FarmPolicy

Farm Bill; Budget Concerns; Biofuels; and the, Ag Economy

Farm Bill -Policy Issues

The editorial board at the Minneapolis Star Tribune noted earlier this week that, “The 2008 federal farm bill is set to expire this week because conservative House Republicans are more interested in campaigning for re-election than in doing the work required to adopt new legislation. The inaction may hurt the GOP’s effort to reclaim a majority in the U.S. Senate because of backlash in North Dakota, Montana, Indiana and other rural states with tightly contested races — and rightly so.

“The Senate did its job in June and adopted a five-year, $497 billion bill on a 64-35 vote. Although imperfect, the Senate’s bill would save taxpayers $23 billion over 10 years. But in the House, Speaker John Boehner refused to allow a vote on the bill proposed by the House Agriculture Committee until after the November election.

“At a time when rural America has been hammered by drought, GOP leaders are putting their self-interests before the needs of those they purport to serve. While Boehner insists he doesn’t have the votes for the bill, a bipartisan group of House lawmakers, including Minnesota Democrat Collin Peterson, openly challenged that assertion last week.”

The editorial added that, “Playing politics with the farm bill unnecessarily puts rural America in a state of uncertainty. Agriculture producers are forced to make decisions about their futures without knowing what kind of federal assistance will be available to them. These decisions include everything from the amount of labor needed to whether to buy, sell or rent land and equipment. Hundreds of farmers converged in Washington recently and urged Congress to stop the delay. It’s too bad House leaders didn’t listen.”

For a closer look at the declining prospects of the GOP taking a majority in the Senate, see this FarmPolicy.com update from yesterday; also, for additional updates on the stalled Farm Bill and the potential impacts on some House and Senate races, see this FarmPolicy  update which is regularly updated: “Snapshot: An Election Year Farm Bill- Campaign Impacts.”

At least one lawmaker has publicly suggested that if the Senate were to change to GOP control, perhaps the legislative branch would start over on the Farm Bill process in the next Congress.

Rep. Tom Latham (R, Iowa) who is currently in a tightly contested contest for Iowa’s new Third Congressional District, where he is facing House Ag Committee Member Leonard Boswell (D), spoke this week with The Des Moines Register editorial board about a variety of issues, including the stalled Farm Bill.  For more on the Farm Bill portion of Rep. Latham’s discussion with the Register, see this FarmPolicy.com update from yesterday.

In more specific policy related issues, a news release yesterday from Sen. Kirsten Gillibrand (D., N.Y.) stated that, “As dairy farmers struggle to cope with rising production costs driven up during this summer’s severe drought, U.S. Senators Charles E. Schumer and [Sen. Gillibrand], a member of the Senate Agriculture Committee, joined a bipartisan group of senators from leading dairy states asking the U.S. Department of Agriculture to review the floor price for unprocessed milk.”

The release added that, “The cost of grain for dairy farmers has skyrocketed as a result of supply shortages caused by the worst U.S. drought in at least 50 years. Almost 1,600 counties in 32 states have been declared natural disaster areas after drought seared millions of acres of pasture and cropland across the United States.

“Federal milk marketing orders are administered by the Agriculture Marketing Service of the U.S. Department of Agriculture.  The orders establish minimum pricing rules in 10 regions throughout the United States (except in California) for the sale of fluid-grade (Grade A) milk from the producer to the processor or manufacturer.”

Additional news on dairy issues from California can be found in this update posted this week at DairyHerd.com: “Calif. dairy industry rallies for pricing changes.”

Also on the diary issue, a news release yesterday from the International Dairy Foods Association (IDFA) indicated that, “The [IDFA] said today that the analysis of the proposed dairy programs that was recently issued by the Congressional Research Service provides useful information for legislators as they continue work on the 2012 Farm Bill this fall. The CRS is a non-partisan agency that provides policy and legal analysis to members of Congress. Although the Senate already passed its version of the Farm Bill last June, the House version of the bill is awaiting floor debate and a likely vote to eliminate a controversial program to limit milk supplies.

“The CRS report, ‘Dairy Policy Proposals in the 2012 Farm Bill,’ provides a detailed explanation of existing dairy programs, as well as an explanation of two competing proposals to replace those programs. The Dairy Security Act (DSA) offers a new margin insurance program that would require participants also to sign up for a new milk supply management program called the Dairy Market Stabilization Program (DMSP). An alternative approach, authored by Representatives Bob Goodlatte (R-VA) and David Scott (D-GA), would provide similar margin insurance coverage without the controversial plan to periodically limit milk production.

“‘You can read that report until the proverbial cows come home and you will not find anywhere that it concludes that the Dairy Security Act is the best approach for dairy farmers, as was falsely claimed by the National Milk Producers Federation,’ said Jerry Slominski, IDFA senior vice president of legislative and economic affairs. ‘The CRS is a well-respected and bipartisan service that doesn’t take sides on issues like this.’”

A related release on the CRS dairy report from the National Milk Producers Federation can be found here.

