Friday, March 16, 2012
Keith Good Farm Policy: Preserving Crop Insurance Hot Topic at Hearing
By Keith Good
Senate Agriculture Committee Farm Bill Hearing
Thirteen witnesses in four separate panels testified yesterday at a Senate Agriculture Committee hearing in Washington, D.C., highlighting risk management issues. Lawmakers and producers repeatedly indicated that federal crop insurance has emerged as the cornerstone of the farm safety net and should be preserved from additional budgetary cuts.
As the November elections draw closer, and the legislative calendar moves forward, stakeholders and lawmakers are remaining optimistic that work on an updated farm policy framework will be passed through the Senate Agriculture Committee this spring.
The House Agriculture Committee is expected to follow Senate action; however, farm policy observers have expressed concern that moving the new farm law off of the floor in both chambers could represent a significant challenge. And even if successful, there will likely be differences to iron out between the Senate and House versions of the new law.
Separately, one lawmaker recently suggested that an option to pass the farm bill was to attach it to another piece of legislation.
In the last in an expedited series of Senate farm bill hearings yesterday, policy makers quizzed Michael Scuse, the USDA’s Undersecretary for Farm and Foreign Agricultural Services, about the administration’s proposed budgetary blue print for agricultural spending that was released in February.
The executive branch outlined $32 billion in Farm Bill cuts over 10 years, including over $7.7 billion in cuts to crop insurance. However, the blue print would continue and broaden the Average Crop Revenue Election (ACRE) program and the Supplemental Revenue Assistance Payments (SURE) program. In his prepared testimony yesterday, Under Sec. Scuse noted that, “The budget would maintain a key component of the safety net for producers in times of volatility and natural disaster by extending the 2008 Farm Bill disaster assistance programs (or implementing similar programs) through the 2017 crop year, or to the end of the next farm bill, at a cost of about $8.4 billion over 10 years.”
Senate Committee Ranking Member Pat Roberts (R., Kans.) noted yesterday that, “[The President’s budget] took money away from crop insurance, and it reinvested it in a disaster program, where … in the case of SURE you have to wait 18 months for little if any help; I have not had a single farmer tell me that they prefer a disaster program to crop insurance, my question is: Have you?”
Under Sec. Scuse indicated that he had not. (Related audio, (MP3- 1:47)).
Likewise, former Secretary of Agriculture, Nebraska GOP Senator Mike Johanns stated that, “I agree with Senator Roberts, I have been all over Nebraska asking farmers about risk management, they talk about crop insurance. Nobody supports SURE. … It’s just a very, very flawed program.”
Noting that it was just the opposite of what the administration proposed, Sen. Johanns argued that it made more sense to reinvest the $7 billion allocated for SURE, and put it towards crop insurance. (Related audio, (MP3- 1:53)).
Later in panel one of yesterday’s hearing, Sen. Amy Klobuchar (D., Minn.) pointed out that she opposed the administration’s proposed cuts to crop insurance and added, “We need to strengthen the crop insurance program.” (Related audio, (MP3- 0:19)
On the other hand, Senate Finance Committee Chairman Max Baucus (D. Mont.), a key player in developing the SURE program, stated that, “It is very clear to me that the disaster programs we have enacted in 2008 are an improvement over prior years.” He noted that in prior years producers had to wait for Congress to act in the case of disasters and when Congress did act, farmers would often be faced with complexities regarding which years would be eligible for loss reimbursement.
Also yesterday, Senator Johanns expressed concern about increasing target prices and cautioned that this type of action would “send the wrong signals” and worried that producers could be enticed into planting certain crops because of a government program.
Longtime Agriculture Committee Member Richard Lugar (R., Ind.) focused his attention on the federal sugar program. Sen. Lugar stressed that current policy increases costs to consumers and that the Sugar Act is indefensible. Under Sec. Scuse pointed out that the USDA manages the program with all aspects of the sugar industry in mind, and that the sugar program operates at no cost to the taxpayer. (Related audio, MP3- 2:18))
DTN Ag Policy Editor Chris Clayton reported yesterday that, “Farmers testifying and senators extracting testimony all agreed on Thursday that crop insurance is now the cornerstone of the farm safety net, but subtle differences remain in how to supplement insurance products.”
Mr. Clayton explained that, “The Senate is likely to craft a supplemental revenue product that will work with crop insurance and boost the revenue protection. The way such a program might work would be to protect up to 85% of income, but a payment cap of 10%. Thus, a producer would be expected to buy at least 75% coverage levels in crop insurance to reach the 85% protection level. Right now, however, the Senate Agriculture Committee hasn’t released any cost projections for what such a program would cost, depending on the level of protection.
