FarmPolicy

August 15, 2018

Farm Bill; Trade; and the Ag Economy

Farm Bill Issues

A section in the 2nd Quarter (2011) issue of Choices Magazine titled, “The Environment of the Next Farm Bill Debate,” by Steven L. Klose, indicated that, “As is always the case, the approaching end of a farm bill brings many questions. At this stage—with the 2012 crop year still covered under current legislation—the pressing questions revolve around: When? When will the debate begin in earnest? Will the House or Senate Ag Committee lead the way? Will the debate start and conclude in time for a policy to be in place before farmers make 2013 crop decisions? Or, will an extension of current legislation be necessary? Should we call it the 2012 Farm Bill, or will it not happen until 2013? Certainly, the congressional turnover of the 2010 elections has had an impact on the farm bill debate process. New leadership in both the Senate and House Agricultural committees requires the development of leadership priorities, agendas, committee staffing, and engaging stakeholders. How quickly these get off the ground will dictate how soon the committees can seriously take up the next farm bill. What we know for certain is that the current farm bill will expire after the 2012 crop year, and we will not plant the 2013 crop under 1949 permanent legislation provisions. So, ready or not, the debate begins.”

The summary article stated that, “Providing a first-hand perspective of policy development from within the U.S. legislature, Mercier describes the factors that will most influence the coming farm bill [“External Factors That Will Drive the Next Farm Bill Debate.”] She illustrates the political environment including issues of committee leadership, partisanship, and the longer term changing influence of agriculture and rural America. Included in the article is a glimpse of the landscape specific to a few key farm bill program areas. Finally, she concludes with a discussion of how the limited budget will impact both the process and content of the next farm bill.

“An article by Outlaw, Richardson, and Klose [“Farm Bill Stakeholders: Competitors or Collaborators?”] presents a discussion of the traditional objectives of agricultural policy and the various stakeholders involved. Stakeholder influence fluctuates as the political environment changes and interest groups’ goals evolve. The article describes the influential stakeholders and the critical issues that will direct policy development in five major categories of farm legislation: food policy, farm policy, energy policy, natural resources and the environment, and rural development. Among stakeholder groups there is always an interaction of ideals when it comes to formulating policy. That interaction can either be collaborative or competitive in nature, but rarely are the interests of different groups independent, especially in a limited budget environment where competition for funding is a given. The article highlights the current situation, where collaboration may be of critical importance.”

The Choices update added that, “Another significant factor in the landscape of debating farm policy is the extent to which existing trade agreements, current trade negotiations, and participation in the World Trade Organization (WTO) will influence domestic policy programs [“Trade Issues in the 2012 Farm Bill.”] While trade agreements and farm policy can develop independently, the results of either can have inseparable implications for the other. Josling reviews the general environment of agricultural trade in today’s global economy, and the factors that may impact the future of U.S. agriculture exports. The article outlines the status of WTO Doha negotiations and various bilateral and regional trade agreements. Finally, he discusses the resolution of trade conflicts, and the potential implications for domestic farm policies.

“Many people within traditional agriculture interests pay little attention to food policy, but those heavily involved understand its significance. The societal goal of reducing food insecurity has a strong and broad appeal, and therefore has become an important political complement in farm legislation. The final article in the theme is written by Paggi, who describes the current environment of food and nutrition programs that have recently evolved to consume the lion’s share of farm bill funding [“Food and Nutrition Programs in the Next Farm Bill.”] He presents the status of U.S. food insecurity as well as health issues that impact food supplement and nutrition programs. He also highlights the very difficult issue of evaluating the impact of food programs in light of budget pressures that will inevitably scrutinize all aspects of the federal farm bill spending.”

Meanwhile, University of Illinois Agricultural Economist Nick Paulson noted recently at the FarmDocDaily Blog (“Regional Implications of a County-Based ACRE Program”) that, “As the deficit reduction debate rages on in Washington, the likelihood that fixed direct payments will be reduced or completely eliminated in the next Farm Bill continues to increase. However, potential changes to other farm safety net programs are less clear. The fact that farmers receive payments even during periods of high farm profits tends to be the strongest and most consistent criticism of the fixed direct payment program. This implied desire to reduce the inefficiency of the agricultural safety net can help to guide additional changes to Commodity Title programs which could help reduce farm program costs while providing more timely support.

