February 23, 2020

Farm Bill Issues and Deteriorating Crop Conditions

David Rogers reported yesterday at Politico that, “To understand how far this Congress will go to kick the proverbial can down the road, consider the farm bill — yes, the farm bill.

“In the midst of a severe drought, the House Republican leaders are proposing to walk away from farm states and decades of precedent by not calling up the new five-year plan before the current law expires Sept. 30.

“Whatever its flaws, the bill promises $35 billion in 10-year savings from exactly the type of mandatory spending that Congress promised to tackle in last summer’s debt accord. But rather than disrupt its political messaging, the GOP would put it all at risk by delaying action until after the November elections.”

Mr. Rogers explained that, “There’s little institutional memory left in the Capitol — or perspective on the accumulation of cans rolling down the road these days. But the farm bill delay is new ground for any Congress.

Never before in modern times has a farm bill reported from the House Agriculture Committee been so blocked. POLITICO looked back at 50 years of farm bills and found nothing like this. There have been long debates, often torturous negotiations with the Senate and a famous meltdown in 1995 when the House Agriculture Committee couldn’t produce a bill. But no House farm bill, once out of committee, has been kept off the floor while its deadline passes.”

Yesterday’s article indicated that, “The farm bill came out of the House Agriculture Committee on a strong bipartisan 35-11 vote July 12. Nearly a year after the August debt accords — and eight months after the November collapse of the deficit supercommittee — it is the closest this Congress has come to enacting real deficit reduction from mandatory spending.

“But it’s not perfect, and [Speaker] Boehner’s Republicans are split regionally and ideologically, with the right demanding still greater savings and a more free-market approach to agriculture policy.

“Given Democratic concerns over the depth of the food stamp cuts already made, Boehner says there are not 218 votes for passage. Rather than wrestle with this problem, it’s easier to run out the clock with symbolic anti-red tape, anti-tax votes on which the GOP is more united.”

Mr. Rogers added that, “Perhaps because it is a five-year event and so fundamental to one bright spot in the economy. Or maybe it’s the pounding drought across the country that gives pause. Farmers live by nature’s calendar, not continuing resolutions. And by failing to act, Congress can seem even more detached from the real lives of everyday people.

“Changes in the Washington press foster this detachment. Major newspapers are more prone to editorials than real reporting on the debate. Regional papers, once the backbone of farm coverage, have closed their bureaus. In the new Capitol trend, some of the most experienced agriculture reporters report to clients — not the public.

“The biggest irony may be Boehner himself. The speaker, after all, spent his early years on the Agriculture Committee and prides himself on being a ‘regular order’ and pro-chairman leader. He chastises Obama regularly for doing precisely this: kicking the can down the road.”

Erik Wasson reported yesterday at The Hill’s On the Money Blog that, “A new Tea Party-backed group is going after conservative House members pushing for passage of the 2012 farm bill.

“American Commitment has taken out $75,000 worth of radio ads in Oklahoma, Iowa and Missouri to attack House Agriculture Chairman Frank Lucas (R-Okla.), Rep. Steve King (R-Iowa) and Rep. Vicky Hartzler (R-Mo.).”

Meanwhile, Billy House reported yesterday at National Journal Online that, “House Majority Whip Kevin McCarthy on Monday gave a somewhat confusing account of the exact status of the Farm Bill, which passed out of committee earlier this month.

“Speaking to reporters gathered in his office, McCarthy said that Republican House leaders are working to ‘educate’ their members about the contents of the bill, and surmised ‘we have an uphill battle’ in getting it passed.”

Mr. House noted that, “But McCarthy said he and others are ‘walking through’ the contents of the bill with rank-and-file Republicans, and that ‘we’re making sure we have the votes.’

“‘When we have the votes, we’ll move it,’ McCarthy said.

“When pressed, McCarthy sought to clarify that he and other Republican leaders have not actually begun to formally ‘whip’ — or count — House GOP votes in support or opposition to the bill.”

And Jake Sherman reported yesterday at Politico that, “A top House Republican said there is still no plan to bring up a bipartisan farm bill, but conceded the chamber might have to pass legislation to help farmers affected by a crippling drought.

“Majority Whip Kevin McCarthy of California, the No. 3 House GOP lawmaker, said the farm bill will be ‘done before we’re out of the year’ but said that House members know very little about the bill’s contents, raising concerns that it would not pass the lower chamber.

“‘It’s our intention to get it done,’ McCarthy told reporters in his Capitol office, noting that Minority Leader Nancy Pelosi is opposed to the bill. ‘So we have to make sure we have the votes, just like [the] transportation bill didn’t get done the day it came out of committee either. We have to educate the members and you have to be able to present it. It’s our intention to get the farm bill done.’”

With respect to dairy issues and the Farm Bill, a news release yesterday from the International Dairy Foods Association stated that, “A proposal in the new Farm Bill headed to the House floor would have been limiting U.S. milk production since May, if it had been in effect, even as agriculture economists and the U.S. Department of Agriculture are warning that the drought throughout the country will reduce milk supply and raise consumer prices.”

