Farm Bill Issues: Budget- Super Committee Analysis
Carol E. Lee and Janet Hook reported yesterday at The Wall Street Journal Online that, “President Barack Obama is considering recommending that lawmakers on a deficit committee back new measures to stimulate the lagging economy, people familiar with White House discussions said Tuesday.
“The plan Mr. Obama is considering also would recommend the congressional committee come up with a package that reduces the federal budget deficit by much more that its mandate of $1.5 trillion over the next decade, a senior administration official said, through changes in the tax code and social safety-net programs.”
The Journal article explained that, “Mr. Obama hasn’t agreed to a set of proposals, people familiar with the discussions said, but the White House will begin to decide on elements of the plan in coming days. Mr. Obama is expected to make some decisions by Thursday.
“Mr. Obama said in Iowa that when Congress returns from recess in September he will put forward ‘a very specific plan to boost the economy, to create jobs, and to control our deficit.’ He will unveil his plan before the Joint Select Committee on Deficit Reduction’s first meeting on Sept. 16.”
The Journal writers added that, “Mr. Obama’s recommendations could complicate the committee’s task because the stimulus measures, by increasing government spending and reducing revenue, would worsen the deficit in the short term. But Mr. Obama would recommend ways to offset those effects, and the whole package would still reduce the deficit over 10 years.”
Darren Samuelsohn reported yesterday at Politico that, “The 12-member supercommittee needs to find its $1.5 trillion in spending cuts from somewhere — and that means treading on the jurisdiction of some very powerful committee leaders who may not be happy to have ceded a significant amount of authority on perhaps the biggest spending cut bill in American history.
“There have been other specially created committees in recent years, dealing with everything from homeland security to global warming. As the heads of those special panels learned, turf matters. Some lawmakers wait decades to get a gavel, and when they get one, they protect it with all they’ve got.
“The House and Senate Agriculture committees, for example, will want to defend mandatory conservation, energy and export programs tied to the farm bill.”
The three Democrat Senators appointed to the super committee (Patty Murray, Max Baucus and John Kerry) penned an Op-Ed piece in today’s Wall Street Journal which stated in part: “This is not going to be an easy task. Washington is mired in gridlock, and pundits and special interests from both sides of the aisle are already heaving boulders at our committee. But this issue is too critical to be examined through the typical ideological lens. And if this committee is going to deliver the results Americans deserve, we are going to need to meet eye-to-eye as people despite outside efforts to divide us as partisans.”
Farm Bill: Policy
Robert Pore indicated earlier this week at the Grand Island Independent Online (Neb.) that, “Congress is preparing the groundwork for a new Farm Bill next year, but U.S. Sen. Mike Johanns, R-Neb., said the ongoing budget problems facing the nation will impact the next Farm Bill.
“Johanns spoke before about 70 people on Monday at an Ag Policy Perspectives listening session at the Beef Pit on the State Fair grounds in Grand Island.”
Mr. Pore stated that, “Johanns said the annual cost of commodity programs has decreased from nearly $30 billion in 2000 to $10 billion in 2009. A controversial part of those commodity programs is the $5 billion in direct payments the federal government makes annually to the nation’s biggest farmers.”
The article added that, “The problem when it comes to the federal agricultural budget, Johanns said, is that 83 percent is spent on domestic food assistance programs, mostly food stamps and the government’s reduced-price lunch program. Because of the current economic downturn, demand for those nutritional programs is at a record high, he said.
“With Johanns saying it would be unlikely that lawmakers would cut nutritional programs to the poor, there will be pressure to cut farm programs, such as conservation, commodities and crop insurance.”
Mr. Pore noted that, “But Johanns said the crop insurance program was cut by $6 billion in the 2008 Farm Bill and another $6 billion in 2010, with $4 billion used for debt reduction and $2 billion reinvested in conservation programs.
“While Johanns said the current budget allotment for the federal crop insurance program will not be impacted this year, it is a different story when lawmakers begin drafting a new Farm Bill next year. ‘Crop insurance is the real safety net,’ he said.
“With the government not having to make loan deficiency payments and counter-cyclical payments due to higher crop prices, he said, the key component to the Farm Bill, especially as a safety net, is crop insurance.”
The article quoted Sen. Johanns as saying, “The battleground here is to keep crop insurance in place and do everything we can to improve it.”
Scott Kilman and Brian Spegele reported in today’s Wall Street Journal that, “China’s struggle to meet the growing demands of its middle class is fueling a sudden surge in demand for corn, sending vast ripples across the U.S. farm belt and potentially upending the grain’s trade flows around the world.
“China’s need for corn—which forms the basis of sweeteners, starch and alcohol as well as feed for livestock—was on stark display in July when the nation ordered 21 million bushels of U.S. corn in one hit, more than the U.S. government thought the country would buy in a year. The purchase surprised the market and came as an intense July heat wave was shrinking the potential size of the Midwest crop. China bought another 2.2 million bushels of U.S. corn early this month.
