August 21, 2019

Farm Bill Developments; USDA Baseline Projections; 2008 Income Forecast

David Rogers, writing yesterday at, reported that, “Trying to salvage stalled farm bill negotiations, House Agriculture Committee Chairman Collin Peterson outlined a 10-year-plan that would impose tighter payment limits on crop subsidies and pare back demands for added revenues to meet the cost of the legislation.

“Peterson, who caucused with Republicans and Democrats on his panel Tuesday night, said later he would set a revenue target of about $6 billion or roughly half the $11 billion to $12 billion level still being sought by senators.

“The Minnesota Democrat, who has been in talks with the Bush Administration, said the scheme now has bipartisan support in his panel and offered a path to avoid the White House veto threats leveled against both House and Senate bills.”

Mr. Rogers indicated that, “A meeting is expected Wednesday between House and Senate negotiators and Agriculture Secy. Ed Schafer, and Peterson said it was crucial that all sides agree to a revenue figure by this Friday if a farm bill is to be completed this spring.”

The Politico article added that, “While the revenue fight has received more attention, equally important could be Peterson’s effort to move closer to the administration’s goal of setting tighter limits of how much farmers can earn and still qualify for federal crop assistance.

“Farmers with adjusted gross income above $900,000 would be barred from receiving subsidies, he said, and individuals who receive less than two thirds of their income from agriculture would be subject to a $500,000 cap, that would be ratcheted down further to $300,000 over several years.”

For more on the payment limitation issue, see this press release and report that was issued recently by the Center for Rural Affairs.

Reuters writer Charles Abbott reported yesterday that, “The farm bill compromise being drafted by House Agriculture Committee leaders would set stricter eligibility rules for crop subsidies, lobbyists said on Tuesday.

“The package also would drop the idea of higher subsidy rates for crops including wheat and soybeans; end the so-called loan deficiency bonus; and limit enrollment in the largest U.S. land stewardship programs.

“U.S. Rep. Collin Peterson chairman of the Agriculture Committee in the House of Representatives, was expected to unveil the proposal on Wednesday although a time was not set formally. Peterson and Virginia Rep. Bob Goodlatte, the Republican leader on the committee, say they want to offer a ‘framework’ that will lead to enactment of a new farm law, now months overdue.”

Mr. Abbott went on to explain that, “According to three lobbyists, the House proposal would include:

“–denying crop subsidies to people with an adjusted gross income above $500,000 a year unless at least two-thirds of the income is from agriculture. The income cap now is $2.5 million unless 75 percent of income comes from farming.

–capping the Conservation Reserve at 32 million acres.

–no ‘direct’ payments in the ninth year of the 10-year lifespan of the farm law, saving $5.2 billion.

–no increases in crop subsidy rates.

–requiring growers to sell their crops when they claim loan deficiency payments. Some farmers have collected windfalls by claiming an LDP when market prices are low and selling the crop when prices are higher.

–ending windfalls to growers who manipulate the rules for loan deficiency payments.”

Meanwhile, Peter Shinn reported yesterday at Brownfield that, “Congress will put a new farm bill together and will do so by March 1st. That’s according to Iowa Senator Chuck Grassley, the ranking Republican on the Senate Finance Committee and a farm bill conferee.

“Grassley says the March 1st deadline is important because that’s when the Congressional Budget Office will re-figure the budget baseline for farm programs. The Senate farm bill already spends roughly $15 billion more than allowed by last year’s budget baseline. And Grassley told reporters Tuesday if a new farm bill isn’t done by March 1st that figure will only grow.

“‘We’re going to be another $4 to $5 billion more below benchmark, because, again, that benchmark is lower because we aren’t paying out counter-cyclicals and LDPs (Loan Deficiency Payments) because prices are high,’ Grassley explained.”

With respect to the executive branch, Dow Jones News writer Bill Tomson reported yesterday that, “There are significant signs of progress in negotiations with Congress to produce a farm bill that U.S. President George W. Bush would be willing to sign into law, according to U.S. Department of Agriculture Secretary Ed Schafer.

“Schafer, in a recording posted on the USDA’s Web site, said he was encouraged by conversations he’s had with House Agriculture Committee Chairman Collin Peterson, D-Minn.

“‘Things are starting to unfold,’ Schafer said. ‘I think some concessions are being made on all sides and the gaps – which are still large – are narrowing.’

“Schafer said he has seen a willingness on the part of lawmakers to further tighten caps on farm subsidies, one of the Bush administration’s objections to both the House and Senate versions of the farm bill.”

On Saturday, Sec. Schafer delivered public comments at the National Cotton Council Annual Meeting in Memphis. According to a transcript of his remarks, Sec. Schafer stated that, “I believe that over the last few days we’ve seen some movement. We have been heavily involved in negotiations with the House and the Senate. There are huge differences between the House and the Senate bills as you are aware. And those need to be resolved, as well as the differences with the administration. But I think that we will see an agreement here soon. The President has a desire to sign a new farm bill this year, and I do believe that we’re going to get that done.