“Farmers who testified told senators crop insurance has been the difference between survival and financial ruin when disastrous weather strikes. Without crop insurance, ‘we would be having a farm sale this spring instead of preparing to plant the next crop,’ said Jarvis Garetson, a farmer from Haskell County, Kan.”
The DTN article noted that, “More than one-half of farmers are buying at least 75% coverage and one-quarter of farmers are buying at 80%-85% coverage levels. Liability coverage has grown from $28 billion in 1998 to $113 billion now.
“Still, crop insurers lament the $6 billion in cuts to the growth of the program in the 2008 farm bill. The Standard Reinsurance Agreement signed last year between companies and USDA also cut $6 billion from insurers. Additional cuts proposed by the president’s budget could impair delivery and reduce coverage for producers, insurers say.”
Mr. Clayton pointed out that, “Steve Wellman, president of the American Soybean Association and a farmer from Syracuse, Neb., said that maintaining planting flexibility remains a paramount issue for soybean growers. Wellman was critical of a proposal to raise target prices that was offered last year in the failed supercommittee process. ASA backs a revenue-based program that would support the crop insurance program. Payments would only come when actual losses occur, but ASA does not think the program would distort crop production. Still, a revenue program may not work for all producers.
“ASA also opposes tying conservation compliance to crop-insurance eligibility.
“Sen. Pat Roberts, R-Kan., ranking member of the committee, said there seems to be a myth that if direct payments were eliminated, conservation compliance would just disappear. But it would be applied to other commodity programs, disaster programs and other conservation programs eligibility.”
Bloomberg writer Daniel Enoch reported yesterday that, “Senate Agriculture Committee Chairwoman Debbie Stabenow said the ‘era of direct payments’ for U.S. farmers is over, signaling the end to a certain type of crop subsidy in the next farm bill.
“Stabenow, a Michigan Democrat, said at a committee hearing today that farm policy should focus on crop insurance and tools that ‘help producers who have suffered a loss on the crops they actually grow.’ Direct payments are a form of subsidy that farmers collect based on historical production, regardless of commodity prices.”
Daniel Looker reported yesterday at Agriculture.com that, “American Farm Bureau Federation is still promoting a significant change, government support for ‘deep losses’ below 75%, with private crop insurance making up the difference at higher levels. But Farm Bureau President Bob Stallman said Thursday that his board has voted to work with other groups to improve the shallow loss proposals, even though they still prefer the deep loss program.
“Commodity groups still have their own variations of a shallow loss program.
“The National Association of Wheat Growers supports a revenue program modeled on the current farm bill’s ACRE and SURE programs, the group’s president, Erik Younggren said.”
Mr. Looker added that, “As Jimbo Grissom, president of the Western Peanut Growers Association explained to the panel, peanut growers have not had viable revenue insurance from crop insurers because they aren’t traded on futures markets and there is no reference price.
“The group next month will propose to USDA’s Risk Management Agency that crop insurers use international peanut prices based in Rotterdam, Netherlands, as a reference price (Related audio from Mr. Grissom, (MP3- 1:00)).
“His group favors giving growers a choice of using counter-cyclical payments or a new revenue program in the next farm bill.”
Sen. John Boozman (R., Ark.) used a portion of his time yesterday to bring up the issue of crop and production diversity throughout different portions of the U.S. In an exchange with Sen. Boozman, Mississippi farmer Travis Satterfield explained some of these different variables and addressed more specifically why current crop insurance policies don’t work particularly well for rice producers (Related audio, (MP3- 1:30)).
Meanwhile, a news release yesterday from the National Cotton Council (NCC) indicated that, “The U.S. cotton industry believes a revenue insurance program that supplements existing insurance products would provide an important and affordable tool – especially given the weather uncertainties and risks that farmers face.”
The release indicated that, “The Council’s risk management program proposal, [NCC Chairman Chuck Coley] said, makes a significant change in the cotton program structure – but one that is in line with the Council’s commitment to continue working with Congress and the Administration to find a permanent resolution to the longstanding U.S.-Brazil World Trade Organization case. He said the risk management program has been estimated to significantly reduce outlays compared to previous years and is at least a 30 percent spending reduction compared to extending the existing cotton program.”
The Council’s risk management program was explained in Mr. Coley’s prepared remarks from yesterday.
And a news release yesterday from the National Association of Wheat Growers stated that, “NAWG President Erik Younggren called on Congress Thursday to approve new farm policy legislation before the 2008 Farm Bill expires on Sept. 30.
“Testifying before the Senate Agriculture, Nutrition and Forestry Committee on safety net programs, Younggren told Senators wheat farmers would be in the fields to plant winter wheat as early as August and needed the certainty of a long-term bill to finalize their risk management plans for the coming year.”
