FarmPolicy

August 15, 2018

Farm Bill Issues (Debt Negotiation Developments); and the Ag Economy

Farm Bill Issues

Scott Kilman reported in today’s Wall Street Journal that, “Land prices are way up and so are bank deposits, as high corn and soybean prices mean local farmers are making the most money in their livesAn exception to the boom is the local office of the U.S. Agriculture Department, the dispensary of federal payments to farmers from an array of arcane programs with names like ‘loan deficiency’ and ‘milk income loss.’ On a recent afternoon, the parking lot in front of the squat brick building behind a Chinese restaurant was nearly empty.

“The reason: Payments from America’s primary farm-subsidy program, dating from the 1930s, have stopped here. Grain prices are far too high to trigger payouts under the program’s ‘price support’ formula. The market, in other words, has done what decades of political wrangling couldn’t: slash farm subsidies.”

The Journal article explained that, “Though the subsidy payments always ebbed and flowed with crop prices, many economists are convinced that what is happening now is different. A fundamental upward shift in crop prices is creating the real possibility that Midwestern farmers won’t ever again qualify for the primary form of farm subsidy.

“There remain other types of subsidies, which continue to pay out because they aren’t linked to market prices. But high prices are undermining political support for those programs, especially as Congress and the White House get serious about restraining federal spending, amid trillion-dollar deficits and a political brouhaha over the federal debt ceiling.”

Today’s article indicated that, “The USDA still ships billions of dollars annually to farmers for various other programs, such as payments for keeping highly erodible land in grass rather than row crops. It subsidizes crop insurance. Still, federal payments to farmers are expected to fall to about $10.6 billion this year, compared with $24.4 billion in 2005” [see related graph].

The Journal article also noted that, “Meanwhile, workers in the USDA’s county offices, seeing the handwriting on the wall, are campaigning for new things to do, now that there aren’t any price-support payments to dispense. One idea is to give them responsibility for federally subsidized crop insurance, currently handled by private companies. Because crop values are higher, the amount the federal government spends annually on crop insurance is forecast to climb above $7 billion by 2013, up 60% from last year.”

With respect to crop insurance, on the Friday edition of the Red River Farm Network’s Agriculture Today program with Mike Hergert and Randy Koenen, USDA’s Risk Management Agency Administrator Bill Murphy discussed the challenges crop producers across many parts of the U.S. have experienced this year.  Murphy noted that conditions this year have “been testing the crop insurance program, as well as the Farm Service Agency programs.”  Related audio from Friday’s Agriculture Today program is available here (MP3- 1:22).

Meanwhile, Chris Clayton reported on Friday at DTN (link requires subscription) that, “When farmer Jeff Endres learned county officials had bought a 160-acre tract for a possible wetlands project, he offered other ideas that would keep the farm in production instead… So Endres entered into a pilot project with the Dane County Land and Water Resources Department to instead continue farming the land, but see how different conservation practices would affect runoff, as well as what kind of cover crops and buffer strips could work well for dairy feed.”

The DTN article noted that, “Dane County [Wisconsin] is installing various monitors, some using county money, and others with special grants through USDA’s Mississippi River Basin Initiative. Those monitors will establish a baseline for nitrogen and phosphorus coming off the field, and how nutrient runoff may change over time.

The project reflects how conservation goes beyond the USDA acronyms such as CRP, CSP and EQIP, with farmers, local governments, states and private foundations all playing larger roles in finding solutions. Every state can likely point to comparable work, but Wisconsin’s conservation ethic drew special praise earlier this month from USDA Natural Resources Conservation Service (NRCS) Chief Dave White.”

In news regarding dairy policy, DTN Political Correspondent Jerry Hagstrom reported on Friday that, “House Agriculture Committee ranking member Collin Peterson said Thursday he is not planning to try to add his dairy reform proposal to the bill to lift the debt ceiling and curb the federal debt.”

In nutrition related issues, Mark Bittman editorialized in yesterday’s New York Times that, “Rather than subsidizing the production of unhealthful foods, we should turn the tables and tax things like soda, French fries, doughnuts and hyperprocessed snacks. The resulting income should be earmarked for a program that encourages a sound diet for Americans by making healthy food more affordable and widely available.

“The average American consumes 44.7 gallons of soft drinks annually. (Although that includes diet sodas, it does not include noncarbonated sweetened beverages, which add up to at least 17 gallons a person per year.) Sweetened drinks could be taxed at 2 cents per ounce, so a six-pack of Pepsi would cost $1.44 more than it does now. An equivalent tax on fries might be 50 cents per serving; a quarter extra for a doughnut. (We have experts who can figure out how ‘bad’ a food should be to qualify, and what the rate should be; right now they’re busy calculating ethanol subsidies. Diet sodas would not be taxed.)

Simply put: taxes would reduce consumption of unhealthful foods and generate billions of dollars annually. That money could be used to subsidize the purchase of staple foods like seasonal greens, vegetables, whole grains, dried legumes and fruit.”

