October 18, 2019

Chairman Peterson on Farm Bill: “We’re moving slowly ahead, at least not backwards”

Congressional Quarterly writer Catharine Richert reported yesterday that, “Farm-state lawmakers have not rejected the Bush administration’s latest funding proposal for the farm bill, but they say there is still plenty of work to be done.

“‘There’s no soup yet,’ said Democrat Debbie Stabenow of Michigan after she and other Senate Agriculture Committee members met to consider the list of spending cuts proposed by the Agriculture Department.”

The CQ article added that, “The proposal, which the department sent to Congress Feb. 29, stated that the White House would allow lawmakers to spend an extra $10 billion over 10 years in the farm bill as long as the measure also included a significant overhaul of farm subsidies…Max Baucus, D-Mont. — who heads the Senate Finance Committee and who is leading efforts to come up with an alternative financing package for the farm bill— said about $9 billion of those cuts would sit well with lawmakers. He would not elaborate on which were controversial.”

Ms. Richert also noted that, “The administration also is demanding that the bill end so-called planting restrictions.

“Current farm law prevents farmers who collect government subsidies, such as corn and soybean farmers, from also planting fruits and vegetables on their subsidized land. That mechanism keeps produce prices high, and fruit and vegetable growers have fought to keep the perk intact.

“The White House also is asking lawmakers to remove language in the House and Senate bills that would allow excess sugar to be used for ethanol, which could provide a boost in sugar prices.”

For more on the planting flexibility issue, see the administration’s Farm Bill proposal, pages 32-33, as well as this economic analysis of the issue from USDA’s Economic Research Service.

DTN writer Chris Clayton reported yesterday (link requires subscription) that, “With the farm-bill talks seemingly stuck in neutral, Secretary of Agriculture Ed Schafer found himself answering more questions Monday about what the administration wants in a farm-bill safety net.”

Mr. Clayton explained that, “The administration contends more reforms are needed in the farm bill, but much of that discussion now centers on making sure there are no increases in loan rates or target prices. Those programs are considered trade distorting by the World Trade Organization, and most farm bill observers speculate the Bush administration is holding a line on those programs mainly to protect the potential that a deal could happen in the WTO Doha Round talks.”

The DTN article stated that, “On Monday, Schafer did say that the Bush administration is willing to back down from its long-advocated position that farm payments should be limited to people with adjusted gross income under $200,000. In a letter to Congress last Friday, the administration offered to go along with a House plan for a $500,000 AGI.

“‘It isn’t always the $200,000; it is what goes into picking the number,’ Schafer said. ‘A lot of the reform issues are spending issues. As we have come closer to a spending number, we thought it was appropriate to say we are willing to compromise here on what was already suggested is the $500,000 AGI limit.’”

Recall that the administration’s Farm Bill proposal (page 22) stated that, “Internal Revenue Service (IRS) data for 2004 indicate that 97.7 percent of all American tax filers have an AGI [adjusted gross income] under $200,000 and only one half of one percent of all Americans have an AGI over $500,000.”

For a graphical look at the share and average payment level for farm operators with adjusted gross income over $200,000 by farm typology for 2004, just click here.

With respect to direct payments, Mr. Clayton noted in the DTN article that, “Direct payments, which amount to $5.2 billion a year, are not being discussed in the farm bill for possible cuts. The main defense for the payments in times of projected record farm net income is that direct payments are non-trade distorting in the international arena, Schafer said. Still, Schafer acknowledged the average taxpayer in a coffee shop would not understand the continuation of direct payments right now.”

For a graphical look at direct payment levels by commodity, just click here.

For more perspective on direct payments, see this audio podcast from last week (MP3) which features audio clips from Rep. Ron Kind (D-Wis.), Rep. Jeff Flake (R-Arizona), President of the Grocery Manufacturers Association and former U.S. Rep. Cal Dooley, and Ken Cook, President of the Environmental Working Group. The audio podcast lasts six minutes and is available here (MP3).

