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Farm Bill: House Passes One-Week Extension; Food Prices

A DTN item posted on Wednesday morning reported that, “With farm-bill negotiations reaching an apex, the House of Representatives on Wednesday morning passed another one-week extension of the 2002 laws to allow more time to complete the bill.”

The article stated that, “The House passed the extension to April 25 on a voice vote as part of the chamber’s morning business on Wednesday, according to DTN Political Correspondent Jerry Hagstrom.”

“USDA officials stated after the House vote that Congress still has to show some ‘real reform’ and demonstrate progress is being made for the president to approve this latest extension. The president had indicated last month that if Congress could not get a bill passed by April 18 that there should be a long-term extension on the bill,” the article said.

Peter Shinn, reported on Wednesday morning at Brownfield that, “‘We fully expect to have these things wrapped up by the 25th, in terms of having the policy differences on the Ag Committee and the funding differences resolved,’ [House Ag Committee Chairman Collin Peterson] said. ‘But everybody needs to understand that after that, we’re going to need an additional extension probably of two weeks, in order – this is a very complex, huge bill that’s going to take us time to pull together, to enroll, to get passed through the House and the Senate, get to the President in time for him to read it before he signs it,’ he added. ‘So people can expect that we’re going to have to have another couple extra weeks after next Friday, provided we get everything resolved which I expect we will.’

“If Peterson’s timeline holds true, that means President Bush may be signing the 2008 farm bill into law on or about May 9th. In the meantime, the House-Senate Farm Bill Conference Committee is expected to meet on an almost daily basis to iron out the outstanding ag policy issues between the House and Senate versions of the farm bill.”

Congressional Quarterly added on Wednesday afternoon that, “But the Bush administration fired a warning shot at the House-Senate conferees, who have struggled for months to reach agreement on a new long-term farm bill.

“‘The president has stated that he does not intend on signing another short-term extension if Congress has not shown significant progress towards crafting a good farm bill that he can sign,’ said an Agriculture Department spokesman. ‘It is up to the farm bill negotiators to demonstrate that progress is being made on legislation that provides real reform while using acceptable offsets to pay for any additional spending.’

“Lawmakers are still trying to work out minor details in the farm policy provisions of the legislation and say they are close to completing that job. But they are still awaiting a final financing package from the Senate Finance Committee and House Ways and Means Committee that could pay for as much as $12.5 billion in new spending over the measure’s baseline.”

Associated Press writer Mary Clare Jalonick noted on Wednesday that, “The two men [House Ways and Means Chairman Charles Rangel, D-N.Y and Montana Sen. Max Baucus, chairman of the Finance Committee] met privately twice on Tuesday, and Rangel said they still had not come to a deal after the second meeting.

“If the two sides are going to agree, ‘some people are going to have to change their minds,’ Rangel said after the meetings.

“Rangel would prefer that any extra money raised by the tax-writing committees be used for the nutrition and food stamp programs that make up two-thirds of the bill’s price tag. But he has shown willingness to negotiate with the farm-state senators.”

More specifically, with respect to executive branch perspective on the short-term Farm Bill extension, DTN Political Correspondent Jerry Hagstrom reported on Wednesday afternoon that, “The Senate is preparing to follow the House Wednesday in passing a one-week extension of the 2002 farm bill, so that negotiations on the new bill can continue after the current extension expires Friday.

“But Deputy Agriculture Secretary Chuck Conner told the farm bill conference Wednesday afternoon that he could not promise President Bush would sign the extension. Bush has said he would not sign an extension if Congress has not shown significant progress towards crafting a good farm bill that he can sign.”

Interestingly, Reuters writer Missy Ryan reported on Wednesday afternoon that, “Agriculture officials are likely to recommend that President George W. Bush approve a one-week extension of the current farm bill, if lawmakers make ‘significant progress’ in brokering a new law, Agriculture Secretary Ed Schafer said on Wednesday.

“‘If, in fact, we can make some significant progress today and tomorrow … then I think we can recommend to the president to sign a week’s extension,’ Schafer said at a food aid conference in Kansas City.”

The article added that, “But Schafer said the administration ‘can live with’ another one- or two-week extension, if certain conditions were met.

