FarmPolicy

August 21, 2019

Farm Bill Issues, Food Prices and Doha

Farm Bill

DTN writer Chris Clayton reported yesterday (link requires subscription) that, “Agriculture Secretary Ed Schafer is butting heads with members of Congress over actual language in the 2008 farm bill and what Congress argues is the intent or way some provisions on farm programs should be interpreted.

“Schafer told DTN on Thursday USDA is ‘getting a lot of heat’ from Congress because of efforts to cut off the smallest farmers from receiving direct payments or counter-cyclical payments. Though spelled out in the farm bill passed earlier this summer, Congress wants USDA to be more flexible in shutting off people from commodity programs due to the provision eliminating farmers who own 10 acres or fewer.

“In a similar vein affecting commercial-sized farmers, USDA is having an ongoing tug-of-war over how to interpret the Average Crop Revenue Election program, set to begin by the 2009 planting season. Schafer argues Congress budgeted ACRE one way, but that it wants USDA to implement the program another way.”

After a more detailed look at the new ACRE program, Mr. Clayton noted that, “At issue with ACRE is what year the program starts its two-year rolling average for per-bushel price models on crops. The values can be dramatically different. In corn, for instance, the 2006 average national price was $3.04 a bushel, while the 2007 national average was $4 a bushel. That’s a two-year average of $3.52 a bushel. But that average could be significantly higher if the average 2008 price comes in over $4 a bushel.”

The DTN article indicated that, “‘So where do you start?’ Schafer said. ‘We’re, of course, now getting letters from Congress saying to start using ’07 and ’08. I’m not so sure that’s appropriate… We’re trying to sort this out. I think there are some gray areas on this.’

“A spokeswoman for the Senate Agriculture Committee responded Thursday that the language in the bill ‘is generally understood to mean the prices for the 2007 and 2008 crop years.’ To implement the program in a timely manner for 2009, USDA would have to use an estimated 2008 crop-year price, however.

“‘This is a procedure that USDA followed in implementing the 1990 farm bill, which set loan rates using recent crop-year prices,’ committee spokeswoman Kate Cyrul stated. ‘We have been told that USDA intends to pursue an alternative interpretation of the meaning of the most recent two crop years. The law clearly states that the secretary must use market prices.’”

Meanwhile, Congressional Quarterly writer Aliya Sternstein reported earlier this week that, “Senators who helped shape the new farm law say the Agriculture Department is improperly implementing a new policy on payments to farmers.

“But the department contends it is adhering strictly to the law as written and is not bound by a statement of intent that accompanied the legislation (PL 110-246).

“The dispute centers on the threshold at which farmers can receive government payments. The law bars payments if the sum of the base acres of a farm is 10 acres or less.”

The CQ article stated that, “In an Aug. 11 letter to Agriculture Secretary Ed Schafer, all but one of the 11 Senate conferees who helped shape the bill, and 15 other Senators, insisted that the department’s proposed rule violates the legislation.”

The article went on to explain that, “Department spokesman Keith Williams said Schafer’s stance is that if Congress intended to allow an aggregated 10-acre exception for payments, ‘they would have put it into law — and they didn’t.’

“‘Congress debated this provision but removed it to have their legislation save $34 million over five years in order to claim a budget-scoring goal,’ Williams said.

“If Congress decides to change the law, and ‘require us to consolidate the farms,’ then the department will do it, Williams said. ‘We will follow the law as Congress passes it.’

“Harkin and conferee Charles E. Grassley of Iowa, ranking Republican on the Senate Finance Committee, subsequently responded by saying there is no inconsistency between the explanatory statement and the statutory language. The managers’ statement further clarifies that the statutory provision ‘streamlines payment administration, which is the very same purpose served by consolidating smaller bases acreages,’ they said.”

Food Inflation

Brian Blackstone reported in today’s Wall Street Journal that, “U.S. inflation accelerated in July, as prices rose 5.6% from a year earlier, the fastest pace in 17 years.

