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Biofuels; Ag Economy; Trade; and Climate Issues

Biofuels

Dow Jones news reported yesterday that, “A federal mandate on use of biodiesel and the likely extension of a tax credit for the fuel are resurrecting hopes for the industry in the U.S.

Production of the fuel–which is similar to crude-oil-based diesel but made from vegetable or animal oils–essentially came to a halt over the past several months due to the economic downturn and the expiration of the $1-a-gallon tax credit at the end of 2009.

“Signs of a tentative turnaround point to how government action remains vital for renewable fuels, which proponents say can help mitigate climate change and foster domestic energy security.”

The article added that, “Although biodiesel production saw explosive, privately financed growth when crude oil prices were hitting all-time record highs in 2008, it was always ‘smaller and more fragmented’ than the corn ethanol sector, said Melissa Stark, a consultant with Accenture. While the politically savvy ethanol lobby managed to carve out their place in the U.S. fuel market early on, biodiesel producers had trouble drawing attention to their plight until recently, Stark said.

Higher prices on fossil fuels make alternatives more economically viable. The subsequent plunge in crude oil prices at the beginning of the recession hit renewable fuels hard and exposed their reliance on government support.”

In related news, DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “The challenge of finding budget offsets is one of the major stumbling blocks to passing a five-year extension of a tax break and import tariff that have helped build the nation’s ethanol industry.

“Sen. Charles Grassley, R-Iowa, ranking member of the Senate Finance Committee, told reporters in a conference call Tuesday he supports the effort in the House of Representatives to extend the 45-cent-per-gallon ethanol blenders’ credit to the end of 2015, as well as to extend the 54-cent-per-gallon ethanol import tariff over the same time period.

“‘The longer extension you have, the better the opportunity is for people to plan on investment and all of those things associated with the ethanol industry, biodiesel; almost any of those alternative energies you have, you need a long-term look,’ Grassley said.”

The DTN article explained that, “The challenge, Grassley said, is whether such a long-term extension would need budget offsets to pass. His philosophy is that offsets are not needed if Congress is extending existing tax policy. If there are changes, such as an expansion of the policy, then Grassley thinks that should require an offset.”

Mr. Clayton pointed out that, “Given U.S. ethanol production, the blenders’ credit will cost about $5.4 billion in 2010, but will rise steadily in cost as the nation’s Renewable Fuels Standard rises as well. By 2015, the new RFS projects a 20.5 billion gallon total requirement, which could put the blenders’ credit at more than $9.2 billion for that year alone.

“Demanding budget offsets has been one of the reasons some tax credits are only getting a one-year extension, such as the one the Senate passed in early March for the $1 biodiesel blenders’ credit.”

Meanwhile, an update posted yesterday at the DomesticFuel Blog stated that, “A new study from the Rochester Institute of Technology (RIT) finds benefits to the gasoline blended with 20 percent ethanol (E20).

“The study by RIT’s Center for Integrated Manufacturing Studies indicates that E20 reduces emissions of hydrocarbons and carbon monoxide compared with traditional gasoline or E10 blends. In addition, the research team found no measurable impact to vehicle drivability or maintenance in conventional internal combustion engines.”

The update noted that, “Growth Energy CEO Tom Buis says the study provides good data to support their ‘Green Jobs Waiver,’ which seeks an increase in the allowable blend of ethanol with gasoline from 10 percent to 15 percent, by showing that higher blends are fine for older model vehicles.”

Ag Economy

Diana Louise Carter reported yesterday at the Democrat and Chronicle Online (Rochester, NY) that, “Dairy farmers from around the state converged on Genesee Community College on Monday to tell a federal anti-trust prosecutor and U.S. Sen. Charles Schumer that they need help, but they don’t want dairy cooperatives to be hurt in an overhaul of the milk price system.

“More than 100 people, hailing from all corners of the state, came to listen or offer testimony before Schumer and Christine A. Varney, assistant U.S. attorney general in charge of the Department of Justice’s antitrust division.”

The article added that, “Varney said the justice department and federal agriculture department held similar meetings in Vermont and Iowa and soon plan to go to Wisconsin. And Schumer vowed to continue putting a spotlight on the problem [related news release from Sen. Schumer].”

In other news, Ken Anderson reported yesterday at Brownfield that, “Over the past month, there has been a lot of speculation about possible spring planting delays in the Midwest due to wet soils and cool temperatures. But conditions have improved significantly in recent days, to the point that a normal mid-April start to planting season looks like a real possibility for many farmers.”

