FarmPolicy

August 18, 2019

Climate Legislation; Ag Economy; Crop Insurance; CFTC Issues; Nutrition Program Issues; and The EU’s Common Agricultural Policy (Analysis)

Climate Legislation

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “Secretary of Agriculture Tom Vilsack was close to wrapping up his rural-tour event Wednesday when farmer Mike Ver Steeg stood up and explained one of the key items he thinks would help agriculture: the defeat of climate-change legislation.

“‘We need to not pass the cap-and-trade bill,’ Ver Steeg said, citing how much he spends on energy now for his hog operation. ‘If that goes through, it’s going to add 30 to 50 percent more to my costs right now, and that’s going to hurt small farmers, I think.’

“Ver Steeg’s concerns opened the door for Vilsack to talk about climate legislation currently in Congress with the 200 or so people who came to see their former governor at the Iowa State Fair. Since taking office in January, Vilsack has maintained that controls on greenhouse-gas emissions would translate into a more positive outlook for farmers, though some major farm groups are pessimistic.”

Mr. Clayton indicated that, “‘There are a lot of misunderstandings about it, and there are a lot of valuations that may not be accurate,’ Vilsack said.

“Vilsack pointed to USDA’s own analysis last month that the overall economic benefits for agriculture from carbon credits in a cap-and-trade scheme would quickly outweigh potential costs. The USDA analysis shows a cap-and-trade system would generate net returns to farmers of $1 billion to $2 billion a year through 2020 and almost $15 billion to $20 billion in 2040 to 2050.

“‘Over the long haul, it is potentially tens of billions of dollars of net income for farmers and ranchers … if it’s structured right,’ Vilsack said.”

Yesterday’s DTN article added that, “Vilsack emphasized that other countries are waiting for U.S. leadership. Further, he noted the Bush administration had made commitments at a United Nations conference two years ago that the U.S. would establish concrete measures to reduce greenhouse-gas emissions. Vilsack said the U.S. jeopardizes its ability to convince other countries to address issues related to everything from trade to terrorism if the U.S. doesn’t fulfill its own obligations.”

Dan Piller, writing yesterday at The Des Moines Register Online, reported that, “In an appearance today at the Iowa State Fair, U.S. Secretary of Agriculture Tom Vilsack defended efforts by the Obama administration and Democrats in congress to pass climate change legislation, saying ‘I start from the proposition that climate change is real. I know some disagree.’

“Vilsack said the rest of the world is looking for leadership from the U.S. on climate change.”

Yesterday’s Register article pointed out that, “And while the crowd was flecked with Democratic supporters such as Iowa Farmers Union president Chris Petersen of Clear Lake and former candidate for Secretary of Agriculture Denise O’Brien of Atlantic, Vilsack called on [Craig Lang, president of the Iowa Farm Bureau Federation] for the first question.

“Lang asked about help for hard-pressed dairy farmers, who have seen the price of milk drop from 20 cents per pound a year ago to 11 cents per pound this week because of a collapse in export markets, and for the hog sector.

“Vilsack said the administration is battling the impact of low commodity prices by direct aid where possible, especially for milk producers, by suspending foreclosures on direct government loans and by trying to persuade bankers who have government-guaranteed loans to farmers to practice forbearance.”

Ag Economy- Dairy

In more detailed reporting on the dairy sector, Janelle Rucker noted yesterday at The Roanoke Times Online (Virginia) that, “One local farmer estimates that Franklin County will lose 10 percent to 15 percent of its dairy farmers soon if something isn’t done to raise milk prices.

“The ongoing recession and an excess of dairy products continue to take their toll on the nation’s dairy farmers. Local and national leaders are starting to address the problem that has been going on for months.

“‘It’s still pretty bleak,’ said Charles Brown, a dairy farmer in Snow Creek. ‘You can’t switch a dairy on and off, that’s why we try to live through this. This is the worst time we’ve been through in my experience.’”

And a Daily Radio News item from USDA yesterday (audio report) indicated that, “Dairy cattle herd numbers did not come down as fast as previously estimated and that in turn impacted USDA’s August Dairy Outlook.”

Ag Economy- Hogs

An item posted yesterday at The Financial Times Online stated that, “Hog futures prices have plunged to a seven-year low – far below the level seen earlier this year at the peak of the swine flu scare – pushing the US pork industry towards a ‘wave of bankruptcies’, according to industry experts.

“The warning underlines the extent of the crisis within the $12bn US hog industry, the world’s biggest exporter of pork, and the mounting losses for those investors who bet that prices would recover swiftly from the flu hit.

Battered by the global economic downturn, higher production in some emerging countries and lower demand because of the H1N1 swine flu virus, means the market is flooded with over-capacity.”

Yesterday’s FT article explained that, “‘Normally, summer is the most profitable time for hog farming,’ says Ronald Plain, a professor of agricultural economics at the University of Missouri.