And, an update posted on Friday at the Southern Peanut Growers Conference webpage indicated that, “The deans of the agriculture colleges for the major land grant universities in Alabama, Florida, Georgia and Mississippi all attended the 2011 Southern Peanut Growers Conference Friday to deliver the same message – funding for agricultural research is down at a time when it is needed more than ever before.”

 

Debt Ceiling Talks

Beyond news regarding specific variables of U.S. farm policy (Title I payments, crop insurance, conservation, dairy, nutrition and research), executive and legislative branch leaders continue to work on a deal regarding the federal debt ceiling that could have an overarching impact on funding availability for federal farm and agriculture programs.

Here is a brief FarmPolicy.com summary of weekend developments on the debt talks:

Carol E. Lee and Janet Hook reported in Saturday’s Wall Street Journal that, “A high-stakes effort by President Barack Obama and House Speaker John Boehner to hatch a landmark deficit reduction deal collapsed in anger Friday, sending Washington into a weekend of negotiations over how the world’s top financial power can make good on its debt obligations.”

President Obama and Speaker Boehner held back-to-back press conferences Friday evening, while Senate Minority Leader Mitch McConnell issued a statement which noted that, “Speaker Boehner has informed us that he will work on a new path forward with Leader [Harry] Reid to develop a solution that will prevent default.”

During his remarks, Pres. Obama called the House and Senate Leaders of both parties to a Saturday morning meeting at the White House.

Politico writer Carrie Budoff Brown reported on Saturday that, “The speed with which the latest round of negotiations collapsed — from signs Thursday morning that Obama and Boehner were nearing a deal to a complete breakdown late Friday — was a stunning reversal in the long effort to reach a compromise between the Democratic president and congressional Republicans. It left the country’s credit rating in jeopardy and the president more than a little peeved.”

The New York Times reiterated on Saturday that the negotiations over a broad deficit reduction plan included potential cuts to federal farm spending programs.

Jackie Calmes and Carl Hulse indicated in Saturday’s paper that, “The speaker said Mr. Obama wanted to raise taxes too high and would not make ‘fundamental changes’ to entitlement benefit programs like Medicare.

“But according to a White House official, Mr. Obama had agreed over the coming decade to cut $250 billion from Medicare spending and $310 billion from other domestic entitlement programs, like farm subsidies and education programs. And Mr. Obama was willing to change the formula for Social Security cost-of living adjustments, which many economists say would more accurately reflect inflation, for savings of about $125 billion more.

“All of Mr. Obama’s concessions on the benefit programs were contingent, however, on Mr. Boehner and Republicans agreeing to higher taxes for wealthy individuals and corporations.”

David Rogers reported on Saturday at Politico that, “The outlines of a $3 trillion-$3.5 trillion deficit reduction package had been in place” between the President and Speaker- which included, “[An] estimated $243 billion in often gritty detailed program cuts were assumed from government benefits not related to health, including farm subsidies and federal worker retirement plans.”

On Sunday morning, Politico writer Manu Raju reported that, “In a frantic bid to avoid causing a worldwide economic disruption, debt negotiations have shifted wholly to Capitol Hill, as a frustrated President Barack Obama has taken a step back and allowed House and Senate leaders to try to find a way out of the debt-ceiling debacle. After congressional leaders told Obama at the White House Saturday morning they would attempt to stave off the crisis before Asian markets open Sunday evening, leadership aides raced to put together a framework that both parties could support.”

After the brief Saturday morning meeting at the White House with President Obama, Congressional leaders held a  Saturday evening meeting at the Capitol where an emerging two-step debt proposal was discussed.

Roll Call writer Steven T. Dennis reported on Saturday night that, “Under the two-tier approach floated by Republicans, an initial package of cuts and a small debt limit hike would be accompanied by the creation of a joint deficit reduction committee. A second debt limit hike would be contingent on enacting additional deficit reduction.”

Lori Montgomery described the proposed idea this way in Sunday’s Washington Post: “First, lawmakers would vote on a package to cut agency spending by as much as $1 trillion over the next decade and raise the debt limit, currently set at $14.3 trillion, by the same amount. That would give [Treasury Secretary Timothy F. Geithner] enough borrowing authority to cover the nation’s bills through the end of this year.

Then Congress would go to work to produce as much as $3 trillion in additional savings through an overhaul of the tax code and major changes to Social Security and Medicare, the biggest drivers of federal spending. To identify those savings, Congress would create a new bipartisan debt-reduction committee comprising 12 lawmakers from both the House and Senate, an idea offered by Senate Majority Leader Harry M. Reid (D-Nev.).”

The two-step idea was discussed on the Sunday morning news programs where administration officials explained why they did not agree with the plan.

Bob Schieffer described the plan yesterday on Face the Nation (CBS) with White House Chief of Staff Bill Daley– who subsequently noted that the White House didn’t want to revisit the debt ceiling issue gain until at least 2013, which would not be possible under the proposal.  Related audio here (MP3- 3:07).

