FarmPolicy

2012 Drought Weighs on Farm Bill, RFS, Food Prices, and Crop Insurance

John D. Sutter reported on Saturday at CNN Online that, “Triple-digit temperatures and sparse rain this summer produced one of the most severe and widespread U.S. droughts in a half-century. Most headlines have focused on the extent of the drought — the fact that it enveloped more than half the country; or that temperatures in July were the hottest for any month on record in the continental United States. Somewhat lost in that national conversation are the stories of [Missouri dairy farmer Mark Argall] and other small-scale farmers who are being pushed out of the only line of work they’ve ever known.

“For them — and for the rural communities that depend on their incomes — the drought is far more than a news item. It’s an earth-shattering event, one they worry could lead the dairy communities of southern Missouri to unravel.

“And, perhaps saddest of all, farmers say the sell-offs could have been avoided.”

The CNN article, which also included a short video production, indicated that, “The Obama administration earlier this month announced emergency drought assistance that included low-interest emergency loans; a federal buy-up of meat from livestock producers; and the opening up of some protected lands for livestock grazing.

“None of those efforts are targeted at dairy farmers, however, dairy advocates say.

“Missouri’s governor, meanwhile, created a cost-share program to help farmers get access to water for their cattle, but [Stacey McCallister, a good-humored 44-year-old who raises dairy cows about 50 miles north of Argall] said that’s more of a Band-Aid than a real solution.”

Mr. Sutter pointed out that, “Michael Scuse, under secretary of the U.S. Department of Agriculture, said dairy farmers have not been offered enough of a safety net because Congress has not finalized an omnibus piece of legislation called the Farm Bill.

“‘Had we had a Farm Bill passed by now, there’s a very good chance we could offer some additional assistance to dairy farmers who are struggling because of the drought, he said.

“Several programs that deal with emergency assistance for livestock owners expired in September 2011; and an insurance program for livestock producers, which he said ‘never had adequate funding,’ will be cut further in September and eliminated by October 1 unless new legislation is passed, he said.”

Saturday’s article explained that, “Earlier this summer, the U.S. Senate and the House’s agriculture committee passed versions of the five-year bill, which includes everything from food stamps to crop insurance. Much of the debate about the bill centers on programs to feed low-income people. The House returns from August recess on September 10, and could take up the measure then.

“The bill in its current form would create an insurance program specifically for dairy farmers. Currently, most dairy farmers are uninsured, according to officials and policy experts; that makes them more vulnerable to the impacts of a drought or high feed prices, both of which have taken hold now.”

Furthermore, the article stated that, “‘There’s a huge ripple effect’ from the drought, said Rep. Jo Ann Emerson (R., Mo.)], the congresswoman. ‘If a farmer is making a profit — not a big one, but a little one, even — then they’re going to go to the grocery store. They’re going to go to the implement dealer. They’re going to go to the beauty shop. They’re going to go to the Hallmark store. They’re going to utilize the services that are in those communities. And if our farmers aren’t buying anything, then the implement dealers suffer. The hardware store suffers. Everybody suffers.

“‘And that’s how you start having rural America wither away.’”

Abbey Dean reported last week at the Columbia Missourian Online that, “With no rain and input costs such as forage and grains on the rise, many cow-calf producers in the state [Mo.] are sustaining serious financial losses and being forced to slaughter their cows.

“‘We’re in one of the worst situations for cattle producers we’ve ever seen,’ said Scott Brown, research assistant professor in the MU College of Agriculture, Food and Natural Resources. ‘This is of record proportions, and Missouri is ground zero.’”

Bloomberg writers Jeff Wilson and Christine Harvey reported on Friday that, “The hottest, driest summer since 1936 in the Midwest eroded yield prospects for corn and soybean crops in the U.S. for a third year to the lowest since 2003…[C]orn has jumped 62 percent since June 15 and soybeans gained 32 percent. Both reached records this month after July was the third warmest in 117 years across the seven major producing states and the past two months were the third driest since 1895, according to government data. Corn, the biggest U.S. crop, is the main ingredient in livestock feed and ethanol, a gasoline additive.”

