FarmPolicy

Farm Bill; Ag Economy; Trade; Biofuels; and, Budget Issues

Farm Bill

The “Washington Insider” section of DTN reported yesterday (link requires subscription) that, “As Congress returned, sort of, this week, Senator Charles Grassley, R-Iowa, said what has been obvious to many for some time and that is that there is not time now to fix the current farm bill that expires at the end of September. This is because the House has only eight legislative days to consider a bill that the leadership finds too toxic to bring to the floor.

“As a result, Grassley thinks Congress likely will include a one-year extension of the farm programs in the continuing resolution that lawmakers must consider later this month, since it couldn’t agree on a budget either. ‘I would hope that we would get a five-year farm bill passed so farmers would have the long-term view, but I would imagine at this late stage and with farm legislation sun-setting Sept. 30 that it is most likely we’ll have a one-year extension,’ he said.

“At the same time, Grassley disagreed with the major farm groups who think the failure to agree on a new bill now is a severe problem.”

The DTN update pointed out that, “Grassley also said he thinks Congress will pass a drought-disaster aid bill along the lines of the legislation that passed the GOP-controlled House before the recess, a bill that extended several programs that expired in 2011 but which has been severely criticized by groups who think they were short-changed by the House approach.” [Note: See Thursday’s FarmPolicy.com report, which cited The Detroit News saying, “Sen. Debbie Stabenow says she is optimistic Congress will pass disaster assistance for farmers facing a record drought if the House doesn’t approve a farm bill.”]

Yesterday’s DTN item added that, “Observers have been noting–correctly–that passage of a one-year extension does not mean Congress will stop work on a new bill. It could act any time during the six-week lame-duck session of Congress following the November elections, or early in 2013. A one-year extension of the 2008 Farm Bill could give USDA time to get the rules and other regulations in place before any new bill takes effect.

“Still, it is fair to note that there are a number of very serious concerns about the Senate bill and the House Committee bill that are far, far from being resolved and may be more difficult to sweep under the Congressional rug than Senator Grassley hopes. The first of these, of course, is the Republican effort to sharply reduce the nutrition programs, and even to push them off on the States. If that fight were to be pursued, it could threaten to change the very nature of the farm bill and create a new set of advocates and opponents for the conservation and farm safety net programs, as well.”

Also yesterday, an update posted at the National Sustainable Agriculture Coalition (NSAC) Blog pointed out that, “Despite hopes that the drought and enough clamoring from farmers back at home would force lawmakers to act on a comprehensive farm bill before the current bill expires on September 30, there have been no ‘game-changing’ events over recess that would define a clear path forward.  The drought has continued to keep farm issues front and center in the national and local media, and Members of Congress have continued to make the case for passing a farm bill soon, but no consensus path has emerged.”

The NSAC item went on to discuss “three potential paths forward for the farm bill” in more detail: Congress Passes Farm Bill Reauthorization in September, Some Sort of Extension of Current Farm Bill, or No Action on Farm Bill in September.

For additional analysis of how the Farm Bill process could unfold, see this unofficial transcript of an AgriTalk interview this week with Mary Kay Thatcher of the American Farm Bureau Federation.

And, Pete Kasperowicz reported yesterday at The Hill’s Floor Action Blog that, “House Republicans have slowly started the process of setting out the agenda for next week, when the House returns from several weeks off in August that allowed both parties to hold their conventions…By about noon on Thursday, there was still no sign that the House might consider a continuing resolution providing for federal spending through March of next year, although this bill is expected to come up either next week or the week after. House and Senate leaders reached an agreement to pass a six-month CR sometime in September.”

In other policy related news, Bill Shea reported earlier this week at the Messenger News Online (Fort Dodge, Iowa) that, “School lunches that ‘ration food to our kids’ are the latest sign of a federal government that has become too intrusive, U.S. Rep. Steve King said Tuesday in Fort Dodge.”

“[Rep. King] said new school lunches, prepared in accordance with the Healthy, Hunger-Free Kids Act championed by first lady Michelle Obama, have come to his attention during recent campaign events. He said parents have approached him and have said things like ‘My kids are starving in school. My kids are being rationed on calories.’”

The article added that, “The caloric range for a high school lunch under the new law is 750 to 850 calories, according to Brenda Janssen, the local food service director for Taher Inc., the company that provides meals in the Fort Dodge Community School District…There were some complaints about the new lunches during the first week of school, Janssen said.”

