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President’s Rural Tour (Biofuels, Regulations); Farm Bill; and the Ag Economy

Biofuels

At a stop on the White House Rural Bus tour in Atkinson, Illinois yesterday, President Obama held a town hall meeting and was asked about a variety of issues, including a specific question about biofuels from an 11 year old, who inquired: “I was wondering, what are you going to do to keep [my grandpa’s] ethanol plant running?

In response, President Obama stated that, “I think those of you know that when I was a state senator, when I was a United States senator, I was a strong supporter of biofuels.  I continue to be a strong supporter of biofuelsTom Vilsack, as our Agriculture Secretary, continues to be a strong supporter of ethanol and biofuels.

I will say that the more we see the science, the more we want to find ways to diversify our biofuels so that we’re not just reliant on corn-based ethanol.  Now, we can do more to make corn-based ethanol more efficient than it is, and that’s where the research comes in.  And there are some wonderful research facilities in our own University of Illinois system that have done a lot to advance the science on this.”

The President added that, “But the key going forward is going to be, can we create biofuels out of switchgrass and wood chips and other materials that right now are considered waste materials?  And part of the reason that’s important is because, as I think most farmers here know, particularly if you’re in livestock farming, right now the costs of feed keep on going up and the costs of food as a consequence are also going up.  Only about 4 percent of that is accounted for by corn being diverted into ethanol, but as you see more and more demand placed on our food supplies around the world — as folks in China and folks in India start wanting to eat more meat and commodity prices start going up, it’s going to be important for us to figure out how can we make biofuels out of things that don’t involve our food chain.

“And so hopefully your grandfather, with his ethanol plant, is starting to work with our Department of Agriculture to find new approaches to the biofuel industry.  But this is a huge area of support.  This is another example of where we’ve got to make sure that our budget continues to invest in basic research, and that costs money.  And if all we’re doing is cutting and we’re not thinking about investments, then over time we’re going to fall behind to countries like Brazil, where they’ve already got a third, I think, of their auto fleet operates on biofuels.  Well, that’s — there’s no reason why we should fall behind a country like Brazil when it comes to developing alternative energy.  I want to be number one in alternative energy, and that’s good for the farm economy.”

(An audio replay of yesterday’s exchange is available here, MP3- 3:48).

With this exchange in mind, recall that The Wall Street Journal reported earlier this week 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.”

And on this issue, Don Davis reported yesterday at the Duluth News Tribune Online (Minn.) that, “Minnesota’s senior congressman fears the Obama administration has fired a shot over the ethanol industry’s bow in seeking a home-grown fuel for the Navy.

“‘I think that is a big a problem,’ said U.S. Rep. Collin Peterson, who serves most of western Minnesota. ‘It is just another competition for us in ethanol that we don’t need really.’

“Peterson, the top Democrat on the House Agriculture Committee, said in an interview that the plan administration officials announced this week probably will not work and threatens Minnesota’s 21 ethanol plants.”

Yesterday’s article added that, “The cost to build production plants to make the fuel and to keep them going would be prohibitive, Peterson said.

“‘It basically takes a refinery,’ Peterson said of making the new fuel. ‘It is not realistic to add a refinery to an ethanol plant.’

“If an ethanol plant cost $200 million to build, the congressman said, it would take another $300 million to retrofit it to produce drop-in fuel.

“At the same time, production would be just two-thirds what the ethanol plant produced.”

Mr. Davis added that, “‘There is no Navy in Minnesota,’ Peterson said. ‘So there is not going to be any market that is close enough to us to do any good for us.’

Another problem the congressman sees is buying plant material that would be turned into the new fuel.

Materials such as wheat straw that Obama administration suggests as raw material is not available in places where the plants likely would be built, Peterson said. And, he added, farmers providing the material likely would charge $65 a ton, but $35 a ton probably is the most a production facility could pay and still make a profit.”

Meanwhile, the USDA announced yesterday that, “Agriculture Secretary Tom Vilsack today announced grants for more than 900 agricultural producers and rural small businesses across the country to implement renewable energy and energy efficiency measures in their operations. Secretary Vilsack made the announcement as part of President Obama’s rural economic bus tour in the Midwest where today he highlighted efforts underway to reduce our country’s dependence on foreign oil, which will increase the economic competitiveness of rural America and promote job creation.”

 

Regulations

Also at yesterday’s meeting in Atkinson, a farmer brought up the issue of regulations with the President: “I farm north of here.  We enjoy growing corn and soybeans, and we feel we do it as safely and efficiently as we possibly can.  And Mother Nature has really challenged us this growing season — moisture, drought, whatever.  Please don’t challenge us with more rules and regulations from Washington, D.C., that hinder us from doing that.  We would prefer to start our day in a tractor cab or combine cab rather than filling out forms and permits to do what we’d like to do.

