FarmPolicy

November 17, 2019

Budget Reaction Continues; Trade; Crop Insurance / ACRE; and the Ag Economy

Budget- General

Lori Montgomery reported in today’s Washington Post that, “Two of the administration’s top economic officials [White House budget director Peter R. Orszag and Treasury Secretary Timothy F. Geithner] defended President Obama’s $3.6 trillion budget plan yesterday, arguing that the proposal would finance a historic investment in critical economic priorities while restoring balance to a tax code tipped in favor of the wealthy.”

The Post article noted that, “Obama’s budget request was generally well-received yesterday, as lawmakers took their first opportunity to comment on an agenda that many have described as the most ambitious and transformative since the dawn of the Reagan era. Democratic budget leaders said they are likely to endorse most of Obama’s proposals sometime in April in the form of a nonbinding budget resolution. That document, which does not require the president’s signature, sets goals for spending and revenue that must be enacted separately.”

Walter Alarkon reported yesterday at The Hill Online that, “[President] Obama took a combative tone in defending his budget plan last weekend, just days after he unveiled it. Obama said that the budget — which seeks to make the healthcare system more efficient, shift more of the tax burden onto the wealthy and end tax breaks for banks, oil companies and large agricultural businesses — will find resistance among special interests and lobbyists.

“‘I know they’re gearing up for a fight as we speak,’ Obama said. ‘My message to them is this: So am I.’ [Rep. Paul Ryan (Wis.), the ranking Republican on the House Budget Committee]
and House Republicans joined that fight on Tuesday, when two of Obama’s top economic aides, Office of Management and Budget Director Peter Orszag and Treasury Secretary Timothy Geithner, testified before House committees.”

Budget- Agricultural Provisions

More specifically with respect to the agricultural provisions in the administration’s proposed budget, the Orlando Sentinel editorial board opined yesterday that, “President Barack Obama has picked a ripe target for savings: U.S. agricultural subsidies. His call to cut federal handouts for large farms by some $10 billion over the next decade is as welcome as a good rain after a long drought… As a whole, last week’s budget proposal from Mr. Obama fell far short of imposing the fiscal discipline that trillion-dollar deficits demand. Even so, he deserves some credit for targeting waste in farm subsidies.”

Meanwhile, Reuters writer Charles Abbott reported yesterday that, “There are better ways to control U.S. farm subsidy costs than President Barack Obama’s proposal to limit access to so-called direct payments, two senators said on Tuesday, suggesting alternative ways.

“Senate Agriculture Committee chairman Tom Harkin said the better approach would be shut off direct payments to grain, cotton and soybean growers on the basis of adjusted gross income, perhaps $200,000 or $250,000 a year.

“‘That really tells you what people make,’ the Iowa Democrat told reporters.

“By contrast, Obama has proposed a three-year phase-out of the direct-payment subsidy to growers with more than $500,000 a year in sales with the goal of aiming payments at farmers who need them most. The plan would reduce direct-payment outlays by one-fifth, or $9.8 billion over 10 years.”

Mr. Abbott noted that, “North Dakota Sen. Byron Dorgan, a Democrat, said the first step to rein in farm spending should be a limit on all payments to growers. There effectively is no limit now. Dorgan is a longtime supporter of a $250,000 a year cap. Obama proposed a $250,000 payment limit too but it has gotten little attention.”

“The 2008 farm law set a $40,000 a year limit on direct payments and $65,000 a year for counter-cyclical payments but no limit on price supports. The limits on direct payments and counter-cyclicals can be doubled by a farm family because spouses are eligible for payments too,” the Reuters article said.

A news article posted yesterday at AgricultureOnline reported that, “An influential Republican Senator who has long championed lower payment limits for commodity programs told reporters Tuesday that he does not support ending direct payments to farmers making more than $500,000 in sales.

“That’s part of the Obama Administration’s proposed budget for 2010. [Iowa GOP Senator Charles Grassley] said he does support another Obama proposal to cap all commodity program payments, including direct payments, at $250,000.”

