Dan Morgan reported in this morning’s Washington Post that, “Thanks to the application of a little last-minute budgetary magic, the farm bill before the Senate this week authorizes about $10 billion in new subsidies, price guarantees and disaster aid in the next decade, even as farmers report near-record profits.
“There is a new $5.1 billion ‘disaster trust fund,’ as well as a revenue insurance program that would increase taxpayer costs by $4.7 billion over 10 years, according to the Congressional Budget Office. Spread through the huge bill are gains for producers of wheat, milk, sugar, peanuts, barley, oats and honey, and a new $1 million-a-year subsidy earmarked for camelina, a seed used to make biofuels.”
“Few predicted that outcome a few months ago,” the article said.
Mr. Morgan indicated that, “Fiscal conservatives and a broad coalition of farm program critics were primed to pare back the subsidies. President Bush, stung by a barrage of criticism after he signed a 2002 farm bill laden with billions of dollars in new subsidies, was on the side of the reformers.”
“But in a surprising turnabout engineered by key farm-state lawmakers, the bill on the Senate floor builds strongly on the price guarantees and supports included in the controversial 2002 legislation, which authorized $73 billion more in subsidies, food stamps and other agriculture-related spending. The Senate bill is more generous than a House version that passed in July.”
More specifically, regarding the Average Crop Revenue program proposal, the Post article explained that, “Farmers choosing the program, which would start in 2010, would no longer be eligible for traditional farm subsidies. But budget officials predict that tens of thousands of farmers growing corn, wheat or soybeans will opt for it because traditional payments stand to be sharply reduced in coming years because of higher commodity prices.
“The plan is backed by the National Corn Growers Association and is sponsored by Sens. Richard J. Durbin (D-Ill.), Sherrod Brown (D-Ohio) and [Ag Committee Chairman Tom Harkin (D-Iowa)].
“In a Nov. 1 estimate, the Congressional Budget Office (CBO) determined that the program would reduce government costs by $2.4 billion between 2008 and Sept. 30, 2017 — the official window for judging whether a program conforms to the pay-as-you-go budget rules.
“Those savings would occur because farmers enrolling would forgo traditional federal price guarantees and direct payments during the budget window.
“But the CBO said that about $11 billion in revenue-guarantee payments would be made after the 2017 cutoff date. So instead of reducing expenditures, the new program would actually cost $4.7 billion, after some delayed savings are factored in.”
The Post article also stated that, “The costs of the disaster program and other new farm bill initiatives would be offset in part by tightened tax rules on business. The tax changes, which would raise at least $15 billion in new revenues through 2017, were approved last month by the Senate Finance Committee and then attached to the farm bill to meet budget requirements.”
Concluding, Mr. Morgan pointed out that, “Last week, Sen. Saxby Chambliss (Ga.), ranking Republican on the Agriculture Committee, fired back at critics of farm program spending, noting that commodity programs now claim only a 14 percent share of the $288 billion Senate bill, half the share of five years ago.
“‘There is a significant reform just in terms of pure dollars,’ he said.
“Budget analysts say that is due less to declining spending on farmers than to runaway growth in the food stamp program, which is also funded in the bill. The number of recipients has jumped from 19 million in 2002 to nearly 27 million, boosting 10-year cost estimates by almost $200 billion.”
Meanwhile, Congressional Quarterly writer Adrianne Kroepsch reported on Friday that, “The Senate returns to the farm bill Tuesday, with Democrats and Republicans at loggerheads over how to handle the amendment process.
“Consideration of the $288 billion measure stalled a week ago, after Majority Leader Harry Reid, D-Nev., said amendments would have to be germane to the bill. Republicans protested by holding up debate.
“Reid then asked Republicans to prioritize their non-germane amendments, and aides said a list was circulating by the end of the week. Those proposals would be in addition to the nearly 100 farm-related amendments already filed.
“A GOP leadership aide said before the weekend that a procedural compromise was nowhere in sight, however. Minority Leader Mitch McConnell, R-Ky., was continuing to push for an unrestricted floor debate, the aide said.”
And DTN writer Chris Clayton reported yesterday (link requires subscription) that, “The architect of a proposed tighter payment limit said he expects senators will take up the payment-cap amendment early Tuesday when the farm bill returns back to the Senate floor for debate. However, it’s likely the farm bill won’t be done until after Thanksgiving.”
