FarmPolicy

July 20, 2019

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.”

The article indicated that, “It’s also earning Vilsack praise from small farmer groups, including the Organic Consumers Association, that originally opposed his nomination; the groups now say he could help close the direct payment gap between small farmers and large commercial operators.

“In these tough economic times, Vilsack has been frank about the future of the farmers’ more than $5 billion in direct government payments: They’re likely headed for the chopping block.”

Ms. Lovley noted that, “In an interview, Vilsack said he’s not for eliminating direct payments entirely. Instead, he wants to ensure that farms are sustainable in the long run.

“‘It’s important for us, under the economic dynamics we face, to make sure agriculture is thinking long term. I want to make sure people understand that we have to engage in the conversation about climate change … in which agriculture could play a very important role,’ Vilsack said. ‘I’m not suggesting something is going to happen [to direct payments] immediately.’

“American farmers collect more than $5 billion each year in direct payments, funds many consider a staple of the business. But the system has also left behind many small family farms.”

And near the conclusion of the Politico article, Ms. Lovely reported that, “But Sen. Saxby Chambliss (R-Ga.) — the ranking member on the Senate Agriculture, Nutrition and Forestry Committee — and panel member Sen. Pat Roberts (R-Kan.), among other farm supporters, say direct payments will not be tinkered with on their watch.

“‘I find it odd that in times of financial turmoil, when the administration is passing out trillions of dollars to banks, labor groups and the unemployed, that our new secretary of agriculture would threaten to cut the safety net out from under American agriculture producers,’ Roberts said.”

Meanwhile, DTN Political Correspondent Jerry Hagstrom reported yesterday (link requires subscription) that, “U.S. Agriculture Secretary Tom Vilsack on Saturday pledged to hire an outside consulting firm to work with all U.S. Department of Agriculture offices to ensure that procedures are fair to minorities and women.

“‘When our first African-American president raised his hand and took the oath of office, we made a huge step in this country. It’s now our job at the USDA to take the next step,’ Vilsack said in a speech to an annual Georgia farmers’ conference sponsored by the Federation of Southern Cooperatives and the Land Assistance Fund, organizations that help black farmers retain their land and stay in business.”

The DTN article noted that, “‘You’ve got outright bias and discrimination,’ Vilsack said. ‘Also, you’ve got good people who don’t even know that they’re discriminating.’ For that reason, he said, it’s necessary ‘to begin the process of re-educating people.’

“A USDA spokesman said Monday that decisions about how the consulting firm would go about its work have not been made. ‘We’re still in the process of defining the scope of work the consulting firm is going to do. We’re serious about addressing these problems at the department,’ the spokesman said.”

And Reuters writer Charles Abbott reported yesterday that, “President Barack Obama chose Kathleen Merrigan, an assistant professor at Tufts University who helped develop U.S. organic food labeling rules, for the Agriculture Department’s No 2 job, the White House said on Monday.

“Merrigan, tapped for deputy secretary of Agriculture, was head of USDA’s Agricultural Marketing Service from 1999-2001 during the Clinton era and helped develop USDA’s rules on what can be sold as organic food. As a Senate aide, she worked on the 1990 law that recognized organic farming.

“‘Sustainable and organic farmers are excited … that someone who has been associated with these issues her whole career is going to be at that level in the department,’ said Ferd Hoefner of the National Sustainable Agriculture Coalition.”

Budget Issues

Deborah Tedford reported yesterday at National Public Radio Online that, “President Obama pledged Monday to cut the country’s soaring $1.3 trillion annual budget deficit in half by the time his first term in office ends in 2013.

“Speaking to lawmakers, business and labor leaders, and economic experts who had gathered at the White House for what was billed as a summit on fiscal responsibility, Obama said the U.S. cannot continue to sustain massive deficits — even as implementation begins of a $787 billion stimulus package that will add to the debt.”

With respect to agriculture, the NPR item stated that, “The president said a team of advisers is going through the soon-to-be-proposed budget for the 2010 fiscal year line by line with the goal of eliminating waste and inefficiency. In the Agriculture Department alone, the White House budget team has identified ways to save more than $18 million, Obama said.”

