FarmPolicy

October 31, 2014

Policy Issues (Budget); and, the Agricultural Economy

Policy Issues, Budget- Sequestration

Chris Clayton reported yesterday at the DTN Ag Policy Blog that, “The American Meat Institute is pushing back on the idea that thousands of USDA meat inspectors must be furloughed because of the impact of sequestration cuts.”

The DTN update noted that, “Responding in a statement, AMI President J. Patrick Boyle wrote Agriculture Secretary Tom Vilsack ‘reminding him of USDA’s legal obligations to provide meat inspection even under sequestration.’

“As AMI stated, USDA also said that production will shut down for that time period, impacting approximately 6,290 establishments nationwide and costing roughly over $10 billion in production losses. USDA further told reporters that industry workers would experience over $400 million in lost wages and that consumers would experience limited meat and poultry supplies and potentially higher prices.

“‘We agree with the assessment that furloughing inspectors would have a profound, indeed devastating, effect on meat and poultry companies, their employees, and consumers, not to mention the producers who raise the cattle, hogs, lamb, and poultry processed in those facilities,’ Boyle said. ‘AMI respectfully disagrees with the Department’s assertion is that, in the event of sequestration, the furloughs referenced are necessary and legal. The Federal Meat Inspection Act and the Poultry Products Inspection Act (the Acts) impose many obligations on the inspected industry, which we strive to meet. Those Acts, also however, impose an obligation on the Department – to provide inspection services.’”

The AMI letter to Sec. Vilsack is available here.

An update yesterday from the National Chicken Council (NCC) indicated that, “The [NCC] today, along with 37 organizations representing various aspects of animal agriculture, livestock and poultry producers, food processing and manufacturing, retail, international trade and transportation, wrote to U.S. Department of Agriculture (USDA) Secretary Tom Vilsack to express strong concerns with the possibility of furloughing the nation’s federal meat, poultry and egg products inspectors in the event sequestration goes into effect.

“‘We understand USDA is considering implementing a sequestration plan that would result in furloughing all the Food Safety and Inspection Service’s (FSIS’s) meat, poultry and egg products inspectors for 15 days,’ the groups wrote.  ‘Because of the importance of federal inspection to the production of meat, poultry and egg products, we do not believe furloughing FSIS inspectors to be an appropriate response to sequestration within the framework of the federal meat, poultry and egg products inspection laws.  It certainly would not be in the public interest.’”

Meanwhile, Erik Wasson and Bernie Becker reported yesterday at The Hill’s On the Money Blog that, “Senate Democrats are aiming to produce a bill to replace the sequester by Thursday, according to Democratic aides.

“The bill would include tax increases and spending cuts, and it would replace the $85 billion in automatic spending cuts known as the sequester.”

The Hill writers explained that, “Aides have said elements of the package could reflect a plan offered last week by Rep. Chris Van Hollen (Md.), the top Democrat at the House Budget Committee. That measure would eliminate subsidies to the farm industry, scrap tax preferences used by oil-and-gas companies and implement a new minimum tax rate on people making seven figures annually — the proposal commonly known as the ‘Buffett Rule.’”

“Other Democrats, including Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.), a member of leadership, could take issue with ending direct payments to farmers now, because it could make it more difficult to complete a five-year farm bill that includes deficit reduction,” the Hill update said.

 

Crop Insurance, Farm Bill, Rural Broadband, Mississippi River

Chris Clayton reported yesterday at DTN (link requires subscription) that, “The acting director of USDA’s Risk Management Agency told crop insurers Monday that he wants to see crop insurance coverage continue to expand for farmers, but that will require focus on rooting out waste, fraud and abuse as well as expanding coverage for more crops, such as organic producers.

“Also, USDA, the crop-insurance industry and people in agriculture in general need to do a better job communicating and educating the public on the value of crop insurance.

Brandon Willis, a former aide to U.S. Agriculture Secretary Tom Vilsack, took over last month as head of the Risk Management Agency with the retirement of former director Bill Murphy. Willis spoke at the crop insurance industry’s annual meeting, which kicked off Monday morning just outside of Palm Springs, Calif.”

The DTN article noted that, “Over the past decade, the Congressional Budget Office cost projections for crop insurance and farm commodity programs have flipped. In 2002, commodity programs were projected to cost two-and-a-half times more than crop insurance over 10 years. A new CBO score released last week projected Congress will spend 20% more on crop insurance than commodity programs over the next decade.

“‘So we’re at a crossroads,’ Willis said. ‘We have a program that is more important than ever to producers and is also a larger target than ever.’”

Mr. Clayton added that, “In citing the effectiveness of the crop insurance program, Willis pointed out that crop farmers are coming off two years of major disasters. That includes the widespread drought in 2012. Yet, there have been no major calls for ad-hoc disaster aid among farm groups.