Mr. Clayton stated that, “Grassley and Sen. Byron Dorgan, D-N.D., have proposed changing farm payments by establishing a hard cap of $250,000 in the Senate farm bill. The current version of the farm bill would cap direct payments at $40,000 and counter-cyclical payments at $60,000 while getting rid of the three-entity rule. The main difference, however, is that the current bill proposal would allow unlimited marketing-loan gains. Grassley and Dorgan would cap those marketing-loan gains at $150,000 per farm.
“Southern lawmakers in rice- and cotton-growing areas are going to put up strong resistance against the payment limit, Grassley said. He is concerned particularly about two strong Southern senators, Sen. Saxby Chambliss, R-Ga., and Sen. Blanche Lincoln, D-Ark., who will resist a tighter payment limit.”
Brownfield’s Tom Steever noted yesterday that some farm organizations are expressing concern about the slow pace of the legislative process on the Farm Bill.
Mr. Steever reported that, “The waning Congressional session is causing unease for soybean growers. American Soybean Association CEO Steve Censky is anxious for disputes to be cleared up over which farm bill amendments will be ruled in order.
“‘As of right now, that impasse doesn’t show any signs of breaking and that’s very frustrating for us,’ Censky told Brownfield from his office in St. Louis, referring to the contention that some proposed changes to the bill are not germane to U.S. farm policy. ‘We really are running out of time to get a farm bill done this year,’ he said.”
Joseph Morton reported in today’s Omaha World Herald that, “Sen. Ben Nelson, D-Neb., and other lawmakers are pushing to expand production of ethanol, even as some critics sharpen their attacks on the unintended consequences of the biofuels boom.
“Nelson, Sen. John Thune, R-S.D., and Sen. Pete Domenici, R-N.M., have introduced an amendment to the pending farm bill that would raise the required use of renewable fuels.
“Producers already are required to blend 7.5 billion gallons of gasoline with renewable fuel by 2012. That mark may be surpassed by the end of 2007. The new standard would be 36 billion gallons by 2022.”
“The new, higher federal requirements could help keep the boom going,” the article said.
Mr. Morton added that, “About 24 percent of this year’s U.S. corn crop is expected to be used for ethanol. That represents an increase from the 20 percent last year. But total corn production is forecast to rise from about 10.5 billion bushels last year to a record 13.3 billion bushels.
“Corn not used for biofuel production goes directly to food, is turned into food additives such as high-fructose corn syrup or is fed to livestock that eventually winds up on someone’s dinner plate, said Jerry Norton, a grain analyst at the World Agricultural Outlook Board.
“‘We’re still using the predominant share of our corn for some (livestock) feeding or food use,’ he said.”
In a related article regarding the sharpened attacks on corn-based ethanol production, Lauren Etter reported in today’s Wall Street Journal that, “A coalition of world ethanol-industry leaders called on the United Nations yesterday to disavow ‘rogue’ and ‘apocalyptic’ statements made recently by one of its representatives.
“In August, Jean Ziegler, a representative of a U.N. body that researches food issues, released a report that called for a five-year moratorium on food-based biofuel production. In that report — citing Cuban President Fidel Castro who earlier this year said ‘it is a sinister idea to transform food into fuel’ — Mr. Ziegler said that he was ‘gravely concerned that biofuels will bring sudden hunger in their wake.’ He later referred to the practice of using food crops for biofuels as a ‘crime against humanity.’
“In response yesterday, Bob Dineen, president of the Washington-based Renewable Fuels Association, joined a consortium of world biofuels leaders in calling on U.N. Secretary General Ban Ki-moon to review the claims made by Mr. Ziegler.”
A copy of the letter that the consortium sent to the UN Secretary General can be viewed here.
Bloomberg writer Shruti Date Singh, in an article from yesterday, provided a look at how oil prices are having an impact on the price of sugar, which is also used as a feedstock for ethanol production.
The article stated that, “Sugar ended the week with its sharpest drop in a month because of a new wave of speculation that rising global production would overwhelm increased demand for the crop to make ethanol, after crude oil prices fell from a record high last week.
“The International Sugar Organization said on Aug. 24 that the global sugar surplus would reach 10.8 million metric tons in the year ending Sept. 30, 2008, up from 10.3 million a year earlier.
“The price of oil is down 2.8 percent from a record on Nov. 7, curbing demand for alternative fuels like ethanol made from sugar cane.
“‘If you are going to see any negative move in crude, you are going to see that reflected in sugar,’ said Rohit Savant, a commodities analyst with CPM Group in New York. ‘Fundamentally, sugar is still bearish for the next one year or so. Crude is providing the support.’”
Nonetheless, the article pointed out that, “‘The current surplus will limit sugar upside in the near-term. However, lagged production responses and higher production costs, combined with increased demand for ethanol, should present significant upside to sugar prices in the long-term,’ said Hussein Allidina, a research analyst for Morgan Stanley.”
