January 24, 2020

ERS Reports; Economic Report of President-Climate Change; Jobs Bill-Biofuels; and Analysis of USDA

ERS- Farm Income

The U.S. Department of Agriculture’s Economic Research Service (ERS) updated its 2010 Farm Sector Income Forecast yesterday, and noted in part that, “Net farm income is forecast to be $63 billion in 2010, up $6.7 billion (11.8 percent) from 2009. The 2010 forecast is $1.4 billion below the average of $64.5 billion in net farm income earned in the previous 10 years. Still, the $63 billion forecast for 2010 remains the fifth largest amount of income earned in U.S. farming. The top five earnings years have occurred since 2003, attesting to the profitability of farming this decade. Farm income exceeded $80 billion in 2004 and 2008 and topped $70 billion in 2005 and 2007 [see related graph].”

ERS indicated that, “Macroeconomic forces undergird our optimism in projecting a boost in 2010 farm income. Fertilizer prices have fallen by about 50 percent in the past year. The dollar’s decline against other currencies should make agricultural exports of both crops and livestock/meat more competitive. Continued population growth, particularly in developing countries, will increase global demand if accompanied by rising incomes.

“The falling value of the dollar increases the price of imported crude oil, raising the cost of fuels for farmers, but that trend is partially offset by benefits to farmers who produced biofuel feedstocks. Ethanol and biodiesel plants that were shut down or running at less than full capacity are expected to increase production as crude oil prices increase, which should increase the demand for corn and soybeans, providing support for prices.”

With respect to production costs, yesterday’s update stated that, “Total production expenses in 2010 are forecast to rise to $281.4 billion, $0.7 billion (0.3 percent) higher than a revised forecast of $280.7 billion in 2009. This small increase follows a dramatic drop in 2009, when total expenses fell $9.3 billion (3.2 percent), and puts expenses at the second highest level ever [see related graph].”

On the issue of government payments, ERS explained that, “Direct government payments are expected to total $12.4 billion in 2010, a 4-percent decrease from the projected $12.9 billion paid out in 2009 [see related graph]. This level would be 20 percent below the 5-year average for 2005-09. Direct payments under the Direct and Countercyclical Program (DCP) and the Average Crop Revenue Election Program (ACRE) are forecast at $4.8 billion for 2010. Direct payment rates are fixed in legislation and are not affected by the level of program crop prices. Authorized under the Food, Conservation, and Energy Act of 2008 (2008 Farm Act), ACRE provides revenue insurance to producers in exchange for a 20-percent reduction in their annual direct payment allotments beginning with the 2009 crop year. ACRE program payments are forecast to be $438 million in 2010.

Countercyclical payments are forecast to decrease by 27 percent from $1.23 billion in 2009 to $895 million in 2010. Strong cotton prices in 2010 are responsible for this projected decrease. Only upland cotton and peanuts are projected to receive countercyclical payments in 2010. Marketing loan benefits—including loan deficiency payments, marketing loan gains, and certificate exchange gains—are projected at $95 million in 2010, down 90 percent from 2009 levels. Wheat producers are projected to receive $85 million in marketing loan benefits. Prior to 2010, upland cotton producers realized almost 91 percent of the total marketing loan benefits. However, strong cotton prices projected for 2010 will be too high for cotton producers to qualify for marketing loan benefits. The other crops receiving marketing loan benefits are wool, mohair, and pelts.

“The Milk Income Loss Contract Program (MILC) compensates dairy producers when domestic milk prices fall below a specified level. Payments are made monthly and are made only on a ‘capped’ level of production. High milk prices for most of 2008 meant that only relatively small program payments were recorded. The low prices in 2009 due to the ongoing effects of the global recession generated $900 million in MILC payments. For 2010, milk prices are expected to rebound such that only $30 million in MILC payments will be made.”

ERS- Baseline

Also yesterday, ERS updated its Agricultural Baseline Projections, which “provides longrun projections for the farm sector for the next 10 years. These annual projections cover agricultural commodities, agricultural trade, and aggregate indicators of the sector, such as farm income and food prices.”

