Farm Bill: Budget and Policy Issues- Crop Insurance
The Washington Insider section of DTN reported yesterday (link requires subscription) that, “Some observers have been surprised that the administration’s proposal for changes in the crop insurance program have become a major storm, but they shouldn’t be. The program is big and important, and the administration’s proposal is complex and based on several assumptions.”
The DTN update indicated that, “While the [crop insurance] program is run through USDA’s Risk Management Agency, policy sales and servicing are done through private firms under contracts that guarantee a negotiated ‘return on investment.’ This deal is hammered out with the companies through a painful process most recently redone in 2010.
“Still, USDA thinks, and, has long thought, that the subsidies involved are still unnecessarily high, based on more recent estimates, it says. The program costs the government approximately $8 billion a year now, including $2.3 billion per year for the private insurance companies to administer and underwrite the program and $5.7 billion per year in premium subsidies for farmers.
“In the 2010 rewrite, USDA and the companies agreed to changes credited with saving $6 billion over 10 years —reductions that USDA says were not cuts to the programs. Now, it believes it has found additional ways to shrink administrative costs. Lowering its partner-companies’ returns on investment to a 12% target would save $2 billion over 10 years, USDA thinks, with no loss of program effectiveness.”
Documenting other proposed changes to the crop insurance program, yesterday’s DTN update noted that, “The department [USDA] wants to base premiums at 2006 levels before the recent spikes in commodity prices. This change also would not reduce coverage, it says, but would save a large amount, $3.7 billion over 10 years.
“And, the administration wants to use ‘more accurate’ prices for the basic ‘catastrophic’ coverage which is fully subsidized for farmers, a change that would reduce reimbursements to crop insurance companies modestly, but would not affect farmer subsidies, and which would save $600 million over 10 years.”
Also, “[T]he administration wants to shave two basis points off any coverage premium subsidy level above 50 percent, saving $2 billion over 10 years. Producers with premium subsidies of 50 percent or less would not be affected.”
With these proposed changes in mind, the DTN item stated that, “The administration proposal already has sparked a heated debate. It is far more complicated than the fight over direct payments, since both sides say they support the insurance programs strongly and don’t want to weaken them.”
“It is a legitimate concern whether the changes proposed would make the program less effective, and Agriculture Secretary Tom Vilsack and his USDA staff have been quite casual in defense of their suggestions that the changes mainly affect the bottom lines for large, frequently off-shore, insurance companies but would have little effect on program participants.”
The DTN update added that, “However, this is a proposal that the administration will need to defend carefully with clear estimates in the very short time remaining before the Super Committee will need to act.”
Meanwhile, Tom Zacharias, the President of National Crop Insurance Services, was a guest on yesterday’s AgriTalk radio program with Mike Adams where he discussed the President’s recent budget proposal and the implications suggested budget cuts could have on the crop insurance industry.
In part, Dr. Zacharias noted that, “We would think the proposed reductions are severe in light of the reductions to the crop insurance program in the 2008 Farm Bill, and in addition to the reductions in funding to the program that were sustained during the reinsurance negotiations this past year.”
He also pointed out that, “You look at the proposals coming out of both cotton and the corn growers, and both of these groups have made crop insurance the cornerstones of their farm safety net proposals… And you take the 2012 season, where we’ve had major flooding, both in Missouri and Mississippi River systems, the extreme drought in Texas and Oklahoma. There’s been already some freeze damage up in Minnesota. You couple that with the hurricane, excessive moisture flooding up in the Northeast, your point is well taken. If anything, given what farmers are saying, the program should be strengthened, quite frankly.”
AgriTalk host Mike Adams noted on yesterday’s show that, “All right, Tom, the way I read what came out of that proposal, and came out of USDA, was that farmers’ premiums, what the farmers are paying, would have to go up. Now when I asked that question of Secretary Vilsack, he said no, he didn’t think so. How do you read it?
“Dr. Zacharias: Well, first of all, I’m not sure we have all the details on exactly how the proposal would work and how the proposal is linked together, so there’s always a question of the devil being in the details. But one understanding of it is that producer subsidy would be reduced, and that would, in effect, raise the effective premium to the growers. A little more out of their pockets to pay for crop insurance.”
Farm Bill: Policy Proposals, Timing, and the Supercommittee
In addition to the recent Farm Bill proposal sponsored by Sens. Sherrod Brown (D-Ohio), John Thune (R-S.D.), Dick Durbin (D-Ill.) and Richard Lugar (R-Ind.), the Aggregate Risk and Revenue Management (ARRM) program, (additional details here), an update posted yesterday at the Iowa Ag Connection Online stated that, “The Iowa Soybean Association (ISA) released its Farm Bill Priorities paper last week, making the point, ‘U.S. agriculture in general is the brightest spot in the economy. U.S. farmers now export 40 million acres of whole soybeans and even more in meal, oil and livestock products as a result of public and private investments in research that has led to increased yields, trade development programs and an improved transportation system.’”
