February 23, 2020

Farm Bill; and the Agricultural Economy

Farm Bill Issues

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “Environmental groups want farmers to adhere to stronger conservation compliance rules and want to tie eligibility for crop insurance to conservation compliance, as well.

This is a growing topic as reliance on crop insurance grows and voluntary conservation programs are cut. Regardless of how the debate turns out, trying to build momentum going into the farm bill and really getting these issues front and center is key.”

Yesterday’s article indicated that, “Conservation compliance already is a balancing act for farmers and USDA. The notion of compliance means there is a regulatory obligation by farmers to reduce erosion. But USDA’s Natural Resources Conservation Service (NRCS) is proud to emphasize the voluntary nature of its programs.

“Minnesota State Conservationist Don Baloun frowns on the idea of a tighter regulatory regime. ‘I don’t think a regulatory approach is going to work,’ he said. ‘If we regulate, it will fail.’

Farmers need to see conservation as an investment rather than a cost of doing business, Baloun said. Most farmers have to be shown how they can make money with a conservation practice, and that it can’t be rushed.”

The DTN article pointed out that, “The 1996 farm bill effectively decoupled crop insurance from conservation compliance as a way to spur more farmers to buy insurance policies. Now, more than 80% of commodity crop acres are signed up for crop insurance.”

In a separate DTN article yesterday, Mr. Clayton reported (link requires subscription) that, “Agricultural conservation measures must address climate change or risk threatening both food security and the environment, the Soil and Water Conservation Society warned policymakers in a position statement the group issued at the start of its annual meeting Monday.

“Policy experts who have worked on agriculture and climate change said at the meeting that the 2012 farm bill provides a chance to continue working on the science in bite-sized pieces. But there is no chance of legislation addressing climate change anytime soon given the country’s current economic situation and battered political scars from defeated legislation over the last two years.”

Meanwhile, the AP reported today that, “When milk prices plummeted in 2009, wiping out years of savings and causing hundreds of dairy farms to go under, struggling farmers pleaded for the government to do something to help stabilize prices and inspire growth.

“They may soon get their wish.”

The article explained that, “U.S. Rep. Collin Peterson, D-Minn., the ranking member on the House Agriculture Committee, has floated a proposal to strengthen their safety net.

“His plan has three main components. First, it would eliminate a pair of rarely used federal programs designed to help dairy farmers in lean times. Second, it would strengthen an insurance-like program in which the government pays farmers when milk profits become too slim. Third, when profit margins shrink to a certain level, the government would limit how much milk is produced.”

Today’s AP article added that, “The last measure is the most contentious. The so-called dairy market stabilization program would provide incentives for farmers to produce less milk, thereby cutting the supply and helping restore prices. But some dairy producers say the incentives represent unwelcome government intrusion.

Here’s how it would work: When the difference between milk prices and the cost of producing milk, as determined by feed prices, fell to a certain level, farmers would be limited in how much milk they could produce. For the most part, income from any additional sales would go to the government, which would use it to buy up the excess.”

Rep. Peterson was a guest on yesterday’s AgriTalk radio program with Mike Adams.  Their discussion included a more detailed look at dairy policyclick here to listen to a clip from yesterday’s program on the dairy proposal.

Also on yesterday’s AgriTalk program, Rep. Peterson and Mike Adams discussed the ongoing negotiations over the budget and the federal debt ceiling, related audio available here.

With respect to the debt talks, Janet Hook, Naftali Bendavid and Damian Paletta reported in today’s Wall Street Journal that, “President Barack Obama, in a last-ditch bid for a bipartisan ‘grand bargain’ on the budget, threw his weight Tuesday behind a $3.7 trillion deficit-reduction plan unveiled by six Republican and Democratic senators.

The plan, which would span a decade, has scant chance of passing intact as the solution to the current debate over raising the government’s borrowing limit. Some Republicans were wary of the plan’s changes in tax rules. Democrats said it would be near impossible to draft legislative language and pass it quickly.

Still, some elements from the so-called Gang of Six senators could be incorporated into a final deal to shrink the deficit and raise the government’s $14.29 trillion debt cap by Aug. 2. That’s when the Treasury Department says the government will run out of cash to pay all its bills without an increase in borrowing authority.”

The Journal writers added that, “Senate Majority Leader Harry Reid, (D., Nev.), said he invited the bill’s supporters to suggest elements that might be included in the Plan B framework being crafted by him and Senate Minority Leader Mitch McConnell (R., Ky.).

“In the House, conservatives laid out their big-picture approach to the deficit by voting for a deficit-slashing plan that would dramatically cut the federal budget, impose stringent caps on future spending and require that Congress approve a Constitutional amendment to balance the budget before raising the debt ceiling.

“The bill was expected to be taken up in the Senate later this week, but was given no chance of passing.”

