FarmPolicy

August 17, 2019

Farm Bill; Prices; Biofuels

Farm Bill

Greg Hitt reported in today’s Wall Street Journal that, “A proposal to sweeten government support for American sugar producers is emerging as a major sticking point between Congress and the White House in final negotiations on the farm bill.

“The initiative is a priority for House Agriculture Committee Chairman Collin Peterson, a Democrat whose rural Minnesota district is among the nation’s top producers of sugar beets.

“Rep. Peterson is pushing a package of proposals that would bolster the industry, including a plan to commit imported sugar to ethanol production, rather than having it sold into the consumer market, where it would compete with U.S. producers. The White House is demanding that the measure be dropped.”

Mr. Hitt went on to explain that; “The industry has long been one of the most protected sectors in American agriculture. The government support includes special loans to producers and a program designed to prop up the prices by controlling the amount of sugar put on the market through import limits and production allotments granted to farmers.

“While the program doesn’t cost taxpayers much, critics complain it keeps the price of sugar artificially high for consumers and food processors.

“Rep. Peterson is proposing to increase what sugar farmers can borrow from the government, an amount that hasn’t been raised in 20 years. He wants to lock in allotments for domestic producers at about 85% of the U.S. market.

“He also proposes a mandate that sugar imports be used for ethanol production. The provision would shield the domestic industry from foreign competition, which has increased after a trade agreement with Mexico and several Central American countries.

“‘The White House doesn’t like any of this,’ Rep. Peterson said.”

The Journal article pointed out that, “Two-thirds of spending under the [Farm] bill would be set aside for nutrition programs, most of it domestic aid for low-income families. Even so, the White House is seizing on the global food crisis — and public angst about food prices — to pressure lawmakers on domestic farm supports.

“‘It is incredibly ironic that we’re talking about’ rising food prices said White House spokesman Tony Fratto, while ‘at the same time we’re talking about putting together a farm bill that supports higher prices for food and sends subsidies to some of the wealthiest Americans.’”

Meanwhile, the Friday edition of National Public Radio’s (NPR) Day to Day program devoted attention to the Farm Bill debate.

Sen. Tom Harkin (D-Iowa), the Chairman of the Sen. Agriculture Committee appeared on the program and spoke about direct payments and noted that the President has been unwilling to negotiate and deal with the Congress on the Farm Bill. Chairman Harkin also addressed income limitation (both farm and nonfarm related income) levels for receiving federal farm subsidy payments.

The five-minute NPR audio segment is available here.

An item posted recently at The Economist Online, (“The right time to chop,” May 1), stated that, “Who says farmers are inflexible? In rich countries, they have long justified farm hand-outs by pointing to low world prices for food (never mind that low prices were partly caused by their own subsidised overproduction). Without public cash, they said, farmers would desert the land, leaving meadows to brambly ruin. Now that the world is running short of food, the farm lobby has deftly changed tack. Prices for many crops are at record highs, the new line goes, and rich countries need to protect their farmers in order to ensure that their people get fed.”

The item stated that, “But it is in Europe, with its notorious common agricultural policy (CAP), that farmers are bleating especially loudly. France, which has long scooped up more CAP money than any other country, leads the way. Not long ago, President Nicolas Sarkozy seemed to support CAP reform, asserting that farmers should live off their earnings, not from subsidies. But the French, who take over the EU presidency in July, are now pushing ‘community preference’—jargon for blocking food imports. To get round world trade rules, they are suggesting that imports satisfy EU environmental, hygiene or animal-welfare rules—which give ample scope to rig markets.

“Michel Barnier, the French farm minister, wants joint European action on ‘food security’, and insists that feeding people is too important a task to be left to the market. Pledging ‘complete agreement’ with French plans to recast the CAP, his German counterpart, Horst Seehofer, pours scorn on the idea that the developing world would be helped by reducing European farm protection. He says he does ‘not see how you can help the weak by hurting the strong.’ Mr Seehofer thinks ‘food conflicts’ lurk around the corner.”