“The consumer-price index rose 0.8% from June, reflecting increased prices for food, energy, airline fares and apparel, the Labor Department said Thursday. That followed a rise of 1.1% the month before. Core inflation, which excludes food and energy, advanced 0.3% for the second consecutive month and was up 2.5% from a year before. That is well above the Fed’s ‘comfort zone’ of 1.5% to 2%.”

However, the article noted that, “Slower inflation may be on the way, economists said, because of a combination of factors: the recent drop in prices for oil and other commodities; the strengthening of the dollar, which lowers the price of imports; and continued weakness in the U.S. economy.”

More specifically, Mr. Blackstone stated that, “Thursday’s report showed that energy prices swelled 4% last month, while gasoline prices increased 4.1%, and natural-gas prices rose 7.4%. Food and beverage prices rose 0.9%. Medical-care prices, meanwhile, increased 0.1%.”

The Labor Department report
also stated that, “The food index has increased at a 7.6 SAAR [seasonally adjusted annualized rate] for the first seven months of 2008 after increasing 4.9 percent in 2007.”

“The food and beverages index rose 0.9 percent in July. The index for food at home increased 1.2 percent, following a 1.0 percent rise in June. Five of the six major grocery store food group indexes increased at least 1.0 percent in July. The index for cereal and bakery products increased 1.8 percent in July and is 12.1 percent higher than in July 2007, while the fruits and vegetables index rose 1.2 percent in July and is 10.1 percent higher than a year ago. Within the fruits and vegetables group, the fresh fruits index was virtually unchanged in July, while the index for fresh vegetables rose 2.9 percent. The index for meats, poultry, fish, and eggs rose 1.0 percent in July after a 0.8 percent increase in June. The index for dairy and related products increased 1.6 percent in July, with the index for milk increasing 4.3 percent. The index for other food at home rose 1.0 percent in July after a 0.4 percent increase in June. The index for nonalcoholic beverages and beverage materials increased 0.7 percent in July. The other two components of the food and beverages index-food away from home and alcoholic beverages-increased 0.6 and 0.4 percent respectively.”

Zachary A. Goldfarb and Ylan Q. Mui reported in today’s Washington Post that, “The consumer price index climbed 0.8 percent in July, the Labor Department said yesterday, twice as much as Wall Street anticipated. It was the third straight month of high inflation, and the 5.6 percent year-over-year change was the highest since January 1991, when the economy was in recession.”

The Post article added that, “In recent weeks, oil prices have come down about 20 percent from their highs, which should show up in upcoming inflation reports. ‘I don’t want to say that was inflation’s final hurrah, but the inflation storm may just have passed,’ said Stuart G. Hoffman, chief economist with PNC Financial Services Group.”

Michael M. Grynbaum reported in today’s New York Times that, “Recent weeks have shown a few indications of relief in fuel prices, as oil prices declined steeply. On Thursday, crude oil futures dropped about a dollar to just over $115 a barrel, down 11 percent from a month ago..[But] while some economists predicted that inflation would start to ease, they said that process could take several months. Many reserved the right to modify their forecasts if the price of oil rebounded.”

The Associated Press reported yesterday that, “Crude oil turned lower Thursday on the stronger dollar and on beliefs that high energy prices are still stifling U.S. demand for fuel.

“Light, sweet crude for September delivery fell 99 cents to settle at $115.01 on the Nymex.”

The AP article stated that, “Wheat for September delivery rose 14.25 cents to settle at $8.645 a bushel on the Chicago Board of Trade, while December corn added 18.75 cents to settle at $5.7725 a bushel.

“November soybeans slipped 10 cents to settle at $12.74 a bushel.”

National Public Radio’s Yuki Noguchi reported yesterday on the All Things Considered Program (“Beef Prices Likely To Spike In Coming Months”) that, “Commodity prices have backed off a bit in recent weeks, but global grain demand is still outstripping supply. As a result, meat prices are headed for a bigger spike.

“‘A lot of people are severely reducing the size of their herds, and that may cap the beef price. But once they run out of animals to cull and sell off, beef prices are going to shoot through the roof,’ Robert Seddon [a farmer from central Virginia] says.

