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Harkin: Ideas Formulating on Farm Bill

Philip Brasher reported in today’s Des Moines Register that, “Under pressure from fellow lawmakers, Sen. Tom Harkin, D-Ia., is coming around to the idea of setting up a permanent fund to provide disaster relief to farmers.

“The chairman of the Senate Agriculture Committee said Tuesday that he’s looking at proposing both a ‘modest’ disaster fund as well as some form of a revenue-protection program sought by corn growers.

“Word from a supporter is that Ag Secretary Mike Johanns plans a ‘major announcement’ next week. (via The Omaha World Herald Online).

“‘I think we can accommodate both, and I plan to do so,’ Harkin told reporters in a conference call.”

The Register article stated that, “The disaster fund is a priority for Max Baucus, D-Mont., the chairman of the Senate Finance Committee, and for Kent Conrad, D-N.D., another influential member of both the finance committee and Harkin’s.”

The article indicated that, “Grassley [Iowa Sen. Charles Grassley, the senior Republican on the finance committee] said earlier Tuesday that he would side with Baucus and favor funding the disaster program over the revenue-protection program, which is backed by the National Corn Growers Association. Harkin is ‘going to have to make the choice: either less money, or do it the way we want it done,’ Grassley said.”

DTN writer Chris Clayton reported yesterday (link requires subscription) that, “Direct payments could be cut across the board or pegged to commodity prices in two scenarios under consideration, the chairman of the Senate Agriculture Committee said Tuesday.

“‘We are looking at those two approaches,’ Sen. Tom Harkin, D-Iowa, said in a conference call with reporters.

“Harkin confirmed senators are looking at the option of changing direct payments. One possibility would be to structure those payments to drop when commodity prices are higher. Harkin, who has been a critic of direct payments, said that is one of the ideas being considered to free up some funds for the rest of the farm bill.”

Mr. Clayton stated that, “Harkin said he thinks there is a way to have a permanent disaster program in the farm bill while also including a revenue-based counter-cyclical program. The Senate is looking at keeping the revenue-based counter-cyclical program as an option for farmers, much along the same lines as the House’s version of the farm bill.”

With respect to the issue of Farm Bill funding, a press release issued yesterday by Senator Saxby Chambliss (R-Georgia) stated that, “U.S. Senator Saxby Chambliss (R-Ga.), Ranking Republican Member on the Senate Agriculture Committee, today urged members of the Senate Finance Committee to work closely with members on both committees on identifying spending offsets during the farm bill reauthorization debate. Sen. Chambliss and five other members of the Senate Agriculture Committee sent letters to Sens. Max Baucus (D-Mont.) and Charles Grassley (R-Iowa) hoping to avoid a partisan divide that plagued House consideration of the farm bill, which was approved in July.

“‘Since the Senate Finance Committee is the likely source of additional revenue, we wish to express our concern that any provisions to offset spending be carefully vetted and discussed with all members of the Agriculture Committee prior to markup,’ the Senators wrote in the letter. ‘We wish to avoid a situation such as that occurred in the House which brought forth an unfortunate series of events, straining the farm bill’s long tradition of bipartisan and multi-regional support.’”

Recall that last week, DTN Political Correspondent Jerry Hagstrom reported (link requires subscription) that, “Senate Finance Committee Chairman Max Baucus, D-Mont., is planning to pay for the trust fund for a permanent agriculture disaster program in his farm-bill-related agricultural tax package by allocating part of the tariff income that the Agriculture Department gets each year, lobbyists said Wednesday. The lobbyists had been briefed by Baucus’ staff.

“Under Section 32 of Agricultural Adjustment Act Amendment of 1935, the Agriculture Department already gets an appropriation equal to 30 percent of the import duties collected on all items entering the United States under the customs laws, plus any unused balances up to $300 million. Section 32 was enacted to widen market outlets for surplus agricultural commodities as one way of strengthening farm prices, but the measure is used mostly today by appropriators to pay for child nutrition programs. The rest of the tariff income goes to the Treasury Department. It is unclear whether Baucus will increase the amount of total tariff income that the Agriculture Department gets or redesignate part of the Section 32 money for disaster aid.”

In an update posted yesterday at the Des Moines Register Cash Crops Blog, Philip Brasher noted that, “The Senate Agriculture Committee is going to vote on its farm bill before Columbus Day. That’s the word today from the chairman, Tom Harkin.