“THE PRESIDENT:  Well, we’ve got the Secretary of Agriculture right now, so is there a particular — is there a particular rule that you’re worried about?

“Q: We hear what’s coming down about noise pollution, dust pollution, water runoff.  Sometimes the best approach is just common sense, and we are already using that.

“THE PRESIDENT:  Yes.  Here’s what I’d suggest is, the — if you hear something is happening, but it hasn’t happened, don’t always believe what you hear… [B]ut nobody is more interested in seeing our agricultural sector successful than I am.”

(An audio replay of this exchange from yesterday is available here, MP3- 3:06).

With respect to this exchange yesterday, The Wall Street Journal editorial board indicated today that: “Was this a valuable opportunity for the President to discover more of those unnecessary rules that he claimed to be hunting down and eliminating last winter?

No, Mr. Obama quickly made clear that he wasn’t on a listening tour of the Midwest. He instructed the farmer, ‘If you hear something’s happening, but it hasn’t happened, don’t always believe what you hear.’

“He then described how lobbyists in Washington can mislead people like the farmer into thinking that ideas merely under discussion are about to become regulatory burdens. It must have been a thrill for the farmer to have the President tell him in public how he’d been duped and how little he knew about the regulations affecting his own business.”

More broadly on the executive branch Midwest tour, Aamer Madhani reported yesterday at National Journal Online that, “The White House has insisted that his bus tour through small towns wasn’t a campaign trip. But with the stops at a county fair in Illinois and the diner-counter conversations with everyday Americans, the optics of the trip often suggested otherwise.

Setting aside the semantic argument of whether Obama was a president on a listening tour or a candidate gearing up for a tough reelection, Obama did well by getting out of Washington. When he wasn’t criticizing Republicans as do-nothing obstructionists, he managed to strike a tone that could serve him well as the election campaign heats up.”

Laura Meckler reported in today’s Wall Street Journal that, “President Barack Obama pitched himself onto the political scene as a man who could rise above partisan politics, and despite presiding over a bitterly divided government, he is starting the 2012 campaign still casting himself as that guy.

“On a three-day Midwestern bus trip, Mr. Obama tried to portray himself as an outsider.

‘The only thing that’s holding us back right now is our politics,’ he said three times at a town-hall-style meeting here on Wednesday. ‘That’s the message we need to send to Washington,’ he said, as if he wasn’t part of Washington.”

And Zachary A. Goldfarb reported in today’s Washington Post that, “President Obama has decided to press Congress for a new round of stimulus spending and tax cuts as he seeks to address the great domestic policy quandary of his tenure: how to spur job growth in an age of austerity.

Obama will lay out a series of ideas in a major address right after Labor Day, when he and a largely antagonistic Congress will return from vacation, the White House said Wednesday.”

 

Farm Bill: Budget- Super Committee, and Policy Issues

Josiah Ryan reported yesterday at The Hill’s Floor Action Blog that, “Rep. Fred Upton (R-Mich.) on Wednesday left the door open to allowing some revenue to be raised as part of the final package produced by the deficit-cutting supercommittee of which he is a member.”

And in a separate Hill update yesterday, Mr. Ryan reported that, “Sen. Patty Murray (D-Wash.) said she will not draw ‘any lines in the sand’ on protecting the Medicare and Medicaid programs when the powerful deficit-cutting supercommittee convenes next month.”

In other developments, Ken Anderson reported yesterday at Brownfield that, “Nebraska U.S. Senator Mike Johanns is holding a series of ‘Ag Policy Perspective’ meetings across the state.  He says agriculture will not be immune to the budget-cutting knife.”

Yesterday’s update noted that, “The former U.S. Secretary of Agriculture is urging farmers to focus on protecting the crop insurance program.

“‘When I say protecting it, I’m literally talking about the viability of the program,’ Johanns says. ‘You could so damage this program that it’s just not a very good program at all in terms of protecting risk—and like I said, this program has already given to try to help with deficit reduction.’

Johanns refers to the six-billion dollar reduction in the crop insurance program that took place last year.  Those dollars went towards deficit reduction.”

To listen to a portion of the discussion between Sen. Johanns and Ken Anderson that included this exchange on crop insurance, just click here (MP3- 2:14).  The entire Brownfield interview with Sen. Johanns can be heard here.

A news release earlier this week from Nebraska’s other Senator, Democrat Ben Nelson, indicated that, “Another producer mentioned the importance of protecting the safety net programs in the Farm Bill, such as ACRE and SURE, despite the need for budget cuts. Nelson said he believes those programs should be improved and made more efficient, but he does think budget cuts need to be fair to rural Americans.”

Meanwhile, a Fox News update from earlier this week reported that, “Agriculture Secretary Tom Vilsack said Tuesday that the reason so many people are on food stamps is the administration has done a better job helping states get ‘the word out’ about the decades-old program.