Meanwhile, Peter Shinn of Brownfield reported yesterday that, “House Agriculture Committee Chairman Collin Peterson was slated to address National Farmers Union (NFU) members in person at their annual convention in Las Vegas Sunday night. Instead, he stayed in Washington D.C. to work on the farm bill and spoke to the NFU convention by phone.

“And according to Peterson, another piece of the farm bill puzzle has fallen into place. On Saturday, Peterson said USDA sent him a detailed, written farm bill counter-offer that agrees to spend $10 billion over the Congressional Budget Office baseline for farm programs and also included a list of acceptable budget offsets.

“But Peterson also said some of those proposed budget offsets from the Bush administration include items like lowering Medicare reimbursements for those on oxygen. And, Peterson added, the Bush administration’s farm bill counter-offer also contains a long list of so-called reforms that it says are non-negotiable. Peterson said that list of non-negotiable reforms includes, among many other things, inclusion of a revenue based counter-cyclical program with recourse loans, elimination of the sugar-to-ethanol program, ending the prohibition of planting fruits and vegetables on program crop acres and setting aside 25% of emergency international food aid funds under PL-480 for cash purchases of local commodities in the countries receiving U.S. food aid.”

The Brownfield update indicated that, “Peterson predicted the House and Senate will reach a broad agreement on the overall farm bill before Congress adjourns for a two week recess on March 14th. That, he said, will clear the way for Congressional passage of a new farm bill, perhaps by a veto-proof majority, by mid-April.

“‘So my guess is we’re probably going to have to extend the current law one more month ’til April 15th,’ said Peterson. ‘That will give us time to finish the bill and make sure we got everything right and be able to get it done, you know, get it done on the 15th of April, which, after all of this, is maybe an appropriate date.’”

A press release issued on Sunday by the National Farmers Union stated that, “House Agriculture Committee Chairman Collin Peterson tonight told more than 600 Farmers Union members he is optimistic a farm bill funding agreement will be reached in the coming week and a bill signed into law by mid-April…‘We’re moving slowly ahead, at least not backwards and we’re close to getting a final resolution,’ Peterson said.”

Market Factors- Revenue Policies

As Congress and the executive branch continue to negotiate on the Farm Bill, market factors continue to be a primary concern for agricultural producers.

The Associated Press noted yesterday that, “Agriculture futures traded higher Monday on the Chicago Board of Trade.

“Wheat for May delivery jumped 16.5 cents to $11.025 a bushel; March corn gained 9.5 cents to $5.555 a bushel;; May soybeans advanced 23 cents to $15.595 a bushel.”

And Jad Mouawad reported in today’s New York Times that, “Capping a relentless rise in recent years, oil prices hit a record high during the day on Monday, then pulled back to close below the record.

“The day’s highest trading price, $103.95 a barrel on the New York Mercantile Exchange, broke the record set in April 1980 during the second oil shock. That price, $39.50 a barrel, equals $103.76 today, when adjusted for inflation.”

See a related graph from the Times article here,

And Steven Mufson reported in today’s Washington Post that, “Just three years ago, Goldman Sachs shocked the investing world by sharply raising its oil price forecast for 2005 to an average of $50 a barrel. Two months ago, the investment bank predicted that oil prices would average $95 a barrel in 2008.

“Yesterday, even that price was already starting to look a little conservative.

“The price of crude oil set another inflation-adjusted record, hitting $103.95 a barrel on the New York Mercantile Exchange before dropping back to $102.45 at the close of regular trading. Judging from trading in options contracts, more investors expect that the price will rise to $105 rather than slide back to the $95 level that seemed unimaginably high just six months ago.”

Recall that a news update released last month by Purdue University indicated that, “The recent boom in production of ethanol from corn grain has tightly linked the agriculture and energy sectors in an unprecedented fashion.”

The update stated that, “[Wally Tyner, a Purdue professor of agricultural economics] said the prices of corn and crude oil, which prior to 2007 fluctuated almost independent of one another, have become more closely linked thanks to the use of massive quantities of corn to make ethanol. This year that’s about one-third of the total national harvest.

“‘Now, oil and ethanol are both big players in agriculture,’ he said. ‘In the future, they will march together, and their march will depend upon government policies.’”