“But it’s still unclear where the Senate Finance Committee is going to get that extra $8 billion to $10 billion to pay for a permanent disaster relief fund and conservation programs.

“Harkin is threatening to go ahead with the farm bill without it.

“‘We can’t wait any longer, we’re going to go,’ Harkin says.

“Finance Committee members say some of that money would come from tariff revenue now deposited in the general treasury. But where’s the money to replace that tariff revenue in the treasury? Aides say that hasn’t been determined.”

And Congressional Quarterly writer Catharine Richert reported yesterday that, “In a worst-case scenario, Senate Agriculture Chairman Tom Harkin says he’ll support a multi-year extension of the 2002 farm bill.

“The Iowa Democrat hopes to avoid an extension, saying he’d like to mark up a new five-year authorization before the Columbus Day recess. But finding extra money to expand conservation, nutrition and rural development programs, paired with competing demands being made by members on and off the farm panel, are making Harkin’s job more difficult.

“If no consensus can be reached in committee, Harkin says a long-term extension of the current law may be necessary.”

Ms. Richert also stated in the CQ item that, “Harkin’s job is complicated by farm bill drafts being circulated by ranking Republican Saxby Chambliss of Georgia and Kent Conrad, D-N.D., which essentially would keep farm subsidies status quo, say lobbyists who have seen those proposals.

“If Harkin hits a major roadblock in negotiations, Conrad hopes his ideas will provide the chairman with a politically and financially viable alternative agreeable to all members of the committee.

“Meanwhile, Finance Chairman Max Baucus, D-Mont., is working on a bill that would provide new tax credits for farmers and create a disaster trust financed by tariffs on agriculture-related imports.”

In other policy developments, a press release posted yesterday at the Senate Agriculture Committee webpage stated that, “A Government Accountability Office (GAO) study released today found that access to commodity programs and to crop insurance is a key factor motivating producers to plow up range land. The report was requested by Senator Tom Harkin (D-IA), Chairman of the Senate Committee on Agriculture, Nutrition and Forestry, and Congressman Collin Peterson (D-MN), Chairman of the House Committee on Agriculture. Both Committees are charged with crafting a new farm bill.

“The GAO found that crop insurance, in particular, is motivating conversion by greatly limiting the risk of producing crops in areas that are marginal as cropland. For example, in the 16 South Dakota counties with the highest rate of conversion, the average net crop insurance payment was more than $13 per acre, nearly twice the payments received in all other counties in the state.”

To view the full GAO report, just click here; while a one-page summary is available here.

The Senate Ag Committee press release also noted that, “‘We need to have farm policy that protects farmers from the vagaries of economic and weather cycles, but also protects the environment from unintended consequences like encouraging crop production on land that should remain in conserving uses like rangeland,’ said Chairman Harkin. ‘Today, rising prices for commodities are creating powerful incentives to put marginal acres into crop production. So the need for federal policy to actively promote good conservation on working land is greater than ever.’

“‘This report confirms what I’ve been hearing in the region about the conversion of marginal land into cropland,’ said Chairman Peterson. ‘The Farm Bill has to balance the demand for land in production with the equally important goals of conservation, and this report points out the need to constantly reevaluate and improve federal policy on these issues.’”

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As the details of the 2007 Farm Bill continue to be debated, Iowa State University Extension Economist Robert Wisner noted on Monday that, “The predicted 26% increase from last year in U.S. corn production should provide ample supplies for this marketing year to meet feed, export, and processing demand and still increase carryover stocks moderately.”

To view an excellent summary chart relating to corn production, see this graph from the latest “Feed Outlook” report by USDA’s Economic Research Service.

The Iowa State Extension item added that, “In contrast, the 18% decline in indicated soybean production almost certainly will tighten supplies substantially by next spring and summer. Tightening soybean supplies will bring a sharp reduction in U.S. carryover stocks by next August 31.”

Dr. Wisner stated that, “In the meantime, to meet growing world demand for soybeans, soybean prices appear likely to be high enough to encourage increased plantings in South America. That region also is likely to see intense competition between corn, wheat, cotton, and soybeans this fall for cropland. Like the corn market last winter, no one knows how high soybean prices will have to be between now and spring to encourage enough production to meet market demand. Soybean futures in the last several days have moved up to new life-of-contract highs for November 2007 contracts, with a substantially higher price being offered for 2008 delivery. With a near-normal growing season in South America, it would not be surprising to see soybean futures prices reach a peak sometime between now and February. However, parts of Brazil and Argentina have had dry weather in recent weeks and need rain to facilitate planting soybeans this fall. With sea temperatures shifting toward a La Niña pattern, climatologists indicate drought risk may be greater than normal in Brazil during its growing season this winter.”

