FarmPolicy

October 26, 2014

Food Prices, EU and U.S. Biofuels: Related Issues- Different Perspectives; CFTC Roundtable; Farm Bill

Food Prices, EU and U.S. Biofuels: Related Issues- Different Perspectives

Kevin Sullivan, writing in today’s Washington Post, reported that, “More than 100 million people are being driven deeper into poverty by a ‘silent tsunami’ of sharply rising food prices, which have sparked riots around the world and threaten U.N.-backed feeding programs for 20 million children, the top U.N. food official said Tuesday.

“‘This is the new face of hunger — the millions of people who were not in the urgent hunger category six months ago but now are,’ Josette Sheeran, executive director of the World Food Program (WFP), said at a London news conference. ‘The world’s misery index is rising.’

“Prime Minister Gordon Brown, hosting Sheeran and other private and government experts at his 10 Downing Street offices, said the growing food crisis has pushed prices to their highest levels since 1945 and rivals the current global financial turmoil as a threat to world stability.”

The Post article noted that, “The increasing use of crops to produce biofuels has been criticized as contributing to food shortages. While Britain and the European Union have called for greater use of biofuels, Brown said Tuesday that ‘we need to look closely at the impact on food prices and the environment.’

“‘If our U.K. review shows that we need to change our approach, we will also push for change in E.U. biofuels targets,’ he said.”

A related Associated Press article from yesterday stated that, “Sheeran said developing world governments, particularly in Africa, will need to dedicate at least 10% of their future budgets to agriculture to boost global food production.

“Some experts predict other countries could follow the example of Pakistan, which has revived the use of ration cards for subsidized wheat.

“The production of biofuels needs to be urgently re-examined, Brown said.

“He acknowledged that the U.K. this month introduced targets aimed at producing 5% of transport fuel from biofuels by 2010, but said his government and others should review their policy.

“Production of biofuel leads to destruction of forests and reduction of the land area available to grow crops for food.”

Ross Lydall reported today at The Scotsman Online that, “Yesterday, ahead of a Downing Street summit on the world food crisis, the Prime Minister said: ‘Now we know that biofuels, intended to promote energy independence and combat climate change, are frequently energy inefficient.

“‘We need to look closely at the impact on food prices and the environment of different production methods and to ensure we are more selective in our support.

“‘If the UK review shows that we need to change our approach, we will also push for change in EU biofuels targets.’

“Campaigners welcomed Mr Brown’s prioritisation on feeding the world’s hungry and recognising the environmental damage done in claiming virgin land for crop growth.

“But enthusiasts for biofuels, such as the National Farmers’ Union, say UK regulations mean all crops that are grown for fuel, such as oilseed rape, are sustainable – and have the added benefit of also being used as animal feed.”

Meanwhile, an article posted yesterday at The Guardian Online indicated that, “The leaders of Bolivia and Peru have attacked the use of biofuels, saying they have made food too expensive for the poor.

“Speaking at the United Nations, the Bolivian president, Evo Morales, said the increased use of farmland for fuel crops was causing a ‘tremendous increase’ in food prices.

“The Reuters news agency reported that the Peruvian president, Alan Garcia, called on developed countries to grow more food. In the last few months, food prices in Peru have run ahead of the country’s general rate of inflation.

“Their attack coincided with a report published today by the environmental group Friends of the Earth warning the EU of the perils of expanding biofuel use in Latin America. Last year the EU agreed on a target of 10% biofuel use for transport by 2020.”

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With this backdrop in mind, yesterday’s BBC radio program, “Europe Today, with Audrey Carville,” highlighted the food price issue, and specifically discussed EU biofuels policy and also the Common Agricultural Policy.

The program, which can be heard here in its entirety, included this interesting clip (MP3- 4:39) with respect to biofuels subsidies and food prices.

Note that participants in the BBC radio program pointed to increased market speculation on world grain exchanges, including in Chicago, as one potential contributor to increasing commodity prices.

CFTC Roundtable

As it turns out, the U.S. Commodity Futures Trading Commission (CFTC) held a roundtable discussion on agricultural markets yesterday. The roundtable was designed to gather information about whether the futures markets are properly performing their risk management and price discovery roles.

A complete agenda, replay, and presented slides from yesterday’s roundtable discussion can be found at this CFTC webpage.

FarmPolicy.com audio clips are also available from yesterday’s roundtable.

To listen to introductory comments and general overview of yesterday’s event from Commissioner Michael V. Dunn, just click here (MP3-4:19).

And with respect to USDA’s perspective on the roundtable, opening remarks from Undersecretary Mark Keenum made at yesterday’s meeting, can be heard here (MP3-4:42).

Both of these clips provide a broad overview of some of the issues and concerns that policy makers and stakeholders have in the current market environment.

Diana B. Henriques reported in today’s New York Times that, “Faced with widespread complaints from the agricultural industry, federal regulators are backing away from two proposals that would have allowed institutional investors to expand their stake in the turbulent commodity futures markets.

“With the explosive increase in crop prices, those markets are attracting a flood of new capital from hedge funds, pension funds and commodity index funds. Those index funds have become a popular way for individual investors to speculate on the soaring prices in food, fibers and fuel markets.

“The proposed rule changes would have raised the size of the market stake that financial speculators could hold, and exempted commodity index funds from those higher limits.

