February 19, 2020

Agriculture and the Stimulus Bill; House Ag Committee Hearing; and Payment Limit Considerations

Agriculture and the Stimulus Bill

Last month, a Congressional Research Report (CRS) entitled, “U.S. Farm Income,” indicated that, “Despite high production costs, 2008 represented another year of record profitability for the U.S. farm economy as a whole [related graph]. According to USDA’s Economic Research Service (ERS), national net farm income—a key indicator of U.S. farm well-being—rose to a record $86.9 billion in 2008, marginally above the previous year’s record ($86.8 billion). The growth in cash receipts to a record $323.4 billion for crop and livestock sales (up $38.6 billion or 14% from 2007) was nearly offset by a surge in production costs (up $38.2 billion or 15%) to a record $292.5 billion.”

The CRS report explained that, “Within the farm balance sheet, total farm asset value of $2,359 billion and total farm debt of $212 billion are both projected at record levels in 2008. The debt-to-asset ratio of 9.0% is down sharply from last year’s value of 9.6% and represents the lowest level since 1960, suggesting a strong financial position for the agricultural sector as a whole.

However, less than ideal market conditions heading into 2009 suggest dim prospects for the longer-term farm income outlook, albeit surrounded by considerable uncertainty. On the one hand, the global financial crisis, economic recession, rising unemployment, limited credit availability, and plummeting asset values that persist in early 2009 have contributed to substantial ‘demand destruction’ (i.e., a severe weakening of consumer demand), which bodes poorly for farm commodity price prospects. On the other hand, weak energy markets and declining input prices could provide some spark to both producer investment and consumer demand for agricultural sector products, perhaps by the middle to latter half of the year. USDA will release its first U.S. farm income forecasts for 2009 on February 12, 2009.”

With respect to commodity price levels, the USDA’s National Agricultural Statistics Service (NASS) stated in their January Agricultural Prices report that, “The January all wheat price, at $5.90 per bushel, is down 7 cents from December and $2.06 below January 2008…The corn price, at $4.15 per bushel, is up 5 cents from last month and 17 cents above January 2008 [and] The soybean price, at $9.92 per bushel, increased 68 cents from December but is 3 cents below January 2008.”

Related graphs depicting historic price levels for wheat (click here), corn (click here) and soybeans (click here) were also included in the NASS report.

In a look at future’s prices for corn and soybeans, Bloomberg writer Jeff Wilson reported yesterday that, “Corn prices dropped for the third straight session and soybeans fell to a one-month low on speculation that the deepening global recession will reduce demand for U.S. crops used to make food, animal feed and fuel.

Consumer spending in the U.S. fell 1 percent in December, a record sixth straight month, Commerce Department data showed today. The dollar rose for the fourth straight session against a basket of six major currencies, eroding the appeal of U.S. goods. Corn has dropped 54 percent from a record in June, and soybeans are down 41 percent from an all-time high in July.”

More specifically, yesterday’s Bloomberg article stated that, “Corn futures for March delivery fell 8.5 cents, or 2.2 percent, to $3.705 a bushel on the Chicago Board of Trade. Earlier, the price touched $3.63, the lowest for a most-active contract since Jan. 15. Corn dropped 6.9 percent in January. The record high of $7.9925 was on June 27.

“Soybean futures for March delivery fell 20.5 cents, or 2.1 percent, to $9.595 a bushel in Chicago. Earlier, the price touched $9.4325, the lowest for a most-active contract since Dec. 31. The all-time high of $16.3675 was on July 3.”

Meanwhile, Tom Polansek reported in yesterday’s Wall Street Journal that, “One year after global crop failures sent U.S. wheat prices surging to record levels, bakers and millers are still feeling the pinch.

Although prices have since fallen back, they remain high by historical standards. Lingering volatility in U.S. wheat futures continues to vex bakers and food companies trying to forecast costs.”

Yesterday’s Journal article stated that, “At the Bagatelle Bakery in Wichita, Kan., the drop in prices for wheat flour, eggs and other products has brought ‘quite a bit of relief,’ owner Naji Toubia said. But the shop, which sells bread, wedding cakes and pastries, hasn’t resumed baking less-profitable goods that were cut as prices of ingredients soared.

“‘We are nervous,’ Mr. Toubia said. ‘The market’s very volatile. In the past, in our industry, it used to be kind of always the same. We didn’t expect flour to go up or sugar to go up and all the additives that we put in. Now you don’t know when it’s going to happen.’”

And Brian Baskin reported in today’s Wall Street Journal that, “Light, sweet crude for March delivery settled $1.60, or 3.8%, lower at $40.08 a barrel on the New York Mercantile Exchange on Monday (related graph).”

