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U.S. Drought and Farm Bill Issues; Trade; and; Regulations

U.S. Drought and Farm Bill Issues

A recent National Weather Service (NWS) update for Northern Indiana stated that, “The hot and dry weather in June and July only intensified on-going drought conditions across the area. Moderate to extreme drought conditions are present across much of Northern Indiana, Southern Lower Michigan and Northwest Ohio, with drought conditions across most of the region, according to the latest Drought Monitor.”

More specifically, the NWS office in Indianapolis, Ind. has indicated that, “Severe to exceptional drought conditions existed in 80% of the state according to this week’s U.S. Drought Monitor while moderate drought conditions continued across the remainder of the state…[D]rought conditions in portions of central and southern Indiana were worse than the Dust Bowl Days of the 1930s. From June 1–July 12 much of central Indiana had received less rainfall and been nearly as hot as the summer of 1936.”

The NWS report added that, “The effects of the drought will have a large impact on Indiana agriculture.  Late season crops, like corn and soybeans, may see their worst yields since the Great Drought of 1988…possibly even lower.”

And a NWS update for Grand Rapids, Mich. noted recently that, “Ongoing persistent dryness along with well above normal temperatures has led to steadily worsening drought conditions across the region. The outlook for the remainder of July indicates continued below normal rainfall and above normal temperatures. A continued warmer and drier than normal scenario will undoubtedly support a detrimental increase in regional drought severity. Extended drought conditions will lead to further water supply issues, such as record low stream flows and heavier strains on aquifers. Agricultural loss estimates will continue to mount. Crop yield estimates will likely diminish and livestock stress and losses will increase.”

A recent NWS statement for the Quad Cities region (Iowa, Illinois) noted that, “Moderate to severe drought conditions are worsening across much of the Midwest and Corn Belt including Central and Eastern Iowa…Southern Wisconsin…Almost all of Missouri…And all of Illinois.”

And this graphic illustration provided a look at extreme temperatures for parts of the Midwest from June 1 through July 7.

The U.S. drought was a topic of conversation on yesterday’s “On Point” NPR radio program with Tom Ashbrook, where both Purdue University Agricultural Economist Chris Hurt and Don Duval, an Illinois farmer and president of the White County Farm Bureau (Southern Illinois) provided perspective.

Molly Hennessy-Fiske reported yesterday at the Los Angeles Times Online that, “Last year, crop insurers paid record claims of about $11 billion for weather-related losses, including major losses in corn and soybeans, said David Graves of the Washington-based American Assn. of Crop Insurers.

This year’s losses could surpass that ‘easily, given that the drought is developing in corn-growing regions’ including Illinois and Indiana, he said.

“Because Midwestern farmers rely more on rain than irrigation compared with counterparts in California, the drought hurt them more, said Nathan Fields, director of biotechnology and economic analysis at the St. Louis-based National Corn Growers Assn.”

The article noted that, “As of last week, corn and soybean crops were suffering drought conditions not seen since the devastating drought of 1988, said Brad Rippey, an agricultural meteorologist with the USDA. Unlike last year’s drought, which was regionalized, mainly hurting Texas cattle and forestry industries, he said this year’s has spread ‘into the heartland, the agricultural center of the country.’

“‘We are in our worst drought in a generation,’ Rippey said, particularly for corn. ‘What we don’t know is how much failed to pollinate.’”

Meanwhile, Lindsay Calvert reported yesterday at DTN (link requires subscription) that, “Low water levels have halted the pumping of irrigation water out of the Big Blue River in southeast Nebraska, affecting about 300 farmers until further notice.”

Reuters writer Sam Nelson reported yesterday that, “U.S. corn production has shrunk 7 percent versus the government’s downgraded estimate a week ago, a Reuters poll found on Tuesday, with a worsening drought likely to cause more damage before the month is out…[T]he poll of 13 analysts pegged the average estimated corn yield at 137.2 bushels per acre, down 6 percent from USDA’s current forecast of 146 bushels. The USDA dropped its yield estimate by an unprecedented 20 bushels per acre in its report on July 11.”

