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Ag Economy; Farm Bill Issues; Obama Bus Tour; and Trade

Agricultural Economy

Ian Berry and Doug Cameron reported yesterday at The Wall Street Journal Online that, “Extreme weather and rising feed and fuel costs across the U.S. Midwest crimped spending on farm equipment during the second quarter, according to a Federal Reserve survey.

“Bankers canvassed by the Federal Bank of Kansas City also predicted a slowdown in purchases of tractors and other equipment after farmers upgraded their machinery at the end of last year, though the land values that have underpinned investment continue to rise [related graph].

Farm income [related graph] and capital spending fell for the first time in three quarters, according to the Kansas City Fed survey, a move that could temper expectations that U.S. farmers would have a record level of financial firepower to spend on new equipment, fertilizer and seeds.”

The Journal writers explained that, “The combination of drought and floods has made some farmers more reliant on crop insurance and government payments to supplement income, while the Kansas City Fed noted an uptick in loan demand, with banks offering easier terms [related graph] to win business after a weak period of lending demand.

The value of farmland in the heart of the Great Plains still climbed 20% in the second quarter versus a year earlier, despite the weather impact.

“The values of land for crops and for livestock edged up modestly from the prior quarter, the bank said in its quarterly survey of agricultural credit conditions. Ranchland in the bank’s district—which includes Nebraska, Kansas, Oklahoma, Colorado, Wyoming and parts of New Mexico and Missouri—was up 11% from a year earlier.”

Yesterday’s article added that, “Farmland values across the nation’s mid-section, from the Dakotas to Indiana, have soared during the past year along with crop prices, which have rallied on disappointing harvests and relentless global demand. The Kansas City Fed said three-quarters of respondents expected farmland values to level off in the coming months, but most ‘expected that strong demand for farmland and tight supplies would keep prices elevated near current levels.’

“The jump in land values across the Midwest has prompted some concern about a potential bubble, particularly within the Kansas City Fed, which has said prices could drop substantially once the Federal Reserve raises interest rates. That particular concern has been pushed back after the Fed said last week it was unlikely to raise its core interest rate until mid-2013.”

Bloomberg writer Alan Bjerga noted yesterday that, “Farmland values have surged in the U.S. during a crop boom in the past year that sent the price of corn, the nation’s biggest crop, up 68 percent in the past year on the Chicago Board of Trade. Soybeans, the second-largest, are up 29 percent.”

With respect to drought conditions, the AP reported yesterday that, “With miniscule rainfall since last fall and weeks of triple-digit temperatures in Texas, this year’s drought has been declared the second-most severe in state history and the worst for a single year. Nearly 95 percent of the state is in the worst or second-worst categories of drought, according to the U.S. Drought Monitor. The bone-dry conditions also have led to a record number of wildfires that have burned nearly 3.5 million acres in Texas since November.

Rainfall is well below normal in all corners of the state, which cannot be remedied quickly — despite 3.53 inches of rain in Abilene on Saturday and varying amounts in other parts of West Texas and the Dallas-Fort Worth area. In fact, a weekend San Angelo downpour left some drivers stranded when creeks and ditches flooded roads.”

The New York Times editorial board pointed out today that, “This year, Texas has received less than half its normal rainfall: 6.53 inches instead of 16.03. Climatologists say this dry spell is the worst one-year drought since Texas began keeping rainfall records in 1895, and they predict that the cause of the drought — the weather created by the Pacific current called La Niña — may well extend into next year. For farmers and ranchers, this is a disaster. Agricultural losses have already surpassed the record — $4.1 billion in 2006 — and could double.”

Roy Roberson reported yesterday at the Southeast Farm Press Online that, “Will there be a shortage of peanuts by the time the 2012 planting season rolls around next April and May?

“Weather in the last 40 days of the 2011 crop season will have a partial answer to the question, but the big answer may come from the final tally on the 2010 crop.”

The article stated that, “A perfect storm is brewing, consisting of a poor quality in 2010 crop, a lower than expected planting acreage in 2011, a poor growing season in 2011 and growing demand for peanut products.

If all these factors come together, it could be a devastating storm for the peanut industry to weather.”

The article noted that, “Even the country’s top peanut producing state — Georgia — is looking at a huge drop in peanut acreage and perhaps a big dip in yields as well. Planting time drought and high temperatures have left little planting moisture for dryland peanuts and has clearly taken a toll on irrigated peanuts.

“Georgia is projected to plant and harvest the fewest acres of peanuts since 1982. Nationwide, peanut acreage could fall below one million acres, or as much as 20 percent below projected pre-plant estimates.”

Meanwhile, Bloomberg writer Jeff Wilson pointed out yesterday that, “The condition of the U.S. corn and soybean crops was unchanged last week, the U.S. Department of Agriculture said.

“About 60 percent of the corn in the top 18 producing states was in good or excellent condition as of yesterday, the USDA said today in a report. A year earlier, 69 percent got the top rating. An estimated 61 percent of the soybean crop was in good or excellent condition, down from 66 percent a year earlier, the USDA said.”

