January 23, 2020

Farm Bill; Trade; Biofuels; and the Ag Economy

Farm Bill Issues and Policy- Budget and Appropriations Issues

Stephen Gandel reported recently at Time Online that, “If you want to become rich, Jim Rogers, investment whiz, best-selling author and one of Wall Street’s towering personalities, has this advice: Become a farmer. Food prices have been high recently. Some have questioned how long that can continue. Not Rogers. He predicts that farming incomes will rise dramatically in the next few decades, faster than those in most other industries — even Wall Street. The essence of his argument is this: We don’t need more bankers. What we need are more farmers. The invisible hand will do its magic. ‘The world has got a serious food problem,’ says Rogers. ‘The only real way to solve it is to draw more people back to agriculture.’

It’s been decades since the American heartland has been a money pump and longer since farming was a major source of employment. Old rural towns have emptied as families — and the U.S. — have moved on. Technology, service jobs and finance have been the basis of the economy since at least the 1980s. Farming became the economic equivalent of a protected species — supported by a mix of government handouts, lax regulation (agriculture is one of the few industries shielded from certain child-labor laws) and charity concerts.

But in the past few years, thanks to a wealthier (and hungrier) emerging-market middle class and a boom in biofuels, the business of growing has once again become a growth business. At a time when the overall economy is limping along at an anemic growth rate of 1.9%, net farm income was up 27% last year and is expected to jump another 20% in 2011. Real estate prices in general are again falling this year. But according to the Federal Reserve, the average farm has doubled in value in the past six years. Farmland is quickly emerging as one of the year’s hottest investments on Wall Street.”

The Time article indicated that, “The main reason for U.S. farmers’ unlikely recovery is as familiar as the outcome is foreign. Wealthier consumers in places like China and India are eating more, and in particular they are eating more meat. The average American consumes about 250 lb. (113 kg) of meat a year. The average Indian eats less than 10 lb. (4.5 kg) a year. In China, it’s more like 100 lb. (45 kg). Which means there’s a lot of room for growth. Half of U.S. corn production goes to feed cattle, pigs and poultry, which drives up demand for grain. Ethanol has increased the demand for corn as well. As a result of both trends, corn prices have more than doubled in the past year, to a recent $6.81 a bushel. Soybeans, which are the U.S.’s largest farm export to China, are up too.

“Meanwhile, a number of innovations have made U.S. farmers significantly more productive than they were just two decades ago. Bioengineered seeds mean they can use smaller amounts of pesticides and water. And with GPS-aided, computer-monitored planting, some farmers are able to squeeze two rows in a space not much bigger than what used to fit only one. An average acre produced 91 bushels of corn in 1980; it now produces 152. That, along with higher prices, is boosting profits and making farmland dramatically more valuable — and farmers richer.”

The article added that, “Some fear that support from Congress could be ending just when the good times for farmers are entering a rough patch. Farming is a capital-intensive business, and most farmers need to borrow to be able to purchase their tractors and other equipment. Many expect that when the economy either improves or gets significantly worse, interest rates will rise. And rising interest rates will make it more expensive for farmers to borrow, which will lower profits. Historically, farm incomes have crashed during times when the overall economy was improving. And some economists, including Yale’s Robert Shiller, are saying there is a bubble in farmland. But many agricultural economists believe the rising demand for food in Asia and elsewhere will mean that crop prices will stay high even after the economy improves.”

Meanwhile, Former Rep. James Bacchus stated yesterday at The Hill’s Congress Blog that, “The federal budgetary squeeze on agricultural subsidies offers the President and Congress a beckoning opportunity to seize and shape a grand global bargain on international trade. We could trade new cuts in farm subsidies for new markets to create new jobs in other sectors of trade.

“Doing so could end the decade-long deadlock in the Doha Development Round of global trade negotiations. Those negotiations linger on life support, with hundreds of billions of dollars in increased trade annually — and untold new jobs — at risk if they fail.

The stubborn refusal of the United States to make additional cuts in our agricultural subsidies is by far the biggest obstacle to a global trade breakthrough.”

With respect to budget developments and negotiations over the debt ceiling, Lori Montgomery reported in today’s Washington Post that, “President Obama is pressing congressional leaders to consider a far-reaching debt-reduction plan that would force Democrats to accept major changes to Social Security and Medicare in exchange for Republican support for fresh tax revenue.

“At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action.”

Naftali Bendavid, Janet Hook and Carol E. Lee reported in today’s Wall Street Journal that, “One Democratic official said Messrs. Obama and [House Speaker John] Boehner worked through the Independence Day weekend to craft a grand deal, and that the White House proposed ‘serious things’ regarding Medicare and Social Security, including means-testing Medicare—that is, providing different levels of benefits depending on a beneficiary’s financial status.”