In a closer look at farm income variables, ERS noted that, “Net farm income declines in the near term from the high levels of 2007 and 2008, but then grows moderately over the next decade and exceeds the average of the previous 10 years by the middle of the projection period [see related graph]. Sustained biofuel demand and strengthening global food demand provide a major impetus for projections of rising cash receipts after 2009.”

Direct government payments to farmers are projected to fall from a projected $12.4 billion in 2010 to an average of less than $10 billion annually in 2011 to 2019 [see related graph]. Price-dependent program benefits account for a declining share of payments,” ERS noted, adding that, “With higher prices, government payments have a smaller role in the agricultural sector’s income. Government payments, which represented more than 8 percent of gross cash income in 2005, account for less than 3 percent during most of the projection period. Conversely, the sector relies on the market for more of its income. Cash receipts plus farm-related income rise to more than 97 percent of gross cash income.”

Economic Report of President-Climate Change

The Council of Economic Advisers released its Economic Report of the President for 2010 yesterday.

Neil Irwin reported in today’s Washington Post that, “The economy is projected to add jobs this year at a pace too sluggish to make much of a dent in unemployment, according to a new White House forecast that suggests President Obama’s advisers expect the jobless problem to be a fact of life throughout his term.”

“The nation will add an average of 95,000 jobs a month this year, according to the forecast, a bit below the number that economists think needs to be generated just to keep up with population growth. The unemployment rate is projected to come down quite slowly after that, averaging 8.2 percent in 2012, when Obama will be up for reelection,” Mr. Irwin said.

The report noted in chapter nine (“Transforming the Energy Sector and Addressing Climate Change”) that, “The planet has not experienced such rapid warming on a global scale in many thousands of years, and never as a result of emissions from human activity. By far the largest contribution to this warming comes from carbon intensive fossil fuels, which the world depends on for cooking, heating and cooling homes and offices, transportation, generating electricity, and manufacturing products such as cement and steel.

The potential for significant damages if emissions from these activities are not curbed makes it crucial for the world to transform the energy sector. This transformation will entail developing entirely new industries and making major changes in the way energy is produced, distributed, and used. New technologies will be developed and new jobs created. The United States can play a leadership role in these efforts and become a world leader in clean energy technologies. The transformation to a clean energy economy will also reduce our Nation’s dependence on oil and improve national security, and could reduce other pollutants in addition to greenhouse gases.”

The report added that, “In his first year in office, the President took several other significant and concrete steps to transform the energy sector and address climate change. Significantly, the Environmental Protection Agency (EPA) issued two findings in December 2009. The first finding was that six greenhouse gases endanger public health and welfare. The second finding was that the emissions of these greenhouse gases from motor vehicles cause or contribute to pollution that threatens public health and welfare. These findings do not in and of themselves trigger any requirements for emitters, but they lay the foundation for regulating greenhouse gas emissions.”

Meanwhile, a news release issued yesterday by the University of California at Davis noted that, “The looming threats of global climate change and population growth call for sweeping changes in how the world produces its food and fiber, warns a group of prestigious scientists, including an expert in plant genetics at the University of California, Davis.

“The research team, led by Nina Federoff, science and technology adviser to Secretary of State Hillary Clinton, suggests that there is a ‘critical need to get beyond popular biases against the use of agricultural biotechnology,’ as well as explore the potential of aquaculture and maximize agricultural production in dry and saline areas. Their recommendations will appear as a perspective piece titled ‘Radically Rethinking Agriculture for the 21st Century’ in the Feb. 12 issue of the journal Science.”

A special collection posted a Science Online titled “Food Security,” can be viewed here.

Jobs Bill-Biofuels

Shailagh Murray and Ben Pershing reported in today’s Washington Post that, “Senate Majority Leader Harry M. Reid (D-Nev.) announced Thursday that his chamber would move quickly to pass four popular provisions aimed at creating jobs, potentially with the bipartisan backing that has proven elusive in recent months.