 

Farm Bill Issues: Budget- Super Committee Analysis

Anna Palmer reported yesterday at Politico that, “Now that the members of the supercommittee have been named, lobbyists have begun strategizing in earnest. And they’ve got their sights set beyond just the elite 12.

“Several lobbyists said they are focused on the committees of jurisdiction that have until Oct. 4 to send their recommendations to the debt panel as the first line of defense to keep their clients’ interests off the chopping block.

“Rob Collins, former chief of staff to House Majority Leader Eric Cantor (R-Va.), said he is thinking about it like a court case in which it is always better to win the case and not have to appeal.”

Yesterday’s article indicated that, “‘Most clients are not assuming sequestration is the final route, even if they think it might be better for them,’ said Jonathon Jones of Peck, Madigan, Jones & Stewart. ‘Everyone is going to try to make a case about their issue.’

“With members of the supercommittee such as Senate Finance Chairman Max Baucus (D-Mont.), House Ways and Means Chairman Dave Camp (R-Mich.) and House Energy and Commerce Chairman Fred Upton (R-Mich.), lobbyists said they are looking to press their cases early.”

Politico writer Jennifer Epstein reported yesterday that, “New higher tax rates won’t be part of a deficit-reduction deal worked out by the congressional supercommittee, said Rep. Jim Clyburn, one of the panel’s six Democrats, who did call for closing loopholes and letting the Bush-era tax cuts expire.

“‘Let me be very clear: Even in the Biden committee, none of us ever talked about raising tax rates, we are not there,’ the assistant minority leader said Monday on MSNBC’s ‘The Daily Rundown.’ ‘We believe, however, that closing loopholes can get us to where we need to be.’

“Clyburn stressed that while increased taxes are not going to be part of a supercommittee deal, new revenues must be.”

The article added that, “Clyburn said that while he ‘[doesn’t] know exactly how all this is going to work out,’ he’s willing to compromise because he does not want to see the ‘triggers’ — cuts to defense and Medicare, intended to hit programs important to Republicans and Democrats, respectively — enacted.”

 

Policy Issues, Political Environment (Corn Ethanol)

Linda H. Smith reported yesterday at DTN (link requires subscription) that, “The National Agricultural Statistics Service — the agency responsible for surveying and reporting U.S. crop acreages, crop condition, livestock reports and other information used for market forecasting — is planning to restructure and downsize into regional offices, according to an agency memo obtained by DTN/The Progressive Farmer. The news raises questions whether planned changes will affect the agency’s ability to accurately collect, process and report market-sensitive data, potentially further exacerbating current grain market volatility.”

The DTN item noted that, “According to the memo, ‘The proposal creates a regional field office structure while maintaining a NASS presence in each state.’ It also says that key D.C. staff and members of the senior executive team, ‘are making every effort to provide options to staff that will help them manage the difficult transitions ahead. Those options may include relocations to the regional offices, buy outs, early outs, and other possible options.’”

In other developments, a news release yesterday from USDA stated in part that, “Today, USDA Under Secretary Kevin Concannon hosted a conference call to highlight the historic school nutrition reforms and improvements that students and families will see in the new school year. The reforms, delivered through the Healthy, Hunger-Free Kids Act of 2010 (HHFKA), are improving the nutritional quality of school meals and bolstering the entire school environment. Concannon also announced that schools nationwide reached First Lady Michelle Obama’s goal of 1,250 schools receiving HealthierUS School Challenge (HUSSC) honors for expanding nutrition and physical activity opportunities.”

And Bill Tomson reported yesterday at The Wall Street Journal Online that, “Soup kitchens and school cafeterias are going to have a lot more chicken to dole out now that the government has said it is going to the aid of producers with a special $40 million ‘bonus’ purchase on top of the chicken it normally buys for feeding programs.

“The U.S. Department of Agriculture buys hundreds of millions of dollars worth of chicken, beef, pork, vegetables, fruit and other commodities every year to supply the national school lunch program, but from time to time it makes extra ‘surplus removal’ purchases to help out producers.

“The $40 million buy, combined with a similar $44 million chicken purchase last year, gives producers an extra $86 million in government chicken purchases above the roughly $100 million the USDA buys in scheduled chicken purchases for a year.”

Meanwhile, Suzanne Goldenberg reported yesterday at The Guardian Online (“US corn-belt farmers: ‘The country has turned on us’”) that, “There were times when Arlyn Schipper could almost feel heroic on his family farm in the heart of America’s corn belt…Schipper still sees it that way. It is just he feels America has moved on, or as he put it: ‘The country has turned on us.’

“The US debt crisis, and the challenge of finding $1.3tn (£796bn) in budget cuts, has forced Congress to re-examine three decades of government subsidies for corn ethanol.

“Drought and famine in the Horn of Africa have exposed further a negative consequence of biofuel production: the global food crisis. By competing with food crops for land, large-scale biofuel production has constricted supply and so boosted food prices across the world. This has led to a backlash against biofuels such as corn ethanol from environmentalists and development charities.”