Mr. Daley also appeared yesterday on Meet the Press (NBC) where David Gregory asked him about the potential of a two step debt ceiling plan; and, in his answer, Mr. Daley also briefly discussed a two stage proposal from the Senate which would be viewed more favorably by the White House- audio, MP3- 1:57.

Carol E. Lee and Naftali Bendavid reported in today’s Wall Street Journal that, “Republicans and Democrats on Capitol Hill moved along separate tracks Sunday toward a deal to increase the U.S. government’s borrowing authority, setting America’s gridlocked political system on a collision course with jittery financial markets around the world.

The two camps remained split over how much to increase the debt limit—enough to get past the 2012 election or not—and how much to cut spending. A break in the impasse is needed to ensure the government won’t run out of cash to pay its bills after Aug. 2.”

The Journal article explained that, “Congressional leaders from both parties were developing competing deficit-reduction plans, but they released only broad outlines and few details. Several aides stressed the plans were still evolving.

“One currently under discussion, a plan from House Speaker John Boehner (R., Ohio), would cut the budget deficit by $1.2 trillion over 10 years and raise the debt ceiling in two phasesone that would enable the government to cover its bills through the end of the year, and a second in January 2012 depending on recommendations from a congressional commission.”

Ms. Lee and Mr. Bendavid added that, “Senate Majority Leader Harry Reid (D., Nev.) said in a written statement Sunday evening he is pushing ahead with a plan for $2.7 trillion in spending cuts over 10 years, along with an increase in the debt limit sufficient to carry the government through the end of 2012 and no increase in tax revenue. The details of the cuts had not been finalized, but none of them would be to entitlement programs like Medicare, a Democratic aide said. One option being discussed was $1.5 trillion in cuts that were identified by a bipartisan group led by Vice President Joseph Biden, and another $1 trillion in savings from winding down the wars in Iraq and Afghanistan, the aide said.

“If the next few days play out that way, with the House and Senate on separate paths toward a debt deal, it doesn’t bode well for a bipartisan agreement—or for legislation to clear Congress before Aug. 2.”

Jennifer Steinhauer and Helene Cooper reported in today’s New York Times that, “The House speaker, John A. Boehner, and the Senate majority leader, Harry Reid, were preparing separate backup plans to raise the nation’s debt ceiling on Sunday after they and the White House were unable to form a bipartisan plan that would end an increasingly grim standoff over the federal budget.”

And David Rogers reported last night at Politico that, “Indeed, since breaking off talks with the White House, Boehner has kept open lines to Obama, and the two men talked Sunday. But at this stage, the Boehner-Reid working relationship may be even more crucial, and in a conference call with Republicans on Sunday, Boehner had seemed to give a nod to Reid by emphasizing that any legislative strategy has to pass the Senate as well.”

 

Agricultural Economy

Reuters writer Christine Stebbins reported on Thursday that, “Soaring farmland values in the past year are causing worries among agricultural bankers that a farmland ‘bubble’ may be brewing similar to one that triggered the farm crisis of the 1980s.

“But the fears are tempered by a healthy agricultural economy. Farmers have used record incomes as commodity prices spiked to reduce debt, upgrade equipment — and buy land.

“‘As lenders, we are all concerned about a bubble. Is there a bubble? Yes. But it depends on how you manage that bubble,’ said Jeffrey Gerhart, head of the Bank of Newman Grove, Nebraska, who spoke at an ag lending conference sponsored by the Kansas City Federal Reserve this week.”

An update posted late last week at AgWeb Online noted that, “Producers should expect a continuation of highly volatile crop prices over the next several years, but relatively strong prices due in large part to strong export demand, and, of course, ethanol use. That’s the message from Joseph Glauber, chief economist of USDA.

“Furthermore, corn stocks will be rebuilt from current very low levels as high prices will stimulate production worldwide, but it will take about two or three years. ‘It’s hard to rebuild stocks overnight.’ He sees corn prices $4-plus five to 10 years out and higher than that if energy prices remain high with farm costs so tied to energy.

“Glauber spoke at a meeting on recognizing the risks in global agriculture sponsored by Federal Reserve Bank of Kansas City.”

Meanwhile, Marshall Eckblad and Curt Thacker reported on Friday at The Wall Street Journal Online that, “Midwestern cattle farmers have escaped a devastating drought in the southern U.S. only to watch thousands of their animals die from withering heat this week.

“Agriculture officials are still trying to a get handle on the number of heat-related deaths, but a combination of record temperatures and high humidity took a toll. Officials in Minnesota so far estimate loses at 1,000 head, while South Dakota reported at least 2,000 deaths. Some livestock managers expect total losses to be considerably larger.”

And Bloomberg writer Elizabeth Campbell reported on Friday that, “The U.S. cattle inventory on July 1 shrank to the smallest since at least 1973 as producers reduced herds amid a prolonged drought in the Southwest and rising feed costs.  Beef and dairy farmers held 100 million head of cattle as the month began, down 1.1 percent from a year earlier, the U.S. Department of Agriculture said today in a semiannual report.”

Keith Good

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