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FAPRI Baseline; Biofuels; Disaster Payment Issues; Climate Change; the Farm Bill; and Trade

FAPRI Baseline Update

A University of Missouri news release from yesterday stated that, “The livestock sector can lead the agricultural economy to higher net farm income, assuming the farm economy benefits from a recovering general U.S. economy.

“That analysis tops a 2010 baseline report prepared by the University of Missouri Food and Agricultural Policy Research Institute (FAPRI). The 66-page report will be delivered to the U.S. Congress, Tuesday (Mar. 9). The 10-year baseline shows economic possibilities for livestock, crop and biofuels under certain assumptions.

“‘If jobs–and consumers–return, the agricultural sector will benefit,’ said Pat Westhoff, co-director of MU FAPRI. ‘Higher incomes increase the demand for food, feed, fiber and fuel, supporting farm commodity prices.’”

The release added that, “Projected net farm income increases the next two years largely because of stronger livestock prices. ‘The recovery would mark a major change in direction for the farm economy after a dismal 2009, but 2010 farm income recovers only a third of the ground lost in 2009,’ Westhoff said. Net farm income fell by more than $30 billion in 2009, as sharp declines in cash receipts were not offset by modest drops in production costs.”

Yesterday’s update noted that, “Although corn prices are far below the 2008 peak they are supported by continued growth in corn demand. ‘If the economy recovers it will boost domestic and foreign demand for corn in feed rations and ethanol uses an increasing share of the U.S. corn crop,’ Westhoff said. ‘Mandates encourage more ethanol use of corn until 2015. Additional growth depends on cornbased ethanol being competitive as a fuel, which depends in part on oil prices.’”

With respect to government payments, the FAPRI baseline update indicated that, “Projected direct payments far exceed marketing loan benefits, countercyclical payments and Average Crop Revenue Election (ACRE) program payments. Projected prices are too high to result in marketing loan benefits or countercyclical payments for most crops in most years [related graph].”

And on crop insurance, the FAPRI baseline stated that, “Net government outlays on the crop insurance program reached almost $8 billion in FY 2009. Crop insurance expenditures dip in FY 2010 because of higher 2009 crop yields and again in FY 2012 because of shifts in the timing of premium payments and provider reimbursements. After FY 2015, net outlays on the crop insurance program are almost as great as net Commodity Credit Corporation (CCC) outlays on other farm programs [related graph].”

Biofuels

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “A $150 billion bill that extends several tax credits and provides job benefits cleared a key procedural vote in the U.S. Senate Tuesday afternoon, clearing a path for senators to pass some key provisions for agriculture, including a disaster aid package and a renewal of the $1-per-gallon biodiesel tax credit.

“The overall bill renews more than 70 tax credits and other job-benefit provisions. Among the tax-credit extenders, the bill provides a retroactive one-year extension of the $1-per-gallon biodiesel excise tax credit. The credit expired at the end of 2009, causing biodiesel facilities across the country to lay off employees or idle plants. The bill would retroactively re-establish the credit, but it would expire again at the end of December.”

Mr. Clayton added that, “‘Expiration of the biodiesel tax incentive has essentially caused the production and use of biodiesel in the U.S. to cease and has placed thousands of jobs currently supported by the domestic biodiesel industry in immediate jeopardy,’ ASA President Rob Joslin, a soybean producer from Sidney, Ohio, stated in a news release on Tuesday. ‘Companies have already started laying-off employees, and this situation is certain to worsen the longer the tax incentive is allowed to lapse.’

Also added to the bill is a $1.5 billion disaster aid package for the 2009 crop year being pushed by Senate Agriculture Committee Chairman Blanche Lincoln, D-Ark. Farmers would be eligible if they suffered a crop disaster or are located in counties declared disaster areas that had at least one crop suffer a 5 percent yield or quality loss due to the disaster, the bill states. Payments would equal up to 90 percent of the farmers’ direct payments for 2009.”

In related news, Reuters writer Charles Abbott reported yesterday that, “U.S. fuel ethanol and biodiesel production would be cut by 10 percent if Congress allows biofuel tax credits to expire this year, a University of Missouri think tank said on Tuesday.

Corn and soybean prices would fall by 15 cents a bushel, estimated the Food and Agricultural Policy Research Institute (FAPRI). One-third of the corn crop is used to make fuel ethanol and about 11 percent of U.S. soybean oil is used for biodiesel.”

