FarmPolicy

August 21, 2019

Farm Bill; WASDE Report

Farm Bill

Yesterday, Agriculture Secretary Ed Schafer and Deputy Agriculture Secretary Chuck Conner held a press briefing with reporters to discuss executive branch perspective on the Farm Bill conference agreement that was announced on Thursday at a Capitol Hill press conference. A complete transcript and audio replay of the yesterday’s USDA event has been posted at the USDA Online, and a FarmPolicy.com audio podcast summary of yesterday’s news briefing is available here (MP3-10:37)

Also yesterday, House Ag Committee Chairman Collin Peterson (D-Minn.) appeared on the AgriTalk Radio program with Mike Adams. To listen to an audio excerpt of Chairman Peterson’s remarks with Mike Adams on the AgriTalk Radio program, just click here (MP3-5:19). Chairman Peterson discussed various aspects and issues relating to the farm policy legislation.

Dow Jones writer Bill Tomson reported yesterday that, “The new farm bill proposal unveiled Thursday by U.S. lawmakers both ignores a Bush administration request to convert some food aid to cash for dire need in foreign crises as well as cuts the amount of food the U.S. can donate in emergency situations, U.S. Department of Agriculture Secretary Ed Schafer said Friday.

“Bush administration officials have been arguing for years that sometimes the government just doesn’t have time to send U.S. food stuffs to places around the world in crisis and it should have the authority to instead buy the commodities in places closer to where disaster strikes. The USDA, in the farm bill plan it sent to Capitol Hill for Congress to consider, included a provision that would provide authorization to use as much as 25% of USAID food aid funds ‘to assist people threatened by a food security crisis.’

“But opposition has been strong because donating U.S.-origin commodities is seen as good for U.S. producers.”

Ian Swanson reported yesterday at The Hill Online that, “A promised farm bill veto could hurt Republican candidates in rural areas, President Bush’s agriculture secretary said Friday.

“U.S. Department of Agriculture Secretary Ed Schafer said the ‘politically expedient’ move might be for President Bush to sign the farm bill, but added that he is ‘proud’ that Bush is sticking to his principles in promising to veto it.

“In response to a direct question, he said it is ‘a possibility’ that Republican candidates running for the House in rural areas could be hurt by a veto.

“In a conference call, Schafer repeated that Bush had told him directly that he will veto the farm bill. Schafer criticized the legislation as a budget-buster that will keep funneling taxpayer-funded subsidies to wealthy farmers who do not need the help. He also said it would make it tough for the U.S. to comply with international trade obligations.”

Peter Shinn reported yesterday at Brownfield that, “And key farm-state lawmakers wasted no time in addressing the specific complaints voiced by Schafer. During a teleconference just minutes after Schafer’s, Senate Budget Committee Chairman Kent Conrad of North Dakota and Senate Ag Committee Chairman Tom Harkin of Iowa defended the new farm bill, which Congress is expected to vote on as soon as Wednesday.

“Among other things, Schafer claimed the measure spends $20 billion over the Congressional Budget Office (CBO) baseline for farm programs. Conrad took on that allegation head on, and addressed many of Schafer’s other complaints as well.

“Conrad noted that spending on all commodity programs makes up just one quarter of one percent of the total federal budget under the new farm bill and that nearly three-quarters of the bill’s total cost is spent on nutrition programs for school children and the needy. Conrad also pointed out the CBO has scored the farm bill at just $10 billion dollars over budget baseline and that the extra cost is completely offset by other policy changes included in the bill.

“Conrad also emphasized that most of the safety-net provisions of the new farm bill, including marketing loans, the counter-cyclical program and the new permanent ag disaster aid program won’t go to farmers unless current high prices collapse or there’s a production-related calamity. On the other hand, Conrad noted Congress had cut direct payments, which go to eligible owners of farm program acres under any conditions, by $300 million while the Bush administration in its farm bill proposal had wanted to increase those payments by billions.”

And Reuters writer Chuck Abbott reported yesterday that, “Congress could enact the new $285 billion U.S. farm law over a presidential veto by late May, ending 15 months of work to overhaul U.S. farm policy, the Senate Agriculture Committee said on Friday.

“The House and Senate are expected to pass the five-year bill next week. A veto, promised by the Bush administration, would follow in a few days, allowing time for Congress to override the veto before the Memorial Day holiday.

“Agriculture chairman Tom Harkin, Iowa Democrat, outlined the likely sequence during a briefing. He said urban lawmakers would support the bill because it increases food stamp benefits and would expand federal donations to food pantries.”