One option which has been discussed, and is being supported in the Midwest, is a revenue support program based on a county-level revenue measure. This could potentially take the form of a modification to the existing ACRE program which is currently based on state-level revenues. Conceptually, a county-level program would provide better farm-level revenue risk protection as county revenues would typically better represent farm-level experience compared to more aggregate revenue indexes. However, a county-level program would also be more costly due to potentially higher administration costs and payment levels.”

Dr. Paulson indicated that, “For the Corn Belt states of Illinois, Indiana, and Iowa, shifting to a county-level program at a 90% coverage level would increase expected support and similar to slightly higher payment frequencies. Even lowering the guarantee level to 85% or 80% would result in similar expected levels of support as under the current state-level program. For states outside of the Midwest the results tend to be different. Moving to a county-level program would generate much smaller increases in expected support (e.g., Alabama and Virginia) and even result in smaller expected payments in some cases (e.g., Mississippi and West Virginia).

“Thus, the gains of moving towards a lower level of aggregation would seem to be concentrated in the Midwest while the costs, if such a change were funded by direct payment savings, would be borne across all regions. These types of regional differences make it extremely difficult for agricultural organizations to develop policy designs with wide-ranging, unified support.”

With respect to conservation issues, Chris Clayton reported yesterday at DTN (link requires subscription) that, “Farmers like [corn and soybean farmer Jim Andrew] face market demands for more production, but they also face a greater push to maximize conservation practices on their farms.

Environmental groups and the EPA argue enough isn’t being done to reduce soil erosion, phosphorus in local lakes and nitrogen connected to hypoxia in the Gulf of Mexico.”

Mr. Clayton added that, “But traditional federal help for soil erosion, nutrient management or water retention is being carved out of USDA’s budget and flowing downstream as easily as the banks on the Missouri and Mississippi Rivers are washing out this year.

It’s a recipe for more potential regulation if the next farm bill doesn’t develop conservation incentives that rely less on federal programs moving ahead.

“DTN has been looking at how farmers, USDA and other groups see agricultural conservation changing in the Mississippi River basin. If 2011 has proven anything with record rainfall and flooding, droughts and wildfires, it’s that conservation measures are needed more than ever to protect the landscape. Yet, any examination of conservation programs has to start with the budget crisis in Washington and the push to cut federal spending.”

In a separate update yesterday at the DTN Ag Policy Blog, Mr. Clayton reported that, “There is more talk about radically overhauling the Conservation Reserve Program in the next farm bill even as it has slowly scaled down over the past five years.

“CRP still accounts for about $1.7 billion in annual payments, but as demand for production grows, the program remains a constant target for Congress to reduce the amount of acres idled for environmental protection.”

The DTN item stated that, “As of May, total CRP (general and continuous signup combined) amounted to 31.2 million acres, down 3.4 million acres from 2008 when the farm bill was enacted. Acreage has slipped 10% even though rental rates have gone up from a national average of $50.76 an acre to $55.14 million acres over that time.”

“This coming Fiscal Year 2012 contracts could further define the role for CRP acreage moving forward. About 6.5 million acres are set to expire by September 2012. Ten states account for 4.85 million acres expiring, or just a hair under 75% of those contracts.”

And a news release yesterday from Sen. Kent Conrad (D-ND) stated that, “With pastures across North Dakota inundated by flood waters, [Sen. Conrad] is calling on U.S. Agriculture Secretary Tom Vilsack to open Conservation Reserve Program (CRP) land in North Dakota to emergency haying and grazing.”

In developments regarding dairy issues, a news item last week from the National Milk Producers Federation stated that, “While everyone is entitled to their own opinions about the best approach to reforming dairy policy, no one should be allowed to misrepresent the facts or make unfounded assertions. There are several misleading claims that were made in Wednesday’s statement from IDFA President and CEO Connie Tipton regarding the release of a legislative draft by Rep. Collin Peterson (D-MN).”

