- FarmPolicy - http://farmpolicy.com -

Farm Bill; Ag Economy; Regulations; and Biofuels

Farm Bill: Conservation (CRP)- Production Capacity

DTN Ag Policy Editor Chris Clayton reported on Friday (link requires subscription) that, “USDA plans to enroll 4 million acres in the Conservation Reserve Program to replace acres scheduled to leave CRP next fall, Ag Secretary Tom Vilsack announced Friday, so the new sign-up should not affect 2011 crop-year acreage.

“Vilsack spoke at the opening of Pheasant Fest in downtown Omaha as wildlife groups such as Pheasants Forever have become some of CRP’s most ardent defenders. But given current commodity prices and demand for more acres to go into production, Vilsack said he did not want his enrollment announcement to affect the markets.

“‘I want to make sure that I emphasize these are acres that will go into effect next fall, in October, so it’s not like we’re going to substantially reduce production capacity this year. Obviously, we’re taking a look at commodity prices and making sure we have adequate production.’”

Mr. Clayton added that, “‘I don’t want markets to get confused here,’ Vilsack said. ‘It’s very important that the people understand we’re talking about a sign-up now and an impact that begins in October.’

“The 2008 farm bill capped CRP at 32 million acres. USDA is announcing its second consecutive general sign-up to keep that acreage as close to the cap as possible as contracts on anywhere from 3.3 million 6.5 million acres are scheduled to expire each year until 2014, including about 4.4 million acres next September.

Vilsack said USDA has increased rental rates to be competitive but still expects the program to target marginal crop ground.”

AP writer Josh Funk reported on Friday that, “Jonathan Coppess, administrator the Farm Service Agency, said the USDA will try to strike a balance between conservation and production needs as it plans for the future of the Conservation Reserve Program.

“‘We need to do our best to focus the limited dollars we have to make the best investment,’ Coppess said.”

As a side note regarding crop production and adequate supplies, Ken Anderson reported last week at Brownfield that, “The Iowa Pork Producers Association (IPPA) is calling for development of a ‘contingency plan’ for corn use in the event of a short crop in 2011. The IPPA executive committee says it would prefer that the plan be a voluntary effort involving the major end users—the biofuels, livestock and export sectors—but it did not rule out the possibility of government involvement in a corn rationing plan.”

In a separate report on Friday at Brownfield, Ken Anderson indicated that, “The head of the National Pork Producers Council says a call for a ‘corn contingency plan’ by Iowa pork producers deserves serious consideration.

The Iowa group is concerned about a possible shortage of corn in 2012 should the 2011 crop fall short of expectations. They suggest that, if the corn stocks-to-use ratio falls below five percent, a plan for rationing corn among the major end users—livestock, biofuels and exports—should be in place.

“NPPC president Sam Carney of Adair, Iowa says he understands those concerns.”

With respect to this issue and Sec. Vilsack’s CRP announcement, Ken Anderson reported on Friday at Brownfield that, “[Sec.] Vilsack’s announcement comes as some sectors of agriculture—particularly livestock producers—are expressing concern over tightening feed grain stocks. However, Vilsack stressed that the CRP signup will not affect plantings in 2011.

“‘I don’t want markets to get confused here,’ Vilsack said, ‘so it’s very important that people understand we’re talking about a signup now, but an impact that begins in October of this year.’

As for those supply concerns, Vilsack said ‘at this point, we’re not convinced that there’s going to be quite the problem that some folks think there may be.’ Vilsack said he’s confident in the productivity of U.S. farmers to meet the needs of all users.”

To listen to an audio clip from Sec. Vilsack on this issue from Friday, just click here (MP3- 1:20).

Farm Bill: Crop Insurance

University of Illinois Agricultural Economists Gary Schnitkey and Bruce Sherrick indicated in a brief report last week (“Premiums on Farm-Level Revenue Crop Insurance Products higher in 2011”) that, “Farm-level revenue crop insurance products will have higher premiums in 2011 compared to 2010 because projected prices and volatilities likely will be higher in 2011.”

In a summary of the update, the authors pointed out that, “Premiums will be higher in 2011 with much of the increase due to higher projected prices and higher volatilities. While higher, farmers likely will find crop insurance advantageous as higher projected prices allow more revenue to be protected.”

Meanwhile, with respect to USDA’s proposed Good-Performance Refund (GPR) program, the Illinois Corn Growers Association (ICGA) indicated in comments regarding the proposed program that, “Illinois Corn opposes the implementation of the Good-Performance Refunds (GPR) program whose regulations were published in a January 6, 2011 Federal Register notice. This GPR program does not address the fundamental ratings problems which causes effective coverage in corn to be low relative to actual production, resulting in crop insurance premiums that are relatively too high, thus in turn resulting in disproportionate eligibility for GPR because of lower loss experience even if unrelated to producer actions. Moreover, we believe the GPR program could also create incentives for producers to lower effective risk coverage offered by crop insurance rather than increase, and could produce artificial incentives to ignore particular legitimate claims.”