In news regarding nutrition issues, The Des Moines Register editorial board noted yesterday that, “Thousands of Iowa families are in debt to the school lunch ladies. According to a recent Des Moines Register investigation, schools are owed hundreds of thousands of dollars for meals already served to students.”

The Register then stated that, “Perhaps this is an opportunity to reconsider how this country feeds millions of school children each day. It might make more sense to feed every student a free lunch and all of us share the expense.

“Isn’t a nutritious lunch as standard a part of the school day as math class?

“Society already shares the expenses of educating our children when we pay taxes to cover the cost of buildings, teachers and materials. Taxpayers are already paying billions of dollars to provide low-cost and free school meals to 31 million children each day. How much more would it cost to feed them all? And how much of the expense could be offset by eliminating the bureaucracy and administrative expenses in the current system?”

The Register added that, “States receive federal money to feed senior citizens lunch. These programs require no proof of income, meaning an older person can pull up to a senior center in a Cadillac and eat a hot, nutritious meal for free. No questions asked. Yet feeding school children means embarrassing lowincome families and forcing schools to try to collect on debts.

“Isn’t there a better way?”

Meanwhile, new federal guidelines contained in the Healthy and Hunger Free Kids Act continue to draw attention, particularly with respect to the caloric level of school lunches.  The CBS “This Morning” television program took a closer look at this issue on yesterday’s show.

In other policy developments, Rod Smith reported yesterday at Feedstuffs Online that, “Dunkin’ Donuts, with more than 10,000 restaurants in 32 countries, has announced plans to shift to eggs produced in cage-free environments and pork produced in stall-free sow housing.

“The company said it will, ‘as a first step,’ transition 5% of egg purchases to cage-free suppliers by the end of next year and ‘determine a timeline’ to eliminate gestation stalls that its pork suppliers will be required to meet.”

Budget Concerns

Wall Street Journal columnist David Wessel indicated in today’s Wall Street Journal that, “Is Congress going to drive the U.S. economy over the fiscal cliff? Is Washington so dysfunctional that Congress and the president, risking renewed recession, will let taxes rise sharply and spending be cut across the board?

“Maybe.”

Mr. Wessel explained that, “The story so far: In August 2011, Congress and President Barack Obama agreed to cut $900 billion over 10 years from annually appropriated federal spending, the roughly one-third of the budget that goes for everything from buying bullets to paying park rangers.

“To force themselves to do more, Congress passed and Mr. Obama signed a law that requires painful, across-the-board spending cuts (known as a ‘sequester’) beginning Dec. 31—unless there is agreement on a combination of benefit cuts and tax increases that saves a further $1.2 trillion over 10 years. The tax cuts initiated by President George W. Bush and extended by Mr. Obama are set to expire the same day.

“With three months to go, Congress has left town until after the Nov. 6 elections with no apparent progress toward a compromise.”

After outlining possible election based scenarios related to resolving this issue, Mr. Wessel stated that, “If a sequester is triggered, the White House budget office has considerable flexibility in how to allocate the cuts over the year. If talks were continuing, it could soften the initial blow. Similarly, the Treasury secretary could delay changing tax-withholding tables for a while, which means workers wouldn’t feel the tax increases immediately. ‘We can go off the cliff without much if any real [budget] impact for a month or two,’ says Barry Anderson, who was the top civil servant in the budget office in 1991, the last time there was a sequester.

“But that assumes financial markets and the public remain unperturbed as Democrats and Republicans in Washington pursue their game of chicken. That may not be the best assumption.

“If haggling persists well into December, the markets—or public opinion—could turn against Washington with such ferocity that Congress and the re-elected president manage to swerve away from the cliff before Christmas.”

Note that potential sequester impacts on agricultural spending have been outlined in this update from the National Sustainable Agriculture Coalition.

Meanwhile, in an interview with AgriTalk this week, Ag Committee Ranking Member Collin Peterson expressed concern about Farm Bill progress in the lame duck session, and pointed out that, “But one of the things I’m concerned about is there is no real work going on. We’re just kind of waiting right now. And I’m a little bit worried about having enough time during the lame duck to get this done. We’re going to have to move this early, as soon as we get back, on the House floor in order to get it into conference and get it worked out and get it back on the floor before we adjourn for Christmas.”

Rep. Peterson added that, “But we got all these tax cuts expiring and sequestration and all this other stuff that’s going to distract people, too, so it’s not a sure thing, but we’re hopeful we can get this thing done.”

Also on the budget issue, Jonathan Allen reported earlier this week at Politico that, “Not everyone in Washington is so desperate to avoid sequestration.

“A handful of Senate conservatives have been gaming out ways to block a deal, if they consider it a bad one — even if it means letting billions in across-the-board cuts go through, according to GOP sources on Capitol Hill.”