In a look at economic conditions in some aspects of the U.S. livestock sector, Purdue University Economist Chris Hurt noted yesterday (“Cattle Industry Feels the Weight of the World Economy”) that, “In the old days, cattle and beef prices were primarily correlated with beef supplies because demand tended to stay fairly constant. Well the ‘good old days’ are over as demand is in the driver’s seat today. Cattle producers have been doing what they can by cutting the brood cow herd and slowly reducing production. The forces of weak demand, however, are out of their hands as it is now world economic conditions that have become the dominant driving force of cattle prices.

“Cutting production is what producers can, and are, doing as economic incentives have been poor for the past two years. In USDA’s latest cattle inventory report, beef cow numbers were down 2 percent as were beef replacement heifers. This means the calf crop will drop in 2009 and probably again in 2010. Last year’s calf crop was down 2 percent as well, which means somewhat smaller beef supplies this year than had been anticipated.”

Yesterday’s article added that, “Why is beef demand being hit so hard relative to other meats and poultry? The answer seems to lie in the higher price of beef at the retail counter and in the upscale restaurants that tend to feature beef. Simply said, more consumers are now substituting lower priced items for the higher priced ones. Or another way to say this is that more consumers are shopping for value as they try to reduce expenditures in their personal budgets.”

With some of these general variables of the agricultural economy in mind, news developments regarding the economic stimulus package and what the measure could mean for the general economy and the agricultural sector warrants inspection.

As a starting point, recall that the Congressional Research Service has explored some of the specific measures relating to agriculture that are contained in the stimulus measure in a recent report entitled, “Agriculture and Food Provisions in the 2009 Economic Stimulus Package.”

Dan Morgan, writing in Sunday’s Washington Post, provided perspective on the robust level of spending in the stimulus package, noting that, “To truly appreciate the historic scope of the $819 billion stimulus package moving through Congress, it helps to have covered the Hill when passage of the whole domestic budget could be stalled by something as picayune as a fight over $30 million for Alaska’s pollock fishermen.

“From the mid-1980s to the early 2000s, when Congress and the White House had a tight leash on the domestic budget, I wrote hundreds of stories for The Post about spending programs and the congressional appropriations committees. It wasn’t always the most exciting of jobs. A long line of lobbyists would snake down the corridor outside the committee room in the Rayburn House Office Building, hoping for a crumb for their clients: an agriculture research grant here, a bridge project there. Inside, lawmakers sat at long tables and battled over relative nickels and dimes. At one memorable session in 1995, then-House Appropriations Committee Chairman Bob Livingston, a Louisiana Republican, showed that he was serious about cutting spending by brandishing an alligator skinning knife called a ‘Cajun scalpel.’ In case that wasn’t adequate, he warned, he had also come equipped with a machete and a Bowie knife, nicknamed an ‘Arkansas toothpick.’

“So I had to pinch myself last week when I looked at the breathtaking numbers in the House-passed stimulus measure and contemplated the vast ambition behind them: $11 billion to upgrade the nation’s electricity grid; $2.8 billion to extend broadband Internet service to every nook and cranny of rural America; $2.4 billion to develop power plants that don’t spew carbon into the atmosphere — a step that could help America use its vast supply of cheap coal far into the carbonless future. Along with that were billions of dollars to repair dams, improve water quality and fix the U.S. Department of Agriculture’s Stone Age computer system, famous for crashing during the crucial harvest period.”

Mr. Morgan added that, “The $2.8 billion rural broadband program has a New Deal ring to it. Rural electrification was one of the signature achievements of President Franklin D. Roosevelt’s stimulus plan in the 1930s. Today, most homes have electricity, but vast areas connect to the Internet at snail speed, hampering economic development. The House program aims to benefit 7,600 rural communities and 3.6 million residents and businesses, creating 119,000 new jobs.”

Along these lines, David M. Herszenhorn reported in today’s New York Times that, “At first glance, perhaps no line item in the nearly $900 billion stimulus program under consideration on Capitol Hill would seem to offer a more perfect way to jump-start the economy than the billions pegged to expand broadband Internet service to rural and underserved areas.

“Proponents say it will create jobs, build crucial infrastructure and begin to fulfill one of President Obama’s major campaign promises: to expand the information superhighway to every corner of the land, giving local businesses an electronic edge and offering residents a dazzling array of services like online health care and virtual college courses.”

The Times article added that, “But experts warn that the rural broadband effort could just as easily become a $9 billion cyberbridge to nowhere, representing the worst kind of mistakes that lawmakers could make in rushing to approve one of the largest spending bills in history without considering unintended results.

“‘The first rule of technology investment is you spend time understanding the end user, what they need and the conditions under which they will use the technology,’ said Craig Settles, an industry analyst and consultant who has studied broadband applications in rural and urban areas. ‘If you don’t do this well, you end up throwing millions or, in this case, potentially billions down a rat hole. You will spend money for things that people don’t need or can’t use.’”

And Kevin Diaz, writing in Friday’s Minneapolis Star-Tribune, reported that, “For U.S. Rep. Collin Peterson of Minnesota, one of only 11 House Democrats who voted against President Obama’s stimulus package this week, it wasn’t easy saying no.

