FarmPolicy

July 30, 2014

Secretary Vilsack Addresses Drought; Farm Bill; and, Trade

Peter Baker reported in today’s New York Times that, “The Obama administration warned Wednesday that food supplies were at risk from the worsening drought afflicting more than half of the country and called on Congress to revive lapsed disaster aid programs.

President Obama reviewed the situation with Tom Vilsack, the agriculture secretary, who called it ‘the most serious situation’ in about 25 years and added that he was praying for rain.

“‘I get on my knees every day, and I’m saying an extra prayer now,’ Mr. Vilsack told reporters at the White House after his discussions with Mr. Obama. ‘If I had a rain prayer or rain dance I could do, I would do it.’”

(Note that a transcript of Sec. Vilsack’s full remarks have been posted at FarmPolicy.com Online).

Mr. Baker indicated that, “Mr. Vilsack said 1,297 counties, or roughly a third of those in the nation, had been designated disaster areas. He said 39 more were being added on Wednesday.

More than three-quarters of the nation’s corn and soybean crops are in drought-affected areas, and more than a third of those crops are now rated poor to very poor, Mr. Vilsack said. The price of corn has increased in recent weeks by 38 percent, and the price of beans is up 24 percent. The country may still have the third-largest corn crop in history because earlier good weather encouraged planting, but Mr. Vilsack said the drought would increase food prices into 2013.

“The cost of beef, poultry and pork may go down in the short term because those herds are being liquidated, putting more meat on the market, he said. But those prices will probably rise later in the year or early next year.”

Sec. Vilsack indicated that, “This administration has taken quick action to try to provide help and assistance. At the instructions of the President, the first thing we did was to streamline the disaster declaration system and process, reducing the amount of time it takes to have a county designated. That means that producers in those counties and adjoining counties are able to access low-interest loans.

“The President instructed us to reduce the interest rate on those loans from 3.75 percent to 2.25 percent. He also instructed us to open up new opportunities for haying and grazing — our livestock producers are in deep trouble because of the drought.”

The former Iowa Governor added that, “Our tools are somewhat limited and so we’re going to need to work with Congress to provide opportunities either through the passage of the Food, Farm and Jobs bill or through additional disaster programs, or perhaps additional flexibility in the Commodity Credit Corporation to provide help and assistance to our farmers.”

The AP reported yesterday that, “The farm bill passed the Senate and cleared the House Agriculture Committee on a bipartisan vote. House Speaker John Boehner has not scheduled a vote on the legislation, but lawmakers representing rural regions were pressing him to accelerate action on the bill. Reps. Kristi Noem, R-S.D., and Peter Welch, D-Vt., were collecting signatures from their colleagues urging passage before the August congressional recess.”

Christi Parsons reported yesterday at the Los Angeles Times Online that, “For now, though, the focus on lawmakers fits into the administration’s favored political strategy of running against a ‘do-nothing Congress.’”

“‘We’ll do everything we possibly can to help folks,’ Vilsack said, adding that ‘we’re obviously going to need some help working with Congress.’”

Dave Helling of The Kansas City Star reported yesterday that, “Agriculture secretary Tom Vilsack said Wednesday drought-stricken farmers will need federal help — including, potentially, a new farm bill — to get relief from the 2012 summer scorch.

“The Senate has passed a version of the farm bill, while the House Agriculture Committee recently approved a different version. It isn’t clear if the House will take up the bill before August, or, if it does, whether a conference committee can recommend a final version to both houses before the November election.”

Mr. Helling added that, “The drought might accelerate the debate over the farm legislation, which includes billions of dollars in insurance support for farmers.”

Reuters writer Russ Blinch reported yesterday that, “Hard-hit livestock producers and other groups want the Environmental Protection Agency to give oil refiners a waiver from the mandate to blend ethanol into gasoline, arguing demand for the corn-based fuel was driving up corn prices.

“But Vilsack said ethanol demand was not a problem right now.

“‘There is no need to go to the EPA at this time based on the quantity of ethanol that is in storage,’ he told a White House briefing.”

Liam Pleven and Owen Fletcher reported in today’s Wall Street Journal that, “Corn and soybean prices leapt to records on rising fears that the searing Midwest drought is further eroding the size of the coming harvests for two of America’s most important crops.

“The futures price for a bushel of corn settled at a record $7.95 a bushel at the Chicago Board of Trade, up 2% on Wednesday and 23% in 2012, while soybeans settled at $16.835 a bushel—topping the record set just last week—an increase of 3% for the day and 40% for the year.”

The Journal article added that, “On Wednesday, U.S. Agriculture Secretary Tom Vilsack said the situation wasn’t bad enough to warrant a reduction in government mandates for how much ethanol, which is typically made from corn, is blended into gasoline. That helped drive corn prices higher.”

