December 15, 2019

Farm Bill Extended Through April 18; Food Costs; Biofuels

Congressional Quarterly reported yesterday that, “The Senate on Wednesday passed a 30-day extension of the nation’s farm law to give bicameral negotiators more time to hammer out a deal on a long-term agriculture policy overhaul.

“‘We can’t leave here without doing a farm bill,’ said Majority Leader Harry Reid, D-Nev. Minority Leader Mitch McConnell, R-Ky., agreed that the 30-day reprieve (S 2745) was needed.”

DTN Political Correspondent Jerry Hagstrom, in an article from yesterday, added that, “The Senate voted by unanimous consent Wednesday to extend the 2002 farm bill until April 18, and the House is expected to pass the same measure on its suspension calendar later Wednesday.

“The extension is needed because Congress is scheduled to leave Friday for a two-week spring recess, and the new farm bill will not be complete.”

Associated Press writer Mary Clare Jalonick reported yesterday that, “Both the House and Senate pushed the expiration of current farm law, signed by President Bush in 2002, from March 15 to April 18. The law originally expired Sept. 30 and has been repeatedly extended.”

“Negotiators are now looking at spending approximately $10 billion extra over 10 years…[T]he Bush administration has said it would consider that figure if Congress further limits farm subsidies that go to wealthy farmers and adheres to other administration requests,” the AP article said.

DTN writer Chris Clayton noted yesterday (link requires subscription) that, “Attempts to secure new funding in the farm bill are stalled while the chairman of the House Ways and Means Committee recovers from the flu, leaving farm-bill negotiators to plan for a bill that would not go above the bill’s baseline spending levels.

“Rep. Charles Rangel, D-N.Y., is ill this week with the flu and not in Washington. That has stalled the negotiations between the congressional tax-writing committees for increased funding on the farm bill that would allow lawmakers to spend above the farm bill’s baseline costs.”

Mr. Clayton indicated that, “Rep. Bob Goodlatte, D-Va., ranking member of the House Agriculture Committee, said lawmakers are considering a bill that would be based on the farm bill’s baseline funding, which is $280 billion over five years or up to $597 billion over 10 years. Goodlatte said the House and Senate Agriculture Committees don’t have any assurances as of now that there will be more funding to write a bill, so other options have to be considered.

“‘We can only write a farm bill in the jurisdiction of the two agriculture committees with the resources that are available to us,’ Goodlatte said. ‘We have not been provided any resources above what we already had in the start of this process.’

“If lawmakers can’t find new funding for the farm bill, they will consider either a one- or two-year extension of the 2002 bill or pass a baseline farm bill that would minimize increased spending in areas such as conservation and nutrition. It would also likely risk the ability to establish a new permanent disaster program for farmers.”

In a statement issued yesterday, Senate Ag Committee Chairman Tom Harkin (D-Iowa) noted that, “We continue to make progress on the farm bill. Talks continue on a bipartisan basis between Senate and House negotiators and each day brings us closer to resolution. Although a new bill is within reach, Congress needs more time to reach agreement and obtain the necessary cooperation from the White House.”

Also yesterday, Senate Ag Committee Ranking Member Saxby Chambliss (R-Georgia) stated that, “While we continue to make significant progress, a one-month extension of the farm bill is necessary to ensure current policy does not expire.”

And Senator Kent Conrad (D-ND) indicated yesterday that, “We’re in the 11th hour of negotiations on the next Farm Bill. We’ve made great progress but continue to face opposition from the White House. The President is threatening to veto this Farm Bill because, he says, it invests too much money in rural America. Nothing could be further from the truth.”

With respect to the negotiating interaction between the House, Senate and executive branch, Faith Bremner reported in today’s Argus Leader (South Dakota) that, “Sen. John Thune, R-S.D., blasted House Democrats for taking too long to come to the table and negotiate. House Agriculture Committee Chairman Collin Peterson of Minnesota has been holding informal talks with the Senate and White House to come up with a bill President Bush will sign.”

And Dan Looker, writing yesterday at noted that, “Thune said he thought the House Agriculture Committee has already made too many concessions to the White House before the Senate and House have even had a meeting of a conference committee to draft a final bill. He disagreed with the House committee’s acceptance of a cut in Conservation Reserve Program by 7 million acres.

“‘I think it was a mistaken strategy in the first place to try to negotiate with the White House,’ Thune said.”

In a conference call with reporters yesterday that focused on the Farm Bill, Senator John Thune (R-SD) expressed some frustration with the different way in which House Agriculture Committee Chairman Collin Peterson (D-Minn.) reached out to the White House and the Senate during Farm Bill negotiations.

