December 6, 2019

Farm Bill; Budget; Ag Economy; Trade; and MF Global

Farm Bill and Policy Issues

Yesterday, the Food and Agricultural Policy Research Institute (FAPRI) issued a report that focused on some of the key provisions of the Farm Bill passed by the Senate Agriculture Committee last month, “Impacts of Selected Provisions of the ‘Agriculture Reform, Food and Jobs Act of 2012.’”

A summary of the FAPRI report (at page one of the report) indicated that, “The U.S. Senate Committee on Agriculture, Nutrition and Forestry approved the ‘Agriculture Reform, Food and Jobs Act of 2012’ on April 26, 2012. This report examines the possible consequences of several key provisions in the proposed legislation.

1) The elimination of the current Direct and Countercyclical Payment (DCP) and Average Crop Revenue Election (ACRE) programs.

2) The establishment of the Agriculture Risk Coverage (ARC) program and the Stacked Income Protection Plan (STAX).

3) The reduction in the acreage cap for the Conservation Reserve Program (CRP) from the current 32 million acres to 25 million acres by 2017.

“Models maintained by the Food and Agricultural Policy Research Institute at the University of Missouri (FAPRI‐MU) are used to estimate possible impacts of these proposed policy changes. Results are presented relative to a baseline prepared in early 2012 that assumes a continuation of existing farm policies. The analysis uses a stochastic approach that considers 500 possible future outcomes for agricultural commodity markets to examine the consequences of continued market volatility.”

The FAPRI paper noted that, “Eliminating the DCP and ACRE programs would reduce government farm program outlays, farm income and agricultural land values, but would only have modest impacts on agricultural commodity markets. By itself, eliminating DCP and ACRE would result in a small reduction in the total area devoted to major program crops and marginally higher crop prices.

“The new ARC and STAX programs would make payments when per‐acre revenues fall sufficiently below benchmark levels. Both programs cover relatively ‘shallow’ losses; other crop insurance policies would continue to provide protection against larger losses.

* Relative to a scenario that only eliminates DCP and ACRE, introducing ARC and STAX results in a little more land used for crop production and slightly lower crop prices.

* Average payments to producers under ARC and STAX would be lower than payments under DCP and ACRE, so the net effect of these changes is to reduce federal farm program spending by an estimated $18 billion over the next ten years.

* Relative to the baseline, the decline in budgetary outlays is proportionally larger for rice, peanuts and wheat than it is for other crops. Soybean outlays increase slightly.

* Estimated payments under ARC average approximately 2 percent of the market value of eligible crops. ARC payments are proportionally larger for corn and wheat than for rice and peanuts.

* STAX net indemnities average about 5 percent of the market value of cotton production.

* Budgetary outlays under ARC and STAX will vary greatly, but because both programs cover only a certain band of revenue losses, the budgetary exposure does have limits.

“Reducing the CRP acreage cap would result in increased crop production and lower crop prices.

“Other provisions of the Senate committee‐passed bill are not examined in this report.”

A news release yesterday from the American Soybean Association (ASA) stated that, “The Agriculture Risk Coverage (ARC) program established in the Senate Agriculture Committee’s recently-approved Agriculture Reform, Food and Jobs Act of 2012 will treat program crops like corn, wheat, rice, peanuts and soybeans equitably, that according to a report issued today by the Food and Agriculture Policy Institute (FAPRI) at the University of Missouri in Columbia. In its report, FAPRI examined the potential impacts of key aspects of the proposed legislation, more commonly known as the Farm Bill.

“‘According to the FAPRI analysis, benefits to soybean farmers under the ARC program will amount to 1.9 percent of total market receipts, slightly below the average of corn, wheat and sorghum and slightly above that of peanuts and rice,’ said [ASA] President Steve Wellman, a soybean farmer from Syracuse, Neb. ‘This is a good indicator that the Senate version of the Farm Bill treats most commodities equitably.’”

The ASA release added that, “Contained in the FAPRI report is the below table, which illustrates the benefits to various crops under the revenue programs established in the Senate Farm Bill.”

Meanwhile, a news release Tuesday from House Democratic Whip Steny Hoyer (D., Md.) stated that, “[Rep. Hoyer] met with farmers from the Fifth District today to discuss reauthorization of the 2008 Farm Bill and other issues important to the local farm community.

“‘I was pleased to meet with farmers from the Fifth District to hear firsthand their concerns about reauthorization of the Farm Bill and other challenges they face,’ said Congressman Hoyer. ‘With many of the provisions of the current Farm Bill set to expire, I am hopeful we can get a new bill done so we can give our local farm community the certainty they need as they plan for next year and beyond.’

“Most of the provisions of the 2008 Farm Bill are set to expire September 30th. ‘I urge House Republicans to bring a bipartisan, long-term reauthorization bill to the Floor before that deadline,’ added Congressman Hoyer.”

