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Continuing Resolution; Farm Bill; and the Agricultural Economy

Continuing Resolution

Manu Raju reported yesterday at Politico that, “Top Senate Democrats have informed the White House that they are putting together a seven-month continuing resolution that will include some spending cuts outlined in President Barack Obama’s proposed 2012 budget, according to a Democratic aide with knowledge of the negotiations.

Democrats have yet to reveal how deep their cuts will be, but the latest move shows that Senate Democrats are trying to determine a new negotiating stand while House Republicans insist on their $61 billion in cuts to fiscal 2011 federal spending.

“Democratic leadership aides and Senate Appropriations Committee staff are putting this plan together in hopes of averting the need for a short-term budget bill before the government runs out of money on March 4. Democrats said they want to propose a plan that will show their commitment to cut future spending that goes beyond their calls to freeze domestic discretionary spending over five years.”

Yesterday’s article added that, “While they won’t go as far as the GOP plan, Democrats are trying to avoid the blame if the government shuts down, showing that they are willing to compromise – unlike their adversaries. But if the GOP leadership backs less ambitious cuts proposed by Democrats, they’ll face strong opposition from the tea party wing of their caucus.”

Lori Montgomery and Paul Kane reported in today’s Washington Post that, “Senate leaders have summarily dismissed [House Speaker John Boehner’s] two-week [CR] measure, arguing that it represents a short-term version of the $61 billion bill Democrats have rejected.”

And while President Obama has so far, “been able to keep the partisan battle over a government shutdown at arm’s length,” The Wall Street Journal reported today that, “Agencies throughout the government are scrambling to figure out how to handle a government shutdown, with a potential closure as soon as March 5 prompting a review of which activities are essential and which aren’t.”

Farm Bill Issues

With respect to budget issues and the next Farm Bill, a daily radio news item from USDA (“Drafting a Farm Bill Under a Tight Budget”) yesterday included a quick overview of some comments made at yesterday’s Agricultural Outlook Forum by Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI), who noted in part that, “We need to make the best use of our limited resources and make sure we are using them on programs that work for production agriculture today.”

A news release yesterday from Chairwoman Stabenow, which included a transcript of her entire remarks at yesterday’s USDA Forum, noted that, “[Sen. Stabenow] said that as the Committee begins focusing on the 2012 Farm Bill, she will urge members and stakeholders to first focus on the guiding principles of the Farm Bill, rather than specific programs.”

Specifically, Chairwoman Stabenow stated that: “We should start with principles that will guide us as we evaluate what works and what doesn’t in today’s economy to address the unique challenges facing our farmers today and into the future Agriculture is much more efficient today than it was 80 years ago, but it’s also more expensive, and therefore, more risky. Thirty years ago, it cost about $80 to plant an acre of corn. Today, it costs nearly $300 to plant that same acre.

And, as you know, land is also much more expensive. In 1990, the average price for an acre of farmland was close to $700. Today, that average price is over $2000 per acre — but as most of you know, good farmland these days is going for much more than that, with prices in some parts of the country topping $9,000 an acre.

That is why one of the first principles we need to address for this Farm Bill is creating the most effective safety net and the best tools for managing risk.”

Yesterday’s release added that, “In addition to a strong safety net, Chairwoman Stabenow said the Farm Bill process will emphasize the need for smarter, simpler and streamlined programs.”

Other principles Chairwoman Stabenow laid out include emphasis on research and innovation, preserving and protecting our land and water, common-sense environmental regulations, safe and nutritious food, creating new opportunities in energy, investing in rural communities and the next generation, and emphasizing openness.

“‘Most importantly, I will be guided by the principle that our farmers and ranchers know better than anyone else what works for them,’ Stabenow said. ‘I am very committed to a process and an end-product that continues to build on the strengths and successes of today’s agriculture and the talents of everyone in this room and across our country.’”

And DTN Ag Policy Editor Chris Clayton reported yesterday that, “Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., who also gave an early speech, said she and Agriculture Committee ranking member Pat Roberts, R-Kan., are creating a bipartisan working group with USDA and EPA to address growing concerns farmers and ranchers have over pending environmental regulations.”

While the Senate and House are not in session this week, some lawmakers are meeting with constituents back home on Farm Bill issues, including: Sen. Michael Bennet (D-CO) (related article– “Bennet, a Democrat, said Thursday that discussions on the 2012 farm bill will likely include debate on whether farmers should continue to receive aid every year or more substantial help when it’s needed most.”); and Rep. Stephen Fincher (R-TN) (related article– “Fincher, a Republican farmer from Frog Jump, said his goal is to streamline the farm bill to formulate affordable insurance programs, tighten spending on nutrition programs, and educate the public on the importance of farming and agriculture.”).

