FarmPolicy

August 15, 2018

Debt Commission; Farm Bill; Biofuels (Tax Issues); Trade; and the Ag Economy

Debt Commission

Lori Montgomery and Shailagh Murray reported in Saturday’s Washington Post that, “An unexpected groundswell of support was building Friday around an aggressive blueprint for cutting long-term spending, raising taxes and stabilizing the growing national debt, as lawmakers in both parties called on President Obama to embrace the proposal and launch a serious effort to rebalance the federal budget.

“Eleven of the 18 members on Obama’s fiscal commission voted to endorse the package, short of the 14 needed to force quick action in Congress. But three Republican and three Democratic lawmakers were among those voting ‘yes,’ a show of bipartisan support that Senate Majority Whip Richard J. Durbin (D-Ill.), a commission member, hailed as a ‘breakthrough.’

“The reality of deficit reduction remains more complicated, however, particularly against a backdrop of stubbornly high unemployment and strident calls for short-term spending to boost the economy.”

The Post article explained that, “Meanwhile, tax cuts enacted 10 years ago during record surpluses are set to expire on New Year’s Eve, and the two political parties are waging a bitter battle to extend some or all of them – adding trillions of dollars to future deficits. Even as they applaud the commission’s work, lawmakers have so far demonstrated little appetite for the painful job of raising people’s taxes and cutting their federal perks.”

The White House is deep in negotiations with the GOP over those and other year-end issues, and less focused on the recommendations of its fiscal commission,” Saturday’s article said.

However, an update posted yesterday at Politico noted that, “Senate Budget Committee Chairman Kent Conrad called on Sunday for a presidential summit in the wake of the deficit commission’s failure to reach a broad consensus.

“A member of the commission, who voted to support the recommendations, Conrad said on ‘Fox News Sunday’ that he’s told White House officials about his plan but has not gotten a response.”

Philip Brasher reported on Friday at the Green Fields Blog (Des Moines Register) that, “A $10 billion cut in farm spending included in a deficit commission could be a taste of what’s to come for agricultural subsidies.

“Sen. Kent Conrad, the North Dakota Democrat who chairs the Senate Budget Committee, acknowledged that he played a role in drafting the proposal that was part of a bipartisan commission’s plan to reduce the federal budget deficit.

Conrad said the reduction was relatively small, about 7 percent of projected farm spending over the next decade, compared to some other cuts that were included in the plan, which would reduce deficits by a total of $4 trillion. An earlier version of the plan contained a cut to farm spending that would have been three times as large on an annual basis, he noted.”

Mr. Brasher added that, “Conrad’s views are especially important to agribusiness interests not only because of his leadership of the budget panel, which writes blueprints for future spending, but also because of the influence he wields in writing farm bills. Even though he wasn’t chairman of the Senate agriculture committee at the time, Conrad teamed with Sen. Saxby Chambliss, R-Ga., to write the key elements of the 2008 farm bill.

“Agriculture Secretary Tom Vilsack this week criticized the commission’s plan, saying that that agriculture spending had already taken a hit toward reducing the deficit because of a reduction in crop insurance that the Agriculture Department made this year.”

Farm Bill

With respect to future Farm Bill spending, Urban C. Lehner, the DTN vice president of editorial operations, indicated in a blog update posted on Friday that, “Now that the Republicans are taking over the House and promising to cut the deficit, everyone’s talking about farm subsidies. The question, it seems, is no longer whether they’ll be cut but how much and which programs.”

Mr. Lehner noted that, “A Texas farmer expressed what’s on at least some farmers’ minds. Just give us a crop-insurance program with a more favorable deductible and less red tape, he said in an email: ‘A progressive farmer does not need subsidies. What USA farmers need is crop insurance to cover the growing risk.’

“Others, like the Iowa Farm Bureau, are looking for a richer, county-based ACRE program, and are willing to give up direct payments to get it.

“But the Oklahoma Farm Bureau likes direct payments and the new chairman of the House Agriculture Committee is an Oklahoman. So the chances of Congress abandoning direct payments are slim.”

Friday’s update stated that, “For that matter, the underlying assumption of deep cuts in farm programs may also be off kilter. Some cuts are likely, but farmers’ friends in Congress will fight to hang on to as much as possible and they’ve been successful facing budgetary pressure in the past.

“It’s not hard to imagine the arguments they’ll advance. One is, essentially, ‘We gave at the office.’ That is, farm programs should get credit for the $6 billion whack USDA took out of the crop-insurance program when it renegotiated the insurance carriers’ fees.”

Mr. Lehner pointed out that, “Farmers will push for change for two big reasons. The loan program and countercyclical program are increasingly irrelevant and the chances of Congress making them relevant with higher target prices are near zero. And the direct payments program, despite its many virtues, is hard to defend to a skeptical public.”

Friday’s update concluded by saying: “Please take this as it’s intended — as a forecast, not an endorsement, and a long-run forecast at that. The 2012 farm bill may be leaner, but big changes are no sure thing. In a Congress like the next one, divided to the point of polarization, talk of slashing and burning entrenched programs like farm subsidies is likely to remain just that.”