“Corn prices, which have nearly doubled over the past year, climbed another 1% Tuesday. The corn futures contract for December delivery at the Chicago Board of Trade rose 7.5 cents to settle at $7.275 a bushel.”
The Journal article stated that, “China already buys about a quarter of all U.S. soybeans. But its sudden demand for corn caught many off guard. China, which hadn’t been a net importer of corn for 15 years until last year, has a vast corn belt of its own and for many years strove to be self-sufficient. And because China is secretive about the levels of commodities it holds in its strategic reserves, the rest of the market can only guess what its supply needs are.”
Today’s article added that, “While nobody in the West knows for sure how much corn China will want to import and how soon, the possibilities fascinate grain traders. According to Michael Swanson, a Wells Fargo & Co. economist, doubling of per-capita meat consumption in China so that it matches the U.S. level would require the country to use an additional 24 billion bushels of corn, or about twice what the U.S. produces in a year.
“‘There’s not enough grain in the world for them to do that,’ Mr. Swanson says. ‘But just moving in the direction is staggering to consider.’”
Meanwhile, University of Illinois Agricultural Economist Gary Schnitkey noted yesterday at the FarmDocDaily Blog that, “In its August 12th report, the National Agricultural Statistical Service (NASS) forecast 12,914 million bushels of corn production in 2011, up by 4 percent from 2010 levels. To meet this production level, corn yields in Illinois and Iowa need to be near the average of historic, trend-adjusted yields.
“If NASS projections contained in the August 12 Crop Production report hold true, there will be a change in composition of total production across states (see Figure 1). States projected to gain over 100 million bushels are Iowa (281 million), Illinois (144 million), Nebraska (133 million), and South Dakota (107 million). Except for Illinois, these states are centered in the western corn-belt. States that are projected to have large loses are Indiana (-43 million), Kansas (-86 million), and Texas (-122 million). Losing states have had weather related issues. Indiana has been hampered by a wet spring, followed by dry weather in July. Kansas and Texas are having a major drought.”
Also yesterday, Marcia Zarley Taylor reported at the DTN Minding Ag’s Business Blog that, “U.S. farmer and ranchers have suffered an unusual string of weather calamities from Texas to North Dakota this year, from river flooding along the Mississippi and Missouri to the worst Texas drought in 100 years. While it’s doubtful the weather-related damages will match peak disaster years in the 1980s, crop insurance sources say it’s premature to make firm estimates yet.
“‘In Texas, there’s no question the crop is gone. But one thing about floods along the Mississippi and Missouri Rivers is that while they’re locally devastating, they’re not as devastating as drought,’ Risk Management Agency Deputy Administrator Tim Witt told DTN after a speech to John Deere crop insurance agents in Kansas City yesterday.”
And Reuters writer Carey Gillam reported yesterday that, “Kansas farmer Larry Kepley is almost out of hope.
“After drought left the veteran wheat farmer with what he called the ‘worst wheat harvest’ he’s ever known, the odds for next year’s crop are looking just as grim.
“Sun-baked fields are as hard as rock, and moisture levels deep into the soil are nearly nonexistent as drought persists throughout much of the U.S. southern Plains.”
Meanwhile, a World Bank news release from Monday stated that, “Global food prices are at high levels and when combined with continued volatility, put the poorest people in the developing world at continued risk, according to the World Bank Group’s Food Price Watch released today.”
Geoffrey York reported earlier this week at the Globe and Mail Online that, “It’s the hidden factor in the Somalia famine: not just drought and civil war, but the quiet hand of the marketplace in triggering a painful rise in food prices for millions of vulnerable people.
“The prices of local food staples in Somalia have soared by up to 240 per cent in the past nine months, exceeding their record highs of 2008 and contributing to a worsening of the humanitarian disaster in the country, the World Bank says in a new report.”
A Bloomberg news article from earlier this week (“World’s farmers can’t keep up with demand, USDA says”) reported that, “The smallest increase in rice stockpiles in five years means that global grain inventories will extend a decline that already has driven food costs to a record.
“Combined global stores of wheat, corn and rice will drop 2.5 percent to a four-year low as farmers fail to keep pace with demand, the U.S. Department of Agriculture estimates. Rice prices will rise more than 20 percent by December as inventories expand only 1.1 percent, compared with a 29 percent gain in the past four years, a Bloomberg survey of 13 millers and traders showed.
“While wheat and corn prices as much as doubled last year, rice retreated as the United Nations’ global food-inflation index jumped 25 percent. But rice has advanced 15 percent since May, potentially worsening the lives of 1.1 billion people the World Bank says live on less than $1 a day. Wheat fell 20 percent since the middle of February on prospects for a bigger crop.”
