- FarmPolicy - http://farmpolicy.com -

Climate Issues; Trade; Ag Economy; and Corn Production Implications

Climate Issues

A news release issued yesterday by USDA stated that, “Agriculture Secretary Tom Vilsack today discussed how properly structured climate change and energy legislation will benefit America’s farmers and ranchers in a speech at the National Farmers Union 2010 convention in Rapid City, S.D. USDA also released a memo looking at assumptions in the FASOM model – developed by researchers at Texas A & M University that the Environmental Protection Agency – to study the impacts of climate legislation.

“‘USDA is committed to helping Congress design and implement a carbon offsets market that will provide significant income opportunities to America’s farmers and ranchers,’ said Vilsack. ‘USDA and third-party analyses, as well as our experience in implementing conservation techniques, make it absolutely clear that properly structured legislation will avoid unintended consequences and provide enormous benefits to our agricultural economy, and our environment.’”

The release pointed to the complete text of USDA Chief Economist Joe Glauber’s memo to Secretary Vilsack on the FASOM model, which is available here.

DTN Ag Policy Editor Chris Clayton reported yesterday from the NFU convention in Rapid City where he indicated that, “Going against the political tide and the beliefs of other farm groups, members of the National Farmers Union still see income potential in climate legislation and green energy, but acknowledge that a cap-and-trade plan has become mired in partisan politics.

“At its annual convention in Rapid City, the National Farmers Union held two panels detailing the potential benefits to farmers from renewable fuels, wind and biomass, as well as carbon offsets through a climate bill. In between, Secretary of Agriculture Tom Vilsack argued there is a need for a comprehensive climate bill and that farmers would benefit.”

The DTN article noted that, “While many farm groups have walked away from cap-and-trade legislation, Vilsack continues to make the case that if carbon controls are implemented properly they would add tens of billions of dollars to the rural economy. Agriculture accounts for about 7 percent of the U.S. greenhouse gas emissions, but could translate into as much as 25 percent of the solution, he said.

“‘That’s why it’s important to set up an offset market that pays farmers for doing the right thing regardless of whether they are raising crops or raising livestock,’ he said.

“Vilsack highlighted that several studies show a net benefit for agriculture, including a USDA study last December that examined the impacts of the climate bill passed by the U.S. House of Representatives last year.”

With respect to the memo by Chief Economist Joe Glauber to Sec. Vilsack on the FASOM model, yesterday’s DTN article stated that, “USDA is issuing a memorandum that outlines some of the problems with that model and that challenges the notion of dramatic acreage shifts, Vilsack said. He said the model made some flawed assumptions, such as assuming agricultural emissions would be regulated even though the House bill exempted agriculture.

“Further, the model made assumptions on the speed in which people would convert from crops to forestry that Vilsack said appeared ‘over exaggerated.’ Also, the acreage shift did not take into account the ability of producers to get proper information accurately to make the appropriate decision, he said.”

The article added that, “‘Our experience with the farm bill and our experience with farm programs is that the evolution and understanding of new programs takes awhile to filter through the process,’ Vilsack said. ‘So there were a number of assumptions made in the model that clearly don’t match up to what is being discussed.’

“Vilsack said the universities of Texas A&M, Oregon State and Duke will be working with USDA to create a more accurate model based on what is practiced in the field and what could happen with a properly constructed carbon market.”

Meanwhile, from a legislative perspective, Darren Goode and Amy Harder reported yesterday at the National Journal Online that, “Senate Foreign Relations Chairman John Kerry, D-Mass., and Sens. Lindsey Graham, R-S.C., and Joe Lieberman, I/D-Conn., might offer Senate colleagues and key interest groups an outline for their climate and energy strategy this week.

“The three are scheduled to sit down Wednesday with a large gathering of business and industry groups and industry officials, who were told last week that they would likely be given a narrative outline for a proposal.

“If so, centrist senators who would be crucial to getting a filibuster-proof margin would be expected to be given a look at the outline early this week.”

The update added that, “Kerry, Graham and Lieberman have been ramping up meetings in recent weeks to cut a deal. Last week, Obama sat down with about a dozen senators to hear what they would need to support a bill putting a price on industrial carbon emissions and ramping up domestic nuclear, oil and gas and other production.”

Reuters writer Richard Cowan reported yesterday that, “A compromise climate control bill that could be sketched out next week in the Senate will be anchored by a ‘cap and trade’ plan for reducing carbon dioxide emissions from utilities such as power plants, a key senator said on Monday.

“‘That’s not to say there are not some details left to be resolved with utilities but the overall approach is that,’ the senator said during an interview with Reuters.

“Under cap and trade, companies would have to obtain permits for every ton of carbon dioxide and other greenhouse gases they emit. The number of permits would steadily decline during the next 40 years and companies could trade those permits on a regulated financial market.”