Concluding, The Economist piece indicated that, “Defenders of the CAP and other rich-country farm policies cannot have it both ways. They cannot demand more money when prices are low, and then ask for extra protection when they rise. High food prices further undermine their already rotten arguments for support, and offer a golden opportunity to dismantle rich-country farm protection. Governments would be mad as a British cow not to take it.”

Prices

Peter Harriman
reported in yesterday’s Argus Leader (South Dakota) that, “Keith Alverson heads into 2008 looking at robust prices for the corn and soybeans he grows with his father and uncle near Chester.

“Two dollars for a bushel of corn – the benchmark price for years – seems like a quaint artifact from a bygone era. The value of crops common in the Upper Midwest – corn, soybeans, wheat – have doubled and tripled from those old standards.

“The U.S. Department of Agriculture forecasts that net farm income will be $92.3 billion this year. That’s an increase of 4.1 percent from 2007 and 51 percent above the 10-year average of $61.1 billion.”

The article noted that, “It’s a great ride for Alverson, who has been farming since 2002. But a ticket to this ride has gone up. The cost of everything associated with farming has risen this spring. Fuel and fertilizer have climbed sharply. Where last year nitrogen fertilizer was about 45 cents a pound, this year it is 50 to 60 cents, and that’s after Alverson was able to lock in a price last fall. Land rent, seed and operating capital are also more expensive.”

Mr. Harriman explained that, “Old hands who can dredge from memory scenes from one of modern agriculture’s dark days have seen this before. Sky high prices for their crops in the 1970s encouraged farmers to chase the bonanza by taking on greater debt to enlarge their operations. Many borrowed heavily against their biggest asset, their land. In the overheated farm economy, land value soared like the mercury in a thermometer in central South Dakota in July.

“But high loan interest rates, a precipitous drop in the price of commodities and a corresponding free fall of land prices swirled into the perfect storm that dashed farming against the reef in the 1980s.

“‘I talk a lot about that with my banker,”’Alverson says. ‘He tells me ‘boy, this could be shaping up like the Eighties.’”

Meanwhile, Matt McKinney reported today at The Minneapolis Star-Tribune Online that, “A pair of Minnesota charities, one called Kids Against Hunger and another Feed My Starving Children, sent 70 million meals overseas last year, but in recent weeks have found themselves at the eye of an unfolding global storm over food. Prices are up, costs have skyrocketed, and without more funding they’ll cut back just as the need for food aid mushrooms.

“Some international agencies now say that food inflation threatens to undo years of work to stop children from starving to death, which occurs at a numbing rate of 18,000 times a day, according to the Food and Agriculture Organization of the United Nations.”

The article noted that, “‘We usually get probably three or four calls every week from someone in some country saying we’ve heard of you, can you send us some food,’ said Kathy Stinchfield, spokeswoman for Kids Against Hunger, a charity based in New Hope that shipped 27 million meals overseas last year. ‘We’ve been getting two to three calls every day in the last couple of weeks.’

“She had hoped to send more meals this year, but economics is playing havoc with that plan. Rice prices started creeping up last fall, rocketing up 30 percent between March and April, she said. So her group is spending $526,000 more to ship the same amount of food as last year, about 27 million meals. Rice has nearly doubled in the past year; wheat is up 69 percent, soy 78 percent.

“It’s the same story at Feed My Starving Children, said Mark Crea, executive director of the group.”

Along these lines, Tom Polansek reported in today’s Wall Street Journal that, “Chicago Board of Trade rice futures have likely seen a top for the year after global supply fears sparked a record-breaking rally, analysts said.

“Nearby CBOT May rice has shed 17% since hitting its high of $24.6850 per hundredweight April 24. It settled Friday at $20.55. Most-active CBOT July rice has fallen more than 16% since reaching an all-time high of $25.07. The contract tumbled the daily, exchange-imposed limit for four consecutive days last week and closed Friday at $20.9450.