Joseph Morton reported yesterday at the Omaha World-Herald Online that, “The ethanol industry is preparing itself for life after federal subsidies.
“Key tax credits that pay blenders for using the renewable fuel are set to expire at the end of 2011. At a cost to taxpayers of about $6 billion a year, there seems to be no political will to extend them.”
The article stated that, “In fact, one proposal to extend some subsidies died last week when Congress left Washington without taking action.
“That will likely mean higher prices at the pump for ethanol blends, which will prompt ethanol producers to consider new ways of marketing their fuel and to seek more politically palatable forms of government support.”
Mr. Morton added that, “But don’t expect to see boarded-up ethanol plants dotting the Midlands landscape just because the blenders credit is evaporating.
“The fuel still benefits from a federal mandate that oil and gas companies blend a certain amount of the fuel into the gasoline supply.
“Because ethanol plants in Nebraska and Iowa are close to abundant corn supplies, they are fairly cost-effective and are expected to chug along in a post-subsidy world — although more marginal plants in other states could go out of business, said Monte Shaw, executive director of the Iowa Renewable Fuels Association.”
In related news, Amy Harder and Beth Reinhard reported yesterday at the National Journal Online that, “Republican Gov. Rick Perry of Texas led an unprecedented attack on the ethanol industry in 2008 that could stymie his fledging presidential campaign in the politically critical, corn-rich state of Iowa.
“The governor urged the Bush administration at the time to roll back the so-called ‘ethanol mandate,’ which requires the federal government to annually boost biofuel production, mainly through corn-based ethanol. The Environmental Protection Agency turned down Perry’s request in a decision that elicited relief among Iowa’s corn growers and political establishment and disappointment from his home state’s cattle industry.”
President Obama Rural Bus Tour
Laura Meckler and Carol E. Lee reported in today’s Wall Street Journal that, “President Barack Obama’s Midwest trip this week has allowed him to address a central challenge for his re-election: His popularity has slumped among white voters—particularly young, poor and working-class Americans—as Washington has struggled to help boost economic growth.
“On the first two days of his bus tour in rural Minnesota and Iowa, Mr. Obama has pitched a basket of long-discussed ideas, promoted small changes the administration can make on its own and promised to put forth a ‘very specific plan’ in September to boost the economy, create jobs and control the deficit.”
Mark Landler and Jeff Zeleny reported in today’s New York Times that, “President Obama pulled up to a bucolic community college here in his $1.1 million black armored bus on Tuesday and spent much of the day closeted in a conference with farmers and small-business owners, hoping to sell them on his message that he could revive the listless job market.”
“The president faces a new, more challenging political and economic landscape in the Midwestern states that formed an early and deep core of support during his primary and general election campaigns. Unemployment has increased across the region, while his approval ratings in Iowa have sagged to below 50 percent.”
An article in today’s Washington Post reported that, “On the second day of his Midwestern economic tour, President Obama bussed through idyllic landscapes in rural Iowa, armed with several measures that he said would boost the economy here.
“But, the administration soon added, none will require more federal funding that Congress must approve.”
The Post article noted that, “Such is the dilemma facing Obama as he sets the stage for a battle in Washington this fall over efforts to tame the debt and boost the economy.
“Administration aides said the president is planning to advance new ideas to help the economy in September. But any measures that would make a significant near-term difference to economic growth would probably require new spending, and Republicans insist that such spending would actually hurt the economy.”
More specifically with respect to executive branch action yesterday, Ryan Tracy reported last night at The Wall Street Journal Online that, “The Obama administration said Tuesday it would spend up to $510 million to subsidize the production of biofuels not made from corn, an effort to encourage commercial development of a sector that has not grown as fast as policymakers had anticipated.
“The funding would cover the costs of constructing or retrofitting refineries for so-called advanced biofuels, made from animal waste, algae or other material, that can run existing aircraft, ships, and other equipment. The administration said it wants to solicit proposals from the private sector by the end of this year, asking investors to put up at least $1 for every federal dollar they receive.
“The U.S. Navy stands ready to purchase the fuel as part of a commitment to get 50 percent of its energy from non-fossil fuel sources by 2020, Navy Secretary Ray Mabus said Tuesday.”
The Journal article added that, “The initiative was announced as President Barack Obama was touring the Corn Belt and came amidst eroding political support for some renewable fuel subsidies. Earlier this summer, 73 of 100 senators voted to end a tariff and tax breaks that had benefitted the corn ethanol industry for years. The bill did not move forward in the House, but the tax breaks are set to expire this year.
“The industry still benefits from a federal mandate that requires refiners to purchase increasing amounts of biofuels. That mandate calls for more non-corn fuels to be added to the mix over time. So far, though, production of non-corn fuels has not kept pace with the mandate’s original targets.”
And an update posted yesterday at the USDA blog also noted that, “Today, the President announced several important new initiatives to continue strengthening the rural economy and to create jobs in rural areas.”