Meanwhile, The Washington Post editorial board indicated yesterday that, “Congress began working on this [Farm Bill] legislation at a time of relatively stable food and energy prices. Those conditions no longer apply; many farmers, especially those who grow corn for ethanol, have profited mightily as a result. Yet farm-state legislators, cocooning with agribusiness lobbyists, continue to act as if federal taxpayers owe their constituents a helping hand. They have definitely misjudged the economics of the situation; they may have overplayed their hand politically as well. President Bush should veto the bill, as he has all but threatened to do, and Congress should deny it the two-thirds vote in both houses necessary to override. Then all concerned could sit down to draft a bill that increases food stamps and extends current law for a year. Admittedly, that would leave in place policies that are, in some respects, even worse than those that emerged from the conference committee yesterday. But it would avert having bad policy locked in for the next half decade. And in 2009, a new president and a new Congress could hammer out something more defensible.”

WASDE

Chris Flood reported on Thursday at the Financial Times Online that, “US corn prices hit record levels on Thursday amid expectations that Friday’s update from the US Department of Agriculture would include downward revisions to production forecasts this year as planting in the Midwest has been hampered by bad weather.”

The FT article added that, “On Thursday, the International Monetary Fund warned agricultural commodity prices would stay high for the foreseeable future as supply would require new investment and policy reforms.

“The IMF also said biofuel policies in advanced economies were spilling over into prices of key foods, particularly corn and soyabeans. The IMF estimated increased demand for biofuels accounted for 70 per cent of the increase in corn prices and for 40 per cent of the rise in soyabean prices. However, the IMF also noted that oil prices would have been higher in the absence of biofuels supply.

“‘The humanitarian challenges of higher food prices will not disappear any time soon,’ said John Lipsky, first deputy managing director of the IMF.”

Meanwhile, the World Agricultural Outlook Board (WAOB) released the monthly World Agricultural Supply and Demand Estimates (WASDE) report yesterday.

The WASDE report stated that, “The 2008/09 U.S. wheat outlook is for higher production, lower exports, and increased domestic use. Total production is projected at 2.4 billion bushels, up 16 percent from 2007/08.”

Also, the report added that, “Ending stocks for 2008/09 are projected at 483 million bushels, more than double the current year’s projected 239 million. The national average farm price for 2008/09 is projected at $6.60 to $8.10 per bushel, compared with the current year forecast of a record $6.55 per bushel. Wheat prices will be supported by farmer forward sales and early season export demand.”

(For reference to historic price levels of wheat, see this graph.)

Global wheat production for 2008/09 is projected at a record 656 million tons, up 8 percent from 2007/08, and up 5 percent from the previous record in 2004/05,” the report said.

With respect to coarse grains, the WASDE report indicated that, “The 2008/09 U.S. feed grains outlook is for lower production, strong domestic demand, and lower ending stocks. The 2008/09 corn crop is projected at 12.1 billion bushels, down 7 percent from the record 2007/08 crop. Planted area is from producer intentions reported in Prospective Plantings. Harvested area is based on historical abandonment and derived demand for silage. The yield is projected at 153.9 bushels per acre, 1 bushel per acre below the 1990-2007 trend based on the slower-than-average pace of planting as reported in Crop Progress. The projected yield assumes a mid-May planting progress near the 10-year average and reflective of last year’s May planting pace.”

Corn exports are projected down 16 percent as U.S. supplies face increased world competition with increased foreign production and a sharp drop in EU-27 imports. Ethanol use is projected at 4 billion bushels, up 33 percent from 2007/08. The slowing pace of plant construction and expansion, and lower capacity utilization are expected to modestly dampen growth in ethanol corn use. With total corn use expected to exceed production by 635 million bushels, ending stocks are projected down 45 percent. At 763 million bushels, ending stocks would be the lowest since 1995/96. The season-average price is projected at $5.00 to $6.00 per bushel, well above the current year’s forecast record of $4.10 to $4.40 per bushel,” the report said.

(For reference to historic price levels of corn, see this graph.)

“Global coarse grains production for 2008/09 is projected at 1.1 billion tons, up slightly from the current year record, despite the year-to-year decline in U.S. corn output,” the report said.

Regarding oilseeds, the WAOB noted that, “Soybean production is projected at 3.1 billion bushels, up 520 million bushels from 2007/08. Soybean supplies are projected at 3.3 billion bushels, up just 3 percent from 2007/08 despite higher planted area. Most of the production gains are offset by sharply lower beginning stocks.”

The report indicated that, “Biodiesel production is projected to use 15 percent of total soybean oil production for 2008/09 compared with 14 percent in 2007/08. Soybean exports are projected at 1.05 billion bushels, down 40 million from 2007/08. Ending stocks for 2008/09 are projected at 185 million bushels, up 40 million from 2007/08, leaving the stocks-to-use ratio at a relatively low 6 percent.