Mr. Cowan explained that, “In an interview with Reuters, the senator said: ‘There’s more certainty about cap and trade for utilities’ than how the government would mandate carbon pollution reductions from other sectors, such as transportation and manufacturing.

“A bill passed last June by the House of Representatives would set an economy-wide cap and trade program, including power companies, oil refineries and factories. Emissions would decline by 17 percent by 2020, from 2005 levels under the House bill. Senators are looking at a similar target, which the Obama administration has embraced.

But an economy-wide cap and trade program did not appear to have enough votes to pass the Senate.”

Yesterday’s article added that, “Instead, senators have been looking at a possible oil industry tax to help control carbon emissions in the transportation sector. Some senators from heavy manufacturing states have been pushing for a delay in carbon emission requirements for factories before moving to a cap and trade program or other mechanism.

“The Senate compromise bill, which the senator said could be outlined sometime next week, will ‘be different ways to deal with different sectors. It’s a step-by-step sectoral approach,’ the senator said.”

Ben Geman, writing yesterday at The Hill’s Energy and Environment Blog, noted that some economists question whether the anticipated “hybrid approach” from Kerry, Graham and Lieberman (“Start with a cap-and-trade system for utilities, bring other industrial facilities under a cap at a later date, while motor fuels would be addressed through some sort of tax or fee”) makes for the best policy.

Mr. Geman pointed to this update from the Solve Climate Blog which noted that, “Strictly from an economic efficiency perspective, you’re better off with either an economy-wide cap-and-trade policy or an economy-wide carbon tax,” says Michael Livermore, executive director of the Institute for Policy Integrity at New York University Law School.

Regardless of the specific details and potential economic implications of forthcoming Senate legislation, Bloomberg writer Simon Lomax reported yesterday that, “The Obama administration is considering a carbon-trading system under existing law if Congress doesn’t pass cap-and-trade legislation that allows companies to buy and sell the right to pollute, a U.S. Environmental Protection Agency official said today.

The existing Clean Air Act ‘could enable us to include emissions trading’ within agency regulations aimed at reducing carbon dioxide and other gases that scientists have linked to climate change, Anna Marie Wood, a senior policy analyst at the EPA, said at an event in Washington hosted by the American Bar Association.

“‘We’re considering all that right now and thinking about what might make sense,’ Wood said. While the agency ‘strongly prefers’ that Congress pass new laws dealing with greenhouse gases, ‘we think that there’s a lot of progress that can be made using certain tools under the Clean Air Act.’”

The Bloomberg article explained that, “The EPA under President Barack Obama isn’t likely to set up an emissions trading system for greenhouse gases under existing law that can ‘survive judicial review,’ [Raymond Ludwiszewski, a Washington-based partner at law firm Gibson Dunn & Crutcher LLP and a former EPA general counsel under President George H.W. Bush] said.

“‘It will be very difficult for the administrator to find tools that will allow cap-and-trade approaches to regulating greenhouse gases under the current Clean Air Act,’ he said.”

And the article noted that, “So far, the EPA has proposed greenhouse gas regulations that would toughen fuel economy standards for new cars and trucks and require new and modified industrial polluters, such as power plants, to install the ‘best available’ technology to limit emissions.

There has been ‘no final decision’ on greenhouse gas regulations ‘beyond what EPA has previously announced,’ Brendan Gilfillan, a spokesman for the agency, said in an e-mail.”

On the issue of EPA’s authority to regulate greenhouse gases, Jim Snyder reported yesterday at The Hill’s Energy and Environment Blog that, “The U.S. Chamber of Commerce asked the EPA to reconsider its endangerment finding, the legal underpinning of the agency’s efforts to regulate greenhouse gases.

“Steven Law, chief legal officer and general counsel of the Chamber, released a statement that said the business lobby believes the ‘right way’ to lower greenhouse gas emissions is through ‘bipartisan legislation and comprehensive international agreements.’”

In other climate related developments, Jim Tankersley reported yesterday at the Los Angeles Times Online that, “The federal government has ‘significant gaps’ in its strategy to cope with the increasing effects of climate change on the country, according to a White House report scheduled to be released Tuesday.

“The report will call for better risk assessments, more thorough scientific research and improved coordination of federal and local governments in order to handle the effects of warming temperatures, according to a draft of the report.”

And Meredith Shiner reported yesterday at Politico that, “Sen. Jim Inhofe (R-Okla.) attacked former Vice President Al Gore on the Senate floor Monday, calling climate change ‘the greatest hoax ever perpetrated on the American people’ and claiming that Gore is now ‘running for cover.’”

A video replay of Sen. Inhofe’s remarks can be viewed here.

Trade

Reuters reported yesterday that, “Brazil revealed on Monday a preliminary list of U.S. patents and intellectual property rights it could restrict unless both countries settle a long-standing dispute over U.S. cotton aid.