Carl Hulse and Mark Landler reported on today’s New York Times that, “Mr. Obama, who is to meet at the White House with the bipartisan leadership of Congress in an effort to work out an agreement to raise the federal debt limit, wants to move well beyond the $2 trillion in savings sought in earlier negotiations and seek perhaps twice as much over the next decade, Democratic officials briefed on the negotiations said Wednesday.

“The president’s renewed efforts follow what knowledgeable officials said was an overture from Mr. Boehner, who met secretly with Mr. Obama last weekend, to consider as much as $1 trillion in unspecified new revenues as part of an overhaul of tax laws in exchange for an agreement that made substantial spending cuts, including in such social programs as Medicare and Medicaid and Social Security — programs that had been off the table.”

In a separate budget matter, Alexander Bolton reported yesterday at The Hill Online that, “Senate Democrats on Wednesday embraced a budget proposal that is significantly to the left of President Obama’s plan on raising new tax revenues…Democrats believe some of the proposal could be merged into a bipartisan agreement on raising the debt ceiling.

“The budget plan would reduce the deficit by $4 trillion over 10 years, according to the baseline used by its author, Senate Budget Committee Chairman Kent Conrad (D-N.D.).”

And in spending issues that have an impact on environmental policies, David Rogers reported yesterday at Politico that, “House Republicans outlined a new round of spending cuts from environmental agencies Wednesday while denying President Barack Obama any increase for one of his top investment priorities: the National Science Foundation.

“Following on April’s budget agreement, the Environmental Protection Agency is again a major target, and the reduced $7.15 billion EPA funding would mean a $1.53 billion or 18 percent cut from current spending, much of which would come at the expense of clean water programs.”

And Dow Jones news reported yesterday that, “House Republicans are once again trying to prevent the Obama administration from regulating greenhouse-gas emissions, releasing a 2012 spending bill Wednesday that suspends carbon dioxide standards and pushes several other energy-related policy goals that Republicans have been pursuing.”

In other food policy related news, Michael S. Rosenwald reported in today’s Washington Post that, “Evidence is mounting that calorie labels — promoted by some nutritionists and the restaurant industry to help stem the obesity crisis — do not steer most people to lower-calorie foods. Eating habits rarely change, according to several studies. Perversely, some diners see the labels yet consume more calories than usual. People who use the labels often don’t need to. (Meaning: They are thin.)

Questions about the effectiveness of calorie disclosure come as the federal government is finalizing regulations to nationalize labeling in chain restaurants next year as part of a measure tucked into President Obama’s health-care law. Some chain restaurants are tweaking menus in anticipation, offering more low-calorie meals.”

And the AP reported yesterday that, “House Republicans are siding with food companies resisting the Obama administration’s efforts to pressure them to stop advertising junk food for children.

“Some food companies say the government is going too far with guidelines proposed earlier this year by several government agencies. The voluntary guidelines would attempt to shield children from ads for sugary and fatty foods — think colorful characters on cereal boxes — on television, in stores and on the Internet. Companies would be urged to market foods to children ages 2 through 17 only if they contain specific healthy ingredients and are low in fats, sugars and sodium.”

Meanwhile, in a separate policy issue, Eliza Newlin Carney reported today at Roll Call Online that, “Alarmed by Transportation Department scrutiny of rules for tractors and other farm vehicles, agriculture lobbyists have enlisted the help of more than a dozen Senators in a campaign to forestall strict new regulations.

Farmers fear the department will expand existing safety rules governing commercial drivers such as long-haul truckers to apply them to farmers driving tractors, trailers and other types of agricultural vehicles off the farm. Under pressure from farmers and their allies on Capitol Hill, the Federal Motor Carrier Safety Administration has extended its public comment period on a series of proposed new guidelines for farm vehicle safety.”



Elizabeth Williamson reported in today’s Wall Street Journal that, “The U.S. and Mexico agreed Wednesday to end a ban of nearly two decades on Mexican trucks entering the U.S.

“The end of the dispute between the U.S. and its third-largest trading partner came about 2.5 years after President Barack Obama killed a Bush administration program to ease the ban. In response, Mexico levied tariffs applied to about $2.4 billion of U.S. goods a year.”

(Note: See this related update from March of 2009 for more detailed background).

The Journal article stated that, “Under Wednesday’s agreement, half of the tariffs on 99 U.S. products, from Christmas trees to pet supplies, will be suspended immediately. The levies ranged from 5% to 25% of the products’ value. The remaining tariffs will be lifted when the first Mexican hauler complies with a series of U.S. certification requirements, including English-language proficiency and drug and safety tests.”