The ICGA comments added that, “Rather than implementing the GPR program, we suggest that RMA [USDA’s Risk Management Agency] spend its efforts on correcting the underlying ratings problems associated with crop insurance; doing so would eliminate the need for efforts like the GPR program. Moreover, as linkages between crop insurance programs and Farm Bill commodity programs are continually being made, the soundness of the underlying crop insurance program needs to be improved so as to insure equity and fairness to all producers.”

Additional perspective on the proposed GPR is also available from: Senators Pat Roberts (R-KS) and Saxby Chambliss (R-GA), the American Association of Crop Insurers, and National Crop Insurance Services.

Farm Bill: Policy and Spending

Tom Lawrence reported last week at the Daily Republic Online (South Dakota) that, “[South Dakota GOP Senator and potential candidate for President John Thune] was asked about comments made by some Republicans calling for deep cuts in agriculture, with Rep. Michele Bachman calling for a $20 billion reduction in farm subsidies.

“‘I think the next farm bill is going to be … is going to be … more difficult,’ Thune said. ‘The budgetary constraints we face today and the budgetary environment that we’re in is going to subject every aspect of the budget to more scrutiny.’

“But he said a new farm bill can be crafted and said new programs are more efficient and only kick in when farm commodity prices collapse.”

The article added that, “‘Stronger markets, greater demand’ are the keys to a strong agriculture economy, Thune said, in order to supply a cheap and safe food supply for the country and the world.

Direct payments to producers are going to be ‘very difficult’ to sustain, Thune said. However, a ‘good, strong crop insurance’ program will likely be preserved, he said.

“‘Of course, I’m a big supporter of a strong conservation title, that’s very good for South Dakota in many respects,’ Thune said.”

Sarah Haase reported on Friday at the Watertown Daily Times (NY) that, “Warning that they soon would face ‘shared pain,’ Rep. William L. Owens told local health care and agriculture leaders Thursday that they won’t be able to rely on the federal government to solve all of their problems.”

The article noted that, “Mr. Owens also met with local agriculture leaders to talk about the five-year farm bill for 2012 and the future of dairy farms and milk prices.

“‘Clearly, we haven’t resolved the dairy farm issue. That was a very hot topic in our conversations today,’ he said. ‘Jefferson County, like a lot of upstate New York, is just starting the recovery process. I’m looking for a lot of input from area farmers.’”

In an article from yesterday’s New York Times, Kate Zernike chronicled that Tea Party activists are preparing for the 2012 primary elections and looking to potentially challenge some veteran GOP Senators.

In part, yesterday’s article stated that, “The early moves suggest that the pattern of the last elections, in which primaries were more fiercely contested than the general election in several states, may be repeated.

They also show how much the Tea Party has changed the definition of who qualifies as a conservative. While [Sen. Olympia J. Snowe (Maine)] is widely considered a moderate Republican, [Sen. Orrin G. Hatch (Utah)] is not. [Sen. Richard Lugar (Indiana)], similarly, defines himself as a conservative. He argues that he has consistently won praise from small-business groups, supported a balanced budget amendment and pushed for a reduction in farm subsidies and the closing of agricultural extension offices as part of an effort to reduce unnecessary spending — all initiatives that fall under the smaller government rubric of the Tea Party.”

Meanwhile, The Washington Post editorial board opined yesterday that, “Congress and the Obama administration are in the market for fresh ideas to create jobs. Or so we are told. So far, however, we haven’t seen too many specifics – but that may be about to change. Two senators, one from each party, have introduced legislation that would phase out the costly, job-destroying federal sugar program. Democrat Jeanne Shaheen of New Hampshire and Republican Mark Kirk of Illinois call their bill the Stop Unfair Giveaways and Restrictions (SUGAR) Act. Despite the cutesy title, it’s a seriously necessary proposal.”

The Post opinion item added that, “Ms. Shaheen and Mr. Kirk have offered President Obama and the Republican leadership in the House a common-sense way to keep their promises to get rid of unnecessary government regulation and liberate the job-creating energy of the market. As such, it’s also a good early test of the sincerity of those promises.”

Dan Piller reported on Saturday at The Des Moines Register Online that, “The growth of Iowa’s cities and the reduction in the number of farmers in the state, from 250,000 in 1930 to 185,000 in 1960 to about 90,000 today, has created the impression that agriculture is a declining force in Iowa’s economy.

“In reality, agriculture has doubled its economic impact in just the last decade.”

Interestingly, the Register article went on to state that, “Meanwhile farm subsidies to Iowa farmers, defined as payments for conservation, insurance subsidies and direct payments under the umbrella of the quadrennial ‘farm bill,’ have declined from $2.4 billion in 2000 to $1.2 billion in 2009, the latest year figures are available.

Iowa State University economist Chad Hart notes the relative decline in the impact of farm bill subsidies and observes ‘really now, energy policy is more important to Iowa farmers than the traditional subsidies.’”

And Philip Brasher reported on Saturday at The Des Moines Register Online that, “The spike in commodity prices comes at a bad time for farmers who are looking to hang on to their commodity subsidies and incentives for biofuels.

