FarmPolicy

December 14, 2019

Farm Bill; Biofuels; Ag Economy; Trade; Climate Issues; and Political Notes

Farm Bill

Philip Brasher reported yesterday at the Green Fields Blog (Des Moines Register) that, “The future of the Iowa Farm Bureau’s proposal to scrap farm payments could hinge, at least for the near term, on the outcome of the Nov. 2 election.

If Republicans take over the House, there is likely to be less urgency to taking up the farm bill next year, says IFB President Craig Lang. And he notes that the likely GOP chairman of the House Agriculture Committee, Oklahoma Rep. Frank Lucas, comes from a state where the direct payments are popular.”

Mr. Brasher added that, “The committee’s current chairman, Minnesota Democrat Collin Peterson, wants to start work on the next farm bill in 2011, and he’s open to the idea of shifting money now going into direct payments into another type of program that would be pegged to fluctuations in farm revenue.

“If Republicans take over the House, ‘we’ll continue to champion the cause of an improved safety net and a different look at the direct payments, but I would say the strategy may be different,’ Lang said. He said the Oklahoma Farm Bureau has yet to debate the issue.”

“The direct payments have come under heavy criticism because farmers get the same amount of money every year no matter how well they’re doing or whether they even grow any crop. Another concern, often voiced in Iowa, is that the money winds up benefiting landowners primarily because the payments get capitalized into land values and rental rates. Lang acknowledged that the Iowa proposal is going to be an especially tough sale to rice and cotton producers, who benefit more from that form of subsidies than corn and soybean growers in the Midwest,” yesterday’s update said.

Biofuels

Reuters writer Charles Abbott reported yesterday that, “The U.S. government plans a half billion dollars in subsidies to help farmers grow the next generation of biomass crops — switchgrass and woody plants instead of corn, farm lobbyists and congressional staff workers told Reuters.

“Agriculture Secretary Tom Vilsack will announce the subsidy program on Thursday, they said. An estimated $525 million would be paid over 15 years to defray farmers’ costs.”

The article noted that, “A USDA spokesman was not immediately available for comment. Lobbyists and Capitol Hill staff workers said Vilsack’s announcement will be part of a speech on Obama administration progress toward tripling U.S. consumption of renewable fuels.

“They said Vilsack will also address infrastructure changes such as fuel pumps in service stations that can accommodate the new renewable fuels and a pipeline to carry ethanol.”

“Industry sources said the infrastructure issues may be handled through a government offer to help retailers pay to install fuel pumps that can dispense ethanol blends as high as 85 percent into gasoline, along with loan guarantees for an ethanol pipeline.”

Mr. Abbott noted that, “Under the Biomass Crop Assistance Program, farmers would be paid up to 75 percent of the cost to plant and produce biomass crops in areas near a biorefinery, with annual payments running as long as 15 years. Congress approved the program in 2008, and USDA began work in February on regulations to put it in place.”

In other news, an article posted yesterday at DTN reported (link requires subscription) that, “Researchers at the U.S. Department of Energy’s Oak Ridge National Laboratory will conclude in a yet-to-be-published paper that indirect land use change from expanded corn ethanol production in the past decade has likely been ‘minimal to zero,’ according to a news release from the Renewable Fuels Association.

“‘The unproven notion that expanded U.S. ethanol production means new acres around the world must be brought into cultivation is taking another blow,’ the RFA release said.

“Geoff Cooper, RFA vice president for research and analysis, said in a statement that the research shows ILUC isn’t happening.”

Ag Economy

Yesterday, the U.S. Federal Reserve Board released the October edition of its “Beige Book” report.

With respect to agriculture, the Chicago Federal Reserve District noted that, “Prices for milk, hogs, and cattle remained higher than last year, helping offset a sudden increase in feed costs for livestock. Fertilizer costs also increased, but drying costs for corn decreased substantially from the previous year.”

Similarly, the Kansas City District explained that, “Crop prices strengthened further, boosting income expectations for District farmers. Higher feed costs, however, trimmed incomes for livestock producers. Stronger profits for crop producers spurred higher cropland values and a rebound in capital spending on agricultural equipment and grain storage facilities. Repayment rates on farm loans improved with higher incomes, and lenders reported a drop in the number of loan renewals and extensions.”

And the Minneapolis District pointed out that, “[P]rices remained robust for many District agricultural products;” while the Dallas District stated that, “Demand for U.S. agricultural products remains strong and commodity prices have gone up across the board, boosting optimism among producers. Cotton will be a boon for Texas agriculture this year, as a potentially record-setting crop is matched with near record-high market prices.”