And Reuters writer Ernest Scheyder reported yesterday that, “In Missouri, Governor Jay Nixon announced on Tuesday that all 114 counties in the state have been designated as natural disaster areas due to the drought, making farmers eligible for government loans or other assistance… [I]n Iowa, Governor Terry Branstad convened a hearing to discuss the drought and its effect on the state’s pork industry, which relies heavily on corn feed.”

“As the worst drought since the Eisenhower administration begins to expand to the northern and western Midwest, areas that had previously been spared, analysts are slashing corn yield estimates by the hour,” the article said.

Katie Micik reported yesterday at DTN (link requires subscription) that, “Searing temperatures and dry skies have driven the corn market to atmospheric levels — it’s up more than 40% in a month — and evaporated hopes that the cattle industry would start rebuilding the beef herd this year.

The weather that killed the corn crop also killed the grass, and the upcoming feed shortage is why the livestock sector faces greater financial losses from the drought of 2012 than the crops sector faces.

“‘The reason for that is in the crop sector, there are some potential offsets to terrible yields,’ said Chris Hurt, Purdue University extension ag economist. Higher prices compensate for lower yields and crop insurance helps cover some losses. ‘The livestock industry has none of that. They have to bear the cost of higher feed and they cannot immediately pass on higher prices.’”

And, the AP reported yesterday that, “U.S. Agriculture Department Undersecretary Michael Scuse has come to Michigan to examine the state’s summer-drought related crop losses… [S]cuse says it’s important to pass the Farm Bill now before Congress. It has disaster relief programs that otherwise will expire Sept. 30.”

Brownfield’s Dave Russell spoke with Undersecretary Scuse yesterday; an audio replay of their discussion can be heard here.

More specifically with respect to policy issues, Chris Clayton, writing yesterday at the DTN Ag Policy Blog, reported that, “The farm bill and the drought offer perhaps the best example of disconnect between Washington and the rest of the country right now.

The House of Representatives has a bi-partisan bill sitting on deck that would at least ensure stability in commodity programs and crop insurance. The bill is certainly full of controversial elements, as out-right critics will attest at a press conference denouncing the legislation this morning.

But the drought has now captured the nation’s attention.”

Yesterday’s update added that, “USDA officials have gotten the message. They are fanning out across the country today ‘to show support to farmers and ranchers affected by a string of extreme weather in 2012.’

“Yet, House Ag Chairman Frank Lucas, R-Okla., and Ranking Member Collin Peterson, D-Minn., are having trouble getting floor time for a farm bill that passed out of the committee on a bipartisan 35-11 vote.

The problem, apparently, with getting a farm bill to the floor before the August recess, is that it doesn’t fit with the messaging that House leaders want to send before the election.”

In a separate article yesterday at DTN (link requires subscription), Mr. Clayton reported that, “The drought gripping the country raises the bar on Congress to get a farm bill done and possibly reinstall some disaster programs that have expired, Senate Agriculture Committee Chairwoman Debbie Stabenow said Tuesday.

“The extensive drought conditions will require lawmakers in conference negotiations to revisit the Supplemental Revenue Assistance Program, or SURE, that expired last September.

“‘I think the weather disaster is compounding the emergency,’ said Stabenow, D-Mich., following a hearing on Tuesday. ‘We have to get a bill done, both because of what we have in the bill and things I think need to be added in terms of disaster assistance. It’s absolutely critical now that we get this done so there is economic certainty for farmers to make good decisions and to be able to address the disasters that are very, very real across the country.’”

Yesterday’s DTN update added that, “U.S. Rep. Steve King, R-Iowa, a member of the House Agriculture Committee, also said in an interview that the drought has raised the necessity for getting a bill adopted. On recent drives across Iowa, King said, ‘The further east it is, the drier it was. What we’re seeing now with every 90-plus day is the drought is just moving further west.’

