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Stimulus for Agriculture: U.S., Argentina and Canada; ACRE, and Market Prices

Stimulus for Agriculture: U.S

Greg Hitt and Elizabeth Williamson reported in today’s Wall Street Journal that, “The U.S. economic stimulus package neared $900 billion in the Senate, as President Barack Obama wooed Republicans ahead of an expected House vote Wednesday.

“The rare trip by a president to Capitol Hill revealed the urgency in Congress and the White House over a cure for the souring economy. More than 70,000 layoffs were announced this week and fresh data showed unemployment last month rose in all states.”

The Journal article noted that, “The magnitude of the spending bill, and its urgency, drew a swarm of lobbyists seeking money and tax breaks. The concrete and asphalt industries battled over how the government should spend billions proposed for road and bridge repairs, while dairy and beef cattle producers butted heads over talk that the government might buy up dairy cattle for slaughter to drive up depressed milk prices. Unions backed infrastructure spending. States sought budget bailouts.

“‘When you’ve got 800-plus billion dollars to spend, you’ll have an equal number of opinions on how it should be spent,’ said Chris Galen, spokesman for the National Milk Producers Federation, the dairy industry’s main lobbying group.”

The article also indicated that, “The Democrats controlling the House have the votes to pass a stimulus bill. In the Senate, Democrats need only the support of a few Republicans to collect the 60 votes needed for passage. But Mr. Obama wants broad support, and to win over some of the Republicans seeking less spending and more tax cuts.”

Alec MacGillis, writing in today’s Washington Post, reported that, “Republican criticism of the stimulus package that the House will vote on tonight has focused on its soaring price tag, but some Democrats on Capitol Hill and other administration supporters are voicing a separate critique: that the plan may fall short in its broader goal of transforming the American economy over the long term.

“President Obama, who promoted the $825 billion package at the Capitol yesterday, says the proposal serves two functions — creating jobs and stimulating the economy in the short term, and laying the groundwork for overhauls in energy, health care and infrastructure that would be felt for decades. But some administration supporters say that while they appreciate Obama’s intent, the two goals are competing with each other, and that the package could end up missing both targets.”

More specifically with respect to agriculture, a Congressional Research Service (CRS) report entitled, “Agriculture and Food Provisions in the 2009 Economic Stimulus Package,” that was published on Friday (January 23) indicated that, “The Obama Administration and many Members of Congress are calling for a new economic stimulus package to follow the Troubled Asset Relief Program (TARP) that was enacted in October 2008. The new package would boost government spending on various infrastructure programs and for certain government benefits programs. It also offers tax incentives and benefits for individuals and businesses. The initial proposal, H.R. 1, is an $825 billion economic stimulus made up of two parts: $550 billion in new government-wide spending and a $275 billion tax package.

Agriculture programs, including nutrition assistance, rural development, and conservation, would receive about $27 billion of the $825 billion package (about 3.3%), as estimated by the Congressional Budget Office (CBO). Most of the amount for agriculture and food is nutrition assistance, at $21 billion. Food stamp benefits represent the largest single increase and would rise 13.6% from current benefit levels in H.R. 1. Rural development programs would receive $5.1 billion, including $2.8 billion to deploy broadband technology in rural areas and $1.5 billion for rural water and waste disposal projects. The U.S. Department of Agriculture’s (USDA’s) own infrastructure would benefit from facilities maintenance and computer improvements totaling nearly $500 million. Conservation and watershed programs would receive $400 million.

“Agricultural and rural areas may benefit along with other areas and sectors of the economy from other provisions in the bill, such as tax benefits for individuals, health care, and bio-energy programs. However, these broader benefits are not specifically identified for rural areas or under the administration of USDA, and thus are not quantifiable at this point.”

The CRS report noted on page three that, “H.R. 1 includes seven items that substantially increase spending on domestic food assistance programs. The Congressional Budget Office (CBO) estimates total new spending on these initiatives at $11.4 billion in the first two years (FY2009-FY2010) and $21.1 billion over 10 years. The lion’s share would go to added benefits under the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp program). Other programs included in H.R. 1 are nutrition assistance grants for Puerto Rico and American Samoa (they operate in lieu of SNAP), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), Older Americans Act senior nutrition programs, child nutrition after-school efforts, and an increase in spending on The Emergency Food Assistance Program (TEFAP).”