“The provisions were plucked from a broader package of business incentives and unemployment aid negotiated by Senate Finance Chairman Max Baucus (D-Mont.) and his GOP counterpart, Sen. Charles E. Grassley (Iowa). But instead of advancing the bigger bill, Reid announced that he would break it into two parts, bringing the jobs-related incentives to a vote on Feb. 22. The remaining measures would move later as a separate bill.”

James Hohmann and Lisa Lerer reported yesterday at Politico that, “Members of the Senate Finance Committee unveiled a long-awaited bipartisan jobs bill Thursday morning — only to have it scrapped within hours by Senate Majority Leader Harry Reid.

“The Nevada Democrat killed the bill after hearing complaints from members of his own caucus, who argued that Finance Committee Chairman Max Baucus (D-Mont.) had gone too far beyond the core goal of job creation in order to win over Republican support.

“It was a major rebuke for Baucus, who’d spent weeks working with Iowa Sen. Chuck Grassley, the ranking Republican on his committee, trying to come up with a bill that Republicans would support.”

Ben Geman reported yesterday at The Hill’s Energy and Environment Blog that, “Senate Majority Leader Harry Reid’s (D-Nev.) decision to push a pared-down jobs package that omits several energy provisions is drawing criticism from biodiesel producers seeking extension of lapsed tax credits. Sen. Charles Grassley (R-Iowa), a proponent of the industry, isn’t thrilled either.

An extension through 2010 of biodiesel tax credits was part of a jobs plan unveiled by Senate Finance Committee leaders Thursday morning. But the $1-per-gallon biodiesel blending credit and several other energy provisions are no longer in what Reid said will be the first of several jobs measures.

“‘Clearly, the National Biodiesel Board is disappointed that Senate leadership decided to pull the biodiesel tax incentives from the current jobs bill,’ said Michael Frohlich, a spokesman for the trade group. He added that leadership should recognize that ‘saving 23,000 jobs that are in immediate jeopardy is inextricably linked to a true job-saving and creation agenda.’”

Mr. Geman explained that, “Extension of the credits is a top priority for Grassley, the Finance Committee’s top Republican. Iowa has over a dozen biodiesel plants, according to the Iowa Renewable Fuels Association.

“Jill Kozeny, a spokeswoman for Grassley, said there is biodiesel production in 44 states overall. ‘They are losing jobs since the credit expired at the end of the year, and restoring the credit as quickly as possible is essential to saving these renewable energy jobs,’ she said. 

But with Reid’s decision, Grassley and other lawmakers will have to look to subsequent bills for their favored energy measures.”

In other issues regarding biofuels, C. Boyden Gray, who served as White House counsel to President George H.W. Bush, and as ambassador to the European Union under President George W. Bush, penned a column earlier this week in the Washington Times titled, “Getting a true measure on biofuels.”

In part, Mr. Gray noted that, “Little noticed outside a small policy community, an issue has quietly arisen in recent years that, while seemingly technical, has the potential to derail the nation’s attempts to address the issues of energy security and the environment. The issue is how or whether to count the effects of ‘indirect’ land use — including as far away as Southeast Asia or Brazil — in determining the total greenhouse gas emissions from renewable fuels like ethanol, the very fuels that will enable us to reduce our dependence on imported oil. The wrong answer to this question could severely affect the increased use of alternative fuels, aggravating our energy dependence.”

After detailed analysis, Mr. Gray stated that, “The combination of sustainable forests, sustainable agriculture and greater use of biofuels is not merely a dream — it is today’s reality. In fact, the EPA deserves credit for recognizing a crucial point: that the protein byproduct of ethanol production is better feed for cattle than corn itself, thus maintaining the availability of feed for cattle while reducing their dangerous methane emissions at the same time.

But the flawed ‘indirect’ land-use issue nevertheless remains available to be misused someday, to deny the full and proper accounting of all of the environmental and energy benefits of renewable energies such as ethanol.”

Analysis of USDA

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “If there is one consistent message from Secretary of Agriculture Tom Vilsack in the past year, it’s that USDA is not just the place that sends farmers checks and gives food aid to people.

“Instead, Vilsack is fond of saying his department is the ‘everyday, everyway USDA.’

