FarmPolicy

February 27, 2020

The Budget and Agriculture: Details and Reactions

Categories: Audio /Budget

Background

Kara Rowland, writing yesterday at The Washington Times Online, reported that, “Top Democrats and Republicans are already shooting down President Obama’s plan to cut farm subsidies, dealing a blow to one of the cost-savings promises he laid out in his congressional address Tuesday night.

“‘We’ll have to see what specifically the president is talking about, but we just finished the farm bill last year, and I don’t think we’ll open it up,’ said Rep. Collin C. Peterson, Minnesota Democrat and chairman of the House Agriculture Committee.

“Likewise, the ranking Republican on the Senate Agriculture, Nutrition and Forestry Committee, said the farm bill, which lasts for five years, ‘should not be changed midstream.’

“‘I believe it is premature to make any sweeping changes to the makeup of the farm safety net before we have even had the chance to implement the current farm bill,’ said Sen. Saxby Chambliss of Georgia.”

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Direct Payments: Issues Arise; CFTC Chairman

Reuters writer Roberta Rampton reported yesterday that, “President Barack Obama’s pledge to cut subsidies to big farm businesses in his first budget reopens a long-simmering fight about whether — and if so, how — the United States should reform its traditional farm supports.

“Obama signaled in a speech to Congress on Tuesday he wants to cut direct payments as part of a broad effort to trim government spending and curb the soaring federal deficit.

Farmers say they count on the $5.2 billion in payments as a way to provide stability amid volatile commodity prices, high costs for fertilizer and other inputs, and the vagaries of weather.”

[Note: More on Direct Payments– The USDA’s Economic Research Service (ERS) has stated that, “On a per acre basis, the value of direct payments varies by the commodity associated with the historic base and by payment yields (graph), which vary by location (graph).” ERS added that, “The primary economic impacts of direct payments are increases in farm income and land values. However, since direct payments also increase producer wealth, they could facilitate additional investment and may influence a farmer’s risk aversion.”

With respect to farm income, ERS has forecast a 20 percent decrease in net farm income for 2009, while the Federal Reserve Bank of Chicago noted recently that, “Farmland values declined in the fourth quarter of 2008 for the Seventh Federal Reserve District—the first quarterly decrease in a decade.” However, the USDA’s National Agricultural Statistics Service indicated yesterday that the average value per acre of U.S. cropland was $2,760 in 2008, up from $2,530 in 2007 and up from $2,300 in 2006.

The Environmental Working Group has also conducted detailed analysis regarding Direct Payments.]

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Direct Payments – Budget Issues; Crop Insurance; and The New Deputy Secretary

Direct Payments – Budget Issues

The “Washington Insider” section of DTN indicated yesterday (link requires subscription) that, “Inside the Washington Beltway, only a little beneath the surface of nearly every conversation on current events, is deep concern about the economy. Just beneath that is concern about how the deficits will be controlled in the future.”

The DTN item noted that, “Still, like most administrations, this one says it will put the country on ‘a sustainable fiscal course’ by the end of Obama’s first term, Peter Orszag, the director of the Office of Management and Budget, told the press last week. And, like most administrations, this one is still somewhat short on details. However, the president on Monday held a White House summit on fiscal responsibility and pledged to bring federal spending and tax collections back into balance after the huge spending spree on the economic crisis.

Then, the administration will shift focus slightly away from the stimulus package toward more routine budget matters. Tonight, President Obama will appear before a joint session of Congress and on Thursday, the administration’s fiscal 2010 budget plan will go to Congress, with more detailed budget documents to follow later in the spring.”

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Sec. Vilsack; Budget Issues; Ag Economy; and Crop Insurance

Sec. Vilsack

Erika Lovley reported yesterday at Politico.com that, “Agriculture Secretary Tom Vilsack is urging farmers long dependent on government subsidies to modernize, diversify and reposition themselves to latch onto a new kind of income: alternative fuels.

“But the American Farm Bureau Federation and other large farm groups are worried the new secretary is foreshadowing a change in the way Congress might see the farm business. And it has lobbyists talking about whether farmers will be forced to use nonfarming methods if direct payments are reduced.”

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Agricultural Economy; Safety Net Concerns; the Budget; and COOL

Agricultural Economy

Lori Potter reported in yesterday’s Omaha World-Herald that, “There’s adequate money in Nebraska’s ag lending system for 2009, but today’s farmers must bring more than a long-standing relationship with the loan officer to the bank’s front door.