“The U.S. season-average soybean price for 2008/09 is projected at $10.50 to $12.00 per bushel, compared with $10.00 per bushel in 2007/08.”

(For reference to historic price levels of soybeans, see this graph.)

The WASDE report also stated that, “Global oilseed production for 2008/09 is projected at 423 million tons, up 32.2 million tons from 2007/08.”

On Friday, Javier Blas reported at the FT Online that, “Crude oil and corn prices surged to record highs on Friday as the world’s hunger for fuels continued to convulse the energy and agriculture markets.

“The rise in oil prices to a record of $126.2 a barrel – double the level of a year ago – was the culmination of a stunning week in which prices jumped by $10, stoking fears of higher inflation in spite of lower economic growth.”

This FT article indicated that, “The jump in oil prices is also driving up the use of agricultural crops such as corn and soyabean for biofuel, exacerbating food inflation and aggravating shortages across the world.

“The US Department of Agriculture revealed on Friday that the US biofuel industry would consume one third of the country’s corn crop in the 2008-09 season – or 4bn bushels – up from about 22 per cent a year earlier – or 3bn bushels.”

“Corn prices rose to a record of $6.27 a bushel, up 75 per cent in the past year. Some analysts warned that corn could hit $7 a bushel this year, raising the cost of meat and dairy products because the grain is used as agricultural feed,” the article said.

Scott Kilman reported in today’s Wall Street Journal that, “The U.S. Agriculture Department said the combination of a shrinking corn crop and the ethanol-fuel industry’s swelling appetite for it will keep the price of the nation’s largest crop in record territory into 2009.”

Mr. Kilman noted that, “The USDA projection will add kindling to the food-versus-fuel debate raging in corporate suites of U.S. food companies and congressional hearing rooms. The ethanol industry is taking blame for helping fuel a historic rally in corn prices that has since spilled into other food commodities, such as wheat and soybeans. ‘This morning’s crop report is an ominous sign that we are entering dangerous and uncharted waters for food prices,’ said a statement issued by the Grocery Manufacturers Association, a Washington trade group of food and beverage companies.”

The Journal article also stated that, “A growing number of economists believe that food inflation will rise faster than the USDA estimate and likely continue into 2009. Among other things, the high price of feeding corn to livestock is forcing many producers of cattle, hogs and chickens to shrink their operations, which could fuel higher retail prices late this year and into 2009.”

“In the U.S., so little new land can be brought into production that farmers are shifting among the most profitable crops. U.S production of corn and cotton is expected to fall this year because farmers are trying to cash in on rallies in soybeans and wheat,” the Journal article said.

Associated Press writer Henry C. Jackson reported yesterday that, “Analysts believe Friday’s report could extend sky-high corn prices. Prices for the crop have skyrocketed over the last year, lingering for weeks at more than $6 per bushel amid an ethanol boom and more demand for exports.

“‘Today’s report is an indicator that we’re going to be living with very high corn prices for a very long time, at least through the next crop year,’ said Mark McMinimy, an agribusiness and biofuels analyst with the Stanford Group in Washington.”

The AP article added that, “‘This sure does turn up the heat on ethanol subsidies,’ said Bruce Babcock, the director of Iowa State University’s Center for Agricultural and Rural Development. ‘The industry has been taking heavy fire.’

“But Babcock said that even if ethanol subsidies were cut dramatically — a highly improbable scenario — it would only reduce the price of corn by a dollar or so a bushel.

“‘It’s not like by cutting subsidies we can undue this problem,’ Babcock said. ‘There’s a lot of demand for corn. And even if they don’t have subsidies, if ethanol producers can make a buck or a dime or a nickel processing corn they’re going to process it.’”

Des Moines Regster writer Philip Brasher asked Ag. Sec. Ed Schafer about the WASDE report in yesterday’s news conference (noted above), to listen to this exchange, just click here (MP3-1:35).

Additionally, Keith Bradsher reported in Friday’s New York Times that, “After months of startling increases, the prices of rice, wheat, soybeans and several other foods have come down recently, a development that could ease some of the panic in global food markets.

“Prices remain volatile and remarkably high by historical standards, and few agricultural experts expect the days of inexpensive food to return soon. There is no sign of a drop steep enough to make food affordable again for the hundreds of millions of people in poor countries who are struggling to maintain adequate diets.

“Still, any price decline is welcome news for many countries, particularly those heavily dependent on imported rice.”

The Times article stated that, “‘The floodwaters have stopped rising, but the problem isn’t over yet, and prices could stay at this level a few years,’ said Nicholas W. Minot, a senior research fellow at the International Food Policy Research Institute in Washington.”

Keith Good

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