January 29, 2020

Farm Bill; and, the Ag Economy

Farm Bill: Senate a Step Closer to Passing the Farm Bill Conference Report

David Rogers reported yesterday at Politico that, “A new five-year farm bill advanced toward final passage Tuesday, after a strong bipartisan Senate vote Monday night to limit further debate and expedite action.

“The 72-22 vote caps two years of struggle that badly split the old farm and food coalition. The final product represents a landmark rewrite of commodity programs, but even now, all eyes are returning to corn prices and three sets of numbers that will tell a lot about the topsy-turvy world facing the new law before spring plantings.”

Mr. Rogers explained that, “Indeed, never before has there been a farm bill with such a robust crop insurance program combined with a price-sensitive commodity title, all in a period of changing prices.

“The first data dump could come as early as Tuesday morning when the Congressional Budget Office will release its updated budget forecast, which many expect will show an increase in costs under the old policies of the 2008 farm bill.

“The second will follow quickly in early March, when crop insurance premiums will be set for Midwest corn states for the coming 2014 crop year. And third, CBO will come back weeks later with an updated baseline that will project the costs of the new farm bill once it has been signed into law by President Barack Obama.”

The Politico article pointed out that, “Just a few years ago, when CBO projected spending for the next five years, 2014-2018, the commodity title was still an equal match for crop insurance. The picture now is one in which the crop insurance title is almost double the level of spending for commodity programs.

“This creates two levers that can counterbalance one another to some degree. Crop insurance premiums go up with rising prices and down when prices fall. The new commodity title is the opposite, costing less when markets are good but much more when prices fall.

“‘Farm program taxpayer costs go up when prices go down, but crop insurance costs go down when prices go down,’ said Keith Collins, former chief economist for the Agriculture Department and now an adviser to the crop insurance industry. ‘The new safety net means these offsetting effects may result in more stability for the taxpayer on safety net costs.’”

After additional analysis, yesterday’s article discussed the commodity program options available to producers, Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) in more detail, and indicated that: “These high prices mean the threshold now at which ARC payments will be triggered for corn in 2014 is near $4.55 per bushel. Cash sales are already running 40 cents per bushel below that marker, and it seems almost certain that some subsidies will flow in 2014.

“If prices fall to about $4.35 per bushel, the farmer would get something close to the current direct payments. But if corn were to drop to $4 per bushel, ARC subsidies could be twice what corn receives now per acre in direct cash payments.

The catch is that if corn prices were to stay at $4 per bushel, the ARC payments could run out in the space of three years. The idea is that this window buys time for the farmer to make adjustments. But it could also lead nervous growers to take a look at the second option known as price loss coverage or PLC.”

DTN Ag Policy Editor Chris Clayton reported yesterday (link requires subscription) that, “Under the Agricultural Act of 2014, commodity programs are trimmed by $14.3 billion over 10 years. Farmers of most commodities must decide this year regarding which farm program they are going to stick with until at least 2018. Farmers are going to have to choose whether they want to try to protect their revenue or place a bet that commodity prices will fall lower in the coming year and back up that position by buying supplemental insurance coverage starting in 2015.”

Mr. Clayton explained that, “Farmers have to make a one-time, irrevocable decision to enroll a particular commodity in ARC or PLC. If a farmer doesn’t make a decision, USDA would consider that farm enrolled in the PLC program. If a farmer chooses ARC for individual coverage, then all commodities are enrolled in that program. Cotton acres will not be enrolled in either program.

“Unlike previous farm bills, there are no payment caps on individual programs. Instead, farmers will have a $125,000 cap on all commodity programs together whether that is ARC, PLC, marketing-loan gains or loan-deficiency payments. The payment cap doubles to $250,000 for married couples. The farm bill leaves it up to USDA to develop standards for defining who is eligible for farm-program payments as a farmer.”

In addition, Mr. Clayton noted that, “The Supplemental Coverage Option is an added insurance policy that farmers can buy if they enroll in Price Loss Coverage. It will cover losses exceeding 14%, meaning it will cover losses below 86% of revenue. SCO will cover that gap between 86% of revenue and when individual insurance coverage kicks in. Farmers will get to choose whether the additional coverage is based on individual yield and losses or county yield and loss.

“SCO will be available in 2015 for farmers who enroll in Price Loss Coverage. Farmers who enroll in ARC are not eligible to buy SCO. Farmers who buy SCO would pay 35% of the actual premium cost and USDA would subsidize the other 65%. SCO is an insurance policy so it does not have a payment cap.”