Naftali Bendavid reported today at The Wall Street Journal Online that, “House leaders released a $410 billion spending plan for the rest of fiscal 2009, with increases proposed for long-neglected Democratic priorities ranging from health care to education to public housing.

“The ‘omnibus’ spending package, which would fund government operations from March 7 through Sept. 30, the end of the current fiscal year, is the first annual spending proposal under the new Democratic regime. On Thursday, President Barack Obama will release his 2010 spending blueprint, after previewing it in an address to a joint session of Congress Tuesday night.”

The Journal article pointed out that, “Democrats are also seeking to address the needs of those hardest hit by the recession, for example proposing $6.9 billion — $1.2 billion more than in 2008 — for the Women, Infants and Children (WIC) program, which provides food and nutrition assistance to low-income mothers and their kids.”

And the Associated Press reported yesterday on the budget issue, noting that, “The president is also counting on achieving his deficit target by reducing wasteful programs _ a perennially elusive aim of many an administration. For instance, he said he wants to halt federal support for huge agriculture companies that don’t need the help.”

Ag Economy

Damian Paletta, Deborah Solomon and Serena Ng reported in today’s Wall Street Journal that, “Financial markets shuddered Monday with the Dow Jones Industrial Average falling 3.4% to 7114.78 — or nearly half the peak it hit just 16 months ago — even as the Obama administration tried to quell fears about the viability of major U.S. banks.

“The decline in the stock market was unusually broad and went well beyond the jittery financial sector, with technology and other economically sensitive categories driving major indexes to their lowest closing levels in more than 11 years.”

Brian Baskin reported in today’s Wall Street Journal that, “Crude-oil futures slid on fears that fresh economic meltdowns may be in store for battered markets.

“Light, sweet crude for April delivery settled down $1.59, or 4%, at $38.44 a barrel on the New York Mercantile Exchange.”

Analysis contained in yesterday’s Commodity News for Tomorrow report, a publication provided by CME Group, regarding the price of corn futures stated that, “But analysts added that the demand picture is still far from bullish, due to the weak global economy.”

The Associated Press reported yesterday that, “Wheat for March delivery dropped 8.25 cents to $5.105 a bushel, while March corn added 1.5 cents to $3.5175 a bushel [and] March soybeans traded up 10.25 cents to $8.7275 a bushel.”

Economic variables are having an impact on the value of farmland, a USDA Radio Newsline item from yesterday, which featured comments from USDA Chief Economist Joe Glauber, noted that, “It looks as though farmland values, which have risen every year for at least ten years, may be leveling off or even declining.” To listen to this one minute audio segment, just click here (MP3).

As market price variables unfold, producers are considering acreage allocation decisions for this spring. Yesterday’s CME Commodity News report also pointed out that, “Previously weak prospects for 2009 U.S. corn acreage are improving as planting season nears, as fertilizer prices dip and as the soybean market loses some of its luster.

“The soybean-corn price ratio has narrowed recently as soybean losses have been greater than those in corn. Analysts compare futures prices for November soybeans and December corn in gauging the relationship between the crops.”

The CME item explained that, “In 2008, U.S. farmers planted an estimated 86 million acres of corn and 75.7 million acres of soybeans, according to the U.S. Department of Agriculture. At the start of the calendar year there was speculation about an increase in soybean acreage, partially from a shift from corn, said Darrel Good, agricultural economist with the University of Illinois.

“Another factor expected to fuel the soybean acreage rise was a reduction of 4 million acres in winter wheat seedings, including a sharp cut in soft red winter wheat, said Good. A lot of those wheat acres were lost in the eastern corn belt and southeastern U.S., and he said expectations were that a lot of that land would go to soybeans.

“‘But now I think there’s some understanding that we could overdo it,’ Good said. ‘And if we move too many acres of soybeans we’re going to continue to tank the price of soybeans.’”

The item also noted that, “Another factor working in corn’s favor, analysts say, is a drop in fertilizer prices. After spiking last year, wholesale prices have been falling for several months, but have been slower to drop at the retail level as producers and fertilizer dealers played a game of chicken.”