Financial Times writers Peter Smith and Javier Blas reported today that, “Australia’s government yesterday slashed its forecast for this year’s wheat production by almost a third as the country’s drought-stricken farmers faced another year of ruined crops.

“The revision from 22.5m tonnes in June to 15.5m tonnes pushed up wheat prices as the Australian crop was seen as critical to the balance of the market following damage to European and Canadian crops caused by bad weather.

“Wheat prices in Chicago yesterday rose to an intraday high of $8.98 a bushel, approaching last week’s record high of $9.11¼ a bushel. It later pared gains, rising 12 cents on the day to $8.87 a bushel.”

News reports indicated that commodity price levels are having an impact on European agriculture.

Andrew Bounds and Fidelius Schmid reported at The Financial Times Online yesterday that, “Europeans should brace themselves for further food price rises, with increases in the cost of meat set to follow hikes in such staples as bread and milk, Europe’s agriculture commissioner has said.

“Mariann Fischer Boel said that high cereal prices had increased animal feed costs and that farmers would soon have to pass those on to consumers.

“‘We have not yet seen the consequences on wheat prices. Because it is obvious, that, especially for poultry – which is the most cereal-heavy production [method] – you should see prices coming up; on pork as well. Many of the producers are trading on long-term contracts so they have obviously not yet seen the consequences of the high wheat price,’ she said in an interview with the Financial Times.”

In addition, the FT article noted that, “Ms Fischer Boel said this, to some extent, reflected the success of liberal reforms introduced in 2003, with farmers no longer tied to a specific crop by subsidies. ‘Most of this shows we were headed in the right direction. Now farmers can … adapt to the market. They can see where the market is and they can produce to where they think the market is headed.’”

Meanwhile, in an issue with overtones similar to the debate about farm payment levels in the U.S., Financial Times writer Andrew Bounds noted yesterday that, “Europe’s biggest farmers would receive less money under controversial plans drawn up by Mariann Fischer Boel, EU agriculture commissioner, writes Andrew Bounds.

“Ms Fischer Boel wants to reduce subsidies for those receiving more than €100,000 (£70,000, $140,000) a year, and redistribute them to smallholders in return for greener farming, from 2009. Germany yesterday attacked the plans, which have yet to be agreed by the European Commission. The idea is unpopular with the farmers in formerly communist eastern Germany, where thanks to the legacy of large collective farms, landholdings are bigger than in the west.

“A previous Commission plan to cap subsidies at €300,000 was defeated by Berlin and the UK, which also has many big farms.”

Similarly, a Reuters news article posted on Monday at DTN (link requires subscription), stated that, “Europe’s larger farms may see part of their direct EU subsidies docked progressively from 2009 as a way to channel more cash into improving the countryside, EU diplomats and officials said on Monday.

“In a paper due for publication in November, EU Agriculture Commissioner Mariann Fischer Boel will propose increasing the rate at which direct support payments are diverted into rural development projects—a process known as modulation.

“Under the EU’s mammoth 2003 agriculture reform, countries now shift five percent of their direct payments into rural project funding. From 2009, if the bloc’s farm ministers agree, that rate would rise progressively each year up to 2013.”

The article added that, “The increased rates of rural funding would be achieved by removing cash from large-scale farms that, due to their sheer size, already receive high annual subsidies from Brussels.”

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Lastly today, Robynn Tysver reported in today’s Omaha World Herald that, “It looks like Republican Mike Johanns is ready to come home and run for the U.S. Senate.

“Johanns, who is U.S. agriculture secretary, spent part of last week shopping for a home in Omaha, said Michael Kennedy, a Johanns supporter and GOP activist.

“The former governor will have a ‘major announcement’ next week, Kennedy said.

“‘I’m fairly confident Mike’s announcement will be positive for the citizens of Nebraska,’ Kennedy said Tuesday night.

“Johanns’ entry into the race would end months of speculation that he was interested in running for the seat being vacated by U.S. Sen. Chuck Hagel, who is not seeking re-election.”

Keith Good