David Elbert reported yesterday at The Des Moines Register Online that, “The skyrocketing value of Iowa farmland has slowed a little in the past six months but continues to grow at an average annual rate of more than 20 percent, Iowa farm real estate agents were told during a meeting Friday in Ankeny.
“The average statewide increase for the six months ending March 1 was 10.8 percent, according to the semi-annual survey by the Iowa Farm & Land Chapter 2 Realtors Land Institute.”
And Bloomberg news reported yesterday that, “World food prices will drop this year as increases in unemployment in developing and developed countries slows growth in demand, the United Nations said.
“‘We have started to see a decline in food prices,’ Jose Graziano da Silva, director general of the UN’s Food and Agriculture Organization, said at a conference in Hanoi today.”
Meanwhile, Marcia Zarley Taylor reported yesterday at the DTN Minding’s Ag Business Blog that, “Unseasonably warm weather means some daredevils in Illinois were planting corn even before today’s March 15 spring crop insurance final sales deadline. After all, if they can harvest and deliver 170 bu. corn in August, it’s worth about $1/bu. more than new-crop corn at today’s futures prices.
“The downside is that neither crop insurance–or perhaps even your seed company–will cover replants on acres planted before the policy’s Earliest Planting Date, which varies by region and is listed in actuarial documents for your policy. For Sangamon County, Ill., that’s April 6. In other words, you’d bear the cost of any replant for early bird acres, but the prospect of a price bonus may make that risk more palatable.”
And Leslie Josephs and Marshall Eckblad reported in today’s Wall Street Journal that, “Midwesterners who endured heavy flooding last year got good news Thursday when federal forecasters predicted that most of the continental U.S. is at little risk of major flooding this spring.”
Regulations (MF Global, CFTC Issues)
Mike Spector and Aaron Lucchetti reported yesterday at The Wall Street Journal Online that, “A Senate committee probing the collapse of MF Global Holdings Ltd. sent a letter asking the trustee overseeing the failed financial firm to abandon a plan to pay bonuses to former top executives.
“Members of the Senate Agriculture Committee told the trustee, former Federal of Bureau Investigation director Louis Freeh, in the letter that it would be ‘outrageous’ to proceed with a proposal to a bankruptcy judge that could result in payouts of hundreds of thousands of dollars each for MF Global’s chief operating officer, finance chief and general counsel.”
Hal Weitzman reported earlier this week at The Financial Times Online that, “The US Congress will propose legislation to strengthen the protection of customer funds in a bankruptcy of a futures broker, according to a Washington regulator.
“‘There will definitely be statutory changes in regards to customer protection,’ said Jill Sommers, a commissioner at the Commodity Futures Trading Commission, the US futures watchdog.
“Improving customer protection is the most pressing issue for the futures industry following the collapse of MF Global, the broker-dealer formerly led by Jon Corzine.”
Scott Patterson reported yesterday at The Wall Street Journal Online that, “A top U.S. regulator said his agency plans to widen day-to-day monitoring of the commodities and futures markets, targeting the high-speed trading firms that are a growing force.
“Instead of just policing completed futures trades, the Commodity Futures Trading Commission will seek to watch the fleeting buy and sell orders that increasingly influence the market, CFTC Chairman Gary Gensler said in an interview.”
And Reuters writer Christopher Doering reported yesterday that, “U.S. financial market players are resigned to the idea that the Dodd-Frank financial reform package will not be overhauled and are preparing to cope with the new rules, insiders said on the sidelines of a Futures Industry Association meeting this week.
“Trading firms, exchange operators and other industry players have made a political calculation that even if Republicans make a clean sweep in November elections, they will not rip up reforms sold as a way to guard against a repeat of the 2007-2009 financial crisis.”
The Senate Finance Committee held a hearing yesterday titled, “Russia’s WTO Accession-Implications for the United States.”
During yesterday’s hearing Iowa GOP Senator Charles Grassley stated that, “But I’d like to make this point. And maybe it refers more to agriculture than it does other aspects of our economy.
“But Russia was invited into WTO. And if they — if they change their laws by the certain date in June that they have to change them, and then it’s our responsibility to deal with Jackson-Vanik. And in various times in the past, I found reason to vote to change Jackson- Vanik for particular countries that we’ve had to do that.
“The thing that bothers me is that once — once a country’s in the WTO, I know we have the processes of WTO to resolve differences. It’s kind of a very rigorous process, and one that’s not very easy to predict what might happen. But you hope the rule of law is going to govern in the final analysis.
“But between now and whenever we have to deal with Jackson-Vanik, it seems to me that the White House is not doing what they ought to be doing to use the pressures that we have yet to make sure that — that particularly in agriculture, and particularly with pork, that Russia lives up to the spirit, as well as the responsibilities of WTO.
“And that’s what I would call upon the White House to do if they want to have smooth sailing on the Jackson- Vanik proposition.”
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