Yesterday’s update indicated that, “‘No one is talking about the reasons why agriculture is doing well,’ explains Ron Heck, soybean farmer from Perry. ‘The investments in trade expansion, ag research, renewable energy, conservation and transportation systems have put U.S. farmers in the current favorable market situation. We’re asking that those programs be continued, along with a meaningful safety net program.’”
Recall that DTN Ag Policy Editor Chris Clayton noted in an article from Friday that, “It’s becoming more evident that the super committee process will translate into writing the next farm bill.”
With respect to Farm Bill timing within the context of potential supercommittee action, on yesterday’s AgriTalk program, host Mike Adams asked Mary Kay Thatcher, the Senior Director of Congressional Relations for the American Farm Bureau Federation, “So what do you think, we will write the next Farm Bill between now and December 23rd with these spending cuts?”
Ms. Thatcher indicated that, “I suspect that there is better than a fifty-fifty chance. If we get not much cuts, $10 billion over 10 years, you could probably go in and just make the cuts and be done. But if you are talking about considerably more dollars being required of agriculture, I think there is a reason to go and say, you know we can’t cut that much out without redoing some of the programs to make sure that they work better- whatever is remaining. So I think that you have got a better than fifty-fifty chance that we are going to write the Farm Bill…” (Related audio clip– MP3- 0:47).
With respect to supercommittee activity, Peter Schroeder reported yesterday at The Hill’s On the Money blog that, “It’s a move that’s been dismissed as a budget gimmick, but it’s also one that could make the supercommittee’s job a whole lot easier: counting the savings of withdrawing troops from Iraq and Afghanistan.”
The update noted that, “But if the troop withdrawal is factored in, over a trillion dollars in savings is there for the taking, and at least for the time being, supercommittee members are not ruling it out.
“‘Everything’s on the table,’ supercommittee member Sen. Max Baucus (D-Mont.) said, when asked if such savings should be considered as part of the panel’s mission.”
Mr. Schroeder added that, “Given that the supercommittee must track down at least $1.2 trillion in cuts to avoid the triggering of automatic cuts, simply accounting for those savings would nearly get the panel there all by itself.
“But trying to count those savings as significant deficit reduction has come under fire from top Republicans, who argue it is more budget wizardry than real savings, relying on a CBO loophole to pump up deficit-reduction claims.”
Also, an update posted yesterday at The Committee for a Responsible Federal Budget Online rhetorically asked, “Could a ‘go big’ approach increase the chances of the super committee succeeding? Yes, it could! Okay, you’re probably itching for a more fleshed out response than ‘yes’, so let’s walk through the logic.
“The ‘Go Big’ campaign is urging the Super Committee to come up with a deal two or three times as large as the savings in their mandate, and large enough to stabilize the debt at a reasonable level. We think going after the big deal could actually increase the chance of success. CRFB president Maya MacGuineas touched on this briefly today in a New York Times article, showing that getting to $1.2 trillion might actually be more difficult than agreeing on a larger plan.”
The CRFB update noted that, “To read more about all the reasons to ‘Go Big’ and those who have been pushing the message, check out our [CRFB] new page here.”
Farm Bill: Dairy Proposal
Christopher Galen, Vice President of Communications for the National Milk Producers Federation was also on yesterday’s AgriTalk show where he discussed The Dairy Security Act of 2011 in greater detail, a portion of his remarks from yesterday are available here (MP3- 3:00).
Mr. Galen also elaborated on the potential budget savings contained in the proposed bipartisan dairy bill- audio here (MP3- 1:35).
Farm Bill: Nutrition Issues
“More than 40 million individuals and nearly 19 million households tapped the food stamp program in 2010, according to the U.S. Department of Agriculture. While the recession technically ended in 2009, a sluggish economic recovery left millions out of work or underemployed and leaning on the government for assistance last year.
“The Agriculture Department’s annual snapshot on the characteristics of food stamp households, released Friday, shows that seven in 10 households receiving food stamps had no earned income last year, though many got other forms of government benefits.”
The update pointed out that, “Nearly half of all food-stamp recipients, 47%, were children under the age of 18. Another 8% of recipients were age 60 or older.”
The AP reported yesterday that, “Sen. Susan Collins, who hails from Maine’s potato country and picked potatoes as a girl, is working to restore some respect for the humble spud, which is on the verge of being virtually banished from the nation’s school lunch programs.
