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Farm Bill Issues; Budget Issues; and Rural Data

House and Senate Agriculture Committee Hearings on the Farm Economy: Background

Secretary of Agriculture Tom Vilsack spent nearly four hours testifying about the U.S. farm economy yesterday on Capitol Hill
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In the morning, he appeared before the House Ag Committee, (prepared testimony, audio replay of the hearing) while in the afternoon, he spoke before the Senate Ag Committee, where a second panel of witnesses also followed his presentation (video replay and prepared testimony, opening statement from Chairwoman Debbie Stabenow (D-MI), remarks from Ranking Member Pat Roberts (R-KS)).

During his appearances before the two committees, lawmakers raised a variety of subject matters, including: Biotechnology, conservation, the proposed GIPSA rule, nutrition, trade, the estate tax, and civil rights.

However, larger themes also emerged from yesterday’s hearings. These themes included commodity prices; land values and economic stability; regulation; dairy policy; and crop insurance.

House and Senate Agriculture Committee Hearings on the Farm Economy: Themes

Commodity Supply, Demand and Price Issues

During the Senate hearing yesterday, Nebraska GOP Senator and former Agriculture Secretary Mike Johanns brought up recent USDA supply and demand estimates in a general sense, and highlighted that corn ending stocks are very low (related graph). He asked Sec. Vilsack, “Where do you think we are headed here, what would happen if we had a tough weather cycle here as we go into this crop season?

In part, Sec. Vilsack highlighted issues associated with biotechnology in response.

This interesting exchange can be heard here (MP3- 4:01).

In related news on this topic, the “Washington Insider” section of DTN (link requires subscription) indicated yesterday that, “A key concern in the minds of U.S. producers and producer groups is what the government might be expected to do if the available grain supplies continue to tighten. Last week, Chief USDA Economist Joe Glauber commented to the press that the government has few options to slow down the ethanol boom.”

The DTN update stated that, “As Glauber noted, EPA has authority to issue waivers to cut that mandate, if it determines it would severely harm the economy of a certain state or the entire country. Still, he pointed out, even such an action might not limit ethanol output in some cases…[O]utside of the EPA waiver, there is not much the government can do to persuade firms not to produce ethanol, he repeated. Congress could rescind ethanol blender tax credits, but continuing high energy prices might mean that such an action would have little effect, Glauber added.”

Yesterday’s DTN item added that, “[O]bservers have been quick to note that Glauber’s comments contrasted sharply with those of Agriculture Secretary Tom Vilsack who said earlier last week when asked about the U.S. corn situation, ‘I’m not concerned about it. I think there is going to be enough corn for food, for feed, for fuel and for export opportunities’…[T]his is a fast moving controversy, but an important one with international implications. It involves very large amounts of speculation about what might happen, along with a few hard facts. Grain stocks are down; the weather has been bad in a number of important markets; and renewable fuels are claiming a very significant share of the U.S. corn crop in spite of recent high and rising prices.”

Meanwhile, in his opening statement at yesterday’s House hearing, Sec. Vilsack noted that, “The year-over-year increase in feed expenses is projected to slightly exceed the increase in livestock cash receipts. If this occurs, livestock and dairy producers could be under added financial pressure in 2011.”

Both Rep. Glenn Thompson (R-PA) and Rep. Bob Gibbs (R-OH) pursued this issue further in their questions to Sec. Vilsack yesterday morning. Rep. Thompson asked (MP3- 1:30), “Are there other things that USDA is looking at in terms of helping to…keep feed costs down?” Sec. Vilsack noted that, “There is not a tremendous amount we can do to focus on the cost side,” and added that, “We are also working, as you probably know, on some of the impacts of ethanol production and the DDGs that are produced as a result of that process and how they might be able to assist us in stretching our feed dollar.”

Rep. Gibbs pointed out (MP3- 2:24) that, “I just talked recently this week with one of my large hog producers in Ohio and he is really concerned about the cost of feed and the ethanol relationship,” he continued and asked, “What would be the impact if some of the policy on ethanol, government policy, changes- to the market.” Sec. Vilsack pointed out that; “We got a slight indication of what would happen if you prematurely withdraw the support for a maturing industry when we allowed the biodiesel tax credit to lapse.”