“The House bill raises target prices and loan rates in a manner that increases market-distorting threats in the program, and we have to take that into consideration. We simply cannot step backward as we look at the World Trade Organization requirements in trying to open those markets. The Senate bill increases loan rates on 17 crops and increases target prices on 18.”

Sec. Schafer also noted that, “We are also pleased that both the House and Senate moved towards a revenue-based countercyclical program, which means farmers can be sure that they will get help in the times when they need it the most, the time when income is down.”

Prices- USDA Baseline Projections- Income Forecast

Sue Kirchhoff and John Waggoner reported recently at the USA Today Online that, “Soaring energy costs may be roiling the financial markets, but world governments are also being rattled by a more basic form of inflation: sky-high food prices.

“Pakistan is stockpiling wheat and using its military to guard flour mills. Indonesian consumers have taken to the streets to protest rising soy prices. Malaysia no longer lets people take sugar, flour or cooking oil out of the country. North Dakota, the top U.S. wheat-producing state, may import from Canada due to tight supplies.”

The article stated that, “Soaring demand, rising oil prices and government-mandated biofuel use have sent many commodity prices to their highest levels in history. The impact is hardest in the developing world: The United Nations says increasing prices will make it tougher to meet international goals of reduced hunger. Rising prices are squeezing food aid budgets that were already falling far behind growing need caused by war and increasing weather disasters. Worse, soaring costs are adding to political instability in countries such as Afghanistan, where flour prices are up more than 60% in the past year, and as much as 80% in some areas.”

An Associated Press item from today pointed out that, “Cereal grain stockpiles are expected to hit their lowest level in more than two decades, helping to keep prices high, a United Nations food agency said.

“The low stocks combined with continued strong demand, also driven by the growing biofuels industry, to keep prices elevated, the Food and Agriculture Organization said in a report to be released today.”

David Streitfeld reported in today’s New York Times that, “For decades, wheat was a commodity no American needed to think much about, except the farmers who grew it. The grain was usually plentiful and prices were low.

“All of a sudden, those assumptions have been turned upside down. With demand soaring abroad and droughts crimping supply, the world’s wheat stockpiles have fallen to their lowest level in 30 years, and stocks in the United States have dropped to levels unseen since 1948.”

The article noted that, “Prices have been gyrating in recent days as traders tried to figure out what to make of the situation. On Tuesday, prices for a sought-after variety, spring wheat, jumped to $16.73 a bushel on the Minneapolis Grain Exchange, the latest of several records.

“Prices for common wheat are up nearly 50 percent since August, and they are up even more for the most sought-after varieties, leaving buyers, growers and longtime commodity traders shaking their heads.”

And, the Times article reported that, “The Food and Agriculture Organization of the United Nations estimates that world wheat production will rise this year to nearly 664 million tons, from about 655 million tons — not enough to replenish stocks and push down prices. In December, the organization noted that high international grain prices were causing food shortages, hoarding and even riots in some places.

“To damp volatility, three United States exchanges that trade wheat futures contracts have raised the daily limit on price movements from 30 cents to 60 cents during the past week.”

Concluding, the article stated that, “The United States Department of Agriculture’s 10-year forecast, released Tuesday, sees the wheat shortage as temporary. Stockpiles were predicted to fall this year to 312 million bushels, from 456 million bushels, before rebounding to about 700 million bushels by the end of the decade.

“Higher prices ‘will encourage additional acreage and production,’ the report said. Wheat plantings will rise to 65 million acres in the 2008-9 season, from 60.4 million this year, the Agriculture Department said, though it predicted the number would then fall because of competition from other crops.”

As the Times article stated, the USDA released a report yesterday entitled, “USDA Agricultural Projections to 2017,” which can be downloaded by clicking here.

According to a press release issued yesterday by the USDA’s Office of the Chief Economist, “The long-term projections are developed by interagency committees in USDA, with the Economic Research Service (ERS) having the lead role in the preparation of the report. The new projections cover agricultural crop and livestock commodities, agricultural trade and aggregate indicators such as farm income and food prices through 2017. The projections are not a USDA forecast, but a conditional, long-run scenario based on specific assumptions about farm policy, the weather, the economy and international developments. Provisions of the 2002 Farm Bill are incorporated into the projections. Normal weather is also assumed throughout the projection period.”

The release added that, “The full report will be available in printed form February 21 at the USDA Agricultural Outlook Forum in Arlington, Virginia.”

Bill Tomson reported in today’s Wall Street Journal that, “The U.S. Department of Agriculture is predicting that farmers will plant 88 million acres of corn this year — a drop from the 93.6 million planted in 2007 — but then they are expected to bring acreage back up above the 90-million-acre mark for the next several years.

“The long-term ‘baseline’ forecast released by the USDA yesterday sees planted-corn acreage rising back to 91 million acres in 2009 and then 93 million acres in 2010. The forecast for 2017, the last year included in the baseline projection, is for 92 million acres.”

(For more detail, see this graphical illustration regarding acreage from the USDA Baseline report; as well as this graph depicting prices.)