For a more detailed look at how the current price environment is interacting with the risk management plans of agricultural producers, DTN Executive Editor Marcia Zarley Taylor reported yesterday that, “South Dakotan Jim Thyen didn’t hesitate. Choosing a crop insurance policy should be an automatic decision this spring, even though he and his brother Dan haven’t enrolled yet, he said.

“Thanks to the February market rally, the Risk Management Agency is expected to announce this week that revenue guarantees for the Midwest’s spring-planted crops will start at $5.40 for corn, $11.11 for spring wheat and $13.36 for soybeans. ‘We’re definitely choosing Revenue Assurance with a Harvest-Price Option (RA-HPO), since there’s no cap on how much it would pay at harvest,’ the Waverly, S.D., farmer said.

“Thyen is joining a multitude of growers attending the annual Commodity Classic convention last week who see revenue products as the best refuge from the hazards of the grain market. While both Revenue Assurance (RA-HPO) and Crop Revenue Coverage offer nearly identical coverage by insuring a combination of market price times yield, CRC limits its ultimate fall payout to no more than $1.50 above base rates for corn, $3 for soybeans and $2 for wheat. That means corn coverage is capped at $6.90, wheat at $13.11 and soybeans and $16.36. In contrast, RA offers unlimited coverage in the event of a price swing.”

The DTN article added that, “That distinction has never been an issue before, noted University of Illinois economist Gary Schnitkey in a recent newsletter on the subject, because since 1972, market prices have never exceeded those limits between spring and fall prices. But with extreme volatility in commodity markets this year, Schnitkey estimates that there’s a 21 percent chance that soybean prices will exceed $16 by harvest and a 17 percent chance corn will top $6.80.

“Overall, he calculates a 30 percent chance that harvest prices will exceed CRC limits. That tips the balance toward RA coverage, he added, even though its premiums may cost more. A grower who suffered a yield shortfall risks an expensive tab if he had to fill forward-contracted prices at the fall price.”

Also with respect to crop insurance, see this USDA audio update from yesterday (MP3- one minute), as well as this audio clip (MP3) in which Risk Management Agency Administrator Eldon Gould explains the correlation between revenue based crop insurance and higher commodity prices.

Food Prices

Food price issues and concerns regarding food inflation have also appeared in the news recently.

The World Bank issued an update to their webpage recently, which was entitled, “High Food Prices – A Harsh New Reality;” and the latest edition of “The Main Street Economist,” a publication from Federal Reserve Bank of Kansas City, also discussed the food price issue in an article entitled, “What is Driving Food Price Inflation?

And Mariam Fam reported in today’s Wall Street Journal that, “Many of the Mideast and North Africa’s generous food-subsidy programs are a lot more expensive these days because of rising global food prices.

“Just as soaring oil prices have forced governments from China to Iran and across a wide swath of Africa to rethink how they subsidize energy use, the rising cost of grain and other edible commodities is adding pressure on some governments to look again at what is one of the most basic safety nets for the poor.

“Egypt, one of the world’s biggest wheat importers, spent $1.7 billion on subsidies for bread, sugar, cooking oil and other staples in the fiscal year that ended June 30, according to official figures. With international wheat prices climbing, the bill for Egyptian bread subsidies alone this fiscal year has risen to about $2.7 billion, according to the minister of Social Solidarity, who is in charge of managing food subsidies. International wheat prices this January were up more than 80% from a year earlier.”


Reuters writer Jonathan Lynn reported yesterday that, “Talks on industrial goods at the World Trade Organisation (WTO) last week have failed to narrow any gaps, and time is running out to reach a new trade deal, a senior mediator said on Monday.

“Canada’s WTO ambassador Don Stephenson, who chairs the negotiations on industry, known in trade jargon as NAMA, told WTO members that there was no sense of urgency in the talks.”

The article noted that, “His comments echo those by the chairman of talks on agriculture, New Zealand’s WTO ambassador Crawford Falconer, who said on Friday the farm talks were not moving fast enough.”

Keith Good

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