“‘The expectation was that this would be a money-making summer – but it wasn’t and now we’re heading into a period that’s notoriously unprofitable,’ he warns. John Lawrence, a livestock economist at the University of Iowa, says farmers have only broken even on their production during the winter months of November, December and January in three years over the past decade.

Professor Plain warns that lenders will likely refuse to bail out hog farmers, further triggering a wave of bankruptcies in the next few months.”

Ag Economy- Lending Issues

On the issue of lenders and potential loan repayment flexibility, DTN’s Chris Clayton reported yesterday (link requires subscription) that, “USDA officials are going to hold conference calls with major agricultural lenders next week, asking those banks and Farm Credit institutions to give struggling farmers more latitude in paying loans.

“‘While we can’t force them to do this, we are going to jaw-bone them as best we can to explain to them it doesn’t do them any good to lose a customer,’ Secretary of Agriculture Tom Vilsack told a farm crowd Wednesday at the Iowa State Fair. ‘They need to figure out ways in which they can restructure these loans, delay payments, defer payments, forgive part of the principal, reduce the interest’ to allow farmers who can make it to cash flow until prices return.”

The DTN article pointed out that, “‘There is no question American pork producers need relief,’ said [Iowa] Lt. Gov. Patty Judge. She said pork producers appreciate the $62 million spent earlier this year on pork products, ‘But we also know, however, that more is needed.’”

Mr. Clayton added that, “USDA announced an effort earlier this month to help struggling farmers and rural businesses cope with loan debt. The program includes encouraging banks to help farmers with terms, as well as having the Farm Service Agency and USDA’s Rural Development restructure USDA’s direct loans or ease the terms temporarily. Craig Lang, president of the Iowa Farm Bureau, commended Vilsack for the initiative on Thursday.”

Ag Economy- Commodity Purchases

The AP reported yesterday that, “Agriculture Secretary Tom Vilsack said Wednesday he’s committed to increasing federal purchases of surplus agricultural commodities, a move he argued offers immediate help to struggling rural areas.

“Speaking to farmers at the Iowa State Fair, the former Iowa governor said commodity purchases are among the most effective ways to help rural economies.

“‘This is probably the most direct stimulus you can get in terms of its ability to get into the economy quickly,’ Vilsack said.”

The AP article noted that, “Vilsack met with Iowa Agriculture Secretary Bill Northey before the session and said he’s worked closely with the Republican to deal with Iowa’s struggling rural economy. It’s not hard to set aside partisan differences, the former governor said.

“‘We’re all trying to help the same people,’ Vilsack said. ‘Right now, there’s a lot of stressful times and we’re slowly working through it.’”

Ag Economy- Egg Production

An item posted yesterday at the CattleNetwork Online stated that, “After falling on a year-over-year basis in all four quarters of 2008, table egg production has risen in the last two quarters. In the first half of 2009, production of table eggs was 3.2 billion dozen, up 1 percent from first-half 2008. While table egg production was rising, production of hatching eggs was below the previous year, reflecting the decline in broiler production. Hatching egg production in the first half of 2009 was 530 million dozen, down 6 percent from same period in 2008. The decline in hatching egg production would have even larger, but production of eggs for egg-type replacement hens was up by 7 percent.

“The wide range in prices over the last several months is not providing producers any incentive to expand production, and the estimates for table egg production in the third and fourth quarters were each reduced by 10 million dozen. Table egg production is expected to total about 3.3 million dozen in the second half of 2009, an increase of less than 1 percent from second-half 2008. Although feed and energy prices are somewhat lower than they were a year earlier, egg prices have not remained consistently high enough to give producers much incentive to increase production.”

Crop Insurance

A news release issued yesterday by Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) stated that, “Senator Tom Harkin (D-IA), Chairman of the Senate Committee on Agriculture, Nutrition and Forestry, led a bipartisan group of ten Senators in calling upon the United States Department of Agriculture (USDA) Risk Management Agency (RMA) to improve the process to be used in negotiating a new reinsurance contract between the federal government and private crop insurance companies. The letter to Administrator William Murphy looks to upcoming negotiations over the Standard Reinsurance Agreement (SRA), the standing contract which governs the financial relationship between USDA and the companies that deliver the Federal Crop Insurance Program to farmers. In the letter, they remind Mr. Murphy of the provisions of the Food, Conservation and Energy Act of 2008 regarding the SRA, and of the need to conduct a fair and open negotiations process. They also urged the Administrator to seek improvements to the program that will benefit agricultural producers and improve the delivery of insurance.

“‘The Food, Conservation, and Energy Act of 2008 (FCEA) requires the Corporation to consider, in the renegotiation, alternative methods for determining reimbursement rates for administrative and operating costs, although it does not require a new method to be adopted if no suitable alternative is found,’ the Senators wrote. ‘Any new approach must provide fair and adequate compensation to support program delivery so that farmers and ranchers continue to have access to insurance.’