And with respect to federal energy legislation, John M. Broder reported in today’s New York Times that, “When the Senate passed an energy bill in June, crude oil was trading near $65 a barrel, the highest price in a quarter-century. When the House acted six weeks later on markedly different legislation, oil had passed $70.
“Then nothing happened. Oil prices continued to climb while members of Congress bickered among themselves and sniped at the White House.
“Lately, the price of crude oil has flirted with $100 — it settled Monday at $94.62, down $1.70 — and some analysts have projected $4-a-gallon gasoline by spring. Lawmakers may finally be preparing to act, most likely on a less ambitious set of energy-saving measures than those passed by either house this summer.
“Leaders in both houses predicted action on a scaled-down package of energy measures before Congress breaks for Christmas, including some form of higher fuel-efficiency requirements for cars and trucks and incentives for alternative fuels.”
Interestingly, the Times article pointed out that, “Experts and members of both major parties agree that the single most effective way to address the problem of American oil imports and consumption is to improve the efficiency of cars and light trucks, which use roughly 70 percent of all oil burned here.”
Doha / Trade
Reuters writer Laura MacInnis reported yesterday that, “Developing countries are deeply divided about how to advance troubled talks over a new global trade deal, and few ministers will attend a meeting this week meant to show their unity, diplomats said on Monday.
“Brazil invited nearly 30 top officials from emerging nations to Geneva to discuss next steps for the six-year-old Doha round of World Trade Organisation (WTO) talks, which are mired in tensions between rich and poor countries.
“Ministers from India, South Africa, Indonesia, Paraguay, Tanzania, Uruguay, along with vice-ministers from Cuba and Ecuador, will participate, but most members of the Group of 20 or ‘G20’ developing-power negotiating block are not sending ministers to the session on Thursday.”
The Reuters article added that, “Though poorer nations have mainly stood together in talks in agriculture, calling on rich nations to cut price-distorting subsidies and tariffs, they have been at odds in parallel negotiations over manufacturing.”
Dow Jones News writer Gerald Jeffris reported yesterday that, “Brazil’s president Luiz Inacio Lula da Silva on Monday said his country is interested in moving forward with the Doha round of World Trade Organization talks, not in blocking a deal, the Estado News Agency reported.
“Lula made the declaration in a phone conversation with U.K. Prime Minister Gordon Brown, according to Brazilian Foreign Relations Minister Celso Amorim.
“Amorim said Lula also communicated to Brown his hopes that WTO partners could reach an ‘ambitious and balanced’ agreement on Doha this week at a meeting of representatives from the Group of 20 developing nations in Geneva.”
And in a more general look at global agricultural trade and U.S. farm subsidies, Associated Press writer Garance Burke reported yesterday that, “Growing cotton has rarely been a more risky proposition than it is now, which is precisely why cotton farmer Frank Williams is planning to sow his fields with wheat.
“From Williams’ California fields to the Texas plains, farmers are plowing under cotton – once the king of U.S. agriculture – to seed crops that make more money.
“Cotton also has lost ground for another reason that became apparent last week as the Senate debated the 2007 farm bill: The U.S.’s cotton subsidy program is enmeshed in a global trade battle.
“In October, the World Trade Organization ruled subsidies handed out to American cotton farmers broke international trade laws, opening the door for foreign countries to levy billions of dollars in penalties against the U.S.”
The AP article stated that, “The current bill on the Senate floor leaves those programs virtually intact, despite the threat of further legal complaints and concerns that international sanctions ultimately could cause layoffs and patchy unemployment. Last week, the Bush administration threatened to veto the multibillion-dollar farm package wholesale, saying the Senate bill would impair negotiations with the WTO.
“For Williams, that risk, coupled with predicted water shortages, is too much to bear.”
With respect to U.S. cotton production, the article explained that, “This year, cotton acreage nationwide dropped 28%, hitting an 18-year low at 11.1 million acres, according to the U.S. Department of Agriculture. Acreage dropped by about 22% in Texas, the national leader, and by nearly 20% in California, which ranks seventh in domestic production.
“The sharpest declines were in the Southeast and Mississippi Delta regions, where drought has parched fields that grew the crop since before the Civil War.”
Concluding, the AP article stated that, “‘This farm bill will continue the practice of giving subsidies to U.S. producers,’ said Emerson Kloss, second secretary for agriculture and biofuels at the Brazilian Embassy in Washington. ‘I can tell you that will be a problem for us.’”