reported that, “From pastries to pasta, the price of just about everything made with wheat is going up.

“Blame the trend on a biblical bout of bad weather — drought, freezes and floods — that has decimated wheat crops and created shortages around the world.

“Wheat futures hit a record of $8.87 a bushel in Chicago trading last week before retreating to $8.75 on Monday. Still, that’s a huge jump from $3.95 a year ago.”

The L.A. Times article indicated that, “Bad weather, however, isn’t the only factor influencing the cost of the grain. Experts say many farmers have planted less wheat and switched production to corn, in part to capitalize on growing demand for ethanol.

“But with prices now so high, wheat farmers are expected to plant new acreage — which should ease prices, Nictakis [Bill Nictakis, president of the fresh bakery division at Sara Lee Corp.] said. But he said he doubted that prices would fall back into the under-$4 range, where they had hovered for nearly a decade.

“‘It is going to settle, but it is going to settle at a significantly higher price than we have seen,’ Nictakis said.”

In a related article, DTN writer Chris Clayton reported yesterday (link requires subscription) that, “Global stocks are playing a bigger role in fueling high wheat prices than are acres shifting to corn, but the high prices for three major commodities — corn, soybeans and wheat — will spur a bigger fight for acres over the next year, USDA’s chief economist said Monday.

“USDA Chief Economist Keith Collins took umbrage Monday with a weekend article in the Washington Post that attempted to peg high wheat prices to the demand for ethanol and the crunch for acres. [Collins spoke to more than 200 members of the National Farmers Union Monday at USDA headquarters.]”

The DTN article noted that, “High grain prices and higher beef, pork and poultry prices have led to more criticism linking the price spikes to higher grocery bills and tying it all back to ethanol production. Collins acknowledged it is difficult to refute that the biofuel economy has spurred higher commodity prices, but more issues than the number of acres dedicated to biofuel feedstocks have played into the current wheat price spike.

“‘That has nothing to do with ethanol,’ Collins said. ‘That continues to astonish me.’

“Collins noted this year’s wheat crop was planted before corn prices took off. The high price of corn had no factor in wheat planting, Collins said. The key factor stems from smaller crops in Canada, the Ukraine, Australia and the European Union, Collins said.

“‘All of those things have created a shortage of wheat in the world,’ Collins said. ‘Now, that’s not to say ethanol won’t be a factor in years to come, I think it will be, but it hasn’t been to this point.’

“Without putting out a number, Collins said he expects to see more winter wheat acres planted this fall.”

Recall that the latest “Wheat Outlook” report, which was published by USDA’s Economic Research Service on September 14, stated that, “The world wheat production forecast for 2007/08 declined 4.2 million tons to 606.2 million, with reductions for the EU-27, Australia, and Canada more than offsetting increased prospects in the former Soviet Union.”

Tom Polansek reported in yesterday’s Wall Street Journal that, “The focus is on Australia’s production potential because unfavorable weather has slashed output in other key producing regions, such as Europe and the Black Sea area, which helped to set this year’s wheat rally in motion. The Agriculture Department last week pegged world ending stocks for wheat at 112.4 million tons, a three-decade low.”

And Associated Press writer Lauren Villagran reported yesterday that, “In Chicago, agriculture futures rallied as wheat began the week on a higher note, extending eight straight weekly gains.

“Concerns about a troubled Australian wheat crop underpinned prices. Analysts expect Australia’s harvest to range from 18 million to 20 million tons, compared with more typical production of 26 million to 28 million tons, said DTN analyst Gary Wilhelmi; the Australian government releases its estimates on Tuesday. In a wheat market that is so sensitive, the report will shape the trade, Wilhelmi said.

“Supplies of wheat worldwide have grown exceedingly tight, as poor weather damaged crops in major producing region this year. December wheat jumped 29 cents to settle at $8.75 a bushel on the Chicago Board of Trade, after earlier rising 30 cents, the daily limit allowed. The contract is still off its record high of $9.07 a bushel on Wednesday.”

