FarmPolicy

December 8, 2019

Crop Insurance; Climate Change; Biofuels; CFTC Issue; Peanuts; and a CAP Update

Crop Insurance- Detailed Audio Backgrounder

Yesterday, I had the opportunity to speak with former USDA Chief Economist Keith Collins and Bob Parkerson, the president of National Crop Insurance Services about the federal crop insurance program.

We discussed a wide variety of issues associated with crop insurance. Specifically, yesterday’s conversation touched on budgetary issues and federal funding for crop insurance; the interaction of crop insurance with the new Average Crop Revenue Election program (ACRE) and Supplemental Revenue Assistance Payments program (SURE); the potential role of crop insurance in the future development of U.S. farm policy; and general issues which are unique to crop insurance which makes it distinct from other forms of federal agricultural support.

An audio replay of our conversation can be heard by clicking here (MP3- 30 minutes).

(Note also that FarmPolicy.com podcasts are also available via RSS feed at this address, feed://farmpolicy.typepad.com/farmpolicy/rss.xml).

Crop Insurance- CRS Report

Meanwhile, the Congressional Research Service (CRS) issued a report on April 17 entitled, “Federal Crop Insurance: Background and Issues,” which was written by Dennis A. Shields.

In part, this CRS report indicated that, “The 111th Congress is considering the effectiveness of the federal crop insurance program, initially with the House Committee on Agriculture seeking input from farmers this spring. Meanwhile, federal budget deficit concerns may result in the crop insurance program serving as a source of savings in the FY2010 budget now under consideration. This report provides a primer on the federal crop insurance program and discusses related issues.”

On page 12, the CRS report stated that, “Given concerns about the federal deficit, reductions in funding for crop insurance have been included both in the Administration’s budget proposal (proposed cuts of $500 million per year) and in the Senate-passed budget resolution (assumed reductions of $70 million per year over five years). While proposals thus far have not been specific, there are at least three potential ways to save federal money: (1) reduce subsidies on the premiums that producers pay for policies, (2) require private insurance companies to absorb more of the program losses, and (3) reduce the reimbursement rate for private company operating expenses.

“Insurance companies and farm groups are concerned that significant reductions in federal support will negatively impact the financial health of the crop insurance industry and possibly jeopardize the delivery of crop insurance, particularly in high-risk areas. The crop insurance industry argues that cuts to the program were already made in the 2008 farm bill, and additional cuts would be unfair. Others point to recent increases in operating expense reimbursements and underwriting gains (Table 3), questioning whether these higher levels are necessary for maintaining a viable crop insurance industry.”

In our discussion yesterday (MP3 audio available here), Keith Collins and Bob Parkerson addressed issues associated with these increases and provided additional perspective on the longer-term nature of program costs, the variability in those costs, and pointed to a variety of variables that have an impact on average returns over a multi-year time frame.

The CRS report also included helpful graphics depicting the number of acres covered by crop insurance; the geographic distribution of these acres; as well as a breakdown of the types of crop insurance policies sold in 2008.

Crop Insurance- Hearings

A news release issued yesterday by the House Agriculture Committee indicated that, “Today, the House Agriculture Subcommittee on General Farm Commodities and Risk Management held a hearing to review agricultural producers’ views on the effectiveness and operations of the Federal crop insurance program. Representative Jim Marshall of Georgia chaired today’s hearing.

“The Subcommittee heard testimony from two panels of witnesses representing broad based farm groups and specific crop organizations. In addition, a researcher from Iowa State University presented testimony on the actuarial methodology of crop insurance. Federal crop insurance provides agricultural producers with a risk management tool to help address crop losses on their farms.”

Written testimony provided by the witnesses from yesterday’s hearing is available by clicking here.

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “Farm leaders told a congressional panel that, overall, crop insurance works well for farmers as a risk-management tool, but that there are gaps such as shallow losses, problems marrying production records for different USDA agencies and USDA delays in implementing a new combination insurance program that could benefit farmers.

“The House Agriculture Subcommittee on General Farm Commodities and Risk Management examined crop insurance as the industry continues to face potential budget cuts. The 2008 farm bill cut $6 billion from crop insurance over the next decade, and the Obama administration proposed another $5.2 billion in cuts, though Congress has balked at that proposal. Congressmen on the Agriculture Committee said they were opposed to more crop insurance cuts, as did representatives from commodity groups who testified Wednesday.”