Chris Clayton also provided additional information on the commodity title in an update yesterday at the DTN Ag Policy Blog, “Program Options for Commodity Crops in the Farm Bill.”

Ed O’Keefe and Kimberly Kindy reported in today’s Washington Post that, “After three years of arduous haggling, the Senate is expected to give final passage Tuesday to a new five-year farm bill that the House passed last week.   President Obama is expected to sign it when it gets to his desk. The $956.4 billion package has sailed through Congress in recent days with little opposition, making it a rare bipartisan accomplishment in an otherwise rancorous and unproductive era.”

The Post article noted that, “On Monday, conservatives such as Sens. Tom Coburn (R-Okla.), Charles E. Grassley (R-Iowa) and Jeff Sessions (R-Ala.) criticized negotiators for not cutting more, while Rep. Rosa L. DeLauro (D-Conn.), who voted against the bill last week, said food stamp cuts mean that ‘children will go to bed hungry and spend the next day at school unable to concentrate.’”

Note that Sen. Pat Roberts (R., Kans.) also expressed concern over the commodity title on the Senate floor yesterday; a portion of his remarks regarding the PLC program can be heard here (MP3- 1:31).

Sen. John McCain (R., Ariz.) presented an extended critical analysis of the measure on the floor yesterday.  In part, the former GOP presidential candidate noted that, “This Farm Bill also strips an amendment offered by my colleagues, Senator Durbin and Senator Coburn, which would have prevented crop insurance subsidies from going to individuals with a gross income greater than $750,000 a year. That amendment was adopted by 59 votes in the Senate’s Farm Bill earlier last year – and now it’s absent from the conference agreement. Millionaire farmers can rejoice that their crop insurance subsidies are safe.

“This is all part of Farm Bill politics. In order to pass a Farm Bill, Congress must find a way to appease every special interest of every commodity association from asparagus farmers to wheat growers. If you cut somebody’s subsidy, you give them a grant. If you kill their grant, then you subsidize their crop insurance.”

Today’s Washington Post article added that, “The bill includes changes to complicated programs involving environmental regulations on farms, aid to dairy and sheep farmers, and what kind of food the Agriculture Department should buy to replenish the nation’s food banks.”

Daniel Looker reported yesterday at that, “Monday’s vote to invoke cloture required 60 votes and prevents a filibuster. It leaves 20 minutes for final debate before tomorrow’s vote.

“‘Passing this legislation will support our nation’s farmers and ranchers, and over 16 million jobs,’ Senate Majority Leader Harry Reid (D-NV) said at the beginning of Monday’s debate on the cloture vote” [video replay of remarks at Online].

Also, Erik Wasson and Ramsey Cox reported yesterday at The Hill’s Floor Action Blog that, “A majority of the spending in the bill is for the Supplemental Nutrition Assistance Program (SNAP), known widely as food stamps. The original House proposal would have cut $39 billion from the food stamps program, while the Senate-passed bill called for a $4 billion cut.

Conferees settled on cutting SNAP by $8 billion by requiring households to receive at least $20 per year in home heating assistance before they automatically qualify for food stamps, instead of the $1 threshold now in place in some states.”

In addition, Sen. Heidi Heitkamp (D., N.D.) noted on the floor yesterday that, “From enhancing crop insurance, to getting disaster relief for our ranchers, to making crucial investments in biofuels, this Farm Bill is a win for our state.”

Sen. Tim Johnson (D., S.D.) pointed out in remarks yesterday before the Senate vote that, “Not only does this compromise enable Country of Origin Labeling to continue as well as maintain USDA’s ability to ensure a fair and transparent marketplace, but it also contains critical livestock disaster assistance programs to help ranchers in my state who are still recovering from the 2012 drought and last fall’s terrible blizzard.  My ranchers lost tens of thousands of livestock, and they’ve been left hanging because of Congressional inaction.  With passage, they’ll finally be able to get the aid they need.

Beyond the important assistance for livestock producers, this bill also reforms our farm programs by eliminating direct payments and by strengthening the crop insurance program.  It also offers key support for young and beginning farmers and ranchers, and it contains reasonable conservation compliance requirements for farm program and crop insurance eligibility.”

Sen. John Hoeven (R., N.D.) (video replay of remarks at Online), and Ag Committee Ranking Member Thad Cochran (R., Miss.) (video replay of remarks at Online) also spoke in favor the Farm Bill on the floor yesterday.

And Ag Committee Chairwoman Debbie Stabenow (D., Mich.) offered a detailed walk through of the legislation yesterday just prior to the cloture vote in an explanatory presentation of the wide ranging measure.  The explanation of the broad-based legislation required nearly 45 minutes to cover the key aspects of the law (video replay of remarks at Online).