“It is the second set of measures Brazil has unveiled in a week to pressure Washington to obey a ruling by the World Trade Organization that found the U.S. cotton subsidies and export credit guarantee program illegal.”

The article stated that, “U.S. Trade Representative Ron Kirk said last week the United States still hoped to strike a deal with Brazil to avoid the sanctions. If it cannot, it will have to try to persuade Congress to change the U.S. cotton program to satisfy Brazil’s concerns, he said.

Brazil has indicated it could accept a U.S. pledge to send a reform bill to Congress if Brazil were compensated for damages until the bill’s approval. Some Brazilian business leaders have proposed compensation through U.S. investments into cotton research, as well as more U.S. imports of Brazilian beef, orange juice and ethanol.”

Meanwhile, a news release issued by the National Pork Producers Council yesterday stated that, “With rumors that the Mexican government may update a trade retaliation list against U.S. products, the National Pork Producers Council and state pork producer organizations today urged the Obama administration to resolve a dispute with Mexico over allowing its trucks into the United States.”

“‘We need to get this trucking issue resolved,’ said NPPC President Sam Carney, a pork producer from Adair, Iowa, ‘Mexico is an important market for U.S. pork, which right now isn’t on the retaliation list, but it could be. More importantly, this needs to be resolved so our trading partners have assurance that the United States will live up to its trade obligations.’

“In 2009, the United States exported to Mexico more than 503,000 metric tons of pork worth more than $762 million, making it the No. 2 market for U.S. pork exports.”

Ag Economy

Tom Steever reported yesterday at Brownfield that, “An official with the Federal Reserve Bank of Kansas City calls recovery from the recession sluggish, but he says it should still benefit the farm economy. Omaha Branch Executive Jason Henderson says the general economy is expected to grow only three percent this year, but he says even that will allow consumers to help the farm economy.

“‘As they purchase more food and buy more high-end foods, it’ll help domestically, but a global economic recovery should also strengthen U.S. exports,’ Henderson told Brownfield following a presentation at the FAPRI Outlook Conference. ‘The combination of rising consumer demand and rising global demand should help farm prices and farm incomes.’”

The Brownfield link includes a five-minute audio interview with Jason Henderson.

Meanwhile, National Agriculture Week started yesterday and Rep. Adrian Smith (R-Neb.) spoke about this development and highlighted the importance of the agricultural sector in a short one-minute speech delivered yesterday on the House floor. To watch Rep. Smith’s remarks on agriculture, just click here.

Corn Production Implications

Philip Brasher reported yesterday at the Green Fields Blog (The Des Moines Register) that, “Economists at the University of Illinois say cash prices for corn could reach $7 a bushel if the weather is poorer than average this year and that policymakers need to figure out how to deal with a price increase like that ahead of time.

“Scott Irwin and Darrel Good modeled a good- and poor- scenario based on the five best and worst growing seasons since 1960 in the main corn-growing states. They then came up with average yields that could range from 134.5 to 172.5 bushels per acre. Because of the national biofuels mandates, which guarantee that a certain percentage of the corn crop will go into making ethanol, the average farmgate price of corn could be near $5.75 per bushel while daily highs in the cash price could reach the $7 level that occurred during the marketing year for the 2007 crop, the economists found.

“‘We believe it is imperative that a process be initiated now to determine how to deal with such situations rather than putting our figurative heads in the sand and hoping it does not occur,’ they wrote.”

And a University of Illinois Extension update from yesterday indicated that, “The USDA will release two reports on March 31 that could have significance for corn and soybean prices. These are the March 1 Grain Stocks report and the annual Prospective Plantings report.

“The quarterly stocks report for corn may be more important this year than in a typical year. There are still unresolved questions about the size of the 2009 harvest and the impact that quality of the 2009 crop has had on domestic consumption. Some argue that the generally low test weight of the 2009 crop has resulted in higher consumption rates in both the livestock and processing sectors. Lower test weights should result in larger rates of consumption if consumption were measured by volume. However, production and consumption estimates are made in units of weight so that the impact of test weight on the number of bushels consumed may be minimal. The stocks report may shed some light on this issue.”

Yesterday’s update added that, “A lot has been written about planting intentions of various spring planted crops in 2010. Expectations for corn and soybean acreage intentions are in a wide range. There is more uncertainty than usual about prospective plantings of spring crops because of the large decline in winter wheat seedings, the maturity of some CRP contracts, the wide range in total planted acres of all crops in recent years, and the lack of fall field work and fertilizer application in some areas. There seems to be general agreement that producers will report intentions to plant more corn due to expanding ethanol requirements. Expectations generally fall in a range of a two to four million acre increase. Expectations for soybean acreage are more diverse, with some expecting intentions to show an increase and some expecting a decrease. A large increase would likely be viewed as negative for prices due to the large South American crop and prospects for declining demand for US soybeans.”

Keith Good