Meanwhile, an Associated Press article from yesterday focused on corn; “The U.S. Department of Agriculture on Wednesday raised its already-high expectations for the crop to 13.3 billion bushels, which would be an all-time high and 27% more than last year’s 10.5 billion bushels.

“Those figures don’t usually mean much outside of farm country, but the size of this year’s crop figures heavily in two areas Americans who don’t farm tend to think about a lot: fuel and the price of food.

“Farmers planted so much corn – 92.9 million acres, almost 20% more than last year – to meet the demand for the fuel additive ethanol. And economists say the diversion of corn from livestock and poultry feed is likely to drive up food prices for at least a few years.”

The AP article concluded by saying, “Ethanol demand has increased rapidly the past few years with increases in gasoline prices and calls for alternatives to oil-based fuels [related item on oil prices available here]. Grain farmers in turn increasingly see corn as a moneymaker.

“‘If this ethanol takes off like it could, the price of corn’s gonna be really good for a few years,’ Winkelmann [Illinois farmer Kyle Winkelmann] said.”

As the current corn harvest continues and the supply picture becomes clearer, farmers will respond to the market price signals of various program crops when considering how much corn, wheat and soybeans to plant next year.

An extension item released yesterday by the University of Illinois explained that, “The USDA will release new production forecasts in October and November and a final production estimate in January 2008. The production forecasts are based partly on a survey of producers who report actual and/or expected yields. The October forecast will capture a large sample of actual yield results. In addition, the October report will incorporate ‘administrative’ information (primarily from the Farm Service Agency) on actual planted acreage. Based on historical patterns of changes in the monthly production forecasts, it would not be surprising if the October and/or November corn production forecasts exceed the September forecast, particularly if northern crops avoid significant freeze damage.

“The actual size of the 2007 crop and the magnitude of year ending stocks are not only important for the price of the 2007 corn crop, but have significant implications for the magnitude of corn acres that may be needed in the U.S. in 2008. If ethanol production proceeds as expected, an additional one billion bushels of corn may be required during the 2008-09 marketing year. Much of that may be supplied out of carryover stocks of the 2007 crop, limiting the need for increased corn acreage in 2008. The magnitude of the needed increase in corn acreage will have significant implications for corn and soybean prices if U.S. winter wheat acreage is increased and if South American producers make only a modest increase in soybean acreage. More corn acres will likely be needed in 2009.”

Biofuels production and market prices for program crops are also impacting the value of farmland.

Jerry Perkins
, writing in today’s Des Moines Register, reported that, “Rapidly rising farmland prices have slowed in the last six months as more land comes on the market, a survey released Monday shows.

“Iowa farmland prices rose 7.1 percent in the six-month period ended Sept. 1, according to the Iowa Farm and Land Chapter No. 2 Realtors Land Institute.

“Since last fall, prices of Iowa farmland have increased at a record rate of 20.7 percent, said Troy Louwagie of Hertz Real Estate Services in Mount Vernon, chairman of the land institute’s survey committee. The previous record annual increase was 20.2 percent, which was recorded in 1988, Louwagie said.”

Mr. Perkins also stated that, “For the first time since the survey began in September 1978, the price of farmland topped $5,000 per acre in one of the nine Iowa crop reporting districts. That occurred in central Iowa, Louwagie said, where the best farmland averaged $5,064 per acre.”

The Register article noted that, “Among the factors affecting the rise in farmland prices mentioned by survey respondents, Louwagie said: higher corn and soybean prices, increased demand from ethanol and biodiesel plants, a limited amount of land for sale, good crop yields, a positive attitude about future farm profits, low interest rates and tax law exchanges.

“Negative impacts on farmland prices mentioned by survey respondents were uncertainties over government programs and increased costs of fuel and fertilizer, Louwagie said.”

Keith Good