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Biofuels- (Interview with Lee Terry (R-Neb.)); Climate Change; Doha; Food Safety; Ag Credit-Income Issues; and Crop Insurance

Biofuels- (Interview with Lee Terry (R-Neb.))

Reuters writer Roberta Rampton reported yesterday that, “President Barack Obama said on Wednesday he wants to see new types of biofuels commercialized as quickly as possible, but the corn-based ethanol industry needs to remain viable in the meantime.

“‘My administration is committed to moving as quickly as possible to commercialize an array of emerging cellulosic technologies so that tomorrow’s biofuels will be produced from sustainable biomass feedstocks and waste materials rather than corn,’ Obama wrote in a letter to a group of farm-state governors.”

The article added that, “Biofuels help reduce climate-changing greenhouse gas emissions, reducing the need for importing oil while creating jobs, Obama wrote.”

Ms. Rampton pointed out that; “Meanwhile, regulators and lawmakers are debating how to measure the impact of land-use change on the environment — for example, emissions released when corn production displaces other crops, giving farmers the incentive to turn forests into cropland.

“Poor market conditions have threatened the development of new types of biofuels, the Governors’ Biofuels Coalition told Obama in a letter earlier this year, asking him to put forth a vision for biofuels and establish a task force on the debate over biofuels’ greenhouse gas emissions.”

Yesterday’s Reuters article reported that, “The governors also asked Obama to increase the maximum allowed limit for blending ethanol with gasoline to 13 percent from the current 10 percent level to expand the market.

“The Environmental Protection Agency is slated to rule on an industry request to increase the blend rate by December 1.”

Philip Brasher, writing yesterday at the Green Fields Blog (The Des Moines Register), indicated that, “In his letter, Obama didn’t mention directly either of the most controversial issues facing his administrationthe EPA’s climate analysis and a proposal from the ethanol industry to raise the ethanol limit to 15 percent. He focused on the need to develop next-generation biofuels, but cited a need to keep the existing industry viable.”

With respect to the EPA’s climate analysis and biofuels, recall that during the Energy and Commerce Committee markup of the Waxman-Markey climate bill, Rep. Lee Terry (R-Neb.) introduced an amendment that sought to insert the following language regarding international indirect land use into a specific section of the climate related legislation: “International indirect land use changes shall not be taken into account in determining average lifecycle greenhouse gas emissions under this section.”

In a conversation yesterday with FarmPolicy.com (MP3-9:30), Rep. Terry elaborated on the EPA’s use of indirect measurements regarding carbon and biofuels, explained in greater detail what his amendment would have accomplished, and discussed how important this issue is to the future of the biofuels industry.

Rep. Terry also sent a letter to EPA Administrator Lisa Jackson on May 12 outlining some of his concerns with respect to the international indirect land use issue.

To listen to yesterday’s complete FarmPolicy.com discussion with Rep. Terry, just click here (MP3-9:30).

Meanwhile, Reuters writers Tom Doggett and Ayesha Rascoe reported yesterday that, “Global energy demand is expected to soar 44 percent over the next two decades with most of the demand coming from developing countries such as China and Russia, the U.S. government’s top energy forecasting agency said on Wednesday.

“The worldwide economic downturn has hit energy consumption, but an expected recovery next year could respark demand and boost prices, the Energy Information Administration said in its new forecast.

U.S. oil prices are forecast to rise from an average $61 barrel this year to $110 in 2015 and $130 in 2030.”

Climate Change- Role for Agriculture

Tom Steever reported yesterday at Brownfield that, “Agriculture provides one of the biggest solutions to climate change and farmers should be provided greater incentives to mitigate climate change. That’s according to Ajay Vashee, president of the International Federation of Agricultural Producers. Speaking from the site of a one-day conference Wednesday in Denmark involving more than fifty countries, Vashee tells Brownfield that a general consensus was reached.

“‘We believe agriculture does provide major solutions towards mitigation of climate change and we need to include agriculture as one of the stand alone pillars within any post-Kyoto international agreement,’ said Vashee, during an interview following the meeting Wednesday in Copenhagen.

“The conference Wednesday was so that farmers, researchers and negotiators could reach a consensus viewpoint in preparation for the December Climate Change Conference also to be held in Coppenhagen. Vashee says that viewpoint supports what agriculture is currently doing.”

In a related item, a news update released on Tuesday by the International Food & Agricultural Trade Policy Council indicated that, “Ahead of the June 1-12 Climate Change Talks taking place in Bonn, the International Centre for Trade and Sustainable Development (ICTSD) and the International Food & Agricultural Trade Policy Council (IPC) are releasing the following statement and recommendations on the need to incorporate agriculture in a new international climate change regime. ICTSD and IPC are doing so on behalf of the Platform on Climate Change, Agriculture and Trade, which convenes climate change, agricultural trade and development experts in order to promote policy coherence on international climate change, agricultural trade and development policies.

