FarmPolicy

August 21, 2019

Higher Market Prices Impact Farm Bill and Doha Differently

Market Prices

Bloomberg writers Tony Dreibus and Jeff Wilson reported yesterday that, “The biggest rally in the history of wheat trading defied even some of the best conventional wisdom, humbling forecasters Goldman Sachs Group Inc. and the U.S. government.

“Wheat has more than doubled since May, reaching a record $11.53 a bushel on Feb. 11 and driving up costs for everything from Eggo waffles and Italian pasta to Pakistani flatbreads and Japanese pastry. This month the world’s biggest securities firm scrapped projections for a price drop within 90 days, and the U.S., the biggest exporter, said it would ship 23 percent more than originally estimated before summer.”

The Bloomberg authors added that, “Farmers aren’t keeping pace with the diets of a burgeoning middle class in India and China. The Department of Agriculture predicted Feb. 8 that U.S. stockpiles for the 12 months through May will drop 40 percent to the lowest since 1948 as global production lags behind consumption for the seventh year in eight. Droughts and rain damaged crops in Australia, France and the U.S. last year, thwarting bets that higher prices would reverse the trend by encouraging bigger harvests.

“‘There’s been unprecedented demand globally for grains,’ said Gordon Davis, managing director of Melbourne-based AWB Ltd., the largest wheat exporter in Australia. ‘It’s being driven by demand for protein in Asia, which reflects rising incomes.’”

And the Associated Press reported yesterday that futures prices for some key program crops remain high: “Agriculture futures traded higher Tuesday on the Chicago Board of Trade.

“Wheat for May delivery added 5.5 cents to $10.475 a bushel; March corn gained 5.25 cents to $5.20 a bushel; May soybeans jumped 26.5 cents to $14.1775 a bushel.”

Higher market prices are also impacting the value of U.S. farmland.

An item posted yesterday at AgricultureOnline reported that, “Cropland values boomed in fourth quarter 2007, easily surpassing the previous highs posted in the last quarter, according to the Federal Reserve Bank of Kansas City’s fourth quarter Survey of Agricultural Credit Conditions.

“In the survey of 268 banks in the seven-state Tenth Federal Reserve District, both nonirrigated and irrigated cropland values surged at a record pace, rising 21% and 18% above year ago levels. Bankers also cited more farmland sales in 2007 than in the previous year.

“They noted more farmers were active in the land market, with fewer land purchases for recreational use in 2007. Those surveyed expected farmland values to rise further in 2008, especially in nonirrigated cropland.”

And recall that just last week, USDA’s Economic Research Service (ERS) indicated 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.”

ERS noted that, “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.”

Higher market prices also mean that U.S. farmers are relying more on the market and less on government payments with respect to income.

Last week’s ERS report stated that, “Directgovernment payments are expected to total $13.4 billion in 2008, up from the $12.0 billion paid in 2007. This level would be 20 percent below the 5-year average for 2002-2006.” (See related graph regarding federal farm expenditures.)

Farm Bill

Some farm policy observers have noted that the positive indicators regarding the U.S. agricultural economy have lessened the political urgency with respect to legislative action on the current Farm Bill.

Ian Swanson and Kevin Bogardus noted last week at The Hill Online that, “But this year, as Minnesota Democrat Collin Peterson, the chairman of the House Agriculture Committee, attempts to bring Democrats and Republicans together around a new farm policy, there’s less of an outcry beyond Washington.

“Commodity prices — fueled both by an ethanol boom and growing demand for food in China and India — make it unclear how much desire there is for a new bill.”

And Peter Shinn noted on Monday at Brownfield that, “[National Corn Growers Association President Ron Litterer, an Iowa corn grower] admits ag producers aren’t strongly pressuring lawmakers to finish the farm bill because crop prices are high. But he said he’d still like to see Congress wrap up its work on the legislation quickly.”

And with new energy legislation already in place, politicians have alternative talking points beyond the Farm Bill to discuss with concerned rural constituents. Moreover, some farm policy observers have indicated that in the current market environment, energy policy may be just as important as farm policy for some agricultural producers.

Arguments regarding the preeminence of energy policy will likely be strengthened if the price of oil remains at historically high levels.

Clifford Krauss reported in today’s New York Times that, “Crude oil closed above $100 a barrel for the first time Tuesday, vaulting through a longstanding psychological barrier amid persistent concern about whether production can keep up with rising global demand.”

Although higher oil prices could increase production costs, Agricultural Economists have documented that in general, higher crude oil prices can potentially have a positive impact on ethanol prices, corn demand and corn prices. This factor could also weaken short-term urgency with respect to farm commodity policy.

Beyond the idea that market conditions may have limited political pressure on subsidy policy for some program crops, the current environment has generally not been seized as an opportunity to offer overarching reforms to U.S. farm policy.

