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Biofuels- Taxes; Farm Bill; Nutrition Bill; and the Ag Economy

Tax Issues: Political Background- Estate Tax Concerns

David M. Herszenhorn reported in today’s New York Times that, “With robust bipartisan support, the Senate on Monday advanced the tax-cut package negotiated by President Obama and Congressional Republicans, increasing pressure on House Democrats to set aside their opposition.

“The vote, to cut off debate and end any filibuster, assured that the Senate would approve the $858 billion package on Tuesday and send it to the House, where Democrats are still demanding changes to a provision granting a generous tax exemption to wealthy estates.

“The Senate vote was 83 to 15, with 45 Democrats and 37 Republicans in favor. Opposed were nine Democrats, five Republicans and Senator Bernard Sanders, independent of Vermont.”

The Times article noted that, “House Democrats seem intent on making an effort to change the estate tax language in the bill, which would set an exemption of $5 million per person and a maximum rate of 35 percent for two years.

“They would prefer an estate tax provision with parameters that were in place in 2009 — an exemption of $3.5 million per person and a maximum rate of 45 percent.

“Aides said one possibility would be to propose the change as an amendment.”

Mr. Herszenhorn added that, “But even if Democrats succeed in approving a change to the estate tax provision in the House version of the bill, the Senate is virtually certain to reject it.

“Senate Republicans strongly support the estate tax provision agreed to by the White House, and some Democrats also favor it, including Senator Blanche Lincoln of Arkansas, who has previously co-sponsored similar legislation on it.”

Janet Hook reported in today’s Wall Street Journal that, “A senior Democratic aide said party leaders expected to hold a vote on an amendment to set the estate tax higher than the Senate bill would when the legislation comes to the House, as early as Wednesday.

“The bill would renew the estate tax at far lower rates than had been scheduled to take effect in January. It was unclear whether House efforts to change that rate would succeed. If the House votes to change the tax deal and send the altered legislation back to the Senate, debate on the package would likely be prolonged for days, if not weeks.”

Shailagh Murray and Lori Montgomery reported in today’s Washington Post that, “The procedural vote could be followed by final Senate passage as early as Tuesday evening. If the bill sails through the Senate, as expected, the last hurdle would be the House, where liberal Democrats remain strongly opposed to continuing President George W. Bush’s tax breaks for upper-income households as well as the generous terms of a revived estate tax.

In brief remarks Monday, [President] Obama acknowledged the dismay of these lawmakers but urged them to consider the consequences of legislative inaction.”

The Post article indicated that, “House Democrats were proving tougher to persuade. House leaders met Monday to discuss strategy for the bill, which has outraged about half of the Democratic caucus. Critics were angry that it would extend tax cuts for the wealthy that many Democrats opposed a decade ago and have since argued should be abolished.

House leaders said they probably will amend the estate tax provisions when the measure comes before the House as soon as Wednesday. The leaders said they are looking at a plan that would exempt estates worth up to $3.5 million and tax larger estates at a 45 percent rate.”

And National Journal writers Dan Friedman and Billy House reported yesterday that, “House Democratic leaders are discussing ways to make changes in the Senate bill. Options include splitting off the estate-tax provision so that members can vote on it separately and offering an amendment to the main bill…Should any amendments pass, the bill will have to go back to the Senate for another vote. But House Republicans and retiring centrist Democrats may provide enough support for the Senate-passed bill to keep it from being amended.”

Jonathan Allen reported last night at Politico that, “House Democrats haven’t finalized their plans on the estate tax amendments…”

House Agriculture Committee Member Dennis Cardoza (D-Cal.) issued a statement yesterday in support of Pres. Obama’s proposed tax cut compromise, which noted in part that, “I have long been a supporter of a modified inheritance tax that would benefit my district’s agriculture community and our generational family farmers. This is a clear step in the right direction to that end.”

Tax Issues: Biofuels

Carrie Budoff Brown and Jake Sherman reported yesterday at Politico that, “Sen. John McCain (R-Ariz.) railed against tax breaks targeted at specific industries or constituencies, repeating a nickname coined by the Wall Street Journal editorial page Monday for a provision that extends an ethanol tax credit: the ‘Hawkeye Handouts,’ since it was sought by Iowa senators, who both backed the measure.

“‘Rather than just extend the tax breaks, which is what the majority of Americans want, we engaged in the continuing practice. . . of loading up with unneeded, unnecessary, unwanted sweeteners,’ McCain said on the Senate floor. ‘I’ll vote for it, but it’s not what the people said they wanted done on Nov. 2.’”

