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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.”

Yesterday’s DTN update added that, “Anticipating a political furor over the deficits, House Speaker Nancy Pelosi, D-Calif., told the press she is ordering her committee chairmen to quickly come up with plans for fiscal responsibility hearings, setting a March 13 deadline for ‘scheduling hearings on overseeing spending in their jurisdiction.’

What this means for agriculture remains to be seen, and likely will depend very significantly on the performance of the economy over the next few months. Given the current concerns, it still seems unlikely that Congress will attempt to cut entitlement programs during the current fiscal year, but there certainly will be mounting pressure to search for ‘unnecessary’ spending in the debates over the overdue FY2009 spending bills now under consideration.

“FY2010 is another matter, and it will be very important to scrutinize the president’s budget proposal to see what his expectations are, and how he proposes to achieve his new fiscal discipline. Agriculture almost certainly will be included in such a review, especially the more than $5 billion in annual direct payments that were scrutinized but not changed in last year’s debate.”

Yesterday afternoon, U.S. Secretary of Agriculture Tom Vilsack offered a preview of President Obama’s address to Congress during an appearance on “Your World,” with Neil Cavuto, a Fox News Channel television program.

To listen to a brief excerpt of Secretary Vilsack’s comments, just click here (MP3- two minutes).

Michael D. Shear and Anne E. Kornblut provided an overview of the President’s speech in today’s Washington Post, and reported that, “President Obama offered a grim portrait of America’s plight in an address to a joint session of Congress last night, but he promised to lead an economic renewal that would lift the country out of its current crisis without bankrupting its future.

“Striking an optimistic tone that has been absent from his speeches in recent weeks, the president said his stimulus plan, bank bailout proposal, housing programs and health-care overhaul would work in concert to turn around the nation’s struggling economy. And while he bluntly described a country beset by historic economic challenges and continued threats abroad, he said the solution lies in directly confronting — not ignoring — those problems.”

More specifically with respect to agriculture and U.S. farm policy, Reuters writer Charles Abbott reported last night that, “President Barack Obama, in his first speech to Congress, called on Tuesday for an end to ‘direct payments to large agribusinesses that don’t need them,’ an apparent attack on subsidies costing $5.2 billion a year.

“The proposal echoed a leading point from his presidential campaign, although the idea was not certain of success. President George W. Bush, for example, fruitlessly backed a $250,000 annual cap on payments per farmer.

While running for president, Obama said in campaign documents that farm subsidies should go to farmers who need them and ‘not millionaire farmers who rely on American taxpayers to protect their multimillion dollar profits.’”

Mr. Abbott noted that, “In remarks prepared for Congress, Obama said the White House has identified $2 trillion in wasteful and ineffective spending, including unneeded direct payments to large farms.

“‘In this budget, we will … end direct payments to large agribusinesses that don’t need them,’ he said. He did not say how much money would be saved by the step or how it would be structured.

Two farm-group spokesmen said the president apparently meant a farm subsidy known as direct payments that was created in 2002 and is made regardless of crop prices or farm profits.

“But they noted ‘direct payments’ also is a term meaning all types of federal support made in cash.”

The Reuters article added that, “Eleven farm groups wrote Agriculture Secretary Tom Vilsack last week to argue against any cuts in farm supports and particularly direct payments. They said direct payments ‘are the only component of the farm safety net currently helping every farmer’ deal with rising costs of production and a slump in crop prices since record highs last year.

“Direct payments were an area of dispute when Congress wrote the 2008 farm law. The Bush administration wanted to expand them and de-emphasize other supports. But groups like the National Farmers Union said direct payments were indefensible in good times and insufficient aid when markets slump.”

In a tele-news conference with reporters yesterday, Iowa GOP Senator Charles Grassley was asked about the budget and direct payments. In part, he noted that agriculture programs would only be impacted if “other government programs were affected too.” Sen. Grassley stated that, “Nobody’s going to get away with just taking a whack at agriculture.” To listen to this exchange, click here (MP3- one minute and thirty seconds).