Biofuels – Tax Issues

Reuters writer Charles Abbott reported on Friday that, “The major U.S. ethanol incentive would be cut by 20 percent but given one more year of life in a Senate tax bill that also would revive a biodiesel tax credit that died a year ago.

“The bill was ‘very unlikely to pass’ but would be a starting point for negotiations this month on many issues including estate tax and income tax rates, said consultants Washington Research Group on Friday.”

Mr. Abbott stated in part that, “For biofuels, the bill by Finance Committee chairman Max Baucus proposed:

“–setting the ethanol excise tax credit at 36 cents a gallon and a small producer credit at 8 cents a gallon through 2011. The blender’s credit now is 45 cents and the small producer credit is now 10 cents. Both expire on Dec 31.

“–extending the tariff on ethanol imports through 2011 at 54 cents a gallon, the current rate. The tariff expires on Dec 31.

“–extending the biodiesel tax credit of $1 a gallon through 2011.”

The Renewable Fuels Association “applauded” the proposal, while Growth Energy CEO Tom Buis noted that, “We are glad to see that the Senate is taking steps to resolve this important debate and we look forward to working with Congressional members to see it through to the finish.”

Ben Geman reported on Friday at The Hill’s Energy Blog that, “It remains unclear if the fuel plan can bridge a political divide over ethanol laid bare in dueling letters to Senate leaders this week.

“A bipartisan coalition of Corn Belt senators – led by Sens. Kent Conrad (D-N.D.) and Chuck Grassley (R-Iowa) – are pressing for extension of incentives they call vital to the domestic ethanol industry.

“But a separate group – led by Sens. Dianne Feinstein (D-Calif.) and Jon Kyl (R-Ariz.) – call the incentives expensive and harmful.”

However, as expected, the tax bills faltered in the Senate on Saturday.

David M. Herszenhorn reported in yesterday’s New York Times that, “The Senate on Saturday rejected President Obama’s proposal to let tax rates rise for the highest-income Americans, as Republicans held firm in their push to continue all of the expiring Bush-era tax cuts.

The White House and Congressional leaders are now discussing a deal to extend the reduced tax rates at all income levels, at least temporarily, perhaps for two years.”

Mr. Herszenhorn explained that, “The floor action on Saturday highlighted the volatility of the issue. Mr. Obama’s plan, approved by the House on Thursday, would have extended the lower rates on income up to $250,000 a year for couples and $200,000 for individuals, but Democrats did not have the 60 votes required under Senate rules to muscle it forward.

“Nor could they muster the votes needed for an alternative proposal, championed by Senator Charles E. Schumer, Democrat of New York, to end the breaks only on income exceeding $1 million.

Republicans, joined by a handful of Democrats, voted unanimously against both proposals.”

John D. McKinnon and Janet Hook reported in today’s Wall Street Journal that, “White House officials and congressional Republicans are closing in on a deal that would extend current income-tax rates for all Americans as well as a benefits program for the long-term unemployed, staving off tax increases for middle-class and wealthy taxpayers alike that are set to take effect after this year.

Leaders of both parties appeared optimistic over the weekend about reaching an agreement on a broad tax package by midweek, following the failure of two Democratic-sponsored tax measures in a rare Saturday session of the Senate.”

While awaiting details of a negotiated compromise deal on taxes, Reuters writers Carey Gillam and Charles Abbott reported last week that, “The 45-cent a gallon tax credit for fuel blenders and 54-cent a gallon tariff on imports that subsidize the U.S. ethanol industry are due to expire on Dec. 31. With Washington focused on deficit reduction, many in the industry call renewal an uphill battle.

“U.S. ethanol plant owners, corn farmers, investors and bankers are scrambling to calculate what removal of subsidies will mean for ethanol production and the price of corn. More than a third of U.S. corn is used to make the biofuel.

Many analysts and industry players say the most immediate impact would be a 10 to 15 percent drop in production in 2011.”

The article added that, “Still, any ethanol industry setback would likely be much less severe than the collapse two years ago, when the industry got hit by a surge in corn prices and then a global recession.”

The Reuters item also noted that, “Refiners should keep blending even absent the tax credit as long as ethanol’s price remains equal to or slightly below gasoline, [Tom Waterman, industry analyst and publisher of The Ethanol Monitor] said. But if ethanol prices climb higher than gasoline, demand will wane, Waterman said.”

The Wall Street Journal editorial board opined in today’s paper that, “The ethanol industry is responding by predicting disaster if it loses its taxpayer feeding tubes, with the Renewable Fuels Association evoking massive job losses and another Dust Bowl. But what kind of business can’t survive without subsidies when government also mandates that consumers buy its products?… Sure enough, also last week, the Environmental Protection Agency ruled that under the 2007 energy bill Americans must use at least 13.95 billion gallons of ethanol next year, or about 8% of total U.S. fuel consumption. In protecting its free ride, the ethanol lobby is like Fannie Mae before the crash. But at least now there’s a glimmer of political hope for taxpayers.”