“‘What we need to see is an agreement on an overall spending level, an agreement on sources of funding, and an agreement on what they’re going to propose together on reforms,’ Schafer said.”

For additional summary and perspective on extension probabilities, see this audio clip (MP3- 1:00, Gary Crawford- USDA Radio) from yesterday, which features audio excerpts from Dep. Sec. Conner, Collin Peterson (D-Minn.) and Bob Goodlatte (R-Virginia).

Meanwhile an update posted on Wednesday afternoon at the Fresh Talk Blog noted that, “In this afternoon’s farm bill conference session Sen. Harkin asked Chuck Conner if the White House would support a one week extension, and Conner wasn’t very encouraging. At 2 p.m., Conner said the farm bill hadn’t shown enough progress to warrant an extension.”

The Fresh Talk update added that, “Here is reaction to the White House balk from Sen. Harkin:

’It seems every time Congress advances this farm bill, the White House has to throw up another obstacle to the bill’s completion. It’s like we’ve pulled up in the combine for harvest, only to see a big boulder in the middle of the field setting us back.

“‘Congress needs the White House’s support if we are ever going to get the President a bill he can sign. The conference committee cleared three titles of the bill yesterday and continues to make progress toward a good, strong bill. It’s unfortunate that the President is threatening to cut short the work that’s been done thus far.’”

Philip Brasher, writing on Wednesday afternoon at The Des Moines Register Cash Crops Blog, pointed out that, “Rep. Collin Peterson asserted on the House floor today that the $2.5 billion tax package had been dropped from the farm bill. That package has a lot of House opposition. The House Agriculture chairman was promptly slapped down this afternoon when House and Senate negotiators got together to talk about the bill.

“Sen. Max Baucus, the chairman of the Senate Finance Committee, said the tax package has to be in the bill. Otherwise, he said, the bill won’t get enough votes to pass the Senate. The bill contains goodies for a number of interests, including the ethanol and biodiesel industries. Baucus did signal, however, that the Senate won’t insist on the full $2.5 billion.”

Mr Brasher added that, “The White House really holds the cards here so long as congressional Republicans would hold together and uphold any veto. It wouldn’t be hard to justify a veto to the public so long as the White House can argue that the bill is just business as usual and maintains subsidies to rich landowners and farm operators.”

Reuters writer Charles Abbott noted on Wednesday that, “At present, negotiators plan to expand nutrition programs by $9 billion, stewardship by $4 billion, specialty crop programs by $1.35 billion and biofuels by $900 million. Crop insurance would be cut by $5.75 billion and agricultural research by $1.24 billion.”

Dan Morgan noted Wednesday evening at The Washington Post Online that, “Back in 2002, then House Agriculture Committee Chairman Larry Combest (R-Texas) helped engineer tens of billions of dollars in new spending for agriculture in a massive new farm bill that was denounced by fiscal conservatives. Combest’s pivotal role in outflanking a reform faction and bringing President Bush on board for the increased spending was detailed in a 2006 Post series on waste in agricultural subsidies.

“This week, in an ironic twist, the current chairman of the committee, Collin Peterson (D-Minn.), has emerged as the budget hawk — fighting to pare billions of dollars in Senate-backed spending and tax breaks in an effort to save the faltering legislation. The concern of Peterson and a bipartisan group of farm state lawmakers in the House is that Senate greed could sink the whole bill.

“At one point, Peterson resorted to barnyard imagery to warn the other body against overplaying its hand. ‘There’s a saying in farm country that pigs get fat but hogs get slaughtered,’ said Peterson during a last ditch House-Senate negotiating session Tuesday.”

Mr. Morgan also indicated that, “House officials are also lukewarm at best over another Senate add-on: a $4.1 billion provision to create a permanent new program to channel funds to farmers and ranchers suffering weather-related losses.

“Peterson, a ‘Blue Dog’ who supports the tighter budget controls initiated by the new Democratic majority, has warned that he may not be able to bring either House Republicans or the White House along with a bill containing the beefed-up spending.

“Both the disaster and tax measures are backed by Senate Finance Committee Chairman Max Baucus (D-Mont.), who is adamant. Without the tax package, Baucus said Wednesday, he may not be able to rally the needed 60 votes for Senate passage. ‘It has to be in the mix,’ he said.”