Also on Friday, The New York Times provided an excellent interactive set of graphics regarding the drought at the paper’s webpage; and, The Times stated that, “This summer’s heat and rainlessness, which rivals the devastating 1988 drought, has left crops withering in the fields and farmers trying to calculate their losses. An analysis by The New York Times looks at the widely varying effects of this summer’s heat and drought on crops critical to the nation’s farm economy.”

As noted earlier, the 2012 drought has caused added concern among producers, particularly some dairy farmers, about the certainty of federal farm policy.  News updates continue to point out that during the August recess, to the extent possible, lawmakers are prioritizing the Farm Bill- and the issue has also gained traction in some political races as well (related links: South Dakota Congress; Missouri Senate; Montana Senate; North Dakota Senate; and Iowa Congress (Rep. Steve King (R) – Christie Vilsack (D))).

Ashley Miller reported on Friday at the Storm Lake Pilot Tribune (Iowa) Online that, “Rep. Steve King, Kiron, said his number one priority right now is passing the Farm Bill.

“While the bill did not pass prior to Congress’ recess that began earlier this month and ends on Sept. 10, King is confident the bill will pass before it expires at the end of September, providing necessary drought relief for Iowa farmers.

“‘Across the district, drought is a major concern,’ he told the Pilot-Tribune. ‘We’re going to get something done. I’ve advocated for the bill and will continue to do it.’”

Keith Norman reported over the weekend at The Jamestown Sun (N.D.) Online that, “Farm leaders are anticipating an uncertain future if no new farm bill is passed in the next month.

“‘The average farmer is going to have difficulty getting financing going into next spring without the stability of a five-year bill,’ said Sen. Kent Conrad during a Thursday visit to North Dakota Farmers Union in Jamestown.”

The article added that, “‘We believe if it goes to a vote in the House, it will pass with a solid majority,’ Conrad said. ‘From there, it will have to go to conference committee and the House and Senate will have to make compromises.’

“The House is only in session for eight days during the month of September. Conrad speculates the chances of passing a bill decline as time progresses.”

Maria Amante reported on Saturday at the Green Bay Press-Gazette Online that, “‘If we don’t have a bill in place by Oct. 1, we revert to rules and regulations from the ‘30s and ‘40s,’ Sen. Herb Kohl, D-Milwaukee, said, while appearing in Green Bay. ‘Those are totally inadequate for farming today, as you can imagine. It’s really important we get a farm bill. We’re going to be in a crisis situation very soon if we don’t get a farm bill.  (In the Senate,) we have a good farm bill with bipartisan support.’”

In a news release on Friday, Rep. Tim Walz (D., Minn.) stated that, “Whether it comes in the form of steady, dependable prices at the grocery store or relief for drought stricken farmers, the Farm Bill affects and gives certainty to everyone. Congress needs to get its chores done. We need a five-year Farm Bill now. Rural America—and the rest of the country—can’t wait.”

And in this recent video news report from KTIV (Sioux City Iowa) News, Sen. Chuck Grassley (R, Iowa), Sen. John Thune (R., S.D.), and Rep. Kristi Noem (R., S.D.). highlighted the importance of getting the Farm Bill passed.

Moreover, with respect to the executive branch, Eric Blaisdell reported on Saturday at Vermont Today Online that, “If the newest farm bill doesn’t make it out of the U.S. House of Representatives, Vermont’s dairy farmers will be in a bad way, says one federal official.

“The current farm bill, signed in 2008, expires at the end of September, and Deputy Agriculture Secretary Kathleen Merrigan is sounding the alarm about its prospects in the House.”

Beyond the Farm Bill, the drought has stirred debate about biofuels and U.S. renewable energy policies.

Ronald D. White reported on Friday at the Los Angeles Times Online that, “The worst U.S. drought in more than half a century has rallied critics of the federal renewable fuel standard, which will reserve about 40% of the nation’s corn crop for ethanol production this year.

“Critics have long questioned the commitment of a growing share of a food source for fuel use. But the calls for change have grown louder because the widespread drought has killed more than 50% of the corn crop, driving prices to record levels — and U.S. ethanol is made mostly from corn.”