Agricultural Economy- USDA Acreage Projections, Commodity Prices

Mark Peters and Ian Berry reported yesterday at The Wall Street Journal Online that, “U.S. farmers will increase plantings come spring [related slide], but the greater acreage devoted to crops isn’t expected to boost low global supplies to comfortable levels, the U.S. Department of Agriculture’s chief economist said.

“‘In the short run, much uncertainty remains and with tight markets, price volatility is expected for most markets,’ said Chief Economist Joseph Glauber at the agency’s annual outlook conference” (transcript of remarks, slide presentation).

The Journal article stated that, “World crop supplies are already tight as unfavorable growing weather around the globe trimmed yields and demand remains strong. U.S. futures prices for corn, soybeans and wheat stand at more than two-year highs, and cotton futures recently reached record highs….Mr. Glauber said farmers were responding to high prices [related slide] by increasing plantings, but he warned tight supplies won’t ease in just one or two growing seasons. He forecast crop inventories will remain low on export demand and strong biofuel production.

“‘Unless this year’s weather is better than normal or plantings increase more than expected, stock levels for corn and soybeans should see only modest rebuilding’ in the upcoming crop year, Mr. Glauber said.”

Yesterday’s article noted that, “As for planting, the USDA forecasts U.S. farmers will sow 92 million acres of corn and 78 million acres of soybeans in the 2011-12 crop marketing year, both higher that last year’s levels. In the 2010-11 marketing year, farmers planted 88.2 million acres of corn and 77.4 million acres of soy [see related slide].

“Both projections are identical to the USDA’s baseline forecast issued Feb. 14.”

The Journal writers also pointed out that, “The USDA is projecting record U.S. agriculture exports for the 2011 fiscal year, predicting the value at $135.5 billion. Imports are forecast at $88 billion [see related USDA publication from yesterday].

“As for individual crops for the 2011-12 crop year, the USDA forecasts record U.S. corn production of 13.73 billion bushels and ending inventories, known commonly as stocks, at 865 million bushels. That is still below the one billion-bushel mark that is seen as a comfortable level of supplies. Corn use for the fuel-additive ethanol is projected at a record five billion bushels.”

Reuters writers Charles Abbott and Christopher Doering reported yesterday that, “The greater surprise was in projections for tight ending stockpiles for 2011/12. While both corn and soybean ending stocks will be higher than this year’s levels — with corn forecast to be the smallest since 1996 and soybeans amounting to a few week’s supply — they suggest very little cushion for unexpected shortfalls.”

Agricultural Economy: Food Prices

Javier Blas and Gregory Meyer reported yesterday at The Financial Times Online that, “The world faces a protracted bout of extremely high food prices, the US government has warned, overwhelming farmers’ ability to cool commodity markets by planting millions of additional hectares with crops.

“The US Department of Agriculture on Thursday forecast nominal record farm-gate prices for corn, wheat and soyabeans in the crop year that begins with the 2011 harvests. It added that food inflation would surge in the second half of this year as wholesale prices filtered through the supply chain, affecting consumers.”

In a separate FT article from yesterday, Gregory Meyer reported that, “In his annual outlook Mr Glauber said the US ‘corn market will continue to be tight’ next year, wheat ‘will tighten further,’ and soyabeans ‘remain tight as well.’

The cost of food – already at an all-time nominal high at a wholesale level – will rise as a result. The USDA forecasts that consumer prices for food will rise to between 3 and 4 per cent in 2011 in the US, and possibly more in the latter half of the year, ending a tame period at the supermarket.

“‘Food prices will be strong [in] the forthcoming year,’ Mr Glauber told the Financial Times on the sidelines of the conference.”

A related USDA publication was also released yesterday titled, “A Revised and Expanded Food Dollar Series: A Better Understanding of Our Food Costs.”

Rising oil prices and related fuels costs are also sure to have an impact on food prices, as Motoko Rich, Catherine Rampell and David Streitfeld reported in today’s New York Times: “Along with making their commutes to work more expensive, rising oil prices have driven up the cost of food for animals and people.” The Times authors added that, “The rise in oil prices could also create a vicious cycle, as higher energy costs propel already rising food prices, which in turn can lead to more political unrest and more global uncertainty.”

But interestingly, Reuters writers Carey Gillam and Rod Nickel reported today that, “Not too long ago, a surge in oil prices such as this week’s would have caused a groan of misery from the U.S. farm belt, forced to pay higher prices for tractor fuel and fertilizer. Today, farmers are far more likely to cheer.

The farm sector’s response to a surge in fuel costs has inverted for two important reasons: the rise of biofuels now means more corn and soybeans are likely to be drawn into the fuel pool; and the disconnect between natural gas and crude prices means fertilizer costs are not being dragged higher.”