Nebraska GOP Senator Mike Johanns was a guest on yesterday’s AgriTalk radio program with Mike Adams where a portion of their discussion focused on Farm Bill issues.

In part, Mr. Adams asked Sen. Johanns about concerns that the Senate Farm Bill does not offer enough protection for farmers in periods of low prices.  Sen. Johanns noted he liked the Senate Farm Bill and indicated that we are moving in a “direction of risk management.”  The former Secretary of Agriculture also pointed out that “target prices have every tendency of being market distorting.”

To listen to a portion of this discussion between Mike Adams and Sen. Johanns from yesterday’s AgriTalk program, just click here (MP3- 2:00).

Erik Wasson reported yesterday at The Hill’s On the Money Blog that, “The Senate Farm Bill coming to the floor early next month could greatly increase taxpayer spending on farm subsidies if commodity prices tank, a new report from the right-leaning American Enterprise Institute (AEI) out Wednesday warns.

“The bill ends the current system of direct payments to farmers, which are made based on historic production and can go to farmers who no longer grow crops. In its place, the bill establishes an expanded crop insurance program to provide revenue to farmers when their income drops below 90 percent of insured baseline.”

Mr. Wasson noted that, “AEI economists Vince Smith, Bruce Babcock and Barry Goodwin are warning that CBO is assuming current high commodity prices and that if prices take a sudden downturn, the taxpayer will be on the book.

“CBO says the Stabenow-Roberts program would cost $2.6 billion per year. But the new study says that if crop prices return to average prices in the last decade, the costs could balloon to as much as $7.5 billion per year, depending on how farmers opt to use the system. Farmers can choose a per-farm baseline or a per-county baseline.”

In other news, Michael M. Grynbaum reported in today’s New York Times that, “New York City plans to enact a far-reaching ban on the sale of large sodas and other sugary drinks at restaurants, movie theaters and street carts, in the most ambitious effort yet by the Bloomberg administration to combat rising obesity.

The proposed ban would affect virtually the entire menu of popular sugary drinks found in delis, fast-food franchises and even sports arenas, from energy drinks to pre-sweetened iced teas. The sale of any cup or bottle of sweetened drink larger than 16 fluid ounces — about the size of a medium coffee, and smaller than a common soda bottle — would be prohibited under the first-in-the-nation plan, which could take effect as soon as next March.

“The measure would not apply to diet sodas, fruit juices, dairy-based drinks like milkshakes, or alcoholic beverages; it would not extend to beverages sold in grocery or convenience stores.”

The Times article added that, “‘Obesity is a nationwide problem, and all over the United States, public health officials are wringing their hands saying, ‘Oh, this is terrible,’’ Mr. Bloomberg said in an interview on Wednesday in the Governor’s Room at City Hall.

“‘New York City is not about wringing your hands; it’s about doing something,’ he said. ‘I think that’s what the public wants the mayor to do.’

“A spokesman for the New York City Beverage Association, an arm of the soda industry’s national trade group, criticized the city’s proposal on Wednesday. The industry has clashed repeatedly with the city’s health department, saying it has unfairly singled out soda; industry groups have bought subway advertisements promoting their cause.”

And David Kesmodel reported yesterday at The Wall Street Journal Online that, “The U.S. Food and Drug Administration rejected a request by corn-refining giants to change the name of the widely used—and controversial—food ingredient ‘high-fructose corn syrup’ to ‘corn sugar.’

“The Corn Refiners Association, which has been waging an advertising and public-relations campaign to stem criticism of the ingredient for several years, sought the name change in a petition to the FDA in 2010.

“Critics of the sweetener, which is widely used in snack foods, condiments and other products, contend it has played a significant role in the national obesity problem.”

The Journal article noted that, “The Corn Refiners Association issued a statement Wednesday saying its petition with the FDA was denied ‘on narrow, technical grounds.’

“The government ‘did not address or question the overwhelming scientific evidence that high-fructose corn syrup is a form of sugar and is nutritionally the same as other sugars,’ the trade group said, adding that many American consumers remain confused about high-fructose corn syrup.”

In news regarding labor issues, Steve Lopez noted yesterday at the Los Angeles Times Online that, “I [Lopez] met the owner of the farm [in Fresno], too, and he’s worried sick that a possible labor shortage in September will leave him unable to harvest grapes for raisins. He’s not alone. Lots of growers in California fear that this could be the year when they take a hit because they can’t find enough hired hands, due in part to tightened border security. And if that happens, don’t be surprised if their losses translate into higher prices for you at the supermarket.”

Mr. Lopez added that, “As I said in Sunday’s column, an Irvine-based farm trade group called Western Growers is begging for some help — if not comprehensive immigration reform, then at least a guest-worker program — to ward off a feared labor shortage and give protection to workers they readily admit are undocumented. But even though Western Growers leans conservative and is headed by a former Reagan administration official, it’s being snubbed by the GOP politicians it helped get elected.”