A statement yesterday from Secretary of Agriculture Tom Vilsack indicted that, “The agreement signed today between the governments of Mexico and the United States to resolve the cross-border long-haul trucking dispute is a major win for U.S. agriculture, American jobs and our nation’s economic prosperity. President Obama and President Calderon announced a path forward in March to resolve the dispute, and today the U.S. Department of Transportation—after months of hard work with Mexican counterparts—closed a deal that will provide tariff relief for numerous U.S. agricultural products and manufactured goods.”

Western Growers, The American Farm Bureau Federation, The National Pork Producers Council, and the National Cattlemen’s Beef Association were among the agricultural groups that released statements on this trade development yesterday.

With respect to pending regional free trade agreements, a news release yesterday from the Senate Finance Committee stated that, “Senate Finance Committee Chairman Max Baucus (D-Mont.), after consulting with members of the Finance Committee, today announced a new date for the Committee’s ‘mock’ markup of the draft implementing bills for the South Korea, Colombia, and Panama Free Trade Agreements (FTAs) that includes an extension of Trade Adjustment Assistance (TAA).  The mock markup will be held tomorrow, Thursday, July 7 at 9:00 a.m. in room 215 of the Dirksen Senate Office Building.”



Darren Goode and Robin Bravender reported yesterday at Politico that, “A trio of senators should be able to reach a deal on ethanol subsidies by Thursday, a key Republican said.

“‘We should have something we will be able to report to you tomorrow about that,’ Sen. John Thune (R-S.D.) said Wednesday afternoon.

“Thune has been in talks with fellow corn ethanol backer Sen. Amy Klobuchar (D-Minn.) and ethanol subsidy critic Sen. Dianne Feinstein (D-Calif.) about ending an existing tax credit for blending ethanol in gasoline but keeping alive for now other incentives for the gasoline additive.”

Meanwhile, Joseph B. White reported yesterday at the Washington Wire Blog (Wall Street Journal) that, “General Motors Co. caught flak Tuesday from Rep. James Sensenbrenner (R., Wis.) for not replying to his questions about the potential problems of allowing more ethanol in regular gasoline ahead of a House subcommittee hearing Thursday.

On Wednesday, GM issued its response – and made clear it’s not happy with the Obama administration’s effort to promote so-called E15, which is 15% ethanol.

“GM , in a letter dated Wednesday, joined other major auto makers in warning that using E15 in pre-2001 cars that weren’t designed for it could cause engine or fuel system damage that wouldn’t be covered by the vehicle’s warranty.”

The House Committee on Science, Space, and Technology’s Subcommittee on Energy and Environment will be holding a hearing today titled, “Hitting the Ethanol Blend Wall: Examining the Science on E15.”


Agricultural Economy

A recently released report by Rabobank, titled, “Blowing the Farmland Bubble: How sustainable are U.S. land values?” indicated that, “While evidence suggests that current agricultural land value rates are not consistent with a speculative bubble, factors combining to drive decreased land values in the future are a real risk. A modest correction in field crop values in the Midwest is a real possibility in the next three to seven years, assuming inventories of commodities are then being replenished and interest rates are rising – both appear likely. Consequently, buyers need to be aware of the potential for agricultural land to generate a sustainable margin under future conditions, which may be more conducive to downward rather than upward pressure.”

A report posted yesterday at WALB News (Georgia) by Ashton Pellom stated that, “Fruits and vegetables aren’t the only things having trouble staying alive in this drought, peanuts are having a hard time as well.”

The news item noted that, “2011 has proven to be a difficult year for peanut farmers. In fact this is the lowest number of acres planted in 3 decades, since 1982.

“Georgia Peanut Commission Executive Director Don Koehler says another reason for the shortage in peanut planting is due to greater demand of a more desirable crop, cotton.

“‘The cotton market was a lot better than the peanut market at planting time, so farmers looked at it and said I have to make a business decision. They would have liked to plant peanuts, but peanuts were priced out of the market,’ said Koehler.”

And DTN Political Correspondent Jerry Hagstrom reported yesterday that, “The wheat research initiative that the agriculture ministers from the G20 countries launched at their meeting here [Paris] on June 23 is strongly supported by U.S. growers and appears likely to put wheat research on a faster track, with meetings scheduled this fall to move the initiative forward.

The ministers focused on wheat ahead of other commodities not only because wheat is one of the most important foods in the world, but productivity has fallen behind other grains in recent years.”

Mr. Hagstrom added that, “France is one of the premier wheat producers, and the French government, which holds the G20 presidency, proposed a special wheat research initiative when agriculture ministers met in Paris to address global food security.

“The ministers agreed to launch the International Research Initiative for Wheat Improvement, bridging national research programs and the program coordinated by the International Maize and Wheat Improvement Center in Mexico (known by its Spanish acronym CIMMYT), where the late Norman Borlaug developed the wheat that was used in the Green Revolution in Asia.”

Keith Good

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