“Many crop insurance company officials asserted that for the 2005 reinsurance year, SRA negotiations were not handled in a fair and open way, which led to a very contentious and lengthy process. For this reason, Congress worked to make changes to how the negotiations would unfold as provisions of the recent farm bill. This letter is intended to remind RMA as to how the Senate expects those provisions to be carried out.”

CFTC Issues

Zachary A. Goldfarb reported in today’s Washington Post that, “A top federal regulator has urged Congress to adopt tougher rules to govern betting in exotic financial instruments known as derivatives than the Obama administration has proposed, warning that the administration’s new vision of market regulation could contain loopholes.

“One of the Obama administration’s top priorities in its revamp is to regulate both derivatives and firms that trade them.

“But Gary Gensler, chairman of the Commodity Futures Trading Commission, warned key lawmakers in a letter this week that provisions of the administration’s proposed legislation could leave significant elements of the derivatives market out of the reach of regulators and undermine efforts to combat fraud.”

The Post article indicated that, “Gensler helped craft an Obama administration plan to police this market for the first time. The proposal would require that most derivatives be traded on exchanges, like stocks and bonds, making the market much more transparent. It would also subject the banks and other firms that deal in the derivatives trade to robust requirements.

However, the legislation contains several exceptions that are the source of Gensler’s concern. For example, the administration has proposed exempting certain types of derivatives used to bet on currencies from regulation by the agency. The CFTC worries that traders could structure derivatives that would otherwise be regulated to fit within this exemption.

“‘There is also a risk that these exclusions may have the unintended consequence of undermining the CFTC’s enforcement authority over retail foreign currency fraud,’ the agency wrote in a memo to Congress.”

Bloomberg writer Tina Seeley reported yesterday that, “Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, is asking Congress to strengthen the Obama administration’s legislative proposal for regulating the over-the-counter derivatives market.

“In a letter to House and Senate committee leaders, Gensler requested revising the bill to get rid of exemptions for small derivatives dealers, repeal parts of the Federal Deposit Insurance Corporation Improvement Act, and impose requirements to set aside money to back up trades.

“‘The law must cover the entire marketplace without exception,’ Gensler wrote in the Aug. 17 letter to Senate Agriculture Committee Chairman Tom Harkin, an Iowa Democrat, and the ranking Republican on the committee, Saxby Chambliss of Georgia. Gensler attached more than 20 pages of language to insert into the bill ‘to ensure that we best meet this goal.’”

Carolyn Cui and Sarah N. Lynch reported today at The Wall Street Journal Online that, “The U.S. commodities regulator launched a new assault on the market’s biggest traders as part of an effort to stamp out excessive speculation.

“On Wednesday, the Commodity Futures Trading Commission revoked exemptions previously granted to two investment firms that allowed them to go beyond federal limits on holdings of corn, soybeans and wheat.

“In July, CFTC Chairman Gary Gensler signaled plans to install limits on oil and gas markets. And this week, Mr. Gensler announced the agency is seeking authority to impose limits on the lightly regulated but rapidly growing carbon-trading market.”

Nutrition Program Issues

Ben Meyerson reported today at the Chicago Tribune Online that, “Liz Bryant didn’t think she had the time to apply for food stamps. The thought of waiting in line for hours at a bureaucratic state office — then another month for the help to arrive — sounded nightmarish for the 22-year-old single mother.

“But with only a part-time job to provide for her 2 1/2 -year-old son, Bryant knew she needed help putting food on the table. Then her father told her about a new program at the Irving Park Community Food Bank called Express Stamps, a 15-minute process that let her sign up for temporary food stamps, right in her own neighborhood, without the bureaucrats.

“‘It was good, it was quick, it was easy,’ she said after she was granted $222 for August. ‘It’s mostly for my son — fruit snacks, vegetables — anything that I can get for him.’”

The Tribune article explained that, “Bryant is just the kind of person the creators of the Express Stamps program want to reach. The program aims to get assistance to those who qualify as quickly as possible, dishing out a card with about a month’s worth of stamps on the spot. It’s a stopgap measure intended to coax people into getting their foot in the system’s door.

“‘A whole lot of times, people come to us when they’re at the end,’ said John Psiharis, the Irving Park pantry’s executive director. ‘They come here to the food pantry and we’re able to put a little band-aid on the problem, give them some food to deal with their immediate needs. But this is something that helps them deal more with their longer-term situation.’”

The EU’s Common Agricultural Policy (Analysis)

Roger Waite, the editor of AGRA FACTS, the Brussels-based newsletter on EU agriculture policy, has provided an update and analysis regarding the EU’s Common Agricultural Policy entitled, “Towards the Next, Truly Big CAP Reform- The Timetable.”

This updated analysis has been posted exclusively at FarmPolicy.com and is available here.

Keith Good

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