“Congress is likely to consider cuts in farm spending this year to trim the ballooning federal deficit, estimated to hit $1.5 trillion this year. Any cuts would reduce the amount of money available next year when lawmakers write a new multiyear farm bill.

“‘Politically speaking, it is more difficult to argue the need for a federal safety net in strong economic times,’ said Mark Maslyn, executive director for public policy at the American Farm Bureau Federation.”

Mr. Brasher pointed out that, “The last time there was a price spike of this kind when Congress was revising farm programs, 1995 and 1996, lawmakers enacted the Freedom to Farm legislation, a plan to phase out subsidies entirely.

“Congress never let the subsidies end, opting instead to pass big farm bailouts in the late 1990s when grain prices collapsed. But Freedom to Farm is fresh in the memory of farm groups and their allies on Capitol Hill.

“The senior Democrat on the House Agriculture Committee, Collin Peterson of Minnesota, said he had that earlier experience in mind when he warned the GOP chairman, Frank Lucas of Oklahoma, ‘that there was almost nothing I wouldn’t go along with except for any kind of Freedom to Farm.’”

Agricultural Economy

With respect to commodity prices, Andrew Johnson Jr. and Tom Polansek reported on Saturday at Barron’s Online that, “Crop supplies have grown precariously tight on strong global demand, poor weather conditions in some regions, and disappointing harvests. Futures prices have surged since last summer, with corn and soybeans contracts hitting more than 30-month and 28-month highs. And prices aren’t likely to see a change in direction until there’s a better sense of whether U.S. farmers can sow enough corn and soybeans to replenish depleted supplies. The first indications of their success isn’t likely until the end of March, when the U.S. Department of Agriculture releases its first planting estimates based on surveys of farmers.

That’s not to say prices will rise steadily. Soybeans settled at $13.98 a bushel and corn futures settled at $6.44 a bushel at the Chicago Board of Trade Friday, or down 1% and 2% respectively for the week, retreating somewhat from the recent highs.

But analysts don’t expect the supply worries to abate anytime soon. Driving prices higher have been recent government estimates showing that supplies as a percentage of usage will fall to their lowest levels in 15 years for corn and more than 40 years for soybeans. Export demand remains strong. And the degree to which farmers increase plantings depends on how attractive prices are.”

Lester Aldrich reported in Saturday’s Wall Street Journal that, “The U.S. cattle herd has shrunk to levels not seen since 1958, a harbinger of higher beef prices.

“The biannual inventory report released Friday by the U.S. Department of Agriculture puts the nation’s herd at 92.582 million head as of Jan. 1. The supply of cattle in the U.S. has been falling steadily as feed costs rise, available pasture land shrinks and robust prices for young cattle provide a strong incentive for producers to cash out.”

And a report yesterday on National Public Radio’s Weekend Edition Sunday indicated that, “Political unrest has broken out in Tunisia, Yemen, Egypt and other Arab countries. Social media and governmental policies are getting most of the credit for spurring the turmoil, but there’s another factor at play.

Many of the people protesting are also angry about dramatic price hikes for basic foodstuffs, such as rice, cereals, cooking oil and sugar.”


Marcia Zarley Taylor reported on Friday at the DTN Minding Ag’s Business Blog that, “Today’s farms are storing more diesel, gasoline and even vegetable oil products on site. But while some farms rival small fuel depots in size, farmers may not be aware of all federal, state or local environmental regulations their new status entails. One revelation for most farmers is a new EPA mandate for prevention and control of oil spills that went into effect last November.

“‘Who knew?’ says a Midwest farmer I visited recently who stores more than 40,000 gallons of fuel on his farm at any given time.

But failure to maintain an acceptable EPA Spill Prevention, Control and Countermeasure plan already has resulted in fines in excess of $9,000 for some farmers, according to Mundell & Associates, an environmental engineering firm based in Indianapolis. What’s more, it could expose farmers to legal liability in the event of a spill, other experts say. Just one gallon of oil can contaminate one million gallons of water.”

Friday’s update added that, “Effective Nov. 10, 2010, all facilities (including farms) with at least 1,320 gallons of above ground oil storage or 42,000 gallons of underground storage must prepare formal spill prevention plans that meet EPA specifications. Operations with more than 10,000 gallons of above-ground storage—and those with a recent history of spills–will need a plan approved by a professional engineer. (Only two types of farms won a deadline extension: Farms that have come into operation since 2002 and dairies.) Both of these groups should be on board by late 2010, since final regulations have been issued for their situations.”


Ben Geman reported on Friday at The Hill’s Energy Blog that, “The ethanol industry is quickly attacking a draft EPA study that details a slew of ecological harms that could accompany increased biofuels production.

“‘EPA’s failure to provide this report in any context with the environmental degradation done by fossil fuel exploitation and use is irresponsibly misleading. Energy and environmental decisions do not exist in a vacuum,’ the Renewable Fuels Association, an ethanol industry trade group, wrote in a statement.”

Keith Good