Farm Bill Tax Provisions
DTN Political Correspondent Jerry Hagstrom reported yesterday (link requires subscription) that, “Senate Finance Committee Chairman Max Baucus, D-Mont., and Finance ranking member Charles Grassley, R-Iowa, have launched a public campaign to save at least some elements of the tax package in the Senate-passed version of the farm bill in the conference report of the bill.
“‘These reforms add up to $2.4 billion that can be used to fully offset a package of vital tax relief for American agriculture,’ Baucus said in a news release late Friday. ‘They will promote consistent and fair tax treatment among farmers and other taxpayers, reduce the ability to abuse farming businesses to generate losses, help farmers ensure their own retirement security and ensure that agricultural producers and other taxpayers properly report income and pay their fair share. These reforms are right for farm country — and right for the farm bill.’”
Additional information on the tax package is available here.
Mr. Hagstrom also indicated in the DTN article that, “The Senate package would raise about half the $2.4 billion by decreasing the ethanol blender tax credit from 51 to 47 cents in January the year after ethanol production reaches 7.5 billion gallons. It would also raise $456 million by limiting the amount of agricultural losses that a taxpayer may use to reduce to $200,000 non-agricultural business income on the Schedule F of a tax return if the taxpayer receives commodity payments.”
With respect to Farm Bill Conference activity, the House Ag Committee webpage currently states that, “The next Farm Bill conference meeting is scheduled for Tuesday, April 22, at 4:30 p.m. The meeting will take place in 345 Cannon House Office Building and will be webcast live by accessing the Live Audio/Video Page.”
As policy makers continue to work on a legislative compromise regarding U.S. agricultural policy, Diana B. Henriques reported in today’s New York Times that, “Fred Grieder has been farming for 30 years on 1,500 acres near Bloomington, in central Illinois. That has meant 30 years of long days plowing, planting, fertilizing and hoping that nothing happens to damage his crop.
“‘It can be 12 hours or 20 hours, depending,’ Mr. Grieder said.
“But Mr. Grieder’s days on the farm in Carlock, Ill., are getting even longer. He now has to keep a closer eye on the derivatives markets in Chicago, trying to hedge his risks so that he knows how much he will be paid in the future for crops he is planting now. And the financial tools he uses to make such bets are getting more expensive and less reliable.”
The Times article stated that, “But today’s crop prices are not just much higher, they also are much more volatile. For example, a widely used measure of volatility showed that traders in March expected wheat prices to swing up or down by more than 72 percent in the coming year, three times the average volatility for that month and the highest level since at least 1980. The price swing expected in March for soybeans was three times its monthly average, and the expected volatility in corn prices was twice its monthly average.
“Those wild swings in expected prices are damaging the mechanisms — like futures contracts and options — that in the past have cushioned the jolts of farming, turning already-busy farmers into reluctant day traders and part-time lobbyists.
“One measure of the farming industry’s frustration is the overflow crowd expected at a public forum on Tuesday at the Commodity Futures Trading Commission in Washington. Interest is so high that the commission, for the first time ever, will provide a Webcast of the forum, which it says is being held to gather information about whether crucial markets for hedging the price of crops ‘are properly performing their risk management and price discovery roles.’ The Webcast link is available on the commission’s Web site, www.cftc.gov.”
The article added that, “Whether new investors are causing the market’s problems or keeping them from getting worse is in dispute. But there is no question that the grain markets are now experiencing levels of volatility that are running well above the average levels over the last quarter-century.”
Ann Davis, writing in today’s Wall Street Journal, reported that, “Food’s surging cost has coincided with unprecedented levels of financial speculation in grain-futures markets.
“Now consumers and Farm Belt market participants hurt by more-volatile prices are asking Washington to rein in increasingly powerful commodity investors.”
The Journal article indicated that, “A hearing Tuesday in Washington before the Commodity Futures Trading Commission starts a new round of scrutiny into the popularity of agricultural futures, a once a quieter arena that for years was dominated largely by big producers and consumers of crops and their banks trying to manage price risks.
“The commission’s official stance and that of many of the exchanges, however, is likely to disappoint many consumer groups. The CFTC’s economist plans to state at the hearing that the agency doesn’t believe financial investors are driving up grain prices — tightening supply and rising demand are. The agency has made the same case with rising oil prices.”
The Journal article also pointed out that, “In 2007 and early 2008, prices of wheat, corn, rice and soybeans, among other crops, have escalated along with energy and other natural resources. Since the start of 2007, wheat futures are up 69%, soybeans have risen 92%, corn is up 49% and rice is up 131% on the Chicago Board of Trade.
“Many markets have been more volatile than they used to be. On the Minneapolis Grain Exchange, the high-protein wheat used to make bread hit an intraday high of $25 a bushel on Feb. 25, up 29% from the day before. Some say speculators caused the run-up because they bet wrongly that prices would fall; when prices began rising instead, the traders had to buy wheat contracts hurriedly to fulfill trading obligations.”
With respect to current futures prices, Associated Press writer Stevenson Jacobs reported yesterday that, “Corn and soybean prices plunged Monday as investors set aside their supply worries and bet that dry weather in the U.S. corn belt will allow growers to speed up planting.”
“Dry, warm weather is expected this week across the U.S. corn belt after days of heavy rainfall that have soaked fields and slowed spring planting. The favorable forecast raised hopes that planting could resume at a faster pace, touching off a broad agriculture sell-off in everything from corn to wheat to oats.”
The AP article stated that, “Soybeans for May delivery fell 46 cents to settle at $13.155 a bushel on the Chicago Board of Trade, after earlier dropping as low as $12.915, its lowest level in two weeks. Corn for May delivery lost 19.25 cents to settle at $5.8025 a bushel on the CBOT after earlier falling as low as $5.695.
