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Farm Bill; Ag Economy (Land Values); Food Safety; and Crop Insurance

Farm Bill

James Q. Lynch reported yesterday at the Newton Daily News Online (Iowa) that, “It may be 2010, but Rep. Leonard Boswell has been working on the 2012 Farm Bill and warning that farmers may see some cuts in agricultural programs as Congress tries to rein in the federal debt.

“The next farm bill will include a safety net, the seven-term Des Moines Democrat told The Gazette Editorial Board last week, but programs may have to be capped or ‘adjusted.’

“‘There’s going to be a major effort to get our arms around reducing the debt and starting to draw back on it,’ said Boswell, who served 20 years in the Army, farmed and served in the Iowa Senate before being elected to the U.S. House.”

The article added that, “In hearings with farmers, producers, processors and others who make their living on agriculture, ‘We put the serious question to them: What do you really need?’

“‘You’re not going to get everything,’ he said. ‘I think they understood.’ Boswell, 76, who is being challenged by state Sen. Brad Zaun, R-Urbandale, offered few specifics on adjustments to crop insurance, which he called farmers’ safety net. Capping subsidies will be a part of the discussion, too. He wants to protect and, perhaps, increase assistance for biodiesel and other forms of renewable energy. He thinks the Department of Energy is close to approving a dedicated pipeline to carry biofuels from the Midwest to the eastern United States, which will be more efficient than moving fuel by truck and rail. Building a pipeline, Boswell said, will create 80,000 jobs, many of them in Iowa.”

A recent AP article, which described a televised debate Friday between Rep. Boswell and his GOP challenger, noted that, “When asked about the Farm Bill and subsidies to farmers, Boswell said the programs are needed to give farmers the certainty they need to ensure a cheap and plentiful food supply.

“‘We all have a vested interest in having successful food production and processing,’ said Boswell. ‘We do have the most available, safest, least expensive food in the world because we all invest in it.’

“Zaun countered by saying that even groups like the Iowa Farm Bureau Federation are beginning to talk about ending direct payments to farmers, although the organization would like the money redirected to farmers through other efforts.

“Zaun said it makes sense to be sure the federal money is needed and reaches the right people.”

Meanwhile, Chris Clayton noted yesterday at the DTN Ag Policy Blog that, “[Agriculture Committee Ranking Member Frank Lucas, R-Okla.] had earlier challenged Secretary of Agriculture Tom Vilsack that shifting any money from commodity programs to energy and rural development would be akin to trying to turn rural America into a bedroom community. He added that his producers like what has happened in the current farm bill and don’t want to see a lot of changes.

Lucas also was critical of the administration’s proposed cuts in direct payments and the $4 billion cut in crop insurance through the standard reinsurance agreement. He said such cuts hurt the potential baseline for the farm bill.

“When it comes to budget cuts, Lucas said in the meeting last spring that if Republicans gain control, people can expect the entire federal budget would be examined. ‘I will tell you that I believe I will be able to make the case that because we have not received the dramatic increases that other programs have, that because, basically since the 2002 farm bill projected costs for our commodity titles have been less than you might have expected, I believe I will be able to make the case to maintain the same allocations we have now. Make programs more efficient, yes. Make them reflect our competitive challenges around the world, yes.’

“He added, ‘I will fight to make sure the resources committed to rural America are there.’”

Recall also that a Reuters news article from last month reported that, “Oklahoma Rep. Frank Lucas said he would retain so-called direct payments that guarantee cotton, grain and soybean growers $5 billion a year as part of a judicious fine-tuning of the 2008 farm law, which is popular in farm country.

“‘There’s no need to throw out the system,’ said Lucas during a Reuters interview. ‘I think we take the ‘08 bill and we build off of that, and within the money available to us.’”

With respect to direct payments, a news release yesterday from the National Farmers Union (NFU) stated that, “[NFU] President Roger Johnson addressed the annual convention of the Montana Farmers Union (MFU) in Great Falls, Mont., on Saturday, Oct. 16. Johnson met with the members to discuss the priorities for the next year and the importance of involvement at the grassroots level.”

