FarmPolicy

January 19, 2020

Crop Insurance; Budget; Climate Issues; Sec. Vilsack on Rural America; Ag Economy; Trade; CFTC Issues; and Political Notes

Crop Insurance: The Standard Reinsurance Agreement

On Friday January 29, FarmPolicy.com spoke with former USDA Chief Economist Keith Collins and Bob Parkerson, the president of National Crop Insurance Services about the federal crop insurance program. Specifically, the conversation focused on the current renegotiation of the Standard Reinsurance Agreement (SRA) that is underway between the crop industry and the USDA’s Risk Management Agency (RMA).

RMA released its initial SRA draft proposal in early December, while the industry submitted its counter draft proposal earlier this month.

Crop Insurance- General Background and Overview

Federal crop insurance has been a variable in U.S. farm policy since the 1930s when the program was first initiated as a limited “experiment.” At that time, the program was only available on a limited basis to farmers growing major crops in the main production areas of the country. (“A History of the Crop Insurance Program,” USDA-RMA Online).

Crop insurance continued to be on the perimeter of risk management tools available to producers until Congress passed the Federal Crop Insurance Act of 1980 (P.L. 96-365). This law “expanded crop insurance into a national program with the authority to cover the majority of crops.”

Congress modified the crop insurance program in 1994 to increase farmer participation. The Federal Crop Insurance Reform Act of 1994 (P.L. 103-354) required farmers to purchase crop insurance in order to maintain eligibility for other federal crop programs. This provision was modified in the 1996 Farm Bill when Congress repealed the mandatory crop insurance requirement. However, the 1996 Act did require producers to maintain crop insurance coverage in order to be eligible for potential emergency crop loss assistance programs or disaster benefits that might be made available. (“Federal Crop Insurance: Background and Issues.” CRS-April 2009; “A History of the Crop Insurance Program,” USDA-RMA Online).

About four years later, Congress again revisited the federal crop program when it passed the Agriculture Risk Protection Act (ARPA) of 2000 (P.L. 106-224). This legislation also encouraged greater farmer enrollment in the program and “expanded the role of the private sector allowing entities to participate in conducting research and development of new insurance products and features.” (“A History of the Crop Insurance Program,” USDA-RMA Online).

The Standard Reinsurance Agreement- Definition

The federal crop insurance program is a permanently authorized program that is governed by the by the Federal Crop Insurance Act (7 U.S.C. 1501 et seq.). As a permanent program, the federal crop insurance does not require periodic reauthorization.

One of the many details contained in the federal codification of crop insurance is a provision titled, “Renegotiation of standard reinsurance agreement.”

In part, the federal code states that, “If the Corporation [the Federal Crop Insurance Corporation] renegotiates a Standard Reinsurance Agreement under subparagraph (A)(iii),[3] the Corporation shall notify the Committee on Agriculture of the House of Representatives and the Committee on Agriculture, Nutrition, and Forestry of the Senate of the renegotiation…The approved insurance providers may confer with each other and collectively with the Corporation during any renegotiation under subparagraph (A).”

A Congressional Research Service report described the Standard Reinsurance Agreement this way: “Risk sharing between USDA and the private companies and A&O [administrative and operating expenses] reimbursements to the companies are spelled out in a Standard Reinsurance Agreement (SRA), which plays a large role in determining program costs.” (“Federal Crop Insurance: Background and Issues.” CRS-April 2009).

In my conversation on Friday, Bob Parkerson and Keith Collins provided additional background and explanation on the SRA- to listen, just click here (MP3- 4:12).

Prelude to Negotiation- 2008 Farm Bill; FY 2010 Budget

Although the crop insurance program does not require periodic reauthorization, “during the 2007-2008 farm bill debate, some policymakers expressed interest in revising the crop insurance program in the context of the farm bill.” One of the primary motivations for Congress delving into the crop insurance issue was budgetary in nature: Lawmakers wanted to score savings by making changes to the program. (“Crop Insurance and Disaster Assistance in the 2008 Farm Bill.” CRS January 2009.)

