FarmPolicy

April 23, 2014

Budget and Policy Issues (Farm Bill); Ag Economy; and China

Budget and the Farm Bill -Pay Roll Tax –Transportation

Daniel Looker reported yesterday at Agriculture.com that, “Farmers would take a big hit in cuts to crop insurance premiums proposed in the Obama Administration’s 2013 USDA budget released Monday. That idea isn’t going over well, either in Congress or among farm groups.

“‘There’s pretty much unanimous agreement among farmers and here in Congress that we need a strong crop insurance program,’ Senator Chuck Grassley (R-IA), a member of the Senate Agriculture Committee told Agriculture.com Tuesday.

“According to this detailed breakdown of the USDA budget, the federal government would save $3.3 billion over 10 years by cutting subsidies on farmers’ premiums. ‘The proposal would reduce the premium subsidy levels by 2 percentage points for those policies that are currently subsidized by more than 50 percent,’ says page 101 of that appendix to the budget. Currently, USDA subsidizes about 60% of farmers’ premium costs.”

Mr. Looker pointed out that, “‘The current cap on administrative expenses to be paid to participating crop insurance companies is based on the 2010 premiums, which were among the highest ever,’ the budget document says. ‘A more appropriate level for the cap would be based on 2006 premiums, neutralizing the spike in commodity prices over the last four years, but not harming the delivery system.’

“USDA also seeks to save another $1.2 billion over 10 years by lowering crop insurance companies’ return on investment from 14% to a 12% target.”

Yesterday’s article added that, “The American Soybean Association on Tuesday pointed out that the group has accepted possible elimination of direct payments as a contribution to federal deficit reduction.

“‘However, with the enormous amount of risk farmers are about to undertake by planting a new soybean crop, now is exactly the wrong time to reduce support for the federal crop insurance program,’ ASA said in a statement.  ‘The proposal put forth in the president’s budget would reduce support to farmers who purchase the highest levels of coverage—a backwards approach that discourages producers from purchasing enough coverage to meet their substantial risk management needs.’”

Secretary of Agriculture Tom Vilsack was a guest on yesterday’s AgriTalk radio program with Mike Adams where their conversation focused on the executive branch budget proposal.  To listen to a portion of this discussion from yesterday’s AgriTalk show, just click here (MP3- 2:35).

Meanwhile, a news release yesterday from the American Association of Crop Insurers (AACI) stated that, “The fact that growers are busy making plans for raising a huge 2012 crop after such a disastrous 2011 is a testament to the effectiveness of crop insurance, a panel of farmers said yesterday at a convention hosted by the [AACI].”

“Insurance claims paid by private insurers to farmers have already topped a record-setting $9.7 billion, according to the U.S. Department of Agriculture, and this figure should continue to climb as remaining claims are processed,” the AACI update noted; while adding that, “Debate of the 2012 Farm Bill is already underway, and grower leaders are urging lawmakers to strengthen, not weaken, this successful public-private partnership.”

A separate AACI news update yesterday indicated that, “The vast majority of America’s farmers view crop insurance as their most reliable risk management tool and would like to see it take an even more prominent role in future Farm Bills, leaders from major farm organizations said today at a conference hosted by the [AACI].”

Also, University of Illinois Agricultural Economist Gary Schnitkey noted yesterday at the farmodocdaily blog (“Projected Prices for Crop Insurance Based on First Two-weeks of February”) that, “During February, projected prices used in crop insurance guarantees applicable to Midwestern states are set for corn and soybeans. These projected prices are the averages of daily settlement prices of Chicago Mercantile Exchange (CME) contracts during February, with the December contract used for corn and the November contract for soybeans. Through the first two weeks of February, settlement prices have averaged $5.74 per bushel for corn and $12.35 per bushel for soybeans.”

The AP reported today that, “Promoting farm subsidies was once a no-brainer for rural members of Congress seeking re-election. This year, it’s a bit trickier.

“As lawmakers wade cautiously into writing the next five-year farm bill, agribusiness and farmers’ lobbyists are preparing for the worst. With little appetite for spending on Capitol Hill, subsidy cuts in the billions of dollars are on the table as rural voters also cry out for less government.”

The AP article pointed out that, “But direct payments, a type of subsidy paid without regard to crop price or crop yield and costing taxpayers about $5 billion a year, are still a top target as the Senate Agriculture Committee opens hearings on the legislation Wednesday. That was cemented by President Barack Obama’s call to eliminate them in his budget proposal Monday, which put forth a $32 billion cut in farm programs.

