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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.]

Ms. Rampton added in her Reuters article from yesterday that, “Analysts were watching for clues on Thursday from Obama’s budget and from speeches by Agriculture Secretary Vilsack and Obama’s top economic advisor Larry Summers at a U.S. Agriculture Department conference.

“Summers ‘is quite obviously there to ‘sell’ the budget plans to the agriculture community, and it will be interesting to see if he provides more details on the depth of the cuts,’ said Robert Moskow, an analyst with Credit Suisse, in a research note.

“Some groups think Obama wants to cap direct payments received by farmers at $40,000 a year, half the current limit.”

A separate Reuters article from yesterday, which was posted at DTN (link requires subscription) reported that, “Still, in key farm states in the U.S. Midwest where wheat, corn and soybeans are king crops and cattle run the range, and across the nation’s farm country, the prospects of Washington cutting into direct payments for farmers was roundly attacked.

“‘The goal of farm programs is not to make farmers rich,’ said John Thaemert, a Kansas wheat farmer and a past president of the National Association of Wheat Growers. ‘The goal of farm programs is to make sure our country has access to an abundant, affordable, convenient and safe supply of food.’”

The article added that, “Cutting subsidies is also touchy topic with non-grain crops from sugarbeets to rice, cotton and many others.

“‘It is a hot issue particularly in crops such as cotton and rice where operations tend to be extremely large, where the value of those crops are quite large and the payments tend to be quite large,’ said Otto Doering, professor of agricultural economics at Purdue University.”

Yesterday’s Reuters article noted that, “Obama supported the 2008 Farm Bill, a five-year program which continued direct federal payments to farmers that totaled about $5 billion in 2007. But he has said he wants a subsidy ceiling of $250,000 a year per farm.

Farmers say the direct payments help them maintain credit with local banks as a form of dependable cash flow, and help farmers who lose crops to drought or disease.”

Brody Mullins and Scott Kilman reported today at The Wall Street Journal Online that, “The agriculture lobby quickly recoiled Wednesday against President Obama’s vow to ‘end direct payments to large agribusinesses that don’t need them,’ though industry leaders and farm-state legislators weren’t sure which government payments they’ll have to defend.

“‘We were surprised President Obama included farm payments in his speech,’ said Bob Stallman, president of the American Farm Bureau Federation. ‘But it is Congress where the rubber meets the road.’”

Today’s Journal article explained that, “A plunge in commodity grain prices since last summer is shrinking profits across the farm sector, making it even more politically dicey for farm-state legislators to go along with any cuts in federal aid. Earlier this month, the U.S. Agriculture Department predicted that U.S. net farm income, a rough measure of profitability, will drop 20% this year to $71.2 billion from last year’s record-high $89.3 billion.

The line in the president’s speech about agribusiness seemed to merge two distinct ideas for overhauling subsidies. While the president didn’t define ‘large agribusinesses,’ he favored as a presidential candidate limiting the amount of federal subsidies an individual grower can receive to $250,000, an idea that is included on the rural agenda of the White House Web site. The Senate voted down such a proposal as recently as December 2007.

The other idea floating around Washington is to scrap a type of subsidy check called the ‘fixed direct payment,’ which since 1996 has put about $68 billion into the pockets of growers. According to farm lobbyists, Tom Vilsack, the newly minted agriculture secretary, has been telling farm trade groups in recent weeks that fixed direct payments have outlived their usefulness.”

A separate Reuters article by Roberta Rampton yesterday (“Obama farm subsidy cut won’t revive Doha: experts”) indicated that, “President Barack Obama’s pledge to cut subsidies to big U.S. farm businesses falls short of the cuts needed to revive moribund world trade talks, proponents of an expanded global trade agreement said on Wednesday.

“‘Anything that would reduce payments to farmers in the U.S. would be looked on favorably by the rest of the world,’ said Ross Korves, an economist at Truth about Trade and Technology, a group that promotes free trade in agriculture.

“‘It’s what happens next when times get tough’ that would spell out the longer-term impact of U.S. domestic farm policy on WTO talks, Korves said.”

The article noted that, “But the direct payments are not as trade-distorting as other subsidies that that go up when prices plunge or crops fail. Those are of greater concern to trading partners.

