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

Agricultural Economy

Scott Kilman reported in today’s Wall Street Journal Online that, “The Agriculture Department is standing by its forecast for unusually tame food-price inflation this year but warned Monday that the broad rally in farm commodity prices since midsummer will take a bigger bite out of consumers’ wallets next year.

“In its monthly food-price inflation forecast released Monday, the USDA stuck with the prediction it first made in late August that the government’s widely followed consumer-price index for food will rise between 0.5% and 1.5% this year, which would be the smallest increase since 1992.

“The USDA also left unchanged its forecast for retail food prices to climb by a more typical rate of between 2% and 3% in 2011.”

The Journal article noted that, “But Ephraim Leibtag, the USDA economist responsible for the forecast, said surging prices of commodities such as corn and wheat are increasing the odds that the 2011 food-inflation rate will be at the high end of his forecast range.

“‘I wouldn’t be shocked if we got to 3% if the current conditions continue,’ Mr. Leibtag said Monday.

Forecasting the food inflation rate is unusually difficult this year. Agricultural commodity prices are booming even though the U.S. economy is weak. Many executives in the food manufacturing and supermarket sectors are nervous about passing along all of their higher ingredient costs to consumers who seem willing to shop around for bargains.”

Bloomberg writer Jae Hur reported yesterday that, “Cotton jumped by the maximum allowed in New York for a second day, soaring to a record on concern that a cold front in China, the world’s biggest buyer, may hurt the harvest and after a hailstorm damaged crops in Texas.”

The article added that, “Cotton prices climbed 9 percent last week, the third straight gain, and have jumped 22 percent this month, heading for the biggest monthly advance since June 2007.”

Meanwhile, Tom Polansek reported yesterday at The Wall Street Journal Online that, “U.S. agriculture officials faced sharp questions Monday from a grain industry shaken by dramatic swings in recent government crop estimates.

“More than 100 people including farmers, grain traders and executives from commercial grain companies attended the U.S. Department of Agriculture annual data users’ meeting here [Chicago]. The unprecedented turnout was driven by a surprisingly sharp cut by the agency in its corn-crop estimates earlier this month. The change sent futures surging and further undermined confidence in the agency’s closely followed forecasts.”

Yesterday’s Journal article added that, “[Joseph Prusacki, director of statistics for USDA’s National Agricultural Statistics Service] reiterated the sharp cut in corn output reflected problems in estimating the average weight of corn kernels. The actual weight came in lower than the estimated weight used in earlier reports, helping to drive the sharp cut.

“‘Until we get real grain weights, it’s very difficult to get a handle on the size of the crop,’ said Mr. Prusacki, who cited the grain-weight issue in an interview last week.

“Besides estimates, the USDA uses actual field visits and farmer surveys to determine its harvest estimates. USDA officials said before the October report farmers may have mistakenly thought the crop would turn out better than it did and reported that way on their surveys.”

University of Illinois Agricultural Economist Darrel Good noted in a brief report yesterday (“How Many Acres of Corn and Soybeans are Needed in 2011?”) that, “Planted acreage of corn in the U.S. in 2010 totaled 88.222 million acres, 1.74 million more than planted in 2009, but 5.305 million fewer than planted in 2007. Planted acreage of soybeans in 2010 was a record 77.714 million, 263,000 more than planted in 2009. Acreage of all crops was about 2 million less than planted in 2009. While the mix of crops changed from 2009 to 2010, the overall decline reflected a reduction of about 2.3 million acres of double cropped soybeans.

Current strong demand and high prices of grains, oilseeds, and cotton have triggered intense interest in acreage needs for 2011. There are three issues that are important for corn and soybeans as they compete for acreage in 2011. First is the question of how many acres of these crops are needed to meet consumption needs at ‘reasonable’ prices. Second, how many acres are available for planting of all crops in 2011. Third, what is the likely strength of competition from other crops.”

After additional analysis, the report noted that, “Combined acreage of corn and soybeans may need to increase by 4 to 5 million acres or more in 2011, depending on the market’s assessment of yield risk. Corn and soybean prices required to attract such an increase depends in part on the size of the acreage pie. Acres of principal crops, including hay, totaled 318 million in 2010, but has recently varied from 315.6 million (2006) to 329.3 million (1999). Acreage appears to fluctuate with the level of crop prices – higher prices resulting in more acres. The size of the pie could increase by 6 to 7 million acres in 2011, making it easier to increase corn and soybean acreage, particularly with an increase in double-cropped soybean acreage.