“They should have a business plan, confirmation of collateral and proof of cash flow in their back pockets.

“‘There’s no shortage for any operator, any producer or any business with a sound business plan,’ said Ron Horst of Town & Country Bank in Kearney. ‘That doesn’t change.’

However, borrowers and lenders are likely to discuss risk management in much greater detail than in the past.”

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Agricultural Economy; Food Banks; and Biofuels

Agricultural Economy

The latest edition of The Main Street Economist, a bimonthly newsletter published by the Federal Reserve Bank of Kansas City, included an article entitled, “Agricultural Credit Standards Tighten.”

The article stated that, “Agricultural borrowers are increasingly concerned about access to credit. Amid economic weakness and a financial crisis, commercial banks have tightened credit standards for various types of loans. While agricultural borrowers may be concerned about credit availability, agricultural lenders are equally concerned about the creditworthiness of agricultural borrowers as the farm economy weakens.

“As the financial crisis deepened, agricultural banks outperformed other commercial banks—but they still saw their profits decline. Despite questions regarding credit availability, commercial banks are extending credit to agricultural borrowers at lower interest rates. The soft erosion in agricultural loan quality, however, has led agricultural lenders to tighten credit standards and shift more financial risk to borrowers.

“The U.S. financial crisis has trimmed the profitability of agricultural banks and other commercial banks. However, agricultural banks performed much better than their banking peers. The strongest performance emerged from smaller agricultural banks.”

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Secretary Vilsack; Trade Issues; and the Agricultural Economy

Secretary Vilsack

DTN Political Correspondent Jerry Hagstrom reported earlier this week (link requires subscription) that, “Agriculture Secretary Tom Vilsack told the National Cotton Council Monday he does not plan to change the farm subsidy payment limitation regulations the Bush administration wrote for 2009, and even though the Obama administration is reviewing the regulations, Vilsack declined to promise there would be changes for 2010 and beyond that the cotton growers would like to see.

“Farm groups such as the National Cotton Council are lamenting the notion that USDA is changing the rules from last year based on the farm bill, but potentially could make more changes to the payment rules next year as well. This would mean farmers would have to meet different sets of rules for 2008, 2009 and possibly 2010 and beyond. Further, some groups feel rule changes implemented by the Bush administration were tighter than necessary to comply with language in the farm bill.

Vilsack’s statements led new NCC Chairman Joe Hardwick, a Newellton, La., cotton grower, to call on Congress to pass a bill to force Vilsack to use the old 2008 regulations for this year and write new regulations to begin in 2010. Payment limits are an issue for all large farmers, but especially for cotton growers.”

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Market Signals- Acreage, Biofuels and the Environment; Economic Issues and Agriculture

Market Signals- Acreage, Biofuels and the Environment

Yesterday’s Commodity News For Tomorrow report, a daily commodity publication provided by the CME Group, stated that, “Bearish macroeconomic forces, technical weakness and wet weather forecasts for Argentina sent corn futures lower, traders said. Sharply lower equities and crude oil set the tone, as traders worried about depressed demand in the face of a global recession.”

“March corn ended down 14 cents to $3.49 1/4 per bushel.”

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Dairy-Livestock Sectors; Food Safety; Crop Insurance; and Secretary Vilsack

Dairy-Livestock Sectors

The Associated Press reported yesterday that, “Hundreds of thousands of America’s dairy cows are being turned into hamburgers because milk prices have dropped so low that farmers can no longer afford to feed the animals.

“Dairy farmers say they have little choice but to sell part of their herds for slaughter because they face a perfect storm of destructive economic forces. At home, feed prices are rising and cash-strapped consumers are eating out less often. Abroad, the global recession has cut into demand for butter and cheese exported from the U.S.

Prices for milk now are about half what it costs farmers to produce the staple, and consumer prices are falling. Unless the market can be bolstered, industry officials project that more than 1.5 million of the nation’s 9.3 million milking cows could be slaughtered this year as dairy operators look to cut costs and generate cash.”

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USDA Reports; Biofuels; Land Values; Stimulus; and Trade Issues

USDA Reports

In addition to the USDA reports that were highlighted in Friday’s FarmPolicy.com update, the Economic Research Service (ERS) also released its latest U.S. farm household income forecast for 2009 late last week.

