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U.S. Farm Income; Farm Bill Issues; Sugar Imports; Biofuels, Estate Taxes; and Climate Issues

U.S. Farm Income: ERS Report

Yesterday, the USDA’s Economic Research Service released its “Agricultural Income and Finance Outlook” report, which stated that, “All three measures of U.S. farm income are projected to decline in 2009—net farm income is projected to decline by 34.5 percent, net cash income by 28.4 percent, and net value added by 20 percent. Considerable uncertainty surrounds the forecasts of farm assets, debt, and equity in 2009, given the volatility of commodity, energy/input, and financial markets.”

The report noted that, “Average farm household income of principal farm operators—from farm and off-farm sources—is forecast to be $76,065 in 2009, down 3.5 percent from 2008. [See related graph from the report comparing farm operator household income, by source, with U.S. household income.] The recent instability in national housing and credit markets, as well as rising unemployment, has increased the economic vulnerability of some farm families to income and asset loss. The primary sources of this potential loss are financial and housing equity investments, plus income loss due to the greater risk of joblessness among farm households with off-farm labor earnings. As of 2008, average farm household income was 15 percent higher than that of all U.S. households.”

In a more detailed breakdown of the farm household income estimate, yesterday’s report pointed out that, “Average household income from farm sources is forecast to decline by 24.4 percent between 2008 and 2009, from $10,302 to $8,770; in contrast, household income from off-farm income sources is forecast to decrease by about 1 percent to $69,440. The average share of farm household income from farm sources is forecast to decline from 11 percent in 2008 to 8.7 percent in 2009. Approximately 60 percent of farm operator households have either an operator or the operator’s spouse working off-farm. Only for the households that operate the largest farms (those with sales of $250,000 or more) is average farm income greater than off-farm income in a typical year [related graph].”

With respect to government payments, ERS stated that, “Direct Government payments are expected to total $12.5 billion in 2009, a 2-percent increase above the level of payments made in 2008 (fig. 1.6). Direct payments under the Average Crop Revenue Election (ACRE) program and the direct and counter-cyclical payments program (DCP) in 2009 are forecast at $5.06 billion. Since direct payment rates are fixed in legislation and are not affected by the level of program crop prices, and the ACRE program is in its infancy, there has been little change in the volume of direct payments.

“Both counter-cyclical program payments and marketing loan benefits vary with market prices. Counter-cyclical payments are expected to be $1.23 [billion] and marketing loan benefits to be $948 million. Cotton payments account for all counter-cyclical payments and 91 percent of all marketing loan payments. The other crops receiving marketing loan benefits are wheat, barley, wool, mohair, and pelts.”

On the issue of farm household net worth, ERS explained that, “Current income can be an unreliable indicator of the well-being of farm operator households. Many farm households generate low earnings, or even losses, from the farm business in a given year, but may experience much better financial performance over the long run. Equity, or net worth, the difference between assets and debts as of the last day of the year, is a useful indicator of this longer-term performance of farm businesses, since net worth reflects the accumulation of wealth over time. Moreover, depending on its liquidity, net worth can be an important reserve to sustain the household in years of lower income, like 2009.

“There was a modest 2.7-percent decline in the net worth of farm households from 2007 to 2008, owing largely to a decline in nonfarm asset values. However, after more than 20 years of increasing farmland values, the typical farm operator household is in a historically strong financial position [related graph].”

Yesterday’s ERS report also included this interesting graphic, which depicts a breakdown of harm household assets, and farm household debts for 2008.

Farm Bill Issues

An update posted on Monday at the University of Illinois farmdoc webpage by Agricultural Economist Gary Schnitkey (“ACRE Payment Estimates: Release of FAST ACRE Payment Estimator”) stated that, “A new Microsoft Excel spreadsheet has been developed to estimate the amount of Average Crop Revenue Election (ACRE) payments a farm will receive for the 2009 crop. This ACRE Payment Estimator spreadsheet is available for download from the FAST section of farmdoc (http://www.farmdoc.illinois.edu/fasttools/index.asp).

“Users of the ACRE Payment Estimator will enter their state and crop for which ACRE payment estimates are desired (see Figure 1). The program then will estimate the state ACRE payment. This estimate equals the state guarantee minus state revenue. The state guarantee is known for 2009 and equals the benchmark yield times a benchmark price. The Acre Payment Estimator includes state guarantees for corn, soybeans, and wheat for most states in the United States.”