That’s a strong contrast from 2008, when Obama supported the last farm bill while he was campaigning for president. That legislation was far more generous — even raising some subsidies — than the bill Congress is weighing this year.”

The article explained that, “Since then, farm country has seen much of that GOP support fade away. Farm-state Democrats were largely swept out of Congress in the 2010 midterm elections, and several Republicans who eventually filled their seats on the House Agriculture Committee are more affiliated with the anti-spending tea party than they are with farm interests.

“Unclear is how aggressively those conservatives will support farm subsidies — and, if they do, whether they will be able to persuade party leaders and other congressional conservatives to go along. House opposition is seen as the biggest obstacle to getting a farm bill done this year.”

With respect to sugar policy, Sen. Dick Lugar (R-Ind.) and Scott Albanese, president, Albanese Confectionery Group, penned an opinion item that was posted yesterday at The Hill’s Congress blog, which stated that, “The federal government’s sugar support program is a complicated system of marketing allotments, price supports, purchase guarantees, quotas, and tariffs. This Depression-era program actually raises the price of sugar paid by U.S. manufacturers and consumers, reducing domestic food production, employment in confectionery businesses, and opportunities for U.S. exports.”

A separate piece with a similar theme on sugar policy was also posted yesterday at the online magazine of the American Enterprise Institute.

In more general Farm Bill developments, an update posted recently at AGree Online contained a link to a background paper on farm policy titled, “Farm Program History and Policy Considerations,” which the update noted was “an analysis of U.S. agricultural initiatives that distinguishes between existing programs’ intentions and how they actually operate. The paper’s goal is to shed light on the need for significant changes in agricultural policy, particularly for issues related to the farm safety net.”

In other policy developments, The New York Times editorial board stated today that, “Standards for commercial egg production vary greatly around the country. In most states, the egg-laying hens are crowded together tightly in ‘battery cages.’ Each wire cage is about the size of a microwave oven, though slightly taller, and crammed with anywhere from four to 11 hens. But some states — including California, Ohio, and Michigan — have banned the use or new construction of battery cages. California’s Proposition 2, passed in 2008, requires that commercial laying hens be kept in spaces with enough room to stretch their wings.

It’s well past time to create a national standard that promotes more humane conditions everywhere. House Republicans and Democrats have introduced a sensible bill that would require labeling on all egg cartons to specify whether the eggs are from caged, cage-free or free-range hens. It would phase in over the next 15 years to 18 years requirements for larger cages (nearly doubling the space each chicken is provided), perches, scratching areas and nesting boxes. And farmers would be allowed to depreciate fully the equipment they already own before being obliged to buy new equipment.”

Recall that last month the Los Angeles Times editorial board also supported the compromise legislation on egg production.

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “A bipartisan group of 31 senators wrote the White House Office of Management and Budget on Monday pushing the Obama administration to issue a new rule for loosening restrictions on beef imports from countries regardless of their classification for bovine spongiform encephalopathy.

“Sen. Charles Grassley, R-Iowa, released the letter on Tuesday, asking the White House to move ahead and publish the new import rule for countries based on BSE status. According to the OMB, the proposal would align U.S. importation rules on BSE with the criteria spelled out by the World Organization for Animal Health.”

In other news, Scott Patterson reported in today’s Wall Street Journal that, “The trustee overseeing bankruptcy proceedings of MF Global Holdings Ltd. agreed to hand over to federal investigators thousands of documents related to the securities firm’s final days.

“The move ends a standoff with investigators and regulators that some people said was holding up the probe.

Louis Freeh, the former Federal Bureau of Investigation director in charge of liquidating the New York company, agreed to release documents that were produced during the two weeks before the firm’s Oct. 31 filing for Chapter 11 bankruptcy, according to a notice by the bankruptcy court handling the case.”

On the payroll tax issue, Naftali Bendavid and Kristina Peterson reported in today’s Wall Street Journal that, “Congressional negotiators reached a tentative a deal Tuesday night on extending the current payroll-tax cut through the end of the year, as well as continuing longer unemployment benefits and avoiding a steep cut in Medicare doctors’ fees.

“The agreement, culminating a long and angry debate, followed a major concession earlier in the week from House Republicans, who agreed to extend the payroll-tax holiday without offsetting spending cuts. Without an agreement, payroll-tax rates would rise on March 1 for 160 million American workers.”