“High prices of other crops suggest there will be competition for acreage in 2011, with winter wheat producers getting the first planting opportunity. Winter wheat supplies are ample and a large increase in acreage may not be needed, but may occur due to attractive prices. Soft red winter wheat acreage in particular could rebound from last year’s sharp decline. The USDA’s January 12, 2011 estimates of 2010 final crop size, December 1 stocks, winter wheat seedings, and South American crop prospects, will be important in determining corn and soybean acreage needs.”

Biofuels

Sally Schuff reported yesterday at Feedstuffs Online that, “The election next week is going to be about a lot of things — and money is definitely one of the them.

“Voters have the right question: How much money can the federal government afford to spend? That is, how much more?

So, it was surprising to hear that Agriculture Secretary Tom Vilsack doesn’t know how much the Obama Administration’s new strategy on next-generation biofuels will cost.”

The article stated that, “While the move to build the next generation of biofuels on cellulosic and other non-food sources of biomass is heartening, there is no price tag — or even an estimate — for the rollout of the initiatives to support it.

“Vilsack told reporters, ‘There is a significant investment associated with this; there is no question about that.’

“He explained during questions after his major policy speech at the National Press Club last week that the total costs of the initiatives are hard to calculate because they would span several years and would hinge, at least in part, on the amount of participation in the Biomass Crop Assistance Program (BCAP).”

Farm Bill

A news release yesterday from USDA’s Farm Service Agency (FSA) stated that, “Agriculture Secretary Tom Vilsack today announced that final Phase III payments under the Dairy Economic Loss Assistance Payment (DELAP) program began the week of Oct. 12, 2010. The program is funded by $290 million from the 2010 Agricultural Appropriations Bill to provide loss assistance payments to eligible dairy producers.

“‘We know that dairy producers have been experiencing difficult economic circumstances, but with this assistance, producers have been able to offset a portion of their financial losses,’ said Vilsack.”

And a separate FSA news item from yesterday indicated that, “Agriculture Secretary Tom Vilsack announced today that USDA has issued final 2009-crop counter-cyclical payments to farmers enrolled in the direct and counter-cyclical program for upland cotton and peanuts. The Food, Conservation, and Energy Act of 2008 (Farm Bill) requires 2009 final counter-cyclical payments to be made as soon as practicable following the end of the marketing year, but no sooner than Oct. 1, 2010.

“‘The counter-cyclical payment is another important tool that USDA’s Farm Service Agency provides for farmers who produce various crops, including cotton and peanuts,’ said Vilsack. ‘It is vital that we continue to support the hard work of the farmers we depend on these payments to help produce these crops.’”

Climate Issues

John M. Broder reported in today’s New York Times that, “The federal government announced the first national emissions and fuel economy standards for heavy vehicles on Monday, one of a series of regulatory steps that the Obama administration is taking to increase energy efficiency and reduce atmospheric pollution in the absence of Congressional action on climate change.

“The administration also announced approval of a major solar power installation on public land in the California desert, a step toward weaning the nation from dependence on fossil fuels. Together they represent what President Obama has called a more ‘bite-size’ approach to global warming that he intends to pursue while efforts to pass comprehensive legislation are stalled.

“The mileage proposal, which is scheduled to become final next year after a period of public comment, will apply to tractor-trailers, buses, delivery vans, heavy pickup trucks, cement mixers and many other classes of vehicles. It will cover new vehicles manufactured between 2014 and 2018.”

In other climate related news, Darren Samuelsohn reported yesterday at Politico that, “But after several bruising years fighting with Democrats over caps on greenhouse gas emissions, [Republicans] are just as likely to pitch some suggestions that would be prime fodder for compromise, including tax breaks and incentives for investment in nuclear power, clean coal and renewable energy.

“One thing is certain: Republican leaders probably won’t have to worry about being called overly ambitious.”

The article noted that, “Many observers envision Republicans trying to compromise with Democrats and the White House on energy policy before the 2012 presidential campaign takes over the congressional agenda.”

Political Notes- House Ag Committee Members

William Yardley reported in today’s New York Times that, “They say this race is an outlier. In one of the most conservative Congressional districts in one of America’s reddest states and amid strong Republican momentum nationwide, a Democrat — and an incumbent at that — may well win.