Emiko Terazono reported today at The Financial Times Online that, “Corn and soyabean prices surged to fresh record highs on Thursday as concerns heightened over a shortage of crops amid the worst US drought in half a century.

“The sharp increase in grains prices comes as a devastating drought has downgraded prospects for corn and other grains as well as soyabeans in the US. Benchmark corn futures surpassed $8 a bushel for the first time, hitting a record $8.055, while benchmark soyabeans also hit a fresh peak at $17.115.

The prices of the two staple crops have surpassed the peaks of the 2007-08 food crisis, although other staples such as wheat and rice remain lower.”

Sophie Quinton reported yesterday at National Journal Online that, “‘We would anticipate in the short term, food prices for beef, poultry and pork may go down a bit’ as herds are culled, [Sec. Vilsack said yesterday]. ‘But over time they will rise,’ as will the price of processed foods.”

Michael Muskal reported yesterday at the Los Angeles Times Online that, “If there will be drought-related price impacts, the areas with jumps will be beef, pork, poultry and dairy, especially milk. Some price increases in those areas could be felt in about two months. The impact of corn price hikes on things like cereal could take 10 to 12 months.”

Jack Hough noted yesterday at the Smart Money Blog (Dow Jones) that, “‘A 50% increase in the price of corn tends to raise total shopping bills by about 1%,’ says Ricky Volpe, a research economist with the U.S. Department of Agriculture…[F]or affected foods, prices should start to rise in about two months, says Mr. Volpe. The first items to be hit will be dairy and eggs, because of the relatively short time between when cows and chickens consume corn feed and those products go to market. Next will be meats, in order of animal size, starting with chicken and leading to beef.”

And, Hibah Yousuf reported yesterday at CNN Money Online that, “Prior to the drought, analysts had predicted a 4% to 6% rise in retail beef prices, said Michael Miller, senior vice president of global research for the National Cattlemen’s Beef Association.

“But if the drought lingers and the high cost of corn continues to weigh on farmers, consumers could face an increase as high as 10% for fresh protein at the grocery store, said Miller. That means beef prices could jump from an average of $4.35 per pound in 2011 to an average of nearly $4.80 per pound this year.”

The USDA’s Chief Economist, Joe Glauber, was on the Diane Rehm radio program yesterday (“Widespread Drought And Water Shortages”)  where he discussed a variety of issues associated with the drought, including food prices.  A replay of his comments from yesterday can be heard here (MP3- 6:00).

Meanwhile, the Federal Reserve Board released its Summary of Commentary on Current Economic Conditions yesterday.  Commonly referred to as the “Beige Book,” the report included several observations with respect to the U.S. agricultural economy and the drought- a summary has been posted at FarmPolicy.com Online.

With respect to the Chicago Fed District, yesterday’s report noted that, ““Extreme heat and drought conditions spread across most of the District, stressing both crops and livestock. Forecasts made in June called for possibly record crops of corn and soybeans; now it appears the District’s harvest will likely be below average, with little prospect for improvement and plenty of downside risk. The corn crop is in the most danger of further damage, as plants entered a critical stage of development with insufficient moisture. Corn and soybean prices moved sharply higher, and wheat prices also rose. Hog prices were higher, cattle prices were little changed, and milk prices moved lower. With higher costs and the outlook for a decline in revenue, insurance coverage may provide an important safeguard for many farmers this year. Insurance coverage is widespread for corn and soybeans, but is less prevalent for some other products. Furthermore, several years of higher-than-usual farm income have left many operations in a better position to absorb losses this year.”

Orlan Love reported earlier this week at The Gazette (Cedar Rapids, Iowa) Online that, “While federal crop insurance will help Iowa grain farmers survive the drought, many livestock producers, who lack such protection, will not, according to Bill Tentinger of LeMars, president of the Iowa Pork Producers Association.

“High corn prices – now approaching $8 a bushel — will force many pork producers out of business, Tentinger said Tuesday at a drought status meeting called by Gov. Terry Branstad.”

The AP reported on Tuesday that, “Bill Tentinger of the Iowa Pork Producers Association says the drought is causing a spike in feed prices that ‘may be on the verge of creating a financial disaster for the pork industry.’”

Meanwhile, satellite based images of the current drought can be viewed here and here.

And a news release yesterday from National Crop Insurance Services noted that, “As the drought spreads and attention turns to worsening crop conditions in farm country, the nation’s crop insurers today reassured farmers that companies will have the money necessary to quickly pay out claims in 2012, even amid record payouts last year.”