See related news releases from yesterday regarding the House hearing on crop insurance here (American Farm Bureau Federation), here (National Farmers Union) and here (National Cotton Council).

Climate Change

Juliet Eilperin reported in today’s Washington Post that, “The House Energy and Commerce Committee started work yesterday [complete details] on the nation’s first-ever limit on greenhouse gas emissions, sparking an intense round of lobbying in Washington as interests on both sides of the debate sought to sway undecided lawmakers.

“As lawmakers deliberated on the benefits and costs of placing a national cap on carbon-based emissions, electric utility executives, environmental advocates and clean-technology entrepreneurs alike made their case in front of the panel as well as behind the scenes. The intense effort — on a day that environmentalists across the country were commemorating as Earth Day — underscored the uncertain fate facing the bill sponsored by the committee’s chairman, Henry A. Waxman (D-Calif.), and Rep. Edward J. Markey (D-Mass.), which proposes ambitious cuts in greenhouse gases over the next four decades.

“House Speaker Nancy Pelosi (D-Calif.) raised the possibility yesterday that the final version of climate legislation would not be ready a year from now, a day after vowing that the House would pass legislation ‘this year.’”

The Post article added that, “A Senate leadership aide, speaking on the condition of anonymity to talk freely, said Majority Leader Harry M. Reid (D-Nev.), who plans to take up a cap-and-trade measure in the summer or in early fall, met this month with eight to 12 Democrats who ‘have some concern about going forward’ with the bill.”

An article in yesterday’ Commodity News for Tomorrow report (CME Group, Dow Jones) stated that, “The head of the U.S. Environmental Protection Agency Wednesday warned that ‘the race is…on’ for either Congress or the Obama administration to regulate greenhouse gas emissions, stepping up pressure on lawmakers to act.”

But the article added that, “Few Capitol Hill watchers believe the Senate has the votes to approve greenhouse gas reduction legislation this year, even if the House approves a bill.”

John M. Broder reported in today’s New York Times that, “Obama administration officials said Wednesday that an ambitious energy and climate-change proposal sponsored by House Democrats could help create jobs and reduce greenhouse gas emissions, but they stopped short of endorsing it.

“Steven Chu, the secretary of energy, and Lisa P. Jackson, the administrator of the Environmental Protection Agency, told a House committee considering the measure that they believed it could help accomplish President Obama’s goals of moderating climate change, spurring clean-energy technology and reducing dependence on foreign oil.

“Yet both said they were still studying the details of the 648-page draft, unveiled late last month by two Democratic lawmakers, Representatives Henry A. Waxman of California and Edward J. Markey of Massachusetts. In fact, Dr. Chu and Ms. Jackson said that they had not read the entire draft and that the administration had not given its blessings to the bill. They said they would work closely with Congress to help fashion acceptable legislation.”

Moreover, Dow Jones News writer Ian Talley reported earlier this week that, “In the face of an ongoing financial crisis and divisions even with in the majority’s own ranks over how such a program should be structured, some pundits question whether Pelosi and her lieutenants will be able to gather the consensus necessary to pass a climate change bill. While most House Republicans oppose the bill – calling it a stealth energy tax that could cripple the economy – the real fight will be with moderate Democrats from states that rely on coal-fired power and are home to energy-intensive industries.

“There’s also jurisdictional complications: influential committees such as the Ways and Means and Agriculture committees are vying to insert their own dominance on the bill.”

With respect to other legislative activity regarding climate change issues, the House Committee on Science and Technology held a hearing yesterday, “to examine the systems available to track the emissions, sequestration and transport of greenhouse gases in the atmosphere, on land, and in the oceans. The hearing focused on federally-sponsored programs to monitor greenhouse gases.”

And the Senate Foreign Relations Committee held a hearing yesterday entitled, “Global Climate Change: U.S. Leadership for a New Global Agreement.”

Meanwhile, Michael O’Brien reported yesterday at The Hill Online that, “The Republican Party still isn’t sure global warming is man-made, one of the top Republican lawmakers on the House Select Committee on Energy Independence and Global Warming said this Earth Day.

“‘I don’t know that there is a party position on this issue,’ Rep. John Shadegg (R-Ariz.) said Wednesday during an appearance on the Fox Business Network. ‘I think that there is some debate on whether global warming is in fact being caused by man-made greenhouse gases.’”