Concluding, Mr. Morgan explained that, “It’s uncertain who will blink. If the White House refuses to sign an extension, then the administration will take the blame in farm country for pushing U.S. agriculture into chaos, asserted one senior House aide. On the other hand, there is growing pressure on the Senate to back down.”

Food Prices

An interesting and helpful interactive graphic regarding global food prices has been posted at the Financial Times Online- to view this interactive global map which depicts countries implementing “export restrictions,” “price measures,” and “food unrest,” just click here.

Javier Blas, Isabel Gorst and Lindsay Whipp reported on Tuesday at the Financial Times Online that, “The global food crisis intensified on Tuesday as Kazakhstan, one of the world’s biggest wheat exporters halted foreign sales and rice prices shot to a record high after Indonesia stopped its farmers from selling the grain abroad.

“In another sign of turmoil, a big food company in Japan, Nihon Shokuhin Kako, said high corn prices had forced it to buy cheaper genetically modified corn for the first time, breaking a social, though not legal, taboo and signalling that opposition to GM foods could weaken in the face of record food prices.”

In the wake of supply pressure, some countries are addressing public policy issues associated with increased agricultural output.

Farhan Bokhari reported at The Financial Times Online on Tuesday that, “Pakistan’s top agricultural scientist says the country’s new government should let wheat prices rise and subsidise chemical fertilisers to help boost production following last year’s flour shortages.

“In February, politicians loyal to President Pervez Musharraf were defeated in parliamentary elections by opposition parties, partly on the back of public anger over a big increase in the price of roti, traditional round bread made with flour. ‘Without incentives for farmers to grow more [wheat], our import bill will rise,’ said M.E. Tusneem, who chairs the Pakistan Agricultural Research Council (Parc).

“According to Parc’s latest estimates, Pakistan this year will produce about 22m tonnes of wheat, or 4-5 per cent less than its annual consumption.”

The Associated Press reported on Monday that, “The European Union said Monday it is studying further measures to help poor countries deal with rising food prices as the bloc’s agriculture ministers debated increasing cereal production.

“EU spokesman John Clancy told reporters that the European Commission already set aside €160 million (US$253 million) in aid last month to boost food supplies and stocks in the world’s poorest countries.

“He said the EU executive office was ‘examining the current situation’ after fresh appeals were made by World Bank chief Robert Zoellick. He urged top donors to provide urgent aid to prevent a full-scale food crisis in the developing world.”

Also with respect to the EU, a recent AFP article indicated that, “EU agriculture ministers faced pressure on Monday to ramp up farm output in the face of dire warnings that soaring global food prices could drive 100 million people in poor countries deeper into poverty.

“France, Europe’s top farming power, was pushing the message that Europe must remain a global farming force by boosting output, sticking to its position in WTO trade negotiations and helping poor countries more in the sector.

“‘In a world where it will be necessary to produce more and better to feed nine billion people, everyone has got to play a part, including Europe,’ French Agriculture Minister Michel Barnier told journalists.”

Later the AFP article added that, “Against that backdrop, Barnier said on the sidelines of the meeting that Europe had to remain ‘a strong agricultural power’ in the face of pressure — especially from Britain — to cut the bloc’s huge farm spending budget.

“France, the biggest recipient of EU farm hand-outs, has led a battle in recent years against growing calls to cut the EU’s generous agriculture subsidies.”

“Barnier saw in the current context of soaring food prices a further reason for the EU to remain firm in negotiations in the World Trade Organisation, where the bloc is under pressure to cut farm support and tariff barriers,” the AFP article said.

U.S. Commodity Outlook- Corn

A University of Illinois Extension article from Monday (“Corn: Fundamentals Still Look Strong”- by Darrel Good) indicated that, “Corn prices dipped in the third week of March, but recovered following the USDA reports of March 31. The uptrend that began in early October 2007 is still in place. Last week, December 2008 futures traded to a high of $6.285.”