Meanwhile, DTN Ag Policy Editor Chris Clayton reported at his blog yesterday that, “Each morning for the last several weeks I check a government website to see if the OMB has released the rules for the permanent disaster program, the Supplemental Revenue Assistance Payments program, or SURE. The proposed rules have been at OMB since Nov. 3. USDA officials said several weeks ago they expected to have the rule back and start signing up farmers for payments from 2008 crops by the end of the year. As of Tuesday, the rule remains at OMB.”

Mr. Clayton noted that, “Among the 14 USDA rules waiting at OMB also is a rule on access to pasture for dairy cattle in the National Organic Program, which could cause a lot of impacts in the organic dairy market, depending on how USDA comes down on that issue.

“OMB also has been holding a rule on Supplemental Nutrition Assistance Program eligibility, once called food stamps, since mid-September.

“There also are rules for contracts payments to businesses involving advanced biofuels and rural business ‘re-power’ assistance.”

Sugar Imports

Reuters writers Roberta Rampton and David Brough reported yesterday that, “The U.S. Agriculture Department is not in talks with any countries to import additional sugar beyond making routine inquiries about available supplies, a government spokesman said on Tuesday.

“A senior trade source told Reuters on Tuesday that USDA had contacted ‘potential preferential suppliers’ to verify how much additional sugar they could supply, noting the suppliers were believed to be based in South and Central America.

“But a spokesman for the USDA’s Foreign Agriculture Service told Reuters the department has made only routine checks with foreign suppliers about whether they could ship more, should the U.S. import quota be increased.”

The article noted that, “With sugar prices near 28-1/2 year highs, traders are closely watching to see whether the United States allows more than its mandated amount of sugar imports this year.”

“‘I think there is a growing concern that globally, consumption has exceeded production by a significant amount the past two years,’ said Jack Roney, economist with the American Sugar Alliance, which represents the domestic industry.

“Under U.S. law, the department must wait until April before expanding its import quota — a time when it can better forecast domestic supplies and imports from Mexico, which enter freely under the North American Free Trade Agreement.”

Biofuels

Reuters writer Timothy Gardner reported yesterday that, “Two U.S. senators pledged on Tuesday to take up legislation early next year to extend the biodiesel tax credit as it looks likely action will not be taken on it this year.

“An industry group complained that if a bill was passed by Congress early next year to extend the credit, it would not be enough to stop plants from closing after the credit expires on December 31.

“Senators Max Baucus, a Democrat from Montana who is chairman of the Senate Finance Committee, and the panel’s top Republican, Charles Grassley of Iowa, said they would take up legislation to extend the $1-per-gallon tax credit and an array of other tax breaks as soon as possible after Congress convenes next year.”

Philip Brasher explained yesterday at The Des Moines Register Online that, “The House recently approved legislation extending the biodiesel subsidy and other expiring tax credits but the Senate took no action on the measures. Republicans objected to including the extensions in a defense bill because it also would have included an estate tax measure to which GOP senators objected, said Grassley. 



“The biodiesel industry has been saying that a lapse in the tax credit could force some producers to shut down. Officials with a leading biodiesel producer, Ames-based Renewable Energy Group Inc., said plants it owns or manages will stay in operation after Dec. 31 but may reduce production.”

Estate Taxes

Ian Swanson reported yesterday at The Hill Online that, “The Senate’s tax-writing committee will move to extend expiring tax legislation early next year, but it’s unclear if that will include the estate tax. 


“Senate Finance Committee Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) on Tuesday sent a letter to Senate leaders announcing their intention to move a tax bill as soon as possible in 2010.

“Baucus and Grassley also engaged in a colloquy on the Senate floor that highlighted the letter, in which the two pledged to work together to get the extenders done.”

The Hill article noted that, “The tax is scheduled to expire for a year beginning on Jan. 1, but would then go back into place at a higher maximum 55 percent rate in 2011.

The House approved legislation extending the existing maximum 45 percent estate tax through 2010, but the legislation stalled in the Senate after Republicans objected. That stalled the package of tax extenders, a high priority for the business community that draws support from both parties.

“Baucus and Grassley did not mention the estate tax in their letter or colloquy, and it’s unclear if the omission means they would try to move the issues separately. Baucus has discussed passing an extension of the estate tax next year that would be retroactive, but it is uncertain whether a retroactive tax hike would pass constitutional muster.”

Climate Issues: EPA Endangerment Finding

Robin Bravender of ClimateWire reported yesterday at The New York Times Online that, “Republicans in both the Senate and House are working to block U.S. EPA climate rules, but critics of agency climate regulations will likely face a tough slog as they work to secure the support of both chambers and the president.

“Alaska Sen. Lisa Murkowski and Texas Rep. Joe Barton are each spearheading efforts to circumvent normal committee procedures in order to effectively veto EPA’s finding that greenhouse gases endanger human health and welfare. The determination, released earlier this month, opens the door for rules aimed at slashing emissions from a broad range of sources.