Mr. White added that, “To avert a possible domestic and international food crisis, several groups have urged changes to the fuel standard or at least a temporary waiver of the ethanol quota, which annually requires more ethanol be included in the nation’s fuel production. Among them are members of Congress, the U.N. Food and Agriculture Organization and the American Petroleum Institute.

“The International Food Policy Research Institute has recommended the U.S. immediately stop using corn to make ethanol for fuel ‘to prevent a potential global food price crisis.’”

Ryan Tracy reported yesterday at The Wall Street Journal Online that, “Both President Barack Obama and presumptive Republican nominee Mitt Romney have said they support the federal mandate for using ethanol in motor fuel, known as the Renewable Fuel Standard. Mr. Romney has shown more skepticism of renewable-energy subsidies generally, writing in his 2011 book that ‘once an industry is up and running, the disadvantages of subsidies outweigh their benefits.’

“The questions about the ethanol mandate this year follow a broad show of bipartisan support for repealing ethanol tax credits in June 2011, when 73 senators voted in favor of rescinding them. The credits expired at the end of last year.”

A news release last week from Rep. Peter Welch (D., Vt.) stated that, “With the worst drought in 50 years pushing feed prices higher and adding to the struggles of Vermont dairy farmers, [Rep. Welch] is urging Environmental Protection Agency (EPA) Administrator Lisa Jackson to bring relief by relaxing the mandate that requires the blending of ethanol in U.S. transportation fuel.”

A news release Friday from Texas Governor Rick Perry (R) stated that, “[Gov. Perry] today asked the Obama Administration to waive the mandated Renewable Fuel Standard (RFS) for 2012 and 2013. In a letter to U.S. Environmental Protection Agency (EPA) Administrator Lisa Jackson, the governor added Texas to the list of states and leaders supporting the national Petition for Waiver or Partial Waiver of Applicable Volume of Renewable Fuel because of the mandate’s adverse impact on Texas.”

Nonetheless, Reuters news reported on Friday that, “The worst drought in half a century revived a fierce food versus fuel debate. Livestock and food producers and others are calling on President Barack Obama to abandon — at least temporarily — a government mandate that requires converting more than a third of the U.S. corn crop to ethanol. The president has three months to decide.

“Experts say that even if he waives the Renewable Fuel Standard (RFS), it won’t necessarily free up much corn for food and livestock feed. In fact, unless corn prices rise another $2 or oil prices fall sharply, it may not make a difference at all.”

The article added that, “Even without the standard, a third of the U.S. gasoline supply must contain ethanol to meet unrelated clean air rules, mostly in California and on the East Coast. No other available substance can oxygenate gasoline as effectively, helping it burn more cleanly.

“More importantly, ethanol is as much as $1 cheaper than other types of octane boosters like reformate, which refiners use to increase the efficiency of their fuel.”

Food prices have also garnered increasing attention as the 2012 drought persists.

Updated forecast information on food prices was released on Friday by the U.S. Dept. of Agriculture; a summary of the report and related news was posted Friday at FarmPolicy.com Online. A New York Times article from Friday explained that, “The Agriculture Department said Friday that consumers can still expect higher food prices next year, but the expected increase was unchanged from last month, even as extreme heat in the Farm Belt continues to reduce the grain harvest and increase feed prices for livestock.”

And this year’s drought will also have a significant impact on the crop insurance sector.

Javier Blas and Alistair Gray reported yesterday at The Financial Times Online that, “The insurance industry faces its biggest ever loss in agriculture as the worst drought to hit the US in more than half a century devastates the country’s multibillion-dollar corn and soyabean crops, triggering large claims.

“Insurance companies providing so-called crop protection will recoup part of their loss, nonetheless, as the US federal government reinsures some of their risk, on top of subsidising the premiums that farmers pay to private companies.

“Agricultural economists at the University of Illinois estimate the drought will trigger this year gross indemnities of roughly $30bn, with an underwriting loss of $18bn. Of that, the US government would shoulder around $14bn, while private sector insurers are likely to face a loss of $4bn, they said. Standard & Poor’s, the rating agency, put the losses of the private sector a notch higher at $5bn.”

Keith Good

Posted by Keith Good • August, 27, 2012 • 2:08 am