And on transportation, John Stanton and Humberto Sanchez reported today at Roll Call Online that, “Once again, it appears Speaker John Boehner might have overestimated his Conference’s willingness to support one of his legislative packages and finds himself forced to scrap plans for a grand transportation and energy bill.

“The legislation, which will now be broken into three smaller parts in the hopes of salvaging at least the energy portions, was expected to be the Ohio Republican’s most substantial mark on policy, fundamentally reforming how the government funds highway and mass transit projects.”

The article added that, “Meanwhile, Senate leaders are working on a list of amendments that would be offered to a $109 billion measure on that chamber’s floor that would reauthorize surface transportation programs for two years.

“Senate Majority Leader Harry Reid (D-Nev.) is walking a fine line as he looks to whittle the amendment list but retain enough Republican support to pass the legislation. Aides expect debate to slip until after the Presidents Day recess.”

And Burgess Everett reported yesterday at Politico that, “The Obama administration blasted the House’s five-year transportation proposal Tuesday and issued the White House’s first veto threat of the year.

“The White House cited its unhappiness with many of the transportation provisions in the much-criticized $260 billion bill, along with GOP-backed energy language that includes an attempt to hasten approval for the Keystone XL pipeline.”

 

Agricultural Economy

Ken Anderson reported earlier this week at Brownfield that, “Jason Henderson is the Omaha branch executive with the Federal Reserve Bank of Kansas City.

“‘What we’re seeing—in terms of asking our bankers—I think there’s some expectations that land values could rise even a little bit higher in 2012,’ Henderson says. ‘We’re starting to see more farms being put on sale, as some current land owners are trying to take advantage of today’s high prices and selling their properties into this strong market.

Henderson says as long as corn stays at profitable levels, the farmland market should remain solid.”

The update added that, “The other big factor in farmland prices, Henderson says, will be interest rates.”

To listen to a Brownfield interview with Dr. Henderson, just click here.

 

China

Alan Beattie reported earlier this week at The Financial Times Online that, “As China’s vice-president is greeted at the White House on Tuesday, the relationship between Washington and Beijing on economic issues is for the moment a manageable tiff rather than all-out conflict.

The politics of globalisation are always tricky in an election year in the US and the escalation of rhetoric on unfair trade practices from China got off to a strong start last month in Barack Obama’s bellicose State of the Union speech. The president promised an aggressive campaign to force Beijing to change its ways on currency manipulation, intellectual property rights and state subsidies to exporters. His combative tone has if anything been exceeded by leading Republican presidential candidates, including Mitt Romney, whose big-business background is more normally associated with a co-operative rather than confrontational approach to trade.”

The FT article noted that, “Yet events are conspiring to raise further the frequently elevated ratio of bark to bite in US trade politics. Trade experts say that Washington often finds itself short of key allies to help it put pressure on China – a limitation of which Beijing is increasingly aware.”

Jeremy Page and Laura Meckler reported in today’s Wall Street Journal that, “Xi Jinping, China’s expected next leader, began a week of wooing America Tuesday as he met with President Barack Obama for the first time, kicking off a visit that could shape the bilateral relationship for a decade to come.

“But even as Mr. Obama and Vice President Joe Biden sought to strike a rapport with China’s heir apparent, they pressed him publicly and, aides said, privately on many of the issues bedeviling relations between the world’s two largest economies, including trade and human rights.”

And Mark Peters and Scott Kilman reported in today’s Wall Street Journal that, “Chinese Vice President Xi Jinping’s visit to Iowa this week is designed in large part to make a point to U.S. critics of Beijing’s economic policies: China is good for the U.S. farm belt.

“Mr. Xi was scheduled to arrive in Iowa Wednesday midway through a U.S. tour to burnish his credentials as a statesman ahead of his expected selection as China’s top leader this year. The stop in farm country will highlight Mr. Xi’s personal connection with a part of the U.S. he first visited 27 years ago.”

The Journal article added that, “But it is also intended to draw a contrast with the bashing Beijing usually gets in Washington for the big U.S. trade deficit with China, by highlighting how China’s growing dependence on America to feed its swelling middle-class population is a big reason that the U.S. farm belt is experiencing an economic boom.

China was the biggest foreign buyer of U.S. agricultural goods in 2011, and much of what it bought were commodities big in Iowa, such as soybeans, pork and corn. Grain farmers in Iowa have enjoyed record returns in the past two years, and the state has the nation’s sixth-lowest unemployment rate, at 5.6%. That makes the Hawkeye state welcoming terrain.”

Keith Good

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