During his time to question Secretary Vilsack yesterday, House Ag Committee Chairman Frank Lucas (R-OK) brought up the issue of commodity price stability. After a discussion that included points on global food demand, and an increasing middle class in developing countries, Chairman Lucas inquired as to whether we had “reached a new plateau” with respect to prices based on these demand changes. Sec. Vilsack indicated that, “The one thing I know that is certain about agriculture, Mr. Chairman, is that there is a great deal of uncertainty and you always have to be wary.” He went on to highlight issues associated with production. To listen to this portion of yesterday’s discussion, click here (MP3- 3:00).

At the Senate hearing yesterday afternoon, Ranking Member Pat Roberts (R-KS) indicated that world population is growing, food demand is increasing, that and a stable food supply is a current concern. He pointed out that 10% of farms with revenue greater than $250,000 a year account for nearly 80% of agricultural output. Sen. Roberts stated that “farm policy should be ‘agnostic’ in terms of size,” and noted that an acre of farmland does not produce any more, or any less based on the size of the operation that its in.

In response to the inquiry from Sen. Roberts, Sec. Vilsack offered some of his perspectives on farm policy goals with respect to these larger farm operations- this exchange can be heard here (MP3- 4:49).

Philip Brasher reported yesterday at The Green Fields Blog (Des Moines Register Online) that, “Vilsack did not offer those industries [livestock and dairy sectors] any relief although he said the department expects corn acreage to increase by 3 to 5 percent this year.”

“Groups representing livestock producers are pressing Congress to roll back incentives for using corn to make fuel ethanol, but Vilsack, a former Iowa governor, is a staunch advocate for the biofuel industry. Both at the Senate hearing and during an earlier appearance in the House, Vislack warned against cutting off subsidies for ethanol, suggesting that industry might face a similar fate to the biodeisel sector, which collapsed in 2010 after its tax subsidy temporarily lapsed. Economists say the ethanol producers are far less dependent on federal subsidies than biodiesel makers are,” Mr. Brasher noted.

Land Values, Economic Stability

Dow Jones news reported yesterday that, “A farm country Federal Reserve official fretted before congress Thursday about the potential impact of monetary policy on the U.S. agricultural sector, which has seen strong growth and big increases in land prices.

“Federal Reserve Bank of Kansas City President Thomas Hoenig was speaking before the Senate Committee on Agriculture, Nutrition and Forestry in Washington. The central bank’s most vociferous opponent of the policy to stimulate the economy via a large Treasury debt buying program, the official has long worried the effort will create financial imbalances. Rapidly rising prices for farm land could be one of those problem areas, in the view of some.”

Yesterday’s article added that, “Hoenig expressed concern about the day the Fed does begin to push up interest rates. While agricultural balance sheets look good, a tightening cycle could be difficult to navigate, the central banker warned.

“‘Rising interest rates often coincide with falling farm revenues and higher capitalization rates, a depressing combination for farmland values,’ Hoenig said. ‘Even if crop prices remain high but capitalization rates return to their historic average, farmland values could fall by as much as a third, which most certainly would erode the financial health of the farm sector.’”

Bloomberg writer Joshua Zumbrun reported yesterday that, “Federal Reserve Bank of Kansas City President Thomas Hoenig said soaring farmland prices may be the result of an unsustainable bubble that could damage the U.S. economy when it bursts.”

“Hoenig, the lone dissenter from every Fed meeting in 2010, has warned that the Fed’s near-zero interest rates and record monetary stimulus could lead to ‘future imbalances and increase risks to longer-run macroeconomic and financial stability.’

“Hoenig spoke after a report today from the Chicago Federal Reserve showed Midwest farmland values rising 12 percent in the fourth quarter from a year earlier. In Hoenig’s district, the Kansas City Fed has recorded cropland prices nearly 20 percent above year-earlier levels in Kansas and Nebraska, Hoenig said.”

Regulation: Environmental Protection Agency (EPA)

At the House hearing yesterday a large number of lawmakers expressed concern about EPA regulatory rules and proposals that could potentially have a negative impact on various aspects of agricultural production. These sentiments were perhaps best captured by Rep. Tim Johnson (R-IL), who stated that (MP3- 0:52), “I would advocate very strongly that you, Mr. Secretary, as part of the administration, convey to Ms. Jackson, the Administrator that her actions, as EPA Director are causing literal havoc within the agricultural community and that we need to get that raging bull by the horns before it destroys American agriculture.”