“The resolutions are the latest in a series of congressional efforts this year aimed at tying EPA’s hands as the agency works to finalize several major climate regulations due out by March.”

The article pointed out that, “Murkowski plans to introduce her resolution as soon as the Senate returns from the holiday recess, according to spokesman Robert Dillon.

“In the Senate, the disapproval resolution would be referred to the Environment and Public Works Committee. If the committee does not favorably report the resolution within 20 calendar days, it can be discharged once 30 senators sign on. The resolution would then be placed on the Senate calendar, where it would be subject to expedited consideration on the floor and not subject to a filibuster.

“Key Senate Democrats say they expect the effort to fail.”

And with respect to the House, yesterday’s ClimateWire article noted that, “Barton and his co-sponsors on the House side are also expected to face challenges finalizing the resolution.

‘The House cannot use the same expedited procedure as the Senate, but House lawmakers can use a discharge motion to bypass the committee of jurisdiction and bring the resolution to the floor.”

Climate Issues: Copenhagen

In a detailed article posted yesterday at The Financial Times Online, Fiona Harvey, Andrew Ward and Ed Crooks reported that, “It was so close. At the Copenhagen talks on climate change, the world came within a few votes of adopting a formal agreement that would, for the first time, have bound both rich and poor countries to limiting and reducing their greenhouse gas emissions, so staving off the threat of global warming.

“But at the end of an exhausting two weeks of round-the-clock negotiations, a handful of countries managed to block a unanimous agreement, and as a result, the world will have to try again.”

The FT article noted that, “For some, it was a ‘historic disappointment’. Joss Garman, campaigner at Greenpeace, said: ‘The politicians have produced a document with no more meaning or authority than a bus ticket.’

“Others were more optimistic, however, saying the fact that the final agreement – among all the world’s biggest emitters – represented a big step forward, which countries could build on within the next year to reach what has never been achieved – a truly global agreement on climate change, binding all developed and developing countries to take steps to cut their greenhouse gas emissions.”

Meanwhile, Reuters writer Justyna Pawlak reported yesterday that, “The European Union called on the United States on Tuesday to play a bigger role in combating climate change, after Sweden described the Copenhagen summit last week as a ‘great failure.’

“Following a meeting in Brussels to discuss how to rescue the Copenhagen climate process, EU environment ministers emphasized the need for concrete, legally binding measures to combat global warming.

“The European Union went to Copenhagen with the hope of achieving a broad commitment to at least a 20-percent cut in carbon emissions below 1990 levels within 10 years, but that and other firm goals failed to emerge in the final accord.”

Andrew Jacobs reported in today’s New York Times that, “Chinese officials, stung by criticism in the West that China had sabotaged a legally binding agreement for reducing greenhouse gases during talks in Copenhagen, fired back on Tuesday, saying that wealthy nations were seeking to sow discord among developing countries in a cynical attempt to avoid reducing their own emissions.

“In comments made to the state-run media, a Foreign Ministry spokeswoman took umbrage at the assertions made by Ed Miliband, the British secretary of state for energy and climate change, who said that Beijing had thwarted the passage of an ironclad agreement last week.

“Mr. Miliband, in an article published Sunday in The Guardian, accused China of scuttling a proposal that would have reduced global emissions by 50 percent by 2050 with developed countries pledging to reduce climate-warming pollution by 80 percent over the same period.”

Climate Issues: Agriculture

Sarah Schulz reported on Monday at The Grand Island Independent Online (Nebraska) that, “Members of the Nebraska Farm Bureau Federation gave U.S. Rep. Adrian Smith a signed baseball cap Monday afternoon, asking him to wear it in Washington D.C. to enforce his opposition to the cap and trade legislation.

“Smith also signed his name to two giant baseball caps with the slogan ‘Don’t Cap Our Future’ printed on the front. The group plans to present the oversized hats to Sen. Ben Nelson and Sen. Mike Johanns.”

The article stated that, “Keith R. Olsen, president of the Nebraska Farm Bureau Federation, said the organization opposes cap and trade because it’s mandatory and it would have a negative impact on agriculture and Nebraska’s economy.

“Smith said cap and trade will drive up the cost of doing business and, because the margins in agriculture are already so narrow, the slightest change could cost farmers money.

“‘The consumer is the last one at the table in Washington,’ he said. ‘They will be the last to be effected and they’ll lose out. In the end, the consumer will pay.’

“He said he understands the need to manage pollution but he doesn’t believe this legislation is the answer.”

Keith Good