After a more detailed look at variables associated with demand, the paper stated that, “On the supply side, there is now some concern about the size of the 2008 corn crop. While prices never gave producers a signal to switch acreage from corn to soybeans in 2008, they apparently reacted to high soybean prices and high fertilizer prices. Planting intentions reflect plans to reduce corn acreage by nearly 7.6 million and increase soybean acreage by nearly 11.2 million. Recent changes in price relationships reportedly have some producers rethinking those intentions, with some now planning to plant more corn. The issue may be whether lingering cold, wet conditions will limit corn acreage. In the past, producers have been willing to plant corn ‘late’ in the face of high prices. In 1995 and 1996, for example, 90 and 75 percent of the crop, respectively, was planted after May 1. Sixty and 45 percent of the crop, respectively, was planted after May 15. With relatively high soybean prices, producers may not be willing to plant corn as late in 2008. Without an increase in acreage, the U.S. average corn yield will have to be well above the trend to allow consumption to continue at the current rate.”

Meanwhile, Bruce A. Babcock and Lihong Lu McPhail addressed corn price issues in the spring edition of the Iowa Ag Review Online (“The Outlook for Corn Prices in the 2008 Marketing Year”).

After a general introductory background regarding price variables, the authors stated that, “But what will happen to corn prices if a major drought hits this year or if Congress decides to relax ethanol mandates? Estimating the impacts of such events requires development of a computer model of the corn market. Such a model needs to include basic supply and demand relationships, such as the demand for feed and the level of planted acreage, but it also needs to account for the unknowable: the national corn yield, the level of export demand, and future gasoline prices.

“To answer these types of ‘what if’ questions, we developed a detailed model of the corn market for the 2008 crop. The model reflects the March 31 USDA acreage report that pegged prospective corn acreage at 86 million acres. The model also includes how further increases in ethanol production capacity will affect prices as well as the impact on the percentage of this capacity that will actually be used for production given corn prices, ethanol prices, and the price of distillers grains. Demand equations for corn used as feed, food, and exports are all accounted for also. Details about the model are given in our paper “Ethanol, Mandates, and Drought: Insights from a Stochastic Equilibrium Model of the U.S. Corn Market“. This model is in the process of being expanded to include soybeans and wheat and to include three years of projections. But for now, it only includes corn and price projections for the 2008 crop year.”

After a brief technical explanation of the model, and discussion of some model results, the paper indicated that, “High corn prices have increased speculation that scheduled ethanol mandates will be relaxed. A relaxation of mandates would have little impact on the ethanol industry’s capacity unless some plants currently under construction are mothballed. The 2008 crop-year impacts of eliminating the mandate are modest. We estimate that such a policy change would decrease the expected corn price by only $0.26 per bushel to $5.34 per bushel. The corn price volatility decreases to 17 percent because corn prices are not bid up as strongly without a mandate in short-crop years.

“Removal of both the mandate and the $0.51 tax credit would be expected to have a much larger impact on corn prices because the ethanol industry’s ability to pay for corn would decrease substantially. However, the extent to which ethanol prices would fall depends on gasoline prices and on the willingness of blenders to pay for reduced volumes of ethanol.”

With this general background of rising global food prices, as well as a brief snapshot look at some variables related to the U.S. corn market in mind, the Wednesday edition of The Diane Rehm public affairs radio program took up the issue of rising food prices, which included an analysis of how renewable energy policy may be impacting food prices.

Guests on the program included, David Orden, senior research fellow at the International Food Policy Research Institute in Washington, DC. He’s also a professor in the Virginia Tech Institute for Society, Culture and Environment; Yvonne Tsikata, country director for the Caribbean at the World Bank; Simon Johnson, economic counsellor and director of the Research Department, IMF; Bob Young, chief economist at the American Farm Bureau Federation; and David Beckmann, president of Bread for the World.

To listen to the entire program, which runs about 50 minutes, just click here.

Audio excerpts that FarmPolicy.com found particularly interesting are available here (MP3- Simon Johnson on some of the causes of high food prices, 1:42); and here (MP3- Simon Johnson, Bob Young and David Orden discuss the impact of biofuels on food prices, 6:19).

Meanwhile, an update posted yesterday at the Corn Commentary Blog pointed to a recent study conducted by Texas A & M University regarding ethanol and food prices: “Effects of Ethanol on Texas Food and Feed.”

Keith Good