“The deteriorating crop conditions raise a variety of potential policy issues. There are rumblings, for instance, that some states or livestock groups will ask the EPA to waive the ethanol blend levels set for the Renewable Fuels Standard.”

A news update yesterday from Rep. Rick Berg (R., N.D.) stated that, “[Rep. Berg] today announced that he has sent a letter to House of Representatives Speaker John Boehner (R – Ohio), House Majority Leader Eric Cantor (R – Virginia) and House Majority Whip Kevin McCarthy (R – California) to call for the prompt consideration of the House Farm Bill.”

And House Agriculture Committee Ranking Member Collin Peterson (R., Okla.) was a guest on yesterday’s AgriTalk radio program with Mike Adams where the discussion focused on the Farm Bill (unofficial transcript here, audio replay here).

With respect to the prospect of floor time for the House Bill, Rep. Peterson noted that, “I don’t think they have any good excuses, other than they’ve got a bunch of ideologues that don’t want this thing to come up. So I’m still predicting that before August 3rd that this thing is going to be on the floor, and we’re going to try to move it through the floor. And that’s going to be a very difficult process, there’s no question about that. But I’m a regular order guy like Lucas is, and we need to do our work and get it done.”

On the issue of dairy reform, Rep. Peterson explained that, “Well, John [Speaker Boehner] hates the dairy program, and he was on the committee for 16 years, and his main focus then was to get rid of the dairy program. He and Cal Dooley went, I think, on two or three different occasions, tried to eliminate the dairy program.

This policy change, which is the biggest policy change in dairy in 80 years, is a very reform-minded policy change. We’re moving off of the old price support system, we’re moving off of giving farmers payments based on an artificial price that was put in by Pat Leahy some years ago, and we’re moving to an insurance system similar to what we have for other ag commodities.

“So I guess you could still say that there’s some kind of command and control here, but this is like a hundred times better than what we’ve got now. It’s going to work a lot better for farmers, it’s much more market-oriented, it’s much more export- oriented, it’s much more sensible, because farmers can make a choice about what kind of margin insurance that they need for their operation to protect their situation.”

And on the crop safety net issue, Rep. Peterson noted that, “The main safety net is crop insurance, and it will be the main safety net, and that’s the way it should be. But crop insurance only protects you in that year, and so even though we have these revenue products, it only protects the price in that year. And what happens if these prices collapse?

“So I am much more comfortable using this price loss provision that we put in there so in case and when these prices go down, that we have some kind of floor over this. At three dollars and 70 cents, it is not going to distort market or planting decisions.  You’re not even going to get back to cost of production at that level. But if the thing does collapse, at least at three seventy you’ve got a shot at being able to farm next year. And if the price went down to three bucks, for example, you’re not going to be able to buy insurance that’s going to work for you the next year, so you’ve got to have some kind of a safety net here.”

Also on the Farm Bill, Reuters writers Charles Abbott and Carey Gillam reported today that, “Efforts to write benefits for biotech seed companies into U.S. legislation, including the new Farm Bill, are sparking a backlash from groups that say the multiple measures would severely limit U.S. oversight of genetically modified crops.

“From online petitions to face-to-face lobbying on Capitol Hill, an array of consumer and environmental organizations and individuals are ringing alarm bells over moves they say will eradicate badly needed safety checks on crops genetically modified to withstand herbicides, pests and pesticides.

“The measures could speed the path to market for big biotech companies like Monsanto and Dow Chemical that make billions of dollars from genetically altered corn, soybeans, cotton and other crops.”

And in other policy related news, the AP reported yesterday that, “Costco Wholesale Corp. on Tuesday joined a growing list of retailers and restaurants in asking suppliers to phase out the use of small pens for pregnant sows, as an animal welfare group prepared to release an undercover video showing conditions at one of its suppliers.”