In a broader look at food issues from an international perspective, Suma Chakrabarti (President of the European Bank for Reconstruction and Development) and Jose Graziano Da Silva (Director-General of the Food and Agriculture Organization of the U.N.) noted in an opinion column yesterday at The Wall Street Journal Europe that, “Severe droughts, rising grain prices and food shortages—the latest headlines are an urgent call for action. Concern over food security is often overshadowed by the euro-zone troubles or other crises, but the issue affects far more people, far more immediately: It is about the daily bread of billions of human beings, and it is time to step up our response.

“On September 13, the largest and most important gathering of companies and decision-makers in agribusiness from the Caspian and Black seas to the Mediterranean will take place in Istanbul. The attendees will discuss the key role of the private sector in feeding the world. The European Bank for Reconstruction and Development and the U.N.’s Food and Agriculture Organization will lead the debate, which we hope will become global.

“The simple truth is that the world needs more food, and that means more production.”

Agricultural Economy

Bloomberg writer Elizabeth Campbell reported yesterday that, “The worst Midwest drought in 56 years has ‘significantly lowered’ expectations for farm income in the third quarter, the St. Louis Federal Reserve Bank said.

“Lenders in a new quarterly agricultural finance survey project lower third-quarter farm income and capital expenditures compared with the same period a year earlier, according to a statement on the St. Louis Fed website. Land values were projected to stay steady or rise over the next three months, the statement said.”

Meanwhile, John Eligon reported in today’s New York Times that, “The remnants of Hurricane Isaac that blew through the middle of the country over the weekend softened the worst drought in decades in some areas, but a large portion of the nation remains desiccated with ponds still too shallow to water cattle, fields too dusty for feeding and crops beyond the point of salvage, meteorologists and agriculture experts said Wednesday.

“Conditions have, in fact, worsened in some rain-starved regions untouched by the hurricane’s gray clouds, meteorologists said.

“When the government’s drought forecasts are released Thursday morning, they will most likely show that the worst of the drought has shifted slightly west, to the Central Plains, stretching from the bottom of South Dakota to North Texas.”

The AP reported yesterday that, “The U.S. Drought Monitor’s weekly report came as federal forecasters separately warned that the worst drought in decades could persist for months in a large swath of the central and southern Plains, portions of the Rockies and much of California.

“‘Most of these areas are moving toward a climatologically drier time of year, and there is no compelling indication that substantially above-normal precipitation will fall during the next three months,’ according to the National Weather Service’s Seasonal Drought Outlook.”

Bill Roberts reported yesterday at the Idaho Statesman Online that, “John Hepton, a Nampa resident who owns feedlots in Oregon, Melba and Twin Falls that range from 6,000 to 30,000 cattle, said rising prices have pushed his operations to the break-even point or slightly below. Corn is an essential ingredient in feeding cattle to get them ready for market.

“Feed corn has shot to $300 a ton from $200, he said. ‘It really puts a real strain on our industry,’ Hepton said.”

The article added that, “For dairy farmers, the problem is worse. Dairy farmers were already weakened by a bad year in 2009 and were barely able to recoup operational costs but not fixed costs in 2010. They fared slightly better in 2011, Now they face a bad year in 2012 because of corn prices.

“Some dairy farms can’t get bank approval to buy feed on contract, which is usually cheaper than buying on the open market. So they are getting hammered making open-market corn purchases, said Bob Naerebout, Idaho Dairy Association executive director.”

David Castellon reported this week at The Visalia Times-Delta (Calif.) Online that, “The financial problems dairies have been dealing with since late 2008 — low sale prices they receive for milk along with growing prices for feed, fuel and other costs — are being further exacerbated by even higher feed prices because of losses of corn and other feed crops in the Midwest during the worst U.S. drought since the 1950s.”

The article added that, “Hilton Ryder, a Fresno lawyer specializing in agricultural business bankruptcies, said the number of dairy bankruptcies he’s handling has gone up 25 percent in the past year. ‘And right now, half of my practice is dairies,’ he said.”

And, Bloomberg writers Chanyaporn Chanjaroen and Rishaad Salamat reported this week that, “Corn consumption in China, the world’s second-largest user, remains resilient even after prices rallied to a record in Chicago, according to DWS Investments, which invests $3.4 billion in agriculture-related businesses.

“‘We still have strong demand from countries like China,’ Bill Barbour, an investment specialist for the DWS Global Agribusiness fund, said in a Bloomberg Television interview today. ‘There’s not been much demand destruction.’”

In addition, the AP reported yesterday that, “Prices of basic foods remained flat in August, offering assurances that a repeat of the global food price crisis that sparked rioting several years ago is unlikely, U.N. food agency officials said Thursday.”