Mr. Abbott explained that, “The ethanol tax credit of 45 cents a gallon and a tariff of 54 cents a gallon on ethanol imports are scheduled to expire at the end of this year. The $1-a-gallon biodiesel tax credit died at the start of the year but would be revived for 2010 in a bill pending in the Senate.

“Without the tax breaks, said FAPRI, ethanol and biodiesel production will track the usage levels mandated by a 2007 energy law. It guarantees annual use of 15 billion gallons of corn-based ethanol beginning in 2015 and 1 billion gallons of biodiesel starting in 2012.”

Disaster Payments, SURE, and Crop Insurance Issues

Dan Morgan reported this week at The Fiscal Times Online that, “Less than two years ago, Congress seemingly ended a decades-old practice of rushing to the rescue of farmers any time they suffered weather damage to their crops. The costly old system of ‘emergency aid’ was a regular drain on the budget, and there were so many loopholes that some farmers with no appreciable losses were able to cash in.

“But some habits are hard to break. The Senate this week is on the verge of bypassing new procedures set up by the 2008 U.S. Farm Bill in order to bestow $1.1 billion of emergency aid on farmers as part of a huge package of renewed tax provisions and a one-year extension of unemployment insurance. Also tucked into the legislation is nearly $350 million to help ranchers, fruit and vegetable producers, catfish farmers hit with high feed costs, and poultry raisers left high and dry by the closing of southern chicken processing plants.

“For the legislation’s main champion, Senate Agriculture Committee Chairman Blanche Lincoln, D-Ark., obtaining the farm aid for Mississippi Delta cotton and soybean growers hurt by last fall’s heavy rains is a crucial step in an uphill battle to retain her seat in November.”

The Fiscal Times article noted that, “But how Congress handles the farm aid issue will be a test of both parties’ commitment to control spending.

That’s because the 2008 farm bill was supposed to end such ad hoc payouts and replace them with a permanent — and less politically driven — system.

“The farm bill set up a $3.8 billion trust fund, financed out of customs duties rather than appropriated funds. Last December, the Department of Agriculture followed up by announcing stringent eligibility standards that required farms to demonstrate substantial losses not just on one crop but across their entire farming operation. The new Supplemental Revenue Assistance Payment Program (SURE) closed significant loopholes that had been part of emergency farm aid spending measures enacted by Congress. And it requires farmers to have purchased their own private crop insurance — providing incentives to growers not to rely on government alone to manage risks.”

Mr. Morgan indicated that, “Lincoln’s farm aid proposal would channel disaster payments to farmers with losses amounting to no more than 5 percent of a single crop, too generous even for some key farm state lawmakers.

“‘That doesn’t fly,’ House Agriculture Committee Chairman Collin Peterson, D-Minn., said of the Lincoln proposal at a rice industry conference last week. ‘That’s asking for trouble.’

“‘The farm safety net has been improved over the last several years so the proposal for ad hoc assistance seems to me to be a difficult proposition,’ said Keith Collins, a former chief USDA economist who now consults for the crop insurance industry.”

Yesterday’s article noted that, “Lincoln has said the payments will ‘bridge the gap’ until USDA begins distributing SURE money later this year. But underlying her effort is the fact that most southern farmers won’t be eligible for much help under the new program.”

That is because southern farmers have tended to rely on government programs and emergency aid passed by Congress, rather than the private crop insurance to which SURE benefits are pegged. SURE adds 15 percent to all the crop insurance guarantees a farmer purchases. For farmers with little coverage, SURE falls far short of the direct aid that Lincoln has proposed.”

The article concluded by saying, “[I]n the South, most farmers take out only the minimum coverage that protects 27.5 percent of their potential losses on a crop.

“A major reason, according to USDA and academic studies, is that the private crop insurance companies set southern premiums relatively high due to concerns about fraud and losses from such southern hazards as the boll weevil. The largest and most successful farmers tend to insure themselves or rely on ad hoc aid and traditional farm programs. At the same time, the insurance industry has had difficulty designing policies for southern crops such as rice, which is less subject to weather losses since it grows in flooded fields and is protected against drought by irrigation.

“‘It’s an historical and cultural thing,’ said Michael R. McLeod, executive director of the American Association of Crop Insurers.”