 

Trade

Peter Baker reported in today’s New York Times that, “In the two decades since the end of the cold war, the United States has extended its economic reach to the far corners of the old Communist world, establishing full-fledged trade ties with the likes of Ukraine, Armenia and Kyrgyzstan. Even still-Communist nations like China and Vietnam have been granted full trading status. But not Russia.

That seems about to change. For the first time since the fall of the Soviet Union, a bipartisan coalition in Congress has agreed to normalize trade relations with Russia, the onetime adversary in the long struggle between capitalism and communism. But at a time of renewed tension with Moscow, lawmakers have decided to grant the status with one large caveat — that Russian officials be held responsible for human rights abuses.”

The article added that, “The Senate Finance Committee will consider the measure on Wednesday, and aides expect a strong bipartisan vote. The issue has taken on urgency because Russia will join the World Trade Organization by the end of summer, and without normal trade status, American firms like Boeing and John Deere will not be able to take advantage of the reduced barriers.”

 

Regulations

Pete Kasperowicz reported yesterday at The Hill’s On the Money Blog that, “House Republicans are setting up a vote next week on a bill that would proscribe major federal regulations until unemployment reaches 6 percent, block regulations from a lame-duck president and require cost-benefit analyses of certain rules before they take effect.”

Yesterday’s update noted that, “Finally, the legislation would require the Securities and Exchange Commission and the Commodity Futures Trading Commission to run cost-benefit analyses of proposed rules before they are issued.

“The House Rules Committee has set a Friday deadline for proposing amendments to the bill, implying that the bill will be on the House floor by next week.”

Meanwhile, a news release yesterday from the Senate Ag Committee indicated that, “Senator Debbie Stabenow, Chairwoman of the U.S. Senate Committee on Agriculture Nutrition and Forestry, today pressed the nation’s chief financial regulators to implement the Wall Street Reform and Consumer Protection Act. At an oversight hearing, Chairwoman Stabenow said the recent failures of firms like Peregrine Financial Group and MF Global, as well as trading losses at JP Morgan and the ongoing LIBOR scandal, all underscore the need to implement the bill, which was passed by Congress more than two years ago.

“‘Many derivatives are still trading in the dark and some financial institutions are still taking risks that threaten our economy,’ Chairwoman Stabenow said. ‘We need these markets to have integrity and market participants need certainty so they can plan for compliance and make business decisions for the coming months and years. Businesses, farmers and ranchers need to know these markets are safe for trading and hedging risk. And American families need to know their jobs aren’t going to disappear – again – because of excessive risk-taking by a reckless few.’”

Chairwoman Stabenow’s opening remarks at yesterday’s hearing can be found here, while opening remarks from Committee Ranking Member Pat Roberts (R., Kan.) can be read here.  A replay of the hearing can be viewed here.

Bloomberg writer Silla Brush reported yesterday that, “The U.S. Commodity Futures Trading Commission reviewed operations at Peregrine Financial Group Inc. at least twice since 2006 without detecting the fraud that led to the collapse of the futures broker and a $200 million shortfall in client funds.

“The Washington-based agency conducted examinations at Peregrine in 2007 and 2008, according to a list of CFTC reviews obtained through a public records request. The list, which includes reviews between 2006 and Nov. 9, 2011, does not detail what records or procedures examiners evaluated.”

Yesterday’s article noted that, “‘Although we do not yet know the full facts of what happened in this matter, the system failed to protect the customers of Peregrine,’ CFTC Chairman Gary Gensler said in testimony at a Senate Agriculture Committee hearing today. ‘Just like the local police cannot prevent all bank robberies, however, market regulators cannot prevent all financial fraud. But nonetheless, we all must do better.’

“Gensler told reporters after the hearing that the agency will review the CFTC’s documents from 2007 and 2008, and ‘pull those files to see how we can do this better.’”

Keith Good