“But Walter Lukken, acting chairman of the Commodity Futures Trading Commission, announced at a packed hearing on Tuesday that those ideas are being delayed.”

DTN writer Chris Clayton reported yesterday that, “The margin calls facing grain elevators and the interest rates on their lines of credit were just a couple of the broad-range of issues that members of the Commodity Futures Trading Commission heard Tuesday in a packed meeting at the CFTC offices.

“Agricultural interests questioned the role of investment traders in the markets as one of the factors driving up commodity prices beyond the range market fundamentals would support. High prices and high trading volume have pushed traditional hedgers such as grain elevators out of the markets, largely because grain elevators also are capping out their credit with banks.

“Jerry McReynolds, a Kansas wheat producer, said he knows one cooperative that has seen its credit limit go from $3 million to $50 million. The general manager of that cooperative thinks he needs an $80 million credit limit to get through the year, McReynolds said.

“‘We are at a real critical stage in agriculture,’ he said. ‘It affects our elevators and it affects us producers.’”

Peter Shinn reported yesterday at Brownfield that, “There may be some modest adjustments to current rules governing agricultural commodities futures markets, but wholesale overhaul looks unlikely. That’s the upshot of a roundtable of market participants convened by the Commodity Futures Trading Commission (CFTC) Tuesday morning in Washington D.C.

“And one change that likely won’t take place is approval of proposals to increase speculative limits for agricultural commodities futures markets. That’s what Walt Lukken, the CFTC’s acting chairman, told members of the roundtable.

“‘Given current market conditions and the uncertainty surrounding additional speculative money on these markets, I will be very cautious about moving forward with such initiatives at this time,’ Lukken said.”

Also of interest with respect to yesterday’s CFTC roundtable were comments made by World Outlook Board Chairman Gerald A. Bange- a copy of Dr. Bange’s presentation is available here.

In a separate Brownfield article from yesterday, Peter Shinn indicated that, “Participants in Tuesday’s day-long roundtable on agricultural commodities futures markets hosted by the Commodity Futures Trading Commission (CFTC) in Washington D.C. got a rare opportunity to hear a half-hour briefing on the supply-demand outlook for major ag commodities from Gerry Bange, Chairman of USDA’s World Ag Outlook Board. Bange’s presentation was one of a handful intended to ‘set the stage’ for a more wide-ranging discussion by detailing the fundamental factors impacting ag commodities futures markets.

“Bange’s most interesting comments may have been about USDA’s corn outlook. He as much as said USDA is counting on more acres actually getting planted than farmers suggested in the March 31st USDA Prospective Plantings report. Bange pointed out corn acres grew substantially between intentions and harvest in 2007, and that most USDA economists expect that to happen again this year.

“Of course, this year’s USDA Prospective Plantings report suggested U.S. corn plantings this year of 86 million acres, down roughly seven million acres from last year. But according to Bange, USDA’s record-high estimate of corn prices this year assumes 90 million corn acres will be planted.”

To listen to an audio excerpt from Dr. Bange’s presentation yesterday, in which he discussed corn acreage and other related issues, just click here (MP3-4:46).

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In a slightly different perspective on biofuels policy than expressed by Gordon Brown (noted above), Philip Brasher reported yesterday at The Des Moines Regsiter Online that, “Maybe they should eat rice instead.

“Sen. Charles Grassley said Tuesday that if it’s right to blame rising food prices on the use of corn for ethanol, then it’s OK to also question the growth of meat consumption in China, which increases the use of grain for livestock feed.

“‘If part of our problem is that the Chinese are going to eat meat and you’ve got to have corn and soybeans to feed the Chinese their meat, then why isn’t just as legitimate for the Chinese to go back and eat rice as it is for us to change our policy on corn to ethanol?’ Grassley asked in a conference call with reporters.

“The United States is facing an international backlash over its policy of converting corn and soybeans to biofuels.”

Mr. Brasher noted that, “Grassley said he wasn’t recommending that China and other countries reduce their meat consumption.

“‘I’m not saying that they ought to. I’m saying it’s legitimate for me to raise that as a question, just as it’s legitimate for them to raise the question of us of corn to ethanol,’ Grassley said.”

To listen to Sen.Grassley’ exchange on this issue from yesterday’s tele-news conference, just click here (MP3-6:35).

Farm Bill

Reuters writer Charles Abbott reported yesterday that, “U.S. President George W. Bush on Tuesday called on Congress to give up its deadlocked negotiations over a $600 billion farm law and pass by Friday a one-year extension of the 2002 law, popular in farm country.

“The White House proposal would erase hopes in Congress of large increases in funding for nutrition programs like food stamps and in land stewardship. Some farm lobbyists say a bill cannot pass without rewarding those popular programs.

“House and Senate negotiators, meeting minutes after the White House issued Bush’s statement, said they would make a final effort to wrap up the new law. The optimism was mixed with sober words that time is short.”

Mr. Abbott noted that, “[Sen. Ag Committee Chairman Tom] Harkin and Virginia Rep. Bob Goodlatte, the Republican leader on the House Agriculture Committee, noted the House and Senate are in accord on an outline of the new law. One option, Goodlatte said, would be to fashion a bill around those items.

“‘A one-year extension is a bad idea and it is not an acceptable outcome,’ said House Agriculture chairman Collin Peterson, Minnesota Democrat.”

Keith Good

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