The Guardian article stated that, “Congress is expected to end $6bn in subsidies during the debt deal negotiations. The subsidy had been directed to the oil firms which incorporate ethanol into their products. Fuel sold at most US petrol stations contains 10% ethanol.

The industry had hoped to re-direct some of those funds to refitting petrol stations to take more ethanol, under a deal reached in the Senate last July.

But the subsequent US debt ceiling deal, with its demands for deep cuts, now makes that unlikely.”

 

President Obama’s Bus Tour

Mark Landler reported in today’s New York Times that, “For most of the summer, President Obama has been under siege in the White House. On Monday, he became a road warrior, kicking off a three-day bus tour of the Midwest that provided him campaign-style opportunities to strike back at Republicans in a region vital to his re-election.”

Laura Meckler reported in today’s Wall Street Journal that, “The trip began in Minnesota, then headed to Iowa, where Mr. Obama was to hold a rural-issues forum on Tuesday. The Iowa visit also offered Mr. Obama the chance to counter criticism by Republicans stumping in the state that will hold the nation’s first caucuses. He finishes the trip Wednesday in Illinois.”

Reuters writer Alister Bull reported yesterday that, “The White House says Obama is on a listening tour to hear from Americans about the economy and talk about how to boost jobs and hiring. With U.S. unemployment mired at just above 9 percent, jobs are expected to be the central issue for voters in next year’s presidential and congressional elections.

Obama said he would put forward a plan for economic growth when Congress returns from summer recess and challenged lawmakers to take action.”

On the issue of biofuels, Renewable Fuels Association president and CEO Bob Dinneen penned a letter to President Obama yesterday highlighting a variety of issues associated with domestic biofuel production.

The subject of biofuels did come up briefly in the President’s stop in Minnesota, according to a White House transcript, in response to a question, the President stated that: “And a lot of folks here are familiar with corn-based ethanol, but the fact of the matter is the technology is moving where we need to start taking advantage of a whole range of biofuels, using refuse, using stuff that we don’t use for food to create energy. And we are seeing incredible progress on that front, but it’s key to make sure that we continue to make the research and that we also use the incredible purchasing power of the federal government to encourage it.”

Also at yesterday’s event in Minnesota, President Obama stated that, “One of our great strengths as a country is agriculture. And one of the pledges that I made when I came into office was we’re going to double our exports. And a big component of that is agricultural exports. And so far, we’ve seen agricultural exports rise to over $100 billion. It creates over two — that means over 800,000 jobs all across America. But the fact of the matter is, is that a lot of family farmers are still struggling. And so one of the things that we’re going to be talking about during this tour — and we’ve got a big roundtable discussion tomorrow, drawing on the work that our Rural Council did — is how we can make sure that we can get more capital to small farmers; how can we help young farmers who want to go into farming be able to buy land because land prices have gone up so high; how can we make sure that they’re able to market their products effectively, because right now, if you’re not a mega-farm, a lot of times you get squeezed.”

And Erik Wasson reported this morning at The Hill Online that, “President Obama is set to announce several new initiatives meant to spark job creation in rural America without forcing the administration to get the backing of Congress.

“Obama will announce the package Tuesday at a ‘White House Rural Economic Forum’ in Peosta, Iowa.”

The Hill article stated that, “Agriculture Secretary Tom Vilsack and Small Business Administrator Karen Mills said Monday that the elements of the package, which does not have new costs associated with it, are not insignificant.

“‘I will tell you there is nothing small bore about this effort,’ Vilsack said.”

The Hill update stated that, “Neither would put an exact estimate on the number of jobs that could be created by Tuesday’s initiatives, but Vilsack said that more announcements will be forthcoming including on biofuels.”

 

Trade

Vicki Needham reported yesterday at The Hill’s On the Money Blog that, “Two House Republicans and a Senate Democrat argued Monday that the Obama administration needs to send Congress three pending free-trade deals to protect U.S. market share in those countries.

“Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee; Rep. Kevin Brady (R-Texas), chairman of the Ways and Means Subcommittee on Trade [related GOP statement]; and Senate Finance Committee Chairman Max Baucus (D-Mont.) said completion of a trade agreement between Colombia and Canada is putting U.S. workers and exporters at a further disadvantage in sending their products to Colombia.”

The article added that, “In the past two years, U.S. farmers and ranchers have lost more than $1 billion in sales to Colombia, according to the release from House Ways and Means Republicans.”

Also at yesterday’s bus tour event in Minnesota, President Obama stated that, “Trade deals. You know, trade deals haven’t always been good for America. There have been times where we haven’t gotten a fair deal out of our trade deals. But we’ve put together a package that is going to allow us to start selling some Chevys and some Fords to Korea so that — we don’t mind having Hyundais and Kias here, but we want some ‘Made in America’ stuff in other countries. (Applause.) That’s something that Congress could do right now.”

Keith Good