However a statement by Jerry Kozak, President and CEO of the National Milk Producers Federation indicated that, “The International Dairy Foods Association (IDFA) has mischaracterized the real issue facing dairy farmers this summer.

“Summer heat always leads to a slowdown in milk output – this year will be no different – but the USDA reported last week that milk production in the second quarter of 2012 was up 2.0% compared to 2012, while the first quarter was up a whopping 5.3%. The U.S. is well on track to produce a record volume of milk this year, a hot summer notwithstanding.”

Also yesterday, Erik Wasson reported at The Hill’s On the Money Blog that, “While Americas farmers and ranchers are praying for rain, key senators are searching for a way to pay for emergency drought relief in case, as expected, House leaders scuttle the 2012 farm bill.

“Finance Committee Chairman Max Baucus (D-Mont.) and Budget Committee Chairman Kent Conrad (D-N.D.) have introduced a bill to provide emergency drought assistance, with Banking Committee Chairman Tim Johnson (D-S.D.) and Sen. Jon Tester (D-Mont.) signing on as co-sponsors.”

Mr. Wasson added that, “Sources say that full Senate action on the bill depends on Conrad and Baucus coming up with a pay-for. As of Monday, the senators were still looking for one.

“Livestock disaster aid programs expired at the end of the 2011 fiscal year, so ranchers have been left completely exposed during this summer’s record drought.

“The new bill would also extend the expired Supplemental Revenue Assistance Payments (SURE) program, which augments crop insurance for farmers.”

In news regarding executive branch perspective, the AP reported yesterday that, “Agriculture Secretary Tom Vilsack pushed Monday for Congress to act on a farm bill that would reinstate expired disaster assistance programs for farmers experiencing the worst drought in nearly seven decades.

“Programs authorized in the 2008 farm bill have expired and won’t be renewed unless the House approves a bill passed by the Senate. Vilsack pushed the House to consider the bill, which has passed out of its agriculture committee, before its August vacation.”

Yesterday’s article noted that, “‘There is nothing more important to rural America and nothing more important to producers, farmers and ranchers in this country than action on this bill,’ Vilsack said. ‘There’s no greater need for this help and assistance than now, and there’s no excuse or reason why the House of Representatives cannot take this matter up.’

“Vilsack, a Democrat and former Iowa governor, toured farms there over the weekend and on Monday to assess the crop deterioration in the nation’s top corn-growing state.”

The AP article pointed out that, “He [Sec. Vilsack] announced new administrative measures to help drought-stricken farmers, including letting them use more land set aside for conservation programs to get hay or graze. Typically, the land must be set aside for wildlife habitat and to avoid erosion, but it may be used to feed livestock in emergencies.

“Vilsack also said farmers will be allowed to sell hay from conservation acres, an unusual move permitted so farmers in areas with hay may sell it to those in areas without.

“The USDA also has asked crop insurers to voluntarily forego charging interest on unpaid crop insurance premiums until Nov. 1. Crop insurance covers part of farmers’ weather-related losses on some crops. It does not cover livestock.”

As the harsh impacts of the 2012 drought continue to unfold, Jack Farchy and Gregory Meyer reported yesterday at The Financial Times Online that, “The share of the US corn crop in poor or worse condition is the highest for this week of the growing calendar since the devastating drought of 1988, the government said.

“In a weekly progress report on domestic crops, the US Department of Agriculture said 45 per cent of US corn fields were in ‘poor’ or ‘very poor’ condition as of Sunday, up from 38 per cent a week before” [related graphic].

The FT article noted that, “[M]any remain bullish as many of the key corn and soyabean-growing states are still perilously dry. Goldman Sachs on Monday raised its price forecasts for grains, predicting that corn would trade at an all-time high of $9 in three months, that soyabeans would hit a record $20, and that wheat would rise to $9.80.

The 2012 June-July period is ‘on pace to becoming among the driest and hottest since 1895’, said Damien Courvalin, commodities analyst. Goldman, the leading investment bank in commodities by revenues, cut its forecast for the US corn yield to just 126 bushels per acre, the lowest since 1995 and well below the US Department of Agriculture’s July forecast of 146 bu/ac.”

An update late last week at The Economist Online indicated that, “Already there is speculation that the economic losses of the drought will reach billions of dollars. This seems a reasonable guess. Corn is the biggest American crop, worth $76.5 billion last year. Moreover, in 2011 Texas suffered its driest year on record, and in March this year the Texan agriculture commissioner announced that it had caused farm losses of $7.62 billion.

“America’s drought is already affecting the world price of corn and soyabeans. American corn represents 52.5% of world corn exports; the figure for soyabeans is 42.9%. In the past week the world price of corn has increased more than 30%, according to Maximo Torero, a director of markets, trade and institutions at the International Food Policy Research Institute.