Later, at page seven, the CRS report stated that, “H.R. 1 would provide $245 million to the Farm Service Agency (FSA) for maintaining and modernizing its information technology (computer) systems. For many years, FSA has had problems with an outdated mainframe computer system. FSA is the agency that administers the farm commodity subsidy programs, and its service to farmers – particularly through the network of county offices where enrollment and verification occurs – has been jeopardized by computer malfunctions. At one time in 2007, the computer system would fail daily or offices would be rationed in the amount of time they would be allowed to use or access their computers because of overloading the system. Data processing requirements are increasing with each farm bill, and the 2008 farm bill’s new Average Crop Revenue Election (ACRE) and adjusted gross income limits are expected to further stress the antiquated computer system. For many years, FSA has sought increased funding for computers, and to some extent partial funding has been appropriated through annual appropriations bills, but the computer problems have continued. Although FSA has information technology problems that nearly all observers say must be addressed, the total funding needed to completely fix the problem is unclear.”

Philip Brasher reported yesterday at the Green Fields Blog (The Des Moines Register) that, “The National Corn Growers Association had hoped to use the economic stimulus package to pay for rebuilding locks and dams on the upper Mississippi River to speed up the movement of grain barges. But it turns out, say officials with the group, that the project isn’t far enough along in development to qualify for stimulus money. The project has been authorized by Congress but no money has been appropriated for it.

“Congress included the project in 2007 as part of a giant water development bill that lawmakers enacted over then-President Bush’s veto.

“Missing out on the stimulus package will be a big blow. Getting money out of Congress for big-ticket projects like this will get exponentially tougher when lawmakers go back to following pay-as-you-go-rules for new spending programs. The cost of the stimulus package is simply being added to the national debt.”


Stimulus for Agriculture: Argentina

Meanwhile, Dow Jones News writer Taos Turner reported on Monday that, “Argentine President Cristina Fernandez declared Monday that the country was suffering from an ‘agricultural emergency’ brought on by a devastating drought affecting farms and ranches around the nation.

“The drought, which has left countless cattle dead and crops in wretched condition, has been worrying farmers and ranchers for months.

Fernandez said those affected by the drought will be able to defer personal income and other tax payments for up to a year, though it wasn’t immediately clear how the government will determine who is eligible for the deferral.”

Monday’s article indicated that, “The state news agency Telam reported that this could save farmers up to ARS200 million ($57 million).

“‘These are difficult times,’ Fernandez said in a speech at the presidential residence.

“The drought is so severe it threatens to undermine farm exports to the tune of $5 billion, or 2% of gross domestic product, the Buenos Aires Cereals Exchange warned last week.

“Argentina, the world’s No. 3 exporter of corn and soybeans and the leading exporter of soymeal and soyoil, is suffering what is thought to be its worst drought in memory.”

Bloomberg writer Matthew Craze reported yesterday that, “Argentina’s Agrarian Federation, which last year led farmers’ protests against government export taxes on soybeans, panned measures taken by President Cristina Fernandez de Kirchner to help those hurt by drought.

“The government, which has declared an emergency in drought- affected provinces, plans to defer income taxes for some farmers and halt transport-permit charges. The permit fees alone cost farmers as much as 200 million pesos ($57.5 million) a year.

“‘This is a drop in the ocean,’ Eduardo Buzzi, president of the Argentine Agrarian Federation, told television channel TN late yesterday. ‘This just makes fun of the farmers.’”

Yesterday’s Bloomberg article added that, “The measure is a ‘big dose of patriotism,’ Fernandez said. ‘There is no other sector in Argentina that has these benefits.’

Only growers who have lost more than half of their crops to the drought will be entitled to defer income-tax payments, Agriculture Secretary Carlos Cheppi told reporters today in Buenos Aires after a meeting with leaders of farm groups.”

And Dow Jones writer Taos Turner reported yesterday that, “If Argentine President Cristina Fernandez thought she would win much support Monday by announcing new aid to drought-stricken farmers, she was surely disappointed Tuesday after they rebuked her offer.

“‘We are very far from being satisfied by this,’ said Eduardo Buzzi, president of the influential Argentine Agrarian Federation, or FAA. ‘If this is all the official help we get, then it’s a joke,’ Buzzi said.

“Fernandez had announced that farmers and ranchers affected by the worst drought in memory would be able to defer some tax payments for up to a year. She also said farmers would temporarily be relieved of the obligation to pay a fee to transport grains and oilseed.”

The Dow Jones article explained that, “The FAA, CRA and other leading farm groups will meet Wednesday to discuss the drought and what to do about it.