Growth Energy CEO Tom Buis indicated yesterday that, “With today’s vote, the Senate took a critical step toward reducing our dependence on foreign oil, creating jobs in the U.S., improving our environment, and strengthening our national security. Extending the current ethanol incentives today will give Congress the opportunity to implement longer term solutions, like our Fueling Freedom Plan, next year.”

And Reuters writers Tom Doggett and Charles Abbott reported yesterday that, “Senator Dianne Feinstein on Monday sought to add an amendment to a massive tax bill with a measure that would cut the ethanol tax credit and import tariff to 36 cents a gallon each — a huge cut in biofuels support rates.

“The current U.S. ethanol tax credit of 45 cents and the import tariff of 54 cents would be extended through 2011 under the tax bill. They will expire on December 31 unless the House and Senate agree to renew them.

“‘Reducing the ethanol subsidies and trade barriers proposed in this legislation would substantially reduce the cost of this bill to the American taxpayer, while allowing the Senate to support the vitally important development of our manufacturing sector,’ Feinstein said in a letter to Senate Majority Leader Harry Reid and Republican Leader Mitch McConnell.”

The article noted that, “Six senators co-signed Feinstein’s proposal. That is down from the 16 senators who joined her in a letter to Senate leaders two weeks ago in favor of letting the supports expire.”

Yesterday’s article indicated that, “Ethanol trade groups opposed scaling back their government help. Iowa Sen. Charles Grassley said renewable fuels ‘are a part of a balanced program’ along with oil industry subsidies and energy conservation to reduce reliance on foreign oil.

“‘The president and congressional leaders have worked to put together a very carefully negotiated bill. It would be unwise to attempt at this point to rewrite it — particularly a green jobs provision certain to help Rust Belt and Midwestern regions where jobs are scarce,’ said Stephanie Dreyer, spokeswoman for Growth Energy.

“The Renewable Fuels Association pointed out the U.S. sends more money to OPEC and other oil producing nations in just one week than would be spent during all of 2011 in ethanol subsidies.”

Matthew Murray reported today at Roll Call Online that, “Opponents of federal ethanol subsidies mounted a last-minute campaign Monday to reduce the industry’s funds in the White House’s $858 billion tax package. But even if the near-term assault fails, lobbyists on both sides will be back at it next year.”

The Roll Call article noted that, “The ethanol credit is a temporary extension that would run until Jan. 1, 2012. That means that even if Feinstein’s effort doesn’t succeed, it will tee up another big lobbying battle for next year, when frugal Republicans will take control of the House.”

Meanwhile, Todd Neeley reported yesterday at the DTN Ethanol Blog that, “Chances are the Brazilian Sugarcane Industry Association, or UNICA, will ask the World Trade Organization to take action against the U.S. if Congress approves a proposed extension of the 54-cent ethanol import tariff and a proposal to double the ethanol import tax from 9 cents to 18 cents.”

Farm Bill

John Bresnahan and Jake Sherman reported yesterday at Politico that, “House Republicans don’t take power for three more weeks, but the White House is already engaged in a behind-the-scenes charm offensive designed to build relationships with incoming committee chairmen before they become powerful adversaries.

“The GOP chairmen are getting congratulatory phone calls from President Barack Obama and private meetings with Vice President Joe Biden, Secretary of State Hillary Clinton, Treasury Secretary Timothy Geithner and Attorney General Eric Holder. The incoming Agriculture Committee chairman, Frank Lucas (R-Okla.), is setting up a regular monthly lunch with Agriculture Secretary Tom Vilsack. The White House’s efforts moved into high gear shortly after the Republican victory on Election Day.”

Yesterday’s article added that, “Rep. Frank Lucas (R-Okla.), who will chair the Agriculture Committee, said Vilsack has already called him to try to set up a regular monthly lunch to discuss farm issues.

Vilsack ‘told me that he and [outgoing Chairman] Collin Peterson had a monthly lunch, and he wants to do the same with me,’ Lucas said. ‘We’re trying to set that up now.’

“Lucas, whose panel expects a huge infusion of new members from the incoming GOP freshman class on his committee, said he wants to draft a revised farm bill sometime in 2012, one ‘that will be smaller, maybe much smaller, than what we have seen in the past.’”

An interesting AP article from yesterday, with some potential overtones for conservation related issues, stated that, “Hunting’s popularity has waned across much of the country as housing tracts replace forests, aging hunters hang up their guns and youngsters sit down in front of Facebook rather than venture outdoors.

“The falloff could have far-reaching consequences beyond the beginning of the end for an American tradition, hunting enthusiasts say. With fewer hunters, there is less revenue for a multibillion-dollar industry and government conservation efforts.”