Price increases in corn and soyabeans are not thought likely to trigger a food crisis, as they did in 2007-08, as global rice and wheat supplies remain plentiful. But since corn is used to feed livestock, any increase in its price will also cause the price of beef, pork, poultry and dairy products to rise. Corn also comes under pressure because its use is mandatory in ethanol production.”

Bloomberg news reported yesterday that, “China, the world’s second-biggest corn user, may import fewer shipments from the U.S. than forecast due to rising costs since the worst drought in decades hit the top grower, a state-owned researcher in the Asian country said.”

Meanwhile, Bloomberg writer Alan Bjerga reported yesterday that, “While the heart of U.S. crop country bakes, the northern edges of the Midwest and Plains states, along with some southern states, are still producing — and benefiting from higher prices.

The nation’s best-rated corn crop was in two border states, with 61 percent of Minnesota’s crop and 58 percent of North Dakota’s listed in ‘good’ or ‘excellent’ condition as of yesterday, the U.S. Department of Agriculture said. Nationwide, good and excellent ratings applied to 26 percent of the crop, the lowest for this date since 1988. Quality declined for both states and the nation compared with last year.”

The Bloomberg article pointed out that, “North Dakota farmers this year sowed 3.2 million acres with corn, triple the acreage of a decade ago. This was due to the development of a local ethanol market and new seed varieties from Monsanto Co. and Dupont Co. that are better able to withstand the state’s harsher climate and shorter growing season. Nationwide, plantings were at their highest since 1937.”

University of Illinois Agricultural Economist Darrel Good indicated yesterday at the farmdoc daily blog (“Are Soybean Prices High Enough?”) that, “Much of the recent attention in commodity markets, at least in the popular press, has focused on the U.S. corn crop and the potential impact of drought conditions on production and prices. The focus has been warranted since corn is the largest U.S. crop; corn is used in a wide variety of food, feed, and industrial products; and corn yields are most susceptible to drought conditions.

“As the growing season progresses and adverse weather conditions persist over large areas, more attention is being focused on the U.S. soybean crop. The importance of the size of the U.S. crop is magnified by the small South American harvest earlier this year. The USDA estimates that crop at 4.2 billion bushels, 16 percent smaller than the record crop of 2011. The USDA expects South America to maintain a large export presence, however, by sharply reducing inventories over the next year. Even so, the pace of exports of U.S. soybeans remains stronger than normal for this time of year. The USDA now projects 2011-12 marketing year exports at 1.34 billion bushels, 65 million more than projected in March. With only six weeks left in the marketing year, exports need to total 81 million bushels, 13.2 million per week, to reach the USDA projection. Export inspections for the four weeks ended July 17 averaged16.1 million. As of July 12, the USDA reported unshipped export sales for the current year at 171.5 million bushels. It appears that exports may marginally exceed the USDA projection.”

Yesterday’s update added that, “What about production? In the July 11 WASDE report, the USDA judged the U.S. average yield potential at 40.5 bushels and production at 3.05 billion bushels, about equal to last year’s crop. Crop conditions have declined sharply during July, but there is still a perception that average yields could still be ‘decent’ if weather turned more favorable from now through August. In the driest areas, however, permanent yield losses may have already occurred as plant size and pod numbers have been cut. A forecast of U.S. average yield based on trend yields since 1986, percentage of the crop planted late, and the percentage of the crop currently rated in good or excellent condition is near 39.4 bushels. The forecast would change about 0.2 bushel for each one percent change in the percent of the crop rated in good or excellent condition. The USDA will release the first survey-based yield and production forecasts on August 10. Those forecasts may be a little less reliable than normal as surveyed producers have more difficulty in judging yield potential and NASS has more difficulty projecting yields from plant and pod counts. A yield of 39.4 bushels, using the NASS forecast of harvested acres, would result in a crop of 2.967 billion bushels and would require soybean consumption in the year ahead to be about 105 million bushels less than during the current year. At the same time, outstanding export sales for the upcoming marketing year are 70 percent larger than sales of a year ago and already account for one third of the USDA’s export projection for the year. Export demand will ultimately depend on China’s appetite for soybeans and the size of the South American crop next year.

“November 2012 soybean futures increased by 36 percent from the low on June 4 to the high of $16.915 on July 23, Prospects for more normal precipitation levels in some northern and eastern growing areas, along with renewed concerns about European financial conditions, resulted in some modest price weakness during the session on July 23. As indicated last week, the window of time for expecting a peak in soybean prices extends from now through November, with a peak by September appearing most likely. Based on our yield expectations, it does not appear that prices are yet high enough to trigger the necessary decline in consumption. However, with considerable production and demand uncertainty it is difficult to anticipate the timing and magnitude of a price peak. Pricing increments of old and new crop soybeans over the next several weeks still appears to be a prudent strategy.”

Keith Good

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