“Some analysts said Obama would help the U.S. case at the WTO by cutting other programs that support prices or revenues.

“‘A cut in direct payments would do little or nothing for the talks,’ said Dan Sumner, an economist at University of California-Davis who specializes in farm and trade policy.”

Nonetheless, Reuters news reported yesterday that, “Canada’s agriculture minister hailed on Wednesday remarks by U.S. President Barack Obama about ending some U.S. farm subsidies, saying it was one small step moving the world closer to a world trade agreement.”

The article stated that, “‘It’s in line with what we’re asking for at the World Trade Organization … it’s a good right step,’ Canadian Agriculture Minister Gerry Ritz told reporters in Parliament.

“But Ritz said the change in U.S. farm policy flagged by Obama was just one of several measures that would be required globally for the Doha round of trade talks to conclude successfully.”

In other reaction to President Obama’s reference to direct payments, a news release issued yesterday by the House Agriculture Committee Republicans stated that, “Today, Ranking Member Frank Lucas sent a letter to the Secretary of Agriculture, Tom Vilsack, expressing great concern about the Obama administration’s position on eliminating direct payments to producers.”

“‘I have real concerns about this administration’s position on eliminating direct payments to our producers, which would be detrimental to their livelihoods. Our farmers and ranchers are some of the hardest working people in the U.S. and they are struggling to make a living in a difficult economy. Yet, it’s clear that both Secretary Vilsack and President Obama don’t understand the problems facing our agriculture community. And, they absolutely don’t understand how important rural communities are to our economy,’ said Ranking Member Frank Lucas.”

In a statement from yesterday on this issue, Representative Mike Conaway (Texas, 11th) indicated that, “In last night’s State of the Union speech, President Obama said, ‘…we will end direct payments to large agribusinesses that don’t need them.’ The President has resorted to the old and tired exercise of using agriculture as a whipping boy for Federal deficits. Commodity payments represent less than a tenth of the cost of the 2008 farm bill. Since Barack Obama has become president, the Federal Government has spent $35 billion a day. If the President were to eliminate all commodity payments for the entire five year Farm Bill he would gain less than one and a half days worth of spending at his current rate.

“Providing a safety net for our farmers and ranchers is good public policy that serves the interests of not only the American producer but the American consumer and taxpayer as well. I will continue to work to ensure that that the voices of America’s producers are heard in Washington.”

And Kevin Woster, writing yesterday at The Rapid City Journal Online (South Dakota), reported that, “Obama said his first budget would ‘end direct payments to large agribusinesses that don’t need them.’ He didn’t offer any details, which led to immediate speculation about how far the president would go, and how it would affect farming in the United States.

“Rep. Stephanie Herseth Sandlin, D-S.D., took note of the line, as did Rep. Earl Blumenauer, D-Oregon, who was sitting next to her.

“‘Earl Blumenauer actually leaned over to me and asked, ‘What do you think he means with that line?’ Herseth Sandlin said Wednesday.

“It’s a good question that has farm leaders wondering as well. Mike Held, the administrative director of the South Dakota Farm Bureau Federation in Huron, worries that traditional farming operations which have grown and incorporated might get hit by the effort to take money away from large agricultural businesses.”

The article noted that, “Like Herseth Sandlin, Democratic Sen. Tim Johnson and Republican Sen. John Thune said they welcome the president to the continuing fight to more fairly target farm payments. One key challenge will be getting around the strong support for large-scale agriculture businesses from congressional delegations in Southern states, they said.

“‘It won’t be easy,’ Johnson said. ‘But I think that under the present financial circumstances and the new party alignments that he has a shot. And I intend to support it.’

The battle over subsidies for large-scale corporate farming operations tends to break more on geographic than political lines, which adds unusual dynamics to the fight for change.”

And Chris Clayton stated yesterday at the DTN Ag Policy Blog that, “Radio Iowa’s O Kay Henderson quoted Sens. Tom Harkin and Chuck Grassley about Obama’s speech and specifically about the cuts in direct payments the president referenced.