The article noted that, “On balance, the surge is far more likely to lend support for a near-record corn sowing season than it is to crimp farm income through higher costs for crop chemicals and transportation charges, analysts say.”

“‘I think crude oil probably causes (crop) commodity prices to go up more than costs,’ [Gary Schnitkey, professor of farm management at University of Illinois] said.

In a related article, Ian Berry reported yesterday at The Wall Street Journal Online that, “Poultry producer Sanderson Farms Inc. posted a quarterly loss Thursday, partly due to higher feed costs, and said it expects those costs to jump by more than $300 million in 2011.

“The company said in a conference call on its fiscal-first-quarter results that it expects to spend $330.7 million more for poultry feed in 2011 than it did in 2010. It said the higher feed costs would add 10.5 cents a pound to its production costs.

“Corn prices have doubled since the end of June, continuing to climb after Sanderson Farms’ December conference call, topping $7 a bushel for the first time since a record-breaking rally in 2008. Poultry companies in particular have been seen as vulnerable because of large chicken supplies and a reluctance to cut capacity.”

Reuters writer Christopher Doering reported yesterday that, “Agriculture Secretary Tom Vilsack said the United States and other global producers are ‘better prepared to respond’ to rising food prices after the run-up in 2007 and 2008. ‘We’re keeping an eye on this,’ he said.” (Click here for a transcript of Sec. Vilsack’s remarks at yesterday’s Outlook Forum).

Nonetheless, The New York Times editorial board indicated today that, “Food prices are now higher than their 2008 peak, driven by rising demand in developing countries and volatile weather, including drought in Russia and Ukraine and a dry spell in North China that threatens the crop of the world’s largest wheat producer. The World Bank says the spike has pushed 44 million people into extreme poverty just since June.”

Meanwhile, Scott Kilman and Julie Jargon reported in today’s Wall Street Journal that, “The cost of processing food is soaring in part because foreign demand for U.S. agricultural commodities is surging at the same time the rising price of gasoline is stimulating the biofuel industry’s appetite for corn to make ethanol.”

Agricultural Economy: Biofuels

Chris Clayton reported yesterday at DTN that, “America and other countries must move ahead in the push for renewable energy, but not at the risk of food shortages that increase global instability, former President Bill Clinton said at USDA’s Outlook forum Thursday.

“Clinton told a packed audience in the opening session of the forum that farmers and agriculture will be at the vortex of global trends of increased food demand, the drive for renewable energy and the need to preserve global resources.

“As the world population moves from 6.5 billion to 9 billion people, the struggles with climate change will place more demand on American farmers to produce more food, and on farmers in individual countries to become more self-sufficient as well, Clinton said. In the midst of all that, he said, ‘I am not sure what the end of this energy issue will be, but I know there are problems with it everywhere. The more biofuels we grow here, the less crop we have to put into the international market.’”

Philip Brasher reported yesterday at the Green Fields Blog (Des Moines Register) that, “Former President Bill Clinton sounded a warning today on the impact that biofuels can have on global food prices and political stability. ‘We have to become energy independent but we don’t want to do it at the expense of food riots,’ Clinton said at the Agriculture Department’s annual agricultural outlook conference, which draws agribusiness executives, university experts and others involved in the industry from around the country.

Clinton stopped short of calling for a slowdown to biofuel production but said there was a need for some kind of periodic reassessment of the industry. There is a need to ‘make intelligent decisions with three- to five-year time horizons based on the best evidence we have to maximize the availability of good food at affordable prices,’ Clinton said. He did not elaborate on the remark and did not take questions after his speech.”

The Wall Street Journal editorial board also highlighted the former President’s remarks about biofuels in today’s paper, “Bill Clinton’s Corn Sense.”

Yesterday, Growth Energy released a response to President Clintons remarks, indicating in part that, “We appreciate that President Clinton understands the important role American ethanol plays in reducing our dependence on foreign oil and strengthening our national security. President Clinton’s concerns are well-intentioned, but we would point him toward recent studies like ‘Land Availability for Biofuel Production,’ published in the journal Environmental Science and Technology in January. This peer-reviewed study demonstrated that biofuel crops grown on already-available farmland could produce up to half of the world’s current fuel consumption — without negatively affecting food crops.

We have a surplus of food in this country. In fact, the latest World Agricultural Supply and Demand Estimates reports that the size of the 2010 corn crop is the third largest on record, proving the tremendous capability of American farmers to meet our growing demand for food, feed and renewable fuel – even during challenging growing conditions. If there are hungry people in the world, it’s not because of production. In fact, overproduction in the United States has helped put farmers in poorer nations out of business as cheap American grain floods their markets. Ethanol consumes that surplus grain, preventing it from being dumped overseas, and helps put farmers in other nations back into business.”

Keith Good