As Michigan State University Agricultural Economists David Schweikhardt and Sandra Batie noted recently (“2008 Annual Agricultural Outlook,” Staff Paper, January 2008, at page seven) that, “As 2008 begins, the debate over the 2007 farm bill remains unsettled. Both the House and the Senate have passed a first version of the bill, but a conference committee has not been appointed to resolve the differences in the two bills. In addition, President Bush has indicated that he would veto either version of the bill on the grounds that neither address the budget limitations he has set for the bill, and neither address issues of U.S. compliance with its World Trade Organization (WTO) obligations. In the meantime, the 2002 farm bill has been extended through March 2008 to provide time for a resolution of the debate.”

Doha

While market conditions may have tempered political Farm Bill pressure, it is possible that higher prices could facilitate or increase pressure with respect to the Doha round of WTO trade talks.

Reuters writer Doug Palmer reported yesterday that, “High agricultural commodity prices could help set the stage this year for a new world trade agreement after more than six years of talks, a top Bush administration official said on Tuesday.

“‘It’s a good time, not only in the U.S., but I’d venture to say it’s a good time for farmers in many countries. This should be a time when we all come together to do a deal,’ U.S. Commerce Secretary Carlos Gutierrez told Reuters in an interview.”

Mr. Palmer added that, “U.S. farm exports, buoyed by strong demand that has pushed prices higher, are projected at a record $91 billion in 2008, compared to about $51 billion when the Doha round of world trade talks started in late 2001. (See related graph).

“The U.S. Agriculture Department also forecasts net U.S. farm income to hit a record $92.3 billion in 2008, compared to about $68 billion when the Doha round began with one goal of helping lift poor countries out of poverty through trade.”

Later, the Reuters article stated that, “But reflecting comments other U.S. officials have made, Gutierrez said there was now more optimism about the Doha round than there was ‘a couple of months ago.’

“High international prices for farm goods are ‘clearly one of the areas that has helped,’ Gutierrez said.”

Farm Bill Update

Congressional Quarterly reported yesterday that, “A long weekend of negotiations left House and Senate lawmakers still searching Tuesday for a deal on a new five-year farm bill.

“Negotiators had hoped to have the final version of the measure pretty much wrapped up by Feb. 17, but according to staff members from the House and Senate Agriculture committees, members are still at odds on several points, with no predictions as to when an agreement is likely to emerge.”

CQ added that, “A major sticking point — for the White House and the House alike — is a $5 billion agriculture disaster fund that would help farmers through drought, flood and fire. The trust fund, which was in the Senate bill but not the House version, accounts for the dramatic differences in spending between the House and Senate proposals.”

DTN writer Chris Clayton reported yesterday that, “Negotiations over the potential costs of the farm bill continue with the House of Representatives sending a second proposal to senators over the weekend that would boost spending on the bill potentially up to $10 billion above the budget baseline over the next decade.

“‘It’s my understanding that proposal was $8-$10 billion over the baseline,’ said Sen. Charles Grassley, R-Iowa, speaking to Midwest agricultural reporters Tuesday morning.”

(To listen to Sen. Grassley’s press conference from yesterday, just click here (MP3))

Mr. Clayton stated that, “Grassley is a key player in the farm-bill talks as one of the designated Senate conference negotiators and also as a ranking member of the Senate Finance Committee. Given the way the talks have gone, Grassley said he expected the farm will would likely settle on a bill that would be about $9 billion above the budget baseline over 10 years. The baseline for the farm bill set by the Congressional Budget Office is $280 billion over five years and $597 billion over 10 years.

“‘I think it’s real easy to compromise at $9 billion above benchmark,’ Grassley said.”

The DTN article also noted that, “April Slayton, a spokeswoman for Peterson, declined to confirm whether a specific counter-proposal had been offered by the House Agriculture Committee. Slayton did say she thought that there were ongoing ‘back and forth’ talks. All talks are informal right now because the House and Senate are both on break for Presidents Day until next Monday.”

Dan Looker reported yesterday at AgricultureOnline that, “Senator Chuck Grassley (R-IA), one of a few members of the Senate and House involved in negotiations over how much money can be spent on a final version of a farm bill, told reporters Tuesday that he still believes a farm bill can be passed before the current law expires on March 15.”

Mr. Looker indicated that, “Grassley said that once an agreement is made on spending for the farm bill, then the staff of both the House and Senate ag committees can start writing the least controversial sections of a final bill. Last to be decided will be controversial issues, such as how much to limit farm program payments or the level of taxable income farmers can have and still receive payments, he said.”

Peter Shinn of Brownfield also reported on Sen. Grassley’s comments from yesterday, noting that, “‘The Senate received a counter-offer from the House of the Representatives over the weekend on the farm bill,’ Grassley announced. ‘It’s my understanding that that proposal was $8 to $10 billion over baseline compared to the Senate counter-offer to the original House bill.’