For more background and information on this issue, see “Crop Insurance in the Midsouth,” by Mississippi State University Economists Barry J. Barnett, Keith H. Coble and Stan R. Spurlock.

Climate Change Developments: Pres. Obama Meets with Senators

An update posted yesterday at CQPolitics reported that, “Even as President Obama and congressional Democrats struggle to finish a health care overhaul, they are ramping up efforts to rally support for a comprehensive energy and climate change bill.

“Tuesday afternoon, a bipartisan trio of senators writing a climate bill — John Kerry, D-Mass., Joseph I. Lieberman, I-Conn., and Lindsey Graham, R-S.C. — will meet with the heads of trade groups whose industries would be affected profoundly by any new law regulating carbon emissions.”

The CQ update explained that, “Expected to attend the meeting are leaders of the American Petroleum Institute and the Edison Electric Institute, and a representative of the Portland Cement Association, among others.

Later in the afternoon, the president will meet at the White House with Kerry, Lieberman and Graham, as well as a bipartisan group of 11 other senators viewed as crucial swing votes on a Senate climate bill. Also attending the White House meeting will be Energy Secretary Steven Chu, Interior Secretary Ken Salazar, Agriculture Secretary Tom Vilsack and EPA Administrator Lisa P. Jackson.”

However, Amy Harder reported yesterday at the National Journal Online that, “Senate Agriculture Chairwoman Blanche Lincoln, D-Ark., is not expected to be at today’s meeting with President Obama on climate and energy legislation. Thirteen senators are expected to attend, mostly moderates from both parties, as well as four top administration officials, including Agriculture Secretary Tom Vilsack.

“Over the past several weeks, Lincoln has taken bold steps away from the Democratic Party, most recently launching a re-election ad campaign last week that explicitly says she is against cap-and-trade, as well as other key Democratic priorities. She is also a co-sponsor of the disapproval resolution by Sen. Lisa Murkowski, R-Alaska, that would strip EPA’s regulatory authority over greenhouse gas emissions. The League of Conservation Voters and the Sierra Club have taken notice and launched attacks against her.”

Reuters writers Jeff Mason and Richard Cowan reported yesterday that, “White House spokesman Robert Gibbs said Obama wanted to get an update on the Senate’s energy initiatives at the meeting.

“‘The president believes … strongly that we need to get something done,’ Gibbs said.”

Bloomberg writer Simon Lomax reported yesterday that, “President Barack Obama should give up on legislation that sets greenhouse gas limits and support a bill that boosts renewable electricity generation and U.S. oil and gas production, Senator Lisa Murkowski said.

“‘I’d put a plug in for energy-only,’ Murkowski, an Alaska Republican, told reporters in Washington ahead of a meeting with Obama today to discuss energy and climate-change legislation. ‘We’re ready to go with an energy-only bill.’”

David A. Fahrenthold reported yesterday at The Washington Post Carbon Blog that, “President Obama met with Cabinet members and 14 senators Tuesday afternoon to talk about climate change and energy. One senator in attendance said the president emphasized his desire for a climate bill but provided few specifics about what it should contain.

“Sen. Sherrod Brown (D-Ohio), said that the senators sitting around the table seemed to agree that they want to pass climate legislation — though they still disagree about what the legislation should look like. 



“He said that Obama did not make detailed demands.”

With respect to the legislative calendar, National Journal writer Amy Harder reported yesterday that, “The Senate trio crafting climate and energy legislation may not have a draft bill by the Easter recess, Sen. Lindsey Graham, R-S.C., said today at the Capitol before meeting with other senators at the White House to discuss the issue.

“When asked if the trio, which also includes Sens. John Kerry, D-Mass., and Joe Lieberman, I/D-Conn., would have a draft bill or outline by Easter break, which goes for two weeks beginning March 29, Graham replied: ‘Sooner rather than later. I don’t know if we can get it done that soon. But hopefully by the end of the month.’ If a draft isn’t announced by the break, then it could be delayed until mid-April.”

Bloomberg writer Catherine Dodge reported yesterday that, “Senator Joseph Lieberman said lawmakers plan to complete a draft of climate-change legislation this month before taking an Easter break, as Republicans insisted the measure should be narrower than a House-passed bill…’We’re still negotiating with a lot of people,’ Lieberman told reporters. ‘The aim is to put a draft out,’ by March 26.”