Jerry Hagstrom and Chris Clayton reported yesterday at DTN (link requires subscription) that, “Under the WTO, direct payments and conservation payments are not classified as trade distorting, and for that reason, they garner more support by trading partners to be maintained. Loan-deficiency payments and counter-cyclical payments are considered trade distorting because of they way they move with price levels. Because of that, Grassley said, future farm programs are going to be more prone to look like direct payments than other programs being used right now.

Grassley said a cut in direct payments now would diminish any position in the trade talks. Further, the bargaining chips for reducing farm programs in WTO talks should be LDPs and counter-cyclical payments, he said.

“‘I’m reluctant to do too much with direct payments until we get done with our trade negotiations,’ Grassley said.”

In a separate DTN article from yesterday, Jerry Hagstrom reported (link requires subscription) that, “A key national nutrition advocate says that anti-hunger leaders will vary in their reactions to Agriculture Secretary Tom Vilsack’s appeal that they back the Obama administration’s plan to end direct payments to farmers with gross sales of more than $500,000 to pay for an increase in child nutrition programs.”

“After a speech to the National Anti-Hunger Conference Monday, Vilsack said, ‘We will do our best to frame this discussion in that way, so that people understand: 30 million children, 90,000 farmers,’ according to a Reuters report.”

Mr. Hagstrom explained that, “Vilsack’s comments appear aimed to split a traditional coalition between hunger organizations and large farm groups that have worked successfully together over the past several farm bills to protect commodity programs while boosting spending on nutrition programs as well.”

Trade

With respect to the WTO and the Doha Round of multi-lateral trade negotiations, Reuters writer Bruce Hextall reported today that, “A meeting of world trade ministers to finalize the Doha Round of negotiations could be held early in the northern hemisphere summer, World Trade Organization director-general Pascal Lamy said on Wednesday.

Negotiations could be reconvened once the new United States administration had established its trade policies and India had held general elections, Lamy told reporters in Canberra.

“Lamy said the G20 meeting of trade ministers in four weeks could lay the ground work to restart the talks, which stalled last year when a final agreement could not be reached on two key areas, agriculture and industry.”

And James Kanter reported in today’s New York Times that, “Seeking to protect their beleaguered biodiesel industry, European governments backed on Tuesday a plan to impose provisional tariffs on American biodiesel producers like Cargill and Archer Daniels Midland, European Union diplomats said.

“Both the European Union and the United States subsidize their biodiesel industries. But European producers have complained to trade regulators that their counterparts in the United States benefit twice: from subsidies by the United States government to produce biodiesel, and from subsidies granted by European governments when the fuel is sold on the Continent.

“Concerns are growing that protectionism by governments during the current downturn may spiral out of control. But representatives of the European biodiesel industry said the measures being undertaken by European officials were necessary and justified under World Trade Organization rules.”

Crop Insurance / ACRE

The U.S. Department of Agriculture’s Daily Radio Newsline included a reminder regarding crop insurance deadlines yesterday; noting that, “March 15th is technically the closing date for 2009 crop insurance sales for most of the US, however, producers will have until March 16th to sign up.”

In analysis yesterday on the Closing Market Report (W.I.L.L. AM 580 Radio, Champaign, IL) Todd Gleason discussed the issue of crop insurance briefly with Wayne Nelson of L & M Commodities, New Market, IN. To listen to this clip, just click here (MP3- one-minute).

The Friday edition of The Kiplinger Agriculture Letter indicated that, “Crop insurance choices are getting more complex but offer better payouts for farmers who can sort out the expanding array of risk protection plans. Most farmers are shifting to revenue policies that insure yield and price at once. These plans offer lots of alternatives. Moreover, USDA has tweaked subsidies on premiums, making it worthwhile for most farmers to revisit their choices.

“Plus there’s a new option this year: ACRE…Average Crop Revenue Election. Farmers will have from an expected April date through May to consider the program, which bases crop revenue coverage partly on average state yields and national prices. Experts weigh the coverage options for you at kiplinger.com/letterlinks/rev.”