Dr. Collins explained how these changes in the 2008 Farm Bill impacted the crop insurance budget- to listen, just click here (MP3-3:21).

In addition to the changes that were made in the 2008 Farm Bill, President Barack Obama’s FY2010 budget proposal also included substantial cuts to the crop insurance program.

As the Wall Street Journal reported last February, “The Obama administration is proposing that the Agriculture Department ramp up spending on food assistance to the poor while cutting subsidies to big farms.”

“The White House is proposing to cut spending on farm subsidies by about $2 billion annually by, among other things, imposing a tougher means test on growers and trimming subsidized crop insurance,” the article said.

Congress rejected these budgetary cuts and these proposed changes were not implemented.

On Friday Dr. Collins described these proposed cuts in more detail and provided some additional context on how the Congressional action to turn away the proposed changes is relevant in the context of the current SRA negotiations- click here to listen (MP3-1:35).

(Note: Additional excerpts from Friday’s discussion on crop insurance, including more details on the SRA negotiations, will be included in Tuesday’s FarmPolicy report).

Also on Friday, National Farmers Union President Roger Johnson appeared on the AgriTalk Radio Program and crop insurance was an issue that came up in his interview. In part, the discussion touched on federal budgetary implications for crop insurance, recent changes to the program, and the SRA negotiations- to listen to an excerpt from Friday’s AgriTalk show, just click here (MP3- 3:47).

Budget FY2011

On the issue of the budget, an update posted on Saturday at the White House Blog stated that, “During these tough economic times, American families are forced to make tough choices about what they can spend money on and what they need to cut from their household budgets.

“Through the course of the budget process we did the same thing.”

The update added that, “The President believes we need to be honest about what is working and what isn’t and that making tough choices about which programs to fund and which to reduce or terminate is part of governing.

In the 2011 Budget we will release on Monday we terminated or reduced programs that weren’t working well or duplicated efforts, some in areas that are important to the President and to the Administration.”

Climate Issues

In a related budget issue, CQPolitics reported on Friday that, “President Obama’s fiscal 2011 budget will project hundreds of billions of dollars in new federal revenue from a proposed comprehensive cap-and-trade climate law, according to Democratic aides — despite dimming prospects for enacting such legislation this year.

Including cap-and-trade revenue in the new budget underscores Obama’s commitment to press ahead with climate legislation, which passed in the House last year but stalled in the Senate. The president reiterated his insistence that Congress address global warming in his State of the Union address.”

The CQ item noted that, “But North Dakota Democrat Byron L. Dorgan, chairman of the Senate Energy-Water Appropriations Subcommittee, said any proposal to spend cap-and-trade revenue is probably dead on arrival.”

The Friday edition of The Kiplinger Agriculture Letter (link requires subscription) indicated that, “Forget about cap and trade, but Congress may still pass an energy bill this year. The legislation would boost incentives for producing biofuels plus support offshore drilling and nuclear power development. Sen. Jeff Bingaman (D-NM) has bipartisan support for legislation to do those things, and it is ready for floor action.”

The Washington Post editorial board noted on Saturday that, “Mr. Obama was right about something else on Wednesday: Beyond such fixes, the best way to promote emissions-free energy is for Congress to put a price on carbon, giving private actors incentives to devise the most efficient ways to curb U.S. emissions. The best way to do that is through a carbon tax or a well-designed cap-and-trade scheme. Neither need be the giveaway that Waxman-Markey turned into. In fact, there are more appealing proposals in the Senate. One is from Sens. Maria Cantwell (D-Wash.) and Susan Collins (R-Maine); it would cap emissions and rebate most of the proceeds directly to taxpayers.

“With the president willing to deal and reasonable ideas on the table, the Senate should be willing to take a fresh look at the issue.”

And Reuters news reported on Friday that, “President Barack Obama’s budget proposal will call for tripling government loan guarantees for new nuclear reactors, an administration official said on Friday, a move sure to win over some Republican lawmakers who want more nuclear power to be part of climate change legislation.”