“The agricultural decline also affected wheat prices, which shed 24.25 cents to settle at $8.4575 a bushel for the May contract.”
And, the article noted that, “Light, sweet crude for May delivery rose to a record $117.60 a barrel on the New York Mercantile Exchange before settling at $117.48, up 79 cents from Friday’s close.”
Prices (Biofuels) & Doha
Reuters writer Daniel Flynn reported on Monday that, “High commodity prices create an opportunity for developed nations to scrap agricultural subsidies that distort trade and worsen poverty in the world, United Nations Secretary-General Ban Ki-moon said on Monday.
“Ban urged rich and poor states attending a U.N. conference on trade and development in Ghana to strike a global trade deal on cutting tariff barriers to ease soaring food prices which have triggered unrest in Africa, Asia and Latin America.
“The U.N. chief said spiraling inflation, which has more than doubled the prices of staple foodstuffs in many low-income nations, could undermine global efforts to improve the livelihood of the world’s one billion poorest people.”
The Reuters article noted that, “The United States and the European Union have faced heavy criticism for their reluctance to cut tariffs and subsidies on agricultural goods, like cotton, while pressing poor countries for greater access to their markets for industrial goods.”
And later, the Reuters article added that, “Brazilian President Luiz Inacio Lula da Silva added his voice to Ban’s call for UNCTAD members to find ways to ensure the world’s poorest were not left hungry.
“‘The shortages we see today are due to the protectionist practices of rich countries,’ he said. ‘The production of food has been greatly discouraged by the existence of subsidies.’
“Lula said Brazil was willing to grant tariff-free and quota-free access to its markets for goods from Least Developed Countries, following a similar announcement by India this month.
“He added Brazil’s expertise in biofuel technology could help Africa overcome energy shortages without harming the environment or food supplies.”
With respect to biofuels, Lester Brown and Jonathan Lewis penned an opinion item that was published in today’s Washington Post, which noted in part that, “The willingness to try, fail and try again is the essence of scientific progress. The same sometimes holds true for public policy. It is in this spirit that today, Earth Day, we call upon Congress to revisit recently enacted federal mandates requiring the diversion of foodstuffs for production of biofuels. These ‘food-to-fuel’ mandates were meant to move America toward energy independence and mitigate global climate change. But the evidence irrefutably demonstrates that this policy is not delivering on either goal. In fact, it is causing environmental harm and contributing to a growing global food crisis.”
The opinion piece stated that, “It is now abundantly clear that food-to-fuel mandates are leading to increased environmental damage. First, producing ethanol requires huge amounts of energy — most of which comes from coal. Second, the production process creates a number of hazardous byproducts, and some production facilities are reportedly dumping these in local water sources.
“Third, food-to-fuel mandates are helping drive up the price of agricultural staples, leading to significant changes in land use with major environmental harm. Here in the United States, farmers are pulling land out of the federal conservation program, threatening fragile habitats. Increased agricultural production also means increased fertilizer use. The National Academy of Sciences reported last month that meeting the congressional food-to-fuel mandate by 2022 would lead to a 10 to 19 percent increase in the size of the Gulf of Mexico’s ‘dead zone’ — an area so polluted by fertilizer runoff that no aquatic life can survive there.”
Meanwhile, an update posted yesterday at The Ethanol Report, stated that, “A new analysis of America’s ethanol industry shows dramatic efficiency gains in ethanol production have been made in the last five years.
“According to an analysis conducted by the Argonne National Laboratory, American ethanol facilities are using less energy and water than just five years ago while producing more ethanol. Water consumption is down 26.6 percent, grid electricity use down almost 16 percent and total energy use almost 22 percent lower. (Read the full report from Argonne in pdf form here)
“The Argonne analysis compares ethanol industry data from 2001 to 2006. In 2001, U.S. ethanol production was 1.77 billion gallons. In 2006, U.S. ethanol production was 4.9 billion gallons, an increase of 276%.”
Yesterday’s update also noted that, “The Argonne analysis also found key trends that are making ethanol more efficient and environmentally friendly. Nearly 25% of ethanol producers today are capturing their carbon dioxide emissions for use in dry ice production and carbonated beverage bottling. In addition, 37% of distillers grains – the high protein livestock feed co-product of ethanol production – are now sold in the wet form, reducing the energy needed to dry and transport the product.”
In addition, The Ethanol Report podcast from yesterday noted that, “This ‘Ethanol Report’ podcast features comments from RFA President Bob Dinneen on a new report from Argonne National Laboratory about the increased efficiency of U.S. ethanol plants, as well as how higher oil prices are the real cause of food price inflation.”
To listen to the audio, just click here- Ethanol Report 10 (7:00 MP3 file).
With respect to biofuel policy developments, Reuters writer Pete Harrison reported yesterday that, “The European Commission said on Monday it was standing by its target of getting 10 percent of its road transport fuel from crops and biomass by 2020, despite mounting criticism it could worsen food shortages.
“The January proposals have become increasingly controversial amid soaring world food prices and fears that farm land in developing countries is being diverted away from food crops towards others that can be distilled into vehicle fuel.
“Asked by reporters whether media reports that the Commission was reconsidering the biofuel target were true, the spokesman said: ‘The answer is very simple — no.’”
With respect to Doha developments, a recent update posted at the WTO Online indicated that, “WTO agriculture negotiators have asked their chairperson for at least a week more to build upon the progress they have been making in their recent consultations on sensitive products, tropical products and long-standing preferences. At the end of a meeting that began on Tuesday 15 April 2008 and ended three days later, chairperson Crawford Falconer tentatively proposed 30 April as the date for hearing the results of their consultations.”