The Hill article indicated that, “The Arizona lawmaker’s comments come after House Minority Leader John Boehner (R-Ohio) said this past Sunday that the idea that carbon dioxide is affecting the global climate is ‘comical.’”

Biofuels

DTN writer Todd Neeley reported yesterday (link requires subscription) that, “The future of U.S. corn-based ethanol could hang in the balance as the California Air Resources Board prepares to consider a proposed low-carbon-fuel standard during a public hearing Thursday in Sacramento.

“For the past year ethanol industry officials have criticized the proposed regulations for penalizing corn-based ethanol for indirect-land-use changes when calculating ethanol’s carbon score, while not making the same calculations for other fuels.

“The regulation could lead the way for other states and countries to adopt similar laws that could hurt ethanol’s market.”

The DTN article stated that, “California would consider corn-based ethanol to be a greenhouse gas emissions contributor if the regulations are approved.”

The article explained that, “James Hrubovcak, deputy chief economist for USDA, said Monday some of the models being considered by CARB would effectively eliminate the state from using any ethanol from the Midwest to help reduce California auto emissions, though some ethanol from California could be used.

“That could be a major blow to ethanol marketers, considering California represents close to 12 percent of all U.S. gasoline sales.

Eleven Northeast states are ready to adopt the California standard, Hrubovcak said, which could shrink the U.S. ethanol market by about 30 percent.

“‘If they move down that path, that’s a big market that corn-based ethanol could potentially lose,’ Hrubovcak said.”

CFTC Issue

Reuters news reported on Tuesday that, “Wall Street banks and dealers will escape ‘meaningful’ regulation if the Federal Reserve oversees over-the-counter derivatives, said a U.S. House chairman on Tuesday, decrying their political power.

“Agriculture Committee chairman Collin Peterson said the Commodity Futures Trading Commission should be the lead regulator of OTC trading, as proposed by his committee. He said CFTC is an experienced market regulator and the Fed is not.

“‘I’m very troubled with the way this is heading,’ said Peterson, whose committee oversees the CFTC. He said Wall Street firms wanted ‘to get out of being regulated in any meaningful way.’”

Peanuts

Dow Jones News writer Holly Henschen reported yesterday that, “U.S. demand for peanuts dropped after a salmonella outbreak traced to the Peanut Corp. of America sickened nearly 700. The findings sparked product recalls and a drop in peanut-based-product consumption. The lackluster demand as a result of the salmonella scare, combined with abundant supply from a bumper 2008 harvest, has created reluctance to plant peanuts in 2009.

“Farmers in leading peanut and cotton producers Georgia and Alabama have the option of planting several crops, but in the dry Texas climate, cotton is the only crop that can be widely planted in lieu of peanuts, experts said.”

The article stated that, “Recent rains are stalling fieldwork in Georgia as the optimal corn-seeding window gives way to the peanut-planting season that runs from May 10 through the end of the month, said Don Koehler, executive director at the Georgia Peanut Commission. Farmers who haven’t planted corn at this point may weigh the options of growing peanuts in the same spot, Mr. Koehler said.

Peanut seedings in Georgia are expected at 500,000 acres, 28% lower than the 690,000 acres planted in 2008, according to the USDA. The USDA pegged Georgia 2009 cotton plantings at 940,000 acres, unchanged from 2008.

“‘If the farmer can’t get in to plant peanuts, the only option they may have is to plant soybeans,’ Mr. Koehler said.”

Yesterday’s article went on to explain that, “In Texas, the top cotton-producing state and No. 3 peanut state, more than 35% to 40% of land previously planted to peanuts will go to cotton in 2009, said Shelly Nutt, executive director at the Texas Peanut Producers Board. Texas 2009 peanut acres planted are projected 38% lower at 160,000 from 257,000 the year before, USDA said.

“‘It’s going to take at least a year for the market to adjust until we can get the [peanut] supplies used up,’ Ms. Nutt said.”

CAP Update

Roger Waite has provided a recent update on developments regarding the Common Agricultural Policy in the EU.

To read Roger’s latest, “Analysis from Brussels” column, which is posted exclusively at FarmPolicy.com, just click here: “Analysis from Brussels”- by Roger Waite- France Embraces CAP Reform.

Keith Good

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