FarmPolicy

Crop Production Estimates Lowered, as Farm Bill and Ethanol Issues Garner Attention

Crop Production Estimates

A news release Friday from USDA’s National Agricultural Statistics Service (NASS) stated that, “Affected by one of the worst droughts on record [related Des Moines Register graphic], U.S. corn growers are forecast to harvest 87.4 million acres in 2012, down 2 percent from June estimates, according to the Crop Production report released today by [NASS]…[D]espite planting the largest number of acres to corn in the past 75 years, growers are forecast to produce 10.8 billion bushels in 2012, down 13 percent from 2011 [related graph]. Based on conditions as of August 1, corn yields are expected to average 123.4 bushels per acre, down 23.8 bushels from last year.”

The NASS update added that, “This year’s soybean production is forecast at 2.69 billion bushels, down 12 percent from 2011 [related graph]. Soybean yield is expected to average 36.1 bushels per acre, down 5.4 bushels from the 2011 crop.

“In contrast to corn and soybeans, all wheat production remains largely unaffected by the drought and is forecast at 2.27 billion bushels, up 13 percent from 2011.”

Friday’s Crop Production report was incorporated into the World Agricultural Outlook Board’s monthly World Agricultural Supply and Demand Estimates (WASDE), also released on Friday, which contained complete estimates for the entire U.S. corn and soybean balance sheet, including projected average farm price.  A quick look at some of these key variables is available here , while a summary from University of Illinois Agricultural Economist Darrel Good can be found here.  In part, Dr. Good noted that, “The reports confirmed that substantial rationing of corn and soybeans will be required in the year ahead, suggesting that prices will remain strong for an extended period to ensure the necessary rationing occurs. There is some chance that the forecasts of both the average corn yield and acreage harvested will decline in subsequent reports. New highs in both corn and soybean prices cannot be ruled out.”

Mark Peters and Owen Fletcher reported in Saturday’s Wall Street Journal that, “Beyond the U.S., concerns about rising food costs have been spreading. The USDA on Friday also cut its 2012-13 forecast for global corn, wheat and rice supplies. The drop in global wheat output mainly reflected problems with harvests in Russia and Kazakhstan; estimates were raised for Canada.

“Just a few months ago, the USDA was forecasting a bumper corn harvest and a sharp pullback in prices after farmers planted the largest crop in 75 years. The smaller projected harvest would leave supplies in the U.S. a year from now at around 650 million bushels, well below average levels seen in recent decades.”  (The Journal article also included this helpful graph).

Ron Nixon and Annie Lowery reported in Saturday’s New York Times that, “Agriculture Secretary Thomas J. Vilsack, visiting drought-stricken farmers in Nebraska on Friday, said that despite the reduced crop production, farmers are in better shape today than during the last major drought, in 1988.

“‘Last time only 25 percent of farmers had crop insurance, but this time over 85 percent are covered,’ Mr. Vilsack said, noting that the government was still forecasting the eighth-biggest corn harvest ever.” (Note that Mr. Nixon also discussed drought related agricultural developments on the Friday edition of the PBS NewsHour program).

Kansas State University Agricultural Economist Art Barnaby Jr. indicated in a paper on Friday that, “The chart below shows the deviation from 30-year trend yields by state. Kentucky, Missouri, and Tennessee have much larger corn losses in 2012 than in 1988. Kansas is one of the harder-hit states too. However, the Kansas loss in 1988 was only about 6.5% below trend yield. South Dakota and Nebraska yields are also worse than 1988, but Nebraska’s 2012 yield is only about 11.5% below trend.

“Because some of the larger corn states are hurt less in 2012 than 1988, the 2012 corn crop insurance losses are expected be lower than some of the early underwriting loss estimates. Iowa and Illinois were both hurt by below-trend corn yields, but their yields are not as far below trend as in 1988….As a result, the earlier KSU estimated underwriting loss of $10 billion for corn and $15 billion for the total of all crops are probably higher than the final result.”

Reuters news reported on Friday that, “U.S. crop insurers have already paid out $822 million in indemnities this season, but it is still far too early to tell how large the industry’s losses will ultimately be, National Crop Insurance Services said on Friday.”

Farm Bill – Policy Issues

President Barack Obama, following up on a White House Rural Council meeting last week on drought related issues, used his weekly radio address to discuss the ongoing U.S. drought and related executive branch action to assist with the impacts of the dry weather.

In part, President Obama stated that, “This is an all-hands-on-deck response, and we’ll be doing even more in the coming weeks to help families and communities that are suffering right now…But my Administration can’t do it alone. Congress needs to do its part, too. They need to pass a farm bill that not only helps farmers and ranchers respond to these kinds of disasters, but also makes necessary reforms and gives them some certainty year-round. That’s the single best way we can help rural communities right now, and also in the long-term.”