However, Chairman Peterson indicated in an audio interview with the Milwaukee Journal Sentinel, that was posted back on December 1, 2007, that he had planned on reaching out to the White House after the Senate Farm Bill was passed.

According to a Journal Sentinel transcript of the interview, Chairman Peterson stated that, “If the Senate can get a bill out and we know where we’re at, what I intend to do is call up the president and go down there and just have him and I sit down and talk a little turkey and figure out how to work this out. And I think we can.”

To listen to a audio recap of Sen. Thune’s comments from yesterday and Chairman Peterson’s comments from December, just click here (MP3- Two Minutes).

Also on this issue, recall that Dale Hildebrant reported back on December 7, in an article posted at the Farm & Ranch Guide Online, that, “When asked about the threatened Presidential veto of the Farm Bill, [House Ag Committee Chairman] Peterson indicated he has a plan of action in mind to gain President Bush’s support.

“As soon as the Senate passes the bill and it goes to conference committee, he said he would call the President and ask for the opportunity for just the two of them to sit down and figure out what needs to be done to hammer out the differences

“‘I think we can do that. I may have to agree to some stuff I don’t like, but if we can get all of these other people out of this thing and just sit down and say, ‘Look, for the betterment of the country,’ hopefully we can work this out. That’s my plan.’”

Meanwhile, an item posted yesterday at The Grand Forks Herald Online (North Dakota) stated that, “Congressman Earl Pomeroy, a senior member of the House Agriculture Committee and a farm bill conferee, said today it’s critical that President Bush work with Congress on the stalled farm bill negotiations.”

“Pomeroy says he and House Agriculture Committee Chairman Collin Peterson, the congressman from northwest Minnesota, ‘have been trying for months to identify funding sources that are acceptable to the White House, however, the president keeps moving the goal posts by changing what he views as acceptable,’” the Herald item said.

On the other hand, The Wall Street Journal editorial board, in an item published in today’s paper on the Farm Bill (“Amber Waves of Green”) indicated that, “The only good news is that President Bush is threatening to veto this budget buster over its taxes, trade distortions and subsidies for the rich. The veto threat is at least causing the Members to think twice, and may actually improve the bill. But the best outcome would be if this monster died of its own, greedy weight.”


Reuters writer Missy Ryan reported yesterday that, “The time for deliberations in the World Trade Organization’s Doha round, now in their seventh fractious year, has come and gone, President George W. Bush said on Wednesday.

“‘The time for debating Doha is over. Now is the time for leaders to make tough choices that will allow these negotiations to advance,’ Bush said in a speech at the U.S. Hispanic Chamber of Commerce.”

According to a White House transcript of yesterday’s speech, Pres. Bush stated that, “As Congress moves forward these agreements, we will continue to press for an ambitious, successful Doha Round at the WTO. We’re prepared to lead to ensure Doha reaches a successful conclusion. We understand the role of the United States. We’re not going to shirk our duty to lead. But we’re not going to make unilateral concessions either. We want negotiations to come from — as a result of meaningful contributions by all folks. That’s how you reach a successful round.

“And so we challenged our trading partners to help forge a deal that opens up global trade flows and creates new opportunities for developed and developing nations alike. Our view is, the time for debating Doha is over. Now is the time for leaders to make tough choices that will allow these negotiations to advance.”

For an even broader context of the President’s comments on trade from yesterday’s speech, just click here (MP3- Three and Half Minutes).

Ms. Ryan also noted in her Reuters article that, “Bush’s top negotiator, Susan Schwab, said in a briefing with reporters later in the day that a breakthrough in 2008 was crucial if the world was going to avoid spinning an agreement off until 2010 or 2011 — if one can be had at all.

“Yet Schwab acknowledged that the multilateral talks in Geneva this month, on agriculture and industrial trade along with a myriad of equally contentious topics, were moving along more slowly than she had hoped.

“But she shied away from setting a hard deadline for when a ministerial meeting would need to occur, saying only that ‘we really have to pull this together in the next couple weeks.’”

The article added that, “In the Doha talks, the Bush administration has signaled willingness to cut farm subsidies substantially, but not enough so far to appease critics in the developing world who argue they distort world markets.

“Bush said a comprehensive, reciprocal deal was needed.”

And an item posted yesterday at stated that, “Member nations of the World Trade Organization (WTO) have about a month to outline their points on liberalising world trade before a ministerial meeting is called, WTO director-general Pascal Lamy said.”

Food Prices

Reuters news
reported yesterday that, “U.S. bakers lobbied the Bush administration and Congress on Wednesday to build up wheat supplies and take other measures to dampen wheat and flour prices.