“The agricultural sector will be profoundly impacted by long-term, slow onset climate change as well as increased climatic variability, including extreme events. Adaptation efforts for this climate-sensitive sector will be a priority. At the same time, the agricultural sector contributes some 14% of global greenhouse gas emissions but also offers relatively low cost mitigation potential. With global food demand expected to double by 2050 and some 70% of the world’s poor living in rural areas, the agricultural sector also plays a vital role in food security and economic development. The sector therefore requires a special emphasis in a Copenhagen Agreement across the four areas of the Bali Action Plan: mitigation, adaptation, technology and financing. Given the sector’s importance, attention must also be paid to potential unintended spillover effects of climate change policies.”

Doha- WTO Meeting, But Ag Not on the Agenda

Bloomberg writer Jennifer M. Freedman reported yesterday that, “The World Trade Organization scheduled its first ministerial meeting in four years in November, though global trade talks won’t be on the agenda.

“Under the Geneva-based WTO’s rules, ministerial conferences should be held at least once every two years. Negotiators had held off scheduling a ministerial meeting in the hopes they would be able to use the gathering to wrap up a global trade deal that would cap tariffs and farm subsidies.

“‘There is a strong and widespread feeling that a regular ministerial conference should take place this year, given that it has now been almost four years since the most recent ministerial conference in 2005,’ General Council Chairman Mario Matus told the WTO’s 153 members yesterday. ‘I would like to stress the word ‘regular,’ as it has also become clear that this conference is not intended to be a negotiating session — the Doha negotiations are on a separate track.’”

With respect to agriculture and the Doha talks, yesterday’s Bridges Weekly Trade News Digest reported that, “WTO Director-General Pascal Lamy has called for a new approach to bringing the nearly eight-year-old Doha Round of world trade talks to a close. The two-track negotiations that Lamy outlined at a meeting of the WTO’s General Council on Tuesday appear to represent a compromise between two competing views of how the talks should proceed.

“‘My own sense is that there is scope to work on these two areas along two simultaneous tracks. One would see technical engagement in the negotiating groups move to a higher gear to cover a number of technical issues as mentioned previously,’ Lamy told the meeting.”

The Bridges update added that, “‘Simultaneously, Members would start some sort of ‘outcome testing’, through bilateral or plurilateral discussions, where they would provide each other with greater clarity on the use of flexibilities and through it, on the value of the deal,’ he added.

“Lamy called the new approach ‘doable’, but cautioned that it would require ‘serious political engagement’ from trade officials at the highest level.”

In a related opinion item published in today’s Wall Street Journal, British Prime Minister Gordon Brown stated that, “Just a few months ago, the WTO forecast global trade to fall by 9% in 2009. In simple terms, a banking crisis has become a trade crisis.

“There can be no recovery in the global economy without a revival of world trade.”

Prime Minister Brown added that, “[I]t is essential to conclude the Doha round of trade liberalization talks. Success here would be the strongest signal world leaders could send about their commitment to a global recovery based on open markets and an approach to globalization that is inclusive and sustainable.”

Food Safety- New Bill Introduced

Lyndsey Layton reported in today’s Washington Post that, “The nation’s complex food supply chain would become more transparent, inspections of food facilities would become more frequent and manufacturers would be required to take steps aimed at preventing food-borne illnesses under legislation proposed yesterday by key House leaders who have pledged to modernize the food safety system.

“The bill, introduced by Energy and Commerce Committee Chairman Henry A. Waxman (D-Calif.) and Rep. John D. Dingell (D-Mich.), would give the Food and Drug Administration broad new enforcement tools, including the authority to recall tainted food, the ability to ‘quarantine’ suspect food, and the power to impose civil penalties and increased criminal sanctions on violators.

“Among other things, the proposal would put greater responsibility on growers, manufacturers and food handlers by requiring them to identify contamination risks, document the steps they take to prevent them and provide those records to federal regulators. The legislation also would allow the FDA to require private laboratories used by food manufacturers to report the detection of pathogens in food products directly to the government.”

Today’s Post article explained that, “Consumers have grown increasingly alarmed by a rash of food safety problems in recent years, such as E. coli in spinach and salmonella in Mexican jalapeno peppers.

But it was the nationwide salmonella illness outbreak linked to peanut products late last year that gave reform efforts a serious push. The episode exposed weaknesses across all layers of the nation’s food safety network and captured the attention of President Obama, who has proposed significant new staffing and funding for the FDA.

“Many of the provisions in the bill address the deficiencies highlighted by the peanut case.”

Ag Credit-Income Issues

Matt McKinney reported yesterday at the Minneapolis Star-Tribune Online that, “Minnesota farmers earned less last year than they did the year before, according to a new University of Minnesota survey, as the recession, the steep price of land and feed and the spiraling cost of fertilizer batted away profits.