Yesterday’s item indicated that, “To others, reality is more complicated and immigration laws need tweaking if not overhauling. A guest-worker program known as H-2A is already in place, but California growers claim it’s cumbersome and involves delays that don’t work for their types of crops.

“‘H-2A works in many states, but it does not work in California’ except in limited cases, said U.S. Sen. Dianne Feinstein (D-California), who hopes to feature ag jobs as part of an immigration reform bill she is promoting next year.

“‘We will have a bill. How far that bill gets, I can’t say.’”



Manu Raju reported yesterday at Politico that, “Cracks are emerging in the GOP’s hard-line stance against raising tax revenues to slash the deficit, with a number of Republicans willing to go further than their party’s standard-bearer in the face of a looming showdown over the budget.”

The article stated that, “Interviews with more than a dozen Senate Republicans show a growing openness to higher tax revenues to reach a so-called grand bargain on overhauling Medicare, other entitlements, discretionary spending and the Tax Code. On top of that, a small group of House GOP freshmen are balking at conservative activist Grover Norquist’s anti-tax pledge, while six Republican senators recently declined to sign a GOP letter calling for the immediate extension of the Bush-era tax cuts.

“All of this points to shifting politics in the tax debate, as Democrats pummel the GOP for opposing tax hikes on millionaires and billionaires. Increasingly, Hill Republicans are signaling flexibility on taxes ahead of another major budget fight.”

Peter Schroeder and Bernie Becker reported yesterday at The Hill’s On the Money Blog that, “Republicans, led by House Speaker John Boehner (R-Ohio), have laid out clear conditions for the next debt-limit vote: Any increase needs to be paired with a greater amount of spending cuts or reforms.

“Boehner’s unequivocal demand has created a dilemma for Democrats, who must decide whether to renew their call for a clean boost, or instead demand that the debt increase be paired with a ‘balanced’ deficit-reduction deal that combines spending cuts and higher revenues.

“In the meantime, they are blasting Republicans for tying the debt limit to fiscal reforms, noting that the last debt fight rattled markets and contributed to the first-ever credit downgrade of the United States.”


Agricultural Economy

University of Illinois Agricultural Economist Gary Schnitkey noted yesterday at the farmdoc daily blog (“Machinery Cost Estimates for 2012 and 2013”) that, “Every two years, the costs of machinery operations are calculated and made available on farmdoc. The 2012 costs now are available under the ‘Machinery Costs’ link in the farmdoc Management section. Overall, costs have increased by about 15 percent between 2010 and 2012. In our estimates, combine costs have declined between 2010 and 2012 because acres covered with the combine are assumed to increase in 2012.”

Meanwhile, Jim Yarley and Vikas Bajaj reported in yesterday’s New York Times that, “India’s coalition government just celebrated the third anniversary of its tenure with a self-congratulatory banquet that could not have been more poorly timed: India’s currency, the rupee, is falling; investment is down; inflation is rising; and deficits are eating away at government coffers.

“While short-term growth has slowed but not ground to a halt, India’s problems have dampened hopes that it, along with China and other non-Western economies, might help revive the global economy, as happened after the 2008 financial crisis. Instead, India is now facing a political reckoning, as the country’s elected leaders must address difficult, politically unpopular decisions — or risk even deeper problems.”

The article pointed out that, “India is desperate for investment in mining, roads, ports, urban housing and other areas, but Indian businesses and foreign investors are starting to shy away. Indian corporations, unable to obtain governmental licenses or permissions for projects, are investing overseas instead. Foreigners are also pulling back; their investment in Indian stocks and bonds totaled only $16 billion in the last fiscal year, compared with $30 billion the year before. The trend accelerated in recent months after the Finance Ministry, trying to stem a rising budget deficit, proposed a raft of new taxes on foreign institutions doing business in India.”



Vicki Needham reported yesterday at The Hill’s On the Money Blog that, “Ford chief Alan Mulally suggested Wednesday that negotiators complete an Asia-Pacific trade deal before letting more nations join.

“Mulally, the automaker’s president and chief executive, is advocating that the nine nations involved in ongoing talks on the Trans-Pacific Partnership (TPP) reach a final agreement before deciding whether to include Japan, Canada and Mexico.”


MF Global

Dan Strumpf reported yesterday at The Wall Street Journal Online that, “Some customers of failed MF Global Holdings Inc. are facing a new woe: An avenue that held out hope of a quick recovery has some potholes.

Since the financial firm collapsed last year, most customers of the brokerage have received a chunk of their money—about 72% of the total missing—and have been awaiting word on the rest. For those seeking to put the debacle behind them quickly, one possibility has been to sell the right to their remaining recoveries to traders in exchange for a portion of their claim.

“Such claims-trading is common with bankruptcies and has taken place, for example, with victims of the fraud of Bernard Madoff’s firm. But with MF Global, claims-sales are proving difficult. Companies that purchase bankruptcy claims are hesitating to close deals in part because of the complex and time-consuming nature of many MF Global customer claims, say the firms.”

Keith Good

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