Johnson highlighted NFU’s priorities for the upcoming 2012 Farm Bill negotiations, including maintaining baseline funding, initiating supply management in grains and food products, improving crop insurance programs, continuing the SURE program, overhauling dairy policy, and eliminating direct payments.

“‘There is a need for a safety net for U.S. farmers and ranchers when times are difficult, not when times are good,’ said Johnson. ‘NFU will continue to advocate for the elimination of direct payments and the need to establish a safety net that will assist in times of need.’”

A news release yesterday from the National Cotton Council (NCC) stated that, “The Washington Post has decided to open its mouth and insert a foot or has chosen to speak outright lies. In an article so full of errors, insinuations and political posturing [“Cotton Candy,” 10.18], setting the record straight will take some space. Based on data from USDA, the United States is the third largest cotton producing country in the world, yet according to the Washington Post the United States controls 80 percent of the world’s cotton market. Based on data from USDA, the United States accounts for only 16 percent of world cotton output and less than 3 percent of world cotton mill use. The Washington Post is woefully short on fact checking.”

After additional analysis, yesterday’s NCC release noted that, “In addition, no Washington Post editorial on agriculture can resist the obligatory jab at direct payments. The Washington Post conveniently ignores the fact that direct payments are almost the only U.S. farm program component that is fully consistent with our WTO obligations. Direct payments to all commodity program participants amount to about $6 billion annually. When these payments were created, Congress reduced other commodity price-related supports in the agriculture safety net. The elimination of the direct payments is not sound trade policy and would not necessarily be a fixed savings if other price-related program components are adjusted for the loss of the direct payments.

“Scurrilous editorials damage all parties. With the media being held in increasing disregard, the Washington Post is digging a deeper hole instead of providing solid and factual reporting,” the NCC release said.

Ag Economy- Land Values

Pat Waters reported on Sunday at the Omaha World-Herald Online that, “From California nut groves to corn and soybean fields in Nebraska and Iowa, farmland is attracting intense interest and commanding record prices as farmers expand operations and investors look for safe and solid places for their money.

The frenzied activity, interest from nonfarm buyers and accelerating prices are reminiscent of behavior that contributed to the 1980s farm crisis. But experts say critical differences exist today, most significantly the fact that many buyers pay cash and lenders require more money upfront from buyers.

“‘I see a lot of similarities between today and the 1970s,’ said Jason Henderson, an economist and head of the Omaha branch of the Federal Reserve Bank of Kansas City, Mo. ‘Negative interest rates, a huge export market, rising deficits on the federal level. The one difference is that farmers aren’t buying assets with as much debt as the 1970s.’

“‘There’s a lot more equity in the farm sector.’”

The article added that, “Strong prices for grain are the primary driver of farmland sales, along with uncertainty about stocks, bonds and other investments. Low returns for government-insured products such as certificates of deposit also are a factor, said Marc Hock, regional manager for Pinnacle Bank, the largest ag lender in Nebraska.”

Meanwhile, Reuters writer Carey Gillam reported yesterday that, “U.S. farmland could be the next asset bubble at risk for bursting, a leading banking regulator said on Monday.

“Sheila Bair, chairman of the Federal Deposit Insurance Corp., said it was important to monitor U.S. farmland values for signs of instability like the price bubbles in the housing and stock markets that burst with disastrous consequences for many investors.

“Farmland values remain 58 percent above their 2000 levels in inflation-adjusted terms.”

The article noted that, “‘A sharp decline in farmland prices similar to the early 1980s could have a severe adverse impact on the nation’s 1,579 farm banks,’ Bair said in a speech delivered to a risk management group in Baltimore.

“‘While the credit structure underlying U.S. farmland does not appear to involve excessive leverage or inappropriate loan products, this is a situation that will continue to require close monitoring,’ she said.”