Meanwhile, Ben Geman reported yesterday at The Hill’s On the Money Blog that, “Agriculture Secretary Tom Vilsack is warning that political hurdles to passing the stalled farm bill will only grow if lawmakers don’t act before the end of September.

“‘The risks become much greater after September 30 that the whole discussion gets embroiled in conversations of sequester and tax policy, which makes a process which ought to be simple far more complex,’ Vilsack said in an interview airing this weekend on C-SPAN’s ‘Newsmakers’ program.  (Related audio clip from the “Newsmaker” program available here (MP3- 1:37)).

“His comments are part of a wider Obama administration push to put political heat on Congress to pass the farm bill amid extreme drought gripping the heartland.”

Jennifer Steinhauer reported yesterday at The New York Times Online that, “John Askew pulled at a soybean pod and revealed two anemic beans dappled with stem rot, the harvest of a too hot sun and too little rain. Representative Tom Latham peered in and shook his head.

“‘We need a farm bill — that’s the first thing,’ said Mr. Askew, whose family has farmed here for six generations. Mr. Latham, a Republican, agrees.

“But House leaders, including Speaker John A. Boehner, who popped into Iowa on Friday night to promote Mr. Latham’s re-election campaign, have been unable to muster the votes.”

The Times article pointed out that, “Farmers are complaining loudly to their representatives, editorial boards across the heartland are hammering Congress over its inaction, and incumbents from both parties are sparring with their challengers over agricultural policy…[W]ith a quarter of the country experiencing an exceptionally severe drought that is expected only to deepen, with the government projecting that much of the spring’s record corn planting will wither away, with significant damage to soybean and wheat crops and with prices for feed at record levels, farmers and ranchers are increasingly anxious about the gridlock in Washington.”

Likewise, Naftali Bendavid and Mark Peters reported in Saturday’s Wall Street Journal that, “Farm-state lawmakers are taking heat from their constituents for leaving Washington for a five-week recess without passing a farm bill at a time when severe drought is scorching much of the country.”

An article posted yesterday at the Chicago Sun-Times Online indicated that, “But the drought in a sense can be an election sleeper issue: Lower crop yields mean higher prices for food and ethanol-based products. With a poor economy the biggest threat to Obama’s re-election, the drought is far more of a potential problem for Obama than Republican presidential contender Mitt Romney.”

Last week, both Sec. Vilsack and presumptive GOP presidential nominee Mitt Romney addressed drought related issues.  In addition, President Obama and Mitt Romney’s new vice presidential pick, Paul Ryan, will be in Iowa this week, as will Sec. Vilsack.

Bloomberg writer Margaret Talev reported yesterday that, “He’ll [Pres. Obama] also talk about the drought that’s affecting farmers and announce $170 million in government meat and poultry purchases to help farmers and ranchers, as well as the economic impact on the agriculture industry of trade agreements he’s signed. The state is the leading U.S. producer of corn, soybeans, pork and ethanol.”

The Bloomberg article added that, “[Obama’s Iowa communications director Erin Seidler] said Romney’s opposition to extending the wind energy manufacturing tax credits and lack of engagement with congressional Republicans on the U.S. farm bill, set to expire in September, makes him vulnerable in traditionally Republican parts of the state… [Romney Iowa strategist David Kochel] said Romney is engaged on farm issues and that Iowans are most concerned about the economy, the direction of the country and government debt. He said Romney’s policy proposals would benefit wind-energy manufacturers by reducing regulations and reducing taxes on corporations.”

Meanwhile, Ron Hays of the Radio Oklahoma Network spoke with House Agriculture Committee Chairman Frank Lucas (R., Okla.) on Saturday about the drought and the Farm Bill.  A summary and audio replay of their discussion is available at The Oklahoma Farm Report Online.  An unofficial FarmPolicy.com transcript of the Ron Hays interview with Chairman Lucas is available here.

Chairman Lucas noted that, “The President now has come to the realization we need a farm bill; that’s a good thing. I think the Senate’s acknowledgement that they’ve done their work and they are ready to conference with us is a good thing.

“We just need to get House members focused across the country, and I know there are a lot of people who listen to your broadcast both in Oklahoma and across the nation, but wherever you are you need to make sure your congressmen, your Senator understand this drought is real, it is devastating. It will impact not just the farm community, but it will affect rural America. We need to take action. We need to do our work and let’s get the momentum going to get it done in regular order.”

And Molly K. Hooper reported yesterday at The Hill Online that, “Facing a tough reelection fight, outspoken Iowa Rep. Steve King (R) has suddenly become a bit reserved…[A]griculture matters are vital to his home state. In fact, King and his congressional colleagues in Iowa recently implored GOP leadership to move the farm bill before breaking for August recess. The measure, lacking votes, did not hit the House floor, though it could later in 2012.”