“It seems as though all the bullish views about shrinking world supplies have been factored into the market, analysts said. Prices climbed recently as major producers like India and Vietnam curbed their export sales to protect domestic supplies, but there are now signs the tightness is easing, they said.”

In addition, the Journal article pointed out that, “Wheat is looking more affordable these days, as the price of the most-active CBOT July wheat contract has plunged to around $8 a bushel from $12 in March.

“The world may see a record wheat crop this year after growers expanded plantings due to high prices.”

Mr. Polansek added that, “The global media focused their attention on rice after prices surged to record highs amid fears about shortages of the food staple. In April, warehouse clubs Costco and Sam’s Club limited purchases on rice because of ‘recent supply and demand trends.’ The burst of attention may have been a signal that the rally had run its course, analysts said.

“‘That is just one of the signs that you see in any kind of a market blow-off like this,’ Mr. Coleman [Neauman Coleman, a principal at Neauman Coleman & Co., a brokerage and advisory firm in Brinkley, Ark.] said about the media attention, which he called a ‘frenzy.’ ‘It is just the psychology of people making trading decisions to a big extent off of fear and greed. It was the fear element that triggered this big run that we had. We haven’t ever run out of rice, and we’re not going to run out of rice.’”

Faith Bremner reported in yesterday’s Argus Leader (South Dakota) that, “Commodity prices began their steep ascent last fall and peaked between late February and early April. Wheat and soybean prices have backed off some since then but remain high. Corn remains near its record high. There are many reasons for this, market watchers say – growing economies in China and India, which has led to a higher demand for food and raw materials, the fall in the dollar’s value against other currencies, a two-year drought in Australia, an increase of speculators in the futures market and increased ethanol production that has diverted corn supplies.

“As a result, as prices have surged, grain elevator operators have had to make higher margin payments to the commodities markets to maintain their futures contracts. That has forced them to borrow more money and pay higher interest costs. In turn, elevator operators have had to raise fees and limit how far in the future they will contract with farmers.”

The article noted that, “Some in the agriculture industry say speculators are responsible for much of the price volatility. The Commodity Futures Trading Commission held a hearing on the issue April 22. According to the commission, the amount of money that investment funds and others have put in the crop commodities markets has jumped from $10 billion in 2005 to $47 billion today.

“South Dakota’s congressional delegation said they’re concerned about the situation and want the commodities commission and Congress to consider new limits on speculators.

“‘I know this is an area that (House Agriculture Chairman Collin) Peterson wants to pursue when we finish the farm bill in the next week or two,’ said Rep. Stephanie Herseth Sandlin, D-S.D., who sits on the committee.”

DTN Political Correspondent Jerry Hagstrom reported on Friday (link requires subscription) that, “House Agriculture Committee Chairman Collin Peterson, D-Minn., said Wednesday that when the farm bill is done he plans to hold hearings on the Commodity Futures Trading Commission and on management problems within the Agriculture Department while keeping an eye on food safety proposals.

“Peterson is very disturbed by the recent influx of money into the commodity markets and the CFTC’s lack of interest in tighter regulation, he told the National Association of Farm Broadcasters. Peterson said he wanted to hold a hearing on the situation, but that CFTC officials asked him to wait because they were planning an open forum on the subject that was held on April 22.”

Biofuels

David Welna reported on Friday’s Morning Edition Program (National Public Radio) that, “Four months ago, Congress sharply raised production targets for ethanol fuel, from the current 7 billion gallons a year to 36 billion gallons by 2022. Now, some lawmakers are asking whether the ethanol mandates come at too high a price.

“The mandated, subsidized biofuel uses corn as its main feedstock. Last year’s production required a quarter of the nation’s corn harvest, which has led to soaring corn prices. That led to corn displacing other crops.

“But trimming those mandates, which have brought windfalls to farm states, may be politically perilous during an election year.”

To listen to this NPR segment (3:55), just click here.

Keith Good

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