“Heather Vaughan, spokeswoman for the National Cattlemen’s Beef Association, says there’s unlikely to be a shrink in supply until the period from September to November. She says some farmers are simply shutting down.

“‘A few years ago, we saw about 900,000 people raising cattle,’ she says. ‘Today that number’s closer to 760,000.’

“In fact, the U.S. Department of Agriculture recently said beef cow inventory decreased 1 percent from last year, to about 33 million cattle [graphic available here]. Since earlier this year, the wholesale price of beef increased about 18 percent.”

In related news regarding food and agricultural prices, the Senate Agriculture Committee will be holding a hearing in Omaha, Nebraska on Monday entitled, “Food, Feed, and Fuel Production: Today and Tomorrow.”

***

In a more specific look at feed grain supply and demand variables, the U.S. Department of Agriculture’s Economic Research Service (ERS) released their August Feed Outlook report yesterday.

In part, the ERS report stated that, “U.S. corn production in 2008 is forecast at 12.3 billion bushels, up 573 million bushels from last year and the second largest production on record. As forecast, this year’s crop is 786 million bushels below last year’s record. This is the first survey-based forecast of the season and reflects August 1 conditions. The average corn yield is forecast at 155.0 bushels per acre, compared with last month’s adjusted trend yield of 148.4 bushels and the actual 2007 yield of 151.1 bushels. If realized, yield would also be the second highest on record. The August 1 survey data indicate an increase in the average number of stalks per acre for the combined 10 objective yield States (Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, Ohio, South Dakota, and Wisconsin). Record-high stalk counts were recorded in Illinois, Indiana, Iowa, Minnesota, Missouri, and Ohio.

“Because of the excessive rain and flooding during June, USDA’s National Agricultural Statistics Service conducted an extensive re-interview of producers in flood-affected areas. As a result, corn-planted area for all purposes, at 87.0 million acres, is down 350,000 acres from June and 7 percent below last year. Despite the decrease, planted acreage is the second highest since 1946, behind last year. Growers expect to harvest 79.3 million acres for grain, up 350,000 acres from expectations in June but 8 percent lower than last year. If realized, this would be the second highest area harvested for grain since 1944, behind last year.

“Projected ending stocks for 2008/09 increased 301 million bushels from last month but are down 442 million from the forecast for 2007/08. Beginning stocks were increased 22 million from last month, and, even with higher production this month supplies are down 517 million bushels from 2007/08. Expected domestic use in 2008/09 is up 350 million bushels from the projection for 2007/08, as additional ethanol plants are expected to come on stream, needing more corn. Corn feed and residual use was raised 100 million bushels this month as increased corn yields and higher production can be expected to boost residual use. Higher corn feeding is also expected despite a small reduction in livestock numbers, as lower expected corn prices result in less wheat and barley feeding. Projected corn exports are unchanged this month but are down 425 million bushels from 2007/08 because of increased global corn production along with expected plentiful world supplies of feed wheat.”

Doha

Xinhua News reported on Wednesday that, “Brazilian President Luiz Inacio Lula da Silva and British Prime Minister Gordon Brown agreed Wednesday on the possibility of saving the Doha Round of World Trade Organization (WTO) talks, official sources from the Brazilian presidential office said.

“During a 10-minute telephone conversation, the two leaders ‘agreed that there must be bigger efforts to summon a new round of negotiations in September,’ the sources said.

“Brown told Lula that he had discussed the issue earlier with U.S. President George W. Bush, within the framework of a series of political initiatives intended to revive the deadlocked negotiations.

“On Tuesday, the Brazilian president discussed the issue with Indian Prime Minister Manmohan Singh, when he proposed a joint effort to renew the negotiations in September.”

***

The Associated Press reported yesterday that, “Deere & Co. spent $400,000 lobbying the federal government in the second quarter on farming legislation, fuel policy, climate change and trade issues, according to a recently filed report.

“The Moline, Ill.-based company, best known for its John Deere farming equipment, lobbied Congress and the Department of Agriculture on a wide range of farming-related bills, such as biofuels, federal crop insurance and water quality. It also lobbied on alternative energy such as wind power development, and climate change issues that included diesel emissions reduction.”

Keith Good

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