“‘The public has such high hopes for Obama,’ Peterson said in a late-week interview as he boarded a flight back to Minnesota. ‘I would have liked to be able to support it. But I just don’t agree with what’s going on here.’”

Mr. Diaz indicated that, “Last week, as Agriculture Committee chairman, Peterson had talked up stimulus money to modernize computers in the U.S. Agriculture Department. But by Wednesday night, when the final vote was taken, Peterson was counted among just under a dozen Democrats from conservative districts who crossed party lines.

“‘Bottom line, I don’t think this is going to solve the problem,’ he said.

“Like a lot of House Republicans, who were unanimous in their opposition to the $819 billion bill, Peterson was uncomfortable with the idea of some $550 billion in deficit spending, much of it to help state and local governments deliver health care, education, transportation and other key government services.”

Julie Harker reported yesterday at Brownfield that, “National Farmers Union president Tom Buis says he believes the stimulus package working its way through Congress will help rural America and all of America. At the Missouri Farmers Union convention Friday, Buis told Brownfield the purpose seems to be to create jobs quickly, and in rural America that means renewable fuels production, ‘Whether it’s corn ethanol or biodiesel or cellulosic or wind, solar, geothermal, biomass… it’s all gonna be produced in Rural America.’

“And, Buis says no one knows the extent of the credit problems rural America will face in this major economic downturn. The National Farmers Union has urged Congress to include credit help in the stimulus package, in the form of, ‘Increased guaranteed loan money at the department of agriculture to help get bankers more certainty that their loans are backed up as we go through these tough times.’”

Paul Kane reported in yesterday’s Washington Post that, “The Senate will open debate today on a nearly $900 billion economic stimulus plan that is similar in size and scope to the package the House passed, creating a possibly smooth path for sending a bill to President Obama’s desk by the mid-February deadline.

But senators in both parties hope to alter the legislation, focusing on easing the housing crisis, increasing infrastructure spending and cutting taxes on corporations. If many of these changes are accepted in the Senate, which hopes to finish voting on the plan by Friday, it could complicate the effort to work out differences between the two bills. It could also drive the overall cost of the legislation, which was $819 billion in the House version and is $887 billion in the Senate plan, much closer to the politically shaky $1 trillion mark.”

Nonetheless, Michael D. Shear and Shailagh Murray reported in today’s Washington Post that, “President Obama yesterday played down what he called ‘modest differences’ between Republican and Democratic lawmakers working to craft an economic recovery package and expressed optimism that action on a massive spending plan will be finalized soon.”

House Ag Committee Hearing

Dow Jones writer Sarah N. Lynch reported yesterday that, “A U.S. House panel on Tuesday will begin debating a sweeping proposal to regulate derivatives that triggered hiccups in financial markets when House Agriculture Chairman Collin Peterson, D-Minn., unveiled the aggressive plan last week.

“The proposal marked a departure for Peterson, a conservative ‘Blue Dog Democrat’ who as recently as October 2008 said he wanted to be careful to not ‘over-regulate’ with new legislation that would tighten federal oversight of the swaps market.

“Peterson’s draft bill to regulate swaps contained an unexpected bomb tucked in the last few pages: A call to ban so-called ‘naked’ credit-default swaps in which investors don’t own the underlying bonds. That provision wasn’t included in a draft circulated earlier this month, and it has already prompted an outcry from industry members who fear it could destroy the market.”

The Dow Jones article stated that, “Peterson’s idea isn’t new in Congress. Senate Agriculture Chairman Tom Harkin, his more liberal counterpart, was already calling for prohibitions on naked credit-default swaps. But as Peterson continued to hold hearings, he appeared to become more determined to expand the Commodity Futures Trading Commission’s control over the swaps market, which is largely unregulated thanks to the Commodity Futures Modernization Act of 2000. In an interview with Dow Jones Newswires, Peterson said he views his proposal as a starting point in a debate on derivatives oversight.

“‘I’m keeping an open mind,’ Peterson said. ‘I’m learning everyday. I’m not afraid to change my mind.’”

For more background on today’s House Ag Committee hearing, which begins at 1:00 pm EST, click here. To view a list of witnesses who will be testifying at today’s hearing, click here; and audio of today’s hearing will be available here.

Payment Limit Considerations

Last Wednesday, Mike Adams interviewed both Secretary of Agriculture Tom Vilsack and Senate Agriculture Committee Chairman Tom Harkin on the radio news program AgriTalk.

The issue of farm payment limits came up during the two interviews; to listen to an audio excerpt with Secretary Vilsack on this issue, just click here (MP3) and to listen to a clip from Sen. Harkin just click here (MP3)

Also, Iowa Senator Chuck Grassley addressed the payment limit issue in a news briefing with reporters that was held last Tuesday. To listen to a clip from Sen. Grassley on this issue, just click here (MP3).

Keith Good

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