Ian Talley and Siobhan Hughes reported on Friday at The Wall Street Journal Online that, “President Barack Obama ordered Friday the federal government to reduce greenhouse-gas emissions by 28% by 2020, marking a new push toward energy efficiency and a greater reliance on low-carbon energy.

“The federal government is the largest consumer of energy in the U.S. economy, accounting for nearly 1.5% of the nation’s spending on fuel and electricity, and the mandate could help boost development of the renewable and clean energy sectors.”

Meanwhile, Keith Bradsher reported in yesterday’s New York Times that, “China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.

China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.

These efforts to dominate renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China.”

Sec. Vilsack on Rural America

Secretary of Agriculture Tom Vilsack penned an opinion item that was published in yesterday’s Des Moines Register (“Vilsack: Rural America is in need of renewal”).

In part, Sec. Vilsack outlined “Six approaches [that] will create the foundation for growth and opportunity” in rural America, one of which is to, “[P]romote biofuel and renewable energy production. The president instructed his administration to develop a plan to build a robust biofuel industry and clean energy future for America. The American Recovery and Reinvestment Act (ARRA) and the Energy title of the 2008 Farm Bill will provide the resources to carry out these efforts. These investments will lead to higher incomes for farmers and create more jobs in rural America.”

Ag Economy

A news release issued on Friday by Rabobank noted that, “2010 is shaping up as a positive year for Australian agriculture as global economic recovery takes hold and household consumption begins to strengthen against the backdrop of restricted world supply, according to a recently-released industry report.

“In its annual Australian Agriculture in Focus report, leading food and agribusiness bank Rabobank says improved economic conditions are seeing increasing global demand for agricultural commodities, such as dairy and sheepmeat, while the supply of many of these commodities is limited.”

Friday’s release added that, “At the same time, global food commodity prices are returning to their pre-GFC trend and beginning to climb again, the report says.

“Rabobank’s general manager Food & Agribusiness Research and Advisory Justin Sherrard says, after going into ‘freefall’ more than 12 months ago during the global financial crisis, world food commodity prices are once again on the rise, driven by the same fundamental factors which had seen prices surge prior to the GFC.”

Myra P. Saefong reported on Friday at The Wall Street Journal Online that, “A flailing economy and record crops have worked to pull corn prices some 20% off their 2009 peak, but analysts say the move is only a temporary setback, with an economic recovery under way and ethanol demand on reliable footing.

“‘Nearly a third of the domestic corn output in the U.S. is being used for ethanol production and this volume is set to expand even further,’ Commerzbank analysts wrote in a recent research note. ‘This should push up prices.’”

A report posted yesterday at the Los Angeles Times Online stated that, “Retail food prices in the U.S. will rise 2.5% to 3.5% this year, less than forecast in December, as costs for seafood, fats and oils decline, the U.S. Department of Agriculture said.

“‘Recovering global economies will lead to increased commodity and energy costs combined with stronger domestic and global food demand to push inflation up from the low 2009 levels,’ USDA food economist Ephraim Leibtag said.”

Meanwhile, the U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) released two interesting reports on Friday.

The monthly Agricultural Prices report stated that, “The corn price, at $3.45 per bushel, is 14 cents lower than last month and 91 cents below January 2009 [related graph]; the soybean price, at $9.49 per bushel, decreased 31 cents from December and is 48 cents below January 2009 [related graph]; the January all wheat price, at $4.79 per bushel, is down 6 cents from December and $1.41 below January 2009 [related graph]; and, the January all milk price of $16.50 per cwt is unchanged from last month but is up $3.20 from January 2009 [related graph].

Also on Friday, NASS indicated in its Cattle report that, “All cattle and calves in the United States as of January 1, 2010, totaled 93.7 million head, 1 percent below the 94.5 million on January 1, 2009 [related graph]. All cows and heifers that have calved, at 40.5 million, were down 1 percent from the 41.0 million on January 1, 2009. Beef cows, at 31.4 million, were down 1 percent from January 1, 2009. Milk cows, at 9.1 million, were down 3 percent from January 1, 2009.”