“Last year farmers clashed with the government after Fernandez imposed unexpectedly high taxes on grain and oilseed exports. Disagreement over the taxes led farmers to hold nationwide strikes that lasted off and on for four months. The strikes stymied economic growth and severely curbed President Fernandez’s popularity.

Buzzi implied Tuesday that it was possible farmers and ranchers would protest again if the situation deteriorates.”

Stimulus for Agriculture: Canada

Dow Jones News writer Nirmala Menon reported on Monday that, “The Canadian government Monday said it will focus on the economy in a ‘difficult’ year and that actions to combat the recession will be targeted, inject immediate stimulus, and promote long-term growth.”

“There will be new investments in infrastructure, support for various industries, including forestry, manufacturing, auto, tourism, agriculture, and help for lower-income Canadians, seniors and unemployed, among other things,” the article said.

Bloomberg writers Theophilos Argitis and Greg Quinn reported on Monday that, “Canadian Prime Minister Stephen Harper pledged to spend as much as ‘necessary’ to help the world’s eighth-largest economy escape from its first recession in 17 years.”

The article stated that, “The government has indicated C$2 billion will be spent on job training, C$2 billion for social housing and C$1.5 billion on programs for farmers and rural communities that depend on forestry and other industries hurt by dropping demand, government ministers have said.”

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Reuters news reported yesterday that, “Reaching a global trade deal would be a relatively easy way to help ease the economic crisis, the head of the World Trade Organization (WTO) said on Tuesday, adding he believed agreement was possible this year.

“‘The Doha round (of trade talks) is a low-hanging fruit in terms of what has to be done in order to cope with this crisis and in order to mitigate its effects, notably on development,’ WTO Director-General Pascal Lamy said, using a phrase meaning an easy target.”

ACRE

An article by Bruce A. Babcock entitled, “Prospects for ACRE Payments in 2009,” which was included in the most recent edition of the Iowa Ag Review, stated that, “U.S. farmers have until June 1 to decide if they want to enroll in ACRE (Average Crop Revenue Election) for the 2009 crop year. ACRE participants must give up eligibility for countercyclical payments and 20 percent of their direct payments. Participants are still eligible for marketing loans, but loan rates are reduced by 30 percent. Perhaps the most important factor that will influence ACRE participation is whether farmers believe that they will receive more payments from ACRE than they will give up. This is a difficult question to answer because the loss in direct payments is the only future payment that is known with certainty. Loan deficiency payments (LDPs) depend on the level of market prices and yields. Countercyclical payments (CCPs) depend on the level of National Agricultural Statistics Service (NASS) season-average prices relative to target prices. ACRE payments depend on both NASS prices and state yields. None of these factors can be known at the time of sign-up. However, a careful examination of how prices and yields affect ACRE payments relative to traditional program payments reveals that unless prices move significantly higher in the next few months, nearly all corn, soybean, and wheat farmers will find that signing up for ACRE will improve their financial position.”

The short and easy to read article goes on to explore several variables in detail that will impact a producer’s decision to participate in the new program or not.

Market Prices

Bloomberg writer Jeff Wilson reported yesterday that, “Corn and soybeans fell the most in two weeks as the slowing global economy erodes demand for U.S. crops used to make food, animal feed and biofuels.

“U.S. consumer confidence sank to the lowest level on record in January as jobs evaporated and home values sank, signaling a further slide in spending, according to a report from the Conference Board. President Barack Obama has pledged to unveil programs to boost housing as he battles the longest recession in a quarter century. Corn and soybeans have plunged since reaching records in 2008.”

The article noted that, “Corn futures for March delivery fell 16.25 cents, or 4.1 percent, to $3.775 a bushel on the Chicago Board of Trade, the biggest percentage drop for a most-active contract since Jan. 13. The price has plunged 53 percent since reaching a record $7.9925 on June 27.

“Soybean futures for March delivery declined 33 cents, or 3.3 percent, to $9.76 a bushel in Chicago, the biggest decline since Jan. 12. The most-active contract is down 40 percent from a record $16.3675 on July 3.”

And Brian Baskin reported in today’s Wall Street Journal that, “Crude-oil futures plunged Tuesday on expectations that oil and fuel inventories would continue to rise due to declining demand.

“Light, sweet crude for March delivery settled $4.15, or 9.1%, lower at $41.58 a barrel on the New York Mercantile Exchange. Futures have dropped 11% since hitting $46.47 a barrel on Jan. 23 after five straight days of gains.

“The trend of rising stockpiles was borne out in weekly data from the American Petroleum Institute, an industry group, released Tuesday after prices had settled.”

Keith Good