“‘The lack of calls for disaster assistance speaks volumes about the effectiveness of crop insurance,’ Willis said.”

A news release yesterday from National Crop Insurance Services (NCIS) indicated that, “‘An investment in crop insurance is an investment in America’s economy,’ Brandon Willis, the acting administrator to the USDA’s Risk Management Agency, said today at the 2013 crop insurance industry conference. He challenged the group of crop insurers and farm leaders to take that message to the general public, which he said, ‘benefits greatly from the crop insurance program.’

“For example, Willis explained that agriculture is key to our nation’s future and that crop insurance underpins its success.

“‘If having a food supply is in our nation’s interest…we need the best and brightest to be engaged in agriculture, providing that food for us,’ he explained.”

A separate news update yesterday from NCIS stated that, “Farmers can rest assured that crop insurance is strong and vibrant and was designed to be able to endure the types of losses we’ve seen over the past several years, said the leaders of two key crop insurance organizations today during the joint national convention of [NCIS] and the American Association of Crop Insurers (AACI).

“‘Hopefully, the rains that farmers have been praying for will come this spring. But if they don’t, then that’s why the federal crop insurance program is here,’ said Steve Rutledge, NCIS chairman, during his opening remarks. Rutledge pointed out that farmers paid $4.1 billion out of their own pockets for the protection of crop insurance in 2012. ‘One of the reasons why this public-private partnership works so well is that those who seek protection must first put ‘skin in the game,’’ he said.”

The update added that, “‘What we’ve heard from almost every commodity group and farm organization is ‘Do No Harm’ to crop insurance. This program is a three-way partnership between the general public, the farmer and the private sector, and all three benefit from their investment,’ said [Greg Deal, chairman of AACI]. ‘Crop insurance is the risk management tool of preference – and for some the only risk management tool available – to the vast majority of America’s farmers.’”

Also yesterday, a news release from the National Association of State Departments of Agriculture (NASDA) stated that, “At a meeting of [NASDA] last week, the top state agriculture officials from around the country called on Congress to quickly enact a long-term Farm Bill. The swift enactment of a full, five-year Farm Bill will give America’s farmers and ranchers more certainty for the future of their operations.”

In other policy news, Edward Wyatt penned an article in today’s New York Times titled, “Waste Is Seen in Program to Give Internet Access to Rural U.S.,” while Bloomberg writer Brian Wingfield reported late last week that, “The U.S. military approved diverting surplus water from a Missouri River reservoir in December, a day before telling the Senate’s No. 2 Democrat the water was unavailable to keep the drought-stricken Mississippi River open to shipping.

“The Army Corps of Engineers on Dec. 5 agreed to let a unit of a company that provides water for hydraulic fracturing withdraw from Lake Sakakawea in North Dakota, the Corps said in a statement. The next day, it told Senator Richard Durbin, an Illinois Democrat, that the Missouri River was off limits to aid navigation on the downstream waterway.”

 

Agricultural Economy: USDA Reports- Farm Income, Long-Term Projections

Yesterday, USDA’s Economic Research Service (ERS) released its “2013 Farm Sector Income Forecast,” which stated that, “Net farm income is forecast to be $128.2 billion in 2013, up nearly 14 percent from 2012’s revised forecast of $112.8 billion [related graph]. After adjusting for inflation, 2013’s net farm income is expected to be the highest since 1973.”

Not all crops produced in 2013 will be sold by the end of the 2013 calendar year; we anticipate substantial increases in the annual quantity and value of crop inventories, particularly for corn. As a result, crop cash receipts are expected to decline in 2013. The small projected increase in livestock receipts is not sufficient to offset increasing expenses.”

ERS indicated that, “For corn, a large anticipated increase over 2012 production levels, coupled with high prices, is expected to result in a record-setting value of U.S. corn production ($81.7 billion) in 2013 as U.S. farmers recover from the drought. Corn inventory is forecast to grow significantly in 2013 as well.”

The update added that, “The value of livestock, dairy, and poultry production is expected to increase 3.5 percent in 2013, with broilers, cattle/calves, and dairy leading the way [related graph].”

Bloomberg writer Alan Bjerga reported yesterday that, “U.S. farm income will set a record in 2013, reflecting the anticipated rebuilding of crop reserves depleted by drought that will not be sold until future years, the U.S. Department of Agriculture said.”

With respect to expenses, yesterday’s ERS report pointed out that, “The projected $19.2-billion increase in total expenses in 2013 continues a string of large year-to-year movements since 2002, and expenses are forecast to reach another record-high, at $352.9 billion [related graph].”