“In terms of specifics, Obama called for ending large ‘agribusiness subsidies’ and Senator Harkin — the chairman of the Senate Ag Committee — says he agrees ‘whole-heartedly’ that ‘giant agribusinesses’ shouldn’t be getting federal subsidies. ‘I have been opposed to this direct payment program ever since it was first started,’ Harkin says. ‘We just never had the votes to change it over and maybe — hopefully, now, with the backing of this president — we can end those.’

Grassley, a member of the Senate Ag Committee, has no qualms about that proposal either. ‘I think what (Obama’s) getting at is 10 percent of the biggest farmers getting 72 percent of the benefits out of the farm program and that’s compromising the purpose of the farm program,’ Grassley says. Grassley says Obama’s limits would be no more groundbreaking than Grassley’s owns proposal which would set a 250-thousand dollar cap on farm payments to individual farmers.”

Mr. Clayton also noted that, “On the other side of the coin, earlier this week Sens. Saxby Chambliss, R-Ga., and Sen. Pat Roberts, R-Kan., rejected the idea of cutting direct payments for producers.

“‘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 was quoted saying in Politico.”

Meanwhile, David Rogers reported yesterday evening at Politico.com that, “President Barack Obama’s first budget, which rolls out Thursday, is very much a reflection of him: squeezing the wealthy to help get $2 trillion in 10-year savings, pumping up domestic appropriations faster than defense, and promising a $634 billion down payment toward health care reform.”

Mr. Rogers added that, “Within the $2 trillion in savings, for example, the budget is expected to limit agriculture subsidies to farms earning more than $500,000, resulting in an estimated saving near $16 billion.”


In other agricultural developments, a news release issued yesterday by the Food and Agriculture Organization of the United Nations stated that, “The 2008 rice bumper harvest is coming to a close with better-than-expected production that could help ease consumer prices, FAO said in its February Rice Market Monitor. But the agency warned that the global economic slowdown could outweigh the gains for the poorest of the world’s rice consumers, because of falling incomes and rising job insecurity.

“FAO currently predicts global paddy production in the 2008 season to rise to 683 million tonnes, 3.5 percent more than in 2007 and the fastest rate of growth for three years. The increase will be due to a 2.2 percent increase in the amount of land cultivated globally as farmers and governments reacted to the high prices. The global 2008 rice harvest ends in Asian northern hemisphere countries around May.”

And a news release issued yesterday by the Chicago Council on Global Affairs stated that, “Recommendations for a revived U.S. commitment to agricultural development in Africa and South Asia could help more than 270 million people lift themselves out of poverty by 2020 and help restore U.S. global standing.

“A bipartisan group of foreign policy and development leaders convened by The Chicago Council on Global Affairs called today for a renewed U.S. commitment to alleviating global poverty through agricultural development in Sub-Saharan Africa and South Asia, the two regions with more than 700 million of the world’s poorest people, most of them small farmers and their families.

“The group’s report, Renewing American Leadership in the Fight Against Global Hunger and Poverty: The Chicago Initiative on Global Agricultural Development, includes five recommendations and more than 20 specific action items for how the United States, through increased agricultural development assistance and partnerships at home and abroad, could help achieve the Millennium Development Goals and restore the United States as a force for positive change in the world.”

CFTC Chairman

The AP reported yesterday that, “President Barack Obama’s choice to head the Commodity Futures Trading Commission promised Wednesday to act forcefully as a regulator, even as senators raised concerns over his actions as a Clinton administration official in an area blamed for aggravating the financial crisis.

“The nomination of Gary Gensler as chairman of the relatively obscure federal agency touches on key questions as Congress and the administration — driven by the worst economic crisis since the 1930s — prepare to tighten regulation of the financial markets and complex instruments.

“The CFTC, which regulates futures and options trading in commodities like oil, natural gas and agricultural products as well as financial instruments, is becoming a focus of the public debate over putting government reins on the massive global markets for credit default swaps and other derivatives.”

A Dow Jones News article from yesterday, which was posted at DTN (link requires subscription) noted that, “Senate Agriculture Chairman Tom Harkin signaled Wednesday that he intends to support the nomination of Gary Gensler to chair the U.S. Commodity Futures Trading Commission despite some lingering concerns.”

Keith Good