With respect to cotton prices, Bloomberg writer Elizabeth Campbell reported yesterday that, “Cotton futures climbed by the exchange limit in New York as dwindling stockpiles renewed speculation that supplies will fall short of climbing demand.”

Yesterday’s article added that, “Cotton futures for December delivery rose 4 cents, the most allowed by ICE, or 3.6 percent, to settle at $1.1426 a pound at 2:30 p.m. in New York. On Oct 15, the price reached $1.198, the highest level since the fiber starting trading 140 years ago.

“This year, futures have jumped 51 percent, the most among 19 raw materials in the Thomson Reuters/Jefferies CRB Index.”

With respect to soybeans, Andrew Johnson Jr. reported yesterday at The Wall Street Journal Online that, “U.S. soybean futures hit a new, 14-month high in the day’s trading on strong export demand and a broader rebound in commodities.

“Chicago Board of Trade soybean futures for November delivery, the most active contract, rose 27 cents to $12.07 a bushel, eclipsing its recent high-water mark set Friday at $12.0425.”

The Journal article noted that, “Strong export demand for U.S. soybeans, particularly from China, is keeping prices at these levels. The U.S. Department of Agriculture announced Wednesday that private exporters reported 180,000 metric tons of U.S. soybeans.”

Recall that high soybean prices are occurring while, “Soybean production remains on target for a record-high year [related graph] and is forecast at 3.41 billion bushels, up 1 percent from the previous record, set in 2009” (USDA-NASS news release– October 8, 2010).

In related news, John Shipman and Anjali Cordeiro reported in today’s Wall Street Journal that, “General Mills Inc. said it will increase prices next month on a quarter of its breakfast cereals as a result of rising grain and other commodity prices, illustrating the pressures more companies face to pass along sharply higher costs on everything from corn to copper.

“The Minneapolis food supplier said some cereals will increase by a ‘low single-digit’ percentage rate effective Nov. 15. Kraft Foods Inc. is also raising prices, according to people familiar with the matter, although its scope wasn’t clear. A Kraft spokesman declined to comment.

Across corporate America, more companies are wrestling with when and how much to raise prices as raw materials costs climb. The increases pose new hurdles to profits as consumers continue to resist increases.”

Today’s Journal article added that, “Corn is up 44%, milk is up 6.5%, hot rolled coil steel is up 4%, copper up 29%, and oil up 14% from a year ago [related graph]. At this point it’s difficult to quantify how broadly these price increases will affect future earnings. The big unknown is not only how much further commodity prices will rise, but how much of that added cost companies will be able to pass along in the form of higher prices.”

Meanwhile, Cameron McWhirter reported yesterday at The Wall Street Journal Online that, “An extreme drought has taken hold in parts of nine states stretching from the Southeast to the lower Midwest, damaging crops, driving up the cost of keeping livestock and putting officials on alert for wildfires.

Climatologists say the dry weather likely will continue at least until spring, raising the possibility of prolonged drought in some areas next summer.

“‘Six months from now, we could be in a fairly significant drought situation throughout the Southeast,’ said Brian Fuchs, a climatologist at the National Drought Mitigation Center, a federally funded center at the University of Nebraska that monitors drought conditions across the U.S. ‘The general pattern is going to show worsening.’”

In other production related news, The New York Times editorial board opined in today’s paper that, “Every year, usually beginning in late spring, an oxygen-depleted dead zone forms in the Gulf of Mexico at the Mississippi River’s mouth, killing off fish, shrimp and other marine life. By the time cooler weather restores life to the zone, the fishing industry has sustained substantial losses.

“Scientists have long known that the dead zone — this year it covered 7,000 square miles — is created largely by nitrate washed downstream from fertilized fields as far north as Minnesota. A study in the Journal of Environmental Quality by scientists from Cornell University and the University of Illinois has now conclusively identified the largest source of that nitrate: tiled farm fields.”

The Times opinion item added that, “Mark David, a University of Illinois researcher, observed that ‘farmers are not to blame.’ We agree. Tiling is as old as Midwestern farming. What’s needed now is more research and direct incentives from the Agriculture Department to find ways to mitigate this problem.

“These include: restoring wetlands, where possible; growing cover crops to absorb water in the spring, when runoff is heaviest; different methods of applying fertilizer; and even methods of treating the runoff before it reaches creeks and rivers. Sacrificing life in the gulf for corn in the fields is a trade-off that has to stop.”

Trade

Reuters writer Jonathan Lynn reported yesterday that, “India’s trade chief added his voice on Wednesday to comments that the long-stalled Doha talks to free up world trade are again showing signs of life.

“But Trade Minister Anand Sharma said India would not reopen what had been agreed, and any deal must help developing countries by making farm trade fairer — apparently rejecting U.S. calls for a shake-up of what is on the table so far.”

