Farm Bill Issues
University of Illinois Agricultural Economist Gary Schnitkey noted in an update posted on Friday at the FarmDocDaily blog (“Current Commodity Programs and Integrating with Crop Insurance”) that, “In an earlier post, integration of farm commodity programs with crop insurance was discussed. There it was noted that crop insurance does not protect against multi-year price declines like those experienced in the mid-1980s and 1998-2002 time periods, and that commodity programs can play a role in providing protection during these multi-year price decline periods. In this post, the ability of current farm programs to provide multi-year price protection is examined.
“These programs include Direct Payments [Since these payments are constant across years, direct payments play little role in providing protection against multi-year price declines], Counter-cyclical program [This program could provide multi-year protection if target prices are raised to reflect higher commodity prices], Marketing Loan program [Similar to Counter-cyclical programs, Market Loan programs would provide multi-year protection if loan rates are raised to reflect higher commodity price levels], Average Crop Revenue Election (ACRE) program [Because the ACRE guarantee includes historical prices and because the guarantee movement is limited between years, ACRE will provide multi-year protection], and Supplemental Revenue Assistance Payments (SURE) program [SURE does not provide multi-year price protection because current year’s prices are used in the guarantee and because of other requirements must be met to receive payments].”
Friday’s update added that, “Of current programs, two possibilities exist for providing multi-year price protection:
“1. A combination of Counter-Cyclical and marketing loan programs, or
“Much of the efforts of commodity groups is focused on ACRE-like program rather than counter-cyclical/marketing loan programs. This likely results because of the following problems with Counter-Cyclical/marketing loan programs: 1) there is difficulty in determining suitable target prices and loan rates, 2) target prices and loan rates are fixed and do not adjust to market conditions, 3) Federal outlays are difficult to control under counter-cyclical/marketing loan programs, and 4) low prices do not necessarily indicate revenue programs and farm financial stress as higher yields may be countering lower prices.
“A prime example of an ACRE-like program under consideration for the next Farm Bill is the proposal by Brown, Thune, Durbin, and Lugar entitled the Aggregate Risk and Revenue Management (ARRM) program. This program modifies ACRE in important ways including 1) using an Olympic average of five years of revenue rather than a domination of historic yields and two historical prices, and 2) user of crop reporting district yields rather than state yields in it’s guarantee calculation. Future legislative efforts may focus on programs such as this because of multiple-year price protection features.”
Meanwhile, Ron Smith reported on Friday at the Southwest Farm Press Online that, “In his 31 years with USDA’s Risk Management Agency, William Murphy says he has never seen a year as complex and challenging as 2011.
“Murphy, administrator for the agency, was in Amarillo, Texas, recently to address the Beef Financial Management Conference. He says this year will be only the second time in 15 years that the USDA program pays out more in claims than it takes in.
“By early October, it had already paid out more than $3 billion, and, says Murphy, ‘We are likely to pay out more than we take in this year. Problems started early in the season and have continued well into the fall. We started with a wet spring in the Midwest, and we also had flooding in Mississippi, Missouri and other areas,’ he says.”
Mr. Smith indicated that, “Murphy also cited concern with the budget process. ‘The key now is the ‘Super Committee.’ Every agency is currently holding back to see how much money we have to work with. At RMA, we want flexibility — we assume changes are coming, both big and small. But crop insurance is more popular than ever before.’
“Threats and challenges to farm programs include additional deep cuts, he says. ‘If direct payments (are a target), what will be next?’
“Murphy says he would like to work with crops that are not currently adequately insured. Peanuts, because they are not traded on the futures market, offer some insurance challenges, he says. Pricing is sticking point. ‘We would welcome peanut growers forming a working group and working with us. We’ve been working with tobacco and would be thrilled to work with a peanut group.’”
A news release late last week from USDA’s Farm Service Agency stated in part that, “The U.S. Department of Agriculture (USDA) will distribute Conservation Reserve Program (CRP) rental payments to participants across the country [link with state by state details]. USDA’s Farm Service Agency administers CRP, while technical support functions are provided by public and private sector partners. CRP is a voluntary program that helps agricultural producers safeguard environmentally sensitive land and provide millions of acres of habitat for game and non-game wildlife species. Participants enroll in CRP contracts for 10 to 15 years. Currently, total CRP enrollment stands at 29.9 million acres.”
In other news, the White House Rural Council recently released a report titled, “White House Rural Council: Feedback from Rural America.”