Trade

Elizabeth Williamson reported on Friday at The Wall Street Journal Online that, “U.S. President Barack Obama on Saturday praised a newly sealed trade deal with South Korea as a landmark agreement that promises to boost the domestic auto industry and support tens of thousands of American jobs.

“‘This agreement shows the U.S. is willing to lead and compete in the global economy,’ the president told reporters at the White House, according to the Associated Press, calling it a triumph for American workers in fields from farming to aerospace.

“The pact, which requires congressional approval, would be the largest since the North American Free Trade Agreement with Canada and Mexico in 1994. President Obama said the South Korean deal would support at least 70,000 American jobs—welcome news with the latest U.S. unemployment figures showing nearly stagnant job growth. The president said that jobs report showed more needed to be done.”

The Journal article pointed out that, “President Obama now faces a difficult final push to bring the pact into force. The deal will have to win ratification from the incoming Congress in January, in what promises to be a pitched battle amid eroding public support for free-trade agreements of any kind.

“The pact also must be approved by South Korean lawmakers. An official at the South Korean embassy in Washington said Friday that passage wasn’t expected to be a problem.”

In addition, Ms. Willamson explained that, “The agreement changes little, however, on the issue of U.S. beef exports, which have been subject to a ban by Korea of cuts from cattle older than 30 months after a case of mad-cow disease was found in the U.S. in 2003. The issue, which sparked riots in South Korea in 2008, was pushed forward, in part because most U.S. beef exports to Korea, even before 2003, were from younger cattle, so the economic impact would have been negligible.

“Beef and cars were the two key issues a revised pact must address in order to win congressional support, and the two priorities that Mr. Obama said would be addressed in the revised agreement. But negotiators punted on beef in order to win Korean accord on autos, people familiar with the talks say.

“‘I am deeply disappointed that today’s deal fails to address Korea’s significant barriers to American beef exports,’ said Senate Finance Committee Chairman Sen. Max Baucus (D., Mont.), who has pressed repeatedly for concessions to beef producers. ‘I am deeply committed to righting this wrong and will work with the administration in the period ahead to ensure that America’s ranchers and farmers are not left behind. I will reserve judgment on the free trade agreement until then.’”

(FarmPolicy.com Note: Recall this development from back in August at a Senate Agriculture Committee hearing on trade: Senate Finance Committee Chairman Max Baucus (D-Montana) highlighted particular aspects of a free trade agreement with South Korea and expressed concerns about provisions relating to beef. He sought assurances from Amb. Ron Kirk that key provisions on trade relating to beef be included in a final draft and noted that if they were omitted from a final negotiated FTA, he would have to evaluate whether or not to bring the agreement up for a Finance Committee hearing. To listen to this firm exchange on the South Korea FTA and beef from the August Senate Ag Committee hearing, just click here (MP3- 4:02).”

Sec. of Agriculture Tom Vilsack noted on Friday that, “Agriculture has a great deal to gain from the trade agreement with Korea.”

Among others, the American Farm Bureau Federation, and Neb. GOP Sen. Mike Joahnns also issued remarks on the trade agreement.

The editorial boards at The Washington Post and The Wall Street Journal were both generally positive regarding the agreement; however, the Journal noted that, “Some farmers have also become collateral damage. Seoul couldn’t walk away from re-opened talks empty-handed, and one concession it extracted is a two-year delay, to 2016, in eliminating tariffs on some U.S. pork.

“American pork producers are excited about any deal, but they still would have been better off under the 2007 text.”

Howard Schneider reported in Saturday’s Washington Post that, “In a concession to South Korea’s internal politics, a U.S. demand for unfettered access to the South Korean beef market was set aside for now, leaving in place that country’s ban on the import of older U.S. meat. Linked to an earlier scare over mad-cow disease, the beef restrictions are emotionally charged in South Korea, but the existing limits are of little economic importance to a U.S. cattle industry fighting to regain a market largely lost to Australian producers in recent years.

“The changes, coupled with the promised elimination of stiff South Korean tariffs on U.S. farm products and the prospect of a more open market for U.S. financial, engineering and other service companies, was enough for Obama to decide to try to win congressional approval of the South Korea agreement next year.”

Ag Economy

Dan Piller reported in yesterday’s Des Moines Register (“Why farmland is skyrocketing”) that, “A wave of farmland sales bringing $8,000 per acre and higher rolled across Iowa last month, prompting farmers, Realtors and lenders to ask: ‘How high will land prices go?

“A 50 percent rise in the price of corn since June is putting more cash in the pockets of farmers, who in turn are bidding up the price of land at the traditional post-harvest auctions.”

After extensive and detailed analysis, the Register article indicated that, “Two government props for farmland values, ethanol and federal crop subsidies, are on the block in Washington.”

Lastly today, Ian Berry reported in today at The Wall Street Journal Online that, “Food prices are back on the march, and the powerful U.S. farm lobby faces a day of reckoning on Wednesday as the Obama administration wraps up a yearlong study into competition and consolidation in the agricultural sector.

“The Departments of Justice and Agriculture are holding their fifth and final workshop to review the competitive landscape in food production and livestock rearing after a unique collaboration that has left some of the industry’s largest players looking nervously over their shoulders.”

Keith Good

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