Meanwhile, DTN Executive Editor Marcia Zarley Taylor reported yesterday (link requires subscription) that, “Midwest grain producers don’t need complicated calculators or a PhD in math to decide if the farm bill’s new Average Crop Revenue Election program could improve their income safety net between now and 2012, according to Allen Gray.

“The Purdue University economist tested 4,000 combinations of possible yield and price scenarios on a Carroll County, Ind., corn-soybean-wheat operation in the last few weeks.

Gray found in just 10 out of 1,000 cases did the traditional farm program with counter-cyclical payments return more price protection than ACRE over the next four years. On average, ACRE’s corn guarantee maintained more than a $200-per-acre advantage during the life of the farm bill. For soybeans, ACRE beat conventional protection 999 out of 1,000 scenarios. With wheat, the balance tipped toward ACRE 750 out of 1,000 tries.

“‘I don’t know that we need to waste a lot of time on fancy analysis or math,’ Gray has told farm audiences. ‘If you’re a standard corn, soybean or wheat producer, ACRE is almost a no-brainer.’”

The DTN article added that, “South Dakota and Minnesota wheat growers run a 70 percent chance of triggering ACRE payments in 2009, according to Iowa State University estimates. Iowa soybean growers have a 52 percent chance, and Kansas dryland corn growers have about a 35 percent chance of collecting this year. Low prices are where ACRE shines; should prices fall 35 percent from January levels, virtually all grain producers would qualify for ACRE payments in 2009.”

Ag Economy

In livestock economic developments, Purdue University Extension Economist Chris Hurt indicated on Monday (“Pork Producers May Still Return to Profits”) that, “Pork producers may be on the verge of returning to profitability after experiencing losses dating back to October 2007. Hog prices are expected to rise seasonally in coming months and costs for feed continue to drop under the concerns of slowing world economic activity. For the year, hog producers are expected to see an average live price of about $47.50 per hundredweight, but costs of production are expected to drop to near $45.50, providing a modest profit.

The crisis in the world economy is having negative impacts on pork demand, but is also helping to lower feed costs as corn and soybean meal prices decline. In fact, yearly average hog prices had very little variation in 2006, 2007, 2008, and now in 2009 when average prices were between $47 and $48. Wide fluctuations in costs of production are the primary reason for an estimated profit of $27 per head in 2006 and an estimated loss of $17 per head in 2008. Changing prices of corn and soybean meal have been the drivers of returns.”

The Purdue Extension article noted that, “Given these hog price and costs estimates, pork producers are expected to return to profitability in April of this year. Estimated losses of $11 per head in the first quarter would give way to profits in the second through fourth quarter of $12, $15, and $6, respectively. For the entire year, profits would be about $5 to $6 per head.

Like all sectors of agriculture, pork producers face large uncertainties from the general economic conditions. This means that reductions in the breeding herd will likely continue throughout the year. Smaller pork supplies into 2010 would seem to put a brighter face on profit prospects, but further loss of pork demand in a weakening economy could offset those gains.

“The extreme uncertainty of the moment implies that pork producers, like all of agriculture, should be conservative and defensive this year. Perhaps management decisions in 2009 should be focused on increasing odds of survival, rather than looking for big opportunities.”

The Associated Press reported earlier this week that, “Wisconsin dairy farmers hurt by a collapse in milk prices [related graph] should get help soon from the federal government, Gov. Jim Doyle said Monday.

“Doyle met Monday with Agriculture Secretary Tom Vilsack. He said Vilsack assured him the U.S. Department of Agriculture was working to get Milk Income Loss Contract payments out quickly. The program pays dairy farmers when domestic milk prices fall below a certain level.

“Milk and other commodity prices began collapsing last fall. Dairy farmers have been squeezed because feed and other costs have remained high even as milk prices dropped.

“The MILC program pays farmers when milk prices drop below about $17 per hundredweight. Payments are based on the Boston Class 1 milk price, and prices vary nationwide.”

Keith Good

Comments are closed.