Meanwhile, AP writer Dirk Lammers reported today that, “Meat and livestock groups upset that Congress opted in the new farm bill not to back off from mandatory country of origin labeling requirements are worried the issue could start a trade war with Canada and Mexico.

“Previous labeling rules required only the country of origin to be noted, such as ‘Product of U.S.’ or ‘Product of U.S. and Canada.’ New rules that took effect last year require that labels for steaks, ribs and other cuts of meat include clear information about where the animals were born, raised and slaughtered. Labels must specify, for example, ‘Born in Mexico, raised and slaughtered in the United States.’”

The AP article added that, “Country of original labeling supporters, including consumer groups, environmental groups and some independent farmers, say the requirements give consumers valuable information. But livestock groups and meatpackers say it’s costly to have to segregate and track animals along the entire supply chain.”

And with respect to nutrition issues, Tim Devaney reported yesterday at The Hill’s RegWatch Blog that, “The Obama administration is pushing new requirements for school nutrition professionals who prepare lunches and breakfasts for students.

“School food workers who manage and handle meals would face new education and training requirements, under the professional standards that the Food and Nutrition Service at the U.S. Department of Agriculture is proposing. Each state would be required to provide the training to state and local employees.

“The proposed rules, which will be published in Tuesday’s Federal Register, stem from the Healthy, Hunger-Free Kids Act of 2010.”

And Mark Prell indicated in a recent Amber Waves update (USDA- Economic Research Service (ERS)), “Most Recent Recession Doubled Share of SNAP Households Receiving Unemployment Insurance,” that, “The 2007-09 recession was the longest of the post-WWII era, and unemployment rose sharply—from 4.6 percent in 2007 to 9.3 percent in 2009. The economic downturn increased participation in two social safety net programs: USDA’s Supplemental Nutrition Assistance Program (SNAP), which provides benefits to low-income households to purchase foods, and unemployment insurance, which provides financial support to eligible workers who become unemployed through no fault of their own. Some households may receive benefits from both SNAP and unemployment insurance as they try to put together resources to get them through times of economic challenge.

A recent ERS study found that an estimated 14.4 percent of SNAP households also received unemployment insurance at some point in 2009 (a recessionary year)—nearly double the estimate of 7.8 percent in 2005 (a full-employment year). During a recession, households with strong labor market connections—their members have work histories and earnings sufficient to be eligible for unemployment insurance—become a larger component of the SNAP caseload, increasing the share of SNAP households that also receive unemployment insurance. Conversely, an estimated 13.4 percent of households in which one or more members received unemployment insurance also received SNAP at some point in 2009, an increase of about one-fifth over the estimate of 11.1 percent from 2005.”


Agricultural Economy

Purdue University agricultural economist Chris Hurt indicated yesterday at the farmdoc daily blog (“Beef Cattle Industry Just Beginning Transition to Expansion”) that, “Recent record high cattle prices and much lower feed prices have just begun to provide the profit incentives that will be necessary to move the beef cattle industry toward expansion after a continual decline in numbers since 2007. While those incentives have turned positive, they have not been in place long enough for the industry to begin registering signs of expansion according to USDA inventory numbers. The rebuilding of the beef herd is expected to take multiple years.

“The cattle herd in the U.S. has been in a long-term decline with total numbers at the start of this year reaching their lowest level since 1951. The number of beef cows stood at the lowest level since 1962, according to USDA.  The most recent phase of the decline began in 2007 as a result of two basic drivers. First, sharply higher feed costs forced cattle feeding into large losses which depressed calf prices and secondly, drought conditions in major beef cow production areas also caused herd reductions.”

Meanwhile, the AP reported yesterday that, “A week of freezing temperatures in early December wiped out nearly a quarter of California’s $2 billion citrus industry, an industry group estimated on Monday.

“The group, California Citrus Mutual, said the damage was confined to the state’s Central Valley, where about $441 million in mandarin and navel oranges and lemons were lost during seven consecutive nights of freezing temperatures in early December.”

And in trade related news, Burgess Everett reported yesterday at Politico that, “President Barack Obama and Senate Majority Leader Harry Reid did not discuss their public rift on controversial trade legislation during a private meeting at the White House, Reid told reporters on Monday afternoon.

“The majority leader returned to the Capitol about 75 minutes after a scheduled 2:30 p.m. meeting with the president and told reporters his opposition to fast-tracking trade pacts through Congress was not broached during his huddle with Obama.”

Keith Good

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