Biofuels

University of Illinois Agricultural Economists Darrel Good and Scott Irwin indicated yesterday at the farmdoc daily Blog (“The Impending Collision of Biofuels Mandates with Market Reality”) that, “In the face of a small corn crop and high prices, there has been a great deal of debate about a partial temporary waiver of the Renewable Fuels Standards (RFS) mandate for ethanol in 2013. Our analysis of the likely impacts of such a waiver can be found here. While the headlines have focused on the short-term implications of waiving the ethanol mandate in 2013, a potentially much larger issue looms on the horizon. Beyond 2013, there are real questions about the feasibility of meeting the ever-increasing requirements of the RFS, and this concern goes beyond the well-known difficulties with meeting the mandate for cellulosic biofuels. The purpose of this post is to show why the RFS is likely to collide with market realities in the near future.”

After their analysis, the economists noted some implications: “There is a clear and impending collision of biofuels mandates and the reality of the ability to produce and consume biofuels in the U.S. For renewable biofuels (ethanol) the impending collision underscores the importance of implementing E-15. Widespread implementation by 2014, or even 2015, would solve the blend wall problem. However, there are several reasons for being cautious about the likelihood of this actually occurring on a wide scale. Avoiding the collision for advanced biofuels is likely to require not only writing down the cellulosic mandate, but also the total RFS mandate. Otherwise, a new and even larger conflict between food and fuel use of crops is in store due to the huge potential draw on vegetable oil feedstocks. This is a problem that the EPA can solve with the stroke of a pen.”

Agricultural Economy

Bloomberg writer Jeff Wilson reported recently that, “Corn supplies in the U.S., the world’s biggest grower and exporter, are dropping below last year’s domestic usage for just the third time in half a century after a Midwest drought damaged crops from Ohio to Nebraska.

“Production this year plus inventories before the harvest will reach 11.872 billion bushels, less than the 12.33 billion consumed or exported last year, according to U.S. Department of Agriculture data and a Bloomberg survey of 29 analysts. Only twice since 1960 has supply failed to exceed usage from the previous year, and the last time was in 1996.”

(The USDA’s quarterly Grain Stocks report is set to be released this week.)

The Bloomberg article noted that, “‘It’s been a full year of strong cash prices, and we still have uncertainty about supplies,’ said Darrel Good, an agricultural economist at the University of Illinois in Urbana. ‘The market will have some difficulty interpreting the stocks number because of the co-mingling of old- and new-crop supplies.’

“Stockpiles are getting harder to predict as growers plant and harvest earlier, seeking higher yields, and as they build more silos on their land rather than sending grain to commercial elevators.”

The article added that, “Domestic feed, food and fuel production will consume nearly 89 percent of total usage, the highest in 40 years, USDA data show. U.S. exports, the world’s largest, may to fall to the lowest since 1975 as overseas buyers shift to other grains and suppliers, the government estimates. World inventories as a percentage of use before next year’s harvest will drop to the lowest since 1974, government data show.”

Reuters writers P.J. Huffstutter and Karl Plume reported today that, “Hog producer Prestage Farms Inc and two other livestock companies in North Carolina have signed deals to import 750,000 metric tons (826733.48 tons) of corn from Brazil in the wake of sky-high U.S. prices, Senior Vice President John Prestage told Reuters.

“The imports, made through agribusiness companies such as Bunge Ltd (BG.N) and Archer Daniels Midland Co (ADM.N), are the largest on record and come after the worst drought in half a century rallied grain prices to all-time peaks this summer.”

The article stated that, “It was the first official confirmation of rumors that U.S. livestock companies were importing up to 1 million metric tons of corn from Brazil. The U.S. Department of Agriculture projects U.S. corn imports at a record 1.9 million metric tons in the marketing year ending August 31, 2013.”

Meanwhile, Bloomberg writer Shruti Date Singh reported yesterday that, “Cargill Inc. Chairman and Chief Executive Officer Greg Page says the surge in crop prices during the worst U.S. drought in 56 years will encourage farmers to increase production for 2013.

“‘While there is a lot of gnashing of teeth and wringing of hands around price, the positive is that it is a signal to the world’s suppliers to intensify the way they produce our food next year,’ Page, 61, said in an interview at Bloomberg headquarters in New York yesterday. ‘Price can be a good thing if the goal is to produce enough calories and enough protein to feed everyone.’”

Also yesterday, David Kesmodel reported at The Wall Street Journal Online that, “U.S. corn futures slid to a 12-week low, pressured by an increase in supplies from the U.S. harvest.

“Corn prices, which soared to record highs in August, are stumbling as U.S. farmers harvest their crops at a record pace, accentuating a seasonal rise in supplies that happens this time of year. In some cases, yields are better than initially feared after a severe drought punished crops for months, traders said.”

The Journal article added that, “Traders also said some market participants exited bullish bets ahead of the U.S. Department of Agriculture’s quarterly report on grain inventories, due Friday. Some speculators are concerned that corn supplies at Aug. 31, the end of the latest marketing year, may be higher than analysts have projected, said Chad Henderson, president of agricultural-advisory firm Prime Ag Consultants in Brookfield, Wis.

“Analysts, on average, expect the USDA to report that U.S. corn supplies totaled 1.126 billion bushels as of Aug. 31, according to a Dow Jones Newswires poll. Estimates ranged from 887 million to 1.26 billion bushels.”

Keith Good

Posted by Keith Good • September, 27, 2012 • 3:48 am