University of Illinois Agricultural Economist Gary Schnitkey released a brief paper yesterday titled, “Farmland Price Outlook: Are Farmland Prices Too High Relative to Returns and Interest Rates?” where he noted that, “Unlike many other assets, farmland prices have not fallen during the recent troubled economic times. This has led to questions on whether farmland prices will have large price declines similar to those experienced by many stocks during 2009 or by farmland during the 1980s. In this article, evidence is presented suggesting that land price declines are not likely in the near future. Before a large farmland price decline will occur, farmland returns likely will have to decrease or interest rates will have to increase. Either could occur, but neither seems likely in the near future. Over the next year, farmland returns are likely to increase because of above average commodity prices. Interest rates increases do not appear likely within the next year or two as the Federal Reserve seems intent on implementing more quantitative easing. In the longer-run, however, interest rate increases could occur, leading to declining farmland prices.”

Dr. Schnitkey added that, “Currently, farmland prices in Illinois are in line with historical relationships suggested by capitalized values. These capitalized values take into consideration cash rent and interest rate levels. The rise in commodity prices experienced this summer and fall likely will lead to upward pressure on cash rents, thereby leading to higher farmland prices.”

More broadly with respect to the agricultural economy, Bloomberg writers Whitney McFerron, Jeff Wilson and Shruti Date Singh reported yesterday that, “Record U.S. agricultural exports are providing an unexpected boost to President Barack Obama’s target of doubling overseas sales by 2015 and driving earnings for Agco Corp., CF Industries Holdings Inc. and Cargill Inc.

The 66 percent gain in corn prices from June lows and as much as doubling in wheat are leading a jump in U.S. farm revenue that JPMorgan Chase & Co. expects will increase demand for Deere & Co.’s tractors and Mosaic Co.’s fertilizer. Farm exports from the U.S., the world’s largest grain shipper, may top the 2008 record of $115.3 billion in 2011, said Joe Glauber, chief economist at the U.S. Department of Agriculture.

“While agriculture accounts for just 1 percent of the $14.3 trillion U.S. economy, the actual impact of surging prices may be 10 times more once spending on equipment, seeds, grain handling and food making are added, said Jason Henderson, an economist at the Federal Reserve Bank of Kansas City. The boom may continue through 2011, with wheat predicted to average $7.28 a bushel and corn $5.83, as much as 98 percent above the 10-year average, a Bloomberg News survey of seven U.S. analysts showed.”

Yesterday’s article noted that, “Grain prices surged as drought in Russia, flooding in Canada and parched fields in Kazakhstan and Europe ruined crops. Russia, once the world’s third-biggest wheat exporter, banned overseas sales in August. Ukraine, the biggest barley shipper, said Oct. 12 it would introduce grain quotas.

“Corn, wheat and soybeans jumped the most allowed by the Chicago Board of Trade on Oct. 8 after the USDA predicted less supply. On Oct. 15, Goldman Sachs Group Inc. boosted its 12- month forecast for corn to $6.25 a bushel from $5.

“‘I am very bullish on farm commodities for the next many years,’ Agco Chief Executive Officer Martin Richenhagen said in an Oct. 13 interview. Demand probably will increase from the end of this year, he said.”

The Bloomberg writers explained that, “While many growers are benefiting from the boom in crop and farmland prices, there are limits to how much that will trickle down to the rest of rural America, said Ernie Goss, a professor of economics at Creighton University in Omaha.

“‘It’s not like the old gold rush days, when they’d buy up all the liquor in the local saloon,’ Goss said. ‘That’s not how it works now. You have fewer and fewer farms, and fewer and fewer farm families, so it hasn’t spilled into small businesses like the drug store, or the shoe store.’

The rural economy contracted in September for the third straight month, as hiring and home sales slumped, according to a monthly Creighton survey of small-town banks in 10 states. The agricultural industry is ‘experiencing healthy growth,’ with land and farm-equipment sales rising, according to the survey.”

Yesterday’s article stated that, “Rising trade will contribute to a projected 24 percent gain in net farm income in the 2010 calendar year to $77.1 billion, the USDA said Aug. 31. Since that report was issued, corn futures have surged 27 percent. The department will update its forecast next month.