“Median profits for 2,417 farms included in the survey fell 15 percent in 2008 to $90,039, but that broad measure masks steeper losses for some sectors of the farm economy, particularly livestock operations that paid record prices for feed. The median beef farm profit was a loss of $6,810; the median hog farm profit was $4,876, down from $65,720 a year earlier.”

The article noted that, “Dairy farms’ profit fell 38 percent to a median of $58,081, down from $93,462 a year earlier.

Corn farmers paid more in 2008 to farm than a year earlier: 20 percent more for corn seed, 42 percent more for fertilizer, 33 percent more for fuel and 16 percent more for land rents.”

And with respect to credit, Scott Kilman reported yesterday at Wall Street Journal Online that, “The American Bankers Association said Wednesday the earnings of U.S. farm banks sank 10.3% in 2008 as the global recession seeped into the rural economy.

“According to the ABA, a Washington D.C. trade group, the 2,247 farm banks in its annual survey generated $3.0 billion in income before taxes and extraordinary items in 2008 compared to $3.3 billion in 2007.”

The Journal article explained that, “Farm banks managed to emerge from 2008 with fewer wounds than many of their non-farm cousins in part because farmland values had yet to be hit by the sorts of declines that plagued urban markets. Indeed, debt-to-assets ratios for farmers were at all-time lows in 2008.

The problems for farm bankers are beginning to multiply this year, however. The incomes of farmers, which soared to record highs in 2007 and 2008, are projected by the U.S. Agriculture Department to sink 20% this year. Some players in the overbuilt corn-to-ethanol fuel industry are falling behind on loan payments. And prices of cropland across much of the Midwest farm belt began sinking over the winter.

Some warning signs are already materializing on bank statements. According to the ABA survey, the quality of loans at farm banks eroded significantly in 2008. Total non-performing assets hit $2.4 billion in 2008, up 58.6% from 2007. This category includes assets on which payments are 90 days past due and loans that aren’t accruing any interest.”

And from an international perspective, Bloomberg writers Katia Cortes and Carlos Caminada reported yesterday that, “Brazil will increase farm lending to as much as 108 billion reais ($54 billion) for the next crop year after the global financial crisis reduced access to credit, Agriculture Minister Reinhold Stephanes said.

“Loans for the year starting July 1 may increase 38 percent from the 78 billion reais set aside for the current season, Stephanes told reporters today in Brasilia.

Brazilian farmers are struggling to gain access to credit after Bunge Ltd., Cargill Inc. and other trading companies cut lending because of the crisis. Brazil is the world’s largest exporter of sugar, coffee, beef, poultry and orange juice.”

Crop Insurance

A news release issued yesterday by the Georgia Peanut Commission stated that, “The Georgia Peanut Commission sent a letter this week requesting the Risk Management Agency to extend the peanut planting deadline for crop insurance by a minimum of ten days. The peanut planting deadline for crop insurance is May 31, 2009.

“‘Georgia has seen a tremendous amount of rain this spring,’ says Don Koehler, Georgia Peanut Commission executive director. ‘It has caused flooding throughout the peanut belt and has delayed peanut planting in many areas.’

“Peanut growers are reporting that their plantings are only forty to fifty percent completed. ‘With the crop insurance deadline fast approaching, we are concerned that it will put many of our producers in a precarious situation,’ Koehler adds.”

And DTN Markets Editor Pat Hill reported yesterday (link requires subscription) that, “It’s decision time for producers who have not yet been able to finish planting corn: Do they persist with corn, even as yield prospects drop each day, do they switch to other crops, or do they opt for prevented planting insurance payments?

Nearly 12 million acres of the 85 million acres USDA projected for corn remained unseeded as of May 24, including 4.6 million acres in Illinois, 2.6 million acres in Indiana and 900,000 acres in North Dakota.

“The final planting date for corn covered by multi-peril crop insurance varies by location, but for many Corn Belt states it ranges between May 25 and June 5. After that, coverage drops by 1 percentage point for each day planting is delayed. Producers can switch to another crop with no penalty, said Art Barnaby, ag economist at Kansas State University.”

Ms. Hill indicated that, “Producers who consider prevented planting should check with their agents for details, but basically it provides a payment of 60 percent of the insurance coverage (for example, the indemnity for a 130-bushel APH policy would be about $236 per acre).

“‘I’d be deciding based on my net insurance payment, versus what I can expect to make from soybeans,’ Barnaby said. A producer has certain fixed costs such as cash rent. It’s still an economic question whether soybeans would overtake corn, assuming it will be dry enough to plant beans.

“‘I really believe most will plant if at all possible,’ Barnaby said.”

Keith Good