Katie Micik reported yesterday at DTN (link requires subscription) that, “The price of corn may be sinking, but competition for this mostly tillable, 78-acre parcel with a 180-bushel average corn yield [in east –central Illinois] remains stiff.

Illinois appraisers estimate sellers listed 30 to 40 percent less land in 2009 than in 2008, and that’s turned what some thought could have been a soft market into a seller’s dream.

“This farm estate — four parcels and a total 416 acres — is being auctioned only because the heirs live in Minnesota, too far away to continue managing the farm long distance.”

The DTN article indicated that, “But interest in owning farmland is growing, even attracting the attention of pension funds and insurance companies like it did in the 1970s. At least 60 people packed the meeting room at the University of Illinois Extension office in Marshall on this sunny mid-March afternoon. Twenty-six people registered to bid.

“The price passes $350,000, then $380,000. Two finalists jockey back and forth. The man in the black wool coat, Gerald Forsythe, the auto racing magnate and a native of the area, tops all bids at $400,000. Joe Bubon, the auction’s agent, said $5,128 per acre was slightly higher than what he expected the land would bring.”

Yesterday’s article noted that, “There’s one trend that’s painfully clear: More people are willing to buy farmland than are willing to sell, said Murry Wise, CEO of Westchester Group, which ran the auction. He said he thinks there’s more capital chasing farmland now than in any year he’s been in the business, which is driving up values nationwide.

“‘Less quality farmland changed hands in 2009 than any year in my 34 year career. I mean there has just been a drought of sellers,’ Wise said.

Both farmers and investors are interested in buying farmland for the same reasons that current owners don’t want to sell: It’s an inflation hedge with an average yearly return of 3 to 5 percent even in volatile economic times.”

Yesterday, the USDA’s National Agricultural Statistics Service (NASS) released its monthly Agricultural Prices report.

In part, the NASS report stated that, “The corn price, at $3.49 per bushel, is down 6 cents from last month and 36 cents below March 2009 [related graph]; the soybean price, at $9.16 per bushel, decreased 25 cents from February but is 4 cents higher than March 2009 [related graph]; the March all wheat price, at $4.63 per bushel, is down 10 cents from February and $1.08 below March 2009 [related graph]; and, the March all milk price of $15.10 per cwt is 80 cents lower than last month but up $3.30 from March 2009 [related graph].”

With respect to the pork sector, Dan Piller reported yesterday at The Des Moines Register Online that, “If you have extra freezer space, you might consider stocking up on spareribs and pork chops for the summer barbecue season.

Prices for pork already are up about 10 percent from last year’s holiday period and are likely to go up another 10 to 15 percent after hog futures markets rose their allowable daily limits of $3 per hundredweight Monday.

“The market surge Monday on the Chicago Mercantile Exchange was in response to a U.S. Department of Agriculture report late Friday showing a 3 percent decline in hog herds in the United States and Iowa.”

The Register article stated that, “Cash hogs for daily delivery have been north of $50 per hundredweight for several weeks now, finally giving Iowa’s 8,300 hog producers hope for their first profits since 2007.

“‘We’ll be seeing higher prices going into the summer because that’s the big demand period,’ said Jason Golly of Lynch’s Livestock of Waucoma, a hog producer and trader.

While shoppers may pay a little more, the extra money will be a shot in the arm for Iowa’s economy.”

Trade

Bloomberg writer Alan Bjerga reported yesterday that, “New leadership in Japan may provide an ‘opportunity’ to resolve a dispute that has limited beef trade with the Asian nation for seven years, Agriculture Secretary Tom Vilsack said.

“The government of Prime Minister Yukio Hatoyama, which took office in September, may begin to revisit restrictions put in place in 2003 when mad cow disease was found in the U.S., Vilsack told reporters today in Washington.

“Vilsack said he will press Japan to ease those restrictions next week when he visits Tokyo as part of a trade mission. The U.S. beef industry is losing about $1 billion a year in sales because of Japan’s refusal to allow imports of beef from older animals, according to the National Cattlemen’s Beef Association.”

Meanwhile, a Daily Radio News item from USDA yesterday (one-minute audio report) indicated that, “Agriculture Secretary Tom Vilsack says the U.S. is still hoping to negotiate with Brazil to head off announced sanctions on several U.S. products.”

And Reuters news reported yesterday that, “U.S. President Barack Obama said on Tuesday he and French President Nicolas Sarkozy are working aggressively to sustain a global economic recovery.