The Journal article added that, “Unlike corn, a lot more wheat and soybeans are expected to be planted this year thanks to record-breaking future prices for crops planted in 2007.

“Farmers aren’t just switching corn acres to wheat and soybeans. They are putting fallow or pasture land into wheat and soybean production in states like Kansas and Texas to take advantage of strong prices, USDA economist David Stallings said.

“There were 246.5 million acres of corn, soybeans, wheat, rice, cotton, sorghum, barley and oats last year. That overall figure is forecast to reach 252.6 million acres in 2008 but then fall off over following years.”

Later, the article indicated that, “Unlike the forecasts for corn acreage, the expectations for corn yields do nothing but increase. The USDA baseline shows farmers getting an average of 155.3 bushels per acre this year, then rising to 157.3 bushels in 2009 and 159.3 bushels in 2010. The forecast is for 173.3 bushels per acre by 2017.

“Rising corn yields are essential for ethanol production to increase in the U.S. because refiners rely almost solely on the crop for fuel. More and more of the crop will be going to the government-subsidized alternative fuel over the coming years, according to the USDA report that was finished in November as a basis for its annual budget.”

For more detail on the ethanol issue and corn use, see this illustration from the baseline report.

John Perkins reported yesterday at Brownfield that, “The United States Department of Agriculture has released updated Agricultural Projections, effective through 2017. The USDA does caution users that projections are based on ‘specific assumptions’ about a number of factors, including various agricultural and trade policies, several macroeconomic issues, weather and international influences. It also assumes that the 2002 Farm Act, the Energy Policy Act of 2005 and the Agricultural Reconciliation Act of 2005 remain in effect through 2017 but do not reflect the Energy and Independence and Security Act of 2007; the numbers were calculated between October and December 2007, before that was enacted.”

For an illustration of the Renewable Fuel Standards (RFS) mandate for cornstarch-based ethanol contained in the Energy and Independence and Security Act of 2007 compared to the Energy Policy Act of 2005, see this graphical depiction.

Also yesterday, USDA’s Economic Research Service (ERS) released a 2008 Farm Income Forecast, which noted in part that, “In 2007, net farm income was at a record level and ended the year strong with many key economic indicators at very favorable levels. Commodity prices were above recent levels and in some cases (wheat, soybeans, corn, milk) continued to rise. Exports were strong as the weak dollar made U.S. commodities more competitive in international markets, and ending-year stocks of many commodities were low. Consequently, the outlook for the farm economy as a whole is for another very good year in 2008, driven by strong demand for feed crops, oilseeds, and food grains.”

Net farm income is forecast to be $92.3 billion, up 4.1 percent above the $88.7 billion farmers are estimated to have earned in 2007 and 51 percent above the 10-year average of $61.1 billion,” ERS said.

With respect to government payments, ERS stated that, “Direct government payments are expected to total $13.1 billion in 2008, up from the $11.7 billion paid in 2007. This level would be 20 percent below the 5-year average for 2002-2006. Direct payments under the Direct and Countercyclical Program (DCP) in 2008 are forecast at $5.27 billion, less than a 2-percent increase from 2007. Direct payment rates are fixed in legislation and are not affected by the level of program crop prices. Since 2004, there has been little change in direct payments by crop year. The small fluctuations realized across calendar years are the result of changes in the number of farmers taking advantage of the advanced payment in December (optional), affecting the share of the payment rolled into the following calendar year.

“Countercyclical payments are forecast to decrease from $1.2 billion in 2007 to $934 million in 2008. This follows a large decrease in 2007. Of crops produced in 2006 and 2007, only upland cotton and peanuts received payments. This is quite a change from 2004 and 2005, when more than half the payments were to corn. Producers may elect to receive countercyclical payments in three installments. The first partial payments are available in October of the calendar year of harvest. The second partial payments are made the following February, with the final payments after the end of the marketing year for the program crop. Countercyclical payments in calendar year 2007 include the second partial and final payments for 2006 crops and the first partial payment for 2007 crops. For calendar year 2007, we assume that 60 percent of the producers receive 35 percent of their payment as first partial payments. The second partial and final countercyclical payments (as determined at the end of the respective marketing year) are paid the following calendar year. Partial payments are based on the projected payment rate at the time of the payment, creating the possibility of an overpayment.

“Marketing loan benefits—including loan deficiency payments, marketing loan gains, and certificate exchange gains—are projected at $8 million in 2008, down from $942 million in 2006. In 2008, only wool, mohair, and pelts are expected to realize marketing loan benefits. In 2007, upland cotton producers realized almost 99 percent of the total marketing loan benefits, of which 95 percent were certificate exchange gains. At current price levels, marketing loan benefits are not available to any of the other program crops.”

And with respect to conservation, the ERS update stated that, “Conservation programs include all conservation programs operated by the Farm Service Agency (FSA) and the Natural Resources Conservation Service (NRCS) that provide direct payments to producers. Estimated conservation payments of $3.0 billion in 2008 reflect programs being brought up toward funding levels authorized by current legislation.”

For a graphical illustration of U.S. farm payments by category, just click here.

Keith Good

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