The release went on to document additional details.

Meanwhile, a news release yesterday from the National Farmers Union (NFU) stated that, “The [NFU] Board of Directors passed a resolution today in response to U.S. House of Representatives Committee on Agriculture Ranking Member Collin Peterson’s recent dairy reform proposal. The proposal, based on the National Milk Producers Federation’s proposed ‘Foundation for the Future,’ attempts to resolve a number of critical issues that prevent the current dairy safety net from functioning adequately.

“‘While we are very appreciative of Ranking Member Peterson’s proposal to initiate meaningful and necessary dairy reform, our Board of Directors feels that the proposal in its current form is inadequate,’ said NFU President Roger Johnson. ‘The current proposal would not provide a safety net for all dairy farmers, particularly family-sized operators. A fundamental problem with this proposal is that it appears that the largest farmers will reap the greatest benefits at the expense of smaller family farms.’”

In budget news on the debt ceiling talks, Carol E. Lee and Naftali Bendavid reported in today’s Wall Street Journal that, “Top White House officials and congressional leaders are racing against the clock to devise a scaled-down deficit-reduction proposal that would get both President Barack Obama’s signature and enough Republican votes to pass the House in time to avert a government default.

Mr. Obama held a secret meeting Sunday morning with House Speaker John Boehner and his deputy, Rep. Eric Cantor, the top two House Republicans. to try to determine the possible shape and size of an agreement.

“Even as Mr. Obama pushes for the biggest deficit-reduction deal possible, his top aides acknowledge they will likely have to accept a smaller plan.”

The Journal article added that, “The White House has said leaders need to reach a deficit-reduction deal by Friday to pave the way for Congress to raise the government’s $14.29 trillion borrowing limit no later than Aug. 2. Treasury Department officials say without more borrowing authority by that date, the government will run out of cash to pay its bills, with possibly catastrophic effects on financial markets and the economy. All sides agree time has run short.”

 

Trade

Evan Ramstad reported yesterday at the Korea Real Time Blog (Wall Street Journal) that, “It’s been working for just over two weeks, but the South Korea-EU free trade agreement clearly increased trade between them.

“Trade volume between South Korea and the EU nations rose 17.4% from July 1 to July 13, the Korea Customs Service reported over the weekend. In June, South Korea’s overall exports were up 14%.”

Meanwhile, a recent Congressional Research Service (CRS) report (“Trade Adjustment Assistance for Farmers”) stated that, “Since 2009, USDA has certified 10 of the 30 petitions filed by commodity groups and fishermen (e.g., producers of shrimp, catfish, asparagus, lobster, and wild blueberries). In FY2010, USDA approved about 4,500 agricultural producers who applied for training and cash assistance under three certifications. Under the seven FY2011 certified petitions, USDA approved about 5,700 producers. Program benefits in both years are expected to mostly flow to shrimp producers.”

The CRS item added that, “Following several weeks of discussions between the White House and key members of the congressional trade committees, the White House and Senator [Max Baucus (D-Montana)] announced on June 28, 2011, that the Administration’s draft bill to implement the FTA with South Korea would include provisions to reauthorize the TAA programs. Among its other provisions, TAA for Farmers would be extended through December 2013 and would be funded at an annual level of $90 million.”

And Bloomberg writers Sandrine Rastello and Eric Martin reported yesterday that, “World Bank President Robert Zoellick criticized President Barack Obama’s administration for failing to provide leadership in the Doha round of trade talks and adopting a defensive stance that helped stall discussions.”

 

Agricultural Economy

University of Illinois Agricultural Economist Darrel Good noted yesterday (“How Much Risk to the Corn Crop?”) that, “A number of factors combine each year to determine the U.S. average corn yield.  Among those factors, temperature and precipitation during July are the most important.  Crop yield models have long confirmed the large yield impact of July weather.  The most favorable weather conditions in July in the heart of the corn belt consist of temperatures that are modestly below average and precipitation that is about 25 percent above average.  These are the kind of conditions that were experienced in 2009 and contributed to the record high U.S. average yield that year.  Historically, such conditions over large areas have been rare.”