Trade

Kate Ackley reported yesterday at Roll Call Online that, “Congress may still be in recess, but the lobbyists at the Business Roundtable, the U.S. Chamber of Commerce and five other groups are not waiting until next week to press their case for swift passage of a trade bill dealing with Russia.

“In a letter Wednesday, the business groups urged House and Senate leaders to act on legislation granting Permanent Normal Trade Relations with Russia as soon as they return from the summer recess.”

Biofuels

An update yesterday at the farmdoc daily blog (“RIN Values: What Do They Tell Us about the Impact of Biofuel Mandates?”) by Seth Meyer and Nick Paulson indicated that, “The impact of the US drought on the price of corn and other feed grains and oilseeds has made the arcane subject of Renewable Identification Number (RINs) and the role of US biofuel policy of great interest this year. For example, there have been a number of recent calls to the EPA for waivers of the RFS mandates to relieve pressure on food prices for consumers and feed prices for livestock producers. In this post we review the basic economics of the ethanol market both with and without the RFS mandate, and discuss RIN valuation under both conditions. We then provide some speculation as to the support the RFS mandates are currently providing to corn prices based on recently observed RIN prices.”

After a brief analysis, a summary of yesterday’s farmdoc item stated that, “Information provided by current RIN prices suggests limited RFS mandate support to current corn prices. This is consistent with other recent studies which have noted that blending economics, rather than the mandate, continue to drive ethanol use despite significantly higher corn prices resulting from the 2012 drought. However, the simple analysis in this post includes a number of important caveats. Our discussion is conditioned on an assortment of other factors impacting ethanol supply and demand which are assumed constant. These include, but are not limited to, gasoline prices and the existing supply of RIN stocks currently estimated to be available for application towards the mandate. If gasoline prices fall, or if RIN stocks are drawn down, RIN prices could rise considerably and the impact of a 2012 or 2013 mandate waiver on corn prices could be much larger. In summary, the estimated impact on corn prices of $0.11 to $0.14/bushel should be taken only as indicative based on crude ‘back of the envelope’ calculations.”

Budget Issues

Erik Wasson reported yesterday at The Hill’s On the Money Blog that, “Congressional Republicans are demanding that President Obama meet the Friday deadline for laying out how his administration will carry out the spending cuts from sequestration that are part of the ‘fiscal cliff.’

“‘Tomorrow (September 7) is the deadline, which has us wondering … will President Obama comply with the Sequestration Transparency Act he signed into law?’ the office of House Speaker John Boehner (R-Ohio) wrote in a blog post.

“GOP aides say they expect the White House to delay the report to prevent it from distracting from President Obama’s big acceptance speech at the Democratic National Convention on Thursday night.”

Yesterday’s update noted that, “The report will for the first time detail where the sequestered cuts would come from in the budget, should Congress not act to stop them.”

“The sequester cuts are not the only major policy changes set to take effect in 2013. The combination of the scheduled expiration of the Bush-era tax rates, a decrease in Medicare provider payments and an increased bite of the Alternative Minimum Tax could case a recession next year, according to budget analysts,” the Hill update said.

And Stacy Kaper reported yesterday at National Journal Online that, “Current and former Obama and Clinton administration advisers and Senate Majority Whip Dick Durbin, D-Ill., squared off on Thursday over how to work with Republicans to forestall a looming fiscal crisis.

“At an economic event at the Democratic National Convention in Charlotte, the Democrats also sparred over how to use the leverage of the impending fiscal doom of tax increases and spending cuts set to go into effect in January that could drag the economy back into a recession as well as how to achieve Democratic goals of maintaining investments for the future and how to carry out Obama’s second-term agenda.

“Durbin argued that lawmakers will probably vote for a six-month extension during the lame-duck session of Congress to give negotiators more time to reach a deal. But Robert Rubin, a former Treasury secretary under President Clinton, and a former Citigroup executive, argued that such a long extension will give lawmakers a false sense of security about staving off the fiscal cliff and increase the temptation to seek additional extensions to get through the 2014 elections.”

The National Journal article noted that, “Rubin said that the American public has to be convinced that the country is like the Titanic, headed for an iceberg that it can avoid. He said an extension of only two months, or at most four, should be used to ensure the pressure is kept on lawmakers.

“‘We have to get the American people to realize that our future absolutely depends on this issue,’ he said.

“Echoing those sentiments, John Podesta, head of the Center for American Progress and a former Clinton chief of staff, argued that if Obama is reelected, his entire second-term agenda will hinge on his ability to reach an early resolution on the fiscal crisis. If the debate is protracted, he said, Obama won’t have the time — or leverage — to focus on other priorities, he said.”

Keith Good

Posted by Keith Good • September, 7, 2012 • 3:26 am