The Renewable Fuels Association published its Ethanol Industry Outlook for 2009 yesterday, which alluded to softening variables in the ethanol sector, and noted that, “The perfect storm of events in 2008, while temporarily disruptive, is going to lead to a new and more robust American ethanol industry in 2009 and beyond. The challenges faced and currently being addressed by this industry will make it stronger and more successful far into the future.

“Improved efficiencies at existing biorefineries, new process technologies, commercialization of cellulosic conversion technologies, and yes, even some industry consolidation, will provide a platform from which this industry can launch and expand into a new, sustainable, and renewably- fueled era in American history.”

Crop Insurance

David R. Graves, the Manager/Secretary of the American Association of Crop Insurers, recently penned an article entitled, “Crop Insurance: A Standing Farm Price Disaster Program.

The article noted that, “The Federal crop insurance program (the program) is structured, administered and operated to provide indemnity payments to the nation’s farmers in an efficient and effective manner for a wide array of disasters that can strike farming enterprises. Hence its name—multi-peril crop insurance. To help accomplish the efficiency and integrity goals of the federal program, the government partners with the private insurance industry for promotion, outreach and delivery services.

Traditionally, the program has been thought of as a source of protection for production or yield losses only. For more than a decade that has not been the case. The focus of this paper is on the program’s inclusion of price as one of the covered ‘perils.’

“Dating from passage of the Federal Crop Insurance Act of 1980, Congress has continued to review and modify the program to improve and enhance its value to farmers as a risk management tool. Today, the program is considered to be the most broadly available and most widely utilized risk management tool by the nation’s farmers. Furthermore, in many instances, the program is required by farm lenders and landlords as collateral protection for their respective interests. For the 2008 crop year, the program insured more than 272 million acres, with liability protection totaling almost $90 billion.”

Dr. Graves noted that, “For the 2008 crop year, 63 percent of the policies earning premium provided some form of revenue protection. Moreover, for 2008, revenue polices accounted for 74 percent of total program liability.”

The item explained that, “Farmers are receiving a record level of indemnity payments for the 2008 crop year. Although the final amount will not be known until later in the year, a February 16, 2009 interim report by RMA shows the program has already paid out nearly $6.5 billion in indemnity payments, which is an 83 percent increase from 2007. Of the $6.5 billion already paid to farmers, almost $5.5 billion or 85 percent was attributed to the revenue insurance policies, as reported by RMA.

“To view an RMA map showing indemnities by county, go to the following web link: http://www.rma.usda.gov/data/indemnity/2009/020909map.pdf (allow time for the map to load).

“While official statistics are not available at this time, it is likely that a significant share of the 2008 indemnity payments result from the revenue protection options as impacted by the price variable. With fair to normal national average yields, the commodity price collapse for the 2008 crop year is likely to prove to be the most significant driver of the record indemnity amount for the program. This outcome is especially likely to be the case for corn and soybean policies.”

Stu Ellis, writing today at The Farm Gate Blog (University of Illinois Extension) noted that, “With corn and soybean prices insufficient to cover operating and land costs for 2009, the financial risk for many farmers will be a burden. Lenders are/will be pushing for a strong risk management program that may include crop insurance, a marketing plan, and the ACRE farm program and SURE disaster program. Rain or heat in the wrong week will be unwelcome in 2009 with such thin margins, and could result in a financial disaster.

“What are your plans to disaster-proof yourself for 2009? There are a variety of tools to use and Kansas State University risk management specialist Art Barnaby has several recommendations to take advantage of changes in crop insurance programs and combining them with other risk management tools.

Barnaby’s first recommendation is for those using crop insurance to switch to enterprise units by crop, which is made possible with a pilot program the next three years. Your coverage is increased, but your premium is reduced. He says it increases the total dollars of revenue coverage and increases the free coverage from the SURE disaster program. But he still recommends hail insurance coverage, if you do not raise your coverage level. Also, the premium subsidy is being reduced on GRIP and he says farmers with GRIP policies should also switch to enterprise units. He believes the savings from the switch will provide more financial cushion than any ACRE or SURE payments. Barnaby says the downside to the fact it is a pilot program is that it could see subsidies reduced in future years, and you would need your records to return to optional units.”

Keith Good

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