Biofuels

Reuters writer Charles Abbott reported on Friday that, “The worst drought in more than 50 years has caused more damage than expected to corn and soybean crops, the government said on Friday, heightening calls for a suspension of ethanol quotas to head off another global food crisis…[H]ours after the Department of Agriculture said the corn yield would likely fall to its lowest since 1995, worse than forecast, the governors of two poultry-producing states asked the Obama administration to waive the ethanol requirement, the first formal request for relief.”  [Note: Bloomberg news reported on Friday that, “Delaware Governor Jack Markell and Maryland Governor Martin O’Malley, both Democrats, sent a letter to the EPA’s Jackson today supporting the waiver, saying that the Renewable Fuels Standard may hurt their farmers and poultry companies.”]

The Reuters article explained that, “A White House spokesman said President Barack Obama was ‘looking at’ the possibility of a waiver together with the Environmental Protection Agency and the USDA.

“But with staunch farm belt support and an election looming, many political analysts say the odds of a waiver are low.”

David Hendee and Leslie Reed reported on Saturday at the Omaha World-Herald Online that, “The nation’s No. 1 crop may be withering in parched fields across the country, but there’s no reason to panic, U.S. Agriculture Secretary Tom Vilsack said Friday in Omaha… ‘We’re going to get through this,’ Vilsack said. ‘The key here is … that we don’t panic, that the rest of the world doesn’t panic and that we don’t jump to conclusions about what we need to do or not do because we’re going to have a little less corn and a little less soybeans than we thought a month or two ago.’”

Saturday’s article noted that, “Vilsack was in Omaha to address about 250 members of the American Coalition for Ethanol.”  (An overview and audio replay of the Secretary’s remarks at that event are can be found here).

Ben Geman pointed out at The Hill’s On the Money Blog yesterday that, “In other comments on C-SPAN, Vilsack remained cool to calls for federal officials to waive national ethanol mandate requirements amid drought that’s battering the corn crop and raising corn prices.” (An audio replay of a portion of Sec. Vilsack’s remarks on biofuels from the C-SPAN interview can be heard here (MP3- 5:00)).

Bloomberg writer Nariman Gizitdinov reported on Friday that, “Ethanol credits held by U.S. refiners may help reduce demand for the blending fuel and ease pressure on rising prices of corn, from which ethanol is made, the International Energy Agency said.

“The credits, known as Renewable Identification Numbers or RINs, were given out when refiners use more than the required quantity of ethanol mandated by the Renewable Fuels Standard, and can be used to avoid purchases now. About 2.5 billion credits have been banked by refiners in recent years, according to the Renewable Fuels Association trade group, the IEA said.”

Liam Denning reported in Saturday’s Wall Street Journal that, “As it is, officials expect a slightly lower 4.5 billion bushels will actually be used for ethanol this year. High corn prices increase the cost of ethanol, so some refiners will choose to run down existing inventory or use credits to meet their renewable fuel obligations instead.

“Such market logic could also blunt the potential impact of waiving the mandate itself. An ethanol refinery reflects sunk capital. As long as it is profitable to turn corn into ethanol, relative to the price of gasoline or competing fuel additives, refineries will run and bid up the price of corn.”

Nonetheless, The Wall Street Journal editorial board indicated on Saturday that, “Ethanol is a man-made disaster that could be stopped if the EPA or others in Washington cared for human health as much as they do power politics.”

Javier Blas reported on Saturday at The Financial Times Online that, “G20 countries are to step in to try and co-ordinate a response to surging food prices, after the worst US drought in half a century devastated crops in the world’s largest agricultural exporter.

“The conversations behind closed doors among senior G20 and UN agriculture officials about calling a session of a new emergency forum come after the cost of corn, or maize, surged to an all-time high, surpassing the level seen during the 2007-08 food crisis.”

The FT article noted that, “G20 officials plan to hold a conference call in the week of August 27 to discuss a meeting, which could be held in late September or early October, according to four officials familiar with the conversations…[T]he UN is likely to use the meeting to push for a global debate about biofuel policies, particularly asking the US, the EU and other countries to scrap government-mandated production targets.”

In a separate article yesterday at The Financial Times Online, Javier Blas reported that, “When Barack Obama arrives in corn-growing Iowa for a three-day tour on Monday, he will be confronting a fierce debate over whether the grain is worth more as food or fuel.”

The FT article stated that, “Mr Obama’s trip to Iowa highlights the importance of the corn-belt states in US politics. For the US president, it will be his fifth trip this year as Mr Obama tries to repeat his 2008 election victory, when he carried the state by a healthy 9.5 percentage point margin.

“The ethanol policy has strong supporters among Mr Obama’s cabinet, including Tom Vilsack, secretary of agriculture…[T]here is also strong support among Republican lawmakers, even if some challenge the industry as government welfare because of the subsidies it receives. Mitt Romney, the presumptive Republican presidential candidate, has embraced the ethanol industry.”

Keith Good

Posted by Keith Good • August, 13, 2012 • 3:07 am