“According to Grassley, a farm bill funding deal close to the figure contained in the House counter-offer is likely. But a farm bill that spends more than $8 billion over baseline will more than likely require additional revenue. And Grassley said the Senate Finance Committee has proposed to get it by implementing changes to the tax code suggested by the Bush administration in its own budget proposal. That, Grassley said, means the White House will have a tough time opposing the final House-Senate farm bill financing deal, assuming such a deal actually is reached.

“‘They [Bush administration officials] don’t consider them tax increases when they propose them, but when we use them they consider them tax increases,’ Grassley said. ‘Just doesn’t add up, but we took from that list.’”

Meanwhile, DTN Political Correspondent Jerry Hagstrom reported yesterday (link requires subscription) that, “House and Senate farm bill negotiators cannot settle on a farm bill budget number until they sort out issues of jurisdiction between the congressional committees now involved in the farm-bill talks, House Agriculture Committee Chairman Collin Peterson, D-Minn., said Tuesday.

“Given the use of tax credits and tax measures used in the House and Senate farm bills, there are fights over just what in the farm bill remains under control of the House and Senate agriculture committees and the Senate Finance and House Ways and Means committees.

“‘The focus on the numbers is wrong,’ Peterson said in an interview, though he said last week he did not want to discuss anything else until there was agreement on the budget number.”

Mr. Hagstrom also noted that, “Meanwhile, Senate Finance Committee ranking member Charles Grassley, R-Iowa, said Tuesday that the House Agriculture Committee had offered the Senate a farm bill that would cost $8 to $10 billion more over 10 years than the current baseline and negotiators are likely to settle on $9 billion.

“‘I think it’s real easy to compromise at $9 billion above benchmark,’ Grassley said, referring to the current baseline.

“Grassley defended the finance committee’s desire to keep control over the revenue it may provide for the bill and said he believed it was Peterson, not Senate Agriculture Chairman Tom Harkin, D-Iowa, who was objecting to the loss of jurisdiction. But Harkin said repeatedly during farm bill negotiations that he wished he had more control over the money the committee was providing and last Friday he told reporters that he wants control of the additional money.

“Harkin’s office did not respond to a request for a comment on the negotiations.”

Farm Bill- Cotton

J. Taylor Rushing reported yesterday at The Hill Online that, “It’s hard to blame the cotton industry for feeling picked on.

“Foreign governments, charities and even celebrities have blamed the subsidies received by U.S. cotton producers for contributing to poverty in Africa by depressing world prices.”

The article explained that, “Just last week, House agriculture leaders trying to fend off a veto stripped a critical subsidy and a key storage payment provision from the farm bill approved by the House. The provisions were not included in a conference proposal tabled by House Agriculture Committee Chairman Collin Peterson (D-Minn.) and ranking member Bob Goodlatte (R-Va.) after talks with the administration.

“Cotton producers had few if any good friends in the room, as farm state senators, including Sen. Saxby Chambliss (R-Ga.), the ranking Republican on the Senate Agriculture Committee, were not a part of those talks.

“This was quite a change from when the 2002 farm bill was written, when cotton interests had a major influence with the House Agriculture Committee. At that time, the committee was chaired by Rep. Larry Combest (R-Texas) and its ranking member was Rep. Charlie Stenholm (D-Texas), who come from a state with heavy cotton production.”

More specifically, the Hill article reported that, “At issue is a provision included in the bill approved by the House last summer that would have provided textile mills with a four-cent-per-pound payment for buying cotton. The payment, also included in the bill approved by the Senate, was not part of the framework released last week by Peterson and Goodlatte after lengthy talks with the administration.

“The payment to textile mills for using cotton was included in the farm bill to help the cotton industry cope with losing another government program known as ‘step-2,’ which offered payments to textile mills that used U.S. cotton. That program was a part of Brazil’s legal suit, and was lost after the WTO ruled it was against the international trade organization’s rules because it was a payment only provided to U.S. cotton producers, not foreign producers.

“The National Cotton Council registered its disapproval with a statement last week citing ‘serious reservations’ about the House proposal. It noted that it was getting nothing for the lost payment. ‘It appears extra money is being taken from cotton’s baseline and nothing is being provided in return,’ the NCC statement said.”

Near the conclusion of The Hlll article, Rushing reported that, “On Tuesday, however, both Democratic and Republican agriculture committee staffers sought to calm fears over the subsidy’s fate, cautioning that it hasn’t yet been discarded.

“‘To suggest that any final proposal strips subsidies would be erroneous,’ said Kate Cyrul, spokeswoman for the Democratic majority on the Senate Agriculture Committee.

“Likewise, a spokeswoman for the House Agriculture Committee suggested the cotton provision could be added back into the bill during conference talks. She noted that the provision was eliminated from the framework bill unveiled by Peterson and Goodlatte last week as part of an effort to reduce the overall cost of the measure.

“‘All things are going to be on the table when it comes to policy decisions,’ the spokeswoman said.”

Keith Good

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