An introduction in the report from Secretary of Agriculture Tom Vilsack noted that, “On June 9, 2011, President Obama signed an Executive Order establishing the White House Rural Council. Over the past few months, the Council has had the opportunity to hear from rural communities through roundtable discussions and visits across the country. By engaging in open dialogue, top Administration officials have been hearing about the most important issues on the minds of rural Americans and bringing that message back to Washington.
“Since the establishment of the White House Rural Council, President Obama, members of his Cabinet, and others senior Administration officials have made nearly 200 visits to rural communities. Through these visits, the Council has been listening to the voice of rural Americans – to their concerns and aspirations, to what they see as the challenges that lay ahead and the opportunities open to them.
“This report provides an overview of what we heard during these visits.”
In more specific news regarding the supercommittee, Brendan Sasso reported on Friday at The Hill’s Hillicon Valley Blog that, “Four members of the congressional supercommittee urged President Obama Friday to reallocate some federal government spectrum for commercial use to help generate revenue for reducing the deficit.
“Popular data-hungry smartphones and tablet computers continue to increase demand for spectrum, the airwaves that devices use to transmit signals.”
Also, a news release late last week from the National Council of Farmer Cooperatives indicated that, “Over 75 agricultural associations, farmer co-ops, and agribusinesses called on the chairmen and ranking members of the House and Senate agriculture committees to include, in their recommendations to the Joint Select Committee on Deficit Reduction, a two-year moratorium on all discretionary, non-essential regulatory actions that would increase the cost of food and agricultural production and processing. The request came in a letter sent to the committees this [Thursday] afternoon.”
Molly Hennessy-Fiske reported on Saturday at the Los Angeles Times Online that, “By January, about 12% of Texas’ roughly 5 million head of cattle will have disappeared since last year — shipped, slaughtered or sold, according to David Anderson, an economist with the Texas AgriLife Extension Service, an agriculture education agency based at Texas A&M University.”
The article noted that, “An August survey by Texas and Southwestern Cattle Raisers Assn. found that 84% of ranchers had reduced their herds.
“Ranchers would prefer to expand their herds, given that the national cow inventory is at 1950s levels, [Swenson General Manager Dennis Braden] said, while the national human population has more than doubled since then. Plus, U.S. ranches increasingly serve the world market. Texas, with the nation’s largest cattle industry, provides 16% of America’s beef. U.S. beef prices are expected to increase this year as much as 8%, twice the increase in overall food costs, according to the Department of Agriculture.”
“Texas has suffered more than $5.2 billion in agricultural losses this year from the dry spell, including in the cattle industry. No relief is in sight and the state climatologist says this could be the start of a 10-year drought, part of changing weather patterns worldwide,” the LA Times article said.
Paul Ziobro reported in today’s Wall Street Journal that, “Choosy moms will have little choice but to pay more for peanut butter.
“Another hot, dry summer has devastated this year’s peanut crop, sending prices for the legume skyrocketing and forcing peanut-butter brands including J.M. Smucker Co.’s Jif, Unilever NV’s Skippy and ConAgra Foods Inc.’s Peter Pan into startling price increases.”
The Journal article explained that, “As with any crop, the challenges facing peanut farmers begin and end with the weather. In Georgia, the leading U.S. peanut producing state, the planting season was the driest in memory for John Harrell, a sixth-generation peanut farmer in Whigham, Ga. Peanuts, typically planted between mid-April and the beginning of June, had to wait until several weeks after that for any rains, he said.
“‘I don’t remember a year that you didn’t catch a shower or had so little moisture in the ground to get the seed up,’ said Mr. Harrell, age 56. ‘It was dry about as deep as you can dig down.’
“Compounding the problems was that some farmers devoted more of their fields to crops like cotton, which was fetching a high price. The USDA Agriculture estimates a 17% drop in the peanut crop this year, to 3.46 billion pounds.”
An article posted on Saturday at the Clarke Daily News (Virginia) Online indicated that, “‘I would say in Virginia probably as much as 90 percent of the crop was already under a contracted price, so we certainly aren’t able to take advantage of any peanut price increases at harvest time,’ [M.L. Everett Jr., a Southampton County peanut grower and Virginia Farm Bureau Federation board member] said. ‘But I would suspect the 10 percent that wasn’t contracted could be sold at a premium this fall.’”
And Marshall Eckblad reported on Saturday at Barron’s Online that, “China’s craving for the other white meat will let investors feast on higher U.S. lean-hog futures for months to come.