“Lower debt and rising income this year means growers will tap just 47 percent of their loan-paying capacity, compared with 63 percent in 2009, the USDA said in August.”

In other news regarding farm business, Sarah E. Needleman reported in today’s Wall Street Journal that, “Glenn Boyette used to be afraid he’d lose his family farm. Now he’s busy making money by making other people scared.”

“‘We raised livestock and produce for many years and it just got tighter and tighter,’ says Mr. Boyette, 58, who took over the farm from an uncle in the late 1980s and over time saw profits dry up.

“From the months of September to January, he says, about 35,000 visitors drop by to experience the haunted houses, 3-D adventure, spinning vortex, haunted trail, corn maze and a Christmas light show. Tickets cost between $7 and $25. Revenues, says Mr. Boyette, have doubled since the shift away from farming.”

From an international perspective, Juan Forero reported in Sunday’s Washington Post that, “Wheat, of course, is a temperate crop that flourishes in places like Kansas and South Dakota. But here in Brazil’s Cerrado, a wide savanna that covers nearly a quarter of the country, wheat varieties created especially for tropical climates and nutrient-poor soil bloom alongside corn, soybeans and cotton.

Once seen as a wasteland, the Cerrado is now the motor of an agro-industry so potent that Brazil threatens to surpass the United States as breadbasket to the world. The answer to how that transformation happened can be found at a government-run agricultural research center, called Embrapa, where scientists make Brazil’s poor soils fertile while developing crop varieties that will thrive here, including wheat.”

The Post article pointed out that, “As Brazil prepares to elect a successor to President Luiz Inacio Lula da Silva on Oct. 31, the Latin American giant is widely considered an economic success story among emerging markets. Some analysts say its economy could become the fifth-largest by 2016, when the Olympic Games are staged in Rio de Janeiro. Brazil’s increasingly diverse industry also produces automobiles, refrigerators, fighter planes and deep-sea oil platforms.

Brazil, however, is perhaps best known as a dominant power in the exportation of foodstuffs, from meat to poultry, orange juice to coffee. Other rising giants, most notably China, cannot get enough of Brazil’s soybeans and beef, two signature exports. And poorer countries struggling to produce food, such as Venezuela and several African countries, want to emulate its success.

That has made the Brasilia headquarters of Embrapa, which stands for the Brazilian Agricultural Research Corp., an essential stop for foreign agriculture ministers and dignitaries curious about how Brazil made the Cerrado green. In turn, under a directive from Lula, Embrapa is sending its scientists as near as Venezuela and as far as Mozambique to improve production.”

Food Safety

Philip Brasher reported yesterday at the Green Fields Blog (Des Moines Register) that, “The Food and Drug Administration has cleared Hillandale Farms to resume shipping fresh eggs from its West Union farm, but Jack DeCoster’s Wright County Egg operation based at Galt is going to have to wait a while. The FDA released a warning letter that it sent Friday to Wright County Egg threatening to take further action if violations turned up in an August investigation aren’t corrected.”

Crop Insurance

A news release yesterday from USDA’s Risk Management Agency stated that, “USDA’s Federal Crop Insurance Corporation Board of Directors (FCIC Board) voted to expand the Pasture, Rangeland, Forage (PRF) program of insurance at its September 2010 meeting. The Board approved expansion of the pilot to Arkansas, Maryland, Minnesota, and Wisconsin under the Rainfall Index (RI), and to Nevada under the Vegetation Index (VI), beginning with the 2012 crop year.

“For other coverage areas under both the RI and VI plans, please see the 2011 availability map.

“‘This innovative pilot program is based on vegetation and rainfall indices,’ said RMA Administrator, William J. Murphy. ‘It is designed to give forage and livestock producers the ability to insure for losses of forage intended for grazing or to be harvested for hay. The use of technology allows the Federal crop insurance program to offer an insurance product useful to ranchers who rely on pastures and rangelands for their livestock.’”

Keith Good