ERS stated that, “Average farm operator household income is forecast to be $85,140 in 2009, down from both the 2007 estimate ($86,223) and the 2008 preliminary estimate ($86,864). Average farm household income is estimated to have been 27.5 percent higher than U.S. average household income in 2007” [related graph available here].

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USDA Reports; CFTC Issues; and Crop Insurance

USDA Reports

The U.S. Department of Agriculture released three reports yesterday highlighting several important variables in the U.S. and global agricultural economy.

The USDA’s Economic Research Service (ERS) released its 2009 Farm Sector Income and Costs Forecast, which stated that, “Net farm income is forecast to be $71.2 billion in 2009, down $18.1 billion (20 percent) from the preliminary estimate of $89.3 billion for 2008 [related graph]. Still, $71.2 billion would be 9 percent above the average of $65 billion earned in the previous 10 years.”

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Ag Economy; CFTC Issues; and Food Safety

Ag Economy

Associated Press writer Chris Williams reported yesterday that, “The economic downturn in the Upper Midwest will continue through 2009, with the unemployment rate predicted to hit 14 percent in part of Michigan by the end of the year, according to the latest forecast from the Federal Reserve Bank of Minneapolis.

“Employment by year-end is expected to be down from last year’s levels and unemployment rates are expected to rise above historic averages throughout the area. The forecast doesn’t consider the stimulus package now being debated in Washington.”

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WASDE and the Stimulus (Markets), Chairman Peterson- CFTC; Sec. Vilsack; Farm Bill; and Biofuels

WASDE and the Stimulus (Markets)

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

The report indicated that, “There are no changes this month to the U.S. corn balance sheet… The projected season-average farm price range for corn is narrowed 10 cents on each end to $3.65 to $4.15 per bushel.”

Globally however, the WAOB stated that, “World corn production for 2008/09 is lowered 4.6 million tons. Argentina production is lowered 3.0 million tons as continued drought and heat during late January further reduced prospects for yields and harvested area in key central growing areas. Brazil production is lowered 2.0 million tons reflecting a return to dryness in late January that limited soil moisture during grain fill in drought-affected southern growing areas. Corn production is also lowered 0.8 million tons in adjacent Paraguay which experienced similar weather problems this season. Corn production is lowered 0.5 million tons for India as lower yields more than offset an increase in harvested area. Production is lowered 0.2 million tons for Russia, but increased 1.4 million tons for Ukraine on the latest government indications.”

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Trade; Economic Stimulus; the Ag Economy and Risk Management Issues

Trade Issues

Chris Bryant reported on Friday at the Financial Times Online that, “Leading financial and economic institutions joined Angela Merkel, the German chancellor, in calling on Thursday for countries to prevent their economic stimulus packages from harming global trade.

“The leaders of organisations including the World Trade Organisation, International Monetary Fund and World Bank issued a joint statement in Berlin declaring openness to trade and cross-border investment to be ‘the best preconditions for ensuring that economic momentum is regained on a global scale’”.

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Census-Farm Payment Issues; the Stimulus Bill; Food Safety; and Global Ag Issues

Census-Farm Payment Issues

Andrew Martin reported in yesterday’s New York Times that, “Ever thought of chucking it all and moving to the country? According to the Agriculture Department, an increasing number of Americans are doing just that, by embracing a ‘Green Acres’ lifestyle. But few of them are making a living at it: more often than not, their work in the fields is subsidized by an off-the-farm job.” (See this related graph for all farms, and this related graph by farm typology).

“The Agriculture Department came out with its Census of Agriculture last week, and the headline was that the number of farms increased by 4 percent from 2002 to 2007, with most of the new farms being small, part-time operations.”

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FarmPolicy.com Free Daily Publication Will Continue With New Funding

Categories: Miscellaneous

McLeod, Watkinson & Miller Statement of Support for FarmPolicy.com

We have come to rely on the daily email reports of FarmPolicy.com as the best way to keep up with the many developments in American and global agriculture. There is no other report, either paid or free, that does as good a job as Keith Good does in FarmPolicy.com. Therefore, we were alarmed by the announcement that the reports would end on February 17th. We immediately called Mr. Good and worked out an arrangement for McLeod, Watkinson & Miller to fund the continuation of FarmPolicy.com after his arrangement with the German Marshall Fund ceases. Additionally, the daily emails of FarmPolicy.com will be posted on www.Agriculturelaw.com.

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