Yesterday’s report added that, “The continuation of high temperatures in southern areas and the expansion of hot weather to much of the corn belt this week raises additional concerns about corn yield.  The high temperatures in the corn belt are occurring during the reproductive stage for a large portion of the crop.  There is some indication that the intense heat will begin to moderate in many areas by the upcoming weekend.  Still, average July temperatures in the corn belt may rank among the highest since 1960.  In addition to the high temperatures, corn yield potential may be threatened by the expanding area of dryness over the last few weeks.  For the first half of July, precipitation was well below average in large portions of Illinois and Indiana.  Portions of southeastern Iowa, northwest Ohio, and eastern Michigan have also been relatively dry.  Precipitation over the past 30 days was below normal in large portions of Iowa, Illinois, Indiana, Ohio, Michigan, Pennsylvania, and southern Wisconsin.”

The U of I item also pointed out that, “The importance of the 2011 U.S. corn yield is underscored by the USDA’s projection of record consumption of U.S. corn during the 2011-12 marketing year.  The most recent projection, released on July 12, forecasts consumption at 13.5 billion bushels, 195 million bushels above expected consumption during the current marketing year.  Stocks at the end of the 2011-12 marketing year are projected at 870 million bushels, or 6.4 percent of projected use.  Based on the forecast of 84.9 million acres to be harvested, a yield below 156.5 bushels would force a reduction in the projected level of consumption.  A continuation of relatively high livestock and ethanol prices, along with growing Chinese demand, suggests that high corn prices would be required to curtail consumption.”

With the tight corn balance sheet in mind, Reuters writers Charles Abbott and Karl Plume penned a very interesting analysis piece yesterday titled, “Ethanol to edge pigs for corn use, but not quite yet,” which took a closer look at corn use, biofuels and other agricultural variables.

Meanwhile, Gregory Meyer reported earlier this week at the Financial Times Online that, “The Lone Star state is at the epicentre of a once-in-a-generation drought stretching from Arizona to Florida. The US’s southern underbelly is scorched like meat on a grill.

“The drought has spawned wildfires, turning grasslands to ash. In Texas, the leading cotton producer in the US, 59 per cent of the cotton crop is in poor condition or worse. Harvests of hard winter wheat, prized for yeasted breads, have plummeted in Kansas, Oklahoma and Texas as yields and acreage contracted. Ranchers cannot feed their cattle on parched pastures.”

And Cheri Zagurski and Katie Micik reported yesterday at DTN (link requires subscription) that, “Corn and soybean conditions fell in the week ending July 17, reflecting some of the unbearable heat wave that still remains lodged in the nation’s midsection.

USDA’s weekly Crop Progress report now puts corn condition at 4% very poor, 7% poor, 23% fair, 50% good and 16% excellent. Last week those ratings were 3% very poor, 6% poor, 22% fair, 52% good and 17% excellent.”

The DTN item added that, “Soybean conditions this week are put at 3% very poor, 7% poor, 26% fair, 51% good and 13% excellent. That compares with last week’s 2% very poor, 6% poor, 26% fair, 52% good and 14% excellent.”

Paul Kiernan reported yesterday at The Wall Street Journal Online that, “Potentially heavy rainfall in southern Brazil this week could deal another blow to the winter corn crop in Parana state, some of which was already weakened by frost this winter, experts say.”

The article explained that, “The majority of Brazil’s winter corn — including 86% of the Parana crop — is mature and ready for harvest, agricultural consultancy Celeres said Monday in a weekly report. But the harvest is well behind schedule, as planting started later than normal.

“In Brazil’s center-south corn producing region, only 23% of the planted area has been harvested, compared with 42% at this time last year, Celeres said.”

Brazil is the world’s No. 3 producer, behind the U.S. and China. Though most of the corn produced in Brazil goes to the domestic market, the South American country is still expected to export some 8 million tons of the grain during the current crop year, placing it No. 3 worldwide after the U.S. and Argentina, according to the U.S. Department of Agriculture.”

Keith Good

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