“The counterintuitive conventional wisdom says Representative Walt Minnick, a freshman Democrat [who serves on the House Ag Committee, and] who has won support from many Republicans by opposing President Obama and Speaker Nancy Pelosi on major initiatives like the health care overhaul and the stimulus package, has a good chance of being elected to a second term.

“‘I campaign by myself,’ Mr. Minnick said in an interview here, ‘on my record.’”

(Note: The New York Times currently has the race “Leaning Democrat,” while Larry Sabato from the University of Virginia has classified the race as a “Toss-Up.”)

The Times article stated that, “Mr. Minnick said he had to appeal to Republicans no matter what. He noted that Mr. Obama won just 36 percent of the vote in his district in 2008 and said that internal polls this fall show support for the president has fallen.”

Jonathan Ellis reported yesterday at the Argus Leader Online (SD) that, “Although dominant in her past two elections, Rep. Stephanie Herseth Sandlin trailed her Republican challenger, state Rep. Kristi Noem, in an Argus Leader/KELO-TV poll conducted Oct. 20-21. Forty-five percent of 800 likely voters said they supported Noem, while 43 percent supported Herseth Sandlin, a slim difference that was within the poll’s margin of error of 3.5 percentage points.”

Meanwhile, The New York Times rates House Agriculture Committee Chairman Collin Peterson’s race for reelection in Minnesota’s Seventh District as “Solid Democrat.”

The West Central Tribune editorial board endorsed Chairman Peterson for reelection last week, noting that, “Simply, agriculture is the major industry in the 7th District. Peterson knows the needs of agriculture and he was a major player in the latest farm bill. Even if Democrats lose the House, he would remain a ranking member on the committee and continue a role in future farm bills.”

And the editorial board at the Forum also endorsed Chairman Peterson, noting last week that, “Peterson is chairman of the House Agriculture Committee. His fingerprints are all over the current farm bill; farmers like it. He is preparing to write provisions of a new bill, the fallout from which will affect agriculture for years. Peterson’s influence on the process cannot be minimized. He understands production agriculture and dairy farming of the kind practiced in northwestern Minnesota. He intends to include in the new bill funding for Red River Valley water-retention flood control. Even if the House flips and Democrats no longer are in the majority, Peterson will be ranking member on the committee and well-positioned to secure the retention money.”

Political Notes- Rep. John Boehner’s Agriculture Impact

The AP reported on Friday that, “Deep in rural Georgia, the Republican who may become the next speaker of the U.S. House is playing let’s-make-a-deal with voters.

Minority Leader John Boehner promised this week that if southwest Georgia residents unseat Democratic Rep. Sanford Bishop, he will support placing GOP challenger Mike Keown on the House Agriculture Committee. It’s a promise designed to get Keown votes in a red-soil district that harvests the nation’s largest peanut and pecan crop.

“As Republicans campaign to win a majority in Congress, Boehner has dangled similar promises in Georgia, Arkansas, Missouri, Minnesota and Hawaii, sometimes in districts where single economic interests like farming or defense dominate regional economies.”

Last week’s AP article stated that, “Boehner has promised two more agriculture committee slots to Republican candidates Rick Crawford of Arkansas and Randy Demmer of Minnesota.”

The AP article pointed out that, “In south Georgia, Boehner’s tactic targets Bishop, who calls himself ‘The Peanut Congressman’ to tout his support for the district’s signature crop. He sits on an agriculture subcommittee of the House Appropriation Committee, which doles out tax dollars that Bishop describes as American pie.

“‘I’m in a position not only to have a seat at the table, but to help slice that pie into portions worthy of the needs of the people of the 2nd Congressional District,’ he said at a recent debate.

“But Boehner’s strategy is helping Keown make that promise too.

“‘We need to make sure we have someone on the agriculture committee who will support the farming community,’ Keown said.”

Anna Fifield reported last week at the Financial Times Online that, “John Boehner, the Republican poised to become Speaker of the House of Representatives next month in the event of a GOP takeover, wants to model himself on Nicholas Longworth, a fellow Ohioan who did the job in the 1920s.

“Longworth, who was from Cincinnati, which borders Mr Boehner’s district, promised to give more power to committee chairmen as he led a revolt against Joe Cannon, the autocratic Republican leader in the House.

“‘Boehner has said he wants to run a less centralised operation from the Speaker’s office and to rely on the decision-making of his party caucus,’ says Paul Beck, professor of political science at Ohio State University, noting the similarity between their stated aims.”

Keith Good