“New guidelines from the U.S. Department of Agriculture would eliminate potatoes altogether from school breakfasts and drastically reduce the amount of potatoes served in lunches.
“Collins, R-Maine, said the unassuming white potato has its place alongside more highfalutin vegetables in school cafeterias. She believes potatoes are healthy, as long as they’re not fried.”
The update added that, “Collins and [Democratic Sen. Mark Udall of Colorado] will attempt to strip funding to implement the new guidelines when the USDA appropriations bill goes to the Senate floor, sometime in the coming weeks or months. The House-approved USDA appropriations bill already prohibits funds from being used to further the proposed USDA guidelines.”
Farm Bill: Opinion
The Chicago Tribune editorial board opined yesterday that, “Don’t get us wrong: We’re thrilled to see farmers prosper. Illinois benefits. The entire nation gets a boost when the farm belt rocks.
“But the giveaways at taxpayer expense must stop. They’re an unaffordable drain on the Treasury.
“The problem goes beyond the indefensible direct payments—$4.7 billion a year in government checks sent to farmers no matter how much money they make. The problem extends to biofuel subsidies that promote corn-brewed ethanol at a cost of billions, conservation programs that pay lavishly to idle environmentally sensitive land and crop insurance benefits that farmers want greatly expanded.”
Mike Woltemath noted in an Op-Ed posted yesterday at the Omaha World-Herald Online that, “But like the old saying goes: No good deed goes unpunished. Despite being one of the only industries to answer the budget bell for the country’s betterment, farmers are again in cutters’ sights.
“This past week, President Barack Obama unveiled a plan to hack another $8 billion out of crop insurance, and even more out of other policies in place, to help provide stability to the men and women who deal with unforeseeable weather and market-related risks every day.
“Focusing so squarely on agriculture is strange, considering that farm policies represent less than one-quarter of 1 percent of federal spending, while simultaneously driving a sector that is doing well and creating jobs in an otherwise sagging economy.”
An update posted yesterday at the Federal Reserve Bank of Minneapolis stated in part that, “The second three months of 2011 saw farm incomes increase for the fourth quarter in a row, along with overall farm finances, according to the Minneapolis Fed’s July agricultural credit conditions survey. Land values continued to increase in all categories across district states, and interest rates on loans fell slightly from the last quarter. The outlook for the third quarter of 2011 is also positive, with all states in the district expecting farm incomes and household spending to increase or stay the same. All states expect farm capital spending to hold steady or increase.”
An update posted yesterday at WALB-TV (Georgia) (video clip included) reported that, “Georgia farmers are expected to produce the smallest crop of peanuts in more than two decades because of bad weather and a shift toward other crops.”
The update noted that, “South Georgia farmers will begin picking peanuts soon, but they’ll pick a lot fewer than usual.
“‘This year we have the least amount of peanuts, acre wise, planted in the state that we have had since I think 1982,’ says Wes Shannon, Tift County Peanut Farmer.”
“‘This has been a tough year from the beginning, warm temperatures during the spring and very dry,’ says Shannon.
“Many farmers planted more corn and cotton this year. Many of the peanuts they did plant didn’t do well because weather conditions were so bad.”
Meanwhile, Marshall Eckblad and Curt Thacker reported yesterday at The Wall Street Journal Online that, “U.S. live-cattle futures rallied after a government report showed lower-than-expected supplies in the early stages of the U.S. beef-production pipeline…The U.S. Department of Agriculture said Friday after trading that cattle producers had added 1% fewer young animals to feedlots in August, as compared to last year. Young cattle, which are known as feeders, are fattened in feedlots before being sent to slaughter.”
Commodity Futures Trading Commission (CFTC)
Reuters writer Christopher Doering reported yesterday that, “Nearly a year after launching ambitious reform plans, the top cop for U.S. futures markets, Gary Gensler, is beset by dissent from inside his agency and political attacks from outside it.
“In the last two months, signs of friction within the U.S. Commodity Futures Trading Commission have spilled into public view: internal complaints by whistleblowers, and the surprise release last Thursday of a key position-limit rule by Reuters. The leak of confidential trading data has also caused waves.
“The strains are not necessarily surprising for an agency that has been thrust from relative obscurity into the forefront of sweeping reforms, and is now undertaking an overhaul of derivatives trading without the big increase in funding and additional staff it is seeking.”
Budget Deal Reached
Janet Hook and Keith Johnson reported in today’s Wall Street Journal that, “A budget deadlock that had raised the risk of a federal government shutdown was broken Monday, as the Senate approved a short-term funding measure and the House appeared likely to follow suit.
“The Senate, on a 79-12 vote, approved a bill late Monday to fund the government through Nov. 18. The vote came after the main sticking point in negotiations between the two parties was resolved.”