ERS also noted that, “A return to trend yields in 2013 will cause a substantial increase in crop and total output in 2013, which is expected to cause unusually large increases in marketing, storage, and transportation expenses and miscellaneous expenses. The latter expense will also be hiked by an expansion in crop insurance premiums, particularly net Federal Crop Insurance Corporation premiums.”

In yesterday’s Bloomberg article, Alan Bjerga pointed out that, “With claims still to be processed, government-subsidized payments from companies including Ace Ltd. and Wells Fargo & Co. for 2012 crop losses have already surpassed $14.2 billion, exceeding the 2011 record of $10.84 billion, the USDA said today. Indemnities may reach $16 billion, then drop to $10.1 billion for this year’s crops, according to a congressional estimate.”

On the issue of government payments, yesterday’s ERS report explained that, “Government payments paid directly to producers are expected to total $10.9 billion in 2013 under current law, as applied by USDA’s program agencies. This payment level is largely unchanged from 2012 [related graph.]”

More specifically on income, ERS pointed out that, “Projected median total farm household income is expected to increase by 1.2 percent in 2012, to $57,723, and by an additional 1.9 percent in 2013, to $58,845. Given the broad USDA definition of a farm, many farms are not profitable even in the best farm income years. Despite high prices for many crops, 2012 was no exception, with median farm income projected to be -$2,799. Most farm households earn all of their income from off-farm sources–median off-farm income is projected to increase by 3.4 percent in 2012, to $55,229 and by 3.9 percent in 2013, to $57,378 [related graph.]”

Mark Peters reported yesterday at The Wall Street Journal Online that, “The forecast also reflects a continued boom in the farm belt initially fueled by rising global demand for grains and increased mandates for corn-based ethanol.

“‘American agriculture continues to endure an historic drought with tremendous resolve,’ Agriculture Secretary Tom Vilsack said.

“A severe drought in much of the U.S. farm belt last year—by some estimates the worst for more than five decades—resulted in a poor harvest that drove up prices for corn and soybeans further, though the weak harvest had a limited impact on farmers’ incomes because of widespread use of government-backed crop-insurance programs.”

A separate USDA report yesterday, “USDA Agricultural Projections to 2022,” stated that, “In the short term, the U.S. crops sector responds to continuing high prices for most crops in 2012/13. Planted area for the 8 major field crops in 2013 is projected at more than 254 million acres. While that is down from the large acreage planted in 2012 when favorable spring weather combined with strong economic incentives, 2013 plantings would be the second largest acreage since 2000” (at page 56).

For specific details of acreage allocation estimates, see Table 17 of yesterday’s report (at page 69).

With respect to long-term prices trends, USDA explained that, “Weather has been an important factor affecting global wheat, corn and, and soybean production over the past several years, leading to increases in grain and oilseed prices since 2009/10. Market responses to these high prices are projected to reduce prices over the next couple of years. Nonetheless, U.S. prices for corn, wheat, and soybeans are projected to remain historically high, above pre-2007 levels. The continuing influence of several long-term factors—including global growth in population and per capita income, a depreciating U.S. dollar, increasing costs for crude petroleum, and rising biofuel production—underlies these price projections” [related graph] (at page 63).

In the livestock sector, USDA noted yesterday that, “High feed prices, the economic recession, and drought in the Southern Plains of the United States (which extended through much of the middle of the country in 2012) have combined to reduce producer returns and lower production incentives in the livestock sector over the past several years. As a result, total U.S. red meat and poultry production is projected to continue to decline in 2013, with per capita consumption of red meat and poultry falling below 200 pounds for the first time since 1990. Over the rest of the projection period, higher net returns and improved forage supplies lead to expansion of meat and poultry production” (at page 82).

 

Agricultural Economy: Trade

Vicki Needham reported yesterday at The Hill’s On the Money Blog that, “U.S. trade officials expressed disappointment on Monday with Russia’s decision to suspend meat imports, another sign of growing trade tensions between the two nations.

“U.S. Trade Representative Ron Kirk and Agriculture Secretary Tom Vilsack argued that Russia has disregarded scientific studies that show that meat imports meet the highest safety standards.

“But Russian officials have been threatening to ban U.S. meat imports unless they could be certified free of the animal feed additive ractopamine, which U.S. trade officials say is safe.”

Dan Piller reported yesterday at The Des Moines Register Online that, “Exports of U.S. pork set another record for both volume and value, the U.S. Meat Export Federation said Monday.

Beef exports also set a record for value, although volume fell by 12 percent as high prices began to cut into sales.”

And, The Wall Street Journal editorial board, in an opinion item today titled, “Rotten Tomato Deal,” expressed disapproval regarding an agreement reached recently between the U.S. and Mexico on tomato trade issues.

Keith Good

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