Christian Oliver reported on Tuesday at The Financial Times Online that, “Time is running out for South Korea and the US to agree a landmark trade deal by a summit of the G20 leading economies next month, with Seoul saying it will not rework the text signed in 2007 and arguing it is up to Washington to offer a ‘creative solution’.

“Barack Obama, US president, and Lee Myung-bak, his South Korean counterpart, have invested heavy political capital in declaring outstanding problems should be resolved by the G20 summit in Seoul as global leaders seek to boost trade to support a global recovery. If successful, this would be the biggest US trade deal since the North American Free Trade Agreement was signed in 1993.

“But Kim Jong-hoon, South Korea’s trade minister, said it was up to Washington to present Seoul with a compromise that could resolve the concerns of several US groups which believe the tariff-slicing deal treats their carmakers and beef industry unfairly.”

Climate Issues

Ben Geman reported yesterday at The Hill’s Energy Blog that, “House Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) on Tuesday told the U.S. Chamber of Commerce — up close and personal — that it erred in attacking his climate bill and called for collaboration in the future.

“‘We cannot advance our industrial leadership in clean energy technology and jobs unless we have a modern and effective energy policy,’ Waxman said at a Chamber-hosted event on U.S.-Israel business ties, according to his prepared remarks.

“Waxman shepherded a big cap-and-trade and energy bill to a narrow House victory in 2009 but the bill — under assault by the Chamber and several other big industry groups — stalled in the Senate.”

Political Notes

The House Agriculture Committee consists of 46 Members, 28 Democrats and 18 Republicans.

By juxtaposing a map of the current Ag Committee Members, with a New York Times political outlook map of all of the midterm races, the following observations can be made.

Of the 28 Democratic contests, 16 are either “Leaning Republican,” or rated as “Toss- ups” by The New York Times.

According to The New York Times analysis, there are no GOP House Ag Committee districts that are “Leaning Democrat,” or rated as “Toss-ups.”

For more details on the 16 Democratic House Ag Committee Members who potentially face a more difficult race to reelection this November, see this two page FarmPolicy.com summary that includes more detailed links to The New York Times election analysis.

Rep. Stephanie Herseth Sandlin (SD) is one of the 16 Democrat House Ag Committee Members who is facing a highly competitive race for reelection.

David Montgomery reported yesterday at the Rapid City Journal Online (SD) that, “For all their fierce disagreement on other issues in the campaign, the two major-party candidates for U.S. House of Representatives have a lot of common ground when it comes to agriculture policy.

“Instead of emphasizing policy differences, in interviews, Rep. Stephanie Herseth Sandlin, a Democrat, and state Rep. Kristi Noem, a Republican, each argued they would be the more effective advocate for the same policies.

On one controversial issue — federal crop subsidies — both women said they would support a change, if only to protect other agricultural programs under political attack.”

The article added that, “Both women said some money should stay in direct payments, but a large portion should be redirected to farmers’ insurance and other programs designed to prevent a bad year from causing ruin.

“The issue of crop subsidies is a personal one for both candidates. Noem’s family farm and the farm of Herseth Sandlin’s father, Lars Herseth, have both received significant amounts in crop subsidies.”

Rep. Earl Pomeroy (ND) is another of the 16 Democratic House Ag Committee Members currently facing a tough race.

Simmi Aujla reported yesterday at Politico that, “Endangered Rep. Earl Pomeroy (D-N.D.) is taking on Rep. Paul Ryan’s (R-Wis.) plans to reform Social Security.

“The chair of the Social Security subcommittee on House Ways and Means got the Social Security Administration to analyze Ryan’s recommended changes, including raising the retirement age above 67, and changing the way benefits are indexed.

“The SSA’s actuary report, released Wednesday, shows that the changes would reduce benefits between 10 and 50 percent compared with the current rules.”

Rep. Bill Owens (NY) is also one of the 16 Democratic House Ag Committee Members involved in a tight contest for reelection.

Marc Heller reported yesterday at the Daily Courier-Observer Online (NY) that, “Rep. William L. Owens, D-Plattsburgh, has far outpaced his Republican rival in campaign fundraising but the two are neck and neck in cash on hand, just as they appear to be in voters’ minds heading into the final two weeks of the race.”

The article added that, “Mr. Owens has broken the million-dollar mark on total contributions, raising $1,087,472 for his re-election, his October quarterly filing at the Federal Election Commission shows. [Matthew A. Doheny ] has raised $611,144 for the cycle but has put more than $1 million of his own money into the race, including $690,000 for the three-month period ending Sept. 30, records show.”

Keith Good

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