“Vilsack’s approach partially deflects the idea that USDA is a giant department that largely serves a small segment of the population by duplicating programs in other parts of the federal government. Instead, the Obama administration makes the case that there’s something at USDA for everybody.”

Mr. Clayton noted that, “But the combination of the organic gardens, farmers’ markets, the appointment of organic expert Kathleen Merrigan as USDA deputy secretary and Merrigan’s initiative, ‘Know Your Farmer, Know Your Food,’ created some grumblings. Even though USDA agencies spent a lot of time to develop rules from the 2008 farm bill, there are questions about the commitment to production agriculture.” [Note: Stewart Doan, a Senior Editor at Agri-Pulse recently interviewed Dep. Sec. Merrigan, to listen to this wide ranging discussion, just click here].

“‘What we have seen coming out of them thus far, specifically, I think we have to talk about the shift from what I would characterize as mainstream, traditional, production agriculture to a USDA that, by any measure, is clearly more focused on what I would call niche markets,’ said Chuck Conner, former deputy secretary of agriculture and now president of the National Council of Farmer Cooperatives.

“‘Locally grown, organically grown, farmers’ markets, all those kinds of things, are clearly getting far more attention down there today than what I would call traditional, production agriculture,’ said Conner.”

The DTN article added that, “National Farmers Union President Roger Johnson disagrees, but he said he’s also heard the statements. Johnson said he was on a panel of farm organizations in late January when someone made the statement, ‘It seems like this administration doesn’t care about production agriculture. What do you think about that?’ Most of the groups on the panel, however, said the administration has worked aggressively on trade, and USDA officials make it clear there is always an open door, he said.

“‘There was nothing said on the panel that sort of agreed with that perception,’ Johnson said. He added that USDA also now invites commodity and general-farm groups to talk with senior USDA officials about issues within the department and with agriculture.”

And later, Mr. Clayton explained that, “Though Conner raised issues about a shift in mindset at USDA, he and other production-agricultural groups are more prone to highlight the current challenges with EPA than USDA. Conner said his group has a long list of agenda items, but two-thirds of those concerns focused on EPA regulations and proposals.

“‘Many of our guys and the farmers and ranchers in the Midwest, the guys I see often, continue to be nervous about what the EPA will continue to do in the near future in regards to the blend wall and raising the 10 percent blend situation,’ Conner said. ‘All indications are that continues to be moving, though a lot more slowly than what many of these guys would like to see.’

When asked by reporters about the Obama administration at the American Farm Bureau convention, AFBF President Bob Stallman also talked more about EPA regulations than USDA. Stallman cited more proposed rules on water quality, greenhouse gas emissions, pesticides and herbicides as some examples.”

Marian Burros reported yesterday at Politico that, The Obama administration’s competing agricultural policies could prompt a bad case of indigestion — or whiplash.

Longtime food policy observers are having a difficult time squaring the Department of Agriculture’s entrenched preference for high-tech industrial agriculture that emphasizes biotechnology and genetically engineered crops with its newfound interest in helping those who favor low-tech ag: small farmers, advocates of organic and local food and champions of sustainability.

“Margaret Mellon, senior scientist with the Union of Concerned Scientists, describes the USDA as schizophrenic. ‘It wants to promote both organic and sustainable local,’ she said. ‘It is also committed to promotion of biotech here and around the world. So far, there has not been collision between those two priorities, but I’m not sure that situation will last much longer.’”

The lengthy Politico article noted too that, “With the appointment of Merrigan, he seemed to seal his small-farmer credentials. Merrigan founded the Know Your Farmer, Know Your Food initiative, described on its website as a governmental effort ‘to help create the link between local production and local consumption.’

“Her efforts have even given some agribusiness-biotech supporters pause. Sen. Mike Johanns (R-Neb.), who held Vilsack’s job in the Bush administration, now questions USDA’s commitment to biotech and industrial-scale agriculture.

“‘There seems to be, from the current administration, an idyllic vision of the countryside, without much of a realistic understanding of how modern-day agriculture feeds an ever-growing population,’ he said.”

Keith Good

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