Trade

A news release issued on Friday by Senate Agriculture Committee Chairman Blanche Lincoln (D-Ark.) stated that, “[Sen. Lincoln] today was joined by 17 other Senators in a letter to the President, supporting his pledge to double American exports and pass pending trade agreements. The President announced this goal during Wednesday night’s State of the Union address.

“‘As Chairman of the Senate Agriculture Committee, creating jobs and putting our economy back on the right track is my top priority. Opening more markets for agricultural producers will help Arkansas farmers and rural communities who have felt the devastating effects of the current economic climate. I was pleased to hear the President say he is committed to increasing American exports in his State of the Union address and look forward to working with him and my colleagues on both sides of the aisle to meet this goal,’ Lincoln said.”

A news release issued on Friday by the American Farm Bureau Federation (AFBF) noted in part that, “[AFBF] President Bob Stallman is urging members of the Senate Finance Committee and House Ways and Means Committee to take the lead in achieving President Barack Obama’s goal outlined in the State of the Union address of doubling U.S. exports over the next five years.”

Meanwhile, Reuters writers Gleb Bryanski and Gerard Wynn reported on Saturday that, “Trade ministers were skeptical on Saturday about the prospects of concluding stalled global trade liberalization talks this year, with some blaming the United States for foot-dragging.

“Ministers from about 20 major economies held informal talks on the sidelines of the annual World Economic Forum meeting in the Swiss ski resort of Davos, but Washington only sent a deputy ambassador and no political representative.”

And a recent AFP article reported that, “Brazil has suggested that world leaders meet to give a final push to long-stalled negotiations for a global trade pact, World Trade Organisation chief Pascal Lamy said Saturday.

“‘During the course of the discussion, (Brazilian Foreign Minister) Celso Amorim put this option on the table,’ said the director-general of the WTO.

“‘Nobody said no, but we all said during the course of the discussion that if that was to happen, what remains to be done — which is a list of 12-13 fairly technical questions — will need to be simplified,’ he added.”

CFTC Issues

DTN Political Correspondent Jerry Hagstrom reported on Friday (link requires subscription) that, “[In prepared remarks for a speech to the American Bar Association Committee on Derivatives and Futures Law in Naples, Fla., Commodity Futures Trading Commission Chairman Gary Gensler] said statistics released by the International Bank for Settlements in December strengthened the administration’s argument that derivative transactions involving end users such as airlines and electric co-ops should not be exempt from trading and clearing requirements.

“While industry officials have argued end-user transactions comprise only a small part of the standardized market, Gensler said the international bank data revealed that an end-user exemption could leave up to 60 percent of standardized transactions out of the transparency and clearing requirements. Gensler said the data showed that dealer-to-dealer transactions comprise less than 40 percent of the single-currency interest rate, over-the-counter foreign exchange derivatives and equity-linked and commodity derivatives markets.

“The administration will continue to fight to bring derivatives into regulated trading facilities and exchanges to increase transparency, Gensler said. ‘I understand that such a transparency requirement is one of the things that Wall Street likes the least. It is only dealers that benefit from keeping standardized trades off of transparent trading venues, because dealers can internalize the transaction information. The banks and dealers profit from access to trading information while businesses, municipalities, consumers and others pay the costs.’”

Political Notes

Bill Bowden and Jane Fullerton reported on Saturday at the Arkansas Democrat Gazette Online that, “Rep. John Boozman, the only Republican member of the Arkansas congressional delegation, plans to give up his House seat and enter the Senate primary race, altering an already volatile Arkansas political landscape.

“Boozman stopped just short of acknowledging his entrance into the Senate race Friday, saying he would make a ‘very, very important announcement’ a week from today in Little Rock.

“But several Republican sources familiar with the situation said Boozman – who revealed only last week that he was considering the Senate race – has made calls in recent days to tell others of his plans to seek the seat held by Democratic Sen. Blanche Lincoln.”

Keith Good

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