Direct payments, which are fixed and not made based on market prices, could take on added significance if agricultural conditions soften. The value of farmland is one variable that provides insight into the general condition of the agricultural economy.

DTN writer Susanne Stahl reported yesterday (link requires subscription) that, “Land values fell in the fourth quarter of 2008, but so far in 2009 land is holding its own, slightly off last year’s highs.

“Land prices in the fourth quarter were down 6 percent in Iowa and 3 percent in Illinois, according to the Federal Reserve Bank of Chicago. But the declines are from historic highs, propelled by the increased crop prices of recent years.

“Indeed, for much of 2008, land prices were red hot. They only began cooling as the year drew to a close.”

Ms. Stahl explained that, “Statistics from Farm Credit Services illuminate the story. Farm Credit Services has 68 benchmark farms in Iowa, Nebraska, South Dakota, and Wyoming that it tracks semi-annually in January and July. Over the last year Iowa land values have increased 9.2 percent; Nebraska values have increased 10.2 percent; South Dakota values have increased 11.3 percent and Wyoming values have increased 6 percent.”

The DTN article added that, “In the last six months of 2008, land values on those benchmark farms in Iowa and South Dakota have increased only 0.6 percent. They’ve been steady in Wyoming and decreased 0.2 percent in Nebraska.

This shows a ‘softening in the market, but not a collapse,’ said Jim Knuth, senior vice president of Farm Credit Services of America, at the Iowa Land Expo held February 12. This is not a repeat of the 1980s, he said. ‘Crop insurance is better; the interest rate environment is more friendly,’ and ‘farmers are holding less debt.’”

Crop Insurance

On the issue of crop insurance, a news release issued yesterday from National Crop Insurance Services indicated that, “Because of droughts and flooding in parts of the country along with substantial price declines for corn and soybeans, indemnity payments on crop losses during the 2008 growing season reached nearly $6.5 billion in mid February with more claims yet to be processed.

“‘All losses haven’t been paid yet either,’ said Bob Parkerson, president of National Crop Insurance Services (NCIS), the nonprofit industry trade association in Kansas City. ‘There are still many losses yet to be finalized by the companies, and GRIP payments won’t be made until RMA approves the county yields for those policies, which doesn’t usually happen until April.’

“The private insurance industry has had thousands of adjusters working these losses since crops were harvested, and won’t quit until the last loss is processed.

“The good news for taxpayers is that the lion’s share of those payments comes from the private insurance companies that sell and service the Federal crop insurance program. For their part, the private insurance companies have contributed substantially from the funds they set aside as loss reserves.”

New Deputy Secretary

A news release issued yesterday by the U.S. Department of Agriculture stated that, “President Barack Obama today announced his intention to nominate Kathleen A. Merrigan to be Deputy Secretary of Agriculture.

“‘We at the U.S. Department of Agriculture welcome the President’s intention to nominate Dr. Merrigan,’ said Secretary Tom Vilsack. ‘She will bring to USDA extensive expertise in agricultural marketing and nutrition and in legislative affairs and will provide excellent, experienced leadership as we move President Obama’s agricultural and nutritional agenda forward.’”

Ken Cook, president of the Environmental Working Group issued a statement regarding the nomination, noting in part that, “In a policy realm dominated by the endless clamor of the subsidy lobby, Kathleen has distinguished herself by hearing and responding to the concerns of those who too often have been ignored by agriculture’s officialdom: small farmers, advocates for sustainable agriculture, the organic food community, conservationists, and the economically disadvantaged.

“Kathleen has had a distinguished career in agriculture policy, not least of which was her prodigious work for Senator Patrick Leahy to create a national standard for organic food as part of the 1990 farm bill and over the objections of much of the agriculture establishment. She is diligent, creative, forward looking, and deeply committed to public service.”