Dairy Issues

Chris Clayton reported yesterday at the DTN Ag Policy Blog that, “Ranking Member Collin Peterson, D-Minn., the former chairman, stated, ‘The farm economy is good, and has been solid through the past few years. This is due, in part I believe, to the farm bill that we passed in 2008. I look forward to working together to provide farmers with five more years of certainty by passing another strong farm bill in 2012 and today’s hearing was a good place to start.’”

Rep. Peterson also spent a large part of his time for questions focused on dairy policy issues, to listen to a portion of his exchange on this topic with Sec. Vilsack, just click here (MP3- 3:48).

And a Farm Progress article from earlier this week reported that, “A 17-member Dairy Industry Advisory Committee has tentatively decided that producers would be better off with a federal safety net based on milk margins rather than prices. The committee met via conference call Friday to discuss 23 proposed recommendations to Ag Secretary Tom Vilsack on how USDA can best address dairy farm profitability and price volatility. A final vote on the package is scheduled for March 3.

“Panel member Paul Bourbeau, a farmer from Vermont, said the current economic outlook for dairy producers illustrates the inadequacy of existing government intervention options when input costs are high.”

Crop Insurance

Rep. Leonard Boswell (D-IA) brought up some issues associated with crop insurance during his Q and A with Secretary Vilsack, to listen to their exchange on this issue, just click here. (MP3- 2:57)

Farm Bill: Budget Issues- Political Background

Paul Kane and Shailagh Murray reported in today’s Washington Post that, “As the House continued its marathon debate Thursday over a bill to fund the federal government, House Speaker John A. Boehner acknowledged that the House and Senate may not reach agreement on spending cuts before the government runs out of money next month.

But Boehner (R-Ohio) ruled out passing a temporary funding resolution to keep the government operating unless it contained at least some spending cuts, possibly setting up a showdown with Democratic leaders in the Senate, who said Boehner had increased the risk of a government shutdown.”

Meanwhile, Lori Montgomery reported in today’s Washington Post that, “With President Obama calling for bipartisan talks to tackle the nation’s budget problems, a group of influential senators from both parties is developing a framework that calls for higher taxes and limits on all categories of government spending.

“The plan is still in the works, but people with knowledge of the talks said the senators hope to present it soon after the week-long Presidents’ Day recess so they can begin assessing its political support.

“The group, known informally as the ‘Gang of Six,’ began meeting last year soon after Obama’s fiscal commission recommended an ambitious plan to reduce the deficit. Four senators supported the commission report – Budget Chairman Kent Conrad (D-N.D.), Majority Whip Richard J. Durbin (D-Ill.), Tom Coburn (R-Okla.) and Mike Crapo (R-Idaho). They joined forces with Sens. Mark R. Warner (D-Va.) and Saxby Chambliss (R-Ga.), who had been working to build support among moderates for a bold plan to control the national debt.”

Note also that Sen. Coburn penned an Op-Ed on the budget that was also published in today’s Post.

Farm Bill: Budget Issues- Farm Spending

Alexander Bolton reported earlier this week at The Hill Online that, “Rifts have already begun to emerge in the Senate Republican Conference over a House GOP proposal to cut $61 billion from the federal budget.”

The article stated that, “[Sen. Susan Collins (R-Maine) said the total amount of federal spending cut was less important than knowing which specific programs would get hit the hardest.

“‘It depends what it’s out of,’ Collins said. ‘I support the elimination of the ethanol subsidy — that’s worth some $6 billion a year.

“‘I think we should cap farm subsidies for wealthy corporate farmers,’ she added.”

Rural Data

Yesterday USDA’s Economic Research Service released its Atlas of Rural and Small-Town America, which can be found here.

And Amy Schatz reported in today’s Wall Street Journal that, “Most Americans have access to basic Internet service, but significant gaps remain for those who want faster speeds, according to a new federal map of the nation’s broadband services.

“The map shows wide variations in the availability and speed of Internet access across the nation. Between 5 % and 10% of U.S. households, most of them in rural areas, don’t have access to Internet service of at least 4 megabits per second—considered by the government to be a minimum for basic activities such as web-surfing, e-mailing and video-streaming.”

Keith Good