“Robb MacKie, head of the American Bakers Association, said booming prices for wheat has brought the U.S. food industry to a crossroads — threatening profits, jobs, and potentially boosting prices by double digits for consumers when they buy everything from bread to pizza.

“‘It’s going to get much worse,’ MacKie told a news conference with other members of the baking industry, who will meet Agriculture Secretary Ed Schafer and other officials in Washington on Wednesday.”

On Tuesday National Public Radio aired a segment on food prices, (“What’s Driving Up Grocery Prices?”) the five-minute spot, which aired on Tuesday’s All Things Considered program and is available here, noted that, “Beyond new demands on corn for use as a fuel, transportation costs for all kinds of food are going up. People around the world are eating more and eating differently, and the weakening dollar doesn’t help.

“Michele Norris talks with Ephraim Leibtag, an economist with the U.S. Department of Agriculture, about the factors that are driving up grocery prices. Leibtag tracks retail prices of food, and helps with government forecasts about where prices will go.”

Drought Risk- Biofuels

In a related item, National Public Radio’s Jason Beaubien filed an audio report that also aired on Tuesday’s All Things Considered program (“Biofuel Rush Makes Drought a Bigger Economic Risk”) which noted that, “As grain prices rise and ethanol makes up an increasing portion of the nation’s fuel supply, a major drought in the Plains states could pose a significant threat to the U.S. economy.

“Agricultural economists are warning that El Nino could cause grain shortages that could reverberate in an unprecedented way through the economy. A major drought would drive up already rising food prices and push fuel prices even higher.

“While ethanol makes up about 6 percent of the nation’s gasoline supply, oil refiners are assuming that the amount will increase and are deciding not to expand petroleum refineries. So if the weather hurts the crop, the crop can hurt the economy.”

The NPR piece, which runs about three and half minutes, included analysis from Bruce A. Babcock of Iowa State University, who according to Mr. Beaubien, noted that a major drought in the corn-belt could drive food and gasoline prices up dramatically.

The NPR item also stated that the new energy law allows the renewable fuels standard to be lifted if there was a crop failure, but noted that this type of decision could be politically difficult. (For more on this issue, see this item from February 29, which was written by Dan Morgan, a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States.)

Meanwhile, Lihong Lu McPhail and Bruce A. Babcock of the Center for Agricultural and Rural Development at Iowa State University recently published a paper entitled, “Ethanol, Mandates, and Drought: Insights from a Stochastic Equilibrium Model of the U.S. Corn Market.”

According to a summary of the paper, the authors indicated that, “The outlook for U.S. corn markets is inextricably linked to what happens to the U.S. ethanol industry, which depends, in turn, on the level of government subsidies and mandates. We develop a stochastic partial equilibrium model to simulate outcomes for the corn market for the 2008/09 marketing year to gain insight into these linkages.”

On page 13 of the paper, the authors stated that, “A low stocks-to-use ratio for corn combined with robust corn demand increases the vulnerability of livestock producers and the ethanol industry to a production shortfall. To obtain an estimate of the effects of a drought, we simulate what would happen to corn prices if a 1988-style drought occurs in 2008.”

The authors added that, “To simulate the effects of a major drought, the corn yield was fixed at 113 bushels per harvested acre, which was the trend-adjusted national yield in 1988. Assuming that all other stochastic elements remain as they are in the baseline, the resulting corn distribution has a mean of $6.42 per bushel and a price volatility of 14.3%. This corn price is 29% above baseline levels. Price volatility decreases because corn yield variability has been eliminated. On average, only 27% of the ethanol capacity will operate, which means that the average ethanol supply will be far less than the RFS. With 92.95% probability, ethanol production would be less than 10 billion gallons without an extra credit if a 1988-style drought returns in 2008.

“Of course, the above results hold only if the mandate is relaxed. The combination of a drought and the EISA mandate would push corn prices even higher. With a mandate, the average corn price would equal $7.99 per bushel, which is 50% higher than the average corn price under the unconditional distribution of corn yields. Of course, ethanol blenders would have to be heavily subsidized to be willing to pay a high enough corn price to keep ethanol plants running at these high corn prices. The average price of ethanol in the drought year would be $2.97 per bushel, which is $0.73 above the average ethanol price in the baseline scenario and $0.60 higher than with a mandate under the unconditional distribution of corn yields. At 10 billion gallons of production, this represents an average increase in taxpayer cost of $6 billion” (page 13-14).

The conclusions of the research are noted on page 15 of the paper.

Keith Good

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