And Dan Mitchell, writing yesterday at The Daily Bread Blog (Slate Magazine) penned an update regarding the Deputy Secretary nomination entitled, “Foodies Cheer USDA Prime Choice.”

However, Mr. Mitchell pointed out that, “But Merrigan is no wild-eyed, extra-crunchy food ideologue. She worked for two years at USDA under President Clinton as head of the Agricultural Marketing Service, where she helped devise the rules governing what is and is not ‘organic.’ Earlier in her career, as an aide on the Senate Agriculture Committee, she helped draft food-labeling rules.

That kind of work necessarily involves compromise and cooperation with food producers. While the nomination is unquestionably good news for consumers and for critics of our overindustrialized food system, don’t expect Merrigan to charge the ramparts.”


In other agricultural news developments, Reuters writer Jasmin Melvin reported yesterday that, “U.S. governors who want to see more ethanol production said on Monday they are optimistic regulators will soon boost the allowed blend rate for ethanol in gasoline to 13 percent from 10 percent.

“Members of the Governors’ Biofuels Coalition said they want the U.S. Environmental Protection Agency to issue a waiver to allow the sale of 13 percent ethanol blends.

“Response from the administration of President Barack Obama has been encouraging, Iowa Gov. Chet Culver, vice chair of the coalition, told reporters.”

An AFP article from earlier this week reported that, “Cold War-inspired US sanctions on Cuba have failed to spark democratic change in the communist-run island after almost half a century and should be reviewed, a top Republican said Monday.

“‘After 47 years … the unilateral embargo on Cuba has failed to achieve its stated purpose of ‘bringing democracy to the Cuban people,’’ said Senator Richard Lugar in comments attached to a report released on his website.”

The AFP article added that, “But the report and Lugar’s attached comments stop short of recommending an end to the US embargo.

“Instead the report supports lifting Bush administration restrictions on travel and remittances to Cuba, reinstituting formal bilateral cooperation on drug interdiction and migration, and allowing Cuba to buy US agricultural products on credit.”

In other international agricultural developments, Bloomberg writer Eliana Raszewski reported yesterday that, “Argentine President Cristina Fernandez de Kirchner asked farmers to stop protests of government agriculture policies to avoid harming the economy.

Growers have halted the sale of grains and cattle since Feb. 20 to demand the government cut export taxes and help ease the effects of a drought. They also have demanded the government ease export restrictions.

“Farmers’ protests ‘are going to negatively affect the economy and that will be a result not of the international crisis but of domestic mistakes,’ Fernandez said today in a speech at the presidential residence in Buenos Aires. ‘They have to reconsider.’”

Meanwhile, Michael Wines reported in today’s New York Times that, “Northern China is dry in the best of times. But a long rainless stretch has underscored the urgency of water problems in a region that grows three-fifths of China’s crops and houses more than two-fifths of its people — but gets only one-fifth as much rain as the rest of the country.

The current drought, considered the worst in Northern China in at least half a century, is crippling not only the country’s best wheat farmland, but also the wells that provide clean water to industry and to millions of people.”

The Times article explained that, “For the Chinese government, already grappling with the fallout from a global economic crisis, this drought is inauspicious. Winter wheat is the nation’s second largest crop, behind rice, and a water shortage could raise irrigation costs and cut income for farmers, even as it increased wheat prices for farmers elsewhere in the world.”

And James Kanter reported in yesterday’s New York Times that, “The European Union is preparing to impose trade duties on biofuels imported from the United States to prevent American producers from putting European producers of biodiesel out of business, diplomats said Monday.

“Biofuels are developing into a big business, with sales of about 8 billion euros, or $10 billion a year, in Europe. Imports of biodiesel from the United States total about 1 billion euros.

“The European Union and the United States subsidize their biodiesel industries. But European producers complain that their counterparts in the United States benefit twice: from subsidies by the federal government to produce the biodiesel and from subsidies granted by individual European governments when the fuel is sold on the Continent.

Keith Good