Ms. Dodge added that, “Republican Senator Richard Lugar, who is also among more than a dozen lawmakers going to the meeting, said he is drafting a ‘practical’ energy plan with a national mandate for clean energy.

“‘I am proposing practical steps that save money and that everyone can support,’ Lugar of Indiana said in a statement.”

With respect to political variables and climate legislation, Reuters reported yesterday that, “Like a savvy Madison Avenue advertising team, senators pushing climate-control legislation have decided to scrap the name ‘cap and trade’ and rebrand their product as ‘pollution reduction targets.’”

Meanwhile, Ben Geman reported yesterday at The Hill’s Energy and Environment Blog that, “White House officials have been reaching out to lawmakers.

“Sen. Susan Collins (R-Maine) – who is attending the [the White House climate] meeting and has offered an alternative climate bill with Sen. Maria Cantwell (D-Wash.) – said she met Monday with White House climate czar Carol Browner at Browner’s request.”

And a Daily Radio News item from USDA yesterday noted that, “The head of the White House Energy Office [Carol Browner] says the country needs an new energy bill.” The one-minute audio summary included public comments made yesterday by Ms. Browner, to listen just click here.

Darren Samuelsohn of ClimateWire reported yesterday at The New York Times Online that, “The fate of comprehensive energy and climate legislation rests in the hands of about 30 senators.

“The list includes coal and Rust Belt Democrats, Westerners and moderate Republicans. They bring several high-profile issues to the forefront that, if satisfied, offers several potential paths to the bill’s lead authors looking for the magic 60 votes.”

The article noted that, “E&E’s latest assessment of the Senate climate debate counts 41 ‘yes’ or ‘probably yes’ votes on a comprehensive bill that includes a first-ever price on domestic greenhouse gases. Another 29 fall in the ‘no’ and ‘probably no’ camp.

That leaves the 30 ‘fence sitters,’ 19 Democrats and 11 Republicans, who have expressed varying degrees of interest in the overall energy and climate issue during the Obama administration.

To get any of them to leave the fence and support a bill will require significant dealmaking on a range of key issues. Some of them overlap, meaning a ‘yes’ vote may require more than one concession.”

Farm Bill

DTN Political Correspondent Jerry Hagstrom reported yesteray (link requires subscription) that, “Farm leaders are unlikely to propose cuts to farm programs during House Agriculture Committee Chairman Collin Peterson’s upcoming hearings on the next farm bill unless there is a real threat of reconciliation, key lobbyists said here during the 2010 Commodity Classic, a meeting of corn, soybean, wheat and sorghum producers.

“‘The vast majority of farm groups will say we like this farm bill. Don’t change it,’ Mary Kay Thatcher, director of agricultural policy at the American Farm Bureau Federation, said during a panel discussion on Saturday. But Thatcher also said that if there is a real threat of a 10 percent cut, as Peterson, D-Minn., has suggested, ‘there may be ideas.’ But she added, ‘We are hoping we don’t get a reconciliation bill.’”

Mr. Hagstrom added that, “Both Thatcher and [Chandler Goule, vice president for government relations at the National Farmers Union] said crop insurance is likely to be the focus of farm policy debate. Crop insurance now costs about $8 billion per year in premium subsidies and payments to companies and insurance agents for delivering the programs, while other subsidies for the same crops total $7 billion.

“In the ongoing negotiations between USDA’s Risk Management Agency and the insurance industry over the cost of delivering the programs, Thatcher said she thinks the Obama administration may force a $5 billion cut over 10 years.”

Goule said that if the Doha round of world trade talks are ever completed, crop insurance is likely to be an even more important part of the farm safety net because the Doha round agreement would likely require a reduction in U.S. target prices that trigger payments when prices are low.”

Trade

Dow Jones writer Gerald Jeffris reported yesterday that, “Brazil is open to modifying retaliatory measures against the U.S. in a dispute over cotton subsidies but won’t change its proposed tariff increases unless bilateral talks advance significantly, a top trade official said Tuesday.

Brazilian Trade and Development Minister Miguel Jorge said meetings with U.S. trade officials Tuesday yielded ‘no new U.S. proposals.’ He said Brazil needs to maintain its tough position on tariffs in order to reinforce its negotiating position until it sees signs of flexibility.”

Keith Good