“Pork is a cornerstone of the Chinese diet, and the country’s consumers eat more of it than do consumers of any other nation. That dining preference is especially pronounced in the country’s expanding urban populations of middle- and upper-class workers. They’re using bigger incomes to eat higher-priced food and, in the process, have far outstripped China’s domestic pork supplies.
“U.S. hog farmers have been more than happy to feed that hunger. Their exports to China are up sixfold over last year, from January through July, according to the U.S. Agriculture Department. Exports to China are approaching 10% of the U.S. export market. But that hasn’t been enough. Demand for U.S. pork imports will increase because China remains ravenous.”
More specifically with respect to China and trade, DTN writer Linda H. Smith reported on Friday (link requires subscription) that, “Warning signs of cracks in China’s economy are surfacing, but analysts disagree about whether they portend a crash or merely a need for caution. The U.S. Senate bill that would place tariffs on imports from a country found to be manipulating its currency, clearly aimed at China, is raising more red flags.
“The fallout from either of these situations could be devastating to U.S. agricultural exports: In fiscal year 2010, China imported ag products worth $20.3 billion from the U.S. — 18% of the total — and 2011 most likely was even higher.
“China is an especially important market for soybeans. They account for more than half of total U.S. exports to China and, conversely, China takes more than half the soybeans we export — and about a quarter of U.S. soybean production.”
The DTN article pointed out that, “China holds more than one of every four dollars of U.S. Treasury Securities — $1,173.5 billion of a total $4,478 billion as of July 2011. The next closest owner of U.S. debt is Japan, at $914.8 billion or 20% of the total.”
In other trade news, Chico Harlan reported in Saturday’s Washington Post that, “South Korea’s top negotiator in talks on a free-trade agreement with the United States offered reassurances Friday that his government will ratify the long-stalled deal by the end of the month, shortly after its expected approval in Washington.”
And Rep. Kevin Brady (R-Texas), the Chair of the House Ways and Means Subcommittee on Trade, was a guest on Friday’s AgriTalk radio program with Mike Adams where he discussed issues associated with the pending free trade agreements with Colombia, South Korea and Panama in more detail. An audio replay of the interview with Rep. Brady is available here.
Senate Procedural Issue
Alexander Bolton reported on Thursday night at The Hill Online that, “In a shocking development Thursday evening, Senate Majority Leader Harry Reid (D-Nev.) triggered a rarely used procedural option informally called the ‘nuclear option’ to change the Senate rules.
“Reid and 50 members of his caucus voted to change Senate rules unilaterally to prevent Republicans from forcing votes on uncomfortable amendments after the chamber has voted to move to final passage of a bill.
“Reid’s coup passed by a vote of 51-48, leaving Senate Republican leader Mitch McConnell (R-Ky.) fuming.”
The update added that, “The surprise move stunned Republicans, who did not expect Reid to bring heavy artillery to what had been a humdrum knife fight over amendments to China currency legislation.”
Alexander Bolton reported on Saturday at The Hill Online that, “Triggering what has come to be known as the chamber’s ‘nuclear option,’ Reid overturned Senate precedent that allowed Republicans to force votes to proceed to non-germane amendments. He did so by voting with 50 of his Democratic colleagues to overturn a ruling by the Senate parliamentarian.
“The controversial procedural tactic hasn’t been used in years. In a chamber where it requires the consent of all 100 senators to dispense with the reading of a bill, changing the rules unilaterally is considered bad form.
“Former Sen. Byron Dorgan (D-N.D.) predicted Thursday’s blow-up on the floor would have aftershocks.”
Manu Raju reported on Friday at Politico that, “Senate Majority Leader Harry Reid’s sudden decision to force a narrow change in the chamber’s procedures could backfire.
“First, it could make it harder for Democrats to break GOP filibusters because Republicans may be even less willing to close off debate on legislation.
“Even worse for Democrats, the tactics Reid employed to change a Senate precedent could make it easier for Republicans to justify using similar procedures to force simple-majority votes on hugely contentious issues, such as repealing Democratic priorities like health care reform and Wall Street regulations, Senate experts on both sides of the aisle said Friday.”
The Politico article added that, “The Constitution grants each house of Congress the right to create its own rules – but the Senate rarely changes its procedures, which are designed to protect the rights of the minority party. Changing the rules requires the support of two-thirds of the Senate, a very high hurdle to clear. But overturning the ruling of the presiding officer only requires a simple majority — which would then create a new precedent governing floor procedures.
“It’s this lower threshold – and the potential for major changes that could ensue — that has some senators, aides and procedural experts worried about the potential repercussions.”