National Journal writer Tim Fernholz reported yesterday that, “Obama said he had talked with congressional leaders and felt that beginning on Wednesday, lawmakers would be ‘ready to start talking turkey.’ Still, lawmakers would have to build support among their parties and craft a plan very quickly to begin moving it through legislatively machinery by Friday, the date by which the White House has said negotiators must agree to a deal to avoid default.

House Speaker John Boehner was less enthusiastic about the Gang of Six plan. In a statement, Boehner’s office said that the plan ‘shares many similarities with the framework the Speaker discussed with the president, but also appears to fall short in some important areas.’”

Jackie Calmes and Jennifer Steinhauer reported in today’s New York Times that, “The bipartisan proposal from the so-called Gang of Six senators to reduce deficits by nearly $4 trillion over the coming decade — and its warm reception from 43 other senators of both parties — renewed hopes for a deal days after talks between Mr. Obama and Congressional leaders had reached an impasse.

“Financial markets rallied on the news. And with time running out before the deadline of Aug. 2 to raise the government’s $14.3 trillion debt ceiling, Mr. Obama’s quick embrace of the plan left House Republicans at greater risk of being politically isolated on the issue if they continue to rule out any compromise that includes higher tax revenues.”

The Times article noted that, “The Senate group’s plan, modeled on the recommendations last year of a bipartisan fiscal commission established by Mr. Obama, calls for both deep spending cuts and new revenues through an overhaul of the income-tax code.”

Recall that the fiscal commission plan included annual farm program cuts of $1 billion.

The Washington Post editorial board stated today that, “The structure of the gang’s proposal mirrors that of the debt reduction commission headed by former White House chief of staff Erskine Bowles and Republican former senator Alan Simpson. It would stabilize the debt by 2014 and reduce it to the still-troubling level of 70 percent of the economy by 2021. It would raise a $1 trillion more in revenue than if the Bush tax cuts were allowed to expire for households earning over $250,000 annually. This money would be generated by overhauling the tax code to reduce deductions while lowering rates, all while maintaining or improving the progressivity of the tax code. This is the sort of pro-growth tax reform that could help energize the economy.”

The Post added that, “Most details are left unresolved, including some important questions of how to wring more savings out of Medicare and Medicaid. But the thrust follows the lead of Simpson-Bowles to enact cuts while protecting programs for the neediest Americans. For example, the agriculture committees would be directed to find $11 billion in savings but would be instructed that the food stamps program be shielded.”

For perspective on the share of Farm Bill spending within the context of the federal budget, an article posted yesterday at The Marietta Times (Ohio) reported that, “According to [Adam Sharp, senior director of public policy for the Ohio Farm Bureau], less than two percent of the federal budget is spent on measures within the Farm Bill annually. He said 75 percent of that two percent is spent on food and nutrition programs and less than a quarter of one percent is commodity program spending.”

On the issue of food stamps (SNAP), a recent item from The Economist pointed out that, “Take food stamps, a programme designed to ensure that poor Americans have enough to eat, which is seen by many Republicans as unsustainable and by many Democrats as untouchable. Participation has soared since the recession began (see chart). By April it had reached almost 45m, or one in seven Americans. The cost, naturally, has soared too, from $35 billion in 2008 to $65 billion last year. And the Department of Agriculture, which administers the scheme, reckons only two-thirds of those who are eligible have signed up.

Republican leaders in the House of Representatives want to rein in the programme’s runaway growth. In their budget outline for next year they proposed cutting the amount of money to be spent on food stamps by roughly a fifth from 2015. Moreover, instead of being a federal entitlement, available to all Americans who meet the eligibility criteria irrespective of the cost, the programme would become a ‘block grant’ to the states, which would receive a fixed amount to spend each year, irrespective of demand.”

Daniel Looker reported earlier this week at that, “In the white-knuckle showdown over raising the federal debt limit, House Republican opposition to tax increases gets a lot of press. But Democrats are just as nervous about potential cuts to favored programs.  And one of them, Representative Jim McGovern of Massachusetts, is urging President Barrack Obama not to target food stamps in any cuts he accepts as part of a deal on spending.”

Meanwhile, Jerry Hagstrom reported earlier this week at AgWeek Online that, “The House-passed budget bill containing $48 billion in cuts to farm programs over 10 years has made it much more difficult to protect agriculture in current deficit reduction negotiations, Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., said July 12.

“The deficit reduction discussions are occurring in the context of the writing of a bill to raise the debt ceiling by Aug. 2. President Obama and congressional leaders are at loggerheads over that effort, but both sides keep saying they will work out some kind of deal so that the United States can continue to pay its bills after that date.

The ‘unprecedented’ cut in agriculture in the House bill ‘has created a very difficult situation as we negotiate on deficit reduction,’ Stabenow told the American Soybean Association, which held a legislative conference in Washington.”