“Though food stamps date back to 1939, Vilsack said in an interview that several large states, like California and Texas, had ‘underperformed’ in connecting eligible Americans with the program. Times have changed, he claimed.

“‘The reason why these number have gone up is that we’ve done a pretty good job of working with states that had done a poor job in the past in getting the word out about this program,’ he told MSNBC. ‘We’re now working with them to make sure that people who are eligible get the benefits.’”

The update noted that, “‘It’s the most direct stimulus you can get into the economy during tough times,’ Vilsack said, claiming every dollar in food stamp spending generates $1.84 in economic activity. The total cost of the program in May was over $6 billion — if Vilsack’s theory holds, that’s $11 billion in extra economic activity.”

A recent update posted at the USDA’s Economic Research Service Charts of Note webpage indicated that, “USDA’s Supplemental Nutrition Assistance Program (SNAP), formerly the Food Stamp Program, is the Nation’s largest domestic food and nutrition assistance program for low-income Americans. Federal spending for the program reached $68.2 billion in fiscal year 2010, up from $53.6 billion in fiscal year 2009. This 27-percent increase was due to an increase in the number of people participating in the program and higher average per person benefits. In fiscal year 2010, an average of 40.3 million people participated in SNAP each month. This chart appeared in the June 2011 issue of Amber Waves magazine.”

And Mary MacVean reported today at the Los Angeles Times Online that, “So-called WIC-only [Woman, Infants, and Children] stores are private businesses that stock exclusively the items allowed for purchase under the WIC program, including frozen, canned and fresh produce, as well as baby formula, dairy products, tofu, bread, cereal, peanut butter, beans and other basics. WIC recipients — 7 million people in California — can buy those products elsewhere, including at supermarkets, but [Alma Martinez, district manager of this Prime Time store and eight others] says people like shopping in a place where there’s no stigma and where all the products are on their lists.

WIC is available to pregnant women, mothers and children under 5 based on income; in California, a two-person household cannot make more than $27,214 gross per year. For a four-person household, the limit is $41,348.

“This summer, Occidental began a marketing program aimed at getting WIC families to eat more locally grown produce and to teach them about the farmers who provide it.”

The article added that, “In the less than two years since WIC added fresh fruits and vegetables to the list of foods available for purchase with monthly vouchers — a move heralded as a major improvement — projects have sprung up around the state to try to make that food as local as possible.”

 

Agricultural Economy

Financial Times writer Javier Blas reported yesterday that, “‘This time is different’ are the four most dangerous words in global finance as investors, time and time again, kid themselves by ignoring hard-learned lessons.

“Yet, in commodities, some believe that this time is, indeed, different from the collapse of prices seen in mid-2008 after the onset of the global financial crisis. The big difference is a huge increase in production costs over three years.”

The FT article explained that, “Even agriculture faces higher costs. According to North Dakota State University, the cost per acre in the state for wheat has surged from $2.89 in 2004, to $3.34 in 2007 and to $5.03 in 2011 due to more expensive seeds, fertilisers, fuel and labour.

“The surge in production costs means that if commodities prices were to fall due to an economic slowdown, they could drop more easily below the marginal cost of production. In a few months, companies losing money would stop producing, tightening the market and forcing prices to move higher.”

Tom Polansek and Mark Peters reported in today’s Wall Street Journal that, “The U.S. Department of Agriculture quietly released estimates it usually keeps under wraps, shedding more light on how much this year’s flooding disrupted wheat plantings and roiling grain markets.

“Traders caught on to the new data set, posted on the USDA’s web site, earlier this week and latched on to figures indicating that the size of the nation’s prized fall wheat crop could be smaller than expected.

“That sent prices of the type of wheat in question, hard red spring wheat, soaring. Futures have surged more than 6% percent this week to end Wednesday at $9.1675 a bushel, a two-month high. It’s referred to as ‘spring’ wheat because that’s when it’s planted.”

And the AP reported yesterday that, “Texas agriculture officials say the blistering drought in the state has caused an estimated $5.2 billion in crop and livestock losses this agricultural season — a record figure that could still rise.

“AgriLife Extension Service economist David Anderson said Wednesday that field surveys indicate livestock losses of $2.1 billion and crop losses of $3.1 billion through Aug. 1. And he said by the time crops are harvested, it might be higher.”

And Chris Clayton reported yesterday at DTN (link requires subscription) that, “Cowboys at the Amarillo Livestock Auction spent the morning sorting old mama cows trailered in one or two at a time, along with a steady flow of lightweight calves that normally wouldn’t show up at a sale for at least a couple of months.

“‘We got a lot of small calves in,’ said Keith Parrott, owner of the Amarillo Livestock Auction. ‘We don’t usually see them this light or this early.’

Texas Panhandlers grew up with drought and they pride themselves on handling dry conditions. But you can’t find anyone who recalls any time worse than now.”

Keith Good