 

Farm Bill

Chris Clayton reported yesterday at the DTN Ag Policy Blog that, “Senate Agriculture Committee Chairwoman Debbie Stabenow told delegates of the National Corn Growers Association’s Corn Congress on Wednesday to keep up the pressure on House members to pass a farm bill.”

Mr. Clayton noted that, “Speaking to DTN afterward, Stabenow said pressure to pass a bill has to come from the 45 or so groups that have signed a letter demanding the House act. With the drought, a farm bill creates economic certainty. ‘I think it would be substantively and politically a tremendous mistake for the House to not pass a bill.’”

Yesterday’s update added that, “The drought creates an overlay to all of the other issues that can be addressed by passing the legislation, Stabenow said. She cited USDA’s crop progress report which shows less than one-third of the nation’s corn crop is in good condition and 40% of the crop is deemed to be in bad condition…‘[T]his another reason to pass a farm bill now so that we can not only pass what we have in the farm bill now in terms of disaster assistance, but I think we need to be strengthening that for 2012,’ she said.”

A news release this week from Sen. Claire McCaskill (D., Mo.) stated that, “McCaskill is also renewing her call for the House of Representatives to quickly take up and pass the Farm Bill, bipartisan legislation recently passed by the Senate with McCaskill’s support.

In 2011, several Federal agricultural disaster assistance programs expired. These programs provide essential resources to producers faced with losses stemming from extreme weather events like the current drought. In addition to reducing the deficit by $23 billion, the Senate-passed Farm Bill retroactively renews these programs.

“‘It’s been nearly a month since the Senate passed the Farm Bill-a strongly bipartisan bill that supports job-growth, cuts the deficit, and protects critical resources for our families, and farms and ranches across rural America,’ McCaskill said. ‘The House of Representatives needs to get to work. As the disaster designation makes clear, Missouri’s farmers and ranchers don’t have time to wait.’”

Kam Quarles, director of legislative affairs at McDermott Will & Emery, noted yesterday at The Hill’s Congress Blog that, “In addition to the expiration of the Bush tax cuts and looming sequestration required by last year’s Budget Control act, the country is rapidly approaching another fiscal cliff in regard to agriculture. We reach its edge on September 30th, if no agreement is in place to reauthorize or extend the current Farm Bill that expires on that date. Though its price tag is not of the same order as its brethren, the impact could echo across rural America and through our local grocery stores.”

In other Farm Bill news, Chris Clayton reported yesterday at DTN (link requires subscription) that, “U.S. Rep. Steve King makes it clear he believes states don’t have the right to dictate how a food product from somewhere else was made, or what’s in it.

“King got an amendment added to the House farm bill last week that would ban states from imposing any standard or condition on the production, manufacture or sale of an agricultural product sold through interstate commerce, or requires standards beyond federal law.”

Mr. Clayton noted that, “‘The Commerce Clause is clear,’ King, R-Iowa, said in an interview Tuesday. ‘States cannot regulate interstate commerce. That is an enumerated power reserved to the United States Congress.’

“King’s amendment has sparked an uproar from the Humane Society of the United States. Wayne Pacelle, president and CEO of HSUS, spoke Tuesday at a forum sponsored by critics of the House farm bill. Pacelle started his comments by noting he considers King to be ‘one of the most extreme members’ of the House. He called the King amendment ‘a radical overreach’ that would have sweeping effects on state laws and go beyond the obvious attempt to nullify animal-rights initiatives.”

Yesterday’s DTN article indicated that, “‘We have an FDA and we have a USDA,’ King said. ‘That’s what those standards are for. We cannot have states writing new standards. That’s one of the reasons the founding fathers wrote the Commerce Clause.’

“King draws back on a case involving California’s low-carbon fuel standards for renewable fuels in which California sought to create a standard that would have effectively eliminated shipping of ethanol from other states. A federal judge ruled last year that the California law was unconstitutional because it violated the Commerce Clause and discriminated against biofuels produced outside of California.”

 

Trade

The AP reported yesterday that, “A Russia trade bill that could double U.S. exports to Russia but complicate already frosty relations with the former Communist superpower advanced in the Senate on Wednesday.

“Lawmakers rejected a provision that would have required the president to certify that Russia is no longer supplying arms to Syria.”

The AP article added that, “The Senate Finance Committee combined the trade measure with a bill to punish Russian human rights violators.

“The committee’s unanimous vote to lift Cold War trade restrictions and establish permanent normal trade relations with Russia came against a background of strong objections to Russia’s poor human rights record, its threats against U.S. missile defenses in Europe, its failure to protect intellectual property rights, its discrimination against U.S. agricultural products and most recently its support for the Assad government in Syria.”

Keith Good

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