The AgWeek article stated that, “The House-passed budget has not been considered in the Senate and has no chance of becoming congressional policy as written, but the $48 billion cut comes up every day in budget talks, Stabenow said. A presidential commission recommended a $10 billion cut in agriculture spending over 10 years, and the budget developed by Senate Budget Committee Chairman Kent Conrad, D-N.D., also recommended a $10 billion cut, Stabenow noted. But she said the bigger House cut has moved the middle ground in agriculture cuts from $10 billion to $15 billion to $30 billion, with some arguing that the cut should be the full $48 billion that the House recommended.”

Chairwoman Stabenow made similar points regarding the budget negotiations last month on the AgriTalk Radio program with Mike Adams where she noted that, “So this $48 [billion] now has become something that is being held up in the negotiations since it passed the House and its created more extreme cuts than we otherwise would be seeing because they have changed the bar.  Instead of talking about $10 [billion] or whether its 10 or eight, or nine- now its 48 and someplace between 10 and 48.  So the kinds of numbers being talked about are of great concern to me and have become much larger because the House of Representatives actually passed the huge cuts in their budget.”

In related developments, a news release yesterday from the National Farmers Union (NFU) stated in part that, “[NFU] led a coalition of organizations in sending a letter to President Obama and leadership in the U.S. Senate and U.S. House of Representatives urging them to reach a timely resolution to the debt ceiling negotiations…NFU President Roger Johnson said that agriculture has already taken a $6 billion reduction in its budget and is willing to do its share, but that further cuts should be overseen by authorizing committees in the House and Senate.”

And Ken Anderson reported yesterdays at Brownfield that, “One of the leading proponents of capping farm program payments—Iowa Senator Chuck Grassley—says that concept makes more sense now than ever before.

Grassley says the current budget discussions should highlight changes he has proposed to put a hard cap on farm payments so wealthy farmers who don’t need the safety net don’t benefit from the program.”


Agricultural Economy

University of Illinois Agricultural Economists Scott Irwin and Darrel Good indicated yesterday at the FarmDocDaily Blog (“Hot July Weather and Corn Yields”) that, “The onset of high temperatures in much of the Corn Belt this week has raised the issue of the impact of high summer temperatures on corn yields. See this recent article for an overview of the effects of high temperature on corn plant physiology and yield potential.

“In order to provide further insight on temperature impacts, we examine state-average corn yields for Illinois over 1975 through 2010 in years when the average July temperature exceeded 77 degrees or about 2 degrees above the average temperature for the state over the entire time period. We chose this temperature cutoff because preliminary data indicates July 2011 will be at least this warm. Summer weather and trend-adjusted yield data for those 10 years are presented in Table 1. Note that the observations are ordered by average July temperatures (largest to smallest). A linear regression trend estimate over 1975-2010 is used to re-state all yields in terms of 2011 technology. For example, the actual Illinois yield in 2002, 135 bushels per acre, is increased to 152 bushels to reflect the improvement in corn production technology since 2002.”

After more detailed analysis, yesterday’s update noted that, “Corn yield prospects in Illinois this year are still very uncertain. However, the history of corn yields in years with hot, dry conditions in July clearly points to the potential for a below average yield. Much will depend on actual weather conditions in the last week of July and in August. Weekly crop condition ratings will provide some indication of potential yield. Without favorable conditions during that period, a state average corn yield in the mid- to low-150’s might be expected. That compares to a trend yield for 2011 of 168.7 bushels.

“Some other Corn Belt states have experienced hot, dry conditions in July. We have not done a similar analysis for these states, but comparable results would be expected. The implications for the U.S. average corn yield are less certain because parts of the Corn Belt have fared better than Illinois this summer.”

Tom Polansek reported yesterday at The Wall Street Journal Online that, “U.S. corn futures jumped as a heat wave baking the Corn Belt caused the government to scale back its view of the upcoming crop and fueled expectations of further downward adjustments.”

The article added that, “In Illinois, the amount of the upcoming crop rated in good-to-excellent condition dropped six percentage points from a week ago to 61%, a particularly large decline. The USDA said the ‘hot and dry crops were beginning to show stress’ in Illinois, which is typically the country’s second-largest producer of corn behind Iowa. Crops will continue to suffer unless rains and cooler temperatures bring relief.”

And a news release yesterday from Purdue University stated that, “Growing demand for corn to use in biofuels and for soybeans to help feed a booming Chinese economy are among key forces driving commodity prices higher this year, according to a report by three Purdue agricultural economists.

A weak U.S. dollar, high oil prices, declining grain supplies and poor harvests in 2010 also contributed, they wrote in the report, which predicts that high prices will continue beyond the 2011 crop year.

“The economists – Phil Abbott, Chris Hurt and Wally Tyner – detailed their findings in ‘What’s Driving Food Prices in 2011,’ commissioned by Farm Foundation, NFP, and released Tuesday (July 19). Costs of commodities influence retail food prices as do general inflationary pressures such as transportation, packaging and food processing.”

Keith Good

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