In other news with potential Farm Bill implications, a news update posted recently at the WTO Online stated that, “WTO agriculture negotiators will embark on the talks’ end-game from 17 January 2011, with the aim of producing a near-final revised draft of ‘modalities’ by the end of March and concluding the Doha Round as a whole by the end of the year. That is the plan outlined by Chairperson David Walker in agriculture negotiations meetings on 6 and 10 December, and supported by negotiators.”

Meanwhile, a Farm Service Agency (FSA) news release from yesterday indicated that, “Agriculture Secretary Tom Vilsack today issued the following statement reminding participants in USDA’s Guaranteed Farm Operating Loan Program that the suspension of term limits on the program will expire on December 31, 2010, limiting the ability of some borrowers to continue obtaining credit in partnership with FSA:

“‘The expiration of the current waiver on term limits comes at a difficult time for many borrowers who have been affected by the unpredictable, cyclical nature of agriculture and its influence on farmers’ businesses. I understand the critical need to maintain a strong agricultural credit safety net for our hardworking farmers and ranchers. With thousands of family farmers across rural America facing the tightest agricultural credit markets in 20 years, USDA loan programs can mean the difference between surviving a tough year and losing the family business. USDA is supportive of the efforts in Congress to temporarily extend the current waiver. If successful, this effort will allow those family farmers who are faced with the term limit to continue to receive financial assistance from FSA that is critical to continuing their farming operations. It would also allow Congress to properly review the merits of term limitation during farm bill discussions.’

“In the 2008 Farm Bill, Congress suspended enforcement of a 1992 law which limits the number of years a borrower can participate in FSA’s guaranteed operating loan programs. With the expiration of this suspension on December 31, the 1992 law will be enforced by USDA. In 2011, this will result in 4,200 borrowers, including 1,600 borrowers with current guaranteed farm operating loans through FSA, becoming ineligible for further loan assistance from USDA.”

Nutrition Bill Signed

AP writer Mary Clare Jalonick reported yesterday that, “Thousands more children would eat lunches and dinners at school and all school food would become more nutritious under a bill President Barack Obama signed into law Monday, part of an administration-wide effort to combat childhood obesity.

“‘At a very basic level, this act is about doing what’s right for our children,’ Obama said before signing the bill. The ceremony was moved from the White House, where most signings are held, to an elementary school in the District of Columbia to underscore the point.

“Besides Obama, the bill also was a priority for his wife, Michelle, who launched a national campaign this year against childhood obesity.”

Ag Economy

Javier Blas reported yesterday at the Financial Times Online that, “Each spring, US farmers decide how much land they will devote to each of the major agricultural commodities. The process, which shapes crop prices for the season, is known as the acreage battle or – as Cargill traders joke – the fight for dirt.

“The farmers’ choice matters beyond US borders. Because the country’s farmers export half the world’s corn and a third of the world’s soyabeans, changes in acreage and, hence, in output have a huge impact on global agricultural commodities prices.

Amid multi-year high prices, farmers face the mother of all battles for acres in 2011.”

The FT article added that, “Who is going to win? The planting decision depends on relative prices for the following season and on production costs such as fertilisers. At current forward prices, corn should see a large gain in acres – and prices should drop – while soyabeans are likely to lose arable land, and prices, conversely, are likely to rise.

The situation is, however, murkier than usual this year: the price of other crops – including spring wheat, cotton and sugar – is high, so farmers will face competing choices. As planting time approaches, market forces will lift prices of those crops seen losing acres to ensure the ‘buy’ enough land, triggering the fully-fledged battle.

“Farmers – and investors – could see a scenario of higher prices across all crops as corn, soya, wheat, cotton, sugar and others compete in spring for scarce acres.”

In a more detailed look at current price variables for corn, soybeans and wheat, a University of Illinois update from yesterday (“January Could Be Important for Crop Prices,” by Darrel Good) noted in part that, “The rapid pace of U.S. and world consumption of corn, soybeans, and wheat; prospects for relatively small year ending stocks; and unsettled weather partly influenced by the ongoing LaNina weather event seem to provide a very sound fundamental base for crop prices. Volatile, but generally high prices are expected to persist for an extended period.”

And The USDA’s Economic Research Service (ERS) released a report yesterday titled, “An Analysis of U.S. Household Dairy Demand.”

An ERS summary of the report noted in part that, “This report examines retail purchase data for 12 dairy products and margarine from the Nielsen 2007 Homescan retail data. Selected demographic and socioeconomic variables included in the Nielsen data are analyzed for their effects on aggregate demand and expenditure elasticities for the selected products.”

Keith Good