“At a White House news conference with Sarkozy, Obama said he and Sarkozy agreed that sustained global growth means rejecting trade protectionism. He said he would like to see long-stalled Doha trade talks move forward this year.

Obama said all parties need to push for a balanced agreement that opens markets.”

Climate Issues

As a political background to the climate debate, Alexander Bolton reported yesterday at The Hill Online that, “Republican senators say they can work with Democrats, despite dire predictions that the healthcare fight would make cooperation impossible.

“Sen. John McCain (R-Ariz.) warned that using reconciliation to block a GOP filibuster and pass healthcare legislation could destroy the fabric of the Senate, but the explosion that some insiders expected never happened.

“Now Republican centrists say they are willing to move forward with Democrats on other issues.”

The article noted that, “Sen. Lindsey Graham (S.C.), who is negotiating with Democrats on energy and immigration reform legislation, has said he will not cut off talks because of the controversial use of reconciliation, which allowed Democrats to move a package of fixes to the healthcare legislation with only simple-majority votes.

The working order of the Senate appears to have emerged intact.”

Darren Goode reported yesterday at the NationalJournal Online that, “Senate Foreign Relations ranking member Richard Lugar, R-Ind., is trying to sell both parties on a strategy he detailed today that avoids addressing climate change through a cap-and-trade program or other system for putting a price on industrial greenhouse gas emissions.

“‘Several colleagues have diligently worked on proposals centered on cap-and-trade,’ Lugar wrote Friday to 32 Senate colleagues. ‘No matter your position on such proposals, I believe that we can have broad bipartisan agreement on the streamlined plan I share with you today.’ Lugar sent his letter to Senate leaders of both parties and centrist fence-sitters, as well as to President Obama and Energy Secretary Steven Chu.

“Lugar says his plan — which is dominated by items he and others have introduced in previous bills — would reduce dependence on foreign oil by two-thirds, or 1.75 billion barrels, by 2030 and would cut greenhouse gas emissions by 25 percent over business as usual by the same date. Lugar says this can be done without hurting economic growth or losing jobs while saving households an average of 10 percent on their electricity bills.”

The article explained that, “While an outline has been sent to legislative counsel to be made into a stand-alone bill, a Lugar aide said that the more practical goal is to build momentum around amendments to be offered to an energy bill approved last year by the Senate Energy and Natural Resources Committee. Lugar shares the view of Energy and Natural Resources Chairman Jeff Bingaman, D-N.M., Sen. Byron Dorgan, D-N.D., and others that the energy bill should be moved separately and before one that puts a price on U.S. carbon emissions.”

A related news release on this development was made available yesterday by Sen. Lugar; and recall also, that Sen. Lugar first presented some of his legislative ideas earlier this month (related update from March 10).

In related news regarding energy, John M. Broder reported yesterday at The New York Times Online that, “The Obama administration is proposing to open vast expanses of water along the Atlantic coastline, the eastern Gulf of Mexico and the north coast of Alaska to oil and natural gas drilling, much of it for the first time, officials said Tuesday.

“The proposal — a compromise that will please oil companies and domestic drilling advocates but anger some residents of affected states and many environmental organizations — would end a longstanding moratorium on oil exploration along the East Coast from the northern tip of Delaware to the central coast of Florida, covering 167 million acres of ocean.

“Under the plan, the coastline from New Jersey northward would remain closed to all oil and gas activity. So would the Pacific Coast, from Mexico to the Canadian border.”

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Lastly today, an item posted yesterday at DTN stated that, “DTN/The Progressive Farmer will launch an index to gauge the economic confidence of American farmers on April 19.

“The Agriculture Confidence Index is the industry’s first index designed to determine the level of optimism producers have concerning the current and future financial health of their operations.

“DTN/The Progressive Farmer will survey a sampling of 500 American farmers and ranchers three times each year — before planting, before harvest and at the end of the calendar year. The first sampling will take place in April. Drawing on the most recent data from the USDA Agriculture Census in 2007, the survey sample will be representative of the major types, sizes and locations of farms/ranches across the United States. Click here for more detailed information regarding the methodology behind the index.”

And as Easter approaches, a news release issued yesterday by the United Egg Producers stated in part that, “America’s egg farmers are lending a helping hand to their local communities this Easter by teaming up with Feeding America to donate 12 million eggs to food banks across the country. The eggs donations will span approximately 90 cities in 33 states leading up to Easter on April 4.”

Keith Good